As filed with the U.S. Securities and Exchange Commission on August 26, 2013.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PREMIER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 8741 | 35-2477140 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(IRS Employer Identification Number) |
13034 Ballantyne Corporate Place
Charlotte, NC 28277
(704) 357-0022
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Jeffrey W. Lemkin
General Counsel
Premier, Inc.
13034 Ballantyne Corporate Place
Charlotte, NC 28277
(704) 357-0022
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
David L. Klatsky Mark J. Mihanovic Amy F. Ferrer McDermott Will & Emery LLP 2049 Century Park East, 38th Floor Los Angeles, CA 90067 Telephone: (310) 277-4110 Facsimile: (310) 277-4730 |
William V. Fogg Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Telephone: (212) 474-1000 Facsimile: (212) 474-3700 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
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, as amended, or the Securities Act, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) 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. o
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. o
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. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Proposed Maximum Aggregate Offering Price(1) |
Amount of Registration Fee |
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Class A Common Stock, $0.01 par value |
$ | 100,000,000.00 | $ | 13,640.00 | |||
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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 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.
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 we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated , 2013
Prospectus
Shares
Premier, Inc.
CLASS A COMMON STOCK
This is Premier, Inc.'s initial public offering. We are selling shares of our Class A common stock.
We expect the initial public offering price to be between $ and $ per share. Currently, no public market exists for the shares. We applied to have our Class A common stock listed on the Nasdaq Capital Market under the symbol "PINC." Immediately following this offering, the holders of shares of our Class A common stock will collectively own 100% of the economic interests in Premier, Inc. and have % of the voting power of Premier, Inc. The holders of shares of our Class B common stock will have the remaining % of the voting power of Premier, Inc.
Premier, Inc. is a holding company and its sole asset immediately following this offering will be all of the outstanding interests in Premier Services, LLC. Premier Services, LLC will act as the general partner of, and own approximately % of the common units (or approximately % if the underwriters exercise their overallotment option in full) in, Premier Healthcare Alliance, L.P. Premier, Inc.'s only business will be to act indirectly as the general partner of Premier Healthcare Alliance, L.P., and, as such, it will operate and control all of the business and affairs of Premier Healthcare Alliance, L.P. and its subsidiaries immediately following this offering, subject to certain limited partner approval rights described herein.
Investing in our Class A common stock involves a high degree of risk. See "Risk Factors" beginning on page 27.
We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, and therefore will be subject to reduced reporting requirements.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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Per Share |
Total |
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Initial public offering price |
$ | $ | |||||
Underwriting discounts and commissions |
$ | $ | |||||
Proceeds to Premier, Inc., before expenses |
$ | $ | |||||
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We have granted the underwriters the option to purchase up to an additional shares of our Class A common stock for 30 days after the date of this prospectus at the initial public offering price, less the underwriting discounts and commissions, to cover overallotments, if any.
The underwriters expect to deliver the shares against payment in New York, New York on or about , 2013.
J.P. Morgan | BofA Merrill Lynch | Wells Fargo Securities |
Citigroup |
Piper Jaffray |
Raymond James |
William Blair |
, 2013
TABLE OF CONTENTS
Through and including , 2013 (the 25th day after the commencement of our initial public offering), all dealers effecting transactions in these securities, whether or not participating in our initial public 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.
You should rely only on the information contained in this prospectus. 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 we have prepared. We 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 shares of 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 shares of our Class A common stock.
Unless otherwise expressly indicated or the context otherwise requires:
i
ii
Fiscal Year
Unless otherwise indicated, references to "fiscal year" refer to the fiscal year of Premier, which ends on June 30. Fiscal years 2013, 2012 and 2011 for Premier, Inc.'s predecessor company, PHSI, ended on June 30, 2013, 2012 and 2011, respectively. Fiscal year 2013 for Premier, Inc. ended on June 30, 2013.
Market Data and Industry Forecasts and Projections
We use market data and industry forecasts and projections throughout this prospectus, and in particular in the section entitled "Business." We have obtained the market data from certain publicly available sources of information, including publicly available industry publications. Forecasts are based on industry surveys and the preparer's expertise in the industry and there is no assurance that any of the forecasted amounts will be achieved. We believe the data others have compiled are reliable, but we have not independently verified the accuracy of this information. Any forecasts are based on data (including third-party data), models and experience of various professionals and are based on various assumptions, all of which are subject to change without notice. While we are not aware of any misstatements regarding the industry data presented herein, forecasts and projections involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors."
iii
This summary highlights selected information for our company appearing elsewhere in this prospectus. The prospectus includes information regarding our business and detailed financial data, as well as information about the Class A common stock we are offering. This summary does not contain all of the information you should consider before investing in our Class A common stock. Unless otherwise expressly indicated or the context otherwise requires, the information in this prospectus assumes that the Reorganization is complete, the underwriters' overallotment option is not exercised and the initial public offering price is $ per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus. You should read this prospectus in its entirety, including "Risk Factors" and the financial statements and related notes appearing elsewhere in this prospectus, before deciding to purchase our Class A common stock.
Our Company
We are a national healthcare alliance, consisting of approximately 2,900 U.S. hospitals, 100,000 alternate sites and 400,000 physicians, that plays a critical role in the U.S. healthcare industry. We unite hospitals, health systems, physicians and other healthcare providers with the common goal of improving and innovating in the clinical, financial and operational areas of their business to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform which offers critical supply chain services, clinical, financial, operational and population health SaaS, informatics products, advisory services and performance improvement collaborative programs.
We are currently owned by 181 U.S. hospitals, health systems and other healthcare organizations and, upon the completion of the Reorganization and this offering, all of them will own shares of our Class B common stock representing approximately % of our outstanding common stock (or approximately % if the underwriters exercise their overallotment option in full). Our current membership base includes many of the country's most progressive and forward-thinking healthcare organizations, such as Adventist Health, Adventist Health System, Banner Health, Bon Secours Health System, Inc., Catholic Health Partners, Dignity Health, Geisinger Health System, members and affiliates of the Greater New York Hospital Association, Texas Health Resources, Universal Health Services, University Hospitals Health System and the University of Texas MD Anderson Cancer Center. Approximately 72% of our member owners have been part of our alliance for more than 10 years, with an average tenure across our entire membership of approximately 14 years as of June 30, 2013.
As a member-owned healthcare alliance, our mission, products and services, and long-term strategy have been developed in partnership with our member hospitals, health systems and other healthcare organizations. We believe that this powerful partnership-driven business model is a significant competitive advantage as it creates a relationship between our members and us that is characterized by aligned incentives and mutually beneficial collaboration. This relationship affords us access to critical proprietary data and encourages member participation in the development and introduction of new Premier products and services. Our interaction with our members provides us with a window into the latest challenges confronting the industry we serve and innovative best practices that we can share broadly within the healthcare industry, including throughout our membership. This model has enabled us to develop size and scale, data and analytics assets, expertise and customer engagement required to accelerate innovation, provide differentiated solutions and facilitate growth.
For fiscal year 2013, we generated net revenue of $869.3 million, net income of $375.1 million and Adjusted EBITDA of $419.0 million. For fiscal year 2013, on a pro forma basis, after giving effect to the Reorganization and this offering, we generated net revenue of $764.3 million, net income of $ million and Adjusted EBITDA of $314.0 million. See "Unaudited Pro Forma Consolidated Financial Information" for additional information. Adjusted EBITDA is defined under "Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data." We achieved an overall
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net revenue compound annual growth rate, or CAGR, of 13% from fiscal year 2011 through fiscal year 2013 and an overall net income CAGR of 10% for the same period.
Our Solutions
We seek to address challenges facing healthcare delivery organizations through our comprehensive suite of solutions that:
Our business model and solutions are designed to provide our members access to scale efficiencies, spread the cost of their development, derive intelligence from our data warehouse, mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of total cost management, quality and safety improvement and population health management through two business segments: supply chain services and performance services.
Supply chain services: We are one of the largest healthcare supply chain management services businesses in the United States serving a broad range of healthcare providers. Our supply chain services segment includes one of the largest healthcare group purchasing organizations, or GPOs, in the United States, a specialty pharmacy and our direct sourcing activities. Our GPO programs include approximately 2,000 U.S. hospitals, one of the largest alternate site programs in the United States, consisting of approximately 100,000 members, and one of the nation's largest group purchasing programs for physicians. Our alternate site program includes our 50% ownership interest in Innovatix, LLC, or Innovatix, one of the largest alternate site GPOs. Our GPO programs, which are enabled with proprietary technology and include field support services, administered approximately $40 billion worth of member facilities purchasing volume through our supplier contracts for calendar year 2012.
Our supply chain services segment has grown rapidly through market share gains, continued expansion in the alternate site market, focus on consistent innovation and acquisitions. Our total member base in our U.S. hospital and alternate site GPO programs has grown from approximately 70,000 at July 1, 2010 to approximately 102,000 members at June 30, 2013. Supply chain services segment net revenue has grown from $591.0 million in fiscal year 2012 to $664.1 million in fiscal year 2013, representing net revenue growth of 12%, and in fiscal year 2013 accounted for 76% of our overall net revenue.
Performance services: We believe we are one of the largest informatics and advisory services businesses in the United States focused on healthcare providers. Our SaaS informatics products utilize our comprehensive data set to provide actionable intelligence to our members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety, and population health management. Our data and analytics platform is differentiated by what we believe is one of the largest integrated data sets in the healthcare provider sector, a comprehensive repository of clinical, financial and operational data which encompasses one in four U.S. hospital discharges, 29% of U.S. hospital annual supplies expense, approximately $30 billion of U.S. annual direct labor expense, approximately 2.5 million real-time clinical transactions daily and
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approximately $40 billion in U.S. annual purchasing data, in each case for the calendar year ended December 31, 2012. For additional information regarding the calculation of each of these measures, see page iii of this prospectus. We launched our Enterprise Provider Analytics Platform in 2012, a cloud-based data warehousing, collaboration and content management solution that allows our members to aggregate and share information on one common platform that is both payor and supplier neutral. Our Enterprise Provider Analytics Platform includes PremierConnect, our underlying payor/provider joint data model, developed in partnership with IBM, that we believe provides longitudinal patient data across the healthcare continuum, and PremierConnect Enterprise, our data warehousing and business intelligence platform that is offered to our members on a subscription basis. As of June 30, 2013, approximately 1,800 U.S. hospital members purchased one or more of our performance services segment's products or services. Of those U.S. hospital members, approximately 46% only utilized products or services in our performance services segment, and we believe there is a significant opportunity to increase sales in other products or services.
This segment also includes our technology-enabled performance improvement collaboratives. Approximately 850 U.S. hospital members participate in at least one of our performance improvement collaboratives. Through these collaboratives, which are supported by our Enterprise Provider Analytics Platform, we convene members, design programs and facilitate, foster and advance, the exchange of clinical, financial and operational data among our members to measure patient outcomes and determine best practices that drive clinical, financial and operational improvements. We support and enhance the infrastructure for these collaboratives with our specific measurement methodologies, proprietary technologies and advisory services. Our Quality, Efficiency and Safety through Transparency, or QUEST, collaborative, which we believe is one of the largest performance improvement collaboratives in the United States, has approximately 350 participating U.S. hospitals working together and utilizing our SaaS informatics products to develop highly standardized quality, safety and cost metrics not otherwise available to health systems today. We believe our QUEST collaborative has helped our participating U.S. hospital members avoid nearly 112,000 deaths (calculated based on decreased mortality rates) and saved our U.S. hospital members approximately $10.1 billion (calculated based on decreased inpatient costs per adjusted discharge), since the inception of QUEST in 2008. Today we offer performance improvement collaboratives in eight areas, including bundled payment, accountable care and readmission management, among others. The implementation of these programs has enhanced the growth of our performance services segment. On average, our QUEST members utilize four or more of our SaaS informatics products, typically including our QualityAdvisor and SafetyAdvisor applications.
Our performance services segment has grown rapidly through product innovation, organic growth and selected acquisitions. Our member base in the performance services segment has grown from 1,200 at July 1, 2010 to 1,800 at June 30, 2013. Performance services segment net revenue has grown from $177.3 million in fiscal year 2012 to $205.2 million in fiscal year 2013, representing net revenue growth of 16%, and accounted for 24% of our overall net revenue in fiscal year 2013.
The value we provide to our members through our integrated platform of solutions is evidenced by (i) retention rates for members participating in our GPO in the supply chain services segment (determined based on aggregate contract purchasing volume) with an average of 96% for the last three fiscal years and renewal rates for our SaaS informatics products subscriptions in the performance services segment (determined based on aggregate contract dollar value) with an average of 92% for the last three fiscal years, (ii) an overall net revenue CAGR of 13% from fiscal year 2011 through fiscal year 2013, (iii) the fact that as of June 30, 2013, 34% of our U.S. hospital members use both our supply chain services and at least one of our SaaS informatics products and (iv) the fact that our members have partnered through Premier to create some of the largest performance improvement collaboratives in emerging areas of healthcare such as accountable care, bundled payment and readmission management. For more information, see "Business."
3
The Premier Opportunity
We believe the future for healthcare providers in the United States will require transformational change, due to intense cost pressures, a shifting competitive landscape, a changing regulatory environment, the evolving use of data and analytics and the transition to a fundamentally different payment model. Premier's service offerings and business opportunities are well-aligned with the key characteristics of the changing healthcare environment:
Healthcare providers must place a renewed focus on cost and quality. We believe an alliance membership model such as ours that provides significant economies of scale, access to data and analytics and best practices on a shared-cost basis appeals to many healthcare providers in the increasingly cost-sensitive healthcare provider environment.
Greater administrative and clinical scale will be a requirement for success. Many of our members and potential new members deliver healthcare services primarily on a local or regional basis and will likely face intense competition from larger multi-market competitors over time. We provide access to economies of scale, lower cost of innovation and proprietary data solutions that enable large and small healthcare providers to achieve a level of operating effectiveness which allows them to remain competitive in a consolidating and lower revenue environment. Our scale is derived from approximately 2,900 U.S. hospitals, representing approximately 57% of all U.S. hospitals, that participate in our acute care GPO program in our supply chain services segment or use one or more of our performance services segment's products or services.
Healthcare providers will need to extend their reach over time. The need to diversify revenue and to manage in an outcomes-based payment model is forcing health systems to expand their ability to deliver care into alternate site markets. Our alternate site program, consisting of our Continuum of Care GPO, which includes Innovatix, Premier REACH and ProviderSelect MD, is one of the largest in the United States, providing services to approximately 100,000 members as of June 30, 2013.
The healthcare provider business model of the future will incentivize different capabilities. Initiatives such as accountable care organizations, or ACOs, bundled payment and readmission management are rapidly realigning incentives around outcomes, quality and patient satisfaction. Our performance improvement collaboratives and clinical, financial and operational SaaS informatics products give healthcare providers the knowledge and capabilities to operationalize these initiatives. Approximately 850 U.S. hospital members participate in at least one of our performance improvement collaboratives in the areas of accountable care, bundled payment and/or readmission management.
Healthcare has entered the era of big data. The healthcare industry has spent the past decade digitizing medical records. Additionally, the U.S. federal government has accelerated the move toward data transparency by making decades of stored data usable, searchable and actionable. Healthcare providers are now seeking actionable data and information to properly measure and analyze meaningful business drivers such as clinical quality, operating efficiency and population risk profiles within their communities. We collect data on one in four U.S. hospital discharges, 29% of U.S. hospital annual supplies expense, approximately $30 billion of U.S. annual direct labor expense, approximately 2.5 million real-time clinical transactions daily and approximately $40 billion in U.S. annual purchasing data, in each case for the calendar year ended December 31, 2012. We believe that this data set is one of the largest and most diverse in the healthcare provider sector.
Our Competitive Strengths
We believe we are well positioned to benefit from the transformations occurring in the healthcare provider market described above. A new environment that rewards efficiency, better use of information
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and payment for patient outcomes aligns very well with our portfolio of solutions, recent investments and other competitive strengths:
Scale and depth of member relationships. Our membership includes approximately 57% of all U.S. hospitals. Our mission, products and services, and long-term strategy have been developed in partnership with our member health systems. According to our annual CEO Satisfaction Survey conducted in fiscal years 2011 through 2013, on average approximately 86% of the responding member owners surveyed consider us to be either a "strategic partner" or an "extension of their own organization." Approximately 72% of our member owners have been part of our alliance for more than 10 years, with an average tenure across our entire membership of approximately 14 years as of June 30, 2013.
Ownership structure and member commitment. Upon the completion of the Reorganization and this offering, we expect that approximately % of our outstanding common stock (or % if the underwriters exercise their overallotment option in full) will be owned by members. Pursuant to the LP Agreement, each of our member owners has entered into a long-term GPO participation agreement (which will become effective upon the completion of the Reorganization and this offering), has agreed to a seven-year vesting period with respect to such member owner's Class B common units of Premier LP and has consented to allow Premier to retain a significantly greater portion of the annual partnership earnings following the completion of the Reorganization and this offering than it retained prior to the Reorganization. We believe the structural changes to our business model described under "Structure" will strengthen the alignment of interests between us and our member owners and will also drive recurring revenues, attractive returns on incremental investment and significant free cash flow that can be redeployed for growth.
Member-driven innovation. Approximately 370 individuals, representing approximately 180 of our U.S. hospital members, sit on 23 of our strategic and sourcing committees and as part of these committees use their industry expertise to advise on ways to improve the development, quality and value of our products and services.
Market leading data assets and data management capabilities. Our data and analytics platform is differentiated by what we believe is one of the largest integrated data sets in the healthcare provider sector and our dedicated data management team, consisting of approximately 250 full-time employees. Our data set is a comprehensive repository of clinical, financial and operational data which encompasses one in four U.S. hospital discharges, 29% of U.S. hospital annual supplies expense, approximately $30 billion of U.S. annual direct labor expense, approximately 2.5 million real-time clinical transactions daily and approximately $40 billion in U.S. annual purchasing data, in each case for the calendar year ended December 31, 2012.
Embedded in our members' critical operational processes. Our suite of solutions is a critical component of our members' cost management and quality improvement initiatives, as evidenced by retention rates for members participating in our GPO in the supply chain services segment (determined based on aggregate contract purchasing volume) with an average of 96% for the last three fiscal years and renewal rates for our SaaS informatics products subscriptions in the performance services segment (determined based on aggregate contract dollar value) with an average of 92% for the last three fiscal years.
Proven management and dynamic culture. Our senior management team of 14 individuals has an average of approximately 20 years of experience in the healthcare industry, an average of approximately seven years of service with us and a proven track record of delivering measurable clinical, financial and operational improvement for healthcare providers.
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Our Growth Strategy
From fiscal year 2011 through fiscal year 2013, we had an overall net revenue CAGR of approximately 13% through strong organic revenue growth, new product development and selected acquisitions. We have made and continue to make investments in people, data, analytic solutions, technology and complementary businesses to accelerate growth. The key components of our strategy include:
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Structure
In connection with this offering we will effect the transactions described below, which we collectively refer to as the Reorganization. The following diagram depicts our organizational structure immediately after the completion of the Reorganization and this offering.
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Premier, Inc. will indirectly own % of the outstanding Class A common units and Class B common units of Premier LP, or, collectively, the units, immediately after the completion of the Reorganization and this offering and assuming no exercise of the underwriters' overallotment option. If the underwriters' overallotment option is exercised, Premier, Inc. will indirectly own % of the outstanding units of Premier LP after the completion of the Reorganization and this offering.
About Premier, Inc. and Premier LP
Premier, Inc. was incorporated as a Delaware corporation on May 14, 2013. Premier, Inc. has not engaged in any business or other activities except in connection with its formation. The certificate of incorporation of Premier, Inc. authorizes two classes of common stock, Class A common stock and Class B common stock. The Class A common stock has voting and economic rights, whereas the Class B common stock has only voting, but not economic, 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 shares of our Class A common stock and holders of shares of our 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 set forth in our certificate of incorporation or as otherwise required by applicable law. We applied to have our Class A common stock listed on the Nasdaq Capital Market, or NASDAQ, under the symbol "PINC."
Unless otherwise expressly indicated or the context otherwise requires, the term "common stock" as used herein means both our Class A common stock and Class B common stock. For a description of the material terms of our common stock, see "Description of Capital StockCommon Stock."
Prior to the Reorganization and this offering, the capital structure of Premier LP consisted of partnership interests separated into two divisions, each of which had its own set of capital account balance threshold amounts. Once a holder's capital account balance exceeded such threshold amounts, the holder was eligible to share in future distributions from Premier LP. In connection with the Reorganization and this offering, Premier LP, Premier GP and the member owners have entered into the new LP Agreement which will become effective upon the completion of the Reorganization and this offering. The LP Agreement will, immediately following the effective date, modify Premier LP's capital structure by creating two classes of units, Class A common units and Class B common units, and eliminate the existing partnership interests. The Class A common units and Class B common units have equivalent economic rights, on a per unit basis. The LP Agreement will also designate Premier GP as the general partner of Premier LP. The execution of the LP Agreement, including the recapitalization of the outstanding partnership units to be effected thereby, which is described below, required the approval of the general partner of Premier LP and a majority in interest of the limited partners.
Unless otherwise expressly indicated or the context otherwise requires, the term "units" as used herein means both Premier LP's Class A common units and Class B common units. As used herein, when we refer to our ownership interest in Premier LP, we are referring to the percentage of all units that are expected to be held indirectly by us through our ownership of Premier GP following the completion of this offering. Pursuant to the LP Agreement, Class A common units will only be held by Premier GP as the general partner of Premier LP and Class B common units will be held by the limited partners of Premier LP. All Class B common units that we contribute to Premier GP in connection with the Reorganization will be automatically converted into Class A common units.
It is expected that the number of outstanding shares of Class A common stock and Class B common stock will always match exactly the number of outstanding Class A common units and Class B common units, respectively.
Recapitalization
Immediately following the effective date of the LP Agreement, all of Premier LP's limited partners that approved the Reorganization will receive Class B common units and capital account balances in
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Premier LP equal to their percentage interests and capital account balances in Premier LP immediately preceding the Reorganization. Additionally, immediately following the effective date of the LP Agreement, all of the stockholders (consisting of member owners) of PHSI that approved the Reorganization will contribute their PHSI common stock to Premier LP in exchange for additional Class B common units based on such stockholder's percentage interest in the fair market valuation of PHSI and Premier LP prior to the Reorganization. As a result of the foregoing contributions, PHSI will become a wholly owned subsidiary of Premier LP.
In connection with the Reorganization, the member owners will purchase from Premier, Inc. shares of Class B common stock, for par value, $0.000001 per share, which number of shares of Class B common stock will equal the number of Class B common units of Premier LP to be held by the member owners immediately following this offering, pursuant to a stock purchase agreement. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingStock Purchase Agreement" and "Description of Capital StockCommon StockClass B Common Stock."
Offering Transactions
We expect to use approximately (i) $ million of the net proceeds from this offering to acquire Class B common units of Premier LP from the member owners, (ii) $ million of the net proceeds to acquire Class B common units of Premier LP from PHSI, and (iii) $ million (or $ million if the underwriters exercise their overallotment option in full) of the net proceeds to acquire newly issued Class A common units of Premier LP from Premier LP, in each case for a price per unit equal to the price paid per share of Class A common stock by the underwriters to us in connection with this offering. Any Class B common units purchased by Premier with the net proceeds from this offering will automatically convert to Class A common units of Premier LP, pursuant to the terms of the LP Agreement, and will be contributed by Premier, Inc. to Premier GP.
The following table sets forth the number of Class A or Class B common units of Premier LP, as applicable, to be purchased by Premier, Inc. from the member owners (as a group), Premier LP and PHSI, the approximate cash proceeds to be received by each in connection with this offering and the percentage of the net offering proceeds to be received by each (assuming the underwriters' overallotment option has not been exercised).
Seller
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Number of Units Sold to Premier |
Cash Proceeds to be Received |
Percentage of Net Offering Proceeds to be Received |
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Member owners |
$ | % | ||||||||
Premier LP |
$ | % | ||||||||
PHSI |
$ | % |
The approximate cash proceeds to be received by the member owners (as a group), Premier LP and PHSI has been computed based on an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus. If the assumed initial public offering price per share were $1.00 higher than such midpoint, the approximate cash proceeds to be received by the member owners (as a group), Premier LP and PHSI would be $ , $ and $ , respectively. If the assumed initial public offering price per share were $1.00 lower than such midpoint, the approximate cash proceeds to be received by member owners (as a group), Premier LP and PHSI would be $ , $ and $ , respectively.
Reorganization Documents
Below is a summary of the principal documents that will effect the Reorganization and define and regulate the governance and control relationships among Premier, Inc., Premier LP and the member owners after the completion of the Reorganization and this offering.
9
LP Agreement
In connection with the Reorganization and this offering, the LP Agreement will make Premier GP the general partner of Premier LP. As the general partner of Premier LP, Premier GP will generally be able to control the day-to-day business affairs and decision-making of Premier LP without the approval of any other partner, subject to certain limited partner approval rights described below. As such, we will be responsible for all operational and administrative decisions of Premier LP. In accordance with the LP Agreement, subject to applicable law or regulation and the terms of Premier LP's financing agreements, Premier GP will cause Premier LP to make quarterly distributions out of its estimated taxable net income to Premier GP and to the holders of Class B common units as a class in an aggregate amount equal to Premier LP's total taxable income for each such quarter multiplied by the effective combined federal, state and local income tax rate then payable by Premier, Inc. to facilitate payment by each Premier LP partner of taxes, if required, on its share of taxable income of Premier LP. In addition, in accordance with the LP Agreement, Premier GP may cause Premier LP to make additional distributions to Premier GP and to the holders of Class B common units as a class in proportion to their respective number of units, subject to any applicable restrictions under Premier LP's financing agreements or applicable law. Premier GP will distribute any amounts it receives from Premier LP to Premier, Inc., which Premier, Inc. will use to (i) pay applicable taxes, (ii) meet its obligations under the tax receivable agreement, and (iii) meet its obligations to the member owners under the exchange agreement if they elect to convert their Class B common units for shares of our Class A common stock and we elect to pay some or all of the consideration to such member owners in cash. In the event that a limited partner of Premier LP holding Class B common units not yet eligible to be exchanged for shares of our Class A common stock pursuant to the terms of the exchange agreement (i) ceases to participate in our GPO programs; (ii) ceases to be a limited partner of Premier LP (except as a result of a permitted transfer of its Class B common units); (iii) ceases to be a party to a GPO participation agreement (subject to certain limited exceptions); or (iv) becomes a related entity of, or affiliated with, a competing business of Premier LP, in each case, Premier LP will have the option to redeem all of such limited partner's Class B common units not yet eligible to be exchanged at a purchase price set forth in the LP Agreement. In addition, the limited partner will be required to exchange all Class B common units eligible to be exchanged on the next exchange date following the date of the applicable termination event described above. For additional information regarding the LP Agreement, see "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingAmended and Restated Limited Partnership Agreement of Premier LP."
Voting Trust Agreement
Additionally, in connection with the Reorganization and this offering, our member owners have entered into a voting trust agreement, which will become effective upon the completion of the Reorganization and this offering and pursuant to which the member owners will contribute their Class B common stock into Premier Trust, under which Wells Fargo Delaware Trust Company, N.A., as trustee, will act on behalf of the member owners for purposes of voting their shares of Class B common stock. As a result of the voting trust agreement, the member owners will retain beneficial ownership of the Class B common stock, while the trustee will be the legal owner of such equity. Pursuant to the voting trust agreement, the trustee will vote all of the member owners' Class B common stock as a block in the manner determined by the plurality of the votes received by the trustee from the member owners for the election of directors to serve on our board of directors, and by a majority of the votes received by the trustee from the member owners for all other matters. For additional information regarding the voting trust agreement, see "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingVoting Trust Agreement."
10
Exchange Agreement
In connection with the Reorganization and this offering, Premier, Inc., Premier LP and the member owners have entered into an exchange agreement which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of the exchange agreement, subject to certain restrictions, commencing on the one-year anniversary of the last day of the calendar month in which we consummate this offering, and during each year thereafter, each member owner will have the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units, as well as any additional Class B common units purchased by such member owner pursuant to certain rights of first refusal (discussed below), for shares of our Class A common stock (on a one-for-one basis subject to customary adjustments for subdivisions or combinations by split, reverse split, distribution, reclassification, recapitalization or otherwise), cash or a combination of both, the form of consideration to be at the discretion of our audit committee (or another committee of independent directors) of our board of directors. This exchange right can be exercised on a quarterly basis (subject to certain restrictions contained in the registration rights agreement described below) and is subject to rights of first refusal in favor of the other holders of Class B common units and Premier LP. For each Class B common unit that is exchanged pursuant to the exchange agreement, the member owner will also surrender one corresponding share of our Class B common stock, which will automatically be retired. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingExchange Agreement."
Registration Rights Agreement
In connection with the Reorganization and this offering, Premier, Inc. and the member owners have entered into a registration rights agreement which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of the registration rights agreement, as soon as practicable from the date that is 12 full calendar months after the completion of this offering, we must use all reasonable efforts to cause a resale shelf registration statement to become effective for resales from time to time of our Class A common stock that may be issued to the member owners in exchange for their Class B common units pursuant to the exchange agreement, subject to various restrictions. Subject to certain exceptions, we will use reasonable efforts to keep the resale shelf registration statement effective for seven years. In addition, we will undertake to conduct an annual company-directed underwritten public offering to allow the member owners to resell Class A common stock and, at our election, to permit us to sell primary shares, following the first quarterly exchange date of each of the first three years during which the member owners have the right to exchange their Class B common units for shares of our Class A common stock. We will not be required to conduct a company-directed underwritten public offering unless the number of shares of Class A common stock requested by the member owners (and any third parties) to be registered in the applicable company-directed underwritten public offering constitutes the equivalent of at least 3.5% of the aggregate number of Premier LP units outstanding. If the offering minimum has not been met, we will either proceed with the company-directed underwritten public offering (such decision being in our sole discretion) or notify the member owners that we will abandon the offering. After the third year during which member owners have the right to exchange their Class B common units for shares of our Class A common stock, we may elect to conduct a company-directed underwritten public offering in any subsequent year. We, as well as the member owners, and third parties, will be subject to customary prohibitions on sale prior to and for 60 days following any company-directed underwritten public offering. The registration rights agreement also grants the member owners certain "piggyback" registration rights with respect to other registrations of our Class A common stock. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingRegistration Rights Agreement."
11
Tax Receivable Agreement
In connection with the Reorganization and this offering, Premier, Inc. has entered into a tax receivable agreement with the member owners which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of the tax receivable agreement, Premier, Inc. has agreed to pay to the member owners, generally over a 15-year period (under current law), 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income and franchise tax that we actually realize (or are deemed to realize, in the case of payments required to be made upon certain occurrences under such tax receivable agreement) as a result of the increases in tax basis resulting from the initial sale of Class B common units by the member owners in connection with the Reorganization, as well as subsequent exchanges by such member owners pursuant to the exchange agreement, and of certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement."
GPO Participation Agreement
In connection with the Reorganization and this offering, our member owners have entered into GPO participation agreements with Premier LP which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of its GPO participation agreement, each member owner will receive cash sharebacks, or revenue share, from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by such member owner's member facilities through our GPO supplier contracts. In addition, our two largest regional GPO member owners, which represented approximately 17% of our gross administrative fees revenue for fiscal year 2013, will each remit all gross administrative fees collected by such member owner based upon purchasing by such member owner's member facilities through the member owner's own GPO supplier contracts and receive revenue share from Premier LP equal to 30% of such gross administrative fees remitted to us. Subject to certain termination rights, these GPO participation agreements will be for an initial five-year term, although our two largest regional GPO member owners have entered into agreements with seven-year terms.
The terms of the GPO participation agreements vary as a result of provisions in our existing arrangements with member owners that conflict with the terms of the GPO participation agreement and which by the express terms of the GPO participation agreement are incorporated by reference and deemed controlling and will continue to remain in effect. In certain other instances, Premier LP and member owners have entered into GPO participation agreements with certain terms that vary from the standard form, which were approved by the member agreement review committee of our board of directors, based upon regulatory constraints, pending merger and acquisition activity or other exigent circumstances affecting those member owners. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingGPO Participation Agreement."
Effects of the Reorganization
Immediately following the completion of the Reorganization and this offering:
12
Class B common units will not be affected if the underwriters exercise their overallotment option in full),
Any newly admitted Premier LP limited partners must also become parties to the exchange agreement, the registration rights agreement, the voting trust agreement and the tax receivable agreement, in each case on the same terms and conditions as the member owners (except that any Class B common units acquired by such newly admitted Premier LP limited partners will not be subject to the seven-year vesting schedule set forth in the LP Agreement and the exchange agreement). Any newly admitted Premier LP limited partner will also enter into a GPO participation agreement with Premier LP.
Benefits of the Reorganization to Member Owners
As a result of the Reorganization and this offering, the member owners will, among other things:
13
contemplated use of a portion of the proceeds from this offering, and assuming that we are able to timely benefit from certain anticipated tax benefits (for more information, see "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement"), and
Holding Company Structure
Premier, Inc. is a holding company and its sole asset immediately following this offering will be all of the outstanding interests in Premier GP. Premier GP will act as the general partner of, and own approximately % of the units (or approximately % if the underwriters exercise their overallotment option in full) in, Premier LP. Premier, Inc.'s only business will be to act indirectly as the general partner of Premier LP, and, as such, it will operate and control all of the business and affairs of Premier LP and its subsidiaries immediately following this offering, subject to certain limited partner approval rights described herein.
Summary Risk Factors
Our business is subject to risks, as discussed more fully in the section entitled "Risk Factors" beginning on page 27. You should carefully consider all of the risks discussed in the "Risk Factors" section before investing in our Class A common stock. In particular, the following factors may have an adverse effect on our business, which could cause a decrease in the price of our Class A common stock and result in a loss of all or a portion of your investment:
14
Company and Other Information
Our principal executive offices are located at 13034 Ballantyne Corporate Place, Charlotte, NC 28277. Our telephone number is (704) 357-0022. Our website is located at www.premierinc.com. The information on our website is not part of this prospectus.
Premier, Inc. is a holding company and its sole asset immediately following this offering will be all of the outstanding interests in Premier GP. Premier GP will act as the general partner of, and own approximately % of the units (or approximately % if the underwriters exercise their overallotment option in full) in, Premier LP. Premier, Inc.'s only business will be to act indirectly as the general partner of Premier LP and, as such, it will operate and control all of the business and affairs of Premier LP and its subsidiaries immediately following this offering, subject to certain limited partner approval rights described herein.
We are an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, delayed application of newly adopted or revised accounting standards, exemption from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Following this offering, we will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of Class A common stock under this registration statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed to be a "large accelerated filer," as defined under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
15
This Offering
Class A common stock offered by us |
shares. | |
Class A common stock to be outstanding after this offering |
shares. |
|
Overallotment option |
shares. |
|
Class B common stock to be outstanding after this offering |
shares. In connection with the Reorganization, the member owners will purchase Class B common stock from Premier, Inc. for par value, $0.000001 per share. The number of shares of Class B common stock will equal the number of Class B common units of Premier LP to be held by the member owners immediately following this offering. See "Description of Capital StockCommon StockClass B Common Stock" and "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingStock Purchase Agreement." Upon exchange of a Class B common unit of Premier LP for one share of Class A common stock, cash, or a combination of both, the corresponding share of Class B common stock shall be extinguished. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingExchange Agreement." |
|
Use of proceeds |
We estimate we will receive net proceeds from this offering, after deducting the underwriting discounts and commissions and estimated expenses of this offering, of approximately $ (approximately $ if the underwriters exercise their overallotment option in full), assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We expect to use approximately (i) $ million of the net proceeds from this offering to acquire Class B common units of Premier LP from the member owners, (ii) $ million of the net proceeds to acquire Class B common units of Premier LP from PHSI, and (iii) $ million of the net proceeds to acquire newly issued Class A common units of Premier LP from Premier LP. Premier LP will use the proceeds it receives in connection with the sale of its newly issued Class A common units for working capital and general corporate purposes, including potential future acquisition and development activities. Pending such use, the proceeds may be invested in high quality, short-term investments. |
|
|
Finally, we will use any net proceeds received if the underwriters exercise their overallotment option to purchase additional newly issued Class A common units of Premier LP from Premier LP. We will contribute any units of Premier LP that we purchase to Premier GP. See "Use of Proceeds." |
16
Voting rights |
Holders of shares of Class A common stock and holders of shares of Class B common stock are each entitled to one vote per share. Holders of shares of our Class A common stock and holders of shares of 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 set forth in our certificate of incorporation or as required by applicable law. See "Description of Capital Stock." | |
|
Immediately following the completion of the Reorganization and this offering, the holders of shares of our Class A common stock will collectively own 100% of the economic interests and % of the voting power of Premier. The holders of shares of our Class B common stock will hold the remaining % of the voting power of Premier. |
|
Dividend rights; rights upon liquidation or winding up |
Holders of shares of Class A common stock will be entitled to receive dividends if and when declared by our board of directors and will be entitled to receive pro rata our remaining assets available for distribution upon a liquidation or winding up of Premier. Holders of shares of Class B common stock will not be entitled to receive cash dividends or any distributions upon a liquidation or winding up of Premier. For additional information, see "Description of Capital Stock." |
|
Dividend policy |
We do not expect to pay dividends in the foreseeable future. See "Dividend Policy." |
|
Directed share program |
The underwriters have reserved for sale at the initial public offering price up to shares of our Class A common stock for our employees and our members owners who have expressed an interest in purchasing Class A common stock in this offering. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase the directed shares. Any directed shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. |
|
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 investing in our Class A common stock. |
|
Proposed NASDAQ symbol |
"PINC." |
17
The number of shares of Class A common stock that will be outstanding immediately after this offering excludes the following shares:
Unless otherwise expressly indicated or the context otherwise requires, the information in this prospectus assumes that:
18
Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data
The following tables set forth summary consolidated financial and operating data on a historical and pro forma basis. Premier, Inc. has had no operations to date and, therefore, the information below is presented for reporting purposes only for Premier, Inc.'s predecessor company, PHSI, which, upon the completion of the Reorganization and this offering will be a consolidated subsidiary of Premier, Inc. The following summary historical consolidated financial and other data of PHSI should be read together with "Structure," "Unaudited Pro Forma Consolidated Financial Information," "Selected Consolidated Financial and Other Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and related notes included elsewhere in this prospectus.
We derived the summary historical consolidated statements of income data of PHSI for each of the fiscal years ended June 30, 2013, 2012 and 2011 and the summary consolidated balance sheet data as of June 30, 2013 from the audited consolidated financial statements of PHSI which are included elsewhere in this prospectus.
The summary unaudited pro forma consolidated statement of income for the fiscal year ended June 30, 2013 presents our consolidated statement of income giving pro forma effect to the Reorganization and this offering and the contemplated use of the estimated net proceeds from this offering as described under "Structure" and "Use of Proceeds," as if such transactions occurred on July 1, 2012. The summary unaudited pro forma consolidated balance sheet as of June 30, 2013 presents our consolidated financial position giving pro forma effect to the Reorganization and this offering and the contemplated use of the estimated net proceeds from this offering as described under "Structure" and "Use of Proceeds," as if such transactions occurred as of the balance sheet date. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Reorganization and this offering and the contemplated use of the estimated net proceeds from this offering on the historical financial information of PHSI. The summary unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect our actual results of operations or financial position for the periods presented. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our financial condition or results of operations had the Reorganization, this offering and the use of the estimated net proceeds from this offering as described under "Use of Proceeds" occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date.
19
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands Except Per Share Data)
|
2013 | 2013 | 2012(1) | 2011(2) | |||||||||
|
Pro forma (Unaudited) |
|
|
|
|||||||||
Consolidated Statements of Income Data: |
|||||||||||||
Net revenue: |
|||||||||||||
Net administrative fees(3) |
$ | 414,207 | $ | 519,219 | $ | 473,249 | $ | 457,951 | |||||
Other services and support |
205,685 | 205,685 | 178,552 | 158,179 | |||||||||
Services |
619,892 | 724,904 | 651,801 | 616,130 | |||||||||
Products |
144,386 | 144,386 | 116,484 | 64,628 | |||||||||
Total net revenue |
764,278 | 869,290 | 768,285 | 680,758 | |||||||||
Cost of revenue |
237,413 | 237,413 | 189,719 | 119,875 | |||||||||
Gross profit |
526,865 | 631,877 | 578,566 | 560,883 | |||||||||
Operating expenses: |
|||||||||||||
Selling, general and administrative |
248,301 | 248,301 | 240,748 | 242,863 | |||||||||
Research and development |
9,370 | 9,370 | 12,583 | 8,685 | |||||||||
Amortization of purchased intangible assets |
1,539 | 1,539 | 3,146 | 3,463 | |||||||||
Total operating expenses |
259,210 | 259,210 | 256,477 | 255,011 | |||||||||
Operating income |
267,655 | 372,667 | 322,089 | 305,872 | |||||||||
Other income, net(4) |
12,145 | 12,145 | 12,808 | 11,092 | |||||||||
Income before income taxes |
279,800 | 384,812 | 334,897 | 316,964 | |||||||||
Income tax expense |
9,726 | 8,229 | 4,704 | ||||||||||
Net income |
375,086 | 326,668 | 312,260 | ||||||||||
Add: Net loss attributable to noncontrolling interest in S2S Global(5) |
1,479 | 608 | | ||||||||||
Less: Net income attributable to noncontrolling interest in Premier LP(6) |
(369,189 | ) | (323,339 | ) | (309,840 | ) | |||||||
Net income attributable to noncontrolling interest |
(367,710 | ) | (322,731 | ) | (309,840 | ) | |||||||
Net income attributable to PHSI |
$ | $ | 7,376 | $ | 3,937 | $ | 2,420 | ||||||
|
As of June 30, 2013 | ||||||
---|---|---|---|---|---|---|---|
(In Thousands)
|
Actual | Pro Forma | |||||
|
|
(Unaudited) |
|||||
Consolidated Balance Sheet Data: |
|||||||
Cash, cash equivalents and marketable securities |
$ | 255,619 | $ | ||||
Working capital(7) |
220,893 | ||||||
Property and equipment, net |
115,587 | ||||||
Total assets |
598,916 | ||||||
Deferred revenue(8) |
18,880 | ||||||
Total liabilities |
213,513 | ||||||
Redeemable limited partners' capital(9) |
307,635 | ||||||
Common stock |
57 | ||||||
Class A common stock |
| ||||||
Additional paid-in capital |
28,866 | ||||||
Retained earnings |
50,599 | ||||||
Total stockholders' equity |
$ | 77,768 | $ |
20
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2013 | 2012(1) | 2011(2) | |||||||||
|
Pro forma (Unaudited) |
|
|
|
|||||||||
Other Financial Data: |
|||||||||||||
Segment Adjusted EBITDA(10) |
|||||||||||||
Supply Chain Services(11) |
$ | 326,616 | $ | 431,628 | $ | 385,331 | $ | 369,251 | |||||
Performance Services |
56,456 | 56,456 | 42,153 | 37,840 | |||||||||
Corporate(12) |
(69,059 | ) | (69,059 | ) | (67,875 | ) | (57,866 | ) | |||||
Adjusted EBITDA(10) |
$ | 314,013 | $ | 419,025 | $ | 359,609 | $ | 349,225 | |||||
Distributions(13) |
$ | 111,190 | $ | 329,000 | $ | 309,000 | $ | 295,000 | |||||
Adjusted fully distributed net income attributable to PHSI(14) |
$ | 168,619 |
21
22
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2013 | 2012 | 2011 | |||||||||
|
Pro forma (Unaudited) |
|
|
|
|||||||||
Net income |
$ | $ | 375,086 | $ | 326,668 | $ | 312,260 | ||||||
Interest and investment income, net(a) |
(965 | ) | (965 | ) | (874 | ) | (1,045 | ) | |||||
Income tax expense |
9,726 | 8,229 | 4,704 | ||||||||||
Depreciation and amortization |
27,681 | 27,681 | 22,252 | 19,524 | |||||||||
Amortization of purchased intangible assets |
1,539 | 1,539 | 3,146 | 3,463 | |||||||||
EBITDA |
308,055 | 413,067 | 359,421 | 338,906 | |||||||||
Merger and acquisition related expenses(b) |
| | | 1,538 | |||||||||
Strategic and financial restructuring expenses(c) |
5,170 | 5,170 | | | |||||||||
Office consolidation and new Charlotte headquarters expenses(d) |
| | | 8,001 | |||||||||
Loss on disposal of assets(e) |
788 | 788 | 188 | 780 | |||||||||
Adjusted EBITDA |
$ | 314,013 | $ | 419,025 | $ | 359,609 | $ | 349,225 |
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|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013(11) | 2013 | 2012 | 2011 | |||||||||
|
Pro forma (Unaudited) |
|
|
|
|||||||||
Segment Adjusted EBITDA |
|||||||||||||
Supply Chain Services |
$ | 326,616 | $ | 431,628 | $ | 385,331 | $ | 369,251 | |||||
Performance Services |
56,456 | 56,456 | 42,153 | 37,840 | |||||||||
Corporate(f) |
(69,059 | ) | (69,059 | ) | (67,875 | ) | (57,866 | ) | |||||
Adjusted EBITDA |
314,013 | 419,025 | 359,609 | 349,225 | |||||||||
Depreciation and amortization |
(27,681 | ) | (27,681 | ) | (22,252 | ) | (19,524 | ) | |||||
Amortization of purchased intangible assets |
(1,539 | ) | (1,539 | ) | (3,146 | ) | (3,463 | ) | |||||
Merger and acquisition related expenses(b) |
| | | (1,538 | ) | ||||||||
Strategic and financial restructuring expenses(c) |
(5,170 | ) | (5,170 | ) | |||||||||
Office consolidations and new Charlotte headquarters expenses(d) |
| | | (8,001 | ) | ||||||||
Equity in net income of unconsolidated affiliates |
(11,968 | ) | (11,968 | ) | (12,122 | ) | (10,827 | ) | |||||
Operating income |
$ | 267,655 | $ | 372,667 | $ | 322,089 | $ | 305,872 | |||||
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our member owners who approved the Reorganization for the period from July 1, 2013 through the effective date of the Reorganization. Under the LP Agreement, which will become effective upon the completion of the Reorganization and this offering, the distributions provided to member owners by Premier LP will be determined as follows:
25
common stock and other potentially dilutive equity transactions which are outside of management's control. To properly and prudently evaluate our business, we encourage you to review the financial statements and related notes included elsewhere in this prospectus, and to not rely on any single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of our pro forma net income attributable to PHSI to adjusted fully distributed net income set forth below.
The table below provides a reconciliation of pro forma net income attributable to PHSI to adjusted fully distributed net income for the fiscal year ended June 30, 2013:
(In Thousands)
|
|
||||
---|---|---|---|---|---|
Pro forma net income attributable to PHSI |
$ | ||||
Add: Income tax expense |
|||||
Add: Strategic and financial restructuring expenses(a) |
5,170 | ||||
Add: Net income attributable to noncontrolling interest in Premier LP(b) |
|||||
Less: Fully distributed income taxes(c) |
|||||
Adjusted fully distributed net income |
$ | 168,619 | |||
26
An investment in our Class A common stock involves a high degree of risk. Before making an investment in our Class A common stock, you should carefully consider the following risks, as well as the other information contained in this prospectus. Any of the risks described below could materially harm our business, financial condition, results of operations and prospects. As a result, the trading price of our Class A common stock could decline, and you may lose part or all of your investment. Some statements in this prospectus, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled "Forward-Looking Statements."
Risks Related to Our Business
We face intense competition, which could limit our ability to maintain or expand market share within our industry, and if we do not maintain or expand our market share our business and operating results will be harmed.
We deliver products and services through two business segments: our supply chain services segment and our performance services segment. The market for our products and services in each segment is fragmented, intensely competitive and characterized by rapidly evolving technology and product standards, user needs and the frequent introduction of new products and services.
The primary competitors to our supply chain services segment are other large GPOs such as Amerinet Inc., HealthTrust Purchasing Group (a subsidiary of HCA Holdings, Inc.), Managed Health Care Associates, Inc., MedAssets, Inc. and Novation LLC. In addition, we compete against certain healthcare provider-owned GPOs in this segment. Our specialty pharmacy competes with Caremark Inc. (owned by CVS Caremark Corporation), Curascript, Inc./Accredo (owned by Express Scripts Holding Co.), Diplomat Specialty Pharmacy and many smaller local specialty pharmacies. Finally, our direct sourcing activities compete primarily with private label offerings/programs, product manufacturers and distributors, such as Cardinal Health, Inc., McKesson Corporation, Medline Industries, Inc. and Owens & Minor, Inc.
The competitors in our performance services segment range from smaller niche companies to large, well-financed and technologically-sophisticated entities. Our primary competitors in this segment include (i) information technology providers such as Allscripts Healthcare Solutions, Inc., Caradigm USA LLC, Cerner Corporation, Epic Systems Corporation, McKesson Corporation, Oracle Corporation, Truven Health Analytics Inc., and (ii) consulting and outsourcing firms such as The Advisory Board Company, Deloitte & Touche LLP, Evolent Health, Inc., Healthagen, LLC (a subsidiary of Aetna, Inc.), Huron Consulting, Inc., Navigant Consulting, Inc. and Optum, Inc. (a subsidiary of UnitedHealth Group, Inc.).
With respect to our products and services across both segments, we compete on the basis of several factors, including breadth, depth and quality of product and service offerings, ability to deliver clinical, financial and operational performance improvement through the use of products and services, quality and reliability of services, ease of use and convenience, brand recognition and the ability to integrate services with existing technology. Some of our competitors are more established, benefit from greater name recognition, have larger member bases and have substantially greater financial, technical and marketing resources. Other of our competitors have proprietary technology that differentiates their product and service offerings from ours. As a result of these competitive advantages, our competitors and potential competitors may be able to respond more quickly to market forces, undertake more extensive marketing campaigns for their brands, products and services, and make more attractive offers to our members.
With respect to our products and services across both of our segments, we also compete on the basis of price. We may be subject to pricing pressures as a result of, among other things, competition
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within the industry, consolidation of healthcare industry participants, practices of managed care organizations, government action affecting reimbursement and financial stress experienced by our members. If our pricing experiences significant downward pressure, our business will be less profitable and our results of operations will be adversely affected.
We cannot be certain that we will be able to retain our current members or expand our member base in this competitive environment. If we do not retain current members or expand our member base, our business, financial condition and results of operations will be harmed. Moreover, we expect that competition will continue to increase as a result of consolidation in both the healthcare information technology and healthcare industries. If one or more of our competitors or potential competitors were to merge or partner with another of our competitors, the change in the competitive landscape could also adversely affect our ability to compete effectively and could harm our business, financial condition and results of operations.
Consolidation in the healthcare industry could have a material adverse effect on our business, financial condition and results of operations.
Many healthcare industry participants are consolidating to create larger and more integrated healthcare delivery systems with greater market power. We expect regulatory and economic conditions to force additional consolidation in the healthcare industry in the future. As consolidation accelerates, the economies of scale of our members' organizations may grow. If a member experiences sizable growth following consolidation, it may determine that it no longer needs to rely on us and may reduce its demand for our products and services. Some of these large and growing healthcare systems may choose to contract directly with suppliers for certain supply categories, and some suppliers may seek to contract directly with the healthcare providers rather than with GPOs such as ours. In connection with any consolidation, certain of our members may also move their business to another GPO. In addition, as healthcare providers consolidate to create larger and more integrated healthcare delivery systems with greater market power, these providers may try to use their market power to negotiate fee reductions for our products and services across both of our business segments. Finally, consolidation may also result in the acquisition or future development by our members of products and services that compete with our products and services. Any of these potential results of consolidation could have a material adverse effect on our business, financial condition and results of operations.
We may experience significant delays, or an inability to generate revenues if the sales cycle with potential new members takes longer than anticipated.
A key element of our strategy is to market the various products and services in our supply chain services and performance services segments directly to healthcare providers, such as health systems and acute care hospitals, and to increase the number of our products and services utilized by existing members. The evaluation process is often lengthy and involves significant technical evaluation and commitment of personnel by these organizations. Further, the evaluation process depends on a number of factors, many of which we may not be able to control, including potential new members' internal approval processes, budgetary constraints for technology spending, member concerns about implementing new procurement methods and strategies and other timing effects. If we are unable to sell additional products and services to existing members, or enter into and maintain favorable relationships with other healthcare providers, it could have a material adverse effect on our business, financial condition and results of operations.
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Member participation in our GPO programs may be terminated with limited or no notice and/or without significant termination payments. If our members reduce activity levels or terminate or elect not to renew their contracts, our revenue and results of operations may suffer.
Prior to our Reorganization, we generally provided products and services to our non-owner members participating in our GPO programs under contracts that could be cancelled with limited or no notice and/or without significant termination payments. In addition, we have had, and may in the future have, other members that participate in our GPO programs without a contractual relationship. Therefore, our success in retaining member participation in our GPO programs depends upon our reputation, strong relationships with such members and our ability to deliver consistent, reliable and high quality products and services. We believe that establishing and maintaining a good professional reputation and name recognition are critical for attracting and retaining member participation in our GPO programs. Promotion and enhancement of our name will depend largely on our success in continuing to provide high quality products and services. Therefore, our brand name and reputation will suffer if members do not perceive our products and services to be effective or of high quality or if there are inaccuracies or defects in our solutions. In connection with the Reorganization and this offering, we have entered into new GPO participation agreements, which will become effective upon the completion of the Reorganization and this offering, with all of our member owners existing immediately prior to the completion of the Reorganization. These new GPO participation agreements will generally be terminable at any time by either party, upon one year's prior written notice, in the event of a change of control of the member owner, and will also be terminable for convenience upon one year's prior written notice, at any time after the second anniversary of the beginning of the applicable term, as well as terminable for cause under certain circumstances (including, due to a material breach of the terms of the GPO participation agreement). Also, in the event that a member owner ceases to be a party to a GPO participation agreement (except in certain limited circumstances), Premier LP will have the option to redeem all of such member owner's Class B common units pursuant to the exchange agreement at a purchase price set forth in the LP Agreement. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingGPO Participation Agreement."
Members may also seek to reduce, cancel or elect not to renew their contracts due to factors that are beyond our control and are unrelated to our performance, including their business or financial condition, changes in their strategies or business plans or economic conditions in general.
When contracts are reduced, cancelled or not renewed for any reason, we lose the anticipated future revenue associated with such contracts and, consequently, our revenue and results of operations may suffer. Additionally, the loss of any of our members could negatively impact our membership-driven business model strategy.
Our business strategy that involves reducing the prices for certain products and services in our supply chain services segment may not be successful, which could have a material adverse effect on our business, financial condition and results of operations.
In order to maintain and develop new relationships with members in our supply chain services segment, we look for ways to reduce the prices that they pay for products and services. However, success in serving the members by reducing the prices they pay suppliers for products and services will reduce the administrative fees we receive in respect of such transactions that correlate to such prices.
In order to maintain or increase our revenues and margins while implementing these strategies, we would have to increase sales volumes of existing products and services or introduce and sell new products and services in amounts sufficient to compensate for the reduced revenue effect of price reductions. If our competitors in these lines of business similarly reduce or obtain lower prices for their members, as applicable, this may create further challenges. We cannot assure you that our business
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strategies will be successful, which could have a material adverse effect on our business, financial condition and results of operations.
The markets for our non-GPO services and products may develop more slowly than we expect, which could adversely affect our revenue and our ability to maintain or increase our profitability.
While the products and services in our non-GPO lines of business are becoming more accepted, the market for these products and services remains narrowly based, and it is uncertain whether these products and services will achieve and sustain the high levels of demand and market acceptance we anticipate. Our ability to materially grow our revenues and achieve and sustain profitability will be adversely affected if we are unable to generate sufficient revenue from strategic initiatives relating to businesses other than the GPO business, particularly if those businesses do not grow significantly. We are currently focusing on data analytics and other technology opportunities and our success will depend to a substantial extent on the willingness of potential new members, large and small, to increase their use of our SaaS informatics products. Many companies have invested substantial personnel and financial resources to integrate established enterprise software into their businesses and therefore may be reluctant or unwilling to switch to our services. Furthermore, some companies may be reluctant or unwilling to use our services, because they have concerns regarding the risks associated with the security and reliability of, among other things, the technology delivery model associated with these services. If companies do not perceive the benefits of our services, then the market for these services may not expand as much or develop as quickly as we expect, either of which would significantly adversely affect our business, financial condition and results of operations.
Our members are highly dependent on payments from third-party healthcare payors, including Medicare, Medicaid and other government-sponsored programs, and reductions or changes in third-party reimbursement could adversely affect these members and consequently our business.
Our members derive a substantial portion of their revenue from third-party private and governmental payors, including Medicare, Medicaid and other government sponsored programs. Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for our products and services our members purchase or otherwise obtain through us is available to our members from governmental health programs, private health insurers, managed care plans and other third-party payors. These third-party payors are increasingly using their enhanced bargaining power to secure discounted reimbursement rates and may impose other requirements that adversely impact our members' ability to obtain adequate reimbursement for our products and services.
If third-party payors do not approve products for reimbursement or fail to reimburse for them adequately, our members may suffer adverse financial consequences which, in turn, may reduce the demand for and ability to purchase our products or services. In addition, the Centers for Medicare & Medicaid Services, or CMS, which administers the Medicare and federal aspects of state Medicaid programs, has issued complex rules requiring pharmaceutical manufacturers to calculate and report drug pricing for multiple purposes, including the limiting of reimbursement for certain drugs. These rules generally exclude from the pricing calculation administrative fees paid by drug manufacturers to GPOs to the extent that such fees meet CMS's "bona fide service fee" definition. There can be no assurance that CMS will continue to allow exclusion of GPO administrative fees from the pricing calculation, or that other efforts by payors to limit reimbursement for certain drugs will not have an adverse impact on our business, financial condition and results of operations.
Government actions could also limit government spending generally for the Medicare and Medicaid programs, limit payments to healthcare providers, and increase emphasis on competition and other programs that could have an adverse effect on our members. Specifically, CMS may implement a competitive bidding program for selected items paid for by the Medicare program. We cannot predict which products from any of our businesses will ultimately be affected or whether or when the
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competitive bidding process will be extended to our businesses. The implementation of the competitive bidding program could have an adverse impact on our business, financial condition and results of operations.
We rely on the administrative fees we receive from our GPO suppliers and the failure to maintain contracts with these GPO suppliers could adversely affect our business, financial condition and results of operations. A termination of any relationship or agreement with a GPO supplier could also negatively affect our relationships with our members.
Historically, we have derived a substantial amount of our revenue from the administrative fees that we receive from our GPO suppliers. We maintain contractual relationships with these suppliers who provide products and services to our members at reduced costs and who pay us administrative fees based on the dollars spent by our members for such products and services. Our contracts with these GPO suppliers generally may be terminated upon 90 days' notice. Therefore, we rely heavily on our relationships with our GPO suppliers. Supplier commitment to our GPO has been, and will continue to be, a crucial element to our supply chain services business model. There can be no assurances that our relationships with our suppliers will continue on existing terms or at all. A termination of any relationship or agreement with a GPO supplier would result in the loss of administrative fees pursuant to our arrangement with that supplier, which could adversely affect our business, financial condition and results of operations.
If we cannot demonstrate the ability to increase market share in the healthcare industry for our suppliers through our GPO or other products and services, we may lose negotiating leverage with our contracted suppliers which may result in our inability to maintain our member agreements or win new business. In addition, if we lose a relationship with a GPO supplier we may not be able to negotiate similar arrangements for our members with other suppliers on the same terms and conditions or at all, which could damage our reputation with our members and, in turn, have a material adverse effect on our business, financial condition and results of operations.
If we are unable to maintain our relationships with third-party providers or maintain or enter into new strategic alliances, we may be unable to grow our current base business.
Our business strategy includes entering into and maintaining strategic alliances and affiliations with leading service providers and other GPOs. We work closely with our members to penetrate new product markets and expand our current market capabilities. We may not achieve our objectives through these relationships or through our relationships with our third-party providers or strategic alliances. Many of these companies have multiple relationships and they may not regard us as significant to their business. These companies may pursue relationships with our competitors, develop or acquire products and services that compete with our products and services, experience financial difficulties, be acquired by one of our competitors or other third party or exit the healthcare industry, any of which may adversely affect our relationship with them. In addition, in many cases, these companies may terminate their relationships with us for any reason with limited or no notice. If existing relationships with third-party providers or strategic alliances are adversely impacted or are terminated or we are unable to enter into relationships with leading healthcare service providers and other GPOs, we may be unable to maintain or increase our market presence.
If we are not able to offer new and innovative products and services, we may not remain competitive and our revenue and results of operations may suffer.
Our success depends on providing products and services within our supply chain services and performance services segments that healthcare providers use to improve clinical, financial and operational performance. Our competitors are constantly developing products and services that may become more efficient or appealing to our members. If we cannot adapt to rapidly evolving industry
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standards, technology and member needs, including changing regulations and provider reimbursement policies, we may be unable to anticipate changes in our current and potential new members' requirements that could make our existing technology obsolete. Additionally, some healthcare information technology providers have begun to incorporate enhanced analytical tools and functionality into their core product and service offerings used by healthcare providers. These developments may adversely impact the demand for our products and services. We must continue to invest significant resources in research and development in order to enhance our existing products and services, maintain or improve our product category rankings and introduce new high quality products and services that members and potential new members will want. Our operating results would also suffer if our innovations are not responsive to the needs of our members or potential new members, are not appropriately timed with market opportunity, or are not effectively brought to market. Many of our existing member relationships are nonexclusive or terminable on short notice, or otherwise terminable after a specified term. If our new or modified product and service innovations are not responsive to member preferences, emerging industry standards or regulatory changes, are not appropriately timed with market opportunity, or are not effectively brought to market, we may lose existing members and be unable to obtain new members and our results of operations may suffer. In addition, cancellation of any of our products and services after implementation has begun may involve loss to us of time, effort, and resources invested in the cancelled implementation as well as lost opportunity for acquiring other members over that same period of time.
We derive a significant portion of our revenues from our largest members.
Our top five members, who are all participants in our group purchasing programs, comprised approximately 16% of our consolidated net revenues for fiscal year 2013. Our largest member, GNYHA Purchasing Alliance, LLC, comprised approximately 5% of our consolidated net revenues for the same period. The sudden loss of any of our members that are participants in our group purchasing programs could materially and adversely affect our operating results. In addition, certain of our top five members are themselves GPOs with their own respective direct contracting relationships, including relationships with some of our other members. The sudden loss of any of these members may also result in increased competition for our supply chain services segment and the loss of any of these additional members could also materially and adversely affect our operating results.
Acquisitions could result in operating difficulties, dilution and other harmful consequences.
Our strategy includes growth through acquisitions. Future acquisitions may not be completed on acceptable terms and acquired assets or businesses may not be successfully integrated into our operations. Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses. Such risks include, among other things:
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The anticipated benefits of our previous acquisitions may not materialize. Future acquisitions or dispositions could result in the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill and other intangible assets, any of which could harm our financial condition. Although we have made acquisitions in the past, we anticipate that acquisitions will play a larger role in our business strategy in the future, and there can be no assurances that any future acquisitions will be successful.
We may become subject to litigation, which could have a material adverse effect on our business, financial condition and results of operations.
We participate in businesses that are subject to substantial litigation. We are periodically involved in litigation, which from time to time may include claims relating to commercial, employment, antitrust, intellectual property or other regulatory matters, among others. If current or future government regulations are interpreted or enforced in a manner adverse to us or our business, specifically those with respect to antitrust or healthcare laws, we may be subject to enforcement actions, penalties, and other material limitations on our business.
We have been named as a defendant in several lawsuits brought by suppliers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products and operators of GPOs, including us, to deny the plaintiff access to a market for its products. No assurance can be given that we will not be subjected to similar actions in the future or that such matters will be resolved in a manner satisfactory to us or which will not harm our business, financial condition or results of operations.
We may become subject to additional litigation in the future. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to defend ourselves vigorously; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having a material adverse effect on our business, financial condition, results of operations, cash flow and per share trading price of the Class A common stock. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured and adversely impact our ability to attract officers and directors.
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Data loss or corruption due to failures or errors in our systems and service disruptions at our data centers may adversely affect our reputation and relationships with existing members, which could have a negative impact on our business, financial condition and results of operations.
Because of the large amount of data that we collect and manage, it is possible that hardware failures or errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our members regard as significant. Complex software such as ours may contain errors or failures that are not detected until after the software is introduced or updates and new versions are released. We continually introduce new software and updates and enhancements to our software. Despite testing by us, from time to time we have discovered defects or errors in our software, and such defects or errors may be discovered in the future. Any defects or errors could expose us to risk of liability to members and the government and could cause delays in the introduction of new products and services, result in increased costs and diversion of development resources, require design modifications, decrease market acceptance or member satisfaction with our products and services or cause harm to our reputation.
Furthermore, our members might use our software together with products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts, impact our reputation and lead to significant member relations problems.
Moreover, our internal data centers and service provider locations store and transmit critical member data that is essential to our business. While these locations are chosen for their stability, failover capabilities, and system controls, we do not directly control the continued or uninterrupted availability of every location. In addition to the services we provide from our offices, we are currently in the process of migrating some of our data center operations to third-party data-hosting facilities. Data center facilities are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures, and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice, or other unanticipated problems could result in lengthy interruptions in our service. These service interruption events could impair our ability to deliver services or deliverables or cause us to miss service level agreements in our agreements with our members, which could negatively affect our ability to retain existing members and attract new members.
If our security measures are breached or fail and unauthorized access is obtained to a member's data, or our members fail to obtain proper permissions for the use and disclosure of information, our services may be perceived as not being secure, members may curtail or stop using our services, and we may incur significant liabilities.
Our services involve the web-based storage and transmission of members' proprietary information and protected health information of patients. Because of the sensitivity of this information, security features of our software are very important. From time to time we may detect vulnerabilities in our systems, which, even if they do not result in a security breach, may reduce member confidence and require substantial resources to address. If our security measures are breached or fail as a result of third-party action, employee error, malfeasance, insufficiency, defective design, or otherwise, someone may be able to obtain unauthorized access to member or patient data. As a result, our reputation could be damaged, our business may suffer, and we could face damages for contract breach, penalties for violation of applicable laws or regulations, and significant costs for remediation and efforts to prevent future occurrences.
We rely upon our members as users of our system for key activities to promote security of the system and the data within it, such as administration of member-side access credential verification and
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control of member-side display of data. On occasion, our members have failed to perform these activities. Failure of members to perform these activities may result in claims against us that this reliance was misplaced, which could expose us to significant expense and harm to our reputation. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and members. In addition, our members may authorize or enable third parties to access their data or the data of their patients on our systems. Because we do not control such access, we cannot ensure the complete propriety of that access or integrity or security of such data in our systems. Any breach of our security could have a material adverse effect on our business, financial condition and results of operations.
Additionally, we require our members in both of our business segments to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of the information that we receive, and we require contractual assurances from them that they have done so and will do so. If they do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on their behalf may be limited or prohibited by state or federal privacy laws or other laws. Any such failure to obtain proper permissions and waivers could impair our functions, processes, and databases that reflect, contain, or are based upon such data and may prevent use of such data. In addition, such a failure could interfere with or prevent creation or use of rules and analyses or limit other data-driven activities that benefit us. Moreover, we may be subject to claims or liability for use or disclosure of information by reason of our lack of a valid notice, permission, or waiver. These claims or liabilities could subject us to unexpected costs and adversely affect our business, financial condition and results of operations.
For a more detailed discussion of the risks associated with a failure by us to comply with any of the federal and state standards regarding patient privacy, identity theft prevention and detection and data security, see the risk factor below under "Risks Related to Healthcare RegulationFederal and state privacy, security and breach notification laws may increase the costs of operation and expose us to civil and criminal government sanctions and third-party civil litigation."
Any restrictions on our use of, or ability to license, data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on our business, financial condition and results of operations.
We depend upon licenses from third parties for some of the technology and data used in our applications, and for some of the technology platforms upon which these applications are built and operate, including IBM and 3M. We also obtain a portion of the data that we use from government entities, public records and from our members for specific member engagements. We believe that we have all rights necessary to use the data that is incorporated into our products and services. However, we cannot assure you that our licenses for information will allow us to use that information for all potential or contemplated applications and products. In the future, data providers could withdraw their data from us or restrict our usage for any reason, including if there is a competitive reason to do so, if legislation is passed restricting the use of the data, or if judicial interpretations are issued restricting use of the data that we currently use in our products and services. In addition, data providers could fail to adhere to our quality control standards in the future, causing us to incur additional expense to appropriately utilize the data. If a substantial number of data providers were to withdraw or restrict their data, or if they fail to adhere to our quality control standards, and if we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, our ability to provide products and services to our members would be materially adversely impacted and it would have a material adverse effect on our business, financial condition and results of operations.
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We also integrate into our proprietary applications and use third-party software to maintain and enhance, among other things, content generation and delivery, and to support our technology infrastructure. Some of this software is proprietary and some is open source. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. These technologies may not be available to us in the future on commercially reasonable terms or at all and could be difficult to replace once integrated into our own proprietary applications (although we currently believe this risk is remote given the "off-the-shelf" nature of these licenses and that standard operating procedures and practices utilized by these third parties would generally afford us sufficient time to effectively transition to other readily available sources without significant long-term impact to our business). Most of these licenses can be renewed only by mutual consent and may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. Our inability to obtain, maintain or comply with any of these licenses could delay development until equivalent technology can be identified, licensed and integrated, which would harm our business, financial condition and results of operations.
Most of our third-party licenses are non-exclusive and our competitors may obtain the right to use any of the technology covered by these licenses to compete directly with us. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. In addition, if our data suppliers choose to discontinue support of the licensed technology in the future, we might not be able to modify or adapt our own solutions.
We may rely on partners and other third parties to provide members with a single-source solution.
From time to time, we may engage teaming partners or other third parties to provide our members with a single-source solution. For example, through partnerships with leading suppliers such as Verisk Analytics Inc., Phytel Inc. and Activate Networks, Inc., we offer performance improvement collaboratives and clinical, financial and operational SaaS informatics products, such as PopulationFocus, CareFocus, NetworkFocus and QualityAdvisor. While we believe that we perform appropriate due diligence on our teaming partners and other third parties, we cannot guarantee that those parties will comply with the terms set forth in their agreements. We may have disputes with our teaming partners or other third parties arising from the quality and timeliness of their work, member concerns about them or other matters. Performance deficiencies or misconduct by our teaming partners or other third parties could result in a member terminating our contract for default and/or could adversely affect our member relationships. We may be exposed to liability and we and our members may be adversely affected if a teaming partner or other third party fails to meet its contractual obligations.
Our use of "open source" software could adversely affect our ability to sell our products and subject us to possible litigation.
The products or technologies acquired, licensed or developed by us may incorporate so-called "open source" software, and we may incorporate open source software into other products in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses, including, for example, the GNU General Public License, the GNU Lesser General Public License, "Apache-style" licenses, "Berkeley Software Distribution," "BSD-style" licenses and other open source licenses. There is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses, and therefore the potential impact of these terms on our business
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is unknown and may result in unanticipated obligations regarding our products and technologies. For example, we may be subjected to certain conditions, including requirements that we offer our products that use particular open source software at no cost to the user, that we make available the source code for modifications or derivative works we create based upon, incorporating or using the open source software, and/or that we license such modifications or derivative works under the terms of the particular open source license.
If an author or other party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal costs defending ourselves against such allegations. If our defenses were not successful, we could be subject to significant damages, be enjoined from the distribution of our products that contained the open source software, and be required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our products. In addition, if we combine our proprietary software with open source software in a certain manner, under some open source licenses we could be required to release the source code of our proprietary software, which could substantially help our competitors develop products that are similar to or better than ours.
Changes in industry pricing benchmarks could materially impact our financial performance.
Contracts in the prescription drug industry, including our contracts with our specialty pharmacy members, generally use "average wholesale price," or AWP, which is published by a third party, as a benchmark to establish pricing for prescription drugs. Various federal and state government agencies and prosecutors, as well as legislators and private litigants, have challenged the use of AWP for prescription drug reimbursement, as well as the manner by which AWP is calculated. In 2011, First DataBank, a significant provider of AWP information, discontinued publishing such information. Other publishers, such as MediSpan, reduced their reported AWP prices. These recent events have raised uncertainties as to whether certain third parties will continue to publish AWP, which may result in the inability of payors, pharmacy providers and others in the prescription drug industry to continue to utilize AWP as it has previously been calculated, or whether other pricing benchmarks will be adopted for establishing pricing within the industry. Due to these uncertainties, we are unable to anticipate what, if any, future impact this will have on our member contracts or our business strategy generally. Therefore, we can give no assurance that the short or long-term impact of such changes to industry pricing benchmarks will not have a material adverse effect on our business, financial condition and results of operations in future periods.
Prescription volumes may decline, and our net revenues and profitability may be negatively impacted, if the safety risk profiles of drugs increase or if drugs are withdrawn from the market, including as a result of manufacturing issues, or if prescription drugs transition to over-the-counter products.
We dispense significant volumes of brand-name and generic drugs from our specialty pharmacies. When increased safety risk profiles or manufacturing issues of specific drugs or classes of drugs result in utilization decreases, physicians may cease writing or otherwise reduce the numbers of prescriptions for these drugs. Additionally, negative press regarding drugs with higher safety risk profiles may result in reduced global consumer demand for such drugs. On occasion, products are withdrawn by their manufacturers or transition to over-the-counter products. In cases where there are no acceptable prescription drug equivalents or alternatives for these prescription drugs, our volumes, net revenues, profitability and cash flows may decline.
Our ability to grow our specialty pharmacy could be limited if we do not maintain and expand our existing base of drugs, if we lose patients or if manufacturers limit or cease doing business with us.
Our specialty pharmacy focuses on complex and high-cost medications that serve a relatively small patient population. Due to this limited patient population, our future growth relies in part on maintaining and expanding our base of drugs or penetration in certain treatment categories. Sales
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volumes at our specialty pharmacy could also be negatively impacted due to increases in the safety risk profiles or manufacturing issues of specific drugs, product withdrawals by manufacturers or transitions to over-the-counter products. Any loss of patient base or reduction in demand for any reason for the medications we currently dispense could have a material adverse effect on our business, financial condition and results of operations.
In addition, industry trends may result in health plans contracting with a single provider for specialty pharmacy services and manufacturers limiting their business with regional providers of these services. If we are unable to obtain managed care contracts in the areas in which we provide specialty pharmacy services or are unable to obtain specialty pharmacy products at reasonable costs or at all, our business, financial condition and results of operations could be adversely affected.
Our direct sourcing activities depend on contract manufacturing facilities located in various parts of the world and any physical, financial, regulatory, environmental, labor or operational disruption could result in a reduction in sales volumes and the incurrence of substantial expenditures.
As part of our direct sourcing activities, which are a part of our supply chain services segment, we contract with manufacturing facilities in various parts of the world, including facilities in China, which are subject to operating hazards and interruptions. Operations at these manufacturing facilities could be curtailed or partially or completely shut down, temporarily or permanently, as the result of a number of circumstances, most of which are outside of our control, such as unscheduled maintenance, a major catastrophe such as an earthquake, hurricane, flood, tsunami or other natural disaster, or significant labor strikes, work stoppages, or political unrest. Any significant curtailment of production at these facilities could result in materially reduced revenues and cash flow in our direct sourcing activities. In addition our business practices in international markets are subject to the requirements of the U.S. Foreign Corrupt Practices Act of 1977, as amended, any violation of which could subject us to significant fines, criminal sanctions and other penalties.
A substantial portion of the manufacturing for our direct sourcing activities is conducted in China. As a result, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including the degree of government involvement, the level of development, the growth rate, the control of foreign exchange, access to financing and the allocation of resources. Additionally, the facilities in China with which we contract are particularly susceptible to rising labor costs and interruptions as a result of minimum wage laws, scheduling and overtime requirements, labor disputes and strikes.
If we lose key personnel or if we are unable to attract, hire, integrate and retain key personnel, our business would be harmed.
Our future success depends in part on our ability to attract, hire, integrate and retain key personnel. Our future success also depends on the continued contributions of our executive officers and other key personnel, each of whom may be difficult to replace. In particular, Susan D. DeVore, our President and Chief Executive Officer, Michael J. Alkire, our Chief Operating Officer, Craig S. McKasson, our Senior Vice President and Chief Financial Officer, Keith J. Figlioli, our Senior Vice President of Healthcare Informatics, and Durral R. Gilbert, our President of Supply Chain Services are critical to the management of our business and operations and the development of our strategic direction. The loss of services of Ms. DeVore, Mr. Alkire, Mr. McKasson, Mr. Figlioli, Mr. Gilbert or any of our other executive officers or key personnel could have a material adverse effect on our business, financial condition and results of operations. The replacement of any of these key individuals would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.
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Our success also depends upon our ability to identify, hire and retain other highly skilled technical, managerial, editorial, sales, marketing and customer service professionals. Competition for such personnel is intense. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. We cannot be certain of our ability to identify, hire and retain adequately qualified personnel. Failure to identify, hire and retain necessary key personnel could have a material adverse effect on our business, financial condition and results of operations.
If the protection of our intellectual property is inadequate, our competitors may gain access to our technology or confidential information and we may lose our competitive advantage.
Our success as a company depends in part upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of intellectual property rights, including trade secrets, copyrights and trademarks, as well as customary contractual protections.
We utilize a combination of internal and external measures to protect our proprietary software and confidential information. Such measures include contractual protections with employees, contractors, members, and partners, as well as U.S. copyright laws.
We protect the intellectual property in our software pursuant to customary contractual protections in our agreements that impose restrictions on our members' ability to use such software, such as prohibiting reverse engineering and limiting the use of copies. We also seek to avoid disclosure of our intellectual property by relying on internal policies applicable to our employees and consultants that acknowledge our ownership of all intellectual property developed by the individual during the course of his or her work with us. These member agreements and internal policies applicable to our employees and consultants also require each person to maintain the confidentiality of all proprietary information disclosed to them. Other parties may not comply with the terms of these agreements and policies, and we may not be able to enforce our rights adequately against these parties. The disclosure to, or independent development by, a competitor of any trade secret, know-how or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over any such competitor.
These protections may not be adequate, and we cannot assure you that they will prevent misappropriation of our intellectual property. Other companies could independently develop similar or competing technology without violating our proprietary rights. The process of enforcing our intellectual property rights through legal proceedings would likely be burdensome and expensive, and our ultimate success cannot be assured. Our failure to adequately protect our intellectual property and proprietary rights could adversely affect our business, financial condition and results of operations.
If we are deemed to infringe, misappropriate or violate the proprietary rights of third parties, we could incur unanticipated expense and be prevented from providing our products and services.
We could be subject to intellectual property infringement, misappropriation or other intellectual property violation claims as our applications' functionality overlaps with competitive products and third parties may claim that we do not own or have rights to use all intellectual property rights used in the conduct of our business. We do not believe that we have infringed or are infringing on any valid or enforceable proprietary rights of third parties. However, we cannot assure you that infringement, misappropriation or claims alleging intellectual property violations will not be asserted against us. Also, we cannot assure you that any such claims will be unsuccessful. We could incur substantial costs and diversion of management resources defending any such claims. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to provide products or services. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for
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our products or services will be available on commercially reasonable terms, or at all. Such claims also might require indemnification of our members at significant expense.
In addition, a number of our contracts with our members contain indemnity provisions whereby we indemnify them against certain losses that may arise from third-party claims that are brought in connection with the use of our products.
Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we have limited visibility into the development process with respect to such technology or the care taken to safeguard against infringement risks. In addition, third parties may make infringement and similar or related claims after we have acquired technology that had not been asserted prior to our acquisition.
If we are required to collect sales and use taxes on the products and services we sell in certain jurisdictions or intend to sell online, we may be subject to tax liability for past sales, future sales may decrease and our financial condition may be materially and adversely affected.
Rules and regulations applicable to sales and use tax vary significantly by tax jurisdiction. In addition, the applicability of these rules given the nature of our products and services is subject to change.
We may lose sales or incur significant costs should various tax jurisdictions be successful in imposing sales and use taxes on a broader range of products and services than those currently so taxed, including products and services sold online. A successful assertion by one or more taxing authorities that we should collect sales or other taxes on the sale of our solutions could result in substantial tax liabilities for past and future sales, decrease our ability to compete and otherwise harm our business.
In addition, sales tax is currently not imposed on the administrative fees we collect in connection with our GPO programs. If sales tax were imposed in the future on such fees, the profitability of our GPO programs may be materially and adversely affected.
If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our products and services, including products and services sold online, we may be liable for past taxes in addition to taxes going forward. Liability for past taxes may also include very substantial interest and penalty charges. If we are required to collect and pay back taxes (and the associated interest and penalties) and if our members fail or refuse to reimburse us for all or a portion of these amounts, we will have incurred unplanned costs that may be substantial. Moreover, imposition of such taxes on our services going forward will effectively increase the cost of such services to our members and may adversely affect our ability to retain existing members or to gain new members in the areas in which such taxes are imposed.
We rely on Internet infrastructure, bandwidth providers, data center providers, other third parties, and our own systems for providing services to our users, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation and negatively impact our relationships with users, adversely affecting our brand and our business.
Our ability to deliver our performance services segment products is dependent on the development and maintenance of the infrastructure of the Internet and other telecommunications services by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity, and security for providing reliable Internet access and services and reliable telephone, facsimile, and pager systems. Our services are designed to operate without interruption in accordance with our service level commitments. However, we have experienced and expect that we will experience interruptions and delays in services and availability from time to time. We rely on internal systems as well as third-party suppliers, including bandwidth and telecommunications equipment providers, to provide our services. We are also currently in the process of migrating some of our data center
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operations to third-party data-hosting facilities. We do not maintain redundant systems or facilities for some of these services. In the event of a catastrophic event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, which could negatively impact our relationship with users. To operate without interruption, both we and our service providers must guard against:
Any disruption in the network access, telecommunications, or co-location services provided by these third-party providers or any failure of or by these third-party providers or our own systems to handle current or higher volume of use could significantly harm our business. We exercise limited control over these third-party suppliers, which increases our vulnerability to problems with services they provide. Any errors, failures, interruptions, or delays experienced in connection with these third-party technologies and information services or our own systems could negatively impact our relationships with users and adversely affect our business and could expose us to third-party liabilities. Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.
The reliability and performance of the Internet may be harmed by increased usage or by denial-of-service attacks. The Internet has experienced a variety of outages and other delays as a result of damages to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based services.
We may need to obtain additional financing which may not be available or, if it is available, may result in a reduction in the percentage ownership of our then-existing stockholders.
We may need to raise additional funds in order to:
Additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion strategy, take advantage of unanticipated opportunities, develop or enhance technology or services or otherwise respond to competitive pressures would be significantly limited. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our then-existing stockholders may be reduced, and holders of these securities may have rights, preferences or privileges senior to those of our then-existing stockholders.
Our future indebtedness could adversely affect our business and our liquidity position.
On December 16, 2011, we entered into a three-year $100 million senior secured revolving credit facility, which includes an accordion feature granting us the ability to increase the size of the facility by
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an additional $100 million on terms and conditions mutually acceptable to the parties. As of August 20, 2013, we had $30 million in principal amount outstanding under this credit facility.
Nonetheless, our indebtedness may increase from time to time in the future for various reasons, including fluctuations in operating results, capital expenditures and potential acquisitions. Any indebtedness we incur and restrictive covenants contained in the agreements related thereto could:
The occurrence of any one of these events could have a material adverse effect on our business, financial condition and results of operations or cause a significant decrease in our liquidity and impair our ability to pay amounts due on our indebtedness.
In addition, our senior secured revolving credit facility contains, among other things, restrictive covenants that will limit our and our subsidiaries' ability to finance future operations or capital needs or to engage in other business activities. The credit facility restricts, among other things, our ability and the ability of our subsidiaries to incur additional indebtedness or issue guarantees, create liens on our assets, make distributions on or redeem equity interests, make investments, transfer or sell properties or other assets, and engage in mergers, consolidations or acquisitions. In addition, the credit facility requires us to meet specified financial ratios and tests. For additional information regarding our senior secured revolving credit facility, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsContractual Obligations."
Our cash flows, quarterly revenues and results of operations have fluctuated in the past and may continue to fluctuate in the future as a result of certain factors, some of which may be outside of our control.
Certain of our member contracts contain terms that result in revenue that is deferred and cannot be recognized until the occurrence of certain events. For example, accounting principles do not allow us to recognize revenue associated with the implementation of certain products and services in our performance services segment until the implementation has been completed, at which time we begin to recognize revenue over the life of the contract or the estimated remaining member relationship period, whichever is longer. As a result, the period of time between contract signing and recognition of associated revenue may be lengthy, and we are not able to predict with certainty the period in which implementation will be completed.
Certain of our member agreements provide for guaranteed levels of savings in which some portion or all of our fees are at risk and refundable if our products and services do not result in the achievement of these financial performance targets. The amount of guaranteed savings in the member agreements in place on June 30, 2013 represent approximately 6% of our net revenue in the event that no savings are identified. These member agreements are reviewed and approved by the member agreement review committee of our board of directors, which is comprised of our independent directors and our president and chief executive officer, in order to manage and protect potential conflict of
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interest issues with member owners. If we are unable to meet or exceed savings guarantee levels, we may be required to pay any difference between savings that were guaranteed and the savings, if any, which were actually achieved. To the extent that any revenue is subject to contingency for the non-achievement of a performance target, we only recognize revenue upon member confirmation that the financial performance targets have been achieved. If a member fails to provide such confirmation in a timely manner, our ability to recognize revenue will be delayed. Additionally, certain of our contracts include the potential for a payment based on a percentage achieved on certain financial performance targets, which we may or may not earn when expected or at all.
Our group purchasing services rely on participating suppliers to provide periodic reports of their sales volumes to our members and resulting administrative fees to us. If a supplier fails to provide such reporting in a timely and accurate manner, our ability to recognize administrative fees revenue will be delayed or prevented.
Certain of our fees are based on timing and volume of member invoices processed and payments received, which are often dependent upon factors outside of our control.
Other fluctuations in our quarterly results of operations may be due to a number of other factors, some of which are not within our control, including:
We base our expense levels in part upon our expectations concerning future revenue, and these expense levels are relatively fixed in the short term. If we have lower revenue than expected, we may not be able to reduce our spending in the short term in response. Any significant shortfall in revenue would have a direct and material adverse impact on our business, financial condition and results of operations. We believe that our quarterly results of operations may vary significantly in the future and that period-to-period comparisons of our results of operations may not be meaningful. You should not rely on the results of one quarter as an indication of future performance. If our quarterly results of operations fall below the expectations of securities analysts or investors, the price of the Class A common stock could decline substantially. In addition, any adverse impacts on the Class A common stock may harm the overall reputation of our organization, cause us to lose members and impact our ability to raise additional capital in the future.
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Risks Related to Healthcare Regulation
The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory healthcare environment that affect the GPO business or the purchasing practices and operations of healthcare organizations, or that lead to consolidation in the healthcare industry, could require us to modify our services or reduce the funds available to providers to purchase our products and services.
Our business, financial condition and results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems particularly. Our ability to grow will depend upon the economic environment of the healthcare industry generally as well as our ability to increase the number of programs and services that we sell to our members. The healthcare industry is highly regulated by federal and state authorities and is subject to changing political, economic and regulatory influences. Factors such as changes in reimbursement policies for healthcare expenses, consolidation in the healthcare industry, regulation, litigation and general economic conditions affect the purchasing practices, operations and the financial health of healthcare organizations. In particular, changes in regulations affecting the healthcare industry, such as increased regulation of the purchase and sale of medical products, or restrictions on permissible discounts and other financial arrangements, could require us to make unplanned modifications of our products and services, result in delays or cancellations of orders or reduce funds and demand for our products and services.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, or PPACA, amended by the Health Care and Education and Reconciliation Act of 2010, collectively referred to as the Affordable Care Act. The Affordable Care Act is a sweeping measure designed to expand access to affordable health insurance, control healthcare spending, and improve healthcare quality. The law includes provisions to tie Medicare provider reimbursement to healthcare quality and incentives, mandatory compliance programs, enhanced transparency disclosure requirements, increased funding and initiatives to address fraud and abuse, and incentives to state Medicaid programs to promote community-based care as an alternative to institutional long-term care services. In addition, the law provides for the establishment of a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services, which could lead to changes in the delivery of healthcare services. Likewise, many states have adopted or are considering changes in healthcare policies in part due to state budgetary shortfalls. Regulations for implementing many provisions of the Affordable Care Act are being released on an ongoing basis, and we do not know what effect the federal Affordable Care Act or any state law proposals may have on our business.
If we fail to comply with federal and state laws governing financial relationships among healthcare providers and submission of false or fraudulent claims to government healthcare programs, we may be subject to civil and criminal penalties or loss of eligibility to participate in government healthcare programs.
We are subject to federal and state laws and regulations designed to protect patients, governmental healthcare programs and private health plans from fraudulent and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws are complex and their application to our specific products, services and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have over time increased enforcement activities with respect to Medicare and Medicaid fraud and abuse regulations and other reimbursement laws and rules. From time to time we and others in the healthcare industry have received inquiries or requests to produce documents in connection with such activities. We could be required to expend significant time and resources to comply with these requests, and the attention of our management team could be diverted to these efforts. Furthermore, if we are found to be in violation of any federal or state fraud and abuse laws, we could be subject to civil and criminal penalties, and we could be excluded from participating in federal
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and state healthcare programs such as Medicare and Medicaid. The occurrence of any of these events could significantly harm our business and financial condition.
Provisions in Title XI of the Social Security Act, commonly referred to as the federal Anti-Kickback Statute, prohibit the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The definition of "remuneration" has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to influence the purchase, lease or ordering of healthcare items and services regardless of whether the item or service is covered under a governmental health program or private health plan. Certain statutory and regulatory safe harbors exist that protect specified business arrangements from prosecution under the Anti-Kickback Statute if all elements of an applicable safe harbor are met, however these safe harbors are narrow and often difficult to comply with. Congress has appropriated an increasing amount of funds in recent years to support enforcement activities aimed at reducing healthcare fraud and abuse. We cannot assure you that our arrangements will be protected by such safe harbors or that such increased enforcement activities will not directly or indirectly have an adverse effect on our business, financial condition or results of operations. Any determination by a state or federal agency that any of our activities or those of our suppliers or members, violate any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs, and, thus could have a material adverse effect on our business, financial condition and results of operations.
In 2005, the Department of Health and Human Services, or HHS, Office of Inspector General conducted an extensive audit of the business practices of three GPOs, including us, and published a report indicating that of the $1.8 billion in administrative fees that these GPOs collected over a four-year period, $1.3 billion exceeded their operating expenses. Of this amount, $898 million was returned to hospitals. The report found certain deficiencies in the manner in which the hospitals reflected these fees on their cost reports to Medicare. The HHS Office of Inspector General took no enforcement action against us or, to our knowledge, either of the other GPOs. The report did not identify any of our business practices, or relationships with suppliers or our members, which in its view violated the Anti-Kickback Statute. In response to these findings, the HHS Office of Inspector General recommended that CMS provide specific guidance on the proper treatment on Medicare cost reports of revenue distributions received from GPOs. CMS issued an update to its provider reimbursement manual in December 2011 specifying that these distributions must be properly accounted for on such cost reports. The 2005 report and subsequent CMS guidance suggest that the various forms of value received by our U.S. hospital members and health system member owners in connection with or related to the Reorganization and this offering (including, without limitation, increases in the fair market value of equity held by such member owners, proceeds from the purchase of Class B common units from such member owners immediately following this offering and as a result of subsequent exchanges, Premier LP cash distributions, administrative fee revenue share paid by Premier LP to our members based upon their member facilities' purchases through GPO supplier contracts and payments under the tax receivable agreement) should be appropriately reflected in their cost reports to Medicare, and we have sought to structure those arrangements so that they can be appropriately reflected. Our members that report their costs to Medicare are required under the terms of the Premier Group Purchasing Policy to appropriately reflect all elements of value received in connection with the Reorganization and this offering on their cost reports. We are required to furnish applicable reports to such members setting forth the amount of such value, to assist their compliance with such cost reporting requirements. We cannot assure you, however, that the HHS Office of Inspector General or the U.S. Department of
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Justice, or DOJ, would concur with such approach. Any determination by a state or federal agency that the provision of such forms of value violate any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs, and, thus could have a material adverse effect on our business, financial condition and results of operations.
In the lead-up to this offering, we received correspondence from one of our major GPO competitors expressing concern that the manner in which our proposed initial public offering was explained to our current and prospective member owners could violate the Anti-Kickback Statute. One letter attached a brief analysis prepared by the competitor's outside counsel, which concluded that the opportunity to participate in our initial public offering could constitute a form of remuneration for purposes of the Anti-Kickback Statute and that if the other requisite elements of an Anti-Kickback Statute violation were present, the extension by us of such opportunity could violate the Anti-Kickback Statute. We believe that our discussions with current and prospective member owners regarding the possibility that we would undertake an initial public offering were conducted in compliance with the Anti-Kickback Statute and other applicable laws. However, no assurance can be given that enforcement authorities will agree with our assessment. Although a process exists for requesting advisory opinions from the HHS Office of Inspector General regarding compliance of particular arrangements with the Anti-Kickback Statute, we have not sought such an opinion and do not believe that the issues raised in the competitor's correspondence are capable of being addressed in an advisory opinion since the content and specifics of each discussion would be at issue. Any determination by a state or federal agency that the manner in which the opportunity to participate in this offering was presented to our member owners and prospective member owners, either in of itself or when viewed in conjunction with the requirements for ownership in Premier LP and participation in our group purchasing program or the various forms of value received by our member owners in connection with or related to this offering, violated any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs, and, thus could have a material adverse effect on our business, financial condition and results of operations.
On July 23, 2013, the HHS Office of Inspector General published Advisory Opinion 13-09 addressing a transaction proposed to be undertaken by the competitor referred to in the preceding paragraph. Under this proposal, the competitor, which is a publicly-traded company, would issue stock to certain of its current and prospective customers in exchange for the customers' agreement to extend or enter into a five- to seven-year contract that would require the customer to commit not to decrease its historical level of purchases through the competitor's GPO supplier contracts over the term of the contract and to agree to a reduction in the percentage of administrative fee revenue share paid by the competitor to such customer on an annual basis. The amount of stock given to each customer would be equal to the amount of the reduction in revenue share due to the customer over the term of the contract. The HHS Office of Inspector General concluded that the competitor's proposed transaction could potentially generate prohibited remuneration under the Anti-Kickback Statute and that the HHS Office of Inspector General could potentially impose administrative sanctions on the competitor in connection with the arrangement. The HHS Office of Inspector General first noted that the granting of stock to customers would not fit within the discount safe harbor and therefore must be assessed based on the totality of the facts and circumstances. The HHS Office of Inspector General then observed that when a GPO passes through administrative fees to its customers, such fees could be treated as discounts on the price of goods sold by the vendors and the GPO and its customers could meet the reporting and other requirements of the discount safe harbor. This in turn could reduce costs to federal healthcare programs. The HHS Office of Inspector General asserted that the competitor's proposed arrangement, to the contrary, would result in a portion of a customer's revenue share, which would otherwise be reflected as a reduction in expense on the customer's cost reports, being exchanged for
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stock which would have no potential to benefit payors, including federal healthcare programs. The HHS Office of Inspector General cited three additional factors which, in its view, increase the risk of fraud and abuse posed by the competitor's proposed transaction: (i) the customers receiving stock would be required to extend their contracts (or enter into new contracts) with the competitor's GPO for five to seven years; (ii) the stock granted by the competitor would be tied to the customers' past purchases; and (iii) customers would not be permitted to decrease their volume of purchases through the competitor's group purchasing contracts. In the HHS Office of Inspector General's view, the combination of these three factors would result in customers potentially being rewarded with stock based upon their past referrals and being locked into long-term contracts under which they would be forced to maintain historical purchasing levels for an extended period of time regardless of whether the competitor is getting them the best prices. We believe that the terms of the Reorganization are distinguishable from those described in Advisory Opinion 13-09. However, the Reorganization does not fall within any safe harbor to the Anti-Kickback Statute and no assurance can be given that the HHS Office of Inspector General or other regulators or enforcement authorities will agree with our assessment. Any determination by a state or federal agency that the terms of our Reorganization or our relationship with our members violate the Anti-Kickback Statute or any other federal or state laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs, and, thus could have a material adverse effect on our business, financial condition and results of operations.
Our business is also subject to numerous federal and state laws that forbid the submission or "causing the submission" of false or fraudulent information or the failure to disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid, other federal healthcare programs or private health plans. In particular, the False Claims Act, or FCA, prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the United States. In addition, the FCA prohibits a person from knowingly making, using, or causing to be made or used a false record or statement material to such a claim. Violations of the FCA may result in treble damages, significant monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded healthcare programs. The scope and implications of the amendments to the FCA pursuant to the Fraud Enforcement and Recovery Act of 2009, or FERA, have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business. If enforcement authorities find that we have violated the FCA, it could have a material adverse effect on our business, financial condition and results of operations. Pursuant to the 2010 healthcare reform legislation, a claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA.
These laws and regulations may change rapidly and it is frequently unclear how they apply to our business. Errors in claims submitted by our specialty pharmacies and pharmacy benefits management businesses, as well as errors created by our products or advisory services that relate to entry, formatting, preparation or transmission of claim or cost report information by our members may be determined or alleged to be in violation of these laws and regulations. Any failure of our businesses or our products or services to comply with these laws and regulations, or the assertion that any of our relationships with suppliers or members violated the Anti-Kickback Statute and therefore caused the submission of false or fraudulent claims, could (i) result in substantial civil or criminal liability, (ii) adversely affect demand for our services, (iii) invalidate all or portions of some of our member contracts, (iv) require us to change or terminate some portions of our business, (v) require us to refund portions of our services fees, (vi) cause us to be disqualified from serving members doing business with government payors, and (vii) have a material adverse effect on our business, financial condition and results of operations.
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If current or future antitrust laws and regulations are interpreted or enforced in a manner adverse to us or our business, we may be subject to enforcement actions, penalties, and other material limitations on our business.
We are subject to federal and state laws and regulations designed to protect competition which, if enforced in a manner adverse to us or our business, could have a material adverse effect on our business, financial condition and results of operations. The group purchasing industry has previously been under review by members of the U.S. Senate with respect to antitrust laws. In 2002, the U.S. Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights conducted a series of hearings concerning the activities of GPOs, including us. As a response to the Senate Subcommittee inquiry, we and other operators of GPOs formed the Healthcare Supply Chain Association (formerly the Healthcare Industry Group Purchasing Association), or HSCA, which developed a code of conduct to assure compliance with ethical and legal standards, including the antitrust laws. In addition, in 2002 we adopted our own Code of Conduct in consultation with a leading ethicist. As part of these Senate investigations, the U.S. General Accounting Office, or GAO, published two reports. The first report included an examination of GPO pricing. The second report investigated contracting practices used by GPOs with regard to administrative fees, sole source contracts and bundling arrangements and discussed the various codes of conduct implemented by the GPOs to address these practices.
On August 11, 2009, we and several other operators of GPOs received a letter from Senators Charles Grassley, Herb Kohl and Bill Nelson requesting information concerning the different relationships between and among us and our members, distributors, manufacturers and other suppliers, and requesting certain information about the services we perform and the payments we receive in connection with our GPO programs. On September 25, 2009, we and several other operators of GPOs received a request for information from the GAO, also concerning our services and relationships with our members in connection with our GPO programs. Subsequently, we and other operators of GPOs received follow-up requests for additional information. We fully complied with all of these requests. On September 27, 2010, the GAO released a report titled "Group Purchasing OrganizationsServices Provided to Customers and Initiatives Regarding Their Business Practices." On that same day, the Minority Staff of the U.S. Senate Finance Committee released a report titled "Empirical Data Lacking to Support Claims of Savings with Group Purchasing Organizations." On March 30, 2012, the GAO released a report titled "Group Purchasing OrganizationsFederal Oversight and Self-Regulation."
Congress, the DOJ, the Federal Trade Commission, or FTC, the U.S. Senate or another state or federal entity could at any time open a new investigation of the group purchasing industry, or develop new rules, regulations or laws governing the industry, that could adversely impact our ability to negotiate pricing arrangements with suppliers, increase reporting and documentation requirements, or otherwise require us to modify our arrangements in a manner that adversely impacts our business, financial condition and results of operations. We may also face private or government lawsuits alleging violations arising from the concerns articulated by these governmental actors.
During the past 15 years, we have been named as a defendant in lawsuits brought by suppliers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products and operators of GPOs, including us, to deny the plaintiff access to a market for its products. No such litigation is currently pending. No assurance can be given that we will not be subjected to similar actions in the future or that such matters will be resolved in a manner satisfactory to us or which will not harm our business, financial condition or results of operations.
We cannot guarantee that the antitrust laws will ultimately be enforced in a manner consistent with our interpretation. If we are found to be in violation of the antitrust laws we could be subject to civil and criminal penalties. The occurrence of any of these events could significantly harm our business, financial condition and results of operations.
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Potential healthcare reform and new regulatory requirements placed on our software, services and content could impose increased costs on us, delay or prevent our introduction of new services types and impair the function or value of our existing service offerings.
Our services may be significantly impacted by healthcare reform initiatives and could be subject to increasing regulatory requirements, either of which could affect our business in a multitude of ways. If additional substantive healthcare reform or applicable regulatory requirements are adopted, we may have to change or adapt our services and software to comply. Reform or changing regulatory requirements may also render our services obsolete or may block us from accomplishing our work or from developing new services. This may in turn impose additional costs upon us to adapt to the new operating environment or to further develop services or software. Such reforms may also make introduction of new service offerings more costly or more time-consuming than we currently anticipate. Such changes may even prevent introduction by us of new services or make the continuation of our existing services unprofitable or impossible.
Federal and state privacy, security and breach notification laws may increase the costs of operation and expose us to civil and criminal government sanctions and third-party civil litigation.
We must comply with extensive federal and state requirements regarding the use, retention, security and re-disclosure of patient/beneficiary healthcare information. The Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations that have been issued under it, which we refer to collectively as HIPAA, contain substantial restrictions and requirements with respect to the use and disclosure of individually identifiable health information, referred to as "protected health information." The HIPAA Privacy Rule prohibits a covered entity or a business associate (essentially, a third party engaged to assist a covered entity with enumerated operational and/or compliance functions) from using or disclosing protected health information unless the use or disclosure is validly authorized by the individual or is specifically required or permitted under the Privacy Rule and only if certain complex requirements are met. In addition to establishing these complex requirements, covered entities and business associates must also meet additional compliance obligations set forth in the Privacy Rule. In addition, the HIPAA Security Rule establishes administrative, organization, physical and technical safeguards to protect the privacy, integrity and availability of electronic protected health information maintained or transmitted by covered entities and business associates. The HIPAA Security Rule requirements are intended to mandate that covered entities and business associates regularly reassess the adequacy of their safeguards in light of changing and evolving security risks. Finally, the HIPAA Breach Notification Rule requires that covered entities and business associates, under certain circumstances, notify patients/beneficiaries and HHS when there has been an improper use or disclosure of protected health information.
Our specialty pharmacy, our self-funded health benefit plan, and our healthcare provider members (provided that these members engage in HIPAA-defined standard electronic transactions with health plans, which will be all or the vast majority) are directly regulated by HIPAA as "covered entities." Additionally, because most of our U.S. hospital members disclose protected health information to us so that we may use that information to provide certain data analytics, benchmarking, advisory or other operational and compliance services to these members, we are a "business associate" of those members. In these cases, in order to provide members with services that involve the use or disclosure of protected health information, HIPAA require us to enter into "business associate agreements" with our covered entity members. Such agreements must, among other things, provide adequate written assurances:
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With the enactment of the HITECH Act, the privacy and security requirements of HIPAA were modified and expanded. The HITECH Act applies certain of the HIPAA privacy and security requirements directly to business associates of covered entities. Prior to this change, business associates had contractual obligations to covered entities but were not subject to direct enforcement by the federal government. On January 17, 2013, HHS released final rules implementing the HITECH Act changes to HIPAA. These amendments expand the protection of protected health information by, among other things, imposing additional requirements on business associates, further restricting the disclosure of protected health information in certain cases when the disclosure is part of a remunerated transaction, and modifying the HIPAA Breach Notification Rule, which has been in effect since September 2009, to create a rebuttable presumption that any improper use or disclosure of protected health information requires notice to affected patients/beneficiaries and HHS. The 2013 final rule became effective on March 26, 2013 and the compliance date for most provisions is September 23, 2013. The modifications to the HIPAA Breach Notification Rule requirements are currently effective and being enforced.
Any failure or perceived failure of our products or services to meet HIPAA standards and related regulatory requirements could expose us to certain notification, penalty and/or enforcement risks, could adversely affect demand for our products and services, and force us to expend significant capital, research and development and other resources to modify our products or services to address the privacy and security requirements of our members and HIPAA.
In addition to our obligations under HIPAA there are other federal laws that impose specific privacy and security obligations, above and beyond HIPAA, for certain types of health information and impose additional sanctions and penalties. These rules are not preempted by HIPAA. Finally, most states have enacted patient and/or beneficiary confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area, including privacy safeguards, security standards, data security breach notification requirements, and special rules for so-called "sensitive" health information, such as mental health, genetic testing results, or HIV status. These state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply with them as well.
We are unable to predict what changes to HIPAA or other federal or state laws or regulations might be made in the future or how those changes could affect our business or the associated costs of compliance. For example, the federal Office of the National Coordinator for Health Information Technology, or ONCHIT, is coordinating the development of national standards for creating an interoperable health information technology infrastructure based on the widespread adoption of electronic health records in the healthcare sector. We are yet unable to predict what, if any, impact the creation of such standards and the further developments at ONCHIT will have on the necessary specifications or demand for our products, services, or on associated compliance costs.
Failure by us to comply with any of the federal and state standards regarding patient privacy, identity theft prevention and detection and data security may subject us to penalties, including civil
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monetary penalties and in some circumstances, criminal penalties. In addition, such failure may injure our reputation and adversely affect our ability to retain members and attract new members.
HIPAA also mandates format, data content and provider identifier standards that must be used in certain electronic transactions, such as claims, payment advice and eligibility inquiries. Although our systems are fully capable of transmitting transactions that comply with these requirements, some payers and healthcare clearinghouses with which we conduct business may interpret HIPAA transaction requirements differently than we do or may require us to use legacy formats or include legacy identifiers as they make the transition to full compliance. In cases where payers or healthcare clearinghouses require conformity with their interpretations or require us to accommodate legacy transactions or identifiers as a condition of successful transactions, we attempt to comply with their requirements, but may be subject to enforcement actions as a result. In January 2009, CMS published a final rule adopting updated standard code sets for diagnoses and procedures known as ICD-10 code sets. A separate final rule also published by CMS in January 2009 resulted in changes to the formats to be used for electronic transactions subject to the ICD-10 code sets, known as Version 5010. As of March 31, 2012, healthcare providers are required to comply with Version 5010. Use of the ICD-10 code sets is not mandated until October 1, 2014. We are actively working to make the proper modifications in preparation for the implementation of ICD-10. We may not be successful in responding to these changes and any changes in response that we make to our transactions and software may result in errors or otherwise negatively impact our service levels. We may also experience complications in supporting members that are not fully compliant with the revised requirements as of the applicable compliance date.
Our group purchasing, specialty pharmacy and direct sourcing activities can be adversely affected by product safety concerns and regulation.
Most of the products offered through our GPO supplier contracts, specialty pharmacies and direct sourcing activities are subject to direct regulation by federal and state governmental agencies. We rely upon suppliers who use our services to meet all quality control, packaging, distribution, labeling, hazard and health information notice, record keeping and licensing requirements. In addition, we rely upon the carriers retained by our suppliers to comply with regulations regarding the shipment of any hazardous materials.
We cannot guarantee that the suppliers are in compliance with applicable laws and regulations. If suppliers or the providers with whom we do business have failed, or fail in the future, to adequately comply with relevant laws or regulations, we could become involved in governmental investigations or private lawsuits concerning these regulations. If we were found to be legally responsible in any way for such failure, we could be subject to injunctions, penalties or fines which could have an adverse effect on our business, financial condition and results of operations. Furthermore, any such investigation or lawsuit could cause us to expend significant resources and divert the attention of our management team, regardless of the outcome, and thus could have an adverse effect on our business, financial condition and results of operations.
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Risks Related to Our Structure
Premier, Inc. is a holding company with no operations of its own, and it will depend on distributions from Premier LP to pay taxes, make payments under the tax receivable agreement or pay any cash dividends on our Class A common stock.
Premier, Inc. is a holding company with no operations of its own and it currently has no independent ability to generate revenue. Consequently, its ability to obtain operating funds currently depends upon distributions from Premier LP to Premier GP and from Premier GP to Premier, Inc. In accordance with the LP Agreement, subject to applicable law or regulation and the terms of Premier LP's financing agreements, Premier GP will cause Premier LP to make quarterly distributions out of its estimated taxable net income to Premier GP and to the holders of Class B common units as a class in an aggregate amount equal to Premier LP's total taxable income for each such quarter multiplied by the effective combined federal, state and local income tax rate then payable by Premier, Inc. to facilitate payment by each Premier LP partner of taxes, if required, on its share of taxable income of Premier LP. In addition, in accordance with the LP Agreement, Premier GP may cause Premier LP to make additional distributions to Premier GP and to the holders of Class B common units as a class in proportion to their respective number of units, subject to any applicable restrictions under Premier LP's financing agreements or applicable law. Premier GP will distribute any amounts it receives from Premier LP to Premier, Inc., which Premier, Inc. will use to (i) pay applicable taxes, (ii) meet its obligations under the tax receivable agreement, and (iii) meet its obligations to the member owners under the exchange agreement if they elect to convert their Class B common units for shares of our Class A common stock and we elect to pay some or all of the consideration to such member owners in cash.
In addition, pursuant to the GPO participation agreements, Premier LP will be contractually required to pay each member owner revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by such member owner's member facilities through our GPO supplier contracts. Additionally, our two largest regional GPO member owners, which represented approximately 17% of our gross administrative fee revenue for fiscal year 2013, will each remit all gross administrative fees collected by such member owner based upon purchasing by such member owner's member facilities through the member owner's own GPO supplier contracts and receive revenue share from Premier LP equal to 30% of such gross administrative fees remitted to us. Finally, certain non-owner members have historically operated under, and following the completion of the Reorganization and this offering, will continue to operate under, contractual relationships that provide for a specific revenue share that differs from the 30% revenue share that we will provide to our member owners under the GPO participation agreements following the Reorganization and this offering. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingGPO Participation Agreement."
To the extent that Premier, Inc. needs funds, and Premier LP is restricted from making such distributions under applicable law or regulation or under the terms of our senior secured revolving credit facility, or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition. The declaration and payment of future dividends by us will be at the discretion of our board of directors and will depend on, among other things, our operating results and cash flow from Premier LP's operations, our strategic plans and such other factors as our board of directors considers to be relevant. In addition, Premier LP is generally prohibited under Delaware law from making a distribution to a partner to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of the limited partnership (with certain exceptions) exceed the fair value of its assets.
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Different interests among our member owners or between our member owners and us, including with respect to related party transactions, could prevent us from achieving our business goals.
For the foreseeable future, we expect that a majority of our board of directors will include directors and executive officers of our member owners and other directors who may have commercial relationships with our member owners. Certain of our member owners could have business interests that may conflict with those of the other member owners, which may make it difficult for us to pursue strategic initiatives that require consensus among our member owners.
In addition, our relationship with our member owners, who are both our members and will own a significant percentage of our common stock and the units of Premier LP following the completion of the Reorganization and this offering, could create conflicts of interest among the member owners, or between the member owners and us, in a number of areas relating to our past and ongoing relationships. For example, certain of our products and services compete (or may compete in the future) with various products and services of our member owners. In addition, conflicts of interest may arise among the member owners based on certain allocations of net profits that the member owners may receive in proportion to their relative participation in our products and services. Except as set forth in the tax receivable agreement and the GPO participation agreements with the member owners and in the LP Agreement, there are not any formal dispute resolution procedures in place to resolve conflicts between us and a member owner or between member owners. We may not be able to resolve any potential conflicts between us and a member owner and, even if we do, the resolution may be less favorable to us than if we were negotiating with an unaffiliated party. See "Upon the completion of the Reorganization and this offering, our member owners will be able to exercise significant control over us, including through the election of all of our directors."
Our ability to use the net proceeds from future issuances of our Class A common stock is limited.
The LP Agreement requires that we contribute to Premier LP the net proceeds received by us from any issuance of additional shares of our Class A common stock (other than exchanges under the exchange agreement) in exchange for newly issued Class A common units in Premier LP based on the fair market value of our Class A common stock at the time of the transfer. As a result, such proceeds will not be immediately available to us for our working capital requirements or other general corporate purposes.
Upon the completion of the Reorganization and this offering, our member owners will be able to exercise significant control over us, including through the election of all of our directors.
Upon the completion of the Reorganization and this offering, our member owners will beneficially own, in the aggregate, 100% of our outstanding shares of Class B common stock, giving them control of approximately % of the combined voting power of our Class A common stock and Class B common stock. Pursuant to the terms of the voting trust agreement, the trustee will vote all of the member owners' Class B common stock as a block in the manner determined by the plurality of the votes received by the trustee from the member owners for the election of directors to serve on our board of directors, and by a majority of the votes received by the trustee from the member owners for all other matters. As a result, upon the completion of the Reorganization and this offering, our member owners 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 Reorganization and this offering, our member owners 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
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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.
In addition, upon the completion of the Reorganization and this offering, our member owners will own 100% of our outstanding Class B common units, representing % of the units of Premier LP. Because they hold their economic ownership interest in our business through Premier LP, rather than through Premier, Inc., due to the fact that shares of Class B common stock are not entitled to any economic rights, these member owners may have conflicting interests with holders of shares of our Class A common stock. For example, many of our member owners are not-for-profit organizations which, as a result of their tax-exempt status, could influence their decisions regarding whether and when to dispose of assets, whether and when to incur new, or refinance existing, indebtedness, and whether and when Premier should terminate the tax receivable agreement and accelerate its obligations thereunder. In addition, the structuring of future transactions may be influenced by these member owners' tax or other considerations even where no similar benefit would accrue to us. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement."
Our member owners will be able to exercise a greater degree of influence in the operation of our business and that of Premier LP and the management of our affairs and those of Premier LP than is typically available to stockholders of a publicly-traded company. Even if our member owners own a minority economic interest in Premier LP, they may be able to continue to exert significant influence over us and Premier LP through their ownership of our Class B common stock and the voting trust agreement among the member owners and the trustee of Premier Trust.
We will be exempt from certain corporate governance requirements because we will be a "controlled company" within the meaning of NASDAQ rules. As a result, our stockholders will not have the protections afforded by these corporate governance requirements, which may make our Class A common stock less attractive to investors.
Upon completion of the Reorganization and this offering, our member owners, acting as a group pursuant to the terms of the voting trust agreement, will own more than 50% of the total voting power of our outstanding common stock and we will be a "controlled company" under NASDAQ corporate governance standards. As a controlled company, we will not be required by NASDAQ for continued listing of Class A common stock to (i) have a majority of independent directors, (ii) maintain an independent compensation committee or (iii) maintain an independent nominating function. We intend to, at least initially, take advantage of all of these exemptions from NASDAQ listing requirements. Accordingly, our stockholders will not have the same protection afforded to stockholders of companies that are subject to all of the NASDAQ 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. Additionally, if our member owners reduce their ownership of our outstanding voting stock such that we no longer qualify as a "controlled company," we will incur costs to recruit qualified independent directors to our board and to establish and maintain independent compensation and nominating and governance committees, which may reduce the amount of cash otherwise available to Premier LP for distributions, working capital or general corporate purposes.
The agreements between us and our member owners were made in the context of an affiliated relationship and may contain different terms than comparable agreements with unaffiliated third parties.
The contractual agreements that we have with each of our member owners were negotiated in the context of an affiliated relationship in which representatives of our member owners and their affiliates comprised a significant portion of our board of directors. As a result, the financial provisions and the other terms of these agreements, such as covenants, contractual obligations on our part and on the part
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of our member owners, and termination and default provisions may be less favorable to us than terms that we might have obtained in negotiations with unaffiliated third parties in similar circumstances, which could have a material adverse effect on our business, financial condition and results of operations.
Any payments made under the tax receivable agreement with our member owners will reduce the amount of overall cash flow that would otherwise be available to us.
As a result of our acquisition of Class B common units of Premier LP from the member owners in connection with this offering, and any subsequent exchanges of Class B common units with us for shares of Class A common stock, we expect to become entitled to special tax benefits attributable to tax basis adjustments involving amounts generally equal to the difference between our purchase price for the acquired Class B common units (or, in the case of an exchange, the value of the shares of Class A common stock issued by us) and our share of the historic tax basis in Premier LP's tangible and intangible assets that is attributable to the acquired Class B common units. We have agreed in our tax receivable agreement with the member owners to pay to the member owners 85% of the amount, if any, by which our tax payments to various tax authorities are reduced as a result of these special tax benefits. We are also obligated to make certain other payments on the occurrence of certain events that would terminate the agreement with respect to certain member owners. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement." The tax basis adjustments, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the timing of any exchanges between us and the member owners, the amount and timing of our income and the amount and timing of the amortization and depreciation deductions and other tax benefits attributable to the tax basis adjustments.
As a result of the contemplated use of proceeds from this offering and assuming that Premier is able to timely benefit from the anticipated tax benefits, we estimate (based on an assumed initial public offering price of $ per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus) that the aggregate amount of payments to be made by us under the tax receivable agreement to the member owners will be approximately $ million, generally payable over the next 15 years (under the current law). As mentioned above, and as discussed in further detail in the section titled "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement," payments under the tax receivable agreement are made as Premier realizes tax benefits attributable to the initial purchase of Class B common units from the member owners in the Reorganization and subsequent exchanges between us and the member owners. The foregoing estimate reflects payments with respect to the initial purchase of Class B common units and not additional amounts that may be payable under the tax receivable agreement if subsequent exchanges of Class B common units are made by the member owners. We expect to fund our payments under the tax receivable agreement from distributions we receive from Premier LP.
The tax receivable agreement provides that, in the event that we exercise our right to early termination of the tax receivable agreement, or in the event of a change in control or a material breach by us of our obligations under the tax receivable agreement, the tax receivable agreement will terminate, and we will be required to make a lump-sum payment equal to the present value of all forecasted future payments that would have otherwise been made under the tax receivable agreement, which lump-sum payment would be based on certain assumptions, including those relating to our future taxable income. The change of control payment and termination payments to the member owners could be substantial and could exceed the actual tax benefits that we receive as a result of acquiring Class B common units from the member owners because the amounts of such payments would be calculated assuming that we would have been able to use the potential tax benefits each year for the remainder of the amortization periods applicable to the basis increases, and that tax rates applicable to us would be the same as they were in the year of the termination.
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The member owners will not reimburse us for any excess payments that may previously have been made under the tax receivable agreement, for example, due to adjustments resulting from examinations by taxing authorities. Rather, excess payments made to the member owners will be netted against payments otherwise to be made, if any, after our determination of such excess. As a result, in certain circumstances we could make payments under the tax receivable agreement in excess of our cash tax savings, which could materially impair our financial condition.
We may not be able to realize all or a portion of the tax benefits that are expected to result from the acquisition of Class B common units from the limited partners.
Under the tax receivable agreement, we are entitled to retain 15% of the total tax savings we realize as a result of increases in tax basis created by the purchase of Class B common units, as well as any future exchanges of Class B common units for our Class A common stock, and as a result of certain other tax benefits attributable to payments under the tax receivable agreement. Our ability to realize, and benefit from, these tax savings depends on a number of assumptions, including that we will earn sufficient taxable income each year during the period over which the deductions arising from any such basis increases and payments are available and that there are no adverse changes in applicable law or regulations. If our actual taxable income were insufficient or there were adverse changes in applicable law or regulations, we may be unable to realize all or a portion of these expected benefits and our cash flows and stockholders' equity could be negatively affected.
Changes to Premier LP's allocation methods may increase a tax-exempt limited partner's risk that some allocated income is unrelated business taxable income.
The LP Agreement provides for the allocation of retained income to the limited partners of Premier LP, in part, according to the number of units owned rather than relative participation of the limited partners. A member owner that is a tax-exempt limited partner of Premier LP whose relative Class B common unit ownership is high compared to its relative participation may conclude, based on an analysis of its own facts and circumstances, that it has more unrelated business taxable income, or UBTI, subject to tax than it had reported in the past, or may be at increased risk that the Internal Revenue Service, or IRS, will seek to increase the amount of income reported by the tax-exempt limited partner as UBTI. Further, the LP Agreement provides for the allocation of distributed income to be adjusted based on facts and circumstances as are determined appropriate by Premier GP. Such adjustments may also increase the amount of income reported by certain tax-exempt limited partners as UBTI. Any increase in UBTI may cause a limited partner to leave Premier LP, which could have an adverse effect on our business, financial condition and results of operations.
We may be entitled to a 70% rather than 80% dividends received deduction with respect to dividends received from Premier LP's corporate subsidiaries.
We will not be able to fully deduct Premier GP's share of dividend income that Premier LP receives from its corporate subsidiaries. If Premier GP owns 20% or more of the units of Premier LP, we expect to claim the 80% dividends received deduction with respect to Premier GP's share of dividend income that Premier LP receives from its corporate subsidiaries. The law entitling a corporate partner to the 80% rather than 70% dividends received deduction is not free from doubt, so it is possible that our income tax expense could be greater than expected, which could reduce our after-tax earnings. The reduction in after-tax earnings could result in a lower trading price for our Class A common stock than would otherwise be the case.
Premier LP may issue additional limited partnership units without the consent of our Class A common stockholders, which could have a dilutive effect on our stockholders.
Premier LP may issue additional limited partnership units to third parties without the consent of our Class A common stockholders, which would reduce our ownership percentage in Premier LP and
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would have a dilutive effect on the amount of distributions made to us by Premier LP and, therefore, the amount of distributions we can make to our Class A common stockholders. Any newly admitted Premier LP limited partners will receive Class B common units in Premier LP and an equal amount of shares of our Class B common stock. They will also become parties to the exchange agreement, the registration rights agreement, the voting trust agreement and the tax receivable agreement, on the same terms and conditions as the member owners. Any such issuances, or the perception of such issuances, could materially and adversely affect the market price of our Class A common stock.
Our certificate of incorporation and bylaws and the LP Agreement and provisions of Delaware law may discourage or prevent 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 the LP Agreement and provisions of the Delaware General Corporation Law, or DGCL, could delay or prevent a third party from entering into a strategic transaction with us, as applicable, even if such a transaction would benefit our stockholders. For example, our certificate of incorporation and bylaws:
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.
The exchange agreement contains rights of first refusal in favor of the other member owners and Premier LP in the event that a member owner desires to exchange its Class B common units for shares of our Class A common stock, cash or a combination of both. In addition, the tax receivable agreement contains a change of control provision which, if triggered, would require us to make a one-time cash payment to the member owners equal to the present value of the payments that are forecasted to be made under the tax receivable agreement based on certain assumptions.
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. These restrictions could also limit stockholder value by impeding a sale of us or Premier LP.
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Risks Related to the Offering of Our Class A Common Stock
Our future issuance of common stock and/or preferred stock could dilute the voting power of our common stockholders and adversely affect the market value of our Class A common stock.
The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our Class A common stock and holders of shares of our Class B common stock, either by diluting the voting power of our Class A common stock and Class B common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our Class A common stock and holders of shares of our Class B common stock.
The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our Class A common stock by making an investment in the Class A common stock less attractive. For example, investors in the Class A common stock may not wish to purchase Class A common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase Class A common stock at the lower conversion price causing economic dilution to the holders of Class A common stock.
In addition, we could issue a significant number of shares of Class A common stock and/or Class B common stock in the future. Any of these issuances could dilute our existing stockholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price for the shares of our Class A common stock. See also "The substantial number of shares of Class A common stock that will be eligible for sale or exchange in the near future could cause the market price for our Class A common stock to decline or make it difficult for us to raise financing through the sale of equity securities in the future."
If we are determined to be an investment company, we would become subject to burdensome regulatory requirements and our business activities would be restricted.
A company that does not actively trade in securities may nevertheless be an investment company as defined in the Investment Company Act of 1940, as amended, or the Investment Company Act, if it owns "investment securities" having a value exceeding 40% of the value of its total assets (excluding U.S. government securities and cash items). Following this offering, our sole significant asset will be our indirect ownership of Class A common units of Premier LP. As the sole owner of Premier GP, the general partner of Premier LP, we will control Premier LP and we believe our interest in Premier LP is not an "investment security" as that term is used in the Investment Company Act. We also believe that we will not be an investment company pursuant to Rule 3a-1 under the Investment Company Act because we will "primarily control" and engage in business through Premier LP, which is not an investment company. After this offering, we expect that we and Premier LP will continue to structure our organizations and conduct our operations so that we will not be deemed an investment company under the Investment Company Act. A determination that our direct interest in Premier GP or our indirect interest in Premier LP is an investment security for purposes of the Investment Company Act and that we do not primarily control and engage in business through Premier LP could result in our being considered an investment company. If that were to happen, we could become subject to registration and other burdensome requirements of the Investment Company Act, including limitations on our capital structure, our ability to issue securities and our ability to enter into transactions with our affiliates. A need to comply with those requirements could make it impractical for us to continue our business as contemplated herein and could have a material adverse effect on our business, financial condition and results of operations.
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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 NASDAQ rules, including those promulgated in response to the Sarbanes-Oxley Act. The requirements of these rules and regulations 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 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 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 to which we will be subject 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. Finally, we expect to incur additional costs once we lose "emerging growth company status."
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 operating history as a publicly-traded company. Our board of directors and senior management team will have overall responsibility for our management and only a limited number of our directors or members of our senior management team have prior 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 Securities and Exchange Commission, or SEC, reporting and NASDAQ obligations. 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 may materially and adversely affect us and our stockholders.
If we fail to establish and maintain an effective system of integrated internal controls, we may not be able to report our financial results accurately, which could have a material adverse effect on our business, financial condition and results of operations.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors. We would be required to perform the annual review and evaluation of our internal controls no later than for the fiscal year ending June 30, 2014. We initially expect to qualify as an emerging growth company, and thus, we would be exempt from the
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auditors' attestation requirement until such time as we no longer qualify as an emerging growth company. Regardless of whether we qualify as an emerging growth company, we will still need to implement substantial control systems and procedures in order to satisfy the reporting requirements under the Exchange Act and applicable NASDAQ requirements, among other items. Establishing these internal controls will be costly and may divert management's attention.
Evaluation by us of our internal controls over financial reporting may identify material weaknesses that may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NASDAQ listing rules. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect our business, financial condition and results of operations and could also lead to a decline in the price of our Class A common stock.
While we currently qualify as an "emerging growth company" under the JOBS Act, we cannot be certain if we take advantage of the reduced disclosure requirements applicable to emerging growth companies that we will not 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 also intend to take advantage of the 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.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these benefits until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
Following this offering, we will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of Class A common stock under this registration statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed to be a "large accelerated filer," as defined under the Exchange Act.
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.
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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 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 NASDAQ 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, 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 price or trading volume to decline and our Class A common stock to be less liquid.
Our stock price may be volatile and may decline substantially from the initial 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 stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to holders of Class A common stock, additions or departures of key management personnel, failure to meet analysts' earnings estimates, 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.
In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company's securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.
The substantial number of shares of Class A common stock that will be eligible for sale or exchange in the near future could cause the market price for our Class A common stock to decline or make it difficult for us to raise financing through the sale of equity securities in the future.
We cannot predict the effect, if any, that market sales of shares of Class A common stock or the availability of shares of Class A common stock for sale will have on the market price of our Class A
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common stock from time to time. We expect to have shares of our Class A common stock outstanding upon the completion of this offering (or shares of our Class A common stock if the underwriters exercise their overallotment option in full). Sales of substantial amounts of shares of our Class A common stock in the public market following this offering, or the perception that those sales will occur, could cause the market price of our Class A common stock to decline or make future offerings of our equity securities more difficult. If we are unable to sell equity securities at times and prices that we deem appropriate, we may be unable to fund our future growth. See "Shares Eligible for Future Sale."
We, along with our executive officers and directors have entered into lock-up agreements with the underwriters in connection with this offering described in "Underwriting" and our executive officers, directors and applicable member owners are subject to the Rule 144 holding period requirements described in "Shares Eligible for Future SaleRule 144." After the applicable period set forth in the registration rights agreement expires, our member owners will be able to exercise registration rights that we have granted them as described in "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingRegistration Rights Agreement." We cannot predict whether substantial amounts of our Class A common stock will be sold in the open market in anticipation of or following any divestiture by our member owners or our directors or executive officers of their shares of our Class A common stock. In addition, after the expiration of the lock-up period, we may issue and sell in the future additional shares of our Class A common stock, including the shares of Class A common stock issuable upon exchange of the Class B common units to be outstanding following the completion of the Reorganization and this offering, subject to certain contractual restrictions, including those restrictions set forth in the exchange agreement and restrictions under the Securities Act.
Upon the completion of the Reorganization and this offering, there will Class B common units of Premier LP outstanding. In connection with the Reorganization and this offering, Premier, Inc., Premier LP and the member owners have entered into an exchange agreement which will become effective upon the completion of the Reorganization and this offering. Under this agreement, subject to certain restrictions, commencing on the one-year anniversary of the last day of the calendar month in which we consummate this offering, and during each year thereafter, each member owner will have the cumulative right to exchange up to one-seventh of the Premier LP Class B common units initially allocated to such member owner (or subsequently purchased by such member owner pursuant to the related right of first refusal set forth in the exchange agreement), for shares of our Class A common stock, cash or a combination of both, the form of consideration to be at the discretion of the audit committee (or another committee of independent directors) of our board of directors, subject to certain restrictions. This exchange right can be exercised on a quarterly basis (subject to certain restrictions contained in the registration rights agreement) and is subject to rights of first refusal in favor of the other holders of Class B common units and Premier LP. For each Class B common unit that is exchanged pursuant to the exchange agreement, the member owner will also surrender one corresponding share of Class B common stock, which will automatically be retired. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingExchange Agreement." Any shares of Class A common stock issued as part of this exchange would be "restricted securities," as defined in Rule 144 of the Securities Act, or Rule 144. In connection with the Reorganization and this offering, we have entered into a registration rights agreement with the member owners which will become effective upon the completion of the Reorganization and this offering and that would require us, under certain circumstances, to register under the Securities Act the resale of these shares of Class A common stock. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingRegistration Rights Agreement" and "Shares Eligible for Future Sale."
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Investors in this offering will suffer immediate and substantial dilution.
The initial public offering price per share of Class A common stock will be substantially higher than our pro forma net tangible book value per share immediately after this offering. As a result, you will pay a price per share of Class A common stock that substantially exceeds the book value of our assets after subtracting our liabilities. At an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, you will incur immediate and substantial dilution in an amount of $ per share of Class A common stock. We have implemented an equity incentive plan that will allow us to issue restricted stock or other rights to acquire or receive payments in respect of Class A common stock. For more information, see "ManagementEquity Incentive PlanSummary of Plan TermsShares Subject to the Incentive Plan." The issuance or measurement prices attributable to these awards may be below the initial public offering price per share of our Class A common stock. To the extent that these actions are taken, you would experience further dilution. See "Dilution."
We do not intend to pay any cash dividends on our Class A common stock in the foreseeable future.
We do not expect to pay any dividends on our Class A 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.
Even if we decide in the future to pay any dividends, Premier, Inc. is a holding company with no independent operations of its own, and it will depend on distributions from Premier LP to pay taxes, make payments under the tax receivable agreement or pay any cash dividends on our Class A common stock. Deterioration in the financial conditions, earnings or cash flow of Premier LP and its subsidiaries for any reason could limit or impair their ability to pay cash distributions or other distributions to Premier, Inc. (indirectly through Premier GP). Premier LP and its subsidiaries may be restricted from distributing cash to Premier GP by, among other things, applicable law or regulation or under the terms of our senior secured revolving credit facility.
Future issuances of debt securities, which would rank senior to shares of our Class A common stock upon our liquidation, and future issuances of equity securities (including units of Premier LP), which would dilute the holders of shares of our existing Class A common stock and may be senior to shares of our Class A common stock for the purposes of making distributions, periodically or upon liquidation, may materially and adversely affect the market price of shares of our Class A common stock.
In the future, we may issue debt or equity securities or incur other borrowings. Upon our liquidation, holders of our debt securities and other loans and preferred shares will receive a distribution of our available assets before holders of shares of our Class A common stock. We are not required to offer any such additional debt or equity securities to existing stockholders on a preemptive basis. Therefore, additional issuances of our Class A common stock, directly or through convertible or exchangeable securities (including Class B common units), warrants or options, will dilute the holders of shares of our existing Class A common stock and such issuances or the perception of such issuances may reduce the market price of shares of our Class A common stock. Our preferred shares, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could limit our ability to make distributions to holders of shares of our Class A common stock. Because our decision to issue debt or equity securities or otherwise incur debt in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future capital raising efforts. Thus, holders of shares of our Class A common stock bear the risk that our future issuances of debt or equity securities or our other borrowings will reduce the market price of shares of our Class A common stock and dilute their ownership in us.
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This prospectus contains forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, dividend policy and results of operations contain forward-looking statements. Likewise, our unaudited pro forma consolidated financial statements and all of our statements regarding anticipated acquisitions and anticipated market conditions, demographics and results of operations are forward-looking statements. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "intends," "plans," "pro forma," "estimates," "contemplates," "aims," "continues," "would" or "anticipates" or the negative of these words and phrases or similar words or phrases. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
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When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this prospectus. Investors are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this prospectus. The matters summarized under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Accordingly, we cannot guarantee future results or performance. Furthermore, except as required by law, we are under no duty to, and we do not intend to, update any of our forward-looking statements after the date of this prospectus, whether as a result of new information, future events or otherwise.
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In connection with this offering we will effect the Reorganization, as described below. The following diagram depicts our organizational structure immediately after the completion of the Reorganization and this offering.
Premier, Inc. will indirectly own % of the units of Premier LP immediately after the completion of the Reorganization and this offering and assuming no exercise of the underwriters' overallotment option. If the underwriters' overallotment option is exercised, Premier, Inc. will indirectly own % of the outstanding units of Premier LP after the completion of the Reorganization and this offering.
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About Premier, Inc. and Premier LP
Premier, Inc. was incorporated as a Delaware corporation on May 14, 2013. Premier, Inc. has not engaged in any business or other activities except in connection with its formation. The certificate of incorporation of Premier, Inc. authorizes two classes of common stock, Class A common stock and Class B common stock. The Class A common stock has voting and economic rights, whereas the Class B common stock has only voting, but not economic, 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 shares of our Class A common stock and holders of shares of our 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 set forth in our certificate of incorporation or as otherwise required by applicable law. We applied to have our Class A common stock listed on NASDAQ under the symbol "PINC."
Prior to the Reorganization and this offering, the capital structure of Premier LP consisted of partnership interests separated into two divisions, each of which had its own set of capital account balance threshold amounts. Once a holder's capital account balance exceeded such threshold amounts, the holder was eligible to share in future distributions from Premier LP. In connection with the Reorganization and this offering, Premier LP, Premier GP and the member owners have entered into the new LP Agreement which will become effective upon the completion of the Reorganization and this offering. The LP Agreement will, immediately following the effective date, modify Premier LP's capital structure by creating two classes of units, Class A common units and Class B common units, and eliminate the existing partnership interests. The Class A common units and Class B common units have equivalent economic rights, on a per unit basis. The LP Agreement will also designate Premier GP as the general partner of Premier LP. The execution of the LP Agreement, including the recapitalization of the outstanding partnership units to be effected thereby, which is described below, required the approval of the general partner of Premier LP and a majority in interest of the limited partners.
Pursuant to the LP Agreement, Class A common units will only be held by Premier GP as the general partner of Premier LP and Class B common units will be held by the limited partners of Premier LP. All Class B common units that we contribute to Premier GP in connection with the Reorganization, as described below, will be automatically converted into Class A common units.
It is expected that the number of outstanding shares of Class A common stock and Class B common stock will always match exactly the number of outstanding Class A common units and Class B common units, respectively.
Recapitalization
Immediately following the effective date of the LP Agreement, all of Premier LP's limited partners that approved the Reorganization will receive Class B common units and capital account balances in Premier LP equal to their percentage interests and capital account balances in Premier LP immediately preceding the Reorganization. Additionally, immediately following the effective date of the LP Agreement, all of the stockholders (consisting of member owners) of PHSI that approved the Reorganization will contribute their PHSI common stock to Premier LP in exchange for additional Class B common units based on such stockholder's percentage interest in the fair market valuation of PHSI and Premier LP prior to the Reorganization. As a result of the foregoing contributions, PHSI will become a wholly owned subsidiary of Premier LP.
In connection with the Reorganization, the member owners will purchase from Premier, Inc. shares of Class B common stock, for par value, $0.000001 per share, which number of shares of Class B common stock will equal the number of Class B common units of Premier LP to be held by the member owners immediately following this offering, pursuant to a stock purchase agreement. See "Certain Relationships and Related Party TransactionsTransactions with Member
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Owners in Connection with this OfferingStock Purchase Agreement" and "Description of Capital StockCommon StockClass B Common Stock."
Offering Transactions
We expect to use approximately (i) $ million of the net proceeds from this offering to acquire Class B common units of Premier LP from the member owners, (ii) $ million of the net proceeds to acquire Class B common units of Premier LP from PHSI, and (iii) $ million (or $ million if the underwriters exercise their overallotment option in full) of the net proceeds to acquire newly issued Class A common units of Premier LP from Premier LP, in each case for a price per unit equal to the price paid per share of Class A common stock by the underwriters to us in connection with this offering. Any Class B common units purchased by Premier with the net proceeds from this offering will automatically convert to Class A common units of Premier LP, pursuant to the terms of the LP Agreement, and will be contributed by Premier, Inc. to Premier GP.
The following table sets forth the number of Class A or Class B common units of Premier LP, as applicable, to be purchased by Premier, Inc. from the member owners (as a group), Premier LP and PHSI, the approximate cash proceeds to be received by each in connection with this offering and the percentage of the net offering proceeds to be received by each (assuming the underwriters' overallotment option has not been exercised).
Seller
|
Number of Units Sold to Premier |
Cash Proceeds to be Received |
Percentage of Net Offering Proceeds to be Received |
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Member owners |
$ | % | ||||||||
Premier LP |
$ | % | ||||||||
PHSI |
$ | % |
The approximate cash proceeds to be received by the member owners (as a group), Premier LP and PHSI has been computed based on an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus. If the assumed initial public offering price per share were $1.00 higher than such midpoint, the approximate cash proceeds to be received by the member owners (as a group), Premier LP and PHSI would be $ , $ and $ , respectively. If the assumed initial public offering price per share were $1.00 lower than such midpoint, the approximate cash proceeds to be received by member owners (as a group), Premier LP and PHSI would be $ , $ and $ , respectively.
Reorganization Documents
Below is a summary of the principal documents that will effect the Reorganization and define and regulate the governance and control relationships among Premier, Inc., Premier LP and the member owners after the completion of the Reorganization and this offering.
LP Agreement
In connection with the Reorganization and this offering, the LP Agreement will make Premier GP the general partner of Premier LP. As the general partner of Premier LP, Premier GP will generally be able to control the day-to-day business affairs and decision-making of Premier LP without the approval of any other partner, subject to certain limited partner approval rights described below. As such, we will be responsible for all operational and administrative decisions of Premier LP. In accordance with the LP Agreement, subject to applicable law or regulation and the terms of Premier LP's financing agreements, Premier GP will cause Premier LP to make quarterly distributions out of its estimated taxable net income to Premier GP and to the holders of Class B common units as a class in an aggregate amount equal to Premier LP's total taxable income for each such quarter multiplied by the effective combined federal, state and local income tax rate then payable by Premier, Inc. to facilitate
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payment by each Premier LP partner of taxes, if required, on its share of taxable income of Premier LP. In addition, in accordance with the LP Agreement, Premier GP may cause Premier LP to make additional distributions to Premier GP and to the holders of Class B common units as a class in proportion to their respective number of units, subject to any applicable restrictions under Premier LP's financing agreements or applicable law. Premier GP will distribute any amounts it receives from Premier LP to Premier, Inc., which Premier, Inc. will use to (i) pay applicable taxes, (ii) meet its obligations under the tax receivable agreement, and (iii) meet its obligations to the member owners under the exchange agreement if they elect to convert their Class B common units for shares of our Class A common stock and we elect to pay some or all of the consideration to such member owners in cash. In the event that a limited partner of Premier LP holding Class B common units not yet eligible to be exchanged for shares of our Class A common stock pursuant to the terms of the exchange agreement (i) ceases to participate in our GPO programs; (ii) ceases to be a limited partner of Premier LP (except as a result of a permitted transfer of its Class B common units); (iii) ceases to be a party to a GPO participation agreement (subject to certain limited exceptions); or (iv) becomes a related entity of, or affiliated with, a competing business of Premier LP, in each case, Premier LP will have the option to redeem all of such limited partner's Class B common units not yet eligible to be exchanged at a purchase price set forth in the LP Agreement. In addition, the limited partner will be required to exchange all Class B common units eligible to be exchanged on the next exchange date following the date of the applicable termination event described above. For additional information regarding the LP Agreement, see "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingAmended and Restated Limited Partnership Agreement of Premier LP."
Voting Trust Agreement
Additionally, in connection with the Reorganization and this offering, our member owners have entered into a voting trust agreement, which will become effective upon the completion of the Reorganization and this offering and pursuant to which the member owners will contribute their Class B common stock into Premier Trust, under which Wells Fargo Delaware Trust Company, N.A., as trustee, will act on behalf of the member owners for purposes of voting their shares of Class B common stock. As a result of the voting trust agreement, the member owners will retain beneficial ownership of the Class B common stock, while the trustee will be the legal owner of such equity. Pursuant to the voting trust agreement, the trustee will vote all of the member owners' Class B common stock as a block in the manner determined by the plurality of the votes received by the trustee from the member owners for the election of directors to serve on our board of directors, and by a majority of the votes received by the trustee from the member owners for all other matters. For additional information regarding the voting trust agreement, see "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingVoting Trust Agreement."
Exchange Agreement
In connection with the Reorganization and this offering, Premier, Inc., Premier LP and the member owners have entered into an exchange agreement which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of the exchange agreement, subject to certain restrictions, commencing on the one-year anniversary of the last day of the calendar month in which we consummate this offering, and during each year thereafter, each member owner will have the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units, as well as any additional Class B common units purchased by such member owner pursuant to certain rights of first refusal (discussed below), for shares of our Class A common stock (on a one-for-one basis subject to customary adjustments for subdivisions or combinations by split, reverse split, distribution, reclassification, recapitalization or otherwise), cash or a combination of both, the form of consideration to be at the discretion of our audit committee (or another committee of
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independent directors) of our board of directors. This exchange right can be exercised on a quarterly basis (subject to certain restrictions contained in the registration rights agreement described below) and is subject to rights of first refusal in favor of the other holders of Class B common units and Premier LP. For each Class B common unit that is exchanged pursuant to the exchange agreement, the member owner will also surrender one corresponding share of our Class B common stock, which will automatically be retired. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingExchange Agreement."
Registration Rights Agreement
In connection with the Reorganization and this offering, Premier, Inc. and the member owners have entered into a registration rights agreement which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of the registration rights agreement, as soon as practicable from the date that is 12 full calendar months after the completion of this offering, we must use all reasonable efforts to cause a resale shelf registration statement to become effective for resales from time to time of our Class A common stock that may be issued to the member owners in exchange for their Class B common units pursuant to the exchange agreement, subject to various restrictions. Subject to certain exceptions, we will use reasonable efforts to keep the resale shelf registration statement effective for seven years. In addition, we will undertake to conduct an annual company-directed underwritten public offering to allow the member owners to resell Class A common stock and, at our election, to permit us to sell primary shares, following the first quarterly exchange date of each of the first three years during which the member owners have the right to exchange their Class B common units for shares of our Class A common stock. We will not be required to conduct a company-directed underwritten public offering unless the number of shares of Class A common stock requested by the member owners (and any third parties) to be registered in the applicable company-directed underwritten public offering constitutes the equivalent of at least 3.5% of the aggregate number of Premier LP units outstanding. If the offering minimum has not been met, we will either proceed with the company-directed underwritten public offering (such decision being in our sole discretion) or notify the member owners that we will abandon the offering. After the third year during which member owners have the right to exchange their Class B common units for shares of our Class A common stock, we may elect to conduct a company-directed underwritten public offering in any subsequent year. We, as well as the member owners, and third parties, will be subject to customary prohibitions on sale prior to and for 60 days following any company-directed underwritten public offering. The registration rights agreement also grants the member owners certain "piggyback" registration rights with respect to other registrations of our Class A common stock. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingRegistration Rights Agreement."
Tax Receivable Agreement
In connection with the Reorganization and this offering, Premier, Inc. has entered into a tax receivable agreement with the member owners which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of the tax receivable agreement, Premier, Inc. has agreed to pay to the member owners, generally over a 15-year period (under current law), 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income and franchise tax that we actually realize (or are deemed to realize, in the case of payments required to be made upon certain occurrences under such tax receivable agreement) as a result of the increases in tax basis resulting from the initial sale of Class B common units by the member owners in connection with the Reorganization, as well as subsequent exchanges by such member owners pursuant to the exchange agreement, and of certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement."
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GPO Participation Agreement
In connection with the Reorganization and this offering, our member owners have entered into GPO participation agreements with Premier LP which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of its GPO participation agreement, each member owner will receive revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by such member owner's member facilities through our GPO supplier contracts. In addition, our two largest regional GPO member owners, which represented approximately 17% of our gross administrative fees revenue for fiscal year 2013, will each remit all gross administrative fees collected by such member owner based upon purchasing by such member owner's member facilities through the member owner's own GPO supplier contracts and receive revenue share from Premier LP equal to 30% of such gross administrative fees remitted to us. Subject to certain termination rights, these GPO participation agreements will be for an initial five-year term, although our two largest regional GPO member owners have entered into agreements with seven-year terms.
The terms of the GPO participation agreements vary as a result of provisions in our existing arrangements with member owners that conflict with the terms of the GPO participation agreement and which by the express terms of the GPO participation agreement are incorporated by reference and deemed controlling and will continue to remain in effect. In certain other instances, Premier LP and member owners have entered into GPO participation agreements with certain terms that vary from the standard form, which were approved by the member agreement review committee of our board of directors, based upon regulatory constraints, pending merger and acquisition activity or other exigent circumstances affecting those member owners. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingGPO Participation Agreement."
Effects of the Reorganization
Immediately following the completion of the Reorganization and this offering:
Any newly admitted Premier LP limited partners must also become parties to the exchange agreement, the registration rights agreement, the voting trust agreement and the tax receivable agreement, in each case on the same terms and conditions as the member owners (except that any
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Class B common units acquired by such newly admitted Premier LP limited partners will not be subject to the seven-year vesting schedule set forth in the LP Agreement and the exchange agreement). Any newly admitted Premier LP limited partner will also enter into a GPO participation agreement with Premier LP.
Benefits of the Reorganization to Member Owners
As a result of the Reorganization and this offering, the member owners will, among other things:
Holding Company Structure
Premier, Inc. is a holding company and its sole asset immediately following this offering will be all of the outstanding interests in Premier GP. Premier GP will act as the general partner of, and own approximately % of the units (or approximately % if the underwriters exercise their overallotment option in full) in, Premier LP. Premier, Inc.'s only business will be to act indirectly as the general partner of Premier LP, and, as such, it will operate and control all of the business and affairs of Premier LP and its subsidiaries immediately following this offering, subject to certain limited partner approval rights described herein.
73
We estimate we will receive net proceeds from this offering of approximately $ (approximately $ if the underwriters exercise their overallotment option in full), after deducting the underwriting discounts and commissions and estimated expenses of this offering of approximately $ , assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. See "Underwriting."
We expect to use approximately (i) $ million of the net proceeds from this offering to acquire Class B common units of Premier LP from the member owners, (ii) $ million of the net proceeds to acquire Class B common units of Premier LP from PHSI, and (iii) $ million (or $ million if the underwriters exercise their overallotment option in full) of the net proceeds to acquire newly issued Class A common units of Premier LP from Premier LP, in each case for a price per unit equal to the price paid per share of Class A common stock by the underwriters to us in connection with this offering. We will contribute all of these units of Premier LP that we purchase in connection with the Reorganization to Premier GP. See "Structure." Premier LP will use the proceeds it receives in connection with the sale of its newly issued Class A common units to us for working capital and general corporate purposes, including potential future acquisition and development activities. Pending such use, the proceeds may be invested in high quality, short-term investments.
74
We do not expect to pay dividends on our Class A common stock in the foreseeable future. Furthermore, shares of our Class B common stock will not be entitled to any cash dividend payments.
Premier, Inc. is a holding company and its sole asset immediately following this offering through its ownership of Premier GP is a minority interest in Premier LP. Through its ownership of Premier GP, which will be the general partner of Premier LP and control the day-to-day business affairs and decision-making of Premier LP, Premier, Inc. intends to cause Premier LP to make distributions to it (indirectly through Premier GP) in an amount sufficient to cover cash dividends, if any, declared by us in the future. If Premier LP makes such distributions to Premier GP, the holders of Premier LP common units will be entitled to receive proportionately equivalent distributions.
Our senior secured revolving credit facility contains certain restrictions on Premier LP's ability to make distributions. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsContractual Obligations."
75
The following table sets forth as of June 30, 2013:
The table should be read in conjunction with the information found in "Structure," "Use of Proceeds," "Unaudited Pro Forma Consolidated Financial Information," "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and related notes thereto included elsewhere in this prospectus.
|
June 30, 2013 | ||||||
---|---|---|---|---|---|---|---|
(In Thousands)
|
PHSI Actual |
Premier, Inc. Pro Forma(1) |
|||||
|
|
(unaudited) |
|||||
Cash and cash equivalents |
$ | 198,296 | $ | ||||
Total debt(2) |
34,617 | ||||||
Redeemable limited partners' capital(3) |
307,635 |
||||||
Class A common stock, par value, $0.01 per share, 500,000,000 shares authorized; shares issued and outstanding on a pro forma basis |
| ||||||
Class B common stock, par value, $0.000001 per share, 600,000,000 shares authorized; shares issued and outstanding on a pro forma basis |
| ||||||
Common stock |
57 | ||||||
Additional paid-in capital |
28,866 | ||||||
Common stock subscribed(4) |
300 | ||||||
Subscriptions receivable(5) |
(300 | ) | |||||
Retained earnings |
50,599 | ||||||
Noncontrolling interest(6) |
(1,754 | ) | |||||
Total stockholders' equity |
77,768 | ||||||
Total capitalization |
$ | 420,020 | $ | ||||
76
77
If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock after this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the pro forma net tangible book value per share of our Class A common stock after this offering.
As of June 30, 2013, our net tangible book value was approximately $ million, or approximately $ per share of Class A common stock (based on the number of shares of Class A common stock outstanding on a pro forma basis). Net tangible book value represents total tangible assets (total assets less goodwill and other intangible assets) less total consolidated liabilities, and pro forma net tangible book value per share of Class A common stock represents net tangible book value divided by the aggregate number of shares of Class A common stock outstanding after giving effect to the Reorganization and this offering (assuming there is no exchange of Class B common units for shares of Class A common stock pursuant to the exchange agreement and assuming an initial public offering price of $ per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus).
After giving effect to the transactions described under "Unaudited Pro Forma Consolidated Financial Information," including the application of the proceeds from this offering as described in "Use of Proceeds," and assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma net tangible book value as of June 30, 2013 would have been $ million, or $ per share of Class A common stock. This represents an immediate increase in pro forma net tangible book value of $ per share of Class A common stock to our member owners and an immediate dilution in pro forma net tangible book value of $ per share of Class A common stock to investors in this offering.
The following table illustrates this dilution on a per share of Class A common stock basis, assuming the underwriters do not exercise their overallotment option in whole or in part:
Assumed initial public offering price per share |
$ | ||||||
Pro forma net tangible book value per share as of June 30, 2013 |
$ | ||||||
Increase in pro forma net tangible book value per share attributable to the Reorganization (assuming there is no exchange of Class B common units for shares of Class A common stock pursuant to the exchange agreement) and this offering |
|||||||
Pro forma net tangible book value per share after the completion of this offering |
|||||||
Dilution per share to investors in this offering |
$ | ||||||
In connection with the Reorganization and this offering, Premier, Inc., Premier LP and the member owners have entered into an exchange agreement which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of the exchange agreement, commencing on the one-year anniversary of the last day of the calendar month in which we consummate this offering, and during each year thereafter, a member owner may only exchange up to one-seventh of Premier LP Class B common units initially allocated to such partner (or subsequently purchased pursuant to the related right of first refusal), for shares of our Class A common stock, cash or a combination of both, the form of consideration to be at the discretion of the audit committee (or another committee of independent directors) of our board of directors, subject to certain restrictions. Giving effect to the terms of the exchange agreement as of the one-year anniversary of the last day of the calendar month in which we consummate this offering, pro forma net tangible book value per share
78
of Class A common stock represents net tangible book value divided by the aggregate number of shares of Class A common stock outstanding after giving effect to the Reorganization and assuming that all holders of Premier LP Class B common units exchanged one-seventh of their Class B common units for shares of Class A common stock on a one-for-one basis (assuming an initial public offering price of $ per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus).
After giving effect to the transactions described under "Unaudited Pro Forma Consolidated Financial Information," including the application of the proceeds from this offering as described in "Use of Proceeds," and assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma net tangible book value as of June 30, 2013 (assuming the exchange of one-seventh of the Class B common units in Premier LP held by our member owners for shares of our Class A common stock in the manner described in the preceding paragraph) would have been $ million, or $ per share of Class A common stock. This represents an immediate increase in pro forma net tangible book value of $ per share of Class A common stock to our member owners and an immediate dilution in pro forma net tangible book value of $ per share of Class A common stock to investors in this offering.
The following table illustrates this dilution on a per share of Class A common stock basis, assuming the underwriters do not exercise their overallotment option in whole or in part:
Assumed initial public offering price per share |
$ | ||||||
Pro forma net tangible book value per share as of June 30, 2013 |
$ | ||||||
Increase in pro forma net tangible book value per share attributable to the Reorganization and this offering |
|||||||
Pro forma net tangible book value per share after the completion of this offering |
|||||||
Dilution per share to investors in this offering |
$ | ||||||
If the underwriters' overallotment option is exercised in full, the pro forma net tangible book value per share of Class A common stock (i) after giving effect to the Reorganization (assuming there is no exchange of Class B common units for shares of Class A common stock pursuant to the exchange agreement) and this offering would be approximately $ per share and the dilution in pro forma net tangible book value per share of Class A common stock to new investors would be approximately $ per share and (ii) after giving effect to the Reorganization (assuming the exchange of one-seventh of the Class B common units in Premier LP held by our member owners for shares of our Class A common stock in the manner described above) and this offering would be approximately $ per share and the dilution in pro forma net tangible book value per share of Class A common stock to new investors would be approximately $ per share.
The foregoing discussion and tables assume no vesting of restricted stock units or stock options that will be outstanding immediately following this offering. As of the completion of this offering, we will have restricted stock units and stock options outstanding. To the extent these restricted stock units and stock options are vested, there may be further dilution to new investors.
The following tables summarize, on the same pro forma basis as of June 30, 2013, the difference between the total cash consideration paid by our member owners for Class A common stock (in the second table assuming the exchange of one-seventh of the Class B common units in Premier LP held by our member owners for shares of our Class A common stock in the manner described above) and
79
the purchasers of Class A common stock in this offering, before deducting estimated underwriting discounts and commissions and estimated offering fees and expenses.
|
Shares of Class A Common Stock Purchased |
|
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total Consideration | Average Price Per Share of Class A Common Stock |
||||||||||||||
|
Number | Percent | Amount | Percent | ||||||||||||
Member owners |
% | $ | % | $ | ||||||||||||
Purchasers of Class A common stock in this offering |
||||||||||||||||
Total |
% | $ | % | $ | ||||||||||||
|
Shares of Class A Common Stock Purchased |
|
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total Consideration | Average Price Per Share of Class A Common Stock |
||||||||||||||
|
Number | Percent | Amount | Percent | ||||||||||||
Member owners |
% | $ | % | $ | ||||||||||||
Purchasers of Class A common stock in this offering |
||||||||||||||||
Total |
% | $ | % | $ | ||||||||||||
If the underwriters' overallotment option is exercised in full, the following will occur:
80
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet as of June 30, 2013 presents our consolidated financial position giving pro forma effect to the Reorganization and this offering and the contemplated use of the estimated net proceeds from this offering as described under "Structure" and "Use of Proceeds" as if such transactions occurred as of the balance sheet date. The unaudited pro forma consolidated statement of income for the fiscal year ended June 30, 2013 presents our consolidated results of operations after giving pro forma effect to the Reorganization and this offering and the contemplated use of the estimated net proceeds from this offering as described under "Structure" and "Use of Proceeds" as if such transactions had occurred on July 1, 2012. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Reorganization and this offering and the contemplated use of the estimated net proceeds from this offering on the historical consolidated financial information of PHSI.
The unaudited pro forma consolidated balance sheet and statement of income should be read together with "Structure," "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and related notes appearing elsewhere in this prospectus.
The pro forma adjustments give effect to:
81
The unaudited pro forma consolidated financial information reflects the manner in which we will account for the Reorganization. Specifically, we will account for the Reorganization as a non-substantive transaction in a manner similar to a transaction between entities under common control pursuant to Accounting Standards Codification Topic 805, Business Combinations. Accordingly, after the Reorganization, the assets and liabilities of Premier, Inc. will be reflected at their carryover basis. The unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect our results of operations or financial position that would have occurred had we operated as a public company during the periods presented. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our financial condition or results of operations had the Reorganization and this offering and the contemplated use of the estimated net proceeds from this offering as described under "Structure" and "Use of Proceeds" occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date.
The unaudited pro forma consolidated financial information presented assumes (i) no exercise by the underwriters of their overallotment option to purchase up to an additional shares of Class A common stock from us, and (ii) except as otherwise set forth in the footnotes to this section, all of our member owners prior to the Reorganization will continue as member owners subsequent to the Reorganization and this offering.
82
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 2013
(In Thousands, Except Per Share Amounts)
|
PHSI Actual |
Pro Forma Adjustments |
Premier, Inc. Pro Forma |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Assets |
||||||||||
Current assets |
||||||||||
Cash and cash equivalents |
$ | 198,296 | $ | (1) | $ | |||||
Marketable securities |
57,323 | |||||||||
Accounts receivable, net |
62,224 | |||||||||
Inventories |
12,741 | |||||||||
Prepaid expenses and other current assets |
25,404 | |||||||||
Due from related party |
1,650 | |||||||||
Deferred tax assets |
8,403 | (2) | ||||||||
Total current assets |
366,041 | |||||||||
Investments |
6,676 | |||||||||
Property and equipment, net |
115,587 | |||||||||
Restricted cash |
5,000 | |||||||||
Deferred tax assets |
15,077 | (2) | ||||||||
Goodwill |
61,410 | |||||||||
Intangible assets, net |
4,292 | |||||||||
Other assets |
24,833 | |||||||||
Total assets |
$ | 598,916 | $ | $ | ||||||
Liabilities, redeemable limited partners' capital and stockholders' equity |
||||||||||
Current liabilities |
||||||||||
Accounts payable and accrued expenses |
$ | 61,203 | $ | $ | ||||||
Accrued compensation and benefits |
51,359 | |||||||||
Deferred revenue |
18,880 | |||||||||
Current portion of notes payable |
12,149 | |||||||||
Payable pursuant to tax receivable agreement |
| (2) | ||||||||
Other current liabilities |
1,557 | |||||||||
Total current liabilities |
145,148 | |||||||||
Notes payable, less current portion |
22,468 | |||||||||
Payable pursuant to tax receivable agreement, less current portion |
| (2) | ||||||||
Long-term liabilities |
45,897 | |||||||||
Total liabilities |
213,513 | |||||||||
Redeemable limited partners' capital |
307,635 | (3) | ||||||||
Stockholders' equity: |
||||||||||
Series A Preferred stock, par value $0.01, 400,000 shares authorized; no shares issued and outstanding |
| |||||||||
Common stock, par value $0.01, 12,250,000 shares authorized; 5,653,390 shares issued and outstanding, no shares outstanding on a pro forma basis |
57 | (4) | ||||||||
Class A common stock, par value $0.01, 500,000,000 shares authorized; shares issued and outstanding on a pro forma basis |
| (4) | ||||||||
Class B common stock, par value $0.000001, 600,000,000 shares authorized; shares issued and outstanding on a pro forma basis |
| (4) | ||||||||
Additional paid-in capital |
28,866 | (5) | ||||||||
Common stock subscribed, 23,266 shares |
300 | (4) | ||||||||
Subscriptions receivable |
(300 | ) | (4) | |||||||
Retained earnings |
50,599 | |||||||||
Noncontrolling interest |
(1,754 | ) | ||||||||
Total stockholders' equity |
77,768 | |||||||||
Total liabilities, redeemable limited partners' capital and stockholders' equity |
$ | 598,916 | $ | $ | ||||||
83
Unaudited Pro Forma Consolidated Statement of Income
For the Fiscal Year Ended June 30, 2013
(In Thousands, Except Per Share Amounts)
|
PHSI Actual |
Pro Forma Adjustments |
Premier, Inc. Pro Forma |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Net revenue: |
||||||||||
Net administrative fees |
$ | 519,219 | $ | (105,012 | )(6) | $ | 414,207 | |||
Other services and support |
205,685 | | 205,685 | |||||||
Services |
724,904 | 619,892 | ||||||||
Products |
144,386 | | 144,386 | |||||||
|
869,290 | (105,012 | ) | 764,278 | ||||||
Cost of revenue: |
||||||||||
Services |
103,795 | | 103,795 | |||||||
Products |
133,618 | | 133,618 | |||||||
|
237,413 | | 237,413 | |||||||
Gross profit |
631,877 | (105,012 | ) | 526,865 | ||||||
Operating expenses: |
||||||||||
Selling, general and administrative |
248,301 | | 248,301 | |||||||
Research and development |
9,370 | | 9,370 | |||||||
Amortization of purchased intangible assets |
1,539 | | 1,539 | |||||||
|
259,210 | | 259,210 | |||||||
Operating income |
372,667 | (105,012 | ) | 267,655 | ||||||
Other income, net |
12,145 | | 12,145 | |||||||
Income before income taxes |
384,812 | (105,012 | ) | 279,800 | ||||||
Income tax expense |
9,726 | (7) | ||||||||
Net income |
375,086 | |||||||||
Add: Net loss attributable to noncontrolling interest in S2S Global |
1,479 | |||||||||
Less: Net income attributable to noncontrolling interest in Premier LP |
(369,189 | ) | (3) | |||||||
Net income attributable to noncontrolling interest |
(367,710 | ) | ||||||||
Net income attributable to Premier, Inc. |
$ | 7,376 | $ | $ | ||||||
Earnings per share of Class A common stock |
(8) | |||||||||
Basic |
$ | | $ | | $ | |||||
Diluted |
||||||||||
Weighted average shares of Class A common stock |
(9) | |||||||||
Basic |
| |||||||||
Diluted |
| |||||||||
84
(In Thousands)
|
|
|||
---|---|---|---|---|
Actual cash as reported |
$ | 198,296 | ||
Pro forma adjustments |
||||
Gross proceeds from this offering |
||||
Underwriting discounts, commissions and other expenses |
||||
Purchase of Premier LP Class A common units from Premier LP |
||||
Purchase of Premier LP Class B common units from PHSI and the member owners |
||||
Pro forma cash balance |
$ | | ||
85
assets attributable to the Class B common units sold to us by multiplying the member owner's tax capital account balance as of the date of sale as maintained in Premier LP's books and records by a fraction, the numerator of which is the number of Class B common units sold to us, and the denominator of which is the number of Class B common units held by the selling member owner immediately prior to the sale. For purposes of the calculation, the assumed selling price per Class B common unit will equal the price paid per share of the Class A common stock by the underwriters to us in the initial public offering, determined based on the midpoint of the initial public offering price range set forth on the cover of this prospectus. The adjustments are expected to increase Premier LP's basis in its assets (for tax purposes), and we will calculate the amount of any depreciation, amortization and other deductions to which it will be entitled as a result of these adjustments. We will then calculate Premier, Inc.'s tax liability with and without the deductions attributable to these adjustments, assuming that Premier, Inc. earns sufficient taxable income in each year to realize the full benefit of the deductions. We will compute the estimated tax benefit attributable to the election as the excess of Premier, Inc.'s tax liability as so computed without the deductions over Premier, Inc.'s tax liability as so computed with the deductions. Additionally, the tax receivable agreement payments may give rise to adjustments that result in Premier LP becoming entitled to additional deductions, and the calculation of Premier, Inc.'s liability under the tax receivable agreement would take these adjustments and additional resulting deductions into account.
86
sheets and in noncontrolling interest in Premier LP on the unaudited pro forma consolidated statements of income. Immediately following the effective date of the LP Agreement (as described in "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingAmended and Restated Limited Partnership Agreement of Premier LP"), all of Premier LP's limited partners that approved the Reorganization will receive Class B common units and capital account balances in Premier LP equal to their percentage interests and capital account balances in Premier LP immediately preceding the Reorganization. We intend to use a portion of the net proceeds from this offering to purchase Class B common units of Premier LP from the member owners resulting in a reduction in the noncontrolling interest attributable to the limited partners from 99% to %.
Total adjustment to additional paid-in capital is an increase of $ million.
87
completion of the Reorganization and this offering, compared to approximately 20% of gross administrative fees for the fiscal year ended June 30, 2013, which will result in a decrease in net revenue for the fiscal year ended June 30, 2014 when compared to the actual net revenue for the prior fiscal years which are not reflected on a pro forma basis. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingGPO Participation Agreement." These unaudited pro forma consolidated financial statements assume that all of our member owners prior to the Reorganization will continue as member owners subsequent to the Reorganization and this offering and, therefore, do not reflect any possible loss in revenue if any member owners cease to continue as member owners. In addition, the unaudited pro forma consolidated financial statements assume that all of the gross administrative fees and revenue share attributable to non-owner members that converted to member owners during the fiscal year are treated as member owners for the entire fiscal year. The table below summarizes the pro forma effect of the new member owner GPO participation agreements on net administrative fees following the Reorganization:
|
Fiscal year ended June 30, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) |
Actual | Pro forma Adjustment |
Pro forma | |||||||
Gross administrative fees |
||||||||||
Member owners |
$ | 471,045 | $ | | $ | 471,045 | ||||
Non-owner members* |
175,365 | | 175,365 | |||||||
Total gross administrative fees |
646,410 | | 646,410 | |||||||
Revenue share |
||||||||||
Member owners |
| (105,012 | ) | (105,012 | ) | |||||
Non-owner members* |
(127,191 | ) | | (127,191 | ) | |||||
Total revenue share |
(127,191 | ) | (105,012 | ) | (232,203 | ) | ||||
Net administrative fees |
$ | 519,219 | $ | (105,012 | ) | $ | 414,207 | |||
88
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected historical consolidated financial and operating data. Premier, Inc. has had no operations to date and, therefore, the information below is presented for reporting purposes only for Premier, Inc.'s predecessor company, PHSI, which, upon the completion of the Reorganization and this offering will be a consolidated subsidiary of Premier, Inc. The following selected historical consolidated financial and other data of PHSI should be read together with "Structure," "Unaudited Pro Forma Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and related notes included elsewhere in this prospectus.
We derived the selected historical consolidated statements of income data of PHSI for each of the fiscal years ended June 30, 2013, 2012 and 2011 and the selected historical consolidated balance sheet data as of June 30, 2013 and 2012 from the audited consolidated financial statements of PHSI which are included elsewhere in this prospectus. We have derived the selected historical consolidated balance sheet data as of June 30, 2011 from the audited consolidated financial statements of PHSI which are not included in this prospectus.
89
|
Fiscal Year Ended June 30, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands, Except Per Share Amounts)
|
2013 | 2012(1) | 2011(2) | |||||||
Consolidated Statements of Income Data: |
||||||||||
Net revenue: |
||||||||||
Net administrative fees(3) |
$ | 519,219 | $ | 473,249 | $ | 457,951 | ||||
Other services and support |
205,685 | 178,552 | 158,179 | |||||||
Services |
724,904 | 651,801 | 616,130 | |||||||
Products |
144,386 | 116,484 | 64,628 | |||||||
Total net revenue |
869,290 | 768,285 | 680,758 | |||||||
Cost of revenue |
237,413 | 189,719 | 119,875 | |||||||
Gross profit |
631,877 | 578,566 | 560,883 | |||||||
Operating expenses: |
||||||||||
Selling, general and administrative |
248,301 | 240,748 | 242,863 | |||||||
Research and development |
9,370 | 12,583 | 8,685 | |||||||
Amortization of purchased intangible assets |
1,539 | 3,146 | 3,463 | |||||||
Total operating expenses |
259,210 | 256,477 | 255,011 | |||||||
Operating income |
372,667 | 322,089 | 305,872 | |||||||
Other income, net(4) |
12,145 | 12,808 | 11,092 | |||||||
Income before income taxes |
384,812 | 334,897 | 316,964 | |||||||
Income tax expense |
9,726 | 8,229 | 4,704 | |||||||
Net income |
375,086 | 326,668 | 312,260 | |||||||
Add: Net loss attributable to noncontrolling interest in S2S Global(5) |
1,479 | 608 | | |||||||
Less: Net income attributable to noncontrolling interest in Premier LP(6) |
(369,189 | ) | (323,339 | ) | (309,840 | ) | ||||
Net income attributable to noncontrolling interest |
(367,710 | ) | (322,731 | ) | (309,840 | ) | ||||
Net income attributable to PHSI |
$ | 7,376 | $ | 3,937 | $ | 2,420 | ||||
Earnings per sharebasic and diluted |
$ | 1.26 | $ | 0.64 | $ | 0.39 | ||||
Weighted average shares of common stockbasic and diluted |
5,858 | 6,183 | 6,273 | |||||||
Consolidated Balance Sheet Data: |
||||||||||
Cash, cash equivalents and marketable securities |
$ | 255,619 | $ | 241,669 | $ | 251,609 | ||||
Working capital(7) |
220,893 | 200,799 | 193,162 | |||||||
Property and equipment, net |
115,587 | 101,630 | 86,140 | |||||||
Total assets |
598,916 | 554,939 | 532,361 | |||||||
Deferred revenue(8) |
18,880 | 19,820 | 17,911 | |||||||
Total liabilities |
213,513 | 196,990 | 199,464 | |||||||
Redeemable limited partners' capital(9) |
307,635 | 279,513 | 257,459 | |||||||
Common stock |
57 | 61 | 62 | |||||||
Additional paid-in capital |
28,866 | 35,427 | 36,090 | |||||||
Retained earnings |
50,599 | 43,223 | 39,286 | |||||||
Total stockholders' equity |
77,768 | 78,436 | 75,438 |
90
contracts, and (ii) remitted to us based upon purchasing by our member owners' member facilities through the member owners' own GPO supplier contracts. Revenue share represents the portion of the administrative fees we are contractually obligated to share with our member owners and certain of our other members participating in our GPO programs.
91
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Premier, Inc. has had no operations to date and, therefore, the information below is presented only for PHSI, Premier, Inc.'s predecessor company which, upon the completion of the Reorganization and this offering, will be a consolidated subsidiary of Premier, Inc. After giving effect to the Reorganization and this offering, Premier, Inc.'s assets and business operations will be substantially similar to those of its predecessor company and Premier, Inc. will conduct all of its business through Premier LP and its subsidiaries.
The following discussion and analysis of our financial condition and results of operations should be read together with "Structure," "Unaudited Pro Forma Consolidated Financial Information," "Selected Consolidated Financial and Other Data" and our historical financial statements and related notes and other financial information appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. See "Forward-Looking Statements." Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in "Risk Factors" and elsewhere in this prospectus.
Business Overview
Our Business
We are a national healthcare alliance, consisting of approximately 2,900 U.S. hospitals, 100,000 alternate sites and 400,000 physicians, that plays a critical role in the U.S. healthcare industry. We unite hospitals, health systems, physicians and other healthcare providers with the common goal of improving and innovating in the clinical, financial and operational areas of their business to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform which offers critical supply chain services, clinical, financial, operational and population health SaaS informatics products, advisory services and performance improvement collaborative programs.
We are currently owned by 181 U.S. hospitals, health systems and other healthcare organizations and, upon the completion of the Reorganization and this offering, all of them will own shares of our Class B common stock representing % of our outstanding common stock (or % if the underwriters exercise their overallotment option in full). Our current membership base includes many of the country's most progressive and forward-thinking healthcare organizations and we continually seek to add new members that are at the forefront of innovation in the healthcare industry. Our members include organizations such as Adventist Health, Adventist Health System, Banner Health, Bon Secours Health System, Inc., Catholic Health Partners, Dignity Health, Geisinger Health System, members and affiliates of the Greater New York Hospital Association, Texas Health Resources, Universal Health Services, University Hospitals Health System and the University of Texas MD Anderson Cancer Center. Our alliance was formed in 1996 through the merger of American Healthcare Systems, Premier Health Alliance and SunHealth Alliance, the oldest entity of which was formed in 1969. Approximately 72% of our member owners have been part of our alliance for more than 10 years, with an average tenure across our entire membership of approximately 14 years as of June 30, 2013.
The value we provide to our members through our integrated platform of solutions is evidenced by (i) retention rates for members participating in our GPO in the supply chain services segment (determined based on aggregate contract purchasing volume) with an average of 96% for the last three fiscal years and renewal rates for our SaaS informatics products subscriptions in the performance services segment (determined based on aggregate contract dollar value) with an average of 92% for the last three fiscal years, (ii) an overall net revenue CAGR of 13% from fiscal year 2011 through fiscal year 2013, (iii) the fact that as of June 30, 2013, 34% of our U.S. hospital members use both our supply chain services and at least one of our SaaS informatics products and (iv) the fact that our members have partnered through Premier to create some of the largest performance improvement
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collaboratives in emerging areas of healthcare such as accountable care, bundled payment and readmission management. For more information, see "Business."
Our Business Segments
Our business model and solutions are designed to provide our members access to scale efficiencies, spread the cost of their development, derive intelligence from our data warehouse, mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of total cost management, quality and safety improvement and population health management through two business segments: supply chain services and performance services. Our supply chain services segment includes one of the largest healthcare GPOs in the United States, serving acute and alternate sites, a specialty pharmacy and our direct sourcing activities. Our performance services segment includes one of the largest informatics and advisory services businesses in the United States focused on healthcare providers. Our SaaS informatics products utilize our comprehensive data set to provide actionable intelligence to our members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety and population health management. This segment also includes our technology-enabled performance improvement collaboratives.
Basis of Presentation and Consolidation
The consolidated financial statements included elsewhere in this prospectus include the balance sheets, statements of income, statements of stockholders' equity and statements of cash flows of our predecessor, PHSI, and all entities in which PHSI currently has a controlling interest prior to the Reorganization. PHSI, through its wholly owned subsidiary, Premier Plans, currently holds a 1% general partner interest in and, as a result, consolidates the balance sheets, statements of income, statements of stockholders' equity and statements of cash flows of, Premier LP. The limited partners' 99% ownership of Premier LP is reflected as "redeemable limited partners' capital" in the consolidated balance sheets of PHSI included elsewhere in this prospectus and their proportionate share of income in Premier LP is reflected within "net income attributable to noncontrolling interest in Premier LP" in the consolidated statements of income of PHSI included elsewhere in this prospectus. All significant intercompany accounts have been eliminated in consolidation. We have prepared the accompanying consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC.
Effects of the Reorganization
Premier, Inc. was formed for the purpose of this offering and has engaged to date only in activities in contemplation of this offering. Premier, Inc. will be a holding company and its sole asset immediately following the Reorganization and this offering will be all of the outstanding interests in Premier GP, the general partner of Premier LP. Upon the completion of the Reorganization and this offering, all of our business will be conducted through Premier LP, and the financial results of Premier LP and its consolidated subsidiaries will be consolidated in our financial statements.
Prior to the Reorganization and this offering, the capital structure of Premier LP consisted of partnership interests separated in two divisions, each of which had its own set of capital account balance threshold amounts. Once a holder's capital account balance exceeded such threshold amounts, the holder was eligible to share in future distributions from Premier LP. In connection with the Reorganization and this offering, Premier LP, Premier GP and the member owners have entered into the new LP Agreement which will become effective upon the completion of the Reorganization and this offering and which will, immediately following the effective date, modify Premier LP's capital structure by creating two classes of units, Class A common units and Class B common units, and
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eliminate the existing partnership units. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingAmended and Restated Limited Partnership Agreement of Premier LP." Immediately following the effective date of the LP Agreement, all of Premier LP's limited partners that approved the Reorganization will receive Class B common units and capital account balances in Premier LP equal to their percentage interests and capital account balances in Premier LP immediately preceding the Reorganization. The LP Agreement will designate Premier GP as the general partner of Premier LP. Additionally, immediately following the effective date of the LP Agreement, all of the stockholders (consisting of member owners) of PHSI that approved the Reorganization will contribute their PHSI common stock to Premier LP in exchange for additional Class B common units based on such stockholder's percentage interest in the fair market valuation of PHSI and Premier LP prior to the Reorganization. As a result of the foregoing contribution, PHSI will become a wholly owned subsidiary of Premier LP. See "Structure."
We intend to use a portion of the net proceeds from this offering to purchase Class B common units of Premier LP from the member owners resulting in a reduction in the noncontrolling interest attributable to the limited partners of Premier LP from 99% to %. As a result of this acquisition of Class B common units of Premier LP from the member owners, and any subsequent exchanges of Class B common units with us for shares of Class A common stock pursuant to the exchange agreement, we expect to become entitled to special tax benefits attributable to tax basis adjustments involving amounts generally equal to the difference between our purchase price for the acquired Class B common units (or, in the case of an exchange, the value of the shares of Class A common stock issued by us) and our share of the historic tax basis in Premier LP's tangible and intangible assets that is attributable to the acquired Class B common units. We have agreed in our tax receivable agreement with the member owners to pay to the member owners 85% of the amount, if any, by which our tax payments to various tax authorities are reduced as a result of these special tax benefits. We are also obligated to make certain other payments on the occurrence of certain events that would terminate the tax receivable agreement with respect to certain member owners. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement." The tax basis adjustments, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the timing of any exchanges between us and the member owners, the amount and timing of our income, the net proceeds from the offering, the applicable effective combined federal, foreign, state and local income and franchise tax rates in effect at the time of the tax basis adjustments, and the amount and timing of the amortization and depreciation deductions and other tax benefits attributable to the tax basis adjustments.
In connection with the Reorganization and this offering, all of our member owners have entered into GPO participation agreements with Premier LP, which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of its GPO participation agreement, each of these member owners will receive revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by such member owner's member facilities through our GPO supplier contracts. In addition, our two largest regional GPO member owners, which represented approximately 17% of our gross administrative fees revenue for fiscal year 2013, will each remit all gross administrative fees collected by such member owner based upon purchasing by such member owner's member facilities through the member owner's own GPO supplier contracts and receive revenue share from Premier LP equal to 30% of such gross administrative fees remitted to us. Subject to certain termination rights, these GPO participation agreements will be for an initial five-year term, although our two largest regional GPO member owners have entered into agreements with seven-year terms. The terms of the GPO participation agreements vary as a result of provisions in our existing arrangements with member owners that conflict with the terms of the GPO participation agreement and which by the express terms of the GPO participation agreement are incorporated by reference and deemed controlling and will continue to remain in effect. In certain
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other instances, Premier LP and member owners have entered into GPO participation agreements with certain terms that vary from the standard form, which were approved by the member agreement review committee of our board of directors, based upon regulatory constraints, pending merger and acquisition activity or other exigent circumstances affecting those member owners. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingGPO Participation Agreement." Approximately 3% of our member owners as of June 30, 2013 elected not to consent to the Reorganization and therefore will not continue to be member owners following completion of the Reorganization and this offering, which we believe will not have a material impact on our financial performance. Historically, we have not generally had a contractual requirement to pay revenue share to member owners, but have paid, and in the case of the six month period ended June 30, 2013 will pay, semi-annual distributions of partnership income, which approximate 70% of the gross administrative fees collected by Premier LP for the fiscal years ended June 30, 2013, 2012 and 2011, respectively, based upon purchasing by such member owner's member facilities through our GPO supplier contracts. In addition, following the completion of the Reorganization and this offering, we intend to pay a distribution of partnership income, calculated in a consistent manner with our historical semi-annual distributions pursuant to the existing limited partnership agreement of Premier LP, to our member owners who approved the Reorganization for the period from July 1, 2013 through the effective date of the Reorganization. In addition, certain non-owner members have historically operated under, and following the completion of the Reorganization and this offering will continue to operate under, contractual relationships that provide for a specific revenue share that differs from the 30% revenue share that we will provide to our member owners under the GPO participation agreements following the Reorganization and this offering. As a result, our revenue share expense is expected to be approximately 36% of gross administrative fees following the completion of the Reorganization and this offering, compared to approximately 20% of gross administrative fees for the fiscal year ended June 30, 2013, which will result in a decrease in net revenue for the fiscal year ended June 30, 2014 when compared to the actual net revenue for the prior fiscal years which are not reflected on a pro forma basis.
In accordance with the LP Agreement, subject to applicable law or regulation and the terms of Premier LP's financing agreements, Premier GP will cause Premier LP to make quarterly distributions out of its estimated taxable net income to Premier GP and to the holders of Class B common units as a class in an aggregate amount equal to Premier LP's total taxable income for each such quarter multiplied by the effective combined federal, state and local income tax rate then payable by Premier, Inc. to facilitate payment by each Premier LP partner of taxes, if required, on its share of taxable income of Premier LP. In addition, in accordance with the LP Agreement, Premier GP may cause Premier LP to make additional distributions to Premier GP and to the holders of Class B common units as a class in proportion to their respective number of units, subject to any applicable restrictions under Premier LP's financing agreements or applicable law. Premier GP will distribute any amounts it receives from Premier LP to Premier, Inc., which Premier, Inc. will use to (i) pay applicable taxes, (ii) meet its obligations under the tax receivable agreement, and (iii) meet its obligations to the member owners under the exchange agreement if they elect to convert their Class B common units for shares of our Class A common stock and we elect to pay some or all of the consideration to such member owners in cash.
We expect to incur strategic and financial restructuring expenses in connection with the Reorganization and this offering of approximately $5.5 million of which $5.2 million was incurred during fiscal year 2013. In addition, we anticipate future ongoing incremental expenses associated with being a public company to approximate $4.2 million on an annual basis, excluding share-based compensation expense related to the equity incentive plan established in connection with the Reorganization and this offering.
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Market and Industry Trends and Outlook
We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term. We have based our expectations described below on assumptions made by us and on the basis of information currently available to us. To the extent our underlying assumptions about, or interpretation of, available information prove to be incorrect, our actual results may vary materially from our expected results. Please read "Risk Factors" for additional information about the risks associated with purchasing our Class A common stock.
Trends in the U.S. healthcare market affect our revenues in the supply chain services and performance services segments. The trends we see affecting our current healthcare business include the implementation of healthcare reform legislation, expansion of insurance coverage, intense cost pressure, payment reform, provider consolidation, shift in care to the alternate site market and increased data availability and transparency. To meet the demands of this environment, there will be increased focus on scale and cost containment and healthcare providers will need to measure and report on, and bear financial risk for, outcomes. We believe these trends will result in increased demand for our supply chain services and performance services solutions in the areas of cost management, quality and safety, population health management and our Enterprise Provider Analytics Platform.
Key Components of Our Results of Operations
Net Revenue
Net revenue consists of (i) service revenue which includes net administrative fees revenue and other services and support revenue and (ii) product revenue. Net administrative fees revenue consists of GPO administrative fees in our supply chain segment. Other services and support revenue consists primarily of fees generated by our performance services segment in connection with our SaaS informatics products subscriptions, advisory services and performance improvement collaborative subscriptions. Product revenue consists of specialty pharmacy and direct sourcing product sales, which are included in the supply chain segment.
Supply Chain Services
Through our group purchasing program, we aggregate the purchasing power of our members to negotiate pricing discounts and improve contract terms with suppliers. Contracted suppliers pay administrative fees to us which generally represent 1% to 3% of the purchase price of goods and services sold to members under the contracts we have negotiated. Administrative fees are recognized as revenue in the period in which the respective supplier reports customer purchasing data, usually 30 to 60 days following the month or quarter in arrears of actual customer purchase activity. The supplier report proves that the delivery of product or service has occurred, the administrative fees are fixed and determinable based on reported purchasing volume, and collectability is reasonably assured. Member and supplier contracts substantiate persuasive evidence of an arrangement. We do not take title to the underlying equipment or products purchased by members through our GPO supplier contracts.
Net administrative fees revenue related to our GPO represents gross administrative fees received from suppliers, reduced by the amount of any revenue share paid to members. Historically, we have not had a contractual requirement to pay revenue share to our member owners, while certain non-owner members received a specified revenue share from us based on contractual terms equal to a percentage of gross administrative fees that we collected based upon purchasing by such members and their member facilities through our GPO supplier contracts. In connection with the Reorganization and this offering, Premier, Inc. has entered into GPO participation agreements with its member owners that will provide for revenue share, effective upon the completion of the Reorganization and this offering. See "Business OverviewEffects of the Reorganization" above for additional information. Revenue share is recognized according to the members' contractual agreements with us as the related administrative
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fees revenue is recognized. Net administrative fees revenue is recognized as the respective supplier reports to us purchasing data by the hospitals, health systems, physicians and other members utilizing our GPO supplier contracts. The number of members that utilize our GPO supplier contracts and the volume of their purchases significantly influences the growth of our net administrative fees revenue. The number of members with contractual arrangements that provide for differing levels of revenue share and their use of our GPO supplier contracts relative to our member owners' use of our GPO supplier contracts influences the level of revenue share incurred as a percentage of gross administrative fees.
Specialty pharmacy revenue is recognized when a product is accepted and is recorded net of the estimated contractual adjustments under agreements with Medicare, Medicaid and other managed care plans, as described below. Payments for the products provided under such agreements are based on defined allowable reimbursements rather than on the basis of standard billing rates. The difference between the standard billing rate and allowable reimbursement rate results in contractual adjustments which are recorded as deductions from net revenue. Our specialty pharmacy revenue will be influenced by the number of members that utilize our specialty pharmacy as well as the impact of changes in the defined allowable reimbursement amounts determined by Medicare, Medicaid and other managed care plans.
Direct sourcing revenue is recognized upon delivery of medical products to members once the title and risk of loss have been transferred. Our direct sourcing revenue will be influenced by the number of members that purchase products through our direct sourcing activities and the impact of competitive pricing.
Performance Services
Performance services revenue consists of SaaS informatics products subscriptions, performance improvement collaborative and other service subscriptions, professional fees for advisory services, and insurance services management fees and commissions from group-sponsored insurance programs.
SaaS informatics products subscriptions include the right to use our proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, quality and safety, population health management and provider analytics. Pricing varies by subscription and size of the subscriber. Informatics subscriptions are generally three to five year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member's data set and, in certain cases, the installation of member site-specific software, in order to access and transfer member data into our hosted SaaS informatics products. Implementation is generally 120 to 150 days following contract execution before the SaaS informatics products can be fully utilized by the member.
Revenue from performance improvement collaboratives and other service subscriptions that support our offerings in cost management, quality and safety and population health management is recognized over the service period, which is generally one year.
Professional fees for advisory services are sold under contracts, the terms of which vary based on the nature of the engagement. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed and deliverables are provided. In situations where the contracts have significant contract performance guarantees or member acceptance provisions, revenue recognition occurs when the fees are fixed and determinable and all contingencies, including any refund rights, have been satisfied.
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Our performance services growth will be dependent upon the expansion of our SaaS informatics products, performance improvement collaboratives and advisory services to new and existing members and the renewal of existing subscriptions to our SaaS informatics products and participation in our performance improvement collaboratives.
Cost of Revenue
Cost of service revenue includes expenses related to employees (including compensation and benefits) and outside consultants who directly provide services related to revenue-generating activities, including advisory services to members and implementation services related to SaaS informatics products. Cost of service revenue also includes expenses related to hosting services, related data center capacity costs, third-party product license expenses and amortization of the cost of internal use software.
Cost of product revenue consists of purchase and shipment costs for specialty pharmaceuticals and direct sourced medical products. Our cost of product revenue will be influenced by the cost and availability of specialty pharmaceuticals and the manufacturing and transportation costs associated with direct source medical products.
Operating Expenses
Selling, general and administrative expenses consist of expenses directly associated with selling and administrative employees and indirect costs associated with employees that primarily support revenue-generating activities (including compensation and benefits) and travel-related expenses, as well as occupancy and other indirect costs, insurance costs, professional fees, and other general overhead expenses. We expect that general and administrative expenses will increase as we incur additional expenses related to being a public company, including share-based compensation expense related to the equity incentive plan established in connection with the Reorganization and this offering.
Research and development expenses consist of employee-related compensation and benefits expenses, and third-party consulting fees of technology professionals, incurred to develop, support and maintain our software-related products and services.
Amortization of purchased intangible assets includes the amortization of all identified intangible assets resulting from acquisitions.
Other Income, Net
Other income, net consists primarily of equity in net income of unconsolidated affiliates that is generated from our 50% ownership interest in Innovatix. A change in the number of, and use by, members that participate in our GPO programs through Innovatix could have a significant effect on the amount of equity in net income of unconsolidated affiliates earned from this investment. Other income, net also includes interest income, net and realized gains and losses on our marketable securities as well as gain or loss on disposal of assets.
Income Tax Expense
Income tax expense includes the income tax expense attributable to PHSI and PSCI. The low effective tax rate is attributable to the flow through of partnership income which is not subject to federal income taxes. For federal income tax purposes, income realized by Premier LP is taxable to its partners.
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Net Income Attributable to Noncontrolling Interest
PHSI currently owns a 1% controlling general partner interest in Premier LP through its wholly owned subsidiary Premier Plans and a 60% voting and economic interest in S2S Global and therefore consolidates their operating results. Net income attributable to noncontrolling interest represents the portion of net income attributable to the limited partners of Premier LP (99%) and the portion of net loss attributable to the noncontrolling equity holders of S2S Global (40%). We anticipate that our noncontrolling interest attributable to limited partners of Premier LP will be reduced to % after the Reorganization.
Other Key Business Metrics
The other key business metrics we consider are Adjusted EBITDA and Segment Adjusted EBITDA.
We define EBITDA as net income before interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. We define Adjusted EBITDA as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items, and including equity in net income of unconsolidated affiliates. We consider non-recurring items to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years. Such expenses include certain strategic and financial restructuring expenses, office consolidation expenses and expenses associated with the new Charlotte headquarters. Non-operating items include gain or loss on disposal of assets.
We define Segment Adjusted EBITDA as the segment's net revenue less operating expenses directly attributable to the segment excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items, and including equity in net income of unconsolidated affiliates. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA.
We use Adjusted EBITDA and Segment Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our results prepared in accordance with GAAP and the reconciliations set forth under "Prospectus SummarySummary Historical and Unaudited Pro Forma Consolidated Financial and Other Data," provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We believe Adjusted EBITDA and Segment Adjusted EBITDA assist our board of directors, management and investors in comparing our operating performance on a consistent basis from period to period because they remove the impact of our asset base (primarily depreciation and amortization) and items outside the control of our management team (taxes), as well as other non-cash (impairment of intangible assets and purchase accounting adjustments) and non-recurring items, from our operations.
Adjusted EBITDA is a supplemental financial measure used by us and by external users of our financial statements. We consider Adjusted EBITDA an indicator of the operational strength and performance of our business. Adjusted EBITDA allows us to assess our performance without regard to financing methods and capital structure and without the impact of other matters that we do not consider indicative of the operating performance of our business. Segment Adjusted EBITDA is the primary earnings measure we use to evaluate the performance of our business segments.
Despite the importance of these measures in analyzing our business, determining compliance with certain financial covenants in our senior secured revolving credit facility, measuring and determining
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incentive compensation and evaluating our operating performance relative to our competitors, Adjusted EBITDA is not a measurement of financial performance under GAAP, has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, net income or any other measure of our performance derived in accordance with GAAP. Some of the limitations of Adjusted EBITDA and Segment Adjusted EBITDA include:
In addition, Adjusted EBITDA and Segment Adjusted EBITDA are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities.
To properly and prudently evaluate our business, we encourage you to review the financial statements and related notes included elsewhere in this prospectus, and to not rely on any single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of our net income to Adjusted EBITDA set forth under "Prospectus SummarySummary Historical and Unaudited Pro Forma Consolidated Financial and Other Data." In addition, because Adjusted EBITDA and Segment Adjusted EBITDA are susceptible to varying calculations, the Adjusted EBITDA and Segment Adjusted EBITDA measures, as presented in this prospectus, may differ from, and may therefore not be comparable to, similarly titled measures used by other companies.
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Results of Operations
Our historical consolidated operating results do not reflect (i) the Reorganization, (ii) this offering and the contemplated use of the estimated net proceeds from this offering, or (iii) additional expenses we will incur as a public company. As a result, our historical consolidated operating results will not be indicative of what our results of operations will be for future periods See "Prospectus SummarySummary Historical and Unaudited Pro Forma Consolidated Financial and Other Data." The following table summarizes our consolidated results of operations for the periods shown:
|
Fiscal Year Ended June 30, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2011 | ||||||||||||||||
(In Thousands)
|
Amount | % of Net Revenue |
Amount | % of Net Revenue |
Amount | % of Net Revenue |
|||||||||||||
Net revenue: |
|||||||||||||||||||
Net administrative fees |
$ | 519,219 | 59.7 | % | $ | 473,249 | 61.6 | % | $ | 457,951 | 67.3 | % | |||||||
Other services and support |
205,685 | 23.7 | % | 178,552 | 23.2 | % | 158,179 | 23.2 | % | ||||||||||
Services |
724,904 | 83.4 | % | 651,801 | 84.8 | % | 616,130 | 90.5 | % | ||||||||||
Products |
144,386 | 16.6 | % | 116,484 | 15.2 | % | 64,628 | 9.5 | % | ||||||||||
|
869,290 | 100.0 | % | 768,285 | 100.0 | % | 680,758 | 100.0 | % | ||||||||||
Cost of revenue: |
|||||||||||||||||||
Services |
103,795 | 11.9 | % | 83,021 | 10.8 | % | 60,455 | 8.9 | % | ||||||||||
Products |
133,618 | 15.4 | % | 106,698 | 13.9 | % | 59,420 | 8.7 | % | ||||||||||
|
237,413 | 27.3 | % | 189,719 | 24.7 | % | 119,875 | 17.6 | % | ||||||||||
Gross profit |
631,877 | 72.7 | % | 578,566 | 75.3 | % | 560,883 | 82.4 | % | ||||||||||
Operating expenses: |
|||||||||||||||||||
Selling, general and administrative |
248,301 | 28.6 | % | 240,748 | 31.3 | % | 242,863 | 35.7 | % | ||||||||||
Research and development |
9,370 | 1.0 | % | 12,583 | 1.6 | % | 8,685 | 1.3 | % | ||||||||||
Amortization of purchased intangible assets |
1,539 | 0.2 | % | 3,146 | 0.5 | % | 3,463 | 0.5 | % | ||||||||||
Total operating expenses |
259,210 | 29.8 | % | 256,477 | 33.4 | % | 255,011 | 37.5 | % | ||||||||||
Operating income |
372,667 | 42.9 | % | 322,089 | 41.9 | % | 305,872 | 44.9 | % | ||||||||||
Other income, net |
12,145 | 1.4 | % | 12,808 | 1.7 | % | 11,092 | 1.7 | % | ||||||||||
Income before income taxes |
384,812 | 44.3 | % | 334,897 | 43.6 | % | 316,964 | 46.6 | % | ||||||||||
Income tax expense |
9,726 | 1.2 | % | 8,229 | 1.1 | % | 4,704 | 0.7 | % | ||||||||||
Net income |
375,086 | 43.1 | % | 326,668 | 42.5 | % | 312,260 | 45.9 | % | ||||||||||
Add: Net loss attributable to noncontrolling interest in S2S Global |
1,479 | 0.2 | % | 608 | 0.0 | % | | 0.0 | % | ||||||||||
Less: Net income attributable to noncontrolling interest in Premier LP |
(369,189 | ) | -42.5 | % | (323,339 | ) | -42.0 | % | (309,840 | ) | -45.5 | % | |||||||
Net income attributable to noncontrolling interest |
(367,710 | ) | -42.3 | % | (322,731 | ) | -42.0 | % | (309,840 | ) | -45.5 | % | |||||||
Net income attributable to PHSI |
$ | 7,376 | 0.8 | % | $ | 3,937 | 0.5 | % | $ | 2,420 | 0.4 | % | |||||||
Adjusted EBITDA(1) |
$ | 419,025 | 48.2 | % | $ | 359,609 | 46.8 | % | $ | 349,225 | 51.3 | % | |||||||
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|
Fiscal Year Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Net income |
$ | 375,086 | $ | 326,668 | $ | 312,260 | ||||
Interest and investment income, net(a) |
(965 | ) | (874 | ) | (1,045 | ) | ||||
Income tax expense |
9,726 | 8,229 | 4,704 | |||||||
Depreciation and amortization |
27,681 | 22,252 | 19,524 | |||||||
Amortization of purchased intangible assets |
1,539 | 3,146 | 3,463 | |||||||
EBITDA |
413,067 | 359,421 | 338,906 | |||||||
Merger and acquisition related expenses(b) |
| | 1,538 | |||||||
Strategic and financial restructuring expenses(c) |
5,170 | | | |||||||
Office consolidation and new Charlotte headquarters expenses(d) |
| | 8,001 | |||||||
Loss on disposal of assets(e) |
788 | 188 | 780 | |||||||
Adjusted EBITDA |
$ | 419,025 | $ | 359,609 | $ | 349,225 | ||||
Segment Adjusted EBITDA: |
||||||||||
Supply Chain Services |
$ | 431,628 | $ | 385,331 | $ | 369,251 | ||||
Performance Services |
56,456 | 42,153 | 37,840 | |||||||
Corporate(f) |
(69,059 | ) | (67,875 | ) | (57,866 | ) | ||||
Adjusted EBITDA |
419,025 | 359,609 | 349,225 | |||||||
Depreciation and amortization |
(27,681 | ) | (22,252 | ) | (19,524 | ) | ||||
Amortization of purchased intangible assets |
(1,539 | ) | (3,146 | ) | (3,463 | ) | ||||
Merger and acquisition related expenses(b) |
| | (1,538 | ) | ||||||
Strategic and financial restructuring expenses(c) |
(5,170 | ) | | | ||||||
Office consolidation and new Charlotte headquarters expenses(d) |
| | (8,001 | ) | ||||||
Equity in net income of unconsolidated affiliates |
(11,968 | ) | (12,122 | ) | (10,827 | ) | ||||
Operating income |
$ | 372,667 | $ | 322,089 | $ | 305,872 | ||||
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Comparison of the Fiscal Years Ended June 30, 2013 and 2012
Net Revenue
The following table summarizes our net revenue for the periods indicated both in dollars and percentage of net revenue:
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||||||||
(In Thousands)
|
Amount | % of Net Revenue |
Amount | % of Net Revenue |
|||||||||
Supply Chain Services |
|||||||||||||
Net administrative fees |
$ | 519,219 | 60 | % | $ | 473,249 | 62 | % | |||||
Other services and support |
471 | 0 | % | 1,296 | 0 | % | |||||||
Services |
519,690 | 60 | % | 474,545 | 62 | % | |||||||
Products |
144,386 | 16 | % | 116,484 | 15 | % | |||||||
Total Supply Chain Services |
664,076 | 76 | % | 591,029 | 77 | % | |||||||
Performance Services |
|||||||||||||
Other services and support |
205,214 | 24 | % | 177,256 | 23 | % | |||||||
Total net revenue |
$ | 869,290 | 100 | % | $ | 768,285 | 100 | % | |||||
Total net revenue for fiscal year 2013 was $869.3 million, an increase of $101.0 million, or 13%, from $768.3 million for fiscal year 2012.
Supply Chain Services
Our supply chain services segment net revenue for fiscal year 2013 was $664.1 million, an increase of $73.1 million, or 12%, from $591.0 million for fiscal year 2012.
Net administrative fees revenue in our supply chain services segment for fiscal year 2013 was $519.2 million, an increase of $46.0 million, or 10%, from $473.2 million for fiscal year 2012. Gross administrative fees increased $23.5 million reflecting an increase in gross administrative fees from member owners. Revenue share decreased $22.5 million. Net administrative fees revenue benefited as a result of the conversion of certain members with contractual fee share agreements to member owners during fiscal year 2013, which increased gross administrative fees from member owners and decreased revenue share as compared to the prior year. We expect net administrative fees revenue in our supply chain services segment to grow as we add new members and our existing members increase their volume of purchases under our GPO supplier contracts.
Product revenue in our supply chain services segment for fiscal year 2013 was $144.4 million, an increase of $27.9 million, or 24%, from $116.5 million for fiscal year 2012. Product revenue in our supply chain services segment increased during fiscal year 2013 primarily due to an increase in specialty pharmacy revenue of $16.6 million and direct sourcing revenue of $11.3 million. The increase in specialty pharmacy revenue is the result of growth of historical patient prescriptions and the expansion of specialty pharmacy product sales to our members. We expect our specialty pharmacy revenue to continue to grow as we further expand our product sales to existing member owners and additional member owners begin to utilize our specialty pharmacy. The increase in direct sourcing revenue is a result of the 60% ownership interest in S2S Global acquired in December 2011, with 12 months of revenue included in fiscal year 2013, compared to seven months in fiscal year 2012. We expect direct sourcing revenue to increase as additional members begin to purchase our products through our direct sourcing program.
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Performance Services
Other services and support revenue in our performance services segment for fiscal year 2013 was $205.2 million, an increase of $27.9 million, or 16%, from $177.3 million for fiscal year 2012. The increase was primarily attributable to $11.9 million from the renewal of existing SaaS informatics products subscriptions at generally higher subscription prices, $4.1 million from new SaaS informatics products subscriptions and $6.7 million from a significant two-year performance improvement collaborative contract that commenced in January 2012, resulting in 12 months of revenue for fiscal year 2013, compared to six months of revenue for fiscal year 2012, as well as increased revenue from advisory and research services.
Cost of Revenue
The following table summarizes our cost of revenue for the periods indicated both in dollars and percentage of net revenue:
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||||||||
(In Thousands)
|
Amount | % of Net Revenue |
Amount | % of Net Revenue |
|||||||||
Cost of revenue: |
|||||||||||||
Services |
$ | 103,795 | 12 | % | $ | 83,021 | 11 | % | |||||
Products |
133,618 | 15 | % | 106,698 | 14 | % | |||||||
Total cost of revenue |
$ | 237,413 | 27 | % | $ | 189,719 | 25 | % | |||||
Cost of revenue by segment: |
|||||||||||||
Supply Chain Services |
$ | 138,781 | 16 | % | $ | 108,122 | 14 | % | |||||
Performance Services |
98,632 | 11 | % | 81,597 | 11 | % | |||||||
Total cost of revenue |
$ | 237,413 | 27 | % | $ | 189,719 | 25 | % | |||||
Cost of revenue for fiscal year 2013 was $237.4 million, an increase of $47.7 million, or 25%, from $189.7 million for fiscal year 2012. Cost of service revenue increased by $20.8 million primarily due to labor associated with advisory services engagements, including a significant two-year performance improvement collaborative contract that commenced in January 2012, resulting in 12 months of cost of service revenue in fiscal year 2013, compared to six months of cost of service revenue in fiscal year 2012, as well as an increase in amortization of internally-developed software applications. We expect cost of service revenue to increase as we expand our performance improvement collaboratives and advisory services to members and continue to develop new and existing internally developed software applications. Cost of product revenue increased by $26.9 million, which was primarily attributable to the increase in specialty pharmacy revenue as well as an increase in direct sourcing revenue as a result of our 60% ownership interest in S2S Global acquired in December 2011. We expect our cost of product revenue to increase as we sell additional specialty pharmaceuticals and directly sourced medical products to new and existing members.
Cost of revenue for the supply chain services segment for fiscal year 2013 was $138.8 million, an increase of $30.7 million, or 28%, from $108.1 million for fiscal year 2012. The increase is primarily attributable to the growth in specialty pharmacy and direct sourcing, which have higher associated cost of revenue as compared to group purchasing. As a result, there is a higher increase in cost of revenue relative to net revenue because revenue from group purchasing administrative fees represents the majority of supply chain services net revenue and is growing at a lower rate than product revenue from specialty pharmacy and direct sourcing.
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Cost of revenue for the performance services segment for fiscal year 2013 was $98.6 million, an increase of $17.0 million, or 21%, from $81.6 million for fiscal year 2012. The increase is primarily attributable to labor associated with advisory services engagements and the increase in amortization of internally-developed software applications.
Gross Profit
Gross profit for fiscal year 2013 was $631.9 million, an increase of $53.3 million, or 9%, from $578.6 million for fiscal year 2012, primarily due to the increase in net revenue described above, which was offset by higher cost of revenue compared to the prior year. The gross profit percentage of 72.7% of net revenue for fiscal year 2013 decreased from 75.3% for fiscal year 2012, primarily as a result of the expansion of our specialty pharmacy and direct sourcing activities which operate at a lower gross profit percentage than our other businesses. We expect our gross profit to increase as we grow our revenues, but our gross profit percentage will continue to decline as we further expand our specialty pharmacy and direct sourcing activities.
Operating Expenses
The following table summarizes our operating expenses for the periods indicated both in dollars and percentage of net revenue:
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||||||||
(In Thousands)
|
Amount | % of Net Revenue |
Amount | % of Net Revenue |
|||||||||
|
(Unaudited) |
||||||||||||
Operating expenses: |
|||||||||||||
Selling, general and administrative |
$ | 248,301 | 29 | % | $ | 240,748 | 31 | % | |||||
Research and development |
9,370 | 1 | % | 12,583 | 2 | % | |||||||
Amortization of purchased intangible assets |
1,539 | 0 | % | 3,146 | 0 | % | |||||||
Total operating expenses |
$ | 259,210 | 30 | % | $ | 256,477 | 33 | % | |||||
Operating expenses by segment: |
|||||||||||||
Supply Chain Services |
$ | 106,889 | 12 | % | $ | 110,911 | 14 | % | |||||
Performance Services |
74,133 | 9 | % | 73,547 | 10 | % | |||||||
Total segment operating expenses |
181,022 | 21 | % | 184,458 | 24 | % | |||||||
Corporate |
78,188 | 9 | % | 72,019 | 9 | % | |||||||
Total operating expenses |
$ | 259,210 | 30 | % | $ | 256,477 | 33 | % | |||||
Selling, General and Administrative
Selling, general and administrative expenses for fiscal year 2013 were $248.3 million, an increase of $7.6 million, or 3%, from $240.7 million for fiscal year 2012. The increase was primarily attributable to legal, accounting and other expenses directly related to the Reorganization and this offering of $5.2 million in 2013, as well as increased headcount, employee-related expenses and travel-related expenses. We expect our selling, general and administrative expenses will continue to increase as we grow our business and incur additional expenses related to being a public company, including share-based compensation expense related to the equity incentive plan established in connection with the Reorganization and this offering.
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Research and Development
Research and development expenses for fiscal year 2013 were $9.4 million, a decrease of $3.2 million, or 25%, from $12.6 million for fiscal year 2012. This decrease was primarily as a result of higher outside contractor expenses in the prior fiscal year related to the development and testing activities associated with PremierConnect, our underlying payor/provider joint data model, which launched in June 2012.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets for fiscal year 2013 was $1.5 million, a decrease of $1.6 million, or 52%, from $3.1 million for fiscal year 2012. This decrease is attributable to certain intangible assets that were fully amortized during fiscal year 2012, associated with CareScience, Inc., or CareScience, an acquisition that occurred in 2007.
Other Non-operating Income and Expense
Other Income, Net
Other income, net, for fiscal year 2013 was $12.1 million, a decrease of $0.7 million, or 5%, from $12.8 million for fiscal year 2012. This decrease is primarily attributable to an increase in the loss on disposal of assets.
Income Tax Expense
Income tax expense for fiscal year 2013 was $9.7 million, an increase of $1.5 million, or 18%, from $8.2 million for fiscal year 2012 which is primarily attributable to additional taxable income. Our effective tax rate was 2.5% for fiscal year 2013 and 2012. The low effective tax rate for both periods is attributable to the flow through of partnership income which is not subject to federal income taxes.
Net Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest for fiscal year 2013 was $367.7 million, an increase of $45.0 million, or 14%, from $322.7 million for fiscal year 2012. This increase was primarily attributable to higher income of Premier LP, of which 99% was allocated to the limited partners of Premier LP.
Adjusted EBITDA
|
Fiscal Year Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||
(In Thousands)
|
Amount | Amount | |||||
Adjusted EBITDA by segment: |
|||||||
Supply Chain Services |
$ | 431,628 | $ | 385,331 | |||
Performance Services |
56,456 | 42,153 | |||||
Total Segment Adjusted EBITDA |
488,084 | 427,484 | |||||
Corporate |
(69,059 | ) | (67,875 | ) | |||
Total Adjusted EBITDA |
$ | 419,025 | $ | 359,609 | |||
Adjusted EBITDA for fiscal year 2013 was $419.0 million, an increase of $59.4 million, or 17%, from $359.6 million for fiscal year 2012.
Segment Adjusted EBITDA for the supply chain services segment of $431.6 million for fiscal year 2013 reflects an increase of $46.3 million, or 12%, compared to $385.3 million for fiscal year 2012, primarily as a result of growth in net administrative fees revenue.
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Segment Adjusted EBITDA for the performance services segment of $56.5 million for fiscal year 2013 reflects an increase of $14.3 million, or 34%, compared to $42.2 million for fiscal year 2012, primarily as a result of revenue growth from the sale of new, and renewal of existing, SaaS informatics products, a significant two-year performance improvement collaborative contract and other advisory services engagements.
Comparison of the fiscal years ended June 30, 2012 and 2011
Net Revenue
The following table summarizes our net revenue for the periods indicated both in dollars and percentage of net revenue:
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | |||||||||||
(In Thousands)
|
Amount | % of Net Revenue |
Amount | % of Net Revenue |
|||||||||
Supply Chain Services |
|||||||||||||
Net administrative fees |
$ | 473,249 | 62 | % | $ | 457,951 | 67 | % | |||||
Other services and support |
1,296 | 0 | % | 1,097 | 0 | % | |||||||
Services |
474,545 | 62 | % | 459,048 | 67 | % | |||||||
Products |
116,484 | 15 | % | 64,628 | 10 | % | |||||||
Total Supply Chain Services |
591,029 | 77 | % | 523,676 | 77 | % | |||||||
Performance Services |
|||||||||||||
Services |
177,256 | 23 | % | 157,082 | 23 | % | |||||||
Total net revenue |
$ | 768,285 | 100 | % | $ | 680,758 | 100 | % | |||||
Total net revenue for fiscal year 2012 was $768.3 million, an increase of $87.5 million, or 13%, from $680.8 million for fiscal year 2011.
Supply Chain Services
Our supply chain services segment net revenue for fiscal year 2012 was $591.0 million, an increase of $67.3 million, or 13%, from $523.7 million for fiscal year 2011.
Net administrative fees revenue in our supply chain services segment for fiscal year 2012 was $473.2 million, an increase of $15.2 million, or 3%, from $458.0 million for fiscal year 2011. Gross administrative fees increased $30.3 million reflecting an increase in gross administrative fees from non-owner members of $22.5 million and gross administrative fees from member owners of $7.8 million. Revenue share increased $15.0 million. The increase in gross administrative fees and revenue share was primarily a result of the addition of new non-owner members with contractual fee share agreements and increased purchasing by existing members through their GPO supplier contracts.
Product revenue in our supply chain services segment for fiscal year 2012 was $116.5 million, an increase of $51.9 million, or 80%, from $64.6 million for fiscal year 2011. Product revenue in our supply chain services segment increased during fiscal year 2012 primarily due to the acquisition of Commcare, our specialty pharmacy, on November 1, 2010. Revenue for fiscal year 2012 includes 12 months of specialty pharmacy revenue compared to eight months of specialty pharmacy revenue for fiscal year 2011.
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Performance Services
Other services and revenue in our performance services segment for fiscal year 2012 was $177.3 million, an increase of $20.2 million, or 13%, from $157.1 million for fiscal year 2011. The increase was primarily attributable to $9.9 million from the addition of new SaaS informatics products subscriptions and the renewal of existing SaaS informatics products subscriptions at generally higher subscription prices and an increase of $10.3 million from performance improvement collaboratives and advisory services.
Cost of Revenue
The following table summarizes our cost of revenue for the periods indicated both in dollars and percentage of net revenue:
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | |||||||||||
(In Thousands)
|
Amount | % of Net Revenue |
Amount | % of Net Revenue |
|||||||||
Cost of revenue: |
|||||||||||||
Services |
$ | 83,021 | 11 | % | $ | 60,455 | 9 | % | |||||
Products |
106,698 | 14 | % | 59,420 | 9 | % | |||||||
Total cost of revenue |
$ | 189,719 | 25 | % | $ | 119,875 | 18 | % | |||||
Cost of revenue by segment: |
|||||||||||||
Supply Chain Services |
$ | 108,122 | 14 | % | $ | 59,642 | 9 | % | |||||
Performance Services |
81,597 | 11 | % | 60,233 | 9 | % | |||||||
Total cost of revenue |
$ | 189,719 | 25 | % | $ | 119,875 | 18 | % | |||||
Cost of revenue for fiscal year 2012 was $189.7 million, an increase of $69.8 million, or 58%, from $119.9 million for fiscal year 2011. Cost of service revenue increased by $22.5 million primarily due to increased labor expense associated with advisory services engagements, including a significant two-year performance improvement collaborative contract that commenced in January 2012, as well as an increase in amortization of internally-developed software applications. Cost of product revenue increased by $47.3 million, which was primarily attributable to the acquisition of Commcare, our specialty pharmacy, on November 1, 2010. Cost of revenue for fiscal year 2012 includes 12 months of specialty pharmacy cost of revenue compared to eight months of specialty pharmacy cost of revenue for fiscal year 2011.
Cost of revenue for the supply chain services segment for fiscal year 2012 was $108.1 million, an increase of $48.5 million, or 81%, from $59.6 million for fiscal year 2011. The increase is primarily attributable to the growth in product revenue.
Cost of revenue for the performance services segment for fiscal year 2012 was $81.6 million, an increase of $21.4 million, or 35%, from $60.2 million for fiscal year 2011. The increase is primarily attributable to labor associated with advisory services engagements and the increase in amortization of internally-developed software applications.
Gross Profit
Gross profit for fiscal year 2012 was $578.6 million, an increase of $17.7 million, or 3%, from $560.9 million for the same period in fiscal year 2011, primarily due to the increase in net revenue described above, which was partially offset by higher cost of revenue compared to the prior year. The
108
gross profit percentage of 75.3% of net revenue for fiscal year 2012 decreased from 82.4% in fiscal year 2011, due to the expansion of our specialty pharmacy and direct sourcing activities which operate at a lower gross profit percentage than our other businesses.
Operating expenses
The following table summarizes our operating expenses for the periods indicated both in dollars and percentage of net revenue:
|
Fiscal Year Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 | 2011 | |||||||||||
(In Thousands)
|
Amount | % of Net Revenue |
Amount | % of Net Revenue |
|||||||||
Operating expenses: |
|||||||||||||
Selling, general and administrative |
$ | 240,748 | 31 | % | $ | 242,863 | 36 | % | |||||
Research and development |
12,583 | 2 | % | 8,685 | 1 | % | |||||||
Amortization of purchased intangible assets |
3,146 | 0 | % | 3,463 | 1 | % | |||||||
Total operating expenses |
$ | 256,477 | 33 | % | $ | 255,011 | 38 | % | |||||
Operating expenses by segment: |
|||||||||||||
Supply Chain Services |
$ | 110,911 | 14 | % | $ | 108,223 | 16 | % | |||||
Performance Services |
73,547 | 10 | % | 75,916 | 11 | % | |||||||
Total segment operating expenses |
184,458 | 24 | % | 184,139 | 27 | % | |||||||
Corporate |
72,019 | 9 | % | 70,872 | 11 | % | |||||||
Total operating expenses |
$ | 256,477 | 33 | % | $ | 255,011 | 38 | % | |||||
Selling, General and Administrative
Selling, general and administrative expenses for fiscal year 2012 were $240.8 million, a decrease of $2.1 million, or 1%, from $242.9 million for fiscal year 2011. The decrease was attributable to $8.0 million incurred in the prior year relating to the consolidation of our San Diego and Philadelphia offices and the relocation to our new headquarters in Charlotte. Excluding the impact of these expenses, selling, general and administrative expenses increased $5.9 million due to increased headcount, employee-related expenses and travel-related expenses.
Research and Development
Research and development expenses for fiscal year 2012 were $12.6 million, an increase of $3.9 million, or 45%, from $8.7 million for fiscal year 2011. This increase was primarily as a result of higher outside contractor expenses related to developmental activities associated with internally developed software projects including PremierConnect as well as and enhancements to our existing SaaS informatics products.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets for fiscal year 2012 was $3.2 million, a decrease of $0.3 million, or 9%, from $3.5 million for fiscal year 2011. This decrease is attributable to certain intangible assets associated with CareScience, an acquisition that occurred in 2007, that were fully amortized as of March 2012.
109
Other Non-Operating Income and Expense
Other Income, Net
Other income, net, for fiscal year 2012 was $12.8 million, an increase of $1.7 million, or 15%, from $11.1 million for fiscal year 2011. This increase is attributable to an increase in equity in net income of unconsolidated affiliates that is generated from our 50% ownership interest in Innovatix.
Income Tax Expense
Income tax expense for fiscal year 2012 was $8.2 million, an increase of $3.5 million, or 75%, from $4.7 million for fiscal year 2011. Our effective tax rate for fiscal year 2012 was 2.5% compared to 1.5% for fiscal year 2011. The higher effective tax rate for fiscal year 2012 is primarily attributable to the expiration of the federal research and development tax credit at December 31, 2011, resulting in a credit of $0.3 million to PHSI in fiscal year 2012 compared to $1.3 million in fiscal year 2011. The low effective tax rate for both fiscal years is attributable to the flow through of partnership income which is not subject to federal income taxes.
Net Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest for fiscal year 2012 was $322.7 million, an increase of $12.9 million, or 4%, from $309.8 million for fiscal year 2011. This increase was primarily due to the higher income of Premier LP, of which 99% was allocated to the limited partners of Premier LP.
Adjusted EBITDA
|
Fiscal Year Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2012 | 2011 | |||||
(In Thousands)
|
Amount | Amount | |||||
Adjusted EBITDA by segment: |
|||||||
Supply Chain Services |
$ | 385,331 | $ | 369,251 | |||
Performance Services |
42,153 | 37,840 | |||||
Total Segment Adjusted EBITDA |
427,484 | 407,091 | |||||
Corporate |
(67,875 | ) | (57,866 | ) | |||
Total Adjusted EBITDA |
$ | 359,609 | $ | 349,225 | |||
Adjusted EBITDA for fiscal year 2012 was $359.6 million, an increase of $10.4 million, or 3%, from $349.2 million for fiscal year 2011.
Segment Adjusted EBITDA for the supply chain services segment of $385.3 million for fiscal year 2012 reflects an increase of $16.1 million, or 4%, compared to $369.3 million for fiscal year 2011, primarily as a result of growth in net administrative fees revenue and equity in net income of unconsolidated affiliates from our 50% ownership interest in Innovatix.
Segment Adjusted EBITDA for the performance services segment of $42.2 million for fiscal year 2012 reflects an increase of $4.4 million, or 12%, compared to $37.8 million for fiscal year 2011, primarily as a result of revenue growth from the sale of new, and renewal of existing, SaaS informatics products and growth in performance improvement collaboratives and advisory services engagements.
Liquidity and Capital Resources
Our principal source of cash has primarily been cash provided by operating activities. Our primary cash requirements involve ordinary expenses, working capital fluctuations, capital expenditures and acquisitions. Our capital expenditures typically consist of internally-developed software costs, software purchases and computer hardware purchases. Historically, the vast majority of our excess cash has been distributed to our member owners.
110
As of June 30, 2013 and June 30, 2012, we had cash and cash equivalents totaling $198.3 million and $140.8 million, respectively, and marketable securities with maturities ranging from three to twelve months totaling $57.3 million and $100.8 million, respectively. For fiscal years 2013 and 2012, we financed our operations primarily through internally generated cash flows.
Cash and cash equivalents include cash on hand and highly liquid instruments with remaining maturities of 90 days or less at the time of acquisition. Cash equivalents and marketable securities are comprised of institutional money market funds with major commercial banks under which cash is primarily invested in U.S. Treasury bills, notes and other obligations issued or guaranteed by the U.S. government or its agencies, corporate debt securities and repurchase agreements secured by such obligations. We do not invest in high yield or high risk securities. Cash in bank accounts at times may exceed federally insured limits.
On December 16, 2011, we entered into a senior secured revolving credit facility of $100.0 million with an accordion feature granting us the ability to increase the size of the facility by an additional $100.0 million on terms and conditions mutually acceptable to the parties. As of June 30, 2013, there was no balance outstanding on our senior secured revolving credit facility and we have not historically used borrowings to fund operations. However, on July 18, 2013 we made a drawing of $30.0 million on this senior secured revolving credit facility to fund the acquisition of SYMMEDRx, LLC ("SYMMEDRx").
After giving effect to the Reorganization, we will retain a significantly greater portion of the annual earnings of Premier LP which will provide additional liquidity to fund operations and future growth, including through acquisitions. See "Business OverviewEffects of the Reorganization" for more information. Upon the completion of this offering, we expect these retained earnings and the proceeds from this offering to provide us with liquidity to fund our working capital requirements, revenue share obligations, federal and income tax payments, capital expenditures and growth for the foreseeable future. Our capital requirements depend on numerous factors, including funding requirements for our product and service development and commercialization efforts, our information technology requirements and the amount of cash generated by our operations. We currently believe that we have adequate capital resources at our disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements, however, strategic growth initiatives may require the use of the portion of the proceeds from this offering received by Premier LP, as well as the proceeds from the issuance of additional equity.
Discussion of Cash Flow
A summary of net cash flows follows:
|
Fiscal Year Ended June 30, |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Net cash provided by (used in): |
||||||||||
Operating activities |
$ | 375,180 | $ | 314,652 | $ | 354,976 | ||||
Investing activities |
14,830 | (126,197 | ) | (27,574 | ) | |||||
Financing activities |
(332,536 | ) | (294,242 | ) | (292,732 | ) |
Discussion of cash flows for fiscal years 2013 and 2012
Net cash provided by operating activities was $375.2 million for fiscal year 2013, an increase of $60.5 million compared to $314.7 million for fiscal year 2012. Operating cash flows increased primarily due to the increase in net income and working capital changes.
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Net cash provided by investing activities was $14.8 million for fiscal year 2013 and net cash used in investing activities was $126.2 million for fiscal year 2012. Our investing activities for fiscal year 2013 primarily consisted of the sale of marketable securities which resulted in proceeds of $115.1 million and distributions received from our 50% ownership interest in Innovatix of $12.5 million, partly offset by the purchase of marketable securities of $69.3 million and capital expenditures of $42.4 million. Our investing activities for fiscal year 2012 primarily consisted of purchases of marketable securities of $121.1 million and capital expenditures of $38.0 million. These payments were partly offset by distributions received from our 50% ownership interest in Innovatix of $12.0 million and proceeds from the sale of marketable securities of $21.7 million.
Net cash used in financing activities was $332.5 million and $294.2 million for fiscal year 2013 and 2012, respectively. Our financing activities for fiscal year 2013 primarily included net cash distribution payments to Premier LP limited partners of $183.2 million in September 2012 and $131.7 million in February 2013, cash distribution payments to Premier LP members with contractual fee share agreements who converted to member owners during fiscal year 2013 of $14.1 million, and payments to departed member owners of $17.8 million, partly offset by proceeds from the issuance of redeemable limited partnership interests of $8.1 million and proceeds of $5.6 million from withdrawal on our revolving lines of credit. Our financing activities for fiscal year 2012 primarily included net cash distribution payments to Premier LP limited partners of $170.2 million in September 2011 and $120.8 million in February 2012.
Discussion of cash flows for fiscal years 2012 and 2011
Net cash provided by operating activities was $314.7 million for fiscal year 2012, a decrease of $40.3 million compared to $355.0 million for fiscal year 2011. The decrease in operating cash flows was a result of negative changes in working capital, primarily in accounts receivable, accounts payable and accrued expenses offset by higher net income.
Net cash used in investing activities was $126.2 million for fiscal year 2012 and $27.6 million for fiscal year 2011. Our investing activities in fiscal year 2012 primarily consisted of purchases of marketable securities of $121.1 million and capital expenditures of $38.0 million. These payments were partly offset by proceeds from the sale of marketable securities of $21.7 million and distributions received from our 50% ownership interest in Innovatix of $12.0 million. The significant increase in the purchase of marketable securities for fiscal year 2012 results from a change in our investment policy to allow for short-term investments of up to 180 days in duration, as opposed to the historical policy limit of 90 days or less. Our investing activities for fiscal year 2011 primarily consisted of proceeds from the sale of marketable securities of $39.3 million and distributions received from our 50% ownership interest in Innovatix of $12.4 million. These proceeds were primarily offset by the acquisition of Commcare for $35.9 million, capital expenditures of $38.4 million and the purchase of $5.0 million in marketable securities.
Net cash used in financing activities was $294.2 million for fiscal year 2012 and $292.7 million for fiscal year 2011. Our financing activities for fiscal year 2012 primarily included net cash distribution payments to Premier LP limited partners of $170.2 million in September 2011 and $120.8 million in February 2012. Our financing activities for fiscal year 2011 primarily included net cash distribution payments to Premier LP limited partners of $162.7 million in September 2010 and $117.9 million in February 2011, and payments of $12.8 million on outstanding notes payable to departed member owners.
Contractual Obligations
At June 30, 2013, we had material commitments for obligations under notes payable, a portion of which represented obligations to departed member owners, and our non-cancelable office space lease
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agreements. Future payments for these operating lease obligations due under long-term contractual obligations and notes payable as of June 30, 2013 are as follows:
|
|
Payments Due by Period | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Description of Contractual Obligations (In Thousands) |
Total | Less than 1 year |
1-3 years |
3-5 years |
Greater than 5 years |
|||||||||||
Notes payable(1) |
$ | 34,617 | $ | 12,149 | $ | 9,395 | $ | 13,073 | $ | | ||||||
Operating lease obligations(2) |
$ | 106,561 | $ | 7,477 | $ | 15,222 | $ | 15,180 | $ | 68,682 | ||||||
Total |
$ | 141,178 | $ | 19,626 | $ | 24,617 | $ | 28,253 | $ | 68,682 |
On December 16, 2011, we entered into a $100.0 million senior secured revolving credit facility with Wells Fargo Bank, National Association, which includes an accordion feature granting us the ability to increase the size of the facility by an additional $100.0 million on terms and conditions mutually acceptable to the parties. Borrowings under our senior secured revolving credit facility bear interest at the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 0.25% to 1.25% per annum, depending on the nature of the loan. At June 30, 2013, there was no balance outstanding on our senior secured revolving credit facility. On July 18, 2013 we made a drawing of $30.0 million on this senior secured revolving credit facility to fund the acquisition of SYMMEDRx. Our senior secured revolving credit facility, which expires on December 16, 2014, includes restrictive covenants requiring the maintenance of certain financial and nonfinancial indicators, including a ratio of tangible liabilities to tangible net worth of 1.00 to 1.00, a minimum EBITDA coverage ratio of 3.00 to 1.00 and a maximum total leverage ratio of 1.50 to 1.00. The senior secured revolving credit facility also includes customary negative covenants, including restrictions on other indebtedness, liens, conduct of business, consolidations, mergers or dissolutions, asset dispositions, investments, restricted payments, prepayment of indebtedness, transactions with insiders, restricted actions, ownership of subsidiaries, sale-leaseback transactions and negative pledges. We were in compliance with such negative covenants at June 30, 2013. Commitment fees on our senior secured revolving credit facility's unused commitments are 0.22% per annum. Our senior secured revolving credit facility is guaranteed by substantially all of our subsidiaries and secured by substantially all of the assets of such subsidiaries.
On August 17, 2012, S2S Global obtained a revolving line of credit with a one-year term for up to $10.0 million with an interest rate at the prime rate plus 0.25% or LIBOR plus 1.25%, as elected by S2S Global, which replaced its revolving line of credit from the prior year. This revolving line of credit is guaranteed by Premier LP and PSCI and is secured by substantially all of the assets of S2S Global. At June 30, 2013, S2S Global had $7.7 million outstanding on the revolving line of credit reflected in notes payable in the table above. On August 2, 2013, S2S Global renewed and amended its revolving line of credit to include a $15.0 million credit limit and a $5.0 million accordion feature. The amended revolving line of credit has a maturity date of December 16, 2014.
Pursuant to the terms of PHSI's stockholders' agreement in effect prior to this offering, PHSI has been granted a right of refusal with regard to all proposed transfers of PHSI common stock. The stockholders' agreement also grants PHSI the right, but not the obligation, to purchase a stockholder's shares of PHSI common stock for a period of 90 days after the occurrence of any of the following events: (i) a material breach of PHSI's stockholders' agreement by such stockholder, (ii) a change in control with respect to such stockholder, or (iii) such stockholder's expression of its desire to withdraw
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from PHSI. In the event the directors of PHSI vote to expel a stockholder pursuant to the terms of the stockholders' agreement, PHSI will be required to purchase such stockholders' shares of PHSI. The occurrence of any one of these events could give rise to a contractual obligation that would be recorded as a liability based on the value of the shares on that date.
Pursuant to the terms of the existing limited partnership agreement, Premier LP is required to repurchase a limited partner's interest in Premier LP upon the withdrawal of such limited partner from Premier LP or such limited partner's failure to comply with applicable purchase commitments under the existing limited partnership agreement of Premier LP. As a result, the redeemable limited partners' capital of $307.6 million as of June 30, 2013 is classified as temporary equity in the mezzanine section of the consolidated balance sheet since (i) the withdrawal of the limited partnership interest is at the option of each limited partner; and (ii) the conditions of the repurchase are not solely within our control. However, pursuant to the LP Agreement entered into in connection with the Reorganization and this offering, which will become effective upon the completion of the Reorganization and this offering, in the event that a limited partner of Premier LP holding Class B common units not yet eligible to be exchanged for shares of our Class A common stock pursuant to the terms of the exchange agreement (i) ceases to participate in our GPO programs; (ii) ceases to be a limited partner of Premier LP (except as a result of a permitted transfer of its Class B common units); (iii) ceases to be a party to a GPO participation agreement (subject to certain limited exceptions); or (iv) becomes a related entity of, or affiliated with, a competing business of Premier LP, in each case, Premier LP will have the option to redeem all of such limited partner's Class B common units not yet eligible to be exchanged at a purchase price set forth in the LP Agreement. In addition, the limited partner will be required to exchange all Class B common units eligible to be exchanged on the next exchange date following the date of the applicable termination event described above. For additional information regarding the LP Agreement, see "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingAmended and Restated Limited Partnership Agreement of Premier LP."
In connection with the Reorganization and this offering, we have entered into a tax receivable agreement with the member owners, which will become effective upon the completion of the Reorganization and this offering, pursuant to which we agree to pay to the member owners, generally over a 15-year period (under current law), 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income and franchise tax that we actually realize (or are deemed to realize, in the case of payments required to be made upon certain occurrences under such tax receivable agreement) as a result of the increases in tax basis resulting from the initial sale of Class B common units by the member owners in connection with the Reorganization, as well as subsequent exchanges by such member owners pursuant to the exchange agreement, and of certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingTax Receivable Agreement."
Off-Balance Sheet Arrangements
Through June 30, 2013, we had not entered into any off-balance sheet arrangements.
JOBS Act
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.
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as it is an emerging growth company. An emerging growth company can
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therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these benefits until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
Following this offering, we will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of Class A common stock under this registration statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed to be a "large accelerated filer," as defined under the Exchange Act. Accordingly, we could remain an "emerging growth company" until as late as June 30, 2019.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio and on the increase or decrease in the amount of any interest expense we must pay with respect to outstanding debt instruments. We invest our excess cash in a portfolio of individual cash equivalents and marketable securities. We do not currently hold, and we have never held, any derivative financial instruments. As a result, we do not expect changes in interest rates to have a material impact on our results of operations or financial position. We plan to ensure the safety and preservation of our invested principal funds by limiting default, market and investment risks. We plan to mitigate default risk by investing in low-risk securities. Substantially all of our financial transactions are conducted in U.S. dollars.
Critical Accounting Policies and Estimates
Our Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Estimates are evaluated on an ongoing basis, including those related to reserves for bad debts, useful lives of fixed assets, value of investments not publicly traded, the valuation allowance on deferred tax assets, and the fair value of purchased intangible assets and goodwill. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We believe that our most critical accounting policies are the following:
Revenue Recognition
Net Revenue
Net revenue consists of (i) service revenue which includes net administrative fees revenue and other services and support revenue and (ii) product revenue. Net administrative fees revenue consists of GPO administrative fees in our supply chain services segment. Other services and support revenue consists primarily of fees generated in our performance services segment in connection with our SaaS informatics products subscriptions, advisory services and performance improvement collaborative subscriptions. Product revenue consists of specialty pharmacy and direct sourcing product sales, which are included in the supply chain segment. We recognize revenue when (i) there is persuasive evidence
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of an arrangement, (ii) the fee is fixed or determinable, (iii) services have been rendered and payment has been contractually earned, and (iv) collectability is reasonably assured.
Net Administrative Fees Revenue
Net administrative fees revenue is generated through administrative fees received from suppliers based on the total dollar volume of supplies purchased by our members.
Through our group purchasing program, we aggregate the purchasing power of our members to negotiate pricing discounts and improve contract terms with suppliers. Contracted suppliers pay administrative fees to us which generally represent 1% to 3% of the purchase price of goods and services sold to members under the contracts we have negotiated. Administrative fees are recognized as revenue in the period in which the respective supplier reports customer purchasing data, usually a month or a quarter in arrears of actual customer purchase activity. The supplier report proves that the delivery of product or service has occurred, the administrative fees are fixed and determinable based on reported purchasing volume, and collectability is reasonably assured. Member and supplier contracts substantiate persuasive evidence of an arrangement. We do not take title to the underlying equipment or products purchased by members through our GPO supplier contracts.
We partner with certain members, including regional GPOs, to extend our network base to their members and pay a revenue share equal to a percentage of gross administrative fees that we collect based upon purchasing by such members and their member facilities through our GPO supplier contracts. Revenue share is recognized according to the members' contractual agreements with us as the related administrative fees revenue is recognized. Considering GAAP relating to principal agent considerations under revenue recognition, revenue share is recorded as a reduction to gross administrative fees revenue to arrive at net administrative fees revenue in the accompanying consolidated statements of income.
Other Services and Support Revenue
Other services and support revenue consists of SaaS informatics products subscriptions, performance improvement collaborative and other service subscriptions, professional fees for advisory services, and insurance services management fees and commissions from group-sponsored insurance programs.
SaaS informatics products subscriptions include the right to use our proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, quality and safety, population health management and provider analytics. Pricing varies by subscription and size of the subscriber. Informatics subscriptions are generally three to five year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member's data set and, in certain cases, the installation of member site-specific software, in order to access and transfer member data into our hosted SaaS informatics products. Implementation is generally 120 to 150 days following contract execution before the SaaS informatics products can be fully utilized by the member.
Revenue from performance improvement collaboratives and other service subscriptions that support our offerings in cost management, quality and safety and population health management is recognized over the service period, which is generally one year.
Professional fees for advisory services are sold under contracts, the terms of which vary based on the nature of the engagement. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed and deliverables are provided. In
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situations where the contracts have significant contract performance guarantees or member acceptance provisions, revenue recognition occurs when the fees are fixed and determinable and all contingencies, including any refund rights, have been satisfied.
Our other services and support revenue growth will be dependent upon the expansion of our SaaS informatics products, performance improvement collaboratives and advisory services to new and existing members and the renewal of existing subscriptions to our SaaS informatics products and performance improvement collaboratives.
Certain administrative and/or patient management specialty pharmacy services are provided in situations where prescriptions are sent back to member health systems for dispensing. Additionally, we derive revenue from pharmaceutical manufacturers for providing patient education and utilization data. Revenue is recognized as these services are provided.
Product Revenue
Specialty pharmacy revenue is recognized when a product is accepted and is recorded net of the estimated contractual adjustments under agreements with Medicare, Medicaid and other managed care plans. Payments for the products provided under such agreements are based on defined allowable reimbursements rather than on the basis of standard billing rates. The difference between the standard billing rate and allowable reimbursement rate results in contractual adjustments which are recorded as deductions from net revenue.
Direct sourcing revenue is recognized upon delivery of medical products to members once the title and risk of loss have been transferred.
Multiple Deliverable Arrangements
We occasionally enter into agreements where the individual deliverables discussed above, such as SaaS subscriptions and advisory services, are bundled into a single service arrangement. These agreements are generally provided over a time period ranging from approximately three months to five years after the applicable contract execution date. Revenue is allocated to the individual elements within the arrangement based on their relative selling price using vendor specific objective evidence, or VSOE, third-party evidence, or TPE, or the estimated selling price, or ESP, provided that the total arrangement consideration is fixed and determinable at the inception of the arrangement. We establish VSOE, TPE, or ESP for each element of a service arrangement based on the price charged for a particular element when it is sold separately in a stand-alone arrangement. All deliverables which are fixed and determinable are recognized according to the revenue recognition methodology described above.
Certain arrangements include performance targets or other contingent fees that are not fixed and determinable at the inception of the arrangement. If the total arrangement consideration is not fixed and determinable at the inception of the arrangement, we allocate only that portion of the arrangement that is fixed and determinable to each element. As additional consideration becomes fixed, it is similarly allocated based on VSOE, TPE or ESP to each element in the arrangement and recognized in accordance with each element's revenue recognition policy.
Performance Guarantees
On occasion, we may enter into a limited number of member agreements which provide for guaranteed performance levels to be achieved by the member over the term of the agreement. In situations with significant performance guarantees, we defer revenue recognition until the amount is fixed and determinable and all contingencies, including any refund rights, have been satisfied. In the event that guaranteed savings levels are not achieved, we may have to pay the difference between the savings that were guaranteed and the actual achieved savings.
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Software Development Costs
Costs to develop internal use computer software that are incurred in the preliminary project stage are expensed as incurred. During the development stage, direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capitalized and amortized over the estimated useful life of the software, once it is placed into operation. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to five years and amortization is included in depreciation and amortization expense. Replacements and major improvements are capitalized, while maintenance and repairs are expensed as incurred. Some of the more significant estimates and assumptions inherent in this process involve determining the stages of the software development project, the direct costs to capitalize and the estimated useful life of the capitalized software.
Goodwill
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not amortized, but we evaluate for impairment annually on the first day of the last fiscal quarter of the fiscal year or whenever there is an impairment indicator.
Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of each of our reporting units to its carrying amount, including goodwill. In performing the first step, we determine the fair value of a reporting unit using a discounted cash flow analysis that is corroborated by a market-based approach. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows employed in the discounted cash flow analyses are based on our most recent budget and long-term forecast. The discount rates used in the discounted cash flow analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary.
If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its goodwill carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized in an amount equal to that excess.
Our most recent annual impairment testing during the fourth quarter of 2013 did not result in any goodwill impairment charges.
Business Combinations
We account for acquisitions using the acquisition method. All of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration are recognized at their fair value on the acquisition date. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related costs are recorded as expenses in the consolidated financial statements.
Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use the income method. This method starts with a
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forecast of all of the expected future net cash flows for each asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows and the assessment of the asset's life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.
Income Taxes
We account for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. We provide a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.
We prepare and file tax returns based on interpretations of tax laws and regulations. In the normal course of business our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. In determining our tax provision for financial reporting purposes we establish a reserve for uncertain income tax positions unless it is determined to be "more likely than not" that such tax positions would be sustained upon examination, based on their technical merits. That is, for financial reporting purposes, we only recognize tax benefits taken on the tax return if we believe it is "more likely than not" that such tax position would be sustained. There is considerable judgment involved in determining whether it is "more likely than not" that such tax positions would be sustained.
We adjust our tax reserve estimates periodically because of ongoing examinations by, and settlements with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax provision of any given year includes adjustments to prior year income tax accruals and related estimated interest charges that are considered appropriate. Our policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax expense.
Recently Adopted Accounting Standards
In September 2011, the Financial Accounting Standards Board, or FASB, issued an accounting standard update, or ASU, amending the guidance on the annual testing of goodwill for impairment. The update allowed companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. The update was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and did not have a material effect on our consolidated financial statements.
Recently Issued Accounting Standards
In February 2013, the FASB issued an ASU relating to reporting of amounts reclassified out of accumulated other comprehensive income. The update requires presentation of information about significant amounts reclassified from each component of accumulated other comprehensive income, the sources of the items reclassified, and the income statement lines affected, either parenthetically on the face of the financial statements or in the notes to the financial statements. The update is effective for fiscal years and interim periods within those years, beginning after December 15, 2012, and is not expected to have a material effect on our consolidated financial statements.
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Our Company
We are a national healthcare alliance, consisting of approximately 2,900 U.S. hospitals, 100,000 alternate sites and 400,000 physicians, that plays a critical role in the U.S. healthcare industry. We unite hospitals, health systems, physicians and other healthcare providers with the common goal of improving and innovating in the clinical, financial and operational areas of their business to meet the demands of a rapidly evolving healthcare industry. We deliver value through a comprehensive technology-enabled platform which offers critical supply chain services, clinical, financial, operational and population health SaaS informatics products, advisory services and performance improvement collaborative programs.
We are currently owned by 181 U.S. hospitals, health systems and other healthcare organizations and, upon the completion of the Reorganization and this offering, all of them will own shares of our Class B common stock representing approximately % of our outstanding common stock (or approximately % if the underwriters exercise their overallotment option in full). Our current membership base includes many of the country's most progressive and forward-thinking healthcare organizations and we continually seek to add new members that are at the forefront of innovation in the healthcare industry. Our members include organizations such as Adventist Health, Adventist Health System, Banner Health, Bon Secours Health System, Inc., Catholic Health Partners, Dignity Health, Geisinger Health System, members and affiliates of the Greater New York Hospital Association, Texas Health Resources, Universal Health Services, University Hospitals Health System and the University of Texas MD Anderson Cancer Center. Our alliance was formed in 1996 through the merger of American Healthcare Systems, Premier Health Alliance and SunHealth Alliance, the oldest entity of which was formed in 1969. Approximately 72% of our member owners have been part of our alliance for more than 10 years, with an average tenure across our entire membership of approximately 14 years as of June 30, 2013.
As a member-owned healthcare alliance, our mission, products and services, and long-term strategy have been developed in partnership with our member hospitals, health systems and other healthcare organizations. We believe that this powerful partnership-driven business model is a significant competitive advantage as it creates a relationship between our members and us that is characterized by aligned incentives and mutually beneficial collaboration. This relationship affords us access to critical proprietary data and encourages member participation in the development and introduction of new Premier products and services. Our interaction with our members provides us with a window into the latest challenges confronting the industry we serve and innovative best practices that we can share broadly within the healthcare industry, including throughout our membership. This model has enabled us to develop size and scale, data and analytics assets, expertise and customer engagement required to accelerate innovation, provide differentiated solutions and facilitate growth.
For fiscal year 2013, we generated net revenue of $869.3 million, net income of $375.1 million and Adjusted EBITDA of $419.0 million. For fiscal year 2013, on a pro forma basis, after giving effect to the Reorganization and this offering, we generated net revenue of $764.3 million, net income of $ million and Adjusted EBITDA of $314.0 million. See "Unaudited Pro Forma Consolidated Financial Information" for additional information. Adjusted EBITDA is defined under "Prospectus SummarySummary Historical and Unaudited Pro Forma Consolidated Financial and Other Data." We achieved an overall net revenue CAGR of 13% from fiscal year 2011 through fiscal year 2013 and an overall net income CAGR of 10% for the same period.
We seek to address challenges facing healthcare delivery organizations through our comprehensive suite of solutions that:
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Our business model and solutions are designed to provide our members access to scale efficiencies, spread the cost of their development, derive intelligence from our data warehouse, mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of total cost management, quality and safety improvement and population health management through two business segments: supply chain services and performance services.
Supply chain services: We are one of the largest healthcare supply chain management services businesses in the United States, serving a broad range of healthcare providers. Our supply chain services segment includes one of the largest healthcare GPOs in the United States, a specialty pharmacy and our direct sourcing activities. Our GPO programs include approximately 2,000 U.S. hospitals, one of the largest alternate site programs in the United States, consisting of approximately 100,000 members, and one of the nation's largest group purchasing programs for physicians. Our alternate site program includes our 50% ownership interest in Innovatix, one of the largest alternate site GPOs. Our GPO programs, which are enabled with proprietary technology and include field support services, administered approximately $40 billion worth of member facilities purchasing volume through our supplier contracts for calendar year 2012. These programs help members and their affiliates access better pricing, manage inventories and decrease unjustified variations in the use of clinical products and pharmaceuticals.
Recognizing the need for continuous supply chain improvement, we recently expanded our service offerings into specialty pharmacy and the direct sourcing of medical products. With our support, member health systems have the ability to move away from using external specialty pharmacy suppliers and partner with us to augment their own specialty pharmacy capabilities and enhance their revenue growth. Similarly, our direct sourcing capabilities allow us to help members achieve visibility into, and remove unnecessary costs from, the supply chain, resulting in savings to our members. Our scale and our ability to expand the breadth and value of our solutions have allowed us to develop strong relationships with our members, embedding us in their operations as a key long-term strategic partner.
Our supply chain services segment has grown rapidly through market share gains, continued expansion in the alternate site market, focus on consistent innovation and acquisitions. Our total member base in our U.S. hospital and alternate site GPO programs has grown from approximately 70,000 at July 1, 2010 to approximately 102,000 members at June 30, 2013. Supply chain services segment net revenue has grown from $591.0 million in fiscal year 2012 to $664.1 million in fiscal year 2013, representing net revenue growth of 12%, and in fiscal year 2013 accounted for 76% of our overall net revenue. We generate revenue in our supply chain services segment through fees received from suppliers based on the total dollar volume of supplies purchased by our members and through product sales in connection with our specialty pharmacy and direct sourcing activities.
Performance services: We believe we are one of the largest informatics and advisory services businesses in the United States focused on healthcare providers. Our SaaS informatics products utilize our comprehensive data set to provide actionable intelligence to our members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety, and population health management. Healthcare providers use insights delivered by our SaaS informatics products in their operational processes to improve clinical outcomes, drive safety improvement, decrease mortality rates, enhance supply chain and
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labor efficiency and enhance financial performance. Our data and analytics platform is differentiated by what we believe is one of the largest integrated data sets in the healthcare provider sector, a comprehensive repository of clinical, financial and operational data which encompasses one in four U.S. hospital discharges, 29% of U.S. hospital annual supplies expense, approximately $30 billion of U.S. annual direct labor expense, approximately 2.5 million real-time clinical transactions daily and approximately $40 billion in U.S. annual purchasing data, in each case for the calendar year ended December 31, 2012. Our SaaS informatics products include our Premier Quality suite of solutions (which consists of QualityAdvisor, Quality Measures Reporter and PhysicianFocus), OperationsAdvisor and SafetyAdvisor, with approximately 870, 780 and 320 participating U.S. hospital members, respectively, as of June 30, 2013. We have recently introduced products such as CareFocus, NetworkFocus, PhysicianFocus and PopulationFocus, in areas such as physician performance comparison, network management and population health management to help healthcare providers transition to new models of care delivery and payment such as accountable care (a model focused on holding providers accountable for the quality, experience and cost of the health of a population and typically provides for shared savings between the providers and payors), bundled payment (a model where multiple providers administer a defined set of services for a particular condition for a defined amount over a specified period of time) and readmission management (a model focused on reducing preventable readmissions through discharge planning, cross continuum care planning and other methods, including tying provider reimbursements to readmission rates). In addition, we launched our Enterprise Provider Analytics Platform in 2012, a cloud-based data warehousing, collaboration and content management solution that allows our members to aggregate and share information on one common platform that is both payor and supplier neutral. Our Enterprise Provider Analytics Platform includes PremierConnect, our underlying payor/provider joint data model, developed in partnership with IBM, that we believe provides longitudinal patient data across the healthcare continuum, and PremierConnect Enterprise, our data warehousing and business intelligence platform that is offered to our members on a subscription basis. As of June 30, 2013, approximately 1,800 U.S. hospital members purchased one or more of our performance services segment's products or services. Of those U.S. hospital members, approximately 46% only utilized products or services in our performance services segment, and we believe there is a significant opportunity to increase sales in other products or services.
This segment also includes our technology-enabled performance improvement collaboratives. Approximately 850 U.S. hospital members participate in at least one of our performance improvement collaboratives. Through these collaboratives, which are supported by our Enterprise Provider Analytics Platform, we convene members, design programs and facilitate, foster and advance the exchange of clinical, financial and operational data among our members to measure patient outcomes and determine best practices that drive clinical, financial and operational improvements. We are focused on helping our members develop revenue enhancing and cost-effective models of care by identifying improvement opportunities, sharing development and implementation strategies, collaborating to define specific performance goals and assisting our members in reaching their goals through the use of our SaaS informatics products and advisory services. We support and enhance the infrastructure for these collaboratives with our specific measurement methodologies, proprietary technologies and advisory services. Our QUEST collaborative, which we believe is one of the largest performance improvement collaboratives in the United States, has approximately 350 participating U.S. hospitals working together and utilizing our SaaS informatics products to develop highly standardized quality, safety and cost metrics not otherwise available to health systems today. The aggregate performance of all of our members who participated in our QUEST collaborative improved in all six domains (evidence-based care, cost of care, patient experience, harm, mortality and readmissions) for calendar year 2012 compared to calendar year 2011. We believe our QUEST collaborative has helped our participating U.S.
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hospital members avoid nearly 112,000 deaths (calculated based on decreased mortality rates) and saved our U.S. hospital members approximately $10.1 billion (calculated based on decreased inpatient costs per adjusted discharge), since the inception of QUEST in 2008. Today we offer performance improvement collaboratives in eight areas, including bundled payment, accountable care and readmission management, among others. The implementation of these programs has enhanced the growth of our performance services segment. On average, our QUEST members utilize four or more of our SaaS informatics products, typically including our QualityAdvisor and SafetyAdvisor applications.
Through our performance services segment, we also offer our members advisory services in such areas as clinical, financial and operational performance, member facility and capital asset management, organizational transformation, physician preference items, reform readiness, service line improvement, strategic and business planning and supply chain transformation.
Our performance services segment has grown rapidly through product innovation, organic growth and selected acquisitions. Our member base in the performance services segment has grown from 1,200 at July 1, 2010 to 1,800 at June 30, 2013. Performance services segment net revenue has grown from $177.3 million in fiscal year 2012 to $205.2 million in fiscal year 2013, representing net revenue growth of 16%, and accounted for 24% of our overall net revenue in fiscal year 2013. Our performance services segment consists of three main sources of revenue: (i) three to five-year subscription agreements to our SaaS informatics products, (ii) annual subscriptions to our performance improvement collaboratives, and (iii) professional fees for our advisory services.
The value we provide to our members through our integrated platform of solutions is evidenced by (i) retention rates for members participating in our GPO in the supply chain services segment (determined based on aggregate contract purchasing volume) with an average of 96% for the last three fiscal years and renewal rates for our SaaS informatics products subscriptions in the performance services segment (determined based on aggregate contract dollar value) with an average of 92% for the last three fiscal years, (ii) an overall net revenue CAGR of 13% from fiscal year 2011 through fiscal year 2013, (iii) the fact that, as of June 30, 2013, 34% of our U.S. hospital members use both our supply chain services and at least one of our SaaS informatics products and (iv) the fact that our members have partnered through Premier to create some of the largest performance improvement collaboratives in emerging areas of healthcare such as accountable care, bundled payment and readmission management.
The Premier Opportunity
We believe the future for healthcare providers in the United States will require transformational change, due to intense cost pressures, a shifting competitive landscape, a changing regulatory environment, the evolving use of data and analytics and the transition to a fundamentally different payment model. Premier's service offerings and business opportunities are well-aligned with the key characteristics of the changing healthcare environment:
Healthcare providers must place a renewed focus on cost and quality. To succeed in a declining revenue environment driven by lower reimbursement, declining inpatient admissions, value-based purchasing and an overall shift to lower revenue outpatient services, healthcare providers must achieve substantial and continuous cost reductions, while improving quality outcomes. We believe an alliance membership model such as ours that provides significant economies of scale, access to data and analytics and best practices on a shared-cost basis appeals to many healthcare providers in this increasingly cost-sensitive healthcare provider environment.
Greater administrative and clinical scale will be a requirement for success. The healthcare provider market is extremely fragmented relative to other mature industries. According to the American Hospital Association's AHA Hospital Statistics published in 2013, in 2011 there were approximately
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5,000 U.S. hospitals with approximately 800,000 staffed beds in the United States. Many of these members and potential new members deliver healthcare services primarily on a local or regional basis and will likely face intense competition from larger multi-market competitors over time. We provide access to economies of scale, lower cost of innovation and proprietary data solutions that enable large and small healthcare providers to achieve a level of operating effectiveness which allows them to remain competitive in a consolidating and lower revenue environment. Our scale is derived from approximately 2,900 U.S. hospitals, representing approximately 57% of all U.S. hospitals, that participate in our acute care GPO program in our supply chain services segment or use one or more of our performance services segment's products or services.
Healthcare providers will need to extend their reach over time. The need to diversify revenue and to manage in an outcomes-based payment model is forcing health systems to expand their ability to deliver care into alternate site markets, including primary/ambulatory care and post-acute care facilities and providers. The number of U.S. physicians employed by hospitals or health systems has grown from 43% to 61% of all physicians from 2000 through 2012. Our alternate site program, consisting of our Continuum of Care GPO, which includes Innovatix, Premier REACH and ProviderSelect MD, is one of the largest in the United States, providing services to approximately 100,000 members as of June 30, 2013, and experienced 14% growth in purchasing volume from fiscal year 2012 to fiscal year 2013.
The healthcare provider business model of the future will incentivize different capabilities. Initiatives such as ACOs, bundled payment and readmission management are rapidly realigning incentives around outcomes, quality and patient satisfaction. To meet the demands of these new initiatives, providers must make investments in areas such as data management and analytics, and population health management services. Through partnerships with leading suppliers such as Verisk Analytics Inc., Phytel Inc. and Activate Networks, Inc., we offer performance improvement collaboratives and clinical, financial and operational SaaS informatics products, such as PopulationFocus, CareFocus, NetworkFocus and QualityAdvisor to give healthcare providers the knowledge and capabilities to operationalize these initiatives. Approximately 850 U.S. hospital members participate in at least one of our performance improvement collaboratives in the areas of accountable care, bundled payment and/or readmission management.
Healthcare has entered the era of big data. The healthcare industry has spent the past decade digitizing medical records. Additionally, the U.S. federal government has accelerated the move toward data transparency by making decades of stored data usable, searchable and actionable. The increase in available data has brought the healthcare industry to a transition point. Healthcare providers are now seeking actionable data and information to properly measure and analyze meaningful business drivers such as clinical quality, operating efficiency and population risk profiles within their communities. Premier is well positioned to take advantage of this emerging opportunity. We collect data on one in four U.S. hospital discharges, 29% of U.S. hospital annual supplies expense, approximately $30 billion of U.S. annual direct labor expense, approximately 2.5 million real-time clinical transactions daily and approximately $40 billion in U.S. annual purchasing data, in each case for the calendar year ended December 31, 2012. We believe that this data set is one of the largest and most diverse in the healthcare provider sector. We designed our data management infrastructure and data repository to integrate disparate clinical, financial and operational data in order to support our members' advanced business intelligence, informatics and data analysis requirements. The foundation of this data repository is a data model that enables integration between the data domains and subject areas that are relevant to healthcare providers. We built, and continue to build, this data model jointly with IBM, our development partner.
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Our Competitive Strengths
We believe we are well positioned to benefit from the transformations occurring in the healthcare provider market described above. A new environment that rewards efficiency, better use of information and payment for patient outcomes aligns very well with our portfolio of solutions, recent investments and other competitive strengths:
Scale and depth of member relationships. Our membership includes approximately 57% of all U.S. hospitals. Our mission, products and services, and long-term strategy have been developed in partnership with our member health systems. According to our annual CEO Satisfaction Survey conducted in fiscal years 2011 through 2013, on average approximately 86% of the responding member owners surveyed consider us to be either a "strategic partner" or an "extension of their own organization." Approximately 72% of our member owners have been part of our alliance for more than 10 years, with an average tenure across our entire membership of approximately 14 years as of June 30, 2013. We believe that our powerful, partnership-driven business model constitutes a significant competitive advantage as it aligns incentives, engenders trust, provides access to proprietary clinical, financial and operational data and encourages mutually beneficial collaboration between our members and us. Our member base also creates a significant embedded customer opportunity. We have been able to drive sales of our products and services to our receptive member base, as evidenced by the fact that, as of June 30, 2013, 34% of our U.S. hospital members use both our supply chain services and at least one of our SaaS informatics products.
Ownership structure and member commitment. Upon the completion of the Reorganization and this offering, we expect that approximately % of our outstanding common stock (or % if the underwriters exercise their overallotment option in full) will be owned by members. Pursuant to the LP Agreement, each of our member owners has entered into a long-term GPO participation agreement (which will become effective upon the completion of the Reorganization and this offering), has agreed to a seven-year vesting period with respect to such member owner's Class B common units of Premier LP and has consented to allow Premier to retain a significantly greater portion of the annual partnership earnings following the completion of the Reorganization and this offering than it retained prior to the Reorganization. We believe the structural changes to our business model described under "Structure" will strengthen the alignment of interests between us and our member owners and will also drive recurring revenues, attractive returns on incremental investment and significant free cash flow that can be redeployed for growth.
Member-driven innovation. Our current membership base includes many of the country's most progressive and forward-thinking healthcare organizations. Approximately 370 individuals, representing approximately 180 of our U.S. hospital members, sit on 23 of our strategic and sourcing committees and as part of these committees use their industry expertise to advise on ways to improve the development, quality and value of our products and services. This joint product development process has led to several recent innovations, including direct sourcing of medical products for members, specialty pharmacy solutions for member health systems, an integrated provider and payor data management platform, multiple physician and population health management SaaS informatics products, including PhysicianFocus, CareFocus, NetworkFocus and PopulationFocus, and the establishment of performance improvement collaboratives in accountable care, bundled payment and readmission management.
Market leading data assets and data management capabilities. Our data and analytics platform is differentiated by what we believe is one of the largest integrated data sets in the healthcare provider sector and our dedicated data management team, consisting of approximately 250 full-time employees. Our data set is a comprehensive repository of clinical, financial and operational data which encompasses one in four U.S. hospital discharges, 29% of U.S. hospital annual supplies expense, approximately $30 billion of U.S. annual direct labor expense, approximately 2.5 million real-time
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clinical transactions daily and approximately $40 billion in U.S. annual purchasing data, in each case for the calendar year ended December 31, 2012. Our recent product initiatives will bring all of this data together in one integrated data warehouse which will streamline data aggregation and data sharing in a supplier and payor neutral manner, further differentiating Premier from our competitors. We believe that our market leading data assets also make us an attractive strategic partner to other organizations that want access to meaningful comparative data.
Embedded in our members' critical operational processes. Our suite of solutions is a critical component of our members' cost management and quality improvement initiatives, as evidenced by retention rates for members participating in our GPO in the supply chain services segment (determined based on aggregate contract purchasing volume) with an average of 96% for the last three fiscal years and renewal rates for our SaaS informatics products subscriptions in the performance services segment (determined based on aggregate contract dollar value) with an average of 92% for the last three fiscal years. Approximately 870 of our members use at least one of our Premier Quality products to enable their quality reporting and approximately 320 of our members use our SafetyAdvisor product to provide real-time drug safety and clinical monitoring. Members also use our GPO programs and field support services team to manage their supply chain function on a day-to-day basis.
Proven management and dynamic culture. Our senior management team of 14 individuals has an average of approximately 20 years of experience in the healthcare industry, an average of approximately seven years of service with us and a proven track record of delivering measurable clinical, financial and operational improvement for healthcare providers. Our management team has established a member-driven culture that encourages employees at all levels to focus on identifying and addressing the evolving needs of healthcare providers. Further, our management plays an important role in industry and policy thought leadership and in governmental advocacy efforts in conjunction with our members. The successes of our strategy and our products and services, including the significant growth related to our SaaS informatics products, are attributable to the innovation and commitment of our management team.
Our Growth Strategy
From fiscal year 2011 through fiscal year 2013, we had an overall net revenue CAGR of approximately 13% through strong organic revenue growth, new product development and selected acquisitions. We have made and continue to make investments in people, data, analytic solutions, technology and complementary businesses to accelerate growth. The key components of our strategy include:
Expanding our relationships with our existing members.
We have spent the past few years investing in new areas such as specialty pharmacy, direct sourcing, data management and clinical, financial and operational SaaS informatics products. Our large membership base, consisting of approximately 2,900 U.S. hospitals, 100,000 alternate sites and 400,000 physicians, creates a significant opportunity for these products and services. Key elements of our strategy include:
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Approximately 34% of our U.S. hospital members use both our supply chain services and at least one of our SaaS informatics products and approximately 36% of our members use more than one of our SaaS informatics products, and we believe there is a significant opportunity to increase that rate.
Continuing to develop innovative products and services.
We have a strong track record in new product development. Our GPO, SaaS informatics products, advisory services and performance improvement collaborative offerings were largely organically developed. We intend to continue developing our product and services portfolio to provide members a more comprehensive set of solutions. Key elements of our strategy, designed to disrupt the industry status quo, include:
Attracting new members.
Our member base in our GPO programs has grown from approximately 70,000 to 102,000 and our member base in our performance services segment has grown from approximately 1,200 to 1,800, in each case from July 1, 2010 to June 30, 2013. Key elements of our strategy to grow our membership base include:
Expanding further into the alternate site market.
We believe that one of the fastest growing segments of the healthcare provider market is the alternate site market, which includes primary/ambulatory care and post-acute care facilities and providers, due to low market penetration by GPOs. In addition, we believe the transition in the healthcare delivery and payment models will drive increased utilization of care in these settings. Our Continuum of Care GPO program in the supply chain services segment is one of the largest alternate site programs in the United States. Our ProviderSelect MD program in the supply chain services segment is one of the nation's largest group purchasing programs for physicians. Our alternate site programs include our 50% ownership interest in Innovatix, one of the largest alternate site GPOs. From fiscal year 2012 to fiscal year 2013, our alternate site programs have experienced 14% growth in purchasing volume. The number of alternate site providers in our membership base has increased from approximately 68,000 providers at July 1, 2010 to approximately 100,000 providers at June 30, 2013.
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Pursuing strategic acquisitions that complement our leadership position.
We have a track record of acquiring and integrating assets which bolster scale and expand our capabilities, such as our acquisitions of S2S Global, Commcare, CareScience and Cereplex, as well as our recent acquisition of SYMMEDRx in July 2013. Our ability to offer and integrate our acquired products and services across our large membership base accelerates the rate of member adoption. For example, in September 2006 we acquired Cereplex, which provides web-based surveillance and analytic services that assist hospitals and clinics with managing infections, curbing resistance and optimizing antibiotic therapy. In the 18 months subsequent to the acquisition, we grew installations of the Cereplex solution from 22 to 199. We intend to continue to expand our presence across both supply chain services and performance services. We have developed an internal capability to source, evaluate and integrate acquisitions. Key elements of our strategy include:
Developing new strategic partnerships.
We believe that our membership base, integrated data platform and scale appeal to a variety of strategic partners. Recently we have partnered with Verisk Analytics Inc., Phytel Inc., and Activate Networks, Inc., which provide clinical analytics, population health management and network design and management, to expand and differentiate our informatics solutions. We have also partnered with IBM to create a joint payor/provider healthcare data sharing platform that allows our members to work together to enhance patient safety while reducing the number of procedures, readmissions, unnecessary emergency rooms visits and hospital-acquired conditions. We expect the universe of service providers desiring access to our growing data platform and membership base to increase over time, creating additional opportunities for partnership. Our partnerships help reduce the cost of innovation, leverage best practices and shorten our time to market.
Industry Overview
According to CMS data, healthcare expenditures are a large and growing component of the U.S. economy, representing approximately $2.7 trillion in 2011, or approximately 18% of gross domestic product, or GDP, and are expected to grow to approximately $4.8 trillion, or approximately 20% of GDP, in 2021. According to the American Hospital Association's AHA Hospital Statistics published in 2013, in 2011 there were approximately 5,000 U.S. hospitals with approximately 800,000 staffed beds in the United States. Of these acute-care facilities, approximately 3,000 were part of either multi-hospital or diversified single hospital systems, meaning they were owned, leased, sponsored or contract managed by a central organization. According to the IMS Healthcare Market Index, February 2013, in addition to U.S. hospitals, there were approximately 485,000 alternate site facilities and providers across the continuum of care in the United States. These alternate site facilities include primary/ambulatory care and post-acute care facilities and providers. Increasingly, these alternate site facilities are being acquired by, integrated into or aligned with acute care facilities creating integrated delivery networks.
Healthcare Supply Chain Services Industry
According to CMS data, total spending on hospital services in the United States was approximately $851 billion in 2011, or approximately 31% of total healthcare expenditures in 2011. Hospital supply expense typically represents between 20% and 30% of hospital expenditures according to Booz & Company. With continued reimbursement rate pressure, such as the use of enhanced bargaining power by third-party payors to secure discounted reimbursement rates, a transitioning payment model from fee-for-service to risk-based payment and increasing focus on the growth of national health expenditures, healthcare providers are increasingly examining all sources of cost savings,
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with supply chain spending a key area of focus. Opportunities to drive cost out of the healthcare supply chain include improved pricing, appropriate resource utilization, and increased operational efficiency.
From origination at the supplier to final consumption by the patient or provider, healthcare products pass through an extensive supply chain incorporating distributors, GPOs, pharmacy benefit managers, and retail, long-term care and specialty pharmacies, among others. In response to the national focus on the growth of healthcare expenditures, supply chain participants are seeking more convenient and cost-efficient ways to deliver products to patients and providers. We believe that improvements to the healthcare supply chain to bring it on par with other industries that have more sophisticated supply chain management can drive out significant inefficiencies and cost. Within the supply chain services industry, our primary historical focus has been in group purchasing.
Group Purchasing
Hospitals and other healthcare providers in the United States rely on GPOs to contract for goods and services to maximize value, centralize purchasing decisions and lower institutional costs. GPOs aggregate the purchasing requirements of their members, thereby lowering costs in both the purchasing function by eliminating members' needs to operate in-house contracting functions, and in the prices at which products and services are purchased. GPOs generally do not directly buy from suppliers or take possession of goods. Rather, they typically arrange contracts between their members and suppliers. This sourcing service is compensated by administrative fees paid by the suppliers to the GPOs. For suppliers, GPO-arranged contracts provide broader access to customer markets, greater volume of sales and savings on marketing and contracting costs.
Healthcare Performance Services Industry
Legislative reform, unsustainable cost trends, and the need for improved quality and outcomes have generated greater focus among healthcare providers on cost management, quality and safety, and population health management. According to the Institute of Medicine's Committee on the Learning Healthcare System in America, there was an estimated $750 billion in unnecessary healthcare spending in 2009, based upon a survey of various hospitals and hospital systems, that has been targeted by regulators, employers and consumers as the healthcare industry undergoes transformation. In order to reduce this unnecessary spending, providers are facing a variety of incentives and disincentives, including fee-for-service payment cuts, readmission penalties, grants for effective use of technology and reimbursement tied to performance. Health systems will need to continually monitor performance and manage costs, while maintaining high levels of quality. In response to this changing environment, the markets for performance services and solutions in the areas of cost management, quality and safety and population health management are growing significantly.
Our offerings in the performance services sector of the healthcare industry are primarily information technology analytics and workflow automation and advisory services. Information technology continues to be a key enabler of performance improvement across the healthcare industry. In particular, we believe that the trend will shift from electronic medical record systems towards data management and data analytics. According to Frost and Sullivan, 50% of hospitals in the United States are expected to adopt data analytics capabilities by 2016, up from 10% in 2011. The advisory services business is similarly growing rapidly in areas of business model redesign, process improvement, labor productivity, non-labor cost management, clinical integration and change management.
Our Membership
Our members include approximately 2,900 U.S. hospitals, 100,000 alternate sites and 400,000 physicians. Approximately 370 individuals, representing approximately 180 of our U.S. hospital members, sit on 23 of our strategic and sourcing committees and as part of these committees use their industry expertise to advise on ways to improve the development, quality and value of our products and services. In addition, senior executives from 11 of our U.S. hospital members currently serve on our board of directors, and we expect senior executives from our U.S. hospital members to comprise at
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least a majority of our board of directors upon the completion of this offering. Other than GNYHA Purchasing Alliance, LLC, which accounted for 6.2% of our net revenue in fiscal year 2013, no one member accounted for more than 5% of our net revenue in any of fiscal years 2013, 2012 or 2011.
Our current membership base includes many of the country's most progressive and forward-thinking healthcare organizations. The participation of these organizations in our membership provides us with a window into the latest challenges confronting the industry we serve and innovative best practices that we can share broadly throughout our membership.
Total GPO purchasing volume for calendar year 2012 and 2011 was $40.1 billion and $38.2 billion, respectively. The following table sets forth information with respect to our acute care members, alternate site members, total GPO members, retention rates for members participating in our GPO in the supply chain services segment, performance services members and renewal rates for our SaaS informatics products subscriptions in the performance services segment as of the dates shown:
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June 30, | |||||||||
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2013 | 2012 | 2011 | |||||||
Acute care GPO members |
2,020 | 1,949 | 1,867 | |||||||
Alternate site members |
100,096 | 86,450 | 76,047 | |||||||
Total GPO members |
102,116 | 88,399 | 77,914 | |||||||
GPO retention rate(1) |
93% | 99% | 98% | |||||||
Performance services members |
1,809 | 1,373 | 1,285 | |||||||
SaaS informatics products subscriptions renewal rate(2) |
89% | 94% | 94% |
Our Products and Solutions
Our business model and solutions are designed to provide our members access to scale efficiencies, spread the cost of their development, derive intelligence from our data warehouse, mitigate the risk of innovation and disseminate best practices that will help our member organizations succeed in their transformation to higher quality and more cost-effective healthcare. We deliver our integrated platform of solutions that address the areas of total cost management, quality and safety improvement and population health management through two business segments: supply chain services and performance services.
Supply Chain Services
Our supply chain services segment assists our members in managing their non-labor expense categories through a combination of products and services, including one of the largest national healthcare GPOs in the United States serving acute and alternate sites, a specialty pharmacy and direct sourcing activities. Membership in our GPO also provides access to certain SaaS informatics products related to the supply chain and our ASCEND® collaborative. Our supply chain services segment consists of the following products and solutions:
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information technology, food and nutritional products and purchased services (such as construction and janitorial services). We use our members' aggregate purchasing power to negotiate pricing discounts and improved contract terms with suppliers. Contracted suppliers pay us administrative fees based on the purchase price of goods and services sold to our healthcare provider members under the contracts we have negotiated. We also partner with other organizations, including regional GPOs, to extend our network base to their members.
Our contract portfolio is designed to offer our healthcare provider members a flexible solution comprised of multi-sourced supplier contracts, as well as pre-commitment and/or single-sourced contracts that offer the best discounts. Our multi-sourced contracts offer pricing tiers based on purchasing volume and multiple suppliers for many products and services. Our pre-commitment contracts require that a certain amount of our members commit in advance to a specified amount or percentage of purchasing volume before we enter into a contract with a particular supplier. Our single-source contracts are entered into with a specified supplier, and through this exclusive relationship, allow us to purchase products that meet our members' specifications. In the case of pre-commitment contracts, we provide the particular supplier with a list of members that have pre-committed to a specified amount or percentage of purchasing volume and the supplier directly handles the tracking and monitoring of fulfillment of such purchasing volume. In the case of single and multi-sourced contracts, we negotiate and execute the contracts on behalf of our members and make such contracts available to our members to access. The utilization of such single and multi-sourced contracts is determined by the particular member with assistance from our field support team. Since there are no specific fulfillment requirements in our single and multi-source contracts, in order to obtain certain pricing levels the particular member and supplier agree on the appropriate pricing tier based on expected purchasing volume with tracking and ongoing validation of such purchasing volume provided by the supplier. The flexibility provided by our expansive contract portfolio allows us to effectively address the varying needs of our members and the significant number of factors that influence and dictate these needs, including overall size, service mix, for-profit versus not-for-profit status and the degree of integration between hospitals in a health system.
We continue to innovate our GPO programs. A recent product introduction includes EXPRESSbuy®, which are coordinated, limited-time, volume-driven purchasing opportunities that offer savings beyond regular contract pricing. Through a proprietary web-based application, we offer our members the opportunity to aggregate committed volumes and achieve additional price discounts while allowing our suppliers to sell targeted products, including time-sensitive or excess inventory, more efficiently and at reduced costs.
Our GPO programs target multiple markets, including acute care and alternate site settings. Our alternate site program, one of the largest in the United States, with approximately 100,000 members as of June 30, 2013, includes the following:
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of the program is a sole-source distribution contract for medical and surgical products and pharmacy with McKesson Corporation.
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U.S. hospital member participants in the ASCEND® Collaborative identified approximately $160 million in additional savings as compared to their U.S. hospital peers not participating in ASCEND® since its inception in 2009.
Performance Services
We believe we are one of the largest informatics and advisory services businesses in the United States focused on healthcare providers. Our SaaS informatics products utilize our comprehensive data set to provide actionable intelligence to our members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety and population health management. This segment also includes our technology-enabled performance improvement collaboratives. Through these collaboratives, which are supported by our Enterprise Provider Analytics Platform, we convene members, design programs and facilitate, foster and advance the exchange of clinical, financial and operational data among our members to measure patient outcomes and determine best practices that drive clinical, financial and operational improvements. Our performance services segment consists of the following primary products and solutions:
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foundation for engaging clinicians in a data-driven discussion about resource utilization and product standardization as ways to safely reduce cost.
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Using various specialists and advisors, we provide wrap-around services for our major SaaS informatics products and our GPO to enhance the member value from these programs. Certain of these specialists, called performance partners, drive clinical, financial and operational improvement through the use of our SaaS informatics products. For example, our clinical performance partners provide U.S. hospitals with access to performance improvement and operational specialists. Using the QualityAdvisor application, these clinical performance partners mine data for improvement opportunities and then lead or assist with improvement projects in such areas as resource and operational assessments, process improvement, performance improvement monitoring, strategic planning and knowledge transfer for organizational change. U.S. hospitals contract for clinical, financial and/or operational performance partner support for a given number of days per month, with contracts lasting from one to five years in duration.
Pricing and Contracts
We generate revenue from our supply chain services segment through fees received from suppliers based on the total dollar volume of supplies purchased by our members in connection with our GPO programs and through product sales in connection with our specialty pharmacy and direct sourcing
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activities. Our performance services segment has three main sources of revenue: (i) three to five-year subscription agreements to our SaaS informatics products, (ii) annual subscriptions to our performance improvement collaboratives, and (iii) professional fees for our advisory services.
Supply Chain Services
In connection with the Reorganization and this offering, our member owners have entered into GPO participation agreements with Premier LP which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of its GPO participation agreement, each of these member owners will receive revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by such member owner's member facilities through our GPO supplier contracts. In addition, our two largest regional GPO member owners, which represented approximately 17% of our gross administrative fees revenue for fiscal year 2013, will each remit all gross administrative fees collected by such member owner based upon purchasing by such member owner's member facilities through the member owner's own GPO supplier contracts and receive revenue share from Premier LP equal to 30% of such gross administrative fees remitted to us. Subject to certain termination rights, these GPO participation agreements will be for an initial five-year term, although our two largest regional GPO member owners have entered into agreements with seven-year terms. The terms of the GPO participation agreements vary as a result of provisions in our existing arrangements with member owners that conflict with the terms of the GPO participation agreement and which by the express terms of the GPO participation agreement are incorporated by reference and deemed controlling and will continue to remain in effect. In limited circumstances, Premier LP and certain member owners have entered into GPO participation agreements with certain terms that vary from the standard form, which were approved by the member agreement review committee of our board of directors, based upon regulatory constraints, pending merger and acquisition activity or other exigent circumstances affecting those member owners. Historically, certain non-owner members have operated under, and following the completion of the Reorganization and this offering, will continue to operate under, contractual relationships that provide for a specific revenue share that differs from the 30% revenue share that we will provide to our member owners under the GPO participation agreements following the Reorganization. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingGPO Participation Agreement."
In our specialty pharmacy, we earn revenue from product sales. In addition, we have developed a fee-for-service model targeted at health systems that desire to dispense specialty drugs. We provide certain administrative and/or patient management services for prescriptions that are sent back to our member health systems for dispensing. Additionally, we derive professional fees revenue from pharmaceutical manufacturers for providing certain services to patients, such as patient education, and/or providing utilization data. Our specialty pharmacy contracts generally range from one to three years in length, and except for exclusive networks, there are generally no guaranteed sales associated with a payor network contract.
In our direct sourcing activities, we earn revenue from product sales.
Performance Services
SaaS informatics products subscriptions include the right to use our proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, quality and safety, population health management and provider analytics. Pricing varies by subscription and size of the subscriber. Informatics subscriptions are generally three to five year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of
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data preparation services that are unique to each member's data set and, in certain cases, the installation of member site-specific software, in order to access and transfer member data into our hosted SaaS informatics products. Implementation is generally 120 to 150 days following contract execution before the SaaS informatics products can be fully utilized by the member.
Performance improvement collaborative and other service subscription revenue to support our offerings in cost management, quality and safety and population health management is recognized over the service period, which is generally one year.
Professional fees for advisory services are sold under contracts, the terms of which vary based on the nature of the engagement. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed and deliverables are provided. In situations where the contracts have significant contract performance guarantees or member acceptance provisions, revenue recognition occurs when the fees are fixed and determinable and all contingencies, including any refund rights, have been satisfied. For basic "assessments," the term generally ranges from three to four months, with a maximum of six months. For "interim management" or "outsourcing" services, the contract term typically ranges from three to five years. Fees are based either on time and materials or the savings that are delivered.
Sales
We conduct sales through our embedded field support team, our dedicated national sales team and our Premier Performance Partners advisors, collectively comprised of approximately 410 employees as of June 30, 2013.
Our field support team works closely with our U.S. hospital members and other members to target new opportunities by developing strategic and operational plans to drive cost management and quality and safety improvement initiatives. As of June 30, 2013, our field support team was deployed to nine regions across the United States. These field support staff work at our member sites to identify and recommend best practices for both supply chain and clinical integration cost savings opportunities. The regionally deployed field support team is augmented by a national team of subject matter specialists who focus on key areas such as lab, surgery, cardiology, orthopedics, imaging, pharmacy, information technology and construction. Our field support team assists our members in growing and supporting their alternate site membership.
Our sales team provides national sales coverage for establishing initial member relationships and works with our field support team to increase sales to existing members. We are in the process of implementing regional sales teams to align with the nine regions in our field support model.
Our Premier Performance Partners team identifies and targets advisory engagements and wrap-around services for our major SaaS informatics products and our GPO to enhance the member value from these programs.
Intellectual Property
We offer our members a range of products to which we claim intellectual property rights, including online services, best practices content, databases, electronic tools, web-based applications, performance metrics, business methodologies, proprietary algorithms, software products and advisory services deliverables. We own and control a variety of trade secrets, confidential information, trademarks, trade names, copyrights, domain names and other intellectual property rights that, in the aggregate, are of material importance to our business.
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We protect our intellectual property by relying on federal, state and common law rights, as well as contractual arrangements. We are licensed to use certain technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by us.
Research and Development
Our research and development, or R&D, expenditures primarily consist of our strategic investment in internally developed software to further our initiatives, and new product development in the areas of cost management, quality and safety and population health management. We have also made significant investments in our recently introduced Enterprise Provider Analytics Platform. We expensed $9.4 million, $12.6 million and $8.7 million for R&D activities in fiscal year 2013, 2012 and 2011, respectively, and we capitalized software development costs of $31.3 million, $28.7 million and $24.5 million, respectively.
Competition
The markets for our products and services in both our supply chain services segment and performance services segment are fragmented, intensely competitive and characterized by rapidly evolving technology and product standards, user needs and the frequent introduction of new products and services. We have experienced and expect to continue to experience intense competition from a number of companies.
The primary competitors to our supply chain services segment are other large GPOs such as Amerinet Inc., HealthTrust Purchasing Group (a subsidiary of HCA Holdings, Inc.), Managed Health Care Associates, Inc., MedAssets, Inc. and Novation LLC. In addition, we compete against certain healthcare provider-owned GPOs in this segment. Our specialty pharmacy competes with Caremark Inc. (owned by CVS Caremark Corporation), Curascript, Inc./Accredo (owned by Express Scripts Holding Co.), Diplomat Specialty Pharmacy and many smaller local specialty pharmacies. Finally, our direct sourcing activities compete primarily with private label offerings/programs, product manufacturers and distributors, such as Cardinal Health, Inc., McKesson Corporation, Medline Industries, Inc. and Owens & Minor, Inc.
The competitors in our performance services segment range from smaller niche companies to large, well-financed and technologically-sophisticated entities. Our primary competitors in this segment include (i) information technology providers such as Allscripts Healthcare Solutions, Inc., Caradigm USA LLC, Cerner Corporation, Epic Systems Corporation, McKesson Corporation, Oracle Corporation and Truven Health Analytics Inc., and (ii) consulting and outsourcing firms such as The Advisory Board Company, Deloitte & Touche LLP, Evolent Health, Inc., Healthagen, LLC (a subsidiary of Aetna, Inc.), Huron Consulting, Inc., Navigant Consulting, Inc. and Optum, Inc. (a subsidiary of UnitedHealth Group, Inc.).
With respect to our products and services across both segments, we compete on the basis of several factors, including breadth, depth and quality of product and service offerings, ability to deliver clinical, financial and operational performance improvements through the use of products and services, quality and reliability of services, ease of use and convenience, brand recognition and the ability to integrate services with existing technology. With respect to our products and services across both of our business segments, we also compete on the basis of price.
Government Regulation
General
The healthcare industry is highly regulated by federal and state authorities and is subject to changing political, economic and regulatory influences. Factors such as changes in reimbursement
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policies for healthcare expenses, consolidation in the healthcare industry, regulation, litigation and general economic conditions affect the purchasing practices, operations and the financial health of healthcare organizations. In particular, changes in regulations affecting the healthcare industry, such as increased regulation of the purchase and sale of medical products, or restrictions on permissible discounts and other financial arrangements, could require us to make unplanned modifications of our products and services, result in delays or cancellations of orders or reduce funds and demand for our products and services.
Affordable Care Act
In March 2010, President Obama signed into law the PPACA, amended by the Affordable Care Act. The Affordable Care Act is a sweeping measure designed to expand access to affordable health insurance, control healthcare spending, and improve healthcare quality. The law includes provisions to tie Medicare provider reimbursement to healthcare quality and incentives, mandatory compliance programs, enhanced transparency disclosure requirements, increased funding and initiatives to address fraud and abuse, and incentives to state Medicaid programs to promote community-based care as an alternative to institutional long-term care services. In addition, the law provides for the establishment of a national voluntary pilot program to bundle Medicare payments for hospital and post-acute services, which could lead to changes in the delivery of healthcare services. Likewise, many states have adopted or are considering changes in healthcare policies in part due to state budgetary shortfalls. The timetable for implementing many provisions of the Affordable Care Act remains unsettled, and we do not know what effect the federal Affordable Care Act or state law proposals may have on our business.
Civil and Criminal Fraud and Abuse Laws
We are subject to federal and state laws and regulations designed to protect patients, governmental healthcare programs and private health plans from fraudulent and abusive activities. These laws include anti-kickback restrictions and laws prohibiting the submission of false or fraudulent claims. These laws are complex and their application to our specific products, services and relationships may not be clear and may be applied to our business in ways that we do not anticipate. Federal and state regulatory and law enforcement authorities have over time increased enforcement activities with respect to Medicare and Medicaid fraud and abuse regulations and other reimbursement laws and rules. These laws and regulations include:
Anti-Kickback Laws. The federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The definition of "remuneration" has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to influence the purchase, lease or ordering of healthcare items and services regardless of whether the item or service is covered under a governmental health program or private health plan. Certain statutory and regulatory safe harbors exist that protect specified business arrangements from prosecution under the Anti-Kickback Statute if all elements of an applicable safe harbor are met, however these safe harbors are narrow and often difficult to comply with. Congress has appropriated an increasing amount of funds in recent years to support enforcement activities aimed at reducing healthcare fraud and abuse.
HHS created certain safe harbor regulations which, if fully complied with, assure parties to a particular arrangement covered by a safe harbor that they will not be prosecuted under the Anti-Kickback Statute. However, these safe harbors are narrow and often difficult to comply with. We attempt to structure our group purchasing services and pricing discount arrangements with suppliers to
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meet the terms of the safe harbor for GPOs set forth at 42 C.F.R. § 1001.952(j) and the discount safe harbor set forth at 42 C.F.R. § 1001.952(h). Although full compliance with the provisions of a safe harbor ensures against prosecution under the Anti-Kickback Statute, failure of a transaction or arrangement to fit within a safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the Anti-Kickback Statute will be pursued.
In 2005, the HHS Office of Inspector General conducted an extensive audit of the business practices of three GPOs, including us, and published a report indicating that of the $1.8 billion in administrative fees that these GPOs collected over a four-year period, $1.3 billion exceeded their operating expenses. Of this amount, $898 million was returned to hospitals. The report found certain deficiencies in the manner in which the hospitals reflected these fees on their cost reports to Medicare. The HHS Office of Inspector General took no enforcement action against us or, to our knowledge, either of the other GPOs. The report did not identify any of our business practices, or relationships with suppliers or our members, which in its view violated the Anti-Kickback Statute. In response to these findings, the HHS Office of Inspector General recommended that CMS provide specific guidance on the proper treatment on Medicare costs reports of revenue distributions received from GPOs. CMS issued an update to its provider reimbursement manual in December 2011 specifying that these distributions must be properly accounted for on such cost reports. The 2005 report and subsequent CMS guidance suggest that the various forms of value received by our U.S. hospital members and health system member owners in connection with or related to the Reorganization and this offering (including, without limitation, increases in the fair market value of equity held by such member owners, proceeds from the purchase of Class B common units from such member owners immediately following this offering and as a result of subsequent exchanges, Premier LP cash distributions, administrative fee revenue share paid by Premier LP to our members based upon their member facilities' purchases through GPO supplier contracts and payments under the tax receivable agreement) should be appropriately reflected in their cost reports to Medicare, and we have sought to structure those arrangements so that they can be appropriately reflected. Our members that report their costs to Medicare are required under the terms of the Premier Group Purchasing Policy to appropriately reflect all elements of value received in connection with the Reorganization and this offering on their cost reports. We are required to furnish applicable reports to such members setting forth the amount of such value, to assist their compliance with such cost reporting requirements. We cannot assure you, however, that the HHS Office of Inspector General or the DOJ would concur with such approach.
In the lead-up to this offering, we received correspondence from one of our major GPO competitors expressing concern that the manner in which our proposed initial public offering was explained to our current and prospective member owners could violate the Anti-Kickback Statute. One letter attached a brief analysis prepared by the competitor's outside counsel, which concluded that the opportunity to participate in our initial public offering could constitute a form of remuneration for purposes of the Anti-Kickback Statute and that if the other requisite elements of an Anti-Kickback Statute violation were present, the extension by us of such opportunity could violate the Anti-Kickback Statute. We believe that our discussions with current and prospective member owners regarding the possibility that we would undertake an initial public offering were conducted in compliance with the Anti-Kickback Statute and other applicable laws. However, no assurance can be given that enforcement authorities will agree with our assessment. Although a process exists for requesting advisory opinions from the HHS Office of Inspector General regarding compliance of particular arrangements with the Anti-Kickback Statute, we have not sought such an opinion and do not believe that the issues raised in the competitor's correspondence are capable of being addressed in an advisory opinion since the content and specifics of each discussion would be at issue. Any determination by a state or federal agency that the manner in which the opportunity to participate in this offering was presented to our member owners and prospective member owners, either in of itself or when viewed in conjunction with the requirements for membership in Premier LP and participation in our group purchasing program or the various forms of value received by our member owners in connection with or related to this
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offering, violated any of these laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs.
On July 23, 2013, the HHS Office of Inspector General published Advisory Opinion 13-09 addressing a transaction proposed to be undertaken by the competitor referred to in the preceding paragraph. Under this proposal, the competitor, which is a publicly-traded company, would issue stock to certain of its current and prospective customers in exchange for the customers' agreement to extend or enter into a five- to seven-year contract that would require the customer to commit not to decrease its historical level of purchases through the competitor's GPO supplier contracts over the term of the contract and to agree to a reduction in the percentage of administrative fee revenue share paid by the competitor to such customer on an annual basis. The amount of stock given to each customer would be equal to the amount of the reduction in revenue share due to the customer over the term of the contract. The HHS Office of Inspector General concluded that the competitor's proposed transaction could potentially generate prohibited remuneration under the Anti-Kickback Statute and that the HHS Office of Inspector General could potentially impose administrative sanctions on the competitor in connection with the arrangement. The HHS Office of Inspector General first noted that the granting of stock to customers would not fit within the discount safe harbor and therefore must be assessed based on the totality of the facts and circumstances. The HHS Office of Inspector General then observed that when a GPO passes through administrative fees to its customers, such fees could be treated as discounts on the price of goods sold by the vendors and the GPO and its customers could meet the reporting and other requirements of the discount safe harbor. This in turn could reduce costs to federal healthcare programs. The HHS Office of Inspector General asserted that the competitor's proposed arrangement, to the contrary, would result in a portion of a customer's revenue share, which would otherwise be reflected as a reduction in expense on the customer's cost reports, being exchanged for stock which would have no potential to benefit payors, including federal healthcare programs. The HHS Office of Inspector General cited three additional factors which, in its view, increase the risk of fraud and abuse posed by the competitor's proposed transaction: (i) the customers receiving stock would be required to extend their contracts (or enter into new contracts) with the competitor's GPO for five to seven years; (ii) the stock granted by the competitor would be tied to the customers' past purchases; and (iii) customers would not be permitted to decrease their volume of purchases through the competitor's group purchasing contracts. In the HHS Office of Inspector General's view, the combination of these three factors would result in customers potentially being rewarded with stock based upon their past referrals and being locked into long-term contracts under which they would be forced to maintain historical purchasing levels for an extended period of time regardless of whether the competitor is getting them the best prices. We believe that the terms of the Reorganization are distinguishable from those described in Advisory Opinion 13-09. However, the Reorganization does not fall within any safe harbor and no assurance can be given that the HHS Office of Inspector General or other regulators or enforcement authorities will agree with our assessment. Any determination by a state or federal agency that the terms of our Reorganization or our relationship with our members violate the Anti-Kickback Statute or any other federal or state laws could subject us to civil or criminal penalties, could require us to change or terminate some portions of our operations or business, or could disqualify us from providing services to healthcare providers doing business with government programs.
False Claims Act. Our business is also subject to numerous federal and state laws that forbid the submission or "causing the submission" of false or fraudulent information or the failure to disclose information in connection with the submission and payment of claims for reimbursement to Medicare, Medicaid, other federal healthcare programs or private health plans. In particular, the FCA prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval by an officer, employee or agent of the United States. In addition, the FCA prohibits a person from knowingly making, using, or causing to be made or used a false record or statement
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material to such a claim. Violations of the FCA may result in treble damages, significant monetary penalties, and other collateral consequences including, potentially, exclusion from participation in federally funded healthcare programs. The scope and implications of the amendments to the FCA pursuant to the FERA have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business. Pursuant to the 2010 healthcare reform legislation, a claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA.
Privacy and Security Laws. HIPAA contains contain substantial restrictions and requirements with respect to the use and disclosure of individually identifiable health information, referred to as "protected health information." The HIPAA Privacy Rule prohibits a covered entity or a business associate (essentially, a third party engaged to assist a covered entity with enumerated operational and/or compliance functions) from using or disclosing protected health information unless the use or disclosure is validly authorized by the individual or is specifically required or permitted under the Privacy Rule and only if certain complex requirements are met. In addition to establishing these complex requirements, covered entities and business associates must also meet additional compliance obligations set forth in the Privacy Rule. In addition, the HIPAA Security Rule establishes administrative, organization, physical and technical safeguards to protect the privacy, integrity and availability of electronic protected health information maintained or transmitted by covered entities and business associates. The HIPAA Security Rule requirements are intended to mandate that covered entities and business associates regularly re-assess the adequacy of their safeguards in light of changing and evolving security risks. Finally, the HIPAA Breach Notification Rule requires that covered entities and business associates, under certain circumstances, notify patients/beneficiaries and HHS when there has been an improper use or disclosure of protected health information.
Our specialty pharmacy, our self-funded health benefit plan and our healthcare provider members (provided that these members engage in HIPAA-defined standard electronic transactions with health plans, which will be all or the vast majority) are directly regulated by HIPAA as "covered entities." Additionally, because most of our U.S. hospital members disclose protected health information to us so that we may use that information to provide certain data analytics, benchmarking, advisory or other operational and compliance services to these members, we are a "business associate" of those members. In these cases, in order to provide members with services that involve the use or disclosure of protected health information, HIPAA require us to enter into "business associate agreements" with our covered entity members. Such agreements must, among other things, provide adequate written assurances:
With the enactment of the HITECH Act, the privacy and security requirements of HIPAA were modified and expanded. The HITECH Act applies certain of the HIPAA privacy and security requirements directly to business associates of covered entities. Prior to this change, business associates had contractual obligations to covered entities but were not subject to direct enforcement by the federal government. On January 17, 2013, HHS released final rules implementing the HITECH Act
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changes to HIPAA. These amendments expand the protection of protected health information by, among other things, imposing additional requirements on business associates, further restricting the disclosure of protected health information in certain cases when the disclosure is part of a remunerated transaction, and modifying the HIPAA Breach Notification Rule, which has been in effect since September 2009, to create a rebuttable presumption that any improper use or disclosure of protected health information requires notice to affected patients/beneficiaries and HHS. The 2013 final rule became effective on March 26, 2013 and the compliance date for most provisions is September 23, 2013. The modifications to the HIPAA Breach Notification Rule requirements are currently effective and being enforced.
Transaction Requirements. HIPAA also mandates format, data content and provider identifier standards that must be used in certain electronic transactions, such as claims, payment advice and eligibility inquiries. Although our systems are fully capable of transmitting transactions that comply with these requirements, some payers and healthcare clearinghouses with which we conduct business may interpret HIPAA transaction requirements differently than we do or may require us to use legacy formats or include legacy identifiers as they make the transition to full compliance. In cases where payers or healthcare clearinghouses require conformity with their interpretations or require us to accommodate legacy transactions or identifiers as a condition of successful transactions, we attempt to comply with their requirements, but may be subject to enforcement actions as a result. In January 2009, CMS published a final rule adopting updated standard code sets for diagnoses and procedures known as ICD-10 code sets. A separate final rule also published by CMS in January 2009 resulted in changes to the formats to be used for electronic transactions subject to the ICD-10 code sets, known as Version 5010. As of March 31, 2012, healthcare providers are required to comply with Version 5010. Use of the ICD-10 code sets is not mandated until October 1, 2014. We are actively working to make the proper modifications in preparation for the implementation of ICD-10.
Other Federal and State Laws. In addition to our obligations under HIPAA there are other federal laws that impose specific privacy and security obligations, above and beyond HIPAA, for certain types of health information and impose additional sanctions and penalties. These rules are not preempted by HIPAA. Most states have enacted patient and/or beneficiary confidentiality laws that protect against the disclosure of confidential medical information, and many states have adopted or are considering adopting further legislation in this area, including privacy safeguards, security standards, data security breach notification requirements, and special rules for so-called "sensitive" health information, such as mental health, genetic testing results, or HIV status. These state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply with them as well.
We are unable to predict what changes to HIPAA or other federal or state laws or regulations might be made in the future or how those changes could affect our business or the associated costs of compliance. For example, the federal ONCHIT is coordinating the development of national standards for creating an interoperable health information technology infrastructure based on the widespread adoption of electronic health records in the healthcare sector. We are yet unable to predict what, if any, impact the creation of such standards and the further developments at ONCHIT will have on the necessary specifications or demand for our products, services, or on associated compliance costs.
Antitrust Laws
The Sherman Antitrust Act and related federal and state antitrust laws prohibit contracts in restraint of trade or other activities that are designed to or that have the effect of reducing competition in the market. The federal antitrust laws promote fair competition in business and are intended to create a level playing field so that both small and large companies are able to compete in the market. The antitrust laws are complex laws that generally prohibit discussions, conspiracies and agreements between competitors that can unreasonably restrain trade. In 1993, the DOJ and the FTC issued
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guidelines specifically designed to help GPOs gauge whether a particular purchasing arrangement may raise antitrust problems or whether the arrangement falls within an "antitrust safety zone," which reduces the risk that the arrangement will be challenged by the government as anticompetitive. Under this safety zone, except in extraordinary circumstances, the DOJ and FTC will not challenge joint purchasing arrangements among healthcare providers that meet two basic conditions designed to ensure they do not become vehicles for monopolistic purchasing or for price fixing: (i) the purchases made by the healthcare providers must account for less than 35% of the total market for the purchased items; and (ii) for joint purchasing arrangements including direct competitors, the cost of the purchased items must account for less than 35% of the total market for the purchased items, and the cost of the purchased items must account for less than 20% of the total revenues of each purchaser.
We have attempted to structure our contracts and pricing arrangements in accordance with the 1993 guidelines and believe that our GPO supplier contracts and pricing discount arrangements should not be found to violate the antitrust laws. However, no assurance can be given that enforcement authorities will agree with this assessment. The group purchasing industry has previously been under review by members of the U.S. Senate with respect to antitrust laws. In 2002, the U.S. Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights conducted a series of hearings concerning the activities of GPOs, including us. As a response to the Senate Subcommittee inquiry, we and other operators of GPOs formed the HSCA which developed a code of conduct to assure compliance with ethical and legal standards, including the antitrust laws. In addition, in 2002 we adopted our own Code of Conduct in consultation with a leading ethicist. As part of these Senate investigations, the GAO published two reports. The first report included an examination of GPO pricing. The second report investigated contracting practices used by GPOs with regard to administrative fees, sole source contracts and bundling arrangements and discussed the various codes of conduct implemented by the GPOs to address these practices.
On August 11, 2009, we and several other operators of GPOs received a letter from Senators Charles Grassley, Herb Kohl and Bill Nelson requesting information concerning the different relationships between and among us and our members, distributors, manufacturers and other suppliers, and requesting certain information about the services we perform and the payments we receive in connection with our GPO programs. On September 25, 2009, we and several other operators of GPOs received a request for information from the GAO, also concerning our services and relationships with our members in connection with our GPO programs. Subsequently, we and other operators of GPOs received follow-up requests for additional information. We fully complied with all of these requests. On September 27, 2010, the GAO released a report titled "Group Purchasing OrganizationsServices Provided to Customers and Initiatives Regarding Their Business Practices." On that same day, the Minority Staff of the U.S. Senate Finance Committee released a report titled "Empirical Data Lacking to Support Claims of Savings with Group Purchasing Organizations." On March 30, 2012, the GAO released a report titled "Group Purchasing OrganizationsFederal Oversight and Self-Regulation."
Congress, the DOJ, the FTC, the U.S. Senate or another state or federal entity could at any time open a new investigation of the group purchasing industry, or develop new rules, regulations or laws governing the industry, that could adversely impact our ability to negotiate pricing arrangements with suppliers, increase reporting and documentation requirements, or otherwise require us to modify our arrangements in a manner that adversely impacts our business. We may also face private or government lawsuits alleging violations arising from the concerns articulated by these governmental actors.
During the past 15 years, we have been named as a defendant in lawsuits brought by suppliers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products and operators of GPOs, including us, to deny the plaintiff access to a market for its products. No such litigation is currently pending.
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Governmental Audits
Because we act as a GPO for healthcare providers that participate in governmental programs, our group purchasing services have in the past and may again in the future be subject to periodic surveys and audits by governmental entities or contractors for compliance with Medicare and Medicaid standards and requirements. We will continue to respond to these government reviews and audits but cannot predict what the outcome of any future audits may be or whether the results of any audits could significantly or negatively impact our business, our financial condition or results of operations.
Compliance Department
We have developed a compliance program that is designed to ensure that our operations are conducted in compliance with applicable laws and regulations and, if violations occur, to promote early detection and prompt resolution. These objectives are achieved through education, monitoring, disciplinary action and other remedial measures we believe to be appropriate. We provide all of our employees with a compliance manual that has been developed to communicate our code of conduct, standards of conduct, and compliance policies and procedures, as well as policies for monitoring, reporting and responding to compliance issues. We also provide all of our employees with a toll-free number and Internet website address in order to report any compliance or privacy concerns.
Legal Proceedings
We participate in businesses that are subject to substantial litigation. We are periodically involved in litigation, arising in the ordinary course of business or otherwise, which from time to time may include claims relating to commercial, employment, antitrust, intellectual property or other regulatory matters, among others. If current or future government regulations are interpreted or enforced in a manner adverse to us or our business, specifically those with respect to antitrust or healthcare laws, we may be subject to enforcement actions, penalties and other material limitations on our business. See "Risk FactorsRisks Related to Our BusinessWe may become subject to litigation, which could have a material adverse effect on our business, financial condition and results of operations."
We have been named as a defendant in several lawsuits brought by suppliers of medical products. Typically, these lawsuits have alleged the existence of a conspiracy among manufacturers of competing products and operators of GPOs, including us, to deny the plaintiff access to a market for its products. We believe that we have at all times conducted our business affairs in an ethical and legally compliant manner and have successfully resolved all such actions. No assurance can be given that we will not be subjected to similar actions in the future or that such matters will be resolved in a manner satisfactory to us or which will not harm our business, financial condition or results of operations.
Employees
As of June 30, 2013, we employed approximately 1,600 persons, approximately 61% of whom are based in our headquarters in Charlotte, North Carolina. None of our employees are working under a collective bargaining arrangement.
Facilities and Property
We lease our Charlotte, North Carolina headquarters, our specialty pharmacy location in Fort Lauderdale, Florida, warehouse space for our direct sourcing activities in Nashville, Tennessee and our public affairs office in Washington, DC. We also lease several other smaller facilities.
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Directors and Executive Officers
The following table sets forth the names, ages and positions of our directors and executive officers.
Name
|
Age | Position | |||
---|---|---|---|---|---|
Susan D. DeVore |
54 | President, Chief Executive Officer and Director | |||
Craig S. McKasson |
46 | Senior Vice President and Chief Financial Officer | |||
Michael J. Alkire |
50 | Chief Operating Officer | |||
Durral R. Gilbert |
47 | President of Supply Chain Services | |||
Keith J. Figlioli |
42 | Senior Vice President of Healthcare Informatics | |||
R. Wesley Champion |
47 | Senior Vice President of Premier Performance Partners | |||
Kelli L. Price |
51 | Senior Vice President of People | |||
Jeffrey W. Lemkin |
68 | General Counsel | |||
Glenn D. Steele, Jr., MD, PhD |
69 | Chair of the Board | |||
Christine K. Cassel, MD* |
67 | Director | |||
Charles E. Hart, MD |
63 | Director | |||
Robert Issai |
58 | Director | |||
William E. Mayer* |
73 | Director | |||
Keith B. Pitts |
55 | Director | |||
Tomi S. Ryba |
58 | Director | |||
Terry Shaw |
51 | Director | |||
Richard J. Statuto |
56 | Director | |||
Susan S. Wang* |
62 | Director | |||
Alan R. Yordy |
61 | Director |
Susan D. DeVore has served as the President and Chief Executive Officer and as a member of the board of directors of Premier, Inc. since its inception in May 2013. She has served in the same positions at PHSI and Premier LP and also as a member of the board of directors of PHSI and as a member of the board of managers of Premier Plans since July 2009. Ms. DeVore served as the Chief Operating Officer of PHSI from August 2006 to July 2009. Ms. DeVore served as the Chief Operating Officer for a number of other Premier entities from April 2007 to July 2009. Ms. DeVore's previous executive experience also includes over 20 years at Ernst & Young LLP, where she served as the Senior Healthcare Industry Management Practice Leader. Ms. DeVore also serves as a member of the board of directors or is a member of the following non-profit organizations: Healthcare Leadership Council, American Diversified Reinsurance Ltd., National Center for Healthcare Leadership, Coalition to Protect America's Healthcare, Medicare Rights Center, Charlotte Chamber of Commerce, Institute of Medicine Roundtable on Value and Science Driven Healthcare and the Center for Corporate Innovation. Ms. DeVore obtained a bachelor's degree from the University of North Carolina at Charlotte and a Master of Management from McGill University. We believe Ms. DeVore's qualifications to serve on our board of directors include her approximately 30 years of experience in senior positions involving hospital strategy, large-scale operations transformation, quality improvement and financial management.
Craig S. McKasson has served as the Senior Vice President and Chief Financial Officer of Premier, Inc. since its inception in May 2013. He has served in the same positions at PHSI and Premier LP since January 2010, and prior to that, he served those entities as Vice President and
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Corporate Controller from May 1997 to January 2010. Mr. McKasson currently serves as a member on the board of directors (and on the audit and compensation committees) of Global Healthcare Exchange, LLC, the board of managers of Innovatix LLC and the board of directors (and on the executive and audit committees and as treasurer and chairman of the finance committee) of Saint Vincent De Paul Village Inc. Mr. McKasson is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. Mr. McKasson obtained a bachelor's degree in business administration and a Master of Science in accountancy from San Diego State University.
Michael J. Alkire has served as the Chief Operating Officer of Premier, Inc. since its inception in May 2013. He has served as the Chief Operating Officer of PHSI since July 2011. Mr. Alkire joined Premier in December 2004 as a Senior Vice President until he assumed the role of President of Premier LP from July 2006 to June 2011. Mr. Alkire's prior executive experience also includes positions at Deloitte & Touche LLP and Cap Gemini Ernst & Young. Mr. Alkire is a member of the East Coast Healthcare Executive Summit and a past director on the board of directors of Global Healthcare Exchange, LLC and the HSCA. Mr. Alkire obtained a bachelor's degree from Indiana State University and his Master of Business Administration from Indiana University.
Durral R. Gilbert has served as the President of Supply Chain Services of Premier, Inc. since its inception in May 2013. He has served in the same position at Premier LP since July 2012. Mr. Gilbert joined Premier in June 2006 as PHSI's Vice President of Operations, Supply Chain until he assumed the role of PHSI's Senior Vice President of Supply Chain Emerging Services from July 2011 to June 2012. Mr. Gilbert's prior experience also includes executive positions at BDS Management, LLC, Marsh Inc., LearningStation Inc. and Wachovia Securities, Inc. Mr. Gilbert currently serves as a member of the board of directors and as Secretary of the HSCA. Mr. Gilbert previously served as a director on the boards of directors of CCX, Inc. and McColl School of Business, Queens University of Charlotte. Mr. Gilbert obtained a bachelor's degree from the University of North Carolina at Chapel Hill and a Master of Business Administration from Duke University.
Keith J. Figlioli has served as the Senior Vice President of Healthcare Informatics of Premier, Inc. since its inception in May 2013. He has served in the same position at PHSI since September 2009. Prior to joining Premier, Mr. Figlioli served as the Senior Vice President of Enterprise Solutions of Eclipsys Corporation, a company listed on NASDAQ, from March 2003 to August 2009. Mr. Figlioli currently serves as a member of the board of directors of Global Healthcare Exchange, LLC. Mr. Figlioli also serves as a board observer of Activate Networks and as a member of the Health Information Technology Standards Committee. Mr. Figlioli previously served as a member of the boards of directors of the non-profit organizations Good Sports and MassBike. Mr. Figlioli obtained a bachelor's degree from Wheaton College and a Master of Business Administration from Boston University.
R. Wesley Champion has served as a Senior Vice President of Premier, Inc. since its inception in May 2013 and he has also served as a Senior Vice President of Premier LP since February 2007 and as the business unit leader for Premier LP for consulting since February 2007. Prior to joining Premier, Mr. Champion was a partner at Accenture PLC, a company listed on the New York Stock Exchange, and Cap Gemini Ernst & Young. Mr. Champion is currently a member of the American Institute of CPAs, the South Carolina Association of Certified Public Accountants and of the Healthcare Financial Management Association. Mr. Champion is a certified public accountant and currently sits on the editorial board of directors of Accountable Care News. Mr. Champion obtained a bachelor's degree from the College of Charleston.
Kelli L. Price has served as the Senior Vice President of People of Premier, Inc. since its inception in May 2013. She has served in the same position at PHSI and Premier LP since November 2009. Ms. Price joined Premier in October 2001 as a member of Human Resources at Premier LP, until she assumed the role of Vice President of Engagement and Performance Excellence at Premier LP from November 2004 to October 2009. Ms. Price previously served as a North Carolina State Quality
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Examiner and on the National Board of Examiners for the Malcolm Baldridge National Quality Awards Program. Ms. Price obtained a bachelor's degree from the University of North Carolina at Greensboro and a Master of Business Administration from Queens University of Charlotte.
Jeffrey W. Lemkin has served as the General Counsel of Premier, Inc. since its inception in May 2013. He has served in the same position at PHSI and Premier LP since July 2007. Prior to joining Premier, from February 1987 to June 2007 Mr. Lemkin was a partner at McDermott Will & Emery LLP in its health practice group, during part of which time Mr. Lemkin fulfilled the role of Premier's external general counsel and represented Premier legal interests as regular external counsel in a wide range of matters. Mr. Lemkin has practiced health law for over 40 years. Mr. Lemkin obtained a bachelor's degree from Bowdoin College, a Master of American History from Northwestern University and a Juris Doctor degree from Boston University School of Law.
Glenn D. Steele, Jr., MD has served as the Chair of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since January 2007. Since March 2001, Dr. Steele has served as the President and Chief Executive Officer of Geisinger Health System, one of our member owners and a physician-led health care system serving multiple regions of Pennsylvania. Dr. Steele currently serves on the following boards of directors and national committees: Weis Markets Inc., a company listed on the New York Stock Exchange, Wellcare Health Plans, Inc., a company listed on the New York Stock Exchange, Bucknell University Board of Trustees, Cepheid, a company listed on NASDAQ, the Harvard Medical Faculty Physicians at Beth Israel Deaconess Medical Center, the Agency for Integrated Care, Singapore, xG Health Solutions, Healthcare Innovation Program External Advisory Board (Emory University), Institute for Healthcare Optimization Advisory Board, Third Rock Ventures Business Advisory Board, Congressional Budget Office Panel of Health Advisers, Advisory Board of the Peterson Center on Healthcare Advisory Board, the State Health Care Cost Containment Commission and the Healthcare Executives Network. Dr. Steele obtained a bachelor's degree from Harvard University and a medical degree from New York University School of Medicine. Dr. Steele earned his Ph.D. in microbiology at Lund University in Sweden. We believe Dr. Steele's qualifications to serve on our board of directors include his approximately 40 years of experience in the healthcare industry, and his diverse background in academic and medical research and healthcare administration, which provides him with a well-rounded perspective on the healthcare industry.
Christine K. Cassel, MD has served as a member of the board of directors of Premier, Inc. since its inception in May 2013. She has served as a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since April 2008. Since June 2013, Dr. Cassel has served as the President and Chief Executive Officer of the National Quality Forum. Dr. Cassel served as the President and Chief Executive Officer of the American Board of Internal Medicine from May 2003 to June 2013. Dr. Cassel is also currently an Adjunct Professor of Medicine and Senior Fellow in the Department of Medical Ethics and Health Policy at the University of Pennsylvania School of Medicine. Dr. Cassel currently serves as a member of the board of directors of the Kaiser Foundation Health Plan & Hospitals and as Chair of the board of directors of Greenwall Foundation. Dr. Cassel is one of 20 scientists chosen by President Obama to serve on the President's Council of Advisors on Science and Technology, which advises the President in areas where an understanding of science, technology and innovation is key to forming responsible and effective policy. Dr. Cassel obtained a bachelor's degree from the University of Chicago and a medical degree from the University of Massachusetts Medical School. We believe Dr. Cassel's qualifications to serve on our board of directors include her approximately 35 years of experience in the healthcare industry and her expertise as a national leader in geriatric medicine, medical ethics and quality of care.
Charles E. Hart, MD has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since September 2010. Since May 2004, Dr. Hart has served as the President and Chief Executive Officer of Regional Health, which is one of our member owners and is
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the parent organization of Rapid City Regional Hospital and more than 40 other health care facilities throughout western South Dakota. Dr. Hart currently serves as a member of the boards of directors of South Dakota Chamber of Commerce and Rapid City Economic Development and is a member of the Black Hills State University Advisory Board, the American College of Physician Executives and the American Medical Association. Dr. Hart is also a member of the board of directors (and on the finance committee) of Safety Net Hospitals for Pharmaceutical Access, the board of directors (and on the compensation committee) of the Northern Plains Premier Collaborative, the board of directors (and on the finance committee) of Black Hills Vision, and the board of directors (and on the audit committee) of Black Hills Community Health Center. From 2007 to 2012, Mr. Hart also served as a consultant for First Western and First Interstate Bank. Dr. Hart currently serves as Chair of the board of directors (and on the audit, compensation, technology and governance committees) of First Interstate Bank, a company listed on NASDAQ. Dr. Hart is also a faculty member of the University of South Dakota Sanford School of Medicine. Dr. Hart received his bachelor's degree from the University of Notre Dame, his medical degree from the University of Minnesota and his Master of Science in Administrative & Preventative Medicine from the University of Wisconsin. We believe Dr. Hart's qualifications to serve on our board of directors include his approximately 30 years of experience in the healthcare industry and his longstanding commitment to finding ways to overcome challenges in today's healthcare system.
Robert Issai has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since April 2011. Since July 2006, Mr. Issai has served as the President and Chief Executive Officer of Daughters of Charity Health System, or DCHS, which is one of our member owners. Mr. Issai currently serves as a member of the boards of directors of DCHS, the California Hospital Association, the American Hospital Association Health Care Systems Governing Council, O'Connor Hospital, Seton Medical Center, Saint Louise Regional Hospital, St. Vincent Medical Center, DCHS Medical Foundation, Marillac Insurance Company, Ltd., Catholic Health Association of the United States of America, Health Professions Education Foundation and the Preferred Professional Insurance Company. Mr. Issai is also a member of the Board of Trustees of the Catholic Health Association of the United States. Mr. Issai obtained a bachelor's degree from Andrews University and his Master of Business Administration from California State Polytechnic University, Pomona. We believe Mr. Issai's qualifications to serve on our board of directors include his approximately 30 years of management experience in major healthcare organizations and his experience serving on boards and working in various other capacities with numerous companies in the healthcare industry.
William E. Mayer has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since January 1997. Since August 1999, Mr. Mayer has served as a partner and founder of Park Avenue Equity Partners in New York. Mr. Mayer currently serves as a member of the boards of directors of DynaVox, Inc. a company trading on the OTCQB marketplace, BlackRock Kelso Capital Corporation, a company listed on NASDAQ, and Lee Enterprises, Incorporated, a company listed on the New York Stock Exchange, and is a member of the board of trustees of Columbia Funds Series Trust I and Columbia Funds Variable Insurance Trust. Over the past 40 years, Mr. Mayer has been a member of the board of directors of numerous other public and private companies. Mr. Mayer currently serves on the executive committee (and was the Chairman from 2000 to 2008) of the board of directors of the Aspen Institute. He also serves as a member of the boards of directors of Miller Buckfire & Co., Acumen and the Atlantic Council. Mr. Mayer also serves as a member of the Board of Governors at the Pardee RAND Graduate School, the Council on Foreign Relations and the U.S. Vietnam Dialogue Group and as the Vice Chairman of the Middle East Investment Initiative. He obtained his bachelor's degree and Master of Business Administration from the University of Maryland. We believe Mr. Mayer's qualifications to serve on our board of directors include his approximately 30 years of experience in financial and senior executive positions and his experience serving on the boards of several other public companies.
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Keith B. Pitts has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since August 2012. Since July 1999, Mr. Pitts has served as the Vice Chairman of Vanguard Health Systems, Inc., a company listed on the New York Stock Exchange, which is one of our member owners. Mr. Pitts serves on the boards of directors of SouthernCare, Inc., Awarepoint Corporation, Airstrip Technologies, Inc., the Federation of American Hospitals and the Nashville Health Care Council. Mr. Pitts obtained his bachelor's degree from the University of Florida. We believe Mr. Pitts's qualifications to serve on our board of directors include his approximately 30 years of experience in the healthcare industry and his experience serving as a senior executive for a public company in the healthcare industry.
Tomi S. Ryba has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since August 2012. Since 2011, Ms. Ryba has served as the President and Chief Executive Officer of El Camino Hospital, which is one of our member owners. Before joining El Camino Hospital, Ms. Ryba served as the Senior Vice President of Allina Hospitals & Clinics from 2009 to 2011. Prior to her time at United Hospital, Ms. Ryba served as the Chief Operating Officer at UCSF Medical Center from 2002 to 2009. Ms. Ryba received her bachelor's degree from the University of California, Riverside and her Master of Health Administration from Chapman University. We believe Ms. Ryba's qualifications to serve on our board of directors include her approximately 20 years of experience in the healthcare industry and her substantial experience overseeing the expansion of hospitals and healthcare organizations.
Terry Shaw has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since October 2012. Since June 2010, Mr. Shaw has served as the Executive Vice President, Chief Financial Officer and Chief Operations Officer of Adventist Health System, which is one of our member owners, and prior to that served that entity from January 2000 to June 2010 as the Senior Vice President and Chief Financial Officer. Mr. Shaw is currently a member of the Hospital Financial Management Association, the Texas State Board of Public Accountancy, the American College of Healthcare Executives and several other professional and service organizations. Mr. Shaw currently serves as a member of the boards of directors of Centura Health, Florida Hospital and Adventist Health System. Mr. Shaw obtained a bachelor's degree from Southern Adventist University and his Master of Business Administration from the University of Central Florida. We believe Mr. Shaw's qualifications to serve on our board of directors include his approximately 20 years of experience as a healthcare executive.
Richard J. Statuto has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since October 2011. Since February 2005, Mr. Statuto has served as the President and Chief Executive Officer of Bon Secours Health System, which has more than 30 facilities in seven states in the eastern United States and is one of our member owners. Mr. Statuto currently serves as a member of the boards of directors of Covenant Health Systems, Inc., Mercy Housing, Inc. and Catholic CEO Healthcare Connection. Mr. Statuto previously served as a member of the board of directors of Kmart Corporation, as Chairman of the board of directors of the American Red Cross, as Chairman of the board of directors of Catholic Health Association and as Vice Chairman of the board of directors of Christus Health System. Mr. Statuto received his bachelor's degree from Vanderbilt University and his Master of Business Administration from Xavier University. We believe Mr. Statuto's qualifications to serve on our board of directors include his approximately 30 years of experience in the healthcare industry and his experience as a senior executive of an extensive healthcare system.
Susan S. Wang has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the
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board of managers of Premier Plans since June 2004. Prior to her retirement in June 2002, Ms. Wang served as the Chief Financial Officer and Executive Vice President of Corporate Development at Solectron Corporation from September 2001 to June 2002. Ms. Wang currently serves as a member of the board of directors (and on the audit and compensation committees) of Cirrus Logic, Inc., which is a company listed on the NASDAQ, the board of directors (and on the audit and governance committees) of Nektar Therapeutics, which is a company listed on the NASDAQ, and the board of directors (and on the audit committee) of Suntech Power Holdings Co., Ltd., a company listed on the New York Stock Exchange. Ms. Wang previously served as a member on the boards of directors of Altera Corporation, a company listed on NASDAQ, Calpine Corporation, a company listed on the New York Stock Exchange, RAE Systems Inc. and Avanex Corporation. Ms. Wang obtained her bachelor's degree from the University of Texas and a Master of Business Administration from the University of Connecticut. We believe Ms. Wang's qualifications to serve on our board of directors include her approximately 25 years of experience in financial and senior executive positions.
Alan R. Yordy has served as a member of the board of directors of Premier, Inc. since its inception in May 2013 and has been a member of the board of directors of PHSI and a member of the board of managers of Premier Plans since September 2010. Since July 2005, Mr. Yordy has served as the President and Chief Mission Officer of PeaceHealth, which is one of our member owners. Mr. Yordy currently serves as a member of the boards of directors of AEIX Insurance, Health Ventures, Inc. and the Catholic Health Association and as an Ambassador of the Alexis de Tocqueville Society for the United Way. Mr. Yordy previously served as a member of the board of directors of the United Way of Portland Oregon. Mr. Yordy obtained a bachelor's degree from Grinnell College and a Master of Science and a Master of Business Administration from the University of Oregon. We believe Mr. Yordy's qualifications to serve on our board of directors include his approximately 25 years of service as a senior healthcare executive with significant profit and loss, strategic leadership, patient safety and quality, medical group and health plan experience.
There are no family relationships between any of our executive officers or directors. The business address of each of our executive officers and directors is 13034 Ballantyne Corporate Place, Charlotte, NC 28277.
Board Composition Following this Offering
Our board of directors currently consists of 12 directors. We expect to add individuals to our board of directors in the near term. In accordance with the terms of our certificate of incorporation, our board of directors will be divided into three staggered classes of directors of, as nearly as possible, the same number of individuals. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. As a result, a portion of our board of directors will be elected each year. No director shall serve more than two full three-year consecutive terms, except for: (i) our chief executive officer, (ii) each director who is not a director, officer, employee or agent of, or otherwise affiliated with, any of our stockholders, or (iii) a director serving as chair of the board, whose term may be extended at the discretion of our board of directors. The division of the three classes and their respective election dates are as follows:
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
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the 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.
Our bylaws provide that the size of the board of directors shall be fixed from time to time by a majority vote of the board of directors, with a maximum of 18 members unless and until we cease to qualify as a "controlled company" within the meaning of the rules of NASDAQ, in which case the board of directors may determine to increase the size of the board of directors to the extent necessary to comply with provisions of the applicable rules of NASDAQ. Directors will (except for the filling of vacancies and newly created directorships) be elected by the holders of a plurality of the votes cast by the holders of shares present in person or represented by proxy at the meeting and entitled to vote on the election of such directors. Consistent with our past practice, if any of our directors that are employed by our member owners resigns or retires from his or her position at the member owner hospital, he or she will similarly resign or retire from our board of directors.
Upon completion of this offering, our member owners acting as a group through Premier Trust will own more than 50% of the total outstanding voting power of our common stock and we will be a "controlled company" under NASDAQ corporate governance standards. As a controlled company, we will not be required by NASDAQ for listing of Class A common stock to (i) have a majority of independent directors, (ii) maintain a compensation committee that is composed entirely of independent directors or (iii) maintain a nominating/corporate governance committee that is composed entirely of independent directors or nominate our directors through a vote of independent directors constituting at least a majority of our board of directors. Following this offering, we intend, at least initially, to utilize these exemptions. As a result, at the time of this offering we will not have a majority of independent directors, and neither our compensation committee nor our nominating and corporate governance committee will consist entirely of independent directors. Accordingly, our stockholders will not have the same protection afforded to stockholders of companies that are subject to all of the NASDAQ corporate governance requirements and the ability of our independent directors to influence our business policies and affairs may be reduced. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the NASDAQ corporate governance requirements. In the event that we cease to be a controlled company, we will be required to comply with these provisions within the transition periods specified in NASDAQ rules.
These exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the applicable requirements of the Sarbanes-Oxley Act and NASDAQ rules, with respect to our audit committee within the applicable time frame. See "Committees of the Board of DirectorsAudit Committee."
Board Leadership Structure; Separation of Positions of Chair of our Board and Chief Executive Officer
Our bylaws provide that the position of the chair of our board should not be held by an officer of the company. We believe that having a non-executive chair of our board creates an environment that is more conducive to objective evaluation and oversight of management's performance, increasing management accountability and improving the ability of the board of directors to monitor whether management's actions are in the best interests of the company and its stockholders. As a result, we believe that having a non-executive chair of our board can enhance the effectiveness of the board of directors as a whole.
Our Board's Role in Risk Oversight
Our board of directors will play an active role in overseeing management of our risks. Upon completion of this offering, the committees of our board of directors will assist our full board in risk oversight by addressing specific matters within the purview of each committee. Our audit committee will focus on oversight of financial risks relating to us, our compensation committee will focus primarily on risks relating to executive compensation plans and arrangements and our nominating and corporate governance committee will focus on reputational and corporate governance risks relating to our company including the independence of our board of directors. While each committee will be responsible for evaluating certain risks and overseeing the management of such risks, our full board of directors plans to keep itself regularly informed regarding such risks through committee reports and otherwise. We believe the leadership structure of our board of directors supports effective risk management and oversight.
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Committees of the Board of Directors
Our board of directors has established the following committees: an audit committee, a compensation committee and a nominating and governance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Our board of directors may establish other committees from time to time.
Audit Committee
The members of the audit committee are , and , with serving as chair. We are permitted to phase in our compliance with the independent audit committee requirements set forth in NASDAQ rules and relevant Exchange Act rules as follows: (1) one independent member at the time of listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Our board of directors has determined that is an independent director under NASDAQ rules and Exchange Act rules. We expect that, within 90 days of our listing on NASDAQ, will have resigned from our audit committee and an independent director (as determined under NASDAQ rules and Exchange Act rules) will have been added to the audit committee and that, within one year of our listing on NASDAQ, will have resigned from our audit committee and any additional new directors added to the audit committee will be independent under NASDAQ rules and Exchange Act rules. Our board of directors has determined that qualifies as an "audit committee financial expert" as defined in the federal securities laws and regulations.
The audit committee will assist our board of directors in monitoring the integrity of the financial statements, the independent auditors' qualifications, independence and performance, the performance of our company's internal audit function and compliance by our company with certain legal and regulatory requirements. Investors will be able to view our audit committee charter on the corporate governance section of our investor relations website at www.premierinc.com.
Compensation Committee
Our compensation committee will initially be composed of , and , with serving as chair. Each of these directors currently serves on PHSI's compensation committee. As long as we are a controlled company, we are not required by NASDAQ rules to maintain a compensation committee comprised of independent directors. We intend to rely on such exemption. We expect that in the months following the completion of this offering, our compensation committee will include Mr. Mayer and at least other independent director(s.) Our compensation committee will have responsibility for, among other things, all compensation arrangements for executive officers and awards under our equity compensation plans. Investors will be able to view our compensation committee charter on the corporate governance section of our investor relations website at www.premierinc.com.
Nominating and Governance Committee
The members of the nominating and governance committee are , and , with serving as chair. As long as we are a controlled company, we are not required by NASDAQ rules to either have a nominating and corporate governance committee comprised entirely of independent directors or nominate our directors through a vote of independent directors constituting at least a majority of our board of directors. We intend to rely on such exemption. The nominating and governance committee will assist our board of directors in promoting the best interests of our company and our stockholders through the implementation of sound corporate governance principles and practices.
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The nominating and governance committee will identify individuals qualified to become board members and recommend to our board of directors the director nominees for each annual meeting of stockholders. It also will review the qualifications and independence of the members of our board of directors and its various committees on a regular basis and make any recommendations the committee members may deem appropriate from time to time concerning any changes in the composition of our board of directors and its committees. The nominating and governance committee also will recommend to our board of directors the corporate governance guidelines and standards regarding the independence of outside directors applicable to our company and review such guidelines and standards and the provisions of the nominating and governance committee charter on a regular basis to confirm that such guidelines, standards and charter remain consistent with sound corporate governance practices and with any legal or regulatory requirements, if applicable. The nominating and governance committee also will monitor our board of directors and our company's compliance with any commitments made to regulators or otherwise regarding changes in corporate governance practices and will lead our board of directors in its annual review of our board of directors' performance. Investors will be able to view our nominating and governance committee charter on the corporate governance section of our investor relations website at www.premierinc.com.
Member Agreement Review Committee
The members of the member agreement review committee are , and , our independent directors and Susan D. DeVore, our president and chief executive officer, with serving as chair. The member agreement review committee reviews and approves non-ordinary course transactions between us and our member owners and non-owner members. The member agreement review committee works with management to assess risks and is intended to be comprised exclusively of independent directors and the chief executive officer, who will serve at will.
Finance Committee.
Our finance committee will initially be composed of , , and , with serving as chair. The finance committee will monitor and assess the financial performance of our company, consider the suitability of potential mergers and acquisitions, review proposed offerings of equity and debt securities as well as the overall capitalization of our company to meet our company's financing needs, review dividends to be issued by Premier, Inc., if any, and distributions to be paid by Premier LP, review any authorizations for repurchases of our company's stock, monitor and assess our company's corporate cash investment policy and review our company's tax strategies.
Code of Business Conduct and Ethics
Upon completion of this offering, our board of directors will establish a code of business conduct and ethics that applies to our directors and officers. Among other matters, our code of business conduct and ethics will be designed to deter wrongdoing and to promote:
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Any waiver of the code of business conduct and ethics for our directors or officers may be made only by our board of directors or one of our board committees and will be promptly disclosed as required by law or NASDAQ rules. A copy of our code of business conduct and ethics may be obtained, without charge, upon written request to Jeffrey W. Lemkin, General Counsel, Premier, Inc., 13034 Ballantyne Corporate Place, Charlotte, NC 28277. Investors will also be able to view our code of business conduct and ethics on the corporate governance section of our investor relations website at www.premierinc.com.
Compensation Committee Interlocks and Insider Participation
None of our directors who currently serve as members of our compensation committee is, or has at any time in the past been, one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or the compensation committee of any other entity that has one or more executive officers serving on our board of directors or compensation committee.
Director Compensation
Members of our board of directors who are not either current or former employees of Premier, Inc., PHSI, PSCI or their respective subsidiaries, referred to below as participating directors, shall receive compensation for service on our board of directors or one of its committees depending upon their status as either a member director or an outside director. A "member director" for this purpose is a participating director employed by a U.S. hospital member, health system or group of hospitals participating in our group purchasing program. An "outside director" for this purpose is a participating director who is not a member director. Directors who are employed by Premier, Inc., PHSI, PSCI or their respective subsidiaries are ineligible to receive any compensation for their board service.
Annual Board Cash Retainers
Each outside director (but not any member director) who becomes a member of our board of directors shall receive an annual cash retainer of $80,000. The annual cash retainer shall be paid in arrears in equal quarterly installments of $20,000. If an outside director becomes a member of our board of directors during a calendar quarter, a pro-rata quarterly installment for services actually rendered during that quarter shall be paid at the beginning of the immediately following calendar quarter.
Board and Committee Chair Cash Retainers
An additional annual retainer of $60,000 is to be paid to the chair of our board. Each participating director who becomes a chair of one of our board committees shall receive an additional annual cash retainer as follows: audit committee$15,000; compensation committee$15,000; nominating and governance committee$7,500; member agreement review committee$7,500 and finance committee$7,500. A committee fee of up to $5,000 may be payable for ad hoc committees that may later be established. Annual retainer fees for service on these committees shall be paid in the same manner as the annual cash retainer for board service as described above.
Meeting Fees
Each member director (but not any outside director) shall receive a $10,000 fee for each in-person meeting of the board of directors and a $1,000 fee for participating in each telephonic board meeting.
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Each participating director shall receive a $1,500 fee for each committee meeting attended and a $1,000 fee for participation in any ad hoc meetings with board members to discuss board matters that are in addition to standard meetings or calls and are at least one hour long. The board of directors may also compensate participating directors for ad hoc requests that require a substantial amount of time or work at $1,000 per meeting, but not to exceed $8,000 for the duration of a specific event.
Grants of Restricted Stock Units
Each outside director (but not any member director) shall receive an initial grant of restricted stock units equal in value to $100,000 in connection with becoming a member of the board of directors. The number of shares of Class A common stock subject to an initial grant of restricted stock units shall be determined based on the closing price of our Class A common stock on the date the outside director first becomes a member of the board of directors (or, with respect to our outside directors on the board of directors prior to this offering, based on our initial public offering price). Each outside director shall also receive an annual grant of restricted stock units equal in value to $100,000 on each annual stockholders meeting that occurs starting with our initial annual stockholders meeting in 2014. The number of shares of our Class A common stock subject to an annual grant of restricted stock units for grants after this offering shall be determined based on the closing price of our Class A common stock on the grant date. The restricted stock unit grants to outside directors described above shall be made under and subject to the Premier, Inc. 2013 Equity Incentive Plan, or the Equity Incentive Plan, described below. Both initial restricted stock unit grants and annual restricted stock unit grants shall fully vest on the first anniversary of their respective grant date, or, if earlier, upon death, Disability or a Change in Control (each as defined in the Equity Incentive Plan), provided that the outside director is then a member of our board of directors. Dividend equivalents are provided on the initial and annual restricted stock units and will be paid in cash (without interest) at the same time as the delivery of shares which correspond to the dividend equivalents.
Stock Ownership Guidelines
Our stock ownership guidelines provide for our outside directors to hold our Class A common stock equal in value to at least three times the annual cash retainer.
Other Benefits
Each participating director is entitled annually to direct an amount of $250 to his or her selected not-for-profit organization during the holiday season in lieu of receipt of a holiday gift. No benefits other than those described above are payable to any directors for board service.
Role of PHSI Compensation Committee and its Compensation Consultant
In preparation for this offering, the compensation committee of PHSI engaged Mercer (US) Inc., a wholly owned subsidiary of Marsh & McLennan Companies, Inc., or Mercer, a compensation consulting firm, to provide advice regarding the compensation program for our executive officers and participating directors. It is anticipated that our compensation committee will also retain Mercer following the completion of this offering. The PHSI compensation committee, based on advice from Mercer, provided recommendations during the past year to our board of directors regarding proposed new employment agreements, equity compensation grants, share ownership guidelines and director compensation. Historically, Mercer's advice also included recommendations regarding base salaries, annual bonuses and long-term incentive compensation for the PHSI management team. During fiscal year 2013, PHSI retained Mercer and its Marsh & McLennan Companies, Inc. affiliates to provide services to us, unrelated to executive compensation, which have been approved by our compensation committee. The aggregate fees paid in connection with recommending the form or amount of executive
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and director compensation were $ and the aggregate fees paid in connection with services unrelated to executive compensation were $ .
Summary Compensation Table
The following table summarizes information regarding the compensation accrued or paid to our chief executive officer, our chief operating officer and our chief financial officer during the fiscal year ended June 30, 2013 in accordance with SEC rules. This table includes both compensation earned over the past fiscal year and, in the case of our cash based long-term incentive compensation plan, or LTIP, compensation earned over the prior three fiscal years. LTIP amounts are reported under the bonus and non-equity compensation plan columns even though they will be paid in three installments through June 30, 2015, subject to meeting vesting requirements. See the discussion under "Additional Information Regarding Summary Compensation Table" for additional details regarding the determination, vesting and payment of these amounts.
Name and Principal Position
|
Year | Salary | Bonus(1) | Stock Awards(2) |
Option Awards(3) |
Non-Equity Incentive Plan Compensation(4) |
All Other Compensation(5) |
Total | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Susan D. DeVore, | 2013 | $ | 970,071 | $ | 1,607,090 | $ | 0 | $ | 0 | $ | 4,731,438 | $ | 203,367 | $ | 7,511,966 | |||||||||
President & Chief Executive Officer |
||||||||||||||||||||||||
Michael J. Alkire, |
2013 |
$ |
785,447 |
$ |
873,284 |
$ |
0 |
$ |
0 |
$ |
2,515,539 |
$ |
121,944 |
$ |
4,296,214 |
|||||||||
Chief Operating Officer |
||||||||||||||||||||||||
Craig S. McKasson, |
2013 |
$ |
495,853 |
$ |
376,550 |
$ |
0 |
$ |
0 |
$ |
1,016,614 |
$ |
63,791 |
$ |
1,952,808 |
|||||||||
Chief Financial Officer |
Additional Information Regarding Summary Compensation Table
Payment Schedule for Long-Term Incentive Plan
PHSI sponsors an LTIP that provides a cash incentive to a select group of our executives based on performance from July 1, 2010 to June 30, 2013. The LTIP does not provide for immediate payment of accrued amounts. Forty percent (40%) of the total amount of the LTIP is scheduled to be paid on September 15, 2013. Thirty percent (30%) of the total amount of the LTIP is scheduled to be paid on
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June 30, 2014. The remaining thirty percent (30%) of the total amount of the LTIP is scheduled to be paid on June 30, 2015. Set forth below are the scheduled amounts payable to each named executive officer under the LTIP:
Named Executive Officer
|
To be paid Sept. 2013 (40%) |
To be paid June 2014 (30%) |
To be paid June 2015 (30%) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Susan D. DeVore |
$ | 2,124,261 | $ | 1,593,196 | $ | 1,593,196 | ||||
President & Chief Executive Officer |
||||||||||
Michael J. Alkire |
$ |
1,089,105 |
$ |
816,829 |
$ |
816,829 |
||||
Chief Operating Officer |
||||||||||
Craig S. McKasson |
$ |
389,073 |
$ |
291,804 |
$ |
291,804 |
||||
Chief Financial Officer |
Long-Term Incentive Compensation PlanAccrued Amounts for Fiscal Years 2011-2013 and Vesting Provisions
Payments under the LTIP are determined based on financial or operational performance during the three year performance period as compared to pre-established performance goals. Additional amounts can also be awarded on a discretionary basis. The PHSI compensation committee determined all amounts payable under the LTIP with respect to the named executive officers. The portion of the LTIP payments based on meeting pre-established performance goals for Ms. DeVore, Mr. Alkire and Mr. McKasson is $4,066,940, $2,085,114 and $744,887, respectively, and is included in the "Non-Equity Incentive Compensation Plan" column of the Summary Compensation Table. The portion of the payments based on the exercise of discretion by the PHSI compensation committee for Ms. DeVore, Mr. Alkire and Mr. McKasson is $1,243,713, $637,650 and $227,794, respectively, and is included in the "Bonus" column of the Summary Compensation Table.
An executive participating in the LTIP must be employed on the date of a scheduled LTIP payment in order to receive payment unless the executive terminates employment due to death, disability, his or her retirement, termination of employment by PHSI without cause or voluntary resignation within the two year period following a change in control (as defined in the LTIP). The named executive officers have not received a new three-year cash based LTIP award opportunity. Instead, we have authorized the grant of equity awards to our named executive officers. See the discussion under "Equity Incentive PlanGrant of Awards under the Equity Incentive Plan in Connection with this Offering" for a discussion of the restricted stock units, performance share awards and stock options that will be granted in connection with this offering.
Annual Incentive Compensation PlanAmounts Earned for Fiscal Year 2013
PHSI sponsors an Annual Incentive Plan, or AIP, that provides a cash incentive based on our performance during the prior fiscal year. Payments under the AIP are determined based on financial or operational performance as compared to pre-established performance goals. Additional amounts can also be awarded on a discretionary basis. The PHSI compensation committee determined all amounts payable under the AIP with respect to the named executive officers. The portion of the AIP payments based on meeting pre-established performance goals for Ms. DeVore, Mr. Alkire and Mr. McKasson is $664,498, $430,425 and $271,727, respectively, and is included in the "Non-Equity Incentive Compensation Plan" column of the Summary Compensation Table. The portion of the payments based on the exercise of discretion by the PHSI compensation committee for Ms. DeVore, Mr. Alkire and Mr. McKasson is $363,777, $235,634 and $148,756, respectively, and is included in the Bonus column of the Summary Compensation Table. All accrued amounts under the AIP with respect to the most
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recently completed fiscal year are paid to participants not later than September 15, 2013. For further details regarding the AIP, see "Annual Incentive Plan".
Existing Employment Agreements
Executive employment agreements with our named executive officers in effect during fiscal year 2013 provided for base salary, annual and long-term bonus opportunities and participation in our benefit plans. Solely with respect to Ms. DeVore's employment agreement, reimbursement of certain healthcare expenses for her and her dependents not reimbursed under our health and welfare plans under a supplemental Exec-U-Care insurance policy was provided.
New Employment Agreements
Each of the existing employment agreements described above will be replaced effective as of the completion of this offering with new employment agreements. The term of each new employment agreement for our named executive officers is three years commencing on the closing of this offering. Each employment agreement provides for automatic extension after this initial three year period by adding a one year term on each anniversary of such closing unless either party timely provides written notice to the contrary. These employment agreements, which are between PHSI and the named executive officers, provide for the following compensation:
The new employment agreements with our named executive officers will provide for severance benefits if we terminate their employment without cause or they leave for good reason. Enhanced severance benefits are provided due to such an involuntary termination that occurs on or within two years after a Change in Control (as defined in the Equity Incentive Plan). All severance benefits are subject to signing a release and compliance with non-competition, non-solicitation, non-interference and confidentiality restrictions. Set forth below is a summary of the severance and change in control related benefits under the new employment agreements:
Employment Termination Without Cause or Resignation for Good Reason:
We will pay 2.4 times the named executive officer's total annual compensation in cash over 30 months if we terminate such officer's employment without cause or such officer resigns for good reason on or within 24 months after a Change in Control (as defined in the Equity Incentive Plan).
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"Total annual compensation" for this purpose means the sum of the named executive officer's then current base salary plus the greater of (i) the officer's target AIP bonus as of employment termination, or (ii) the average AIP bonuses paid to the named executive officer during the 36 months preceding employment termination.
We will pay 1.9 times the named executive officer's base salary in cash over 24 months if we terminate such officer's employment without cause or such officer resigns for good reason other than during the 24 month change in control protection period described above.
See discussion of "Equity Incentive PlanGrant of Awards under the Equity Incentive Plan in Connection with this Offering" regarding the treatment of equity awards upon our termination of the executive's employment without cause or his or her resignation for good reason.
A termination without cause under the employment agreements means that PHSI terminates the named executive officer's employment for any reason other than death, disability or Cause.
The following definitions apply for purposes of the employment agreements:
"Cause" for this purpose includes termination of the named executive officer's employment due to: (i) embezzlement, theft, misappropriation, or breach of fiduciary duty in rendering services for Premier, (ii) conviction, guilty plea or plea of nolo contendere to any felony that results in any period of incarceration if such conviction or plea is determined to have a significant adverse effect, (iii) willful insubordination, (iv) material breach of any securities or other law or regulation or any company policy governing inappropriate disclosures or "tipping" related to (or the trading or dealing of) securities, stock or investments, (v) failure to reasonably cooperate or interference with a Premier investigation, and (vi) actual or prospective breach of certain post-employment obligations under the employment agreements. For periods after June 30, 2016, "Cause" also includes (vii) the named executive officer's commission of a crime involving fraud, dishonesty or bad morals likely to result in incarceration, (viii) willful action or inaction that causes Premier or its affiliates to violate a law or regulation, (ix) willful violation of Premier's material policies, rules and procedures, (x) a regulatory, governmental or administrative suspension, removal or prohibition of the named executive officer, (xi) willful misconduct generally and (xii) willful inattention with respect to Premier's business affairs which is materially harmful to Premier. "Cause" does not include failure to meet the performance objectives, milestones and goals or any act or failure to act in good faith and with the reasonable belief that such act or omission was in the best interest of Premier and consistent with our policies and applicable law, based on and consistent with board instructions or based on and consistent with the advice of Premier counsel. Further, there is a right to cure for certain alleged breaches. To terminate a named executive officer for Cause, the board of directors (in the case of Ms. DeVore) or the chief executive officer (in the case of Messrs. McKasson and Alkire) must first provide written notice stating the "Cause" grounds and provide the named executive officer an opportunity to appear before the board of directors or the chief executive officer, as applicable. For periods after June 30, 2016, Premier's obligations under the employment agreement are suspended if the named executive officer is unable to participate in our business due to a regulatory, governmental or administrative action and, if the named executive officer is permanently removed or not allowed to participate in the business due to a regulatory, governmental or administrative action, all obligations of Premier under the employment agreement shall terminate.
"Good Reason" for this purpose includes, without the named executive officer's written consent: (i) a material reduction in position, responsibilities or status, or a change in title having such effect, the assignment of duties, responsibilities, authorities and/or titles that are inconsistent with the named executive officer's position and, in the case of Ms. DeVore, failure to retain or re-elect her to the board of directors (excluding in each case certain suspensions and duty limitations and changes made in good faith to conform with applicable law or generally accepted industry standards); (ii) a change in
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reporting relationship such that the named executive officer no longer reports to the board of directors (for Ms. DeVore) or the chief executive officer and/or the board of directors (for Messrs. McKasson and Alkire), (iii) certain reductions in base salary and annual incentive award opportunities, (iv) certain executive relocations of more than fifty miles, (v) Premier's failure to make material payments due to the named executive officer under the employment agreement, and (vi) failure of Premier to obtain the assumption of the obligations under the employment agreement by a successor. A named executive officer must provide notice within 90 days after the occurrence of a good reason event and provide the company a 30 day cure period.
Consulting Period Following Employment Termination other than due to Death
The employment agreements provide for the named executive officers to provide consulting services after employment termination for any reason other than death. The consulting services that may be requested during this period consist of advice on matters regarding Premier operations or management. The length of the consulting period is 24 months for each named executive officer. The amount of the consulting fee to be paid each month during the consulting period is equal to one-tenth of the named executive officer's monthly base salary in effect on employment termination. The employment agreement provides for non-competition and non-solicitation restrictions to apply to the named executive officers during the consulting period.
Final Compensation Due Upon any Termination of Employment
Following any employment termination, a named executive officer (or in the event of the officer's death, the officer's estate) is entitled to the following amounts through the date of termination: earned but unpaid base salary, earned but unused vacation time as per company policy, unpaid expense reimbursement as per PHSI policy, and amounts payable under the terms and conditions of any employee benefit and compensation plan or program, including vested amounts under the Equity Incentive Plan, tax qualified retirement plans, nonqualified deferred compensation plans or insurance programs.
Outstanding Equity Awards at End of Fiscal Year 2013
Our named executive officers did not hold any stock awards or options in Premier at the end of fiscal year 2013.
See the discussion under "Equity Incentive PlanGrant of Awards under the Equity Incentive Plan in Connection with this Offering" for a discussion of the restricted stock units, performance share awards and option awards that will be granted to the named executive officers in connection with this offering.
Retirement Plans
PHSI maintains two defined contribution savings plans for substantially all employees who meet certain eligibility requirements, each of which has also been adopted by Premier Purchasing Partners, L.P. One of these plans is a money purchase pension plan under which each participant receives a contribution equal to 5% of his or her compensation (subject to the limit set forth in Section 401(a)(17) of the Code). The other plan is a 401(k) plan which allows participants to defer a portion of their annual compensation (subject to the limit set forth in Section 401(a)(17) of the Code) on either a pre-tax or after-tax (Roth) basis. Participants receive matching contributions up to a maximum of 4% of compensation.
PHSI also maintains the Deferred Compensation Plan, a nonqualified deferred compensation plan in which our named executive officers and other eligible employees participate. This plan is designed to
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permit deferrals in excess of certain tax limits and provides for discretionary employer contributions in excess of the tax limits applicable to PHSI's qualified plans. Amounts deferred and contributed to the plan, and any earnings, remain the property of PHSI until distributed.
Equity Incentive Plan
On May 17, 2013, we established the Equity Incentive Plan. The purposes of the Equity Incentive Plan are to attract and retain employees, directors and consultants for our company, affiliates and subsidiaries and to provide such persons with incentives and rewards for superior performance. To accomplish these purposes, the Equity Incentive Plan will provide for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other equity-based awards and cash-based awards.
The following description summarizes the features of the Equity Incentive Plan.
Summary of Plan Terms
Shares Subject to the Equity Incentive Plan. Currently, we have not reserved any of our shares of Class A common stock for issuance under the Equity Incentive Plan. We intend to do so once we obtain market pricing information in connection with this offering. These shares may be shares of original issuance, shares held in treasury, or shares that have been reacquired by us. The number of our shares of Class A common stock authorized for grant under the Equity Incentive Plan is subject to adjustment, as described below. Awards that are to be settled by issuing shares are only counted against the number of shares available under the Equity Incentive Plan to the extent shares are actually issued under those awards. Shares withheld to satisfy tax withholding obligations or tendered to pay the exercise price of an option under the Equity Incentive Plan and shares repurchased on the open market with the proceeds of an option exercise shall again be available for grant under the Equity Incentive Plan. We intend to file with the SEC a registration statement on Form S-8 covering the shares issuable under the Equity Incentive Plan.
Plan Administration. The Equity Incentive Plan will be administered by our compensation committee. While the Equity Incentive Plan is designed to allow us to comply with the performance-based compensation exception to the $1 million deduction limitation under Section 162(m) of the Code, we intend to take advantage of the IPO transition rules provided under IRS regulations to the maximum extent possible, including the 2013 equity awards to be issued in connection with this offering. With respect to decisions involving an award intended to satisfy the requirements of the performance-based exception, it is intended that our compensation committee will grant awards under the Equity Incentive Plan in a manner that complies with the applicable requirements of Section 162(m) of the Code and Section 16 of the Exchange Act.
Our compensation committee will determine who shall receive awards under the Equity Incentive Plan, the number of shares of stock, share units and/or dollars covered by such award, and the terms and conditions of each award for grants occurring after the closing of this offering. Within the terms of the Equity Incentive Plan, our compensation committee may accelerate the vesting of any award and modify, cancel or substitute any awards. In addition, our compensation committee will interpret the Equity Incentive Plan and may adopt any administrative rules, regulations, procedures and guidelines governing the Equity Incentive Plan or any awards granted under the Equity Incentive Plan as it deems to be appropriate. Our compensation committee may delegate the authority to make awards to any subcommittee of our board of directors or to our chief executive officer to make awards to employees who are not executive officers.
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Eligibility. Our compensation committee may grant awards to employees and consultants; provided, however, only employees shall be eligible to receive incentive stock options, or ISOs. Our board of directors may grant awards to non-employee directors.
Types of Awards. The following types of awards may be made under the Equity Incentive Plan. All of the awards described below are subject to the conditions, limitations, restrictions, vesting and forfeiture provisions determined by our compensation committee, in its sole discretion, subject to such limitations as are provided in the Equity Incentive Plan:
Nonqualified Stock Options. An award of a nonqualified stock option grants a participant the right to purchase a certain number of shares of our Class A common stock during a specified term in the future, after a vesting period, at an exercise price equal to at least 100% of the fair market value of a share of our Class A common stock on the grant date. The term of a nonqualified stock option may not exceed 10 years from the date of grant. The exercise price may be paid, in the compensation committee's sole discretion, with cash or check, shares of our Class A common stock already owned by the participant, a reduction in shares issuable upon exercise which have a value equal to the exercise price, to the extent permitted by law, with proceeds from a sale of shares from broker-assisted cashless exercise, any other consideration deemed appropriate by the compensation committee or any combination of the foregoing in each case permitted by the compensation committee. A nonqualified stock option is an option that does not meet the qualifications of an ISO as provided in Section 422 of the Code and summarized in part below.
Incentive Stock Options. An ISO is a stock option that meets the requirements of Section 422 of the Code, which include an exercise price of no less than 100% of fair market value on the grant date, a term of no more than 10 years, and that the option be granted from a plan that has been approved by stockholders.
Stock Appreciation Rights. A stock appreciation right, or SAR, entitles the participant to receive a percentage (up to 100%) of the difference between the fair market value of our Class A common stock on the exercise date and the exercise price of the SAR, multiplied by the number of shares subject to the SAR. Payment to a participant upon the exercise of a SAR may be in cash or shares of our Class A common stock. No SAR may be exercised more than 10 years from the date of grant.
Restricted Stock. A restricted stock award is an award of outstanding shares of our Class A common stock that does not vest until after a specified period of time, or satisfaction of other vesting conditions as determined by our compensation committee, and which may be forfeited if conditions to vesting are not met. Participants generally receive dividend payments on the shares subject to their award during the vesting period (unless the awards are subject to performance-vesting criteria) and are also generally entitled to vote the shares underlying their awards.
Restricted Stock Units. A restricted stock unit is an award denominated and settled in shares of our Class A common stock, subject to terms and conditions determined by our compensation committee. Participants do not have voting rights, but our compensation committee may authorize the payment of dividend equivalent payments on a current, deferred or contingent basis.
Performance Awards. The Equity Incentive Plan authorizes our compensation committee to grant performance-based awards, which may be payable in shares, share units, or cash. Performance awards would vest and become payable upon the achievement of performance objectives within a period of time specified by our compensation committee. No dividend equivalent payments shall be made with respect to any performance award.
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The performance awards may be subject to the achievement of specified performance objectives. Performance objectives may be described in terms of company-wide objectives or objectives that are related to the performance of the individual participant or a subsidiary, division, department or function within our company or a subsidiary of ours in which the participant is employed. Performance objectives may be measured on an absolute or relative basis, and relative performance may be measured by a group of peer companies or by a financial market index. Any performance objectives applicable to a performance award intended to satisfy the requirements of Code Section 162(m) shall be based on one or more of the following:
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To the extent that an award is not intended to qualify as "performance-based compensation" under Section 162(m) of the Code, our compensation committee, in its sole discretion, may designate additional business objectives on which the performance objectives may be based or adjust, modify or amend the previously mentioned business objectives. Our financial performance shall be measured against the performance objectives without adjusting for changes in accounting principles, and by excluding any of the following items if our compensation committee so determines:
In addition, for awards not intended to qualify as "performance-based compensation" under Section 162(m) of the Code, if our compensation committee determines after the performance goals have been established 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 renders the performance objectives unsuitable, our compensation committee may, in its sole discretion, make adjustments to the performance objectives as it deems appropriate and equitable. Our compensation committee also has the right, in its sole discretion, to increase or decrease the amount payable at any given level of performance to take into account additional factors that our compensation committee deems relevant to the assessment of individual or corporate performance. However, payouts under awards intended to qualify as "performance-based compensation" under Section 162(m) of the Code may not exceed the amounts provided in plans approved by our shareholders and may not exceed the amounts determined in accordance with pre-established objective performance goals.
Other Forms of Equity Awards. The Equity Incentive Plan provides our compensation committee the discretion to grant other awards payable in shares, such as deferred stock units and unrestricted shares. In the event of such an award, the committee would determine the terms and conditions of such award, including any vesting criteria applicable thereto.
Cash awards. A cash-based award is a cash-denominated award which the compensation committee may grant to participants, subject to conditions determined by the compensation committee, which conditions may include the achievement of individual or Company performance objectives. Each cash-based award will specify a payment amount, formula or payment ranges as determined by the compensation committee. Payment with respect to any cash-based award shall be made in cash.
Forfeiture Provisions. Awards granted under the Equity Incentive Plan may be subject to forfeiture if, after a termination of employment or service, the participant engages in certain activities that are materially injurious to or in competition with us or our affiliates. As described below, certain awards may be subject to forfeiture or repayment if they were based on performance metrics that are later determined to be materially inaccurate.
Adjustments. Our compensation committee shall make appropriate equitable adjustments to the maximum number of shares available for issuance under the Equity Incentive Plan and other limits
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stated in the Equity Incentive Plan, the number of shares covered by outstanding awards, the exercise prices and performance measures applicable to outstanding awards, and the kind of shares available for grant and covered by outstanding awards, as our compensation committee, in its sole discretion, may determine to be equitably required to prevent dilution or enlargement of the rights of participants. These changes may be made to reflect changes in our capital structure (including a change in the number of shares of Class A common stock outstanding) on account of any stock dividend, stock split, reverse stock split, combination or exchange of shares, recapitalization, extraordinary cash dividend, or other change in our capital structure, merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities or any other corporate transaction or event having an effect similar to any of the foregoing. These adjustments will be made only to the extent they conform to the requirements of applicable provisions of the Code and other applicable laws and regulations.
Change in Control. Except as otherwise provided in an award agreement, in the event of a Change in Control (as defined below), our compensation committee may, but shall not be obligated to, (a) accelerate, vest or cause the restrictions to lapse with respect to, all or any portion of an award, (b) cancel awards for a cash payment equal to their fair value (as determined in the sole discretion of our compensation committee) which, in the case of options and SARs, shall be deemed to be equal to the excess, if any, of the value of the consideration to be paid in the Change in Control transaction to holders of the same number of shares subject to such options or SARs (or, if no consideration is paid in any such transaction, the fair market value of the shares subject to such options or SARs) over the aggregate strike price, (c) provide for the issuance of substitute awards that will substantially preserve the otherwise applicable terms of any affected awards previously granted hereunder as determined by our compensation committee in its sole discretion (d) terminate options without providing accelerated vesting or (e) take any other action with respect to awards that the compensation committee deems appropriate. The treatment of awards upon a Change in Control may vary among participants in our compensation committee's sole discretion.
Performance awards will be settled upon a Change in Control as determined by the compensation committee in its sole discretion based upon the extent to which the performance goals for any such awards have been achieved after evaluating actual performance over the course of the performance period until the date of the Change in Control and the anticipated level of performance as of the date of the Change in Control.
For these purposes, a "Change in Control" shall mean the earliest to occur of the following events, provided that such event is not also a Management Buyout (as defined below):
(a) Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of Premier, Inc. representing 35% or more of the combined voting power of Premier, Inc.'s then outstanding voting securities generally entitled to vote in the election of directors of Premier, Inc., provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by Premier, Inc. or a transaction described in clause (i) of paragraph (b) below;
(b) There is consummated a Merger (as defined below) of Premier, Inc. with any other business entity other than (i) a Merger which would result in the securities of Premier, Inc. generally entitled to vote in the election of directors of Premier, Inc. outstanding immediately prior to such Merger continuing to represent (either by remaining outstanding or by being converted into such securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding such securities under an employee benefit plan of Premier, Inc. or any subsidiary at least 50% of the combined voting power of the voting
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securities of Premier, Inc. or such surviving entity or any parent thereof outstanding immediately after such Merger, generally entitled to vote in the election of directors of Premier, Inc. or such surviving entity or any parent thereof and, in the case of such surviving entity or any parent thereof, of a class registered under Section 12 of the Act (as defined below), or (ii) a Merger effected to implement a recapitalization of Premier, Inc. (or similar transaction) in which no Person is or becomes a Beneficial Owner, directly or indirectly, of securities of Premier, Inc.'s then outstanding voting securities of Premier, Inc. generally entitled to vote in the election of directors of Premier, Inc.;
(c) The stockholders of Premier, Inc. approve a plan of complete liquidation or dissolution of Premier, Inc. or there is consummated the sale or disposition by Premier, Inc. of all or substantially all of Premier, Inc.'s assets, other than a sale or disposition by Premier, Inc. of all or substantially all of Premier, Inc.'s assets to an entity where the outstanding securities generally entitled to vote in the election of directors of Premier, Inc. immediately prior to the transaction continue to represent (either by remaining outstanding or by being converted into such securities of the surviving entity or any parent thereof) 50% or more of the combined voting power of the outstanding voting securities of any such entity generally entitled to vote in such entity's election of directors immediately after such sale and of a class registered under Section 12 of the Act.
As used in this section "Change in Control ":
(i) "Act" means the Securities Exchange Act of 1934, as amended.
(ii) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Act. For avoidance of doubt, member owners owning shares of Premier, Inc. Class B common stock shall be treated as the Beneficial Owners with voting control of such Class B common stock for purposes of the definition of "Change in Control," and any persons voting the shares subject to a voting trust or other similar arrangement will not be treated as the beneficial owner thereof.
(iii) "Management Buyout" means any event or transaction which would otherwise constitute a Change in Control, or a Transaction, if, in connection with the Transaction, an Equity Incentive Plan participant, his spouse, parents, children or grandchildren, or a Family Members and/or the Participant's Affiliates (as defined below) participate, directly or beneficially, as an equity investor in, or have the option or right to acquire, whether vested or not vested, equity interests of, the acquiring entity or any of its Affiliates (as defined in Rule 12b-2 under the Act), or the Acquiror, having a percentage interest therein greater than 1%. For purposes of the preceding sentence, a party shall not be deemed to have participated as an equity investor in the Acquiror by virtue of (i) obtaining Beneficial Ownership of any equity interest in the Acquiror as a result of the grant to the party of an incentive compensation award under one or more incentive plans of the Acquiror (including, but not limited to, the conversion in connection with the Transaction of incentive compensation awards of Premier, Inc. into incentive compensation awards of the Acquiror), on terms and conditions substantially equivalent to those applicable to other employees of Premier, Inc. at a comparable level as such party immediately before the Transaction, after taking into account normal differences attributable to job responsibilities, title and the like, (ii) obtaining beneficial interest of any equity interest in the Acquiror on terms and conditions substantially equivalent to those obtained in the Transaction by all other shareholders of Premier, Inc. or (iii) the party's interests in any tax-qualified defined benefit or defined contribution pension or retirement plan in which such party or any Family Member is a participant or beneficiary.
(iv) "Merger" means a merger, share exchange, consolidation or similar business consolidation under applicable law.
(v) "Participant's Affiliates" consist of any entity in which the participant and/or members of the participant's Immediate Family then own, directly or beneficially, or have the option or right to
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acquire, whether or not vested, greater than 10% of such entity's equity interests, and all then current directors and executive officers of Premier, Inc. who are members of any group that also includes the participant, a Family Member and/or any such entity in which the members have agreed to act together for the purpose of participating in the Transaction.
(vi) "Person" shall have the meaning given in Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) Premier, Inc., (ii) a trustee or other fiduciary holding securities under an employee benefit plan of Premier, Inc., or (iii) a corporation owned, directly or indirectly, by the stockholders of Premier, Inc. in substantially the same proportions and with substantially the same voting rights as their ownership and voting rights with respect to Premier, Inc.
Amendment and Termination. The Equity Incentive Plan may be amended or terminated by our board of directors at any time, but no amendment may be made without stockholder approval if it would increase the number of shares issued or available under the Equity Incentive Plan, materially expand benefits accruing to plan participants, reduce the minimum exercise price of an option or base price of an SAR granted under the plan, modify the eligibility criteria for participation in the plan, increase per-person limits or the number of shares which may be issued, delete or limit the prohibition against repricing, or otherwise require approval by stockholders in order to comply with applicable law or the rules of a national stock exchange on which the shares subject to the Equity Incentive Plan are listed. Notwithstanding the foregoing, with respect to awards subject to Section 409A of the Code, any termination, suspension or amendment of the Equity Incentive Plan must conform to the requirements of Section 409A. Unless required to comply with applicable laws, no termination, suspension or amendment of the Equity Incentive Plan may adversely affect the right of any participant with respect to a previously granted award without the participant's written consent.
Federal Income Tax Consequences of Equity Incentive Plan Awards
The following is a brief summary of the principal U.S. federal income tax consequences of transactions under the Equity Incentive Plan, based on current U.S. federal income tax laws. This summary is not intended to be exhaustive, does not constitute tax advice and, among other things, does not describe state, local or foreign tax consequences, which may be substantially different.
Nonqualified Stock Options. Generally, a participant will not recognize taxable income on the grant or vesting of a nonqualified stock option. Upon the exercise of a nonqualified stock option, a participant will recognize ordinary income in an amount equal to the difference between the fair market value of our Class A common stock received on the date of exercise and the option cost (number of shares purchased multiplied by the exercise price per share). We will ordinarily be entitled to a deduction on the exercise date equal to the ordinary income recognized by the participant upon exercise.
Incentive Stock Options. No taxable income is recognized by a participant on the grant or vesting of an ISO. If a participant exercises an ISO in accordance with its terms and does not dispose of the shares acquired within two years after the date of the grant of the ISO or within one year after the date of exercise, the participant will not, upon exercise, recognize ordinary income or capital gain or loss, and we will not be entitled to a deduction by reason of the grant or exercise of the ISO; however, the excess of the fair market value over the exercise price of the shares acquired is an item of adjustment in computing alternative minimum tax of the participant. If a participant holds the shares acquired for at least one year from the exercise date and does not sell or otherwise dispose of the shares for at least two years from the grant date, the participant's gain or loss upon a subsequent sale will be long-term capital gain or loss equal to the difference between the amount realized on the sale and the participant's basis in the shares acquired.
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If a participant sells or otherwise disposes of the shares acquired without satisfying the required minimum holding period, such "disqualifying disposition" will give rise to ordinary income equal to the excess of the fair market value of the shares acquired on the exercise date or, if less, the amount realized upon disqualifying disposition over the participant's tax basis in the shares acquired. We will ordinarily be entitled to a deduction equal to the amount of the ordinary income recognized by a participant as a result of a disqualifying disposition.
Stock Appreciation Rights. Generally, a participant will not recognize taxable income upon the grant or vesting of a SAR, but will recognize ordinary income upon the exercise of a SAR in an amount equal to the cash amount received upon exercise (if the SAR is cash-settled) or the difference between the fair market value of our Class A common stock received from the exercise of the SAR and the amount, if any, paid by the participant in connection with the exercise of the SAR. The participant will recognize ordinary income upon the exercise of a SAR regardless of whether the shares of our Class A common stock acquired upon the exercise of the SAR are subject to further restrictions on sale or transferability. The participant's basis in the shares will be equal to the ordinary income attributable to the exercise and the amount, if any, paid in connection with the exercise of the SAR. The participant's holding period for shares acquired pursuant to the exercise of a SAR begins on the exercise date. Upon the exercise of a SAR, we will ordinarily be entitled to a deduction in the amount of the ordinary income recognized by the participant.
Restricted Shares. A participant generally will not be taxed at the time of a restricted stock award but will recognize taxable income when the award vests or otherwise is no longer subject to a substantial risk of forfeiture. The amount of taxable income will be the fair market value of the shares at the time of vesting.
Participants may elect to be taxed at the time of grant by making an election under Section 83(b) of the Code within 30 days of the award date. If a restricted stock award subject to the Section 83(b) election is subsequently canceled, no deduction will be allowed for the amount previously recognized as income, and no tax previously paid will be refunded. Unless a participant makes a Section 83(b) election, dividends paid to a participant on shares of an unvested restricted stock award will be taxable to the participant as ordinary income in compensation for services. If the participant made a Section 83(b) election, the dividends will be taxable to the participant as dividend income.
We will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant. Unless a participant has made a Section 83(b) election, we will also be entitled to a deduction, for federal income tax purposes, for dividends paid on unvested restricted stock awards.
Restricted Stock Units and Performance Shares. A participant generally will not be subject to income tax at the time of grant of a restricted stock unit award or performance share award or upon vesting but will recognize taxable income upon receiving stock under the award and cash that is attributable to dividend equivalents, if any. Restricted stock units and performance shares are subject to Federal Insurance Contribution Act tax upon vesting. The amount of taxable income will be the fair market value of the shares at the time of issuance. No Section 83(b) election is available for restricted stock units or performance shares.
We will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant. We will also be entitled to a deduction, for federal income tax purposes, for cash dividend equivalent payments on restricted stock units.
Other Equity-Based Awards. A participant will generally not recognize taxable income on a deferred stock award until shares subject to the award are distributed. A participant will recognize ordinary income in an amount equal to the fair market value of the shares of our Class A common stock on the date of distribution. Any dividend equivalents paid on unvested deferred stock awards are
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taxable as ordinary income when paid to the participant. We will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant. We will also be entitled to a deduction, for federal income tax purposes, on any dividend equivalent payments made to the participant.
A participant will generally recognize taxable income on the grant of unrestricted stock, in an amount equal to the fair market value of the shares on the grant date. We will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant.
Cash Awards. A participant will generally recognize taxable income upon the payment of a cash award, in an amount equal to the amount of the cash received. We will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant.
Withholding. To the extent required by law, we will withhold from any amount paid in settlement of an award amounts of withholding and other taxes due or take other action as we deem advisable to enable ourselves to satisfy withholding and tax obligations related to any awards.
Grant of Awards under the Equity Incentive Plan in Connection with this Offering
On August 16, 2013, our board of directors authorized the grant of stock options, time-based restricted stock units and performance share awards in connection with this offering, as follows:
Stock Option Awards
Name
|
Title | Black-Scholes Value* | ||||
---|---|---|---|---|---|---|
Susan D. DeVore |
Chief Executive Officer | $ | 8,800,200 | |||
Michael J. Alkire |
Chief Operating Officer | $ | 4,306,500 | |||
Craig S. McKasson |
Chief Financial Officer | $ | 1,785,001 |
The exercise price of the stock option will be equal to our initial public offering price. The stock option awards are subject to a 10-year term and vest in equal amounts on the first, second and third anniversaries of the grant date, subject to the officer's continued employment by us or our affiliates or subsidiaries on those dates. In the event of termination due to death, Disability, voluntary resignation on or after attaining age 591/2 or age 55 with five or more years of service, by us Without Cause or by the officer for Good Reason (each as defined in the standard form of equity award agreement approved by the board of directors for all participants) prior to a Change in Control (as defined in the Equity Incentive Plan), any options that would have vested in the 12 months following employment termination will immediately vest. In the event of an employment termination by us Without Cause or by the officer for Good Reason on or within 12 months following a Change in Control, the option will immediately vest in full. All stock options will be forfeited on a termination for Cause or resignation without Good Reason or in the event the officer violates his or her non-compete agreement.
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Time-Based Restricted Stock Units
Name
|
Title | Restricted Stock Unit Value* | ||||
---|---|---|---|---|---|---|
Susan D. DeVore |
Chief Executive Officer | $ | 4,400,100 | |||
Michael J. Alkire |
Chief Operating Officer | $ | 2,153,250 | |||
Craig S. McKasson |
Chief Financial Officer | $ | 892,500 |
The restricted stock unit awards vest in full on July 1, 2016, subject to the officer's continued employment by us or our affiliates or subsidiaries on that date. In the event of termination due to death, Disability, voluntary resignation on or after attaining age 591/2 or age 55 with five or more years of service, by us Without Cause or by the officer for Good Reason prior to a Change in Control, a pro-rata portion of the restricted stock units shall vest based on the period of completed service during the vesting period. In the event of an employment termination by us Without Cause or by the officer for Good Reason on or within 12 months following a Change in Control, the restricted stock units will immediately vest in full. All restricted stock units are subject to forfeiture in the same manner as stock options. If we pay dividends on our Class A common stock, dividend equivalents are paid (without interest) at the same time as the delivery of shares which correspond to the dividend equivalents. We will settle any vested portion of a restricted stock unit award by distributing shares of our Class A common stock within 60 days following the date on which the restricted stock unit vests.
Performance Shares
Name
|
Title | Performance Share Value* | ||||
---|---|---|---|---|---|---|
Susan D. DeVore |
Chief Executive Officer | $ | 8,800,200 | |||
Michael J. Alkire |
Chief Operating Officer | $ | 4,306,500 | |||
Craig S. McKasson |
Chief Financial Officer | $ | 1,785,001 |
The performance share awards vest based on achieving performance objectives relating to our revenue and EBITDA for the period beginning July 1, 2013 and ending June 30, 2016, subject to such officer's continued employment on June 30, 2016, or the performance period. The number of performance shares that may be earned will range from 0%-150% of the target number of shares depending upon our performance during the performance period. In the event of termination due to death, Disability, voluntary resignation on or after attaining age 591/2 or age 55 with five or more years of service, by us Without Cause or by the officer for Good Reason prior to a Change in Control, a
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pro-rata portion of the performance shares shall vest contingent on our actual performance results for the applicable performance period based on the period of completed service during such performance period. If a Change in Control occurs, performance shares will vest based on actual performance achievement as of the Change in Control. We will settle any performance share award by distributing shares of our Class A common stock within 60 days the end of the performance period for measuring our results.
We do not provide our named executive officers a "gross-up" of any golden parachute excise taxes under the Code. The award agreements for the stock options, time-based restricted stock units and performance shares include a "modified cutback" provision. Benefits under these equity awards, the employment agreements and other plans and arrangements covering our named executive officers are paid out in full or reduced so that the golden parachute excise tax is avoided, whichever produces a better after-tax result for the named executive officer.
Annual Incentive Plan
The AIP provides an opportunity for our employees and those of certain affiliates, subsidiaries and managed entities to receive annual cash bonuses based on achievement of performance objectives in a fiscal year. We intend to continue granting awards under the AIP after this offering. The compensation committee establishes goals and performance standards against which performance will be measured, and the chief executive officer, or another senior officer, determines each participant's target award opportunity. Following a fiscal year, the compensation committee will determine the extent to which performance objectives were achieved. Depending on achievement level, each participant will receive 0-150% of his or her target award on September 15 following the end of the fiscal year, but may defer payment at each participant's discretion. Awards paid under the AIP are subject to forfeiture and recoupment pursuant to our recoupment policies discussed in "Compensation Recoupment Policies". A participant who terminates employment after the end of a fiscal year but before the following September 15 receives full payment under the terms of the AIP. A participant who terminates employment before or after the end of a fiscal year due to his or her death, disability or retirement, or his or her resignation occurring within two years following a Change in Control, will be entitled to payment as provided under the terms of the AIP and contingent upon actual performance results as though his or her employment did not terminate. A participant who terminates for any other reason before the end of the fiscal year forfeits all rights to any awards.
Compensation Recoupment Policies
We have adopted a compensation recoupment policy with respect to all incentive compensation awards, including amounts payable under the AIP and the equity awards granted in connection with this offering that may be earned by our executive officers for fiscal years beginning after June 30, 2013. If we are required to restate our financial statements due to their material noncompliance with any financial reporting requirements under the federal securities laws, our executive officers who received incentive compensation based on erroneous data in a materially noncompliant financial statement must repay us the amount in excess of what would have paid based on that restatement. The repayment obligation extends to any incentive compensation an executive officer or executive-team member receives during the three-year period preceding a restatement. The board of directors has the authority to determine when and how much incentive compensation must be repaid following the restatement of a financial statement. We do not believe that the risks arising from our executive officer compensation practices are reasonably likely to have a material adverse effect on Premier. We will amend this compensation recoupment policy as required to comply with applicable SEC rules that are adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The LTIP and AIP contain additional compensation recoupment provisions, and all amounts paid to Ms. DeVore, Mr. Alkire and Mr. McKasson under those plans are subject to recoupment by Premier, Inc. due to inaccuracy of PHSI's financial statements under certain circumstances.
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Stock Ownership Guidelines
Our board of directors has adopted stock ownership guidelines that apply to all our executive officers and other members of senior management designated by our chief executive officer (collectively, the executive leadership team, or ELT). This policy is designed to align the interests of our executive leadership team with the interests of our shareholders. Our ELT members are expected to own our Class A common stock with a value equal to a multiple of their base salary, and until the guideline amount is achieved each ELT member will generally be required to retain a level of shares following the vesting or exercise of equity awards granted. The chart below summarizes the key terms of our stock ownership guidelines:
|
Current Top 5 Executives | Other Premier Executive Team Members | ||
---|---|---|---|---|
Stock Ownership Guidelines |
Chief Executive Officer: 5x base salary |
1x base salary | ||
|
Chief Operating Officer, Chief Financial Officer, Senior Vice President-Healthcare Informatics, President-Supply Chain Services: 3x base salary |
|||
|
5 years to comply with ownership guidelines |
|||
Stock Holding Requirements |
Chief Executive Officer: 50% of net after-tax value |
35% of net after-tax value |
||
|
Chief Operating Officer, Chief Financial Officer, Senior Vice President-Healthcare Informatics, President-Supply Chain Services: 35% of net after-tax value |
|||
|
Stock holding requirements are typically in place until ownership guidelines are achieved. |
"Ownership" for purposes of this policy is defined to include stock owned directly or indirectly by the ELT member or any of such person's immediate family members residing in the same household, shares held in trust for the benefit of the ELT member or such person's family and shares obtained through stock option exercise and shares underlying vested restricted stock units and performance shares.
Limitations on Liability and Indemnification Matters
Our certificate of incorporation contains provisions that limit the personal liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for:
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This limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law. Our certificate of incorporation and bylaws also provide that, upon satisfaction of specified conditions, we are required to advance expenses incurred by a director or officer in advance of the final disposition of any threatened, pending or completed action or proceeding, and permits us to secure insurance on behalf of any director or officer for any liability against such person regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of the certificate of incorporation and bylaws or otherwise. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. With certain exceptions, these agreements provide for indemnification of expenses and liabilities incurred by the indemnified individual in connection with a proceeding related to his or her service to us as a director, executive officer, employee or other agent (including, among other things, attorneys' fees, judgments, fines, ERISA excise taxes and penalties and settlement amounts). We believe that these certificate of incorporation and bylaw provisions and indemnification agreements are necessary to attract and retain qualified directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors or officers for which indemnification is sought.
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, pursuant to which they will contract with a broker to buy or sell shares of our Class A common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or executive officer at the time such director or executive officer enters into the plan, without further direction from them. The director or executive officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material nonpublic information, subject to compliance with the terms of our insider trading policy. Prior to 180 days after the date of this offering, subject to potential extension or early termination, the sale of any shares under any such plan would be subject to the lock-up agreement that the director or executive officer has entered into with the underwriters.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
General
Prior to the completion of this offering, Premier LP, together with its affiliates and subsidiaries, including PHSI and PSCI, has been wholly owned by our member owners. As part of the Reorganization, we will restructure all of Premier LP's affiliates so that Premier LP will be the operating partnership and parent company to all of our other operating subsidiaries. In connection with this offering, we will purchase (i) Class B common units from the member owners, (ii) Class B common units from PHSI, and (iii) newly issued Class A common units from Premier LP. In connection with the closing, we will contribute our Class A common units and Class B common units, which will automatically convert into Class A common units, in Premier LP to Premier GP, our wholly owned subsidiary. See "Structure" and "Use of Proceeds." Following the completion of the Reorganization and this offering, Premier GP will own approximately % of the outstanding units and the member owners collectively will own approximately % of the outstanding units in Premier LP. If the underwriters exercise their overallotment option in full, we will purchase an additional newly issued Class A common units from Premier LP and immediately contribute such units to Premier GP and Premier GP's aggregate ownership of Premier LP units will increase to approximately %. The board of managers of Premier GP will have the same members as our board of directors. Premier GP will be the general partner of Premier LP. Senior executives from 11 of our U.S. hospital members currently serve on our board of directors, and we expect senior executives from our U.S. hospital members to comprise at least a majority of our board of directors upon the completion of this offering.
We have and intend to enter into several agreements, which we refer to collectively as the Reorganization Documents, to effect the Reorganization and to define and regulate the governance and control relationships among Premier, Inc., Premier LP and the member owners after the completion of the Reorganization and this offering. Except as described in this section, we will not have any material arrangements with Premier LP, the member owners or any of our or their respective directors, officers or other affiliates after the completion of the Reorganization and this offering, other than ordinary course business relationships on arm's length terms.
These summaries do not purport to be complete descriptions of all of the provisions of the Reorganization Documents and the material exhibits thereto, and they are qualified in their entirety by reference to the complete text of agreements which will be filed with the SEC as exhibits to the registration statement of which this prospectus is a part. For information on how to obtain copies of these agreements or other exhibits, see "Where You Can Find More Information."
Transactions with Member Owners in Connection with this Offering
Amended and Restated Limited Partnership Agreement of Premier LP
In connection with the Reorganization and this offering, Premier GP and the member owners have entered into the LP Agreement, which will become effective upon the completion of this offering.
Appointment as General Partner. Under the LP Agreement, Premier GP, of which we are the sole member, will be the general partner of Premier LP. As the general partner of Premier LP, Premier GP will generally be able to control the day-to-day business affairs and decision-making of Premier LP without the approval of any other partner, subject to certain limited partner approval rights described below. As such, we, through our officers and directors, will be responsible for all operational and administrative decisions of Premier LP.
Member Owner Approval Rights. Notwithstanding the grant of authority to Premier GP described above, the prior written consent of a majority in interest of each class of ownership interests held by the limited partners of Premier LP will be required to approve any merger of Premier LP. In addition,
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so long as the member owners in the aggregate continue to own 20% of the total number of Class B common units beneficially owned by the member owners immediately following the consummation of this offering (or, in the event the underwriters' over-allotment option is exercised in whole or in part, immediately following the closing of the final exercise of such option), the approval of a majority in interest of the member owners will be required to approve the following actions of Premier LP:
Compensation. Premier GP will not receive compensation for its services as general partner.
Classes of Units. Premier LP will have two classes of units. The Class A common units initially will be held by Premier GP (and by us prior to our contribution to Premier GP of Class A common units acquired from Premier LP pursuant to the unit put/call agreement described below and any subsequent purchases of Class A common units; provided, that we will contribute all such Class A common units to Premier GP immediately upon receipt). Any Class B common units we acquire will automatically convert to Class A common units when contributed to Premier GP. The Class B common units will be held by the member owners and any new limited partners admitted to Premier LP. The Class A common units and the Class B common units, as a class, will have equal rights to allocation of net income and net losses and to cash distributions, in proportion to units held. Net income and net losses, as well as cash distributions, will be allocated to individual Class B common unit holders as described immediately below. It is intended that the number of issued and outstanding Class A common units and the Class B common units will at all times exactly match the number of issued and outstanding shares of Class A common stock and Class B common stock, respectively. Premier GP may issue additional Class A common units and Class B common units or establish and issue other classes of units, other ownership interests in Premier LP or other Premier LP securities from time to time with such rights, obligations, powers, designations, preferences and other terms, which may be senior to or otherwise different from any then-existing or future securities, as Premier GP may determine from time to time in its sole discretion, without the vote or consent of any limited partner or any other person.
Repurchases of Class B Common Units. In the event that a limited partner of Premier LP holding Class B common units not yet eligible to be exchanged for shares of our Class A common stock pursuant to the terms of the exchange agreement (i) ceases to participate in our GPO programs; (ii) ceases to be a limited partner of Premier LP (except as a result of a permitted transfer of its Class B common units); (iii) ceases to be a party to a GPO participation agreement (subject to certain limited exceptions); or (iv) becomes a related entity of, or affiliated with, a competing business of Premier LP, in each case, Premier LP will have the option to redeem all of such limited partner's Class B common units not yet eligible to be exchanged at a purchase price set forth in the LP Agreement. The Class B common unit redemption amount will be paid, at the sole discretion of Premier GP, by delivering (i) a five-year, unsecured, non-interest bearing term promissory note in favor of such limited partner, (ii) a cashier's check or wire transfer of immediately available funds in an amount equal to the present value of the Class B common unit redemption amount otherwise payable upon the maturity of the promissory note described in clause (i) above, or (iii) payment on such other terms mutually agreed upon by Premier GP and such limited partner. In addition, if one of the terminating events described above occurs, the limited partner will be required to exchange all Class B common units eligible to be exchanged on the next exchange date following the date of the applicable termination event. See "Exchange Agreement."
Distributions and Allocations of Net Profit and Net Loss. Premier LP taxable income will consist primarily of Premier LP's group purchasing income and any dividends that Premier LP receives from its corporate subsidiaries. This taxable income will be allocated on a quarterly basis among Premier GP
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and the holders of Class B common units in the aggregate in proportion to the number of units held. Subject to any applicable restrictions under applicable law or under the terms of its financing agreements, Premier LP will make quarterly cash distributions in the aggregate equal to Premier LP's total taxable income for such fiscal quarter multiplied by our effective corporate income tax rate. Premier GP will have discretion to cause Premier LP to make additional cash distributions. The portion of Premier LP's taxable income for the fiscal quarter that is allocated to the holders of Class B common units in the aggregate will be allocated among such holders in two tranches, Tranche A and Tranche B.
Tranche A will consist of the cash distributions made to holders of Class B common units in the aggregate (other than any discretionary cash distributions designated by Premier GP as Tranche B funds) and will be tentatively divided among such holders in proportion to the relative participation during the quarter of each such holder (and such holder's member facilities, as applicable) with all Premier business units for which separate revenue is calculated by Premier LP in the ordinary course, computed as if no Class B common units had been exchanged by any such holder under the exchange agreement (discussed below) since this offering. We refer to such allocation as the Tentative Tranche A Allocation. In order to align Tranche A income allocations attributable to Premier LP's GPO business unit with the activity that generates such income, Tranche A income derived from relative participation with Premier LP's GPO business unit will be allocated separately from Tranche A income derived from relative participation with Premier LP's other business units. Relative participation will be measured by attribution of gross revenues of each business unit, weighted by relative revenue factors for each business unit that will be determined prospectively by Premier GP and communicated to the holders of Class B common units on or before the beginning of each fiscal year. The Tentative Tranche A Allocation to each holder of Class B common units will then be increased or decreased, as applicable, by an amount equal to Tranche A divided by the total number of Class B common units beneficially owned by the member owners immediately following the consummation of this offering (or, in the event the underwriters' over-allotment option is exercised in whole or in part, immediately following the closing of the final exercise of such option), multiplied by such holder's cumulative net acquisitions from other holders or dispositions of Class B common units since the completion of this offering. This adjusted allocation, or the Adjusted Tranche A Allocation, will be paid to each holder of Class B common units in cash within 60 days after the end of each quarter.
Tranche B will consist of all of the remaining taxable income or losses allocated to the holders of Class B common units in the aggregate for the fiscal quarter and will be allocated among such holders in proportion to units held (subject to any offset as described in the paragraph immediately below). It is not anticipated that any of the Tranche B allocation will be distributed, unless Premier GP designates a portion of any discretionary distributions as Tranche B funds in which event each holder of Class B common units will be paid its proportionate share of such discretionary distribution in cash, based on units held. Any Tranche B taxable income not distributed will instead be retained by Premier LP for working capital purposes and to fund future expansion.
In the event that any holder of Class B common units has a reduction in its Tentative Tranche A Allocation for any quarter that exceeds the amount of such Tentative Tranche A Allocation, such excess being referred to as an Excess Downward Adjustment, then (i) such holder's Adjusted Tranche A Allocation for such quarter will be equal to zero, (ii) Premier LP will provide additional cash as necessary to pay all Adjusted Tranche A Allocations for such quarter in full, (iii) such holder's Tranche B allocation will be reduced by the amount of the Excess Downward Adjustment and (iv) such holder will be required to make a capital contribution to Premier LP of an amount equal to such Excess Downward Adjustment (and Premier GP can offset such required capital contribution against revenue share otherwise due to such holder under the GPO participation agreement described below, until paid in full).
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Transfer Restrictions. Premier GP may transfer its Class A common units without the consent of the limited partners. The LP Agreement generally prohibits transfers of Class B common units by the limited partners, except with consent of Premier GP or pursuant to the exchange agreement. Under no circumstances may any Class B common units be transferred to a business that competes with Premier LP anywhere in the United States.
Additional Partners. Except for a transferee that receives units from Premier GP or pursuant to the exchange agreement, a new limited partner may be admitted only upon the approval of Premier GP in its sole discretion. Admission of a new limited partner is conditioned upon the execution of a joinder to the LP Agreement. Each new limited partner will be required to enter into the exchange agreement, the tax receivable agreement, the registration rights agreement and the voting trust agreement, in each case on the same terms and conditions as the member owners (except that any Class B common units acquired by such newly admitted Premier LP limited partners will not be subject to the seven-year vesting schedule set forth in the LP Agreement and the exchange agreement, whereby each limited partner may exchange a maximum of one-seventh of its initial allocation of Class B common units (as well as any additional Class B common units purchased by such limited partner pursuant to the right of first refusal under the exchange agreement) each year, commencing on the one-year anniversary of the last day of the calendar month in which we consummate this offering (which right shall be cumulative)). Any newly admitted Premier LP limited partner will also enter into a GPO participation agreement with Premier LP and make a capital contribution to Premier LP in an amount equal to 1% of the new limited partner's projected annual purchasing volume under its GPO participation agreement, which projection shall be determined by Premier GP in its sole discretion.
Dissolution. The LP Agreement provides that Premier GP may decide to dissolve Premier LP, subject to approval by the partners holding two-thirds of the units, provided, that if the member owners own at least 20% of the issued and outstanding units, the consent of member owners holding a majority of the units held by such member owners shall also be required. In addition to a voluntary dissolution, Premier LP will be dissolved upon the entry of a decree of judicial dissolution in accordance with California law or upon the disposition of all its assets.
Confidentiality. Each partner agrees to maintain as confidential all non-public information pursuant to the LP Agreement or otherwise regarding Premier LP and its business, except with the consent of Premier GP or as required by law or judicial process. Limited disclosure may be made to agents, representatives or employees on a confidential basis or as necessary to enforce rights under the LP Agreement.
Amendment. All amendments to the LP Agreement must be approved by Premier GP. Such amendments must also be approved by a majority in interest of the units held by the limited partners if the amendment would reduce the limited partners' interests or allocation of economic benefits or would increase the limited partners' obligations to make capital contributions or with respect to other liabilities, unless all partners are treated ratably and the amendment is made to reflect the issuance of additional units or acceptance of a new limited partner. For so long as the member owners hold at least 20% of the total number of Class B common units beneficially owned by the member owners immediately following the consummation of this offering (or, in the event the underwriters' over-allotment option is exercised in whole or in part, immediately following the closing of the final exercise of such option), all amendments must also be approved by a majority in interest of the member owners unless the amendment treats all partners ratably and is made to reflect the issuance of Class B common units or acceptance of a new limited partner.
Set-off. The LP Agreement provides Premier GP with a right to set-off amounts owed by a limited partner to Premier LP or its related entities against amounts otherwise payable by Premier LP to such limited partner. Any remaining balance due remains the obligation of such limited partner and
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must be paid to Premier LP or the related entity when any of the limited partner's Class B common units are redeemed, exchanged or sold.
Indemnification. The LP Agreement provides for indemnification by Premier LP to each partner and its officers, directors, partners, members, shareholders and employees, as well as the employees and officers of Premier LP, for losses incurred by reason of any act performed or omitted to be performed by such person on behalf of Premier LP or by reason of the fact that such person is or was serving at the request of Premier LP as an officer, director, partner, trustee, employee, representative or agent of another entity. In addition, the LP Agreement provides that in the event that we enter into an indemnification agreement with any of our directors, officers, employees or agents or persons who serve, at our request, as the directors, officers, employees or agents of any Affiliate (as defined in the indemnification agreement), then Premier LP agrees to reimburse us for all expenses we incur under such agreements.
GPO Participation Agreement
In connection with the Reorganization and this offering, our member owners have entered into GPO participation agreements with Premier LP which will become effective upon the completion of the Reorganization and this offering. Pursuant to the terms of its GPO participation agreement, each member owner will receive revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by such member owner's member facilities through our GPO supplier contracts. In addition, our two largest regional GPO member owners, which represented approximately 17% of our gross administrative fees revenue for fiscal year 2013, will each remit all gross administrative fees collected by such member owner based upon purchasing by such member owner's member facilities through the member owner's own GPO supplier contracts and receive revenue share from Premier LP equal to 30% of such gross administrative fees that are remitted to us.
Subject to certain termination rights, these GPO participation agreements will be for an initial five-year term, although our two largest regional GPO member owners have entered into agreements with seven-year terms. The agreements will generally be terminable at any time, upon one year's prior written notice, in the event of a change of control of the member owner, and will also be terminable for convenience upon one year's prior written notice, at any time after the second anniversary of the beginning of the applicable term. In either case, the terminating member owner will continue to receive revenue share from Premier LP through the effective date of termination. Under certain circumstances, the GPO participation agreement also will be terminable by either party for cause, including due to a material breach of the terms of the GPO participation agreement. In the event of a termination by Premier LP for cause, Premier LP will retain any collected but unpaid administrative fees otherwise due to the breaching member owner as of the date on which a breach notice is given, but no other damages will be assessed.
These agreements also generally obligate Premier LP and the member owner to not disclose any information related to the business of the other without such other party's prior written consent. For example, the member owner agrees not to use or permit the use of pricing, terms or conditions of any Premier LP GPO supplier contract in connection with negotiations or dealings with third parties to create contracts which exclude Premier LP's involvement.
The provisions of the GPO participation agreements vary as a result of provisions in our existing arrangements with certain member owners that conflict with the terms of the GPO participation agreement and which by the express terms of the GPO participation agreement are incorporated by reference and deemed controlling and will continue to remain in effect. Among other differences resulting from the incorporation by reference of pre-existing contractual commitments, certain member owners will be relieved of the obligation to cause their member facilities to participate in our GPO
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programs, comply with Premier policies and/or refrain from entering into contracts with Premier suppliers that exclude Premier's involvement. In addition, the member agreement review committee of our board of directors has approved certain variances from the standard termination and participation provisions under the GPO participation agreement for certain member owners based upon regulatory constraints, pending merger and acquisition activity or other exigent circumstances affecting those member owners.
In the event that a member owner ceases to be a party to a GPO participation agreement with Premier LP (except in limited circumstances), under the terms of the LP Agreement, Premier LP will have the option to redeem all of such member owner's Class B common units at a purchase price set forth in the LP Agreement. See "Amended and Restated Limited Partnership Agreement of Premier LP" above for additional information.
Voting Trust Agreement
In connection with the Reorganization and this offering, our member owners have entered into a voting trust agreement, which will become effective upon the completion of the Reorganization and this offering and pursuant to which the member owners will contribute their Class B common stock to Premier Trust, under which Wells Fargo Delaware Trust Company, N.A., as trustee, will act on behalf of the member owners for purposes of voting their Class B common stock. The member owners will receive voting trust certificates, which evidence the shares of Class B common stock deposited with the trustee. As a result of the voting trust agreement, the trustee will be the legal owner of the member owners' Class B common stock; however, the member owners will retain beneficial ownership of the Class B common stock. Pursuant to the terms of the voting trust agreement, the trustee will vote all of the member owners' Class B common stock as a block in the manner determined by the plurality of the votes received by the trustee from the member owners for the election of directors to serve on our board of directors, and by a majority of the votes received by the trustee from the member owners for all other matters. The use of Premier Trust is intended to permit us to qualify for the "controlled company" exception to the rules of NASDAQ.
The voting trust agreement contains covenants that provide that each of the member owners will use its reasonable efforts to, among other things, (i) cause the appointment or nomination of directors as necessary to ensure that the number of directors constituting our full board of directors, as fixed by our board of directors from time to time, are serving on our board of directors, (ii) cause the appointment or nomination of at least three independent directors including one who meets the requirements of an "audit committee financial expert" within the meaning of Item 407 of Regulation S-K under the Exchange Act and (iii) cause us to be in compliance with all corporate governance and all other rules of NASDAQ. In the event that we cease to qualify as a "controlled company" within the meaning of the rules of NASDAQ, then within 12 months following the date that we cease to so qualify, each of the member owners shall use its reasonable efforts to ensure that independent directors selected by the nominating and corporate governance committee of our board of directors shall thereafter constitute at least a majority of our full board of directors.
Following written notice by a member owner of such member owner's intent to transfer Class B common units of Premier LP in accordance with the terms of the LP Agreement or pursuant to the right of first refusal provisions under the exchange agreement within five days of such transfer, the trustee will update the names of the holders of record of voting trust certificates on the books and records of the trustee reflecting the new ownership by the transferee. Upon surrender of such member owner's voting trust certificates for such shares and the delivery of a transfer certificate to the trustee and, if such transferee is not a party to the voting trust agreement, upon execution of a joinder agreement, the trustee will issue new voting trust certificates in the name of the transferee. In the event that Premier LP acquires beneficial ownership of a member owner's Class B common stock under the terms of the exchange agreement or pursuant to the repurchase of Class B common units by
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Premier LP under the terms of the LP Agreement, the voting trust certificates for such shares of Class B common stock shall be surrendered by the member owner, the trustee will transfer legal title of such shares of Class B common stock to us and we will cancel those shares.
The voting trust agreement authorizes the trustee of Premier Trust to file SEC statements of beneficial ownership of securities on Schedule 13G (or Schedule 13D) with respect to the Class B common stock held by the member owners as a "group" as required under Section 13 of the Exchange Act, and will authorize the filings on behalf of individual member owners of SEC statements of beneficial ownership of securities on Schedule 13G (or Schedule 13D) as required under Section 13 and Forms 3, 4 and 5 as required under Section 16(a) of the Exchange Act.
If at any time the member owners, in the aggregate, own less than 20% of our common stock, then the voting trust agreement will immediately terminate. The voting trust agreement with respect to a holder of Class B common stock will terminate on the date which such holder ceases to own any voting trust certificates.
The voting trust agreement contains customary indemnification and advancement of expenses provisions in favor of the trustee. The terms of the voting trust agreement grants us a power of attorney to amend the voting trust agreement upon the designation of any successor trustee in order to ensure that the provisions of the voting trust agreement are consistent with customary terms as reasonably required by the then-serving trustee.
Exchange Agreement
In connection with the Reorganization and this offering, the member owners have entered into an exchange agreement with Premier, Inc. and Premier LP, which will become effective upon the completion of this offering. Under the exchange agreement, commencing on the one-year anniversary of the last day of the calendar month in which we consummate this offering, and during each year thereafter, each member owner will have the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units, as well as any additional Class B common units purchased by such member owner pursuant to the right of first refusal discussed below, for shares of our Class A common stock (on a one-for-one basis subject to customary adjustments for subdivisions or combinations by split, reverse split, distribution, reclassification, recapitalization or otherwise), cash or a combination of both, the form of consideration to be at the discretion of the audit committee (or another committee of independent directors) of our board of directors. This exchange right can be exercised on a quarterly basis (subject to certain restrictions contained in the registration rights agreement described below) and is subject to rights of first refusal in favor of the other holders of Class B common units and Premier LP. The amount that tax-exempt holders of Class B common units are required to pay to exercise their rights of first refusal under the exchange agreement may include a significant premium since such holders will generally not be able to realize the value of certain amortization tax benefits that are accounted for in the right of first refusal price set forth in the exchange agreement. For each Class B common unit that is exchanged pursuant to the exchange agreement, the member owner will also surrender one corresponding share of Class B common stock, which will automatically be retired. Cash payments will be based on the fair market value of our Class A common stock, which will be determined (so long as our Class A common stock is traded on a national securities exchange) by the average of the closing price of our Class A common stock during the 20 trading days ending three days prior to the deadline for member owners to notify us of their intent to exchange Class B common units. The audit committee or other committee making this determination may take into account such factors as it may deem relevant, which may include our cash resources, the number of Class B common units being exchanged and the desirability of using any of such cash to acquire additional units in Premier LP in lieu of issuing additional shares of Class A common stock.
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The time periods for the various notices and actions under the exchange agreement vary depending on whether or not we are conducting a company-directed underwritten public offering. See "Registration Rights Agreement" below for more information. During quarters in which we conduct a company-directed underwritten public offering, time-periods for notices and actions are advanced so that we are in a position to consummate the company-directed underwritten public offering on or about the time of the quarterly exchange.
Prior to an exchange for shares of our Class A common stock (or cash or a combination of both), the other member owners who have not requested such an exchange and Premier LP will have rights of first refusal to purchase the Class B common units that a member owner elects to exchange. Upon receipt of notice that a member owner has elected to exchange Class B common units, the other member owners have the right to purchase a pro rata share of the Class B common units offered for exchange at a price equal to the sum of the fair market value of such units plus the present value, based on certain assumptions set forth in the tax receivable agreement, of the estimated payments under the tax receivable agreement, had such selling member owner sold the relevant Class B common units to us instead. In the event that not all of the other member owners elect to purchase their full pro rata shares of the Class B common units, then the member owners who have elected to purchase their pro rata share will have the right to purchase the remaining unsubscribed Class B common units. In the event the member owners do not elect to purchase all of the Class B common units subject to exchange, Premier LP will then have the right to purchase all or a portion of the remaining Class B common units. The member owners and Premier LP will have the opportunity to purchase Class B common units at the same price under the right of first refusal provisions of the exchange agreement. Class B common units that are not purchased by other member owners or Premier LP under the right of first refusal provisions of the exchange agreement will be exchanged for our Class A common stock, cash or a combination of both (as described above) at the designated quarterly exchange date subject to an exchanging member owner's right to retract its exchange notice prior to such exchange.
As the member owners exchange their Class B common units, unless other member owners purchase the Class B common units pursuant to their right of first refusal, our ownership interest in Premier LP will be correspondingly increased.
Any limited partners admitted to Premier LP after this offering will receive the benefit of the exchange agreement and will not be subject to the seven-year vesting schedule beginning at the time of their admission.
Tax Receivable Agreement
We intend to use a portion of the net proceeds from this offering to purchase Class B common units in Premier LP from the member owners. In addition, pursuant to the terms of the exchange agreement, the member owners and new limited partners admitted to Premier LP following the completion of this offering may subsequently exchange Class B common units in Premier LP for shares of our Class A common stock, cash or a combination of both, the form of consideration to be at the discretion of the audit committee (or another committee of independent directors) of our board of directors. Premier LP intends to have in effect an election under Section 754 of the Code and comparable elections under state and local tax law, such that the initial sale of Class B common units by PHSI and the member owners will result in an adjustment to the tax basis of the assets of Premier LP as to us. These increases in tax basis are expected to increase (for tax purposes) the depreciation and amortization deductions by Premier LP and therefore reduce the amount of income tax that we would otherwise be required to pay in the future.
In connection with the Reorganization and this offering, the member owners have entered into a tax receivable agreement with Premier, Inc. which will become effective upon the completion of the Reorganization and this offering and pursuant to which we agree to pay to the member owners 85% of
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the amount of cash savings, if any, in U.S. federal, foreign, state and local income and franchise tax that we actually realize (or are deemed to realize in the case of certain payments on certain occurrences under such tax receivable agreement, as discussed below) as a result of the increases in tax basis resulting from the sale or exchange of Class B common units by the member owners and of certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Limited partners admitted to Premier LP after this offering will also become entitled to such benefits under the tax receivable agreement pursuant to joinder agreements benefitting such limited partners. We expect to benefit from the remaining 15% of cash savings, if any, in income and franchise tax that we realize as a result of these increases in tax basis and payments under the tax receivable agreement. For purposes of the tax receivable agreement, cash savings in income and franchise tax will be computed by comparing our actual income and franchise tax liability to the amount of such taxes that we would have been required to pay had there been no increase to the tax basis of the tangible and intangible assets of Premier LP as a result of the initial purchase of Class B common units in Premier LP from the member owners or subsequent exchanges of Class B common units with the limited partners and had we not entered into the tax receivable agreement. The term of the tax receivable agreement will commence upon the completion of this offering and will continue until all such tax benefits from the initial purchase and subsequent exchanges of Class B common units have been utilized or expired, unless we or limited partners exercise certain rights under the tax receivable agreement to terminate the agreement, upon which event we might be obligated to make a substantial payment. Estimating the amount of payments that may be made under the tax receivable agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis, if any, as well as the amount and timing of any payments under the tax receivable agreement, may vary depending upon a number of factors, including:
As a result of the contemplated use of proceeds from this offering and assuming that the company is able to timely benefit from the anticipated tax benefits, we estimate (based on an assumed initial public offering price of $ per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus) that the aggregate amount of payments to be made by us under the tax receivable agreement to the member owners will be approximately $ million, generally payable over the next 15 years (under current law). Payments under the tax receivable agreement are made as the company realizes tax benefits attributable to the initial purchase of Class B common units from the member owners in connection with this offering and any subsequent exchanges by limited partners of Class B common units with us for shares of Class A common stock. The foregoing estimate reflects only payments with respect to the initial purchase and not additional amounts that may be payable if subsequent exchanges of Class B common units are made by limited partners. The payments to a limited partner under the tax receivable agreement are conditioned upon the limited partner remaining a limited partner in Premier LP.
In addition, the tax receivable agreement provides that, upon certain mergers, asset sales or other forms of business combinations or other changes of control, we (or our successor) would owe to the
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limited partners a change of control payment, which would be based on certain assumptions, including a deemed exchange of Class B common units and that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax basis and other tax benefits related to entering into the tax receivable agreement. Decisions made in the course of running our businesses, such as with respect to mergers, asset sales or other forms of business combinations or other changes of control, may influence the timing and amount of payments that are received by an exchanging limited partner under the tax receivable agreement.
A limited partner may elect to unilaterally terminate the tax receivable agreement with respect to such partner, which would obligate us to pay to such partner certain payments for tax benefits received through the taxable year of the election. We are entitled to an election to terminate the tax receivable agreement, which, if made, would obligate us to make early termination payments to the limited partners. The change of control payment and termination payments to the limited partners could be substantial and may exceed the actual tax benefits that we receive as a result of acquiring Class B common units from the limited partners because the amounts of such payments would be calculated assuming that we would have been able to use the potential tax benefits each year for the remainder of the amortization periods applicable to the basis increases, and that tax rates applicable to us would be the same as they were in the year of the termination. In addition, at any time 15 or more years after the year of a given sale or exchange of Class B common units by a member owner, we may elect to satisfy our remaining obligations under the tax receivable agreement with respect to such sale or exchange, if any, by making a single, final payment to such member owner in an amount computed in the same manner as the change of control payments described above.
Certain events might occur with respect to a taxable period, such as an audit by a taxing authority, subsequent to the time a payment was made by us under the tax receivable agreement. As a result, in certain circumstances we could make payments under the tax receivable agreement in excess of our cash tax savings, which could materially impair our financial condition. The limited partners are not required to reimburse us for any excess payments that may previously have been made under the tax receivable agreement; rather, excess payments made to the limited partners will be netted against payments otherwise to be made, if any, after our determination of such excess. We and Premier GP have full responsibility for, and sole discretion over, all of our and Premier LP's tax matters, respectively, including the filing and amendment of all tax returns and claims for refunds and the defense of all tax contests, subject to certain participation rights held by the limited partners.
Registration Rights Agreement
In connection with the Reorganization and this offering, the member owners have entered into a registration rights agreement with Premier, Inc. which will become effective upon the completion of this offering.
Pursuant to the terms of the registration rights agreement, as soon as practicable after the one-year anniversary of the completion of this offering, we will use all reasonable efforts to cause a resale shelf registration statement to become effective for resales of Class A common stock that may be issued to the member owners in exchange for their Class B common units. Subject to certain exceptions, we will use reasonable efforts to keep the resale shelf registration statement effective for seven years. In addition, we will undertake to conduct an annual company-directed underwritten public offering to allow the member owners to resell Class A common stock and, at our election, permit us to sell primary shares, following the first quarterly exchange date of each of the first three years during which the member owners have the right to exchange their Class B common units for shares of Class A common stock. After the third year during which member owners have the right to exchange their Class B common units for shares of our Class A common stock, we may elect to conduct a company-directed underwritten public offering in any subsequent year. During the company-directed underwritten public offering periods, which begin 55 business days prior to the applicable quarterly
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exchange date and end on the earlier of the abandonment of such offering or 60 days after the completion of such offering, the member owners will be restricted from selling any shares of Class A common stock outside of the company-directed underwritten public offering. In connection with an underwritten public offering, we will be subject to similar restrictions on the sale of shares of Class A common stock for a period of 60 days beginning with the effectiveness of the registration statement relating to such underwritten public offering.
Pursuant to the terms of the registration rights agreement, we will notify the member owners of our intention to conduct company-directed underwritten public offerings 65 business days prior to the applicable quarterly exchange date. Following receipt of such notice, the member owners will be required to notify us of their intention to participate in the company-directed underwritten public offering at least 20 business days prior to the quarterly exchange date. We will not be required to effect a company-directed underwritten public offering unless the number of shares of Class A common stock requested by the member owners to be registered in the applicable company-directed underwritten public offering constitutes the equivalent of at least 3.5% of the aggregate number of Premier LP units outstanding. If the offering minimum has not been met, we may either proceed with the company-directed underwritten public offering (such decision being in our sole discretion) or notify the member owners that we will abandon the offering.
In the event we are required or elect to conduct a company-directed underwritten public offering, we, together with underwriters, will determine the appropriate size and marketing of such offering, which must be completed within 20 business days of the applicable quarterly exchange date, subject to market conditions. Priority to participate in such offering will be given to the member owners that elected to participate, with the priority of the other participants to follow at our discretion. Member owners representing 50% or more of our Class A common stock to be sold in the company-directed underwritten public offering may elect to delay such offering until the following quarterly exchange date, but under no circumstances will we be required to conduct more than one company-directed underwritten public offering in a calendar year. We, the member owners and third parties will continue to be restricted from selling shares of Class A common stock for a period of 60 days following the completion of any company-directed underwritten public offering (unless such company-directed underwritten public offering is abandoned), after which time the resale shelf registration statement will again become usable by the member owners. In addition, it is expected that our directors, officers and large stockholders identified by the underwriters will similarly be restricted from selling shares of Class A common stock during such time.
The registration rights agreement also grants the member owners certain "piggyback" registration rights with respect to other registrations of Class A common stock. Other than the rights described above, the member owners will not be entitled to any demand registration rights.
Under the registration rights agreement, we will have a right to delay a registered offering if we have pending or in process a material transaction or a material development which we have a bona fide business purpose in keeping confidential and the filing of a registration statement or continued sales under a shelf registration statement would require disclosure (or premature disclosure) of such material transaction or material development. In the case of a company-directed underwritten public offering, we can postpone the company-directed underwritten public offering until the next quarter and, in the case of a shelf registration statement, sales under such shelf registration statement shall be suspended for up to 90 days. We may only exercise its right to delay a registered offering once in any period of 365 consecutive days.
We will pay all registration expenses other than brokerage commissions or transfer taxes or, if applicable, underwriting commissions and discounts. The registration rights agreement includes customary indemnification provisions, including indemnification of the member owners and their directors, officers and employees by us for any and all losses, claims, damages or liabilities, actions or
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proceedings in respect thereof and expenses to which the member owners may become subject under the Securities Act, state law or otherwise.
New limited partners will become a party to, and receive the benefit of, the registration rights agreement.
Contribution Agreement
Premier LP has entered into a Contribution Agreement with the member owners, which will become effective upon the completion of the Reorganization and this offering, pursuant to which the member owners will contribute all of their shares of PHSI common stock to Premier LP immediately prior to the completion of this offering in exchange for Class B common units in a tax-free transaction. The number of Class B common units to be issued to each member owner in consideration of such contribution, when added to the Class B common units issued to such member owner based upon such member owner's Premier LP capital account balance prior to giving effect to such contribution as described under "StructureRecapitalization," shall be equal to the total number of Class B common units outstanding immediately following the Reorganization multiplied by such member owner's Percentage Interest in the Class B common units as calculated by Premier LP. For purposes of the Contribution Agreement, the term "Percentage Interest" means (a) the independently appraised fair market value of PHSI prior to giving effect to the Reorganization multiplied by such member owner's percentage interest in the total issued and outstanding common stock of PHSI immediately prior to the completion of this offering (but prior to the Reorganization) plus (b) the independently appraised fair market value of Premier LP prior to giving effect to the Reorganization multiplied by such member owner's percentage interest in the aggregate capital accounts of all limited partners of Premier LP immediately prior to the completion of this offering (but prior to the Reorganization), divided by (c) the sum of the independently appraised fair market value of PHSI and the independently appraised fair market value of Premier LP, in each case prior to giving effect to the Reorganization.
Stock Purchase Agreement
The stock purchase agreement provides for the purchase by member owners of our Class B common stock, par value $0.000001 per share, for a purchase price equal to its par value per share. Under the terms of the stock purchase agreement, each member owner authorizes Premier LP, on behalf of such member owner, to deliver to us the purchase price for the Class B common stock being purchased and to deduct such funds from the next cash distribution otherwise due from Premier LP to such member owner. The stock purchase agreement requires each member owner to deliver an executed counterpart of or joinder to the voting trust agreement and directs us to deliver to the trustee pursuant to the terms of the voting trust agreement certificates representing the Class B common stock in the names of each member owner. The stock purchase agreement includes a limited number of representations and warranties.
Unit Put/Call Agreement
In connection with the Reorganization and this offering, Premier LP, each of the member owners and PHSI have entered into a unit put/call agreement with Premier, Inc. which will become effective upon the completion of the Reorganization and this offering. The unit put/call agreement grants Premier LP, the member owners and PHSI the option, or put option, to require Premier, Inc. to purchase newly issued Class A common units issued by Premier LP and Class B common units held by the member owners and PHSI for a purchase price per unit equal to the price paid per share for our Class A common stock by the underwriters to us in this offering. If Premier LP, the member owners and PHSI do not exercise the put option, Premier, Inc. has the right, or call option, to call the newly issued Class A common units of Premier LP and Class B common units of the member owners and PHSI, as applicable, on the same terms as under the put option. Premier, Inc. will have until March 31,
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2014 in order to exercise the call option. Premier, Inc. will contribute all such acquired Class A common units and Class B common units immediately to Premier GP upon receipt. The unit put/call agreement includes a limited number of representations and warranties. In connection with the unit put/call agreement, Premier, Inc., Premier LP, each of the member owners and PHSI have entered into an assignment agreement, which will become effective upon completion of the Reorganization and this offering, to transfer the Class B common units, which includes a provision that Premier LP will update the LP Agreement to reflect the sale and transfer of the Class B common units as contemplated in the unit put/call agreement.
We expect that the purchase of newly issued Class A common units from Premier LP and Class B common units from the member owners and PHSI will be consummated promptly following this offering. If the underwriters' over-allotment option is exercised in full, Premier, Inc. will acquire additional Class A common units from Premier LP pursuant to the unit put/call agreement on the same terms as the initial purchase of units.
Other Related Party Transactions
GNYHA
In connection with the Reorganization and this offering, Premier LP entered into a GPO participation agreement with GNYHA Services, Inc., or GNYHA, that will become effective upon the completion of the Reorganization and this offering. GNYHA is a related entity of GNYHA Purchasing Alliance, LLC, a member owner that owned approximately 14% of the outstanding partnership interests in Premier LP as of June 30, 2013 and is expected to own Class B common stock representing approximately % of our outstanding common stock (or % if the underwriters exercise their overallotment option in full) following the completion of the Reorganization and this offering. Pursuant to the terms of the GPO participation agreement, GNYHA will receive revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier LP based upon purchasing by GNYHA's member facilities through our GPO supplier contracts. In addition, GNYHA will remit all gross administrative fees collected by GNYHA based upon purchasing by GNYHA's member facilities through GNYHA's own GPO supplier contracts and receive revenue share from Premier LP equal to 30% of the gross administrative fees that are remitted to us.
The GPO participation agreement will be for an initial seven-year term, followed by successive renewal periods of seven years. The GPO participation agreement will be terminable by GNYHA for convenience upon one year's prior written notice, at any time after the second anniversary of the beginning of the applicable term. Under certain circumstances, the GPO participation agreement also will be terminable by either party for cause, including due to a material breach of the terms of the GPO participation agreement. Upon the expiration or termination of the GPO participation agreement, for a period of 18 months GNYHA will continue to receive revenue share from Premier LP equal to 30% of all gross administrative fees collected by Premier, or remitted by GNYHA, based upon purchasing by GNYHA member facilities through Premier LP's and GNYHA's respective GPO programs during the term of the GPO participation agreement; provided, that in the event of a termination by Premier LP for cause, Premier LP will retain any collected but unpaid administrative fees otherwise due to GNYHA as of the date on which a breach notice is given, but no other damages will be assessed.
Premier LP and its wholly owned subsidiary, Provider Select, LLC, are parties to a group purchasing agreement with GNYHA dated July 1, 2012, or the GNYHA Agreement, which will be replaced as of the completion of this offering with the GPO participation agreement described above. Under the terms of the GNYHA Agreement, GNYHA remits to Premier all gross administrative fees collected by GNYHA as a result of purchasing by its member facilities through the group purchasing agreements separately negotiated by GNYHA for its member facilities and GNYHA receives revenue
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share from Premier LP calculated as a percentage of all gross administrative fees collected by Premier LP, or remitted by GNYHA, based upon purchasing by GNYHA member facilities through Premier LP's and GNYHA's respective GPO programs. Revenue share paid by Premier LP to GNYHA for fiscal year 2013 under the GNYHA Agreement was approximately $36.9 million. The GNYHA Agreement expires on the later of December 31, 2018 or the seventh anniversary of the closing of this offering. Subsequent to GNYHA's conversion from a non-owner member to a member owner effective January 1, 2013, Premier LP has paid limited partnership distributions of $22.8 million to GNYHA. In the event that GNYHA Purchasing Alliance, LLC ceases to be a member owner for any reason prior to the expiration of the GNYHA Agreement's term, then the provisions of the GNYHA Agreement will once again govern the parties' business relationship.
Essensa
Premier LP and its wholly owned subsidiary, Provider Select, LLC, are parties to a group purchasing agreement with GNYHA Alternate Care Purchasing Corporation, d/b/a Essensa, or the Essensa Agreement. Essensa is a wholly owned subsidiary of GNYHA. Under the terms of the Essensa Agreement, Essensa remits to Premier all gross administrative fees collected by Essensa as a result of purchasing by its member facilities through the group purchasing agreements separately negotiated by Essensa for its member facilities and Essensa receives revenue share from Premier LP calculated as a percentage of all gross administrative fees collected by Premier LP, or remitted by Essensa, based upon purchasing by Essensa member facilities through Premier LP's and Essensa's respective GPO programs. Revenue share paid by Premier LP to Essensa for fiscal year 2013 under the Essensa Agreement was approximately $6.4 million. The Essensa Agreement expires on the later of December 31, 2018 or the seventh anniversary of the closing of this offering.
Innovatix
Premier LP, through PSCI, holds 50% of the membership units in Innovatix, and GNYHA holds the remaining 50% of the membership units in Innovatix. Premier LP maintains a group purchasing arrangement with Innovatix under which Innovatix members are permitted to utilize Premier LP's GPO supplier contracts. Revenue share paid by Premier LP to Innovatix under this arrangement was $31.9 million, $28.9 million and $25.5 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
Policies and Procedures for Related Party Transactions
After the completion of this offering, transactions between us and our directors, executive officers and significant stockholders will be approved by our audit committee, which is composed of independent members of our board of directors, or another committee comprised entirely of independent members of our board. Our audit committee charter authorizes the audit committee to hire financial advisors and other professionals to assist the committee in evaluating and approving any transaction between us and any related party, including our member owners.
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The following tables set forth information regarding the beneficial ownership of shares of our Class A common stock and of Class B common units by (1) each person known to us to beneficially own more than 5% of any class of the outstanding voting securities of Premier, (2) each of our directors and named executive officers and (3) all of our directors and executive officers as a group.
The number of shares of our Class A common stock and of Class B common units outstanding and percentage of beneficial ownership before this offering set forth below is based on the number of shares of our Class A common stock and of Class B common units to be issued and outstanding immediately prior to the completion of this offering, after giving effect to the Reorganization. The number of shares of our Class A common stock and of Class B common units and percentage of beneficial ownership after the Reorganization and this offering set forth below is based on shares of our Class A common stock and of Class B common units to be issued and outstanding immediately after the Reorganization and this offering. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of Class A common stock and Class B common units reflected as beneficially owned. Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated in a footnote, the business address of each person listed below is the address of our principal executive office, Premier, Inc., 13034 Ballantyne Corporate Place, Charlotte, NC 28277.
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Class A Common Stock Beneficially Owned(1) | Combined Voting Power(2) | ||||||||||||||||||||||||||
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Prior to the Offering |
After the Reorganization and Offering Assuming Underwriters' Option is Not Exercised |
After the Reorganization and Offering Assuming Underwriters' Option is Exercised in Full |
Prior to the Offering |
After the Reorganization and Offering Assuming Underwriters' Option is Not Exercised |
After the Reorganization and Offering Assuming Underwriters' Option is Exercised in Full |
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Name of Beneficial Owner
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Number | % | Number | % | Number | % | % | % | % | |||||||||||||||||||
Michael J. Alkire |
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Christine K. Cassel, MD |
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R. Wesley Champion |
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Susan D. DeVore |
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Keith J. Figlioli |
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Durral R. Gilbert |
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Charles E. Hart, MD |
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Robert Issai |
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Jeffrey W. Lemkin |
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William E. Mayer |
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Craig S. McKasson |
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Keith B. Pitts |
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Kelli L. Price |
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Tomi S. Ryba |
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Terry Shaw |
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Richard J. Statuto |
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Glenn D. Steele, Jr., MD, PhD |
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Susan S. Wang |
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Alan R. Yordy |
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Directors and Officers as a group (19 persons) |
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Class B Common Units Beneficially Owned(1) | Combined Voting Power(2)(3)(4) | ||||||||||||||||||||||||||
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Prior to the Offering |
After the Reorganization and Offering Assuming Underwriters' Option is Not exercised |
After the Reorganization and Offering Assuming Underwriters' Option is Exercised in Full |
Prior to the Offering |
After the Reorganization and Offering Assuming Underwriters' Option is Not Exercised |
After the Reorganization and Offering Assuming Underwriters' Option is Exercised in Full |
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Name of Beneficial Owner
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Number | % | Number | % | Number | % | % | % | % | |||||||||||||||||||
5% or More of our Class B Common Units |
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Premier Trust(3) |
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GNYHA Purchasing Alliance, LLC(5) |
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Directors and Executive Officers |
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Michael J. Alkire |
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Christine K. Cassel, MD(6) |
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R. Wesley Champion |
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Susan D. DeVore |
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Keith J. Figlioli |
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Durral R. Gilbert |
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Charles E. Hart, MD(6) |
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Robert Issai(6) |
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Jeffrey W. Lemkin |
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William E. Mayer(6) |
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Craig S. McKasson |
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Keith B. Pitts(6) |
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Kelli L. Price |
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Tomi S. Ryba(6) |
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Terry Shaw(6) |
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Richard J. Statuto(6) |
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Glenn D. Steele, Jr., MD, PhD(6) |
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Susan S. Wang(6) |
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Alan R. Yordy(6) |
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Directors and Officers as a group (19 persons) |
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Immediately following the effective date of the LP Agreement, all of Premier LP's limited partners that approved the Reorganization will receive Class B common units and capital account balances in Premier LP equal to their percentage interests and capital account balances in Premier LP immediately preceding the Reorganization. Additionally, immediately following the effective date of the LP Agreement, all of the stockholders (consisting of member owners) of PHSI that approved the Reorganization will contribute their PHSI common stock to Premier LP in exchange for additional Class B common units based on such stockholder's percentage interest in the fair market valuation of PHSI and Premier LP prior to the Reorganization. As a result of the foregoing contributions, PHSI will become a wholly owned subsidiary of Premier LP. See "StructureRecapitalization."
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The following description of our capital stock as it will be in effect upon the completion of the Reorganization and this offering is a summary and is qualified in its entirety by (i) reference to our certificate of incorporation and bylaws, the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part, and (ii) applicable law.
Upon the completion of this offering, our authorized capital stock will consist of 50,000,000 shares of preferred stock, par value $0.01 per share, 500,000,000 shares of Class A common stock, par value $0.01 per share and 600,000,000 shares of Class B common stock, par value $0.000001 per share. Unless our board of directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.
Common Stock
Class A Common Stock
Holders of our Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders.
Holders of our Class A common stock are entitled to receive dividends, when 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 or any class or series of stock having a preference over or the right to participate with the Class A common stock with respect to the payment of dividends or other distributions.
Upon our dissolution or liquidation, 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 will be entitled to receive pro rata, based on the number of shares of Class A common stock held, our remaining assets available for distribution.
The holders of our Class A common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to our Class A common stock.
Class B Common Stock
Holders of our Class B common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders.
Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of Class A common stock and Class B common stock present in person or represented by proxy, voting together as a single class. Except as otherwise provided by law, amendments to the certificate of incorporation or bylaws must be approved by 662/3% of the combined voting power of all shares of Class A common stock and Class B common stock, voting together as a single class.
Other than dividends payable in shares of our common stock, holders of shares of our Class B common stock are not entitled to receive dividends or to receive a distribution upon our dissolution or a liquidation.
The holders of our Class B common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to our Class B common stock.
Our Class B common stock will not be listed on any exchange and, except in connection with any permitted sale or transfer of Class B common units of Premier LP, cannot be sold or transferred.
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Preferred Stock
Our certificate of incorporation authorizes our board of directors to establish one or more series of preferred stock and to determine or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of any such series thereof, including the liquidation preferences, dividend rights and voting rights. Unless required by law or by any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by our stockholders. Upon the completion of this offering, there will be no shares of preferred stock outstanding. We have no present plans to issue any shares of preferred stock.
Anti-Takeover Effects of Delaware Law
Upon the completion of this offering, we will be subject to Section 203 of the DGCL, or Section 203. In general, Section 203 prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless:
In general, Section 203 defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation or any entity or person affiliated or associated with the corporation and beneficially owned 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such entity or person is an interest stockholder. Section 203 defines "business combination" to include: (i) any merger or consolidation involving the corporation or a majority-owned subsidiary of the corporation and the interested stockholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more of the assets of the corporation or a majority-owned subsidiary of the corporation involving the interested stockholder, (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation or a majority-owned subsidiary of the corporation of any stock of the corporation or such subsidiary to the interested stockholder, (iv) any transaction involving the corporation or a majority-owned subsidiary of the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation or such subsidiary beneficially owned by the interested stockholder, or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a majority-owned subsidiary of the corporation.
A Delaware corporation may opt out of Section 203 either by an express provision in its original certificate of incorporation or in an amendment to its certificate of incorporation or bylaws approved
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by its stockholders. We have not opted out, and do not currently intend to opt out, of this provision. The provisions of Section 203 may encourage companies interested in acquiring our company to negotiate in advance of such acquisition with our board of directors because the stockholder approval requirement referenced above would be avoided if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions could prohibit or delay mergers or other takeover or change of control attempts and may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Anti-takeover Effects of Our Organizational Documents
Certain provisions of our certificate of incorporation and our bylaws may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a stockholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for our shares of Class A common stock. These provisions are designed to discourage certain types of transactions that may involve an actual or threatened change of control of us without prior approval of our board of directors. These provisions are meant to encourage persons interested in acquiring control of us to first consult with our board of directors to negotiate terms of a potential business combination or offer. We believe that these provisions protect us against an unsolicited proposal for a takeover of us that might affect the long-term value of our Class A common stock or that may not be otherwise in the best interests of our stockholders. For example, our certificate of incorporation and our bylaws:
Transfer Agent and Registrar
The transfer agent and registrar for shares of our Class A common stock will be Wells Fargo Shareholder Services.
Listing
We applied to have our Class A common stock approved for listing on NASDAQ, under the symbol "PINC."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our Class A common stock. No prediction can be 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 perception that such sales could occur, could harm the prevailing market price of our Class A common stock.
Upon the completion of this offering, we will have outstanding shares of Class A common stock (or a maximum of Class A common stock if the underwriters exercise their overallotment option in full). 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 Class A common stock held by our "affiliates," as defined in Rule 144, which would be subject to the limitations and restrictions described below.
In addition, in connection with the Reorganization and this offering, Premier, Inc., Premier LP and the member owners have entered into an exchange agreement which will become effective upon the completion of the Reorganization and this offering and under which, subject to certain restrictions, commencing on the one-year anniversary of the last day of the calendar month in which we consummate this offering, and during each year thereafter, each member owner will have the cumulative right to exchange up to one-seventh of its initial allocation of Class B common units, as well as any additional Class B common units purchased by such member owner pursuant to certain rights of first refusal (discussed below), for shares of our Class A common stock (on a one-for-one basis subject to customary adjustments for subdivisions or combinations by split, reverse split, distribution, reclassification, recapitalization or otherwise), cash or a combination of both, the form of consideration to be at the discretion of our audit committee (or another committee of independent directors) of our board of directors. This exchange right can be exercised on a quarterly basis (subject to certain restrictions contained in the registration rights agreement described below) and is subject to rights of first refusal in favor of the other holders of Class B common units and Premier LP. For each Class B common unit that is exchanged pursuant to the exchange agreement, the member owner will also surrender one corresponding share of our Class B common stock, which will automatically be retired. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingExchange Agreement."
As a result of the Reorganization, immediately following this offering and the application of net proceeds from this offering, the member owners will beneficially own Class B common units in Premier LP, all of which will be potentially exchangeable for shares of our Class A common stock pursuant to the terms of the exchange agreement. These shares of Class A common stock would be "restricted securities," as defined in Rule 144. However, in connection with the Reorganization and this offering and effective upon the completion of this offering, we have entered into a registration rights agreement, as described below, with the member owners that would require us, under certain circumstances and subject to certain restrictions, to register under the Securities Act these shares of Class A common stock.
Registration Rights Agreement
In connection with the Reorganization and this offering, Premier, Inc. and the member owners have entered into a registration rights agreement, which will become effective upon the completion of the Reorganization and this offering, pursuant to which, as soon as practicable from the date that is 12 full calendar months after the completion of this offering, we must use all reasonable efforts to cause a resale shelf registration statement to become effective for resales from time to time of our Class A common stock that may be issued to the member owners in exchange for their Class B common units pursuant to the exchange agreement, subject to various restrictions. Subject to certain exceptions, we will use reasonable efforts to keep the resale shelf registration statement effective for seven years. In
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addition, we will undertake to conduct an annual company-directed underwritten public offering to allow the member owners to resell Class A common stock and, at our election, to permit us to sell primary shares, following the first quarterly exchange date of each of the first three years during which the member owners have the right to exchange their Class B common units for shares of our Class A common stock. We will not be required to conduct a company-directed underwritten public offering unless the number of shares of Class A common stock requested by the member owners (and any third parties) to be registered in the applicable company-directed underwritten public offering constitutes the equivalent of at least 3.5% of the aggregate number of Premier LP units outstanding. If the offering minimum has not been met, we will either proceed with the company-directed underwritten public offering (such decision being in our sole discretion) or notify the member owners that we will abandon the offering. After the third year during which member owners have the right to exchange their Class B common units for our shares of Class A common stock, we may elect to conduct a company-directed underwritten public offering in any subsequent year. We, as well as the member owners, and third parties, will be subject to customary prohibitions on sale prior to and for 60 days following any company-directed underwritten public offering. The registration rights agreement also grants the member owners certain "piggyback" registration rights with respect to other registrations of our Class A common stock. See "Certain Relationships and Related Party TransactionsTransactions with Member Owners in Connection with this OfferingRegistration Rights Agreement."
Directed Share Program
The underwriters have reserved for sale at the initial public offering price up to shares of our Class A common stock for our employees and our member owners who have expressed an interest in purchasing Class A common stock in this offering. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase the directed shares. Any directed shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.
Lock-Up Agreements
Pursuant to lock-up agreements described under "Underwriting" entered into in connection with this offering, our executive officers and directors have entered into lock-up agreements with the underwriters. See "Underwriting."
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within
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any three month period, a number of shares of Class A common stock that does not exceed the greater of:
Sales pursuant to Rule 144 are also subject to provisions relating to notice, manner of sale and the availability of current public information about us.
Rule 701
In general, under Rule 701 of the Securities Act, or Rule 701, as currently in effect, any of our directors, officers, employees, consultants or advisors who purchase shares of Class A common stock from us in connection with a compensatory stock or option plan or other written agreement in a transaction before the effective date of this offering, or who purchased shares of Class A common stock from us after that date upon the exercise of options granted before that date, in reliance on Rule 701 and complied with the requirements of Rule 701 will, subject to the lock-up restrictions described above, be eligible to resell such shares 90 days after the date of this prospectus in reliance on Rule 144. If such person is not an affiliate, such sale may be made subject only to the manner of sale provisions of Rule 144. If such person is an affiliate, such sale may be made under Rule 144 without compliance with its six-month minimum holding period, but subject to the other Rule 144 restrictions described above.
Registration of Shares Issuable Under the Equity Incentive Plan
Following this offering we intend to file one or more registration statements under the Securities Act to register up to shares of our Class A common stock reserved for issuance under the Equity Incentive Plan. Each such registration statement will become effective upon filing and shares covered by that registration statement will be eligible for sale in the public market immediately after the effective date of that registration statement, subject to any limitations on sale or exercise under that plan and the lock-up agreements described above.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income tax considerations generally applicable to beneficial owners of our Class A common stock, or Holders, that acquire shares of our Class A common stock pursuant to this offering and that hold such shares as capital assets (generally, for investment). This summary is based on current provisions of the Code, existing and proposed U.S. Treasury regulations, judicial opinions and published positions of the IRS and other applicable authorities, all of which are subject to change, possibly with retroactive effect. This summary does not consider the U.S. federal estate or gift tax consequences of an investment in our Class A common stock, except to the limited extent discussed below for Non-U.S. Holders (as defined below), or the state, local or non-U.S. tax consequences of an investment in our Class A common stock. This summary does not address all of the U.S. federal income tax considerations that might be relevant to a Holder in light of its particular circumstances, or that might be relevant to Holders subject to special treatment under U.S. federal income tax laws, including, among others, partnerships or other pass-through entities, banks, insurance companies, dealers in securities, persons who hold our Class A common stock as part of a "straddle," "hedge," "conversion transaction" or other risk-reduction or integrated transaction, controlled foreign corporations, passive foreign investment companies, foreign personal holding companies, companies that accumulate earnings to avoid U.S. federal income tax, U.S. Holders (as defined below) who do not have the U.S. dollar as their functional currency, tax-exempt organizations, former U.S. citizens or residents and persons who hold or receive our Class A common stock as compensation.
For purposes of this summary, the term "U.S. Holder" means a Holder of shares of our Class A common stock that, for U.S. federal income tax purposes, is:
The term "Non-U.S. Holder" means any Holder of shares of our Class A common stock that is neither a U.S. Holder nor a partnership (including an entity that is treated as a partnership for U.S. federal income tax purposes).
This discussion does not address the tax consequences to partnerships or other pass-through entities or persons investing through such partnerships or entities. If a partnership holds shares of our Class A common stock, the U.S. federal income tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Such a partner is encouraged to consult its own tax advisors as to the U.S. federal income tax consequences of being a partner in a partnership that acquires, holds or disposes of our Class A common stock.
PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF OUR CLASS A COMMON STOCK ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
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U.S. Holders
The following discussion summarizes the material U.S. federal income tax consequences of the ownership and disposition of our Class A common stock applicable to U.S. Holders, subject to the limitations described above.
Distributions and Dividends
Generally, distributions paid to a U.S. Holder with respect to our Class A common stock will constitute dividends for U.S. federal income tax purposes 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, the excess will be treated as a tax-free return of the U.S. Holder's investment, up to such U.S. Holder's adjusted tax basis in our Class A common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under "Sale, Exchange or Other Taxable Disposition of Our Class A Common Stock."
Dividends paid by us to corporate U.S. Holders will be eligible for the dividends-received deduction, provided that the corporate U.S. Holder receiving the dividend satisfies the holding period and other requirements for the dividends-received deduction. Dividends paid by us to certain non-corporate U.S. Holders (including individuals) with respect to taxable years beginning after December 31, 2012 generally will be eligible for U.S. federal income taxation at the rates generally applicable to long-term capital gains for individuals (currently at a maximum tax rate of 20%), provided that the non-corporate U.S. Holder receiving the dividend satisfies the applicable holding period and other requirements, and may also be subject to the Medicare tax described below under "Medicare Tax."
Sale, Exchange or Other Taxable Disposition of Our Class A Common Stock
Upon a sale, exchange or other taxable disposition of shares of our Class A common stock, a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized on the sale, exchange or other taxable disposition and the U.S. Holder's adjusted tax basis in the shares of our Class A common stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder has held the shares of our Class A common stock for more than one year at the time of disposition. Long-term capital gains of certain non-corporate U.S. Holders (including individuals) recognized in taxable years beginning after December 31, 2012 are subject to U.S. federal income taxation at a maximum rate of 20% and possibly the Medicare tax described below under "Medicare Tax." The deductibility of capital losses is subject to limitations under the Code.
Medicare Tax
Section 1411 of the Code generally imposes a 3.8% tax on the net investment income of certain individuals with modified adjusted gross income exceeding certain thresholds and on certain income of certain estates and trusts. For these purposes, "net investment income" will generally include interest, dividends (including dividends paid with respect to our Class A common stock), annuities, royalties, rents, net gain attributable to the disposition of property not held in a trade or business (including net gain from the sale, exchange or other taxable disposition of shares of our Class A common stock) and certain other income, but will be reduced by any deductions properly allocable to such income or net gain.
Information Reporting and Backup Withholding
In general, dividends on our Class A common stock and payments to a U.S. Holder of the proceeds of a sale, exchange or other disposition of our Class A common stock are subject to
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information reporting and may be subject to backup withholding at a rate of 28% unless the U.S. Holder (i) is a corporation or other exempt recipient or (ii) provides an accurate taxpayer identification number and certifies that it is not subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder will be refunded or credited against the U.S. Holder's U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
Non-U.S. Holders
The following discussion summarizes the material U.S. federal income tax consequences of the ownership and disposition of our Class A common stock applicable to Non-U.S. Holders, subject to the limitations described above.
Distributions and Dividends
Generally, distributions paid to a Non-U.S. Holder with respect to our Class A common stock will constitute dividends for U.S. federal income tax purposes 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, the excess will be treated as a tax-free return of the Non-U.S. Holder's investment, up to such Non-U.S. Holder's adjusted tax basis in our Class A common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under "Sale, Exchange or Other Taxable Disposition of Our Class A Common Stock."
Any dividend paid to a Non-U.S. Holder with respect to our Class A common stock generally will be subject to withholding tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Generally, a Non-U.S. Holder must certify as to its eligibility for reduced withholding under an applicable income tax treaty on a properly completed IRS Form W-8BEN in order to obtain the benefits of such treaty. Non-U.S. Holders that do not timely provide us with the required certification, but which qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders are encouraged to consult their tax advisors regarding possible entitlement to benefits under a tax treaty.
If, however, the Non-U.S. Holder provides an IRS Form W-8ECI, certifying that the dividend is effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States, and otherwise complies with applicable certification requirements, the dividend will not be subject to such withholding. Instead, such dividend will be subject to U.S. federal income tax in the manner described below under "Effectively Connected Income."
Sale, Exchange or Other Taxable Disposition of Our Class A Common Stock
Except as otherwise discussed below, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale, exchange or other taxable disposition of our Class A common stock unless (i) such gain is effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or business (or, if an income tax treaty applies, the gain is attributable to a U.S. permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States), (ii) the Non-U.S. Holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which such sale, exchange or other taxable disposition occurs and certain other conditions are met, or (iii) we are or become a "United States real property holding corporation," or USRPHC, for U.S. federal income tax purposes. We do not believe that we are or will become a USRPHC.
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Gain described in clause (i) of the paragraph above will be subject to U.S. federal income tax in the manner described below under "Effectively Connected Income." A Non-U.S. Holder described in clause (ii) of the paragraph above will be subject to U.S. federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) on the net gain derived from the sale, exchange or other taxable disposition, which may be offset by U.S.-source capital losses of the Non-U.S. Holder.
Effectively Connected Income
Any dividend with respect to, or gain realized upon the sale or other disposition of, our Class A common stock that is effectively connected with a trade or business carried on by a Non-U.S. Holder within the United States (or, if an income tax treaty applies, that is attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States) will be subject to U.S. federal income tax, based on the Non-U.S. Holder's net income, in the same manner as if the Non-U.S. Holder were a U.S. person for U.S. federal income tax purposes. If a dividend or gain is effectively connected with a U.S. trade or business of a Non-U.S. Holder that is a corporation, such corporate Non-U.S. Holder may be subject to an additional "branch profits tax" at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty), subject to certain adjustments. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Annual reporting to the IRS and to each Non-U.S. Holder will be required as to the amount of dividends paid to such Non-U.S. Holder and the amount, if any, of tax withheld with respect to such dividends, unless the Non-U.S. Holder is an exempt recipient or otherwise establishes an exemption from such requirements. This information may also be made available to the tax authorities in the Non-U.S. Holder's country of residence. Dividends generally are not subject to "backup withholding" if the Non-U.S. Holder properly certifies as to its non-U.S. status (usually by completing an IRS Form W-8BEN, including any claim to reduced withholding under an applicable income tax treaty).
The payment of the proceeds of the sale, exchange or other disposition of our Class A common stock to or through the U.S. office of a broker is subject to both backup withholding and information reporting unless the Non-U.S. Holder, or beneficial owner thereof, as applicable, certifies its non-U.S. status on IRS Form W-8BEN, or otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also generally apply to payments of the proceeds of a sale, exchange or other disposition of our Class A common stock by foreign offices of U.S. brokers or foreign brokers with certain types of relationships to the United States unless the Non-U.S. Holder establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from payments made to a Non-U.S. Holder may be refunded or credited against such Non-U.S. Holder's U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
Estate Tax
A non-resident alien individual should note that shares of our Class A common stock held by (i) such individual or (ii) an entity created by such individual and included in such individual's gross estate for U.S. federal estate tax purposes (for example, a trust funded by such individual and with respect to which the individual has retained certain interests or powers), will be, absent an applicable treaty, treated as U.S. situs property subject to U.S. federal estate tax. Accordingly, Non-U.S. Holders who are non-resident alien individuals may be subject to U.S. federal estate tax on all or a portion of
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the value of our Class A common stock owned at the time of their death. Prospective individual Holders who are non-U.S. persons are encouraged to consult their tax advisors concerning the potential U.S. federal estate tax consequences with respect to our Class A common stock.
Recently Enacted Legislation
Section 1471 of the Code generally imposes a 30% withholding tax on dividends paid with respect to our Class A common stock and the gross proceeds from a disposition of shares of our Class A common stock, in each case paid to (i) a foreign financial institution (as defined in Section 1471(d)(4) of the Code) unless the foreign financial institution enters into an agreement with the U.S. Treasury Department to collect and disclose information regarding its U.S. account holders (including certain account holders that are foreign entities that have U.S. owners) and satisfies certain other requirements, and (ii) certain other non-financial foreign entities unless the entity provides the payor with certain information regarding certain direct and indirect U.S. owners of the entity, or certifies that it has no such U.S. owners, and complies with certain other requirements (although, under regulations described below, the non-financial foreign entity may be exempt from such withholding even if it does not provide such certification or comply with such other requirements). An intergovernmental agreement between the United States and an applicable non-U.S. country may modify such requirements. Under current Treasury regulations (as modified by recent guidance released by the IRS on July 12, 2013), such withholding tax will only apply to dividends paid with respect to our Class A common stock after June 30, 2014, and to proceeds from the sale, exchange or other taxable disposition of such stock occurring after December 31, 2016. Under certain circumstances, a Non-U.S. Holder of shares of our Class A common stock might be eligible for refunds or credits of the tax. You are encouraged to consult with your own tax advisor regarding the possible implications of this recently enacted legislation on your investment in shares of our Class A common stock.
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We are offering the shares of Class A common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC are acting as joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of Class A common stock listed next to its name in the following table:
Name
|
Number of Shares |
|||
---|---|---|---|---|
J.P. Morgan Securities LLC |
||||
Merrill Lynch, Pierce, Fenner & Smith |
||||
Wells Fargo Securities, LLC |
||||
Citigroup Global Markets Inc. |
||||
Piper Jaffray & Co. |
||||
Raymond James & Associates, Inc. |
||||
William Blair & Company, L.L.C. |
||||
Total |
||||
The underwriters are committed to purchase all the shares of Class A common stock offered by us if they purchase any such shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the shares of Class A common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell such shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering of the shares of Class A common stock, the offering price and other selling terms may be changed by the underwriters. Sales of shares of Class A common stock made outside of the United States may be made by affiliates of the underwriters.
The underwriters have an option to buy up to additional shares of Class A common stock from us to cover sales of such shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares of Class A common stock are purchased with this over-allotment option, the underwriters will purchase such shares in approximately the same proportion as shown in the table above. If any additional shares of Class A common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per share of Class A common stock less the amount paid by the underwriters to us per share of Class A common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and
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commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of Class A common stock.
|
Without Over-Allotment Exercise |
With Full Over-Allotment Exercise |
|||||
---|---|---|---|---|---|---|---|
Per Share |
$ | $ | |||||
Total |
$ | $ | |||||
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ .
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares of Class A common stock to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives of the underwriters to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that we will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our Class A common stock or securities convertible into or exercisable or exchangeable for any shares of our Class A common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of Class A common stock or any such other securities (regardless of whether any such transactions described in clause (i) or (ii) above is to be settled by the delivery of shares of Class A common stock or such other securities, in cash or otherwise), in each case without the prior written consent of the representatives of the underwriters for a period of 180 days after the date of this prospectus, subject to certain limited exceptions.
Our directors and executive officers have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of the representatives of the underwriters (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our Class A common stock or any securities convertible into or exercisable or exchangeable for our Class A common stock (including, without limitation, Class A common stock, Class B common units of Premier LP or such other securities which may be deemed to be beneficially owned by such directors and executive officers in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge or disposition, (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Class A common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Class A common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our Class A common stock or any security convertible into or exercisable or exchangeable for our Class A common stock. In addition, our member owners are prohibited from selling or otherwise transferring or disposing of their Class B common units pursuant to the transfer restrictions and the seven-year vesting period set forth in the LP Agreement and exchange agreement.
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We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
We applied to have our Class A common stock approved for listing on NASDAQ under the symbol "PINC."
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of Class A common stock in the open market for the purpose of preventing or retarding a decline in the market price of the Class A common stock while this offering is in progress. These stabilizing transactions may include making short sales of the Class A common stock, which involves the sale by the underwriters of a greater number of shares of Class A common stock than they are required to purchase in this offering, and purchasing shares of Class A common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' over-allotment option referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares of Class A common stock in the open market. In making this determination, the underwriters will consider, among other things, the price of shares of Class A common stock available for purchase in the open market compared to the price at which the underwriters may purchase such shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Class A common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares of Class A common stock in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the Class A common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase Class A common stock in the open market in stabilizing transactions or to cover short sales, the representatives of the underwriters can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the Class A common stock or preventing or retarding a decline in the market price of the Class A common stock, and, as a result, the price of the Class A common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on NASDAQ, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
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Neither we nor the underwriters can assure investors that an active trading market will develop for our Class A common stock, or that the shares will trade in the public market at or above the initial public offering price.
The underwriters have reserved for sale at the initial public offering price up to shares of our Class A common stock for our employees and our member owners who have expressed an interest in purchasing Class A common stock in this offering. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase the directed shares. Any directed shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.
Each person buying shares through our directed share program will agree that, for a period of 180 days after the date of this prospectus, he or she will not, without the prior written consent of the representatives of the underwriters, dispose of or hedge any shares of our Class A common stock or any securities convertible into or exchangeable for our Class A common stock with respect to shares purchased in the directed share program.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the Class A common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The Class A common stock 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 shares of Class A common stock 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 shares of Class A common stock offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order, or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). The Class A common stock is only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Class A common stock will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each such Member State a Relevant Member State, from and including the date on which the European Union Prospectus Directive, or the EU Prospectus Directive, was implemented in that Relevant Member State, or the Relevant Implementation Date, an offer of Class A common stock described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares of Class A 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 EU Prospectus Directive, except that, with effect from and including
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the Relevant Implementation Date, an offer of Class A common stock described in this prospectus may be made to the public in that Relevant Member State at any time:
For the purposes of this provision, the expression an "offer of securities to the public" in relation to any Class A 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 the Class A common stock to be offered so as to enable an investor to decide to purchase or subscribe for the Class A common stock, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression "EU Prospectus Directive" means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.
The shares of Class A common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares of Class A common stock or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, Premier or the shares of Class A common stock have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares of Class A common stock will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares of Class A common stock has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares of Class A common stock.
This document relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This document is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this document nor taken steps to verify the information set forth herein and has no responsibility for the document. The shares of Class A common stock to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares of Class A common stock offered should conduct their own due diligence on such shares. If you do not understand the contents of this document you should consult an authorized financial advisor.
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No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to this offering. This document does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares of Class A common stock may only be made to persons, or Exempt Investors, who are "sophisticated investors" (within the meaning of section 708(8) of the Corporations Act), "professional investors" (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares of Class A common stock without disclosure to investors under Chapter 6D of the Corporations Act.
The shares of Class A common stock applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under this offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares of Class A common stock must observe such Australian on-sale restrictions.
This document contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this document is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
The shares of Class A common stock have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (i) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares of Class A common stock has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of Class A common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
The shares of Class A common stock have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, "Japanese Person" shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
This document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares of Class A common stock may not be circulated or
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distributed, nor may the shares of Class A common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares of Class A common stock are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares of Class A common stock pursuant to an offer made under Section 275 of the SFA except:
Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. For instance, an affiliate of Wells Fargo Securities, LLC is the lender under our senior secured revolving credit facility and the S2S Global revolving line of credit. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
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The validity of the shares of Class A common stock offered by this prospectus and certain legal matters in connection with this offering will be passed upon for us by McDermott Will & Emery LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cravath, Swaine & Moore LLP.
The balance sheet of Premier, Inc. at June 30, 2013, included in this prospectus and Registration Statement has been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein and is included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of PHSI at June 30, 2013 and 2012, and for each of the three years in the period ended June 30, 2013, included 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 the shares of Class A common stock offered by this prospectus. 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, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and shares of our Class A common stock, we refer you to the registration statement and to 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. Anyone may inspect the registration statement and its exhibits and schedules without charge at the public reference facilities the SEC maintains at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. You may obtain further information about the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act and will be required to file reports and other information with the SEC. You will be able to inspect and copy these reports and other information at the public reference facilities maintained by the SEC at the address noted above. You also will be able to obtain copies of this material from the Public Reference Room of the SEC as described above, or inspect them without charge at the SEC's website. We intend to make available to our Class A common stockholders annual reports containing consolidated financial statements (or consolidated financial statements with respect to historical periods) audited by an independent registered public accounting firm.
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F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholder of Premier, Inc.
We have audited the accompanying balance sheet of Premier, Inc. (the Company) as of June 30, 2013. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Premier, Inc. at June 30, 2013, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Charlotte,
North Carolina
August 26, 2013
F-2
PREMIER, INC.
BALANCE SHEET
JUNE 30, 2013
Assets |
||||
Cash |
$ | 1.00 | ||
Total assets |
$ | 1.00 | ||
Stockholder's Equity |
||||
Preferred stock, par value $0.01 per share, 50,000,000 shares authorized, no shares issued and outstanding |
| |||
Class A common stock, par value $0.01 per share, 500,000,000 shares authorized, 100 shares issued and outstanding |
1.00 | |||
Class B common stock, par value $0.000001 per share, 600,000,000 shares authorized, no shares issued and outstanding |
| |||
Total stockholder's equity |
$ | 1.00 | ||
See accompanying notes to balance sheet.
F-3
PREMIER, INC.
NOTES TO BALANCE SHEET
As of June 30, 2013
1. ORGANIZATION
Premier, Inc. (the "Company") is a holding company and was incorporated in the state of Delaware on May 14, 2013 for the sole purpose of becoming the managing member of Premier Services, LLC. Premier Services, LLC will act as the general partner of Premier Healthcare Alliance, L.P. ("Premier LP").
2. BASIS OF PRESENTATION
The Company's balance sheet has been prepared in accordance with U.S. generally accepted accounting principles. Separate statements of operations, cash flows, and changes in stockholder's equity and comprehensive income have not been presented because this entity has had no operations to date.
3. STOCKHOLDER'S EQUITY
The Company has been capitalized with the issuance of 100 shares of Class A common stock with a par value of $0.01 per share for a total of $1.00.
Holders of Class A common stock are entitled to (i) one vote for each share held of record on all matters submitted to a vote of stockholders, (ii) to receive dividends, when and if declared by the 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 or any class or series of stock having a preference over or the right to participate with the Class A common stock with respect to the payment of dividends or other distributions, and (iii) receive pro rata, based on the number of shares of Class A common stock held, the remaining assets available for distribution upon the dissolution or liquidation of Premier, Inc., 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.
Holders of Class B common stock are (i) entitled to one vote for each share held of record on all matters submitted to a vote of stockholders, and (ii) not entitled to receive dividends or to receive a distribution upon the dissolution or a liquidation of the Company, other than dividends payable in shares of the Company's common stock. Class B common stock will not be listed on any exchange and, except in connection with any permitted sale or transfer of Class B common units of Premier LP, cannot be sold or transferred.
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and
Shareholders of Premier Healthcare Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Premier Healthcare Solutions, Inc. (the Company) as of June 30, 2013 and 2012, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Premier Healthcare Solutions, Inc. at June 30, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2013, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Charlotte,
North Carolina
August 26, 2013
F-5
PREMIER HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
|
June 30, 2013 |
June 30, 2012 |
|||||
---|---|---|---|---|---|---|---|
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 198,296 | $ | 140,822 | |||
Marketable securities |
57,323 | 100,847 | |||||
Accounts receivable, net |
62,224 | 56,755 | |||||
Inventories |
12,741 | 5,967 | |||||
Prepaid expenses and other current assets |
25,404 | 19,321 | |||||
Due from related party |
1,650 | 534 | |||||
Deferred tax assets |
8,403 | 11,119 | |||||
Total current assets |
366,041 | 335,365 | |||||
Marketable securities |
| 3,505 | |||||
Investments |
6,676 | 6,208 | |||||
Property and equipment, net |
115,587 | 101,630 | |||||
Restricted cash |
5,000 | 5,000 | |||||
Deferred tax assets |
15,077 | 15,619 | |||||
Goodwill |
61,410 | 61,410 | |||||
Intangible assets, net |
4,292 | 5,831 | |||||
Other assets |
24,833 | 20,371 | |||||
Total assets |
$ | 598,916 | $ | 554,939 | |||
Liabilities, redeemable limited partners' capital and stockholders' equity |
|||||||
Current liabilities: |
|||||||
Accounts payable and accrued expenses |
$ | 61,203 | $ | 65,446 | |||
Accrued compensation and benefits |
51,359 | 41,564 | |||||
Deferred revenue |
18,880 | 19,820 | |||||
Current portion of notes payable |
12,149 | 6,578 | |||||
Other current liabilities |
1,557 | 1,158 | |||||
Total current liabilities |
145,148 | 134,566 | |||||
Notes payable, less current portion |
22,468 | 18,809 | |||||
Long-term liabilities |
45,897 | 43,615 | |||||
Total liabilities |
213,513 | 196,990 | |||||
Commitments and contingencies (Note 14) |
|||||||
Redeemable limited partners' capital |
307,635 |
279,513 |
|||||
Stockholders' equity: |
|||||||
Series A Preferred stock, par value $0.01, 400,000 shares authorized; no shares issued and outstanding |
| | |||||
Common stock, par value $0.01, 12,250,000 shares authorized; 5,653,390 and 6,155,718 shares issued and outstanding at June 30, 2013 and 2012, respectively |
57 | 61 | |||||
Additional paid-in capital |
28,866 | 35,427 | |||||
Common stock subscribed, 23,266 and 10 shares at June 30, 2013 and 2012, respectively |
300 | | |||||
Subscriptions receivable |
(300 | ) | | ||||
Retained earnings |
50,599 | 43,223 | |||||
Noncontrolling interest |
(1,754 | ) | (275 | ) | |||
Total stockholders' equity |
77,768 | 78,436 | |||||
Total liabilities, redeemable limited partners' capital and stockholders' equity |
$ | 598,916 | $ | 554,939 | |||
See accompanying notes.
F-6
PREMIER HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
Year Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands, Except Per Share Amounts)
|
2013 | 2012 | 2011 | |||||||
Net revenue: |
||||||||||
Net administrative fees |
$ | 519,219 | $ | 473,249 | $ | 457,951 | ||||
Other services and support |
205,685 | 178,552 | 158,179 | |||||||
Services |
724,904 | 651,801 | 616,130 | |||||||
Products |
144,386 | 116,484 | 64,628 | |||||||
|
869,290 | 768,285 | 680,758 | |||||||
Cost of revenue: |
||||||||||
Services |
103,795 | 83,021 | 60,455 | |||||||
Products |
133,618 | 106,698 | 59,420 | |||||||
|
237,413 | 189,719 | 119,875 | |||||||
Gross profit |
631,877 | 578,566 | 560,883 | |||||||
Operating expenses: |
||||||||||
Selling, general and administrative |
248,301 | 240,748 | 242,863 | |||||||
Research and development |
9,370 | 12,583 | 8,685 | |||||||
Amortization of purchased intangible assets |
1,539 | 3,146 | 3,463 | |||||||
|
259,210 | 256,477 | 255,011 | |||||||
Operating income |
372,667 | 322,089 | 305,872 | |||||||
Other income, net |
12,145 | 12,808 | 11,092 | |||||||
Income before income taxes |
384,812 | 334,897 | 316,964 | |||||||
Income tax expense |
9,726 | 8,229 | 4,704 | |||||||
Net income |
375,086 | 326,668 | 312,260 | |||||||
Add: Net loss attributable to noncontrolling interest in S2S Global |
1,479 | 608 | | |||||||
Less: Net income attributable to noncontrolling interest in Premier LP |
(369,189 | ) | (323,339 | ) | (309,840 | ) | ||||
Net income attributable to noncontrolling interest |
(367,710 | ) | (322,731 | ) | (309,840 | ) | ||||
Net income attributable to Premier Healthcare Solutions, Inc. shareholders |
$ | 7,376 | $ | 3,937 | $ | 2,420 | ||||
Earnings per share attributable to Premier Healthcare Solutions, Inc. shareholdersbasic and diluted |
$ | 1.26 | $ | 0.64 | $ | 0.39 | ||||
Weighted average sharesbasic and diluted |
5,858 | 6,183 | 6,273 | |||||||
See accompanying notes.
F-7
PREMIER HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
Year Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Net income |
$ | 375,086 | $ | 326,668 | $ | 312,260 | ||||
Net unrealized gain (loss) on marketable securities |
50 | (66 | ) | (20 | ) | |||||
Total comprehensive income |
375,136 | 326,602 | 312,240 | |||||||
Less: Comprehensive income attributable to noncontrolling interest |
367,760 | 322,665 | 309,820 | |||||||
Comprehensive income attributable to Premier Healthcare Solutions, Inc. |
$ | 7,376 | $ | 3,937 | $ | 2,420 | ||||
See accompanying notes.
F-8
PREMIER HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
|
Common Stock Subscribed |
|
|
|
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common Stock | |
|
|
|
|
||||||||||||||||||||||
|
Additional Paid-In Capital |
Subscriptions Receivable |
Retained Earnings |
Noncontrolling Interest |
Total Stockholders' Equity |
|||||||||||||||||||||||
(In Thousands, Except Per Share Amounts)
|
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Balance at June 30, 2010 |
6,386,115 | $ | 64 | $ | 38,245 | 13,816 | $ | 150 | $ | (150 | ) | $ | 36,866 | | $ | 75,175 | ||||||||||||
Repurchase of common stock |
(199,685 | ) | (2 | ) | (2,380 | ) | | | | | | (2,382 | ) | |||||||||||||||
Issuance of common stock subscribed |
| | | 31,570 | 375 | (375 | ) | | | | ||||||||||||||||||
Payment on stock subscriptions |
20,120 | | 225 | (20,120 | ) | (225 | ) | 225 | | | 225 | |||||||||||||||||
Net income |
| | | | | | 2,420 | | 2,420 | |||||||||||||||||||
Balance at June 30, 2011 |
6,206,550 | $ | 62 | $ | 36,090 | 25,266 | $ | 300 | $ | (300 | ) | $ | 39,286 | | $ | 75,438 | ||||||||||||
Repurchase of common stock |
(82,205 | ) | (1 | ) | (1,038 | ) | | | | | | (1,039 | ) | |||||||||||||||
Issuance of common stock subscribed |
| | | 6,117 | 75 | (75 | ) | | | | ||||||||||||||||||
Payment on stock subscriptions |
31,373 | | 375 | (31,373 | ) | (375 | ) | 375 | | | 375 | |||||||||||||||||
Net income |
| | | | | | 3,937 | | 3,937 | |||||||||||||||||||
Noncontrolling interest at acquisition of S2S Global |
| | | | | | | $ | 333 | 333 | ||||||||||||||||||
Net loss attributable to noncontrolling interest in S2S Global |
| | | | | | | (608 | ) | (608 | ) | |||||||||||||||||
Balance at June 30, 2012 |
6,155,718 | $ | 61 | $ | 35,427 | 10 | $ | | $ | | $ | 43,223 | $ | (275 | ) | $ | 78,436 | |||||||||||
Repurchase of common stock |
(554,654 | ) | (5 | ) | (7,235 | ) | | | | | | (7,240 | ) | |||||||||||||||
Issuance of common stock subscribed |
| | | 75,582 | 975 | (975 | ) | | | | ||||||||||||||||||
Payment on stock subscriptions |
52,326 | 1 | 674 | (52,326 | ) | (675 | ) | 675 | | | 675 | |||||||||||||||||
Net income |
| | | | | | 7,376 | | 7,376 | |||||||||||||||||||
Net loss attributable to noncontrolling interest in S2S Global |
| | | | | | | (1,479 | ) | (1,479 | ) | |||||||||||||||||
Balance at June 30, 2013 |
5,653,390 | $ | 57 | $ | 28,866 | 23,266 | $ | 300 | $ | (300 | ) | $ | 50,599 | $ | (1,754 | ) | $ | 77,768 | ||||||||||
See accompanying notes.
F-9
PREMIER HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Year Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Operating activities |
||||||||||
Net income |
$ | 375,086 | $ | 326,668 | $ | 312,260 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||
Depreciation and amortization |
29,220 | 25,398 | 22,987 | |||||||
Equity in net income of unconsolidated affiliates |
(11,968 | ) | (12,122 | ) | (10,827 | ) | ||||
Deferred taxes |
3,258 | (2,853 | ) | 3,295 | ||||||
Amortization (accretion) of discounts on investments, net |
1,327 | (41 | ) | (109 | ) | |||||
Loss on disposal of assets |
788 | 188 | 780 | |||||||
Changes in operating assets and liabilities: |
||||||||||
Accounts receivable, prepaid expenses and other current assets |
(23,868 | ) | (11,983 | ) | (8,805 | ) | ||||
Other assets |
496 | (4,448 | ) | (4,581 | ) | |||||
Accounts payable, accrued expenses and other current liabilities |
3,521 | (16,047 | ) | 33,907 | ||||||
Long-term liabilities |
(2,680 | ) | 9,892 | 6,069 | ||||||
Net cash provided by operating activities |
375,180 | 314,652 | 354,976 | |||||||
Investing activities |
||||||||||
Purchases of marketable securities |
(69,302 | ) | (121,093 | ) | (4,980 | ) | ||||
Proceeds from sale of marketable securities |
115,056 | 21,716 | 39,250 | |||||||
Acquisition of 60% of S2S Global, net of cash acquired |
| (351 | ) | | ||||||
Acquisition of Commcare |
| | (35,949 | ) | ||||||
Distributions received on equity investment |
12,470 | 11,953 | 12,375 | |||||||
Purchases of property and equipment |
(42,427 | ) | (37,959 | ) | (38,351 | ) | ||||
Other investing activities |
(967 | ) | (463 | ) | 81 | |||||
Net cash provided by (used in) investing activities |
14,830 | (126,197 | ) | (27,574 | ) | |||||
Financing activities |
||||||||||
Payments made on notes payable |
(17,761 | ) | (4,115 | ) | (12,826 | ) | ||||
Proceeds from S2S revolving line of credit |
5,604 | 706 | | |||||||
Payments on line of credit |
(10,000 | ) | | | ||||||
Proceeds from line of credit |
10,000 | | | |||||||
Proceeds from issuance of common stock |
525 | 150 | 700 | |||||||
Proceeds from issuance of redeemable limited partnership interest |
8,143 | | | |||||||
Distributions to limited partners of Premier LP |
(329,047 | ) | (290,983 | ) | (280,606 | ) | ||||
Net cash used in financing activities |
(332,536 | ) | (294,242 | ) | (292,732 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
57,474 | (105,787 | ) | 34,670 | ||||||
Cash and cash equivalents at beginning of year |
140,822 | 246,609 | 211,939 | |||||||
Cash and cash equivalents at end of year |
$ | 198,296 | $ | 140,822 | $ | 246,609 | ||||
Supplemental disclosure of cash flow information |
||||||||||
Cash paid for interest |
$ | 146 | $ | 36 | $ | 2 | ||||
Cash paid for income taxes, net of refunds of $342, $136 and $87, respectively |
$ | 6,788 | $ | 10,602 | $ | 2,413 | ||||
Supplemental schedule of noncash investing and financing activities |
||||||||||
Issuance of common stock for subscriptions receivable |
$ | 975 | $ | 75 | $ | 375 | ||||
Issuance of limited partnership interest for notes receivable |
$ | 61,859 | $ | 774 | $ | 2,207 | ||||
Payable to member owners incurred upon repurchase of ownership interest |
$ | 14,268 | $ | 3,935 | $ | 5,855 | ||||
Reduction in redeemable limited partners' capital to reduce outstanding receivable |
$ | 301 | $ | 1,047 | $ | 83 | ||||
Distributions utilized to reduce subscriptions, notes, interest and accounts receivable from member owners |
$ | 7,668 | $ | 9,211 | $ | 8,067 | ||||
See accompanying notes.
F-10
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Premier Healthcare Solutions, Inc. ("PHSI" or "the Company") is a for-profit Delaware corporation owned by hospitals, health systems and other healthcare organizations (owners of PHSI are referred to herein as "member owners") located in the United States, and was formerly known as "Premier, Inc." The Company, together with its subsidiaries and affiliates, is a national healthcare alliance that unites hospitals, health systems, physicians and other healthcare providers to improve and innovate in the clinical, financial and operational areas of their business to meet the demands of a rapidly evolving healthcare industry.
The Company's business model and solutions are designed to provide its past, present and future customers ("members") access to scale efficiencies, spread the cost of their development, derive intelligence from the Company's data warehouse, mitigate the risk of innovation and disseminate best practices that will help its member organizations succeed in their transformation to higher quality and more cost-effective healthcare.
The Company, together with its subsidiaries and affiliates, delivers its integrated platform of solutions through two business segments: supply chain services and performance services. The supply chain services segment includes one of the largest healthcare group purchasing organizations ("GPO") in the United States, a specialty pharmacy and direct sourcing activities. The performance services segment includes one of the largest informatics and advisory services businesses in the United States focused on healthcare providers. The Company's software as a service ("SaaS") informatics products utilize its comprehensive data set to provide actionable intelligence to its members, enabling them to benchmark, analyze and identify areas of improvement across three main categories: cost management, quality and safety and population health management. This segment also includes the Company's technology-enabled performance improvement collaboratives, advisory services and insurance services.
Basis of Presentation and Consolidation
The consolidated financial statements include the balance sheets, statements of income, statements of comprehensive income, statements of stockholders' equity and statements of cash flows of the Company and all entities in which the Company has a controlling interest. The Company, through its wholly owned subsidiary Premier Plans, LLC ("Premier Plans"), holds a 1% controlling general partner interest in and, as a result, consolidates the balance sheets and results of operations and cash flows of, Premier Purchasing Partners, L.P., which will change its name to "Premier Healthcare Alliance, L.P." ("Premier LP"). The limited partners' 99% ownership of Premier LP is reflected as redeemable limited partners' capital in the Company's consolidated balance sheets and their proportionate share of income in Premier LP is reflected within net income attributable to noncontrolling interest in Premier LP in the Company's consolidated statements of income and within comprehensive income attributable to noncontrolling interest in the statements of comprehensive income. All significant intercompany accounts have been eliminated in consolidation. The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").
F-11
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. ORGANIZATION AND BASIS OF PRESENTATION (Continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Estimates are evaluated on an ongoing basis, including allowances for doubtful accounts, useful lives of property and equipment, value of investments not publicly traded, the valuation allowance on deferred tax assets, and the fair value of purchased intangible assets and goodwill. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with remaining maturities of three months or less at the time of acquisition.
Concentration of Credit Risk and Allowance for Doubtful Accounts
Financial instruments that subject the Company to potential concentrations of credit risk consist primarily of the Company's receivables and marketable securities. Receivables consist primarily of amounts due from hospital and healthcare system members for services and products. The Company maintains an allowance for doubtful accounts. This allowance is an estimate and is regularly evaluated by the Company for adequacy by taking into consideration factors such as past experience, credit quality of the member base, age of the receivable balances, both individually and in the aggregate, and current economic conditions that may affect a member's ability to pay. Provisions for the allowance for doubtful accounts attributed to bad debt are recorded in selling, general and administrative expenses in the accompanying consolidated statements of income.
Fair Value of Financial Instruments
The fair value of an asset or liability is based on the assumptions that market participants would use in pricing the asset or liability. Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. The Company follows a three-tiered fair value hierarchy when determining the inputs to valuation techniques. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels in order to maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are as follows:
F-12
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the financial instrument;
Marketable Securities
The Company invests its excess cash in commercial paper, corporate debt securities, government securities and other securities with maturities generally ranging from three months to 13 months from the date of purchase. Marketable securities, classified as available-for-sale, are carried at fair market value, with the unrealized gains and losses on such investments reported in comprehensive income as a separate component of stockholders' equity or redeemable limited partners' capital as appropriate. Realized gains and losses, and other-than-temporary declines in investments, are included in other income, net in the accompanying consolidated statements of income. The Company uses the specific-identification method to determine the cost of securities sold. The Company does not hold publicly traded equity investments.
Inventories
Inventories consisting of medical products and other non-pharmaceutical products are stated at the lower of cost or market on an average cost basis. Inventories consisting of pharmaceuticals and pharmaceutical-related products are stated at the lower of cost or market on a first-in, first-out basis. Management determines the inventory reserve by regularly reviewing and evaluating individual inventory items. Inventory is written off when deemed obsolete or unsellable by management.
Investments
The Company uses the cost method to account for investments in businesses that are not publicly traded and for which the Company does not control or have the ability to exercise significant influence over operating and financial policies. In accordance with the cost method, these investments are recorded at the lower of cost or fair value, as appropriate.
All other investments held by the Company in businesses that are not publicly traded are accounted for under the equity method. In accordance with the equity method, these investments are originally recorded at cost and are adjusted for the Company's proportionate share of earnings, losses and distributions.
The Company assesses and records impairment losses when events and circumstances indicate the investments might be impaired. Gains and losses are recognized when realized.
Property and Equipment, Net
Property and equipment is stated at cost. Depreciation is calculated based upon estimated useful lives ranging from three to five years, using the straight-line method. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the lease term.
F-13
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Software Development Costs
Costs to develop internal use computer software during the application development stage are capitalized. Internal use capitalized software costs are included in property and equipment, net in the accompanying consolidated balance sheets. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to five years and amortization is included in cost of revenue in the accompanying consolidated statements of income. The Company capitalized costs related to software developed for internal use of $31.3 million and $28.7 million during the year ended June 30, 2013 and 2012, respectively.
Restricted Cash
Restricted cash of $5.0 million at both June 30, 2013 and 2012 represents cash equivalents held in a trust by Wells Fargo Bank, National Association in favor of the Vermont Department of Financial Regulation (the "Department") on behalf of Premier Insurance Exchange, Risk Retention Group ("PRx"), an entity in which the Company has an equity investment (see Note 7). The Department has the right to withdraw the funds from the trust at any time it is deemed necessary for PRx to meet policyholder claim obligations or other statutory requirements.
Deferred Compensation Plan Assets and Related Liabilities
The Company maintains a non-qualified deferred compensation plan for the benefit of eligible employees. This plan is designed to permit employee deferrals in excess of certain tax limits and provides for discretionary employer contributions in excess of the tax limits applicable to the Company's 401(k) plan.
Company assets designated to pay benefits under the plan are held by a rabbi trust and are subject to the general creditors of the Company. The amounts deferred are invested in assets at the direction of the employee.
The assets and liabilities of the rabbi trust are recorded at fair value and are accounted for as assets and liabilities of the Company. The assets of the rabbi trust are used to fund the deferred compensation liabilities owed to current and former employees. The deferred compensation plan contains both current and non-current assets. The current portion of the deferred compensation plan assets is comprised of estimated amounts to be paid within one year to departed participants following separation from the Company. The estimated current portion, totaling $376,000 and $71,000 at June 30, 2013 and 2012, respectively, is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. The corresponding current portion of deferred compensation plan liabilities is included in other current liabilities in the accompanying consolidated balance sheets at June 30, 2013 and 2012. The non-current portion of the deferred compensation plan assets, totaling $24.1 million and $19.1 million at June 30, 2013 and 2012, respectively, is included in other assets in the accompanying consolidated balance sheets. The corresponding non-current portion of deferred compensation plan liabilities is included in long-term liabilities in the accompanying consolidated balance sheets at June 30, 2013 and 2012.
Goodwill
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not amortized. The Company performs its annual goodwill impairment testing on the first day of the last fiscal quarter of its fiscal year. The Company's most recent annual
F-14
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
impairment testing during the fourth quarter of fiscal year 2013 did not result in any goodwill impairment charges.
Intangible Assets and Other Long-Lived Assets
Intangible assets consist of acquired technology, customer relationships and trade names, and are amortized over their estimated useful lives.
The Company evaluates long-lived assets, such as intangible assets and property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of its long-lived assets by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets. An asset is considered impaired if its carrying amount exceeds the future net cash flow the asset is expected to generate.
The amount of impairment, if any, is measured based on the fair value of the assets as compared to their carrying value. During the fiscal years ended June 30, 2013, 2012 and 2011, the Company did not record any impairment on long-lived assets.
Income Taxes
The Company accounts for income taxes under the asset and liability approach. Deferred tax assets or liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.
The Company prepares and files tax returns based on interpretations of tax laws and regulations. The Company's tax returns are subject to examination by various taxing authorities in the normal course of business. Such examinations may result in future tax and interest assessments by these taxing authorities.
In determining the Company's tax expense for financial reporting purposes, the Company establishes a reserve for uncertain income tax positions unless it is determined to be "more likely than not" that such tax positions would be sustained upon examination, based on their technical merits. That is, for financial reporting purposes, the Company only recognizes tax benefits taken on the tax return if it believes it is "more likely than not" that such tax positions would be sustained. There is considerable judgment involved in determining whether it is "more likely than not" that positions taken on the tax returns would be sustained.
The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and settlements with, varying taxing authorities, as well as changes in tax laws, regulations and interpretations. The consolidated tax expense of any given year includes adjustments to prior year income tax accruals and related estimated interest charges that are considered appropriate. The Company's policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of income tax expense. The Company does not have any significant reserves for uncertain tax positions.
F-15
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Net Revenue
Net revenue consists of (i) service revenue which includes net administrative fees revenue and other services and support revenue and (ii) product revenue. Net administrative fees revenue consists of GPO administrative fees in the supply chain segment. Other services and support revenue consists primarily of fees generated by the performance services segment in connection with the Company's SaaS informatics products subscriptions, advisory services and performance improvement collaborative subscriptions. Product revenue consists of specialty pharmacy and direct sourcing product sales, which are included in the supply chain segment. The Company recognizes revenue when (i) there is persuasive evidence of an arrangement, (ii) the fee is fixed or determinable, (iii) services have been rendered and payment has been contractually earned, and (iv) collectability is reasonably assured.
Net Administrative Fees Revenue
Net administrative fees revenue is generated through administrative fees received from suppliers based on the total dollar volume of supplies purchased by the Company's members in connection with its GPO programs.
The Company, through its group purchasing program, aggregates member purchasing power to negotiate pricing discounts and improve contract terms with suppliers. Contracted suppliers pay the Company administrative fees which generally represent 1% to 3% of the purchase price of goods and services sold to members under the contracts the Company has negotiated. Administrative fees are recognized as revenue in the period in which the respective supplier reports customer purchasing data, usually a month or a quarter in arrears of actual customer purchase activity. The supplier report proves that the delivery of product or service has occurred, the administrative fees are fixed and determinable based on reported purchasing volume, and collectability is reasonably assured. Member and supplier contracts substantiate persuasive evidence of an arrangement. The Company does not take title to the underlying equipment or products purchased by members through its GPO supplier contracts.
The Company partners with certain members, including regional GPOs, to extend its network base to their members and pays a revenue share equal to a percentage of gross administrative fees that the Company collects based upon purchasing by such members and their owned, leased, managed or affiliated facilities through its GPO supplier contracts. Revenue share is recognized according to the members' contractual agreements with the Company as the related administrative fees revenue is recognized. Considering GAAP relating to principal agent considerations under revenue recognition, revenue share is recorded as a reduction to gross administrative fees revenue to arrive at a net administrative fees revenue amount, which amount is included in service revenue in the accompanying consolidated statements of income. The Company generally does not have a contractual requirement to pay revenue share to member owners participating in its GPO programs, but makes semi-annual distributions of partnership income based upon purchasing by such member owners' member facilities through the Company's GPO supplier contracts (see Note 16).
Other Services and Support Revenue
Performance services revenue consists of SaaS informatics products subscriptions, performance improvement collaborative and other service subscriptions, professional fees for advisory services, and insurance services management fees and commissions from group-sponsored insurance programs.
F-16
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
SaaS informatics subscriptions include the right to use the Company's proprietary hosted technology on a SaaS basis, training and member support to deliver improvements in cost management, quality and safety, population health management and provider analytics. Pricing varies by application and size of healthcare system. Informatics subscriptions are generally three to five year agreements with automatic renewal clauses and annual price escalators that typically do not allow for early termination. These agreements do not allow for physical possession of the software. Subscription fees are typically billed on a monthly basis and revenue is recognized as a single deliverable on a straight-line basis over the remaining contractual period following implementation. Implementation involves the completion of data preparation services that are unique to each member's data set and, in certain cases, the installation of member site-specific software, in order to access and transfer member data into the Company's hosted SaaS informatics products. Implementation is generally 120 to 150 days following contract execution before the SaaS informatics products can be fully utilized by the member.
Revenue from performance improvement collaboratives and other service subscriptions that support the Company's offerings in cost management, quality and safety and population health management is recognized over the service period, which is generally one year.
Professional fees for advisory services are sold under contracts, the terms of which vary based on the nature of the engagement. Fees are billed as stipulated in the contract, and revenue is recognized on a proportional performance method as services are performed and deliverables are provided. In situations where the contracts have significant contract performance guarantees or member acceptance provisions, revenue recognition occurs when the fees are fixed and determinable and all contingencies, including any refund rights, have been satisfied.
Insurance services management fees are recognized in the period in which such services are provided. Commissions from group sponsored insurance programs are recognized over the term of the insurance policies, generally one year.
Certain administrative and/or patient management specialty pharmacy services are provided in situations where prescriptions are sent back to member health systems for dispensing. Additionally, the Company derives revenue from pharmaceutical manufacturers for providing patient education and utilization data. Revenue is recognized as these services are provided.
Product Revenue
Specialty pharmacy revenue is recognized when a product is accepted and is recorded net of the estimated contractual adjustments under agreements with Medicare, Medicaid and other managed care plans. Payments for the products provided under such agreements are based on defined allowable reimbursements rather than on the basis of standard billing rates. The difference between the standard billing rate and allowable reimbursement rate results in contractual adjustments which are recorded as deductions from net revenue.
Direct sourcing revenue is recognized upon delivery of medical products to members once the title and risk of loss have been transferred.
Multiple Deliverable Arrangements
The Company occasionally enters into agreements where the individual deliverables discussed above, such as SaaS subscriptions and advisory services, are bundled into a single service arrangement. These agreements are generally provided over a time period ranging from approximately three months
F-17
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
to five years after the applicable contract execution date. Revenue is allocated to the individual elements within the arrangement based on their relative selling price using vendor specific objective evidence ("VSOE"), third-party evidence ("TPE") or the estimated selling price ("ESP"), provided that the total arrangement consideration is fixed and determinable at the inception of the arrangement. The Company establishes VSOE, TPE, or ESP for each element of a service arrangement based on the price charged for a particular element when it is sold separately in a stand-alone arrangement. All deliverables which are fixed and determinable are recognized according to the revenue recognition methodology described above.
Certain arrangements include performance targets or other contingent fees that are not fixed and determinable at the inception of the arrangement. If the total arrangement consideration is not fixed and determinable at the inception of the arrangement, the Company allocates only that portion of the arrangement that is fixed and determinable to each element. As additional consideration becomes fixed, it is similarly allocated based on VSOE, TPE or ESP to each element in the arrangement and recognized in accordance with each element's revenue recognition policy.
Performance Guarantees
On limited occasions, the Company may enter into an agreement which provides for guaranteed performance levels to be achieved by the member over the term of the agreement. In situations with significant performance guarantees, the Company defers revenue recognition until the amount is fixed and determinable and all contingencies, including any refund rights, have been satisfied. In the event that guaranteed savings levels are not achieved, the Company may have to pay the difference between the savings that were guaranteed and the actual achieved savings.
Deferred Revenue
Deferred revenue consists of unrecognized revenue related to advanced member invoicing or member payments received prior to fulfillment of the Company's revenue recognition criteria. Substantially all deferred revenue consists of deferred subscription fees and deferred advisory fees. Subscription fees for company-hosted SaaS applications are deferred until the member's unique data records have been incorporated into the underlying software database, or until member site-specific software has been implemented and the member has access to the software. Deferred advisory fees arise when cash is received from members prior to delivery of service. When the fees are contingent upon meeting a performance target that has not yet been achieved, the advisory fees are deferred until the performance target is met.
Cost of Revenue and Operating Expenses
Cost of Revenue
Cost of service revenue includes expenses related to employees (including compensation and benefits) and outside consultants who directly provide services related to revenue-generating activities, including advisory services to members and implementation services related to SaaS informatics products. Cost of service revenue also includes expenses related to hosting services, related data center capacity costs, third-party product license expenses and amortization of the cost of internal use software.
Cost of product revenue consists of purchase and shipment costs for specialty pharmaceuticals and direct sourced medical products.
F-18
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Operating Expenses
Selling, general and administrative expenses consist of expenses directly associated with selling and administrative employees and indirect expenses associated with employees that primarily support revenue generating activities (including compensation and benefits) and travel-related expenses, as well as occupancy and other indirect expenses, insurance expenses, professional fees, and other general overhead expenses.
Research and development expenses consist of employee-related compensation and benefits expenses, and third-party consulting fees of technology professionals, incurred to develop, support and maintain the Company's software-related products and services.
Amortization of purchased intangible assets includes the amortization of all identified intangible assets resulting from acquisitions.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are reflected in selling, general and administrative expenses in the accompanying consolidated statements of income and were $1.4 million, $1.5 million and $1.6 million for the years ended June 30, 2013, 2012 and 2011, respectively.
Comprehensive Income
Comprehensive income includes all changes in stockholders' equity during a period from non-owner sources. Net income and other comprehensive income, including unrealized gains and losses on investments, are reported, net of their related tax effect, to arrive at comprehensive income.
Basic and Diluted Earnings per Share
Basic earnings per share ("EPS") is calculated by dividing net income by the number of weighted average common shares outstanding during the period. Diluted EPS assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would result in the reduction of a loss or the increase in income per share. Diluted EPS is computed by dividing net income by the number of weighted average common shares increased by the dilutive effects of potential common shares outstanding during the period. The number of potential common shares outstanding is determined in accordance with the treasury stock method. Common stock subscribed is included in the calculation of basic EPS, since the subscribed shares have full voting and dividend participation rights on the day of subscription. Diluted net income per share was the same as basic net income per share for the fiscal years ended June 30, 2013, 2012 and 2011 since there were no potentially dilutive securities outstanding during those periods.
Recently Adopted Accounting Standards
In September 2011, the Financial Accounting Standards Board (FASB) issued an accounting standard update (ASU) amending the guidance on the annual testing of goodwill for impairment. The update allowed companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. The update was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and did not have a material effect on the Company's consolidated financial statements.
F-19
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standards
In February 2013, the FASB issued an ASU relating to reporting of amounts reclassified out of accumulated other comprehensive income. The update requires presentation of information about significant amounts reclassified from each component of accumulated other comprehensive income, the sources of the items reclassified, and the income statement lines affected, either parenthetically on the face of the financial statements or in the notes to the financial statements. The update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012, and is not expected to have a material effect on the Company's consolidated financial statements.
3. BUSINESS ACQUISITIONS
S2S Global Acquisition
On December 6, 2011, the Company acquired 60% of the outstanding shares of common stock of SVS, LLC d/b/a S2S Global ("S2S Global"), its direct sourcing business, for $500,000. The primary reason for the acquisition was to identify savings for quality products, both domestically and internationally, for the Company's members. The fair value of net tangible liabilities and noncontrolling interest totaled $1.4 million and $333,000, respectively. As a result, the Company recorded goodwill of $2.3 million during the year ended June 30, 2012. The goodwill recognized as a result of the acquisition is primarily attributable to the workforce of S2S Global and the Company's ability to expand S2S Global's business by providing direct sourced products to the Company's members. The Company plans to deduct the recognized goodwill for income tax purposes.
Commcare Acquisition
On November 1, 2010, the Company acquired all of the outstanding shares of common stock of NS3 Health, LLC d/b/a Commcare Pharmacies ("Commcare") for $35.9 million. The primary reason for the acquisition was to provide access to limited distribution drugs and enable the Company's members to access patient data concerning specialty pharmaceuticals outside the acute care setting. The fair value of net tangible assets and identifiable intangible assets acquired totaled $1.2 million and $5.2 million, respectively. As a result, the Company recorded goodwill of $29.5 million during the year ended June 30, 2011. The goodwill recognized as a result of the acquisition is primarily attributable to the workforce of Commcare and the Company's ability to expand Commcare's business by providing the Company's members with speciality pharmaceuticals and other related services.
The Company filed an Internal Revenue Code ("IRC") Section 338(h)(10) election for the acquisition and treated the purchase as an asset acquisition for income tax purposes. Therefore, the Company deducts the recognized goodwill for income tax purposes.
The results of operations of S2S Global and Commcare have been included in the accompanying consolidated statements of income from the dates of the respective acquisitions.
F-20
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FAIR VALUE MEASUREMENTS
Recurring Measurements
The Company measures the following assets at fair value on a recurring basis:
|
June 30, 2013 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) Description |
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||
Assets: |
|||||||||||||
Cash equivalents |
$ | 170,510 | $ | 170,510 | $ | | $ | | |||||
Corporate debt securities |
57,323 | | 57,323 | | |||||||||
Deferred compensation plan assets |
24,489 | 24,489 | | | |||||||||
Total assets |
$ | 252,322 | $ | 194,999 | $ | 57,323 | $ | | |||||
|
June 30, 2012 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Description
|
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||
Assets: |
|||||||||||||
Cash equivalents |
$ | 114,027 | $ | 114,027 | $ | | $ | | |||||
Corporate debt securities |
82,188 | | 82,188 | | |||||||||
U.S. government debt securities |
22,164 | 4,017 | 18,147 | | |||||||||
Deferred compensation plan assets |
19,190 | 19,190 | | | |||||||||
Total assets |
$ | 237,569 | $ | 137,234 | $ | 100,335 | $ | | |||||
Cash equivalents are included in cash and cash equivalents; corporate debt securities and U.S. government securities are included in marketable securities; and deferred compensation plan assets are included in prepaid expenses and other current assets ($0.4 million and $0.1 million at June 30, 2013 and 2012, respectively) and other assets ($24.1 million and $19.1 million at June 30, 2012 and 2011, respectively) on the consolidated balance sheets. The fair value the Company's U.S. government and corporate debt securities, classified as Level 2, are valued using quoted prices for similar securities or quoted prices for identical or similar securities in markets that are not active.
Non-recurring Measurements
The Company's other financial instruments not measured at fair value on a recurring basis include cash, accounts receivable, accounts payable, accrued liabilities and notes payable, which are reflected at cost in the consolidated balance sheets. With the exception of notes payable, the Company believes cost approximates fair value because of the short-term nature of these financial instruments. The fair value of non-interest bearing notes payable, classified as Level 2, is less than their carrying value (see Note 12) by approximately $1.1 million and $0.7 million at June 30, 2013 and 2012, respectively, based on an assumed market interest rate of 1.7% at June 30, 2013 and 2012.
F-21
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. MARKETABLE SECURITIES
Marketable securities, classified as available-for-sale, consist of the following:
(In Thousands)
|
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Market Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2013 |
|||||||||||||
U.S. government debt securities |
$ | 57,336 | $ | 12 | $ | (25 | ) | $ | 57,323 | ||||
June 30, 2012 |
|||||||||||||
Corporate debt securities |
$ | 82,252 | $ | 10 | $ | (74 | ) | $ | 82,188 | ||||
U.S. government debt securities |
22,167 | | (3 | ) | 22,164 | ||||||||
|
$ | 104,419 | $ | 10 | $ | (77 | ) | $ | 104,352 | ||||
6. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
|
June 30, | ||||||
---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | |||||
Accounts receivable |
$ | 60,237 | $ | 54,950 | |||
Other |
2,658 | 3,925 | |||||
|
62,895 | 58,875 | |||||
Allowance for doubtful accounts |
(671 | ) | (2,120 | ) | |||
|
$ | 62,224 | $ | 56,755 | |||
The Company had bad debt write-offs of $0.4 million, $0.1 million and $0.3 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
7. INVESTMENTS
Innovatix, LLC ("Innovatix"), a privately held limited liability company, provides group purchasing services to alternate site providers in specific classes of trade. Premier Supply Chain Improvement, Inc., a wholly owned subsidiary of PHSI, ("PSCI") held 50% of the membership units in Innovatix at June 30, 2013 and 2012. The Company accounts for its investment in Innovatix using the equity method of accounting. The carrying value of the Company's investment in Innovatix was $5.7 million and $6.2 million at June 30, 2013 and 2012, respectively.
PRx, a Vermont domiciled reciprocal risk retention group currently in run-off, historically provided directors and officers and primary hospital professional liability insurance to members of the Company. The Company has an investment in PRx and its allocated share of PRx capital was 14% at June 30, 2013 and 2012. The Company accounts for this investment using the equity method of accounting and the carrying value of its investment in PRx was zero at June 30, 2013 and 2012.
Global Healthcare Exchange, LLC ("GHx"), a privately held limited liability company, is an internet-based trading exchange developed to reduce costs and improve efficiencies for all participants in the healthcare supply chain. Premier LP held 13% of the membership units in GHx at June 30, 2013
F-22
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. INVESTMENTS (Continued)
and 2012. The Company accounts for its investment in GHx using the equity method of accounting and the carrying value of its investment in GHx was zero at June 30, 2013 and 2012.
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
|
|
June 30, | |||||||
---|---|---|---|---|---|---|---|---|---|
|
Useful Life |
||||||||
(In Thousands)
|
2013 | 2012 | |||||||
Capitalized software |
3 - 5 years | $ | 209,481 | $ | 183,122 | ||||
Computer hardware |
3 - 5 years | 37,166 | 30,132 | ||||||
Furniture and other equipment |
5 years | 6,816 | 6,919 | ||||||
Leasehold improvements |
Term of lease | 15,570 | 15,092 | ||||||
|
269,033 | 235,265 | |||||||
Accumulated depreciation and amortization |
(153,446 | ) | (133,635 | ) | |||||
|
$ | 115,587 | $ | 101,630 | |||||
Depreciation and amortization expense related to property and equipment for the years ended June 30, 2013, 2012 and 2011, was $27.7 million, $22.3 million and $19.5 million, respectively.
9. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill consists of the following:
(In Thousands)
|
Supply Chain Services |
Performance Services |
Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at June 30, 2011 |
$ | 29,469 | $ | 29,182 | $ | 58,651 | ||||
S2S Global acquisition |
2,296 | | 2,296 | |||||||
Cereplex earnout(1) |
| 463 | 463 | |||||||
Balance at June 30, 2012 |
$ | 31,765 | $ | 29,645 | $ | 61,410 | ||||
Balance at June 30, 2013 |
$ | 31,765 | $ | 29,645 | $ | 61,410 | ||||
F-23
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. GOODWILL AND INTANGIBLE ASSETS, NET (Continued)
Intangible assets, net consist of the following:
|
Weighted Average Useful Life |
June 30, | |||||||
---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | |||||||
Identifiable intangible assets acquired: |
|||||||||
Technology |
5 years | $ | 11,570 | $ | 11,570 | ||||
Member relationships |
9 years | 6,260 | 6,260 | ||||||
Trade names |
5 years | 3,700 | 3,700 | ||||||
|
6.1 years | 21,530 | 21,530 | ||||||
Accumulated amortization |
(17,238 | ) | (15,699 | ) | |||||
|
$ | 4,292 | $ | 5,831 | |||||
Amortization expense of intangible assets totaled $1.5 million, $3.1 million and $3.5 million for the years ended June 30, 2013, 2012 and 2011, respectively.
The estimated future amortization expense of intangible assets is as follows:
(In Thousands)
|
|
|||
---|---|---|---|---|
Year ending June 30, |
||||
2014 |
$ | 1,539 | ||
2015 |
1,539 | |||
2016 |
843 | |||
2017 |
371 | |||
Total |
$ | 4,292 | ||
The net carrying value of intangible assets by segment is as follows:
|
June 30, | ||||||
---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | |||||
Supply Chain Services |
$ | 2,436 | $ | 3,480 | |||
Performance Services |
1,856 | 2,351 | |||||
|
$ | 4,292 | $ | 5,831 | |||
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
|
June 30, | ||||||
---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | |||||
Accounts payable |
$ | 21,788 | $ | 11,236 | |||
Accrued expenses |
28,883 | 35,735 | |||||
Revenue share obligations |
10,532 | 18,475 | |||||
|
$ | 61,203 | $ | 65,446 | |||
F-24
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. LINES OF CREDIT
On December 16, 2011, the Company entered into a $100.0 million senior secured revolving credit facility with Wells Fargo Bank, National Association, which includes an accordion feature granting the Company the ability to increase the size of the facility by an additional $100.0 million on terms and conditions mutually acceptable to the parties. Borrowings under the senior secured revolving credit facility bear interest at the London Interbank Offered Rate, ("LIBOR"), plus a margin ranging from 0.25% to 1.25% per annum, depending on the nature of the loan. In November 2012, the Company borrowed $10.0 million on its senior secured revolving facility, and repaid it in full in March 2013. At June 30, 2013 and 2012, there was no balance outstanding on the senior secured revolving credit facility. The senior secured revolving credit facility, which expires on December 16, 2014, includes restrictive covenants requiring the maintenance of certain financial and nonfinancial indicators, including a ratio of tangible liabilities to tangible net worth of 1.00 to 1.00, a minimum EBITDA (as defined in the senior secured revolving credit facility agreement) coverage ratio of 3.00 to 1.00 and a maximum total leverage ratio of 1.50 to 1.00. The senior secured revolving credit facility also includes customary negative covenants, including restrictions on other indebtedness, liens, conduct of business, consolidations, mergers or dissolutions, asset dispositions, investments, restricted payments, prepayment of indebtedness, transactions with insiders, restricted actions, ownership of subsidiaries, sale-leaseback transactions and negative pledges. The Company was in compliance with such negative covenants at June 30, 2013. Commitment fees on the Company's senior secured revolving credit facility's unused commitments are 0.22% per annum. The Company's senior secured revolving credit facility is guaranteed by substantially all of its subsidiaries and secured by substantially all of the assets of such subsidiaries.
12. NOTES PAYABLE
At June 30, 2013 and 2012, the Company had $23.4 million and $17.2 million, respectively, in non-interest bearing notes payable outstanding to departed member owners which are included in notes payable in the accompanying consolidated balance sheets.
During 2011, the Company entered into a financing agreement related to certain software licenses, payable in five installments with the final installment on July 1, 2014. At June 30, 2013 and 2012, the Company had $3.2 million and $5.9 million, respectively, outstanding on these non-interest bearing notes payable which are included in notes payable in the accompanying consolidated balance sheets.
On August 17, 2012, S2S Global obtained a revolving note with a one-year term for up to $10.0 million at an interest rate of LIBOR plus 1.25%. At June 30, 2013, S2S Global had $7.7 million outstanding on the revolving note. On August 13, 2013 S2S Global renewed and amended the revolving note as described in Note 22.
At June 30, 2012, S2S Global had $2.1 million outstanding on a revolving line of credit, which was replaced by the revolving note reflected in notes payable in the accompanying consolidated balance sheets.
F-25
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. NOTES PAYABLE (Continued)
Annual principal payments of notes payable are as follows:
(In Thousands)
|
|
|||
---|---|---|---|---|
Year ending June 30: |
||||
2014 |
$ | 12,149 | ||
2015 |
7,195 | |||
2016 |
2,200 | |||
2017 |
5,414 | |||
2018 |
7,659 | |||
Total principal payments |
$ | 34,617 | ||
13. LONG-TERM LIABILITIES
Long-term liabilities consist of the following:
|
June 30, | ||||||
---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | |||||
Deferred compensation plan obligations |
$ | 24,081 | $ | 19,119 | |||
Deferred rent |
15,779 | 15,379 | |||||
Accrued compensation |
5,278 | 8,639 | |||||
Other |
759 | 478 | |||||
|
$ | 45,897 | $ | 43,615 | |||
14. COMMITMENTS AND CONTINGENCIES
The Company leases office space under operating leases. The office space leases provide for escalating rent payments during the lease terms. The Company recognizes rent expense on a straight-line basis over the lease term. Rent and associated operating expenses totaled $8.5 million, $7.9 million and $9.3 million for the years ended June 30, 2013, 2012 and 2011, respectively.
Future minimum lease payments under noncancelable operating leases (with initial lease terms in excess of one year) are as follows:
(In Thousands)
|
|
|||
---|---|---|---|---|
Year ending June 30: |
||||
2014 |
$ | 7,477 | ||
2015 |
7,512 | |||
2016 |
7,710 | |||
2017 |
7,804 | |||
2018 |
7,376 | |||
Thereafter |
68,682 | |||
Total minimum lease payments |
$ | 106,561 | ||
The Company is not currently involved in any significant litigation. However, the Company is periodically involved in litigation, arising in the ordinary course of business or otherwise, which from
F-26
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. COMMITMENTS AND CONTINGENCIES (Continued)
time to time may include claims relating to commercial, employment, antitrust, intellectual property or other regulatory matters, among others. If current or future government regulations are interpreted or enforced in a manner adverse to the Company or its business, specifically those with respect to antitrust or healthcare laws, the Company may be subject to enforcement actions, penalties and other material limitations which could have a material adverse effect on the Company's business, financial condition and results of operations.
15. SEGMENT INFORMATION
The Company delivers its solutions and manages its business through two reportable business segments, the supply chain services segment and the performance services segment. The supply chain services segment includes the Company's GPO, a specialty pharmacy and direct sourcing activities. The performance services segment includes the Company's informatics, collaborative, advisory services and insurance services businesses.
Accounting standards relating to segment reporting define reportable segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing financial performance. Accounting standards indicate that financial information about segments should be reported on the same basis as that which is used by the chief operating decision maker in the analysis of performance and allocation of resources. The Company uses Segment Adjusted EBITDA as its primary measure of profit or loss to assess segment performance and to determine the allocation of resources. The Company also uses Segment Adjusted EBITDA to facilitate the comparison of the segment operating performance on a consistent basis from period to period. The Company defines Segment Adjusted EBITDA as the segment's net revenue less operating expenses directly attributable to the segment excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items, and including equity in net income of unconsolidated affiliates. The Company considers non-recurring items to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of Segment Adjusted EBITDA.
All reportable segment revenues are presented net of inter-segment eliminations and represent revenues from external clients.
F-27
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. SEGMENT INFORMATION (Continued)
The following tables present Segment Adjusted EBITDA and financial position information as utilized by the Company's chief operating decision maker. General corporate expenses are included in "Corporate."
(In Thousands)
|
Net Revenue |
Segment Adjusted EBITDA |
Total Assets |
Depreciation & Amortization |
Capital Expenditures |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2013 |
||||||||||||||||
Supply Chain Services |
||||||||||||||||
Net administrative fees |
$ | 519,219 | ||||||||||||||
Other services and support |
471 | |||||||||||||||
Services |
519,690 | |||||||||||||||
Products |
144,386 | |||||||||||||||
Total Supply Chain Services |
664,076 | $ | 431,628 | $ | 332,261 | $ | 1,254 | $ | 1,560 | |||||||
Performance Services |
205,214 | 56,456 | 194,414 | 24,007 | 35,740 | |||||||||||
Corporate |
| (69,059 | ) | 72,241 | 3,959 | 5,127 | ||||||||||
Total |
$ | 869,290 | $ | 419,025 | $ | 598,916 | $ | 29,220 | $ | 42,427 | ||||||
June 30, 2012 |
||||||||||||||||
Supply Chain Services |
||||||||||||||||
Net administrative fees |
$ | 473,249 | ||||||||||||||
Other services and support |
1,296 | |||||||||||||||
Services |
474,545 | |||||||||||||||
Products |
116,484 | |||||||||||||||
Total Supply Chain Services |
591,029 | $ | 385,331 | $ | 310,368 | $ | 1,213 | $ | 199 | |||||||
Performance Services |
177,256 | 42,153 | 173,568 | 20,041 | 37,106 | |||||||||||
Corporate |
| (67,875 | ) | 71,003 | 4,144 | 654 | ||||||||||
Total |
$ | 768,285 | $ | 359,609 | $ | 554,939 | $ | 25,398 | $ | 37,959 | ||||||
June 30, 2011 |
||||||||||||||||
Supply Chain Services |
||||||||||||||||
Net administrative fees |
$ | 457,951 | ||||||||||||||
Other services and support |
1,097 | |||||||||||||||
Services |
459,048 | |||||||||||||||
Products |
64,628 | |||||||||||||||
Total Supply Chain Services |
523,676 | $ | 369,251 | $ | 310,849 | $ | 1,075 | $ | 756 | |||||||
Performance Services |
157,082 | 37,840 | 153,447 | 16,907 | 29,131 | |||||||||||
Corporate |
| (57,866 | ) | 68,065 | 5,005 | 8,464 | ||||||||||
Total |
$ | 680,758 | $ | 349,225 | $ | 532,361 | $ | 22,987 | $ | 38,351 | ||||||
F-28
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. SEGMENT INFORMATION (Continued)
A reconciliation of Segment Adjusted EBITDA to Operating Income is as follows:
|
For the Year Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Segment Adjusted EBITDA |
$ | 419,025 | $ | 359,609 | $ | 349,225 | ||||
Depreciation and amortization |
(27,681 | ) | (22,252 | ) | (19,524 | ) | ||||
Amortization of purchased intangible assets |
(1,539 | ) | (3,146 | ) | (3,463 | ) | ||||
Merger and acquisition related expenses(a) |
| | (1,538 | ) | ||||||
Strategic and financial restructuring expenses(b) |
(5,170 | ) | | | ||||||
Office consolidations and new Charlotte headquarters expenses(c) |
| | (8,001 | ) | ||||||
Equity in net income of unconsolidated affiliates(d) |
(11,968 | ) | (12,122 | ) | (10,827 | ) | ||||
Operating income |
$ | 372,667 | $ | 322,089 | $ | 305,872 | ||||
16. REDEEMABLE LIMITED PARTNERS' CAPITAL
Redeemable limited partners' capital represents the member owners' 99% ownership of Premier LP. Pursuant to the terms of the existing limited partnership agreement, Premier LP is required to repurchase a limited partner's interest in Premier LP upon the sale of such limited partner's shares of PHSI common stock, such limited partners' withdrawal from Premier LP or such limited partner's failure to comply with the applicable purchase commitments under the existing limited partnership agreement of Premier LP. As a result, the redeemable limited partners' capital is classified as temporary equity in the mezzanine section of the consolidated balance sheets since (i) the withdrawal is at the option of each limited partner; and (ii) the conditions of the repurchase are not solely within the Company's control. At June 30, 2013, the redemption value of the redeemable limited partners' capital approximates its carrying value.
F-29
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. REDEEMABLE LIMITED PARTNERS' CAPITAL (Continued)
The table below shows the changes in the redeemable limited partners' capital from June 30, 2010 to June 30, 2013:
(In Thousands)
|
Receivables From Limited Partners |
Redeemable Limited Partners' Capital |
Accumulated Other Comprehensive (Loss)/Income |
Total Redeemable Limited Partners' Capital |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at June 30, 2010 |
$ | (7,384 | ) | $ | 244,246 | $ | 23 | $ | 236,885 | ||||
Issuance of redeemable limited partnership interest for notes receivable |
(2,907 | ) | 2,907 | | | ||||||||
Receipts on receivables from limited partners |
475 | | | 475 | |||||||||
Distributions applied to receivables from limited partners |
2,547 | (122 | ) | | 2,425 | ||||||||
Repurchase of redeemable limited partnership interest |
| (3,473 | ) | | (3,473 | ) | |||||||
Net income attributable to Premier LP |
| 309,840 | | 309,840 | |||||||||
Distributions to limited partners |
| (288,673 | ) | | (288,673 | ) | |||||||
Net unrealized loss on marketable securities |
| | (20 | ) | (20 | ) | |||||||
Balance at June 30, 2011 |
$ | (7,269 | ) | $ | 264,725 | $ | 3 | $ | 257,459 | ||||
Issuance of redeemable limited partnership interest for notes receivable |
(774 | ) | 774 | | | ||||||||
Distributions applied to receivables from limited partners |
3,085 | (1,214 | ) | | 1,871 | ||||||||
Repurchase of redeemable limited partnership interest |
| (2,896 | ) | | (2,896 | ) | |||||||
Net income attributable to Premier LP |
| 323,339 | | 323,339 | |||||||||
Distributions to limited partners |
| (300,194 | ) | | (300,194 | ) | |||||||
Net unrealized loss on marketable securities |
| | (66 | ) | (66 | ) | |||||||
Balance at June 30, 2012 |
$ | (4,958 | ) | $ | 284,534 | $ | (63 | ) | $ | 279,513 | |||
Issuance of redeemable limited partnership interest for notes receivable |
(61,859 | ) | 61,859 | | | ||||||||
Receipts on receivables from limited partners |
8,143 | | | 8,143 | |||||||||
Distributions applied to receivables from limited partners |
2,103 | (380 | ) | | 1,723 | ||||||||
Repurchase of redeemable limited partnership interest |
| (14,268 | ) | | (14,268 | ) | |||||||
Net income attributable to Premier LP |
| 369,189 | | 369,189 | |||||||||
Distributions to limited partners |
| (336,715 | ) | | (336,715 | ) | |||||||
Net unrealized gain on marketable securities |
| | 50 | 50 | |||||||||
Balance at June 30, 2013 |
$ | (56,571 | ) | $ | 364,219 | $ | (13 | ) | $ | 307,635 | |||
Receivables from limited partners represent amounts due from limited partners for their required capital in Premier LP. These receivables are either interest bearing notes issued by new partners or non-interest bearing loans (contribution loans) provided to existing partners. Interest bearing notes
F-30
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. REDEEMABLE LIMITED PARTNERS' CAPITAL (Continued)
receivable were executed by ten partners of Premier LP during the year ended June 30, 2013, one partner during the year ended June 30, 2012 and three partners during the year ended June 30, 2011. These amounts are reflected as a reduction in redeemable limited partners' capital (which includes such receivables) because amounts due from limited partners for capital are not reflected as redeemable limited partnership capital until paid.
During the fiscal year ended June 30, 2013, eleven partners withdrew from Premier, LP and six partners withdrew from Premier LP during each of the fiscal years ended June 30, 2012 and 2011. The limited partnership agreement provides for the payment of the partnership interest to former partners to occur five years from the date of withdrawal from the partnership without interest. Partnership interest obligations to former limited partners are reflected in notes payable in the accompanying consolidated balance sheets. In certain circumstances, Premier LP may provide an accelerated payout option to former partners on a discounted basis.
Premier LP maintains a distribution policy in which semi-annual cash distributions are made each February attributable to the recently completed six months ended December 31 and each September attributable to the recently completed six months ended June 30. As provided in the limited partnership agreement, the amount of actual cash distributed may be reduced by the amount of such distributions used by limited partners to offset contribution loans or other amounts payable to the Company.
Premier LP distributed $135.7 million to its limited partners in February 2013, of which $1.0 million was retained to reduce limited partner notes payable and related interest obligations and an additional $3.0 million was retained to reduce other amounts payable by limited partners to the Company, resulting in a cash distribution of $131.7 million. Premier LP also distributed $186.9 million to its limited partners in September 2012, of which $0.9 million was retained to reduce limited partner notes payable and related interest obligations and an additional $2.8 million was retained to reduce other amounts payable by limited partners to the Company, resulting in a cash distribution of $183.2 million. In addition, Premier LP distributed $14.1 million to Premier LP members with contractual fee share agreements who converted to member owners during the year.
Premier LP distributed $124.1 million to its limited partners in February 2012, of which $1.1 million was retained to reduce limited partner notes payable and related interest obligations and an additional $2.2 million was retained to reduce other amounts payable by limited partners to the Company, resulting in $120.8 million paid in cash. Premier LP also distributed $176.1 million to limited partners in September 2011, of which $1.1 million was retained to reduce limited partner notes payable and related interest obligations and an additional $4.8 million was retained to reduce other amounts payable by limited partners to the Company, resulting in $170.2 million payable in cash.
Premier LP distributed $121.2 million to limited partners in February 2011, of which $1.2 million was retained to reduce limited partner notes payable and related interest obligations and an additional $2.1 million was retained to reduce other amounts payable by limited partners to the Company, resulting in $117.9 million paid in cash. Premier LP also distributed $167.5 million to limited partners in September 2010, of which $1.5 million was retained to reduce limited partner notes payable and related interest obligations and an additional $3.3 million was retained to reduce other amounts payable by limited partners to the Company, resulting in $162.7 million payable in cash.
F-31
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. STOCKHOLDERS' EQUITY
Common stock subscribed reflects shares of the Company's common stock subscribed by new member owners. A corresponding subscription receivable is included in stockholders' equity in the accompanying consolidated balance sheets until such time as the subscription is paid.
Pursuant to the terms of the Company's stockholders' agreement, the Company maintains the right, but not the obligation, to purchase a stockholder's shares of the Company's common stock for a period of 90 days after the occurrence of any of the following events: (i) a material breach of the Company's stockholders' agreement by such stockholder, (ii) a change in control with respect to such stockholder, (iii) such stockholder's expression of its desire to withdraw from the Company, or (iv) the expulsion of such stockholder from the Company.
18. PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Company has a defined contribution pension plan and a 401(k) retirement savings plan (the 401(k) plan) which cover employees who meet certain age and service requirements.
The pension plan provides for monthly contributions of 5% of the participant's compensation, not to exceed certain limits. Pension expense, included in selling, general and administrative expenses in the accompanying consolidated statements of income, was $7.5 million, $6.9 million and $6.7 million for the years ended June 30, 2013, 2012 and 2011, respectively.
The 401(k) plan provides for monthly employee contributions of up to 20% and matching monthly employer contributions up to 4% of the participant's compensation, not to exceed certain limits. The 401(k) expense, included in selling, general and administrative expenses in the accompanying consolidated statements of income, was $6.2 million, $5.5 million and $5.3 million for the years ended June 30, 2013, 2012 and 2011, respectively.
The Company maintains a non-qualified deferred compensation plan for the benefit of eligible employees. This plan is designed to permit employee deferrals in excess of certain tax limits and provides for discretionary employer contributions, in excess of the tax limits applicable to the pension and 401(k) plans (see Note 2).
19. INCOME TAXES
The Company's income tax expense is attributable to the activities of the Company and PSCI, both subchapter C corporations. Under the provisions of federal and state statutes, Premier LP is not subject to federal and state income taxes. For federal income tax purposes, income realized by Premier LP is taxable to its partners. The Company and PSCI are subject to U.S. federal and state income taxes.
F-32
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. INCOME TAXES (Continued)
Significant components of the consolidated expense/(benefit) for income taxes are as follows:
|
June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Current: |
||||||||||
Federal |
$ | 5,690 | $ | 9,944 | $ | 569 | ||||
State |
778 | 1,138 | 840 | |||||||
Total current |
6,468 | 11,082 | 1,409 | |||||||
Deferred: |
||||||||||
Federal |
2,858 | (2,524 | ) | 2,722 | ||||||
State |
400 | (329 | ) | 573 | ||||||
Total deferred |
3,258 | (2,853 | ) | 3,295 | ||||||
Total |
$ | 9,726 | $ | 8,229 | $ | 4,704 | ||||
The Company's effective income tax rate differs from income taxes recorded at the statutory rate primarily due to partnership income not subject to federal income taxes, state and local taxes, and nondeductible expenses. A reconciliation of the amount computed at the statutory federal income tax rate to the actual tax expense is as follows:
|
June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Tax expense at the 35% U.S. statutory rate |
$ | 134,684 | $ | 117,214 | $ | 110,937 | ||||
Partnership income (federal) not subject to tax |
(126,703 | ) | (110,739 | ) | (105,920 | ) | ||||
State and local income taxes, permanent tax differences, credits and other |
1,745 | 1,754 | (313 | ) | ||||||
Tax expense |
$ | 9,726 | $ | 8,229 | $ | 4,704 | ||||
Effective income tax rate |
2.5% | 2.5% | 1.5% |
Federal tax years ended June 30, 2012 and 2011 have not been examined by the Internal Revenue Service ("IRS") and remain open as of June 30, 2013. The Company believes it has recorded adequate taxes for positions taken which may be challenged upon IRS examination.
The Company acquired the stock of CareScience, Inc. in 2007 and recorded federal net operating loss carryforwards that will be available to offset federal taxable income of the PHSI consolidated group. These loss carryforwards are subject to an annual limitation of approximately $1.4 million under the provisions of IRC Section 382. At June 30, 2013, the Company had federal net operating loss carryforwards of $10.7 million that will begin expiring on June 30, 2017 unless utilized. At June 30, 2013, the Company had state net operating loss carryforwards of $10.4 million that will begin expiring on June 30, 2014, and PSCI had state net operating loss carryforwards of $5.5 million that will begin expiring on June 30, 2016, unless utilized, based on each respective state's regulations regarding carryforward limitations.
The Company acquired 60% of the member interests of S2S Global on December 6, 2011 and there were no significant book-to-tax basis differences in the assets acquired in connection with the acquisition. The Company's acquisition of Commcare on November 1, 2010 and related IRC Section 338(h)(10) election resulted in $34.7 million in IRC Section 197 tax basis goodwill that is being amortized over 15 years. There were no other significant book to tax basis differences in the assets acquired in connection with the acquisition.
F-33
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. INCOME TAXES (Continued)
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company annually assesses whether a valuation allowance is necessary against net deferred tax assets. Factors considered by the Company include earnings history and the ability to carry back losses against current year income. Based on the historical earnings and anticipated results, the Company has concluded that it is more likely than not that all of the deferred tax assets will be realized, except for book-to-tax basis differences of the Company's investment in Premier LP and certain state net operating losses that are expected to expire. Accordingly, as of June 30, 2013 and 2012, the Company has recognized net deferred tax assets of $23.5 million and $26.7 million, respectively.
Deferred tax assets consist of the following:
|
June 30, | ||||||
---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012(1) | |||||
Deferred tax assets |
|||||||
Current: |
|||||||
Accrued expenses and other |
$ | 6,353 | $ | 9,635 | |||
Accrued vacation |
2,900 | 2,545 | |||||
Total current deferred tax assets |
9,253 | 12,180 | |||||
Valuation allowance for deferred tax assets |
(850 |
) |
(1,061 |
) |
|||
Net current deferred tax assets |
8,403 | 11,119 | |||||
Noncurrent: |
|||||||
Accrued expenses |
13,131 | 8,608 | |||||
Net operating losses |
4,429 | 5,768 | |||||
Other |
9,596 | 9,408 | |||||
Total deferred tax assets |
27,156 | 23,784 | |||||
Valuation allowance for deferred tax assets |
(2,869 |
) |
(2,429 |
) |
|||
Net noncurrent deferred tax assets |
24,287 | 21,355 | |||||
Deferred tax liability |
|||||||
Noncurrent: |
|||||||
Purchased intangible assets and depreciation |
(9,210 | ) | (5,736 | ) | |||
Total net noncurrent deferred tax asset |
15,077 | 15,619 | |||||
Total net deferred tax asset |
$ | 23,480 | $ | 26,738 | |||
20. OTHER INCOME, NET
Other income, net is comprised of the following:
|
June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(In Thousands)
|
2013 | 2012 | 2011 | |||||||
Equity in net income of unconsolidated affiliates |
$ | 11,968 | $ | 12,122 | $ | 10,827 | ||||
Interest and investment income, net |
965 | 874 | 1,045 | |||||||
Loss on disposal of assets |
(788 | ) | (188 | ) | (780 | ) | ||||
Other income, net |
$ | 12,145 | $ | 12,808 | $ | 11,092 | ||||
F-34
PREMIER HEALTHCARE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. RELATED PARTY TRANSACTIONS
Premier LP and its wholly owned subsidiary, Provider Select, LLC, maintain a group purchasing agreement with GYNHA Services, Inc. ("GNYHA") whereby GNYHA utilizes the Company's GPO supplier contracts. GNYHA converted from a non-owner member to a member owner effective January 1, 2013. GNYHA owned approximately 14% of the outstanding partnership interests in Premier LP as of June 30, 2013. Net administrative fees revenue recorded under the arrangement with GNYHA was $12.1 million for the year ended June 30, 2013. Receivables from GNYHA, included in due from related party in the accompanying consolidated balance sheet, net, were $1.1 million as of June 30, 2013.
PSCI's 50% ownership share of Innovatix's net income included in other income, net in the accompanying consolidated statements of income is $12.0 million, $12.1 million and $10.8 million for the years ended June 30, 2013, 2012 and 2011, respectively.
The Company maintains a group purchasing agreement with Innovatix under which Innovatix members are permitted to utilize Premier LP's GPO supplier contracts. Gross administrative fees revenue and a corresponding revenue share recorded under the arrangement were $31.9 million, $28.9 million and $25.5 million for the years ended June 30, 2013, 2012 and 2011, respectively. At June 30, 2013 and 2012, the Company has recorded Innovatix revenue share obligations, included in accounts payable and accrued expenses in the accompanying consolidated balance sheets, of $2.8 million and $2.4 million, respectively.
The Company conducts all operational activities for American Excess Insurance Exchange Risk Retention Group ("AEIX"), a reciprocal risk retention group that provides excess hospital, professional, umbrella and general liability insurance to certain hospital and healthcare system members. The Company is reimbursed by AEIX for actual costs, plus an annual incentive management fee not to exceed $500,000 per calendar year. The Company received cost reimbursement of $4.6 million, $4.5 million and $4.9 million from AEIX for the years ended June 30, 2013, 2012 and 2011, respectively, and annual incentive management fees of $375,000, $350,000 and $200,000 for the years ended June 30, 2013, 2012 and 2011, respectively. As of June 30, 2013 and 2012, $0 and $503,000, respectively, in amounts payable by AEIX are included in due from related party in the accompanying consolidated balance sheets.
22. SUBSEQUENT EVENTS
On July 19, 2013, the Company purchased all the issued and outstanding units of SYMMEDRx, LLC ("SYMMEDRx") for $28.8 million. The Company funded the acquisition by drawing on its senior secured revolving credit facility (See Note 11). The primary reason for the acquisition of SYMMEDRx, a business with a track record of analyzing and reducing costs for health systems through the innovative use of data, is to continue to strengthen the Company's ability to drive improvement in member cost savings.
On August 2, 2013, S2S Global renewed and amended its revolving line of credit to include a $15.0 million credit limit and a $5.0 million accordion feature. The amended revolving line of credit has a maturity date of December 16, 2014. The outstanding balance under the existing revolving note of $7.7 million at June 30, 2013 is included in current portion of notes payable on the consolidated balance sheets.
F-35
Shares
Class A Common Stock
PROSPECTUS
J.P. Morgan | BofA Merrill Lynch | Wells Fargo Securities |
Citigroup |
Piper Jaffray |
Raymond James |
William Blair |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by us in connection with the issuance and distribution of the shares of Class A common stock being registered hereby. All of such expenses are estimates, other than the filing and listing fees payable to the Securities and Exchange Commission, or the SEC, the Financial Industry Regulatory Authority and the Nasdaq Capital Market.
Filing FeeSecurities and Exchange Commission |
$ | 13,640 | ||
Filing FeeFinancial Industry Regulatory Authority |
15,500 | |||
Listing FeeNasdaq Capital Market |
50,000 | |||
Fees and Expenses of Counsel |
* | |||
Printing Expenses |
250,000 | |||
Fees and Expenses of Accountants |
2,000,000 | |||
Transfer Agent and Registrar's Fees |
25,000 | |||
Miscellaneous Expenses |
350,000 | |||
Total |
* | |||
Item 14. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporation Law, or DGCL, allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of the DGCL or obtained an improper personal benefit. Our certificate of incorporation will provide for this limitation of liability.
Section 145 of the DGCL, or Section 145, provides that a Delaware corporation may indemnify any person who was, is or is threatened to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were or are a party to any threatened, pending or completed action or suit by or in the right of the corporation by reasons of the fact that such person is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred.
II-1
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145.
Our certificate of incorporation provides that we are required to indemnify our directors to the fullest extent permitted by Delaware law. Our certificate of incorporation also provides that, upon satisfaction of specified conditions, we are required to advance expenses incurred by a director in advance of the final disposition of any threatened, pending or completed action or proceeding, and permits us to secure insurance on behalf of any officer or director for any liability against such person regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of the certificate of incorporation or otherwise.
We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. With certain exceptions, these agreements provide for indemnification of expenses and liabilities incurred by the indemnified individual in connection with a proceeding related to his or her service to us as a director, executive officer, employee or other agent (including, among other things, attorneys' fees, judgments, fines, ERISA excise taxes and penalties and settlement amounts).
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our certificate of incorporation, our bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
We expect to maintain standard policies of insurance that provide coverage (i) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (ii) to us with respect to indemnification payments that we may make to such directors and officers.
The underwriting agreement provides for indemnification to our directors and officers by the underwriters against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
On May 14, 2013, we issued 100 shares of Class A common stock, par $0.01 per share, to Premier Healthcare Solutions, Inc., our sole stockholder. These shares of Class A common stock were issued in reliance on the exemption provided by Section 4(a)(2) of the Securities Act on the basis that the sale did not involve a public offering. In connection with this offering, these shares of Class A common stock will be repurchased from Premier Healthcare Solutions, Inc. for nominal value and cancelled.
On , we issued shares of our Class B common stock, par value $0.000001 per share, to our member owners at a price per share equal to the par value, for an aggregate consideration of $ . These shares of Class B common stock were issued in reliance on the exemption provided by Section 4(a)(2) of the Securities Act on the basis that no public offering was made.
Item 16. Exhibits and Financial Statement Schedules.
The exhibit index attached hereto is incorporated herein by reference.
II-2
Schedules 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.
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, as amended, or the Securities Act, may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this registration statement, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act 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 hereunder, 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 of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
II-3
Pursuant to the requirements of the Securities Act of 1933, as amended, Premier, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Charlotte, North Carolina, on the 26th day of August, 2013.
PREMIER, INC. |
||||
By: |
/s/ SUSAN D. DEVORE Name: Susan D. DeVore Title: President, Chief Executive Officer and Director |
Each of the undersigned executive officers and directors of Premier, Inc. hereby severally constitute and appoint each of Susan D. DeVore, Craig S. McKasson and Jeffrey W. Lemkin as the attorneys-in-fact for the undersigned, in any and all capacities, with full power of substitution, to sign any and all pre- or post-effective amendments to this Registration Statement, any subsequent Registration Statement for the same offering which may be filed pursuant to Rule 413 or 462 under the Securities Act of 1933, as amended, and any and all pre- or post-effective amendments thereto, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on the 26th day of August, 2013.
Signature
|
Title
|
|
---|---|---|
/s/ SUSAN D. DEVORE Susan D. DeVore |
President, Chief Executive Officer and Director (principal executive officer) |
|
/s/ CRAIG S. MCKASSON Craig S. McKasson |
Chief Financial Officer and Senior Vice President (principal financial and accounting officer) |
|
/s/ CHRISTINE K. CASSEL Christine K. Cassel, MD |
Director |
|
/s/ CHARLES E. HART Charles E. Hart, MD |
Director |
|
/s/ ROBERT ISSAI Robert Issai |
Director |
|
/s/ WILLIAM E. MAYER William E. Mayer |
Director |
II-4
Signature
|
Title
|
|
---|---|---|
/s/ KEITH B. PITTS Keith B. Pitts |
Director | |
/s/ TOMI S. RYBA Tomi S. Ryba |
Director |
|
/s/ TERRY SHAW Terry Shaw |
Director |
|
/s/ RICHARD J. STATUTO Richard J. Statuto |
Director |
|
/s/ GLENN D. STEELE, JR. Glenn D. Steele, Jr., MD, PhD |
Director |
|
/s/ SUSAN S. WANG Susan S. Wang |
Director |
|
/s/ ALAN R. YORDY Alan R. Yordy |
Director |
II-5
1.1 | * | Underwriting Agreement | |
3.1 |
** |
Certificate of Incorporation of Premier, Inc. |
|
3.2 |
** |
Bylaws of Premier, Inc. |
|
4.1 |
* |
Form of Class A common stock certificate |
|
5.1 |
* |
Opinion of McDermott Will & Emery LLP regarding validity of the shares of Class A common stock registered |
|
9.1 |
** |
Form of Voting Trust Agreement Relating to Shares of Class B common stock of Premier, Inc. by and among Premier, Inc., Premier Purchasing Partners, L.P., the holders of Class B common stock of Premier, Inc. and Wells Fargo Delaware Trust Company, N.A. |
|
10.1 |
** |
Form of Amended and Restated Limited Partnership Agreement of Premier Healthcare Alliance, L.P. |
|
10.2 |
** |
Form of GPO Participation Agreement by and among Premier Purchasing Partners, L.P. and its limited partners |
|
10.3 |
** |
Form of Tax Receivable Agreement among Premier, Inc. and the Limited Partners of Premier Healthcare Alliance, L.P. |
|
10.4 |
** |
Form of Exchange Agreement by and among Premier, Inc., Premier Purchasing Partners, L.P. and its limited partners |
|
10.5 |
** |
Form of Registration Rights Agreement by and among Premier, Inc. and the Limited Partners of Premier Healthcare Alliance, L.P. |
|
10.6 |
**+ |
Premier, Inc. 2013 Equity Incentive Plan |
|
10.7 |
**+ |
Form of Performance Share Award Agreement under the Premier, Inc. 2013 Equity Incentive Plan |
|
10.8 |
**+ |
Form of Stock Option Agreement under the Premier, Inc. 2013 Equity Incentive Plan |
|
10.9 |
**+ |
Form of Restricted Stock Unit Agreement under the Premier, Inc. 2013 Equity Incentive Plan |
|
10.10 |
**+ |
Form of Restricted Stock Unit Agreement for Non-Employee Directors under the Premier, Inc. 2013 Equity Incentive Plan |
|
10.11 |
**+ |
Premier, Inc. Annual Incentive Compensation Plan, as amended and restated effective September 1, 2003 |
|
10.12 |
**+ |
Amendment 2008-1 to Premier, Inc. Annual Incentive Compensation Plan, effective January 1, 2009 |
|
10.13 |
**+ |
Amendment 2011-1 to Premier, Inc. Annual Incentive Compensation Plan, effective January 1, 2011 |
|
10.14 |
**+ |
Amendment 2013-1 to Premier, Inc. Annual Incentive Compensation Plan, effective August 16, 2013 |
|
10.15 |
**+ |
Premier, Inc. Long-Term Incentive Compensation Plan for the Period July 1, 2010 through June 30, 2013 (amended and restated), effective July 1, 2010 |
|
10.16 |
**+ |
Amendment 2011-1 to Premier, Inc. Long-Term Incentive Compensation Plan for the Period July 1, 2010 through June 30, 2013, effective July 1, 2010 |
|
10.17 |
**+ |
Amendment 2013-1 to Premier, Inc. Long-Term Incentive Compensation Plan for the Period July 1, 2010 through June 30, 2013, effective August 16, 2013 |
II-6
10.18 | **+ | Premier, Inc. Deferred Compensation Plan, as Amended and Restated, effective January 1, 2009 | |
10.19 |
**+ |
First Amendment to the Premier, Inc. Deferred Compensation Plan, effective January 1, 2011 |
|
10.20 |
**+ |
Second Amendment to the Premier, Inc. Deferred Compensation Plan, effective January 1, 2014 |
|
10.21 |
*+ |
Premier, Inc. Directors' Compensation Policy |
|
10.22 |
**+ |
Form of Senior Executive Employment Agreement by and between Susan D. DeVore and Premier Healthcare Solutions, Inc. |
|
10.23 |
**+ |
Form of Senior Executive Employment Agreement by and between Craig S. McKasson and Premier Healthcare Solutions, Inc. |
|
10.24 |
**+ |
Form of Senior Executive Employment Agreement by and between Michael J. Alkire and Premier Healthcare Solutions, Inc. |
|
10.25 |
*+ |
Form of Executive Employment Agreement by and between executive and Premier Healthcare Solutions, Inc. |
|
10.26 |
** |
Form of Stock Purchase Agreement by and among Premier, Inc. and the limited partners of Premier Healthcare Alliance, L.P. |
|
10.27 |
** |
Form of Unit Put/Call Agreement by and among Premier Healthcare Alliance, L.P., Premier Healthcare Solutions, Inc. and the limited partners of Premier Healthcare Alliance, L.P. |
|
10.28 |
** |
Form of Contribution Agreement by and among the stockholders of Premier Healthcare Solutions, Inc. and Premier Purchasing Partners, L.P. |
|
10.29 |
*+ |
Form of Indemnification Agreement by and between each director and executive officer and Premier, Inc. |
|
10.30 |
** |
Loan Agreement dated as of December 16, 2011, among Premier, Inc., Premier Purchasing Partners, L.P., certain subsidiary guarantors and Wells Fargo Bank, National Association |
|
10.31 |
** |
Security Agreement, dated December 16, 2011, by and among Premier, Inc., Premier Purchasing Partners, L.P., certain subsidiary guarantors and Wells Fargo Bank, National Association |
|
10.32 |
** |
Lease by and between Boyle Building, LLC and Premier Purchasing Partners, L.P., dated October 21, 2009 |
|
21.1 |
* |
Subsidiaries of Premier, Inc. |
|
23.1 |
** |
Consent of Ernst & Young LLP pertaining to Premier, Inc. |
|
23.2 |
** |
Consent of Ernst & Young LLP pertaining to Premier Healthcare Solutions, Inc. |
|
23.3 |
* |
Consent of McDermott Will & Emery LLP (included as part of Exhibit 5.1) |
|
24.1 |
** |
Power of Attorney (included on signature page of this Registration Statement) |
II-7
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
PREMIER, INC.
ARTICLE I
Section 1.1 Name. The name of the Corporation is Premier, Inc. (the Corporation).
ARTICLE II
Section 2.1 Address. The registered office of the Corporation in the State of Delaware is The Corporation Trust Company, located at 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of the Corporations registered agent at such address is The Corporation Trust Company.
ARTICLE III
Section 3.1 Purpose. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL).
ARTICLE IV
Section 4.1 Capitalization. The total number of shares of all classes of capital stock that the Corporation is authorized to issue is One Billion One Hundred Fifty Million (1,150,000,000) shares, consisting of (i) Fifty Million (50,000,000) shares of Preferred Stock, par value $0.01 per share (Preferred Stock), (ii) Five Hundred Million (500,000,000) shares of Class A Common Stock, par value $0.01 per share (Class A Common Stock), and (iii) Six Hundred Million (600,000,000) shares of Class B Common Stock, par value $0.000001 per share (Class B Common Stock and, together with the Class A Common Stock, the Common Stock). The number of authorized shares of any of the Class A Common Stock, Class B Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of any of the Class A Common Stock, Class B Common Stock or Preferred Stock voting separately as a class shall be required therefor.
Section 4.2 Preferred Stock.
(a) The Board of Directors of the Corporation (the Board) is hereby expressly authorized, by resolution or resolutions at any time and from time to time, to provide,
out of the unissued shares of Preferred Stock, for one or more series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the powers, preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series and to cause to be filed with the Secretary of State of the State of Delaware a certificate of designation with respect thereto. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
(b) Except as otherwise required by law, holders of a series of Preferred Stock, as such, shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Certificate of Incorporation (including any certificate of designations relating to such series).
Section 4.3 Common Stock.
(a) Voting Rights.
(i) Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that to the fullest extent permitted by law, holders of Common Stock, as such, shall have no voting power with respect to, and shall not be entitled to vote on, any amendment to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or pursuant to the DGCL.
(ii) Except as otherwise required in this Certificate of Incorporation or by applicable law, the holders of Common Stock shall vote together as a single class on all matters (or, if any holders of Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class with such holders of Preferred Stock).
(b) Dividends and Distributions. Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Class A Common Stock with respect to the payment of dividends and other distributions in cash, equity or property of the Corporation, such dividends and other distributions may be declared and paid on the Class A Common Stock out of the assets of the Corporation that are by law available therefor at such times and in such amounts as the Board in its discretion shall determine. Subject to Section 4.3(e), dividends and distributions shall not be declared or paid on the Class B Common Stock.
(c) Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential and other amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Class A Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution ratably in proportion to the number of shares held by each such stockholder. The holders of shares of Class B Common Stock, as such, shall not be entitled to receive any assets of the Corporation in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation or otherwise.
(d) Retirement of Class B Common Stock. In the event that any outstanding share of Class B Common Stock shall cease to be held by a holder of Class B Common Units of Premier Healthcare Alliance, L.P., a California limited partnership (Premier LP), such share shall, without the payment of any consideration therefor, automatically and without further action on the part of the Corporation or any holder of Class B Common Stock, be transferred to the Corporation and thereupon shall be retired. The Corporation shall not reissue any share of Class B Common Stock canceled pursuant to this Section 4.3(d).
(e) Stock Splits, Reclassifications, Etc. In the event of any dividends or other distributions payable in stock of the Corporation, such dividends or distributions shall be in the same proportion with respect to each class of stock, but only shares of Class A Common Stock shall be distributed with respect to Class A Common Stock and only shares of Class B Common Stock shall be distributed with respect to Class B Common Stock. In the event of any stock split, combination or reclassification of either the Class A Common Stock or the Class B Common Stock, the shares of the other class of Common Stock shall also be split, combined or reclassified so that the voting power relationship between the aggregate shares of Class A Common Stock and the aggregate shares of Class B Common Stock outstanding immediately following any such stock split, combination or reclassification shall be the same as the voting power relationship between the aggregate shares of Class A Common Stock and the aggregate shares of Class B Common Stock immediately prior to such stock split, combination or reclassification.
ARTICLE V
Section 5.1 Bylaws. In furtherance and not in limitation of the powers conferred by the DGCL, the Board is expressly authorized to make, amend, alter, change, add to or repeal the bylaws of the Corporation without the assent or vote of the stockholders in any manner not inconsistent with the law of the State of Delaware or this Certificate of Incorporation. Notwithstanding anything to the contrary contained in this Certificate of Incorporation, the affirmative vote of the holders of at least 66 2/3 % of the voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to make, amend, alter, change, add to or repeal any provision of the bylaws of the Corporation.
ARTICLE VI
Section 6.1 Board of Directors.
(a) The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all powers of the Corporation which are not by statute or by this Certificate of Incorporation directed or granted exclusively to the stockholders. The exact number of directors constituting the full Board shall be determined from time to time in the manner set forth in the bylaws of the Corporation. On and after August 15, 2013, the Board shall be divided into three classes designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board, and in the event the size of the Board is increased or decreased, for any reason or none, such increase or decrease shall be apportioned, as nearly as possible, equally among the three classes. The initial terms of the directors serving in Class I shall expire at the Corporations first annual meeting of stockholders. The initial terms of the directors serving in Class II shall expire at the Corporations second annual meeting of stockholders. The initial terms of the directors serving in Class III shall expire at the Corporations third annual meeting of stockholders. Thereafter, each director shall serve for a term expiring at the third annual meeting following his or her election.
(b) Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal and other features of such directorships shall be governed by the terms of this Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) applicable thereto. The number of directors that may be elected by the holders of any such series of Preferred Stock shall be in addition to the number fixed pursuant to Section 6.1(a) hereof.
(c) Directors of the Corporation need not be elected by written ballot unless the bylaws of the Corporation shall so provide. Any newly created directorship on the Board that results from an increase in the number of directors and any vacancy occurring in the Board shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
ARTICLE VII
Section 7.1 Meetings of Stockholders. Any action required or permitted to be taken by the holders of stock of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders; provided, however, to the extent expressly permitted by the certificate of designation relating to one or more series of Preferred Stock, any action by the holders of such series of Preferred Stock, voting separately as a series or separately as a class with one or more other such series, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the relevant series having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of the stockholders of the Corporation may be called only by or at the direction of the Board, the Chair of the Board or the Chief Executive Officer of the Corporation. Notwithstanding the foregoing, until such time as the Corporation ceases to qualify as a controlled company within the meaning of the rules of the New York Stock Exchange (or the comparable rules of another stock exchange on which the Corporations Class A Common Stock is then traded) following the IPO (as such term is hereinafter defined), any action required or permitted to be taken by the holders of stock of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded; provided, however, the ability to act by written consent in lieu of a stockholder meeting shall immediately and permanently cease as of the date on which the Corporation no longer qualifies for such controlled company exemption. IPO shall mean the initial public offering of the Corporations Class A Common Stock by means of a registration statement filed under the Securities Act of 1933, as amended.
ARTICLE VIII
Section 8.1 Limited Liability of Directors. No director of the Corporation will have any personal liability to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the DGCL exists or hereafter may be amended. Neither the amendment nor the repeal of this Section 8.1 nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Section 8.1 shall eliminate or reduce the effect hereof in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Section 8.1, would accrue or arise, prior to such amendment or repeal or adoption of such inconsistent provision. If the DGCL or any successor statute of the State of Delaware is amended after the adoption of this provision to authorize corporate action further eliminating or limiting the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL or such successor statute of the State of Delaware as so amended from time to time. This Section 8.1 shall not affect a provision of this Certificate of Incorporation or the bylaws of the Corporation or contract or resolution of the Corporation indemnifying or agreeing to indemnify a director against liability.
Section 8.2 Indemnification. To the fullest extent permitted by the laws of the State of Delaware, as it presently exists or may hereafter be amended, the Corporation shall indemnify and hold harmless any person (and such persons heirs, executors or administrators)
who was or is made or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any threatened, pending or completed action, suit, arbitration, alternative dispute resolution mechanism, investigation, inquiry, administrative hearing or other threatened or actual proceeding (brought in the right of the Corporation or otherwise), whether civil, criminal, administrative, legislative, congressional or investigative, and whether formal or informal, and whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, including appeals (all such actions, suits or proceedings, including appeals, are referred to herein as Actions or Proceedings), by reason of the fact that such person, or a person for whom such person was the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, representative or agent of another corporation, partnership, joint venture, trust, limited liability company, nonprofit entity or other enterprise (including, without limitation, any trade associations), from and against all loss and liability suffered and expenses (including, without limitation, attorneys fees and ERISA excise taxes or penalties), judgments, fines and amounts paid in settlement reasonably incurred by such person or such heirs, executors or administrators in connection with such Action or Proceeding, all to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto). Without limiting the scope of this Section 8.2, the foregoing indemnification shall cover any acts or omissions by any person described in this Section 8.2 with respect to any subsidiary or other entity controlled by the Corporation (including, without limitation, Premier LP). Notwithstanding the preceding sentences, except as otherwise provided in Section 8.4 hereof, the Corporation shall be required to indemnify a person described in such sentences in connection with any Action or Proceeding (or part thereof) commenced by such person only if the commencement of such Action or Proceeding (or part thereof) by such person was authorized by the Board.
Section 8.3 Advancement of Expenses. To the fullest extent permitted by the laws of the State of Delaware, the Corporation shall promptly pay expenses (including attorneys fees) incurred by any person described in Section 8.2 hereof in appearing at, participating in or defending any threatened, pending or completed Action or Proceeding in advance of the final disposition of such threatened, pending or completed Action or Proceeding, upon presentation of an undertaking on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified under this Article VIII or otherwise. Notwithstanding the preceding sentence, except as otherwise provided in Section 8.4 hereof, the Corporation shall be required to advance expenses of a person described in such sentence in connection with any Action or Proceeding (or part thereof) commenced by such person only if the commencement of such Action or Proceeding (or part thereof) by such person was authorized by the Board.
Section 8.4 Unpaid Claims. If a claim for indemnification (following the final disposition of such Action or Proceeding) or advancement of expenses under this Article VIII is not paid in full within thirty (30) days after a written claim therefor by any person described in Section 8.2 has been received by the Corporation, such person may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, the Corporation shall have the burden of proving that such person is not entitled to the requested indemnification or advancement of expenses under this Article VIII.
Section 8.5 Insurance. To the fullest extent permitted by the laws of the State of Delaware, the Corporation may purchase and maintain insurance on behalf of any person described in Section 8.2 against any liability asserted against such person, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VIII or otherwise.
Section 8.6 Non-Exclusivity of Rights. The provisions of this Article VIII shall be applicable to all Actions or Proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act occurring before or after its adoption, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors or administrators of such person. The provisions of this Article VIII shall be deemed to be a contract between the Corporation and each director or officer (or legal representative thereof) who serves in such capacity at any time while this Article VIII and the relevant provisions of the law of the State of Delaware and other applicable law, if any, are in effect, and any alteration, amendment or repeal hereof shall not affect any rights or obligations then existing with respect to any state of facts or any Action or Proceeding then or theretofore existing, or any Action or Proceeding thereafter brought or threatened based in whole or in part on any such state of facts. If any provision of this Article VIII shall be found to be invalid or limited in application by reason of any law or regulation, it shall not affect the validity of the remaining provisions hereof. The rights of indemnification and advancement of expenses provided in this Article VIII shall neither be exclusive of, nor be deemed in limitation of, any rights to which any person may otherwise be or become entitled or permitted by contract, this Certificate of Incorporation, the bylaws of the Corporation, vote of stockholders or directors or otherwise, or as a matter of law, both as to actions in such persons official capacity and actions in any other capacity, it being the policy of the Corporation that indemnification of, and advancement of expenses to, any person whom the Corporation is obligated to indemnify or advance expenses pursuant to this Article VIII shall be made to the fullest extent permitted by law. This Article VIII shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to, and purchase and maintain insurance on behalf of, persons other than persons described in Section 8.2 hereof.
ARTICLE IX
Section 9.1 Amendment. This Certificate of Incorporation may be amended at any meeting of the stockholders or, if permitted by Section 7.1 of this Certificate of Incorporation, by written consent in lieu of a stockholder meeting; provided, that notice of the proposed change was given in the notice of the meeting of the stockholders, if applicable; and provided further, that notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote of the stockholders, the affirmative vote of the holders of at least 66 2/3% of the voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the stockholders to amend any provision of this Certificate of Incorporation.
Section 9.2 Severability. If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
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IN WITNESS WHEREOF, the incorporator has executed this Certificate of Incorporation this 14th day of May, 2013.
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/s/ Mark J. Mihanovic |
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Mark J. Mihanovic |
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Sole Incorporator |
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McDermott Will & Emery LLP |
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275 Middlefield Road |
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Menlo Park, California 94025 |
Exhibit 3.2
BYLAWS
OF
PREMIER, INC.
ARTICLE I
STOCKHOLDERS
Section 1. The annual meeting of the stockholders of Premier, Inc. (the Corporation) for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such date, and at such time and place, if any, within or without the State of Delaware as may be designated from time to time by the Board of Directors of the Corporation (the Board).
Section 2. Subject to the rights of the holders of any class or series of Preferred Stock (as defined in the certificate of incorporation of the Corporation) of the Corporation, special meetings of the stockholders of the Corporation may be called only by or at the direction of the Board, the Chair of the Board or the Chief Executive Officer of the Corporation.
Section 3. Except as otherwise provided by law, the certificate of incorporation of the Corporation or these Bylaws, notice of the date, time, place (if any), the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes of the meeting of stockholders shall be given not more than sixty (60), nor less than ten (10), days previous thereto, to each stockholder of record entitled to vote at the meeting as of the record date for determining stockholders entitled to notice of the meeting at such address as appears on the records of the Corporation.
Section 4. The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided herein, by statute or by the certificate of incorporation of the Corporation; but if at any meeting of stockholders there shall be less than a quorum present, the chair of the meeting or the stockholders present may, to the extent permitted by law, adjourn the meeting from time to time without further notice other than announcement at the meeting of the date, time and place, if any, of the adjourned meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record entitled to notice of the meeting, and such notice shall include the record date for determining stockholders entitled to vote at the meeting if such date is different from the record date for determining stockholders entitled to notice of the meeting. Notwithstanding the foregoing, where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter.
Section 5. The Chair of the Board, or in the Chairs absence or at the Chairs direction, the Chief Executive Officer, or in the Chief Executive Officers absence or at the Chief Executive Officers direction, any officer of the Corporation shall call all meetings of the stockholders to order and shall act as chair of any such meetings. The Secretary of the Corporation or, in such officers absence, an Assistant Secretary shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the chair of the meeting shall appoint a secretary of the meeting. Unless otherwise determined by the Board prior to the meeting, the chair of the meeting shall determine the order of business and shall have the authority in his or her discretion to regulate the conduct of any such meeting, including, without limitation, convening the meeting and adjourning the meeting (whether or not a quorum is present), imposing restrictions on the persons (other than stockholders of record of the Corporation or their duly appointed proxies) who may attend any such meeting, whether any stockholder or stockholders proxy may be excluded from any meeting of stockholders based upon any determination by the chair of the meeting, in his or her sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings thereat, and the circumstances in which any person may make a statement or ask questions at any meeting of stockholders.
Section 6. At all meetings of stockholders, any stockholder entitled to vote thereat shall be entitled to vote in person or by proxy, but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for the stockholder as proxy pursuant to the General Corporation Law of the State of Delaware (the DGCL), the following shall constitute a valid means by which a stockholder may grant such authority: (i) a stockholder may execute a writing authorizing another person or persons to act for the stockholder as proxy, and execution of the writing may be accomplished by the stockholder or the stockholders authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature; or (ii) a stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspector or inspectors of stockholder votes or, if there are no such inspectors, such other persons making that determination shall specify the information upon which they relied.
A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date.
Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to the preceding paragraph of this Section 6 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Proxies shall be filed with the secretary of the meeting prior to or at the commencement of the meeting to which they relate.
Section 7. When a quorum is present at any meeting, the vote of the holders of a majority of the votes cast shall decide any question brought before such meeting, unless the question is one upon which by express provision of the certificate of incorporation of the Corporation, these Bylaws or the DGCL a different vote is required, in which case such express provision shall govern and control the decision of such question. Notwithstanding the foregoing, where a separate vote by a class or series or classes or series is required and a quorum is present, the affirmative vote of a majority of the votes cast by shares of such class or series or classes or series shall be the act of such class or series or classes or series, unless the question is one upon which by express provision of the certificate of incorporation of the Corporation, these Bylaws or the DGCL a different vote is required, in which case such express provision shall govern and control the decision of such question.
Section 8.
(a) Record Date(s) for Stockholders Entitled to Notice of Meeting or to Vote at Such Meeting. In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the
record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions at the adjourned meeting.
(b) Record Date for Distributions. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such corporate action. If not fixed by the Board, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
(c) Transfers after a Record Date. Stockholders on a record date are entitled to notice, to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the applicable record date, except as otherwise provided by agreement or by applicable law.
Section 9. At any time when the certificate of incorporation of the Corporation permits action by one or more classes of stockholders of the Corporation to be taken by written consent, the provisions of this section shall apply. All consents properly delivered in accordance with the certificate of incorporation of the Corporation, this section and the DGCL shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date of the meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting thereof. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the Board and prior action by the Board is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.
Section 10. The officer who has charge of the stock ledger of the Corporation shall prepare and make at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the 10th day before the meeting date) showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
Section 11. The Board, in advance of all meetings of the stockholders, shall appoint one or more inspectors of stockholder votes, who may be employees or agents of the Corporation or stockholders or their proxies, but not directors of the Corporation or candidates for office. In the event that the Board fails to so appoint one or more inspectors of stockholder votes or, in the event that one or more inspectors of stockholder votes previously designated by the Board fails to appear or act at the meeting of stockholders, the chair of the meeting may appoint one or more inspectors of stockholder votes to fill such vacancy or vacancies. Inspectors of stockholder votes appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall take and sign an oath to faithfully execute the duties of inspector of stockholder votes with strict impartiality and according to the best of their ability and the oath so taken shall be subscribed by them. Inspectors of stockholder votes shall, subject to the power of the chair of the meeting to open and close the polls, take charge of the polls, and, after the voting, shall make a certificate of the result of the vote taken.
Section 12.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only (A) pursuant to the Corporations notice of meeting (or any supplement thereto) delivered pursuant to Article I, Section 3 of these Bylaws, (B) by or at the direction of the Board or any committee thereof or (C) by any stockholder of the Corporation who is entitled to vote on such election or such other business at the meeting, who complied with the notice procedures set forth in subparagraphs (ii) and (iii) of this paragraph (a) of this Bylaw and who
was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation.
(ii) For nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, and, in the case of business other than nominations of persons for election to the Board, such other business must be a proper matter for stockholder action. To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty (20) days, or delayed by more than seventy (70) days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made; and provided further, that for purposes of the application of Rule 14a-4(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act) (or any successor provision), the date for notice specified in this paragraph (a)(ii) shall be the earlier of the date calculated as hereinbefore provided or the date specified in paragraph (c)(1) of Rule 14a-4. For purposes of the first annual meeting of stockholders following the adoption of these Bylaws, the date of the first anniversary of the preceding years annual meeting shall be deemed to be October 5, 2013.
Such stockholders notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporations books, and of such beneficial owner, (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a representation that the stockholder intends to appear in person or by proxy at the meeting to propose such business or nomination, (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (v) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporations outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (w) otherwise to solicit proxies from stockholders in support of such proposal or nomination, (v) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, (vi) a description of any agreement, arrangement or understanding with respect to the nomination or proposal and/or the voting of shares of any class or series of stock of the Corporation between or among the stockholder giving the notice, the beneficial owner, if any, on whose behalf the nomination or proposal is made, any of their respective affiliates or associates and/or any others acting in concert with any of the foregoing (collectively, proponent persons), and (vii) a description of any agreement, arrangement or understanding (including without limitation any contract to purchase or sell, acquisition or grant of any option, right or warrant to purchase or sell, swap or other instrument) the intent or effect of which may be (x) to transfer to or from any proponent person, in whole or in part, any of the economic consequences of ownership of any security of the Corporation, (y) to increase or decrease the voting power of any proponent person with respect to shares of any class or series of stock of the Corporation and/or (z) to provide any proponent person, directly or indirectly, with the opportunity to profit or share in any profit derived from, or to otherwise benefit economically from, any increase or decrease in the value of any security of the Corporation. A stockholder providing notice of a proposed nomination for election to the Board or other business proposed to be brought before a meeting (whether given pursuant to this paragraph (a)(ii) or paragraph (b) of this Bylaw) shall update and supplement such notice from time to time to the extent necessary so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is fifteen (15) days prior to the meeting or any adjournment or postponement thereof; such update and supplement shall be delivered in writing to the Secretary at the principal executive offices of the Corporation not later than five (5) days after the record date for the meeting (in the case of any update and supplement required to be made as of the record date), and not later than ten (10) days prior to the date for the meeting or any adjournment or postponement thereof (in the case of any update and supplement required to be made as of fifteen (15) days prior to the meeting or any adjournment or postponement thereof). The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.
(iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board made by the Corporation at least eighty (80) days prior to the first anniversary of the preceding years annual meeting, a stockholders notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which a public announcement of such increase is first made by the Corporation; provided that, if no such announcement is made at least ten (10) days before the meeting, then no such notice shall be required.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting pursuant to Article I, Section 3 of these Bylaws. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting (i) by or at the direction of the Board or (ii) by any stockholder of the Corporation who is entitled to vote on such election at the meeting, who complies with the notice procedures set forth in this Bylaw and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. Nominations by stockholders of persons for election to the Board may be made at such a special meeting of stockholders if the stockholders notice (containing the information required by paragraph (a)(ii) of this Section 12) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. Notwithstanding the foregoing, a special meeting at which directors are to be elected may only be called when such special meeting will be held in lieu of an annual meeting of stockholders.
(c) General.
(i) Only persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the certificate of incorporation of the Corporation or these Bylaws, the chair of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 12, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 12, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(ii) For purposes of this Bylaw, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, PR Newswire or comparable national news service or in a document publicly filed or furnished by
the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) For purposes of this Bylaw, no adjournment or postponement or notice of adjournment or postponement of any meeting shall be deemed to constitute a new notice of such meeting for purposes of this Section 12, and in order for any notification required to be delivered by a stockholder pursuant to this Section 12 to be timely, such notification must be delivered within the periods set forth above with respect to the originally scheduled meeting.
(iv) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw; provided, however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Bylaw (including paragraphs (a)(i)(C) and (b) hereof), and compliance with paragraphs (a)(i)(C) and (b) of this Bylaw shall be the exclusive means for a stockholder to make nominations or submit other business. Nothing in this Bylaw shall (A) be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act or (B) apply to the right, if any, of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the certificate of incorporation of the Corporation.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Subject to the provisions of the certificate of incorporation relating to the rights of any holders of the Corporations Preferred Stock, the number of directors constituting the full Board shall be fixed from time to time by the vote of a majority of the full Board; provided, however, that the number of directors shall not exceed eighteen (18); provided, further, that, in the event that the Corporation ceases to qualify as a controlled company within the meaning of the rules of the New York Stock Exchange (or the comparable rules of another stock exchange on which the Corporations Class A Common Stock is then traded), then the Board may determine to increase the size of the Board to the extent necessary to comply with the provisions of the applicable rules of the New York Stock Exchange (or such other stock exchange on which the Corporations Class A Common Stock is then traded). On and after August 15, 2013, the Board shall be divided into three classes designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board, and in the event the size of the Board is increased or decreased, for any reason or none, such increase or decrease shall be apportioned, as nearly as possible, equally among the three classes. The initial terms of the directors serving in Class I shall expire at the Corporations first annual meeting of stockholders. The initial terms of the directors serving in Class II shall expire at the Corporations second annual meeting of stockholders. The initial terms of the directors serving in Class III shall expire at the Corporations third annual meeting of stockholders. Thereafter, each director shall serve for a
term expiring at the third annual meeting following his or her election. No director shall serve for more than two (2) full three-year consecutive terms except for (i) the Chief Executive Officer; (ii) each director who is not a director, officer, employee or agent of, or otherwise affiliated with, any stockholder of the Corporation; and (iii) a director serving as Chair of the Board, whose term may be extended at the discretion of the Board. Nothing in the Certificate of Incorporation or these By-Laws shall prohibit any incumbent director from serving the balance of his or her term. Directors shall (except as hereinafter provided for the filling of vacancies and newly created directorships) be elected by the holders of a plurality of the votes cast by the holders of shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. A majority of the total number of directors constituting the entire Board shall constitute a quorum for the transaction of business. Except as otherwise provided by law, these Bylaws or the certificate of incorporation of the Corporation, any act of the Board shall require the affirmative vote of a number of directors constituting the majority of the directors constituting the entire Board. Directors need not be stockholders. The Board shall, at its next meeting following each annual meeting of stockholders, elect a current director as Chair of the Board. The position of Chair of the Board shall not be an officer of the Corporation. The Chair of the Board shall perform such tasks and duties as may be set forth in these Bylaws and as from time to time prescribed by the Board in all cases within the Chair of the Boards duties as a director and not as an officer of the Corporation including, by way of clarification and for the avoidance of doubt without expanding or contracting the role or duties of the Chair of the Board or the Board, as Chair of the Board when the Board is authorizing the actions of the Corporation in its capacity as sole member of Premier Services, LLC, a Delaware limited liability company (Premier Services), the general partner of Premier Healthcare Alliance, L.P., a California limited partnership (Premier LP). The Corporation, through its capacity as sole member of Premier Services, manages Premier LP. For the avoidance of doubt, the Board shall have the power to authorize the actions of the Corporation in this capacity, except as delegated by the Board by resolution.
Section 2. Subject to the certificate of incorporation of the Corporation, unless otherwise required by law, any newly created directorship on the Board that results from an increase in the number of directors and any vacancy occurring in the Board shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall be elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.
Section 3. Unless otherwise restricted by the laws of the State of Delaware, by the certificate of incorporation or by these Bylaws, any director or the entire Board may be removed, but only for cause, by the holders of a majority of the shares then entitled to vote at an election of directors, voting together as a single class. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such directors term of office.
Section 4. Meetings of the Board shall be held at such place, if any, within or without the State of Delaware as may from time to time be fixed by resolution of the Board or as may be
specified in the notice of any meeting. Regular meetings of the Board shall be held at such times as may from time to time be fixed by resolution of the Board and special meetings may be held at any time upon the call of the Chair of the Board, or in the Chairs absence or at the Chairs direction, the Chief Executive Officer, by written notice, including transmission of a telecopy, e-mail or other means of electronic transmission, duly served on or sent and delivered to each director to such directors address, e-mail address or telecopy number as shown on the books of the Corporation not less than twenty-four (24) hours before the meeting. The notice of any meeting need not specify the purposes thereof. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place, if any, at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board. Notice of any meeting need not be given to any director who shall attend such meeting (except when the director attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened), or who shall waive notice thereof, before or after such meeting, in writing (including by electronic transmission).
Section 5. Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal, and other features of such directorships shall be governed by the terms of the certificate of incorporation of the Corporation (including any certificate of designation relating to any series of Preferred Stock) applicable thereto. The number of directors that may be elected by the holders of any such series of Preferred Stock shall be in addition to the number fixed pursuant to the certificate of incorporation of the Corporation and these Bylaws. Except as otherwise expressly provided in the terms of such series, the number of directors that may be so elected by the holders of any such series of stock shall be elected for terms expiring at the next annual meeting of stockholders, and vacancies among directors so elected by the separate vote of the holders of any such series of Preferred Stock shall be filled by the affirmative vote of a majority of the remaining directors elected by such series, or, if there are no such remaining directors, by the holders of such series in the same manner in which such series initially elected a director.
Section 6. If at any meeting for the election of directors, the Corporation has outstanding more than one class of stock, and one or more such classes or series thereof are entitled to vote separately as a class to elect directors, and there shall be a quorum of only one such class or series of stock, that class or series of stock shall be entitled to elect its quota of directors notwithstanding absence of a quorum of the other class or series of stock.
Section 7. The Board may from time to time establish one or more committees of the Board to serve at the pleasure of the Board, which shall be comprised of such members of the Board and have such duties as the Board shall from time to time determine. Any director may belong to any number of committees of the Board. The Board may also establish such other committees with such members (whether or not directors) and with such duties as the Board may from time to time determine. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Unless otherwise provided in the certificate of incorporation of the Corporation, these Bylaws or the resolution of the Board designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
Section 8. Unless otherwise restricted by the certificate of incorporation of the Corporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing (including by electronic transmission), and the writing or writings are filed with the minutes of proceedings of the Board.
Section 9. The members of the Board or any committee thereof may participate in a meeting of such Board or committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such a meeting.
Section 10. The Board may establish policies for the compensation of directors and for the reimbursement of the expenses of directors, in each case, in connection with services provided by directors to the Corporation.
ARTICLE III
OFFICERS
Section 1. The Board, at its next meeting following each annual meeting of the stockholders, shall elect officers of the Corporation, including a President, Chief Executive Officer and a Secretary. The Board may also from time to time elect such other officers (including, without limitation, a Chief Financial Officer, a Chief Operating Officer, a Chief Technology Officer, a General Counsel, one or more Presidents, Vice Presidents, a Treasurer, one or more Assistant Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers) as it may deem proper or may delegate to any elected officer of the Corporation the power to appoint and remove any such other officers and to prescribe their respective terms of office, authorities and duties. Any Vice President may be designated Executive or Senior, or may be given such other designation or combination of designations as the Board or the Chief Executive Officer may determine. Any two or more offices may be held by the same person.
Section 2. All officers of the Corporation elected by the Board shall hold office for such terms as may be determined by the Board or until their respective successors are chosen and qualified. Any officer may be removed from office at any time either with or without cause by affirmative vote of a majority of the members of the Board then in office, or, in the case of
appointed officers, by any elected officer upon whom such power of removal shall have been conferred by the Board.
Section 3. Each of the officers of the Corporation elected by the Board or appointed by an officer in accordance with these Bylaws shall have the powers and duties prescribed by law, by these Bylaws or by the Board and, in the case of appointed officers, the powers and duties prescribed by the appointing officer, and, unless otherwise prescribed by these Bylaws or by the Board or such appointing officer, shall have such further powers and duties as ordinarily pertain to that office. Subject to the authority of the Board, the Chief Executive Officer shall have authority over the general direction of the affairs of the Corporation.
Section 4. Unless otherwise provided in these Bylaws, in the absence or disability of any officer of the Corporation, the Board may, during such period, delegate such officers powers and duties to any other officer or to any director and the person to whom such powers and duties are delegated shall, for the time being, hold such office.
ARTICLE IV
INDEMNIFICATION
Section 1. To the fullest extent permitted by the laws of the State of Delaware, as it presently exists or may hereafter be amended, the Corporation shall indemnify and hold harmless any person (and such persons heirs, executors or administrators) who was or is made or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any threatened, pending or completed action, suit, arbitration, alternative dispute resolution mechanism, investigation, inquiry, administrative hearing or any other threatened or actual proceeding (brought in the right of the Corporation or otherwise), whether civil, criminal, administrative, legislative, congressional or investigative, and whether formal or informal, and whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, including appeals (all such actions, suits or proceedings, including appeals, are referred to herein as Actions or Proceedings), by reason of the fact that such person, or a person for whom such person was the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, representative or agent of another corporation, partnership, joint venture, trust, limited liability company, nonprofit entity or other enterprise (including, without limitation, any trade associations), from and against all loss and liability suffered and expenses (including, without limitation, attorneys fees and ERISA excise taxes or penalties), judgments, fines and amounts paid in settlement reasonably incurred by such person or such heirs, executors or administrators in connection with such Action or Proceeding, all to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto). Without limiting the scope of this Section 1, the foregoing indemnification shall cover any acts or omissions by any person described in this Section 1 with respect to any subsidiary or other entity controlled by the Corporation (including, without limitation, Premier LP). Notwithstanding the preceding
sentences, except as otherwise provided in Article IV, Section 4 of these Bylaws, the Corporation shall be required to indemnify a person described in such sentences in connection with any Action or Proceeding (or part thereof) commenced by such person only if the commencement of such Action or Proceeding (or part thereof) by such person was authorized by the Board.
Section 2. The Corporation may, by action of the Board, provide indemnification to persons who are not covered by Article IV, Section 1 of these Bylaws, and who are or were employees or agents of the Corporation, or who are or were serving at the request of the Corporation as employees or agents of another corporation, partnership, joint venture, trust, limited liability company, nonprofit entity or other enterprise, with the same or lesser scope and effect as the indemnification provided by Article IV, Section 1.
Section 3. To the fullest extent permitted by the laws of the State of Delaware, the Corporation shall promptly pay expenses (including attorneys fees) incurred by any person described in Article IV, Section 1 of these Bylaws in appearing at, participating in or defending any threatened, pending or completed Action or Proceeding in advance of the final disposition of such threatened, pending or completed Action or Proceeding, upon presentation of an undertaking on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified under this Article IV or otherwise. Notwithstanding the preceding sentence, except as otherwise provided in Article IV, Section 4 of these Bylaws, the Corporation shall be required to advance expenses of a person described in such sentence in connection with any Action or Proceeding (or part thereof) commenced by such person only if the commencement of such Action or Proceeding (or part thereof) by such person was authorized by the Board.
Section 4. If a claim for indemnification (following the final disposition of such Action or Proceeding) or advancement of expenses under this Article IV is not paid in full within thirty (30) days after a written claim therefor by any person described in Article IV, Section 1 of these Bylaws has been received by the Corporation, such person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, the Corporation shall have the burden of proving that such person is not entitled to the requested indemnification or advancement of expenses under this Article IV.
Section 5. Notwithstanding the requirements of Article IV, Section 1 of these Bylaws, the Corporation shall not be obligated to indemnify any person pursuant to this Article IV in connection with any Action or Proceeding (or any part thereof): (a) for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond such amount paid; (b) for an accounting or disgorgement of profits pursuant to Section 16(b) of the Exchange Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements); (c) for any reimbursement of the Corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the Corporation, as required in each case under the Exchange Act (including any such
reimbursements that arise from an accounting restatement of the Corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), or the payment to the Corporation of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements); or (d) if prohibited by applicable law.
Section 6. To the fullest extent permitted by the laws of the State of Delaware, the Corporation may purchase and maintain insurance on behalf of any person described in Article IV, Section 1 of these Bylaws against any liability asserted against such person, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article IV or otherwise.
Section 7. Persons who after the date of the adoption of this Article IV become or remain directors or officers of the Corporation or who, while a director or officer of the Corporation, serves or remains at the request of the Corporation as a director, officer, partner, trustee, employee, representative or agent of a subsidiary, shall be conclusively presumed to have relied on the rights to indemnification, advancement of expenses and other rights contained in this Article IV in entering into or continuing such service. The rights to indemnification and to the advancement of expenses conferred in this Article IV shall apply to claims made against such directors and officers arising out of such service which occurred or occurs both prior and subsequent to the adoption hereof.
Section 8. The provisions of this Article IV shall be applicable to all Actions or Proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act occurring before or after its adoption, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors or administrators of such person. The provisions of this Article IV shall be deemed to be a contract between the Corporation and each director or officer (or legal representative thereof) who serves in such capacity at any time while this Article IV and the relevant provisions of the law of the State of Delaware and other applicable law, if any, are in effect, and any alteration, amendment or repeal hereof shall not affect any rights or obligations then existing with respect to any state of facts or any Action or Proceeding then or theretofore existing, or any Action or Proceeding thereafter brought or threatened based in whole or in part on any such state of facts. If any provision of this Article IV shall be found to be invalid or limited in application by reason of any law or regulation, it shall not affect the validity of the remaining provisions hereof. The rights of indemnification and advancement of expenses provided in this Article IV shall neither be exclusive of, nor be deemed in limitation of, any rights to which any person may otherwise be or become entitled or permitted by contract, the certificate of incorporation of this Corporation, these Bylaws, vote of stockholders or directors or otherwise, or as a matter of law, both as to actions in such persons official capacity and actions in any other capacity, it being the policy of the Corporation that indemnification of, and advancement of expenses to, any person whom the Corporation is obligated to indemnify or advance expenses pursuant to this Article IV hereof shall be made to the fullest extent permitted by law.
This Article IV shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to, and purchase and maintain
insurance on behalf of, persons other than persons described in Article IV, Section 1 of these Bylaws.
Section 9. For purposes of this Article IV, references to fines shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to serving at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries.
ARTICLE V
CORPORATE BOOKS
The books of the Corporation may be kept inside or outside of the State of Delaware at such place or places as the Board may from time to time determine.
ARTICLE VI
CHECKS, NOTES, PROXIES, ETC.
All checks and drafts on the Corporations bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers or agent or agents as shall be authorized from time to time by the Board or such officer or officers who may be delegated such authority. Proxies to vote and consents with respect to securities of other corporations owned by or standing in the name of the Corporation may be executed and delivered from time to time on behalf of the Corporation by the Chair of the Board, the Chief Executive Officer, or by such officers as the Chair of the Board, the Chief Executive Officer or the Board may from time to time determine.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on June 30, or at such other time as the Board may determine by resolution.
ARTICLE VIII
STOCK CERTIFICATES, CORPORATE SEAL
Shares of the Corporations capital stock may be certificated or uncertificated, as provided under the laws of the State of Delaware. Any corporate seal shall have inscribed thereon the name of the Corporation. In lieu of the corporate seal, when so authorized by the
Board or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced.
ARTICLE IX
AMENDMENTS
These Bylaws may be made, amended, altered, changed, added to or repealed at any meeting of the Board or of the stockholders; provided, in the case of a meeting of the stockholders, that notice of the proposed change was given in the notice of the meeting of the stockholders; provided further, that notwithstanding any other provisions of these Bylaws or any provision of law which might otherwise permit a lesser vote of the stockholders, the affirmative vote of the holders of at least 66 2/3% of the voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to make, amend, alter, change, add to or repeal any provision of these Bylaws.
CERTIFICATE OF SOLE INCORPORATOR
This is to certify that the foregoing is a true and correct copy of the Bylaws of the Corporation named in the title of such Bylaws and that such Bylaws were duly adopted by the sole incorporator of such Corporation as of May 14, 2013.
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Mark J. Mihanovic, Sole Incorporator |
Exhibit 9.1
FORM OF VOTING TRUST AGREEMENT
RELATING TO SHARES OF CLASS B COMMON STOCK OF PREMIER, INC.
THIS VOTING TRUST AGREEMENT (this Agreement), dated , 2013, is effective immediately prior to the closing of the initial public offering of a newly formed Delaware corporation named Premier, Inc. (Premier) (the Effective Date), and is made by and among Premier, Premier Purchasing Partners, L.P., a California limited partnership (Premier LP), the stockholders listed on Schedule I hereto (the Stockholders) from time to time party hereto and Wells Fargo Delaware Trust Company, N.A., as trustee (together with its successors in such capacity, the Trustee).
WITNESSETH:
WHEREAS, in conjunction with the proposed reorganization of Premier LP and its affiliates (the Reorganization) and initial public offering (IPO) of shares of Class A Common Stock of Premier, Premier LP will adopt an Amended and Restated Limited Partnership Agreement pursuant to which Premier LP will (a) change its name to Premier Healthcare Alliance, L.P. and (b) issue Class A Common Units to its general partner and Class B Common Units to its limited partners, collectively representing a 100% interest in Premier LP;
WHEREAS, in conjunction with the Reorganization, the Stockholders (which are also holders of Class B Common Units of Premier LP) will purchase for nominal consideration shares of Class B Common Stock (together with any securities into which such shares may hereinafter be reclassified, the Shares) of Premier; and
WHEREAS, the parties hereto desire to record their arrangements with respect to the Shares; and
WHEREAS, the Trustee has consented to act under this Agreement for the purposes herein provided.
NOW, THEREFORE, in consideration of these premises, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1:
Board means the Board of Directors of Premier.
Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in New York City, New York and Wilmington, Delaware are authorized or required by law to close.
Class A Common Stock shall mean the shares of Class A common stock, par value $0.01 per share, of Premier and any securities into which such shares may hereinafter be reclassified.
Class B Common Stock shall mean the shares of Class B common stock, par value $0.000001 per share, of Premier and any securities into which such shares may hereinafter be reclassified.
Effective Date means , 2013, which is the date of the closing of the IPO.
Exchange Agreement means the Exchange Agreement effective as of the Effective Date among Premier, Premier LP and the holders of Class B Common Units of Premier LP and the Shares, pursuant to which each such holder has the right to exchange its Class B Common Units (and surrender its corresponding shares of Class B Common Stock) for shares of Class A Common Stock, cash or a combination thereof under certain circumstances.
Independent Director means any director who (i) satisfies the definition of an independent director set forth in the applicable rules of the NASDAQ Stock Market (NASDAQ), as such rules may be amended from time to time (the NASDAQ Stock Market Rules) and (ii) meets the requirements set forth in the NASDAQ Stock Market Rules for membership on the Audit Committee of the Board; provided, however, that if the Class A Common Stock is traded on a stock exchange other than the NASDAQ, then, with respect to clauses (i) and (ii) of this definition, such term shall mean any director who satisfies the definition of independent director and who meets the requirements for audit committee membership according to the rules of such other stock exchange.
IPO has the meaning set forth in the Recitals.
Nominating and Corporate Governance Committee means the Nominating and Corporate Governance Committee of the Board or any committee of the Board authorized to perform the function of nominating directors for the Board.
Transfer, Transferred or Transferring means to sell, transfer, give, exchange (including exchanges under the Exchange Agreement), assign, pledge, encumber, hypothecate or otherwise dispose of, directly or indirectly, either voluntarily or involuntarily, any of the rights granted to a holder of Shares.
Section 1.2 Other Definitional Provisions.
(i) The words hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole, including the Exhibits and
Schedules attached hereto, and not to any particular provision of this Agreement. Article, section and subsection references are to this Agreement unless otherwise specified.
(ii) The words include and including and words of similar import when used in this Agreement shall be deemed to be followed by the words without limitation.
(iii) The titles and headings in this Agreement are included for convenience of reference only and will not limit or otherwise affect the meaning or interpretation of this Agreement.
(iv) The meanings given to capitalized terms defined herein will be equally applicable to both the singular and plural forms of such terms. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.
(v) If any notice or action hereunder is due on a day which is not a Business Day, then such notice or action shall be due on the next succeeding Business Day.
ARTICLE 2
OWNERSHIP AND VOTING OF SHARES
Section 2.1 Transfer of Shares to Trustee. Each Stockholder hereby agrees to Transfer to the Trustee on the Effective Date (i) all Shares listed opposite such Stockholders name on Schedule I hereto and (ii) any Shares hereinafter acquired by any Stockholder. Stockholders shall concurrently therewith deposit such Shares with the Trustee and receive from the Trustee in exchange therefor one or more voting trust certificates, substantially in the form of Exhibit A hereto, evidencing the Shares deposited with the Trustee (the Voting Trust Certificates), to be held subject to all terms of this Agreement. The Trustee shall cause such Shares so deposited to be registered in the name of the Trustee, with a notation to the effect that such certificates have been issued pursuant to this Agreement, and Premier shall Transfer the Shares on its books and records to the name of the Trustee, with a similar notation in the stock ledger as to the effect of this Agreement. Notwithstanding the foregoing, Stockholders that are to receive Shares immediately prior to the closing of the initial public offering of Premier hereby consent and agree to the issuance of such Shares directly in the name of the Trustee and the Trustee shall concurrently issue one or more Voting Trust Certificates evidencing such Shares deposited with the Trustee to such Stockholders. Each Stockholder shall, at or prior to the time of the issuance of its Voting Trust Certificate and thereafter as required, deliver an incumbency certificate substantially in the form of Exhibit B attached hereto (Incumbency Certificate) to the Trustee as provided in Section 3.5(1) hereof.
Section 2.2 Legal Title; Voting.
(a) While this Agreement is in effect, the Trustee shall have the legal title to the Shares deposited hereunder.
(b) At least 10 Business Days (or such lesser period as may be required or appropriate under the circumstances) prior to any meeting of the stockholders of Premier, however called, or at any adjournment or postponement thereof (a Stockholders Meeting), or in any other circumstances upon which a vote, consent or other approval (including by written consent) is sought by or from the stockholders of Premier, the Trustee shall provide notice in accordance with Section 5.1 herein to all Stockholders of the matters to be voted on, consented to or approved by, such Stockholders. The notice shall specify the date by which voting consent or approval directions must be received by the Trustee in accordance with Section 5.1 herein in order to be counted which date shall be at least two Business Days prior to the date of the Stockholders Meeting.
(c) In all circumstances wherein Premier provides notice to the stockholders of Premier in connection with a special or annual Stockholders Meeting or other matter in respect of which Premier seeks a vote, consent or approval of the stockholders, Premier agrees to provide timely notice (together with any and all materials and/or access to any and all materials provided by Premier to its stockholders in connection therewith) to the Stockholders on behalf of the Trustee as provided in Section 2.2(b), and the Trustee will be deemed to have fulfilled its duty to give such notice in all such cases upon the Trustee providing a current copy of Schedule I to Premier following written notice given by Premier to the Trustee of such meeting, vote, consent or approval and as its written request.
(d) Regardless of how many Stockholders voting, consent or approval directions are actually received by the Trustee, the Trustee shall cause all Shares deposited hereunder to be counted as present for the purposes of establishing a quorum at the Stockholders Meeting.
(e) The Trustee shall cause all Shares deposited hereunder to be voted, consented to or approved as a block on each matter to come before the Stockholders Meeting or under any such other circumstances upon which a vote, consent or other approval (including by written consent) is sought by or from the stockholders of Premier in the manner directed by the holders of a majority (or, in the case of voting for the election of directors, based on a plurality) of the Shares represented by the Voting Trust Certificates as to which directions have been actually and timely received by the Trustee. If the Trustee receives directions from the holders of an equal number of Shares represented by the Voting Trust Certificates which directions result in a tie vote, then the Trustee shall vote, approve or consent in a manner that resolves such tie based upon written direction from Premier.
(f) For all purposes relating to the particular Stockholders Meeting or other vote, consent or approval sought, the date on which the Trustee first provides Schedule I to Premier under Section 2.2(c), or otherwise first provides notice under Section 2.2(b), shall constitute the record date for those Stockholders appearing on Schedule I who shall be entitled to give direction to the Trustee in respect of such matters notwithstanding any transfer that may be initiated or completed after such date.
Section 2.3 Covenants with Respect to Director Voting.
(a) During the term of this Agreement, subject to the provisions of Section 2.3(b), each of the Stockholders will use its reasonable efforts to (i) cause the appointment or nomination of directors as necessary to ensure that the number of directors constituting the full Board, as fixed by the Board from time to time, are serving on the Board, (ii) to the extent of such Stockholders voting rights under Section 2.2(b), cause the appointment or nomination of at least three Independent Directors including one who meets the requirements of an audit committee financial expert within the meaning of Item 407 of Regulation S-K under the Securities Exchange Act of 1934, as amended (the Exchange Act) and (iii) cause Premier to be in compliance with all corporate governance and all other rules of the NASDAQ (or, if the Class A Common Stock is traded on a stock exchange other than the NASDAQ, the rules of such exchange). The Trustee shall have no responsibility for compliance with the requirements of this Section 2.3(a) or to monitor or enforce in any manner such compliance by any other party to this Agreement.
(b) Notwithstanding anything to the contrary provided elsewhere in this Agreement, in the event that Premier ceases to qualify as a controlled company within the meaning of the rules of the NASDAQ, as amended (or, if the Class A Common Stock is traded on a stock exchange other than the NASDAQ, the comparable rules of such other exchange) (Controlled Company), then within 12 months following the date that Premier ceases to so qualify, each of the Stockholders shall use its reasonable efforts to ensure that Independent Directors selected by the Nominating and Corporate Governance Committee shall thereafter constitute at least a majority of the full Board. Premier shall take such other steps as reasonably necessary to comply on a timely basis with the requirements of the NASDAQ Stock Market Rules, as amended (or, if the Class A Common Stock is traded on a stock exchange other than the NASDAQ, the comparable rules of such other exchange), including the corporate governance requirements set forth therein, at such time as Premier ceases to qualify as a Controlled Company. The Trustee shall have no responsibility for compliance with the requirements of this Section 2.3(b) or to monitor or enforce in any manner such compliance by any other party to this Agreement.
Section 2.4 Stockholders Retain No Legal Title to Shares. During the term of this Agreement, the Stockholders shall not have legal title to any part of the Shares deposited hereunder and, except pursuant to Sections 2.6, 2.7 and 2.8 hereof, shall not be entitled to Transfer any interest in such Shares or the Voting Trust Certificates. It is intended by Premier, Premier LP and the Stockholders that no creditor of any Stockholder shall be able to obtain legal title to or exercise legal or equitable remedies with respect to the Shares deposited hereunder or the Voting Trust Certificates.
Section 2.5 Dividends. Stock splits, dividends or other distributions paid in Shares received by the Trustee shall be retained by the Trustee and held by the Trustee pursuant to the terms of this Agreement. Upon receipt of such Shares, the Trustee shall promptly issue and deliver Voting Trust Certificates, substantially in the form of Exhibit A hereto, to the Stockholders representing a number of Shares equal to the number of Shares to which each Stockholder would otherwise be entitled.
Section 2.6 Transfer of Shares. Notwithstanding anything to the contrary set forth in this Agreement, if a Stockholder validly elects to Transfer Class B Common Units of Premier LP in accordance with the terms of the Amended and Restated Limited Partnership Agreement of Premier LP, the respective Stockholder shall provide written notice to the Trustee within five days of the Transfer directing the Trustee to update the Trustees books and records to update the names of the holders of record of the Voting Trust Certificates to those of the transferee(s) of the corresponding Shares and, upon surrender of such holders Voting Trust Certificates execution by the transferee(s) of a joinder pursuant to Section 5.10 and the delivery of a transfer certificate substantially in the form of Exhibit C hereto (a Transfer Certificate), issue new Voting Trust Certificates in the name of such transferee(s) and thereupon Schedule I attached hereto shall be automatically amended without further action on the part of any of the parties hereto to reflect such Transfer.
Section 2.7 Exchange of Shares. Notwithstanding anything to the contrary set forth in this Agreement, if any Class B Common Units of Premier LP are to be Transferred pursuant to the right of first refusal under Section 2.2 of the Exchange Agreement, the transferring Stockholder must provide written notice to the Trustee within five days of the Transfer directing the Trustee to update the Trustees books and records to update the names of the holders of record of the Voting Trust Certificates to those of the transferee(s) of the corresponding Shares and, upon surrender of the transferring Stockholders Voting Trust Certificates and the delivery of a Transfer Certificate, issue new Voting Trust Certificates in the name of such transferee(s) and thereupon Schedule I attached hereto shall be automatically amended without further action on the part of any of the parties hereto to reflect such Transfer.
Section 2.8 Acquisition of Shares by Premier. In the event that Premier presents evidence satisfactory to the Trustee that it has acquired the beneficial ownership of any Shares represented by a Voting Trust Certificate pursuant to (i) a repurchase under Section 3.3 of the Amended and Restated Limited Partnership Agreement of Premier LP, or (ii) the surrender of Shares pursuant to Section 2.3 of the Exchange Agreement upon an exchange under that agreement, the Trustee shall immediately refrain from exercising any voting rights with respect to such Shares and, upon surrender of the Voting Trust Certificate in question to the Trustee, the Trustee shall take all steps as reasonably requested in writing by Premier to transfer legal title to such Shares to Premier, and Premier shall cancel such Shares.
Section 2.9 Lost/Damaged Certificate. If any mutilated Voting Trust Certificate is surrendered to the Trustee, or the Trustee receives evidence to its reasonable satisfaction that any Voting Trust Certificate has been destroyed, lost or stolen, and upon proof of ownership satisfactory to the Trustee together with such security or indemnity, in the case of a destroyed, lost or stolen Voting Trust Certificate, as may be requested by the Trustee to ensure that the Trustee is held harmless for any liability therefor, the Trustee shall execute and deliver a new Voting Trust Certificate representing the same number of Shares as the Voting Trust Certificate so mutilated, destroyed, lost or stolen, with such notations, if any, as the Trustee shall determine.
Section 2.10 Trustee Filing of Exchange Act Reports.
(a) Each of the Stockholders hereby agrees that the statements on Schedule 13G with respect to the Shares deposited hereunder, and any amendments thereto (including any filings on Schedule 13D with respect to such Shares), shall be filed by the Trustee on behalf of each of the Stockholders pursuant to and in accordance with the provisions of Rule 13d-1(k) under the Exchange Act. Pursuant to Rule 13d-1(k)(1), each of the Stockholders hereby agrees that only one statement concerning the information required by Schedule 13G (or Schedule13D) need be filed with respect to the ownership by each of the Stockholders of the Shares deposited hereunder.
(b) Each of the Stockholders hereby agrees that Securities and Exchange Commission statements of beneficial ownership of securities of such Stockholder on Schedule 13G (or Schedule 13D) as required under Section 13 of the Exchange Act and Forms 3, 4 and 5 as required under Section 16(a) of the Exchange Act, and any amendments thereto, shall be filed by the Trustee on behalf of each of the Stockholders as evidenced by execution of the Power of Attorney attached as Exhibit D hereto, until such time as such Stockholder withdraws such authorization in writing. The Trustee shall have no responsibility to determine or monitor whether any filing under Section 2.10(a) or Section 2.10(b) hereof is required, accurate in content, appropriate in form or timely, and any filing thereunder by the Trustee shall be made upon the further written direction of the Stockholder on whose behalf the statement or amendment is to be filed, in such form as may be provided to the Trustee with only the Trustees signature, if required, needed to complete the statement or amendment for filing.
(c) Each Stockholder agrees that it will indemnify and hold harmless the Trustee, its directors, officers, employees and agents from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened; or any claims whatsoever) arising out of or based upon the action or failure to act of the Trustee under Section 2.10(a) or Section 2.10(b), including the contents of any such filing, except to the extent such loss, liability, claim, damage or expense is caused by or results from the Trustees gross negligence or willful misconduct (as determined by a final and unappealable order of a court of competent jurisdiction). Each Stockholders obligation hereunder shall survive the termination of the voting trust created herein or the resignation or removal of the Trustee.
ARTICLE 3
TRUSTEE
Section 3.1 Successor Trustee. Upon the liquidation, dissolution, winding-up, suspension, incapacity, resignation or removal (in accordance with Section 3.2 hereof) of the initial Trustee, the holders of Voting Trust Certificates representing more than 50 percent of the then outstanding Shares then deposited hereunder shall appoint a successor Trustee. In the event a successor Trustee shall not have been appointed within 30 days of such removal, the Trustee may petition a court of competent jurisdiction to appoint such a successor.
Section 3.2 Removal/Resignation of Trustee.
(a) A Trustee may be removed by Stockholders holding Voting Trust Certificates representing more than 50 percent of the then outstanding Shares then deposited hereunder:
(1) if it is determined by a court of competent jurisdiction that either: (i) the Trustee has willfully and materially violated the terms of the trust created herein, or (ii) the Trustee has been guilty of malfeasance, misfeasance or dereliction of duty hereunder;
(2) if the Trustee shall have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall have consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall have made a general assignment for the benefit of creditors, or shall have failed generally to pay its debts as they become due, or shall have taken any corporate action to authorize any of the foregoing; or
(3) if an involuntary case or other proceeding shall have been commenced against the Trustee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall have remained undismissed and unstayed for a period of 60 days; or an order for relief shall have been entered against the Trustee under the federal bankruptcy laws as now or hereafter in effect.
(b) If Stockholders holding Voting Trust Certificates representing more than 50 percent of the then outstanding Shares then deposited hereunder determine that a basis exists for removal of the Trustee under Section 3.2(a) above, they shall deliver written notice of such determination to the Trustee stating the basis for such removal.
(c) The Trustee may resign its position as such upon 30 days written notice to Premier, Premier LP and the Stockholders provided, that, if a successor Trustee, appointed as provided for in Section 3.1 above, has agreed to serve as Trustee effective upon the effectiveness of the resignation of the Trustee then acting the Trustee may resign upon 10 days written notice to Premier.
Section 3.3 Trustee Qualification. The Trustee represents that it is a federal or state-chartered bank or trust company having, or having a parent that has, combined capital and surplus and retained earnings in excess of $200,000,000.
Section 3.4 Compensation; Expenses. Reasonable expenses lawfully incurred in the administration of the Trustees duties hereunder shall be reimbursed to it by Premier LP. During the period of its services hereunder, the Trustee shall receive fees from Premier LP as set forth in a separate agreement. The provisions of such an agreement and this Section 3.4 shall survive the termination of this Agreement or the resignation or removal of the Trustee.
Section 3.5 Indemnity; Respecting the Trustee.
(a) Premier LP agrees that it will indemnify and hold harmless the Trustee, its directors, officers, employees and agents from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened; or any claims whatsoever) (the Indemnified Claims) arising out of or based upon this Agreement or the actions or failures to act of the Trustee hereunder or thereunder, except to the extent such loss, liability, claim, damage or expense is caused by or results from the Trustees gross negligence or willful misconduct (as determined by a final and unappealable order of a court of competent jurisdiction). Premier LPs obligation hereunder shall survive the termination of the voting trust created herein or the resignation or removal of the Trustee.
(b) The Trustee shall be entitled to the prompt reimbursement for its out-of-pocket expenses (including reasonable attorneys fees and expenses) incurred in investigating, preparing or defending against any litigation, commenced or threatened, arising out of or based upon this Agreement, or the actions or failures to act of the Trustee hereunder or thereunder, without regard to the outcome of such litigation; provided, however, that the Trustee shall be obligated to return any such reimbursement if it is subsequently determined by a final and unappealable order of a court of competent jurisdiction that the Trustee was grossly negligent or engaged in willful misconduct in the matter in question.
(c) If an Indemnified Claim under this Section 3.5 is not paid in full within 30 days after a written Indemnified Claim has been submitted by the Trustee, the Trustee may at any time thereafter bring suit to recover the unpaid amount of the Indemnified Claim and, if successful in whole or in part, the Trustee shall be entitled to be paid also the expense of prosecuting such claims.
(d) The Trustee is authorized and empowered to construe this Agreement and its construction of the same, made in good faith, shall be final, conclusive, and binding upon all Stockholders and all other parties interested. The Trustee may, in its discretion, consult with counsel to be selected and employed by it, and the reasonable fees and expenses of such counsel shall be an expense for which the Trustee is entitled to be reimbursed hereunder.
(e) The Trustee hereby accepts the trust created hereby and agrees to carry out the terms and provisions hereof, but assumes no responsibility for the management of Premier or for any action taken by Premier, by any person elected as a director of Premier or by Premier pursuant to any vote cast or consent given by the Trustee. The Trustee, whether or not acting upon the advice of counsel, shall incur no liability because of any error of law or fact, mistake of judgment or any matter or thing done or omitted under this Agreement, except its own malfeasance. Anything done or suffered in good faith by the Trustee in accordance with the advice of counsel chosen as indicated above shall be conclusive in favor of the Trustee against the Stockholders and any other interested party. To the fullest extent permitted by law, the parties hereto hereby waive any and all fiduciary duties of the Trustee that, absent such waiver, may be implied by law or equity. The Trustee shall not be required to give a bond or other security for the faithful performance of its duties as such.
(f) The Trustee shall not be liable in any event for acts or defaults of any other trustee or trustees (under this or any other voting trust of Premiers securities) or for acts or defaults of any employee, agent, proxy or attorney-in-fact of any other trustee or trustees. The Trustee shall be protected and free from liability in acting upon any notice, request, consent, certificate, declaration, guarantee, affidavit or other paper or document or signature reasonably believed by it to be genuine and to have been signed by the proper party or parties or by the party or parties purporting to have signed the same.
(g) No provision of this Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(h) Anything in this Agreement to the contrary notwithstanding, in no event shall the Trustee be liable under or in connection with this Agreement for indirect, special, incidental, punitive or consequential losses or damages of any kind whatsoever, including, but not limited to, lost profits, whether or not foreseeable, even if the Trustee, has been advised of the possibility thereof and regardless of the form of action in which such damages are sought.
(i) The Trustee shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of Trustee, including, but not limited to, any act or provision of any present or future law or regulation or governmental authority, any act of God or war or terrorism, accidents, labor disputes, loss or malfunction of utilities or computer software or hardware, or the unavailability of any communication facility.
(j) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any terms of or restrictions on transfer provided or imposed under any agreement referred to in Sections 2.6, 2.7 or 2.8 hereof or under applicable law with respect to any transfer of any Shares deposited hereunder or Voting Trust Certificates.
(k) If at any time the Trustee is served with any judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process which in any way affects the Shares deposited hereunder or the Voting Trust Certificates, the Trustee is authorized to comply therewith in any manner as it or its legal counsel of its own choosing deems appropriate; and if the Trustee complies with any such judicial or administrative order, judgment, decree, writ or other form of judicial or administrative process, the Trustee shall not be liable to any of the parties hereto or to any other person or entity even though such order, judgment, decree, writ or process may be subsequently modified or vacated or otherwise determined to have been without legal force or effect.
(l) The Trustee shall be entitled to receive updated Incumbency Certificates from time to time furnished to the Trustee by Premier and each Stockholder, and the Trustee is authorized to follow and rely upon all written directions given by those persons named in such certificates if the Trustee believes such directions to be genuine and to have been signed, sent or
presented by the proper party or parties. The Trustee shall not incur any liability to anyone resulting from actions taken by the Trustee in reliance in good faith on such directions. Premier and each Stockholder agrees promptly to update each certificate delivered to the Trustee as may be required. The Trustee shall not incur any liability in executing directions of any person named in an Incumbency Certificate delivered hereunder prior to receipt by it of a more current certificate.
(m) Notwithstanding anything contained herein to the contrary, the Trustee shall not be responsible for ascertaining whether any transfer complies with the provisions of or exemptions from applicable federal or state laws (including securities laws, the Employee Retirement Income Security Act of 1974 or the Internal Revenue Code), or the provisions of this Agreement; provided, however, that if a certificate is specifically required to be delivered to the Trustee by an initial Stockholder or a transferee, the Trustee shall be under a duty to examine the same only to determine whether it conforms on its face to the requirements of this Agreement as set forth in the relevant Exhibit and shall as soon as reasonably practicable notify the party delivering the same if such certificate does not so conform.
ARTICLE 4
TERM; EFFECT OF TERMINATION
Section 4.1 Term. The term of this Agreement and the voting trust created hereby shall commence on the Effective Date and shall extend, unless earlier amended or terminated by the parties hereto, until the earlier to occur of: (i) with respect to all Stockholders, the date on which the Stockholders cease to beneficially own Voting Trust Certificates corresponding to Shares deposited hereunder representing in the aggregate at least 20 percent of the common stock of Premier and (ii) with respect to a Stockholder, the date on which such Stockholder ceases to own any Voting Trust Certificates corresponding to Shares deposited hereunder. If the Effective Date does not occur prior to March 31, 2014, this Agreement shall be null and void and of no further effect. Premier shall promptly provide notice to the Trustee, Premier LP and the Stockholders upon the occurrence of the event described in (x) clause (i) of this Section 4.1 or (y) the immediately preceding sentence.
Section 4.2 Effect of Termination. Upon the termination of this Agreement, the Trustee shall request that Premier issue certificates representing the Shares deposited hereunder in the names of the holders of record of the Voting Trust Certificates and shall deliver such certificates to the Stockholders in the amounts of their respective beneficial interests as set forth on the books and records of the Trustee, upon presentation and surrender to the Trustee of the Voting Trust Certificates therefor. If the Trustee for any reason shall be unable to complete such deliveries within 30 days after the termination of this Agreement, the Trustee may then deposit with Premier such certificates, along with written authority to Premier to deliver them in exchange for the Voting Trust Certificates; and upon such deposit, all further liability of the Trustee for the delivery of such certificates shall cease, and the Trustee shall not be required to take any further action hereunder.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Notice. Any written notice required or permitted to be delivered pursuant to this Agreement shall be in writing and shall be deemed delivered (a) upon delivery if delivered in person, (b) upon transmission if sent by facsimile, (c) one Business Day after deposit with a nationally recognized overnight courier service; or (d) upon transmission if sent by e-mail (with all such documents so transmitted in .PDF format or another graphic format). Notices to Premier, Premier LP, the Trustee or any Stockholder shall be delivered to the respective addresses as set forth below:
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At the address appearing on Schedule I hereto. |
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Wells Fargo Delaware Trust Company, N.A. |
Any party hereto may change its address for notices by giving written notice of such partys new address to the other parties hereto in accordance with this Section 5.1.
All distributions of securities, or other property hereunder by the Trustee to the holders of the Voting Trust Certificates may be made, in the discretion of the Trustee, by mail, email or courier in the same manner as herein above provided for the giving of notices to the holders of the Voting Trust Certificates. All notices, reports, statements and other communications directed to the Trustee from Premier shall be forwarded promptly by Premier (in accordance with a Schedule I provided by the Trustee) to each Stockholder.
Section 5.2 Inspection. Premier shall keep on record at its registered office in Delaware a copy of this Agreement, and shall make such copy available for inspection during normal business hours to the Stockholders and to any other stockholder of Premier.
Section 5.3 Amendment. This Agreement may not be amended without the written consent of the Trustee and the Stockholders holding Voting Trust Certificates representing more than 50 percent of the then outstanding Shares then deposited hereunder, and if so amended, this Agreement (as so amended) shall bind all of the parties hereto and all of the Stockholders; provided, however, that any amendment or modification to this Agreement which would have a materially adverse and discriminatory effect on any Stockholder, shall not be effective without the affirmative vote or consent of such Stockholder; provided, further, however, that each Stockholder acknowledges and agrees that this Agreement may require amendment upon designation of the initial Trustee and designation of any successor Trustee pursuant to Section 3.1 in order to ensure that the provisions of this Agreement are consistent with customary terms reasonably required by such Trustee and, therefore, each Stockholder hereby constitutes and appoints Premier, irrevocably as its true and lawful agent and attorney-in-fact, in its name, place and stead to execute and deliver on such Stockholders behalf amendments to this Agreement consistent with customary terms as reasonably required by the then-serving Trustee (as determined in the good faith reasonable judgment of Premier) in conjunction with such Trustees execution of this Agreement.
Section 5.4 Benefits and Assignment. Nothing in this Agreement, expressed or implied, shall give or be construed to give any persons, other than the parties hereto and their successors and assigns, any legal claim under any covenant, condition or provision hereof, all the covenants, conditions and provisions contained in this Agreement being for the sole benefit of the parties hereto and their successors and assigns. No party may assign any of its rights or obligations under this Agreement without the written consent of all the other parties, which consent may be withheld in the sole discretion of the party whose consent is sought.
Section 5.5 Entire Agreement. This Agreement embodies the entire agreement and understanding of the parties relating to the subject matter hereof and there are no covenants, promises, agreements, conditions or understandings, oral or written, except as herein set forth.
Section 5.6 Severability. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 5.7 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (including, without limitation, Section 218 of the General Corporation Law of the State of Delaware) without giving effect to the principles of conflicts of law thereof. Each party hereto hereby (i) waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement and (ii) consents to the jurisdiction of any state or federal court situated in Wilmington, Delaware in connection with any dispute arising hereunder.
Section 5.8 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns, legal representatives and heirs.
Section 5.9 Section Headings. Captions in this Agreement are for convenience only and shall not be considered a part of or effect the construction or interpretation of any provision of this Agreement.
Section 5.10 Additional Parties. Additional persons or entities who acquire Shares deposited hereunder may become parties to this Agreement by executing a joinder hereto substantially in the form attached hereto as Exhibit E. By virtue of the execution of a joinder to this Agreement and the transfer of all Shares in accordance with Section 2.6 or 2.7 hereof, such person shall be deemed a Stockholder hereunder and thereupon Schedule I attached hereto shall be automatically amended without further action on the part of any of the parties hereto to reflect that such party is to be considered an Stockholder hereunder.
Section 5.11 Delaware Voting Trust. The parties to this Agreement intend to create a voting trust within the meaning of Section 218(a) of the General Corporation Law of the State of Delaware, and as such Premier shall promptly file a copy of this Agreement in the registered office of Premier located in the State of Delaware, including all counterparts as executed, all supplements and amendments thereto and shall hold the Agreement, as executed, supplemented and amended, open for inspection by the Stockholders and other stockholders of Premier upon request daily during business hours.
Section 5.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to by duly executed as of the dates set forth below.
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PREMIER, INC.: | |
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Date: , 2013 |
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PREMIER PURCHASING PARTNERS, L.P. | |
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Date: , 2013 |
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Premier Plans, LLC, its general partner |
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Name: Craig McKasson |
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Title: Chief Financial Officer |
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WELLS FARGO DELAWARE TRUST | |
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COMPANY, N.A., as Trustee: | |
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Date: , 2013 |
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Date: , 2013 |
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SCHEDULE I
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No. of Shares of Class B |
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Certificate Nos. Deposited |
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[address] |
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[address] |
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EXHIBIT A
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS CERTIFICATE NOR THE BENEFICIAL INTEREST IN THE COMMON STOCK TO WHICH THIS CERTIFICATE RELATES MAY BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH SUCH SECURITIES ACT, ANY APPLICABLE SECURITIES LAWS OF ANY STATE AND ANY OTHER APPLICABLE SECURITIES LAWS.
THE TRANSFER OF THIS VOTING TRUST CERTIFICATE IS SUBJECT TO TERMS AND CONDITIONS SET FORTH IN THE VOTING TRUST AGREEMENT EFFECTIVE AS OF , 2013, A COPY OF WHICH HAS BEEN FILED IN THE REGISTERED OFFICE IN THE STATE OF DELAWARE OF PREMIER, INC., A DELAWARE CORPORATION. SUCH COPY IS OPEN TO INSPECTION DAILY DURING BUSINESS HOURS BY ANY STOCKHOLDER OF THE CORPORATION OR ANY BENEFICIARY OF THE VOTING TRUST CREATED PURSUANT TO SUCH VOTING TRUST AGREEMENT.
PREMIER, INC.
Voting Trust Certificate
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Class B Common Stock |
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This certifies that (Stockholder) has deposited shares of Class B Common Stock, par value $0.000001 per share, of Premier, Inc., a Delaware corporation (Premier) with the undersigned Trustee (the Trustee), under the Voting Trust Agreement, dated and effective as of , 2013, as may be amended from time to time (the Voting Trust Agreement), among Premier, Premier Healthcare Alliance, L.P., a California limited partnership (as successor to Premier Purchasing Partners, LP.), the Trustee and the Stockholders named therein, a copy of which Voting Trust Agreement has been delivered to the above-named Stockholder and filed in the registered office of Premier in the State of Delaware. The Stockholder, or its registered assigns, will be entitled to the delivery of that number of shares on the termination of the Voting Trust Agreement, in accordance with its provisions, except no delivery shall be made without the surrender hereof. Prior to the delivery of such shares upon such termination, the undersigned Trustee shall possess and be entitled to exercise, in the manner and to the extent provided in the Voting Trust Agreement, all of the rights of every kind of the holder of this certificate with respect to the shares so deposited.
Subject to the terms of the Voting Trust Certificate, this Voting Trust Certificate is transferable on the books maintained by the Trustee at the principal corporate trust office of the Trustee by the Stockholder, in person or by duly authorized attorney, and upon surrender hereof; and until so
transferred the Trustee may treat the Stockholder as the absolute owner hereof for all purposes.
The holder of this Certificate has acquired it to hold as evidence of an investment and without a view towards distribution. This Certificate, including the interest represented hereby, is transferable only on the books and records of the Trustee upon presentation and surrender hereof in accordance with the terms of the Voting Trust Agreement.
The Stockholder, by the acceptance of this Voting Trust Certificate, agrees to be bound by all of the provisions of the Voting Trust Agreement as fully as if its terms were set forth in this Voting Trust Certificate.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be signed as of this day of , 2013.
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WELLS FARGO DELAWARE TRUST COMPANY, N.A., not in its individual capacity, but solely as Trustee | |
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[REVERSE SIDE OF VOTING TRUST CERTIFICATE]
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(PLEASE INSERT SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE) |
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(Please Print or Typewrite Name and Address of Assignee)
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the within Certificate, and all rights thereunder, and hereby does irrevocably constitute and appoint
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Attorney to transfer the within Certificate on the books kept for registration thereof, with full power of substitution in the premises.
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Signature Guaranteed*: |
*Signature must be guaranteed by an eligible guarantor institution that is a bank, stockbroker, savings and loan association or credit union, meeting the requirements of the Security registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (STAMP) or such other signature guarantee program as may be determined by the Security registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
EXHIBIT B
INCUMBENCY CERTIFICATE
The undersigned, , being the of (the Company) does hereby certify that the individuals listed below are qualified and acting officers of the Company as set forth in the right column opposite their respective names and the signatures appearing in the extreme right column opposite the name of each such officer is a true specimen of the genuine signature of such officer and such individuals have the authority to execute documents to be delivered to, or upon the request of, Wells Fargo Delaware Trust Company, N.A., as Trustee under the Voting Trust Agreement, dated and effective as of , 2013, as may be amended from time to time, among Premier, Inc., a Delaware corporation, Premier Healthcare Alliance, L.P., a California limited partnership (as successor to Premier Purchasing Partners, LP.), the Trustee and the Stockholders named therein.
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IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Certificate as of the day of , 20 .
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EXHIBIT C
TRANSFER CERTIFICATE
EXHIBIT D
POWER OF ATTORNEY
The undersigned (the Stockholder) constitutes and appoints , as the Stockholders true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the Stockholder and in the Stockholders name, place and stead, to sign any and all Securities and Exchange Commission statements of beneficial ownership of securities of the Stockholder on Schedule 13D or Schedule 13G as required under Section 13 and Forms 3, 4 and 5 as required under Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and any amendments thereto, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, the Stockholder and any stock exchange on which the Stockholders stock is listed, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each act and thing requisite and necessary to be done under said Section 13 and Section 16(a) of the Exchange Act, as fully and to all intents and purposes as the Stockholder might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
A copy of this power of attorney shall be filed with the Securities and Exchange Commission. The authorization set forth above shall continue in full force and effect until the Stockholder revokes such authorization by written instructions to the attorney-in-fact.
The authority granted hereby shall in no event be deemed to impose or create any duty on behalf of the attorneys-in-fact with respect to the Stockholders obligations to file Schedule 13Ds or Schedule 13Gs and Forms 3, 4 and 5 with the Securities and Exchange Commission.
Dated: , 201 |
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EXHIBIT E
JOINDER
TO VOTING TRUST AGREEMENT
Pursuant to Section 5.10 of the Voting Trust Agreement effective as of [ , 2013] (the Voting Trust Agreement) among Premier, Inc., a Delaware corporation (Premier), Premier Healthcare Alliance, L.P., a California limited partnership (as successor to Premier Purchasing Partners, LP.), the entities listed on Schedule I thereto as amended from time to time (the Stockholders) and Wells Fargo Delaware Trust Company, N.A., as trustee (together with its successors in such capacity, the Trustee), certain individuals or entities who acquire shares of Class B common stock, par value $0.000001 per share (the Shares) of Premier may execute this joinder to the Voting Trust Agreement.
1. Agreement to be bound by the Voting Trust Agreement. The undersigned is, on the date hereof, acquiring Shares, and hereby agrees to be a party to and be bound as a Stockholder under the Voting Trust Agreement, and hereby authorizes this joinder to the Voting Trust Agreement as of the date hereof.
2. Notice and Stock Information. The address, email and facsimile details for the undersigned for the purpose of Section 5.1 of the Voting Trust Agreement are as follows:
[address]
[address]
Attention:
Facsimile:
Email:
The number of Shares of Class B Common Stock deposited with the Trustee:
3. Incumbency Certificate. An incumbency certificate, in the form of Exhibit B to the Voting Trust Agreement, is attached hereto, completed and executed by or on behalf of the undersigned.
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Exhibit 10.1
PREMIER HEALTHCARE ALLIANCE, L.P.
A California Limited Partnership
FORM OF AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
THE LIMITED PARTNERSHIP INTERESTS IN PREMIER HEALTHCARE ALLIANCE, L.P. HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE SECURITIES LAWS. SUCH INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (I) THE SECURITIES ACT, ANY APPLICABLE SECURITIES LAWS OF ANY STATE AND ANY OTHER APPLICABLE SECURITIES LAWS, (II) THE TERMS AND CONDITIONS OF THIS LIMITED PARTNERSHIP AGREEMENT, AND (III) ANY OTHER TERMS AND CONDITIONS AGREED TO IN WRITING BETWEEN THE GENERAL PARTNER AND THE APPLICABLE LIMITED PARTNER. PURCHASERS AND OTHER TRANSFEREES OF SUCH LIMITED PARTNERSHIP INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT OR ACQUISITION FOR AN INDEFINITE PERIOD OF TIME.
TABLE OF CONTENTS
1. |
DEFINITIONS |
2 | |
2. |
FORMATION AND PURPOSE |
10 | |
|
2.1 |
Continuation of Limited Partnership |
10 |
|
2.2 |
Name |
10 |
|
2.3 |
Purpose; Powers |
10 |
|
2.4 |
Certificates |
10 |
|
2.5 |
Principal Office |
11 |
3. |
MEMBERSHIP, CAPITAL CONTRIBUTIONS AND UNITS |
11 | |
|
3.1 |
Partners |
11 |
|
3.2 |
Partner Interests and Units |
11 |
|
3.3 |
Repurchase of Class B Common Units |
12 |
|
3.4 |
Exchange of Class B Common Units |
12 |
|
3.5 |
Authorization and Issuance of Additional Units |
13 |
|
3.6 |
Capital Contributions |
13 |
|
3.7 |
Admission of New Limited Partners |
14 |
|
3.8 |
Outstanding Capital Contribution Obligations of Founding Limited Partners |
15 |
|
3.9 |
Additional Class A Common Units to Premier |
15 |
4. |
CAPITAL ACCOUNTS |
17 | |
|
4.1 |
Allocations |
17 |
|
4.2 |
Capital Accounts |
17 |
|
4.3 |
Revaluations of Assets and Capital Account Adjustments |
17 |
|
4.4 |
Additional Capital Account Adjustments |
18 |
|
4.5 |
Additional Capital Account Provisions |
18 |
5. |
DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS |
18 | |
|
5.1 |
General Partner Determination |
18 |
|
5.2 |
Distributions |
18 |
|
5.3 |
No Violation |
19 |
|
5.4 |
Withholdings |
19 |
|
5.5 |
Property Distributions and Installment Sales |
19 |
|
5.6 |
Net Profit or Net Loss |
20 |
|
5.7 |
Regulatory Allocations |
20 |
|
5.8 |
Tax Allocations: Code Section 704(c) and Unrealized Appreciation or Depreciation |
20 |
6. |
STATUS, RIGHTS AND POWERS OF LIMITED PARTNERS |
21 | |
|
6.1 |
Limited Liability |
21 |
|
6.2 |
Return of Distributions of Capital |
21 |
|
6.3 |
No Management or Control |
22 |
|
6.4 |
Specific Limitations |
22 |
|
6.5 |
Limited Partner Voting |
22 |
|
6.6 |
Required Consents |
22 |
|
6.7 |
Limited Partner Compensation; Expenses; Loans |
22 |
7. |
DESIGNATION, RIGHTS, AUTHORITIES, POWERS, RESPONSIBILITIES AND DUTIES OF THE GENERAL PARTNER |
23 | |
|
7.1 |
General Partner |
23 |
|
7.2 |
Resignation |
23 |
|
7.3 |
Authority of the General Partner |
23 |
|
7.4 |
Reliance by Third Parties |
24 |
|
7.5 |
Set-Off |
24 |
8. |
DESIGNATION, RIGHTS, AUTHORITIES, POWERS, RESPONSIBILITIES AND DUTIES OF OFFICERS AND AGENTS |
24 | |
|
8.1 |
Officers, Agents |
24 |
|
8.2 |
Appointment |
25 |
|
8.3 |
Tenure |
25 |
|
8.4 |
Vacancies |
25 |
|
8.5 |
Resignation and Removal |
25 |
|
8.6 |
Compensation |
25 |
|
8.7 |
Delegation |
25 |
9. |
BOOKS, RECORDS, ACCOUNTING AND REPORTS |
25 | |
|
9.1 |
Books and Records |
25 |
|
9.2 |
Delivery to Limited Partner, Inspection |
26 |
|
9.3 |
Accounting; Fiscal Year |
26 |
|
9.4 |
Reports |
26 |
|
9.5 |
Filings |
27 |
|
9.6 |
Non-Disclosure |
28 |
|
9.7 |
Restrictions on Receipt |
28 |
10. |
TAX MATTERS PARTNER |
28 | |
|
10.1 |
Tax Matters Partner |
28 |
|
10.2 |
Indemnity of Tax Matters Partner |
28 |
|
10.3 |
Tax Returns |
28 |
|
10.4 |
Tax Elections |
28 |
|
10.5 |
Tax Information |
29 |
11. |
TRANSFER OF INTERESTS |
29 | |
|
11.1 |
Restricted Transfer |
29 |
|
11.2 |
Termination of Partnership |
29 |
|
11.3 |
Consent |
29 |
|
11.4 |
Withdrawal of Partner |
29 |
|
11.5 |
Noncomplying Transfers Void |
30 |
|
11.6 |
Amendment of Exhibit 3.1 |
30 |
12. |
DISSOLUTION OF COMPANY |
30 | |
|
12.1 |
Events of Dissolution |
30 |
|
12.2 |
Liquidation |
30 |
|
12.3 |
No Action for Dissolution |
30 |
|
12.4 |
No Further Claim |
30 |
13. |
INDEMNIFICATION |
31 | |
|
13.1 |
General |
31 |
|
13.2 |
Exculpation |
31 |
|
13.3 |
Persons Entitled to Indemnity |
31 |
|
13.4 |
Indemnification Agreements |
32 |
|
13.5 |
Duties of the General Partner |
32 |
|
13.6 |
Interested Transactions |
32 |
|
13.7 |
Fiduciary and Other Duties |
32 |
14. |
REPRESENTATIONS AND COVENANTS BY THE LIMITED PARTNERS |
33 | |
|
14.1 |
Due Organization and Authority |
33 |
|
14.2 |
Investment Intent |
33 |
|
14.3 |
Securities Regulation; Accredited Investor Status |
33 |
|
14.4 |
Knowledge and Experience |
33 |
|
14.5 |
Economic Risk |
34 |
|
14.6 |
Investment Company Status |
34 |
|
14.7 |
Purchasing Information |
34 |
|
14.8 |
Information |
34 |
|
14.9 |
Binding Agreement |
34 |
|
14.10 |
Tax Position |
34 |
|
14.11 |
Licenses and Permits |
34 |
15. |
AMENDMENTS TO AGREEMENT |
34 | |
|
15.1 |
Amendments |
34 |
|
15.2 |
Corresponding Amendment of Certificate |
35 |
|
15.3 |
Binding Effect |
35 |
16. |
GENERAL |
35 | |
|
16.1 |
Successors; Governing Law; Etc |
35 |
|
16.2 |
Notices |
35 |
|
16.3 |
Power of Attorney |
35 |
|
16.4 |
Execution of Documents |
36 |
|
16.5 |
Consent to Jurisdiction |
37 |
|
16.6 |
WAIVER OF JURY TRIAL |
37 |
|
16.7 |
Arbitration |
37 |
|
16.8 |
Severability |
38 |
|
16.9 |
Table of Contents, Headings |
38 |
|
16.10 |
No Third-Party Rights |
38 |
PREMIER HEALTHCARE ALLIANCE, L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
This Amended and Restated Limited Partnership Agreement (this Agreement) of Premier Healthcare Alliance, L.P. is entered into as of the Effective Date (as defined below), by and among Premier Services, LLC (the General Partner), a Delaware limited liability company and wholly-owned subsidiary of Premier, Inc., a newly-formed Delaware corporation (Premier), as general partner, and the Limited Partners (as defined below), and will be effective as of the Effective Date.
RECITALS
WHEREAS, Premier Purchasing Partners, L.P., a California limited partnership (Premier LP) is engaged in the business of operating and managing healthcare group purchasing and other healthcare-related programs and investments for the benefit of its partners and to otherwise assist the partners in providing superior healthcare services in their communities; and
WHEREAS, the parties hereto desire to continue Premier LP under the new name Premier Healthcare Alliance, L.P., on the terms and conditions and for the purposes set forth below;
WHEREAS, the General Partner and the Limited Partners accordingly desire to amend and restate in its entirety Premier LPs Third Amended and Restated Agreement of Limited Partnership (the Prior Agreement), on the terms contained in this Agreement;
WHEREAS, pursuant to a Contribution Agreement dated as of the Effective Date, the stockholders of Premier, Inc., a Delaware corporation (the Corporation), are contributing all of the Corporations issued and outstanding capital stock to Premier LP on the Effective Date in exchange for limited partnership interests in Premier LP (the Contribution) and the Corporation will thereby become a wholly owned subsidiary of Premier LP and change its name to Premier Healthcare Solutions, Inc.;
WHEREAS, pursuant to a Unit Put/Call Agreement of even date herewith (the Unit Put/Call Agreement), on the Effective Date Premier is purchasing Class B Common Units in Premier LP (Class B Common Units) from the Founding Limited Partners (as defined below) and the Corporation and is purchasing newly-issued Class A Common Units in Premier LP (Class A Common Units) directly from Premier LP (the Class A Common Units and the Class B Common Units are referred to collectively as the Common Units), using the proceeds from an initial public offering (the IPO) of Premiers Class A Common Stock, par value $0.01 per share (the Class A Common Stock), and contributing all of its Common Units to the General Partner, which will become the general partner of Premier LP (all of the foregoing corporate transactions collectively, the Reorganization);
WHEREAS, as part of the Reorganization, the Founding Limited Partners are entering into an Exchange Agreement with Premier and Premier LP of even date herewith (the Exchange Agreement) providing for the exchange, from time to time, of their remaining Class B Common Units for (a) Class A Common Stock, or cash, or a combination of both and (b) payments under a Tax Receivable Agreement being entered into between Premier and the Founding Limited Partners of even date herewith (the Tax Receivable Agreement), and in conjunction therewith the Founding Limited Partners and Premier are entering into a Registration Rights Agreement of even date herewith (the Registration Rights Agreement); and
WHEREAS, the General Partner and the Limited Partners (collectively, as further defined below, the Partners) desire to enter into this Agreement to provide for, among other things, the management of the business and affairs of Premier LP, the allocation of profits and losses among the Partners, the respective rights and obligations of the Partners to each other and to Premier LP, and certain other matters.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Partners, each intending to be legally bound, enter into this Agreement.
1. DEFINITIONS
For purposes of this Agreement: (a) references to Articles, Sections and Exhibits are to Articles, Sections and Exhibits of this Agreement unless explicitly indicated otherwise, (b) references to statutes include all rules and regulations thereunder, and all amendments and successors thereto from time to time; and (c) the word including shall be construed as including without limitation.
Accountants means Ernst & Young, LLP, or such other national accounting firm designated by the General Partner from time to time.
Act means the California Uniform Limited Partnership Act of 2008 (Cal. Corp. Code § 15900, et seq.).
Agreement means this Limited Partnership Agreement, dated as of the date hereof, effective as of the Effective Date, as amended from time to time.
Asset Value of any property of Premier LP means its adjusted basis for federal income tax purposes unless:
(a) the property was accepted by Premier LP as a contribution to capital at a value different from its adjusted basis, in which event the initial Asset Value for such property shall mean the gross fair market value of the property agreed to by Premier LP and the contributing Partner; or
(b) as a consequence of the issuance of additional Units or the redemption of all or part of the Interest of a Partner, the property of Premier LP is revalued in accordance with Section 4.3.
As of any date, references to the then prevailing Asset Value of any property shall mean the Asset Value last determined for such property less the depreciation, amortization and cost recovery deductions taken into account in computing Net Profit or Net Loss in fiscal periods subsequent to such prior determination date.
Capital Account is defined in Section 4.2.
Capital Contribution means with respect to any Partner, the sum of (i) the amount of money plus (ii) the fair market value of any other property (net of liabilities assumed or to which the property is subject) contributed to Premier LP with respect to the Interest held by such Partner pursuant to this Agreement.
Certificate of Limited Partnership means the Certificate of Limited Partnership of Premier LP, and any amendments thereto and restatements thereof, filed on behalf of Premier LP with the California Secretary of State pursuant to Section 15902.01 of the Act.
Class means the classes into which the Interests in Premier LP created in accordance with Section 3.2 may be classified or divided from time to time by the General Partner in its sole discretion pursuant to the provisions of this Agreement. As of the date of this Agreement there are two classes of Units: Class A Common Units and Class B Common Units. Subclasses within a Class shall not be separate Classes for purposes of this Agreement. For all purposes hereunder and under the Act, only such Classes expressly established under this Agreement, including by the General Partner in accordance with this Agreement, shall be deemed to be a class or group of Interests in Premier LP. For the avoidance of doubt, to the extent that the General Partner holds Interests of any Class, the General Partner shall not be deemed to hold a separate Class of such interests from any other Partner because it is the General Partner.
Class A Common Stock is defined in the Recitals.
Class A Common Units is defined in the Recitals.
Class B Common Stock means Class B Common Stock, par value $0.000001 per share, of Premier.
Class B Common Units is defined in the Recitals.
Class B Unit Redemption Amount means the lower of (i) the sum of (A) a Terminating Limited Partners capital account balance immediately prior to the Reorganization (but excluding any appreciation in consequence of the Reorganization) and (B) the book value of the Terminating Limited Partners stock in the Corporation immediately prior to the Contribution (but excluding any appreciation in consequence of the Reorganization), multiplied by (C) a fraction, the numerator of which is seven minus the number of full years following the
commencement of such Partners ownership of Class B Common Units and the denominator of which is seven or (ii) the Fair Market Value of such Unvested Units (using the principles set forth in the definition of Deemed Per-Unit Value of the Class B Common Units) as of the Termination Date, payable in accordance with Section 3.3.
Code means the Internal Revenue Code of 1986, as amended.
Common Units is defined in the Recitals.
Competing Business means a business, or a Person conducting or controlling a business, that directly or indirectly competes with the business of Premier LP or its Related Entities anywhere in the United States.
Confidential Information is defined in Section 9.6.
Contribution is defined in the Recitals.
control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract (written or oral) or otherwise; and the terms controlling, controlled by and under common control with shall have meanings correlative to the foregoing.
Determination Date is defined in the definition of Deemed Per-Unit Value of the Class B Common Units.
Deemed Per-Unit Value of the Class B Common Units means the deemed value of each Class B Common Unit based on the market value (the Fair Market Value) of one share of Class A Common Stock determined as follows:
(a) If Class A Common Stock is traded on a national securities exchange, then such Fair Market Value shall be the average of the closing prices of a share of such Class A Common Stock on such exchange over the 20 trading days ending three days prior to the Exchange Notice Date (as such term is defined below) (the Determination Date);
(b) If Class A Common Stock is traded on the over-the-counter system, then such Fair Market Value shall be the average of the closing bid and ask prices of a share of such Class A Common Stock over the 20 trading days prior to the Determination Date; and
(c) If there is then no public market for the Class A Common Stock, then such Fair Market Value shall be the highest price per share which could be obtained from a willing buyer (not a current employee or director) for a share of Class A Common Stock sold from authorized but unissued shares, as determined in good faith by the General Partner;
provided, however, that if Premier LP shall be party to a merger or other consolidation in which Premier LP is not the surviving party, the Fair Market Value of each Class B Common Unit shall be deemed to be the value received by the holders of the Class B Common Units for each such Class B Common Unit pursuant to such merger or other consolidation.
If closing prices or closing bid and ask prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid and ask price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.
Distribution means cash or property (net of liabilities assumed or to which the property is subject) distributed to a Partner in respect of the Partners Interest.
Early Termination Rate means the long-term Applicable Federal Rate published by the Internal Revenue Service in accordance with section 1274(d) of the Code.
Effective Date means the date on which the closing of the IPO occurs.
Eligible Organization means any entity that is not a healthcare provider but which is eligible for participation in the Premier Program.
Exchange Agreement is defined in the Recitals.
Exchange Notice Date means the date that is at least 30 business days prior to the Quarterly Exchange Date (or 55 business days prior to a Quarterly Exchange Date (as such term is defined in the Exchange Agreement) in conjunction with a Company-Directed Offering (as such term is defined in the Registration Rights Agreement)).
Fair Market Value is defined in the definition of Deemed Per-Unit Value of the Class B Common Units.
Fiscal Year means the fiscal year of Premier LP, which shall be Premier LPs taxable year as determined under Regulations Section 1.441-1 or Section 1.441-2 and the Regulations under Section 706 of the Code, or such other Fiscal Year as determined by the General Partner in compliance with such Regulations.
Founding Limited Partners means the Limited Partners of Premier LP as of the Effective Date and the stockholders of the Corporation that become Limited Partners as of the Effective Date. Any Founding Limited Partner who Transfers all of such Founding Limited Partners Units shall cease to be a Founding Limited Partner and shall no longer have the rights afforded a Founding Limited Partner under this Agreement.
GAAP means generally accepted accounting principles in effect in the United States of America from time to time.
General Partner means Premier Services, LLC. The term General Partner shall also include any Person to which Premier Services, LLC may in the future Transfer Units and other Securities held by it or which Premier Services, LLC may in the future admit to Premier LP as an additional General Partner.
GPO Participation Agreement means the GPO Participation Agreement of even date herewith entered into between Premier LP and each Limited Partner.
Indemnification Agreement is defined in Section 13.4.
Indemnified Persons is defined in Section 13.1.
Interest means, with respect to any Partner as of any time, such Partners partnership interest in Premier LP, together with such Partners rights and obligations with respect thereto set forth in this Agreement.
IPO has the meaning set forth in the Recitals.
Limited Partner means each Partner other than the General Partner.
Member Facilities means the acute and non-acute health care providers and other Eligible Organizations that are Owned, Leased or Managed by, or Affiliated with, a Premier Member. Any Member Facility that ceases to be Owned, Leased or Managed by, or Affiliated with a Premier Member shall cease to be a Member Facility for purposes of this Agreement as of the effective date of the termination of such relationship (e.g., consummation of sale transaction, termination of sponsorship, etc.).
Net Profit and Net Loss of Premier LP for each Fiscal Year or relevant part thereof means Premier LPs taxable income or loss for federal income tax purposes for such period (including all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code) with the following adjustments:
(a) Tax gain or loss attributable to the disposition of property of Premier LP with an Asset Value different than the adjusted basis of such property for federal income tax purposes shall be computed with respect to the Asset Value of such property, and any tax gain or loss not included in Net Profit or Net Loss shall be taken into account and allocated for federal income tax purposes among the Partners pursuant to Section 5.8.
(b) Depreciation, amortization or cost recovery deductions with respect to any property with an Asset Value that differs from its adjusted basis for federal income tax purposes shall be computed in accordance with Asset Value, and any depreciation allowable for federal income tax purposes shall be allocated in accordance with Section 5.8.
(c) Any items that are required to be allocated pursuant to Section 5.7 shall not be taken into account in determining Net Profit or Net Loss.
New Limited Partner is defined in Section 3.7.1.
Officer is defined in Section 8.1.
Options is defined in Section 3.9.3(a).
Owned, Leased or Managed by, or Affiliated with means (a) each acute and non-acute health care provider with respect to which Member directly or indirectly: (i) holds (A) a majority of the equity interests or corporate membership interests in such provider or the power to appoint a majority of such providers governing body or (B) a significant equity interest (which may be less than a majority of the total equity) sufficient to enable operational control and such provider is willing to designate Premier LP as its primary group purchasing organization; (ii) leases and operates such provider; or (iii) manages such provider in whole or in part (including, at a minimum, the supplies purchasing function); and (b) each acute and non-acute health care provider and other Eligible Organization which Member has sponsored for participation in the Premier Program, if such entity is not otherwise described in subsection (a) above.
Ownership Interest means any capital stock, share, partnership interest, membership interest, unit of participation, joint venture interest of any kind or other similar interest (however designated) in any Person and any option, warrant, purchase right, conversion right or exchange right or other contractual obligation which would entitle any Person to acquire any such interest in such Person or otherwise entitle any Person to share in the equity, profit, earnings, losses or gains of such Person (including stock appreciation, phantom stock, profit participation or other similar rights).
Partner means each Person listed on Exhibit 3.1 on the date hereof (including the General Partner) and each other Person hereafter admitted as a Partner in accordance with the terms of this Agreement and the Act. In the event that a New Limited Partner is admitted, Premier LP shall revise Exhibit 3.1 accordingly. The Partners shall constitute the partners (as such term is defined in the Act) of Premier LP. Any reference in this Agreement to any Partner shall include such Partners Successors in Interest to the extent such Successors in Interest have become Substituted Partners in accordance with the provisions of this Agreement. Except as otherwise set forth herein or in the Act, the Partners shall constitute a single class or group of members of Premier LP for all purposes of the Act and this Agreement.
Percentage Interest of a Partner as of a particular time shall mean the percentage that the number of Common Units then held by such Partner represents of the total number of Common Units then outstanding.
Permitted Transfers means Transfers by the General Partner and Transfers pursuant to the Exchange Agreement.
Person means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other entity or organization of any nature whatsoever or any group of two or more of the foregoing which are Related Entities.
Post-IPO Class B Common Units means the total number of Class B Common Units beneficially owned by the Founding Limited Partners immediately following the consummation of the IPO (or, in the event that any over-allotment option granted to the underwriters of the IPO is exercised in whole or in part, then such term shall refer to the total number of Class B
Common Units beneficially owned by the Founding Limited Partners immediately following the closing of the final exercise of such option) and the transactions contemplated by the Unit Put/Call Agreement.
Premier Member means any entity that participates in the Premier Program.
Premier Program means the group purchasing programs conducted by Premier LP and its Related Entities, pursuant to which Premier Members are entitled to purchase Products and Services under the terms of the Premier Program Contracts negotiated with Vendors.
Premier Program Contracts means the purchasing agreements between Vendors and Premier LP, for the purchase by Premier Members of Products and Services (including any enhancements of Premier Program Contracts negotiated by, or on behalf of, any Member Facility).
Premier Program Purchases means, with respect to any Limited Partner, the aggregate purchases of Products and Services by such Limited Partner and its Member Facilities through Premier Program Contracts during a given Fiscal Year.
Prior Agreement is defined in the Recitals.
Products and Services means the equipment, products, supplies and services available to Premier Members pursuant to Premier Program Contracts.
Registration Rights Agreement is defined in the Recitals.
Regulation D means Regulation D under the Securities Act.
Regulations means the Treasury regulations, including temporary regulations, promulgated under the Code.
Regulatory Allocations is defined in Section 5.7.
Related Entity when used with respect to another Person means any Person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such other Person. In addition, Related Entities of a Partner shall be deemed to include all of its directors, managers, officers and employees in their capacities as such.
Securities is defined in Section 3.5.
Securities Act means the Securities Act of 1933, as amended, and the rules, regulations and interpretations promulgated pursuant thereto.
Specified Partner Rights means the rights of a Partner or with respect to an Interest, or benefits accorded to such Partner or with respect to such Interest, pursuant to Section 6.6 (Required Consents) and Article 9 (Books, Records Accounting and Reports); provided, however, that the obligations of such Partner or with respect to such Interest in such designated
section or otherwise in this Agreement shall not be included in the definition of Specified Partner Rights.
Substituted Partner means any Person that has been admitted to Premier LP as a Partner by virtue of such Person receiving all or a portion of a Partners Interest from a Partner or an Assignee and not from Premier LP.
Successor in Interest means any trustee, custodian, receiver or other Person acting in any bankruptcy or reorganization proceeding with respect to, assignee for the benefit of the creditors of, trustee or receiver, or current or former officer, director or partner, or other fiduciary acting for or with respect to the dissolution, liquidation or termination of, or other executor, administrator, committee, legal representative or other successor or assign of, any Partner, whether by operation of law or otherwise.
Supplemental Capital Contribution Amount means a per annum amount equal to a New Limited Partners Capital Contribution multiplied by the 12-month London Inter-Bank Offered Rate as of the date of such Capital Contribution plus 100 basis points.
Tax Distribution is defined in Section 5.2.1.
Tax Matters Partner is defined in Section 10.1.
Tax Receivable Agreement is defined in the Recitals.
Terminating Limited Partner is defined in Section 3.3.
Termination Date is defined in Section 3.3.
Termination Event is defined in Section 3.3.
Transfer means a sale, assignment, pledge, encumbrance, abandonment, disposition or other transfer.
Transferee is defined in Section 11.2.
Units is defined in Section 3.2.
Unit Put/Call Agreement is defined in the Recitals.
Unvested Units is defined in Section 3.3.
Vendor means a supplier of Products and Services under a Premier Program Contract.
Vested Premier Shares is defined in Section 3.9.3(b).
Voting Trust Agreement means that certain Voting Trust Agreement of even date herewith pursuant to which the Limited Partners will deposit their Class B Common Stock into a depository trust.
2. FORMATION AND PURPOSE
2.1 Continuation of Limited Partnership. The parties hereto hereby continue Premier LP previously formed as a limited partnership under the California Revised Limited Partnership Act. The rights and liabilities of the Partners shall be determined pursuant to the Act and this Agreement. To the extent that the rights or obligations of any Partner are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control.
2.2 Name. The name of Premier LP is hereby changed to Premier Healthcare Alliance, L.P. The business of Premier LP may be conducted under that name or, upon compliance with applicable laws, any other name that the General Partner deems appropriate. The General Partner shall file, or shall cause to be filed, any fictitious name certificates and similar filings, and any amendments thereto, that the General Partner considers appropriate.
2.3 Purpose; Powers.
(a) General Purpose. The principal business of Premier LP is to operate and manage healthcare group purchasing and other healthcare-related programs, services and investments for the benefit of its Partners, and to otherwise assist Premier Members in providing high quality and cost-effective healthcare in their communities.
(b) Powers. Notwithstanding the foregoing, the nature of the business or purposes to be conducted or promoted by Premier LP is to engage in any lawful act or activity for which limited partnerships may be formed under the Act. Premier LP may engage in any and all activities necessary, desirable or incidental to the accomplishment of the foregoing. Notwithstanding anything herein to the contrary, nothing set forth herein shall be construed as authorizing Premier LP to possess any purpose or power, or to do any act or thing, forbidden by law to a limited partnership formed under the laws of the State of California.
(c) Partnership Action. Subject to the provisions of this Agreement and except as prohibited by the Act, (i) Premier LP may, with the approval of the General Partner, enter into and perform its obligations under any and all documents, agreements and instruments, all without any further act, vote or approval of any Partner and (ii) the General Partner may authorize any Person (including any Partner or Officer) to enter into and perform its obligations under any document on behalf of Premier LP.
2.4 Certificates. The General Partner and such other Persons as may be designated from time to time by the General Partner are hereby designated as authorized persons, within the meaning of the Act, to execute, deliver and file any amendments or restatements of the Certificate of Limited Partnership or any certificate of cancellation of the Certificate of Limited
Partnership and any other certificates and any amendments or restatements thereof necessary for Premier LP to qualify to do business in a jurisdiction in which Premier LP may wish to conduct business.
2.5 Principal Office. The principal executive office of Premier LP shall be located at such place as the General Partner shall establish, and the General Partner may from time to time change the location of the principal executive office of Premier LP to any other place within or outside the State of California. The General Partner may establish and maintain such additional offices and places of business of Premier LP, either within or outside the State of California, as it deems appropriate. The records required to be maintained by the Act shall be maintained at one of Premier LPs principal offices, except as required by the Act.
3. MEMBERSHIP, CAPITAL CONTRIBUTIONS AND UNITS
3.1 Partners. The Partners of Premier LP are as listed on Exhibit 3.1, as from time to time amended and supplemented so that it sets forth the then-current list of Partners, the total amount of Capital Contributions made by each such Partner and the number of Units held by each such Partner.
3.2 Partner Interests and Units. Interests in Premier LP shall be represented by units (Units) or such other Ownership Interests as the General Partner may establish in its sole discretion in accordance with the terms hereof. As of the Effective Date the Units will be comprised of two Classes, designated as Class A Common Units and Class B Common Units. Ownership of Units shall not be certificated and shall be evidenced solely by the books and records of Premier LP as governed by this Agreement.
(a) Class A Common Units are Units initially held only by the General Partner (and by Premier prior to its contribution to the General Partner of Class A Common Units acquired from Premier LP pursuant to the Unit Put/Call Agreement) and represent an interest in the distributions of Premier LP pari passu with the Class B Common Units as a Class. The interest in profits and distributions of the Class A Common Units is determined based on the allocation methodology set forth in this Agreement. The number of Class A Common Units held by the General Partner on the Effective Date will be shown on Exhibit 3.1. When Premier purchases Class B Common Units from Limited Partners and the Corporation pursuant to the Unit Put/Call Agreement or receives Class B Common Units from Limited Partners pursuant to the exercise by the Limited Partners of rights under the Exchange Agreement, such Class B Common Units shall be contributed by Premier to the General Partner and converted to an equal number of Class A Common Units automatically by operation of this Agreement and without further action by any Person.
(b) Class B Common Units are Units held only by Limited Partners and, as a Class, represent an interest in the distributions in Premier LP pari passu with the Class A Common Units. The interest in profits and distributions of the holder of particular Class B Common Units is determined based on the allocation methodology set forth in this
Agreement. The number of Class B Common Units held by each Limited Partner on the Effective Date will be shown on Exhibit 3.1.
3.3 Repurchase of Class B Common Units. Notwithstanding anything in this Agreement to the contrary, Class B Common Units held by any Founding Limited Partner that are not eligible (as of the Termination Date) for exchange pursuant to Section 3.4 below (Unvested Units) are subject to repurchase upon the occurrence of a Termination Event. Upon becoming aware that a Termination Event has occurred, Premier LP shall have the option, in its sole discretion, to redeem all of the Unvested Units then held by such Founding Limited Partner (referred to hereinafter as a Terminating Limited Partner) at a purchase price equal to the Class B Unit Redemption Amount. Such Terminating Limited Partner shall cease to be a Partner effective as of the date Premier LP gives notice to the Terminating Limited Partner of its redemption of such Class B Common Units (the Termination Date). Premier LP shall pay to such Terminating Limited Partner the Class B Unit Redemption Amount in exchange for and in full satisfaction of the Terminating Limited Partners entire interest in the Unvested Units under this Section 3.3. The Class B Unit Redemption Amount shall be paid, at the sole discretion of the General Partner, by delivery within thirty (30) business days after the Termination Date of (x) a five-year, unsecured, non-interest bearing term promissory note in favor of the Terminating Limited Partner, (y) a cashiers check or wire transfer of immediately available funds in an amount equal to the present value, discounted at the Early Termination Rate, of the Class B Unit Redemption Amount otherwise payable upon the maturity of the promissory note described in clause (x), or (z) payment on such other terms mutually agreed upon by the General Partner and the Terminating Limited Partner. A Termination Event shall be deemed to have occurred with respect to a holder of Unvested Units upon any of the following events: (i) such holder ceases to be a Premier Member; (ii) any event which under the Act or this Agreement causes such holder to cease to be a Limited Partner, except a Transfer which is permitted or approved under the provisions of this Agreement; (iii) such holder ceases to be a party to a GPO Participation Agreement in effect with Premier LP (provided, that, the General Partner may waive this Termination Event, in its sole discretion, if a Related Entity of such holder is a party to a GPO Participation Agreement in effect with Premier LP); or (iv) such holder shall become a Related Entity of, or affiliated with, a Competing Business.
3.4 Exchange of Class B Common Units. Founding Limited Partners shall only be entitled to exchange Class B Common Units after the one-year anniversary of the last day of the calendar month in which Premier consummates the IPO and such exchange shall be in accordance with the terms of the Exchange Agreement. Further, Founding Limited Partners may only exchange Class B Common Units as follows: (a) each Founding Limited Partner may exchange up to one-seventh of its initial allocation of Class B Common Units (subject to adjustments pursuant to Section 3.9.4) each year (which right shall be cumulative; for example, a Founding Limited Partner that elects not to exchange any Class B Common Units during the first two years after the one-year anniversary of the last day of the calendar month in which Premier consummates the IPO shall be permitted to exchange up to three-sevenths of its initial allocation of Class B Common Units during the third year after the one-year anniversary of the last day of the calendar month in which Premier consummates the IPO) and (b) each Founding Limited Partner may exchange any Class B Common Units acquired by such Founding Limited Partner
through the exercise of a right of first refusal under Section 2.2 of the Exchange Agreement at any time. New Limited Partners may exchange Class B Common Units at any time in accordance with the terms of the Exchange Agreement. Notwithstanding anything in this Agreement to the contrary, upon the occurrence of a Termination Event, a Terminating Limited Partner (which term shall include, for purposes of this Section 3.4, a New Limited Partner) shall be required to exchange all Class B Common Units held by such Limited Partner that are eligible (as of the Termination Date) for exchange pursuant to this Section, in accordance with the terms of the Exchange Agreement, on the next exchange date following the Termination Date.
3.5 Authorization and Issuance of Additional Units. The General Partner may issue additional Class A Common Units and Class B Common Units or establish and issue other Classes of Units, other Ownership Interests in Premier LP or other Premier LP securities (collectively, Securities) from time to time with such rights, obligations, powers, designations, preferences and other terms, which may be senior to or otherwise different from any then-existing or future Securities, as the General Partner shall determine from time to time in its sole discretion, without the vote or consent of any other Partner or any other Person, including (a) the right of such Securities to share in Net Profit and Net Loss or items thereof, (b) the right of such Securities to share in Premier LP distributions, (c) the rights of such Securities upon dissolution and liquidation of Premier LP, (d) whether, and the terms and conditions upon which, Premier LP may or shall be required to redeem such Securities (including sinking fund provisions), (e) whether such Securities are issued with the privilege of conversion or exchange and, if so, the terms and conditions of such conversion or exchange, (f) the terms and conditions upon which such Securities will be issued, evidenced by certificates or assigned or transferred, (g) the terms and conditions of the issuance of such Securities (including, without limitation, the amount and form of consideration, if any, to be received by Premier LP in respect thereof, the General Partner being expressly authorized, in its sole discretion, to cause Premier LP to issue Securities for less than fair market value to the extent otherwise permitted by law) and (h) the right, if any, of the holder of such Securities to vote on Premier LP matters, including matters relating to the relative designations, preferences, rights, powers and duties of such Securities. The General Partner, without the vote or consent of any other Partner or any other Person, is authorized (x) to issue any Securities of any such newly-established Class or any existing Class and (y) to amend this Agreement to reflect the creation of any such new Class, the issuance of Securities of such Class, and the admission of any Person as a Partner which has received Securities of any such Class. Except as expressly provided in this Agreement to the contrary, any reference to Units shall include the Class A Common Units, the Class B Common Units, and any other Classes of Units that may be established in accordance with this Agreement.
3.6 Capital Contributions. Each Partners Capital Contribution, if any, whether in cash or in kind, and the number of Units issued to such Partners, shall be as set forth in Exhibit 3.1. Any in-kind Capital Contributions shall be effected by a written assignment or such other documents as the General Partner shall direct. Any Partner making an in-kind Capital Contribution agrees from time to time to do such further acts and execute such further documents as the General Partner may direct to perfect Premier LPs interest in such in-kind Capital Contribution.
3.7 Admission of New Limited Partners.
3.7.1 New Limited Partners. Except for a Transferee that receives Units in a Permitted Transfer, a new Limited Partner (a New Limited Partner) may be admitted only upon the approval of the General Partner in its sole discretion. Each New Limited Partner shall make such Capital Contribution (if any) and shall receive Units and shall otherwise be admitted upon such terms and conditions required by this Agreement. Admission of a New Limited Partner (including a New Limited Partner holding Units received in a Permitted Transfer) is conditioned upon the execution of a Joinder in the form attached hereto as Exhibit 3.7. Upon such admission of a New Limited Partner, the General Partner shall amend Exhibit 3.1 to reflect the Units owned by such New Limited Partner.
3.7.2 New Class B Common Unitholders. In addition to the requirements set forth in Section 3.7.1 above, each New Limited Partner that receives Class B Common Units shall be required to (a) enter into a GPO Participation Agreement (except as otherwise approved by the General Partner in its sole discretion, to the extent that (i) a Related Entity of such New Limited Partner has a GPO Participation Agreement in effect with Premier LP or (ii) such New Limited Partner is a Member Facility of another Limited Partner), the Exchange Agreement, the Tax Receivable Agreement, the Registration Rights Agreement and the Voting Trust Agreement; and (b) contribute to Premier LP a Capital Contribution in an amount equal to one percent (1%) of the New Limited Partners projected annual purchasing volume under its GPO Participation Agreement, which projection shall be determined by the General Partner in its sole discretion following consultation with the prospective New Limited Partner. The Capital Contribution of such New Limited Partner shall be paid upon admission in cash, provided, that upon mutual agreement of such New Limited Partner and the General Partner, such New Limited Partner may contribute its Capital Contribution over time together with the Supplemental Capital Contribution Amounts accrued thereon (such payments collectively referred to as a Capital Contribution Obligation) or in an alternative manner approved by the General Partner in its sole discretion. Payments on a Capital Contribution Obligation of a New Limited Partner shall be made by such New Limited Partner every calendar quarter no later than the date on which a tax distribution is made pursuant to Section 5.2.1 below, in an amount equal to the lesser of (x) five (5%) of such Capital Contribution Obligation or (y) the distributions made pursuant to Section 5.2.1 by Premier LP to such New Limited Partner on such date. In addition, such Capital Contribution Obligation of a New Limited Partner shall be paid by such New Limited Partner to the extent of one hundred percent (100%) of any distribution to such New Limited Partner made pursuant to Section 5.2.2 below, on the date of any such distribution. Such Capital Contribution Obligation shall be paid by such New Limited Partner in full upon the earlier of (a) five years or (b) a Transfer or exchange by such New Limited Partner of all of its Class B Common Units. Each New Limited Partner hereby authorizes the General Partner to apply funds that would otherwise be distributable to such New Limited Partner (including without limitation the Class B Unit Redemption Amount) to satisfy such Capital Contribution Obligation. Notwithstanding
anything in this Agreement to the contrary, a Capital Contribution Obligation which is credited to any New Limited Partner as a Capital Contribution shall be credited solely for accounting purposes and for purposes of allocating Net Profits and Net Losses, and Regulations Section 1.704-1(b)(2)(iv)(d)(2) shall apply for all other purposes. The number of Class B Common Units issued to a New Limited Partner pursuant to this Section 3.7.2 shall be equal to the amount of such New Limited Partners Capital Contribution divided by the Deemed Per-Unit Value of the Class B Common Units.
3.8 Outstanding Capital Contribution Obligations of Founding Limited Partners. All Contribution Loans and New Partner Loans (as those terms are defined in the Prior Agreement) outstanding as of the Effective Date shall be paid on the same terms applicable to Capital Contribution Obligations as set forth in Section 3.7.2 above; provided, that no Supplemental Capital Contribution Amounts will accrue with respect to Contribution Loans. Each Founding Limited Partner hereby authorizes the General Partner to apply funds that would otherwise be distributable to such Founding Limited Partner (including without limitation the Class B Unit Redemption Amount) to satisfy the foregoing payment obligations.
3.9 Additional Class A Common Units to Premier.
3.9.1 Follow-On Offerings. If Premier at any time issues additional Class A Common Stock pursuant to a primary public offering registered under the Securities Act (other than the IPO and any exercises by the underwriters of their option to purchase additional shares with respect thereto) or in a private placement (but excluding exchanges under the Exchange Agreement), the net proceeds received by Premier with respect to such shares, if any, shall be concurrently transferred to Premier LP and Premier LP shall issue Class A Common Units registered in the name of the General Partner based on the Fair Market Value of the Class A Common Stock at the time of such transfer.
3.9.2 Repurchases. If Premier at any time repurchases or redeems a share of Class A Common Stock, including, without limitation, with respect to the repurchase of any unvested restricted stock awards or units or other restricted equity compensation or with respect to repurchases or redemptions made in the public market or in privately negotiated transactions, Premier LP shall, simultaneously with such repurchase or redemption, redeem one Class A Common Unit registered in the name of the General Partner for every share of Class A Common Stock repurchased or redeemed by Premier, upon the same terms and for the same price (but not including any commissions, fees or taxes) as each share of Class A Common Stock is repurchased or redeemed by Premier.
3.9.3 Incentive Equity.
(a) In connection with the exercise of options pursuant to any Premier equity incentive plan (Options), Premier shall acquire additional Class A Common Units from Premier LP (which Class A Common Units shall be contributed by Premier to the General Partner upon receipt). Premier shall exercise its rights under this Section 3.9.3(a) by giving written notice to Premier LP and all Limited Partners. The notice shall specify the net number of shares of Class A Common Stock issued by
Premier pursuant to exercise of the Options. Premier LP shall issue in turn the Class A Common Units to which Premier is entitled under this Section 3.9.3(a). The number of additional Class A Common Units that Premier shall be entitled to receive under this Section 3.9.3(a) shall be equal to the net number of shares of Class A Common Stock issued by Premier pursuant to the exercise of the Options. In consideration of the Class A Common Units issued by Premier LP to Premier under this Section 3.9.3(a), Premier shall contribute to Premier LP the net cash consideration, if any, received by Premier in exchange for the shares of Class A Common Stock issued pursuant to exercise of the Options.
(b) In connection with the grant of Class A Common Stock pursuant to a Premier equity incentive plan (including, without limitation, the issuance of restricted and non-restricted Class A Common Stock, the payment of bonuses in the form of Class A Common Stock, the issuance of Class A Common Stock in settlement of stock appreciation rights or otherwise), other than through the exercise of Options as contemplated in Section 3.9.3(a), Premier shall deliver a notice to Premier LP and all Limited Partners specifying the date on which shares of such Class A Common Stock are vested under applicable law (Vested Premier Shares). The notice shall specify the number of Vested Premier Shares. Premier LP shall (i) issue to Premier a number of Class A Common Units equal to the number of Vested Premier Shares (which Class A Common Units shall be contributed by Premier to the General Partner upon receipt), and (ii) if applicable and notwithstanding Section 5.2 hereof, make a special distribution to the General Partner in respect of such Class A Common Units in an amount equal to any dividends paid or payable by Premier in respect of such Vested Premier Shares that accrued prior to vesting. Premier shall contribute to Premier LP any cash consideration received by Premier in respect of such Vested Premier Shares.
3.9.4 Recapitalizations. Premier LP shall undertake all actions, including without limitation, a reclassification, distribution, division, combination or recapitalization, with respect to the Units, to (a) maintain at all times a one-to-one ratio between the number of Class A Common Units owned by the General Partner and the number of outstanding shares of Class A Common Stock, disregarding, for purposes of maintaining the one-to-one ratio, the Class B Common Stock and any Premier treasury stock, preferred stock or other securities of Premier that are not convertible into or exercisable or exchangeable for Class A Common Stock and (b) maintain the substantive economic ownership interests between and among the Partners, including the General Partner, in the event of any reclassification, distribution, division, combination or recapitalization. In the event of any issuance, transfer, cancellation or repurchase of Class A Common Stock by Premier in connection with the immediately preceding sentence, Premier LP shall engage in a concurrent issuance, transfer, cancellation or repurchase of an identical number of Class A Common Units with respect to the General Partner to preserve such one-to-one ratio, and, subject to Section 3.9.3, to the extent that Premier has paid or received any net consideration in connection with any such transaction, Premier LP shall pay to or receive from Premier, as the case may be, such net consideration. For avoidance of doubt, the General Partner shall take all actions required
to ensure that the total number of issued and outstanding Class A Common Units and Class B Common Units shall at all times exactly match the number of issued and outstanding Class A Common Stock and Class B Common Stock, respectively.
4. CAPITAL ACCOUNTS
4.1 Allocations. The Net Profit and Net Loss of Premier LP and any items of income, gain, deduction or loss that are specially allocated in any fiscal period shall be allocated among the Partners as provided in Article 5.
4.2 Capital Accounts. A separate account (each a Capital Account) shall be established and maintained for each Partner for each Class held by the Partner which:
(a) shall be increased by (i) the amount of cash and the fair market value of any other property contributed by such Partner to Premier LP as a Capital Contribution (net of liabilities secured by such property or that Premier LP assumes or takes the property subject to) and (ii) such Partners share of the Net Profit (or items of income or gain) of Premier LP and
(b) shall be reduced by (i) the amount of cash and the fair market value of any other property distributed to such Partner (net of liabilities secured by such property or that the Partner assumes or takes the property subject to) and (ii) such Partners share of the Net Loss (or items of deductions or loss) of Premier LP.
It is the intention of the Partners that the Capital Accounts of Premier LP be maintained in accordance with the provisions of Section 704(b) of the Code and the Regulations thereunder and that this Agreement be interpreted consistently therewith. A Partners capital account for income tax reporting purposes shall be the sum of the Partners Capital Accounts maintained as set forth above.
4.3 Revaluations of Assets and Capital Account Adjustments. Unless otherwise determined by the General Partner, immediately preceding the issuance of additional Units in exchange for cash, property or services to a new or existing Partner and upon the redemption of all or a portion of a Partners Ownership Interest in Premier LP, the then-prevailing Asset Values of Premier LP shall be adjusted to equal their respective gross fair market values, as determined in good faith by the General Partner, and any increase in the net equity value of Premier LP (Asset Values less liabilities) shall be credited to the Capital Accounts maintained in respect of the Common Units of the Partners in the same manner as Net Profits are credited under Section 5.6.1 (or any decrease in the net equity value of Premier LP shall be charged in the same manner as Net Losses are charged under Section 5.6.1). Accordingly, as of the date of issuance of additional Units or the redemption of all or a portion of a Partners Ownership Interest in Premier LP, the Capital Accounts of Partners will reflect both realized and unrealized gains and losses through such date and the net fair market value of the equity of Premier LP as of such date.
4.4 Additional Capital Account Adjustments. Any income of Premier LP that is exempt from federal income tax shall be credited to the Capital Accounts of the Partners in the same manner as Net Profits are credited under Section 5.6 when such income is realized. Any expenses or expenditures of Premier LP which may neither be deducted nor capitalized for tax purposes (or are so treated for tax purposes) shall be charged to the Capital Accounts of the Partners in the same manner as Net Losses are charged under Section 5.6. If Premier LP is subject to an election under Section 754 of the Code or any comparable election under applicable state and local tax law to provide a special basis adjustment upon the transfer of an Interest in Premier LP or the distribution of property by Premier LP, Capital Accounts shall be adjusted to the limited extent required by the Regulations under Section 704 of the Code following any such transfer or distribution.
4.5 Additional Capital Account Provisions. No Partner shall have the right to demand a return of all or any part of such Partners Capital Contributions. Any return of the Capital Contributions of any Partner shall be made solely from the assets of Premier LP and only in accordance with the terms of this Agreement. No interest shall be paid to any Partner with respect to such Partners Capital Contributions or Capital Account. In the event that all or a portion of the Units of a Partner are transferred in accordance with this Agreement, the Transferee of such Units shall also succeed to all or the relevant portion of the Capital Account of the transferor. For purposes of the preceding sentence, the portion of the Capital Account to which the Transferee succeeds shall be the percentage of the transferors total Capital Account as the Percentage Interest being transferred bears to the total Percentage Interest of the transferor immediately prior to such transfer. Units held by a Partner may not be transferred independently of the Interest to which the Units relate.
5. DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS
5.1 General Partner Determination. The General Partner shall determine the timing and the aggregate amount of any Distributions to Partners; provided, however, that unless the General Partner determines that a Tax Distribution made under Section 5.2.1 will cause Premier LP to violate a covenant of Premier LPs then-existing financing agreements or the Act, the General Partner shall make a Tax Distribution not later than the dates specified in Section 5.2.1.
5.2 Distributions. Distributions from Premier LP to its Partners shall be made only after allocating the Net Profit or Net Loss of Premier LP through the date as of which the Distribution is being charged to the Capital Accounts of the Partners. Such Distributions shall be made in the following order (except that no Partner shall be entitled to receive a Distribution that would create or increase a deficit balance in such Partners Capital Account unless the Capital Accounts of all Partners have previously been reduced to zero):
5.2.1 Tax Distributions in Respect of Common Units. Subject to Section 5.1, Premier LP shall distribute to all Partners prior to the 60th day after the end of each calendar quarter cash in an aggregate amount equal to a percentage of the allocations of taxable income made or expected to be made pursuant to this Article 5 for such quarter equal to the effective combined federal, state and local income tax rate then payable by Premier, taking into account the benefit of deducting state and local income taxes for
federal income tax purposes and any benefit of the dividends received deduction but not taking into account the effect of any increase in basis under Sections 743 or 734 of the Code (the Tax Distribution). Each Tax Distribution in respect of income allocated to the holders of Common Units shall be made to the General Partner and to the holders of Class B Common Units in the aggregate in proportion to Common Units held at the end of such quarter. Each Tax Distribution made to the holders of Class B Common Units in the aggregate shall be divided among such holders in accordance with the Allocation and Distribution Methodology set forth in Exhibit 5, as amended from time to time.
5.2.2 Other Distributions in Respect of Common Units. Next, Premier LP shall distribute to the Partners cash in an aggregate amount, if any, determined at the General Partners sole discretion. Each Distribution under this Section 5.2.2 shall be made to the General Partner and to the holders of Class B Common Units in the aggregate in proportion to Common Units held at the end of the quarter in which such Distribution is declared. Each Distribution under this Section 5.2.2 made to the holders of Class B Common Units in the aggregate shall be divided among such holders in accordance with the Allocation and Distribution Methodology set forth in Exhibit 5, as amended from time to time.
5.3 No Violation. Notwithstanding any provision to the contrary contained in this Agreement, Premier LP shall not make a Distribution to any Partner on account of such Partners Interest in Premier LP if such Distribution would violate Section 15905.08 of the Act or other applicable law.
5.4 Withholdings. All amounts withheld pursuant to the Code or any federal, state, local or foreign tax law with respect to any payment, distribution or allocation to a Partner shall be treated as amounts paid to such Partner. Each Partner hereby authorizes the General Partner to withhold from Distributions to Partners, or with respect to allocations to Partners and in each case to pay over to the appropriate federal, state, local or foreign government any amounts required to be so withheld. The General Partner shall allocate any such amounts to the Partners in respect of whose Distribution or allocation the tax was withheld and shall treat such amounts as actually distributed to such Partners.
5.5 Property Distributions and Installment Sales. If any assets of Premier LP shall be distributed in kind pursuant to this Article 5, such assets shall be distributed to the Partners entitled thereto in the same proportions as the Partners would have been entitled to cash Distributions. To the extent not otherwise recognized by Premier LP, the difference between the fair market value of any property distributed in kind to the Partners and the then-prevailing Asset Value of such property shall be taken into account in determining Net Profit and Net Loss and determining the Capital Accounts of the Partners. If any assets are sold in transactions in which, by reason of Section 453 of the Code, gain is realized but not recognized, such gain shall be taken into account when realized in computing gain or loss of Premier LP for purposes of allocation of Net Profit or Net Loss under this Article 5 and, if such sales shall involve substantially all the assets of Premier LP, Premier LP shall be deemed to have been dissolved and terminated notwithstanding any election by the Partners to continue Premier LP for purposes of collecting the proceeds of such sales.
5.6 Net Profit or Net Loss.
5.6.1 Allocations of Net Profit and Net Loss. The Net Profit and Net Loss of Premier LP for any relevant fiscal period shall be allocated and credited to the Capital Accounts of the General Partner and of the Limited Partners holding Class B Common Units in the aggregate, in proportion to the numbers of Common Units held. Allocations made to the holders of Class B Common Units in the aggregate shall be divided among such holders in accordance with the Allocation and Distribution Methodology set forth in Exhibit 5, as in effect from time to time.
5.6.2 Interpretation. The Partners intend for the allocation provisions set forth in this Agreement to comply with Section 704(b) of the Code and the Regulations thereunder and to appropriately reflect the Partners rights to Distributions as set forth in Sections 5.2 and 12.2, and Premier LP shall interpret the provisions in accordance with such intent and make such adjustments in Capital Accounts and allocations as may be necessary to effect such intent.
5.7 Regulatory Allocations. Notwithstanding Section 5.6, although the Partners do not anticipate that events will arise that will require application of this Section 5.7, provisions governing the allocation of taxable income, gain, loss, deduction and credit (and items thereof) are included in this Agreement as may be necessary to provide that Premier LPs allocation provisions contain a so-called Qualified Income Offset and comply with all provisions relating to the allocation of so-called Nonrecourse Deductions and Partner Nonrecourse Deductions and the chargeback thereof as set forth in the Regulations under Section 704(b) of the Code (the Regulatory Allocations); provided, however, that the Partners intend that all Regulatory Allocations that may be required shall be offset by other Regulatory Allocations or special allocations of items so that each Partners share of the Net Profit, Net Loss and capital of Premier LP will be the same as it would have been had the events requiring the Regulatory Allocations not occurred. For this purpose the General Partner, based on the advice of Premier LPs auditors or tax counsel, is hereby authorized to make such special curative or remedial allocations of tax items as may be necessary to minimize or eliminate any economic distortions that may result from any required Regulatory Allocations.
5.8 Tax Allocations: Code Section 704(c) and Unrealized Appreciation or Depreciation.
5.8.1 Contributed Assets. In accordance with Section 704(c) of the Code, income, gain, loss and deduction with respect to any property contributed to Premier LP with an adjusted basis for federal income tax purposes different from its initial Asset Value shall, solely for tax purposes, be allocated among the Partners so as to take into account such difference in the manner required by Section 704(c) of the Code and the applicable Regulations.
5.8.2 Revalued Assets. If upon the acquisition of additional Units in Premier LP by a new or existing Partner, or upon the redemption of all or a portion of a Partners Ownership Interest in Premier LP, the Asset Value of any of the assets of Premier LP is
adjusted pursuant to Section 4.3, subsequent allocations of income, gain, loss and deduction with respect to such assets shall, solely for tax purposes, be allocated among the Partners so as to take into account such adjustment in the same manner as under Section 704(c) of the Code and the applicable Regulations.
5.8.3 Elections and Limitations. The allocations required by this Section 5.8 are solely for purposes of federal, state and local income taxes and shall not affect the allocation of Net Profits or Net Losses among Partners or any Partners Capital Account. All tax allocations required by this Section 5.8 shall be made using the so called traditional method described in Regulations Section 1.704-3(b).
5.8.4 Allocations. Except as noted above, all items of income, deduction and loss shall be allocated for federal, state and local income tax purposes in the same manner as such items are allocated for purposes of calculating Net Profits and Net Losses.
6. STATUS, RIGHTS AND POWERS OF LIMITED PARTNERS
6.1 Limited Liability. Except as otherwise provided by the Act, the debts, obligations and liabilities of Premier LP, whether arising in contract, tort or otherwise, shall be solely the debts, expenses, obligations and liabilities of Premier LP, and no Limited Partner shall be obligated personally for any such debt, expense, obligation or liability of Premier LP solely by reason of being a Limited Partner. All Persons dealing with Premier LP shall have recourse solely to the assets of Premier LP for the payment of the debts, obligations or liabilities of Premier LP. In no event shall any Limited Partner be required to make up any deficit balance in such Limited Partners Capital Account upon the liquidation of such Limited Partners Interest or otherwise.
6.2 Return of Distributions of Capital. Except as otherwise expressly required by law, a Limited Partner, in such capacity, shall have no liability for obligations or liabilities of Premier LP in excess of (a) the amount of such Limited Partners Capital Contributions, (b) such Limited Partners share of any assets and undistributed profits of Premier LP and (c) to the extent required by law, the amount of any Distributions wrongfully distributed to such Limited Partner. Except as required by law, no Limited Partner shall be obligated by this Agreement to return any Distribution to Premier LP or pay the amount of any Distribution for the account of Premier LP or to any creditor of Premier LP; provided, however, that if any court of competent jurisdiction holds that, notwithstanding this Agreement, any Limited Partner is obligated to return or pay for the account of Premier LP or to any creditor of Premier LP any part of any Distribution, such obligation shall bind such Limited Partner alone and not any other Partner. The provisions of the immediately preceding sentence are solely for the benefit of the Partners and shall not be construed as benefiting any Person not part of this Agreement. The amount of any Distribution returned to Premier LP by a Limited Partner or paid by a Limited Partner for the account of Premier LP or to a creditor of Premier LP shall be added to the account or accounts from which it was subtracted when it was distributed to such Limited Partner.
6.3 No Management or Control. Except as expressly provided in this Agreement, no Limited Partner shall take part in or interfere in any manner with the management of the business and affairs of Premier LP or have any right or authority to act for or bind Premier LP.
6.4 Specific Limitations. No Limited Partner shall have the right or power to (a) withdraw or reduce such Limited Partners Capital Contribution, except as a result of the dissolution of Premier LP or as otherwise provided by law or in this Agreement, (b) make voluntary Capital Contributions or to contribute any property to Premier LP other than cash, except as provided in this Agreement, (c) bring an action for partition against Premier LP or any Premier LP assets, (d) cause the termination and dissolution of Premier LP, except as set forth in this Agreement or (e) upon the Distribution of its Capital Contribution require that property other than cash be distributed in return for its Capital Contribution. Each Limited Partner hereby irrevocably waives any such rights.
6.5 Limited Partner Voting. Except as otherwise set forth in this Agreement, all powers of the Limited Partners shall be exercised in accordance with Section 7.3 by the appointment of the General Partner.
6.6 Required Consents. Notwithstanding the grant of authority to the General Partner pursuant to Section 7.3 and notwithstanding any other provision of this Agreement: (i) the prior written consent of a majority in interest of each Class of Ownership Interests held by Limited Partners shall be required to approve any merger of Premier LP; and (ii) so long as the total number of Units held by the Founding Limited Partners equals or exceeds 20% of the Post-IPO Class B Common Units, none of the following actions shall be taken by Premier LP without the prior written consent of a majority in interest of the Units then held by the Founding Limited Partners:
(a) without limiting Section 15.1, any amendment, modification, supplement or restatement of or to this Agreement, other than an amendment, modification, supplement or restatement (i) being executed solely to reflect any dilution in the Partners Interests resulting from the issuance of Units as contemplated by Article 3 or (ii) being executed solely to reflect the acceptance of a New Limited Partner pursuant to Article 11; provided, that any such amendment, modification, supplement or restatement treats all Partners ratably based on their Percentage Interests; or
(b) the dissolution, liquidation or winding up of Premier LP.
6.7 Limited Partner Compensation; Expenses; Loans.
(a) No Limited Partner shall receive any salary, fee or draw for services rendered to or on behalf of Premier LP except as provided under a separate written agreement between Premier LP and such Limited Partner or a policy approved by the General Partner. Except as otherwise approved, permitted or contemplated by or pursuant to a policy approved by the General Partner, no Limited Partner shall be reimbursed for any expenses incurred by such Limited Partner on behalf of Premier LP.
(b) Any Limited Partner or Related Entity may, to the extent approved by the General Partner, lend or advance money to Premier LP (it being understood that no such loan or advance shall be deemed to take place in the ordinary course of business). If any Limited Partner or Related Entity shall make any such permitted loan or loans to Premier LP or advance money on Premier LPs behalf, the amount of any such loan or advance shall not be treated as a contribution to the capital of Premier LP but shall be a debt due from Premier LP. Unless otherwise agreed by the lending Limited Partner or Related Entity and Premier LP and approved by the General Partner, the amount of any such loan or advance by a lending Limited Partner or Related Entity shall be repayable out of Premier LPs cash and shall bear interest at a rate not in excess of the prime rate established, from time to time, by any major bank selected by the General Partner for loans to its most creditworthy commercial borrowers, plus up to two percent per annum as agreed upon by the General Partner and the Limited Partner and on such other terms and conditions no less favorable to Premier LP than if such lending Limited Partner or Related Entity had been an independent third party. None of the Limited Partners or their Related Entities shall be obligated to make any loan or advance to Premier LP.
7. DESIGNATION, RIGHTS, AUTHORITIES, POWERS, RESPONSIBILITIES
AND DUTIES OF THE GENERAL PARTNER
7.1 General Partner. Premier LP shall be managed by the General Partner.
7.2 Resignation. The General Partner may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no such time be specified in such written resignation, then at the time of receipt of such written resignation by the President or the Secretary of Premier LP. The acceptance of a resignation shall not be necessary to make it effective unless expressly so provided in such resignation.
7.3 Authority of the General Partner. Subject to the provisions of this Agreement that require the consent or approval of one or more Limited Partners, the General Partner shall have the exclusive power and authority to manage the business and affairs of Premier LP and to make all decisions with respect thereto. Except as otherwise expressly provided in this Agreement, the General Partner or Persons designated by the General Partner, including officers and agents appointed by the General Partner, shall be the only Persons authorized to execute documents which shall be binding on Premier LP. To the fullest extent permitted by California law, but subject to any specific provisions hereof granting rights to Limited Partners, the General Partner shall have the power to perform any acts, statutory or otherwise, with respect to Premier LP or this Agreement, which would otherwise be possessed by the Partners under California law, and the Partners shall have no power whatsoever with respect to the management of the business and affairs of Premier LP. Without limiting the foregoing provisions of this Section 7.3, the General Partner shall have the sole power to manage or cause the management of Premier LP, including, without limitation, the power and authority to effectuate the sale, lease, transfer, exchange or other disposition of any, all or substantially all of the assets of Premier LP (including, without limitation, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by Premier LP) or the conversion of Premier LP pursuant to Article 11 of the Act. Notwithstanding anything in this
Agreement to the contrary, Premier LPs Group Purchasing Policy and Recruitment and Retention Policy may only be modified with the approval of a majority of the General Partners Board of Managers after consultation with applicable Premier stockholder committees.
7.4 Reliance by Third Parties. Any Person dealing with Premier LP or the Partners may rely upon a certificate signed by the General Partner as to (a) the identity of the Partners, (b) the existence or non-existence of any fact or facts which constitute a condition precedent to acts by Partners or are in any other manner germane to the affairs of Premier LP, (c) the Persons which are authorized to execute and deliver any instrument or document of or on behalf of Premier LP, (d) the authorization of any action by or on behalf of Premier LP by the General Partner or any officer or agent acting on behalf of Premier LP, (e) any act or failure to act by Premier LP or (f) as to any other matter whatsoever involving Premier LP or the Partners.
7.5 Set-Off.
(a) In addition to any rights Premier LP may have as a matter of law or otherwise, the General Partner shall have the right (but will not be obligated) without prior notice to a Limited Partner or any other Person to set-off or apply any obligation of such Limited Partner owed to Premier LP or its Related Entities (whether or not matured or contingent and whether or not arising under this Agreement) against any obligation of Premier LP owed to such Limited Partner (whether or not matured or contingent and whether or not arising under this Agreement), including, without limitation, Premier LPs obligation to pay such Limited Partner any amounts under Sections 3.3 or 5.2 of this Agreement or Section 4.1 of the GPO Participation Agreement
(b) In the event that the operation of this Section 7.5 results in any Limited Partner owing a net amount to Premier LP or its Related Entities, such Limited Partner shall be unconditionally obligated to pay such amount to Premier LP or to such Related Entity concurrently with the consummation of any exchange or sale of Class B Common Units beneficially held by such Limited Partner. Any such payment shall be made by certified or bank cashiers check or wire transfer of immediately available funds.
8. DESIGNATION, RIGHTS, AUTHORITIES, POWERS, RESPONSIBILITIES
AND DUTIES OF OFFICERS AND AGENTS
8.1 Officers, Agents. The General Partner shall have the power to appoint officers and agents to act for Premier LP with such titles, if any, as the General Partner deems appropriate and to delegate to such officers or agents such of the powers as are granted to the General Partner hereunder, including the power to execute documents on behalf of Premier LP, as the General Partner may in its sole discretion determine. The officers so appointed may include, without limitation, Persons holding titles such as Chairman, President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Vice President, Treasurer, Secretary, Assistant Treasurer and Assistant Secretary (each such appointee, an Officer). Unless the authority of such an officer is limited or specified in the document appointing such officer or in such officers employment agreement or is otherwise specified or limited by the General Partner, any officer so appointed shall have the same authority to act for Premier LP as a corresponding
officer of a California corporation would have to act for a California corporation in the absence of a specific delegation of authority and as more specifically set forth in this Article 8.
8.2 Appointment. The officers may be appointed by the General Partner at any time, and the General Partner may delegate to any officer the power to elect or appoint any other officer or any agents. Officers must be natural persons.
8.3 Tenure. Each officer shall hold office until such officers respective successor is chosen and qualified unless a different period shall have been specified by the terms of such officers election or appointment or until such officer sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain such agents authority at the pleasure of the General Partner or the officer by whom such agent was appointed or by the officer who then holds such agents appointive power.
8.4 Vacancies. If the office of any officer becomes vacant, any Person empowered to elect or appoint such officer may choose a successor therefor. Each such successor shall hold office for such officers unexpired term and until such successor is chosen and qualified or until such successor sooner dies, resigns, is removed or becomes disqualified.
8.5 Resignation and Removal. The General Partner may at any time remove any officer either with or without cause. The General Partner may at any time terminate or modify the authority of any agent. Any officer may resign at any time by delivering such officers resignation in writing to the General Partner. Such resignation shall be effective upon receipt unless specified to be effective at some other time and without in either case the necessity of its being accepted unless the resignation shall so state.
8.6 Compensation. An officer shall receive such compensation as may be determined from time to time by General Partner or as otherwise provided in a written employment agreement.
8.7 Delegation. Unless prohibited by the General Partner, an officer appointed by the General Partner may delegate in writing some or all of the duties and powers of such Persons management position to other Persons. An officer who delegates the duties or powers of an office remains subject to the standard of conduct for an officer with respect to the discharge of all duties and powers so delegated.
9. BOOKS, RECORDS, ACCOUNTING AND REPORTS
9.1 Books and Records. The books and records of Premier LP shall reflect all Premier LPs transactions and shall be appropriate and adequate for Premier LPs business. Premier LP shall maintain at its principal office or such other office as the General Partner shall determine all of the following:
(a) a current list of the full name and last known business or residential address of each Partner;
(b) information regarding the amount of cash and a description and statement of the agreed value of all other property and services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each Partner became a Partner of Premier LP;
(c) a copy of the Certificate of Limited Partnership and this Agreement, including any amendments thereto, together with executed copies of any powers of attorney pursuant to which the Certificate of Limited Partnership or this Agreement or any such amendments have been executed;
(d) copies of Premier LPs federal, state and local income tax and information returns and reports;
(e) the financial statements of Premier LP; and
(f) Premier LPs books and records.
9.2 Delivery to Limited Partner, Inspection. Upon the request of any Limited Partner for any purpose reasonably related to such Limited Partners Interest, the General Partner shall allow the Limited Partner and its designated representatives or agents, upon at least two business days prior written notice to the General Partner and during reasonable business hours, to examine Premier LPs books and records for such purpose, including, without limitation, books and records related to the Premier Program, at the Limited Partners sole cost and expense. A Limited Partner requesting such an examination of Premier LPs books and records may also request, and the General Partner shall endeavor to cause, representatives of Premier LP and the independent certified public Accountants for Premier LP to be made available to discuss such books and records. In addition, each Limited Partner shall have the right to obtain from Premier LP such other information regarding Premier LPs affairs and financial condition as is just and reasonable. The foregoing rights shall be subject to such reasonable standards as may be established by the General Partner from time to time. The rights and privileges set forth in this Section 9.2 shall not apply (a) to any assignee of a Limited Partner except to the extent required by the Act or (b) to any Limited Partner employed by, retained by, affiliated with or controlled by a Competing Business at the time of request or examination.
9.3 Accounting; Fiscal Year. Premier LP will prepare its financial reports in accordance with GAAP. The General Partner may, without any further consent of the Limited Partners (except as specifically required by the Code), apply for IRS consent to, and otherwise effect a change in, Premier LPs Fiscal Year.
9.4 Reports.
(a) General. The General Partner shall be responsible for causing the preparation of financial reports of Premier LP and the coordination of financial matters of Premier LP with Premier LPs Accountants.
(b) Periodic and Financial Reports. Premier LP shall maintain and provide to each Partner upon request the following financial statements prepared, in each case in accordance with GAAP; provided, however, that items or entries in such financial statements that relate to Capital Contributions, Net Profits and Net Losses and other allocations, Distributions or Capital Accounts shall be construed, determined and reported to Partners in accordance with this Agreement.
(i) As soon as reasonably practicable following the end of each Fiscal Year (and in any event not later than ninety (90) days after the end of such Fiscal Year), a balance sheet of Premier LP as of the end of such Fiscal Year and the statements of operations, and cash flows for such Fiscal Year, together with appropriate notes to such financial statements, Partners Capital Accounts and changes therein, all of which shall be audited and certified by Premier LPs Accountants, and in each case setting forth in comparative form the corresponding figures for Premier LP (to the extent then in existence) for the immediately preceding Fiscal Year.
(ii) As soon as reasonably practicable following the end of each of the first three fiscal quarters of each Fiscal Year and following the end of each of the first eleven months of each Fiscal Year (and in any event not later than forty-five (45) days after the end of such fiscal quarter or month, as the case may be), an unaudited balance sheet of Premier LP as of the end of such fiscal quarter or month, as the case may be and the unaudited statements of operations and cash flows for such fiscal quarter or month, as the case may be, and for the Fiscal Year to date, in each case setting forth in comparative form the corresponding figures for Premier LP (to the extent then in existence) for the prior Fiscal Years fiscal quarter or month, as the case may be, and the fiscal quarter or month, as the case may be, just completed.
(c) Other Reports. The General Partner shall cause to be delivered promptly to the Limited Partners such other information as is customarily provided to stockholders or limited partners, such as reports of adverse developments, management letters and press releases.
9.5 Filings. At Premier LPs expense, the General Partner shall cause the income tax returns for Premier LP to be prepared and timely filed with the appropriate authorities and to have prepared and to furnish to each Limited Partner such information with respect to Premier LP (including without limitation a Schedule setting forth such Limited Partners distributive share of Premier LPs income, gain, loss, deduction and credit as determined for federal income tax purposes) as is necessary to enable such Limited Partner to prepare such Limited Partners federal and state income tax returns. The General Partner, at Premier LPs expense, shall also cause to be prepared and timely filed with appropriate federal and state regulatory and administrative authorities all reports required to be filed by Premier LP with such authorities under then-current applicable laws, rules and regulations.
9.6 Non-Disclosure. Each Partner agrees that, except as otherwise consented to by the General Partner, all non-public information furnished to such Partner pursuant to this Agreement or otherwise regarding Premier LP or its business that is not generally available to the public (Confidential Information) will be kept confidential and will not be disclosed by such Partner, or by any of such Partners agents, representatives or employees, in any manner, in whole or in part, except that (a) each Partner shall be permitted to disclose such Confidential Information to such Partners agents, representatives and employees who need to be familiar with such information in connection with such Partners investment in Premier LP and who are charged with an obligation of confidentiality, (b) each Partner shall be permitted to disclose Confidential Information to the extent required by law, so long as such Partner shall have first provided Premier LP a reasonable opportunity to contest the necessity of disclosing such information and (c) each Partner shall be permitted to disclose Confidential Information to the extent necessary for the enforcement of any right of such Partner arising under this Agreement. Notwithstanding the foregoing, each Partner may disclose to its tax and legal advisors, to the extent necessary, the tax treatment and tax structure of the Reorganization and all materials of any kind (including opinions or other tax analyses) that are provided by Premier LP to the Partner relating to such tax treatment and tax structure.
9.7 Restrictions on Receipt. The rights of Limited Partners to receive reports or to request information pursuant to this Article 9 shall be subject to Section 3.3.
10. TAX MATTERS PARTNER
10.1 Tax Matters Partner. The General Partner shall act as the tax matters partner within the meaning of and pursuant to Regulations Sections 301.6231(a)(7)-1 and -2 or any similar provision under state or local law and in such capacity is referred to as the Tax Matters Partner.
10.2 Indemnity of Tax Matters Partner. Premier LP shall indemnify and reimburse the Tax Matters Partner for all expenses (including legal and accounting fees) incurred as Tax Matters Partner pursuant to this Article 10 in connection with any administrative or judicial proceeding with respect to the tax liability of the Partners attributable to Interest in Premier LP.
10.3 Tax Returns. Unless otherwise directed by the General Partner, all tax returns of Premier LP shall be reviewed and signed by an independent certified public accountancy firm or other paid preparer.
10.4 Tax Elections. The General Partner shall, without any further consent of the Partners being required (except as specifically required herein), cause Premier LP to make any and all elections for federal, state, local and foreign tax purposes, including, without limitation, any election, if permitted by applicable law (i) to make the election provided for in Code Section 6231(a)(1)(B)(ii) or take any other action necessary to cause the provisions of Code Sections 6221 through 6231 to apply to Premier LP, (ii) to take any action necessary or appropriate to continue the election made by Premier LP pursuant to Code Section 754 or comparable provisions of state, local or foreign law as in effect at the Effective Date, including making a new or a protective Section 754 election, to assure such Section 754 election is and remains effective
and that such Section 754 election is not revoked without the consent of all Partners, and to adjust the basis of property pursuant to Code Sections 734(b) and 743(b), or comparable provisions of state, local or foreign law, in connection with Transfers of Interests and Premier LP distributions, (iii) to extend the statute of limitations for assessment of tax deficiencies against the Partners with respect to adjustments to Premier LPs federal, state, local or foreign tax returns and, (iv) to the extent provided in Code Sections 6221 through 6231 and similar provisions of federal, state, local or foreign law, to represent Premier LP and the Partners before taxing authorities or courts of competent jurisdiction in tax matters affecting Premier LP or the Partners in their capacities as Partners, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters (including agreements or other documents that bind the Partners with respect to such tax matters or otherwise affect the rights of Premier LP and the Partners).
10.5 Tax Information. Tax information shall be delivered to each Partner as soon as practicable after the end of each Fiscal Year of Premier LP but not later than 30 days prior to the due date of the applicable tax return (including extensions). Upon request, Premier LP shall make such additional information available as shall be reasonably requested by any Partner in order for such Partner to be able to complete its tax returns.
11. TRANSFER OF INTERESTS
11.1 Restricted Transfer. Except for Permitted Transfers, no Partner shall Transfer all or any part of its Units, or the economic or other rights that comprise such Partners Interest, unless such Transfer is first approved by the General Partner. In no event will a Partner be permitted to Transfer all or any of its Units, or all or any part of the economic or other rights that comprise such Partners Interest, to a Competing Business. Premier LP shall maintain a record of the ownership of Units which shall initially be as set forth on Exhibit 3.1 and which shall be amended from time to time to reflect Transfers of Units. Subject to restrictions on the transferability of Units as set forth herein, Units shall be Transferred by delivery to Premier LP of an instruction by the registered owner of a Unit requesting registration of Transfer of such Units and the recording of such Transfer in the records of Premier LP.
11.2 Termination of Partnership. No Partner shall resign or withdraw from Premier LP except that, subject to the restrictions set forth in this Article 11, any Partner may Transfer its Units in Premier LP to a transferee (a Transferee) and such Transferee may become a Partner in place of the Partner assigning such Units.
11.3 Consent. Each Partner hereby agrees that, upon satisfaction of the terms and conditions of this Article 11 with respect to any proposed Transfer, the Person proposed to be the Transferee in such Transfer may be admitted as a Partner.
11.4 Withdrawal of Partner. If a Partner Transfers all of its Units pursuant to Section 11.1 and the Transferee of such Units is admitted as a Partner, the Partner transferring such Units shall cease to be a Partner of Premier LP immediately following such admission (which shall be effective on the effective date of the Transfer or such other date as may be specified). From and
after such Transfer, such Partner shall not be entitled to any Distributions or any other rights associated with an Interest in Premier LP.
11.5 Noncomplying Transfers Void. Any Transfer in contravention of this Article 11 shall be void and of no effect and shall not bind nor be recognized by Premier LP.
11.6 Amendment of Exhibit 3.1. In the event of the admission of any Transferee as a Partner of Premier LP, the General Partner shall promptly amend Exhibit 3.1 to reflect such Transfer or admission, as the case may be, and the General Partner shall deliver promptly to each Partner a copy of such amended Exhibit 3.1.
12. DISSOLUTION OF COMPANY
12.1 Events of Dissolution. Premier LP shall be dissolved upon the occurrence of any of (a) the entry of a decree of judicial dissolution under Section 15908.02 of the Act, (b) subject to Section 6.6, the written determination of Partners holding two-thirds of the Units or (c) the disposition of all of Premier LPs assets.
12.2 Liquidation. Upon dissolution of Premier LP for any reason, Premier LP shall immediately commence to wind up its affairs. A reasonable period of time shall be allowed for the orderly termination of Premier LPs business, discharge of Premier LPs liabilities and distribution or liquidation of Premier LPs remaining assets so as to enable Premier LP to minimize the normal losses attendant to such liquidation process. Premier LPs property and assets or the proceeds from the liquidation thereof shall be distributed so as not to contravene the Act and shall be distributed to the holders of Class A Common Units and Class B Common Units in the aggregate in proportion to Common Units outstanding. Distributions to the holders of Class B Common Units in the aggregate shall be made among such holders in proportion to Class B Common Units held except to the extent otherwise provided in Section 5.2.1. A full accounting of the assets and liabilities of Premier LP shall be taken and a statement thereof shall be furnished to each Partner promptly after the Distribution of all of the assets of Premier LP. Such accounting and statement shall be prepared under the direction of the General Partner.
12.3 No Action for Dissolution. The Partners acknowledge that irreparable damage would be done to the goodwill and reputation of Premier LP if any Partner should bring an action in court to dissolve Premier LP under circumstances where dissolution is not required by Section 12.1. This Agreement has been drawn carefully to provide fair treatment of all parties and equitable payment in liquidation of the Interests of all Partners. Accordingly, except where the General Partner has failed to liquidate Premier LP as required by Section 12.2, each Partner hereby waives and renounces its right to initiate legal action to seek dissolution of Premier LP or to seek the appointment of a receiver or trustee to liquidate Premier LP.
12.4 No Further Claim. Upon dissolution, each Partner shall have recourse solely to the assets of Premier LP for the return of such Partners capital, and if Premier LPs property remaining after payment or discharge of the debts and liabilities of Premier LP (including debts and liabilities owed to one or more of the Partners), is insufficient to return the aggregate Capital
Contributions of each Partner, such Partner shall have no recourse against Premier LP, the General Partner or any other Partner.
13. INDEMNIFICATION
13.1 General. To the fullest extent permitted by law, Premier LP shall indemnify, defend and hold harmless each Partner, including the Tax Matters Partner in such Partners capacity as such, and each such Persons officers, directors, partners, members, shareholders and employees, and the employees and officers of Premier LP (all indemnified persons being referred to as Indemnified Persons for purposes of this Article 13), from any liability, loss or damage incurred by the Indemnified Person by reason of any act performed or omitted to be performed by the Indemnified Person on behalf of Premier LP (except for acts prohibited under Section 6.3) or by reason of the fact that the Indemnified Person is or was serving at the request of Premier LP as an officer, director, partner, trustee, employee, representative or agent of another Person from liabilities or obligations of Premier LP imposed on such Indemnified Person by virtue of such Persons position with Premier LP and from any liability, loss or damage arising from any breach by Premier LP of any of the representations, warranties and covenants of Premier LP contained herein, including reasonable attorneys fees and costs and any amounts expended in the settlement of any such claims of liability, loss or damage; provided, however, that if the liability, loss or damage arises out of any action or inaction of an Indemnified Person, indemnification under this Section 13.1 shall be available only if (a) either (i) the Indemnified Person, at the time of such action or inaction, determined in good faith that its course of conduct was in, or not opposed to, the best interests of Premier LP or (ii) in the case of inaction by the Indemnified Person, the Indemnified Person did not intend its inaction to be harmful or opposed to the best interests of Premier LP and (b) such action or inaction did not constitute fraud or willful misconduct by the Indemnified Person; provided, further, that indemnification under this Section 13.1 shall be recoverable only from the assets of Premier LP and not from any assets of the Partners. Premier LP shall pay or reimburse reasonable attorneys fees of an Indemnified Person as incurred, provided that such Indemnified Person executes an undertaking, with appropriate security if requested by the General Partner, to repay the amount so paid or reimbursed in the event of a final non-appealable determination by a court of competent jurisdiction that such Indemnified Person is not entitled to indemnification under this Article 13.
13.2 Exculpation. No Indemnified Person shall be liable, in damages or otherwise, to Premier LP or to any Partner for any loss that arises out of any act performed or omitted to be performed by the Indemnified Person pursuant to the authority granted by this Agreement if (a) either (i) the Indemnified Person, at the time of such action or inaction, determined in good faith that such Indemnified Persons course of conduct was in, or not opposed to, the best interests of Premier LP or (ii) in the case of inaction by the Indemnified Person, the Indemnified Person did not intend such Indemnified Persons inaction to be harmful or opposed to the best interests of Premier LP and (b) the conduct of the Indemnified Person did not constitute fraud or willful misconduct by such Indemnified Person.
13.3 Persons Entitled to Indemnity. Any Person who is an Indemnified Person at the time of any action or inaction in connection with the business of Premier LP shall be entitled to the benefits of this Article 13 as an Indemnified Person with respect thereto, regardless of
whether such Person continues to be an Indemnified Person at the time of such Indemnified Persons claim for indemnification or exculpation hereunder.
13.4 Indemnification Agreements. In the event that Premier enters into an indemnification agreement (Indemnification Agreement) in the form attached hereto as Exhibit 13.4 with any of the directors, officers, employees or agents of Premier or persons who serve, at the request of Premier, as the directors, officers, employees or agents of any Affiliate (as defined in the Indemnification Agreement), Premier LP shall reimburse Premier for all expense incurred by Premier under such agreements.
13.5 Duties of the General Partner. Without limiting applicability of any other provision of this Agreement, (including, without limitation, the other provisions of this Article 13, which shall control notwithstanding anything to the contrary in this Section 13.5), the following provisions shall be applicable to the General Partner:
(a) The General Partner shall have the benefit of the business judgment rule to the same extent as if the General Partner were a director of a California corporation; and
(b) The General Partner shall have the same duties of care and loyalty as the General Partner would have if the General Partner was a director of a California corporation but in no event shall the General Partner be liable for any action or inaction for which exculpation is provided under Section 13.2.
13.6 Interested Transactions. To the fullest extent permitted by law, the General Partner shall not be deemed to have breached its duty of loyalty to Premier LP or the Limited Partners (and the General Partner shall not be liable to Premier LP or to the Limited Partners for breach of any duty of loyalty or analogous duty) with respect to any action or inaction in connection with or relating to any transaction that was approved in accordance with Section 6.6.
13.7 Fiduciary and Other Duties.
13.7.1 Limitation of Duties. An Indemnified Person acting under this Agreement shall not be liable to Premier LP or to any other Indemnified Person for such Indemnified Persons good-faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they limit the duties (including fiduciary duties) and liabilities of an Indemnified Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person.
13.7.2 Waiver of Corporate Opportunity Doctrine. Notwithstanding any other provision of this Agreement or otherwise applicable law, whenever in this Agreement an Indemnified Person is permitted or required to make a decision (a) in his, her or its discretion or under a grant of similar authority, the Indemnified Person shall be entitled to consider only such interests and factors as such Indemnified Person desires, including his, her or its own interests, and shall, to the fullest extent permitted by applicable law, have no duty or obligation to give any consideration to any interest of or factors affecting Premier LP or any other Person, or (b) in his, her or its good faith or under another
express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standards.
14. REPRESENTATIONS AND COVENANTS BY THE LIMITED PARTNERS
Each Limited Partner hereby represents and warrants to, and agrees with, the General Partner, the other Limited Partners and Premier LP as follows:
14.1 Due Organization and Authority. Such Limited Partner is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. Such Limited Partner has the necessary power and authority to execute and deliver this Agreement and to perform its obligations hereunder and the execution, delivery and performance of this Agreement has been duly authorized by all necessary action. This Agreement constitutes the legal, valid, and binding obligation of such Limited Partner.
14.2 Investment Intent. Such Limited Partner is acquiring such Limited Partners Units with the intent of holding such Units for investment for such Limited Partners own account and without the intent or a view of participating directly or indirectly in any distribution of such Units within the meaning of the Securities Act or any applicable state securities laws.
14.3 Securities Regulation; Accredited Investor Status. Such Limited Partner acknowledges and agrees that such Limited Partners Interest is being issued in reliance on one or more exemptions from registration under the Securities Act and one or more exemptions contained in applicable state securities laws and that such Limited Partners Interest cannot and will not be sold or transferred except in a transaction that is exempt under the Securities Act and applicable state securities laws or pursuant to an effective registration statement under the Securities Act and applicable state securities laws. Such Limited Partner understands that the Units have not been registered under the Securities Act on the grounds that its acquisition of Units is exempt under Section 4(2) of such Act as not involving a public offering and represents and warrants that it is an accredited investor within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act. Such Limited Partner further understands that no securities administrator of any state or the Federal government has made any finding or determination relating to the fairness of acquiring such Limited Partners Interest and that no securities administrator of any state or the Federal government has or will recommend or endorse any offering of the Units. Such Limited Partner understands that such Limited Partner has no contractual right for the registration under the Securities Act of such Limited Partners Interest for public sale and that, unless such Limited Partners Interest is registered under the Securities Act or an exemption from such registration is available, such Limited Partners Interests may be required to be held indefinitely.
14.4 Knowledge and Experience. Such Limited Partner has such knowledge and experience in financial, tax and business matters as to enable such Limited Partner to evaluate the merits and risks of such Limited Partners investment in Premier LP and to make an informed investment decision with respect thereto.
14.5 Economic Risk. Such Limited Partner is aware that acquisition of such Limited Partners Interest involves a high degree of risk which may result in the loss of the total amount of such Limited Partners investment, and no assurances have been made regarding the economic or tax consequence which may result from owning such Limited Partners Interest, nor has any assurance been made that existing laws may not be modified in the future in a manner which adversely affects such consequences.
14.6 Investment Company Status. Such Limited Partner is not, and none of its Affiliates is, nor will Premier LP as a result of such Partner holding an Interest be, an investment company as defined in, or subject to regulation or registration under, the Investment Company Act of 1940.
14.7 Purchasing Information. Such Limited Partner confirms that all documents, agreements, books and records pertaining to Premier LP, its Premier Program Purchases and the allocation and distribution provisions of this Agreement have been made available to such Limited Partner.
14.8 Information. Such Limited Partner has received all documents, books and records pertaining to an investment in Premier LP as has been requested by such Limited Partner. Such Limited Partner has had a reasonable opportunity to ask questions of and receive answers concerning Premier LP, and all such questions have been answered to such Limited Partners satisfaction.
14.9 Binding Agreement. Such Limited Partner has all requisite power and authority to enter into and perform its obligations under this Agreement and this Agreement is and will remain such Limited Partners valid and binding agreement, enforceable in accordance with its terms (subject, as to the enforcement of remedies, to any applicable bankruptcy, insolvency or other laws affecting the enforcement of creditors rights).
14.10 Tax Position. Unless such Limited Partner provides prior written notice to Premier LP, such Limited Partner will not take a position on such Limited Partners federal income tax return, in any claim for refund or in any administrative or legal proceeding that is inconsistent with this Agreement or with any information return filed by Premier LP.
14.11 Licenses and Permits. Such Limited Partner will cooperate in providing such information, in signing such documents and in taking any other action as may reasonably be requested by Premier LP in connection with obtaining any foreign, federal, state or local license or permit needed to operate Premier LPs business or the business of any entity in which Premier LP invests.
15. AMENDMENTS TO AGREEMENT
15.1 Amendments. This Agreement may be modified or amended with the prior written consent of the General Partner, subject to Section 6.6. Notwithstanding the foregoing, Section 6.6 and this Section 15.1 may not be amended without the approval of a majority in interest of the Units held by the Limited Partners, and other provisions of this Agreement may
not be amended without the approval of a majority in interest of the Units held by the Limited Partners if the amendment (a) would reduce the Limited Partners Interests or would reduce the allocation to the Limited Partners of Net Profit or Net Loss, or would reduce the Distributions of cash or property to Limited Partners from that which is provided or contemplated herein, unless such amendment treats all Limited Partners ratably based on their Interests and such amendment is being executed to reflect (i) any dilution in such Limited Partners Interest resulting from the issuance of Units contemplated by Article 3 or (ii) the acceptance of a new Limited Partner pursuant to Article 11 or (b) would increase such Persons obligation to make Capital Contributions or obligation with respect to other liabilities. All amendments to this Agreement will be sent to each Limited Partner promptly after the effectiveness thereof.
15.2 Corresponding Amendment of Certificate. The General Partner shall cause to be prepared and filed any amendment to the Certificate of Limited Partnership that may be required to be filed under the Act as a consequence of any amendment to this Agreement.
15.3 Binding Effect. Any modification or amendment to this Agreement pursuant to this Article 15 shall be binding on all Partners.
16. GENERAL
16.1 Successors; Governing Law; Etc. This Agreement (a) shall be binding upon the executors, administrators, estates, heirs and legal successors of the Partners, (b) shall be governed by and construed in accordance with the laws of the State of California and (c) may be executed in more than one counterpart, all of which together shall constitute one agreement. The waiver of any of the provisions, terms or conditions contained in this Agreement shall not be considered as a waiver of any of the other provisions, terms or conditions hereof.
16.2 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or receipt (which may be evidenced by a return receipt if sent by registered mail or by signature if delivered by courier or delivery service), addressed (a) if to any Limited Partner, at the most recent address for such Limited Partner maintained in Premier LPs records and (b) if to Premier LP or to the General Partner, at 13034 Ballantyne Corporate Place, Charlotte, North Carolina, 28277, Attention: Chief Executive Officer.
16.3 Power of Attorney. Each Limited Partner hereby irrevocably appoints the General Partner as such Limited Partners true and lawful representative and attorney-in-fact, each acting alone, in such Limited Partners name, place and stead (a) to make, execute, sign and file all instruments, documents and certificates which, from time to time, may be required to set forth any amendment to this Agreement or which may be required by this Agreement (including, among others, the Exchange Agreement) or by the laws of the United States of America, the State of California or any other State in which Premier LP shall determine to do business or any political subdivision or agency thereof and (b) to execute, implement and continue the valid and subsisting existence of Premier LP or to qualify and continue Premier LP as a foreign limited partnership in all jurisdictions in which Premier LP may conduct business. Such power of attorney is coupled with an interest and shall survive and continue in full force and effect
notwithstanding the subsequent withdrawal from Premier LP of any Limited Partner for any reason and shall survive and shall not be affected by the disability, incapacity, bankruptcy or dissolution of any such Limited Partner. No power of attorney granted in this Agreement shall revoke any previously granted power of attorney.
16.4 Execution of Documents. From time to time after the date of this Agreement, upon the request of the General Partner, each Limited Partner shall perform, or cause to be performed, all such additional acts, and shall execute and deliver, or cause to be executed and delivered, all such additional instruments and documents, as may be required to effectuate the purposes of this Agreement. Each Limited Partner, by the execution of this Agreement or by agreeing in writing to be bound by this Agreement, irrevocably constitutes and appoints the General Partner or any Person designated by the General Partner to act on such Limited Partners behalf for purposes of this Section 16.4 as such Limited Partners true and lawful attorney-in-fact with full power and authority in such Limited Partners name and stead to execute, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to carry out this Agreement, including:
(a) all certificates and other instruments (specifically including counterparts of this Agreement), and any amendment thereof, that the General Partner deems appropriate to qualify or to continue Premier LP as a limited partnership in any jurisdiction in which Premier LP may conduct business or in which such qualification or continuation is, in the opinion of the General Partner, necessary to protect the limited liability of the Limited Partners;
(b) all amendments to this Agreement adopted in accordance with the terms hereof and all instruments that the General Partner deems appropriate to reflect a change or modification of Premier LP in accordance with the terms of this Agreement; and
(c) all conveyances and other instruments that the General Partner deems appropriate to reflect the dissolution of Premier LP.
The appointment by the General Partner or any Person designated by the General Partner to act on its behalf for purposes of this Section 16.4 as such Limited Partners attorney-in-fact shall be deemed to be a power coupled with an interest, in recognition of the fact that each of the Limited Partners under this Agreement will be relying upon the power of the General Partner to act as contemplated by this Agreement in any filing and other action by him, her or it on behalf of Premier LP, and shall survive the bankruptcy, dissolution, death, adjudication of incompetence or insanity of any Limited Partner giving such power and the transfer or assignment of all or any part of such Limited Partners Interests, provided, however, that in the event of a Transfer by a Limited Partner of all of its Interest, the power of attorney given by the transferor shall survive such assignment only until such time as the Transferee shall have been admitted to Premier LP as a Substituted Limited Partner and all required documents and instruments shall have been duly executed, filed and recorded to effect such substitution.
16.5 Consent to Jurisdiction. Each of the parties hereto agrees that all actions, suits or proceedings arising out of or based upon this Agreement or the subject matter hereof shall be brought and maintained exclusively in the federal courts located in the State of North Carolina, County of Mecklenburg. Each of the parties hereto hereby by execution hereof (i) hereby irrevocably submits to the jurisdiction of the federal courts located in the State of North Carolina, County of Mecklenburg for the purpose of any action, suit or proceeding arising out of or based upon this Agreement or the subject matter hereof and (ii) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such action, suit or proceeding, any claim that such party is not subject personally to the jurisdiction of the above-named court, that such party is immune from extraterritorial injunctive relief or other injunctive relief, that such partys property is exempt or immune from attachment or execution, that any such action, suit or proceeding may not be brought or maintained in one of the above-named courts should be dismissed on the grounds of forum non conveniens, should be transferred to any court other than one of the above-named courts, should be stayed by virtue of the pendency of any other action, suit or proceeding in any court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by any of the above-named court. Each of the parties hereto hereby consents to service of process in any such suit, action or proceeding in any manner permitted by the laws of the State of North Carolina, agrees that service of process by registered or certified mail, return receipt requested, at the address specified in or pursuant to Section 16.2 hereof is reasonably calculated to give actual notice and waives and agrees not to assert by way of motion, as a defense or otherwise, in any such action, suit or proceeding any claim that service of process made in accordance with Section 16.2 hereof does not constitute good and sufficient service of process. The provisions of this Section 16.5 shall not restrict the ability of any party hereto to enforce in any court any judgment obtained in the federal courts located in the State of North Carolina, County of Mecklenburg.
16.6 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, PREMIER LP AND EACH PARTNER HEREBY WAIVES AND COVENANTS THAT EACH OF IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE.
16.7 Arbitration. Any controversy or dispute with respect to the matters set forth herein shall be submitted to arbitration in the State of North Carolina, County of Mecklenburg before the American Arbitration Association under the commercial arbitration rules of said Association. Any award or decision obtained from any such arbitration proceeding shall be final and binding on the parties, and judgment upon any award thus obtained may be entered in any court having jurisdiction thereof. To the fullest extent permitted by law, no action at law or in equity based upon any claim arising directly out of this Agreement shall be instituted in any court by any Limited Partner except (a) an action to compel arbitration pursuant to this Section
16.7 or (b) an action to enforce an award obtained in an arbitration proceeding in accordance with this Section 16.7.
16.8 Severability. If any provision of this Agreement is determined by a court to be invalid or unenforceable, such determination shall not affect the other provisions hereof, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. Such invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each such provision shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law.
16.9 Table of Contents, Headings. The table of contents and headings used in this Agreement are used for administrative convenience only and do not constitute substantive matter to be considered in construing this Agreement.
16.10 No Third-Party Rights. Except for the provisions of Section 7.4, the provisions of this Agreement are for the benefit of Premier LP, the General Partner and the Limited Partners and no other Person (including creditors of Premier LP), shall have any right or claim against Premier LP, the General Partner or any Limited Partner by reason of this Agreement or any provision hereof or be entitled to enforce any provision of this Agreement; provided, that, any beneficial owner of Units, whether such Units are held through a depository trust, custodial arrangement or otherwise, shall have direct rights of action under the terms of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Limited Partnership Agreement.
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EXHIBIT 3.1
PARTNERS, CAPITAL CONTRIBUTIONS
AND ISSUANCE OF UNITS
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EXHIBIT 3.7
FORM OF JOINDER
Reference is made to the Premier Healthcare Alliance, L.P. Amended and Restated Limited Partnership Agreement among the Partners party thereto, as the same may be amended from time to time, a copy of which is attached hereto (the LP Agreement). Capitalized terms used but not defined herein shall be used herein as defined in the LP Agreement.
The undersigned, in order to become the owner of Class B Common Units (the Acquired Units) of Premier Healthcare Alliance, L.P., a California limited partnership (Premier LP), hereby agrees that by the undersigneds execution hereof: (a) the undersigned is a Limited Partner party to the LP Agreement subject to all of the restrictions, conditions and obligations applicable to owners of Class B Common Units set forth in the LP Agreement; and (b) all of the Acquired Units (and any and all Class B Common Units of Premier LP issued in respect thereof) are and will remain subject to all of the rights, restrictions, conditions and obligations applicable to such Class B Common Units as set forth in the LP Agreement. This Joinder shall take effect and shall become a part the LP Agreement immediately upon execution hereof.
Executed as of the date set forth below under the laws of the State of California.
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EXHIBIT 5
ALLOCATION AND DISTRIBUTION METHODOLOGY
Capitalized terms have the meanings assigned to them in the LP Agreement unless otherwise defined in this Exhibit 5.
Definitions for Exhibit 5
After-Tax Net Profit means Net Profit multiplied by the percentage by which the percentage used in determining the Tax Distribution for such Fiscal Quarter is less than 100%.
Business Unit means a line of business conducted by Premier LP or its subsidiaries for which separate revenue is calculated in the normal course of Premier LPs business.
Business Unit Owner Participation for a Limited Partner with respect to a Business Unit in a Period means the Gross Revenue attributable to transactions engaged in by the Limited Partner and its Member Facilities with the Business Unit during the Period, in each case multiplied by the Relative Revenue Factor for the Business Unit.
Fiscal Quarter means each successive three-month period of the Fiscal Year.
Gross Revenue for a Period with respect to a Business Unit means the gross revenue of the Business Unit for the Period, determined according to standard accounting practices in Premier LPs industry and consistent with the past accounting principles and practices followed by Premier LP. Payment obligations to Premier Members pursuant to contractual sharing provisions shall not be taken into account in determining Gross Revenue.
Non-GPO Owner Participation for a Limited Partner for a Period means the sum of such Limited Partners Business Unit Owner Participation amounts for the Period for all Business Units other than the Premier LP Business Unit.
Period means the Fiscal Quarter for which the allocation or distribution is attributable, except as otherwise provided herein or determined by the General Partner.
Premier LP Business Unit means the Business Unit comprised of Premier LPs direct business operations.
Premier LP Owner Participation for a Limited Partner for a Period means such Limited Partners Business Unit Owner Participation amount for the Period for the Premier LP Business Unit.
Relative Participation for a Limited Partner for a Period means: (a) in the case of Premier LP, the percentage derived by dividing such Limited Partners Premier LP Owner Participation for the Period by the Total Premier LP Owner Participation for the Period; and (b) in the case of all other Business Units, the percentage derived by dividing such Limited Partners
Non-GPO Owner Participation for the Period by the Total Non-GPO Owner Participation for the Period.
Relative Revenue Factor of a Business Unit for a Period means 1.0 in the case of Premier LP and, in the case of each other Business Unit, the number determined by the General Partner to take into account the revenue of such Business Unit, the relationship of such Business Unit with other Business Units, and such other facts and circumstances as are determined appropriate by the General Partner.
Total Non-GPO Owner Participation for a Period means the sum of the Non-GPO Owner Participation amounts for all Limited Partners for the Period.
Total Premier LP Owner Participation for a Period means the sum of the Premier LP Owner Participation amounts for all Limited Partners for the Period.
Determination of Relative Revenue Factors
The Relative Revenue Factors assigned to each such Business Unit shall be as set forth in a separate notice provided by the General Partner to the Limited Partners concurrently with the execution of the Agreement. On or before the beginning of each Fiscal Year, the General Partner shall notify the Limited Partners of the Relative Revenue Factors that will be used in determining Non-GPO Owner Participation and Premier LP Owner Participation during such Fiscal Year.
Allocation of Net Profit and Net Loss
Net Profit and Net Loss allocated to the holders of Class B Common Units in the aggregate under Section 5.6.1 in any Period shall be allocated among such holders in two tranches (referred to in this Exhibit as Tranche A and Tranche B). Tranche A will consist of: (a) the amount of total Net Profit (if any) allocated to the holders of Class B Common Units in the aggregate for the Period (other than Net Profit attributable to dispositions not in the ordinary course of business) multiplied by the tax rate used in determining the Tax Distribution for the Period under Section 5.2.1 plus (b) an amount of the total Net Profit (other than Net Profit attributable to dispositions not in the ordinary course of business) equal to the distribution made to the holders of Class B Common Units in the aggregate under Section 5.2.2 for the Period that are designated by the General Partner in its sole discretion as Tranche A distributions. Tranche A will be tentatively allocated among such holders such that (x) the portion of Tranche A derived from the Premier LP Business Unit is allocated to each holder in proportion to such holders Relative Participation percentage for the Premier LP Business Unit and (y) the portion of Tranche A derived from all other Business Units is allocated to each holder in proportion to such holders Relative Participation percentage for such other Business Units, and in each case shall be computed as if no Class B Common Units had been exchanged by any holder of Class B Common Units under Section 3.4 since the Effective Date (the aggregate of each such allocation under clauses (x) and (y), with respect to a holder of Class B Common Units, a Tentative Tranche A Allocation). The Tentative Tranche A Allocation to each holder of Class B Common Units would then be increased or decreased, as applicable, by an amount equal to
Tranche A divided by the total number of Post-IPO Class B Common Units, multiplied by the net cumulative number of Class B Common Units acquired from other holders disposed of by such holder after the Effective Date (each such adjusted Tentative Tranche A Allocation, an Adjusted Tranche A Allocation). Tranche B will consist of all of the remaining Net Profit or Net Loss allocated to the holders of Class B Common Units in the aggregate under Section 5.6.1 in the Period and any portion of the distributions made to the holders of Class B Common Units in the aggregate under Section 5.2.2 for such Period that are designated by the General Partner, in its sole discretion, as Tranche B distributions, and will be allocated among such holders in proportion to Common Units held (subject to any offset as described in the paragraph immediately below).
In the event that any holder of Class B Common Units has a reduction in its Tentative Tranche A Allocation for any Period that exceeds the amount of such holders Tentative Tranche A Allocation for such Period (such excess, an Excess Downward Adjustment), then (w) such holders Adjusted Tranche A Allocation shall be equal to zero, (x) Premier LP shall provide additional cash as necessary to pay all Adjusted Tranche A Allocations for such Period in full, (y) such holders Tranche B allocation shall be reduced by the amount of the Excess Downward Adjustment and (z) such holder shall make a capital contribution to Premier LP of an amount equal to such Excess Downward Adjustment, and such holder hereby authorizes the General Partner to offset such required capital contribution against sharebacks of administrative fees otherwise due to such holder under Section 4.1 of the GPO Participation Agreement until paid in full.
Distributions
One hundred percent of each Limited Partners Adjusted Tranche A Allocation for each Period shall be paid in cash to such Limited Partner. While it is generally anticipated that none of the Tranche B allocation for each Period will be distributed to the Limited Partners, if the General Partner, in its sole discretion, designates a portion of any distributions made to the holders of Class B Common Units in the aggregate under Section 5.2.2 for such Period as Tranche B distributions, then such Tranche B distributions will be paid in cash to each Limited Partner in proportion to Common Units held (subject to any offset as described in the paragraph immediately above).
A distribution shall be deemed attributable to the most recently ended Fiscal Quarter to the extent of the After-Tax Net Profit allocated to the holders of Class B Common Units in the aggregate during such Fiscal Quarter, multiplied by the percentage by which the percentage used in determining the Tax Distribution for such Fiscal Quarter is less than 100%. If the distribution exceeds the amount set forth in the preceding sentence, the distribution shall be deemed to be attributable to the After-Tax Net Profit allocated to the holders of the Class B Common Units for the next preceding Fiscal Quarter, and to preceding Fiscal Quarter until the entire distribution is attributed.
Conclusive Determination By the General Partner
The General Partner shall make the determinations required by this Exhibit 5 in its sole judgment, and all such determinations by the General Partner shall be conclusive and binding on the Limited Partners.
EXHIBIT 13.4
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this Agreement), dated as of , 20 , is made by and between Premier, Inc., a Delaware corporation (the Company), and (the Indemnitee).
RECITALS
WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees and other agents to expensive litigation risks at the same time that the availability and coverage of liability insurance is limited;
WHEREAS, the Company desires to attract and retain talented and experienced individuals, such as the Indemnitee, to serve as directors, officers, employees and agents of the Company and its Affiliates and wishes to indemnify its directors, officers, employees and other agents to the maximum extent permitted by law;
WHEREAS, Section 145 (Section 145) of the General Corporation Law of the State of Delaware, the state in which the Company is organized, expressly provides that the indemnification provided by Section 145 is not exclusive and authorizes the Company to indemnify by agreement its directors, officers, employees, agents and persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or enterprises; and
WHEREAS, in order to induce the Indemnitee to serve or continue to serve as a director, officer, employee or agent of the Company and/or one or more Affiliates of the Company, free from undue concern for claims for damages arising out of or related to such services to the Company and/or one or more Affiliates of the Company, the Company has determined and agreed to enter into this Agreement with the Indemnitee.
AGREEMENT
NOW, THEREFORE, the Indemnitee and the Company hereby agree as follows:
1. Definitions. As used in this Agreement:
(a) Affiliate means Premier Services, LLC, Premier Healthcare Alliance, L.P. (Premier LP) and any subsidiary or entity directly or indirectly owned, in whole or in part, by Premier LP.
(b) Agent means any person who is or was a director, officer, employee or other agent of the Company or an Affiliate of the Company; or is or was serving at the request of, for the convenience of, or to represent the interests of the Company or an Affiliate of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise; or was a director, officer, employee or agent of a foreign or domestic corporation, partnership, joint venture, trust or other enterprise which was a predecessor of the Company or an Affiliate of the Company, or was a director, officer, employee or agent of another enterprise at the request of, for the convenience of, or to represent the interests of such predecessor entity.
(b) Board means the Board of Directors of the Company.
(c) A Change in Control shall be deemed to have occurred if (i) any person, as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20 percent or more of the total voting power represented by the Companys then outstanding voting securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board, together with any new directors whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination was previously so approved, cease for any reason to constitute a majority of the Board, (iii) the stockholders of the Company approve a merger or consolidation or a sale of all or substantially all of the Companys assets with or to another entity, other than a merger, consolidation or asset sale that would result in the holders of the Companys outstanding voting securities immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least a majority of the total voting power represented by the voting securities of the Company or such surviving or successor entity outstanding immediately thereafter, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company.
(d) Expenses shall include all out-of-pocket costs of any type or nature whatsoever (including, without limitation, all attorneys fees and related disbursements), reasonably incurred by the Indemnitee in connection with either the investigation, defense or appeal of a Proceeding or establishing or enforcing a right to indemnification under this Agreement, or Section 145 or otherwise; provided, however, that Expenses shall not include any judgments, fines, ERISA excise taxes or penalties, or amounts paid in settlement of a Proceeding.
(e) Independent Counsel means a law firm, or a partner (or, if applicable, member) of such a law firm, that is experienced in matters of corporation law and neither currently is, nor within the past five years has been, retained to represent: (i) the Company or the Indemnitee in any matter material to either such party or (ii) any other party to or witness in the proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitees rights under this Agreement.
(f) Proceeding means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, or investigative.
(g) Subsidiary means any corporation of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as an Agent, [as a of the Company][in the capacity the Indemnitee currently serves as an Agent of the Company], so long as the Indemnitee is or was duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or any predecessor to or subsidiary of the Company or until such time as the Indemnitee tenders his or her resignation in writing; provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by the Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants and agrees that, so long as the Indemnitee shall continue to serve as an Agent and thereafter so long as the Indemnitee shall be subject to any possible Proceeding by reason of the fact that the Indemnitee was an Agent, the Company, subject to Section 3(c) of this Agreement, shall promptly obtain and maintain in full force and effect directors and officers liability insurance (D&O Insurance) in reasonable amounts from established and reputable insurers, as more fully described below.
(b) Rights and Benefits. In all policies of D&O Insurance, the Indemnitee shall qualify as an insured in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Companys independent directors (as defined by the insurer) if the Indemnitee is such an independent director; of the Companys non-independent directors if the Indemnitee is a director of the Company who is not an independent director; of the Companys officers if the Indemnitee is an officer of the Company; or of the Companys key non-officer employees, if the Indemnitee is a key non-officer employee and is not a director or officer.
(c) Limitation on Required Maintenance of D&O Insurance. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that: such insurance is not reasonably available; the premium costs for such insurance are disproportionate to the amount of coverage provided; the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit; the Indemnitee is covered by similar insurance maintained by a subsidiary of the Company; the Company is to be acquired and a tail policy of reasonable duration and terms is purchased for pre-closing acts or
omissions by the Indemnitee; or the Company is to be acquired and D&O Insurance will be maintained by the acquirer that covers pre-closing acts and omissions by the Indemnitee.
4. Mandatory Indemnification. Subject to the terms of this Agreement:
(a) Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of the Company) by reason of the fact that the Indemnitee is or was an Agent, or by reason of anything done or not done by the Indemnitee in any such capacity, the Company shall indemnify the Indemnitee against all Expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in settlement) actually and reasonably incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of such Proceeding, provided that the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe his or her conduct was unlawful.
(b) Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding by or in right of the Company by reason of the fact that the Indemnitee is or was an Agent, or by reason of anything done or not done by the Indemnitee in any such capacity, the Company shall indemnify the Indemnitee against all Expenses actually and reasonably incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of such Proceeding, provided that the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification under this Section 4(b) shall be made in respect to any claim, issue or matter as to which the Indemnitee shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction unless and only to the extent that the Delaware Court of Chancery or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such amounts which the Delaware Court of Chancery or such other court shall deem proper.
(c) Actions where Indemnitee is Deceased. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that the Indemnitee is or was an Agent, or by reason of anything done or not done by the Indemnitee in any such capacity, and if, prior to, during the pendency of, or after completion of, such Proceeding the Indemnitee is deceased, the Company shall indemnify the Indemnitees heirs, executors and administrators against all Expenses and liabilities of any type whatsoever to the extent the Indemnitee would have been entitled to indemnification pursuant to this Agreement were the Indemnitee still alive.
(d) Certain Terminations. The termination of any Proceeding or of any claim, issue, or matter therein by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or Proceeding, that the Indemnitee had reasonable cause to believe that the Indemnitees conduct was unlawful.
(e) Limitations. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for Expenses or liabilities of any type whatsoever for which payment is actually made to or on behalf of the Indemnitee under an insurance policy, or under a valid and enforceable indemnity clause, by-law or agreement.
5. Mandatory Indemnification for Expenses in a Proceeding in Which the Indemnitee Is Wholly or Partly Successful.
(a) Successful Defense. Notwithstanding any other provisions of this Agreement, to the extent that the Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding (including, without limitation, an action by or in the right of the Company) to which the Indemnitee was a party by reason of the fact that the Indemnitee is or was an Agent at any time, the Company shall indemnify the Indemnitee against all Expenses incurred by or on behalf of the Indemnitee in connection with the investigation, defense or appeal of such Proceeding.
(b) Partially Successful Defense. Notwithstanding any other provisions of this Agreement, to the extent that the Indemnitee is a party to or a participant in any Proceeding (including, without limitation, an action by or in right of the Company) in which the Indemnitee was a party by reason of the fact that the Indemnitee is or was an Agent at any time and is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify the Indemnitee against all Expenses incurred by or on behalf of the Indemnitee in connection with each successfully resolved claim, issue or matter.
(c) Dismissal. For purposes of this section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
6. Mandatory Advancement of Expenses. Subject to the terms of this Agreement and following notice pursuant to Section 7(a) below, the Company shall advance all Expenses in connection with any Proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an Agent (unless there has been a final determination by a court of competent jurisdiction that the Indemnitee is not entitled to indemnification for such Expenses) upon receipt of (i) an undertaking by or on behalf of the Indemnitee to repay the amount advanced in the event that it shall ultimately be determined by a court of competent jurisdiction that the Indemnitee is not entitled to indemnification by the Company and (ii) satisfactory documentation supporting such Expenses. Such advances are intended to be an obligation of the Company to the Indemnitee hereunder and shall in no event be deemed to be a personal loan. The advances to be made hereunder shall be paid by the Company to the Indemnitee within twenty (20) business days following delivery of a written request therefor and delivery of the undertaking by the Indemnitee to the Company. In the event that the Company fails to pay Expenses incurred by the Indemnitee as required by this Section 6,
the Indemnitee may seek mandatory injunctive relief from any court having jurisdiction to require the Company to pay Expenses as set forth in this Section 6. If the Indemnitee seeks mandatory injunctive relief pursuant to this Section 6, it shall not be a defense to enforcement of the Companys obligations set forth in this Section 6 that the Indemnitee has an adequate remedy at law for damages.
7. Notice and Other Indemnification Procedures.
(a) Notice by Indemnitee. Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any Proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company in writing of the commencement or threat of commencement thereof; provided, however, that the failure of the Indemnitee to provide such notice will not relieve the Company of its liability hereunder if the Company receives notice of such Proceeding from any other source.
(b) Insurance. If the Company receives notice pursuant to Section 7(a) hereof of the commencement of a Proceeding that may be covered under D&O Insurance then in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) Defense. In the event the Company shall be obligated to pay the Expenses of any Proceeding against the Indemnitee, the Company shall be entitled to assume the defense of such Proceeding, with counsel selected by the Company and approved by the Indemnitee (which approval shall not be unreasonably withheld), upon the delivery to the Indemnitee of written notice of its election so to do. After delivery of such notice, and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same Proceeding, provided that (i) the Indemnitee shall have the right to employ his or her own counsel in any such Proceeding at the Indemnitees expense; and (ii) the Indemnitee shall have the right to employ his or her own counsel in any such Proceeding at the Companys expense if (A) the Company has authorized the employment of counsel by the Indemnitee at the expense of the Company, (B) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense, (C) after a Change in Control not approved by a majority of the members of the Board who were directors immediately prior to such Change in Control, the employment of counsel by Indemnitee has been approved by Independent Counsel, or (D) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding.
8. Right to Indemnification.
(a) Right to Indemnification. In the event that Section 5 of this Agreement is inapplicable, the Company shall indemnify the Indemnitee pursuant to this Agreement unless, and except to the extent that, it shall have been determined by one of the methods listed in Section 8(b) that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification.
(b) Determination of Right to Indemnification. A determination of the Indemnitees right to indemnification hereunder shall be made at the election of the Board by (i) a majority vote of directors who are not parties to the Proceeding for which indemnification is being sought, even though less than a quorum, (ii) by a committee consisting of directors who are not parties to the Proceeding for which indemnification is being sought, who, even though less than a quorum, have been designated by a majority vote of the disinterested directors, (iii) if there are no such disinterested directors or if the disinterested directors so direct, by an Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or (iv) by the stockholders of the Company; provided, however, that, following any Change in Control not approved by a majority of the members of the Board who were directors immediately prior to such Change in Control, such determination shall be made by an Independent Counsel as specified in clause (iii) above.
(c) Submission for Decision. As soon as practicable, and in no event later than 30 business days after the Indemnitees written request for indemnification, the Board shall select the method for determining the Indemnitees right to indemnification. The Indemnitee shall cooperate with the person or persons or entity making such determination with respect to the Indemnitees right to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitees entitlement to indemnification under this Agreement.
(d) Application to Court. If (i) the claim for indemnification or advancement of Expenses is denied, in whole or in part, (ii) no disposition of such claim is made by the Company within ninety (90) business days after the request therefor, (iii) the advancement of Expenses is not timely made pursuant to Section 6 of this Agreement or (iv) payment of indemnification is not made pursuant to Section 5 of this Agreement, the Indemnitee shall have the right to apply to the Delaware Court of Chancery, the court in which the Proceeding is or was pending or any other court of competent jurisdiction, for the purpose of enforcing the Indemnitees right to indemnification (including the advancement of Expenses) pursuant to this Agreement.
(e) Expenses Related to the Enforcement or Interpretation of this Agreement. The Company shall indemnify the Indemnitee against all reasonable Expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all reasonable Expenses incurred by the Indemnitee in connection with any other
proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement, unless a court of competent jurisdiction finds that each of the claims and/or defenses of the Indemnitee in any such proceeding was frivolous or made in bad faith.
9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated:
(a) Claims Initiated by Indemnitee. To indemnify or advance Expenses to the Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, with a reasonable allocation where appropriate, unless (i) such indemnification is expressly required to be made by law, (ii) the Proceeding was authorized by the Board, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the General Corporation Law of Delaware or (iv) the Proceeding is brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 in advance of a final determination;
(b) Lack of Good Faith. To indemnify the Indemnitee for any Expenses incurred by the Indemnitee with respect to any Proceeding instituted by the Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such Proceeding was not made in good faith or was frivolous;
(c) Unauthorized Settlements. To indemnify the Indemnitee under this Agreement for any amounts paid in settlement of a Proceeding or claim unless the Company consents to such settlement, which consent shall not be unreasonably withheld;
(d) Claims Under Section 16(b). To indemnify the Indemnitee for Expenses and the payment of profits made from the purchase and sale (or sale and purchase) by the Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;
(e) Payments Contrary to Law. To indemnify or advance Expenses to the Indemnitee for which payment is prohibited by applicable law; or
(f) Claims under the 1933 Act. To indemnify Indemnitee or otherwise act in violation of any undertaking appearing in and required by the rules and regulations promulgated under the Securities Act of 1933, as amended (the Act), or in any registration statement filed with the Securities and Exchange Commission under the Act. Indemnitee acknowledges that paragraph (h) of Item 512 of Regulation S-K currently generally requires the Company to undertake in connection with any registration statement filed under the Act to submit the issue of the enforceability of Indemnitees rights under this Agreement in connection with any liability under the Act on public policy grounds to a court of appropriate jurisdiction and to be governed by any final adjudication of such issue. Indemnitee specifically agrees that any such undertaking shall supersede the provisions of this
Agreement and to be bound by any such undertaking.
10. Non-Exclusivity. The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights that the Indemnitee may have under any provision of law, the Companys Certificate of Incorporation or Bylaws, the vote of the Companys stockholders or disinterested directors, other agreements, or otherwise, both as to action in the Indemnitees official capacity and as to action in another capacity while occupying the Indemnitees position as an Agent.
11. Permitted Defenses. It shall be a defense to any action for which a claim for indemnification is made under this Agreement (other than an action brought to enforce a claim for Expenses pursuant to Section 6 hereof, provided that the required undertaking has been tendered to the Company) that the Indemnitee is not entitled to indemnification because of the limitations set forth in Sections 4(e) and 9 hereof. Neither the failure of the Company (including its Board) or an Independent Counsel to have made a determination prior to the commencement of such enforcement action that indemnification of the Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board) or an Independent Counsel that such indemnification is improper, shall be a defense to the action or create a presumption that the Indemnitee is not entitled to indemnification under this Agreement or otherwise.
12. Subrogation. In the event the Company is obligated to make a payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery under an insurance policy or any other indemnity agreement covering the Indemnitee, who shall execute all documents required and take all action that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights (provided that the Company pays the Indemnitees costs and expenses of doing so), including without limitation by assigning all such rights to the extent of such indemnification or advancement of Expenses.
13. Primacy of Indemnification. The Company hereby acknowledges that the Indemnitee may have certain rights to indemnification, advancement of expenses or liability insurance provided by a third-party investor and certain of its affiliates (collectively, the Fund Indemnitors). The Company hereby agrees that (i) it is the indemnitor of first resort, i.e., its obligations to the Indemnitee under this Agreement and any indemnity provisions set forth in its Certificate of Incorporation, Bylaws or elsewhere (collectively, Indemnity Arrangements) are primary, and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same Expenses or liabilities incurred by the Indemnitee is secondary and excess, (ii) it shall advance the full amount of Expenses incurred by the Indemnitee and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of the Indemnitee, to the extent legally permitted and as required by any Indemnity Arrangement, without regard to any rights the Indemnitee may have against the Fund Indemnitors, and (iii) it irrevocably waives, relinquishes and releases the Fund Indemnitors from any claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind arising out of or relating to any Indemnity Arrangement. The Company further agrees that no advancement or indemnification payment by any Fund Indemnitor on behalf of the
Indemnitee shall affect the foregoing, and the Fund Indemnitors shall be subrogated to the extent of such advancement or payment to all of the rights of recovery of the Indemnitee against the Company. The Company and the Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 13.
14. Survival of Rights.
(a) Survival. All agreements and obligations of the Company contained herein shall continue during the period in which Indemnitee is an Agent and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding by reason of the fact that Indemnitee was serving in the capacity referred to herein. The Indemnitees rights hereunder shall continue after the Indemnitee has ceased acting as an Agent and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee.
(b) Successor to the Company. The Company shall require any successor to the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
15. Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to the Indemnitee to the fullest extent permitted by law, including those circumstances in which indemnification would otherwise be discretionary.
16. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 15 hereof.
17. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless it is in a writing signed by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall any such waiver constitute a continuing waiver.
18. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) upon delivery if delivered by hand to the party to whom such notice or other communication shall have been directed, (b) if mailed
by certified or registered mail with postage prepaid, return receipt requested, on the third business day after the date on which it is so mailed, (c) one business day after the business day of deposit with a nationally recognized overnight delivery service, specifying next day delivery, with written verification of receipt, or (d) on the same day as delivered by confirmed facsimile transmission if delivered during business hours or on the next successive business day if delivered by confirmed facsimile transmission after business hours. Addresses for notice to either party shall be as shown on the signature page of this Agreement, or to such other address as may have been furnished by either party in the manner set forth above.
19. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. This Agreement is intended to be an agreement of the type contemplated by Section 145(f) of the General Corporation Law of Delaware.
20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforcement is sought needs to be produced to evidence the existence of this Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.
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[INDEMNITEE] |
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Exhibit 10.2
FORM OF GPO PARTICIPATION AGREEMENT
Between
Premier Purchasing Partners, L.P.
and
GPO PARTICIPATION AGREEMENT
THIS GPO PARTICIPATION AGREEMENT (this Agreement) is made as of the Effective Date (as defined below) by and between Premier Purchasing Partners, L.P. (Premier LP), and (Member) (each of Premier LP and Member may be referred to herein as a Party and collectively as the Parties).
RECITALS
WHEREAS, Member is a limited partner in Premier LP and a stockholder in Premier, Inc. (collectively, the Premier Group) and participates in the group purchasing programs operated by the Premier Group and their Related Entities, pursuant to which Premier Members are entitled to purchase Products and Services under the terms of the Premier Program Contracts negotiated with Vendors (collectively, the Premier Program).
WHEREAS, following a reorganization of the Premier Group effective as of the closing (the Effective Date) of the initial public offering of Class A shares of the common stock of Premier, Inc., a newly formed Delaware corporation (Premier Parent), Premier LP will be renamed Premier Healthcare Alliance, L.P. and will operate the Premier Program.
WHEREAS, all existing agreements between Member and any of the Premier Group entities, other than the Premier, Inc. Stockholders Agreement (collectively, the Existing Agreements), will remain in full force and effect; provided, that to the extent that any provision of this Agreement conflicts with any provision of any Existing Agreement related to the duration of Members and its Member Facilities (as defined below) participation in the Premier Program, the terms of this Agreement shall be controlling and any conflicting provision of such Existing Agreement is hereby deemed to be amended to conform to the provisions of this Agreement without any further action by either Party.
NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Definitions.
As used herein, the following terms have the following meanings:
1.1 Administrative Fees means the fees paid by Vendors to Premier LP pursuant to the Medicare safe harbor regulations set forth in 42 CFR 1001.952(j), for administrative and support services provided by Premier LP pursuant to Premier Program Contracts. These fees are generally expressed as a defined percentage of the purchases made by Premier Members under a given Premier Program Contract. The term Administrative Fees shall also include
administrative fees paid to an applicable Member under group purchasing contracts between the Member and vendors that are remitted to Premier LP under the terms of any Existing Agreement.
1.2 Change of Control means the consummation of a transaction in which a majority of the equity or nonprofit corporate membership interests in, or all or substantially all of the assets of, Member are sold, transferred or assigned to an unrelated third party, or by which Member is merged into and with an unrelated third party and the equityholders or nonprofit corporate members of Member prior to the transaction hold less than a majority of the equity or nonprofit corporate membership interests in the surviving entity.
1.3 Eligible Organization means any entity that is not a healthcare provider but which is eligible for participation in the Premier Program.
1.4 Force Majeure Event means events outside of a Partys control, which shall include, but not be limited to, fire, flood, explosion, natural disaster, inability to obtain or shortage of materials, equipment or transportation, governmental orders (including restrictions, priorities or rationing), acts of God, accidents and strikes, lockouts or other labor trouble or shortage.
1.5 Member Facilities means the acute and non-acute health care providers and other Eligible Organizations that are Owned, Leased or Managed by, or Affiliated with, Member. A list of the Member Facilities is attached as Exhibit A and shall be updated by the Parties as required. Any Member Facility that ceases to be Owned, Leased or Managed by, or Affiliated with Member shall cease to be a Member Facility for purposes of this Agreement as of the effective date of the termination of such relationship (e.g., consummation of sale transaction, termination of sponsorship, etc.).
1.6 Owned, Leased or Managed by, or Affiliated with means (a) each acute and non-acute health care provider with respect to which Member directly or indirectly: (i) holds (A) a majority of the equity interests or corporate membership interests in such provider or the power to appoint a majority of such providers governing body or (B) a significant equity interest (which may be less than a majority of the total equity) sufficient to enable operational control and such provider is willing to designate Premier LP as its primary group purchasing organization; (ii) leases and operates such provider; or (iii) manages such provider in whole or in part (including, at a minimum, the supplies purchasing function); and (b) each acute and non-acute health care provider and other Eligible Organization which Member has sponsored for participation in the Premier Program, if such entity is not otherwise described in subsection (a).
1.7 Premier Member means any entity that participates in the Premier Program.
1.8 Premier Policies means the policies and procedures applicable to the Premier Program, as made available to Premier Members from time to time (including through Premier LPs web-site).
1.9 Premier Program means the group purchasing programs conducted by Premier LP and its Related Entities, pursuant to which Premier Members are entitled to purchase Products and Services under the terms of Premier Program Contracts negotiated with Vendors.
1.10 Premier Program Contracts means the purchasing agreements between Premier Vendors and Premier LP, for the purchase by Premier Members of Products and Services (including any enhancements of Premier Program Contracts negotiated by, or on behalf of, any Member Facility).
1.11 Products and Services means the products, supplies, equipment and services available to Premier Members through Premier Program Contracts.
1.12 Rebates means the payments, if any, made by Vendors to Premier LP for the benefit of Premier Members, related to the volume of particular Products and Services purchased by such Premier Members under the terms of Premier Program Contracts.
1.13 Related Entities means, with respect to either Premier LP or Member, any entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such entity, with the term control for purposes of this definition meaning the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract (written or oral) or otherwise; and the terms controlling, controlled by and under common control with shall have meanings correlative to the foregoing.
1.14 Vendor means a supplier of Products and Services under a Premier Program Contract.
2. Premier LP Obligations.
2.1 Access to Premier Program. Subject to the terms and conditions of this Agreement, Premier LP will make the Premier Program available to each Member Facility that completes Premier LPs standard membership application (each, a Membership Application) and is approved for participation in such program in accordance with the Premier Policies. No Member Facility that is currently participating in the Premier Program as of the Effective Date will be required to execute a new Membership Application. Member understands that Vendors have discretion with regard to extending Premier Program Contracts to individual Premier Members and that Premier LP will not be in breach of this Agreement if a Vendor declines to extend its contract to Member or any Member Facility.
2.2 Support Services Team. Premier LP will provide support to Member throughout the Term (as defined in Section 7 below), including through Premier LPs Core Field Service team, national analytics team, regional and national subject matter experts who assist with specific contract categories (e.g., cardiology, pharmacy, laboratory, nursing, construction, and foodservice) based on Members needs, and the Premier Solutions Center.
2.3 Core Tools. Member shall have access to all web-based tools that are provided to all Premier LP owners for no additional cost. These tools include but are not limited to: (i) Supply Chain Advisor®, an online, automated, contract management system including catalog, electronic price activation, news/resources, and the ability to manage all contracts in one place, including regional/local agreements; (ii) SpendAdvisor® PharmacySpend, which uses data from pharmacy wholesalers to support pharmacy spend analysis; and (iii) SpendAdvisor® PremierSpend, which provides analysis of supplier-reported data for spend using Premier Program Contracts. It does not include SpendAdvisor® MySpend, which is a fee-based tool that will continue to be provided under the terms of any Existing Agreement governing the use and cost of that tool.
2.4 Other Services. Premier LP shall provide such other services and support to Member and Member Facilities as set forth under any Existing Agreements or any other contractual arrangements entered into between Premier LP and Member during the Term of this Agreement.
3. Member Obligations.
Member shall, and shall cause each Member Facility to, (a) participate in the Premier Program throughout the Term of this Agreement in compliance with the Premier Policies; and (b) utilize Premier LP as its primary group purchasing organization (provided, that Member Facilities that are transitioning from a relationship with another group purchasing organization may continue to access specific agreements under such other group purchasing organizations programs during a reasonable transition phase, consistent with the Premier Policies and following formal notice to such other group purchasing organization of such Member Facilitys withdrawal from such group purchasing organizations programs). Member shall convert all new Member Facilities after the Effective Date to participation in the Premier Program as soon as practicable; provided, that such conversion shall in all cases be completed within (i) 12 months following the effective date upon which such Member Facility becomes Owned, Leased or Managed by, or Affiliated with, Member, in the absence of a contractual commitment barring conversion or (ii) three months following the expiration or other lapse of any such contractual bar to conversion.
4. Financial Matters.
4.1 Administrative Fee Shareback. To the extent permitted under then-applicable law, Premier LP shall pay to Member, within 60 days following the end of each calendar quarter, 30% of all Administrative Fees actually collected and allocated in Premier LPs contract management system based upon purchases made by Member Facilities through Premier Program Contracts, or otherwise remitted to Premier LP by Member under the terms of an Existing Agreement (if applicable), during such quarter. The amounts paid to Member under this Section will be (a) considered offeror rebates as defined in the discount safe harbor under the federal
Medicare program, codified at 42 C.F.R. § 1001.952(h), and (b) calculated on a cash accounting basis, i.e., based on the allocation of Administrative Fees as a result of actual cash receipts during the preceding quarter. In the event of termination of this Agreement by Member for breach under Section 7.4, for a period of twelve months following the effective date of such termination Premier LP will continue to pay offeror rebates as provided in this Section to Member based upon purchases made by Member Facilities through Premier Program Contracts prior to the effective date of such termination.
4.2 Vendor Rebates. Premier LP shall pay directly to applicable Member Facilities, in the manner provided in the Premier Program Contracts, all Rebates actually received by Premier LP from Vendors during the preceding quarter with respect to purchases by those Member Facilities under such Premier Program Contracts.
4.3 Misdirected Payments. Member shall, and shall cause each Member Facility to, remit to Premier LP on a quarterly basis, any payments of Administrative Fees directly from Vendors to Member or such Member Facility as a result of purchases by Member Facilities through Premier Program Contracts.
4.4 Safe Harbor Reports. Premier LP shall provide an annual report to each Member Facility (a) identifying (i) all Administrative Fees earned by Premier LP from each Vendor with respect to purchases by such Member Facility under Premier Program Contracts during the preceding twelve-month period, in accordance with the group purchasing organization safe harbor promulgated under the federal Medicare program (42 C.F.R. § 1001.952(j), as amended) and (ii) all offeror rebates paid by Premier LP to Member with respect to purchases by such Member Facility under Premier Program Contracts during the preceding twelve months, in accordance with the discount safe harbor promulgated under the federal Medicare program (42 C.F.R. § 1001.952(h), as amended); and (b) notifying each Member Facility of its obligation to: (i) disclose the specified dollar value of discounts or reductions in price under any state or federal program which provides cost or charge-based reimbursement to such facility for items and services covered by any Premier Program Contract in accordance with applicable regulations, including, without limitation, by appropriately reflecting such amounts in the facilitys cost reports; and (ii) provide information upon request in accordance with the provisions of 42 C.F.R. § 1001.952(h)(1), as such may be amended. Member shall cause each Member Facility to comply with all requirements of the discount safe harbor set forth in 42 C.F.R. § 1001.952(h)(1), as such may be amended. Member shall be responsible for providing safe harbor reports to Member Facilities, in accordance with the group purchasing organization safe harbor promulgated under the federal Medicare program (42 C.F.R. § 1001.952(j), as amended), with respect to any Administrative Fees collected by Member under its own group purchasing contracts with vendors.
5. Representations and Warranties.
Each of Premier LP and Member, as applicable, represents and warrants the following to the other Party for its reliance thereon:
5.1 Valid Formation. Each is an entity duly organized or formed, validly existing and in good standing under the laws of the state pursuant to which it is organized, and has all requisite legal power to enter into this Agreement and to perform its obligations hereunder.
5.2 Due Authority. This Agreement has been duly executed and delivered by each and is the legal, valid, and binding obligation of each, fully enforceable against each in accordance with its terms.
5.3 No Consents. No consent or approval of any court, governmental or administrative agency, individual or entity is required in connection with the execution of this Agreement by such Party or the consummation of the transactions contemplated hereby, except for such consents or approvals which have been duly obtained prior to the execution of this Agreement.
5.4 Due Enforceability. The execution of this Agreement and the performance by such Party of its obligations hereunder does not violate, conflict with, or constitute a default under or breach of, any judgment, order, writ, injunction, decree, or organizational document of such Party, or violate any statute, law, order, regulation, agreement or instrument to which that Party is bound as of the Effective Date.
5.5 No Debarment. Each Party, each Member Facility, and their respective directors, officers, and, to the best of such Partys knowledge, their respective employees: (i) are not currently excluded, debarred, or otherwise ineligible to participate in the Federal health care programs as defined in 42 U.S.C. § 1320a-7b(f) (the Federal Healthcare Programs); (ii) have not been convicted of a criminal offense related to the provision of healthcare items or services but have not yet been excluded, debarred, or otherwise declared ineligible to participate in the Federal Healthcare Programs; and (iii) are not under investigation or otherwise aware of any circumstances which may result in such Party or Member Facility being excluded from participation in the Federal Healthcare Programs. These representations and warranties shall be ongoing during the Term and a Party shall immediately notify the other Party of any change in the status of these representations and warranties. Any breach of this provision shall be deemed to be a material breach under this Agreement giving the other Party the right to terminate for cause.
6. Vendor Acts and Omissions. Premier LP, its Related Entities and their respective directors, officers, employees and agents shall not be liable to Member, any Member Facility or to any other entity or person for the acts or omissions of Vendors; further, Premier LP, its Related Entities and their respective directors, officers, employees and agents shall not be liable to Member, Member Facilities or to any other entity or person for any breach of any expressed or
implied representation or warranty regarding any Products or Services that may be the subject of any purchasing agreement under or concerning the Premier Program or any other Premier LP program.
7. Term; Termination.
7.1 Term. The term of this Agreement shall commence as of the Effective Date and shall continue until the fifth anniversary of the Effective Date (the Initial Term); provided, that the Term shall be automatically extended for successive five-year periods (each, a Renewal Term, and, together with the Initial Term, the Term) unless either Party notifies the other, prior to the fourth anniversary of the then-current Term, that such Party desires to terminate this Agreement effective upon the expiration of the then-current Term.
7.2 Termination for Convenience. This Agreement may be terminated by either Party for convenience upon 12 months prior written notice, given at any time after the second anniversary of the commencement date of the then-current Term.
7.3 Termination Due to Change of Control. This Agreement may be terminated by either Party at any time, upon 12 months prior written notice, in the event of a Change of Control of Member.
7.4 Termination for Cause. This Agreement may be terminated for cause, by either Party, upon written notice to the other Party (a Breach Notice) specifying with particularity the event of breach upon which such Breach Notice is based; provided, that in the event of a breach of Sections 3, 4.3, 5.5, 9.1, 10, 11.5, 11.16 or 11.17 with respect to a Member Facility, Premier LP may in its sole discretion elect to terminate only such Member Facilitys participation in the Premier Program. The terminating Party shall have the right to terminate this Agreement immediately if the non-terminating Party shall fail within 30 days after the receipt of such Breach Notice to cure or correct the breach alleged in the notice; provided, that if the Parties agree that the breach alleged by the terminating Party in the Breach Notice is not capable of correction within such 30-day period, the terminating Party shall have the right to terminate this Agreement immediately if the non-terminating Party shall have failed to commence corrective action within such 30-day period and diligently pursue corrective measures to the satisfaction of the terminating Party (provided, that in no event shall the period to cure extend beyond 90 days without the prior approval of the terminating Party). As used herein, the term cause shall mean: (a) a material breach by the other Party of the provisions of this Agreement; (b) the loss of the ability of either Party lawfully to perform its obligations hereunder; (c) the failure of the other Party to negotiate in good faith to amend this Agreement pursuant to Section 8 hereof; (d) the breach by the other Party of the representations and warranties set forth in Section 5 hereof (provided that no cure period shall apply in the event of a breach of Section 5.5); or (e) the filing by the other Party of a petition commencing a voluntary case under the Bankruptcy Code; an admission in writing by the other Party of its inability to pay its debts as they become due; the filing by the other Party of any petition or answer in any proceeding seeking for itself, or consenting to, or acquiescing in, any insolvency, receivership, liquidation, dissolution, or similar
relief under any present or future statute, law or regulation, or the filing by the other Party of an answer or other pleading admitting or failing to deny or contest the material allegations of the petition filed against it in any such proceeding; the seeking of or consenting to, or acquiescence by the other Party in, the appointment of any trustee, receiver, or liquidator of it, or any part of its property; and the commencement against the other Party of an involuntary case under the Bankruptcy Code, or a proceeding under any insolvency, receivership, liquidation, dissolution law or similar statute.
7.5 Effect of Termination. Upon any termination or expiration of this Agreement, all rights and obligations of the Parties under this Agreement shall terminate (except for those rights and obligations accrued prior to the effective date of such termination or expiration and except as otherwise provided in Section 7.7 below); provided, that: (a) at Members request Premier LP will continue to permit Member Facilities to access Premier Program Contracts for a period not to exceed 90 days following the termination of this Agreement (other than termination by Premier LP for cause), to provide Member Facilities with a reasonable time to transition their arrangements for group purchasing services; and (b) in the event of termination of this Agreement by Premier LP for cause under Section 7.4, Premier LP shall retain, as liquidated damages and not as a penalty, all Administrative Fees collected after the date of the Breach Notice and shall have no obligation to share those Administrative Fees with Member under Section 4.1.
7.6 Limitation of Liability. Except as is otherwise provided herein and except as may arise from a breach of Section 10 (Confidentiality), neither Party shall be liable to the other Party on any theory of liability.
7.7 Survival of Terms. Section 4.3 (Misdirected Payments), Section 4.4 (Safe Harbor Reports), Section 5 (Representations and Warranties), Section 6 (Vendor Acts or Omissions), Section 7.5 (Effect of Termination), Section 7.6 (Limitations of Liability), Section 7.7 (Survival of Terms), Section 9 (Books and Records), Section 10 (Confidentiality) and Section 11 (Miscellaneous), and any terms in this Agreement which by their nature must survive after the Term to give their intended effect shall be deemed to survive termination or expiration of this Agreement.
8. Changes in Law.
In the event that during the Term any federal, state or local law, rule or regulation is adopted, modified, or interpreted by a judicial body, in such a manner as to prohibit or materially change the terms of this Agreement, then the Parties to this Agreement shall negotiate in good faith to amend this Agreement in a manner consistent with such change and the intent of the Parties.
9. Books and Records.
9.1 Audits. Each of Premier LP and Member shall have the right from time to time during business hours and upon not less than thirty (30) days written notice to the other Party (and Member Facilities, if applicable) to examine, at the requesting Partys own cost, such of their respective books and records as necessary to audit and verify the accuracy of any amounts paid or received under this Agreement. Member shall cause each Member Facility to make its books and records available for the purposes of such audits. No Party may request an audit under this Section more frequently than once each calendar year.
9.2 Social Security Act Requirements. In accordance with Medicare requirements under Section 952 of the Omnibus Reconciliation Act of 1980 (P.L. 96 499) and such final regulations relating thereto as may be promulgated by the Secretary of the U.S. Department of Health and Human Services (the Secretary), and to the extent that such requirements are applicable to this Agreement, both Parties shall, while this Agreement is effective and until the expiration of six (6) years after the furnishing of any services hereunder, make available, upon written request to the Secretary, or the Comptroller General of the United States (the Comptroller General), or to any of their duly authorized representatives, a copy of this Agreement and such books, documents and records as are necessary to certify the nature and extent of the costs incurred by the other Party with respect to the services furnished hereunder. If either Party carries out any of the duties hereunder through a subcontract with a value or cost of $10,000 or more over a twelve (12) month period, such subcontract shall contain a clause identical to the foregoing concerning the maintenance of records and their availability to the Secretary or the Comptroller General.
10. Confidentiality.
10.1 Confidential Information. During the Term and surviving its expiration or termination, except as otherwise provided in this Agreement, the Parties will regard and preserve as confidential and not disclose publicly or to any third party any information related to the business of the other Party without such Partys prior written consent. Without limiting the foregoing, Member shall not, and shall cause each Member Facility not to, use or permit the use of pricing, terms and/or conditions of any Premier Program Contract in connection with any negotiations or dealings with third parties to create contracts which exclude Premier LPs involvement (in this regard, and without limiting the foregoing, Member shall not, and shall cause each Member Facility to not, leverage such information and will not permit its affiliates, agents or representatives, including without limitation any group purchasing organization other than Premier LP, to leverage such information in order to obtain better terms and/or pricing from third parties under contracts which exclude Premier LPs involvement). Subject to the requirements of Section 10.3 below and any applicable law or regulation, the confidentiality obligations of this Section 10 do not apply to the use or disclosure of any of the following (the Confidentiality Exceptions): (a) information that is publicly known prior to the disclosure or becomes publicly known through no wrongful act of the receiving Party; (b) information that was in lawful possession of the receiving Party prior to the disclosure and was not received as a
result of any breach of confidentiality with respect to the disclosing Party; (c) information that was independently developed by the receiving Party outside the scope of this Agreement; (d) information which the receiving Party is required to disclose by law, court order or regulatory agency request; (e) information that is disclosed by the receiving Party without attributing the source; (f) information that must be disclosed for performance under this Agreement; or (g) information that must be disclosed in compliance with Premier Parents obligations as a public company. In the event of a request for disclosure falling under subsection (d) above, prompt notice of such request shall be provided to the other Party in order to provide an opportunity to oppose such request for disclosure.
10.2 Exceptions. Each of the Parties shall have the right to use pricing information on Products and Services for its internal analyses and for creating pricing evaluations for disclosure to potential recruits pursuant to a confidentiality agreement. Subject to the terms of the applicable Premier Program Contract, the Parties shall also have the right to disclose such information to third parties for performance of such analysis under a confidentiality agreement that prevents such information from being used for any other purpose. The disclosing Party shall promptly notify the other Party if any such disclosure is made to any third party. Member shall have the right to disclose the terms of this Agreement to Member Facilities and to health care providers that Member is seeking to recruit to join the Premier Program, provided such disclosure is made pursuant to the terms of a confidentiality agreement executed by the Member Facility or other receiving organization.
10.3 HIPAA Requirements. The Parties acknowledge that many Member Facilities are covered entities as that term is defined at 45 C.F.R. § 160.103. To the extent applicable, the Parties agree to comply with the Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act of 1996, as codified at 42 U.S.C. § 1320d et seq. (HIPAA) and any current and future regulations promulgated thereunder, including without limitation the federal privacy regulations contained in 45 C.F.R. Parts 160 and 164 (the Federal Privacy Regulations), the federal security standards contained in 45 C.F.R. Parts 160, 162 and 164 (the Federal Security Regulations) and the federal standards for electronic transactions contained in 45 C.F.R. Parts 160 and 162 (the Federal Electronic Transaction Regulations), and the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, all as amended from time to time and collectively referred to herein as the HIPAA Requirements. The Parties agree not to use or further disclose any Protected Health Information (as defined in the Federal Privacy Regulations) or EPHI (as defined in the Federal Security Regulations) other than as permitted by the HIPAA Requirements, the terms of this Agreement and terms of any Business Associate Agreement then in effect between the Parties. The Parties will make their internal practices, books, and records relating to the use and disclosure of Protected Health Information available to the Secretary to the extent required for determining compliance with the HIPAA Requirements.
10.4 Remedies. The Parties acknowledge and agree that (a) the restrictions contained in this Section 10 are reasonable and a necessary protection of the legitimate interest of the Parties, and that any violation of these restrictions would cause substantial and irreparable injury
to the Parties; and (b) the Parties would not have entered into this Agreement without receiving the additional consideration offered by the Parties binding themselves to these restrictions. In the event of any violation of these restrictions, the non-breaching Party shall be entitled, in addition to any other remedy available, to preliminary and permanent injunctive relief, and all reasonable costs of enforcement hereunder, including, but not limited to, reasonable attorneys fees.
11. Miscellaneous.
11.1 Entire Agreement. This Agreement, the Exhibits attached hereto, and the Membership Applications signed by Member and each Member Facility (which are incorporated herein by this reference) contain the entire agreement between Premier LP and Member relating to the subject matter of this Agreement and supersede all previous contracts and all prior representations or agreements between the Parties, whether written or oral, relating to the subject matter of this Agreement. To the extent that any provision of this Agreement conflicts with any provision of any Existing Agreement related to the scope and duration of Members and its Member Facilities participation in the Premier Program, the terms of this Agreement shall be controlling and any conflicting provision of such Existing Agreement is hereby deemed to be amended to conform to the provisions of this Agreement without any further action by either Party. For avoidance of doubt: (a) all agreements between Member and any of the Premier Group entities other than the Premier, Inc. Stockholders Agreement (e.g., software agreements, consulting engagements, business associate agreements, etc.) shall remain in full force and effect; and (b) all provisions of agreements between Member and Premier LP (e.g., field service resource support, savings guarantees, business associate agreements, etc.) which do not address the duration of participation in the Premier Program shall remain in full force and effect.
11.2 Severability. If any part of this Agreement shall be determined to be invalid, illegal, or unenforceable by any valid Act of Congress or of any legislature or by any regulation duly promulgated by the United States or a state acting in accordance with the law, or declared null and void by any court of competent jurisdiction, then such part shall be reformed, if possible, to conform to the law, and, in any event, the remaining parts of this Agreement shall be fully effective and operative insofar as reasonably possible.
11.3 Modification; Waiver. No modification of or amendment to this Agreement shall be deemed effective unless in writing and signed by a duly authorized representative of each of the Parties. Waiver of a breach of any provision(s) of this Agreement shall not be deemed a waiver of any other breach of the same or any different provision(s).
11.4 Binding on Successors. This Agreement is binding upon and inures to the benefit of the Parties hereto and their respective legal representative(s), successor(s), and permitted assignee(s).
11.5 Assignments. Neither Party may assign, subcontract, delegate or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of
the other Party; provided, however, that Premier LP may assign this Agreement to a Related Entity without consent. No assignment hereunder shall operate to release assigning Party of any of its obligations hereunder.
11.6 Governing Law. This Agreement has been executed and delivered and shall be construed and enforced in accordance with the internal laws of the State of Delaware.
11.7 Notices. Any notice required to be given pursuant to the terms and provisions hereof shall be in writing, postage prepaid, and shall be sent by first-class mail or certified mail, return receipt requested, to Premier LP or Member at the addresses below. Either Party may change the address to which notices are to be sent by notice given in accordance with the provisions of this section. Notices hereunder shall be deemed to have been given, and shall be effective, upon receipt by the other Party:
If to Premier LP:
Premier Healthcare Alliance, L.P.
13034 Ballantyne Corporate Place
Charlotte, NC 28277
Attention: General Counsel
If to Member:
At the last address of record for Member in Premier LPs records.
11.8 Force Majeure. In the event that either Party is unable to perform any of its obligations under this Agreement or to enjoy any of its benefits because of a Force Majeure Event, the Party who has been so affected shall immediately give written notice to the other Party and shall do everything reasonably possible to resume performance. Upon the other Partys receipt of such notice, all obligations under this Agreement shall be suspended immediately until termination of the Force Majeure Event. If the period of nonperformance exceeds 90 days from the receipt of notice of the Force Majeure Event, the Party whose ability to perform has not been so affected may, by giving written notice to the other Party, terminate this Agreement.
11.9 Headings. The article and section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
11.10 Independent Contractors. It is hereby understood and agreed that nothing contained in this Agreement is intended, or shall constitute or be construed, to be or to create or to establish a partnership, joint venture or lease between or among Member, Member Facilities, their respective Related Entities, or their respective successors or assignees, on the one hand, and Premier LP, its Related Entities, other Premier Members or their respective successors or assignees, on the other hand, or as constituting either Party as the general representative or
general agent of the other Party or its member hospitals or affiliates for any purpose whatsoever, except as expressly set forth herein. In entering into this Agreement and in acting in compliance herewith, each Party shall at all times be deemed to be acting and performing as an independent contractor duly authorized to perform only as provided for in this Agreement.
11.11 Retention of Documents. Premier LP and Member agree that each Party shall retain and make available upon written request to the other Party, for a period of four years after the furnishing of such services as described in this Agreement, copies of this Agreement and any books, documents, records, and other data that are necessary to certify the nature and extent of the cost thereof when requested by the Secretary or the Comptroller General, or any of their duly authorized representatives.
11.12 Legal Action. If either Party commences legal action or arbitration against the other Party related to any claim or controversy for a matter arising out of this Agreement, the non-prevailing Party shall pay all costs and reasonable attorneys fees incurred by the prevailing Party in connection with such action.
11.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be considered an original and all of which taken together shall constitute one and the same instrument. Signatures of the Parties transmitted by email or facsimile shall be deemed to be their original signatures for all purposes.
11.14 Expenses. Each Party to this Agreement shall bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated hereby, including all fees and expenses of its representatives.
11.15 Trademarks. Neither Premier LP nor Member shall use, and Member shall cause each Member Facility to not use, the other Partys name, trademarks, or service marks in advertising or promotional materials or otherwise without the other Partys prior written consent; provided, that Premier LP may identify Member as a participant in the Premier Program. The Parties shall ensure that their respective Related Entities comply with this provision.
11.16 Press Releases and Communication. No Party shall, and Member shall cause each Member Facility to not, issue or make any press release or public statement regarding this Agreement without the prior written consent of the other Party.
11.17 Arbitration. Any controversy, claim or dispute arising out of, accruing, or relating to this Agreement shall be resolved exclusively by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association; provided, that nothing in this Section shall be deemed to prevent either Party from seeking injunctive or other equitable relief in a court of law. Such arbitration shall be in lieu of litigation in any state or federal court. The arbitration shall be heard before a panel of three neutral arbitrators who, to the extent not inconsistent with applicable law, will have no power or authority to award treble, punitive, exemplary, consequential, or other damages not measured by the prevailing partys actual
damages except as otherwise expressly provided for in this Agreement. The proceeding will be held in Wilmington, Delaware and the costs of the arbitration, as well as reasonable attorneys fee as determined by the arbitrators, will be awarded to the prevailing party. The decision of the arbitrators shall be final and binding and the parties irrevocably submit to the jurisdiction of the United States District Court for the District of Delaware for enforcement of the arbitral award. Notwithstanding the foregoing, in the event any dispute arises under this Agreement, prior to the initiation of any legal proceeding, the Parties shall first attempt to resolve such dispute through one or more meetings of the principals of each Party.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the Execution Date.
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[Signature page to GPO Participation Agreement]
Exhibit 10.3
FORM OF TAX RECEIVABLE AGREEMENT
among
PREMIER, INC.
AND
THE LIMITED PARTNERS OF
PREMIER HEALTHCARE ALLIANCE, L.P.
TAX RECEIVABLE AGREEMENT
This TAX RECEIVABLE AGREEMENT (the Agreement) is effective immediately prior to the closing of the initial public offering of Premier, Inc., a Delaware corporation (Premier) (the Effective Date), and is made by and among Premier and each of the undersigned parties hereto identified as Limited Partners (as such term is defined below), and each of the successors and assigns thereto.
RECITALS
WHEREAS, in conjunction with the proposed reorganization of Premier Purchasing Partners, L.P., a California limited partnership (together with its successors and assigns, Premier LP) and its affiliates and the initial public offering of Class A shares (the Class A Shares) of the common stock of Premier, Premier LP will adopt an Amended and Restated Limited Partnership Agreement, in the form approved by its general partner and a majority of its Limited Partners (the LP Agreement), pursuant to which Premier LP will (a) change its name to Premier Healthcare Alliance, L.P. and (b) issue Class A Common Units to its general partner and Class B Common Units (the Class B Common Units) to its Limited Partners, collectively representing a 100% interest in Premier LP; and
WHEREAS, Premier LP is treated as a partnership for United States federal income tax purposes;
WHEREAS, Premier and the Limited Partners entered into a certain Unit Purchase Agreement dated as of the date hereof (the Purchase Agreement) and a certain Exchange Agreement as of the date hereof (the Exchange Agreement);
WHEREAS, pursuant to the Purchase Agreement and the LP Agreement, certain Class B Common Units held by a Limited Partner will be sold to Premier in exchange for cash and the right to certain payments under this Agreement (the Original Sale and the date of such sale, the Original Sale Date);
WHEREAS, pursuant to the Exchange Agreement and the LP Agreement, certain Class B Common Units held by a Limited Partner may be exchanged with Premier over time for Class A Shares, cash or a combination of Class A Shares and cash, and, in each case, the right to certain payments under this Agreement (an Exchange);
WHEREAS, contemporaneous with the Original Sale, Premier will purchase additional newly issued Class A Common Units directly from Premier LP;
WHEREAS, immediately following the Original Sale, Premier will contribute the Class B Common Units acquired in the Original Sale and the Class A Common Units purchased from Premier LP to Premier Services, LLC, a Delaware limited liability company that will be formed concurrently with Premier, will be wholly owned by Premier, and will be the general partner of Premier LP (Premier GP), and the Class B Common Units held by Premier GP will be automatically converted to Class A Common Units;
WHEREAS, on and after the Original Sale Date, Premier LP and each of its direct and indirect subsidiaries which are treated as a partnership for United States federal income tax purposes (together with Premier LP and any direct or indirect subsidiary (owned through a chain of pass-through entities) of Premier LP that is treated as a disregarded entity for United States federal income tax purposes, the Premier LP Group) will have in effect an election under Section 754 of the United States Internal Revenue Code of 1986, as amended (the Code), for the Taxable Year in which the Original Sale occurs and for each Taxable Year in which an Exchange occurs, which election is intended to result in an adjustment to the tax basis of the assets owned by Premier LP Group (solely with respect to Premier) at the time of an Exchange (such time, the Exchange Date);
WHEREAS, the income, gain, loss, expense and other Tax (as such term is defined below) items of Premier may be affected by (i) the Basis Adjustments (as such term is defined below) and (ii) the Imputed Interest (as such term is defined below);
WHEREAS, the parties to this Agreement desire to make certain arrangements with respect to the effect of the Basis Adjustments and Imputed Interest on the liability for Taxes of Premier;
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the terms set forth in this Article 1 shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).
Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
Agreed Rate means LIBOR plus 100 basis points.
Agreement is defined in the Recitals.
Amended Schedule is defined in Section 2.4(b).
Basis Adjustment means the adjustment to the tax basis of a Reference Asset under sections 732, 734(b) and 1012 of the Code (in situations where, as a result of one or more Exchanges, Premier LP becomes an entity that is disregarded as separate from its owner for tax purposes); or under sections 734(b), 743(b) and 754 of the Code (in situations where, following the Original Sale or an Exchange, as applicable, Premier LP remains in existence as an entity for United States federal income tax purposes) and, in each case, comparable sections of foreign,
state and local income and franchise tax laws, as a result of the Original Sale, any Exchange and payments under this Agreement. For the avoidance of doubt, the amount of any Basis Adjustment resulting from the Original Sale or an Exchange of one or more Class B Common Units shall be determined without regard to any Pre-Original Sale Transfer or Pre-Exchange Transfer, as applicable, of such Class B Common Units and as if any such Pre-Original Sale Transfer or Pre-Exchange Transfer, as applicable, had not occurred.
Beneficial Owner of a security means a Person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. The terms Beneficially Own and Beneficial Ownership shall have correlative meanings.
Board means the Board of Directors of Premier.
Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close.
Change of Control means the occurrence of any of the following events:
(i) any Person or any group of Persons acting together which would constitute a group for purposes of Section 13(d) of the Securities and Exchange Act of 1934, or any successor provisions thereto, excluding a group of Persons which includes all Limited Partners or an Affiliate, is or becomes the Beneficial Owner, directly or indirectly, of securities of Premier representing more than 50% of the combined voting power of Premiers then outstanding voting securities;
(ii) the following individuals cease for any reason to constitute a majority of the number of directors of Premier then serving: individuals who, on the IPO Date, constitute the Board and any new director whose appointment or election by the Board or nomination for election by Premiers shareholders was approved or recommended by a vote of more than 50% of the directors then still in office who either were directors on the IPO Date or whose appointment, election or nomination for election was previously so approved or recommended by the directors referred to in this clause (ii);
(iii) there is consummated a merger or consolidation of Premier with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) the Board immediately prior to the merger or consolidation does not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a Subsidiary, the ultimate parent thereof, or (y) the voting securities of Premier immediately prior to such merger or consolidation do not continue to represent or are not converted into more than 50% of the combined voting power of then outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof; or
(iv) the shareholders of Premier approve a plan of complete liquidation or dissolution of Premier or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by Premier of all or substantially all of Premiers assets, other than such sale or other disposition by Premier of all or substantially all of Premiers assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of Premier in substantially the same proportions as their ownership of Premier immediately prior to such sale.
Notwithstanding the foregoing, except with respect to clause (ii) and clause (iii)(x) above, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of Premier immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of Premier immediately following such transaction or series of transactions.
Change of Control Termination Date means the date of a Change of Control Termination Notice for purposes of determining the Change of Control Termination Payment.
Change of Control Termination Effective Date is defined in Section 4.2.
Change of Control Termination Notice is defined in Section 4.2.
Change of Control Termination Payment is defined in Section 4.3(b).
Change of Control Termination Schedule is defined in Section 4.2.
Class A Shares is defined in the Recitals.
Class B Common Units is defined in the Recitals.
Code is defined in the Recitals.
Common Units means Class A Common Units and Class B Common Units issued by Premier LP.
Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Covered Taxable Year means any Taxable Year of Premier ending before or including the Unilateral Termination Date.
Cumulative Net Realized Tax Benefit for a Taxable Year means, with respect to each Limited Partner, the cumulative amount of Realized Tax Benefits for all Taxable Years of Premier, up to and including such Taxable Year, net of the cumulative amount of Realized Tax
Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment with respect to each Limited Partner for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination, or, if applicable, the Early Termination Schedule, Change of Control Termination Schedule, or amendments thereto.
Default Rate means LIBOR plus 100 basis points.
Determination shall have the meaning ascribed to such term in section 1313(a) of the Code or similar provision of foreign, state and local tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax.
Dispute has the meaning set forth in Section 7.8(a).
Early Termination Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
Early Termination Effective Date is defined in Section 4.2.
Early Termination Notice is defined in Section 4.2.
Early Termination Payment is defined in Section 4.3(b).
Early Termination Rate means the long-term Applicable Federal Rate published by the Internal Revenue Service in accordance with section 1274(d) of the Code.
Early Termination Schedule is defined in Section 4.2.
Exchange is defined in the Recitals.
Exchange Agreement is defined in the Recitals.
Exchange Basis Schedule is defined in Section 2.2(b).
Exchange Date means the date of any Exchange.
Expert is defined in Section 7.9.
Hypothetical Tax Liability means, with respect to a Limited Partner and a Taxable Year, the liability for Taxes of (i) Premier and (ii) without duplication, Premier LP, but only with respect to Taxes imposed on Premier LP and allocable, based on Common Units held, to Premier, or to the other members of the consolidated group of which Premier is the parent, for the Taxable Year, in each case using the same methods, elections, conventions and similar practices used on the relevant Premier Return, but (x) excluding any aggregate increase or decrease in Tax liability for the Taxable Year attributable to Basis Adjustments resulting from Original Sales and Exchanges by the Limited Partner and any payments under this Agreement to
the Limited Partner and (y) excluding any deductions attributable to Imputed Interest with respect to payment obligations under this Agreement to the Limited Partner for the Taxable Year. For the avoidance of doubt, Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any Tax item (or portions thereof) that is attributable to the Basis Adjustment or Imputed Interest.
Imputed Interest shall mean any interest imputed under section 1272, 1274 or 483 or any other provision of the Code and any similar provision of foreign, state, and local tax law, as applicable, with respect to Premiers payment obligations under this Agreement.
Independent Director means any member of the Board who is not affiliated with any of the Limited Partners or any of the other principal shareholders of Premier and is neither a current officer nor a former officer of Premier or any of its Subsidiaries.
Interest Amount is defined in Section 3.1(b).
IPO means the initial public offering of Class A Shares by Premier.
IPO Date means the closing date of the IPO.
IRS means the United States Internal Revenue Service.
LIBOR means during any period, an interest rate per annum equal to the one-year LIBOR reported, on the date two days prior to the first day of such period, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page LIBOR01 or by any other publicly available source of such market rate) for London interbank offered rates for United States dollar deposits for such period.
Limited Partners means each holder of Class B Common Units of Premier LP party hereto as of the date hereof and each other Person that is issued Class B Common Units from time to time and executes a Joinder Agreement in the form attached hereto as Exhibit A, other than Premier and Premier LP and their successors and assigns.
LP Agreement is defined in the Recitals.
Market Value shall mean the closing price of the Class A Shares on the applicable Original Sale Date or Exchange Date, or deemed Exchange Date, determined as follows:
(a) If Class A Shares are traded on a national securities exchange, then such Market Value shall be the average of the closing prices of a Class A Share on such exchange over the 20 trading days ending three days prior to the applicable Original Sale Date or Exchange Date, or deemed Exchange Date (the Determination Date);
(b) If Class A Shares are traded on the over-the-counter system, then such Market Value shall be the average of the closing bid and ask prices of a Class A Share over the 20 trading days prior to the Determination Date; and
(c) If there is then no public market for the Class A Shares, then such Market Value shall be the highest price per share which could be obtained from a willing buyer (not a current employee or director) for a Class A Share sold from authorized but unissued shares, as determined in good faith by Premier.
If closing prices or closing bid and ask prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid and ask price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.
Material Objection Notice has the meaning set forth in Section 4.2.
Net Tax Benefit is defined in Section 3.1(b).
Non-Stepped Up Tax Basis means, with respect to any Reference Asset at any time, the tax basis that such asset would have had at such time if no Basis Adjustments had been made.
Objection Notice has the meaning set forth in Section 2.4(a).
Original Sale is defined in the Recitals.
Original Sale Basis Schedule is defined in Section 2.2(a).
Original Sale Date is defined in the Recitals.
Payment Date means any date on which a payment is required to be made pursuant to this Agreement.
Person means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other entity or organization of any nature whatsoever or any group of two or more of the foregoing which are Related Entities.
Pre-Exchange Transfer means any transfer (including upon the death of a Limited Partner) or distribution in respect of one or more Class B Common Units (i) that occurs prior to an Exchange of such Class B Common Units, and (ii) to which section 743(b) or 734(b) of the Code applies.
Pre-Original Sale Transfer means any transfer (including upon the death of a Limited Partner) or distribution in respect of one or more Class B Common Units (i) that occurs prior to Class B Common Units sold in the Original Sale, and (ii) to which section 743(b) or 734(b) of the Code applies.
Premier is defined in the Recitals.
Premier LP is defined in the Recitals.
Premier LP Group is defined in the Recitals.
Premier Return means the United States federal, and/or foreign, and/or state and/or local Tax Return, as applicable, of Premier filed with respect to Taxes of any Taxable Year.
Purchase Agreement is defined in the Recitals.
Qualified Tax Advisor means Ernst & Young LLP, or any other law or accounting firm that is nationally recognized as being expert in Tax matters and that is reasonably acceptable to Premier.
Realized Tax Benefit means, for a Limited Partner in a Taxable Year, the excess, if any, of (a) the Hypothetical Tax Liability with respect to the Limited Partner in the Taxable Year over (b) the actual liability for Taxes of (i) Premier and (ii) without duplication, Premier LP, but only with respect to Taxes imposed on Premier LP that are allocable, based on Common Units held, to Premier or to the other members of the consolidated group of which Premier is the parent for such Taxable Year, such actual liability to be computed with the adjustments described in this Agreement (including, for the avoidance of doubt, the application of the Valuation Assumptions when provided for in this Agreement). If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, any such liability arising as a result of an audit shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
Realized Tax Detriment means, for a Limited Partner in a Taxable Year, the excess, if any, of (a) the actual liability for Taxes of (i) Premier and (ii) without duplication, Premier LP, but only with respect to Taxes imposed on Premier LP that are allocable, based on Common Units, held to Premier or to the other members of the consolidated group of which Premier is the parent for such Taxable Year, over (b) the Hypothetical Tax Liability with respect to the Limited Partner in the Taxable Year, such actual liability to be computed with the adjustments described in this Agreement (including, for the avoidance of doubt, the application of the Valuation Assumptions when provided for in this Agreement). If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, any such liability arising as a result of an audit shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
Reconciliation Dispute has the meaning set forth in Section 7.9.
Reconciliation Procedures has the meaning set forth in Section 2.4(a).
Reference Asset means an asset that is held by any member of Premier LP Group, at the time of the Original Sale or an Exchange, as applicable. A Reference Asset also includes any asset that is substituted basis property under section 7701(a)(42) of the Code with respect to a Reference Asset.
Related Entity when used with respect to another Person means any Person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common
control with, such other Person. In addition, Related Entities of a Limited Partner shall be deemed to include all of its directors, managers, officers and employees in their capacities as such.
Schedule means any of the following: (a) an Original Sale Basis Schedule, (b) an Exchange Basis Schedule, (c) a Tax Benefit Schedule, (d) the Early Termination Schedule, or (e) the Change of Control Termination Schedule.
Senior Obligations is defined in Section 5.1.
Subsidiaries means, with respect to any Person, as of any date of determination, any other Person as to which such Person owns, directly or indirectly, or otherwise controls more than 50% of the voting power or other similar interests or the sole general partner interest or managing member or similar interest of such Person.
Tax Benefit Payment is defined in Section 3.1(b).
Tax Benefit Schedule is defined in Section 2.3(a).
Tax Return means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.
Taxable Year means a taxable year of Premier as defined in Section 441(b) of the Code or comparable section of foreign, state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the IPO Date or on or after the Original Sale Date, whichever occurs earlier.
Taxes means any and all United States federal, foreign, state and local taxes, assessments or similar charges that are based on or measured with respect to net income or profits, franchise taxes of such governmental entities, and any interest related to such Tax (but excluding, for the avoidance of doubt, any Interest Amount).
Taxing Authority shall mean any domestic, federal, national, foreign, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.
Treasury Regulations means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
Unilateral Termination Date is defined in Section 4.4.
Unilateral Termination Notice is defined in Section 4.4.
Valuation Assumptions shall mean, as of an Early Termination Date or Change of Control Termination Date, the assumptions that:
(a) in each Taxable Year ending on or after such Early Termination Date, Premier will have taxable income sufficient to fully utilize the deductions arising from the Basis Adjustments and the Imputed Interest during such Taxable Year (including, for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available;
(b) the United States federal income tax rates, and any foreign, state and local income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on such date;
(c) all taxable income of Premier will be subject to the maximum applicable Tax rates throughout the relevant period;
(d) any loss carryovers generated by any Basis Adjustment or Imputed Interest and available as of the date of the Early Termination Schedule will be utilized by Premier on a pro rata basis from the date of the such schedule through the scheduled expiration date of such loss carryovers;
(e) any non-amortizable assets will be disposed of on the fifteenth anniversary of the applicable Basis Adjustment; provided, that in the event of a Change of Control, such non-amortizable assets shall be deemed disposed of at the time of sale of the relevant asset (if earlier than such fifteenth anniversary); and
(f) if, as of such date, there are Class B Common Units that were not sold in the Original Sale and have not been Exchanged, then each such Unit shall be deemed to be Exchanged for the Market Value of the Class A Shares and the amount of cash that would be transferred to the applicable Limited Partner under this Agreement if the Exchange occurred on the Early Termination Date. For the avoidance of doubt, the term Exchange as used herein shall include any Exchange deemed to have occurred under this subsection.
ARTICLE 2
DETERMINATION OF CERTAIN REALIZED TAX BENEFITS
Section 2.1 Basis Adjustment. The parties hereto acknowledge that an Original Sale or an Exchange constitutes a transfer of an interest in Premier LP giving rise to a Basis Adjustment. For the avoidance of doubt, payments made under this Agreement shall not be treated as resulting in a Basis Adjustment to the extent such payments are treated as Imputed Interest.
Section 2.2 Basis Schedule.
(a) Within forty-five (45) calendar days after the filing of the United States federal income tax return of Premier for the Taxable Year in which the Original Sale has been effected, Premier shall deliver to Premier LP a schedule (the Original Sale Basis Schedule) that shows, in reasonable detail necessary to perform the calculations required by this Agreement, including with respect to the Limited Partners, for purposes of Taxes, (i) the Non-Stepped Up Tax Basis of the Reference Assets as of the Original Sale Date, (ii) the Basis Adjustment with respect to the Reference Assets as a result of the Original Sale, calculated in the aggregate, (iii) the period (or periods) over which the Reference Assets are amortizable and/or depreciable and (iv) the period (or periods) over which each Basis Adjustment is amortizable and/or depreciable. The Original Basis Schedule will become final as provided in Section 2.4(a) and may be amended as provided in Section 2.4(b) (subject to the procedures set forth in Section 2.4(b)).
(b) Within forty-five (45) calendar days after the filing of the United States federal income tax return of Premier for each Taxable Year in which any Exchange has been effected, Premier shall deliver to each Limited Partner a schedule (the Exchange Basis Schedule) that shows, in reasonable detail necessary to perform the calculations required by this Agreement, including with respect to each such Limited Partner, for purposes of Taxes, (i) the Non-Stepped Up Tax Basis of the Reference Assets as of each Exchange Date, (ii) the Basis Adjustment with respect to the Reference Assets as a result of any Exchanges effected in such Taxable Year, calculated in the aggregate, (iii) the period (or periods) over which the Reference Assets are amortizable and/or depreciable and (iv) the period (or periods) over which each Basis Adjustment is amortizable and/or depreciable. The Exchange Basis Schedule will become final as provided in Section 2.4(a) and may be amended as provided in Section 2.4(b) (subject to the procedures set forth in Section 2.4(b)).
Section 2.3 Tax Benefit Schedule.
(a) Tax Benefit Schedule. Within forty-five (45) calendar days after the filing of the United States federal income tax return of Premier for any Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, Premier shall provide to each Limited Partner a schedule showing, in reasonable detail and, at the request of the Limited Partner, with respect to each separate Exchange (and Original Sale, as applicable), the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (each a Tax Benefit Schedule). The Tax Benefit Schedule will become final as provided in Section 2.4(a) and may be amended as provided in Section 2.4(b) (subject to the procedures set forth in Section 2.4(b)).
(b) Applicable Principles. Subject to Sections 3.3 and 3.4, the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability for Taxes of Premier for such Taxable Year attributable to the Basis Adjustments and Imputed Interest, determined using a with and without methodology. For the avoidance of doubt, the actual liability for Taxes will take into account the deduction of the portion of each Tax Benefit Payment that must be accounted for as interest under the Code based upon the characterization of Tax Benefit Payments as additional consideration payable by
Premier for the Class B Common Units acquired in the Original Sale or an Exchange. Carryovers or carrybacks of any Tax item attributable to the Basis Adjustment and Imputed Interest shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of foreign, state and local income and franchise tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to the Basis Adjustment or Imputed Interest and another portion that is not, such portions shall be considered to be used in accordance with the with and without methodology. The parties agree that (i) all Tax Benefit Payments (other than amounts accounted for as interest under the Code) will (A) be treated as subsequent upward purchase price adjustments that give rise to further Basis Adjustments to Reference Assets for Premier and (B) have the effect of creating additional Basis Adjustments to Reference Assets for Premier in the year of payment, and (ii) as a result, such additional Basis Adjustments will be incorporated into the current year calculation and into future year calculations, as appropriate.
Section 2.4 Procedures, Amendments.
(a) Procedure. Every time Premier delivers to a Limited Partner an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.4(b), but excluding any Early Termination Schedule, Change of Control Termination Schedule, amended Early Termination Schedule, or amended Change of Control Termination Schedule, Premier shall also (i) deliver to the Limited Partner schedules and work papers, as determined by Premier or reasonably requested by such Limited Partner, providing reasonable detail regarding the preparation of the Schedule and (ii) allow such the Limited Partner reasonable access at no cost to the appropriate representatives at Premier, as determined by Premier or requested by the Limited Partner in connection with a review of such Schedule. An applicable Schedule or amendment thereto shall become final and binding on Premier and a Limited Partner thirty (30) calendar days from the first date on which the Limited Partner received the applicable Schedule or amendment thereto unless the Limited Partner (i) within 30 calendar days after receiving an applicable Schedule or amendment thereto, provides Premier with notice of a material objection to such Schedule (Objection Notice) made in good faith or (ii) provides a written waiver of such right of any Objection Notice within the period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver is received by Premier. If the parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within 30 calendar days after receipt by Premier of an Objection Notice, Premier and the Limited Partner shall employ the reconciliation procedures as described in Section 7.9 (the Reconciliation Procedures).
(b) Amended Schedule. The applicable Schedule for any Taxable Year may be amended from time to time by Premier (i) in connection with a Determination affecting such Schedule, (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to any Taxable Year after the date the Schedule was provided to the Limited Partner (iii) to comply with the Experts determination under the Reconciliation Procedures, (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year, (v) to reflect a change in the Realized Tax Benefit or Realized
Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, or (vi) to adjust the Original Basis Schedule or an Exchange Basis Schedule to take into account payments made pursuant to this Agreement (any such Schedule, an Amended Schedule).
ARTICLE 3
TAX BENEFIT PAYMENTS
Section 3.1 Payments.
(a) Payments. Within five (5) Business Days after a Tax Benefit Schedule delivered to a Limited Partner becomes final in accordance with Section 2.4(a), Premier shall pay to such Limited Partner for the applicable Taxable Year the Tax Benefit Payment with respect to such Limited Partner for such Taxable Year, as determined pursuant to Section 3.1(b). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by the Limited Partner to Premier or as otherwise agreed by Premier and the Limited Partner. For the avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated tax payments, including, without limitation, federal estimated income tax payments.
(b) A Tax Benefit Payment for a Taxable Year means, with respect to each Limited Partner, an amount, not less than zero, equal to the sum of the Limited Partners Net Tax Benefit and the Interest Amount. For the avoidance of doubt, for Tax purposes, the Interest Amount shall not be treated as interest but instead shall be treated as additional consideration for the acquisition of Class B Common Units in Exchanges, unless otherwise required by law. Subject to Sections 3.3 and 3.4, the Net Tax Benefit with respect to each Limited Partner for a Taxable Year shall be an amount equal to the excess, if any, of 85% of the Cumulative Net Realized Tax Benefit with respect to such Limited Partner for such Taxable Year over the total amount of payments previously made to such Limited Partner under this Section 3.1 (excluding payments attributable to Interest Amounts). The Interest Amount with respect to each Limited Partner for a Taxable Year shall equal the interest on the Net Tax Benefit with respect to such Limited Partner for such Taxable Year calculated at the Agreed Rate from the due date (without extensions) for filing Premier Return with respect to Taxes for such Taxable Year until the Payment Date. For the avoidance of doubt, no Limited Partner shall have any obligation to make any payment to Premier, or to reimburse Premier for amounts previously paid, pursuant to this Agreement, except as provided in Section 7.9.
(c) Notwithstanding anything else in this Agreement to the contrary, Premiers obligation to make payments to a Limited Partner under this Agreement shall cease immediately if, pursuant to the LP Agreement, such Limited Partner ceases to be a limited partner in Premier LP.
Section 3.2 No Duplicative Payments. It is intended that the provisions will not result in duplicative payment of any amount (including interest) required under this Agreement. It is also intended that the provisions provide that Tax Benefit Payments are paid to the Limited
Partners pursuant to this Agreement. The provisions shall be construed in the appropriate manner to ensure such intentions are realized.
Section 3.3 Pro Rata Payments. Notwithstanding anything in Section 3.1 to the contrary, and subject to Section 3.4 hereof, to the extent that the aggregate tax benefit of Premiers deduction with respect to the Basis Adjustments or Imputed Interest under this Agreement is limited in a particular Taxable Year because Premier does not have sufficient taxable income or to the extent that Premier lacks sufficient funds to satisfy its obligations to make all Tax Benefit Payments due with respect to a particular Taxable Year, the limitation on the tax benefit for Premier, or the payments under this Agreement that may be made, as the case may be, shall be taken into account or made for each Person entitled to receive a payment pursuant to Section 3.1 on a pro rata basis by comparing the amount of such Persons share of the tax benefits or amounts payable (as the case may be) with respect to the applicable Taxable Year to the aggregate amount of the tax benefits or amounts payable to all Persons entitled to receive a payment pursuant to Section 3.1 with respect to the applicable Taxable Year.
Section 3.4 Coordination. If for any reason Premier does not fully satisfy its obligations to make all payments due under this Agreement in respect of a particular Taxable Year, then no payments shall be made under this Agreement in respect of any Taxable Year until all payments in respect of prior Taxable Years have been made in full, including any additional amounts due under Section 5.2.
ARTICLE 4
TERMINATION
Section 4.1 Termination and Breach of Agreement.
(a) With the written approval of a majority of the Independent Directors, Premier may terminate this Agreement with respect to all amounts payable to the Limited Partners at any time by paying to them the Early Termination Payment; provided, however, that this Agreement only terminates under this Section 4.1(a) upon the receipt of the Early Termination Payments by the Limited Partners, and provided, further, that Premier may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon payment of the Early Termination Payments by Premier, Premier shall not have any further payment obligations under this Agreement, other than for any (i) Tax Benefit Payments agreed to by Premier and the Limited Partners as due and payable but unpaid as of the Early Termination Notice and (ii) Tax Benefit Payments due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in Early Termination Payments). If an Exchange occurs after Premier makes such payments to the Limited Partners, Premier shall have no obligations under this Agreement with respect to such Exchange.
(b) Upon the occurrence of a Change of Control, Premier shall be obligated to terminate this Agreement effective as of the Change of Control Termination Date by paying to the Limited Partners the Change of Control Termination Payment, substituting Change of Control Termination Date for Early Termination Date each time Early Termination Date appears in the definition of Valuation Assumptions and substituting Change of Control Termination Schedule for Early Termination Schedule each time Early Termination Schedule appears in the definition of Valuation Assumptions, and following the procedures set forth in Sections 4.2 and 4.3, as applicable to a Change of Control; provided, however, that this Agreement shall terminate under this Section 4.1(b) only upon the receipt of the Change of Control Termination Payments by the Limited Partners. Upon payment of the Change of Control Termination Payments by Premier, Premier shall have no further payment obligations under this Agreement, other than for any (i) Tax Benefit Payments agreed to by Premier and the Limited Partners as due and payable but unpaid as of the Change of Control Termination Notice and (ii) Tax Benefit Payments due for the Taxable Year ending with or including the date of the Change of Control Termination Notice (except to the extent that the amount described in clause (ii) is included in Change of Control Termination Payments). If an Exchange occurs by a Limited Partner after Premier makes such payments to the Limited Partners, Premier shall have no obligations under this Agreement with respect to such Exchange.
(c) In the event that Premier breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder or by operation of law as a result of the rejection in a case commenced under the Bankruptcy Code or otherwise, then all obligations hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include, but not be limited to, (i) Early Termination Payments calculated as if an Early Termination Notice had been delivered on the date of a breach, (ii) any Tax Benefit Payments agreed to by Premier and the Limited Partners as due and payable but unpaid as of the date of a breach, and (iii) any Tax Benefit Payments due for the Taxable Year ending with or including the date of a breach. Notwithstanding the foregoing, in the event that Premier breaches this Agreement, the Limited Partners shall each separately be entitled to elect to receive the amounts set forth in clauses (i), (ii) and (iii) above or to seek specific performance of the terms hereof. The parties agree that the failure to make any payment due pursuant to this Agreement within three months after the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months after the date such payment is due.
(d) Premier may satisfy its obligation under this Agreement to pay amounts to a Limited Partner attributable to the Original Sale or a particular Exchange at any time 15 or more years after the year of the Original Sale or such Exchange, by making a final payment to such Limited Partner in an amount computed in the same manner as an Early Termination Payment would be computed if the Original Sale or such Exchange were the only event giving rise to payments under this Agreement.
Section 4.2 Termination Notice. If Premier chooses to exercise its right of early termination under Section 4.1 above, or within 30 days of a Change of Control, Premier shall deliver to each of the Limited Partners notice of such intention to exercise such right or of such occurrence (Early Termination Notice or Change of Control Termination Notice, as applicable) and a schedule (the Early Termination Schedule or Change of Control Termination Schedule, as applicable) specifying Premiers intention to exercise such right or of such occurrence and showing in reasonable detail the calculation of the Early Termination Payments or the Change of Control Termination Payments, as applicable, for the Limited Partners. Premier shall, along with such notice and schedule, (i) deliver to the Limited Partners schedules and work papers, as determined by Premier or requested by a Limited Partner providing reasonable detail regarding the preparation of the Schedule and (ii) allow the Limited Partners reasonable access at no cost to the appropriate representatives at Premier, as determined by Premier or requested by a Limited Partner, in connection with a review of such schedule. The Early Termination Schedule or Change of Control Termination Schedule, as applicable, shall become final and binding on Premier and a Limited Partner 30 calendar days from the first date on which such Limited Partner received such schedule or amendment thereto unless such Limited Partner (i) within 30 calendar days after receiving such schedule, provides Premier with notice of a material objection to such schedule made in good faith (Material Objection Notice) or (ii) provides a written waiver of such right of a Material Objection Notice within the period described in clause (i) above, in which case such schedule becomes binding on the date the waiver is received by Premier (the Early Termination Effective Date or Change of Control Termination Effective Date). If the parties, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days after receipt by Premier of the Material Objection Notice, Premier and such Limited Partner shall employ the Reconciliation Procedures.
Section 4.3 Payment upon Termination.
(a) Within three (3) Business Days after the Early Termination Effective Date Premier shall pay to each Limited Partner an amount equal to the Early Termination Payment with respect to the Limited Partner. Within three (3) Business Days after the Change of Control Termination Effective Date, Premier shall pay to each Limited Partner an amount equal to the Change of Control Termination Payment with respect to the Limited Partner. Such payments shall be made by wire transfer of immediately available funds to a bank account or accounts designated by each of the Limited Partners or as otherwise agreed by Premier and each of the Limited Partners.
(b) Early Termination Payment for a Limited Partner shall equal the present value, discounted at the Early Termination Rate as of the Early Termination Effective Date, of all Tax Benefit Payments that would be required to be paid by Premier to the Limited Partner hereunder beginning from the Early Termination Date and assuming that the Valuation Assumptions are applied. Change of Control Termination Payment for a Limited Partner shall equal the present value, discounted at the Early Termination Rate as of the Change of Control Termination Effective Date, of all Tax Benefit Payments that would be required to be paid by Premier to the Limited Partner hereunder beginning as of the Change of Control Termination Date and assuming that the Valuation Assumptions are applied, as amended by Section 4.1(b).
Section 4.4 Unilateral Termination. At any time, by providing notice (the Unilateral Termination Notice) to Premier, a Limited Partner may elect to terminate this Agreement with respect to such Limited Partner effective as of the date designated by the Limited Partner in such notice (the Unilateral Termination Date). Upon receipt of the Unilateral Termination Notice, Premier shall have no further payment obligations under this Agreement with respect to such Limited Partner other than for a (a) Tax Benefit Payment agreed to by Premier through a majority of its Independent Directors and the Limited Partner as due and payable but unpaid as of the Unilateral Termination Date and (b) Tax Benefit Payment due for the Covered Taxable Year ending with or including the Unilateral Termination Date (except to the extent that the amount described in clause (b) is attributable to Class B Common Units exchanged after the Unilateral Termination Date).
ARTICLE 5
SUBORDINATION AND LATE PAYMENTS
Section 5.1 Subordination. Notwithstanding any other provision to the contrary, any payment required to be made by Premier under this Agreement shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of any obligations in respect of indebtedness for borrowed money of Premier and its Subsidiaries (Senior Obligations) and shall rank pari passu with all current or future unsecured obligations of Premier that are not Senior Obligations.
Section 5.2 Late Payments by Premier. The amount of all or any portion of any payment not made by Premier when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such payment was due.
ARTICLE 6
NO DISPUTES; CONSISTENCY; COOPERATION
Section 6.1 Election to be Filed. As the sole member of the general partner of Premier LP, Premier shall cause Premier LP and each Premier LP Group member that is treated as a partnership for United States federal income tax purposes to file an election under Section 754 of the Code commencing with its Taxable Year in which the Original Sale occurs, unless such entity already has a Section 754 election in effect, and shall not cause any such entity to revoke such election until this Agreement is no longer in effect for any Limited Partner. If Premier LP acquires an interest in an entity that is treated as a partnership for United States federal income tax purposes, Premier shall use its best efforts to cause such entity to file an election under Section 754 of the Code effective for each such entitys Taxable Year in which such acquisition occurs, unless such entity already has an election under Section 754 of the Code in effect, and shall not cause such entity to revoke such election until this Agreement is no longer in effect.
Section 6.2 Participation in Premiers and Premier LPs Tax Matters. Except as otherwise provided herein, Premier shall have full responsibility for, and sole discretion over, all Tax matters concerning Premier and Premier LP, including without limitation the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, Premier shall notify each applicable Limited Partner, and keep each applicable Limited Partner reasonably informed with respect to, the portion of any material audit of Premier or Premier LP by a Taxing Authority the outcome of which is reasonably expected to affect the rights and obligations of such Limited Partner(s) under this Agreement, and shall provide to such Limited Partner(s) reasonable opportunity to provide information and other input to Premier, Premier LP and their respective advisors concerning the conduct of any such portion of such audit; provided, however, that Premier and Premier LP shall not be required to take any action that is inconsistent with any provision of the LP Agreement.
Section 6.3 Consistency. Premier and the Limited Partners agree to report and cause to be reported for all purposes, including federal, foreign, state and local Tax purposes and financial reporting purposes, all Tax-related items (including, without limitation, the Basis Adjustments and each Tax Benefit Payment) in a manner consistent with that specified by Premier in any Schedule required to be provided by or on behalf of Premier under this Agreement unless otherwise required by law.
Section 6.4 Cooperation. Each applicable Limited Partner shall (a) furnish to Premier in a timely manner such information, documents and other materials as Premier may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make itself available to Premier and its representatives to provide explanations of documents and materials and such other information as Premier or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter, and Premier shall reimburse any such Limited Partner for any reasonable third-party costs and expenses incurred pursuant to this Section.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) on the date of delivery if delivered personally or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
If to Premier, to: |
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Charlotte, NC 28277 |
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Attention: Chief Financial Officer and General Counsel |
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Facsimile: (704) 816-6307 |
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Email: craig_mckasson@premierinc.com |
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and Jeffrey_Lemkin2@premierinc.com, respectively |
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The address set forth on the books and records of Premier LP |
Any party may change its address or fax number by giving the other parties written notice of its new address or fax number in the manner set forth above.
Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart.
Section 7.3 Entire Agreement; No Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason.
Section 7.4 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.
Section 7.5 Severability. If any term or other provision is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
Section 7.6 Successors; Assignment; Amendments; Waivers.
(a) A Limited Partner may not assign any of its rights under this Agreement to any Person; provided, however, that in connection with a sale by the Limited Partner of Class B Common Units to another Limited Partner, such selling Limited Partner shall have the option to assign its rights under this Agreement with respect to the Class B Common Units sold to such acquiring Limited Partner, so long as such acquiring Limited Partner has executed and delivered, or in connection with such sale executes and delivers, a joinder to this Agreement, in form and substance reasonably satisfactory to Premier, agreeing to become a successor for all purposes, except as otherwise provided in such joinder.
(b) No provision may be amended unless such amendment is approved in writing by Premier and the Limited Partners; provided, that, the definition of Change of Control cannot be amended without the written approval of a majority of the Independent Directors. No provision may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.
(c) All of the terms and provisions shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. Premier shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Premier, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Premier would be required to perform if no such succession had taken place.
Section 7.7 Titles and Subtitles. The titles of the sections and subsections are for convenience of reference only and are not to be considered in construing this Agreement.
Section 7.8 Resolution of Disputes.
(a) Any and all disputes which cannot be settled amicably, including any ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance (including the validity, scope and enforceability of this arbitration provision) (each a Dispute) shall be finally settled by arbitration conducted by a single arbitrator in Delaware in accordance with then-existing Rules of Arbitration of the American Arbitration Association. If the parties to the Dispute fail to agree on the selection of an arbitrator within ten (10) days of the receipt of the request for arbitration, the American Arbitration Association shall make the appointment. The arbitrator shall be a lawyer admitted to the practice of law in the State of Delaware and shall conduct the proceedings in the English language. Performance under this Agreement shall continue if reasonably possible during any arbitration proceedings.
(b) Notwithstanding the provisions of paragraph (a), Premier may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), the Limited
Partners (i) expressly consent to the application of paragraph (c) of this Section 7.8 to any such action or proceeding, (ii) agree that proof shall not be required that monetary damages for breach of the provisions would be difficult to calculate and that remedies at law would be inadequate, and (iii) irrevocably appoint Premier as agent of the Limited Partners for service of process in connection with any such action or proceeding and agree that service of process upon such agent, who shall promptly advise the Limited Partners of any such service of process, shall be deemed in every respect effective service of process upon the Limited Partners in any such action or proceeding.
(c) (i) EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF COURTS LOCATED IN WILMINGTON, DELAWARE FOR THE PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 7.8, OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. Such ancillary judicial proceedings include any suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm an arbitration award. The parties acknowledge that the forums designated by this paragraph (c) have a reasonable relation to this Agreement, and to the parties relationship with one another; and
(ii) The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in the preceding paragraph of this Section 7.8 and such parties agree not to plead or claim the same.
Section 7.9 Reconciliation. In the event that Premier and a Limited Partner are unable to resolve a disagreement with respect to the matters governed by Sections 2.4 and 4.2 within the relevant period designated in this Agreement (Reconciliation Dispute), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner or principal in a nationally recognized accounting or law firm, and unless Premier and either the Limited Partner agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with Premier or either the Limited Partner or other actual or potential conflict of interest. If the parties are unable to agree on an Expert within fifteen (15) days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the Qualified Tax Advisor. The Expert shall resolve any matter relating to the Original Basis Schedule, or an amendment thereto, an Exchange Basis Schedule, or an amendment thereto, the Early Termination Schedule, or an amendment thereto, or the Change of Control Termination Schedule, or an amendment thereto, within 30 calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within 15 calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by Premier, subject to adjustment or amendment upon
resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by Premier except as provided in the next sentence. Premier and the Limited Partner shall bear their own costs and expenses of such proceeding, unless (a) the Expert adopts Premier LPs or the Limited Partners position, or concludes that 75% or more of the aggregate amount of any payments at issue should be made to the Limited Partner, in which case Premier shall reimburse the Limited Partner for any reasonable out-of-pocket costs and expenses in such proceeding, or (b) the Expert adopts Premiers position, or concludes that less than 25% of the aggregate amount of any payments at issue should be made to the Limited Partner, in which case the Limited Partner shall reimburse Premier for any reasonable out-of-pocket costs and expenses in such proceeding. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.9 shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on Premier and the Limited Partner which is a party to such Dispute and may be entered and enforced in any court having jurisdiction.
Section 7.10 Withholding. Premier shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as Premier is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign Tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by Premier, such withheld amounts shall be treated for all purposes as having been paid to either the applicable Limited Partner.
Section 7.11 Admission of Premier into a Consolidated Group; Transfers of Corporate Assets.
(a) If Premier is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code or any corresponding provisions of state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments, Change of Control Termination Payments, and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If any entity that is obligated to make a Tax Benefit Payment, Early Termination Payment, or Change of Control Termination Payment hereunder transfers one or more assets to a corporation (or a Person classified as a corporation for United States federal income tax purposes) with which such entity does not file a consolidated tax return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment, Early Termination Payment, or Change of Control Termination Payment due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such transfer. The consideration deemed to be received by such entity shall be equal to the fair market value of the transferred asset. For purposes of this Section 7.11, a transfer of a partnership or limited liability company interest shall be treated as a transfer of the transferring partners or members share of each of the assets and liabilities of that partnership or limited liability company.
Section 7.12 Confidentiality. Premier LP, the Limited Partners and each of their assignees acknowledge and agree that the information of Premier is confidential and, except in the course of performing any duties as necessary for Premier and its Affiliates, as required by law or legal process or to enforce the terms, such person shall keep and retain in the strictest confidence and not disclose to any Person any confidential matters, acquired pursuant to this Agreement, of Premier and its Affiliates and successors, concerning Premier LP and its Affiliates and successors or the Limited Partners, learned by the Limited Partners heretofore or hereafter. This Section 7.12 shall not apply to (a) any information that has been made publicly available by Premier or any of its Affiliates, becomes public knowledge (except as a result of an act of Premier LP or a Limited Partner in violation ) or is generally known to the business community and (b) the disclosure of information to the extent necessary for the Limited Partners to prepare and file their Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any taxing authority with respect to such returns. Notwithstanding anything to the contrary herein, the Limited Partners and each of their assignees (and with respect to each, their respective employee, representative or other agents or their assignees, as applicable) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of Premier, Premier LP, the Limited Partners and their Affiliates, and any of their transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to the Limited Partners relating to such tax treatment and tax structure.
If a Limited Partner or its assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, Premier shall have the right and remedy to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Premier or any of its Subsidiaries and the accounts and funds managed by Premier and that money damages alone shall not provide an adequate remedy to such Persons. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.
Section 7.13 Void Date. If the Effective Date does not occur prior to March 31, 2014, this Agreement shall be null and void and of no further effect.
IN WITNESS WHEREOF, Premier and the Limited Partners have duly executed this Agreement as of the date first written above.
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[Signature Page to Tax Receivable Agreement]
Exhibit A
Form of Joinder Agreement
[ ] does hereby agree to the terms and conditions of the Tax Receivable Agreement, dated as of [ ], 2013, a copy of which is attached hereto, and shall be and hereby is a Limited Partner, as defined in such Agreement, and is bound by its terms and conditions.
Effective [ ].
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Exhibit 10.4
FORM OF EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this Agreement) will be effective immediately prior to the closing of the initial public offering of Premier, Inc., a newly formed Delaware corporation (Premier) (the Effective Date), and is made by and among Premier, Premier Purchasing Partners, L.P., a California limited partnership (together with its successors and assigns, Premier LP), and the Limited Partners (as such term is defined below) of Premier LP listed on Schedule I hereto from time to time party hereto.
WHEREAS, following the proposed reorganization (the Reorganization) of Premier LP and its affiliates, Premier intends to consummate an initial public offering (the IPO) of shares of its Class A common stock, par value $0.01 per share (the Class A Common Stock);
WHEREAS, in connection with the IPO, Premier will purchase Class A Common Units in Premier LP (the Class A Common Units), including both newly issued Class A Common Units from Premier LP and then-outstanding Class B Common Units in Premier LP (the Class B Common Units and, together with the Class A Common Units, the Units) (which, pursuant to Section 3.2(a) of the LP Agreement (as such term is defined below) will be converted into Class A Common Units when acquired by Premier) acquired from the Limited Partners and from Premier Healthcare Solutions, Inc., a Delaware corporation and a wholly owned subsidiary of Premier LP, and Premier Services, LLC, a Delaware limited liability company and a wholly owned subsidiary of Premier which will become the general partner of Premier LP following the Reorganization;
WHEREAS, Premier intends to have its ownership of Class A Common Units increased over time and agrees to permit the holders of Class B Common Units (the Limited Partners) and Class B Common Stock, par value $0.000001 per share, of Premier (the Class B Common Stock), subject to the exchange limitations set forth in the LP Agreement, to transfer their Class B Common Units to Premier at the times specified herein and concurrently surrender the corresponding shares of Class B Common Stock in exchange for the consideration specified herein; and
WHEREAS, the parties hereto desire that this Agreement govern the terms and conditions for the exchange of Class B Common Units for Class A Common Stock, cash or a combination of both, on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements, covenants and provisions herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
The following terms shall, for purposes of this Agreement, have the following meanings:
Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Deemed Per-Unit Value of the Class B Common Units means the deemed value of each Class B Common Unit based on the market value (the Fair Market Value) of one share of Class A Common Stock determined as follows:
(a) If Class A Common Stock is then traded on a national securities exchange, then such Fair Market Value shall be the average of the closing prices of a share of such Class A Common Stock on such exchange over the 20 trading days ending three days prior to the Exchange Notice Date (as such term is defined below) (the Determination Date);
(b) If Class A Common Stock is then traded on the over-the-counter system, then such Fair Market Value shall be the average of the closing bid and ask prices of a share of such Class A Common Stock over the 20 trading days prior to the Determination Date; and
(c) If there is then no public market for Class A Common Stock, then such Fair Market Value shall be the highest price per share which could be obtained from a willing buyer (not a current employee or director) for a share of Class A Common Stock sold from authorized but unissued shares, as determined in good faith by Premier;
provided, however, that if Premier LP shall be party to a merger or other consolidation in which Premier LP is not the surviving party, the Fair Market Value of each Class B Common Unit shall be deemed to be the value received by the holders of the Class B Common Units for each such Class B Common Unit pursuant to such merger or other consolidation.
If closing prices or closing bid and ask prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid and ask price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.
Exchanging Limited Partners means Limited Partners which deliver an Exchange Notice pursuant to the terms of Section 2.2 of this Agreement.
First Quarterly Exchange Date means the date that is the one-year anniversary of the last day of the calendar month in which Premier consummates the IPO.
Group has the meaning set forth in Section 13(d)(3) and Rule 13d-5 of the Exchange Act.
LP Agreement means the Amended and Restated Limited Partnership Agreement, to be entered into among Premier LP, Premier Services, LLC, as general partner, and each of the Limited Partners party thereto, as amended from time to time.
Person means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other entity or organization of any nature whatsoever or any Group of two or more of the foregoing.
Pro Rata Share means (a) for the purpose of Section 2.2, for any Limited Partner, the percentage equal to (x) the number of Class B Common Units beneficially owned by such Limited Partner divided by (y) the total number of Class B Common Units outstanding less the number of Class B Common Units subject to an Exchange Notice or otherwise subject to Exchange on the Quarterly Exchange Date pursuant to the Agreement and (b) for the purpose of Section 2.2(b), for any Participating Limited Partner, the percentage equal to (x) the number of Class B Common Units beneficially owned by such Participating Limited Partner divided by (y) the total number of Class B Common Units beneficially owned by all of the Participating Limited Partners.
Quarterly Exchange Date means the First Quarterly Exchange Date and the last day of each sequential three-month period thereafter.
Registration Rights Agreement means the Registration Rights Agreement of even date herewith between Premier and the Limited Partners from time to time party thereto.
ROFR Unit Price means the Deemed Per-Unit Value of the Class B Common Units plus the TRA Payments Present Value for such Class B Common Units.
Tax Receivable Agreement means the Tax Receivable Agreement dated of even date herewith, among Premier and the Limited Partners from time to time party thereto.
Transfer Agent means such bank, trust company or other Person as shall be appointed from time to time by Premier to act as registrar and transfer agent for the Class A Common Stock.
TRA Payments Present Value means, for each Class B Common Unit, the amount the holder of such Class B Common Unit would receive with respect to such Class B Common Unit under Section 4.3 of the Tax Receivable Agreement, determined as if the date of the Exchange Notice were the Early Termination Date (as defined in the Tax Receivable Agreement).
ARTICLE II
EXCHANGE OF PREMIER LP UNITS
Section 2.1. Exchange of Premier LP Units.
(a) Beginning with the First Quarterly Exchange Date, subject to the exchange limitations set forth in the LP Agreement, including, without limitation, vesting of the Limited Partners right to exchange Class B Common Units, each Limited Partner shall be entitled (or in the case of a Terminating Limited Partner, as defined in the LP Agreement, shall be required) to exchange (any such exchange, an Exchange) Class B Common Units held by such Limited Partner on any Quarterly Exchange Date for (at the option of Premier) any of (i) the delivery by Premier of a number of shares of Class A Common Stock equal to the number of Class B Common Units offered by such Limited Partner (with such one-to-one exchange ratio subject to adjustment pursuant to Section 2.4 below), (ii) cash in an amount equal to the Fair Market Value of the Class A Common Stock such Limited Partner would receive pursuant to (i) above or (iii) a combination of Class A Common Stock (on a one-for-one basis) and the balance in cash (at Fair Market Value).
(b) On each Quarterly Exchange Date (and in accordance with the terms of this Agreement) (i) in conjunction with an exchange of Class B Common Units, an Exchanging Limited Partner shall deliver or cause to be delivered to Premier, an equal number of Class B Common Units and shares of Class B Common Stock, (ii) such Limited Partner shall be treated for all purposes as having become the record holder of the issued Class A Common Stock, if any, and (iii) such Limited Partners right to receive cash, if any, shall vest with the Limited Partner.
Section 2.2. Exchange Procedures and Right of First Refusal.
(a) A Limited Partner may exercise the right to exchange Class B Common Units as set forth in Section 2.1 above by providing to Premier a written notice of Exchange, substantially in the form of Exhibit A hereto (the Exchange Notice), at least 30 Business Days prior to the Quarterly Exchange Date (or 55 Business Days prior to a Quarterly Exchange Date in conjunction with a Company-Directed Offering (as such term is defined in the Registration Rights Agreement)) (such date that is 30 Business Days prior to the Quarterly Exchange Date (or 55 Business Days prior to a Quarterly Exchange Date in conjunction with a Company-Directed Offering) is referred to as the Exchange Notice Date) with respect to which such Limited Partner intends to Exchange or within such shorter period of time as may be agreed by Premier and the Exchanging Limited Partner (so long as other Limited Partners are not prejudiced thereby). The Exchange Notice shall be duly executed by the Exchanging Limited Partner and delivered in accordance with Section 3.2 of this Agreement. At least 25 Business Days (or 50 Business Days in conjunction with a Company-Directed Offering) prior to such Quarterly Exchange Date, Premier shall give written notice (the Limited Partners Notice) to all Limited Partners (Eligible Limited Partners) that have not provided an Exchange Notice to Premier or otherwise requested an Exchange with respect to such Quarterly Exchange Date (only such Limited Partners shall have the right of first refusal as set forth herein), setting forth the number of Class B Common Units subject to an Exchange Notice and the ROFR Unit Prices at which such Eligible Limited Partners may purchase such Class B Common Units. Each Eligible Limited Partner shall then have the right, exercisable upon written notice to Premier at least 20 Business Days (or 45 Business Days in conjunction with a Company-Directed Offering) prior to the Quarterly Exchange Date, to purchase such Eligible Limited Partners Pro Rata Share of the
Class B Common Units subject to the Exchange Notice at the ROFR Unit Prices set forth in the Limited Partners Notice. Class B Common Units purchased by a Limited Partner pursuant to the right of first refusal set forth in this Section 2.2 will not be eligible for Exchange until the first Quarterly Exchange Date following such purchase.
(b) In the event that not all of the Eligible Limited Partners elect to purchase their full Pro Rata Shares of the Class B Common Units available pursuant to their rights under Section 2.2(a) above within the time period set forth therein, then Premier shall promptly give written notice (the Undersubscription Notice) at least 15 Business Days (or 35 Business Days in conjunction with a Company-Directed Offering) prior to the Quarterly Exchange Date to each of the Limited Partners that have elected to purchase all of their Pro Rata Shares in accordance with this section (the Participating Limited Partners), which Undersubscription Notice shall set forth the Class B Common Units not purchased by the other Limited Partners (the Unsubscribed Units) and shall offer such Participating Limited Partners the right to acquire such Unsubscribed Units. Each Participating Limited Partner shall notify Premier at least 5 Business Days (or 30 Business Days in conjunction with a Company-Directed Offering) prior to the Quarterly Exchange Date if it elects to purchase Unsubscribed Units at the same ROFR Unit Prices set forth in the Limited Partners Notice and indicating the maximum number of Unsubscribed Units that such Participating Limited Partner will purchase in the event that any other Participating Limited Partner elects not to purchase its Pro Rata Share of the Unsubscribed Units. Each Participating Limited Partner shall be entitled to purchase at least such Participating Limited Partners Pro Rata Share of Unsubscribed Units and, thereafter, any remaining Unsubscribed Units available to be purchased shall be allocated equitably among the Participating Limited Partners that elected to purchase Unsubscribed Units beyond their full Pro Rata Share, as determined by Premier in its reasonable discretion.
(c) The parties acknowledge and agree that Premier may exercise reasonable discretion with respect to the allocation of Class B Common Units subject to an Exchange Notice among the Participating Limited Partners in general and, in particular, when accommodating Retraction Notices (as such term is defined below) or allocating Class B Common Units with varying ROFR Unit Prices, provided, however, that Premier will use reasonable efforts to allocate Class B Common Units of each ROFR Unit Price to Participating Limited Partners.
(d) Each Limited Partner beneficially owning the Class B Common Units that are subject to sale pursuant to Section 2.2(a) and Section 2.2(b) (a Sale) and the Participating Limited Partners shall execute and deliver to Premier LP, no later than the applicable Quarterly Exchange Date (or 20 Business Days prior to the applicable Quarterly Exchange Date in conjunction with a Company-Directed Offering), a written unit purchase agreement with respect to the Class B Common Units subject to a Sale, in a form reasonably acceptable to Premier LP. Thereafter, upon delivery by the Participating Limited Partners of the aggregate ROFR Unit Price (payable in cash or immediately available funds to an account designated by the selling Limited Partner) for the Class B Common Units being purchased thereby, Premier LP shall evidence the Sale of such Class B Common Units on the books and records of Premier LP pursuant to the LP Agreement, including updating Exhibit 3.1 thereto with the number of Class B Common Units purchased and the purchase price therefor.
(e) If the Limited Partners do not elect to purchase all of the Class B Common Units that are the subject of a Limited Partners Notice (such unpurchased Class B Common Units referred to as Unpurchased Units), then Premier shall give written notice to Premier LP, which shall have the right but not the obligation to purchase all or a portion of the Unpurchased Units at the same ROFR Unit Prices as set forth in the Limited Partners Notice. Premier LPs purchase right shall be exercised by written notice signed by an officer of Premier LP and delivered to Premier at least 3 Business Days (or 25 Business Days in conjunction with a Company-Directed Offering) prior to the Quarterly Exchange Date.
(f) Upon delivery to each Limited Partner beneficially owning the Class B Common Units that are subject to redemption pursuant to Section 2.2(e) (a Redemption) of a written unit purchase agreement with respect to the Class B Common Units subject to Redemption, in a form reasonably acceptable to Premier LP, and delivery by Premier LP of the aggregate ROFR Unit Price for the respective Class B Common Units being redeemed thereby (in each case, promptly, but no later than the applicable Quarterly Exchange Date), Premier LP shall evidence the Redemption of such Class B Common Units on the books and records of Premier LP pursuant to the LP Agreement, including updating Exhibit 3.1 thereto. The Unpurchased Units so redeemed shall thereupon be cancelled and cease to be issued and outstanding.
(g) If the Limited Partners and Premier LP do not elect to purchase any or all of the Class B Common Units that are the subject of an Exchange Notice pursuant to this Section 2.2, then Premier shall notify the Exchanging Limited Partner (the Option Notice) at least 3 Business Days (or 25 Business Days in conjunction with a Company-Directed Offering) prior to the Quarterly Exchange Date that the requested Exchange of Class B Common Units (less any Class B Common Units purchased or redeemed pursuant to Sections 2.2(a)-(f) above) is to be consummated and Premiers intended settlement method; provided, however, that, if Premier does not timely deliver an Option Notice, Premier shall be deemed to have elected to pay the consideration in the Exchange entirely in Class A Common Stock. The Exchanging Limited Partner (other than a Terminating Limited Partner or a Limited Partner contractually obligated pursuant to Section 2.2(d) to sell Class B Common Units in conjunction with a Sale) may retract its Exchange Notice by giving written notice (the Retraction Notice) to Premier at least one Business Day (or 21 Business Days in conjunction with a Company-Directed Offering) prior to the Quarterly Exchange Date. The timely delivery of a Retraction Notice shall terminate all of the rights and obligations of the Exchanging Limited Partners and Premier under this Agreement arising from the Exchange Notice and the Class B Common Units subject to such retracted Exchange shall remain beneficially owned by such Limited Partner and subject to the terms and conditions of this Agreement.
(h) Each Exchanging Limited Partner beneficially owning the Class B Common Units that are subject to Exchange pursuant to Section 2.1(a) shall, if requested by Premier, execute and deliver to Premier, on or before the Quarterly Exchange Date, a written assignment with respect to the Class B Common Units subject to an Exchange, in a form reasonably acceptable to Premier.
(i) To complete an Exchange, Premier shall, promptly after a Limited Partners delivery of Class B Common Units to Premier, deliver or cause to be delivered, as applicable (a) to the Exchanging Limited Partner, or to the office of the Transfer Agent, the number of shares of Class A Common Stock issuable upon such Exchange, issued in the name of the Exchanging Limited Partner and (b) to the Exchanging Limited Partner the cash due pursuant to this Agreement.
(j) Each certificate of Class A Common Stock issued pursuant to this Agreement shall be imprinted with a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
(f) The parties hereto acknowledge and agree that Premiers determination hereunder of the settlement method (stock, cash or a combination thereof) for the Exchange shall be made by the Audit Committee of Premier.
Section 2.3. Surrender of Class B Common Stock Upon Exchange or Redemption. In addition to the Class B Common Units exchanged or redeemed pursuant to this Agreement, an Exchanging Limited Partner or Limited Partner with Class B Common Units that are subject to a Redemption shall surrender or cause to be surrendered to Premier, for no additional consideration, a number of shares of Class B Common Stock equal to the number of Class B Common Units transferred by the Exchanging Limited Partner or subject to the Redemption on such Quarterly Exchange Date, subject to adjustment consistent with Section 2.4. Class B Common Stock surrendered to Premier pursuant to an Exchange or Redemption shall be cancelled and cease to be issued and outstanding.
Section 2.4. Adjustments. The exchange ratios set forth in Sections 2.1(a) and (b) shall be adjusted to reflect: (a) any subdivision (by any unit split, unit distribution, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse unit split, reclassification, reorganization, recapitalization or otherwise) of the Units that is not accompanied by an identical subdivision or combination of the Class A Common Stock; or (b) any subdivision (by any stock split, stock dividend or distribution, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse stock split, reclassification, reorganization, recapitalization or otherwise) of the Class A Common Stock that is not accompanied by an identical subdivision or combination of the Units. If there is any reclassification, reorganization, recapitalization or other similar transaction in which the Class A Common Stock is converted or changed into another security or securities or other property, then upon any subsequent Exchange, an Exchanging Limited Partner shall be entitled to receive the amount of such security or securities or other property that such Exchanging Limited Partner would have received if such Exchange had occurred immediately prior to the effective date of such reclassification, reorganization, recapitalization or other similar transaction, taking into account any adjustment as a result of any subdivision (by any split, distribution, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse split, reclassification, recapitalization or otherwise) of such security or securities or other property that occurs after the
effective time of such reclassification, reorganization, recapitalization or other similar transaction. All references to Units in this Agreement shall be deemed to include any security, securities or other property of Premier LP which may be issued in respect of, in exchange for or in substitution of Units by reason of any split, distribution, reclassification, reorganization, recapitalization or otherwise.
Section 2.5. Class A Common Stock to be Issued. When and if the Class A Common Stock is registered under the Securities Act of 1933, as amended, Premier shall use its reasonable efforts to list the Class A Common Stock required to be delivered upon Exchange prior to such delivery on each national securities exchange or inter-dealer quotation system on which the outstanding Class A Common Stock may be listed or traded at the time of such delivery. Nothing contained herein shall be construed to preclude Premier from satisfying its obligations in respect of the Exchange of the Class B Common Units by delivery of Class A Common Stock which is held in the treasury of Premier.
Section 2.6. Tax Matters. The delivery of Class A Common Stock upon Exchange of Class B Common Units shall be made without charge to the Exchanging Limited Partner for any stamp or other similar tax in respect of such issuance. The parties shall report each Exchange consummated pursuant to this Agreement as a transfer of an interest in Premier LP eligible to give rise to a basis adjustment under sections 732, 734(b) and 1012 of the Code (in situations where, as a result of one or more Exchanges, Premier LP becomes an entity that is disregarded as separate from its owner for tax purposes) or under sections 734(b), 743(b) and 754 of the Code (in situations where, following the Exchange Premier LP remains in existence as an entity for United States federal income tax purposes), and no party shall take a contrary position on any tax return.
Section 2.7. Consideration for Exchange. The parties hereto acknowledge and agree that the consideration paid by Premier to the Limited Partners pursuant to the Tax Receivable Agreement shall serve as a portion of the consideration for the Exchanges contemplated hereunder.
Section 2.8. Limited Partner Representations. Each Limited Partner that is issued Class A Common Stock pursuant to this Agreement hereby severally represents and warrants, as of each Quarterly Exchange Date upon which such Limited Partner is issued Class A Common Stock, that (a) if it is not a natural person, that it is duly incorporated or formed and, to the extent such concept exists in its jurisdiction of organization, is in good standing under the laws of such jurisdiction, (b) it has all requisite legal capacity and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby, (c) this Agreement constitutes a legal, valid and binding obligation of such Limited Partner enforceable against it in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors rights generally, (d) it is acquiring the Class A Common Stock issued in accordance with this Agreement for its own account with the present intention of holding such Class A Common Stock for purposes of investment, and that it has no intention of selling Class A Common Stock in a public distribution in violation of any federal or state securities laws, (e) it is a sophisticated party for purposes of applicable federal and state securities laws and regulations,
(f) such Limited Partner has knowledge and experience in financial and business matters such that such Limited Partner is capable of evaluating the merits and risks of an investment in Premier, (g) it is able to bear the economic risks of an investment in the Class A Common Stock and could afford a complete loss of such investment, (h) the execution, delivery and performance of this Agreement by such Limited Partner does not and will not conflict with, violate or cause a breach (or an event which with notice or lapse of time or both would become a breach) of any agreement, contract or instrument to which such Limited Partner is subject, give to others any rights of termination, amendment, acceleration or cancellation of any agreement, contract or instrument to which such Limited Partner is subject or result in a violation of any law, rule, regulation, order, judgment or decree to which such Limited Partner is subject and (i) the Class B Common Units surrendered in connection with an Exchange are owned by such Limited Partner free and clear of all liens and encumbrances.
ARTICLE III
GENERAL PROVISIONS
Section 3.1. Amendment. The provisions of this Agreement may be amended only by the written consent of each of the parties hereto; provided, however, that each Limited Partner hereby constitutes and appoints Premier, irrevocably as its true and lawful agent and attorney-in-fact, in its name, place and stead to execute and deliver amendments to this Agreement as reasonably required from time to time and consistent with the intent of this Agreement as determined in the good faith reasonable judgment of Premier.
Section 3.2. Notice. Any written notice required or permitted to be delivered pursuant to this Agreement shall be in writing and shall be deemed delivered (a) upon delivery if delivered in person, (b) upon transmission if sent by facsimile, with receipt confirmed by the recipient thereof, (c) one Business Day after deposit with a nationally recognized overnight courier service; provided, that confirmation of such overnight delivery is received by the sender thereof or (d) upon transmission if sent by e-mail, with receipt confirmed by the recipient thereof. Notices to Premier, Premier LP or any Limited Partner shall be delivered to the respective addresses as set forth below:
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Premier, Inc. |
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Attention: Chief Financial Officer and General Counsel |
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Facsimile: (704) 816-6307 |
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Email: craig_mckasson@premierinc.com |
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Premier Healthcare Alliance, L.P. |
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c/o Premier, Inc. |
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Attention: Chief Financial Officer and General Counsel |
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The address thereof set forth on the books and records of Premier LP. |
Any party hereto may change its address for notices by giving written notice of such partys new address to the other parties hereto in accordance with this Section 3.2.
Section 3.3. Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
Section 3.4. Binding Effect. This Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors, executors, administrators, heirs, legal representatives and assigns. Other than as expressly provided herein, nothing in this Agreement will be construed to give any person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement shall apply to the Units held by the Limited Partners and their permitted transferees (under the LP Agreement) as of the date hereof, as well as any Units hereafter acquired by a Limited Partner and such Limited Partners permitted transferees (under the LP Agreement).
Section 3.5. Severability. If any term or other provision of this Agreement is held to be invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions is not affected in any manner materially adverse to any party. Upon a determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
Section 3.6. Integration. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.
Section 3.7. Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant, duty, agreement or condition.
Section 3.8. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Copies of executed counterparts transmitted by telecopy or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 3.8.
Section 3.9. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
Section 3.10. Additional Parties. Additional persons who acquire Class B Common Units may become parties to this Agreement by executing a joinder hereto substantially in the form attached hereto as Exhibit B. By virtue of the execution of a joinder to this Agreement, such person shall be deemed a Limited Partner as defined herein and thereupon Schedule I attached hereto shall be automatically amended without further action on the part of any of the parties hereto to reflect that such party is to be considered a Limited Partner as defined herein.
Section 3.11. Void Date. If the Effective Date does not occur prior to March 31, 2014, this Agreement shall be null and void and of no further effect.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have executed this Exchange Agreement as of the dates set forth below.
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Schedule I
Limited Partners
EXHIBIT A
NOTICE OF EXCHANGE
, 20
Premier, Inc.
13034 Ballantyne Corporate Place
Charlotte, North Carolina 28277
Attention: Chief Financial Officer and General Counsel
Facsimile: (704) 816-6307 and ( ) - , respectively
Email: craig_mckasson@premierinc.com and
Jeffrey_Lemkin2@premierinc.com, respectively
Reference is hereby made to the Exchange Agreement (the Exchange Agreement), among Premier, Inc. (Premier), Premier Purchasing Partners, L.P. (Premier LP) and the Limited Partners (as defined in the Exchange Agreement), as amended from time to time. Capitalized terms used but not defined herein shall have the meanings given to them in the Exchange Agreement.
(the Exchanging Limited Partner) desires to Exchange the number of Class B Common Units set forth below.
Number of Class B Common Units to be Exchanged:
Class B Common Units (Exchange Units)
The Exchanging Limited Partner hereby (i) affirms and gives the representations set forth in Section 2.8 of the Exchange Agreement, (ii) gives notice of its desire to Exchange the above-specified number of Exchange Units for Class A Common Stock, cash or a combination of both as set forth in the Exchange Agreement and (iii) irrevocably constitutes and appoints any officer of Premier as its attorney, with full power of substitution, to exchange such Exchange Units on the books of Premier LP for Class A Common Stock on the books of Premier, with full power of substitution in the premises.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has executed this Notice of Exchange as of the date first set forth above.
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EXHIBIT B
JOINDER TO EXCHANGE AGREEMENT
Pursuant to Section 3.10 of the Exchange Agreement (the Exchange Agreement) among Premier, Inc., a Delaware corporation (Premier), Premier Purchasing Partners, L.P., a California limited partnership (Premier LP), the entities listed on Schedule I thereto as amended from time to time (the Limited Partners), certain individuals or entities who acquire Class B Common Units (the Class B Common Units) of Premier LP may execute this joinder to the Exchange Agreement. The undersigned is, on the date hereof, acquiring Class B Common Units, and hereby agrees to be a party to and be bound as a Limited Partner as defined in the Exchange Agreement and hereby authorizes this joinder to the Exchange Agreement as of the date hereof.
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Exhibit 10.5
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement) to be effective immediately prior to the closing of the initial public offering of Premier, Inc., a newly formed Delaware corporation (Premier) (the Effective Date), is made by and among Premier and the Limited Partners (as such term is defined below) listed on Schedule I hereto from time to time party hereto.
WHEREAS, following a proposed reorganization of Premier Purchasing Partners, L.P., a California limited partnership (together with its successors and assigns, Premier LP) and its Related Entities and an initial public offering of Class A Common Stock (as such term is hereinafter defined) of Premier, Premier LP will adopt an Amended and Restated Limited Partnership Agreement pursuant to which Premier LP will (a) change its name to Premier Healthcare Alliance, L.P. and (b) issue Class A Common Units to its general partner and Class B Common Units (as such term is defined below) to its limited partners (the Limited Partners), collectively representing a 100% interest in Premier LP and concurrently therewith the Limited Partners will purchase for nominal consideration Class B Common Stock (as such term is defined below) in amounts corresponding to the number of Class B Common Units held by each Limited Partner;
WHEREAS, the Limited Partners are concurrently herewith entering into an Exchange Agreement (as such term is defined below) providing for the exchange, from time to time, subject to certain restrictions and requirements, of Class B Common Units (and surrender of the corresponding shares of Class B Common Stock) for, at the option of Premier (i) shares of Class A Common Stock, (ii) cash in an amount equal to the fair market value of the Class A Common Stock a Limited Partner would have received for such exchange or (iii) a combination of Class A Common Stock and cash; and
WHEREAS, Premier has agreed to provide certain registration rights under the Securities Act (as such term is defined below) with respect to shares of Class A Common Stock received pursuant to the Exchange Agreement or otherwise held by the Limited Partners.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements, covenants and provisions herein contained, the parties hereto agree as follows:
1. Defined Terms; Interpretation.
(a) Defined Terms. The following terms shall, for purposes of this Agreement, have the following meanings:
Adverse Effect has the meaning set forth in Section 2(b)(vi) of this Agreement.
Agreement has the meaning set forth in the Introduction of this Agreement.
Applicable Quarterly Exchange Date has the meaning set forth in Section 2(b)(ii).
Board means the Board of Directors of Premier.
Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close.
CEO means the Chief Executive Officer of Premier.
Class A Common Stock shall mean the shares of Class A common stock, par value $0.01 per share, of Premier and any securities into which such shares may hereinafter be reclassified.
Class B Common Stock shall mean the shares of Class B common stock, par value $0.000001 per share, of Premier and any securities into which such shares may hereinafter be reclassified.
Class B Common Units shall mean the Class B Common Units of Premier LP, and any securities into which such shares may hereinafter be reclassified.
Company-Directed Offering has the meaning set forth in Section 2(b)(i) of this Agreement.
Company-Directed Offering Notice has the meaning set forth in Section 2(b)(ii) of this Agreement.
control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract (written or oral) or otherwise; and the terms controlling, controlled by and under common control with shall have meanings correlative to the foregoing.
Demand Party has the meaning set forth in Section 2(b)(ii) of this Agreement.
Director means a member of the Board.
Effective Date has the meaning set forth in the Introduction.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Exchange Agreement means the Exchange Agreement of even date herewith among Premier, Premier LP and the Limited Partners pursuant to which each Limited Partner has the right, under certain circumstances, to exchange its Class B Common Units and surrender its corresponding shares of Class B Common Stock for shares of Class A Common Stock, cash or a combination thereof.
Exchange Notice Date has the meaning set forth in the Exchange Agreement.
Exchange Year means any of the First Exchange Year and each sequential 12-month period thereafter until the end of the Seventh Exchange Year.
FINRA means the Financial Industry Regulatory Authority, Inc.
First Exchange Year means the 12-month period beginning on the First Quarterly Exchange Date.
First Quarterly Exchange Date means the date that is the one-year anniversary of the last day of the calendar month in which Premier consummates the IPO.
Fourth Exchange Year means the fourth Exchange Year.
Governmental Authority means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
Group has the meaning set forth in Section 13(d)(3) and Rule 13d-5 of the Exchange Act.
IPO means an initial primary sale by Premier of shares of Class A Common Stock to the public in an offering pursuant to an effective registration statement (other than a registration statement on Form S-4 or S-8 or any similar or successor form) filed under the Securities Act, after which such shares of Class A Common Stock are listed on one or more nationally recognized exchanges or quoted on one or more automated quotation systems, including the NYSE or NASDAQ.
Limited Partners has the meaning set forth in the Recitals.
Lock-up Period has the meaning set forth in Section 2(j)(i) of this Agreement.
Losses has the meaning set forth in Section 2(h)(i) of this Agreement.
LP Agreement means the Amended and Restated Limited Partnership Agreement, to be entered into among Premier LP, Premier Services, LLC, as general partner, and each of the Limited Partners party thereto, as amended from time to time.
NASDAQ has the meaning set forth in Section 2(d)(vii) of this Agreement.
Notice and Questionnaire means a written notice, substantially in the form attached as Exhibit B (which may be amended by Premier to include all information required by law), delivered by a Limited Partner to Premier (i) notifying Premier of such Limited Partners desire
to include Registrable Securities held thereby in a Shelf Registration Statement and (ii) containing all information about such Limited Partner to be included in such Shelf Registration Statement in accordance with applicable law, including Item 507 of Regulation S-K promulgated under the Securities Act.
NYSE has the meaning set forth in Section 2(d)(vii) of this Agreement.
Officer means a person designated as an officer of Premier by the Board or the CEO.
Participation Notice has the meaning set forth in Section 2(b)(ii) of this Agreement.
Person means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity or organization of any nature whatsoever or any Group of two or more of the foregoing.
Premier has the meaning set forth in the Introduction of this Agreement.
Premier LP has the meaning set forth in the Recitals.
Quarterly Exchange Date has the meaning given that term in the Exchange Agreement.
Registrable Securities mean the Shares. As to any particular Registrable Securities, such Shares shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such Shares shall have become effective under the Securities Act and such Shares shall have been disposed of in accordance with such registration statement, (ii) such Shares may be sold without restrictions (including volume and manner of sale restrictions) pursuant to Rule 144, (iii) such Shares are transferred and the subsequent disposition of such Shares do not require registration under the Securities Act or (iv) such Shares shall have ceased to be outstanding.
Registration Expenses means any and all reasonable expenses of Premier and Premier LP incident to performance of or compliance with Sections 2(a), 2(b), 2(c) and 2(d), including (i) all SEC and stock exchange or automated quotation system or FINRA registration, filing and listing fees incurred by Premier and Premier LP, (ii) all fees and expenses of complying with state securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, word processing, duplication, messenger and delivery expenses incurred by Premier and Premier LP, (iv) all fees and expenses incurred by Premier and Premier LP in connection with the listing of the Registrable Securities on any stock exchange or automated quotation system pursuant to this Agreement, (v) the fees and disbursements of counsel for Premier, (vi) the reasonable fees and disbursements of Premiers independent public accountants, including the expenses of any cold comfort letters required by or incident to the transactions contemplated by this Agreement and (vii) all reasonable expenses incurred in connection with any road shows.
Registration Indemnified Parties has the meaning set forth in Section 2(h)(i) of this Agreement.
Related Entity means, with respect to any Person (i) any other Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (ii) any other Person that owns, beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares or equity interests of such Person or (iii) any officer, director, employee, shareholder, partner, member, manager or trustee of such Person or any Person controlling, controlled by or under common control with such Person (excluding trustees and persons serving in similar capacities who are not otherwise a Related Entity of such Person).
Rule 144 means Rule 144 (or any successor provision), as the same may be amended from time to time, under the Securities Act.
SEC means the U.S. Securities and Exchange Commission or any other federal agency then administering the Securities Act or the Exchange Act and other federal securities law.
Second Exchange Year means the second Exchange Year.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Seventh Exchange Year means the seventh Exchange Year.
Shares means the shares of Class A Common Stock issued to any Limited Partner pursuant to the exercise by such Limited Partner of its exchange rights under the Exchange Agreement, including any shares of Class A Common Stock issued in connection with a stock split, distribution, reclassification, recapitalization or otherwise in respect of such shares and other shares of Class A Common Stock otherwise held by Limited Partners from time to time.
Shelf Registration Statement has the meaning set forth in Section 2(a)(i) of this Agreement.
Third Exchange Year means the third Exchange Year.
Third Party Holder has the meaning set forth in Section 2(c)(i) of this Agreement.
Transfer (including the term Transferred) means, directly or indirectly, to sell, transfer, give, exchange (including exchange under the Exchange Agreement), assign, pledge, encumber, hypothecate or otherwise dispose of, either voluntarily or involuntarily (including upon the foreclosure under any pledge or hypothecation permitted below that results in a change in title), any equity interests in Premier or any interest in any equity interests in Premier beneficially owned by a Person; provided, however, that a bona fide pledge of equity interests by any Limited Partner or its Related Entities shall not be deemed to be a Transfer hereunder.
(b) Other Definitional Provisions; Interpretation.
(i) The words hereof, herein and hereunder and words of similar import when used in this Agreement will refer to this Agreement as a whole, including the Exhibits and Schedules attached hereto, and not to any particular provision of this Agreement. Articles, section and subsection references are to this Agreement unless otherwise specified.
(ii) The words include and including and words of similar import when used in this Agreement shall be deemed to be followed by the words without limitation.
(iii) The titles and headings in this Agreement are included for convenience of reference only and will not limit or otherwise affect the meaning or interpretation of this Agreement.
(iv) The meanings given to capitalized terms defined herein will be equally applicable to both the singular and plural forms of such terms. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.
(v) If any notice or action hereunder is due on a day which is not a Business Day, then such notice or action shall be due on the next succeeding Business Day.
2. Registration Rights and Procedures.
(a) Resale Shelf Registration Statement.
(i) Right to Use a Shelf Registration Statement for Resales. Premier shall use all reasonable efforts to cause to become effective a shelf registration statement (the Shelf Registration Statement) as soon as practicable after the one-year anniversary of the closing of the IPO on an appropriate form to allow Limited Partners, subject to applicable Lock-up Periods pursuant to Section 2(j) and the restrictions set forth in Section 3.4 of the LP Agreement, to sell on a continuous basis pursuant to Rule 415 under the Securities Act any Registrable Securities that the Limited Partners hold.
(ii) Participation in Shelf Registration Statement. Each Limited Partner that has delivered a duly completed and executed Notice and Questionnaire to Premier on or prior to the date 10 Business Days prior to the effectiveness of the Shelf Registration Statement shall be named as a selling securityholder at the time of such effectiveness in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Limited Partner to deliver such prospectus to purchasers of Registrable Securities in accordance with applicable law. Subject to the terms and conditions hereof, after effectiveness of the Shelf Registration Statement, Premier shall file a supplement to such prospectus or amendment to the Shelf Registration Statement not less frequently than once a quarter as necessary to name as selling securityholders therein any Limited Partners that provide to Premier a duly completed and executed Notice and Questionnaire (and include all required information related thereto) and shall use reasonable efforts to cause any post-effective amendment to such Shelf Registration
Statement filed for such purpose to be declared effective by the SEC as promptly as reasonably practicable after the filing thereof.
(iii) Effective Period of Shelf Registrations. Premier shall use reasonable efforts to keep a Shelf Registration Statement effective at all times (but subject to shelf registration limitations under Rule 415 of the Securities Act) from the first anniversary of the completion of the IPO until the end of the Seventh Exchange Year.
(iv) Expenses. Premier will pay all Registration Expenses in connection with registrations pursuant to this Section 2(a), which Registration Expenses shall in no event be deemed to include brokerage commissions or transfer taxes, or, if applicable, underwriting commissions and discounts.
(b) Company Initiated Annual Underwritten Offering.
(i) Company-Directed Offering. Subject to the terms and conditions of this Agreement, and subject to applicable vesting restrictions set forth in the LP Agreement applicable to Limited Partners, Premier will use all reasonable efforts to conduct a Premier-directed underwritten public offering (a Company-Directed Offering) for secondary resales under the Securities Act of Registrable Securities by the Limited Partners and, at Premiers option, primary sales of newly issued or treasury shares of Class A Common Stock, in each of the First Exchange Year, the Second Exchange Year and the Third Exchange Year. Premier may, in its sole discretion, effect a Company-Directed Offering in the remaining Exchange Years. All Company-Directed Offerings shall be conducted in accordance with the procedures set forth in this Section 2(b).
(ii) Company-Directed Offering Process. Premier shall deliver a notice (the Company-Directed Offering Notice) to all Limited Partners 65 Business Days prior to the first Quarterly Exchange Date of each Exchange Year in which Premier will conduct a Company-Directed Offering (the Applicable Quarterly Exchange Date). The Company-Directed Offering Notice shall state that Premier will effect a Company-Directed Offering and include the material terms of such Company-Directed Offering then known but such terms of Company-Directed Offering, including price, shall be at the sole discretion of Premier and the lead and managing underwriters of such Company-Directed Offering. To participate in such Company-Directed Offering, addressees of a Company-Directed Offering Notice shall deliver to Premier a notice of intent to participate (a Participation Notice) in the Company-Directed Offering no later than 20 Business Days prior to such Applicable Quarterly Exchange Date (each such addressee a Demand Party). Each Participation Notice shall specify the number of Registrable Securities proposed to be sold. Premier shall use reasonable efforts to complete such Company-Directed Offering no later than 20 Business Days after the Applicable Quarterly Exchange Date. Notwithstanding the terms and procedures of the Company-Directed Offering set forth in this Section 2(b), Premier reserves the right to modify the terms and procedures of a Company-Directed Offering in a manner providing a reasonable registration process for Premier consistent with the intent of this Agreement and not materially adverse to the Limited Partners as reasonably determined in good faith by the Board.
(iii) Offering Minimum for Company-Directed Offering. In no event shall Premier be required to effect a registration pursuant to this Section 2(b) unless, on the date that is 15 Business Days prior to the Applicable Quarterly Exchange Date related to such Company-Directed Offering, the aggregate number of Registrable Securities proposed to be sold constitutes or represents the equivalent of (on a one-for-one basis) at least 3.5% of the aggregate number of Class A Common Units and Class B Common Units outstanding (taking into account the effect of any unit splits or similar distributions in respect of the Class A Common Units or Class B Common Units); provided, that, notwithstanding the foregoing, Premier may still elect to effect such a Company-Directed Offering even if not required to do so.
(iv) Expenses. Premier will pay all Registration Expenses in connection with registrations pursuant to this Section 2(b), which shall in no event be deemed to include underwriting commissions or discounts, brokerage commissions or transfer taxes.
(v) Effective Registration Statement. Other than with respect to a shelf registration, a registration requested pursuant to this Section 2(b) will not be deemed to have been effected:
(1) unless a registration statement with respect thereto has become effective and remained effective in compliance with the provisions of the Securities Act until the earlier of (x) such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition thereof set forth in such registration statement or (y) 60 days after the effective date of such registration statement (or if such registration statement is not effective for any period within such 60 days, such 60-day period shall be extended by the number of days during which such registration statement is not effective); provided, however, that if the failure of any such registration statement to become or remain effective in compliance with this Section 2(b)(v)(1) is due solely to acts or omissions of a Demand Party, such registration requested pursuant to this Section 2(b) will be deemed to have been effected; or
(2) if, after it has become effective, the registration statement with respect thereto is subject to any stop order, injunction or other order or requirement of the SEC or other Governmental Authority prohibiting the sale of securities pursuant to such registration statement, other than by reason of an act or omission on the part of a Demand Party.
(vi) Underwriters; Priority in Company-Directed Offerings. In conjunction with Company-Directed Offerings, the underwriter or underwriters shall be selected by Premier in its reasonable discretion. Other than in connection with a Company-Directed Offering, Premier shall have no obligation to cooperate with an underwritten offering of Class A Common Stock or other securities of Premier. If the lead or managing underwriters in a Company-Directed Offering advise Premier in writing that, in such underwriters opinion, the number of securities to be included in such Company-Directed Offering would be likely to have an adverse effect on the price, timing or distribution of the securities to be offered in such Company-Directed Offering (an Adverse Effect), then Premier shall include in such Company-Directed
Offering all securities that the lead or managing underwriters believe can be sold in such offering without having an Adverse Effect allocated first to Registrable Securities which the Limited Partners have requested to be included and second to shares of Class A Common Stock to be issued and sold by Premier in such offering and shares of Class A Common Stock which any other holders of Class A Common Stock have requested to be included. If such lead or managing underwriters advise Premier that only a portion of the Registrable Securities or shares of Class A Common Stock requested to be included by the Limited Partners may be included in such registration without such Adverse Effect, Premier shall include such Registrable Securities and shares of Class A Common Stock from the Limited Partners on a pro rata basis based on the relative number of Registrable Securities requested by such holder to be so included in such Company-Directed Offering.
(vii) Postponement of Company-Directed Offerings. If Limited Partners proposing to sell 50 percent or more of the shares of Class A Common Stock to be registered in a Company-Directed Offering deliver notice to Premier three Business Days prior to the Applicable Quarterly Exchange Date in conjunction with a Company-Directed Offering requesting delay of such Company-Directed Offering due to unfavorable market conditions, then Premier shall not be required to comply with its obligations under this Section 2(b) and such Company-Directed Offering shall be postponed until the next Quarterly Exchange Date and such postponed Company-Directed Offering shall then be conducted in a manner consistent with the process set forth in Section 2(b)(i) and Section 2(b)(ii). The right to postpone a Company-Directed Offering pursuant to this Section 2(b)(vii) may only be exercised once in any Exchange Year.
(viii) Additional Rights. Premier shall not grant to any other holders of shares of Class A Common Stock (or securities that are convertible, exchangeable or exercisable into shares of Class A Common Stock) any rights to request Premier to effect the registration under the Securities Act of any such shares on terms more favorable to such holders than the terms set forth in this Agreement and Premier shall not grant any such rights unless the holders of such shares agree to be subject to the lock-up agreement set forth in Section 2(j)(i).
(c) Incidental Registrations.
(i) Right to Piggyback. If Premier or any other Person that has demand registration rights (a Third Party Holder) proposes to register shares of Class A Common Stock under the Securities Act (other than a registration on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes), Premier will, at each such time, give prompt written notice to the Limited Partners of its intention to so register such shares of Class A Common Stock and of the Limited Partners rights under this Agreement. Upon the written request of any Limited Partner made within 15 Business Days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Limited Partner), subject to applicable vesting restrictions set forth in the LP Agreement, Premier will use its reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which Premier has been so requested to register by the Limited Partners; provided, however, that (A) if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed in connection with such registration, Premier or such Third Party Holder shall determine for any reason not to proceed with the proposed registration of the securities to be sold thereby, Premier may, at its election, give written notice of such determination to each Limited Partner and thereupon shall be relieved of its obligation to register any Registrable Securities in connection with such terminated registration and (B) if such registration involves an underwritten offering, all Limited Partners requesting to be included in the registration of Premier or such Third Party Holder shall enter into an agreement with the underwriters to sell their Registrable Securities to the underwriters selected by Premier or such Third Party Holder on substantially the same terms and conditions as apply to Premier or such Third Party Holder, with such differences, including with respect to indemnification as may be customary or appropriate in combined primary and secondary offerings. The registrations provided for in this Section 2(c) are in addition to, and not in lieu of, registrations made in accordance with Section 2(a) and 2(b).
(ii) Expenses. Premier will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2(c), which in no event shall be deemed to include underwriting discounts or commissions, brokerage commissions or transfer taxes.
(iii) Priority in Incidental Registrations. If a registration pursuant to this Section 2(c) involves an underwritten offering and the lead or managing underwriters advise Premier in writing that, in the opinion of such underwriters, the number of Registrable Securities and other shares of Class A Common Stock requested to be included in such registration would be likely to have an Adverse Effect on such offering, then Premier shall include in such registration: (a) first, the securities which Premier or the Third Party Holder proposes to sell and (b) second, the number of Registrable Securities which the Limited Partners have requested to be included in such registration and the number of shares of Class A Common Stock which any other holders of Class A Common Stock have requested to be included in the registration. If such lead or managing underwriters advise Premier that only a portion of such Registrable Securities or shares of Class A Common Stock referenced in clause (b) may be included in such registration without such Adverse Effect, Premier shall include such Registrable Securities and shares of Class A Common Stock in such clause (b) on a pro rata basis based on the relative number of Registrable Securities or shares of Class A Common Stock then held by each such holder who has requested that securities owned by them be so included in a registration.
(d) Registration Procedures. If and whenever Premier is required to cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, Premier will, within the applicable time frames set forth herein or otherwise as expeditiously as reasonably practicable:
(i) with respect to any registration under Section 2(b), prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective within 60 days of the initial filing and remain effective for the periods specified in this Section 2; provided, however, that before filing a registration statement or related prospectus or amendments or supplements
thereto, Premier will use reasonable efforts to furnish to the holders of Registrable Securities included in such registration statement, the counsel for the holders of the Registrable Securities being registered and the lead or managing underwriters, if any, copies of all such documents proposed to be filed. The holders holding Registrable Securities shall have the right to request that Premier modify any information contained in such registration statement or related prospectus or amendments or supplements thereto pertaining to such holder and Premier shall use its reasonable efforts to comply with such request; provided, however, that Premier shall not have any obligation to so modify any information if Premier reasonably expects that so doing would cause such registration statement or related prospectus or amendments or supplements thereto, to contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;
(ii) prepare and file with the SEC such amendments and supplements to any registration statement with respect to Registrable Securities and the related prospectus as Premier may determine to be necessary to keep such registration statement effective in accordance with Section 2(a) and 2(b) and to comply with the provisions of the Securities Act and the Exchange Act; provided, however, that before filing any such amendments or supplements in accordance with Section 2(d)(i) or this Section 2(d)(ii), Premier will use reasonable efforts to furnish to the holders of Registrable Securities included in such registration statement, the counsel for the holders of the Registrable Securities being registered and the lead or managing underwriters copies of all such documents proposed to be filed. The holders holding Registrable Securities shall have the right to request that Premier modify any information contained in such amendments and supplements pertaining to such holder and Premier shall use its reasonable efforts to comply with such request; provided, however, that Premier shall not have any obligation to so modify any information if Premier reasonably expects that so doing would cause such registration statement or related prospectus or amendments or supplements thereto, to contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;
(iii) furnish to each holder of Registrable Securities being registered such number of copies of the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities by such holder;
(iv) use its reasonable efforts to register or qualify such Registrable Securities covered by such registration statement in such jurisdictions as each holder of Registrable Securities being so registered shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that Premier shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 2(d)(iv), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction;
(v) notify each holder of any such Registrable Securities covered by a registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of Premiers becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such holder, prepare and furnish to such holder a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the holders of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;
(vi) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable (but not more than 18 months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act;
(vii) use its reasonable efforts to cause all Registrable Securities covered by such registration statement to be (a) listed on each stock exchange or automated quotation system, if any, on which securities issued by Premier of the same class are then listed or, if no such securities issued by Premier are then so listed, on the New York Stock Exchange (the NYSE), Nasdaq Stock Market of the Nasdaq National Market (NASDAQ) or another nationally recognized stock exchange, if the securities qualify to be so listed or (b) on a nationally recognized automated quotation system, if the securities qualify to be so quoted;
(viii) enter into such customary agreements (including an underwriting agreement in customary form), which shall include customary indemnification provisions in favor of underwriters and other Persons in addition to or in substitution for the provisions of Section 2(h) hereof, and take such other customary actions as sellers of a majority of shares of such Registrable Securities or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;
(ix) use reasonable efforts to obtain a cold comfort letter or letters from Premiers independent public accountants in customary form and covering matters of the type customarily covered by cold comfort letters as the holders of a majority of shares of such Registrable Securities shall reasonably request;
(x) make available for inspection by any holder of such Registrable Securities covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such holder or any such underwriter, any pertinent financial and other records, pertinent corporate documents and properties of Premier as reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with customary due diligence performed for a public offering of such Registrable Securities;
(xi) promptly notify counsel for the holders of Registrable Securities included in such registration statement and the lead or managing underwriters (a) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment to the prospectus shall have been filed, (b) of the receipt of any comments from the SEC relating to such registration statement, (c) of any request of the SEC to amend the registration statement or amend or supplement the prospectus and (d) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes;
(xii) cooperate with the holders of Registrable Securities covered by the registration statement and the lead or managing underwriters if any, to facilitate the timely preparation and delivery of any certificates representing securities to be sold under the registration statement, and enable such securities to be in such denominations and registered in such names as the lead or managing underwriters or agent, if any, or such holders may request;
(xiii) use its reasonable efforts to obtain for delivery to the holders of Registrable Securities being registered and to the underwriter an opinion or opinions from counsel for Premier in customary form and in form, substance and scope reasonably satisfactory to such holders, underwriters or agents and their counsel; and
(xiv) cooperate with each holder of Registrable Securities being registered and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NYSE, NASDAQ or any other stock exchange or automated quotation system and FINRA.
(e) Information Supplied. Premier may require each holder of Registrable Securities being registered to furnish Premier with such information regarding such holder and pertinent to the disclosure requirements relating to the registration and the distribution of such securities as Premier may from time to time reasonably request in writing. Premier shall not be required to include in any registration statement any Registrable Securities of any holder which does not provide such information.
(f) Restrictions on Disposition. Each Limited Partner agrees that, upon receipt of any notice from Premier of the happening of any event of the kind described in Section 2(d)(v), such Limited Partner will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Limited Partners receipt of any copies of the supplemented or amended prospectus contemplated by Section 2(d)(v), and, if so directed by Premier, such Limited Partner will deliver to Premier (at Premiers expense) all copies, other than permanent file copies then in such Limited Partners possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.
(g) Premier Transaction Delay Right.
(i) If, in conjunction with any registered offering of Registrable Securities under this Agreement, Premier shall furnish the holders with a certificate signed by an Officer of Premier (the Transaction Delay Notice) stating that Premier has pending or in process a material transaction or a material development which Premier has a bona fide business purpose in keeping confidential and that the filing of a registration statement or continued sales under a Shelf Registration Statement would require disclosure (or premature disclosure) of such material transaction or material development, then Premier (A) in the case of a Company-Directed Offering, shall not be required to comply with its obligations under Section 2(b) and such Company-Directed Offering shall be postponed until the next Quarterly Exchange Date and such postponed Company-Directed Offering shall be conducted in a manner consistent with the process set forth in Section 2(b)(i) and Section 2(b)(ii) and (B) in the case of Shelf Registration Statement, shall include in the Transaction Delay Notice that sales under such Shelf Registration Statement are suspended for a period of up to 90 days following the Transaction Delay Notice.
(ii) Notwithstanding the foregoing provisions of Section 2(g)(i), the right to postpone a Company-Directed Offering pursuant to this Section may only be exercised once in any Exchange Year and, in the case of a Shelf Registration Statement, Premier shall be entitled to serve only one Transaction Delay Notice within any period of 365 consecutive days.
(h) Indemnification.
(i) In the event of any registration of any securities of Premier under the Securities Act pursuant to this Section 2, Premier shall indemnify and hold harmless the holder of any Registrable Securities covered by such registration statement, its directors, officers and employees, each Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such holder or any such underwriter within the meaning of the Securities Act (collectively, the Registration Indemnified Parties), against any and all losses, claims, damages or liabilities, joint or several, actions or proceedings (whether commenced or threatened) in respect thereof and expenses (including reasonable attorneys fees and reasonable expenses of investigation) to which such Registration Indemnified Party may become subject under the Securities Act (Losses), state law or otherwise, insofar as such Losses arise out of, relate to or are based upon (a) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary or final prospectus contained therein, or any amendment or supplement thereto, or (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading; provided, that Premier shall not be liable to any Registration Indemnified Party in any such case to the extent, but only to the extent, that any such Losses or expenses arise out of, relate to or are based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment or supplement thereto or in any such preliminary or final prospectus in reliance upon and in conformity with written information furnished to Premier by or on behalf of such Registration Indemnified Party specifically for use
in the preparation thereof; and, provided, further, that Premier will not be liable in any such case to the extent, but only to the extent, that the foregoing indemnity with respect to any untrue statement contained in or omitted from a registration statement or the prospectus shall not inure to the benefit of any party (or any Person controlling such party) who is obligated to deliver a prospectus in transactions in a security as to which a registration statement has been filed pursuant to the Securities Act and from whom the Person asserting any such Losses purchased any of the Registrable Securities to the extent that it is finally judicially determined that Losses resulted from the fact that such party sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the registration statement or the prospectus, as amended or supplemented, and (x) Premier shall have previously and timely furnished sufficient copies of the registration statement or prospectus, as so amended or supplemented if required under the Securities Act, to such party in accordance with this Agreement and (y) the registration statement or prospectus, as so amended or supplemented, would have corrected such untrue statement or omission of a material fact. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Registration Indemnified Party and shall survive the Transfer of securities by any holder.
(ii) Premier may require, as a condition to participating in the sale of any Registrable Securities in any registration statement filed in accordance with Sections 2(a) or 2(b) herein, that it shall have received an undertaking reasonably satisfactory to it from the selling holder of such Registrable Securities and any underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 2(h)(i)) Premier and all other selling holders or any underwriter, as the case may be, with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from such registration statement, any preliminary or final prospectus contained therein, or any amendment or supplement thereto, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to Premier by or on behalf of such selling holder or such underwriter specifically for inclusion in such registration statement, preliminary or final prospectus or amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of Premier, any of the selling holders or any underwriter and shall survive the Transfer of securities by any holder.
(iii) Promptly after receipt by a Registration Indemnified Party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 2(h), such Registration Indemnified Party will, if a claim in respect thereof is to be made against Premier, give written notice to Premier of the commencement of such action or proceeding; provided, however, that the failure of the Registration Indemnified Party to give notice as provided herein shall not relieve Premier of its obligations under this Section 2(h), except to the extent that Premier is materially prejudiced by such failure to give notice. In case any such action or proceeding is brought against a Registration Indemnified Party, unless in such Registration Indemnified Partys reasonable judgment (after consultation with legal counsel) a bona fide conflict of interest between such Registration Indemnified Party and Premier may exist in respect of such action or proceeding, Premier will be entitled to participate in and to assume the defense thereof (at its expense) with counsel reasonably satisfactory to such Registration Indemnified Party, and after
notice from Premier to such Registration Indemnified Party of its election so to assume the defense thereof, Premier will not be liable to such Registration Indemnified Party for any legal or other expenses subsequently incurred by the Registration Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, in the event Premier declines or fails to assume the defense of the action or proceeding or to employ counsel reasonably satisfactory to the Registration Indemnified Party or if a court of competent jurisdiction determines that Premier is not vigorously defending such action or proceeding, or if there is a bona fide conflict of interest between Premier and the Registration Indemnified Party, then such Registration Indemnified Party may employ counsel to represent or defend it in any such action or proceeding and Premier shall pay the reasonable fees and disbursements of such counsel or other representative as incurred; provided, further, however, that Premier shall not be required to pay the fees and disbursements of more than one counsel for all Registration Indemnified Parties in any jurisdiction in any single action or proceeding. Premier will not settle any such action or proceeding or consent to the entry of any judgment without the prior written consent of the Registration Indemnified Party, unless such settlement or judgment (a) includes as an unconditional term thereof the giving by the claimant or plaintiff of a release to such Registration Indemnified Party from all liability in respect of such action or proceeding and (b) does not involve the imposition of equitable remedies. No Registration Indemnified Party will settle any such action or proceeding or consent to the entry of any judgment without the prior written consent of Premier (such consent not to be unreasonably withheld).
(iv) (1) If the indemnification provided for in this Section 2(h) is unavailable to Premier or to a Registration Indemnified Party hereunder in respect of any Losses or expenses referred to herein, then Premier and the Registration Indemnified Parties, in lieu of such indemnification, shall contribute to the amount paid or payable by Premier or such Registration Indemnified Party as a result of such Losses or expenses in such proportion as is appropriate to reflect the relative fault of Premier and Registration Indemnified Party in connection with the actions or proceedings which resulted in such Losses or expenses, as well as any other relevant equitable considerations. The relative fault of Premier and Registration Indemnified Party shall be determined by reference to, among other things, whether any action or proceeding in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, Premier or Registration Indemnified Party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such action or proceeding. The amount paid or payable by a party under this Section 2(h)(iv) as a result of the Losses and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any action or proceeding.
(2) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2(h)(iv) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in Section 2(h)(iv)(1). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of similar fraudulent misrepresentation.
(v) The obligations of the parties under this Section 2(h) shall be in addition to any liability which any party may otherwise have to any other party and shall survive until the expiration of the applicable statutes of limitations (including any waivers or extensions thereof) with respect to any such registrations made hereunder.
(i) Required Reports. Premier covenants that it will timely file the reports required to be filed by it under the Securities Act and the Exchange Act, and it will take such further action as any Limited Partner may reasonably request, all to the extent required from time to time to enable such Limited Partner to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.
(j) Lock-Up Agreements.
(i) If any registration under this Agreement shall be in connection with an underwritten public offering (including each Company-Directed Offering), each holder of Registrable Securities and each holder of Class B Common Units agrees that (A) during a period of 60 days beginning on the date of effectiveness of the registration statement or (B) in the case of a Company Directed Offering, from the Exchange Notice Date until the earlier of (I) the delivery of notice by Premier announcing the abandonment of the Company-Directed Offering (whether due to failure to obtain sufficient participation pursuant to Section 2(b)(iii), postponement by Limited Partners under Section 2(b)(vii) or a Transaction Delay Notice pursuant to Section 2(g)) or (II) 60 days after completion of the Company-Directed Offering (each of (A) and (B), the Lock-up Period), such holder will not (other than as part of such underwritten public offering), (w) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Class A Common Stock or any securities convertible into or exchangeable or exercisable for shares of Class A Common Stock, whether now owned or hereafter acquired by such holder or with respect to which the holder has or hereafter acquires the power of disposition, or file, or cause to be filed, any registration statement under the Securities Act, with respect to any of the foregoing (collectively, the Lock-Up Securities) or (x) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise. If (y) Premier issues an earnings release or discloses other material information or a material event relating to Premier occurs during the last 17 days of the Lock-up Period or (z) prior to the expiration of the Lock-up Period, Premier announces that it will release earnings results during the 16-day period beginning upon the expiration of such period, then to the extent necessary for a lead, managing or co-managing underwriter of a registered offering required hereunder to comply with FINRA Rule 2711(f)(4), the Lock-up Period will be extended until 18 days after the earnings release or disclosure of other material information or the occurrence of the material event, as the case may be. Premier shall use reasonable efforts to obtain the agreement of the Directors and Officers and all holders of more than 1% of the then-outstanding shares of Class A Common Stock to adhere to the Lock-up Period specified in this Subsection 2(j)(i).
(ii) If any registration under this Agreement shall be in connection with an underwritten public offering (including each Company-Directed Offering), Premier agrees (A) during the period of 60 days beginning on the date of effectiveness of the registration statement for such offering, not to (x) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Lock-up Securities or file, or cause to be filed, any registration statement under the Securities Act, with respect to any Lock-up Securities, or (y) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to be settled by delivery of Class A Common Stock or other securities, in cash or otherwise, except as part of such registration or in connection with any employee benefit or similar plan, any dividend reinvestment plan, or a business acquisition or combination and (B) to use reasonable efforts to cause each Director, Officer and holder of greater than 1% (on a fully-diluted basis) of the then-outstanding shares of Class A Common Stock, or any securities convertible into or exchangeable or exercisable for such Class A Common Stock, which are or may be purchased from Premier at any time after the date of this Agreement (other than in a registered offering) to agree to the same restraints during the Lock-up Period (except as part of such underwritten offering, if otherwise permitted).
(k) Mergers, Recapitalizations, Exchanges or Other Transactions Affecting Registrable Securities. The provisions of this Agreement shall apply to the full extent set forth herein with respect to the Registrable Securities, to any and all securities or units of Premier LP or Premier or any successor or assign of any such Person (whether by merger, amalgamation, consolidation, sale of assets or otherwise) that may be issued in respect of, in exchange for, or in substitution of such Registrable Securities, by reason of any dividend, split, issuance, reverse split, combination, recapitalization, reclassification, merger, amalgamation, consolidation or otherwise.
(l) Termination of Rights. Except for indemnification rights provided in Section 2(h), the rights granted to a Limited Partner in this Agreement shall terminate and forthwith become null and void in full on the earliest date that such Limited Partner no longer beneficially owns any Registrable Securities.
3. Miscellaneous.
(a) Agreement to Cooperate; Further Assurances. In case at any time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors and each Limited Partner and their respective Related Entities shall execute such further documents and shall take such further action as shall be reasonably necessary to carry out the purposes of this Agreement, in each case to the extent not inconsistent with applicable law.
(b) Amendments. Except as otherwise expressly provided in this Agreement, amendments to this Agreement shall require approval of Premier and Limited Partners holding a majority of the outstanding Class B Common Units; provided, however, that each Limited Partner hereby constitutes and appoints Premier, irrevocably as its true and lawful agent and
attorney-in-fact, in its name, place and stead to execute and deliver amendments to this Agreement as reasonably required from time to time and consistent with the intent of this Agreement as determined in the good faith reasonable judgment of Premier.
(c) Injunctive Relief. Premier and each Limited Partner acknowledge and agree that a violation of any of the terms of this Agreement may cause the other Limited Partners and Premier, as the case may be, irreparable injury for which an adequate remedy at law is not available. Accordingly, it is agreed that each of the Limited Partners and Premier will be entitled to seek an injunction, restraining order or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, in addition to any other remedy to which they may be entitled at law or, equity. Nothing stated herein shall limit any other remedies provided under this Agreement or available to the parties at law or in equity.
(d) Assignment; Successors. This Agreement shall be binding upon and inure to the benefit of the respective legatees, legal representatives, successors and assigns of the Limited Partners; provided, however, that a Limited Partner may not assign this Agreement or any of his rights or obligations hereunder, and any purported assignment in breach hereof by a Limited Partner shall be void; and provided further that no assignment of this Agreement by Premier or to a successor of Premier (by operation of law or otherwise) shall be valid unless such assignment is made to a Person which succeeds to the business of such Person substantially as an entirety.
(e) Successors and Assigns; Certain Transferees Bound Hereby. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by each of Premier and its successors and assigns, and by the Limited Partners and their respective successors and assigns so long as they hold shares of Class A Common Stock or Class B Common Units.
(f) Notices. Any written notice required or permitted to be delivered pursuant to this Agreement shall be in writing and shall be deemed delivered (i) upon delivery if delivered in person, (ii) upon transmission if sent by facsimile, with receipt confirmed by the recipient thereof, (iii) one Business Day after deposit with a nationally recognized overnight courier service; provided, that confirmation of such overnight delivery is received by the sender thereof or (iv) upon transmission if sent by e-mail, with receipt confirmed by the recipient thereof. Notices to Premier or any Limited Partner shall be delivered to their respective addresses as set forth in the Exchange Agreement. Any party hereto may change its address for notices by giving written notice of such partys new address to the other parties hereto in accordance with the Exchange Agreement.
(g) Integration. This Agreement contains the exclusive, entire and final understanding of the parties with respect to the subject matter hereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. Except as expressly set forth herein, this Agreement supersedes all other prior agreements, discussions, negotiations, communications and understandings between the parties with respect to such subject matter hereof. No party has
relied on any statement, representation, warranty, or promise not expressly contained in this Agreement in connection with this transaction.
(h) Severability. If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, then such provision, paragraph, word, clause, phrase or sentence shall be deemed restated to reflect the original intention of the parties as nearly as possible in accordance with applicable law and the remainder of this Agreement. The legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof will not be in any way impaired, it being intended that all obligations, rights, powers and privileges of Premier and the Limited Partners will be enforceable to the fullest extent permitted by law. Upon such determination of invalidity, illegality or unenforceability, Premier and the Limited Partners shall negotiate in good faith to amend this Agreement to effect the original intent of the Limited Partners.
(i) Counterparts. This Agreement may be executed in one or more counterparts and by different parties on separate counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. The parties agree that this Agreement shall be legally binding upon the electronic transmission, including by facsimile or email, by each party of a signed signature page hereof to the other party.
(j) Governing Law; Submission to Jurisdiction.
(i) This Agreement is to be construed in accordance with and governed by the internal laws of the State of Delaware without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Delaware to the rights and duties of the parties.
(ii) Each party hereto agrees that any legal action or other legal proceeding relating to this Agreement or the enforcement of any provision of this Agreement shall be brought or otherwise commenced exclusively in any state or federal court located in Delaware.
(k) Additional Parties. Additional Persons who acquire Class B Common Units may become parties to this Agreement by executing a joinder hereto substantially in the form attached hereto as Exhibit A. By virtue of the execution of a joinder to this Agreement, such Person shall be deemed a Limited Partner hereunder and thereupon Schedule I attached hereto shall be automatically amended without further action on the part of any of the parties hereto to reflect that such party is to be considered a Limited Partner hereunder.
(l) Void Date. If the Effective Date does not occur prior to March 31, 2014, this Agreement shall be null and void and of no further effect.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights Agreement as of the dates set forth below.
Date: , 2013 |
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Schedule I
Limited Partners
EXHIBIT A
JOINDER TO REGISTRATION RIGHTS AGREEMENT
Pursuant to Section 3(k) of the Registration Rights Agreement (the Registration Rights Agreement) among Premier, Inc., a Delaware corporation (Premier) and the entities listed on Schedule I thereto as amended from time to time (the Limited Partners), certain individuals or entities who acquire shares of Class B Common Units (the Class B Common Units) of Premier may execute this joinder to the Registration Rights Agreement. The undersigned is, on the date hereof, acquiring Class B Common Units, and hereby agrees to be a party to and be bound as an Limited Partner under the Registration Rights Agreement and hereby authorizes this joinder to the Registration Rights Agreement as of the date hereof.
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EXHIBIT B
PREMIER, INC.
FORM OF NOTICE AND QUESTIONNAIRE
The undersigned beneficial holder of shares of Class A Common Stock and/or Class B Common Units understands that Premier has filed or intends to file with the SEC one or more registration statements for the registration and resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement (the Registration Rights Agreement), among Premier and the Limited Partners party thereto. A copy of the Registration Rights Agreement is available from Premier upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.
Each beneficial owner of Registrable Securities is entitled to the benefits of the Registration Rights Agreement. In order to sell or otherwise dispose of any Registrable Securities pursuant to the Shelf Registration Statement, a beneficial owner of Registrable Securities generally will be required to be named as a selling security holder in the related prospectus, deliver a prospectus to purchasers of Registrable Securities and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification provisions as described below). To be included in the Shelf Registration Statement, this Notice and Questionnaire must be completed, executed and delivered to Premier at the address set forth herein on or prior to the tenth business day before the effectiveness of the Shelf Registration Statement. We will give notice of the filing and effectiveness of the initial Shelf Registration Statement by issuing a press release and by mailing a notice to the holders at their addresses set forth in the register of the registrar.
Beneficial owners that do not complete this Notice and Questionnaire and deliver it to Premier as provided below will not be named as selling security holders in the prospectus and therefore will not be permitted to sell any Registrable Securities pursuant to the Shelf Registration Statement. Beneficial owners are encouraged to complete and deliver this Notice and Questionnaire prior to the effectiveness of the initial Shelf Registration Statement so that such beneficial owners may be named as selling security holders in the related prospectus at the time of effectiveness. Upon receipt of a completed Notice and Questionnaire from a beneficial owner following the effectiveness of the initial Shelf Registration Statement, in accordance with the Registration Rights Agreement, Premier will file such amendments to the initial Shelf Registration Statement or additional shelf registration statements or supplements to the related prospectus as are necessary to permit such holder to deliver such prospectus to purchasers of Registrable Securities.
Certain legal consequences arise from being named as selling security holders in the Shelf Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling security holder in the Shelf Registration Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the Selling Security Holder) of Registrable Securities hereby elects to include in the prospectus forming a part of the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3). The undersigned, by signing and returning this Notice and Questionnaire, understands that it will be bound by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the undersigned has agreed to indemnify and hold harmless Premier and its directors, officers and each person, if any, who controls Premier within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against certain losses arising in connection with statements concerning the undersigned made in the Shelf Registration Statement or the related prospectus in reliance upon the information provided in this Notice and Questionnaire.
The undersigned hereby provides the following information to Premier and represents and warrants to Premier that such information is accurate and complete:
QUESTIONNAIRE
1. (a) Full Legal Name of Selling Security Holder:
(b) Full Legal Name of registered holder (if not the same as (a) above) through which Registrable Securities listed in Item (3) below are held:
(c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in Item (3) below are held:
(d) List below the individual or individuals who exercise voting and/or dispositive powers with respect to the Registrable Securities listed in Item (3) below:
2. Address for Notices to Selling Security Holder:
Street Address:
Telephone:
Fax:
E-mail address:
Contact Person:
3. Beneficial Ownership of Registrable Securities:
Type of Registrable Securities beneficially owned, and number of shares of Class A Common Stock and/or Class B Common Units, as the case may be, beneficially owned:
4. Beneficial Ownership of Securities of Premier Owned by the Selling Security Holder:
Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of Premier, other than the Registrable Securities listed above in Item (3).
Type and amount of other securities beneficially owned by the Selling Security Holder:
5. Relationship with Premier
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with Premier (or its predecessors or affiliates) during the past three years.
State any exceptions here:
6. Plan of Distribution
Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Registrable Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows and will not be offering any of such Registrable Securities pursuant to an agreement, arrangement or understanding entered into with a broker or dealer prior to the effective date of the Shelf Registration Statement. Such Registrable Securities may be sold from time to time directly by the undersigned or, alternatively, through underwriters or broker-dealers or agents. If the Registrable Securities are sold through underwriters or broker-dealers, the Selling Security Holder will be responsible for underwriting discounts or commissions or agents commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions)
· on any national securities exchange or quotation service on which the Registrable Securities may be listed or quoted at the time of sale;
· in the over-the-counter market;
· in transactions otherwise than on such exchanges or services or in the over-the-counter market; or
· through the writing of options.
In connection with sales of the Registrable Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities.
State any exceptions here:
Note: In no event may such method(s) of distribution take the form of an underwritten offering of the Registrable Securities without the prior written agreement of Premier.
ACKNOWLEDGEMENTS
The undersigned acknowledges that it understands its obligation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Registrable Securities pursuant to the Registration Rights Agreement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions.
The Selling Security Holder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons set forth therein. Pursuant to the Registration Rights Agreement, Premier has agreed under certain circumstances to indemnify the Selling Security Holders against certain liabilities.
In accordance with the undersigneds obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the undersigned agrees to promptly notify Premier of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below.
In the event that the undersigned transfers all or any portion of the Registrable Securities listed in Item 3 above after the date on which such information is provided to Premier, the undersigned agrees to notify the transferee(s) at the time of transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement.
By signing this Notice and Questionnaire, the undersigned consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by Premier in connection with the preparation or amendment of the Shelf Registration Statement and the related prospectus.
Once this Notice and Questionnaire is executed by the Selling Security Holder and received by Premier, the terms of this Notice and Questionnaire and the representations and warranties contained herein shall be binding on, shall insure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives and assigns of Premier and the Selling Security Holder with respect to the Registrable Securities beneficially owned by such Selling Security Holder and listed in Item 3 above.
This Notice and Questionnaire shall be governed by, and construed in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.
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Please return the completed and executed Notice and Questionnaire to:
Premier, Inc.
13034 Ballantyne Corporate Place
Charlotte, North Carolina 28277
Attention: Chief Financial Officer and General Counsel
Tel: (704) 357-0022
Fax: (704) 816-6307
Exhibit 10.6
PREMIER, INC.
2013 EQUITY INCENTIVE PLAN
1. Establishment, Purpose and Duration. Premier, Inc. (referred to below as the Company) hereby establishes an incentive compensation plan to be known as the 2013 Equity Incentive Plan (hereinafter referred to as the Plan), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Shares, Restricted Stock Units, Performance Share Awards, Other Stock-Based Awards and Cash-Based Awards. The Plan shall become effective upon being approved by the Companys shareholders (the Effective Date). The purpose of the Plan is to attract and retain Employees, Non-Employee Directors, and Consultants and to provide additional incentives for these persons consistent with the long-term success of the Companys business. Unless sooner terminated as provided herein, the Plan shall terminate ten (10) years from the Effective Date. After the Plan is terminated, no further Awards may be granted but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plans terms and conditions.
2. Definitions. As used in the Plan, the following terms shall be defined as set forth below:
2.1 Act means the Securities Exchange Act of 1934, as amended.
2.2 Affiliate means any corporation or any other entity (including, but not limited to, a partnership) that is affiliated with the Company through stock ownership or otherwise.
2.3 Award or Awards means, individually or collectively, except where referring to a particular category of grant under the Plan, a grant under the Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Shares, Restricted Stock Units, Performance Share Awards, Cash-Based Awards, or Other Stock-Based Awards, in each case subject to the terms of the Plan.
2.4 Award Agreement means an agreement, certificate, resolution or other form of writing or other evidence approved by the Committee which sets forth the terms and conditions of an Award. An Award Agreement may be in an electronic medium, may be limited to a notation on the Companys books and records and, if approved by the Committee, need not be signed by a representative of the Company or a Participant.
2.5 Base Price means the price to be used as the basis for determining the Spread upon the exercise of a Stock Appreciation Right.
2.6 Beneficial Owner shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Act.
2.7 Board means the Board of Directors of the Company.
2.8 Cash-Based Award means an Award granted to a Participant as described in Section 11.
2.9 Change in Control shall have the meaning given to it in Section 13.3.
2.10 Code means the Internal Revenue Code of 1986, as amended from time to time.
2.11 Committee means the committee of the Board described in Section 4.
2.12 Company means Premier, Inc. or its successor.
2.13 Consultant means any natural person, including an advisor, engaged by the Company or any Affiliate to render bona fide services to such entity (other than in connection with the offer or sale of securities in a capital-raising transaction or to promote or maintain a market for the Companys securities).
2.14 Covered Employee shall have the meaning given to it under Section 14.1.
2.15 Deferred Stock Unit means an Award that is vested on the Grant Date that entitles the recipient to receive Shares after a designated period of time. Deferred Stock Units shall be subject to such restrictions and conditions as set forth in the Award Agreement, which shall be consistent with the provisions for Restricted Stock Units set forth in Section 8 below except for the requirement to have a Restricted Period or Performance Goals.
2.16 Effective Date shall have the meaning set forth in Section 1 above.
2.17 Employee means any person designated as an employee of the Company, any of its Affiliates, and/or any of its or their Subsidiaries on the payroll records thereof.
2.18 Executive Officer means an executive officer of the Company as defined by Rule 3b-7 under the Act. To the extent that the Board takes action to designate the persons who are the executive officers of the Company, the persons so designated (and no others) shall be deemed to be the executive officers of the Company for all purposes of the Plan.
2.19 Fair Market Value means a price that is based on the opening, closing, actual, high, low, or average selling prices of a Share reported on the NASDAQ Capital Market or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next succeeding trading day, an average of trading days or on any other basis consistent with the requirements of the stock rights exemption under Section 409A of the Code using actual transactions involving Shares, as determined by the Committee in its discretion. In the event Shares are not publicly determined at the time a determination of their value is
required to be made hereunder, the determination of their Fair Market Value shall be made by the Committee in such manner as it deems appropriate. Such definition(s) of Fair Market Value shall be specified in each Award Agreement and may differ depending on whether Fair Market Value is in reference to the grant, exercise, vesting, settlement, or payout of an Award; provided, however, that upon a broker-assisted exercise of an Option, the Fair Market Value shall be the price at which the Shares are sold by the broker.
2.20 Family Member means a Participants spouse, parents, children and grandchildren.
2.21 Grant Date means the date specified by the Committee on which a grant of an Award shall become effective, which shall not be earlier than the date on which the Committee takes action with respect thereto.
2.22 Incentive Stock Option means any Option that is intended to qualify as an incentive stock option under Section 422 of the Code or any successor provision.
2.23 Non-employee Director means a member of the Board who is not an Employee.
2.24 Nonqualified Stock Option means an Option that is not intended to qualify as an Incentive Stock Option.
2.25 Option means any option to purchase Shares granted under Section 5.
2.26 Option Price means the purchase price payable upon the exercise of an Option.
2.27 Other Stock-Based Award means an equity-based or equity-related Award not otherwise described by the terms of this Plan granted under Section 10.
2.28 Participant means an Employee, Non-Employee Director or a Consultant who is selected by the Committee to receive benefits under the Plan, provided that only Employees shall be eligible to receive grants of Incentive Stock Options.
2.29 Performance-Based Awards means Restricted Shares, Restricted Stock Units, Performance Share Awards, Other Stock-Based Awards or Cash-Based Awards granted to a Covered Employee that are designated by the Committee as being intended to qualify as performance-based compensation under Section 162(m) of the Code.
2.30 Performance Criteria means the criteria that the Committee selects for purposes of establishing the Performance Goal or Performance Goals for a Participant with respect to the Performance Cycle for a Performance-Based Award. The Performance Criteria may be described in terms of Company wide
objectives or objectives that are related to the performance of the individual Covered Employee or an organizational level specified by the Committee, including, but not limited to, a Subsidiary or Affiliate or a unit, division or group of the Company, a Subsidiary or Affiliate. Performance Criteria may be measured on an absolute or relative basis, including but not limited to performance as measured against a group of peer companies or by a financial market index.
2.31 Performance Cycle means one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Criteria will be measured for the purpose of determining a grantees right to and the payment of a Restricted Share Award, Restricted Stock Unit, Performance Share Award, Other Stock-Based Award or Cash-Based Award. A Performance Cycle shall not be less than 12 months.
2.32 Performance Goals means, with respect to a Restricted Share Award, a Restricted Stock Unit Award, a Performance Share Award or a Cash-Based Award, the specific goal or goals established in writing by the Committee for the Performance Cycle applicable to such Award. Performance Goals with respect to a Performance-Based Award granted to a Covered Employee shall only be based upon one or more Performance Criteria as permitted under Section 14.
2.33 Performance Share Award means an Award denominated in either Shares or share units granted pursuant to Section 9.
2.34 Plan shall have the meaning set forth in Section 1 above.
2.35 Restricted Period means a period of time established under Section 8 with respect to Restricted Stock Units.
2.36 Restricted Shares means Shares granted under Section 7 subject to a substantial risk of forfeiture.
2.37 Restricted Stock Units means an Award pursuant to Section 8 of the right to receive Shares at the end of a specified period.
2.38 Share Authorization means the maximum number of Shares available for grant under the Plan, as described in Section 3.
2.39 Shares means the Class A common stock of the Company.
2.40 Spread means, in the case of a Stock Appreciation Right, the amount by which the Fair Market Value on the date when any such right is exercised exceeds the Base Price specified in such right.
2.41 Stock Appreciation Right means a right granted under Section 6.
2.42 Subsidiary means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, a
proprietary interest of more than twenty percent (20%) by reason of stock ownership or otherwise.
2.43 Substitute Award means any Award granted or issued to a Participant in assumption or substitution of either outstanding awards or the right or obligation to make future awards by an entity acquired by the Company, an Affiliate or a Subsidiary or with which the Company, an Affiliate or a Subsidiary combines.
2.44 Unrestricted Shares means a grant of Shares free of any Restricted Period, Performance Goals or any substantial risk of forfeiture. Unrestricted Shares may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to an Employee.
3. Shares Available Under the Plan.
3.1 Number of Shares Reserved for Awards.
(a) Subject to adjustments as provided in Section 12, the Share Authorization shall be: [insert: applicable number] Shares of which [insert: same number] shall be eligible to be issued as Incentive Stock Options.
(b) Any Awards other than Options and Stock Appreciation Rights that vest on the basis of the Participants continued employment with or provision of service to the Company shall not provide for vesting which is any more rapid than annual pro rata vesting over a three (3) year period and any Awards other than Options and Stock Appreciation Rights which vest upon the attainment of Performance Goals shall provide for a Performance Cycle of at least twelve (12) months.
3.2 Share Usage.
(a) Any Shares related to Awards that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged with the Committees permission, prior to the issuance of Shares, for Awards not involving Shares, shall be available again for grant under the Plan. In addition, Restricted Shares that are forfeited shall again be available for grant under the Plan.
(b) Awards that are to be settled by the issuance of Shares shall only be counted against the Share Authorization to the extent Shares are actually issued upon settling the Award. Any Shares withheld to satisfy tax withholding obligations on an Award, Shares tendered to pay the exercise price of an Option under the Plan and Shares repurchased on the open market with the proceeds of an Option exercise shall again be available for grant under the Plan.
(c) Substitute Awards shall not be counted against the Shares available for granting Awards under the Plan.
4. Plan Administration.
4.1 Board Committee Administration. The Plan shall be administered by the Compensation Committee appointed by the Board from among its members, provided that the full Board may at any time act as the Committee. The interpretation and construction by the Committee of any provision of the Plan or of any Award Agreement and any determination by the Committee pursuant to any provision of the Plan or any such agreement, notification or document shall be final and conclusive. No member of the Committee shall be liable to any person for any such action taken or determination made in good faith.
4.2 Terms and Conditions of Awards. The Committee shall have final discretion, responsibility, and authority to:
(a) grant Awards;
(b) determine the Participants to whom and the times at which Awards shall be granted;
(c) determine the type and number of Awards to be granted, the number of Shares to which an Award may relate, and the applicable terms, conditions, and restrictions, including the length of time for which any restriction shall remain in effect;
(d) establish and administer Performance Goals and Performance Cycles relating to any Award;
(e) determine the rights of Participants with respect to an Award upon termination of employment or service as a director;
(f) determine whether, to what extent, and under what circumstances an Award may be settled, cancelled, forfeited, exchanged, or surrendered;
(g) accelerate the vesting of an Award;
(h) interpret the terms and provisions of Award Agreements;
(i) provide for forfeiture of outstanding Awards and recapture of realized gains and other realized value in such events as determined by the Committee; and
(j) make all other determinations deemed necessary or advisable for the administration of the Plan.
The Committee may solicit recommendations from the Companys Chief Executive Officer with respect to the grant of Awards under the Plan. The Committee (or, as permitted under Section 4.3, the Companys Chief Executive Officer) shall determine the terms and conditions of each Award at the time of grant. No Participant or any other person shall have any claim to be granted an
Award under the Plan at any time, and the Company is not obligated to extend uniform treatment to Participants under the Plan. The terms and conditions of Awards need not be the same with respect to each Participant.
4.3 Committee Delegation. The Committee may delegate to the Companys Chief Executive Officer the authority to grant Awards to Participants who are not Non-Employee Directors or Executive Officers and to interpret and administer Awards for such Non-Employee Directors and Executive Officers. Any such delegation shall be subject to the limitations of Section 157(c) of the Delaware General Corporation Law. The Committee may also delegate the authority to grant Awards to any subcommittee(s) consisting of members of the Board.
4.4 Awards to Non-employee Directors. Notwithstanding any other provision of the Plan to the contrary, all Awards to Non-employee Directors must be authorized by the Board.
4.5 Employees Service as Non-Employee Director or Consultant. An Employee who receives an Award, terminates employment, and immediately thereafter begins performing service as a Non-Employee Director or Consultant shall have such service treated as service as an Employee for purposes of the Award. The previous sentence shall not apply when (a) the Award is an Incentive Stock Option or (b) prohibited by law.
5. Options. The Committee may authorize grants to Participants of Options to purchase Shares upon such terms and conditions as the Committee may determine in accordance with the following provisions:
5.1 Number of Shares. Each grant shall specify the number of Shares to which it pertains.
5.2 Option Price. Each grant shall specify an Option Price per Share, which shall be equal to or greater than the Fair Market Value per Share on the Grant Date, except in the case of Substitute Awards or as provided in Section 12.
5.3 Consideration. Each grant shall specify the form of consideration to be paid in satisfaction of the Option Price and the manner of payment of such consideration, which may include in the Committees sole discretion: (a) cash in the form of currency or check or other cash equivalent acceptable to the Company, (b) nonforfeitable, unrestricted Shares owned by the Participant which have a value at the time of exercise that is equal to the Option Price, (c) a reduction in Shares issuable upon exercise which have a value at the time of exercise that is equal to the Option Price (a net exercise), (d) to the extent permitted by applicable law, the proceeds of sale from a broker-assisted cashless exercise, (e) any other legal consideration that the Committee may deem appropriate on such basis as the Committee may determine in accordance with the Plan or (f) any combination of the foregoing. For the avoidance of doubt, Participants who receive Options to purchase Shares shall have no legal right to own or receive Shares withheld from delivery
upon exercise pursuant to Section 5.3(c), and otherwise shall have no rights in respect of such Shares whether as a shareholder or otherwise.
5.4 Vesting. Any grant may specify (a) a waiting period or periods before Options shall become exercisable, and (b) permissible dates or periods on or during which Options shall be exercisable, and any grant may provide for the earlier exercise of such rights in the event of a termination of employment. Vesting may be further conditioned upon the attainment of Performance Goals established by the Committee.
5.5 Provisions Governing ISOs. Options granted under the Plan may be Incentive Stock Options, Nonqualified Stock Options or a combination of the foregoing, provided that only Nonqualified Stock Options may be granted to Non-Employee Directors. Each grant shall specify whether (or the extent to which) the Option is an Incentive Stock Option or a Nonqualified Stock Option. Notwithstanding any such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by an Participant during any calendar year (under all plans of the Company) exceeds $100,000, such Options shall be treated as Nonqualified Stock Options. Options failing to qualify as Incentive Stock Options for any reason will be treated as Nonqualified Stock Options, rather than being forfeited.
5.6 Exercise Period.
(a) Subject to Section 18.9, no Option granted under the Plan may be exercised more than ten years from the Grant Date.
(b) If the Fair Market Value exceeds the Option Price on the last day that an Option may be exercised under an Award Agreement, the affected Participant shall be deemed to have exercised the vested portion of such Option in a net exercise under Section 5.3(c) above without the requirement of any further action.
5.7 Award Agreement. Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with the Plan.
5.8 Options Stock Rights Exemption. Options granted under the Plan are intended to qualify as stock rights within the meaning of Treas. Reg. Section 1.409A-1(b)(5).
6. Stock Appreciation Rights. The Committee may authorize grants to Participants of Stock Appreciation Rights. A Stock Appreciation Right is the right of the Participant to receive from the Company an amount, which shall be determined by the Committee and shall be expressed as a percentage (not exceeding 100 percent) of the Spread at the time of the exercise of such right. Any grant of Stock Appreciation Rights under the Plan shall be upon such terms and conditions as the Committee may determine in accordance with the following provisions:
6.1 Payment in Cash or Shares. Any grant may specify that the amount payable upon the exercise of a Stock Appreciation Right will be paid by the Company in cash, Shares or any combination thereof or may grant to the Participant or reserve to the Committee the right to elect among those alternatives.
6.2 Vesting. Any grant may specify (a) a waiting period or periods before Stock Appreciation Rights shall become exercisable and (b) permissible dates or periods on or during which Stock Appreciation Rights shall be exercisable, and any grant may provide for the earlier exercise of such rights in the event of a termination of employment. Vesting may be further conditioned upon the attainment of Performance Goals established by the Committee.
6.3 Exercise Period. Subject to Section 18.9, no Stock Appreciation Right granted under the Plan may be exercised more than ten years from the Grant Date. If a Spread exists on the last day that a Stock Appreciation Right may be exercised under an Award Agreement, the affected Participant shall be deemed to have exercised the vested portion of such Stock Appreciation Right without the requirement of any further action.
6.4 Award Agreement. Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with the Plan.
6.5 Stock Appreciation Rights Stock Rights Exemption. Stock Appreciation Rights granted under the Plan are intended to qualify as stock rights within the meaning of Treas. Reg. Section 1.409A-1(b)(5).
7. Restricted Shares. The Committee may authorize grants to Participants of Restricted Shares upon such terms and conditions as the Committee may determine in accordance with the following provisions:
7.1 Transfer of Shares. Each grant shall constitute an immediate transfer of the ownership of Shares to the Participant in consideration of the performance of services, subject to the substantial risk of forfeiture and restrictions on transfer hereinafter referred to.
7.2 Consideration. To the extent permitted by Delaware law, each grant may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Fair Market Value on the Grant Date.
7.3 Substantial Risk of Forfeiture. Each grant shall provide that the Restricted Shares covered thereby shall be subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code for a period to be determined by the Committee on the Grant Date, and any grant or sale may provide for the earlier termination of such risk of forfeiture in the event of a termination of employment.
7.4 Dividend, Voting and Other Ownership Rights. Unless otherwise determined by the Committee, an award of Restricted Shares shall entitle the Participant to dividend, voting and other ownership rights (except for any rights to a liquidating distribution) during the period for which such substantial risk of forfeiture is to continue. Any grant shall require that any or all dividends or other distributions paid on the Restricted Shares during the period of such restrictions be accumulated or reinvested in additional Shares, which shall be subject to the same restrictions as the underlying Award or such other restrictions as the Committee may determine.
7.5 Restrictions on Transfer. Each grant shall provide that, during the period for which such substantial risk of forfeiture is to continue, the transferability of the Restricted Shares shall be prohibited or restricted in the manner and to the extent prescribed by the Committee on the Grant Date.
7.6 Performance-Based Restricted Shares. Any grant or the vesting thereof may be further conditioned upon the attainment of Performance Goals established by the Committee in accordance with the applicable provisions of Section 9 regarding Performance Share Awards and, if any such Award is intended to be a Performance-Based Award, in accordance with the provisions of Section 14.
7.7 Award Agreement; Certificates. Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with the Plan. Unless otherwise directed by the Committee, all certificates representing Restricted Shares, together with a stock power that shall be endorsed in blank by the Participant with respect to such Shares, shall be held in custody by the Company until all restrictions thereon lapse.
8. Restricted Stock Units. The Committee may authorize grants of Restricted Stock Units to Participants upon such terms and conditions as the Committee may determine in accordance with the following provisions:
8.1 Restricted Period. Each grant shall provide that the Restricted Stock Units covered thereby shall be subject to a Restricted Period, which shall be fixed by the Committee on the Grant Date, and any grant or sale may provide for the earlier termination of such period in the event of a termination of employment.
8.2 Dividend Equivalents and Other Ownership Rights. During the Restricted Period, the Participant shall not have any right to transfer any rights under the subject Award and shall not have any rights of ownership in the Shares underlying the Restricted Stock Units, including the right to vote such Shares, but the Committee may on or after the Grant Date authorize the payment of dividend equivalents on such shares in cash or additional Shares on a current, deferred or contingent basis with respect to any or all dividends or other distributions paid by the Company. Notwithstanding the foregoing, any dividend equivalents with respect to dividends paid in stock shall be subject to the same restrictions as the underlying Award.
8.3 Performance-Based Restricted Share Units. Any grant or the vesting thereof may be further conditioned upon the attainment of Performance Goals established by the Committee in accordance with the applicable provisions of Section 9 regarding Performance Share Awards and, if any such Award is intended to be a Performance-Based Award, in accordance with the provisions of Section 14.
8.4 Award Agreement. Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with the Plan.
9. Performance Share Awards. The Committee shall determine whether and to whom Performance Share Awards shall be granted and such terms, limitations and conditions as it deems appropriate in its sole discretion in accordance with the following provisions:
9.1 Number of Performance Share Awards. Each grant shall specify the number of Shares or share units to which it pertains, which may be subject to adjustment to reflect changes in compensation or other factors.
9.2 Performance Cycle. The Performance Cycle with respect to each Performance Share Award shall be determined by the Committee and set forth in the Award Agreement and may be subject to earlier termination in the event of a termination of employment.
9.3 Performance Goals. Each grant shall specify the Performance Goals that are to be achieved by the Participant and a formula for determining the amount of any payment to be made if the Performance Goals are achieved.
9.4 Payment of Performance Share Awards. Each grant shall specify the time and manner of payment of Performance Share Awards that shall have been earned.
9.5 Dividend Equivalents. Under no circumstances may dividend equivalents be granted for any Performance Share Award.
9.6 Adjustments. If the Committee determines after the Performance Goals have been established that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Performance Goals unsuitable, the Committee shall have sole discretion to modify such Performance Goals, in whole or in part, as the Committee deems appropriate and equitable. The Committee shall also have the right in its sole discretion to increase or decrease the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Cycle. The provisions of this Section 9.6 shall not apply with respect to Performance-Based Awards and any adjustments with respect to such Awards shall be made solely to the extent permitted under Section 14.4.
9.7 Award Agreement. Each grant shall be evidenced by an Award Agreement containing such terms and provisions as the Committee may determine consistent with the Plan.
9.8 Performance-Based Awards. Notwithstanding anything to the contrary in this Section 9, Performance Share Awards granted to Covered Employees that are intended to be Performance-Based Awards shall only be granted, administered and paid in compliance with all the requirements for Performance-Based Awards set forth in Section 14 below.
10. Other Equity Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of the Plan (including the grant or offer for sale of unrestricted Shares and grant of Deferred Stock Units) in such amounts and subject to such terms and conditions, as the Committee shall determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
11. Cash-Based Awards. The Committee may, in its sole discretion, grant Cash-Based Awards to Executive Officers and key employees in such amounts and upon such terms, and subject to such conditions, as the Committee shall determine at the time of grant. The Committee shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Committee shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Committee. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and shall be made in cash. Notwithstanding anything to the contrary in this Section 11, all Cash-Based Awards that are Performance-Based Awards shall only be granted, administered and paid in compliance with all the requirements for Executive Officer Awards set forth in Section 14 below.
12. Adjustments. The Committee shall make or provide for such adjustments in the (a) limitations specified in Section 3, (b) number of Shares covered by outstanding Awards, (c) Option Price or Base Price applicable to outstanding Options and Stock Appreciation Rights and (d) kind of shares available for grant and covered by outstanding Awards (including shares of another issuer), as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of the rights of Participants that otherwise would result from (x) any stock dividend, stock split, reverse stock split, combination or exchange of Shares, recapitalization, extraordinary cash dividend, or other change in the capital structure of the Company, (y) any merger, consolidation, spinoff, spinout, splitoff, splitup, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities or (z) any other corporate transaction or event having an effect similar to any of the foregoing. In addition, in the event of any such transaction or event, the Committee may provide in substitution for any or all outstanding Awards under the Plan such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the cancellation or surrender of all Awards so replaced. In the case of Substitute Awards, the Committee may make such adjustments, not inconsistent with the terms of the Plan, in the terms
of Awards as it shall deem appropriate in order to achieve reasonable comparability or other equitable relationship between the assumed awards and the Awards granted under the Plan as so adjusted.
13. Change in Control.
13.1 General Rule. Except as otherwise provided in an Award Agreement, in the event of a Change in Control, the Committee may, but shall not be obligated to do any one or more of the following, in each case without Participant consent: (a) accelerate, vest or cause the restrictions to lapse with respect to, all or any portion of an Award, (b) cancel Awards for a cash payment equal to their fair value (as determined in the sole discretion of the Committee) which, in the case of Options and Stock Appreciation Rights, shall be deemed to be equal to the excess, if any, of the consideration to be paid in connection with the Change in Control to holders of the same number of Shares subject to such Options or Stock Appreciation Rights (or, if no consideration is paid in any such transaction, the Fair Market Value of the Shares subject to such Options or Stock Appreciation Rights) over the aggregate Option Price (in the case of Options) or Base Price (in the case of Stock Appreciation Rights), (c) provide for the issuance of replacement awards that will substantially preserve the otherwise applicable terms of any affected Awards previously granted hereunder as determined by the Committee in its sole discretion, (d) terminate Options without providing accelerated vesting or (e) take any other action with respect to the Awards the Committee deems appropriate. For avoidance of doubt, the treatment of Awards upon a Change in Control may vary among Participants and Types of Awards in the Committees sole discretion.
13.2 Settlement of Awards Subject to Performance Goals Upon a Change in Control. Awards subject to satisfying a Performance Goal or Goals shall be settled upon a Change in Control. The settlement amount shall be determined by the Committee in its sole discretion based upon the extent to which the Performance Goals for any such Awards have been achieved after evaluating actual performance from the start of the Performance Cycle until the date of the Change in Control and the level of performance anticipated with respect to such Performance Goals as of the date of the Change in Control.
13.3 Change in Control. shall mean the earliest to occur of the following events, provided that such event is not also a Management Buyout (as defined below):
(a) Any Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Companys then outstanding voting securities generally entitled to vote in the election of directors of the Company, provided, however, that for avoidance of doubt, the shareholders owning the Companys Class B common stock shall be treated as the Beneficial Owner with voting control for purposes of this definition, and not any Persons voting the shares subject to a voting trust or other similar arrangement, and further provided that no Change in Control will be deemed to have occurred as a result
of a change in ownership percentage resulting solely from an acquisition of securities by the Company or a transaction described in clause (i) of paragraph (b) below;
(b) There is consummated a Merger of the Company with any other business entity other than (i) a Merger which would result in the securities of the Company generally entitled to vote in the election of directors of the Company outstanding immediately prior to such Merger continuing to represent (either by remaining outstanding or by being converted into such securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding such securities under an employee benefit plan of the Company or any Subsidiary at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such Merger, generally entitled to vote in the election of directors of the Company or such surviving entity or any parent thereof and, in the case of such surviving entity or any parent thereof, of a class registered under Section 12 of the Act, or (ii) a Merger effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes a Beneficial Owner, directly or indirectly, of securities of the Companys then outstanding voting securities of the Company generally entitled to vote in the election of directors of the Company;
(c) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated the sale or disposition by the Company of all or substantially all of the Companys assets, other than a sale or disposition by the Company of all or substantially all of the Companys assets to an entity where the outstanding securities generally entitled to vote in the election of directors of the Company immediately prior to the transaction continue to represent (either by remaining outstanding or by being converted into such securities of the surviving entity or any parent thereof) 50% or more of the combined voting power of the outstanding voting securities of any such entity generally entitled to vote in such entitys election of directors immediately after such sale and of a class registered under Section 12 of the Act.
(d) As used in this Section 13:
i. Management Buyout means any event or transaction which would otherwise constitute a Change in Control (a Transaction) if, in connection with the Transaction, the Participant, Family Members and/or the Participants Affiliates participate, directly or beneficially, as an equity investor in, or have the option or right to acquire, whether vested or not vested, equity interests of, the acquiring entity or any of its Affiliates (as defined in Rule 12b-2 under the Act) (the Acquiror) having a percentage interest therein greater than 1%. For purposes of the preceding sentence, a party shall not be deemed to have participated as an equity investor in the Acquiror by virtue of (i) obtaining Beneficial Ownership of any equity interest in the Acquiror as a result of the grant to the party of an incentive compensation award under one or more
incentive plans of the Acquiror (including, but not limited to, the conversion in connection with the Transaction of incentive compensation awards of the Company into incentive compensation awards of the Acquiror), on terms and conditions substantially equivalent to those applicable to other employees of the Company at a comparable level as such party immediately before the Transaction, after taking into account normal differences attributable to job responsibilities, title and the like, (ii) obtaining beneficial interest of any equity interest in the Acquiror on terms and conditions substantially equivalent to those obtained in the Transaction by all other shareholders of the Company or (iii) the partys interests in any tax-qualified defined benefit or defined contribution pension or retirement plan in which such party or any Family Member is a participant or beneficiary.
ii. Merger means a merger, share exchange, consolidation or similar business consolidation under applicable law.
iii. Participants Affiliates at any time consist of any entity in which the Participant and/or members of the Participants Family Members then own, directly or beneficially, or have the option or right to acquire, whether or not vested, greater than 10% of such entitys equity interests, and all then current directors and Executive Officers of the Company who are members of any group that also includes the Participant, a Family Member and/or any such entity in which the members have agreed to act together for the purpose of participating in the Transaction.
iv. Person shall have the meaning given in Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions and with substantially the same voting rights as their ownership and voting rights with respect to the Company.
14. Requirements for Performance-Based Awards.
14.1 In General. Any Executive Officer or other key employee providing services to the Company and/or its Subsidiaries and Affiliates and who is selected by the Committee (hereinafter referred to as a Covered Employee) may be granted one or more Performance-Based Awards in the form of a Restricted Stock Award, Restricted Stock Units, Performance Share Awards, Other Equity Awards and/or Cash-Based Awards payable upon the attainment of Performance Goals that are established by the Committee and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Committee, as permitted under this Section 14. For the avoidance of doubt, a Covered Employee may receive as Performance-Based Awards a Cash-Based
Award subject to Performance Cycle that is twelve months and a Cash-Based Award subject to a Performance Cycle that is more than twelve months in the same calendar year. The Committee shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for any Performance Cycle. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. Each Performance-Based Award shall also comply with the provisions set forth below.
14.2 Grant Procedure. With respect to each Performance-Based Award, the Committee shall select, within the first 90 days of a Performance Cycle, the Performance Criteria for such grant and the Performance Goals with respect to each Performance Criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-Based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The Performance Criteria established by the Committee may be (but need not be) different for each Performance Cycle and different Performance Goals may be applicable to Performance-Based Awards to different Covered Employees. The Committee shall designate whether an Award granted to an Executive Officer or key employee is intended to be a Performance-Based Award at the time of grant.
14.3 Permissible Performance Criteria. Only one or a combination of the following may be used as Performance Criteria for a Performance-Based Award: growth in net sales or revenue, return measures (including, but not limited to, return on invested capital, assets, capital, equity and sales), gross profit margin; operating expense ratios; operating expense targets; productivity ratios; operating income, gross or operating margins; earnings before or after taxes, interest, depreciation and/or amortization, net earnings or net income (before or after taxes); earnings per share; cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment), working capital targets, funds from operations or similar measure, capital expenditures, share price (including, but not limited to, growth measures and total stockholder return), appreciation in the fair market value or book value of the common stock, economic value added (net operating profit after tax minus the sum of capital multiplied by the cost of the capital), debt to equity ratio / debt levels, quantitative measures of customer satisfaction, market share, acquisitions or strategic transactions, quantitative measures of employee satisfaction / engagement, employee retention / attrition, safety, budget achievement, expense reduction or cost savings, productivity improvements and inventory control / efficiency.
14.4 Permitted Adjustments. The Committee, in its discretion, may measure performance against Performance Goals under a Performance-Based Award by taking one or more of the following actions: (a) excluding each of following items: (i) any unusual or extraordinary corporate item, transaction or development restructuring and/or other nonrecurring and/or extraordinary charges (as reported in the Corporations financial statements for the Performance Cycle), (ii) exchange rate
effects, as applicable, for non-U.S. dollar denominated operating earnings, (iii) the effects to any statutory adjustments to corporate tax rates, (iv) the impact of discontinued operations, (v) losses from discontinued operations, (vi) restatements and other unplanned special charges such as acquisitions, acquisition expenses (including, without limitation, expenses relating to goodwill and other intangible assets), (vi) divestitures, (vii) stock offerings, (viii) stock repurchases, (ix) strategic loan loss provisions and (b) not adjusting for changes in accounting principles. Any such action with respect to a Performance-Based Award must be taken by the Committee within the first ninety (90) days applicable to the Performance Cycle or such later time as may be permitted under Section 162(m) of the Code or as would not cause any deduction arising from such Award to be disallowed under Section 162(m) of the Code.
14.5 Certification of Performance Goals and Payment. Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether, and to what extent, the Performance Goals for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-Based Awards earned for the Performance Cycle. The Committee shall then determine the actual size of each Covered Employees Performance-Based Award, and, in doing so with respect to a Cash-Based Award, may reduce or eliminate the amount of such Award if, in its sole judgment, such reduction or elimination is appropriate.
14.6 Interpretation. All Performance-Based Awards and the provisions hereunder applicable to such Awards shall be interpreted consistent with the requirements of Section 162(m).
14.7 Transition Period. Notwithstanding this Section 14, no restrictions imposed to qualify payments under the Plan as qualified performance-based compensation within the meaning of Treas. Reg. §1.162-27(e) shall apply until the expiration of the reliance period described in Treas. Reg. §1.162-27(f)(2).
15. Withholding.
15.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, the minimum statutory amount to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan prior to making any payments hereunder.
15.2 Share Withholding. With respect to withholding required upon the exercise of Options or Stock Appreciation Rights, upon the lapse of restrictions on Restricted Shares and Restricted Stock Units, or upon the achievement of performance goals related to Performance Share Awards, or any other taxable event arising as a result of an Award granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could
be imposed on the transaction. All such elections shall be irrevocable, made in writing or electronically, and signed or acknowledged electronically by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
16. Certain Terminations of Employment, Hardship and Approved Leaves of Absence. Notwithstanding any other provision of the Plan to the contrary, in the event of a Participants termination of employment (including by reason of death, disability or retirement) or in the event of hardship or other special circumstances, the Committee may in its sole discretion take any action that it deems to be equitable under the circumstances or in the best interests of the Company, including, without limitation, waiving or modifying any limitation or requirement with respect to any Award under the Plan. The Committee shall have the discretion to determine whether and to what extent the vesting of Awards shall be tolled during any leave of absence, paid or unpaid; provided however, that in the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon a Participants returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to the Award to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave. Any actions taken by the Committee shall be taken consistent with the requirements of Section 409A of the Code and, with respect to Performance-Based Awards, Section 162(m) of the Code.
17. Authorization of Sub-Plans. The Committee may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities, and/or tax laws of various jurisdictions. The Committee shall establish such sub-plans by adopting supplements to the Plan containing (a) such limitations as the Committee deems necessary or desirable, and (b) such additional terms and conditions not otherwise inconsistent with the Plan as the Committee shall deem necessary or desirable. All sub-plans adopted by the Committee shall be deemed to be part of the Plan, but each sub-plan shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any sub-plans to Participants in any jurisdiction which is not the subject of such sub-plan.
18. Amendments and Other Matters.
18.1 Plan Amendments. The Board may amend, suspend or terminate the Plan or the Committees authority to grant Awards under the Plan at any time. Notwithstanding the foregoing, no amendments shall be effective without approval of the Companys stockholders if (a) stockholder approval of the amendment is then required pursuant to the Code, the rules of the primary stock exchange or stock market on which the Shares are then traded, applicable U.S. state corporate laws or regulations, applicable U.S. federal laws or regulations, and the applicable laws of any foreign country or jurisdiction where Awards are, or shall be, granted under the Plan, or (b) such amendment would (i) modify Section 18.4, (ii) materially increase benefits accruing to Participants, (iii) increase the aggregate number of Shares issued or issuable under the Plan, (iv) increase any limitation set forth on the number of Shares which may be issued or the aggregate value of Awards or the per-person
limits under Section 3 except as provided in Section 12, (v) modify the eligibility requirements for Participants in the Plan, or (vi) reduce the minimum Option Price and Base Price as set forth in Sections 5 and 6, respectively. Notwithstanding any other provision of the Plan to the contrary, except as provided in Section 18.8, no termination, suspension or amendment of the Plan may adversely affect any outstanding Award without the consent of the affected Participant.
18.2 Award Deferrals. The Committee may permit Participants to elect to defer the issuance of Shares or the settlement of Awards in cash under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of the Plan. However, any Award deferrals which the Committee permits must comply with the provisions of Section 22 and the requirements of Section 409A of the Code.
18.3 Conditional Awards. The Committee may condition the grant of any award or combination of Awards under the Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise payable by the Company or any Affiliate to the Participant, provided that any such grant must comply with the provisions of Section 22 and the requirements of Section 409A of the Code.
18.4 Repricing Prohibited. The terms of outstanding Awards may not be amended to reduce the Option Price of outstanding Options or Base Price of outstanding Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an Option Price or Base Price that is less than the Option Price or Base Price of the original Options or Stock Appreciation Rights without stockholder approval, provided that nothing herein shall prevent the Committee from taking any action provided for in Section 12 above.
18.5 No Employment Rights. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Affiliates, and/or its Subsidiaries to terminate any Participants employment or service on the Board or to the Company at any time or for any reason not prohibited by law, nor confer upon any Participant any right to continue his employment or service as a director for any specified period of time. Neither an Award nor any benefits arising under the Plan shall constitute an employment contract with the Company, its Affiliates, and/or its Subsidiaries and, accordingly, subject to Section 18.1, the Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to any liability on the part of the Company, its Affiliates, and/or its Subsidiaries.
18.6 Tax Qualification. To the extent that any provision of the Plan would prevent any Award that was intended to qualify under particular provisions of the Code from so qualifying, such provision of the Plan shall be null and void with respect to such Award, provided that such provision shall remain in effect with respect to other Awards, and there shall be no further effect on any provision of the Plan.
18.7 Leave of Absence or Transfer. A transfer between the Company and any Affiliate or between Affiliates, or a leave of absence duly authorized by the Company, shall not be deemed to be a termination of employment. Periods of time while on a duly authorized leave of absence shall be disregarded for purposes of determining whether a Participant has satisfied a Restricted Period or Performance Cycle under an Award.
18.8 Amendments to Comply with Laws, Regulations or Rules. Notwithstanding any other provision of the Plan or any Award Agreement to the contrary, in its sole and absolute discretion and without the consent of any Participant, the Board may amend the Plan, and the Committee may amend any Award Agreement, to take effect retroactively or otherwise as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A of the Code.
18.9 Tolling. In the event a Participant is prevented from exercising an Option or the Company is unable to settle an Award due to either any trading restrictions applicable to the Companys Shares, the Participants physical infirmity or administrative error by the Company relied upon and not caused by the Participant, then unless otherwise determined by the Committee, the length of time applicable to any such restriction, condition or event shall toll any exercise period (i) until such restriction lapses, (ii) until the Participant (or his representative) is able to exercise the Award or (iii) until such error is corrected, as applicable.
18.10 No Duty to Inform Regarding Exercise Rights. Neither the Company, any Affiliate, the Committee nor the Board shall have any duty to inform a Participant of the pending expiration of the period in which a Stock Appreciation right may be exercised or in which an Option may be exercised.
19. Issuance of Shares; Fractional Shares.
19.1 Form for Issuing Shares; Legends. Shares may be issued on a certificated or uncertificated basis. Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer of such Shares.
19.2 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under the Plan prior to: (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and (ii) completing any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable.
19.3 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Companys counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the
failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
19.4 Investment Representations. The Committee may require any individual receiving Shares pursuant to an Award under the Plan to represent and warrant in writing that the individual is acquiring the Shares for investment and without any present intention to sell or distribute such Shares,
19.5 Fractional Shares. The Company shall not be required to issue any fractional Shares pursuant to the Plan. The Committee may provide for the elimination of fractions or for the settlement thereof in cash.
20. Limitations Period. Any person who believes he or she is being denied any benefit or right under the Plan may file a written claim with the Committee. Any claim must be delivered to the Committee within forty-five (45) days of the specific event giving rise to the claim. Untimely claims will not be processed and shall be deemed denied. The Committee, or its designated agent, will notify the Participant of its decision in writing as soon as administratively practicable. Claims not responded to by the Committee in writing within ninety (90) days of the date the written claim is delivered to the Committee shall be deemed denied. The Committees decision shall be final, conclusive and binding on all persons. No lawsuit relating to the Plan may be filed before a written claim is filed with the Committee and is denied or deemed denied, and any lawsuit must be filed within one year of such denial or deemed denial or be forever barred. The venue for any lawsuit shall be Charlotte, North Carolina.
21. Governing Law. The validity, construction and effect of the Plan and any Award hereunder will be determined in accordance with the State of Delaware except to the extent governed by applicable federal law.
22. Compliance with Section 409A.
22.1 In General. The Plan is intended to be administered in a manner consistent with the requirements, where applicable, of Section 409A. For avoidance of doubt, Stock Options and Stock Appreciation Rights are intended to qualify for the stock rights exemptions from Section 409A. Where reasonably possible and practicable, the Plan shall be administered in a manner to avoid the imposition on Participants of immediate tax recognition and additional taxes pursuant to such Section 409A. Notwithstanding the foregoing, neither the Company nor the Committee shall have any liability to any person in the event Section 409A applies to any such Award in a manner that results in adverse tax consequences for the Participant or any of his or her transferees.
22.2 Elective Deferrals. No elective deferrals or re-deferrals other than in regard to Restricted Stock Units are permitted under the Plan.
22.3 Applicable Requirements. To the extent any of the Awards granted under the Plan are deemed deferred compensation and hence subject to Section 409A, the following rules shall apply to such Awards:
(a) Mandatory Deferrals. If the Company decides that the payment of compensation under the Plan shall be deferred within the meaning of Section 409A, then, except as provided under Treas. Reg. Section 1.409A-1(b)(4)(ii), on granting of the Award to which such compensation payment relates, the Company shall specify the date(s) at which such compensation will be paid in the Award Agreement.
(b) Initial Deferral Elections. For Awards of RSUs where the Committee provides the opportunity to elect the timing and form of the payment of the underlying Shares at some future time once any requirements have been satisfied, the Participant must make his or her initial deferral election for such Award in accordance with the requirements of Section 409A, i.e., within thirty (30) days of first becoming eligible to receive such award or prior to the start of the year in which the Award is granted to the Participant, in each case pursuant to the requirements of Section 409A and Treas. Reg. Section 1.409A-2.
(c) Subsequent Deferral Elections. To the extent the Company or Committee decides to permit compensation subject to Section 409A to be re-deferred pursuant to Treas. Reg. Section 1.409A-2(b), then the following conditions must be met: (i) such election will not take effect until at least 12 months after the date on which it is made; (ii) in the case of an election not related to a payment on account of disability, death or an unforeseeable emergency, the payment with respect to which such election is made must be deferred for a period of not less than five years from the date such payment would otherwise have been paid; and (iii) any election related to a payment at a specified time or pursuant to a fixed schedule (within the meaning of Treas. Reg. Section 1.409A-3(a)(4)) must be made not less than 12 months before the date the payment is scheduled to be paid.
(d) Timing of Payments. Payment(s) of compensation that is subject to Section 409A shall only be made upon an event or at a time set forth in Treas. Reg. Section 1.409A-3, i.e., the Participants separation from service, the Participants becoming disabled, the Participants death, at a time or a fixed schedule specified in the Plan or an Award Agreement, a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, or the occurrence of an unforeseeable emergency.
(e) Certain Delayed Payments. Notwithstanding the foregoing, to the extent an amount was intended to be paid such that it would have qualified as a short-term deferral under Section 409A and the applicable regulations, then such payment is or could be delayed if the requirements of Treas. Reg. 1.409A-1(b)(4)(ii) are met.
(f) Acceleration of Payment. Any payment made under the Plan to which Section 409A applies may not be accelerated, except in accordance with Treas. Reg. 1.409A-3(j)(4).
(g) Payments upon a Change in Control. Notwithstanding any provision of the Plan to the contrary, to the extent an Award subject to Section 409A shall be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of a Change in Control and such Change in Control does not constitute a change in the ownership or effective control or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A(a)(2)(A)(v), then even though such Award may be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of the Change in Control or any other provision of the Plan, payment will be made, to the extent necessary to comply with the provisions of Section 409A, to the Participant on the earliest of (i) the Participants separation from service with the Company (determined in accordance with Section 409A), (ii) the date payment otherwise would have been made pursuant to the regular payment terms of the Award in the absence of any provisions in the Plan to the contrary (provided such date is permissible under Section 409A) or (iii) the Participants death.
(h) Payments to Specified Employees. Payments due to a Participant who is a specified employee within the meaning of Section 409A on account of the Participants separation from service with the Company (determined in accordance with Section 409A) shall be made on the date that is six months after the date of the Participants separation from service or, if earlier, the Participants date of death.
22.4 Deferrals to Preserve Deductibility under Section 162(m). The Committee may postpone the exercising of Awards, the issuance or delivery of Shares under any Award or any action permitted under the Plan to prevent the Company, a Subsidiary or any Affiliate from being denied a Federal income tax deduction with respect to any Award other than an ISO as a result of Section 162(m) in accordance with IRS regulations. In such case, payment of such deferred amounts must be made as soon as reasonably practicable following the first date on which the Company, a Subsidiary and/or Affiliate anticipates or reasonably should anticipate that, if the payment were made on such date, the Companys, Subsidiarys and/or Affiliates deduction with respect to such payment would no longer be restricted due to the application of Section 162(m).
22.5 Determining Controlled Group. In order to determine for purposes of Section 409A whether a Participant or eligible individual is employed by a member of the Companys controlled group of corporations under Section 414(b) of the Code (or by a member of a group of trades or businesses under common control with the Company under Section 414(c) of the Code) and, therefore, whether the Shares that are or have been purchased by or awarded under the Plan to the Participant are shares of service recipient stock within the meaning of Section 409A, a Participant or eligible employee of Premier Healthcare Alliance, L.P. shall be considered employed by the Companys controlled group (or by a member of a group of trades or businesses under common control with the Company, as applicable).
23. Transferability.
23.1 Transfer Restrictions. Except as provided in Sections 23.2 and 23.4, no Award granted under the Plan shall be transferable by a Participant other than upon death by will or the laws of descent and distribution, and Options and Stock Appreciation Rights shall be exercisable during a Participants lifetime only by the Participant or, in the event of the Participants legal incapacity, by his guardian or legal representative acting in a fiduciary capacity on behalf of the Participant under state law. Any attempt to transfer an Award in violation of the Plan shall render such Award null and void.
23.2 Limited Transfer Rights. The Committee may expressly provide in an Award Agreement that a Participant may transfer such Award (other than an Incentive Stock Option), in whole or in part, to a Family Member, a trust for the exclusive benefit of the Participant and Family Members, a partnership or other entity in which all the beneficial owners are the Participant and Family Members, or any other entity affiliated with the Participant that may be approved by the Committee. Subsequent transfers of Awards shall be prohibited except in accordance with this Section 23.2. All terms and conditions of the Award, including provisions relating to the termination of the Participants covered employment or service shall continue to apply following a transfer made in accordance with this Section 23.2.
23.3 Additional Restrictions on Transfer. Any Award made under the Plan may provide that all or any part of the Shares that are to be issued or transferred by the Company upon exercise, vesting or settlement shall be subject to further restrictions upon transfer.
23.4 Domestic Relations Orders. Notwithstanding the foregoing provisions of this Section 23, any Award made under the Plan may be transferred as necessary to fulfill any domestic relations order as defined in Section 414(p)(1)(B) of the Code.
24. Forfeiture and Recoupment. Without limiting in any way the generality of the Committees power to specify any terms and conditions of an Award consistent with law, and for greater clarity, the Committee may specify in an Award Agreement that the Participants rights, payments and benefits with respect to an Award, including any payment of Shares received upon exercise or in satisfaction of an Award under the Plan shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions, without limit as to time. Such events shall include, but not be limited to, failure to accept the terms of the Award Agreement, termination of service under certain or all circumstances, violation of material Company policies, misstatement of financial or other material information about the Company, fraud, misconduct, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection, or other agreements that may apply to the Participant, or other conduct by the Participant that the Committee determines is detrimental to the business or reputation of the Company and its Affiliates, including facts and circumstances discovered after termination of service. Awards granted under the Plan shall be subject to any compensation recovery policy or
minimum stock holding period requirement as may be adopted or amended by the Company from time to time.
25. No Constraint on Corporate Action. Nothing in the Plan shall be construed to: (i) limit, impair, or otherwise affect the Companys or an Affiliates or a Subsidiarys right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or, (ii) limit the right or power of the Company or an Affiliate or a Subsidiary to take any action which such entity deems to be necessary or appropriate.
26. Effect of Disposition of Facility or Operating Unit. If the Company or any of its Affiliates closes or disposes of the facility at which a Participant is located or the Company or any of its Affiliates diminish or eliminate ownership interests in any operating unit of the Company or any of its Affiliates so that such operating unit ceases to be majority owned by the Company or any of its Affiliates then, with respect to Awards held by Participants who, subsequent to such event, will not be Employees, the Committee may, to the extent consistent with Section 409A (if applicable), take any of the actions described in Section 13.1 with respect to a Change in Control. If the Committee takes no special action with respect to any disposition of a facility or an operating unit, then the Participant shall be deemed to have terminated his or her employment with the Company and its Subsidiaries and Affiliates and the terms and conditions of the Award Agreement and the other terms and conditions of the Plan shall control.
27. Indemnification. Subject to requirements of applicable state law, each individual who is or shall have been a member of the Board, or a Committee appointed by the Board, or an officer of the Company to whom authority was delegated in accordance with Section 3, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Companys approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf, unless such loss, cost, liability, or expense is a result of his own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Companys Certificate of Incorporation or by-laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
28. Nonexclusivity of the Plan. The adoption of the Plan shall not be construed as creating any limitations on the power of the Board or Committee to adopt such other compensation arrangements as it may deem desirable for any Participant.
29. Miscellaneous.
29.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
29.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
29.3 Requirements of Law. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
29.4 Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
29.5 Payment Following a Participants Death. Any remaining vested rights or benefits under the Plan upon a Participants death shall be paid or provided to the Participants legal spouse or, if no such spouse survives the Participant, to the Participants estate.
29.6 Rights as a Shareholder. Except as otherwise provided herein, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed in its name and behalf this day of 2013, by its duly authorized officer, effective as of the Effective Date.
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Exhibit 10.7
FORM OF
PERFORMANCE SHARE AWARD AGREEMENT
Participant:
Target Number of
Performance Shares:
Performance Cycle: July 1, 2013 June 30, 2016
Grant Date:
This Performance Share Agreement (the Award Agreement) evidences the grant to the Participant by Premier, Inc. (the Company) of the right to receive shares the Companys Class A common stock, $0.01 par value (Shares) upon the terms and conditions provided for herein under the Premier, Inc. 2013 Equity Incentive Plan (the Plan). Except as specifically set forth herein, the rights granted under this Award Agreement (the Award) are expressly subject to all of the terms, definitions, and provisions of the Plan. Capitalized terms in this Award Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
1. Grant of Performance Shares. Subject to the terms and provisions of this Award Agreement and the Plan, the Company hereby grants to the Participant the right to be issued the number of Performance Shares that have been earned based on performance in the Performance Cycle as determined by the Committee under Exhibit A - Performance Terms, provided that the Participant has been continuously employed (subject to the provisions of Section 3) with the Company from July 1, 2013 through June 30, 2016. The date on the condition set forth above is satisfied is the Vesting Date.
2. Terms and Conditions. The terms, conditions, and restrictions applicable to this Award are specified in the Plan, this Award Agreement, including Exhibit A Performance Terms and Exhibit B Section 280G Rules, and the prospectus dated , 2013 and any applicable prospectus supplement (together, the Prospectus). The terms, conditions and restrictions in the Plan and Prospectus include, but are not limited to, provisions relating to amendment, vesting, cancellation, and settlement, all of which are hereby incorporated by reference into this Award Agreement to the extent not otherwise set forth herein.
By accepting the Award, the Participant acknowledges receipt of the Prospectus and that he or she has read and understands the Prospectus.
The Participant understands that this Award and all other incentive awards are entirely discretionary and that no right to receive an award exists absent a prior written agreement with the Company to the contrary. The Participant also understands that the value that may be realized, if any, from this Award is contingent, and depends on, the future market price of the Shares, among other factors. The Participant further confirms the Participants understanding that this Award is intended to promote employee retention and stock ownership and to align employees interests with those of shareholders, is subject to vesting conditions and will be cancelled if the vesting conditions are not satisfied. Thus, the Participant understands that
(a) any monetary value assigned to this Award in any communication regarding this Award is contingent, hypothetical, or for illustrative purposes only, and does not express or imply any promise or intent by the Company to deliver, directly or indirectly, any certain or determinable cash value to the Participant; (b) receipt of this Award or any incentive award in the past is neither an indication nor a guarantee that an incentive award of any type or amount will be made in the future, and that absent a written agreement to the contrary, the Company is free to change its practices and policies regarding incentive awards at any time; (c) vesting may be subject to confirmation and final determination by the Committee that the vesting conditions have been satisfied; and (d) Performance Shares shall be subject to lock-up restrictions as described in Section 16 of this Award Agreement. The Participant shall have no rights as a stockholder of the Company with respect to any shares covered by this Award unless and until this Award is vested and settled in Shares.
3. Termination of Employment. Subject to the provisions that follow in this Section 3 and in the Plan with respect to a Change in Control, if at any time prior to the Vesting Date the Participants service with the Premier Group terminates, then notwithstanding any contrary provision of this Award Agreement, this Award will be forfeited and cancelled automatically as of the date of such termination, and no Shares will be issued hereunder. Notwithstanding the foregoing, if the Participants employment with the Premier Group terminates prior to the Vesting Date as a result of being a Good Leaver (as defined below), then the Award will continue in force following the date of such termination, and, subject to any then effective deferral election, a pro-rata portion of the Shares underlying the Performance Shares will be issued to the Participant (or if applicable his or her estate, heirs or beneficiaries) on the Payout Date reflecting the period of the Participants continued service with the Premier Group from and after the Grant Date through the date of termination of the Participants service with the Premier Group. The Committee will determine the pro-rata portion of the Performance Shares to be paid out under the following formula: total number of Shares issued on account of the Performance Shares (based upon the actual performance results) multiplied by number of days of active service following Grant Date divided by number of days between Grant Date and June 30, 2016. A Participant is a Good Leaver on account of (a) terminating employment with the Premier Group due to death, Disability or an Approved Retirement (as defined in Section 14 below) or (b) the termination of the Participants employment with the Premier Group Without Cause (as defined in Section 14 below).
4. Change in Control. As provided in Section 13.2 of the Plan, this Award shall be vested upon a Change in Control prior to the end of the Performance Cycle without any reduction for being employed for less than the entire Performance Cycle to the extent Performance Goals have been achieved after evaluating actual performance from the start of the Performance Cycle until the date of the Change in Control and the level of performance anticipated with respect to such Performance Goals as of the date of the Change in Control.
5. Settlement of Award. Subject to Section 7 below, the Company shall deliver or cause to be delivered to or on the behalf of the Participant and the Company will issue Share for each Performance Share earned and vested on the Vesting Date to the Participant as soon as practicable following the Vesting Date, but in any event within sixty days after the Vesting Date (such date, the Payout Date). No dividend equivalents shall apply with respect to any
Performance Shares. Vested Shares to be delivered due to death shall be paid to the Participants Beneficiary designated according to the terms of the Plan.
6. Compliance with Certain Obligations; Compensation Recovery. The Performance Shares shall be subject to forfeiture as a result of the Participants violation of any obligations contained in any agreement between the Company and the Participant relating to non-competition, non-interference, non-solicitation and confidentiality (the Employment Obligations), and shall be subject to being recovered under any compensation recovery policy that may be adopted from time to time by the Company or any of its Affiliates. For avoidance of doubt, compensation recovery rights to Performance Shares shall extend to the proceeds realized by the Participant due to the sale or other transfer of the Performance Shares. The Participants prior execution of agreements containing the Employment Obligations and confirmation of such obligations was a material inducement for the Companys grant of the Award under this Award Agreement.
7. Taxes; Limitation on Excess Parachute Payments. The settlement of this Award is conditioned on the Participant making arrangements reasonably satisfactory to the Company for the withholding of all applicable federal, state, local or foreign taxes as may be required under applicable law. The Participant shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respect to any payment received under this Award Agreement. The Committee, in its sole discretion, may satisfy the Participants withholding tax obligations by reducing the number of Performance Shares to which the Participant is entitled under the Award. Notwithstanding any other provision in this Award Agreement to the contrary, any payment or benefit received or to be received by the Participant in connection with a Change in Control or the termination of employment (whether payable under the terms of this Award Agreement or any other plan, arrangement or agreement with a member of the Premier Group (collectively, the Payments) that would constitute a parachute payment within the meaning of Section 280G of the Code, shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), but only if, by reason of such reduction, the net after-tax benefit received by the Participant shall exceed the net after-tax benefit that would be received by the Participant if no such reduction was made. Whether and how the limitation under this Section 7 is applicable shall be determined under the Section 280G Rules set forth in Exhibit B, which shall be enforceable as if set forth in this Award Agreement.
8. Consent to Electronic Delivery. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other agreements, forms and communications) in connection with this and any other prior or future incentive award or program made or offered by the Company or its predecessors or successors. Electronic delivery of a document to the Participant may be via a Company e-mail system or by reference to a location on a Company intranet site to which the Participant has access.
9. Administration. In administering the Plan, or to comply with applicable legal, regulatory, tax, or accounting requirements, it may be necessary for a member of the Premier
Group to transfer certain Participant data to another member of the Premier Group, or to its outside service providers or governmental agencies. By accepting the Award, the Participant consents, to the fullest extent permitted by law, to the use and transfer, electronically or otherwise, of the Participants personal data to such entities for such purposes.
10. Entire Agreement/Amendment/Survival/Assignment. The terms, conditions and restrictions set forth in the Plan, this Award Agreement and the Prospectus constitute the entire understanding between the parties hereto regarding this Award and supersede all previous written, oral, or implied understandings between the parties hereto about the subject matter hereof. This Award Agreement may be amended by a subsequent writing (including e-mail or other electronic form) agreed to between the Company and the Participant. Section headings herein are for convenience only and have no effect on the interpretation of this Award Agreement. The provisions of this Award Agreement that are intended to survive the Participants termination of employment shall survive such date. The Company may assign this Award Agreement and its rights and obligations hereunder to any current or future member of the Premier Group.
11. No Right to Employment. The Participant agrees that nothing in this Award Agreement constitutes a contract of employment with a member of the Premier Group for a definite period of time. The employment relationship is at will, which affords the Participant or a member of the Premier Group the right to terminate the relationship at any time for any reason or no reason not otherwise prohibited by applicable law. The Premier Group retains the right to decrease the Participants compensation and/or benefits, transfer or demote the Participant or otherwise change the terms or conditions of the Participants employment.
12. Transfer Restrictions. The Participant may not sell, assign, transfer, pledge, encumber or otherwise alienate, hypothecate or dispose of this Award or the Participants right hereunder to receive Performance Shares, except as otherwise provided in the Committees sole discretion consistent with the Plan and applicable securities laws.
13. Conflict. This Award Agreement is subject to the terms and provisions of the Plan, including but not limited to the adjustment provisions under Section 12 of the Plan. In the event of a conflict between the Plan, this Award Agreement and/or the Prospectus, the documents shall control in that order (that is, the Plan, this Award Agreement and then the Prospectus).
14. Definitions. For purposes of this Award Agreement, the following terms shall be as defined below:
(a) Approved Retirement shall mean a Participants voluntary resignation from the Premier Group on or after attaining age 59 ½ or age 55 with 5 or more years of service.
(b) Just Cause means termination of the Participants employment with the Premier Group by a member of the Premier Group as a result of conduct by the Participant amounting to: (i) commission or omission of any act of dishonesty, moral turpitude, fraud, embezzlement, theft, misappropriation, breach of fiduciary duty, or breach of the duty of loyalty in connection with
the Participants employment with a Premier Group member or against any Premier Group partner hospital, affiliated health care organization or customer; (ii) willful misconduct, insubordination, or repeated refusal or unwillingness to follow the reasonable directives of the Board of Directors / Managers of a Premier Group member and/or the Participants Premier Group employer, the Chief Executive Officer of the Participants Premier Group employer, or the Participants immediate supervisor(s); (iii) willful action or inaction with respect to the Participants performance of his or her employment duties that constitutes a violation of law or governmental regulations or that causes a Premier Group member to violate such law or regulation; (iv) a material breach of any securities or other law or regulation or any Premier Group policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (v) excessive absenteeism not related to authorized sick leave, authorized family/medical leave, authorized disability leave, authorized vacation, authorized military or other authorized statutory leave within the parameters set forth in accordance with Premier Group policies and procedures regarding the same; (vi) a conviction, guilty plea or plea of nolo contendere by the Participant for any crime involving moral turpitude or dishonesty or for any felony; or (vii) material breach or violation of the terms of employment or other agreements to which the Participant and one or more members of the Premier Group are party; or (viii) breach or violation of material policies, rules, procedures or instructions of a Premier Group member.
For purposes of this definition only, no act or failure to act by a Participant shall be deemed willful if done or omitted to be done by the Participant in good faith and with the reasonable belief that the Participants act or omission was in the best interest of the Premier Group and consistent with Premier Group policies and applicable law. Further, any act or failure to act based on and consistent with (a) instructions pursuant to a resolution duly adopted by the Board of Directors / Managers of a Premier Group member, (b) instructions of the applicable Board Chair as authorized by such Boards, or (c) the advice of Premier Group counsel shall be presumed to be done or omitted to be done by the Participant in good faith and in the best interests of the Premier Group.
(c) Disability means any of the following: (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, or the Participants entitlement to and receipt of disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; (ii) the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, receiving either (a) income replacement benefits for a period of at least three months under an accident and health plan covering employees of the Participants Premier Group employer, or (b) disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; or (iii) the Participant is determined to be totally disabled by the Social Security Administration or Railroad Retirement Board.
(d) Good Reason means a Participants resignation of employment from all applicable members of the Premier Group due to: (i) a material reduction of the Participants base salary without the Participants consent; (ii) a material reduction in the Participants
authority, duties or responsibilities without the Participants consent, but excluding any such reductions made in good faith to conform with applicable law or accounting/public company standards; or (iii) a relocation of the Participant to a location outside a fifty (50) mile radius of the Participants primary office location. In all instances, a Participant must provide the Chair of the Board of Directors / Managers of the Participants Premier Group employer (in the case of the CEO) or the CEO of the Participants Premier Group employer (in the case of other Participants) written notice of the asserted instances constituting Good Reason within ninety (90) calendar days of the initial existence of the condition(s). Further, Good Reason shall not mean or include resignation by a Participant for conditions (i) (iii) if cured or remedied by the appropriate Premier Group member(s) within thirty (30) calendar days of receiving the Participants notice.
(e) Premier Group shall mean the Company, its Subsidiaries and Affiliates.
(f) Termination Date shall have the meaning set forth in Exhibit B.
(g) Without Cause means a termination of the Participants employment with the Premier Group by a member of the Premier Group for a reason other than death, Disability or for Just Cause.
15. Section 409A. This Award shall be construed consistent with the intention that it be exempt from Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, Section 409A). However, notwithstanding any other provision of the Plan or this Award Agreement, if at any time the Committee determines that this Award (or any portion thereof) may be subject to Section 409A, the Committee shall have the right in its sole discretion (without any obligation to do so or to indemnify the Participant or any other person for failure to do so) to adopt such amendments to the Plan or this Award Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Committee determines are necessary or appropriate either for this Award to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.
16. Lock-up Restriction. The Participant agrees that, if the Company proposes to offer for sale any Shares pursuant to a public offering under the Securities Act of 1933 and if requested by the Company and any underwriter engaged by the Company for a reasonable period of time specified by the Company or such underwriter following the effective date of the registration statement filed with respect to such offering, the Participant will not, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase, or otherwise dispose of any securities of the Company held by the Participant or enter into any Hedging Transaction (as defined below) relating to any securities of the Company held by the Participant. For purposes of this Section, a Hedging Transaction means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Shares.
17. Nature of Award. This Award represents the Companys unfunded and unsecured promise to issue Shares at a future date, subject to the terms of this Award Agreement and the Plan. The Participant has no rights under this Agreement other than the rights of a general unsecured creditor of the Company. The Participant shall have the rights of a shareholder with respect to the Performance Shares only to the extent that Shares on account of such Performance Shares are issued to the Participant in accordance with the terms and conditions of this Award Agreement and the Plan.
18. Governing Law. This Award Agreement shall be legally binding and shall be executed and construed and its provisions enforced and administered in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law thereunder.
IN WITNESS WHEREOF, the Company by one of its duly authorized officers has executed this Award Agreement as of the day and year first above written.
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PREMIER, INC. | |
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Please indicate your acceptance of the terms and conditions of this Award Agreement by signing in the space provided below and returning a signed copy of this Award Agreement to the Company. IF A FULLY EXECUTED COPY OF THIS AWARD AGREEMENT HAS NOT BEEN RECEIVED BY THE COMPANY BY , THE AWARD UNDER THIS AWARD AGREEMENT SHALL BE CANCELLED.
BY SIGNING BELOW, YOU ACKNOWLEDGE AND AGREE THAT YOU HAVE RECEIVED A COPY OF THE PLAN AND ARE FAMILIAR WITH THE TERMS AND PROVISIONS THEREOF, INCLUDING THE TERMS AND PROVISIONS OF THIS AWARD AGREEMENT. YOU HAVE REVIEWED THE PLAN AND THIS AWARD AGREEMENT IN THEIR ENTIRETY, HAVE HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR TO EXECUTING THIS AWARD AGREEMENT AND FULLY UNDERSTAND ALL PROVISIONS OF THIS AWARD AGREEMENT. FINALLY, YOU HEREBY AGREE TO ACCEPT AS BINDING, CONCLUSIVE AND FINAL ALL DECISIONS OR INTERPRETATIONS OF THE ADMINISTRATOR UPON ANY QUESTIONS ARISING UNDER THE PLAN OR THIS AWARD AGREEMENT.
The undersigned hereby accepts, and agrees to, all terms and provisions of this Award Agreement, and the Plan as they pertain hereto.
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Exhibit 10.8
FORM OF
STOCK OPTION AGREEMENT
Participant: |
Grant Date: |
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Number of Shares: |
Option Price: |
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Expiration Date: |
Vesting Dates: |
1/3 on each of the first, second and third anniversaries of July 1, 2013 |
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1. Grant of Option. This option is granted pursuant to the Premier, Inc. 2013 Equity Incentive Plan (the Plan), by Premier, Inc. (the Company) to the Participant as an employee of . The Company hereby grants to the Participant as of the Grant Date (set forth above) a non-qualified stock option (the Option) to purchase the number of shares set forth above of the Companys Class A common stock, $0.01 par value (Shares), at an option price per share (the Option Price) set forth above, pursuant to the Plan, as it may be amended from time to time, and subject to the terms, conditions, and restrictions set forth herein. Capitalized terms in this stock option agreement (this Award Agreement) shall have the meaning specified in the Plan, unless a different meaning is specified herein.
2. Terms and Conditions. The terms, conditions, and restrictions applicable to the Option are specified in the Plan, this Award Agreement, including Exhibit A Option Rules and Exhibit B Section 280G Rules, and the prospectus dated 2013 and any applicable prospectus supplement (together, the Prospectus). The terms, conditions and restrictions in the Plan and Prospectus include, but are not limited to, provisions relating to amendment, vesting, cancellation, and exercise, all of which are hereby incorporated by reference into this Award Agreement to the extent not otherwise set forth herein.
By accepting the Option, the Participant acknowledges receipt of the Prospectus and that he or she has read and understands the Prospectus.
The Participant understands that the Option and all other incentive awards are entirely discretionary and that no right to receive an award exists absent a prior written agreement with the Company to the contrary. The Participant also understands that the value that may be realized, if any, from the Option is contingent, and depends on, the future market price of the Common Stock, among other factors. The Participant further confirms the Participants understanding that the Option is intended to promote employee retention and stock ownership and to align employees interests with those of shareholders, is subject to vesting conditions and will be cancelled if the vesting conditions are not satisfied. Thus, the Participant understands that (a) any monetary value assigned to the Option in any communication regarding the Option is contingent, hypothetical, or for illustrative purposes only, and does not express or imply any promise or intent by the Company to deliver, directly or indirectly, any certain or determinable cash value to the Participant; (b) receipt of the Option or any incentive award in the past is neither an indication nor a guarantee that an incentive award of any type or amount will be made in the future, and that absent a written agreement to the contrary, the Company is free to change
its practices and policies regarding incentive awards at any time; (c) vesting may be subject to confirmation and final determination by the Committee that the vesting conditions have been satisfied; and (d) Shares received upon exercise of the Option shall be subject to lock-up restrictions as described in Section 15 of this Award Agreement. The Participant shall have no rights as a stockholder of the Company with respect to any shares covered by the Option unless and until the Option vests, is properly exercised and shares of Common Stock are issued.
3. Vesting. One-third (1/3) of the Shares covered by this Option shall vest and become exercisable on each of the first, second and third anniversaries of July 1, 2013, provided the Participant is continuously employed by a member of the Premier Group. Notwithstanding the foregoing:
(a) In the event that a Participant terminates employment due to being a Good Leaver (as defined below) the portion of the Option that would have vested over the following twelve month period had the Participant continued employment shall immediately vest on the date of such employment termination. A Participant is a Good Leaver on account of (i) terminating employment with the Premier Group due to death, Disability or an Approved Retirement (as defined in Section 14 below) or (ii) the termination of the Participants employment with the Premier Group Without Cause (as defined in Section 14 below) prior to a Change in Control; and
(b) In the event a member of the Premier Group (or a successor) terminates the Participants employment with the Premier Group Without Cause or the Participant terminates his employment with the Premier Group for Good Reason (as defined in Section 14 below) within the twelve month period commencing upon a Change in Control (as defined in the Plan), the Option shall vest in full.
Notwithstanding the above, vesting of the Option shall be prohibited to the extent that it would violate applicable law.
4. Term. The Option shall in all events expire not later than the tenth (10th) anniversary of the Grant Date set forth above. If the Participant has a termination of, or break in, employment prior to exercise or expiration of the Option, the Participants rights to exercise the Option shall be determined under the Option Rules set forth in Exhibit A, which shall be enforceable as if set forth in this Award Agreement. Notwithstanding the foregoing, the unvested portion of the Option as determined under Section 3 above shall expire and be permanently forfeited upon employment termination with the Premier Group.
5. Exercise of Option.
(a) In General. Subject to Section 6 below, the portion of the Option that is exercisable under this Award Agreement may be exercised in whole or in part by the Participant upon notice to the Company in accordance with any form of exercise that may be permitted under the Plan by the Committee, in its sole discretion, which satisfies in full payment of the Option Price and applicable withholding taxes. For avoidance of doubt, the Committee may, in its discretion, require that the Option only be exercised using a net exercise (as described under
the Plan). Such notice shall be given in the manner prescribed by the Company and shall specify the date of exercise and the number of shares being exercised.
(b) Exercise Suspension. The Committee may suspend the right to exercise the Option during any period for which (i) there is no registration statement under the Securities Act of 1933, as amended, in effect with respect to the Shares issuable upon exercise of the Option, (ii) the Committee determines, in its sole discretion, that such suspension would be necessary or advisable in order to comply with the requirements of (A) any applicable federal securities law or rule or regulation thereunder; (B) any rule of a national securities exchange, national securities association, or other self-regulatory organization; or (C) any other federal or state law or regulation (each an Option Exercise Suspension). Notwithstanding the foregoing, no Option Exercise Suspension shall extend the term of the Option in a manner that would result in the Option becoming nonqualified deferred compensation subject to Section 409A of the Code.
6. Compliance with Certain Obligations; Compensation Recovery. The Shares subject to the Option shall be subject to forfeiture as a result of the Participants violation of any obligations contained in any agreement between the Company and the Participant relating to non-competition, non-interference, non-solicitation and confidentiality (the Employment Obligations), and shall be subject to being recovered under any compensation recovery policy that may be adopted from time to time by the Company or any of its Affiliates. For avoidance of doubt, compensation recovery rights to Shares shall extend to the proceeds realized by the Participant due to the sale or other transfer of Shares. The Participants prior execution of agreements containing the Employment Obligations and confirmation of such obligations was a material inducement for the Companys grant of the Option under this Award Agreement.
7. Taxes; Limitation on Excess Parachute Payments. The exercise of the Option is conditioned on the Participant making arrangements reasonably satisfactory to the Company for the withholding of all applicable federal, state, local or foreign taxes as may be required under applicable law. The Participant shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respect to any payment received under this Award Agreement. The Committee, in its sole discretion, may satisfy the Participants withholding tax obligations by reducing the number of Shares to which the Participant is entitled under the Award. Notwithstanding any other provision in this Award Agreement to the contrary, any payment or benefit received or to be received by the Participant in connection with a Change in Control or the termination of employment (whether payable under the terms of this Award Agreement or any other plan, arrangement or agreement with a member of the Premier Group (collectively, the Payments) that would constitute a parachute payment within the meaning of Section 280G of the Code, shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), but only if, by reason of such reduction, the net after-tax benefit received by the Participant shall exceed the net after-tax benefit that would be received by the Participant if no such reduction was made. Whether and how the limitation under this Section 7 is applicable shall be determined under the Section 280G Rules set forth in Exhibit B, which shall be enforceable as if set forth in this Award Agreement.
8. Consent to Electronic Delivery. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any
documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other agreements, forms and communications) in connection with this and any other prior or future incentive award or program made or offered by the Company or its predecessors or successors. Electronic delivery of a document to the Participant may be via a Company e-mail system or by reference to a location on a Company intranet site to which the Participant has access.
9. Administration. In administering the Plan, or to comply with applicable legal, regulatory, tax, or accounting requirements, it may be necessary for a member of the Premier Group to transfer certain Participant data to another member of the Premier Group, or to its outside service providers or governmental agencies. By accepting the Option, the Participant consents, to the fullest extent permitted by law, to the use and transfer, electronically or otherwise, of the Participants personal data to such entities for such purposes.
10. Entire Agreement/Amendment/Survival/Assignment. The terms, conditions and restrictions set forth in the Plan, this Award Agreement and the Prospectus, constitute the entire understanding between the parties hereto regarding the Option and supersede all previous written, oral, or implied understandings between the parties hereto about the subject matter hereof. This Award Agreement may be amended by a subsequent writing (including e-mail or other electronic form) agreed to between the Company and the Participant. Section headings herein are for convenience only and have no effect on the interpretation of this Award Agreement. The provisions of this Award Agreement that are intended to survive a Participants termination of employment shall survive such date. The Company may assign this Award Agreement and its rights and obligations hereunder to any current or future member of the Premier Group.
11. No Right to Employment. The Participant agrees that nothing in this Award Agreement constitutes a contract of employment with a member of the Premier Group for a definite period of time. The employment relationship is at will, which affords the Participant or a member of the Premier Group the right to terminate the relationship at any time for any reason or no reason not otherwise prohibited by applicable law. The Premier Group retains the right to decrease the Participants compensation and/or benefits, transfer or demote the Participant or otherwise change the terms or conditions of the Participants employment.
12. Transfer Restrictions. The Participant may not sell, assign, transfer, pledge, encumber or otherwise alienate, hypothecate or dispose of the Option or the Participants right under the Option to receive Shares, except as otherwise provided in the Committees sole discretion consistent with the Plan and applicable securities laws.
13. Conflict. This Award Agreement is subject to the terms and provisions of the Plan, including but not limited to the adjustment provisions under Section 12 of the Plan. In the event of a conflict between the Plan, this Award Agreement and/or the Prospectus, the documents shall control in that order (that is, the Plan, this Award Agreement and then the Prospectus).
14. Definitions. For purposes of this Award Agreement, the following terms shall be as defined below:
(a) Approved Retirement shall mean a Participants voluntary resignation from the Premier Group on or after attaining age 59 ½ or age 55 with 5 or more years of service.
(b) Just Cause means termination of the Participants employment with the Premier Group by a member of the Premier Group as a result of conduct by the Participant amounting to: (i) commission or omission of any act of dishonesty, moral turpitude, fraud, embezzlement, theft, misappropriation, breach of fiduciary duty, or breach of the duty of loyalty in connection with the Participants employment with a Premier Group member or against any Premier Group partner hospital, affiliated health care organization or customer; (ii) willful misconduct, insubordination, or repeated refusal or unwillingness to follow the reasonable directives of the Board of Directors / Managers of a Premier Group member and/or the Participants Premier Group employer, the Chief Executive Officer of the Participants Premier Group employer, or the Participants immediate supervisor(s); (iii) willful action or inaction with respect to the Participants performance of his or her employment duties that constitutes a violation of law or governmental regulations or that causes a Premier Group member to violate such law or regulation; (iv) a material breach of any securities or other law or regulation or any Premier Group policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (v) excessive absenteeism not related to authorized sick leave, authorized family/medical leave, authorized disability leave, authorized vacation, authorized military leave or other authorized statutory leave within the parameters set forth in accordance with Premier Group policies and procedures regarding the same; (vi) a conviction, guilty plea or plea of nolo contendere by the Participant for any crime involving moral turpitude or dishonesty or for any felony; or (vii) material breach or violation of the terms of employment or other agreements to which the Participant and one or more members of the Premier Group are party; or (viii) breach or violation of material policies, rules, procedures or instructions of a Premier Group member.
For purposes of this definition only, no act or failure to act by a Participant shall be deemed willful if done or omitted to be done by the Participant in good faith and with the reasonable belief that the Participants act or omission was in the best interest of the Premier Group and consistent with Premier Group policies and applicable law. Further, any act or failure to act based on and consistent with (a) instructions pursuant to a resolution duly adopted by the Board of Directors / Managers of a Premier Group member, (b) instructions of the applicable Board Chair as authorized by such Boards, or (c) the advice of Premier Group counsel shall be presumed to be done or omitted to be done by the Participant in good faith and in the best interests of the Premier Group.
(c) Disability means any of the following: (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, or the Participants entitlement to and receipt of disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; (ii) the Participant is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, receiving either (a) income replacement benefits for a period of at least three months under an accident and health plan covering employees of the Participants Premier Group employer, or (b) disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; or (iii) the Participant is determined to be totally disabled by the Social Security Administration or Railroad Retirement Board.
(d) Good Reason means a Participants resignation of employment from all applicable members of the Premier Group due to: (i) a material reduction of the Participants base salary without the Participants consent; (ii) a material reduction in the Participants authority, duties or responsibilities without the Participants consent, but excluding any such reductions made in good faith to conform with applicable law or accounting/public company standards; or (iii) a relocation of the Participant to a location outside a fifty (50) mile radius of the Participants primary office location. In all instances, a Participant must provide the Chair of the Board of Directors / Managers of the Participants Premier Group employer (in the case of the CEO) or the CEO of the Participants Premier Group employer (in the case of other Participants) written notice of the asserted instances constituting Good Reason within ninety (90) calendar days of the initial existence of the condition(s). Further, Good Reason shall not mean or include resignation by a Participant for conditions (i) (iii) if cured or remedied by the appropriate Premier Group member(s) within thirty (30) calendar days of receiving the Participants notice.
(e) Premier Group shall mean the Company, its Subsidiaries and Affiliates.
(f) Termination Date shall have the meaning set forth in Exhibit A.
(g) Without Cause means a termination of the Participants employment with the Premier Group by a member of the Premier Group for a reason other than death, Disability or for Just Cause.
15. Lock-up Restriction The Participant agrees that, if the Company proposes to offer for sale any Shares pursuant to a public offering under the Securities Act of 1933 and if requested by the Company and any underwriter engaged by the Company for a reasonable period of time specified by the Company or such underwriter following the effective date of the registration statement filed with respect to such offering, the Participant will not, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase, or otherwise dispose of any securities of the Company held by the Participant or enter into any Hedging Transaction (as defined below) relating to any securities of the Company held by the Participant. For purposes of this Section, a Hedging Transaction means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Shares.
16. Governing Law. This Award Agreement shall be legally binding and shall be executed and construed and its provisions enforced and administered in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law thereunder.
IN WITNESS WHEREOF, the Company by one of its duly authorized officers has executed this Award Agreement as of the day and year first above written.
PREMIER, INC. |
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Please indicate your acceptance of the terms and conditions of this Award Agreement by signing in the space provided below and returning a signed copy of this Award Agreement to the Company. IF A FULLY EXECUTED COPY OF THIS AWARD AGREEMENT HAS NOT BEEN RECEIVED BY THE COMPANY BY , , THE OPTION UNDER THIS AWARD AGREEMENT SHALL BE CANCELLED.
BY SIGNING BELOW, YOU ACKNOWLEDGE AND AGREE THAT YOU HAVE RECEIVED A COPY OF THE PLAN AND ARE FAMILIAR WITH THE TERMS AND PROVISIONS THEREOF, INCLUDING THE TERMS AND PROVISIONS OF THIS AWARD AGREEMENT. YOU HAVE REVIEWED THE PLAN AND THIS AWARD AGREEMENT IN THEIR ENTIRETY, HAVE HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR TO EXECUTING THIS AWARD AGREEMENT AND FULLY UNDERSTAND ALL PROVISIONS OF THIS AWARD AGREEMENT. FINALLY, YOU HEREBY AGREE TO ACCEPT AS BINDING, CONCLUSIVE AND FINAL ALL DECISIONS OR INTERPRETATIONS OF THE ADMINISTRATOR UPON ANY QUESTIONS ARISING UNDER THE PLAN OR THIS AWARD AGREEMENT.
The undersigned hereby accepts, and agrees to, all terms and provisions of this Award Agreement, and the Plan as they pertain hereto.
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EXHIBIT A - Option Rules
To Form of Stock Option Agreement
When you terminate covered employment
References to you or your are to the Participant. Termination Date means the date on which you terminate employment with the Premier Group. Terminate employment or termination of employment means the cessation of your employment with the Premier Group.
If you terminate employment and immediately begin providing services as a consultant or director for a member of the Premier Group, you shall not be deemed to have terminated employment on the date on which your employment terminates.
If you terminate your employment or if there is a break in your employment, your Option may be cancelled before the end of the vesting period and the vesting and exercisability of your Option may be affected.
The provisions in the chart below apply to the Option granted to you in this Award Agreement under the Plan.
If any Option exercisability period set forth in the chart below would otherwise expire during an Option Exercise Suspension, the Option shall remain exercisable for a period of 30 days after the Option Exercise Suspension (as defined in Section 5 of this Award Agreement) is lifted by the Company (but no later than the original option expiration date, which is the tenth (10th) anniversary of the Grant Date).
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Heres what happens to Your Option: |
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You are a Good Leaver (as defined in Section 3(a) |
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Any portion of the Option which would have vested over the twelve months following Termination Date immediately vests upon your termination. You may exercise the vested portion of your Option for up to twelve months after the Termination Date but no later than the original option expiration date. |
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We terminate your employment for Just Cause or you leave the Premier Group other than as a Good Leaver prior to a Change in Control |
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Both the vested and unvested portions of your Option are immediately cancelled. |
You take an approved personal leave of absence |
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For the first six (6) months of an approved personal leave, vesting continues. If the approved leave exceeds six (6) months, vesting is suspended until you return to work and remain actively employed for 30 calendar days, after which time vesting will be restored retroactively. The vested portion of your Option may be exercised during approved leave, but no later than the original option expiration date. If you terminate employment for any reason during the first year of an approved leave, the termination of employment provisions will apply. If the leave exceeds one year, your Option will be cancelled immediately. |
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You are on an approved family and medical leave, military leave, or other statutory leave of absence |
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Your Option will continue to vest on schedule, and you may exercise the vested portion of your Option during the leave but no later than the original option expiration date. |
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You are terminated involuntarily other than for Just Cause or you terminate your employment for Good Reason, in either case, within one (1) year following a Change in Control |
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Upon the Termination Date the unvested portion of your Option will vest immediately, and you may exercise the vested portion of your Option for up to twelve months from the Termination Date, but no later than the original option expiration date. |
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While employed and at any time during the Restricted Period, you breach the Agreement not to Compete |
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In addition to all rights and remedies available to the Company at law and in equity, you will immediately forfeit any of your outstanding rights under this Award Agreement. |
Exhibit B Section 280G Rules
To Form of Stock Option Agreement
When you receive benefits in connection with a Change in Control
The following rules shall apply for purposes of determining whether and how the limitations provided under Section 7 are applicable to the Participant.
1. The net after-tax benefit shall mean (i) the Payments (as defined in Section 7) which the Participant receives or is then entitled to receive from the Company or an Affiliate that would constitute parachute payments within the meaning of Section 280G of the Code, less (ii) the amount of all federal, state and local income and employment taxes payable by the Participant with respect to the foregoing calculated at the highest marginal income tax rate for each year in which the foregoing shall be paid to the Participant (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Tax imposed with respect to the payments and benefits described in (i) above.
2. All determinations under Section 7 of this Award Agreement and this Exhibit B will be made by an accounting firm or law firm that is selected for this purpose by the Companys Chief Executive Officer prior to a Change in Control (the 280G Firm). All fees and expenses of the 280G Firm shall be borne by the Company. The Company will direct the 280G Firm to submit any determination it makes under Section 7 of this Award Agreement and this Exhibit B and detailed supporting calculations to both the Participant and the Company as soon as reasonably practicable.
3. If the 280G Firm determines that one or more reductions are required under Section 7 of this Award Agreement, the 280G Firm shall also determine which Payments shall be reduced (first from cash payments and then from non-cash benefits) to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and the Company shall pay such reduced amount to the Participant. The 280G Firm shall make reductions required under Section 7 of this Award Agreement in a manner that maximizes the net after-tax amount payable to the Participant.
4. As a result of the uncertainty in the application of Section 280G at the time that the 280G Firm makes its determinations under this Section, it is possible that amounts will have been paid or distributed to the Participant that should not have been paid or distributed (collectively, the Overpayments), or that additional amounts should be paid or distributed to the Participant (collectively, the Underpayments). If the 280G Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant, which assertion the 280G Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Participant must repay to the Company, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Participant to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the
amount on which the Participant is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the 280G Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the 280G Firm will notify the Participant and the Company of that determination and the amount of that Underpayment will be paid to the Participant promptly by the Company.
5. The Participant will provide the 280G Firm access to, and copies of, any books, records, and documents in the Participants possession as reasonably requested by the 280G Firm, and otherwise cooperate with the 280G Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 7 of this Award Agreement and this Exhibit B.
Exhibit 10.9
FORM OF
RESTRICTED STOCK UNIT AGREEMENT
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Shall vest in full on the third anniversary of July 1, 2013 (the Vesting Date). |
1. Grant of Restricted Stock Units. This restricted stock unit award (Award) is granted pursuant to the Premier Inc. 2013 Equity Incentive Plan (the Plan), by Premier Inc. (the Company) to the Participant as an employee of . The Company hereby grants to the Participant as of the Grant Date (set forth above) the Award consisting of a right to receive the number of shares set forth above (Award Shares) of the Companys Class A common stock, $0.01 par value (Shares), upon the Vesting Date, pursuant to the Plan, as it may be amended from time to time, and subject to the terms, conditions, and restrictions set forth herein. Capitalized terms in this restricted stock unit agreement (the Award Agreement) shall have the meaning specified in the Plan, unless a different meaning is specified herein.
2. Terms and Conditions. The terms, conditions, and restrictions applicable to this Award are specified in the Plan, this Award Agreement, including Exhibit A Award Rules and Exhibit B Section 280G Rules, and the prospectus dated , 2013 and any applicable prospectus supplement (together, the Prospectus). The terms, conditions and restrictions in the Plan and Prospectus include, but are not limited to, provisions relating to amendment, vesting, cancellation, and settlement, all of which are hereby incorporated by reference into this Award Agreement to the extent not otherwise set forth herein.
By accepting the Award, the Participant acknowledges receipt of the Prospectus and that he or she has read and understands the Prospectus.
The Participant understands that this Award and all other incentive awards are entirely discretionary and that no right to receive an award exists absent a prior written agreement with the Company to the contrary. The Participant also understands that the value that may be realized, if any, from this Award is contingent, and depends on, the future market price of the Shares, among other factors. The Participant further confirms the Participants understanding that this Award is intended to promote employee retention and stock ownership and to align employees interests with those of shareholders, is subject to vesting conditions and will be cancelled if the vesting conditions are not satisfied. Thus, the Participant understands that (a) any monetary value assigned to this Award in any communication regarding this Award is contingent, hypothetical, or for illustrative purposes only, and does not express or imply any promise or intent by the Company to deliver, directly or indirectly, any certain or determinable cash value to the Participant; (b) receipt of this Award or any incentive award in the past is neither an indication nor a guarantee that an incentive award of any type or amount will be made in the future, and that absent a written agreement to the contrary, the Company is free to change
its practices and policies regarding incentive awards at any time; (c) vesting may be subject to confirmation and final determination by the Committee that the vesting conditions have been satisfied; and (d) Award Shares shall be subject to lock-up restrictions as described in Section 16 of this Award Agreement. The Participant shall have no rights as a stockholder of the Company with respect to any shares covered by this Award unless and until this Award is vested and settled in Shares.
3. Vesting. This Award shall vest in full on the Vesting Date set forth above provided the Participant is continuously employed by a member of the Premier Group. Notwithstanding the foregoing:
(a) In the event that a Participant terminates employment due to being a Good Leaver (as defined below), the Participant shall immediately vest in a portion of the Award equal to the number of Award Shares granted times a fraction, the numerator of which is the number of days of active service elapsed since July 1, 2013 and the denominator of which is 1,095. A Participant is a Good Leaver on account of (i) terminating employment with the Premier Group due to death, Disability or an Approved Retirement (as defined in Section 14 below) or (ii) the termination of the Participants employment with the Premier Group Without Cause (as defined in Section 14 below) prior to a Change in Control; and
(b) In the event a member of the Premier Group (or a successor) terminates the Participants employment with the Premier Group Without Cause or the Participant terminates his employment for Good Reason (as defined in Section 14 below) within the twelve month period commencing upon a Change in Control (as defined in the Plan), the Award shall vest in full.
The Participant shall be credited with an amount in cash (without interest) equal to the dividends the Participant would have received if the Participant had been the owner of a number of Shares equal to the number of Award Shares; provided, however, that no amount shall be credited with respect to Shares that have been delivered to the Participant as of the applicable record date. Dividend equivalents shall be subject to the same terms and conditions as the Award Shares, and shall vest (or, if applicable, be forfeited) at the same time as the Award Shares. Notwithstanding the foregoing, vesting of the Award (and any dividend equivalents) shall be prohibited to the extent that it would violate applicable law or to the extent the Award is a Performance Share Award. Further notwithstanding the foregoing, nothing in this Award Agreement shall be interpreted to require the Company to grant dividends or dividend equivalents on any Shares or Award Shares.
4. Forfeiture; Break in Service. The unvested portion of this Award, as determined under Section 3 above, shall expire and be permanently forfeited upon employment termination with the Premier Group. The unvested portion of this Award shall only continue to vest while the Participant is on an approved personal leave of absence to the extent and in the manner described in Exhibit A, which shall be enforceable as if set forth in this Award Agreement.
5. Settlement of Award. Subject to Section 7 below, the Company shall deliver or cause to be delivered to or on the behalf of the Participant the number of vested Shares
determined under Section 3 above as soon as administratively practicable after they first become vested, but in no event later than sixty (60) days after vesting (for the avoidance of doubt, this deadline is intended to comply with the short-term deferral exemption from Section 409A of the Internal Revenue Code of 1986, as amended (the Code)). The dividend equivalents described in Section 3 above shall be paid in cash at the same time as the delivery of the Shares under this Section 5 which correspond to such dividend equivalents. Vested Shares to be delivered due to death shall be paid to the Participants Beneficiary designated according to the terms of the Plan.
6. Compliance with Certain Obligations; Compensation Recovery. The Award Shares shall be subject to forfeiture as a result of the Participants violation of any obligations contained in any agreement between the Company and the Participant relating to non-competition, non-interference, non-solicitation and confidentiality (the Employment Obligations), and shall be subject to being recovered under any compensation recovery policy that may be adopted from time to time by the Company or any of its Affiliates. For avoidance of doubt, compensation recovery rights to Award Shares shall extend to the proceeds realized by the Participant due to the sale or other transfer of the Award Shares. The Participants prior execution of agreements containing the Employment Obligations and confirmation of such obligations was a material inducement for the Companys grant of the Award under this Award Agreement.
7. Taxes; Limitation on Excess Parachute Payments. The settlement of this Award is conditioned on the Participant making arrangements reasonably satisfactory to the Company for the withholding of all applicable federal, state, local or foreign taxes as may be required under applicable law. The Participant shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respect to any payment received under this Award Agreement. The Committee, in its sole discretion, may satisfy the Participants withholding tax obligations by reducing the number of Award Shares to which the Participant is entitled under the Award. Notwithstanding any other provision in this Award Agreement to the contrary, any payment or benefit received or to be received by the Participant in connection with a Change in Control or the termination of employment (whether payable under the terms of this Award Agreement or any other plan, arrangement or agreement with a member of the Premier Group (collectively, the Payments) that would constitute a parachute payment within the meaning of Section 280G of the Code, shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), but only if, by reason of such reduction, the net after-tax benefit received by the Participant shall exceed the net after-tax benefit that would be received by the Participant if no such reduction was made. Whether and how the limitation under this Section 7 is applicable shall be determined under the Section 280G Rules set forth in Exhibit B, which shall be enforceable as if set forth in this Award Agreement.
8. Consent to Electronic Delivery. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other agreements, forms and communications) in connection with this and any other prior or future incentive award or program made or offered
by the Company or its predecessors or successors. Electronic delivery of a document to the Participant may be via a Company e-mail system or by reference to a location on a Company intranet site to which the Participant has access.
9. Administration. In administering the Plan, or to comply with applicable legal, regulatory, tax, or accounting requirements, it may be necessary for a member of the Premier Group to transfer certain Participant data to another member of the Premier Group, or to its outside service providers or governmental agencies. By accepting the Award, the Participant consents, to the fullest extent permitted by law, to the use and transfer, electronically or otherwise, of the Participants personal data to such entities for such purposes.
10. Entire Agreement/Amendment/Survival/Assignment. The terms, conditions and restrictions set forth in the Plan, this Award Agreement and the Prospectus constitute the entire understanding between the parties hereto regarding this Award and supersede all previous written, oral, or implied understandings between the parties hereto about the subject matter hereof. This Award Agreement may be amended by a subsequent writing (including e-mail or other electronic form) agreed to between the Company and the Participant. Section headings herein are for convenience only and have no effect on the interpretation of this Award Agreement. The provisions of this Award Agreement that are intended to survive a Participants termination of employment shall survive such date. The Company may assign this Award Agreement and its rights and obligations hereunder to any current or future member of the Premier Group.
11. No Right to Employment. The Participant agrees that nothing in this Award Agreement constitutes a contract of employment with a member of the Premier Group for a definite period of time. The employment relationship is at will, which affords the Participant or a member of the Premier Group the right to terminate the relationship at any time for any reason or no reason not otherwise prohibited by applicable law. The Premier Group retains the right to decrease the Participants compensation and/or benefits, transfer or demote the Participant or otherwise change the terms or conditions of the Participants employment.
12. Transfer Restrictions. The Participant may not sell, assign, transfer, pledge, encumber or otherwise alienate, hypothecate or dispose of this Award or the Participants right hereunder to receive Award Shares, except as otherwise provided in the Committees sole discretion consistent with the Plan and applicable securities laws.
13. Conflict. This Award Agreement is subject to the terms and provisions of the Plan, including but not limited to the adjustment provisions under Section 12 of the Plan. In the event of a conflict between the Plan, this Award Agreement and/or the Prospectus, the documents shall control in that order (that is, the Plan, this Award Agreement and then the Prospectus).
14. Definitions. The following terms shall be as defined below:
(a) Approved Retirement shall mean a Participants voluntary resignation from the Premier Group on or after attaining age 59 ½ or age 55 with 5 or more years of service.
(b) Just Cause means termination of the Participants employment with the Premier Group by a member of the Premier Group as a result of conduct by the Participant amounting to: (i) commission or omission of any act of dishonesty, moral turpitude, fraud, embezzlement, theft, misappropriation, breach of fiduciary duty, or breach of the duty of loyalty in connection with the Participants employment with a Premier Group member or against any Premier Group partner hospital, affiliated health care organization or customer; (ii) willful misconduct, insubordination, or repeated refusal or unwillingness to follow the reasonable directives of the Board of Directors / Managers of a Premier Group member and/or the Participants Premier Group employer, the Chief Executive Officer of the Participants Premier Group employer, or the Participants immediate supervisor(s); (iii) willful action or inaction with respect to the Participants performance of his or her employment duties that constitutes a violation of law or governmental regulations or that causes a Premier Group member to violate such law or regulation; (iv) a material breach of any securities or other law or regulation or any Premier Group policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (v) excessive absenteeism not related to authorized sick leave, authorized family/medical leave, authorized disability leave, authorized vacation, authorized military leave or other authorized statutory leave within the parameters set forth in accordance with Premier Group policies and procedures regarding the same; (vi) a conviction, guilty plea or plea of nolo contendere by the Participant for any crime involving moral turpitude or dishonesty or for any felony; or (vii) material breach or violation of the terms of employment or other agreements to which the Participant and one or more members of the Premier Group are party; or (viii) breach or violation of material policies, rules, procedures or instructions of a Premier Group member.
For purposes of this definition only, no act or failure to act by a Participant shall be deemed willful if done or omitted to be done by the Participant in good faith and with the reasonable belief that the Participants act or omission was in the best interest of the Premier Group and consistent with Premier Group policies and applicable law. Further, any act or failure to act based on and consistent with (a) instructions pursuant to a resolution duly adopted by the Board of Directors / Managers of a Premier Group member, (b) instructions of the applicable Board Chair as authorized by such Boards, or (c) the advice of Premier Group counsel shall be presumed to be done or omitted to be done by the Participant in good faith and in the best interests of the Premier Group.
(c) Disability means any of the following: (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, or the Participants entitlement to and receipt of disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; (ii) the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, receiving either (a) income replacement benefits for a period of at least three months under an accident and health plan covering employees of the Participants Premier Group employer, or (b) disability benefits under a disability insurance program that pays
benefits on the basis of the foregoing definition; or (iii) the Participant is determined to be totally disabled by the Social Security Administration or Railroad Retirement Board.
(d) Good Reason means a Participants resignation of employment from all applicable members of the Premier Group due to: (i) a material reduction of the Participants base salary without the Participants consent; (ii) a material reduction in the Participants authority, duties or responsibilities without the Participants consent, but excluding any such reductions made in good faith to conform with applicable law or accounting/public company standards; or (iii) a relocation of the Participant to a location outside a fifty (50) mile radius of the Participants primary office location. In all instances, a Participant must provide the Chair of the Board of Directors / Managers of the Participants Premier Group employer (in the case of the CEO) or the CEO of the Participants Premier Group employer (in the case of other Participants) written notice of the asserted instances constituting Good Reason within ninety (90) calendar days of the initial existence of the condition(s). Further, Good Reason shall not mean or include resignation by a Participant for conditions (i) (iii) if cured or remedied by the appropriate Premier Group member(s) within thirty (30) calendar days of receiving the Participants notice.
(e) Premier Group shall mean the Company, its Subsidiaries and Affiliates.
(f) Termination Date shall have the meaning set forth in Exhibit A.
(g) Without Cause means a termination of the Participants employment with the Premier Group by a member of the Premier Group for a reason other than death, Disability or for Just Cause.
15. Section 409A. This Award shall be construed consistent with the intention that it be exempt from Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, Section 409A). However, notwithstanding any other provision of the Plan or this Award Agreement, if at any time the Committee determines that this Award (or any portion thereof) may be subject to Section 409A, the Committee shall have the right in its sole discretion (without any obligation to do so or to indemnify the Participant or any other person for failure to do so) to adopt such amendments to the Plan or this Award Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Committee determines are necessary or appropriate either for this Award to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.
16. Lock-up Restriction. The Participant agrees that, if the Company proposes to offer for sale any Shares pursuant to a public offering under the Securities Act of 1933 and if requested by the Company and any underwriter engaged by the Company for a reasonable period of time specified by the Company or such underwriter following the effective date of the registration statement filed with respect to such offering, the Participant will not, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase, or otherwise dispose of any securities of the Company held by the Participant or enter
into any Hedging Transaction (as defined below) relating to any securities of the Company held by the Participant. For purposes of this Section, a Hedging Transaction means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Shares.
17. Nature of Award. This Award represents the Companys unfunded and unsecured promise to issue Shares at a future date, subject to the terms of this Award Agreement and the Plan. The Participant has no rights under this Agreement other than the rights of a general unsecured creditor of the Company. The Participant shall have the rights of a shareholder with respect to the Award Shares only to the extent that Shares are issued to the Participant in accordance with the terms and conditions of this Award Agreement and the Plan.
18. Governing Law. This Award Agreement shall be legally binding and shall be executed and construed and its provisions enforced and administered in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law thereunder.
[Signature Page to Follow]
IN WITNESS WHEREOF, the Company by one of its duly authorized officers has executed this Award Agreement as of the day and year first above written.
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PREMIER INC. | |
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Please indicate your acceptance of the terms and conditions of this Award Agreement by signing in the space provided below and returning a signed copy of this Award Agreement to the Company. IF A FULLY EXECUTED COPY OF THIS AWARD AGREEMENT HAS NOT BEEN RECEIVED BY THE COMPANY BY , THE AWARD UNDER THIS AWARD AGREEMENT SHALL BE CANCELLED.
BY SIGNING BELOW, YOU ACKNOWLEDGE AND AGREE THAT YOU HAVE RECEIVED A COPY OF THE PLAN AND ARE FAMILIAR WITH THE TERMS AND PROVISIONS THEREOF, INCLUDING THE TERMS AND PROVISIONS OF THIS AWARD AGREEMENT. YOU HAVE REVIEWED THE PLAN AND THIS AWARD AGREEMENT IN THEIR ENTIRETY, HAVE HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR TO EXECUTING THIS AWARD AGREEMENT AND FULLY UNDERSTAND ALL PROVISIONS OF THIS AWARD AGREEMENT. FINALLY, YOU HEREBY AGREE TO ACCEPT AS BINDING, CONCLUSIVE AND FINAL ALL DECISIONS OR INTERPRETATIONS OF THE ADMINISTRATOR UPON ANY QUESTIONS ARISING UNDER THE PLAN OR THIS AWARD AGREEMENT.
The undersigned hereby accepts, and agrees to, all terms and provisions of this Award Agreement, and the Plan as they pertain hereto.
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EXHIBIT A Award Rules
To Form of Restricted Stock Unit Agreement
When you terminate covered employment
References to you or your are to the Participant. Termination Date means the date on which you terminate employment with the Premier Group. Terminate employment or termination of employment means the cessation of your employment with the Premier Group.
If you terminate employment and immediately begin providing services as a consultant or director for a member of the Premier Group, you shall not be deemed to have terminated employment on the date on which your employment terminates.
If you terminate your employment or if there is a break in your employment, your Award may be cancelled before the end of the vesting period and the vesting of your Award may be affected.
The provisions in the chart below apply to the Award granted to you in this Award Agreement under the Plan.
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Heres what happens to Your Award: |
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You are a Good Leaver (as defined in Section 3(a) |
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You shall immediately vest in a portion of the Award equal to the number of Award Shares granted times a fraction, the numerator of which is the number of whole months elapsed since the Grant Date and the denominator of which is thirty-six (36). |
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We terminate your employment for Just Cause or you leave the Premier Group other than as a Good Leaver prior to a Change in Control |
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Both the vested and unvested portions of your Award are immediately cancelled. |
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You take an approved personal leave of absence |
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For the first six (6) months of an approved personal leave, vesting continues. If the approved leave exceeds six (6) months, vesting is suspended until you return to work and remain actively employed for 30 calendar days, after which time vesting will be restored retroactively. If you terminate employment for any reason during the first year of an approved leave, the termination of employment provisions will apply. If the leave exceeds one year, your Award will be cancelled immediately. |
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You are on an approved family and medical leave, military leave, or other |
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Your Award will continue to vest on schedule. |
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statutory leave of absence |
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You are terminated involuntarily other than for Just Cause or you terminate your employment for Good Reason, in either case, within one (1) year following a Change in Control |
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Upon the Termination Date the unvested portion of your Award will vest immediately. |
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While employed and at any time during the Restricted Period, you breach the Agreement not to Compete |
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In addition to all rights and remedies available to the Company at law and in equity, you will immediately forfeit any of your outstanding rights under this Award Agreement. |
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Exhibit BSection 280G Rules
To Restricted Stock Unit Agreement
When you receive benefits in connection with a Change in Control
The following rules shall apply for purposes of determining whether and how the limitations provided under Section 7 are applicable to the Participant.
1. The net after-tax benefit shall mean (i) the Payments (as defined in Section 7) which the Participant receives or is then entitled to receive from the Company or an Affiliate that would constitute parachute payments within the meaning of Section 280G of the Code, less (ii) the amount of all federal, state and local income and employment taxes payable by the Participant with respect to the foregoing calculated at the highest marginal income tax rate for each year in which the foregoing shall be paid to the Participant (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Tax imposed with respect to the payments and benefits described in (i) above.
2. All determinations under Section 7 of this Award Agreement and this Exhibit B will be made by an accounting firm or law firm that is selected for this purpose by the Companys Chief Executive Officer prior to a Change in Control (the 280G Firm). All fees and expenses of the 280G Firm shall be borne by the Company. The Company will direct the 280G Firm to submit any determination it makes under Section 7 of this Award Agreement and this Exhibit B and detailed supporting calculations to both the Participant and the Company as soon as reasonably practicable.
3. If the 280G Firm determines that one or more reductions are required under Section 7 of this Award Agreement, the 280G Firm shall also determine which Payments shall be reduced (first from cash payments and then from non-cash benefits) to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and the Company shall pay such reduced amount to the Participant. The 280G Firm shall make reductions required under Section 7 of this Award Agreement in a manner that maximizes the net after-tax amount payable to the Participant.
4. As a result of the uncertainty in the application of Section 280G at the time that the 280G Firm makes its determinations under this Section, it is possible that amounts will have been paid or distributed to the Participant that should not have been paid or distributed (collectively, the Overpayments), or that additional amounts should be paid or distributed to the Participant (collectively, the Underpayments). If the 280G Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant, which assertion the 280G Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Participant must repay to the Company, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Participant to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Participant is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the 280G Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the 280G
Firm will notify the Participant and the Company of that determination and the amount of that Underpayment will be paid to the Participant promptly by the Company.
5. The Participant will provide the 280G Firm access to, and copies of, any books, records, and documents in the Participants possession as reasonably requested by the 280G Firm, and otherwise cooperate with the 280G Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 7 of this Award Agreement and this Exhibit B.
Exhibit 10.10
FORM OF
RESTRICTED STOCK UNIT AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
Participant: |
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Grant Date: |
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Vesting Date: |
Shall vest in full on the first anniversary of the Grant Date (the Vesting Date). |
1. Grant of Restricted Stock Units. This restricted stock unit award (Award) is granted pursuant to the Premier Inc. 2013 Equity Incentive Plan (the Plan), by Premier Inc. (the Company) to the Participant as an Outside Director of the Company. The Company hereby grants to the Participant as of the Grant Date (set forth above) the Award consisting of a right to receive the number of shares set forth above (Award Shares) of the Companys Class A common stock, $0.01 par value (Shares), upon the Vesting Date, pursuant to the Plan, as it may be amended from time to time, and subject to the terms, conditions, and restrictions set forth herein. Capitalized terms in this restricted stock unit agreement (the Award Agreement) shall have the meaning specified in the Plan, unless a different meaning is specified herein.
2. Terms and Conditions. The terms, conditions, and restrictions applicable to this Award are specified in the Plan, this Award Agreement, including Exhibit A Section 280G Rules, and the prospectus dated , 2013 and any applicable prospectus supplement (together, the Prospectus). The terms, conditions and restrictions in the Plan and Prospectus include, but are not limited to, provisions relating to amendment, vesting, cancellation, and settlement, all of which are hereby incorporated by reference into this Award Agreement to the extent not otherwise set forth herein.
By accepting the Award, the Participant acknowledges receipt of the Prospectus and that he or she has read and understands the Prospectus.
The Participant understands that this Award and all other incentive awards are entirely discretionary and that no right to receive an award exists absent a prior written agreement with the Company to the contrary. The Participant also understands that the value that may be realized, if any, from this Award is contingent, and depends on, the future market price of the Shares, among other factors. The Participant further confirms the Participants understanding that this Award is intended to promote Outside Director retention and stock ownership and to align Outside Directors interests with those of shareholders, is subject to vesting conditions and will be cancelled if the vesting conditions are not satisfied. Thus, the Participant understands that (a) any monetary value assigned to this Award in any communication regarding this Award is contingent, hypothetical, or for illustrative purposes only, and does not express or imply any promise or intent by the Company to deliver, directly or indirectly, any certain or determinable cash value to the Participant; (b) receipt of this Award or any incentive award in the past is neither an indication nor a guarantee that an incentive award of any type or amount will be made
in the future, and that absent a written agreement to the contrary, the Company is free to change its practices and policies regarding incentive awards at any time; (c) vesting may be subject to confirmation and final determination by the Committee that the vesting conditions have been satisfied; and (d) Award Shares shall be subject to lock-up restrictions as described in Section 16 of this Award Agreement. The Participant shall have no rights as a stockholder of the Company with respect to any shares covered by this Award unless and until this Award is vested and settled in Shares.
3. Vesting. This Award shall vest in full on the Vesting Date set forth above provided the Participant is providing services as a director through the Vesting Date. Notwithstanding the foregoing:
(a) In the event that a Participant terminates service due to death or Disability, the Participant shall immediately vest in a portion of the Award equal to the number of Award Shares granted times a fraction, the numerator of which is the number of days of active service elapsed since the Grant Date and the denominator of which is 365; and
(b) In the event that the Participant is serving as a director on the Board at the time of a Change in Control, the Award shall vest in full.
The Participant shall be credited with an amount in cash (without interest) equal to the dividends the Participant would have received if the Participant had been the owner of a number of Shares equal to the number of Award Shares; provided, however, that no amount shall be credited with respect to Shares that have been delivered to the Participant as of the applicable record date. Dividend equivalents shall be subject to the same terms and conditions as the Award Shares, and shall vest (or, if applicable, be forfeited) at the same time as the Award Shares. Notwithstanding the foregoing, vesting of the Award (and any dividend equivalents) shall be prohibited to the extent that it would violate applicable law or to the extent the Award is a Performance Share Award. Further notwithstanding the foregoing, nothing in this Award Agreement shall be interpreted to require the Company to grant dividends or dividend equivalents on any Shares or Award Shares.
4. Forfeiture; Break in Service. The unvested portion of this Award, as determined under Section 3 above, shall expire and be permanently forfeited upon termination of service as an Outside Director.
5. Settlement of Award. Subject to Section 7 below, the Company shall deliver or cause to be delivered to or on the behalf of the Participant the number of vested Shares determined under Section 3 above as soon as administratively practicable after they first become vested, but in no event later than sixty (60) days after vesting (for the avoidance of doubt, this deadline is intended to comply with the short-term deferral exemption from Section 409A of the Internal Revenue Code of 1986, as amended (the Code)). The dividend equivalents described in Section 3 above shall be paid in cash at the same time as the delivery of the Shares under this Section 5 which correspond to such dividend equivalents. Vested Shares to be delivered due to death shall be paid to the Participants Beneficiary designated according to the terms of the Plan.
6. Compensation Recovery. The Award Shares shall be subject to being recovered under any compensation recovery policy that may be adopted from time to time by the Company or any of its Affiliates. For avoidance of doubt, compensation recovery rights to Award Shares shall extend to the proceeds realized by the Participant due to the sale or other transfer of the Award Shares.
7. Taxes; Limitation on Excess Parachute Payments. The Participant shall bear all expense of, and be solely responsible for, all federal, state, local, or foreign taxes due with respect to any payment received under this Award Agreement. Notwithstanding any other provision in this Award Agreement to the contrary, any payment or benefit received or to be received by the Participant in connection with a Change in Control or the termination of service (whether payable under the terms of this Award Agreement or any other plan, arrangement or agreement with a member of the Premier Group (collectively, the Payments) that would constitute a parachute payment within the meaning of Section 280G of the Code, shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), but only if, by reason of such reduction, the net after-tax benefit received by the Participant shall exceed the net after-tax benefit that would be received by the Participant if no such reduction was made. Whether and how the limitation under this Section 7 is applicable shall be determined under the Section 280G Rules set forth in Exhibit A, which shall be enforceable as if set forth in this Award Agreement.
8. Consent to Electronic Delivery. In lieu of receiving documents in paper format, the Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other agreements, forms and communications) in connection with this and any other prior or future incentive award or program made or offered by the Company or its predecessors or successors. Electronic delivery of a document to the Participant may be via a Company e-mail system or by reference to a location on a Company intranet site to which the Participant has access.
9. Administration. In administering the Plan, or to comply with applicable legal, regulatory, tax, or accounting requirements, it may be necessary for a member of the Premier Group to transfer certain Participant data to another member of the Premier Group, or to its outside service providers or governmental agencies. By accepting the Award, the Participant consents, to the fullest extent permitted by law, to the use and transfer, electronically or otherwise, of the Participants personal data to such entities for such purposes.
10. Entire Agreement/Amendment/Survival/Assignment. The terms, conditions and restrictions set forth in the Plan, this Award Agreement and the Prospectus constitute the entire understanding between the parties hereto regarding this Award and supersede all previous written, oral, or implied understandings between the parties hereto about the subject matter hereof. This Award Agreement may be amended by a subsequent writing (including e-mail or other electronic form) agreed to between the Company and the Participant. Section headings herein are for convenience only and have no effect on the interpretation of this Award Agreement. The provisions of this Award Agreement that are intended to survive a Participants
termination of service shall survive such date. The Company may assign this Award Agreement and its rights and obligations hereunder to any current or future member of the Premier Group.
11. No Right to Continued Service. The Participant agrees that nothing in this Award Agreement constitutes a contract of service with the Company for a definite period of time. The Company retains the right to decrease the Participants compensation and/or benefits, terminate the service relationship at any time for any reason or no reason not otherwise prohibited by law, or otherwise change the terms or conditions of the Participants service.
12. Transfer Restrictions. The Participant may not sell, assign, transfer, pledge, encumber or otherwise alienate, hypothecate or dispose of this Award or the Participants right hereunder to receive Award Shares, except as otherwise provided in the Committees sole discretion consistent with the Plan and applicable securities laws.
13. Conflict. This Award Agreement is subject to the terms and provisions of the Plan, including but not limited to the adjustment provisions under Section 12 of the Plan. In the event of a conflict between the Plan, this Award Agreement and/or the Prospectus, the documents shall control in that order (that is, the Plan, this Award Agreement and then the Prospectus).
14. Definitions. The following terms shall be as defined below:
(a) Disability means any of the following: (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, or the Participants entitlement to and receipt of disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; (ii) the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of at least twelve months, receiving disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; or (iii) the Participant is determined to be totally disabled by the Social Security Administration or Railroad Retirement Board.
(b) Premier Group shall mean the Company, its Subsidiaries and Affiliates.
15. Section 409A. This Award shall be construed consistent with the intention that it be exempt from Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, Section 409A). However, notwithstanding any other provision of the Plan or this Award Agreement, if at any time the Committee determines that this Award (or any portion thereof) may be subject to Section 409A, the Committee shall have the right in its sole discretion (without any obligation to do so or to indemnify the Participant or any other person for failure to do so) to adopt such amendments to the Plan or this Award Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Committee determines are necessary or appropriate either for this Award to be
exempt from the application of Section 409A or to comply with the requirements of Section 409A.
16. Lock-up Restriction. The Participant agrees that, if the Company proposes to offer for sale any Shares pursuant to a public offering under the Securities Act of 1933 and if requested by the Company and any underwriter engaged by the Company for a reasonable period of time specified by the Company or such underwriter following the effective date of the registration statement filed with respect to such offering, the Participant will not, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase, or otherwise dispose of any securities of the Company held by the Participant or enter into any Hedging Transaction (as defined below) relating to any securities of the Company held by the Participant. For purposes of this Section, a Hedging Transaction means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Shares.
17. Nature of Award. This Award represents the Companys unfunded and unsecured promise to issue Shares at a future date, subject to the terms of this Award Agreement and the Plan. The Participant has no rights under this Agreement other than the rights of a general unsecured creditor of the Company. The Participant shall have the rights of a shareholder with respect to the Award Shares only to the extent that Shares are issued to the Participant in accordance with the terms and conditions of this Award Agreement and the Plan.
18. Governing Law. This Award Agreement shall be legally binding and shall be executed and construed and its provisions enforced and administered in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law thereunder.
[Signature Page to Follow]
IN WITNESS WHEREOF, the Company by one of its duly authorized officers has executed this Award Agreement as of the day and year first above written.
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Please indicate your acceptance of the terms and conditions of this Award Agreement by signing in the space provided below and returning a signed copy of this Award Agreement to the Company. IF A FULLY EXECUTED COPY OF THIS AWARD AGREEMENT HAS NOT BEEN RECEIVED BY THE COMPANY BY , THE AWARD UNDER THIS AWARD AGREEMENT SHALL BE CANCELLED.
BY SIGNING BELOW, YOU ACKNOWLEDGE AND AGREE THAT YOU HAVE RECEIVED A COPY OF THE PLAN AND ARE FAMILIAR WITH THE TERMS AND PROVISIONS THEREOF, INCLUDING THE TERMS AND PROVISIONS OF THIS AWARD AGREEMENT. YOU HAVE REVIEWED THE PLAN AND THIS AWARD AGREEMENT IN THEIR ENTIRETY, HAVE HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR TO EXECUTING THIS AWARD AGREEMENT AND FULLY UNDERSTAND ALL PROVISIONS OF THIS AWARD AGREEMENT. FINALLY, YOU HEREBY AGREE TO ACCEPT AS BINDING, CONCLUSIVE AND FINAL ALL DECISIONS OR INTERPRETATIONS OF THE ADMINISTRATOR UPON ANY QUESTIONS ARISING UNDER THE PLAN OR THIS AWARD AGREEMENT.
The undersigned hereby accepts, and agrees to, all terms and provisions of this Award Agreement, and the Plan as they pertain hereto.
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EXHIBIT A Section 280G Rules
To Restricted Stock Unit Agreement
When you receive benefits in connection with a Change in Control
The following rules shall apply for purposes of determining whether and how the limitations provided under Section 7 are applicable to the Participant.
1. The net after-tax benefit shall mean (i) the Payments (as defined in Section 7) which the Participant receives or is then entitled to receive from the Company or an Affiliate that would constitute parachute payments within the meaning of Section 280G of the Code, less (ii) the amount of all federal, state and local income and employment taxes (FICA or SECA) payable by the Participant with respect to the foregoing calculated at the highest marginal income tax rate for each year in which the foregoing shall be paid to the Participant (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Tax imposed with respect to the payments and benefits described in (i) above.
2. All determinations under Section 7 of this Award Agreement and this Exhibit A will be made by an accounting firm or law firm that is selected for this purpose by the Companys Chief Executive Officer prior to a Change in Control (the 280G Firm). All fees and expenses of the 280G Firm shall be borne by the Company. The Company will direct the 280G Firm to submit any determination it makes under Section 7 of this Award Agreement and this Exhibit A and detailed supporting calculations to both the Participant and the Company as soon as reasonably practicable.
3. If the 280G Firm determines that one or more reductions are required under Section 7 of this Award Agreement, the 280G Firm shall also determine which Payments shall be reduced (first from cash payments and then from non-cash benefits) to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and the Company shall pay such reduced amount to the Participant. The 280G Firm shall make reductions required under Section 7 of this Award Agreement in a manner that maximizes the net after-tax amount payable to the Participant.
4. As a result of the uncertainty in the application of Section 280G at the time that the 280G Firm makes its determinations under this Section, it is possible that amounts will have been paid or distributed to the Participant that should not have been paid or distributed (collectively, the Overpayments), or that additional amounts should be paid or distributed to the Participant (collectively, the Underpayments). If the 280G Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant, which assertion the 280G Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Participant must repay to the Company, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Participant to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Participant is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the 280G Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the 280G
Firm will notify the Participant and the Company of that determination and the amount of that Underpayment will be paid to the Participant promptly by the Company.
5. The Participant will provide the 280G Firm access to, and copies of, any books, records, and documents in the Participants possession as reasonably requested by the 280G Firm, and otherwise cooperate with the 280G Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 7 of this Award Agreement and this Exhibit A.
Exhibit 10.11
PREMIER, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
AMENDED AND RESTATED EFFECTIVE SEPTEMBER 1, 2003
ARTICLE 1. PLAN AMENDMENT AND RESTATEMENT; PURPOSE
1.1 Amendment and Restatement. Premier, Inc., a Delaware corporation (the Company), hereby amends and restates its annual incentive compensation plan, which is known as the Premier, Inc. Annual Incentive Compensation Plan (the Plan), originally established effective July 1, 1996 for selected employees.
1.2 Purpose. The purpose of the Plan is to maximize the success of the Company and the Premier Group by providing significant financial incentive opportunities to employees, to assist in attracting and retaining employees of superior abilities, and to further align the interests and objectives of Participants with those of the Company and the Premier Group.
ARTICLE 2. DEFINITIONS
2.1 Definitions. Whenever used herein the following terms shall have their respective meanings as set forth below:
(a) Administrator means the employee(s) of the Company designated from time to time by the Committee to perform those duties specified in the Plan.
(b) Award shall have the meaning set forth in Section 7.2
(c) Change in Control shall be deemed to have occurred if (i) a tender offer shall be made and consummated for the ownership of 50% or more of the outstanding voting securities of the Company, (ii) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation, less than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company or its stockholders, (iii) the company shall sell substantially all of its assets to another corporation which corporation is not majority owned by the Company, or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Exchange Act, shall acquire beneficial ownership of 50% or more of the outstanding voting securities of the Company. For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act.
(d) Committee means the Compensation Committee of the Board of Directors of the Company.
(e) Company means Premier, Inc.
(f) Disability means a determination of disability with respect to a Participant under the long-term disability plan maintained by the Participants Premier Group employer. If, at any time during the period that this Plan is in operation, the applicable entity of the Premier Group does not maintain a long-term disability plan, Disability shall mean a physical or mental condition that, in the judgment of the Administrator, permanently prevents a Participant from performing the essential functions of the Participants job duties with the Premier Group or such other position or job that is made available to the Participant within the Premier Group and for which the Participant is qualified by reason of education, training and experience, with or without reasonable accommodation. In making such determination, the Administrator may, but is not required to, rely on advice of a physician competent in the area to which such Disability relates. In addition, the Participant upon request by the Administrator must submit such medical evidence, records and examination data to the Administrator regarding any Disability as is reasonably necessary for the Administrator to evaluate the same, to be treated as confidential as required by law. The Administrator shall make all determinations and resolve any disputes regarding Disability in its sole discretion, and any decision of the Administrator concerning the same will be binding on all parties.
(g) Earnings means the gross, base straight time salary/wages actually paid to the Participant by the applicable Premier Group employer for the Plan Year plus overtime, vacation pay, holiday pay, sick pay and any short-term disability payments made to the Participant under the Premier Groups short-term disability programs (whether or not paid directly by the Premier Group), excluding any bonus (including a lump-sum payment made in lieu of salary increase), commissions, incentive compensation, deferred compensation payments, stock options, profit sharing, dividends, benefits, severance pay, vacation payout, expense reimbursements, miscellaneous allowances or any other compensation. For the Plan Year beginning July 1, 2003 only, Earnings for a Participant who is on a leave of absence during any portion of such Plan Year for reason of a military service, family or medical leave shall be calculated assuming that the Participant continued to be paid during such leave period at the rate of base salary/wages in effect immediately before such leave commenced.
(h) Exchange Act means the Securities Exchange Act of 1934 and all regulations issued thereunder and any successors thereto.
(i) Goals and Performance Standards shall have the meaning set forth in Section 5.1.
(j) Participant means any individual designated to participate in the Plan pursuant to Article 4.
(k) Performance Standard Achievement shall have the meaning set forth in Section 7.1.
(l) Plan Year means the twelve-month period beginning July 1 through June 30.
(m) Premier Group means the Company and/or those affiliates, subsidiaries or managed entities which the Company permits to participate in the Plan.
(n) Retirement means the Participants voluntary resignation from the Premier Group on or after attaining age 59 ½ or age 55 with 5 or more years of service.
(o) Stretch means the level of achievement in which the highest payout for Goals and Performance Standards will be made.
(p) Target means 100% achievement of the Goals and Performance Standards.
(q) Target Award Opportunity shall have the meaning set forth in Section 6.1.
(r) Termination of Employment means the separation or end of the Participants employment with any and all members of the Premier Group for any reason.
(s) Threshold means the minimum level of achievement that must be attained for Goals and Performance Standards before a Plan Award is potentially earned.
ARTICLE 3. ADMINISTRATION
3.1 Committee. The Committee shall have general responsibility for the administration of the Plan according to the terms and provisions of the Plan and shall have all the powers necessary to accomplish these purposes, including, but not by way of limitation, the right, power and authority:
(a) To make rules and regulations for the administration of the Plan;
(b) To construe all terms, provisions, conditions and limitations of the Plan;
(c) To correct any defects, supply any omissions or reconcile any inconsistencies that may appear in the Plan in the manner and to the extent deemed expedient;
(d) To determine all controversies relating to the administration of the Plan, including, but not limited to, differences of opinion that may arise among the Premier Group or the Administrator and the Participants;
(e) To resolve any questions necessary to promote the uniform administration of the Plan; and
(f) To amend the Plan or terminate the Plan pursuant to Article 10.
3.2 Administrator. The Administrator shall have responsibility for the day to day operation of the Plan. The Administrator shall make initial determinations regarding administration of the Plan, including, but not limited to, differences of opinion that may arise
among the Premier Group and matters relating to Participant eligibility and incentive payments under the Plan. The foregoing notwithstanding, the Administrator also shall have responsibility for those decisions or actions specifically set forth in the provisions of this Plan.
3.3 Discretion. The Committee or the Administrator, in exercising any power or authority granted under this Plan, or in making any determination under this Plan, shall perform or refrain from performing those acts in its sole and absolute discretion and judgment. Any decision made by the Committee, or any refraining to act or any act taken by the Committee, shall be final and binding on all parties.
3.4 Liability and Indemnification. The Committee or the Administrator shall not be liable for any act done or any determination made in good faith. The Company and the Premier Group shall, to the fullest extent permitted by law, indemnify and hold the Committee, its members and the Administrator harmless from any and all claims, causes of action, damages and expenses (including reasonable attorneys fees and expenses) incurred by the Committee, its members and the Administrator in connection with or otherwise related to service in such capacity.
ARTICLE 4. PLAN PARTICIPATION
4.1 Participation. All employees of the Premier Group shall participate in the Plan, except that an individual who becomes an employee of the Premier Group on or after April 1 shall not begin participating in the Plan until the next Plan Year. An individual who becomes an employee of the Premier Group after the start of the Plan Year and before April 1 shall enter the Plan immediately and a Target Award Opportunity shall be established and communicated to such employee as soon as administratively practicable.
4.2 Term of Participation. A Participants participation in the Plan shall continue until the earlier to occur of: (a) the Participants Termination of Employment, or (b) termination of the Plan as provided in Article 10.
ARTICLE 5. GOALS AND PERFORMANCE STANDARDS
5.1 Goals and Performance Standards. The Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group shall recommend to the Committee: (a) Plan Year goals, and (b) performance standards that will be used to determine the degree to which the goals have been achieved (Goals and Performance Standards). Threshold, Target and Stretch Performance Standards shall be established for each Goal. The Goals and Performance Standards shall be measurable as of the conclusion of the Plan Year.
5.2 Committee Approval. The Committee will review, and will approve or modify as it deems appropriate, the recommendations for Goals and Performance Standards as provided by Section 5.1.
ARTICLE 6. AWARD OPPORTUNITY
6.1 Target Award Opportunity. Annually, by July 31 of each Plan Year, the Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group
shall establish a Target award opportunity for each Participant (the Target Award Opportunity). The Target Award Opportunity shall be expressed as a percent of a Participants Earnings for the Plan Year. Each Target Award Opportunity may consist of up to two three components, namely:
· Company Goals
· Departmental/Individual Goals
· Discretionary Considerations
The sum of all components will equal the total Target Award Opportunity. Each component of the total Target Award Opportunity shall be weighted such that the total weighting will equal 100%.
6.2 Participant Notification. The Administrator shall notify each Participant of the Participants Target Award Opportunity for the Plan Year as soon as practicable following the establishment of such Target Award Opportunity.
ARTICLE 7. AWARD DETERMINATION
7.1 Performance Review. Within 90 days of the conclusion of a Plan Year, the Committee shall review and approve the performance of the Premier Group in achieving the Goals and Performance Standards for the Plan. The Administrator shall make a determination of the Award percentage for each Participant based on total, aggregate Goals and Performance Standard achievement approved by the Committee (Performance Standard Achievement) utilizing the following:
Performance Standard Achievement |
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50 |
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100 |
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150 |
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In determining Performance Standard Achievement, the Committee may, in its sole and absolute discretion, eliminate from earnings of the Premier Group those extraordinary gains or losses of an abnormal or non-recurring nature, which in their judgment, should be excluded. This may, therefore, exclude items such as sale of capital assets, changes in accounting methods, tax adjustments, adjustments to earning for unrealized foreign exchange gains or losses, and approved restructuring expense or similar items. It is intended that any Goal established under the Plan that is based on income of the Premier Group will be determined using an income calculation that takes into consideration an expense accrual for the Plan Awards.
Actual Plan Awards will equal, exceed or fall below Target levels based on the extent of Performance Standard Achievement.
If Performance Standard Achievement is determined to be between Threshold and Target or between Target and Stretch, the Administrator shall determine the appropriate Award percentage by interpolation within the ranges shown in this Section 7.1 above.
7.2 Award Calculation. The Administrator shall calculate a Participants award under the Plan (the Award) applying the following formula: the Award percentage, as described in Section 7.1 above, multiplied by the Target Award Opportunity, multiplied by the Participants Earnings for Plan Year. For example, if the Award percentage is 110% and a Participant has a Target Award Opportunity of 75% and Plan Year Earnings of $300,000, the Participants Award would be $247,500.
ARTICLE 8. AWARD PAYMENT
8.1 Payment and Timing. Subject to Article 9, Awards shall be paid in cash as soon as calculable and administratively feasible following the close of the Companys fiscal year-end (June 30). However, a Participant who is otherwise eligible for and entitled to an Award under Articles 4 and 9 need not be employed by the Premier Group on the date that payment of the Award is actually made.
8.2 Deferral of Payment. Notwithstanding any other provision of the Plan, a Participants Award shall not be paid in cash to the extent that the Participant has entered into a deferral agreement, an employment agreement or such other agreement with the Company or another member of the Premier Group which agreement specifically provides for the deferral of an Award otherwise payable under the Plan.
ARTICLE 9. TERMINATION EVENTS
9.1 Termination Due to Death, Disability, Retirement or a Change of Control. In the event a Participants employment with the Premier Group terminates or ends at any point in time before or after the end of the Plan Year as a result of a Participants: (a) death, Disability or Retirement, or (b) resignation occurring within two years following a Change of Control, the Participant (or the Participants estate in the event of the Participants death) shall be entitled to payment as provided in Article 8 of any Award to which the Participant may be entitled pursuant to Articles 4 and 7, as applicable.
9.2 Other Termination Events. In the event a Participants employment terminates or ends at any point in time before the end of the Plan Year for any reason other than the Participants: (a) death, Disability or Retirement, or (b) resignation occurring within two years following a Change of Control, the Participants participation in the Plan shall immediately terminate, and the Participant shall forfeit all rights under the Plan, including the right to receive any Award or any payment of all or a portion of any Award.
ARTICLE 10. AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
10.1 Right to Amend, Suspend or Terminate Plan. The Committee reserves the right at any time to amend, modify, suspend or terminate the Plan for any reason and without the consent of the Administrator, the Participants or any other person.
10.2 Notice. Notice of any amendment, modification, suspension or termination of the Plan shall be given by the Committee to the Administrator and to all Participants.
ARTICLE 11. GENERAL PROVISIONS REGARDING PLAN ADMINISTRATION
11.1 Limitation of Rights. The granting of any rights to a Participant under the provisions of the Plan represent only a discretionary, contingent right to receive compensation. Accordingly, nothing in this Plan shall be construed:
(a) To limit in any way the right of the Premier Group to terminate a Participants employment at any time for any reason;
(b) To evidence any agreement or understanding, express or implied, that the Premier Group will employ a Participant in any particular capacity for any particular term or for any particular remuneration; or
(c) To grant any right to, or interest in, either express or implied, any equity position or ownership in the Premier Group.
Moreover, no Participants shall have any right or interest, whether vested or otherwise, in the Plan or in any Award unless and until all of the terms, conditions, and provisions of the Plan and the guidelines have been complied with and an Award has been paid.
11.2 Alienation. No benefit provided by this Plan shall be transferable by the Participant except on the Participants death, as provided in this Plan. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan shall be void. No right or benefit under this Plan shall, in any manner, be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the right or benefit. If any Participant becomes bankrupt or attempts to anticipate, alienate, assign, pledge, sell, encumber or charge any right or benefit under this Plan, then the right or benefit shall, in the discretion of the Administrator, cease. In that event, the Company may hold or apply the right or benefit, or any part of the right or benefit, for the benefit of the Participant, his or her spouse, children, or dependents, the beneficiary or any of them, in the manner or in the proportion that the Administrator shall deem proper, in its sole discretion, but it shall not be required to do so.
11.3 Tax Withholding. If the Premier Group shall be required to withhold any amount by reason of any federal, state or local tax laws, rules, regulations or court decisions in respect of the payment of an earned Award, the Premier Group shall be entitled to deduct or withhold such amounts from any Award payments to a Participant or beneficiary thereof.
11.4 Unfunded Plan. The Plan shall be unfunded. Premier Group shall not be required to segregate or earmark any cash, or other assets and property in connection with the Plan. The Premier Group, the Committee and the Administrator shall not have any fiduciary responsibility to any employee or Participant in connection with this Plan. In addition, the Premier Group shall not be deemed to be a trustee of any amounts to be paid to a Participant. Any liability of the Premier Group to pay any Participant with respect to a potential Plan Award shall be based solely upon any obligations created pursuant to the provisions of the Plan; and no such obligation shall be deemed to be secured by any pledge or encumbrance on any property of the Premier Group. However, the Premier Group shall have the discretion at any time to
segregate such assets that may be represented by an Award. Such assets will at all times remain the property of the Premier Group. Moreover, any Participants and their beneficiaries shall at all times be merely unsecured creditors of the Company.
11.5 Plan Document Governs. In the event of a conflict between any other written or oral statements and this Plan document, the provisions of this Plan document shall govern.
11.6 Governing Law. The construction and operation of this Plan are governed by the laws, rules, and judicial decisions of the State of Delaware, except as superseded by federal law.
11.7 Headings. All headings in the Plan are for reference only and not to be utilized in construing the Plan.
11.8 Gender. Unless clearly appropriate, all nouns of whatever gender refer indifferently to persons of any gender.
11.9 Singular and Plural. Unless clearly inappropriate, singular terms refer also the plural and vice versa.
11.10 Severability. Every provision of this Plan is severable from every other provision of this Plan. Thus, if any part of the provisions contained in this Plan document is determined by a court of competent jurisdiction or by any arbitration panel to which a dispute is submitted to be invalid, illegal or incapable of being enforced, then such covenant or provision (with such modification as shall be required in order to render such covenant or provision not invalid, illegal or incapable of being enforced) shall remain in full force and effect, and all other covenants and provisions contained in this Plan document shall, nevertheless, remain in full force and effect to the fullest extent permitted by law, unless the continuance of the Plan in such circumstances is not consistent with its purposes.
11.11 Waiver of Breach. Waiver by the Committee, the Administrator or the Premier Group of any provision of this Plan shall not operate or be construed as a waiver of any other provision of this Plan or any other future breach of the provisions so waived.
ARTICLE 12. EFFECTIVE DATE
12.1 Effective Date. The Plan as amended and restated shall become effective as of September 1, 2003.
Exhibit 10.12
PREMIER, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
AMENDMENT 2008-1
WHEREAS, Premier, Inc., a Delaware company (the Company), adopted the Premier, Inc. Annual Incentive Compensation Plan, effective July 1, 1996, for the benefit of selected employees of the Company and its affiliates, subsidiaries, and managed entities which the Company permits to participate in the Plan;
WHEREAS, the Company has amended and restated the Plan, most recently effective September 1, 2003;
WHEREAS, the Compensation Committee (the Committee) of the Board of Directors of the Company has reserved the right to amend the Plan;
WHEREAS, the Committee has determined that a ministerial amendment to the Plan is required to continue the Plans compliance with the provisions of section 409A of the Internal Revenue Code of 1986, as amended (the Code).
NOW, THEREFORE, the Plan is amended, effective January 1, 2009, to provide as follows:
1. The first sentence of Section 8.1, relating to the payment of Awards under the Plan, is amended in its entirety to provide as follows:
Subject to Article 9, Awards shall be paid in cash on September 15th following the end of the Companys fiscal year-end (June 30); however, a delay in payment of the Award shall not entitle the Employee to any interest or other increment due to the delayed payment.
2. Section 8.2, relating to the deferral of the payment of Awards under the Plan, is amended by the addition of the following clause to the end thereof;
and which agreement is drafted and operated to meet the requirements of section 409A of the Internal Revenue Code of 1986, as amended (the Code).
IN WITNESS WHEREOF, the Compensation Committee of the Companys Board of Directors has authorized its member to execute this Amendment 2008-1 to the Plan this 31st day of December, 2008.
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/s/ Robin Bernstein |
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For the Compensation Committee |
Exhibit 10.13
PREMIER, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
AMENDMENT 2011-1
WHEREAS, Premier, Inc., a Delaware company (the Company), adopted the Premier, Inc. Annual Incentive Compensation Plan, effective July 1, 1996, for the benefit of selected employees of the Company and its affiliates, subsidiaries, and managed entities which the Company permits to participate in the Plan;
WHEREAS, the Company has amended and restated the Plan, most recently effective September 1, 2003;
WHEREAS, the Compensation Committee (the Committee) of the Board of Directors of the Company has reserved the right to amend the Plan;
WHEREAS, the Committee has determined that it is in the best interest of the Company to amend the Plan to implement a clawback or recoupment of certain Awards and payments under the Plan to specified participants to replicate some of the relevant requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
NOW, THEREFORE, the Plan is amended, effective January 1, 2011, to provide as follows:
1. New Article 8A is added to provide as follows:
ARTICLE 8A. REDUCTION AND REPAYMENT OF AWARDS IN CERTAIN CIRCUMSTANCES
8A.1 Clawback Policy. The Company may, in its discretion, cancel all or any portion of the Awards of specified Participants, whether vested or unvested, whether before or following payment of such Award(s), under the following circumstances:
(a) With respect to a Covered Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee: (i) determines that the financial statements on which the Award is based or paid are materially inaccurate and (ii) subsequently restates or otherwise adjusts the financial statements in a manner that reduces the size of the Award or payment.
(b) With respect to a Covered Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee: (i) determines that one or more of the Operating Metrics calculations on which the Award is based or paid are materially
inaccurate and (ii) subsequently restates or otherwise adjusts the Operating Metrics calculations in a manner that reduces the size of the Award or payment.
(c) With respect to a Senior Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee: (i) determines that the financial statements on which the Award is based or paid are materially inaccurate, (ii) subsequently restates or otherwise adjusts the financial statements in a manner that reduces the size of the Award or payment, and (iii) determines that such inaccuracy is attributable, in whole or in part, to the Senior Executives fraud, intentional misconduct, or gross negligence, including the failure to report another persons fraud, intentional misconduct, or gross negligence.
(d) With respect to a Senior Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee determines: (i) that one or more of the Operating Metrics calculations on which the Award is based or paid are materially inaccurate, (ii) subsequently restates or otherwise adjusts one or more of the Operating Metrics calculations in a manner that reduces the size of the Award or payment, and (iii) determines that such inaccuracy is attributable, in whole or in part, to the Senior Executives fraud, intentional misconduct, or gross negligence, including the failure to report another persons fraud, intentional misconduct, or gross negligence.
8A.2 Fiscal Periods.
(a) The Fiscal Period described in Section 8A.1(a) and (b) shall mean the 36-month period immediately preceding the date on which the Company restates or otherwise adjusts the financial statements or performance measure(s) in a manner that reduces the size of the Award or payment, including amounts awarded and/or paid prior to the effective date of this Article 8A.
(b) The Fiscal Period described in Section 8A.1(c) and (d) shall mean the entire period preceding the date on which the Company restates or otherwise adjusts the financial statements or performance measure(s) in a manner that reduces the size of the award or payment during which the individual is engaged in the role of a Senior Executive, including periods prior to the effective date of this Article 8A.
8A.3 Amount of Clawback.
(a) If one or more of the events described in Section 8A.1 occurs, the Committee, in its discretion, shall reduce the Award by an amount equal to the Award calculated using the erroneous financial statements or performance measures, less the Award calculated using the restated or adjusted financial statements or performance standards.
(b) Where the financial results were considered in calculating the Award, but the Award is not awarded or paid on a formulaic basis, the Committee shall determine, in its discretion, the amount, if any, by which the Award should be reduced.
Section 8A.4 Recoupment of Paid Awards.
(a) Subject to applicable law, the Company will seek to recoup amounts calculated under Section 8A.3 and previously paid to the Covered Executive or Senior Executive by:
(i) Requiring the Covered Executive or Senior Executive to pay such amount to the Company,
(ii) Set-off,
(iii) Reducing future compensation or deferred compensation, and/or
(iv) Such other means or combination as the Committee determines to be appropriate.
(b) The Committee will determine whether to charge interest with respect to such recoupment and, if interest will be charged, how it will be calculated.
(c) Any recoupment under this Policy may be in addition to any other remedies that may be available to the Company under applicable law, including disciplinary actions up to and including termination of employment. This does not limit the Companys ability to seek recoupment, in appropriate circumstances (including circumstances beyond the scope of this Plan) and as permitted by law, of any amounts from any individual, whether or not the individual is a Covered Executive or a Senior Executive.
Section 8A.5 Definitions.
(a) Audit Committee means the Audit Committee of the Board of Directors of the Company.
(b) Covered Executive means an individual who serves or served as a member of the Companys Executive Team or as a participant in the Long-Term Incentive Plan during all or a portion of the applicable Fiscal Period.
(c) Operating Metrics means the Goals and Performance Standards and Performance Standard Achievement used to calculate Awards.
(d) Senior Executive means an individual who serves or served as the Companys Chief Executive Officer or Chief Financial Officer during all or a portion of the applicable Fiscal Period.
IN WITNESS WHEREOF, the Compensation Committee of the Companys Board of Directors has authorized its member to execute this Amendment 2011-1 to the Plan this 31 day of January, 2011.
|
/s/ Robin Bernstein |
|
For the Compensation Committee |
Exhibit 10.14
PREMIER, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
AMENDMENT 2013-1
WHEREAS, Premier Health Services, Inc., (f/k/a Premier, Inc.) a Delaware company (the Company), adopted the Premier, Inc. Annual Incentive Compensation Plan, effective July 1, 1996, for the benefit of selected employees of the Company and its affiliates, subsidiaries, and managed entities which the Company permits to participate in the Plan;
WHEREAS, the Company has amended and restate the Plan, most recently effective September 1, 2003;
WHEREAS, the Compensation Committee of the Company (the Committee) may amend the Plan;
WHEREAS, the Committee wishes to amend the Plan to conform the definition of Change in Control used in the Plan with the definition found in the Premier, Inc. 2013 Equity Incentive Plan;
WHEREAS, the Committee wishes to amend the Plan, contingent upon Premier, Inc.s (Premier) successful completion of the contemplated initial public offering, to reflect the adoption a new compensation recoupment policy; and
WHEREAS, the Committee has determined that it is in the best interest of the Premier, the Company and their affiliates to amend the Plan to make certain technical updates to clarify the Companys intention that the Plan be construed and operated in a manner such that it is exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A), but to also provide a Code Section 409A savings clause in the event any amounts payable under the Plan are determined to be nonqualified deferred compensation within the meaning of Code Section 409A.
NOW, THEREFORE, the Plan is amended, effective August 16, 2013, to provide as follows:
1. Section 2.1(c) of the Plan is hereby deleted in its entirety and replaced as follows:
(c) Change in Control shall have the meaning set forth in Section 13.3 (or subsequent applicable sections, if and as later amended) of the Premier, Inc. 2013 Equity Incentive Plan, as it may be established, modified, changed or replaced from time to time.
2. A new Section 8A.6 is added to the Plan as follows:
Section 8A.6 Replacement Compensation Recoupment Policy.
Notwithstanding the foregoing provisions in this Section 8A and contingent upon the successful completion of the contemplated reorganization pursuant to which Premier Healthcare Solutions, Inc. (f/k/a Premier, Inc.) and Premier Purchasing Partners, L.P. would become direct or indirect subsidiaries of Premier, Inc. (New Premier) and New Premier will engage in an initial public offering of Class A Common Stock (the reorganization and initial public offer for which is collectively referred to herein as the Reorganization), the following provisions shall replace Sections 8A.1 through 8A.5.
Effective as of the Reorganization, a Participants eligibility to participate in, receive Awards under, and rights to payment pursuant to this Plan is conditioned upon the Participants being subject any compensation recovery policy that may be adopted from time to time by New Premier or any subsidiary of New Premier (a Recoupment Policy) and all amounts payable pursuant to this Plan shall be subject to the Recoupment Policy.
3. A new Section 11.12 is hereby added to the Plan as follows:
11.12 Code Section 409A.
(a) The Plan is intended to be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the rules, regulations and other guidance promulgated thereunder (Code Section 409A) and shall be construed and interpreted in such a manner consistent with said intent.
(b) Notwithstanding the foregoing, in the event any portion of the Plan is determined to involve the deferral of compensation or the payment of nonqualified deferred compensation (as such term is described in Code Section 409A), such portion of the Plan shall be interpreted to comply with Code Section 409A, and each provision that conflicts with such requirements shall be neither valid nor enforceable. The Committee may amend any such portion of the Plan determined to be subject to the requirements of Code Section 409A to the extent required to comply with Code Section 409A, as the Committee may determine to be necessary or appropriate.
(c) The following provisions shall apply upon a separation from service (as defined by Code Section 409A) on or after the date that any stock of the Company (or its parent) becomes publicly traded on an established securities market or otherwise. If the Participant is deemed on the date of such a separation from service to be a specified employee (within the meaning of that term under Code Section 409A(a)(2)(B) and determined using any identification methodology and procedure selected by the Company (or its parent) from time to time, or if none, the default methodology and procedure specified under Code Section 409A), then any amounts that are considered nonqualified
deferred compensation (within the meaning of that term under Code Section 409A) payable as a result of the Participants separation from service shall not be paid prior to the date which is the earlier of (i) the expiration of the six (6) month period measured from the date of such separation from service of the Participant, and (ii) the date of the Participants death (the Delay Period). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to the Participant in a lump sum, and any remaining payments due under the Plan shall be paid or provided in accordance with the normal payment dates specified for them herein. In determining whether a Participant is subject to the delay hereinabove described, the transitional rules of Treasury Regulation § 1.409A-1(i)(6) shall be applied.
IN WITNESS WHEREOF, the Compensation Committee of the Company has authorized the execution of this Amendment 2013-1 to the Plan this 16th day of August, 2013.
|
/s/ Robin Bernstein |
|
For the Compensation Committee |
Exhibit 10.15
PREMIER, INC.
LONG-TERM INCENTIVE COMPENSATION PLAN
FOR THE PERIOD
JULY 1, 2010 THROUGH JUNE 30, 2013 (Amended and restated)
ARTICLE 1. PLAN ESTABLISHMENT AND PURPOSE
1.1 Establishment. Premier, Inc., a Delaware corporation (the Company), hereby establishes a long-term incentive compensation plan for selected employees, which shall be known as the Premier, Inc. Long-Term Incentive Compensation Plan for the period July 1, 2010 through June 30, 2013 (the Plan).
1.2 Purpose. The purpose of the Plan is to maximize the success of the Company and the Premier Group by providing significant financial incentive opportunities to selected employees for generating benefits and savings to member organizations. It is also intended to assist in the attraction and retention of employees and to align the interests of the employees with those of the owners of the Company. As described in Section 11.12, the Plan is intended to comply in all respects with the provisions of section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and other official guidance issued thereunder (the Code).
ARTICLE 2. DEFINITIONS
2.1 Definitions. Whenever used herein the following terms shall have their respective meanings as set forth below:
(a) Administrator means the employee(s) of the Company designated from time to time by the Committee to perform those duties specified in the Plan.
(b) Award shall have the meaning set forth in Section 7.2.
(c) Base Salary means the Participants gross, base straight time salary/wages with the applicable Premier Group employer, excluding any bonus, premium time, overtime, commissions, incentive compensation, deferred compensation payments, stock options, profit sharing, dividends, benefits, severance pay, or any other compensation.
(d) Change in Control shall be deemed to have occurred if:
(i) a tender offer shall be made and consummated for the ownership of 50% or more of the outstanding voting securities of the Company;
(ii) the Company shall be merged or consolidated with another corporation and as a result of such merger or consolidation, less than 50% of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company or its stockholders;
(iii) the Company shall sell substantially all of its assets to another corporation, where such transaction is treated as a change in control under section 409A of the Code; or
(iv) a person, within the meaning of Section 3(a)(9) or of Section 13 (d)(3) (as in effect on the date hereof) of the Exchange Act, shall acquire beneficial ownership of 50% or more of the outstanding voting securities of the Company.
For purposes hereof, ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i)) (as in effect on the date hereof) pursuant to the Exchange Act. Further, a transfer of assets by a corporation pursuant to Subsection (d)(iii) is not treated as a change in control where such assets are transferred to:
(I) an existing shareholder of the corporation in exchange for or with respect to its stock,
(II) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the corporation,
(III) a person or group that owns, directly or indirectly, 50% or more of the total value or voting power of all of the corporations outstanding stock, or
(IV) an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in (III) above.
(e) Committee means the Compensation Committee of the Board of Directors of the Company.
(f) Company means Premier, Inc.
(g) Cumulative Base Salary means the Participants cumulative, aggregated Base Salary earned during the portion of the Plan Term while a Participant in the Plan.
(h) Disability means any of (a), (b), or (c) below:
(i) The Participants inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or entitlement to and receipt of disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition;
(ii) The Participant is, by reason of a medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving either (A) income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Participants employer or (B) disability benefits under a disability insurance program that pays benefits on the basis of the foregoing definition; or
(iii) The Participant is determined to be totally disabled by the Social Security Administration.
In making a determination under Subsection (h)(i) or (ii), the Administrator may, but is not required to, rely on advice of a physician competent in the area to which such Disability relates. In addition, the Participant upon request by the Administrator must submit such medical evidence, records and examination data to the Administrator regarding any Disability as is reasonably necessary for the Administrator to evaluate the same, to be treated as confidential as required by law. The Administrator shall make all determinations and resolve any disputes regarding Disability in its sole discretion, and any decision of the Administrator concerning the same will be binding on all parties.
(i) Exchange Act means the Securities Exchange Act of 1934 and all regulations issued thereunder and any successors thereto.
(j) Goals and Performance Standards shall have the meaning set forth in Section 5.1.
(k) Participant means any individual designated to participate in the Plan pursuant to Article 4.
(l) Performance Standard Achievement shall have the meaning set forth in Section 7.1.
(m) Plan Term means the period of July 1, 2010 through June 30, 2013.
(n) Premier Group means the Company and those affiliates, subsidiaries, and managed entities which the Company permits to participate in the Plan.
(o) Retirement means the Participants voluntary resignation from the Premier Group on or after attaining age 59½ or age 55 with 5 or more years of service.
(p) Stretch means the level of achievement in which the highest payout for Goals and Performance Standards will be made.
(q) Target means 100% achievement of the Goals and Performance Standards.
(r) Target Award Opportunity shall have the meaning set forth in Section 6.1.
(s) Termination for Cause means termination of the employment of the Participant by the Company and/or the Premier Group as a result of conduct by the Participant amounting to: (i) commission or omission of any act of dishonesty, moral turpitude, fraud, embezzlement, theft, misappropriation, breach of fiduciary duty, or breach of the duty of loyalty in connection with the Participants employment with the Company, the Premier Group or against any Premier Group partner hospital, affiliated health care organization or customer; (ii) willful misconduct, insubordination, or repeated refusal or unwillingness to follow the reasonable directives of the Board of Directors of the Participants Premier Group employer, the Chief Executive Officer of the Company and/or the applicable Premier Group employer, or the Participants immediate supervisor(s); (iii) knowing violation of law in the course of performance of the duties of the Participants employment; (iv) excessive absenteeism not related to authorized sick leave, authorized family/medical leave, authorized disability leave or authorized vacation within the parameters set forth in accordance with the Premier Groups policies and procedures regarding the same; (v) use of alcohol during working hours beyond that customarily authorized in the performance of the Participants job duties, repeated use of alcohol after working hours that materially interferes with the Participants job duties, use of illegal drugs, or violation of the Premier Groups drug and/or alcohol policies; (vi) a conviction, guilty plea or plea of nolo contendere by the Participant for any crime involving moral turpitude or dishonesty, or for any felony; or (vii) breach or violation of the policies, rules, procedures or instructions of the Company or the Premier Group or of the terms of employment or other agreement to which Participant and the Premier Group are party.
(t) Termination Without Cause means a separation of service, as such term is defined in section 409A of the Code, of the Participant by the Company and/or the Premier Group for any reason other than death, Disability or Termination for Cause.
(u) Threshold means the minimum level of achievement that must be attained for Goals and Performance Standards before a Plan Award is potentially earned.
(v) Voluntary Resignation means a separation from service, as such term is defined in section 409A of the Code, as a result of the resignation by the Participant from his or her employment with the applicable Premier Group employer for any reason other than Retirement or Disability. The Premier Group employer or its authorized designees are entitled upon receiving such notice of Voluntary Resignation, in their discretion, to accept such resignation as effective on the resignation date proposed by the Participant, or such other earlier date designated by the Premier Group employer.
ARTICLE 3. ADMINISTRATION
3.1 Committee. The Committee shall have general responsibility for the administration of the Plan according to the terms and provisions of the Plan and shall have all the powers necessary to accomplish these purposes, including, but not by way of limitation, the right, power and authority:
(a) To make rules and regulations for the administration of the Plan;
(b) To construe all terms, provisions, conditions and limitations of the Plan;
(c) To correct any defects, supply any omissions or reconcile any inconsistencies that may appear in the Plan in the manner and to the extent deemed expedient;
(d) To determine all controversies relating to the administration of the Plan, including, but not limited to, differences of opinion that may arise among the Premier Group or the Administrator and the Participants;
(e) To resolve any questions necessary to promote the uniform administration of the Plan;
(f) To amend the Plan or terminate the Plan pursuant to Section 10.1; and
(g) To create a claims procedure that complies with the provisions of DOL Reg. §2560.503-1 and to provide copies of such procedure to Participants on request.
3.2 Administrator. The Administrator shall have responsibility for the day to day operation of the Plan. The Administrator shall make initial determinations regarding administration of the Plan, including, but not limited to, differences of opinion that may arise among the Premier Group and matters relating to Participant eligibility and incentive payments under the Plan. The foregoing notwithstanding, the Administrator also shall have responsibility for those decisions or actions specifically set forth in the provisions of this Plan.
3.3 Discretion. The Committee or the Administrator, in exercising any power and authority granted under this Plan or in making any determination under this Plan, shall perform or refrain from performing those acts in their sole and absolute discretion and judgment. Any decision made by the Committee, or any refraining to act or any act taken by the Committee, in good faith, shall be final and binding on all parties.
3.4 Liability and Indemnification.
(a) Each Indemnitee (as defined in Subsection (e)) shall be indemnified and held harmless by the Premier Group for all actions taken by him and for all failures to take action (regardless of the date of any such action or failure to take action), to the fullest extent permitted by the law of the State of Delaware, against all expense, liability, and loss (including, without limitation, attorneys fees, judgments, fines, taxes, penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Indemnitee in connection with any Proceeding (as defined in Subsection (e)). No indemnification pursuant to this Section shall be made, however, in any case where (i) the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness or (ii) there is a settlement to which the Company does not consent.
(b) The right to indemnification provided in this Section shall include the right to have the expenses incurred by the Indemnitee in defending any Proceeding paid by the Company in advance of the final disposition of the Proceeding, to the fullest extent permitted by the law of the State of Delaware; provided that, if such law requires, the payment of such expenses incurred by the Indemnitee in advance of the final disposition of a Proceeding shall be made only on delivery to the Company of an undertaking, by or on behalf of the Indemnitee, to repay all amounts so advanced without interest if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified under this Section or otherwise.
(c) Indemnification pursuant to this Section shall continue as to an Indemnitee who has ceased to be such and shall inure to the benefit of his heirs, executors, and administrators. The Premier Group agrees that the undertakings made in this Section shall be binding on its successors or assigns and shall survive the termination, amendment or restatement of the Plan.
(d) The foregoing right to indemnification shall be in addition to such other rights as the Indemnitee may enjoy as a matter of law or by reason of insurance coverage of any kind and is in addition to and not in lieu of any rights to indemnification to which the Indemnitee may be entitled pursuant to the by-laws of the Company or applicable member of the Premier Group.
(e) For the purposes of this Section, the following definitions shall apply:
(i) Indemnitee shall mean each person serving as a member of the Committee, the Administrator, or any other person who is an employee, director, or officer of the Premier Group who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any Proceeding, by reason of the fact that he is or was performing administrative functions under the Plan.
(ii) Proceeding shall mean any threatened, pending, or completed action, suit, or proceeding (including, without limitation, an action, suit, or proceeding by or in the right of the Premier Group), whether civil, criminal, administrative, investigative, or through arbitration.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1 General Eligibility. Employees of the Premier Group shall be recommended for participation in the Plan by the Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group, from among those employees of the Premier Group who are, in the opinion of the Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group, in a position to contribute materially to the Premier Groups continued growth and development and to its long-term financial success. All such persons shall be members of a select group of management or highly compensated employees within the Premier Group.
4.2 Participation. Participants in the Plan shall be limited to those individuals approved by the Committee. The effective date of a Participants inclusion in the Plan shall be determined by the Committee based on the recommendation provided pursuant to Section 4.1. Eligibility and the criteria and approval for participation in the Plan is applicable only for the current Plan Term and is subject to review by the Chief Executive Officer of the Company, other appropriate senior executives of the Premier Group, and the Committee for any other long-term incentive compensation plan.
4.3 Term of Participation; Removal. Participation in the Plan shall continue until the earlier to occur of: (a) removal of the Participant from the Plan by the Committee based upon recommendation of the Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group that such Participant is no longer in a position to contribute materially to the Premier Groups continued growth and development and to its long-term financial success; (b) the Participants termination of employment as provided in Article 9; or (c) termination of the Plan as provided by Section 10.1.
ARTICLE 5. GOALS AND PERFORMANCE STANDARDS
5.1 Goals and Performance Standards. The Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group shall recommend to the Committee: (a) Plan Term goals and (b) performance standards that will be used to determine the degree to which the goals have been achieved (Goals and Performance Standards). Threshold, Target and Stretch Performance Standards shall be established for each Goal. The Goals and Performance Standards shall be measurable as of the conclusion of the Plan Term.
5.2 Committee Approval. The Committee will review, and will approve or modify as it deems appropriate, the recommendations for Goals and Performance Standards as provided by Section 5.1. In addition, on recommendation of the Chief Executive Officer of the Company, the Committee may approve adjustments to the Goals and Performance Standards during the Plan Term to ensure that they remain consistent with Premier Group objectives.
ARTICLE 6. AWARD OPPORTUNITY
6.1 Target Award Opportunity. The Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group shall recommend to the Committee a Target award opportunity for each Participant (the Target Award Opportunity). The Target Award Opportunity shall be expressed as a percentage of a Participants Cumulative Base Salary.
6.2 Committee Approval; Participant Notification. The Committee will review the recommendations provided for each Participant, and will approve or modify the Target Award Opportunity for each Participant. The Administrator will notify each Participant as soon as practicable of the Participants Target Award Opportunity for the Plan Term. In addition, on recommendation of the Chief Executive Officer of the Company or other appropriate senior executives of the Premier Group, the Committee may approve adjustments to the Target Award Opportunity of any Participant during the Plan Term to ensure that they remain consistent with Premier Group objectives and market compensation practices.
ARTICLE 7. AWARD DETERMINATION
7.1 Performance Review. Within 90 days of the conclusion of the Plan Term, the Committee shall review and approve the performance of the Premier Group in achieving the Goals and Performance Standards for the Plan. In addition, the Chief Executive Officer of the Company shall review the overall performance of the Premier Group and may recommend, and the Committee may approve or modify, a discretionary achievement adjustment. The Administrator shall make a determination of the Award percentage based on total, aggregate Goals and Performance Standard achievement, including any discretionary achievement adjustment, approved by the Committee (Performance Standard Achievement) utilizing the following:
Performance Standard Achievement |
|
Award Percentage |
|
Below Threshold |
|
0 |
% |
Threshold |
|
50 |
% |
Target |
|
100 |
% |
Stretch |
|
150 |
% |
In determining Performance Standard Achievement, the Committee may, in its sole and absolute discretion, eliminate from earnings of the Premier Group those extraordinary gains or losses of an abnormal or non-recurring nature, which in their judgment, should be excluded. This may, therefore, exclude items such as sale of capital assets, changes in accounting methods, tax adjustments, adjustments to earning for unrealized foreign exchange gains or losses, and approved restructuring expense or similar items. It is intended that any Goal established under the Plan that is based on income of the Premier Group will be determined using an income calculation that takes into consideration an expense accrual for the Plan Awards.
Actual Plan Awards will equal, exceed or fall below Target levels based on the extent of Performance Standard Achievement.
If Performance Standard Achievement is determined to be between Threshold and Target or between Target and Stretch, the Administrator shall determine the appropriate Award percentage by interpolation within the ranges shown in this Section 7.1 above.
7.2 Award Calculation. The Administrator shall calculate a Participants Award under the Plan applying the following formula: the Award percentage, as described in Section 7.1 above, multiplied by the Target Award Opportunity, multiplied by the Participants Cumulative Base Salary. For example, if the Award percentage is 110% and a Participant has a Target Award Opportunity of 75% and Cumulative Base Salary of $300,000, the Participants Award would be $247,500.
ARTICLE 8. AWARD PAYMENT
8.1 Payments. Subject to Article 9, Awards shall be paid to Participants in the following manner:
(a) Forty percent (40%) of the Award shall be paid in cash within one hundred and twenty (120) days following the conclusion of the Plan Term;
(b) Thirty percent (30%) of the Award, plus interest thereon, shall be paid on the first anniversary of the conclusion of the Plan Term; and
(c) The remaining thirty percent (30%) of the Award, plus interest thereon, shall be paid on the second anniversary of the conclusion of the Plan Term.
8.2 Interest. The payments described in Section 8.1 shall be credited with interest, compounded annually from the last day of the Plan Term, based on a benchmark to be determined by the Committee in its discretion.
8.3 Deferral of Payment. Notwithstanding any other provision of the Plan, a Participants Award shall not be paid in cash to the extent that the Participant has entered into a deferral agreement, an employment agreement or such other agreement with the Company or another member of the Premier Group which agreement specifically provides for the deferral of an Award otherwise payable from the Plan.
ARTICLE 9. TERMINATION EVENTS
9.1 Voluntary Resignation and Termination for Cause. In the event a Participants employment with the Premier Group terminates or ends at any point in time before or after the end of the Plan Term and prior to payment of all or a portion of a Plan Award as described in Article 8 as a result of: (a) Voluntary Resignation (other than a Voluntary Resignation occurring within two years following a Change in Control), or (b) Termination for Cause, the Participants participation in the Plan shall immediately terminate, and all rights under this Plan for such Participant to receive any Award pursuant to Article 7 or any payment of all or a portion of an Award pursuant to Article 8 not yet made as of the final effective date of termination or resignation shall be forfeited.
9.2 Other Termination Events. In the event a Participants employment with the Premier Group terminates or ends at any point in time before or after the end of the Plan Term and prior to payment of all or a portion of a Plan Award as described in Article 8 as a result of: (a) the Participants death, Disability or Retirement, (b) Termination Without Cause, or (c) a Voluntary Resignation occurring within two years following a Change in Control, the Participants Cumulative Base Salary for the purpose of calculating an Award under the Plan shall be determined as of the final effective date of such event or the end of the Plan Term, whichever is earlier, but the Participant (or the Participants estate in the event of the Participants death) shall be entitled to payment as provided in Article 8 of any Award to which the Participant may become entitled pursuant to Article 7.
ARTICLE 10. AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
10.1 Right to Amend, Suspend or Terminate Plan. Subject to Section 11.12, the Committee reserves the right at any time to amend, modify, suspend or terminate the Plan for any reason and without the consent of the Administrator, the Participants or any other person.
10.2 Notice. Notice of any amendment, modification, suspension or termination of the Plan shall be given by the Committee to the Administrator and to all Participants.
ARTICLE 11. GENERAL PROVISIONS REGARDING PLAN ADMINISTRATION
11.1 Limitation of Rights. The granting of any rights to a Participant under the provisions of the Plan represent only a discretionary, contingent right to receive compensation. Accordingly, nothing in this Plan shall be construed:
(a) To limit in any way the right of the Premier Group to terminate a Participants employment at any time for any reason;
(b) To evidence any agreement or understanding, express or implied, that the Premier Group will employ a Participant in any particular capacity for any particular term or for any particular remuneration; or
(c) To grant any right to, or interest in, either express or implied, any equity position or ownership in the Premier Group.
Moreover, no Participants shall have any right or interest, whether vested or otherwise, in the Plan or in any Award unless and until all of the terms, conditions, and provisions of the Plan and the guidelines have been complied with and an Award has been paid.
11.2 Alienation. No benefit provided by this Plan shall be transferable by the Participant except on the Participants death, as provided in this Plan. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan shall be void. No right or benefit under this Plan shall, in any manner, be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the right or benefit. If any Participant becomes bankrupt or attempts to anticipate, alienate, assign, pledge, sell, encumber or charge any right or benefit under this Plan, then the right or benefit shall, in the discretion of the Administrator, cease. In that event, the Company may hold or apply the right or benefit, or any part of the right or benefit, for the benefit of the Participant, his or her spouse, children, or dependents, the beneficiary or any of them, in the manner or in the proportion that the Administrator shall deem proper, in its sole discretion, but it shall not be required to do so.
11.3 Tax Withholding. If the Premier Group shall be required to withhold any amount by reason of any federal, state or local tax laws, rules, regulations or court decisions in
respect of the payment of an earned Award, the Premier Group shall be entitled to deduct or withhold such amounts from any Award payments to a Participant or beneficiary thereof. Premier Group and its officers, employees, accountants, attorneys, and agents do not indemnify or make any representation, statement or guarantee, to Participants or their beneficiaries as to their past, current, or future tax liability or the ultimate position that the IRS or any applicable state tax agency may take with respect to the tax treatment of their prior or future wages, payments, compensation, and benefits, including the payments, awards, and provisions under this Plan or any other plan or program referenced herein.
11.4 Unfunded Plan. The Plan shall be unfunded. The Premier Group shall not be required to segregate or earmark any cash, or other assets and property in connection with the Plan. The Premier Group, the Committee and the Administrator shall not have any fiduciary responsibility to any employee or Participant in connection with this Plan. The Premier Group intends that the Plan is not subject to the terms of the Employee Retirement Income Security Act of 1974, as amended. In addition, the Premier Group shall not be deemed to be a trustee of any amounts to be paid to a Participant. Any liability of the Premier Group to pay any Participant with respect to a potential Plan Award shall be based solely upon any obligations created pursuant to the provisions of the Plan; and no such obligation shall be deemed to be secured by any pledge or encumbrance on any property of the Premier Group. However, the Premier Group shall have the discretion at any time to segregate such assets that may be represented by an Award. Such assets will at all times remain the property of the Premier Group. Moreover, Participants and their beneficiaries shall at all times be merely unsecured creditors of the Company.
11.5 Plan Document Governs. In the event of a conflict between any other written or oral statements and this Plan document, the provisions of this Plan document shall govern.
11.6 Governing Law. The construction and operation of this Plan are governed by the laws, rules, and judicial decisions of the State of Delaware, except as superseded by federal law.
11.7 Headings. All headings in the Plan are for reference only and not to be utilized in construing the Plan.
11.8 Gender. Unless clearly appropriate, all nouns of whatever gender refer indifferently to persons of any gender.
11.9 Singular and Plural. Unless clearly inappropriate, singular terms refer also the plural and vice versa.
11.10 Severability. Every provision of this Plan is severable from every other provision of this Plan. Thus, if any part of the provisions contained in this Plan document is determined by a court of competent jurisdiction or by any arbitration panel to which a dispute is submitted to be invalid, illegal or incapable of being enforced, then such covenant or provision (with such modification as shall be required in order to render such covenant or provision not invalid, illegal or incapable of being enforced) shall remain in full force and effect, and all other covenants and provisions contained in this Plan document shall, nevertheless, remain in full
force and effect to the fullest extent permitted by law, unless the continuance of the Plan in such circumstances is not consistent with its purposes.
11.11 Waiver of Breach. Waiver by the Committee, the Administrator or the Premier Group of any provision of this Plan shall not operate or be construed as a waiver of any other provision of this Plan or any other future breach of the provisions so waived.
11.12 Compliance With Code Section 409A.
(a) The Plan is intended to comply with section 409A of the Code to the extent that such section is applicable. Accordingly, notwithstanding any other provision of the Plan, the Committee may amend the Plan at any time to the extent required to comply with Code section 409A or to ensure that any portion, or all, of the compensation provided under the Plan will not be subject to section 409A, as the Committee may determine to be necessary or appropriate.
(b) Each provision of the Plan that involves the deferral of compensation subject to Code section 409A shall be interpreted in a manner that complies with such section, and each provision that conflicts with such requirements shall be neither valid nor enforceable. The Plan may not be amended in any way to accelerate the payment of a Participants Award as of the effective date of such amendment, except as may be permitted by Code section 409A.
(c) Notwithstanding any provision of the Plan, the Committee may terminate the Plan at any time under any circumstances permitted by section 409A and, if the Board so desires, cause all Awards to be paid out in lump sum payments in cash as soon as practicable following such termination.
Exhibit 10.16
PREMIER, INC.
LONG-TERM INCENTIVE COMPENSATION PLAN
FOR THE PERIOD
JULY 1, 2010 THROUGH JUNE 30, 2013
AMENDMENT 2011-1
WHEREAS, Premier, Inc., a Delaware company (the Company), adopted the Premier, Inc. Long-Term Incentive Compensation Plan for the period July 1, 2010 through June 30, 2013, effective July 1, 2010, for the benefit of selected employees of the Company and its affiliates, subsidiaries, and managed entities which the Company permits to participate in the Plan;
WHEREAS, the Compensation Committee (the Committee) of the Board of Directors of the Company has reserved the right to amend the Plan;
WHEREAS, the Committee has determined that it is in the best interest of the Company to amend the Plan to implement a clawback or recoupment of certain Awards and payments under the Plan to specified participants to replicate some of the relevant requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
NOW, THEREFORE, the Plan is amended, effective July 1, 2010, to provide as follows:
1. New Article 8A is added to provide as follows:
ARTICLE 8A. REDUCTION AND REPAYMENT OF AWARDS IN CERTAIN CIRCUMSTANCES
8A.1 Clawback Policy. The Company may, in its discretion, cancel all or any portion of the Awards of specified Participants, whether vested or unvested, whether before or following payment of such Award(s), under the following circumstances:
(a) With respect to a Covered Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee: (i) determines that the financial statements on which the Award is based or paid are materially inaccurate and (ii) subsequently restates or otherwise adjusts the financial statements in a manner that reduces the size of the Award or payment.
(b) With respect to a Covered Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee: (i) determines that one or more of the Operating Metrics calculations on which the Award is based or paid are materially
inaccurate and (ii) subsequently restates or otherwise adjusts the Operating Metrics calculations in a manner that reduces the size of the Award or payment.
(c) With respect to a Senior Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee: (i) determines that the financial statements on which the Award is based or paid are materially inaccurate, (ii) subsequently restates or otherwise adjusts the financial statements in a manner that reduces the size of the Award or payment, and (iii) determines that such inaccuracy is attributable, in whole or in part, to the Senior Executives fraud, intentional misconduct, or gross negligence, including the failure to report another persons fraud, intentional misconduct, or gross negligence.
(d) With respect to a Senior Executive, an Award or payment of an Award is made for a Fiscal Period, and the Audit Committee determines: (i) that one or more of the Operating Metrics calculations on which the Award is based or paid are materially inaccurate, (ii) subsequently restates or otherwise adjusts one or more of the Operating Metrics calculations in a manner that reduces the size of the Award or payment, and (iii) determines that such inaccuracy is attributable, in whole or in part, to the Senior Executives fraud, intentional misconduct, or gross negligence, including the failure to report another persons fraud, intentional misconduct, or gross negligence.
8A.2 Fiscal Periods.
(a) The Fiscal Period described in Section 8A.1(a) and (b) shall mean the 36-month period immediately preceding the date on which the Company restates or otherwise adjusts the financial statements or performance measure(s) in a manner that reduces the size of the Award or payment, including amounts awarded and/or paid prior to the effective date of this Article 8A.
(b) The Fiscal Period described in Section 8A.1(c) and (d) shall mean the entire period preceding the date on which the Company restates or otherwise adjusts the financial statements or performance measure(s) in a manner that reduces the size of the award or payment during which the individual is engaged in the role of a Senior Executive, including periods prior to the effective date of this Article 8A.
8A.3 Amount of Clawback.
(a) If one or more of the events described in Section 8A.1 occurs, the Committee, in its discretion, shall reduce the Award by an amount equal to the Award calculated using the erroneous financial statements or performance measures, less the Award calculated using the restated or adjusted financial statements or performance standards.
(b) Where the financial results were considered in calculating the Award, but the Award is not awarded or paid on a formulaic basis, the Committee shall determine, in its discretion, the amount, if any, by which the Award should be reduced.
Section 8A.4 Recoupment of Paid Awards.
(a) Subject to applicable law, the Company will seek to recoup amounts calculated under Section 8A.3 and previously paid to the Covered Executive or Senior Executive by:
(i) Requiring the Covered Executive or Senior Executive to pay such amount to the Company,
(ii) Set-off,
(iii) Reducing future compensation or deferred compensation, and/or
(iv) Such other means or combination as the Committee determines to be appropriate.
(b) The Committee will determine whether to charge interest with respect to such recoupment and, if interest will be charged, how it will be calculated.
(c) Any recoupment under this Policy may be in addition to any other remedies that may be available to the Company under applicable law, including disciplinary actions up to and including termination of employment. This does not limit the Companys ability to seek recoupment, in appropriate circumstances (including circumstances beyond the scope of this Plan) and as permitted by law, of any amounts from any individual, whether or not the individual is a Covered Executive or a Senior Executive.
Section 8A.5 Definitions.
(a) Audit Committee means the Audit Committee of the Board of Directors of the Company.
(b) Covered Executive means an individual who serves or served as a member of the Companys Executive Team or participant in the Long-Term Incentive Plan during all or a portion of the applicable Fiscal Period.
(c) Operating Metrics means the Goals and Performance Standards and Performance Standard Achievement used to calculate Awards.
(d) Senior Executive means an individual who serves or served as the Companys Chief Executive Officer or Chief Financial Officer during all or a portion of the applicable Fiscal Period.
IN WITNESS WHEREOF, the Compensation Committee of the Companys Board of Directors has authorized its member to execute this Amendment 2011-1 to the Plan this 31 day of January, 2011.
|
/s/ Robin Bernstein |
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For the Compensation Committee |
Exhibit 10.17
PREMIER, INC.
LONG-TERM INCENTIVE COMPENSATION PLAN
FOR THE PERIOD
JULY 1, 2010 THROUGH JUNE 30, 2013
AMENDMENT 2013-1
WHEREAS, Premier Health Services, Inc., (f/k/a Premier, Inc.) a Delaware company (the Company), adopted the Premier, Inc. Long-Term Incentive Compensation Plan for the period July 1, 2010 through June 30, 2013, effective July 1, 2010, for the benefit of selected employees of the Company and its affiliates, subsidiaries, and managed entities which the Company permits to participate in the Plan;
WHEREAS, the Compensation Committee of the Company (the Committee) may amend the Plan;
WHEREAS, the Committee wishes to amend the Plan to conform the definition of Change in Control used in the Plan with the definition found in the Premier, Inc. 2013 Equity Incentive Plan; and
WHEREAS, the Committee has determined that it is in the best interest of the Premier, Inc., the Company and their affiliates to amend the Plan to make certain technical updates to ensure the Plans continued compliance with Section 409A of the Internal Revenue Code of 1986, as amended (Code Section 409A).
NOW, THEREFORE, the Plan is amended, effective August 16, 2013, to provide as follows:
1. Section 2.1(d) of the Plan is hereby deleted in its entirety and replaced as follows:
(d) Change in Control shall have the meaning set forth in Section 13.3 (or subsequent applicable sections, if and as later amended) of the Premier, Inc. 2013 Equity Incentive Plan, as it may be established, modified, changed or replaced from time to time.
2. Section 11.12 of the Plan is hereby amended by adding a new subsection (d) as follows:
(d) The following provisions shall apply upon a separation from service (as defined by section 409A of the Code) on or after the date that any stock of the Company (or its parent) becomes publicly traded on an established securities market or otherwise. If the Participant is deemed on the date of such a separation from service to be a specified employee (within the meaning of that term under section 409A(a)(2)(B) of
the Code and determined using any identification methodology and procedure selected by the Company (or its parent) from time to time, or if none, the default methodology and procedure specified under section 409A of the Code), then any amounts that are considered nonqualified deferred compensation (within the meaning of that term under section 409A of the Code) payable as a result of the Participants separation from service shall not be paid prior to the date which is the earlier of (i) the expiration of the six (6) month period measured from the date of such separation from service of the Participant, and (ii) the date of the Participants death (the Delay Period). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to the Participant in a lump sum, and any remaining payments due under the Plan shall be paid or provided in accordance with the normal payment dates specified for them herein. In determining whether a Participant is subject to the delay hereinabove described, the transitional rules of Treasury Regulation § 1.409A-1(i)(6) shall be applied.
IN WITNESS WHEREOF, the Compensation Committee of the Company has authorized the execution this Amendment 2013-1 to the Plan this 16th day of August, 2013.
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/s/ Robin Bernstein |
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For the Compensation Committee |
Exhibit 10.18
PREMIER, INC. DEFERRED COMPENSATION PLAN
AS AMENDED AND RESTATED
(Effective January 1, 2009)
TABLE OF CONTENTS
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|
Page |
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|
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ARTICLE I. |
DEFINITIONS |
1 |
|
|
|
1.1 |
Affiliate |
1 |
1.2 |
Annual Addition |
1 |
1.3 |
Beneficiary |
1 |
1.4 |
Compensation |
1 |
1.5 |
Compensation Limitation |
2 |
1.6 |
Deferral Account |
2 |
1.7 |
Deferral Agreement |
2 |
1.8 |
Disability |
2 |
1.9 |
Elective Contributions Account |
2 |
1.10 |
Eligible Compensation |
2 |
1.11 |
Employer |
2 |
1.12 |
ERISA |
2 |
1.13 |
Excess Contribution |
2 |
1.14 |
401(k) Contribution |
3 |
1.15 |
401(k) Plan |
3 |
1.16 |
Participant |
3 |
1.17 |
Participating Employer |
3 |
1.18 |
Pension Plan |
3 |
1.19 |
Performance-Based Compensation |
3 |
1.20 |
Plan Year |
4 |
1.21 |
Qualified Plans |
4 |
1.22 |
Regulations |
4 |
1.23 |
Retirement |
4 |
1.24 |
Retirement Committee |
4 |
1.25 |
Separation from Service |
4 |
1.26 |
Spouse |
5 |
1.27 |
Unforeseeable Emergency |
5 |
1.28 |
Year of Service |
5 |
|
|
|
ARTICLE II. |
ELIGIBILITY FOR PARTICIPATION |
6 |
|
|
|
2.1 |
Participation |
6 |
2.2 |
Participation Date and Notice |
6 |
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|
|
ARTICLE III. |
ELECTION TO DEFER AND EMPLOYER CONTRIBUTIONS |
6 |
|
|
|
3.1 |
Election to Defer |
6 |
3.2 |
Election Period |
7 |
3.3 |
Employer Contributions |
8 |
|
|
|
ARTICLE IV. |
ACCOUNTING |
9 |
|
|
|
4.1 |
Crediting Deferred Compensation |
9 |
4.2 |
Earnings |
9 |
4.3 |
Distributions |
10 |
|
|
|
ARTICLE V. |
BENEFITS |
10 |
TABLE OF CONTENTS
(continued)
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|
Page |
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|
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5.1 |
Separation from Service |
10 |
5.2 |
Specified Year |
10 |
5.3 |
Payment Date |
10 |
5.4 |
Vesting |
10 |
5.5 |
Form of Payment |
11 |
5.6 |
Unforeseeable Emergency |
11 |
5.7 |
Election of Form and Time of Payment |
11 |
5.8 |
Withholding; Payroll Taxes |
12 |
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|
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ARTICLE VI. |
ADMINISTRATION |
12 |
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|
|
6.1 |
Administrator |
12 |
6.2 |
Agents |
12 |
6.3 |
Binding Effect |
12 |
6.4 |
Claims Procedure |
12 |
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|
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ARTICLE VII. |
AMENDMENT AND TERMINATION OF THE PLAN |
16 |
|
|
|
7.1 |
Amendment |
16 |
7.2 |
Termination |
16 |
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ARTICLE VIII. |
MISCELLANEOUS |
16 |
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|
|
8.1 |
ERISA Exemption |
16 |
8.2 |
Unsecured Creditor |
17 |
8.3 |
Participant Obligation |
17 |
8.4 |
Non-Assignability |
17 |
8.5 |
Not a Contract of Employment |
17 |
8.6 |
Cooperation |
17 |
8.7 |
Terms |
18 |
8.8 |
Construction |
18 |
8.9 |
Governing Law |
18 |
8.10 |
Validity |
18 |
8.11 |
Notice |
18 |
8.12 |
Successors |
18 |
8.13 |
409A Compliance |
18 |
PREMIER, INC. DEFERRED COMPENSATION PLAN
AS AMENDED AND RESTATED
(Effective January 1, 2009)
Premier, Inc., a Delaware corporation (the Company), established the Premier, Inc. Deferred Compensation Plan (the Plan) under which selected executives are eligible to receive the benefit that they would have been entitled to receive under the Premier, Inc. Retirement Savings Plan and the Premier, Inc. Employees Pension Plan, but for the limitations placed on contributions to such plans by Sections 401(a)(17), 402(g) and 415 of the Internal Revenue Code of 1986, as amended (the Code), and/or the eligibility requirements of such plans. The Plan has been previously amended and is hereby amended and restated in its entirety, effective January 1, 2009 (the Effective Date), except as otherwise provided herein.
ARTICLE I.
Definitions
When used in the Plan, the terms defined below shall be construed in accordance with the definitions herein set forth unless the context clearly requires otherwise:
1.1 Affiliate means any corporation, partnership or other trade or business on or after the date such entity is, along with a Participating Employer, a member of a controlled group of corporations as defined in Section 414(b) of the Code or a member of a group of trades or businesses under common control as defined in Section 414(c) of the Code.
1.2 Annual Addition means amounts in excess of the limitations on amounts that may be contributed to the Qualified Plans by Section 415 of the Code.
1.3 Beneficiary means the persons or entities designated by the Participant in writing to the Employer to receive the balance of the Participants Deferral Account upon the death of the Participant; provided that, if the Participant has no valid beneficiary designation in effect at the time of his or her death or if the designated beneficiary has predeceased the Participant, the Participants benefits shall be paid to the surviving persons in the following priority: (i) to the Spouse, (ii) to the Participants children, equally and their descendants, per stirpes, (iii) to the Participants parents, equally, (iv) to the Participants siblings, equally, and their descendants, per stirpes, or (v) to the estate of the Participant.
1.4 Compensation means the total compensation payable to a Participant by an Employer during the Plan Year including regular and base salary, overtime pay, commissions, the amount deferred under the 401(k) Plan, any amounts contributed to a cafeteria plan under Code Section 125, Spot Bonuses, Pacesetter Awards (including tax gross ups on Spot Bonuses and Pacesetter Awards), and bonuses under the Annual Incentive Plan. Compensation excludes the Participants share of any Employer contributions made to the Qualified Plans, the Plan or to any other employee benefit or insurance program on behalf of the Participant, severance pay, moving expenses, non-cash imputed income (including but not limited to the cost of Employer-provided group term life insurance and payments made by an Employer to satisfy any indebtedness owed by a Participant), any contributions made to or amounts distributed from the Core Long-Term
Incentive Program or Plan, the Founders Stock Program, any Subsidiary Stock Option Plan or any Subsidiary Stock Appreciation Rights Plan, any distributions from the Plan and any amounts paid after the Participants Separation from Service, even if attributable to services performed during employment. With respect to any items of compensation not specifically described herein, the Compensation Committee shall have the discretion, prior to the start of a Plan Year, to determine whether and for what purposes such item of compensation shall be treated as Compensation under the Plan for such Plan Year.
1.5 Compensation Limitation means the limitation under Section 401(a)(17) of the Code on the maximum amount of Compensation of a Participant which may be considered in determining the amount which may be contributed under the Qualified Plans.
1.6 Deferral Account means the bookkeeping account established by an Employer for a Participant to which shall be credited an amount equal to the amount deferred and/or contributed each Plan Year pursuant to Article III and earnings and/or losses credited and/or debited pursuant to Section 4.02 and debited by the amount distributed in accordance with Article V.
1.7 Deferral Agreement means the Participants written direction to have all or any portion of his or her Compensation deferred under the Plan.
1.8 Disability means the disability of the Participant within the same meaning of disability as set forth in the Qualified Plans.
1.9 Elective Contributions Account means the bookkeeping account under the 401(k) Plan to which are credited a Participants elective contributions, including designated Roth contributions, under a qualified cash or deferred arrangement, as defined in Treas. Reg. § 1.40l(k)-l(a)(4)(i).
1.10 Eligible Compensation means the Compensation from which a 401(k) Contribution could be made under the 401(k) Plan, without regard to the Compensation Limitation.
1.11 Employer means a Participating Employer and its Affiliates. Each Participating Employer and its Affiliates shall be considered an Employer independent of any other Participating Employer which is not its Affiliate.
1.12 ERISA means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute hereafter adopted.
1.13 Excess Contribution means the amount during any Plan Year which if contributed to the 401(k) Plan and/or the Pension Plan would:
(a) constitute an Annual Addition;
(b) be made with respect to Compensation in excess of the Compensation Limitation for the Plan Year; or
(c) relate to an item of Compensation which is not treated as compensation under the terms of the Qualified Plans.
1.14 401(k) Contribution means the amount which the Participant elects to defer as a pre-tax contribution under Section 401(k) of the Code to the 401(k) Plan.
1.15 401(k) Plan means the Premier, Inc. Retirement Savings Plan.
1.16 Participant means any individual who is selected for participation hereunder and agrees to be bound by the Plans terms and provisions in accordance with Article II.
1.17 Participating Employer means the Company, Premier Supply Chain Improvement, Inc. and any Affiliate of either the Company or Premier Supply Chain Improvement, Inc. In addition, the Compensation Committee may allow any other corporation, partnership or other trade or business to be a Participating Employer.
1.18 Pension Plan means the Premier, Inc. Employees Pension Plan.
1.19 Performance-Based Compensation means:
(a) With respect to a Deferral Agreement prior to January 1, 2009, Performance-Based Compensation means Compensation where (i) the payment of the Compensation or the amount of the Compensation is contingent on the satisfaction of organizational or individual performance criteria, and (ii) the performance criteria are not substantially certain to be met at the time a deferral election is permitted. Performance-Based Compensation may include payments based upon subjective performance criteria, but (i) any subjective performance criteria must relate to the performance of the Participant, a group of service providers that includes the Participant, or a business unit for which the Participant provides services (which may include the entire organization); and (ii) the determination that any subjective performance criteria have been met must not be made by the Participant or a family member of the Participant (as defined in Section 267(c)(4) of the Code applied as if the family of an individual includes the spouse of any member of the family). Notwithstanding the foregoing, Performance-Based Compensation does not include any amount or portion of any amount that will be paid either regardless of performance, or based upon a level of performance that is substantially certain to be met at the time the criteria is established, or that is based solely on the value of, or appreciation in value of, the Employer or the stock of the Employer.
(b) With respect to a Deferral Agreement on and after January 1, 2009, Performance-Based Compensation means Compensation the amount of which, or the entitlement to which, is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. Organizational or individual performance criteria are considered preestablished if established in writing by not later than 90 days after the commencement of the period of service to which the criteria relates, provided that the outcome is substantially uncertain at the time the criteria are established. The determination of whether Compensation is Performance-Based Compensation shall be made in accordance with the Regulations, including the following:
(i) Performance-Based Compensation does not include any amount or portion of any amount that will be paid either regardless of performance, or based upon a level of performance that is substantially certain to be met at the time the criteria is established. However, Compensation may be Performance-Based Compensation where the amount will be paid regardless of satisfaction of the performance criteria due to the Participants death, disability (as defined below), or a change in control event (as defined in Section 1.409A-3(i)(5)(i) of the Regulations), provided that a payment made under such circumstances without regard to the satisfaction of the performance criteria will not constitute Performance-Based Compensation. For purposes of this Section, a disability refers to any medically determinable physical or mental impairment resulting in the Participants inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months.
(ii) Performance-Based Compensation may include payments based upon subjective performance criteria provided that:
(A) The subjective performance criteria are bona fide and relate to the performance of the Participant, a group of service providers that includes the Participant, or a business unit for which the Participant provides services (which may include the entire organization); and
(B) The determination that any subjective performance criteria have been met is not made by the Participant or a family member of the Participant (as defined in Section 267(c)(4) of the Code applied as if the family of an individual includes the spouse of any member of the family), or a person under the effective control of the Participant or such a family member, and no amount of the compensation of the person making such determination is effectively controlled in whole or in part by the Participant or such a family member.
1.20 Plan Year means the calendar year.
1.21 Qualified Plans means the 401(k) Plan and the Pension Plan.
1.22 Regulations means the regulations, as amended from time to time, which are issued under Section 409A of the Code.
1.23 Retirement means the date the Participant has a Separation from Service on or after the earlier of (a) the date he attains age 55 and has five years of participation in one of the Qualified Plans or (b) the date he attains age 65.
1.24 Retirement Committee means the Premier, Inc. Retirement Committee.
1.25 Separation from Service means the Participants termination of employment with the applicable Employer, subject to the following and other provisions of the Regulations:
(a) The employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the individual retains a right to
reemployment with the Employer under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Employer. If the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship shall be deemed to terminate on the first date immediately following a 29-month leave of absence, if the leave is due to disability as described in the following sentence and on the first date immediately following a six-month leave of absence, if the leave is due to any other reason. For purposes of this Section, disability means a medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment.
(b) In determining whether a Separation from Service has occurred, the following presumptions, which may be rebutted as provided in the Regulations, shall apply:
(i) A Participant is presumed to have separated from service where the level of bona fide services performed decreases to a level equal to 20 percent or less of the average level of services performed by the Participant during the immediately preceding 36-month period;
(ii) A Participant shall be presumed not to have separated from service where the level of bona fide services performed continues at a level that is 50 percent or more of the average level of services performed by the Participant during the immediately preceding 36-month period; and
(iii) If a Participant has not performed services for the Employer for 36 months, the full period that the Participant has performed services for the Employer shall be substituted for 36 months.
(c) For purposes of this Section, the term Employer has the meaning set forth in Section 1.11, provided that the determination of whether an entity is under common control shall be determined based upon whether the Participating Employer has a direct or indirect interest in at least 50 percent (rather than 80 percent) of the entity.
1.26 Spouse means the wife or husband of the Participant, to whom the Participant was legally married at the time of his or her death.
1.27 Unforeseeable Emergency means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participants Spouse, Beneficiary or dependent (as defined in Section 152 of the Code, without regard to Section 152(b)(l), (b)(2) and (d)(l)(B)); loss of the Participants property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant and as further defined in Article V of the Plan and the Regulations.
1.28 Year of Service has the same meaning as set forth in the Qualified Plans.
ARTICLE II.
Eligibility for Participation
2.1 Participation. Any Participant in the Plan as of December 31, 2008 shall continue to be a Participant in the Plan on and after January 1, 2009, as provided in the Plan. The Compensation Committee of the Board of Directors of the Company in its complete and absolute discretion, based on the recommendation of the Companys Chairman and Chief Executive Officer, may designate an executive who meets the following criteria to participate in the Plan:
(a) had Compensation exceeding the adjusted Compensation Limitation in at least one of the three or fewer Plan Years immediately preceding the current Plan Year; or,
(b) for purposes of Section 3.01 only, for individuals who were hired during the Plan Year immediately preceding the current Plan Year, whose base salary would have exceeded the adjusted Compensation Limitation in that preceding Plan Year had he or she been employed for the full preceding Plan Year.
2.2 Participation Date and Notice. Each executive who is selected for participation in the Plan in accordance with Section 2.01 shall become a Participant as of the date determined by the Compensation Committee, otherwise known as the Participants Participation Date. Within thirty (30) days of his or her Participation Date, the Participant shall file an enrollment agreement with the Retirement Committee (or its designee) agreeing to abide by the terms and provisions of the Plan and to cooperate in providing information and take such other action necessary to the proper administration of the Plan as determined by the Retirement Committee.
ARTICLE III.
Election to Defer and Employer Contributions
3.1 Election to Defer. Each Participant shall have the right to elect to defer receipt of certain amounts as described below.
(a) Subject to Section 3.01(c), each Participant shall have the right to elect to defer receipt of any portion, up to 20%, of his or her Compensation.
(b) Bonus Deferrals.
(i) Subject to Section 3.01(c), in any Plan Year, Participants may make a separate election to defer up to 20% of their Compensation attributable to Spot, Pacesetter or Annual Incentive Plan bonuses or bonuses under any long- term incentive plan (notwithstanding the fact that payments under any long-term incentive plan are otherwise excluded from the definition of Compensation), provided, however, that in no event may Compensation or bonuses (including amounts distributed from any short-term or long-term incentive plan) paid after termination of employment be deferred under the Plan, even if attributable to services performed during employment.
(ii) Subject to Section 3.01(c) and notwithstanding the maximum deferral percentage in effect under Section 3.01(a) and in order to grandfather benefits previously provided to such Participants, Participants who were formerly participants in the American
Healthcare Systems Deferred Compensation Plan have the right to defer up to 100% of (A) bonuses paid under the Annual Incentive Plan and (B) bonuses paid under any long-term incentive plan, notwithstanding the fact that payments under the Core Long-Term Incentive Plan are otherwise excluded from the definition of Compensation; provided that in no event may Compensation or bonuses (including amounts distributed from any short-term or long-term incentive plan) paid after termination of employment be deferred under the Plan, even if attributable to services performed during employment.
(c) All elections shall be made in a writing by a Deferral Agreement and filed with the Retirement Committee (or its designee) within the Election Period provided in Section 3.02.
(d) All amounts deferred under a Deferral Agreement shall be credited to the Participants Deferral Account for the Plan Year for which such election was made pursuant to Section 4.01.
(e) Notwithstanding any other provision of this Section 3.01 or the Plan to the contrary, in no event may Compensation or bonuses paid after termination of employment be deferred under the Plan, even if attributable to services performed during employment.
3.2 Election Period. Any election to defer Compensation pursuant to Section 3.01 shall be made in accordance with the following requirements:
(a) First Year of Eligibility. Upon first becoming a Participant, a Participant must file an election in such form as the Company may require if the Participant wishes to defer Compensation under the Plan for the calendar year in which he or she becomes a Participant. Such election must be filed within thirty (30) days following the Participants Participation Date, at which time the election shall become irrevocable. The election under this Section shall apply only to Compensation that is paid for services to be performed in payroll periods that begin after the election becomes irrevocable. For Compensation that is earned based upon a specified performance period (such as an annual bonus), the election shall apply to the total amount of the Compensation for the performance period multiplied by the ratio of the number of days remaining in the performance period after the election over the total number of days in the performance period.
(b) Annual Election. Unless a Participant files a new election by the date noted below, the Participants most recent election shall be used in determining whether Compensation under the Plan shall be deferred for calendar years beginning after the calendar year in which the Participant first became a Participant. Such election must be made on such form and in accordance with such procedures as the Committee may prescribe, provided that such election must be made no later than, and shall become irrevocable on, the last day of the Participants taxable year immediately preceding the calendar year in which the Participant performs the services for which such Compensation is payable.
(c) Performance-Based Election. Any Participant may elect to defer the receipt of any portion or all of any Performance-Based Compensation otherwise payable to him or her by a Participating Employer in any calendar year, which portion shall be designated by him or her by
filing an election with the Company, in such form as the Company may require. The election must be made with respect to such Performance-Based Compensation on or before the date that is six months before the end of the performance period, provided that the Participant performs services continuously from the later of the beginning of the performance period or the date the performance criteria are established through the date an election is made under this paragraph, and provided further that in no event may an election to defer Performance-Based Compensation be made after such compensation has become readily ascertainable. For purposes of this paragraph, if the Performance-Based Compensation is a specified or calculable amount, the compensation is readily ascertainable if and when the amount is first substantially certain to be paid. If the Performance-Based Compensation is not a specified or calculable amount because, for example, the amount may vary based upon the level of performance, the compensation, or any portion of the compensation, is readily ascertainable when the amount is first both calculable and substantially certain to be paid. For this purpose, the Performance-Based Compensation is bifurcated between the portion that is readily ascertainable and the amount that is not readily ascertainable. Accordingly, in general any minimum amount that is both calculable and substantially certain to be paid shall be treated as readily ascertainable.
(d) Termination due to Unforeseeable Emergency or Hardship Distribution. A Participants election pursuant to Section 3.02(a), (b) and (c) above shall automatically terminate upon the Participants receipt of a distribution from the Plan on account of an Unforeseeable Emergency or the Participants receipt of a hardship distribution from the Participants Elective Contributions Account under the 401(k) Plan pursuant to Treas. Reg.§ 1.401(k)-l(d)(3).
3.3 Employer Contributions. Each Employer may from time to time, in its sole discretion, make contributions to the Plan on behalf of their employees who are Participants, as described below. Employer contributions may be made on behalf of all Participants or, in the sole discretion of the applicable Employer, on behalf of select Participants. Employer contributions are discretionary in amount and timing. Contributions shall be made only on behalf of a Participant who is eligible for such type of contributions for such Plan Year under the applicable Qualified Plan. Amounts deferred by Participants under the Plan that are attributable to the Core Long-Term Incentive Program or Plan are ineligible for any Employer contributions under the Plan.
(a) Matching Contributions. An Employer shall make matching contributions with respect to the amount of Compensation a Participant defers under the Plan (pursuant to a Deferral Agreement and Section 3.01) which would, if eligible to be contributed to the 401(k) Plan, be a 401(k) Contribution. The matching contributions for a Participant for a Plan Year shall be equal to the lesser of:
(i) 100% of the deferrals that are contributed pursuant to Section 3.01 during a Plan Year up to the first 3% of Eligible Compensation and 50% of the deferrals that are contributed pursuant to Section 3.01 during a Plan Year up to the next 2% of Eligible Compensation; or
(ii) The difference between (1) 100% of the first 3% of the Participants Eligible Compensation and 50% of the next 2% of Eligible Compensation and (2) 100% of the first 3% of Eligible Compensation up to the Compensation Limitation and 50% of the next 2% of
Eligible Compensation up to the Compensation Limitation. Any matching contributions made shall be credited to the Deferral Account of the eligible Participants;
provided, however, that in no event shall the matching contributions under the 401(k) Plan and the Plan exceed 100 percent of the matching contributions that would have been provided under the 401(k) Plan absent any plan-based restrictions that reflect limits on qualified plan contributions under the Internal Revenue Code.
(b) Profit Sharing Contributions. An Employer may make Profit Sharing Contributions to the Plan on behalf of Participants equal to the difference between (i) the allocation of the profit sharing contribution the Participant would have received under the 401(k) Plan but for its characterization as an Excess Contribution for that calendar year and (ii) the Participants actual allocation of profit sharing contributions under the 401(k) Plan for such calendar year.
(c) Pension Contributions. An Employer may make Pension Contributions to the Plan on behalf of Participants equal to the difference between (i) the allocation of the pension contribution the Participant would have received under the Pension Plan but for its characterization as an Excess Contribution for that calendar year and (ii) the Participants actual allocation of pension contributions under the Pension Plan for such calendar year.
ARTICLE IV.
Accounting
4.1 Crediting Deferred Compensation. Amounts deferred by a Participant under Section 3.01 and any amounts contributed to the Plan by an Employer pursuant to Section 3.03 on behalf of a Participant shall be credited to the Participants Deferral Account for each applicable Plan Year as soon as reasonably practicable after the date such deferred amount would otherwise have been paid to the Participant or the Employer contribution amount is reasonably determinable. Each Participants Deferral Account shall be further divided into sub-accounts, as follows:
(a) Participant Sub-Account. The bookkeeping subaccount maintained for each Participant to which shall be credited such Participants deferred compensation pursuant to his or her Deferral Agreement, if any, and investment earnings and losses thereon.
(b) Employer Sub-Account. The bookkeeping subaccount maintained for each Participant to which shall be credited such Participants share of Matching Contributions for Plan Years beginning prior to January 1, 2001, Profit Sharing Contributions and Pension Contributions pursuant to Section 3.03, if any, and investment earnings and losses thereon.
(c) Matching Sub-Account. The bookkeeping subaccount maintained for each Participant to which shall be credited such Participants share of Matching Contributions made for Plan Years beginning on or after January 1, 2001 pursuant to Section 3.03, if any, and investment earnings and losses thereon.
4.2 Earnings. Upon becoming a Participant, each Participant, or in the absence of action by the Participant, the Retirement Committee, shall specify the hypothetical measures of
investment performance from among the choices made available from time to time to Participants by the Retirement Committee. The Participants Deferral Account shall be deemed to be invested in the hypothetical investment selected by the Participant, or if none, by the Retirement Committee. Investment preferences selected by the Participant are used only to determine the value of a Participants Deferral Account and in no event is the Company required to follow these investment preferences for actual plan investments. A Participants investment preference shall be communicated to the Retirement Committee by completion and delivery of an investment preference form in accordance with such procedures as the Retirement Committee may establish from time to time. Once elected, investment preferences shall be valid until revoked by completing a new investment preference form. Participants shall have the opportunity to change their investment preferences with respect to their respective Deferral Accounts in accordance with such procedures as may be established by the Retirement Committee.
4.3 Distributions. A Participants Deferral Account shall be reduced by any distributions that are made from such account pursuant to Article V.
ARTICLE V.
Benefits
5.1 Separation from Service. A Participant shall be entitled to an amount equal to the vested balance of his or her Deferral Account in the event of his or her Separation from Service. Payment of the relevant amount shall be made, or shall begin to be made, on January 15 of the Plan Year following the Participants Separation from Service. If a Participant elects installment payments, each successive installment payment shall be paid on January 15th of each successive Plan Year until all installment payments have been paid.
5.2 Specified Year. If a Participant makes an election to receive a distribution in 2009 pursuant to Section 5.07(c), the Participant shall be entitled to an amount equal to the vested balance of his or her Deferral Account as of June 30, 2009, as adjusted for any investment experience until the date of distribution pursuant to Section 4.02. Payment of the relevant amount shall be made on June 30, 2009.
5.3 Payment Date. A payment shall be considered to have been made on the payment date specified in Section 5.01 or Section 5.02, respectively, if the payment is made no later than December 31 of the calendar year in which such payment date occurs (or the last day of the Participants taxable year in which such payment date occurs, if earlier).
5.4 Vesting.
(a) A Participant who has a Separation from Service due to Retirement, Disability or death shall as of the date of such termination, be 100% vested in his or her Deferral Account.
(b) A Participant who has a Separation from Service for any reason, other than Retirement, Disability or death, shall, as of the date of such Separation from Service:
(i) be 100% vested in that portion of his or her Deferral Account constituting his or her Participant Sub-Account and that portion of his or her Deferral Account constituting his or her Matching Sub-Account; and
(ii) be vested in that portion of his or her Deferral Account constituting his or her Employer Sub-Account, as determined in accordance with the following schedule, unless the Compensation Committee agrees in writing that a different schedule shall apply to the Participant:
Years of Service |
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Vested Portion |
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Less than 1 |
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0 |
% |
1 but less than 2 |
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15 |
% |
2 but less than 3 |
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30 |
% |
3 but less than 4 |
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50 |
% |
4 but less than 5 |
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75 |
% |
5 or more |
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100 |
% |
5.5 Form of Payment. Payment of amounts under the Plan shall be made either in a lump sum or in substantially equal installments paid over five years, as irrevocably elected by the Participant pursuant to Section 5.07. If the Administrator has no timely election on file, the Participant shall be paid in a lump sum. If a Participant elects installments, the amount of each installment shall equal the value of the Participants Deferral Account balance as of the end of the calendar year preceding the date of payment divided by the number of installments remaining to be paid. The balance of a Participants Deferral Account payable in installments shall continue to be credited with earnings or losses pursuant to Article IV until the entire Account balance has been paid.
5.6 Unforeseeable Emergency. A Participant who incurs an Unforeseeable Emergency may, upon written request to the Administrator, receive a distribution of part or all of his or her vested Deferral Account. Whether a Participant is faced with an Unforeseeable Emergency shall be determined based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of Unforeseeable Emergency shall not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participants assets, to the extent that liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals to his or her Deferred Account. The amount which may be paid to the Participant on account of a severe financial hardship shall be limited to the amount reasonably necessary to satisfy the Participants financial hardship, as defined in the Regulations.
5.7 Election of Form and Time of Payment.
(a) Election. Each Participant shall elect the form of payment for a distribution upon his or her Separation from Service. Subject to the transitional rule in Section 5.07(b), such election shall be made within thirty (30) days of the date the Participant initially becomes a Participant in the Plan.
(b) Transitional Rule. To the extent permitted by the Administrator, prior to January 1, 2009, a Participant may change his or her prior election with respect to the form of payment, provided that such changed election may apply only to amounts that were not otherwise payable in the year in which such election was made and may not cause an amount to be paid in the year that such election was made that would not otherwise be payable in such year. A change in a Participants election shall include, but not be limited to, making an election with respect to the form of payment where the Participant failed to make such an election within thirty (30) days of the date the Participant initially became a Participant in the Plan. Any such election shall be made in accordance with IRS Notice 2007-86.
(c) Specified Year Election. Each Participant, who was not otherwise entitled to a distribution from the Plan in 2008, may make an election, no later than December 31, 2008, to receive his or her Deferral Account in 2009.
5.8 Withholding; Payroll Taxes. To the extent required by the law in effect at the time payments of benefits are made, the applicable Employer shall withhold from such payments any federal, state or local taxes or other amounts required by law to be withheld.
ARTICLE VI.
Administration
6.1 Administrator. The Company shall be the Plans Administrator. The Board of Directors of the Company and the Compensation Committee thereof shall have the authority to adopt, amend, interpret and enforce rules and regulations for the operation and administration of the Plan and decide or resolve any and all questions relating to the Plan. The Company and the Board of Directors of the Company have delegated the authority to operate and administer the Plan to the Retirement Committee of Premier, Inc. A member of the Retirement Committee may also be a Participant under the Plan but may not be involved with any matter relating to his or her own benefits under the Plan or any other financial interest he or she may have under the Plan.
6.2 Agents. In the administration of the Plan, the Company may from time to time employ agents and delegate to them such administrative duties as it sees fit.
6.3 Binding Effect. Any decision or action of the Company relating to the Plan shall be final, conclusive and binding upon all Participants, their Spouses and any other person having any interest in the Plan.
6.4 Claims Procedure. This Section 6.04 is based on final regulations issued by the Department of Labor and codified at 29 C.F.R. §2560.503-1. If any provision of this Section conflicts with the requirements of those regulations, the requirements of those regulations will prevail. For purposes of this Section 6.04, references to disability benefit claims are intended to describe claims made by Participants for benefits payable pursuant to Section 5.04, but only if and to the extent that such claims require an independent determination by the Company or such other delegate appointed by the Company that the Participant is or is not disabled within the meaning of Section 5.04. If the Companys or such other delegates determination is based entirely on a disability determination made by another party, such as the Social Security Administration or another federal or state agency or an insurer with respect to a disability insurance policy covering
the Participant, the Participants claim shall not be treated as a disability claim for purposes of the special provisions of this Section that apply to claims for which an independent determination of disability is required.
(a) Initial Claim: A Participant or Beneficiary who believes he or she is entitled to any benefit (a Claimant) under the Plan may file a claim with the Retirement Committee or such other delegate appointed by the Retirement Committee. The Retirement Committee shall review the claim itself or appoint an individual or entity to review the claim.
(b) Benefit Claims That Do Not Require a Determination of Disability. If the claim is for a benefit other than a disability benefit, the Claimant shall be notified within ninety (90) days after the claim is filed whether the claim is allowed or denied, unless the Claimant receives written notice from the Retirement Committee or its delegate prior to the end of the ninety (90) day period stating that special circumstances require an extension of the time for decision, such extension not to extend beyond the day which is one hundred eighty (180) days after the day the claim is filed.
(c) Disability Benefit Claims. In the case of a benefits claim that requires an independent determination by the Plan of a Participants disability status, the Retirement Committee or other delegate shall notify the Claimant of the Plans adverse benefit determination within a reasonable period of time, but not later than forty-five (45) days after receipt of the claim. If, due to matters beyond the control of the Plan, the Retirement Committee or its delegate needs additional time to process a claim, the Claimant will be notified, within forty-five (45) days after the claim is received, of those circumstances and of when the Retirement Committee or other delegate expects to make its decision but not beyond seventy-five (75) days. If, prior to the end of the extension period, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period for making the determination may be extended for up to one hundred five (105) days, provided that the Retirement Committee or other delegate, as applicable, notifies the Claimant of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. The extension notice shall specifically explain the standards on which entitlement to a disability benefit is based, the unresolved issues that prevent a decision on the claim and the additional information needed from the Claimant to resolve those issues, and the Claimant shall be afforded at least forty-five (45) days within which to provide the specified information.
(d) Manner and Content of Denial of Initial Claims. If the Retirement Committee or other delegate denies a claim, it must provide to the Claimant, in writing or by electronic communication:
(i) The specific reasons for the denial;
(ii) A reference to the Plan provision or insurance contract provision upon which the denial is based;
(iii) A description of any additional information or material that the Claimant must provide in order to perfect the claim;
(iv) An explanation of why such additional material or information is necessary;
(v) Notice that the Claimant has a right to request a review of the claim denial and information on the steps to be taken if the Claimant wishes to request a review of the claim denial; and
(vi) A statement of the participants right to bring a civil action under ERISA §502(a) following a denial on review of the initial denial.
In addition, in the case of a denial of disability benefits on the basis of the Retirement Committees or its delegates independent determination of the Participants disability status, the Retirement Committee or its delegate, as applicable, will provide a copy of any rule, guideline, protocol, or other similar criterion relied upon in making the adverse determination (or a statement that the same will be provided upon request by the Claimant and without charge).
(e) Review Procedures.
(i) Benefit Claims that do not Require a Determination of Disability. Except for claims requiring an independent determination of a Participants disability status, a request for review of a denied claim must be made in writing to the Retirement Committee or its delegate, as applicable, within sixty (60) days after receiving notice of denial. The decision upon review will be made within sixty (60) days after the Retirement Committees or delegates receipt, as applicable, of a request for review, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than one hundred twenty (120) days after receipt of a request for review. A notice of such an extension must be provided to the Claimant within the initial sixty (60) day period and must explain the special circumstances and provide an expected date of decision.
The reviewer shall afford the Claimant an opportunity to review and receive, without charge, all relevant documents, information and records and to submit issues and comments in writing. The reviewer shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim regardless whether the information was submitted or considered in the initial benefit determination.
(ii) Disability Benefit Claims. In addition to having the right to review documents and submit comments as described in (i) above, a Claimant whose claim for disability benefits requires an independent determination of the Participants disability status has at least one hundred eighty (180) days following receipt of a notification of an adverse benefit determination within which to request a review of the initial determination. In such cases, the review will meet the following requirements:
(1) The Plan will provide a review that does not afford deference to the initial adverse benefit determination and that is conducted by an appropriate named fiduciary of the Plan who did not make the initial determination that is the subject of the appeal, nor is
a subordinate of the individual who made the determination.
(2) The appropriate named fiduciary of the Plan will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment before making a decision on review of any adverse initial determination based in whole or in part on a medical judgment. The professional engaged for purposes of a consultation in the preceding sentence shall not be an individual who was consulted in connection with the initial determination that is the subject of the appeal or the subordinate of any such individual.
(3) The Plan will identify to the Claimant the medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the review, without regard to whether the advice was relied upon in making the benefit review determination.
(4) The decision on review will be made within forty five (45) days after the Retirement Committees or delegates receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision will be rendered not later than ninety (90) days after receipt of a request for review. A notice of such an extension must be provided to the Claimant within the initial forty-five (45) day period and must explain the special circumstances and provide an expected date of decision.
(iii) Manner and Content of Notice of Decision on Review. Upon completion of its review of an adverse initial claim determination, the Retirement Committee or appropriate other named fiduciary, as applicable, will give the Claimant, in writing or by electronic notification, a notice containing:
(1) its decision;
(2) the specific reasons for the decision;
(3) the relevant Plan provisions or insurance contract provisions on which its decision is based;
(4) a statement that the Claimant is entitled to receive, upon request and without charge, reasonable access
to, and copies of, all documents, records and other information in the Plans files which is relevant to the Claimants claim for benefits;
(5) a statement describing the Claimants right to bring an action for judicial review under ERISA §502(a); and
(6) if an internal rule, guideline, protocol or other similar criterion was relied upon in making the adverse determination on review, a statement that a copy of the rule, guideline, protocol or other similar criterion will be provided without charge to the Claimant upon request.
(f) Calculation of Time Periods. For purposes of the time periods specified in this Section 6.04, the period of time during which a benefit determination is required to be made begins at the time a claim is filed in accordance with the Plan procedures without regard to whether all the information necessary to make a decision accompanies the claim. If a period of time is extended due to a Claimants failure to submit all information necessary, the period for making the determination shall be tolled from the date the notification is sent to the Claimant until the date the Claimant responds.
ARTICLE VII.
Amendment and Termination of the Plan
7.1 Amendment. The Board of Directors of the Company or the Compensation Committee thereof may at any time, and from time to time, amend the Plan in whole or in part; provided, however, that no amendment shall be effective to decrease any benefit accrued under the Plan as of the later of the Effective Date or date of adoption of such amendment. The Board of Directors of the Company has delegated the authority to amend the Plan to the Retirement Committee, except that amendments which would, in the aggregate, increase the cost of benefits provided under the Plan must be approved by the Board of Directors of the Company or the Compensation Committee thereof.
7.2 Termination. The Board of Directors of the Company or the Compensation Committee thereof may, at any time, in its sole discretion, terminate the Plan; provided, however, that no such termination shall be effective to decrease any benefit accrued under the Plan as of the date of such termination.
ARTICLE VIII.
Miscellaneous
8.1 ERISA Exemption. The Plan will be maintained by the Employers primarily for the purpose of providing (i) deferred compensation for a select group of management or highly compensated employees and (ii) an excess benefit plan for employees as defined in Section 3(36) of ERISA. Therefore, the Plan is intended to be exempt from Parts 2, 3 and 4 of the ERISA. It is
further intended that the Plan will not cause the interest of a Participant in the Plan to be includable in his or her gross income prior to actual receipt of Plan benefits for purposes of the Code. If the Plan is held to be subject to Parts 2, 3 or 4 of ERISA or to create current taxation of Plan Participants under the Code by a federal court, and appeals from that holding are no longer timely or have been exhausted, the Plan shall terminate.
8.2 Unsecured Creditor. All amounts deferred or contributed under the Plan, all property and rights which may be purchased by a Participating Employer with such amounts and all income attributable to such amounts, property or rights shall remain solely the property and rights of such Participating Employer subject only to the claims of such Participating Employers general creditors. Further, it is understood that none of the Participating Employers are obligated hereby to establish a trust or to purchase any property or rights to support the promises made under the Plan. Each Participating Employers obligation under the Plan shall be merely that of an unfunded and unsecured promise of such Employer to pay money in the future.
8.3 Participant Obligation. To the extent permitted by the Regulations, if a distribution is to be made to a Participant at the time the Participant has outstanding any debt, obligation or other liability representing an amount owing to an Employer, then the Employer may reduce the distribution by the amount of the debt, obligation or other liability owed by the Participant to the Employer. Such determination shall be made by the Board of Directors of the Company or the Compensation Committee thereof. The amount of the distribution to the Participant for federal income tax purposes shall be considered the full amount of the distribution that would have been paid and shall not be adjusted for the reduction. This provision shall be administered so that there is no change in the time and form of payment of a distribution to the Participant as a result of such reduction and in compliance with all of the requirements of the Regulations.
8.4 Non-Assignability. Neither a Participant nor any other person shall have any right to sell, assign, transfer, pledge, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the benefit payable under the Plan, or any part thereof, which are expressly declared to be unassignable and nontransferable. No part of the benefit shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debt, judgments, alimony, or separate maintenance owed by the Participant or any other person, nor be transferable by operation of law in the event of a Participants or any other persons bankruptcy or insolvency.
8.5 Not a Contract of Employment. The terms and conditions of the Plan shall not be deemed to constitute a contract of employment between the Employer or any Affiliate and the Participant, and the Participant or his or her Beneficiary shall not have any rights against the Employers or any Affiliate except as may be otherwise specifically provided herein. Moreover, nothing in the Plan shall be deemed to give a Participant the right to be retained in the employ of the Employers or any Affiliate or to limit in any way the right of the Employers or an Affiliate to discipline or discharge the Participant at any time.
8.6 Cooperation. A Participant will cooperate with the Employers by furnishing any and all information requested by the Employers, and by taking such other action as may be requested by the Employers.
8.7 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.
8.8 Construction. Any mention of Articles, Sections and subdivisions thereof, unless stated specifically to the contrary, refers to Articles, Sections or subdivisions in the Plan. Headings of Articles, Sections and subsections are for convenient reference and if there is any conflict between such headings and the text of the Plan, the text will control. All references to statutory sections shall include the section as amended from time to time.
8.9 Governing Law. The provisions of the Plan shall be construed and interpreted according to the laws of the State of Delaware.
8.10 Validity. In case any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been a part hereof,
8.11 Notice. Any notice or filing required or permitted to be given to the administrator under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification.
8.12 Successors. The provisions of the Plan shall be binding and inure to the benefit of the Employers and its successors and assigns, The term successors as used herein shall include any corporate or other business entity which shall, by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of one or all of the Employers and successors of any such corporation or other business entity.
8.13 409A Compliance. The Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Code Section 409A and the Regulations, and shall be interpreted and operated consistent with such intent. If any ambiguity exists in the terms of the Plan, it shall be interpreted to be consistent with this purpose.
IN WITNESS WHEREOF, Premier, Inc. has caused the Plan to be signed on its behalf by the Retirement Committee on this 30 day of December, 2008.
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PREMIER, INC, | ||
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BY: RETIREMENT COMMITTEE | ||
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Date: |
12/30/08 |
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By: |
/s/Allison Golding |
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Allison Golding, Authorized Signatory |
Exhibit 10.19
FIRST AMENDMENT TO THE
PREMIER, INC. DEFERRED COMPENSATION PLAN
WHEREAS, Premier, Inc. (the Company) established and maintains the Premier, Inc. Deferred Compensation Plan (the Plan) for the benefit of select employees; and
WHEREAS, amendment of the Plan is now considered desirable to allow the members of the Companys executive team to defer up to 30% of compensation.
NOW, THEREFORE, BE IT RESOLVED, pursuant to the power granted to the Retirement Committee by Section 7.01 of the Plan, that the Plan is hereby amended, effective January 1, 2011, in the following particulars:
1. The following Section 1.29 is added to the Plan:
1.29 E-Team Member means a member of the Companys executive team.
2. Section 3.01(a) is amended to read as follows:
(a) Subject to Section 3.01(c), each Participant who is not an E-Team Member shall have the right to elect to defer receipt of any portion, up to 20%, of his or her Compensation, and each Participant who is an E-Team Member shall have the right to elect to defer receipt of any portion, up to 30%, of his or her Compensation.
3. Section 3.0l(b)(i) is amended to read as follows:
(i) Subject to Section 3.0l(c), in any Plan Year, each Participant who is not an E-Team Member may make a separate election to defer up to 20%, and each Participant who is an E- Team Member may make a separate election to defer up to 30%, of their Compensation attributable to Spot, Pacesetter or Annual Incentive Plan bonuses or bonuses under any long-term incentive plan (notwithstanding the fact that payments under any long-term incentive plan are otherwise excluded from the definition of Compensation), provided, however, that in no event may Compensation or bonuses (including amounts distributed from any short-term or long-term incentive plan) paid after termination of employment be deferred under the Plan, even if attributable to services performed during employment.
IN WITNESS WHEREOF, the Retirement Committee of Premier, Inc. has caused this First Amendment to be executed on its behalf on this 13 day of December, 2010.
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PREMIER, INC, | |
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BY: |
RETIREMENT COMMITTEE |
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By: |
/s/Allison Golding |
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Allison Golding, Authorized Signatory |
Exhibit 10.20
SECOND AMENDMENT TO THE
PREMIER, INC. DEFERRED COMPENSATION PLAN
WHEREAS, Premier, Inc. (the Company) established and maintains the Premier, Inc. Deferred Compensation Plan (the Plan) for the benefit of select employees; and
WHEREAS, amendment of the Plan is now considered desirable to make certain changes to the definition of compensation and the claims provisions in the Plan, add a change in control provision to the Plan and make certain revisions to the Plan with respect to the requirements of Section 409A of the Internal Revenue Code and to clarify the Plan.
NOW, THEREFORE, BE IT RESOLVED, pursuant to the power granted to the Retirement Committee by Section 7.01 of the Plan, that the Plan is hereby amended, effective January 1, 2013 (except as otherwise provided below), in the following particulars:
1. The Plan is amended by deleting Section 1.01 of the Plan (the definition of Affiliate) and reserving Section 1.01 for future use.
2. Effective January 1, 2014, the definition of compensation at Section 1.04 of the Plan is amended in its entirety to read as follows:
1.04 Compensation means the total compensation payable to a Participant by an Employer during the Plan Year including regular or base salary, overtime pay, commissions, the amount deferred under the 401(k) Plan, any amounts contributed to a cafeteria plan under Code Section 125 and bonuses, including tax gross-ups attributable thereto (unless such bonuses are excluded below). Compensation excludes (a) the Participants share of any Employer contributions made to the Qualified Plans, the Plan or to any other employee benefit or insurance program on behalf of the Participant, (b) severance pay, (c) moving expenses, (d) non-cash imputed income (including but not limited to the cost of Employer-provided group term life insurance and payments made by an Employer to satisfy any indebtedness owed by a Participant), (e) any contributions made to or amounts distributed from the Core Long-Term Incentive Program or Plan, (f) any distributions from the Plan, (g) any amounts paid after the Participants Separation from Service, even if attributable to services performed during employment and (h) all equity-based compensation including, but not limited to, income attributable to the grant, exercise, or lapse of restrictions with respect to
any security, stock option, warrant, restricted security or similar contract right and any other compensation measured by or related to the value of the Companys or an Related Entitys common stock. With respect to any items of compensation not specifically described herein, the Compensation Committee shall have the discretion, prior to the start of a Plan Year, to determine whether and for what purposes such item of compensation shall be treated as Compensation under the Plan for such Plan Year. If the Compensation Committee does not make a determination with respect to an item of compensation not specifically described herein, such compensation shall be excluded from Compensation under the Plan.
3. The Plan is amended by adding the following definition of Related Entity as Section 1.22A of the Plan and by substituting the phrase Related Entity(ies) for the term Affiliate(s) wherever that term appears in the Plan:
1.22A Related Entity(ies) means any corporation, partnership or other trade or business on or after the date such entity is, along with a Participating Employer, a member of a controlled group of corporations as defined in Section 414(b) of the Code or a member of a group of trades or businesses under common control as defined in Section 414(c) of the Code.
4. Section 2.01 of the Plan is amended in its entirety to read as follows:
2.01 Participation. Any Participant in the Plan as of December 31, 2012 shall continue to be a Participant in the Plan on and after January 1, 2013, as provided in the Plan. The Compensation Committee of the Board of Directors of the Company in its complete and absolute discretion, based on the recommendation of the Companys Chairman and Chief Executive Officer, may designate an executive who meets the following criteria to participate in the Plan:
(a) had Compensation exceeding the adjusted Compensation Limitation in at least one of the three or fewer Plan Years immediately preceding the current Plan Year, and who has completed at least one Year of Service; or
(b) for purposes of Section 3.01 only, had been hired at a base salary that exceeded the adjusted Compensation Limitation for the Plan Year in which he or she became employed.
5. Effective as of the date this amendment is adopted, the Plan is amended by adding the following new Section 5.09 to the Plan:
5.09 Specified Employee Delay. The following provisions shall apply upon a Separation from Service on or after the date that any stock of the Employer becomes publicly traded on an established securities market or otherwise. If the
Participant is deemed on the date of such a Separation from Service to be a specified employee (within the meaning of that term under Code Section 409A(a)(2)(B) and determined using any identification methodology and procedure selected by the Company from time to time, or if none, the default methodology and procedure specified under Code Section 409A), then the vested balance of a Participants Deferral Account that is payable as a result of the Participants Separation from Service shall not be paid prior to the date which is the earlier of (A) the expiration of the six (6) month period measured from the date of such Separation from Service of the Participant, and (B) the date of the Participants death (the Delay Period). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to the Participant in a lump sum, and any remaining payments due under the Plan shall be paid or provided in accordance with the normal payment dates specified for them herein. In determining whether a Participant is subject to the delay hereinabove described, the transitional rules of Treas. Reg. § 1.409A-1(I)(6) shall be applied.
6. The Plan is amended by adding the following new Section 5.10 to the Plan:
5.10 Change in Control.
(a) In the event of a Change in Control, the Board of Directors of the Company may, but shall not be obligated to, 100% fully vest a Participant who has a Separation from Service as a result of the Change in Control in his or her Deferral Account as of the date of such Participants Separation from Service.
(b) For Plan purposes, Change in Control shall have the same meaning as set forth in the equity plan maintained by the Company or its Related Entity and if there is more than one such plan, then the meaning set forth in the most recently adopted or amended equity plan shall apply. For avoidance of doubt, the treatment of awards under such equity plan or under any other plan or program shall not impact the Boards decision whether to provide full vesting under the plan, which decision the Board may make in its sole and absolute discretion.
7. Section 6.04(a) of the Plan is amended to read as follows:
(a) Initial Claim and Time Periods: A Participant or Beneficiary (Claimant) who desires to recover benefits due him or her under the Plan, enforce his or her rights under the terms of the Plan or clarify his or her rights to future benefits under the terms of the Plan (referred to in this Section as the claim or claims) shall submit the claim in writing to the Retirement Committee. The Retirement Committee shall review the claim itself or appoint an individual or entity to review the claim. The Retirement Committee and any individual or entity appointed to review the claim (the Claims Fiduciary) has the sole power in its discretion (as described below) to determine the rights and eligibility of employees, Participants and Beneficiaries to their respective benefits under the
Plan. Benefits under the Plan will be paid only if the Claims Fiduciary decides in its discretion that the applicant is entitled to them.
Any claim must be submitted within the applicable limitations period. The applicable limitations period shall be two years beginning on:
(i) for a claim with respect to any account balance, other benefit amount or other information, including, but not limited to, information regarding the Claimant, the date on which such information was first made available to the Claimant;
(ii) for a claim with respect to any single Plan payment, or series of Plan payments, the date on which the single payment, or the first in the series of payments, was made, or
(iii) for all other claims, the date on which the action complained of first occurred.
8. The Plan is amended by adding the following Section 6.04(e) to the Plan:
(e) If a Claims Fiduciary does not make a decision on a claim or on a request for review of a denied claim within the appropriate time period, such claim or request for review, as the case may be, shall be deemed denied. The decision on a request for review shall be final and conclusive. A claimant may not bring a lawsuit on a claim under the Plan until he or she has exhausted the internal administrative claim process established under this Section 6.04 of the Plan. No action at law or in equity to recover under the Plan shall be commenced later than one year from the date a determination is made on the request for review or the expiration of the appeal decision period if no determination is issued.
IN WITNESS WHEREOF, the undersigned have caused this Second Amendment to be executed on its behalf on this 16 day of August, 2013.
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BY: |
RETIREMENT COMMITTEE |
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/s/ Allison Golding | |
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By: |
Allison Golding, Authorized Signatory |
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BY: |
AUTHORIZED OFFICER |
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/s/ Craig McKasson | |
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By: |
Craig McKasson |
Exhibit 10.22
FORM OF SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
THIS SENIOR EXECUTIVE EMPLOYMENT AGREEMENT (the Agreement) is made and entered into by and among Susan D. DeVore (Executive) and Premier Healthcare Solutions, Inc., a Delaware corporation with its principal places of business in Charlotte, North Carolina, Washington, D.C., and Ft. Lauderdale, Florida (Premier or the Company) (each and collectively defined and referred to herein as a Party and the Parties).
WITNESSETH:
WHEREAS, Premier, Inc., Premier Healthcare Solutions, Inc. and Premier Purchasing Partners, L.P. are currently contemplating a reorganization pursuant to which Premier Healthcare Solutions, Inc. and Premier Purchasing Partners, L.P. would become direct or indirect subsidiaries of Premier, Inc., and Premier, Inc. will engage in an initial public offering of Class A Common Stock (the reorganization and initial public offer for which is collectively referred to herein as the Reorganization);
WHEREAS, upon the Reorganization, the Company will be engaged in the business of, among other things, developing, marketing and providing the following services and products to (1) healthcare providers and affiliated entities throughout the United States, with respect to subsections (a)-(d); and (2) patients, healthcare providers and affiliated entities, and pharmaceutical manufactures, with respect to subsection (e): (a) proprietary information technology, health care informatics and computer software systems, and support, consulting and subscription services; (b) group purchasing, direct sourcing and supply chain management services; (c) clinical and operational healthcare performance, measurement, improvement and outcomes management/consulting services; (d) excess medical professional liability and other excess and non-excess insurance programs and risk management services; and (e) specialty pharmacy and related disease management, patient and manufacturer reporting, prior authorization and other pharmacy and patient support services (collectively defined as Health Care Products/Services);
WHEREAS, Executive is currently employed as the President and Chief Executive Officer of the Company in accordance with the terms of an Employment Agreement entered into by and between Executive and the Companys predecessor entity dated April 27, 2009, as amended (the Prior Employment Agreement);
WHEREAS, in connection with the Reorganization, Premier desires to enter into an employment agreement with Executive, and Executive wishes to enter into such employment on the basis set forth in this Agreement.
NOW, THEREFORE, in exchange for the promises and mutual covenants contained in this Agreement, the Parties, intending legally to be bound, agree as follows:
1. Employment. Premier agrees to employ Executive during the Employment Term (as defined in Section 3), and Executive hereby accepts such employment and agrees to serve Premier subject to the general supervision and direction of the Board of Directors of Premier, Inc. (the Board), effective as of the Effective Date (as defined below). The Parties, however, agree that this Agreement is effective only upon the consummation of the Reorganization (the Effective Date) and shall be void ab initio and of no force or effect whatsoever unless and until such transactions are consummated.
2. Duties. During the Employment Term (as defined in Section 3), Executive shall be employed as President and Chief Executive Officer (CEO) of both Premier and Premier, Inc. and shall also serve as an officer of the other Related Companies (as defined in Section 13) if and as appropriately elected. In addition, Executive shall perform the services and duties required of such position(s) for Premier and/or its Related Companies, including such other services and duties commensurate with Executives employment position and status as CEO as the Board may from time to time designate or assign to fulfill the requirements of such position(s); and shall devote Executives full time, attention and best efforts to the business of Premier and its Related Companies. In particular, during the Employment Term, Executive shall:
a. Perform the duties and exercise the powers and functions that from time to time may be reasonably assigned or vested in her by the Board in relation to: (1) Premier and its Related Companies; and/or (2) Premiers partner hospitals, members and other affiliated health care organizations (collectively, Premiers Affiliates), including general responsibility for the overall management, affairs and leadership of Premiers and its Related Companies business and developing and maintaining close working relationships between Premier and its Affiliates, reporting directly to the Chair of the Board (the Board Chair) and the Board;
b. Serve as a director on the Board, and to such end, Premier shall include Executive on its slate of nominees for the Board beginning on or before the Effective Date and recommend the election of Executive as a director to its shareholders/owners with respect to any Board election for which Executives then current applicable term on the Board is expiring;
c. Faithfully and loyally serve Premier and its Related Companies to the best of her ability and use her utmost endeavors to promote their interests in all respects, including but not limited to refraining from any attempt to usurp Premier or its Related Companies corporate benefits or opportunities for Executives personal gain;
d. Adhere faithfully to all applicable professional ethics and business practices, including but limited to Premier and its Related Companies Code of Conduct and Conflict of Interest policies;
e. Be fully and readily available to work on and perform her duties consistent and commensurate with her position as CEO as assigned from time to time (other than at times involving approved vacation, leave or disability); and
f. Assist in succession planning for Executives and other key employees positions as may be requested prior to the termination or end of Executives Employment Term.
Except as specifically authorized in advance by the Board Chair in writing, during the Employment Term, Executive shall work full-time and exclusively for Premier and its Related Companies and shall not be engaged as an employee, consultant or otherwise in any other business or commercial activity pursued for gain, profit or other pecuniary advantage, either on a full-time or part-time basis. Nonetheless, this Agreement shall not be construed as prohibiting Executive during the Employment Term from: (1) with the advance written consent of the Board, serving as a member of a board of directors of a public or private corporation or other entity; (2) participating in charitable or non-profit activities or serving on the board of directors of any charitable or non-profit organization; (3) serving as a director, officer or committee member of or in equivalent positions with Premiers Related Companies and/or any Affiliate during the Employment Term, for which Executive shall not receive any additional compensation except as otherwise provided in Section 4; and (4) making or managing personal investments in such form or manner as will neither require her services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Sections 2.c.-2.e. and 7-14 hereof. The Parties, however, agree that such activities must not singly or in the aggregate
prevent, unduly limit or materially interfere with Executives ability to perform her duties and responsibilities to Premier under this Agreement.
3. Term. Unless sooner terminated as provided in Section 15, the Parties agree that Executive shall be employed by Premier pursuant to this Agreement for a term of three (3) years commencing on the Effective Date (the Initial Period). In addition, after the Initial Period, this Agreement and Executives employment shall be deemed to have been automatically extended for an additional one year term on each anniversary of the Effective Date or such other period as mutually agreed to between the Parties, unless either party provides written notice at least ninety (90) days prior to the expiration of the Initial Period or any extended term that the Agreement is not to be extended, or unless sooner terminated as provided in Section 15. Executives total term of employment with Premier during the Initial Period and any extended term of this Agreement is collectively defined and referred to as the Employment Term.
4. Compensation.
a. Base Salary. During the Employment Term, Premier will pay Executive a base salary as compensation for Executives services hereunder at a semi-monthly base rate of $40,741.66, equivalent to $977,800 per year (the Base Salary). Such Base Salary shall be payable to Executive by Premier in accordance with customary payment cycles as may be established by Premier for other senior executive level employees (but not less frequently than monthly). In addition, the Parties agree that the amount of Executives Base Salary shall be reviewed annually by the Compensation Committee of the Board (the Compensation Committee) during the Employment Term, at which time Executives Base Salary may be increased beyond that which is provided for in this Section 4.a., at Premiers absolute and sole discretion. If the Base Salary is increased, such increased amount shall thereafter become the Base Salary under this Agreement.
b. Annual Incentive Plan. During the Employment Term, Executive shall participate in any annual incentive plan sponsored by Premier or a Related Company (as defined in Section 13) (the Annual Plan) applicable to Executive or other similarly situated senior executive level employees, in accordance with the terms and conditions of such Annual Plans as they may be established, modified, changed, replaced or terminated from time to time. The Parties further agree that for Fiscal Year 2014, Executives Target incentive opportunity in the Annual Plan shall equal 125% of Executives plan year earnings as defined in the Annual Plan.
c. Ending Long-Term Incentive Plan. During the Employment Term, Premier shall provide Executive with her eligible payments as a participant under the long-term incentive compensation program sponsored by Premier or a Related Company (as defined in Section 13) that expired effective June 30, 2013 (the 2013 LTIP) in accordance with the terms and conditions of such plan, as it may be established, modified, changed, replaced or terminated from time to time.
d. Equity. As additional consideration for entering into this Agreement, during the Employment Term, and provided Executive signs the applicable award agreements within the time period required and is employed by Premier at the time of related equity awards, Executive shall be eligible to participate in the Premier, Inc. 2013 Equity Incentive Plan and any other equity-based or cash-based long-term incentive compensation plan applicable to Executive or other similarly situated senior executive level employees in accordance with terms and conditions of such plans as they may be established, modified, changed, replaced or terminated from time to time. In connection with such equity participation, and provided the conditions outlined above in this Subsection 4.d. are met, Executive shall be initially awarded / issued, effective as of the Effective Date: (1) restricted stock unit award shares; (2) target performance shares of
Premier, Inc.s Class A common stock, with the potential to earn up to 150% of target based on performance; and (3) non-qualified stock options to purchase shares of Premier, Inc.s Class A common stock, in amounts as described and set forth in Annex E. All such restricted stock units, target performance shares and stock options will vest and be awarded / issued in accordance with the terms of the applicable award agreements and the Premier, Inc. 2013 Equity Incentive Plan, as such plans and award agreements may be established, modified, changed, replaced or terminated from time to time. Executives total current and future equity participation under this Agreement shall be collectively referred to as Executives Equity Participation.
e. Other Benefits. During the Employment Term, Premier will provide to Executive those other benefits customarily provided by Premier or a Related Company (as defined in Section 13) to other similarly situated senior executive level employees, including five (5) weeks of annual vacation per applicable Premier policy, 401(k), deferred compensation or other retirement plans, and all group health, hospitalization, life and disability plans or other employee welfare benefit plans, as such plans may be modified, changed, replaced or terminated from time to time in the absolute and sole discretion of Premier and/or its Related Companies; provided that Executive is otherwise eligible to participate in such plans and desires to be covered. In addition, upon the execution of this Agreement by all Parties, and following approval of related invoices submitted by Executive to the Chair of the Compensation Committee for review, Premier shall reimburse Executive for the reasonable amount of attorneys and tax advisors fees and costs incurred by her in connection with the negotiation and review of this Agreement, up to a maximum amount of $25,000. Moreover, during the Employment Term, Premier or a Related Company will provide Executive with Exec-U-Care insurance coverage for purposes of providing supplemental coverage of out-of-pocket expenses (deductibles, co-insurance, uncovered benefits, etc.) and administrative fees for medical and dental care in accordance with the terms, limits and conditions of such plan as it may be modified, changed, replaced or terminated from time to time in the absolute and sole discretion of Premier; provided that Executive is otherwise eligible to participate in such plan and desires to be covered. Further, in the event there is a change in applicable federal or state healthcare, tax or other law related to the Exec-U-Care coverage such that Executives participation in any such plan is barred during the applicable coverage period or the overall current contemplated costs and tax effect of the Exec-U-Care coverage for Executive or Premier and/or its Related Companies are substantially increased, the Parties agree to mutually negotiate a modification of this Exec-U-Care commitment in good faith to provide supplemental medical coverage or a compensation arrangement of comparable economic value for Executive at an overall estimated cost to Executive and Premier and/or its Related Companies (adjusted for inflation) as originally contemplated, to the extent practicable. With the exception of the Exec-U-Care insurance benefits described above, nothing contained in this Agreement shall be construed to obligate Premier or its Related Companies in any manner to put into effect any plans not presently in existence or to provide special benefits to Executive.
5. Reimbursement of Expenses. During the Employment Term, upon submission of proper vouchers and receipts to Premier by Executive, Premier shall promptly pay or reimburse Executive for all normal and reasonable business expenses, including authorized business cell phone/smartphone expenses and authorized business travel expenses, incurred by Executive in connection with Executives performance of her responsibilities with Premier and its Related Companies (as defined in Section 13) in accordance with the terms of applicable Premier policy and procedures then in effect concerning the same as may be established or amended from time to time in the absolute discretion of Premier. Any and all such business expenses shall further be subject to periodic review by the Board Chair and/or Chair of the Compensation Committee.
6. Consulting Period. Following Executives separation from employment from Premier for any reason except death, Executive agrees to provide consulting services to Premier for a period of twenty-four (24) months following such separation from employment (the Consulting Period). Executive
shall be available during the Consulting Period to provide advice to Premier regarding its operations or management as Premier may reasonably request; provided, however, that Executive shall not be required to perform more than ten (10) hours of service per month for Premier during the Consulting Period and may perform such services in a manner that does not unreasonably interfere with Executives schedule or other post-Premier employment commitments. Moreover, provided Executive is and remains so available, during the Consulting Period, Premier shall pay Executive a reasonable consulting fee on a monthly basis at the rate of one-tenth (.10x) Executives then current monthly Base Salary upon her separation (the Consulting Fee), and Executive shall be promptly reimbursed for any expenses reasonably incurred by Executive in the performance of the services set forth in this Section 6. Notwithstanding the forgoing, except as otherwise provided in this Agreement under Section 24.c., the first Consulting Fee shall be paid on the sixtieth (60th) day following the effective date of Executives applicable separation from employment with Premier and will include any Consulting Fee payments for the period from the end of Executives employment with Premier through the first Consulting Fee payment date. The remaining Consulting Fee payments will continue thereafter for the applicable payment period. In addition, the Parties agree that despite the limited consulting obligations outlined in this Section 6, nothing in this Section should be interpreted or implemented in such a way that is otherwise inconsistent with Executives overall separation from service with Premier pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the Code).
7. Conflicts of Interest. Throughout Executives employment with Premier, Executive shall not: (a) render any services, with or without compensation, to any other person or firm engaged in the sale, marketing and/or provision of Health Care Products/Services (as defined in the Recitals to this Agreement); or (b) in any other way compete with the business then being conducted by Premier. Executive further agrees that except for actions otherwise undertaken for the benefit of Premier in the normal course of Executives assigned duties as an employee of Premier, during the Employment Term, Executive shall not engage in any prohibited activity outlined in Sections 8-10. In addition, during Executives employment with Premier, Executive agrees that she shall not actively engage in any other business for her own account and will not be an employee or independent contractor for any other person or entity without the prior written approval of the Board. Executive also agrees to comply with the terms of Premiers Code of Conduct and Conflict of Interest policies, including but not limited to all terms relating to the divestiture or transfer to a blind trust of any equity interest that Executive may hold in participating vendors, as defined in such policies.
8. Agreement Not To Compete/Competitively Use Confidential Information. Executive acknowledges and agrees that she has and will continue to acquire a considerable amount of knowledge and goodwill with respect to the health care group purchasing, supply chain management, information technology, informatics, healthcare management/consulting, insurance programs industry, specialty pharmacy services and Premiers business in particular, which knowledge and goodwill are extremely valuable to Premier and which would be extremely detrimental to Premier if used by Executive to compete with Premier or to work or consult with Premiers competitors in the United States. Executive also understands and agrees that, because of the nature of the business of Premier and the broad, nationwide hospital, customer and Affiliate base to which it markets and sells, it is necessary to afford fair protection to Premier from such competition by Executive.
Consequently, for and in consideration of this Agreement, the employment of Executive pursuant to this Agreement, the new Executive Equity Participation, and Executives continued exposure and access to confidential Premier information, Executive agrees that during the Consulting Period (as defined in Section 6) she shall not:
a. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity engage in Competitive Activity (as defined below) within the Prohibited Territory (as defined below);
b. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity engage in Competitive Activity within the Prohibited Territory in which Executive competitively uses or attempts to use Premiers Confidential Information (as defined in Section 11); and/or
c. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity directly assist any of the Core Competing Businesses (as defined below) to engage in Competitive Activity within the Prohibited Territory, where Executive hereby acknowledges and agrees that disclosure or use of Premiers Confidential Information would be inevitable in the event of any such future employment or engagement.
Core Competing Businesses means the direct core competitors of Premier listed on Annex A hereto.
Competitive Activity means engaging in work for a competitor of Premier that is the same as or substantially similar to work that Executive performed on behalf of the Company at any point during the last twelve (12) months of Executives employment with the Company.
Competitive Activity further means the management, administration, sale, development, marketing and/or provision of: (1) Health Care Products/Services (as defined in the Recitals to this Agreement) that are competitive with services or products which Executive assisted Premier to provide at any time during the last twelve (12) months of Executives employment with the Company; and/or (2) other services or products that are competitive with services or products which Executive assisted Premier to provide at any time during the last twelve (12) months of Executives employment with the Company. Provided, however, beneficially owning the stock or options to acquire stock totaling less than 5% of the outstanding shares in a public competitor shall not constitute by itself Competitive Activity. Premier and Executive further agree that the term Competitive Activity shall not include academic and other lectures presented or taught by Executive for or on behalf of non-competitive entities or service as an expert witness for matters not involving Premier or any Premier Affiliate. Premier and Executive also agree that following Executives separation from employment with Premier, the term Competitive Activity shall not include: (a) service on boards of directors of non-Premier hospitals / members, non-Premier Affiliates or other businesses that are not competitive with Premier or its Affiliates; or (b) service on boards of directors of Premier hospitals / members or Premier Affiliates.
Prohibited Territory means: (1) the continental United States, which Executive acknowledges is the area that she is to assist Premier to engage in Competitive Activity; and/or (2) the geographic territory and areas in which Executive assisted Premier to engage in Competitive Activity at any time during Executives last twelve (12) months as a Company employee. Executive further acknowledges that Premier provides its products and services to Affiliates and customers widely dispersed throughout the United States.
In addition, Premier agrees that nothing in this Section 8 shall prohibit Executive from serving in an employee leadership or management capacity or otherwise being employed by a hospital, healthcare system, healthcare managed care provider, medical practice or a non-group purchasing organization medical supplier, provided that: (i) as part of Executives service with or for such organizations and entities, Executive does not engage in activities or directly assist others to engage in activities that compete with Premier in providing Health Care Products/Services (as defined in the Recitals to this Agreement) to other healthcare providers and affiliated entities (i.e., in the market engaged in by Premier); (ii) during the Employment Term prior to Executives separation, Executive abides by her obligations outlined in Sections 2.c.-2.d. with respect to such entities; and (iii) Executive abides by the confidentiality, agreement not to raid, and agreement not to interfere with Premiers business obligations set forth in this Agreement.
Executive agrees that in the event she is later employed by a non-group purchasing organization medical supplier following her employment with Premier, she will also recuse herself during the Consulting Period from any consideration of decisions or other communications or discussions that would result in the termination of a contract, discontinuance of business, or reduction of business with or amounts paid to Premier involving the products or services that Executives new employer supplies Premier. Executive further expressly acknowledges and agrees that as part of her post-employment confidentiality commitments to Premier, she cannot and will not use any confidential Premier pricing, contract or other supplier-related information obtained during her employment with Premier in connection with any supply contract or other negotiations between Premier and her new non-group purchasing organization medical supplier employer, if applicable, or to obtain a competitive advantage against or otherwise harm Premier or its Affiliates.
9. Agreement Not To Raid Employees. In addition to the agreement not to compete/not to competitively use confidential information above, Executive agrees that during the Consulting Period (as defined in Section 6) after Executives employment by Premier has terminated or ended (whatever the reason for the end of the employment relationship), Executive shall not, for the purpose of providing products or services similar to the Health Care Products/Services (as defined in the Recitals to this Agreement) or engaging in any Competitive Activity (as defined in Section 8), whether on behalf of any other entity or on Executives own behalf: (a) hire or engage as an employee or as an independent contractor any employee then presently employed by Premier with whom Executive worked or about whose work Executive was familiar during Executives employment with Premier (each a Restricted Employee); and/or (b) solicit, encourage or cause or attempt to solicit, encourage or cause any Restricted Employee to leave his or her employment relationship with Premier; provided, however, that this Section 9 shall not apply to Executives personal administrative assistant.
10. Agreement Not To Interfere With the Companys Business. In addition to the above agreements not to compete/not to competitively use confidential information and not to raid Premiers employees, and given Premiers legitimate business interests and the consideration provided to Executive as noted above, Executive agrees that during the Consulting Period (as defined in Section 6) after Executives employment by Premier has terminated or ended (whatever the reason for the end of the employment relationship), she shall not:
a. Solicit, market, call upon, divert or contact or attempt to solicit, market, call upon, divert or contact any then current Premier Customer (as defined below) for the purpose of engaging in Competitive Activity (as defined in Section 8);
b. Solicit, market, call upon, divert or contact or attempt to solicit, market, call upon, divert or contact any then current Premier Customer for the purpose of causing such Premier Customer to discontinue doing, or to reduce, modify or transfer all or any part of their business or other relationship with Premier; and/or
c. Solicit, encourage, cause, or attempt to cause any Restricted Supplier (as defined below) of goods or services to Premier not to do business with, to discontinue doing business with, or to reduce any part of their business with, the Company and shall further recuse herself from certain supplier decisions, discussions and actions as specifically provided in Section 8 above.
The term Premier Customer means any Premier Affiliate or Premier customer: (1) for which Executive earned or was paid incentive pay at any point during Executives last 12 months as a Premier employee; (2) with which Executive worked or for which Executive supervised or assisted in Premiers work at any point during Executives last 12 months as a Premier employee; and/or (3) about which Executive obtained Confidential Information during the last twelve (12) months of Executives employment with Premier. The term Premier Customer shall also include any prospective customer of
the Company: (a) who contacted Executive, whom Executive contacted, or for whom Executive supervised or assisted with contact, as part of her employment with the Company at any time during the last six (6) months of Executives employment with Premier; and/or (b) about whom Executive obtained Confidential Information during the last six (6) months of Executives employment with Premier.
The term Restricted Supplier means any supplier of goods or services to Premier: (a) with which Executive had dealings; (b) for which Executive supervised or assisted in Premiers dealings; and/or (c) about which Executive obtained Confidential Information (as defined in Section 11), all at any point during Executives last 36 months as a Premier employee.
Premier, however, agrees that nothing in this agreement not to interfere with Premiers business shall prohibit Executive from serving as a director or officer of or being employed by or engaging in services for a participating Restricted Supplier, vendor or other supplier of Premier following her separation from employment with Premier, provided that: (i) during the Employment Term prior to her separation, Executive abides by her obligations outlined in Sections 2.c.-2.d. with respect to such participating vendors and suppliers; (iii) Executive abides by this Section 10; (iii) Executive abides by the confidentiality and agreement not to raid obligations set forth in this Agreement; and (iv) such employment or engagement does not entail Executive performing Competitive Activity within the Prohibited Territory with or for a Competing Business in violation of Section 8 or otherwise violate the other noncompete obligations set forth in Section 8.
11. Confidentiality. For and in consideration of this Agreement, the employment of Executive pursuant to this Agreement, and Executives continued exposure and access to confidential Premier information, Executive agrees to the following for the protection of Premier:
a. Duty to Maintain Confidentiality. Executive promises and agrees that, except to the extent the use or disclosure of any Confidential Information (as defined below) is required to carry out Executives assigned duties with the Company, during Executives employment with the Company and for five (5) years thereafter (or for such longer periods as required by law or such other periods as Premier may specifically agree with its Affiliates, customers, vendors, suppliers and other third parties prior to Executives separation from employment with Premier regarding the non-disclosure of Confidential Information shared or provided by such entities): (1) Executive will keep strictly confidential and not disclose to any person not employed by the Company any Confidential Information; and (2) Executive will not use for herself or for any other person, firm, corporation or entity any Confidential Information. However, this provision shall not preclude Executive (a) from the use or disclosure of information known generally to the public (other than information known generally to the public as a result of Executives violation of this Section), or (b) from any disclosure required by law or court order, by any governmental entity having regulatory authority over the business of the Company, or by any administrative or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information, provided Executive provides Premier prompt written notice of any potential disclosure under this subsection (b) within forty-eight (48) hours of Executives receipt of the request for disclosure or executives election to disclose such information under this subsection (b), whichever is earliest, to the fullest extent permitted by applicable law.
b. Scope. For purposes of this Agreement, Confidential Information means confidential, trade secret or proprietary information furnished to or obtained by Executive within the course of Executives prior or ongoing employment with Premier (including, without limitation, information created, discovered, or developed by her), whether such information is in the form of electronic data, forecasts, reports, e-mail, other documents, or otherwise. Such Confidential Information includes, by way of illustration, but is not limited to: (1) information regarding any Premier Affiliate or any other Premier customer, including but not limited to Affiliate/customer lists, contact information, contracts, billing histories, Affiliate/customer preferences, and information
regarding products or services provided by the Company to such entities; (2) all non-public financial information concerning the Company, including but not limited to commissions and salaries paid to employees, sales data and projections, forecasts, cost analyses, and similar information; (3) all plans and projections for business opportunities for new or developing business of Premier, including but not limited to marketing concepts and business plans; (4) all Premier Intellectual Property (as defined in Section 12), software, source and object codes, computer data, research information and technical data, including but not limited to information regarding Premiers Advisor Suite of products and services and other automated tools/services; (5) all information relating to the Companys services, products, prices, costs, research and development activities, service performance, operating results, pricing strategies, employee lists or personnel matters; (6) all Premier information regarding sources and methods of supply to Premier, including but not limited to supply agreements, supply terms, product discounts and similar information; and/or (7) any of the information described in subsections (1)-(6) of this Section that the Company obtains from another party or entity and that the Company treats or designates as confidential or proprietary information, whether or not such information is owned or was developed by the Company.
The Parties further agree that Confidential Information shall not include information that: (a) is generally known or available to the public or the health care industry in general other than as a result of an act or failure to act by Executive or Executives violation of this Agreement; (b) is lawfully obtained by Executive from a non-party that is under no obligation of confidentiality (except as otherwise provided in subsection (7) of this Section 11.b. above); or (c) is developed, created or discovered by Executive on Executives own time and independent of Premiers resources or the Confidential Information disclosed by Premier, unless such information relates to Premier Intellectual Property (as defined in Section 12).
c. Return of Documents/Data/Property. Executive acknowledges and agrees that (with the exception of information that Executive can demonstrate was possessed by her prior to Executives employment with Premier that has not been purchased or leased by the Company, or modified, updated or improved by Executive or the Company in connection with Executives employment with Premier) all materials, documents and data used, prepared or collected by Executive as part of Executives employment with Premier, in whatever form, are and will remain the property of the Company. Executive also understands and agrees that all Confidential Information that comes into Executives possession in the course of Executives employment with Premier, whether prepared by Executive or others, is and will remain the property of the Company. Thus, Executive agrees that she will return upon Premiers request at any time (and, in any event, on or before Executives last day as a Premier employee) all (1) business items purchased for use in Executives employment with Premier and reimbursed or paid for by Premier; and (2) documents, information, and other property belonging to the Company, as well as all documents and other materials of any kind that constitute or contain any Confidential Information, in Executives possession or control, regardless of how stored or maintained, including all originals, copies and compilations and all electronic data.
12. Company Intellectual Property Rights. Executive and Premier agree that Premier shall be the sole owner of all work and all tangible and intangible materials and products, Intellectual Property (as defined below), improvements and ideas that Executive jointly or singly developed or develops, or of which Executive becomes aware, while acting on behalf of Premier as an employee prior to or during the Employment Term. Thus, Executive shall promptly and fully disclose all Intellectual Property (as defined below) to Premier, and Executive hereby acknowledges that all Intellectual Property is the property of the Company. Executive hereby assigns and agrees in the future to assign to the Company (or as otherwise directed by the Company) Executives full right, title and interest in and to all Intellectual Property. Executive agrees to provide, at the Companys reasonable request, all further cooperation that the Company determines is necessary or desirable to accomplish the complete transfer of the Intellectual
Property and all associated rights to the Company, its successors, assigns and nominees, and to ensure the Company the full enjoyment of the Intellectual Property. In addition, all copyrightable works that Executive creates during Executives employment with the Company shall be considered work made for hire and shall, upon creation, be owned exclusively by Premier.
For purposes of this Agreement, Intellectual Property means any invention, formula, process, discovery, development, design, innovation or improvement (whether or not patentable or registrable under copyright statutes) made, conceived or first actually reduced to practice by Executive solely or jointly with others, during Executives employment with Premier; provided, however, that, as used in this Agreement, the term Intellectual Property shall not apply to any invention that Executive develops on her own time, without using the equipment, supplies, facilities or trade secret information of the Company, unless such invention relates at the time of conception or reduction to practice to: (1) the business of the Company, (2) the actual or demonstrably anticipated research or development of the Company, or (3) any work performed by Executive for the Company.
13. Related Companies. For purposes of the restrictions and commitments in Sections 7 (Conflicts of Interest), 8 (Agreement Not to Compete / Competitively Use Confidential Information), 9 (Agreement Not To Raid Employees), 10 (Agreement Not To Interfere With the Companys Business), 11 (Confidentiality), 12 (Company Intellectual Property Rights) and 14 (Reasonableness of Restrictions), Premier or the Company shall mean: (a) the Company as defined in the Recitals to this Agreement; and; (b) any Related Company (as defined below) or successor of Premier for or with whom Executive performed or supervised any services at any time during the last 12 months of Executives employment with Premier.
Related Company means (1) any Premier parent company, subsidiary company, sister company or joint venture, or related subsidiary companies of such entities; and/or (2) any parent corporation with respect to Premier within the meaning of Section 424(e) of the Code, any subsidiary corporation with respect to Premier within the meaning of Code Section 424(f) but substituting the phrase 20 percent for the phrase 50 percent each place it appears in that section, and any corporation or other entity in a chain of corporations or other entities in which each corporation or other entity has a controlling interest in another corporation or other entity in the chain, beginning with the corporation or other entity in which Premier has a controlling interest. For this purpose, controlling interest shall have the same meaning as in Treasury Regulations Section 1.409A-1(b)(5)(E)(1) (or any successor provision) but substituting the phrase at least 20 percent for the phrase at least 50 percent where it appears in that section.
14. Reasonableness of Restrictions. Executive has carefully read and considered the provisions of this Agreement and, having done so, agrees that the restrictions placed upon her by Sections 7-13 of this Agreement are reasonable given the nature of her senior executive position with Premier, the area in which Premier markets and provides its products and services, the expansive nationwide nature of Premiers business, and the consideration provided by Premier to Executive pursuant to this Agreement. Specifically, Executive agrees that the length and scope of the covenant not to compete, the length and scope of the noninterference and anti-raiding provisions, and the other restricted activities set forth in Sections 7-13 are reasonable and that the definitions of Competitive Activity, Core Competing Businesses, Prohibited Territory, Restricted Employee, Restricted Supplier, Premier Customer, Confidential Information and Intellectual Property are reasonable. Executive further agrees that the restrictions set forth herein are reasonably required for the protection of the legitimate business interests of the Company. Thus, although the Parties acknowledge and agree that Executive retains the right to contest the application or interpretation of Sections 7-13 of this Agreement to particular facts/circumstances, Executive agrees not to contest the general validity or enforceability of Sections 7-13 of this Agreement before any court, agency, arbitration panel, or other body. Executive agrees that Sections 8-13 of this Agreement shall survive the termination or end of her employment relationship with the Company and shall be in addition to any restrictions imposed on
Executive by statute, at common law, or other agreements. In addition, Section 8-13 shall continue to be enforceable, regardless of the date, reason or manner of Executives separation or whether there is a subsequent dispute between the Parties concerning any alleged breach of this Agreement, and such separation shall not in any way impair or affect Executives continued obligation to observe such Sections of this Agreement.
Executive further acknowledges and agrees that because her abilities and skills are readably useable in a variety of capacities in most all geographic areas, the foregoing restrictions do not unreasonably restrict her with respect to seeking employment elsewhere or unduly impair her ability to earn a living in non-competitive ventures should her employment with Premier end.
15. Termination. In addition to the provisions set forth in Section 3, the Employment Term shall terminate upon the occurrence of any of the following events: (i) immediately upon retirement on or after the normal retirement age established under the Premier Employees Pension Plan (Retirement), or early retirement as defined under the Premier Employees Pension Plan (Early Retirement); (ii) immediately and automatically upon Executives death; (iii) upon the effective date of Resignation by Executive Without Good Reason (as defined below); (iv) upon the effective date of Resignation by Executive With Good Reason (as defined below); (v) upon the close of business on the date the Board gives Executive notice of Termination for Just Cause (as defined below) or, if and as applicable, upon the expiration of any cure period provided by the Company to Executive if and as required herein for Termination for Just Cause, if the violation remains uncured by Executive as prescribed; (vi) upon the close of business on the date the Board gives Executive notice of Termination Without Cause (as defined below); or (vii) upon the Disability of Executive (as defined below) and the end of the elimination period specified in the long-term disability plan sponsored by Premier or a Related Company in which Executive participates. In addition, notwithstanding the provisions of this Section 15 below, Executive agrees that upon the termination or end of Executives Employment Term for any reason, Executive shall resign and does resign from all positions as an officer, director and employee of Premier and Premiers Related Companies, with such resignations to be effective upon the termination or end of Executives Employment Term.
a. Termination for Just Cause Retention Period. For purposes of this Agreement from the Effective Date through July 17, 2016, Termination for Just Cause shall have the meaning set forth in Annex B hereto.
b. Termination for Just Cause Post-Retention Period. For purposes of this Agreement following July 17, 2016, Termination for Just Cause means termination of the employment of Executive by the Board as the result of: (1) commission or omission of any act of dishonesty, embezzlement, theft, misappropriation or breach of fiduciary duty by Executive in connection with Executives employment with Premier; (2) any conviction, guilty plea or plea of nolo contendere by Executive for any felony, a misdemeanor which fraud and dishonesty is a material element, or a crime of moral turpitude, that is likely to result in incarceration if later sentenced (if the Board deems in its absolute discretion that such conviction or plea may have a significant adverse effect upon Premier or upon Executives ability to perform under this Agreement); (3) willful action or willful inaction with respect to Executives performance of her employment duties that constitutes a violation of law or governmental regulations or that causes Premier or its Related Companies or Affiliates to violate such law or regulation; (4) a material breach of any securities or other law or regulation or any Premier or Related Company policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (5) failure to reasonably cooperate or interference with a Premier-related investigation; (6) willful violation by Executive of Premiers or its Related Companies lawful material policies, rules and procedures, including but not limited to Premier and its Related Companies Code of Conduct and Conflict of Interest policies; (7) the regulatory, governmental or administrative suspension, removal or prohibition of Executive as defined in this Section below;
(8) willful misconduct, willful insubordination to the Board or willful refusal or unwillingness to carry out or follow specific lawful, reasonable directives, duties or assignments established or given by the Board from time to time in accordance with this Agreement; (9) willful inattention to or dereliction of duty by Executive with respect to the business affairs of Premier or its Related Companies to which Executive is assigned material responsibilities or duties by the Board that is materially harmful to the business or reputation of Premier; (10) the breach of or failure to perform the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; (11) the prospective breach of the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; or (12) the breach or prospective breach or failure to perform the obligations set forth in Sections 11-12 of this Agreement that is either willful or materially harmful to the business or reputation of the Company.
The Parties, however, agree that Termination For Just Cause shall not mean or include termination of the employment of Executive by the Board pursuant to Sections 15.b. (9) or (11) as a result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than thirty (30) days after receipt of notice from the Board or its authorized agents of such performance issue(s).
The Parties further agree that Termination for Just Cause shall not mean or include termination of the employment of Executive by the Board pursuant to Sections 15.b.(10) or (12) as result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than ten (10) days after receipt of notice from the Board or its authorized agents of such performance issue(s).
The Parties agree that Executives general failure to meet the performance objectives, milestones and goals established or given by the Board from time to time shall not constitute grounds for Termination for Just Cause. Further, for purposes of this definition only, no act or failure to act by Executive shall be deemed willful if: (a) done or omitted to be done by Executive in good faith and with the reasonable belief that her act or omission was in the best interest of Premier and consistent with Premier and its Related Companies policies and applicable law; (b) based on and consistent with instructions pursuant to a resolution duly adopted by the Board; or (c) based on and consistent with the advice of Premier counsel.
Notwithstanding the above and Sections 15.c. and 15.d., the Parties also acknowledge and agree that:
(i) If Executive is suspended and/or temporarily prohibited from participating in the conduct of the affairs of the Company and/or its Related Companies or Affiliates by a regulatory, governmental or administrative notice served under federal or state law, the obligations of Premier under this Agreement shall be suspended as of the date of service of such notice, unless stayed by appropriate proceedings. If the charges in the notice are dismissed or withdrawn, Premier may in its discretion, upon approval by the Board, pay Executive all or part of the compensation withheld while its contract obligations were suspended and/or reinstate in whole or in part any of its obligations that were suspended. Vested rights of Executive shall not otherwise be affected by this provision.
(ii) If Executive is permanently removed and/or prohibited from participating in the conduct of the affairs of the Company and/or its Related Companies or Affiliates by applicable federal, state or other regulatory, governmental or administrative order or action, all obligations of Premier under this Agreement shall terminate as of the effective date of the order, but vested rights of the Parties hereto shall not be affected.
In addition, the Parties agree that without expressly or constructively terminating this Agreement under this Section 15.b. or Sections 15.c. or 15.d., the Board may place Executive on temporary leave with pay, temporarily exclude her from any premises of Premier, its Related Companies and Premier Affiliates and/or temporarily reassign Executives duties with Premier and/or its Related Companies during any pending Company investigation or disciplinary action involving Executive and/or Executives potential Termination for Just Cause. The Parties further agree such authority shall be invoked only in exceptional circumstances when the Board Chair, Board Vice-Chair and Board Audit Committee Chair collectively determine that such action is in the best interests of the Company.
Notwithstanding anything contained in this Agreement to the contrary, in no event shall Executives Termination for Just Cause occur until Executive has been provided written notice from the Board stating with specificity the Just Cause grounds and basis therefor and providing Executive with an opportunity to appear and be heard before a quorum of the Board, and after such meeting a majority of the full Board has voted to terminate Executives employment for Just Cause.
c. Termination Without Cause. For purposes of this Agreement, Termination Without Cause means any termination of the employment of Executive by the Board for any reason other than Retirement, Early Retirement, death, Disability or Termination for Just Cause. For purposes of clarity, the Parties further agree that Termination Without Cause shall include Premiers election not to extend Executives Employment Term at any time after the Effective Date for any reason other than Retirement, Early Retirement, death, Disability or Termination for Just Cause.
d. Resignation by Executive. For purposes of this Agreement, Resignation by Executive means any termination or resignation by Executive of her employment relationship with Premier and all its Related Companies or Executives election not to extend her Employment Term under Section 3 for any reason, including but not limited to Retirement or Early Retirement by Executive under this Agreement. Executive is required to give at least ninety (90) days advance written notice of resignation to the Board, and the Board is entitled upon receiving such notice, in its discretion, to accept such resignation as effective on the resignation date proposed by Executive, or such other earlier date designated by the Board. In addition, except as otherwise set forth in Sections 15 and 16, Premier will be required to pay Executive her Base Salary and other applicable accrued, non-forfeited compensation or other vested benefits set forth in Section 4 through the complete advance resignation notice period, regardless of whether Executives final resignation date is revised/accelerated by the Board, and regardless of whether Executive is required or permitted to perform any services for Premier during such final transition period.
For purposes of this Agreement from the Effective Date through July 17, 2016, Resignation by Executive for Good Reason shall have the meaning set forth in Annex C hereto.
For purposes of this Agreement following July 17, 2016, Resignation by Executive for Good Reason means resignation by Executive for the following events without Executives written consent:
(1) a material reduction in Executives position, responsibilities or status, or a change in Executives title resulting in a material reduction in Executives responsibilities or position with Premier, or the assignment to Executive of duties, responsibilities, authorities and/or titles that are inconsistent with her position as President and CEO, but excluding for this purpose: (a) any suspensions, removals, duty reassignments, duty limitations or other actions as set forth and allowed in Section 15.b., and (b) any such
reductions or changes made in good faith to conform with applicable law or generally accepted industry standards for Executives position after consultation with Executive;
(2) a change in Executives reporting responsibility such that Executive no longer reports solely and directly to the Board;
(3) the failure of Premiers shareholders to retain or re-elect Executive to the Board, but excluding for this purpose any suspensions, removals, duty reassignments or other actions as set forth and allowed in Section 15.b.
(4) a reduction in Executives Base Salary (unless such percentage deduction is effectively made across the board for all other senior executives of Premier) or a decrease in any Annual Plan or any potential Annual Plan Target award opportunity to which Executive may potentially have been entitled pursuant to Premiers Annual Plan or any potential Annual Plan, if and as may be later authorized and established in the future, provided, however, that a decrease in any Annual Plan or potential Annual Plan total Target award opportunity for Executive, if and as may be later authorized and established in the future, shall not constitute Good Reason and nothing herein shall be construed to guarantee such awards if: (a) such Target award opportunity is modified by Premier or a Related Company in connection with an overall modification or termination of an Annual Plan or in connection with an independent market study of Executives position and comparable compensation packages, provided that Premier or a Related Company substitutes a plan or plans for any terminated Annual Plan in a manner that allows for substantially equivalent compensation opportunities for Executive, or (b) if performance, either by Premier and its Related Companies or Executive, is below the level required for such targets as may reasonably and in good faith be determined under such plans;
(5) the relocation of Executive to a location outside a fifty (50) mile radius of Executives primary office location on the date of this Agreement (Charlotte, NC); provided, however that relocation of Executive to Premiers current or future headquarters location (with or without Executives consent) shall not constitute Resignation by Executive for Good Reason.
(6) the Companys failure to make any material non-forfeited payments earned and due to Executive under this Agreement; or
(7) a failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to all or substantially all of the assets of the Company within 30 days after a merger, consolidation, sale or similar transaction.
The Parties further agree that for a resignation to constitute resignation by Executive for Good Reason, in addition to the advance notice of resignation requirement set forth above for this Section 15.d., Executive must provide written notice to the Board Chair of Executives intent to resign within ninety (90) days of one of the triggering events outlined in subsections (1)-(7) of this paragraph. Further, Resignation for Good Reason shall not mean or include resignation by Executive for subsections (1)-(7) of this paragraph for any isolated, insubstantial or inadvertent action not taken in bad faith if cured or remedied promptly by Premier, if such cure is possible, within no more than thirty (30) calendar days of receiving Executives notice.
For purposes of this Agreement, Resignation by Executive Without Good Reason means any termination or resignation by Executive of her employment relationship with Premier for any reason other than death, Disability or Resignation for Good Reason.
e. Disability. Disability means Executives inability to perform the essential functions and duties of Executives position with Premier, with or without reasonable accommodation, by reason of any medically determinable physical or mental impairment that can be expected to result in death or that is to last or can be expected to last for a continuous period of not less than twelve months, as determined under the long-term disability plan sponsored by Premier or a Related Company in which Executive participates.
The Parties further agree that without expressly or constructively terminating this Agreement under this Section 15.e. or Sections 15.a.-15.d. above, the Board may designate another employee to act in Executives place during any period of Executives Disability which extends over ninety (90) consecutive calendar days or an aggregate of ninety (90) calendar days during any three hundred and sixty five (365) consecutive calendar day period. Notwithstanding whether any such designation is made, Executive shall continue to receive her full Base Salary and other compensation, incentives and benefits under this Agreement (offset by any Company-paid short-term disability and/or long-term disability plan payments) during any period of Disability during the Employment Term.
16. Effect of Termination/Severance. Following the termination or end of the Employment Term for any reason, Executive or, in the event of Executives death, Executives estate shall: (i) be entitled to any earned but unpaid Base Salary due at the time of the termination or end of the Employment Term; (ii) be entitled to pay for any vacation time earned but not used through the date of termination; (iii) be entitled to any non-forfeited amounts earned that may be payable to Executive pursuant to the terms of an applicable Annual Plan or the 2013 LTIP; (iv) be entitled to any non-forfeited vested Executive Equity Participation granted or established for Executive under the 2013 Equity Incentive Plan (or such other equity or derivative equity plan sponsored by Premier or a Related Company) in accordance with the terms and conditions of such plans and any applicable award agreements; (v) be entitled to any non-forfeited vested Retirement Savings Plan (i.e., 401(k)), Premier Employees Pension Plan, or other vested pension, retirement or deferred compensation benefits with Premier, if any, pursuant to the terms of such plans; (vi) be entitled to any accrued, non-forfeited vested benefits pursuant to the terms of any other plans or programs in which Executive is a participant, if any; (vii) be entitled to reimbursement of all reasonable business expenses incurred but unreimbursed as of the date of the termination or end of the Employment Term, provided that such expenses and required substantiation and documentation thereof are submitted within thirty (30) days of the termination or end of the Employment Term (or within one-hundred and eighty (180) days, in the case of termination due to death) and that such expenses are reimbursable under Company policy in accordance with Section 5 of this Agreement; and (viii) be entitled to any short-term disability plan, long-term disability plan and/or other Premier insurance plan payments or awards in connection with Executives Disability or other separation per the terms of such plans, if and as applicable (collectively, the Final Compensation). The parties further agree that in the event of Executives death, Final Compensation shall also include her dependents general right to elect certain coverage continuation under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), as applicable, provided the dependents are and remain eligible for such continuation coverage. In addition, in the event of the termination or end of the Employment Term for any other reason other than death, Final Compensation shall also include Executives general right to elect certain coverage continuation for herself and/or her dependents, as applicable, under COBRA, provided she and/or her dependents are and remain eligible for such continuation coverage.
Except for any additional benefits or payments which may be due as set forth in this Section 16, Executive and/or her estate, as applicable, shall not be entitled to receive any additional compensation, payments, wages, awards, bonuses, incentive pay, commissions, severance pay, vacation pay, leave pay, sick pay, Executive Equity Participation or interests, options, consideration or benefits of any kind from Premier hereunder upon the termination or end of the Employment Term, nor shall Executive or her
estate be entitled to receive reimbursement for business expenses incurred after the end of the Employment Term. However:
a. If the termination of this Agreement occurs at any time during the Employment Term due to termination by Premier Without Cause or resignation by Executive For Good Reason, either of which occur within twenty-four (24) months following a Change in Control (as defined in Section 17), and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, then in addition to the Final Compensation set forth above, Executive shall be entitled to severance pay equal to 2.4 times (2.4x) the sum of Executives (x) then current Base Salary, plus (y) the higher of (a) Executives target Annual Plan bonus as of the date of termination, or (b) the average of the Annual Plan bonuses paid to Executive in the 36-month period immediately preceding the date of termination.
b. If the termination of this Agreement occurs at any time during the Employment Term due to termination by Premier Without Cause or resignation by Executive For Good Reason that do not occur within twenty-four (24) months following a Change in Control (as defined in Section 17), and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, then in addition to the Final Compensation set forth above, Executive shall be entitled to severance pay equal to 1.9 times (1.9x) Executives then current Base Salary.
The payment of the Without Cause or For Good Reason severance amount set forth in this Section 16 shall be treated by the Parties as severance pay to assist Executive in transitioning to other employment, conditioned upon the expectation that before Executives separation, Executive did not violate the obligations set forth in Section 7, and after Executives separation, any employment and other activities of Executive do not violate the obligations set forth in Sections 8-14 or the Prior Obligations referenced in Section 19. In the event of any such breach, then the severance payments set forth in this Section 16 shall automatically end. Moreover, in exchange for and as a further condition precedent to receiving such potential severance pay, Executive agrees that upon her separation, she must sign within 45 days of receipt from Premier and not revoke a release of any and all claims that Executive has or may have against Premier, its Related Companies and such entities past and then current officers, directors shareholders, owners, members, agents and employees relating to or arising out of her employment with Premier under this Agreement or otherwise, in a form to be prepared by Premier at such time (but excluding any release of the obligations of such entities under the release itself, Executives vested and accrued, non-forfeited rights as a participant in any applicable 401(k), pension, deferred compensation, equity award or plan, or annual or long-term incentive plans and/or any other vested and accrued, non-forfeited retirement or other benefits, Executives rights under COBRA or right to exercise any conversion rights provided in applicable insurance and benefits plans, if any, and Executives right to potential indemnification and/or defense as a prior officer of such entities under applicable certificates of incorporation, corporate bylaws, policies, regulations, indemnity agreements, insurance plans or law) (the Release Condition).
The Parties agree that except as otherwise set forth in Section 24.c of this Agreement, the above severance pay amounts shall be payable to Executive by Premier or its successor, as applicable, in monthly equal installments over: (a) a thirty (30) month period following Executives separation if paid in accordance with Section 16.a. above, or (b) a twenty-four (24) month period following Executives separation if paid in accordance with Section 16.b. above. Further, except as otherwise provided in this Agreement under Section 24.c., the first installment of the severance pay will be on the sixtieth (60th) day following the effective date of Executives applicable separation from employment with Premier (provided the Release Condition is satisfied) and will include severance pay for the period from the end
of Executives employment with Premier through the first installment payment date. The remaining installments will continue thereafter for the applicable payment period.
In the event of any termination of Executives employment entitling Executive to severance under this Section 16 above, and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due Executive under this Agreement on account of any compensation attributable to any subsequent employment that Executive may obtain.
17. Change in Control. For purposes of this Agreement, a Change in Control shall have the meaning set forth in Section 13.3 (or subsequent applicable sections, if and as later amended) of the Premier, Inc. 2013 Equity Incentive Plan, as it may be established, modified, changed or replaced from time to time.
18. Agreement Confidentiality and Disclosure. The Parties agree that except where otherwise required by law, the terms of this Agreement shall remain confidential. The Parties, however, agree that: (a) Premier may disclose the terms of this Agreement to officers of Premier, members of the Board, and any potential investors in or purchasers of Premier; (b) Premier may disclose the terms of this Agreement to senior management, human resources, payroll and financial services employees of Premier, to professionals representing Premier, to Premiers insurance agents and carriers, and to affiliates and employees of the same with a need to know to the extent necessary to give effect to this Agreement, provided that such third parties comply with the confidentiality requirements set forth above; (c) Executive may disclose the terms of this Agreement to her spouse, children, accountants, attorneys, financial advisors, estate planners, tax preparers, and other professional advisors, provided that such third parties comply with the confidentiality requirements set forth above; and (d) either Premier or Executive may disclose the terms of this Agreement in order to notify prospective or actual future employers or contracting principals of Executive, or their applicable representatives and agents, of the post-employment obligation terms contained in this Agreement, or to otherwise enforce the terms of this Agreement. In addition, the Parties agree that they are permitted to disclose the terms of this Agreement to the IRS, applicable state departments of taxation, if necessary, and as otherwise required by law and/or when lawfully requested as part of or in connection with a governmental, regulatory, exchange or listing service inquiry, hearing or investigation. The Parties further agree that Premier may disclose the compensation and other terms of this Agreement: (i) to Premiers shareholders/owners; and (ii) in its proxy statements or other public securities filings as required by law.
Anytime this Agreement is filed with the Securities and Exchange Commission and becomes a public record, this Section 18 shall no longer apply.
Further, Executive agrees that she shall notify any prospective employer, entity or individual with whom Executive seeks to be employed or provide independent contractor services of the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19 of this Agreement during the applicable term for each, and the Company may likewise provide such notice during the same period to any prospective employer, entity or individual with whom Executive seeks to be employed or provide independent contractor services.
19. Notification Requirement and Breach. Through and up to the conclusion of the Consulting Period, Executive shall give notice to Premier of each new business activity she plans to undertake, at least seven (7) calendar days prior to beginning any such activity, including but not limited to work as an employee or independent contractor. Such notice shall state the name and address of the person or entity for whom such activity is undertaken and the nature of Executives business relationship(s) and position(s) with such person or entity. Executive shall provide Premier with such other pertinent information concerning such business activity as Premier may reasonably request in
order to determine Executives post-employment compliance with her obligations under Sections 8-14 of this Agreement.
Executive and Premier agree that, in the event of any breach or threatened breach of Sections 7-14 of this Agreement by Executive or of Executives prior conflicts of interest, confidentiality or intellectual property obligations contained in Executives prior employment agreements with Premiers predecessor corporation, including but not limited to Sections 7, 11 and 12 of the Prior Employment Agreement (the Prior Obligations), Premier and/or its Related Companies shall be entitled to an injunction, without bond, restraining such breach. In addition, Executive and Premier agree that the prevailing party in any legal action to enforce the terms of this Agreement, including but not limited to Sections 7-14 and the Prior Obligations, shall be entitled to costs and attorneys fees related to any such proceeding as allowed by law, but nothing herein shall be construed as prohibiting Premier, its Related Companies or Executive from pursuing other remedies available to them for any breach or threatened breach. Further, the Parties agree that the restricted time period for the post-employment covenants in Sections 8-11 and the Prior Obligations shall be tolled during any period of time in which Executive is violating those provisions.
Moreover, Executive agrees that, in addition to any other remedies available to Premier and/or its Related Companies by operation of law or otherwise, if Executive breaches of any of the obligations contained in Sections 7-14 or the Prior Obligations, she shall: (a) forfeit at the time of the breach the right to any additional severance pay under Section 16 of the Agreement; (b) forfeit the right to all further unpaid / unawarded, amounts that may otherwise be payable under the terms of any Annual Plan, the 2013 LTIP, the 2013 Equity Incentive Plan or any other equity or incentive compensation plan in which she participates and to which she might otherwise then be entitled by virtue thereof at the time of the breach, if any, notwithstanding any provisions of this Agreement or such plans or programs to the contrary; and (c) be required to refund to Premier and its Related Companies, and Premier and its Related Companies shall be entitled to recover of Executive, the amount of any and all such severance, Annual Plan, 2013 LTIP, 2013 Equity Incentive plan, or other equity or incentive plan pay or awards already paid or provided to or on behalf of Executive by Premier and/or its Related Companies following the initial breach, if any, notwithstanding any provisions of this Agreement or such plans or programs to the contrary. Executive further agrees that in the event of any such breach, Premier and/or its Related Companies shall be entitled to costs and reasonable attorneys fees as allowed by law relating to any proceeding to enforce or collect a refund of any such amount(s) already received by Executive following the initial breach.
In addition to the above, Premier agrees that the Compensation Committee shall be responsible for the review of any post-employment Agreement and/or Prior Agreement breach and/or enforcement issues related to Executive that are referred by the Board Chair and Chair of the Compensation Committee, both of whom are solely and directly responsible for the initial review of such issues for potential action upon receipt of notice and input from the then applicable President and CEO and/or General Counsel of Premier.
20. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Executive, Premier, and their respective successors, assigns, heirs and personal representatives; provided that Executive may not assign any of her rights, title or interest in this Agreement. Executive further acknowledges and agrees that in the event of the transfer and/or assignment of this Agreement to any affiliated entity or successor or assignee to all or a part of Premiers business, this Agreement shall remain valid and be fully enforceable by such entity, and Executive irrevocably consents to any such assignment or transfer. The Parties, however, agree that except as otherwise provided pursuant to the terms of applicable plans, policies and programs, nothing in this Agreement shall preclude: (a) Executive from designating a beneficiary to receive any benefit payable upon Executives death; (b) Executive from designating a beneficiary to receive any benefit payable as part of any domestic, equitable distribution, child support or similar settlement, order or agreement; or (c)
the executors, administrators or other legal representatives of Executive or Executives estate from assigning any rights hereunder to the person or persons entitled thereunto.
21. Governing Law / Forum / Jurisdiction. The Parties agree that this Agreement shall be deemed to be a contract made under, and for all purposes shall be governed by and construed in accordance with, the internal laws and judicial decisions of the State of North Carolina, except as superseded by federal law. The Parties further agree that any dispute between them of any kind arising out of or relating to this Agreement or to Executives employment shall at either Partys election or demand be submitted to final, conclusive and binding arbitration before and according to the Employment Dispute Resolution Rules then prevailing of the American Arbitration Association, at its offices in Mecklenburg County, North Carolina, unless the Parties otherwise mutually agree in writing. Such election or demand may be made by Premier or Executive at any time prior to the filing of an action by Premier or Executive or the last day to answer and/or respond to a summons and/or complaint or counterclaim made by Premier or Executive, as applicable, whichever is later. Such arbitration, if demanded by either Party, shall be conducted as soon as is practicable, and in no event, later than one-hundred and eighty (180) days after demand for the same is filed or such other time as mutually agreed to by the Parties. The results of any such arbitration proceeding shall be final and binding both upon Premier and Executive, and shall be subject to judicial confirmation as provided by the Federal Arbitration Act or the North Carolina Revised Uniform Arbitration Act, including specifically the terms of N.C. Gen. Stat. § 1-569.4, which are incorporated herein by reference. Nothing, herein, however, shall be construed to alter, abridge or affect in any way Premiers right, at its absolute and sole election, to seek injunctive and other relief in federal or state court to enforce the noncompete, confidentiality, intellectual property, and other obligations contained in Sections 7-14 of this Agreement or the Prior Obligations (collectively, Restrictive Covenant Enforcement). The Parties further hereby acknowledge and agree that in the event of any such Restrictive Covenant Enforcement by Premier: (a) the arbitration election option for Executive set forth in this Section 21 shall not apply to such action or proceeding, but shall otherwise remain in full force and effect for all other actions/disputes not otherwise related to Premiers Restrictive Covenant Enforcement; and (b) such Restrictive Covenant Enforcement shall be brought by Premier exclusively in Mecklenburg County, North Carolina, notwithstanding that Executive may not be a resident of North Carolina when the action or proceeding is commenced and/or cannot be served with process within North Carolina. As such, Executive irrevocably consents to the jurisdiction of the courts in Mecklenburg County, North Carolina (whether state or federal) with respect to any Restrictive Covenant Enforcement by Premier and irrevocably consents to service of process via nationally recognized overnight carrier, without limiting other service methods available under applicable law. The Parties acknowledge and agree to the arbitration and other provisions contained in this provision by their initials to this Section 21: (Executives Initials) (Premier Signatorys Initials).
22. Dissolution or Merger. In the event that Premier consolidates or merges into or with, or transfers all or substantially all of its assets to, another entity, the term Premier as used herein shall mean such other entity, and the Parties agree that this Agreement shall continue in full force and effect without any further action on the part of either Premier, its successor or assign, or Executive.
23. Taxes Generally / Deductions / Estate. Executive understands and agrees that she is responsible for any federal or state tax liability, penalties, excise taxes, interest, tax payments or tax judgments against her that could arise as a result of this Agreement. In addition, Executive agrees that she has had the opportunity to consult with her own, independent accountant and/or counsel regarding any and all tax issues related to this Agreement. Executive also agrees that Premier and its officers, employees, accountants, attorneys and agents are in no way indemnifying or making any representation, statement or guarantee to Executive as to Executives past, current or future tax liability or the ultimate position that the IRS or any applicable state tax agency may take with respect to the tax treatment of Executives prior or future wages, payments, compensation and benefits, including those payments, awards and provisions set forth in this Agreement.
The Parties agree that all compensation, plan, benefit and potential severance or other payments to Executive set forth in this Agreement, if and as applicable, will be subject to all withholdings and deductions required by law or as authorized by Executive, as appropriate, and Premier will report such amounts set forth in this Agreement as W-2 income for the applicable tax year(s) in which they are received, if and as applicable or as otherwise required by law. The Parties further agree that in the event of Executives death, any applicable severance, change in control pay or other vested or accrued, non-forfeited compensation, equity or benefit payments outlined in this Agreement will be paid to Executives estate or legal representative, in accordance with the above terms, if and as applicable and otherwise eligible in accordance with applicable program, plan and benefit terms.
24. Section 409A.
a. Section 409A Compliance. Premier and Executive intend that any amounts payable hereunder that could constitute deferred compensation within the meaning of Section 409A of the Code (Section 409A), will be compliant with Section 409A. If Premier shall determine that any provision of this Agreement does not comply with the requirements of Section 409A, Premier may amend the Agreement to the extent necessary (including retroactively) in order to comply with Section 409A (which amendment shall not reduce the amounts payable to Executive under this Agreement). Premier shall also have the discretionary authority to take such other actions to correct any failures to comply in operation with the requirements of Section 409A. Such authority shall include the power to adjust the timing or other details relating to the awards and/or payments described in this Agreement (but not the amounts payable to Executive under this Agreement) if Premier determines that such adjustments are necessary in order to comply with or become exempt from the requirements of Section 409A. Notwithstanding the foregoing, to the extent that this Agreement or any payment or benefit (or portion thereof) under this Agreement or the plans referenced herein shall be deemed not to comply with Section 409A, then Premier and its Related Companies, the Board and Compensation Committee, and Premier, Inc. and its Related Companies shareholders, owners, board members, officers, employees, and their designees and agents shall not be liable to Executive in any way. However, if and to the extent Executive incurs any Section 409A related excise taxes, penalties or interest charges as a result of the Companys breach of this Agreement not otherwise consented to by Executive in writing (e.g., with respect to payment timing), then Premier shall reimburse Executive in full for the amount of such excise taxes, penalties and interest charges so that Executive is restored to the same position in which Executive would have been had Premiers breach not occurred.
b. Separation From Service. Notwithstanding anything in this Agreement to the contrary, no separation benefits, if applicable, deemed deferred compensation subject to Section 409A shall be payable pursuant to this Agreement unless Executives separation from employment constitutes a separation from service with Premier within the meaning of Section 409A and the Department of Treasury regulations and other guidance promulgated thereunder (a Separation from Service).
c. Specified Employee. Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by Premier at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of benefits shall not be provided to Executive prior to the earlier of (1) the expiration of the six-month period measured from the date of Executives Separation from Service or (2) the date of Executives death. Upon the first business day following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section
shall be paid in a lump sum to Executive, and any remaining payments due under this Agreement shall be paid as otherwise provided herein.
d. Expense Reimbursements. To the extent that any reimbursements payable pursuant to this Agreement are subject to the provisions of Section 409A, any such reimbursements payable to Executive pursuant to this Agreement shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
e. Installments. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Executives right to receive the installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment.
25. Tax Penalty Protection. Notwithstanding any other provision in this Agreement to the contrary, any payment or benefit received or to be received by Executive in connection with a change in ownership or control (as such term is defined under Section 280G of the Code a 280G Change in Ownership) or the termination of employment (whether payable under the terms of this Agreement or any other plan, arrangement or agreement with Premier or its subsidiaries and affiliates (collectively, the Payments) that would constitute a parachute payment within the meaning of Section 280G of the Code, shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), but only if, by reason of such reduction, the net after-tax benefit received by Executive shall exceed the net after-tax benefit that would be received by Executive if no such reduction was made. Whether and how the limitation under this Section 25 is applicable shall be determined under the Section 280G Rules set forth in Annex D hereto.
26. Incentive-Based Compensation Clawback. In accordance with the terms and conditions of Premier, Inc.s and the Companys Compensation Recoupment Policy as such policy may be established, modified, changed, replaced or terminated from time to time by Premier, Inc. in its sole discretion to comply with listing exchange / service rules and regulations and/or other applicable regulatory requirements, Executive agrees to repay any incentive or other compensation paid or otherwise made available to Executive by Premier or its Related Companies, as required by the terms of such policy. If Executive fails to return such compensation as required by the terms of the Compensation Recoupment Policy and/or applicable law, Executive hereby agrees and authorizes Premier and its Related Companies to, among other things as set forth in the policy: (a) deduct the amount of such identified compensation from any and all other compensation owed to Executive by Premier and/or its Related Companies; and/or (b) adjust and reduce future compensation to Executive. Executive acknowledges that the Board may take appropriate disciplinary action (up to, and including, Termination For Just Cause) if Executive fails to return / repay such identified compensation within the timeframe required by the Compensation Recoupment Policy. Further, the Parties agree that the provisions of this Section 26 shall remain in effect for the period required by applicable law.
27. Indemnification. Premier and Executive have entered into (or shall enter into concurrent with this Agreement) a separate indemnity agreement, consistent with Premier, Inc.s certificate of incorporation, by-laws and other corporate governance documents; provided that the entry into such an agreement shall not be a condition precedent to Executives right to be indemnified by Premier as provided in such corporate governance documents. In addition, Premier will indemnify Executive or cause Executive to be indemnified in her capacity as an officer, director or senior manager of any Related Company for which Executive serves as such, to the fullest extent permitted by the laws of the state of incorporation of such Related Company in effect from time to time, or the certificate of
incorporation, by-laws or other corporate governance documents of such Related Company, whichever affords the greater protection to Executive. Premier may elect to satisfy its obligations pursuant to this Section 27 under insurance policies maintained generally for the benefit of its officers, directors and employees against covered costs, charges and expenses incurred in connection with any action, suit, investigation or proceeding to which Executive may be made a party by reason of being a director, officer or senior manager of Premier. In addition, Premier shall provide Executive with directors and officers insurance coverage to the same extent as provided to other senior executives of Premier.
28. Waiver of Breach. No waiver of any breach of this Agreement shall operate or be construed as a waiver of any subsequent breach by any Party. No waiver shall be valid unless in writing and signed by the party waiving any particular provision.
29. Severability. The Parties agree that every provision of this Agreement is severable from each other provision of this Agreement. Thus, the Parties agree that if any part of the covenants or provisions contained in this Agreement is determined by a court of competent jurisdiction or by any arbitration panel to which a dispute is submitted to be invalid, illegal or incapable of being enforced, then such covenant or provision, with such modification as shall be required in order to render such covenant or provision not invalid, illegal or incapable of being enforced, shall remain in full force and effect, and all other covenants and provisions contained in this Agreement shall, nevertheless, remain in full force and effect to the fullest extent permissible by law. The Parties further agree that, if any court or panel makes such a determination, such court or panel shall have the power to reduce the duration, scope and/or area of such provisions and/or delete specific words and phrases by blue penciling and, in its reduced or blue penciled form, such provisions shall then be enforceable as allowed by law.
30. Counterparts. This Agreement may be executed in duplicate counterparts, including via facsimile or electronic transmission, each of which shall be deemed an original and all of which shall constitute but one and the same instrument.
31. Construction. The Parties agree that this Agreement was jointly negotiated and drafted by the Parties, shall not be construed by a court of law or any arbitration panel against any of the Parties as a drafter thereof, and shall be construed as a settlement between the Parties negotiating at arms length. The Parties further agree that the section headings used in this Agreement are for convenience of reference only and shall not be construed to limit or affect scope of this Agreement or the intent of any provision.
32. Entire Agreement. This Agreement constitutes the entire agreement among the Parties pertaining to the subject matters contained herein and, going forward from the start of the Initial Period, replaces and supersedes any and all prior and contemporaneous related agreements, representations and understandings of the Parties, including but not limited to the Prior Employment Agreement, Executives July 17, 2013 Retention Agreement with Premier, and any prior offer or position assignment letters between Executive and Premier. Moreover, this Agreement shall not be modified or amended unless executed in writing by each of the Parties. Notwithstanding the foregoing, nothing contained herein shall prevent or restrain in any manner Premier from instituting an action or claim in court, or such other forum as may be appropriate, to enforce the terms of the post-employment noncompete, nonsolicitation, anti-raiding, confidentiality or intellectual property obligations of Executive set forth and/or referenced in this Agreement or any similar agreement relating to Premiers confidential or proprietary business information or trade secrets.
33. Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
34. Notices. All notices, demands, and other communication given hereunder shall be in writing and shall be given at the address set forth below or to such other address as either party may furnish to the other in writing either by (a) personal delivery; (b) nationally recognized overnight delivery service; or (c) by registered or certified mail, postage prepaid, return receipt requested. Notices shall be effective upon receipt
If to Executive: |
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If to Premier: |
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Susan D. DeVore |
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Premier, Inc. |
4322 Old Course Drive |
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Attn: General Counsel |
Charlotte, NC 28277 |
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13034 Ballantyne Corporate Place |
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Charlotte, NC 28277 |
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Julian H. Wright, Jr., Esq. |
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Robinson, Bradshaw & Hinson, P.A. |
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101 N. Tryon Street, Suite 1900 |
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Charlotte, NC 28247 |
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[Signature Page Follows]
IN TESTIMONY THEREOF, the Board of Directors of Premier, Inc. have approved this Agreement and caused this instrument to be executed by the General Counsel of Premier Healthcare Solutions, Inc. on behalf and in the interests of Premier Healthcare Solutions, Inc., Premier, Inc. and their Related Companies, all by motion and resolution of the Board, and Susan D. DeVore has accepted this Agreement and has hereunto set her hand and seal, as of the dates set forth below.
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Joining this Agreement as a Party solely as a guarantor of Premier Healthcare Solutions, Inc.s financial obligations hereunder | ||||
Annex A: Core Competing Businesses
· Global Healthcare Exchange, Inc.
· MedAssets, Inc.
· HealthTrust Purchasing Group
· The Advisory Board Company
· VHA, Inc.
· Novation, Inc.
· Amerinet, Inc.
· Truven Health Analytics, Inc.
· University HealthSystem Consortium, Inc.
· Cardinal Health, Inc.
· McKesson Corp.
· Healthagen, Inc.
· Evolent Health, Inc.
· Parallon Business Solutions, Inc.
· Conifer Health Solutions, LLC; and/or
· Optum Health, Inc.
· Corsorta, Inc.
· AmerisourceBergen Corp.
· Solucient, LLC
· Owens & Minor, Inc.
· Cerner Corporation
· IBM Healthcare Division
· Accretive Health, Inc.
· Allscripts Healthcare Solutions, Inc.
· Huron Consulting Group, Inc.
· Navigant Consulting, Inc.
· Express Scripts, Inc.
Annex B: Termination for Just Cause Retention Period
For purposes of this Agreement from the Effective Date through July 17, 2016, Termination for Just Cause shall mean termination of the employment of Executive by the Board as the result of: (1) commission or omission of any act of embezzlement, theft, misappropriation, or breach of fiduciary duty by Executive in connection with Executives employment with Premier; (2) any conviction, guilty plea or plea of nolo contendere by Executive for any felony that results in any period of incarceration (if the Board deems in its absolute discretion that such conviction or plea may have a significant adverse effect upon Premier or upon Executives ability to perform under this Agreement); (3) Executives willful insubordination to the Board or refusal to carry out or follow specific lawful instructions, duties or assignments established or given by the Board from time to time in accordance with this Agreement; (4) material breach of any securities or other law or regulation or any Premier or Related Company policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (5) failure to reasonably cooperate or interference with a Premier-related investigation; (6) the breach of or failure to perform the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; (7) the prospective breach of the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; or (8) the breach or prospective breach or failure to perform the obligations set forth in Sections 11-12 of this Agreement that is either willful or materially harmful to the business or reputation of the Company.
The Parties, however, agree that Termination For Just Cause shall not mean or include termination of the employment of Executive by the Board pursuant to Subsections (7) or (8) as a result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than thirty (30) days after receipt of notice from the Board or its authorized agents of such performance issue(s).
The Parties further agree that Termination for Just Cause shall not mean or include termination of the employment of Executive by the Board pursuant to Subsection (6) as result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than ten (10) days after receipt of notice from the Board or its authorized agents of such performance issue(s).
The Parties agree that Executives general failure to meet the performance objectives, milestones and goals established or given by the Board from time to time shall not constitute grounds for Termination for Just Cause. Further, for purposes of this definition only, Termination for Just Cause shall not mean or include any act or failure to act by Executive if: (a) done or omitted to be done by Executive in good faith and with the reasonable belief that Executives act or omission was in the best interest of Premier and consistent with Premier and its Related Companies policies and applicable law; (b) based on and consistent with instructions pursuant to a resolution duly adopted by the Board; or (c) based on and consistent with the advice of Premier counsel.
In addition, the Parties agree that without expressly or constructively terminating this Agreement under Section 15.a. or Sections 15.c. or 15.d., the Board may place Executive on temporary leave with pay, temporarily exclude her from any premises of Premier, it Related Companies and Premier Affiliates and/or temporarily reassign Executives duties with Premier and/or its Related Companies during any pending Company investigation or disciplinary action involving Executive and/or Executives potential Termination for Just Cause. The Parties further agree such authority shall be invoked only in exceptional circumstances when the Board Chair, Board Vice-Chair and Board Audit Committee Chair collectively determine that such action is in the best interests of the Company.
Notwithstanding anything contained in this Agreement to the contrary, in no event shall Executives Termination for Just Cause occur until Executive has been provided written notice from the Board stating with specificity the Just Cause grounds and basis therefor and providing Executive with an
opportunity to appear and be heard before a quorum of the Board, and after such meeting, a majority of the full Board has voted to terminate Executives employment for Just Cause.
Annex C: Resignation for Good Reason Retention Period
For purposes of this Agreement from the Effective Date through July 17, 2016, Resignation by Executive for Good Reason means resignation by Executive for the following events without Executives written consent:
(1) a material reduction in Executives position, responsibilities or status, or a change in Executives title resulting in a material reduction in Executives responsibilities or position with Premier, or the assignment to Executive of duties, responsibilities, authorities and/or titles that are inconsistent with her position as President and CEO, but excluding for this purpose: (a) any suspensions, duty reassignments or duty limitations while Executive remains employed with Premier or its Related Companies with pay, implemented by Premier in response to any internal investigation or any actual or threatened temporary or permanent suspension or prohibition of Executive from participating in the conduct or affairs of Premier and/or its Related Companies or Affiliates by applicable federal, state or other regulatory, governmental or administrative order or action, and (b) any such reductions or changes made in good faith to conform with applicable law or generally accepted industry standards for Executives position after consultation with Executive;
(2) a change in Executives reporting responsibility such that Executive no longer reports solely and directly to the Board;
(3) the failure of Premiers shareholders to retain or re-elect Executive to the Board, but excluding for this purpose any suspensions, duty reassignments or other actions as set forth and allowed in Section 15.a.
(4) a reduction in Executives Base Salary or a decrease in any Annual Plan or any potential Annual Plan Target award opportunity to which Executive may potentially have been entitled pursuant to Premiers Annual Plan or any potential Annual Plan, if and as may be later authorized and established in the future, provided, however, that a decrease in any Annual Plan or potential Annual Plan total Target award opportunity for Executive, if and as may be later authorized and established in the future, shall not constitute Good Reason and nothing herein shall be construed to guarantee such awards if: (a) such Target award opportunity is modified by Premier or a Related Company in connection with an overall modification or termination of an Annual Plan or in connection with an independent market study of Executives position and comparable compensation packages, provided that Premier or a Related Company substitutes a plan or plans for any terminated Annual Plan in a manner that allows for substantially equivalent compensation opportunities for Executive; or (b) if performance, either by Premier and its Related Companies or Executive, is below the level required for such targets as may reasonably and in good faith be determined under such plans;
(5) the relocation of Executive to a location outside a fifty (50) mile radius of Executives primary office location on the date of this Agreement (Charlotte, NC);.
(6) the Companys failure to make any material non-forfeited payments earned and due Executive under this Agreement; or
(7) a failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to all or substantially all of the assets of the Company within 30 days after a merger, consolidation, sale or similar transaction.
The Parties further agree that for a resignation to constitute resignation by Executive for Good Reason, in addition to the advance notice of resignation requirement set forth above for this Section 15.d., Executive must provide written notice to the Board Chair of Executives intent to resign within ninety (90) days of one of the triggering events outlined in subsections (1)-(7) of this paragraph. Further,
Resignation for Good Reason shall not mean or include resignation by Executive for subsections (1)-(7) of this paragraph for any isolated, insubstantial or inadvertent action not taken in bad faith if cured or remedied promptly by Premier, if such cure is possible, within no more than thirty (30) calendar days of receiving Executives notice.
Annex D: Section 280G Rules
The following rules shall apply for purposes of determining whether and how the limitations provided under Section 25 of this Agreement are applicable to Executive.
1. The net after-tax benefit shall mean (i) the Payments (as defined in Section 25) which Executive receives or is then entitled to receive from the Company or a subsidiary or affiliate that would constitute parachute payments within the meaning of Code Section 280G, less (ii) the amount of all federal, state and local income and employment taxes payable by Executive with respect to the foregoing calculated at the highest marginal income tax rate for each year in which the foregoing shall be paid to Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Tax imposed with respect to the payments and benefits described in (i) above.
2. All determinations under Section 25 of this Agreement and this Exhibit A will be made by an accounting firm or law firm that is selected for this purpose by Premier prior to a 280G Change in Ownership (the 280G Firm). All fees and expenses of the 280G Firm shall be borne by the Company. Premier will direct the 280G Firm to submit any determination it makes under Section 25 of this Agreement and this Exhibit A and detailed supporting calculations to both Executive and Premier as soon as reasonably practicable.
3. If the 280G Firm determines that one or more reductions are required under Section 25 of this Agreement, the 280G Firm shall also determine which Payments shall be reduced (first from cash payments and then from non-cash benefits) to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and Premier shall pay such reduced amount to Executive. The 280G Firm shall make reductions required under Section 25 of this Agreement in a manner that maximizes the net after-tax amount payable to Executive.
4. As a result of the uncertainty in the application of Section 280G at the time that the 280G Firm makes its determinations under this provision, it is possible that amounts will have been paid or distributed to Executive that should not have been paid or distributed (collectively, the Overpayments), or that additional amounts should be paid or distributed to Executive (collectively, the Underpayments). If the 280G Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against Premier or Executive, which assertion the 280G Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, Executive must repay the Overpayment amount promptly to Premier, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by Executive to Premier unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the 280G Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the 280G Firm will notify Executive and Premier of that determination, and the Underpayment amount will be paid to Executive promptly by Premier.
5. Executive will provide the 280G Firm access to, and copies of, any books, records and documents in Executives possession as reasonably requested by the 280G Firm, and otherwise cooperate with the 280G Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 25 of this Agreement.
Annex E: Equity Participation
Exhibit 10.23
FORM OF SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
THIS SENIOR EXECUTIVE EMPLOYMENT AGREEMENT (the Agreement) is made and entered into by and among Craig McKasson (Executive) and Premier Healthcare Solutions, Inc., a Delaware corporation with its principal places of business in Charlotte, North Carolina, Washington, D.C., and Ft. Lauderdale, Florida (Premier or the Company) (each and collectively defined and referred to herein as a Party and the Parties).
WITNESSETH:
WHEREAS, Premier, Inc., Premier Healthcare Solutions, Inc. and Premier Purchasing Partners, L.P. are currently contemplating a reorganization pursuant to which Premier Healthcare Solutions, Inc. and Premier Purchasing Partners, L.P. would become direct or indirect subsidiaries of Premier, Inc., and Premier, Inc. will engage in an initial public offering of Class A Common Stock (the reorganization and initial public offer for which is collectively referred to herein as the Reorganization);
WHEREAS, upon the Reorganization, the Company will be engaged in the business of, among other things, developing, marketing and providing the following services and products to (1) healthcare providers and affiliated entities throughout the United States, with respect to subsections (a)-(d); and (2) patients, healthcare providers and affiliated entities, and pharmaceutical manufactures, with respect to subsection (e): (a) proprietary information technology, health care informatics and computer software systems, and support, consulting and subscription services; (b) group purchasing, direct sourcing and supply chain management services; (c) clinical and operational healthcare performance, measurement, improvement and outcomes management/consulting services; (d) excess medical professional liability and other excess and non-excess insurance programs and risk management services; and (e) specialty pharmacy and related disease management, patient and manufacturer reporting, prior authorization and other pharmacy and patient support services (collectively defined as Health Care Products/Services);
WHEREAS, Executive is currently employed as the Chief Financial Officer of the Company in accordance with the terms of an Employment Agreement entered into by and between Executive and the Companys predecessor entity dated December 23, 2009, as amended (the Prior Employment Agreement);
WHEREAS, in connection with the Reorganization, the Company desires to enter into an employment agreement with Executive, and Executive wishes to enter into such employment on the basis set forth in this Agreement.
NOW, THEREFORE, in exchange for the promises and mutual covenants contained in this Agreement, the Parties, intending legally to be bound, agree as follows:
1. Employment. Premier agrees to employ Executive during the Employment Term (as defined in Section 3), and Executive hereby accepts such employment and agrees to serve Premier subject to the general supervision and direction of the President and Chief Executive Officer of Premier (the Company CEO), effective as of the Effective Date (as defined below). The Parties, however, agree that this Agreement is effective only upon the consummation of the Reorganization (the Effective Date) and shall be void ab initio and of no force or effect whatsoever unless and until such transactions are consummated.
2. Duties. During the Employment Term (as defined in Section 3), Executive shall be employed as Chief Financial Officer (CFO) of both Premier and Premier, Inc. and shall also serve as an officer of the other Related Companies (as defined in Section 13) if and as appropriately elected. In addition, Executive shall perform the services and duties required of such position(s) for Premier and/or its Related Companies, including such other services and duties commensurate with Executives employment position and status as CFO as the Company CEO or his or her designee may from time to time designate or assign to fulfill the requirements of such position(s); and shall devote Executives full time, attention and best efforts to the business of Premier and its Related Companies. In particular, during the Employment Term, Executive shall:
a. Perform the duties and exercise the powers and functions that from time to time may be reasonably assigned or vested in him by the Company CEO in relation to: (1) Premier and its Related Companies; and/or (2) Premiers partner hospitals, members and other affiliated health care organizations (collectively, Premiers Affiliates), including general responsibility for the financial management, affairs and leadership of Premiers and its Related Companies business and developing and maintaining close working relationships between Premier and its Affiliates, reporting directly to the Company CEO;
b. Faithfully and loyally serve Premier and its Related Companies to the best of his ability and use his utmost endeavors to promote their interests in all respects, including but not limited to refraining from any attempt to usurp Premier or its Related Companies corporate benefits or opportunities for Executives personal gain;
c. Adhere faithfully to all applicable professional ethics and business practices, including but limited to Premier and its Related Companies Code of Conduct and Conflict of Interest policies;
d. Be fully and readily available to work on and perform his duties consistent and commensurate with his position as CFO as assigned from time to time (other than at times involving approved vacation, leave or disability); and
e. Assist in succession planning for Executives and other key employees positions as may be requested prior to the termination or end of Executives Employment Term.
Except as specifically authorized in advance by the Company CEO in writing, during the Employment Term, Executive shall work full-time and exclusively for Premier and its Related Companies and shall not be engaged as an employee, consultant or otherwise in any other business or commercial activity pursued for gain, profit or other pecuniary advantage, either on a full-time or part-time basis. Nonetheless, this Agreement shall not be construed as prohibiting Executive during the Employment Term from: (1) with the advance written consent of the Board, serving as a member of a board of directors of a public or private corporation or other entity; (2) participating in charitable or non-profit activities or serving on the board of directors of any charitable or non-profit organization; (3) serving as a director, officer or committee member of or in equivalent positions with Premiers Related Companies and/or any Affiliate during the Employment Term, for which Executive shall not receive any additional compensation except as otherwise provided in Section 4; and (4) making or managing personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Sections 2.b.-2.d. and 7-14 hereof. The Parties, however, agree that such activities must not singly or in the aggregate prevent, unduly limit or materially interfere with Executives ability to perform his duties and responsibilities to Premier under this Agreement.
3. Term. Unless sooner terminated as provided in Section 15, the Parties agree that Executive shall be employed by Premier pursuant to this Agreement for a term of three (3) years
commencing on the Effective Date (the Initial Period). In addition, after the Initial Period, this Agreement and Executives employment shall be deemed to have been automatically extended for an additional one year term on each anniversary of the Effective Date or such other period as mutually agreed to between the Parties, unless either party provides written notice at least ninety (90) days prior to the expiration of the Initial Period or any extended term that the Agreement is not to be extended, or unless sooner terminated as provided in Section 15. Executives total term of employment with Premier during the Initial Period and any extended term of this Agreement is collectively defined and referred to as the Employment Term.
4. Compensation.
a. Base Salary. During the Employment Term, Premier will pay Executive a base salary as compensation for Executives services hereunder at a semi-monthly base rate of $21,250, equivalent to $510,000 per year (the Base Salary). Such Base Salary shall be payable to Executive by Premier in accordance with customary payment cycles as may be established by Premier for other senior executive level employees (but not less frequently than monthly). In addition, the Parties agree that the amount of Executives Base Salary may be reviewed annually by the Compensation Committee of the Board (the Compensation Committee) during the Employment Term, at which time Executives Base Salary may be increased beyond that which is provided for in this Section 4.a., at Premiers absolute and sole discretion. If the Base Salary is increased, such increased amount shall thereafter become the Base Salary under this Agreement.
b. Annual Incentive Plan. During the Employment Term, Executive shall participate in any annual incentive plan sponsored by Premier or a Related Company (as defined in Section 13) (the Annual Plan) applicable to Executive or other similarly situated senior executive level employees, in accordance with the terms and conditions of such Annual Plans as they may be established, modified, changed, replaced or terminated from time to time. The Parties further agree that for Fiscal Year 2014, Executives Target incentive opportunity in the Annual Plan shall equal 100% of Executives plan year earnings as defined in the Annual Plan.
c. Ending Long-Term Incentive Plan. During the Employment Term, Premier shall provide Executive with his eligible payments as a participant under the long-term incentive compensation program sponsored by Premier or a Related Company (as defined in Section 13) that expired effective June 30, 2013 (the 2013 LTIP) in accordance with the terms and conditions of such plan, as it may be established, modified, changed, replaced or terminated from time to time.
d. Equity. As additional consideration for entering into this Agreement, during the Employment Term, and provided Executive signs the applicable award agreements within the time period required and is employed by Premier at the time of related equity awards, Executive shall be eligible to participate in the Premier, Inc. 2013 Equity Incentive Plan and any other equity-based or cash-based long-term incentive compensation plan applicable to Executive or other similarly situated senior executive level employees in accordance with terms and conditions of such plans as they may be established, modified, changed, replaced or terminated from time to time. In connection with such equity participation, and provided the conditions outlined above in this Subsection 4.d. are met, Executive shall be initially awarded / issued, effective as of the Effective Date: (1) restricted stock unit award shares; (2) target performance shares of Premier, Inc.s Class A common stock, with the potential to earn up to 150% of target based on performance; and (3) non-qualified stock options to purchase shares of Premier, Inc.s Class A common stock, in amounts as described and set forth in Annex E. All such restricted stock units, target performance shares and stock options will vest and be awarded / issued in accordance with the terms of the applicable award agreements and the Premier, Inc. 2013 Equity Incentive Plan, as such plans and award
agreements may be established, modified, changed, replaced or terminated from time to time. Executives total current and future equity participation under this Agreement shall be collectively referred to as Executives Equity Participation.
e. Other Benefits. During the Employment Term, Premier will provide to Executive those other benefits customarily provided by Premier or a Related Company (as defined in Section 13) to other similarly situated senior executive level employees, including five (5) weeks of annual vacation per applicable Premier policy, 401(k), deferred compensation or other retirement plans, and all group health, hospitalization, life and disability plans or other employee welfare benefit plans, as such plans may be modified, changed, replaced or terminated from time to time in the absolute and sole discretion of Premier and/or its Related Companies; provided that Executive is otherwise eligible to participate in such plans and desires to be covered. In addition, upon the execution of this Agreement by all Parties, following approval of related invoices submitted by Executive to the Chair of the Compensation Committee for review, Premier shall reimburse Executive for the reasonable amount of attorneys and tax advisors fees and costs incurred by him in connection with the negotiation and review of this Agreement, up to a maximum amount of $15,000. Nothing contained in this Agreement shall be construed to obligate Premier or its Related Companies in any manner to put into effect any plans not presently in existence or to provide special benefits to Executive.
5. Reimbursement of Expenses. During the Employment Term, upon submission of proper vouchers and receipts to Premier by Executive, Premier shall promptly pay or reimburse Executive for all normal and reasonable business expenses, including authorized business cell phone/smartphone expenses and authorized business travel expenses, incurred by Executive in connection with Executives performance of his responsibilities with Premier and its Related Companies (as defined in Section 13) in accordance with the terms of applicable Premier policy and procedures then in effect concerning the same as may be established or amended from time to time in the absolute discretion of Premier. Any and all such business expenses shall further be subject to periodic review by the Company CEO, Chair of the Board (the Board Chair) and/or Chair of the Compensation Committee.
6. Consulting Period. Following Executives separation from employment from Premier for any reason except death, Executive agrees to provide consulting services to Premier for a period of twenty-four (24) months following such separation from employment (the Consulting Period). Executive shall be available during the Consulting Period to provide advice to Premier regarding its operations or management as Premier may reasonably request; provided, however, that Executive shall not be required to perform more than ten (10) hours of service per month for Premier during the Consulting Period and may perform such services in a manner that does not unreasonably interfere with Executives schedule or other post-Premier employment commitments. Moreover, provided Executive is and remains so available, during the Consulting Period, Premier shall pay Executive a reasonable consulting fee on a monthly basis at the rate of one-tenth (.10x) Executives then current monthly Base Salary upon his separation (the Consulting Fee), and Executive shall be promptly reimbursed for any expenses reasonably incurred by Executive in the performance of the services set forth in this Section 6. Notwithstanding the forgoing, except as otherwise provided in this Agreement under Section 24.c., the first Consulting Fee shall be paid on the sixtieth (60th) day following the effective date of Executives applicable separation from employment with Premier and will include any Consulting Fee payments for the period from the end of Executives employment with Premier through the first Consulting Fee payment date. The remaining Consulting Fee payments will continue thereafter for the applicable payment period. In addition, the Parties agree that despite the limited consulting obligations outlined in this Section 6, nothing in this Section should be interpreted or implemented in such a way that is otherwise inconsistent with Executives overall separation from service with Premier pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the Code).
7. Conflicts of Interest. Throughout Executives employment with Premier, Executive shall not: (a) render any services, with or without compensation, to any other person or firm engaged in the sale, marketing and/or provision of Health Care Products/Services (as defined in the Recitals to this Agreement); or (b) in any other way compete with the business then being conducted by Premier. Executive further agrees that except for actions otherwise undertaken for the benefit of Premier in the normal course of Executives assigned duties as an employee of Premier, during the Employment Term, Executive shall not engage in any prohibited activity outlined in Sections 8-10. In addition, during Executives employment with Premier, Executive agrees that he shall not actively engage in any other business for his own account and will not be an employee or independent contractor for any other person or entity without the prior written approval of the Company CEO. Executive also agrees to comply with the terms of Premiers Code of Conduct and Conflict of Interest policies, including but not limited to all terms relating to the divestiture or transfer to a blind trust of any equity interest that Executive may hold in participating vendors, as defined in such policies.
8. Agreement Not To Compete/Competitively Use Confidential Information. Executive acknowledges and agrees that he has and will continue to acquire a considerable amount of knowledge and goodwill with respect to the health care group purchasing, supply chain management, information technology, informatics, healthcare management/consulting, insurance programs industry, specialty pharmacy services and Premiers business in particular, which knowledge and goodwill are extremely valuable to Premier and which would be extremely detrimental to Premier if used by Executive to compete with Premier or to work or consult with Premiers competitors in the United States. Executive also understands and agrees that, because of the nature of the business of Premier and the broad, nationwide hospital, customer and Affiliate base to which it markets and sells, it is necessary to afford fair protection to Premier from such competition by Executive.
Consequently, for and in consideration of this Agreement, the employment of Executive pursuant to this Agreement, the new Executive Equity Participation, and Executives continued exposure and access to confidential Premier information, Executive agrees that during the Consulting Period (as defined in Section 6) he shall not:
a. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity engage in Competitive Activity (as defined below) within the Prohibited Territory (as defined below);
b. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity engage in Competitive Activity within the Prohibited Territory in which Executive competitively uses or attempts to use Premiers Confidential Information (as defined in Section 11); and/or
c. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity directly assist any of the Core Competing Businesses (as defined below) to engage in Competitive Activity within the Prohibited Territory, where Executive hereby acknowledges and agrees that disclosure or use of Premiers Confidential Information would be inevitable in the event of any such future employment or engagement.
Core Competing Businesses means the direct core competitors of Premier listed on Annex A hereto.
Competitive Activity means engaging in work for a competitor of Premier that is the same as or substantially similar to work that Executive performed on behalf of the Company at any point during the last twelve (12) months of Executives employment with the Company.
Competitive Activity further means the management, administration, sale, development,
marketing and/or provision of: (1) Health Care Products/Services (as defined in the Recitals to this Agreement) that are competitive with services or products which Executive assisted Premier to provide at any time during the last twelve (12) months of Executives employment with the Company; and/or (2) other services or products that are competitive with services or products which Executive assisted Premier to provide at any time during the last twelve (12) months of Executives employment with the Company. Provided, however, beneficially owning the stock or options to acquire stock totaling less than 5% of the outstanding shares in a public competitor shall not constitute by itself Competitive Activity. Premier and Executive further agree that the term Competitive Activity shall not include academic and other lectures presented or taught by Executive for or on behalf of non-competitive entities or service as an expert witness for matters not involving Premier or any Premier Affiliate. Premier and Executive also agree that following Executives separation from employment with Premier, the term Competitive Activity shall not include: (a) service on boards of directors of non-Premier hospitals / members, non-Premier Affiliates or other businesses that are not competitive with Premier or its Affiliates; or (b) service on boards of directors of Premier hospitals / members or Premier Affiliates.
Prohibited Territory means: (1) the continental United States, which Executive acknowledges is the area that he is to assist Premier to engage in Competitive Activity; and/or (2) the geographic territory and areas in which Executive assisted Premier to engage in Competitive Activity at any time during Executives last twelve (12) months as a Company employee. Executive further acknowledges that Premier provides its products and services to Affiliates and customers widely dispersed throughout the United States.
In addition, Premier agrees that nothing in this Section 8 shall prohibit Executive from serving in an employee leadership or management capacity or otherwise being employed by a hospital, healthcare system, healthcare managed care provider, medical practice or a non-group purchasing organization medical supplier, provided that: (i) as part of Executives service with or for such organizations and entities, Executive does not engage in activities or directly assist others to engage in activities that compete with Premier in providing Health Care Products/Services (as defined in the Recitals to this Agreement) to other healthcare providers and affiliated entities (i.e., in the market engaged in by Premier); (ii) during the Employment Term prior to Executives separation, Executive abides by his obligations outlined in Sections 2.b.-2.c. with respect to such entities; and (iii) Executive abides by the confidentiality, agreement not to raid, and agreement not to interfere with Premiers business obligations set forth in this Agreement.
Executive agrees that in the event he is later employed by a non-group purchasing organization medical supplier following his employment with Premier, he will also recuse himself during the Consulting Period from any consideration of decisions or other communications or discussions that would result in the termination of a contract, discontinuance of business, or reduction of business with or amounts paid to Premier involving the products or services that Executives new employer supplies Premier. Executive further expressly acknowledges and agrees that as part of his post-employment confidentiality commitments to Premier, he cannot and will not use any confidential Premier pricing, contract or other supplier-related information obtained during his employment with Premier in connection with any supply contract or other negotiations between Premier and his new non-group purchasing organization medical supplier employer, if applicable, or to obtain a competitive advantage against or otherwise harm Premier or its Affiliates.
9. Agreement Not To Raid Employees. In addition to the agreement not to compete/not to competitively use confidential information above, Executive agrees that during the Consulting Period (as defined in Section 6) after Executives employment by Premier has terminated or ended (whatever the reason for the end of the employment relationship), Executive shall not, for the purpose of providing products or services similar to the Health Care Products/Services (as defined in the Recitals to this Agreement) or engaging in any Competitive Activity (as defined in Section 8), whether on behalf of any other entity or on Executives own behalf: (a) hire or engage as an employee or as an independent
contractor any employee then presently employed by Premier with whom Executive worked or about whose work Executive was familiar during Executives employment with Premier (each a Restricted Employee); and/or (b) solicit, encourage or cause or attempt to solicit, encourage or cause any Restricted Employee to leave his or her employment relationship with Premier; provided, however, that this Section 9 shall not apply to Executives personal administrative assistant.
10. Agreement Not To Interfere With the Companys Business. In addition to the above agreements not to compete/not to competitively use confidential information and not to raid Premiers employees, and given Premiers legitimate business interests and the consideration provided to Executive as noted above, Executive agrees that during the Consulting Period (as defined in Section 6) after Executives employment by Premier has terminated or ended (whatever the reason for the end of the employment relationship), he shall not:
a. Solicit, market, call upon, divert or contact or attempt to solicit, market, call upon, divert or contact any then current Premier Customer (as defined below) for the purpose of engaging in Competitive Activity (as defined in Section 8);
b. Solicit, market, call upon, divert or contact or attempt to solicit, market, call upon, divert or contact any then current Premier Customer for the purpose of causing such Premier Customer to discontinue doing, or to reduce, modify or transfer all or any part of their business or other relationship with Premier; and/or
c. Solicit, encourage, cause, or attempt to cause any Restricted Supplier (as defined below) of goods or services to Premier not to do business with, to discontinue doing business with, or to reduce any part of their business with, the Company and shall further recuse himself from certain supplier decisions, discussions and actions as specifically provided in Section 8 above.
The term Premier Customer means any Premier Affiliate or Premier customer: (1) for which Executive earned or was paid incentive pay at any point during Executives last 12 months as a Premier employee; (2) with which Executive worked or for which Executive supervised or assisted in Premiers work at any point during Executives last 12 months as a Premier employee; and/or (3) about which Executive obtained Confidential Information during the last twelve (12) months of Executives employment with Premier. The term Premier Customer shall also include any prospective customer of the Company: (a) who contacted Executive, whom Executive contacted, or for whom Executive supervised or assisted with contact, as part of his employment with the Company at any time during the last six (6) months of Executives employment with Premier; and/or (b) about whom Executive obtained Confidential Information during the last six (6) months of Executives employment with Premier.
The term Restricted Supplier means any supplier of goods or services to Premier: (a) with which Executive had dealings; (b) for which Executive supervised or assisted in Premiers dealings; and/or (c) about which Executive obtained Confidential Information (as defined in Section 11), all at any point during Executives last 36 months as a Premier employee.
Premier, however, agrees that nothing in this agreement not to interfere with Premiers business shall prohibit Executive from serving as a director or officer of or being employed by or engaging in services for a participating Restricted Supplier, vendor or other supplier of Premier following his separation from employment with Premier, provided that: (i) during the Employment Term prior to his separation, Executive abides by his obligations outlined in Sections 2.b.-2.c. with respect to such participating vendors and suppliers; (iii) Executive abides by this Section 10; (iii) Executive abides by the confidentiality and agreement not to raid obligations set forth in this Agreement; and (iv) such employment or engagement does not entail Executive performing Competitive Activity within the
Prohibited Territory with or for a Competing Business in violation of Section 8 or otherwise violate the other noncompete obligations set forth in Section 8.
11. Confidentiality. For and in consideration of this Agreement, the employment of Executive pursuant to this Agreement, and Executives continued exposure and access to confidential Premier information, Executive agrees to the following for the protection of Premier:
a. Duty to Maintain Confidentiality. Executive promises and agrees that, except to the extent the use or disclosure of any Confidential Information (as defined below) is required to carry out Executives assigned duties with the Company, during Executives employment with the Company and for five (5) years thereafter (or for such longer periods as required by law or such other periods as Premier may specifically agree with its Affiliates, customers, vendors, suppliers and other third parties prior to Executives separation from employment with Premier regarding the non-disclosure of Confidential Information shared or provided by such entities): (1) Executive will keep strictly confidential and not disclose to any person not employed by the Company any Confidential Information; and (2) Executive will not use for himself or for any other person, firm, corporation or entity any Confidential Information. However, this provision shall not preclude Executive (a) from the use or disclosure of information known generally to the public (other than information known generally to the public as a result of Executives violation of this Section), or (b) from any disclosure required by law or court order, by any governmental entity having regulatory authority over the business of the Company, or by any administrative or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information, provided Executive provides Premier prompt written notice of any potential disclosure under this subsection (b) within forty-eight (48) hours of Executives receipt of the request for disclosure or executives election to disclose such information under this subsection (b), whichever is earliest, to the fullest extent permitted by applicable law.
b. Scope. For purposes of this Agreement, Confidential Information means confidential, trade secret or proprietary information furnished to or obtained by Executive within the course of Executives prior or ongoing employment with Premier (including, without limitation, information created, discovered, or developed by him), whether such information is in the form of electronic data, forecasts, reports, e-mail, other documents, or otherwise. Such Confidential Information includes, by way of illustration, but is not limited to: (1) information regarding any Premier Affiliate or any other Premier customer, including but not limited to Affiliate/customer lists, contact information, contracts, billing histories, Affiliate/customer preferences, and information regarding products or services provided by the Company to such entities; (2) all non-public financial information concerning the Company, including but not limited to commissions and salaries paid to employees, sales data and projections, forecasts, cost analyses, and similar information; (3) all plans and projections for business opportunities for new or developing business of Premier, including but not limited to marketing concepts and business plans; (4) all Premier Intellectual Property (as defined in Section 12), software, source and object codes, computer data, research information and technical data, including but not limited to information regarding Premiers Advisor Suite of products and services and other automated tools/services; (5) all information relating to the Companys services, products, prices, costs, research and development activities, service performance, operating results, pricing strategies, employee lists or personnel matters; (6) all Premier information regarding sources and methods of supply to Premier, including but not limited to supply agreements, supply terms, product discounts and similar information; and/or (7) any of the information described in subsections (1)-(6) of this Section that the Company obtains from another party or entity and that the Company treats or designates as confidential or proprietary information, whether or not such information is owned or was developed by the Company.
The Parties further agree that Confidential Information shall not include information that: (a) is generally known or available to the public or the health care industry in general other than as a result of an act or failure to act by Executive or Executives violation of this Agreement; (b) is lawfully obtained by Executive from a non-party that is under no obligation of confidentiality (except as otherwise provided in subsection (7) of this Section 11.b. above); or (c) is developed, created or discovered by Executive on Executives own time and independent of Premiers resources or the Confidential Information disclosed by Premier, unless such information relates to Premier Intellectual Property (as defined in Section 12).
c. Return of Documents/Data/Property. Executive acknowledges and agrees that (with the exception of information that Executive can demonstrate was possessed by him prior to Executives employment with Premier that has not been purchased or leased by the Company, or modified, updated or improved by Executive or the Company in connection with Executives employment with Premier) all materials, documents and data used, prepared or collected by Executive as part of Executives employment with Premier, in whatever form, are and will remain the property of the Company. Executive also understands and agrees that all Confidential Information that comes into Executives possession in the course of Executives employment with Premier, whether prepared by Executive or others, is and will remain the property of the Company. Thus, Executive agrees that he will return upon Premiers request at any time (and, in any event, on or before Executives last day as a Premier employee) all (1) business items purchased for use in Executives employment with Premier and reimbursed or paid for by Premier; and (2) documents, information, and other property belonging to the Company, as well as all documents and other materials of any kind that constitute or contain any Confidential Information, in Executives possession or control, regardless of how stored or maintained, including all originals, copies and compilations and all electronic data.
12. Company Intellectual Property Rights. Executive and Premier agree that Premier shall be the sole owner of all work and all tangible and intangible materials and products, Intellectual Property (as defined below), improvements and ideas that Executive jointly or singly developed or develops, or of which Executive becomes aware, while acting on behalf of Premier as an employee prior to or during the Employment Term. Thus, Executive shall promptly and fully disclose all Intellectual Property (as defined below) to Premier, and Executive hereby acknowledges that all Intellectual Property is the property of the Company. Executive hereby assigns and agrees in the future to assign to the Company (or as otherwise directed by the Company) Executives full right, title and interest in and to all Intellectual Property. Executive agrees to provide, at the Companys reasonable request, all further cooperation that the Company determines is necessary or desirable to accomplish the complete transfer of the Intellectual Property and all associated rights to the Company, its successors, assigns and nominees, and to ensure the Company the full enjoyment of the Intellectual Property. In addition, all copyrightable works that Executive creates during Executives employment with the Company shall be considered work made for hire and shall, upon creation, be owned exclusively by Premier.
For purposes of this Agreement, Intellectual Property means any invention, formula, process, discovery, development, design, innovation or improvement (whether or not patentable or registrable under copyright statutes) made, conceived or first actually reduced to practice by Executive solely or jointly with others, during Executives employment with Premier; provided, however, that, as used in this Agreement, the term Intellectual Property shall not apply to any invention that Executive develops on his own time, without using the equipment, supplies, facilities or trade secret information of the Company, unless such invention relates at the time of conception or reduction to practice to: (1) the business of the Company, (2) the actual or demonstrably anticipated research or development of the Company, or (3) any work performed by Executive for the Company.
13. Related Companies. For purposes of the restrictions and commitments in Sections 7 (Conflicts of Interest), 8 (Agreement Not to Compete / Competitively Use Confidential Information), 9
(Agreement Not To Raid Employees), 10 (Agreement Not To Interfere With the Companys Business), 11 (Confidentiality), 12 (Company Intellectual Property Rights) and 14 (Reasonableness of Restrictions), Premier or the Company shall mean: (a) the Company as defined in the Recitals to this Agreement; and; (b) any Related Company (as defined below) or successor of Premier for or with whom Executive performed or supervised any services at any time during the last 12 months of Executives employment with Premier.
Related Company means (1) any Premier parent company, subsidiary company, sister company or joint venture, or related subsidiary companies of such entities; and/or (2) any parent corporation with respect to Premier within the meaning of Section 424(e) of the Code, any subsidiary corporation with respect to Premier within the meaning of Code Section 424(f) but substituting the phrase 20 percent for the phrase 50 percent each place it appears in that section, and any corporation or other entity in a chain of corporations or other entities in which each corporation or other entity has a controlling interest in another corporation or other entity in the chain, beginning with the corporation or other entity in which Premier has a controlling interest. For this purpose, controlling interest shall have the same meaning as in Treasury Regulations Section 1.409A-1(b)(5)(E)(1) (or any successor provision) but substituting the phrase at least 20 percent for the phrase at least 50 percent where it appears in that section.
14. Reasonableness of Restrictions. Executive has carefully read and considered the provisions of this Agreement and, having done so, agrees that the restrictions placed upon him by Sections 7-13 of this Agreement are reasonable given the nature of his senior executive position with Premier, the area in which Premier markets and provides its products and services, the expansive nationwide nature of Premiers business, and the consideration provided by Premier to Executive pursuant to this Agreement. Specifically, Executive agrees that the length and scope of the covenant not to compete, the length and scope of the noninterference and anti-raiding provisions, and the other restricted activities set forth in Sections 7-13 are reasonable and that the definitions of Competitive Activity, Core Competing Businesses, Prohibited Territory, Restricted Employee, Restricted Supplier, Premier Customer, Confidential Information and Intellectual Property are reasonable. Executive further agrees that the restrictions set forth herein are reasonably required for the protection of the legitimate business interests of the Company. Thus, although the Parties acknowledge and agree that Executive retains the right to contest the application or interpretation of Sections 7-13 of this Agreement to particular facts/circumstances, Executive agrees not to contest the general validity or enforceability of Sections 7-13 of this Agreement before any court, agency, arbitration panel, or other body. Executive agrees that Sections 8-13 of this Agreement shall survive the termination or end of his employment relationship with the Company and shall be in addition to any restrictions imposed on Executive by statute, at common law, or other agreements. In addition, Section 8-13 shall continue to be enforceable, regardless of the date, reason or manner of Executives separation or whether there is a subsequent dispute between the Parties concerning any alleged breach of this Agreement, and such separation shall not in any way impair or affect Executives continued obligation to observe such Sections of this Agreement.
Executive further acknowledges and agrees that because his abilities and skills are readably useable in a variety of capacities in most all geographic areas, the foregoing restrictions do not unreasonably restrict him with respect to seeking employment elsewhere or unduly impair his ability to earn a living in non-competitive ventures should his employment with Premier end.
15. Termination. In addition to the provisions set forth in Section 3, the Employment Term shall terminate upon the occurrence of any of the following events: (i) immediately upon retirement on or after the normal retirement age established under the Premier Employees Pension Plan (Retirement), or early retirement as defined under the Premier Employees Pension Plan (Early Retirement); (ii) immediately and automatically upon Executives death; (iii) upon the effective date of Resignation by Executive Without Good Reason (as defined below); (iv) upon the effective date of Resignation by
Executive With Good Reason (as defined below); (v) upon the close of business on the date the Company CEO gives Executive notice of Termination for Just Cause (as defined below) or, if and as applicable, upon the expiration of any cure period provided by the Company to Executive if and as required herein for Termination for Just Cause, if the violation remains uncured by Executive as prescribed; (vi) upon the close of business on the date the Company CEO gives Executive notice of Termination Without Cause (as defined below); or (vii) upon the Disability of Executive (as defined below) and the end of the elimination period specified in the long-term disability plan sponsored by Premier or a Related Company in which Executive participates. In addition, notwithstanding the provisions of this Section 15 below, Executive agrees that upon the termination or end of Executives Employment Term for any reason, Executive shall resign and does resign from all positions as an officer, director and employee of Premier and Premiers Related Companies, with such resignations to be effective upon the termination or end of Executives Employment Term.
a. Termination for Just Cause Retention Period. For purposes of this Agreement from the Effective Date through July 17, 2016, Termination for Just Cause shall have the meaning set forth in Annex B hereto.
b. Termination for Just Cause Post-Retention Period. For purposes of this Agreement following July 17, 2016, Termination for Just Cause means termination of the employment of Executive by Premier as the result of: (1) commission or omission of any act of dishonesty, embezzlement, theft, misappropriation or breach of fiduciary duty by Executive in connection with Executives employment with Premier; (2) any conviction, guilty plea or plea of nolo contendere by Executive for any felony, a misdemeanor in which fraud and dishonesty is a material element, or a crime of moral turpitude, that is likely to result in incarceration if later sentenced (if the Company CEO or Board Chair deem in his or her absolute discretion that such conviction or plea may have a significant adverse effect upon Premier or upon Executives ability to perform under this Agreement); (3) willful action or willful inaction with respect to Executives performance of his employment duties that constitutes a violation of law or governmental regulations or that causes Premier or its Related Companies or Affiliates to violate such law or regulation; (4) a material breach of any securities or other law or regulation or any Premier or Related Company policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (5) failure to reasonably cooperate or interference with a Premier-related investigation; (6) willful violation by Executive of Premiers or its Related Companies lawful material policies, rules and procedures, including but not limited to Premier and its Related Companies Code of Conduct and Conflict of Interest policies; (7) the regulatory, governmental or administrative suspension, removal or prohibition of Executive as defined in this Section below; (8) willful misconduct, willful insubordination or willful refusal or unwillingness to carry out or follow specific lawful, reasonable directives, duties or assignments established or given by Premiers CEO or the Board from time to time in accordance with this Agreement; (9) willful inattention to or dereliction of duty by Executive with respect to the business affairs of Premier or its Related Companies to which Executive is assigned material responsibilities or duties that is materially harmful to the business or reputation of Premier; (10) the breach of or failure to perform the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; (11) the prospective breach of the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; or (12) the breach or prospective breach or failure to perform the obligations set forth in Sections 11-12 of this Agreement that is either willful or materially harmful to the business or reputation of the Company.
The Parties, however, agree that Termination For Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Sections 15.b. (9) or (11) as a result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than thirty (30)
days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties further agree that Termination for Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Sections 15.b.(10) or (12) as result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than ten (10) days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties agree that Executives general failure to meet the performance objectives, milestones and goals established or given by the Company CEO or the Board from time to time shall not constitute grounds for Termination for Just Cause. Further, for purposes of this definition only, no act or failure to act by Executive shall be deemed willful if: (a) done or omitted to be done by Executive in good faith and with the reasonable belief that his act or omission was in the best interest of Premier and consistent with Premier and its Related Companies policies and applicable law; (b) based on and consistent with instructions pursuant to a resolution duly adopted by the Board; or (c) based on and consistent with the advice of Premier counsel.
Notwithstanding the above and Sections 15.c. and 15.d., the Parties also acknowledge and agree that:
(i) If Executive is suspended and/or temporarily prohibited from participating in the conduct of the affairs of the Company and/or its Related Companies or Affiliates by a regulatory, governmental or administrative notice served under federal or state law, the obligations of Premier under this Agreement shall be suspended as of the date of service of such notice, unless stayed by appropriate proceedings. If the charges in the notice are dismissed or withdrawn, Premier may in its discretion, upon approval by the Board, pay Executive all or part of the compensation withheld while its contract obligations were suspended and/or reinstate in whole or in part any of its obligations that were suspended. Vested rights of Executive shall not otherwise be affected by this provision.
(ii) If Executive is permanently removed and/or prohibited from participating in the conduct of the affairs of the Company and/or its Related Companies or Affiliates by applicable federal, state or other regulatory, governmental or administrative order or action, all obligations of Premier under this Agreement shall terminate as of the effective date of the order, but vested rights of the Parties hereto shall not be affected.
In addition, the Parties agree that without expressly or constructively terminating this Agreement under this Section 15.b. or Sections 15.c. or 15.d., Premier may place Executive on temporary leave with pay, temporarily exclude him from any premises of Premier, its Related Companies and Premier Affiliates and/or temporarily reassign Executives duties with Premier and/or its Related Companies during any pending Company investigation or disciplinary action involving Executive and/or Executives potential Termination for Just Cause. The Parties further agree such authority shall be invoked only in exceptional circumstances when the Company CEO and General Counsel determine that such action is in the best interests of the Company.
Notwithstanding anything contained in this Agreement to the contrary, in no event shall Executives Termination for Just Cause occur until Executive has been provided written notice from the Company CEO stating with specificity the Just Cause grounds and basis therefor and providing Executive with an opportunity to appear and be heard before the Company CEO.
c. Termination Without Cause. For purposes of this Agreement, Termination Without Cause means any termination of the employment of Executive by Premier for any reason other than Retirement, Early Retirement, death, Disability or Termination for Just Cause. For purposes of clarity, the Parties further agree that Termination Without Cause shall include Premiers election not to extend Executives Employment Term at any time after the Effective Date for any reason other than Retirement, Early Retirement, death, Disability or Termination for Just Cause.
d. Resignation by Executive. For purposes of this Agreement, Resignation by Executive means any termination or resignation by Executive of his employment relationship with Premier and all its Related Companies or Executives election not to extend his Employment Term under Section 3 for any reason, including but not limited to Retirement or Early Retirement by Executive under this Agreement. Executive is required to give at least ninety (90) days advance written notice of resignation to the Company CEO, and the Company CEO is entitled upon receiving such notice, in his or her discretion, to accept such resignation as effective on the resignation date proposed by Executive, or such other earlier date designated by the Company CEO. In addition, except as otherwise set forth in Sections 15 and 16, Premier will be required to pay Executive his Base Salary and other applicable accrued, non-forfeited compensation or other vested benefits set forth in Section 4 through the complete advance resignation notice period, regardless of whether Executives final resignation date is revised/accelerated by the Company CEO, and regardless of whether Executive is required or permitted to perform any services for Premier during such final transition period.
For purposes of this Agreement from the Effective Date through July 17, 2016, Resignation by Executive for Good Reason shall have the meaning set forth in Annex C hereto.
For purposes of this Agreement following July 17, 2016, Resignation by Executive for Good Reason means resignation by Executive for the following events without Executives written consent:
(1) a material reduction in Executives position, responsibilities or status, or a change in Executives title resulting in a material reduction in Executives responsibilities or position with Premier or the assignment to Executive of duties, responsibilities, authorities and/or titles that are inconsistent with his position as CFO, but excluding for this purpose: (a) any suspensions, removals, duty reassignments, duty limitations or other actions as set forth and allowed in Section 15.b., and (b) any such reductions or changes made in good faith to conform with applicable law or generally accepted industry standards for Executives position after consultation with Executive;
(2) a change in Executives reporting responsibility such that Executive directly reports to an individual or individuals who are not either the Company CEO and/or members of the Board;
(3) a reduction in Executives Base Salary (unless such percentage deduction is effectively made across the board for all other senior executives of Premier) or a decrease in any Annual Plan or any potential Annual Plan Target award opportunity to which Executive may potentially have been entitled pursuant to Premiers Annual Plan or any potential Annual Plan, if and as may be later authorized and established in the future, provided, however, that a decrease in any Annual Plan or potential Annual Plan total Target award opportunity for Executive, if and as may be later authorized and established in the future, shall not constitute Good Reason and nothing herein shall be construed to guarantee such awards if: (a) such Target award opportunity is modified by Premier or a Related Company in connection with an overall modification or termination of an Annual
Plan or in connection with an independent market study of Executives position and comparable compensation packages, provided that Premier or a Related Company substitutes a plan or plans for any terminated Annual Plan in a manner that allows for substantially equivalent compensation opportunities for Executive, or (b) if performance, either by Premier and its Related Companies or Executive, is below the level required for such targets as may reasonably and in good faith be determined under such plans;
(4) the relocation of Executive to a location outside a fifty (50) mile radius of Executives primary office location on the date of this Agreement (Charlotte, NC); provided, however that relocation of Executive to Premiers current or future headquarters location (with or without Executives consent) shall not constitute Resignation by Executive for Good Reason.
(5) the Companys failure to make any material non-forfeited payments earned and due to Executive under this Agreement; or
(6) a failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to all or substantially all of the assets of the Company within 30 days after a merger, consolidation, sale or similar transaction.
The Parties further agree that for a resignation to constitute resignation by Executive for Good Reason, in addition to the advance notice of resignation requirement set forth above for this Section 15.d., Executive must provide written notice to the Company CEO of Executives intent to resign within ninety (90) days of one of the triggering events outlined in subsections (1)-(6) of this paragraph. Further, Resignation for Good Reason shall not mean or include resignation by Executive for subsections (1)-(6) of this paragraph for any isolated, insubstantial or inadvertent action not taken in bad faith if cured or remedied promptly by Premier, if such cure is possible, within no more than thirty (30) calendar days of receiving Executives notice.
For purposes of this Agreement, Resignation by Executive Without Good Reason means any termination or resignation by Executive of his employment relationship with Premier for any reason other than death, Disability or Resignation for Good Reason.
e. Disability. Disability means Executives inability to perform the essential functions and duties of Executives position with Premier, with or without reasonable accommodation, by reason of any medically determinable physical or mental impairment that can be expected to result in death or that is to last or can be expected to last for a continuous period of not less than twelve months, as determined under the long-term disability plan sponsored by Premier or a Related Company in which Executive participates.
The Parties further agree that without expressly or constructively terminating this Agreement under this Section 15.e. or Sections 15.a.-15.d. above, Premier may designate another employee to act in Executives place during any period of Executives Disability which extends over ninety (90) consecutive calendar days or an aggregate of ninety (90) calendar days during any three hundred and sixty five (365) consecutive calendar day period. Notwithstanding whether any such designation is made, Executive shall continue to receive his full Base Salary and other compensation, incentives and benefits under this Agreement (offset by any Company-paid short-term disability and/or long-term disability plan payments) during any period of Disability during the Employment Term.
16. Effect of Termination/Severance. Following the termination or end of the Employment Term for any reason, Executive or, in the event of Executives death, Executives estate shall: (i) be
entitled to any earned but unpaid Base Salary due at the time of the termination or end of the Employment Term; (ii) be entitled to pay for any vacation time earned but not used through the date of termination; (iii) be entitled to any non-forfeited amounts earned that may be payable to Executive pursuant to the terms of an applicable Annual Plan or the 2013 LTIP; (iv) be entitled to any non-forfeited vested Executive Equity Participation granted or established for Executive under the 2013 Equity Incentive Plan (or such other equity or derivative equity plan sponsored by Premier or a Related Company) in accordance with the terms and conditions of such plans and any applicable award agreements; (v) be entitled to any non-forfeited vested Retirement Savings Plan (i.e., 401(k)), Premier Employees Pension Plan, or other vested pension, retirement or deferred compensation benefits with Premier, if any, pursuant to the terms of such plans; (vi) be entitled to any accrued, non-forfeited vested benefits pursuant to the terms of any other plans or programs in which Executive is a participant, if any; (vii) be entitled to reimbursement of all reasonable business expenses incurred but unreimbursed as of the date of the termination or end of the Employment Term, provided that such expenses and required substantiation and documentation thereof are submitted within thirty (30) days of the termination or end of the Employment Term (or within one-hundred and eighty (180) days, in the case of termination due to death) and that such expenses are reimbursable under Company policy in accordance with Section 5 of this Agreement; and (viii) be entitled to any short-term disability plan, long-term disability plan and/or other Premier insurance plan payments or awards in connection with Executives Disability or other separation per the terms of such plans, if and as applicable (collectively, the Final Compensation). The parties further agree that in the event of Executives death, Final Compensation shall also include his dependents general right to elect certain coverage continuation under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), as applicable, provided the dependents are and remain eligible for such continuation coverage. In addition, in the event of the termination or end of the Employment Term for any other reason other than death, Final Compensation shall also include Executives general right to elect certain coverage continuation for himself and/or his dependents, as applicable, under COBRA, provided he and/or his dependents are and remain eligible for such continuation coverage.
Except for any additional benefits or payments which may be due as set forth in this Section 16, Executive and/or his estate, as applicable, shall not be entitled to receive any additional compensation, payments, wages, awards, bonuses, incentive pay, commissions, severance pay, vacation pay, leave pay, sick pay, Executive Equity Participation or interests, options, consideration or benefits of any kind from Premier hereunder upon the termination or end of the Employment Term, nor shall Executive or his estate be entitled to receive reimbursement for business expenses incurred after the end of the Employment Term. However:
a. If the termination of this Agreement occurs at any time during the Employment Term due to termination by Premier Without Cause or resignation by Executive For Good Reason, either of which occur within twenty-four (24) months following a Change in Control (as defined in Section 17), and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, then in addition to the Final Compensation set forth above, Executive shall be entitled to severance pay equal to 2.4 times (2.4x) the sum of Executives (x) then current Base Salary, plus (y) the higher of (a) Executives target Annual Plan bonus as of the date of termination, or (b) the average of the Annual Plan bonuses paid to Executive in the 36-month period immediately preceding the date of termination.
b. If the termination of this Agreement occurs at any time during the Employment Term due to termination by Premier Without Cause or resignation by Executive For Good Reason that do not occur within twenty-four (24) months following a Change in Control (as defined in Section 17), and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, then in addition to the Final Compensation set forth above,
Executive shall be entitled to severance pay equal to 1.9 times (1.9x) Executives then current Base Salary.
The payment of the Without Cause or For Good Reason severance amount set forth in this Section 16 shall be treated by the Parties as severance pay to assist Executive in transitioning to other employment, conditioned upon the expectation that before Executives separation, Executive did not violate the obligations set forth in Section 7, and after Executives separation, any employment and other activities of Executive do not violate the obligations set forth in Sections 8-14 or the Prior Obligations referenced in Section 19. In the event of any such breach, then the severance payments set forth in this Section 16 shall automatically end. Moreover, in exchange for and as a further condition precedent to receiving such potential severance pay, Executive agrees that upon his separation, he must sign within 45 days of receipt from Premier and not revoke a release of any and all claims that Executive has or may have against Premier, its Related Companies and such entities past and then current officers, directors shareholders, owners, members, agents and employees relating to or arising out of his employment with Premier under this Agreement or otherwise, in a form to be prepared by Premier at such time (but excluding any release of the obligations of such entities under the release itself, Executives vested and accrued, non-forfeited rights as a participant in any applicable 401(k), pension, deferred compensation, equity award or plan, or annual or long-term incentive plans and/or any other vested and accrued, non-forfeited retirement or other benefits, Executives rights under COBRA or right to exercise any conversion rights provided in applicable insurance and benefits plans, if any, and Executives right to potential indemnification and/or defense as a prior officer of such entities under applicable certificates of incorporation, corporate bylaws, policies, regulations, indemnity agreements, insurance plans or law) (the Release Condition).
The Parties agree that except as otherwise set forth in Section 24.c of this Agreement, the above severance pay amounts shall be payable to Executive by Premier or its successor, as applicable, in monthly equal installments over: (a) a thirty (30) month period following Executives separation if paid in accordance with Section 16.a. above, or (b) a twenty-four (24) month period following Executives separation if paid in accordance with Section 16.b. above. Further, except as otherwise provided in this Agreement under Section 24.c., the first installment of the severance pay will be on the sixtieth (60th) day following the effective date of Executives applicable separation from employment with Premier (provided the Release Condition is satisfied) and will include severance pay for the period from the end of Executives employment with Premier through the first installment payment date. The remaining installments will continue thereafter for the applicable payment period.
In the event of any termination of Executives employment entitling Executive to severance under this Section 16 above, and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due Executive under this Agreement on account of any compensation attributable to any subsequent employment that Executive may obtain.
17. Change in Control. For purposes of this Agreement, a Change in Control shall have the meaning set forth in Section 13.3 (or subsequent applicable sections, if and as later amended) of the Premier, Inc. 2013 Equity Incentive Plan, as it may be established, modified, changed or replaced from time to time.
18. Agreement Confidentiality and Disclosure. The Parties agree that except where otherwise required by law, the terms of this Agreement shall remain confidential. The Parties, however, agree that: (a) Premier may disclose the terms of this Agreement to officers of Premier, members of the Board, and any potential investors in or purchasers of Premier; (b) Premier may disclose the terms of this Agreement to senior management, human resources, payroll and financial services employees of Premier, to professionals representing Premier, to Premiers insurance agents and carriers, and to
affiliates and employees of the same with a need to know to the extent necessary to give effect to this Agreement, provided that such third parties comply with the confidentiality requirements set forth above; (c) Executive may disclose the terms of this Agreement to his spouse, children, accountants, attorneys, financial advisors, estate planners, tax preparers, and other professional advisors, provided that such third parties comply with the confidentiality requirements set forth above; and (d) either Premier or Executive may disclose the terms of this Agreement in order to notify prospective or actual future employers or contracting principals of Executive, or their applicable representatives and agents, of the post-employment obligation terms contained in this Agreement, or to otherwise enforce the terms of this Agreement. In addition, the Parties agree that they are permitted to disclose the terms of this Agreement to the IRS, applicable state departments of taxation, if necessary, and as otherwise required by law and/or when lawfully requested as part of or in connection with a governmental, regulatory, exchange or listing service inquiry, hearing or investigation. The Parties further agree that Premier may disclose the compensation and other terms of this Agreement: (i) to Premiers shareholders/owners; and (ii) in its proxy statements or other public securities filings as required by law.
Anytime this Agreement is filed with the Securities and Exchange Commission and becomes a public record, this Section 18 shall no longer apply.
Further, Executive agrees that he shall notify any prospective employer, entity or individual with whom Executive seeks to be employed or provide independent contractor services of the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19 of this Agreement during the applicable term for each, and the Company may likewise provide such notice during the same period to any prospective employer, entity or individual with whom Executive seeks to be employed or provide independent contractor services.
19. Notification Requirement and Breach. Through and up to the conclusion of the Consulting Period, Executive shall give notice to Premier of each new business activity he plans to undertake, at least seven (7) calendar days prior to beginning any such activity, including but not limited to work as an employee or independent contractor. Such notice shall state the name and address of the person or entity for whom such activity is undertaken and the nature of Executives business relationship(s) and position(s) with such person or entity. Executive shall provide Premier with such other pertinent information concerning such business activity as Premier may reasonably request in order to determine Executives post-employment compliance with his obligations under Sections 8-14 of this Agreement.
Executive and Premier agree that, in the event of any breach or threatened breach of Sections 7-14 of this Agreement by Executive or of Executives prior conflicts of interest, confidentiality or intellectual property obligations contained in Executives prior employment agreements with Premiers predecessor corporation, including but not limited to Sections 4 and 5 of the Prior Employment Agreement (the Prior Obligations), Premier and/or its Related Companies shall be entitled to an injunction, without bond, restraining such breach. In addition, Executive and Premier agree that the prevailing party in any legal action to enforce the terms of this Agreement, including but not limited to Sections 7-14 and the Prior Obligations, shall be entitled to costs and attorneys fees related to any such proceeding as allowed by law, but nothing herein shall be construed as prohibiting Premier, its Related Companies or Executive from pursuing other remedies available to them for any breach or threatened breach. Further, the Parties agree that the restricted time period for the post-employment covenants in Sections 8-11 and the Prior Obligations shall be tolled during any period of time in which Executive is violating those provisions.
Moreover, Executive agrees that, in addition to any other remedies available to Premier and/or its Related Companies by operation of law or otherwise, if Executive breaches of any of the obligations contained in Sections 7-14 or the Prior Obligations, he shall: (a) forfeit at the time of the breach the right to any additional severance pay under Section 16 of the Agreement; (b) forfeit the right to all further unpaid / unawarded, amounts that may otherwise be payable under the terms of any Annual Plan, the
2013 LTIP, the 2013 Equity Incentive Plan or any other equity or incentive compensation plan in which he participates and to which he might otherwise then be entitled by virtue thereof at the time of the breach, if any, notwithstanding any provisions of this Agreement or such plans or programs to the contrary; and (c) be required to refund to Premier and its Related Companies, and Premier and its Related Companies shall be entitled to recover of Executive, the amount of any and all such severance, Annual Plan, 2013 LTIP, 2013 Equity Incentive plan, or other equity or incentive plan pay or awards already paid or provided to or on behalf of Executive by Premier and/or its Related Companies following the initial breach, if any, notwithstanding any provisions of this Agreement or such plans or programs to the contrary. Executive further agrees that in the event of any such breach, Premier and/or its Related Companies shall be entitled to costs and reasonable attorneys fees as allowed by law relating to any proceeding to enforce or collect a refund of any such amount(s) already received by Executive following the initial breach.
20. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Executive, Premier, and their respective successors, assigns, heirs and personal representatives; provided that Executive may not assign any of his rights, title or interest in this Agreement. Executive further acknowledges and agrees that in the event of the transfer and/or assignment of this Agreement to any affiliated entity or successor or assignee to all or a part of Premiers business, this Agreement shall remain valid and be fully enforceable by such entity, and Executive irrevocably consents to any such assignment or transfer. The Parties, however, agree that except as otherwise provided pursuant to the terms of applicable plans, policies and programs, nothing in this Agreement shall preclude: (a) Executive from designating a beneficiary to receive any benefit payable upon Executives death; (b) Executive from designating a beneficiary to receive any benefit payable as part of any domestic, equitable distribution, child support or similar settlement, order or agreement; or (c) the executors, administrators or other legal representatives of Executive or Executives estate from assigning any rights hereunder to the person or persons entitled thereunto.
21. Governing Law / Forum / Jurisdiction. The Parties agree that this Agreement shall be deemed to be a contract made under, and for all purposes shall be governed by and construed in accordance with, the internal laws and judicial decisions of the State of North Carolina, except as superseded by federal law. The Parties further agree that any dispute between them of any kind arising out of or relating to this Agreement or to Executives employment shall at either Partys election or demand be submitted to final, conclusive and binding arbitration before and according to the Employment Dispute Resolution Rules then prevailing of the American Arbitration Association, at its offices in Mecklenburg County, North Carolina, unless the Parties otherwise mutually agree in writing. Such election or demand may be made by Premier or Executive at any time prior to the filing of an action by Premier or Executive or the last day to answer and/or respond to a summons and/or complaint or counterclaim made by Premier or Executive, as applicable, whichever is later. Such arbitration, if demanded by either Party, shall be conducted as soon as is practicable, and in no event, later than one-hundred and eighty (180) days after demand for the same is filed or such other time as mutually agreed to by the Parties. The results of any such arbitration proceeding shall be final and binding both upon Premier and Executive, and shall be subject to judicial confirmation as provided by the Federal Arbitration Act or the North Carolina Revised Uniform Arbitration Act, including specifically the terms of N.C. Gen. Stat. § 1-569.4, which are incorporated herein by reference. Nothing, herein, however, shall be construed to alter, abridge or affect in any way Premiers right, at its absolute and sole election, to seek injunctive and other relief in federal or state court to enforce the noncompete, confidentiality, intellectual property, and other obligations contained in Sections 7-14 of this Agreement or the Prior Obligations (collectively, Restrictive Covenant Enforcement). The Parties further hereby acknowledge and agree that in the event of any such Restrictive Covenant Enforcement by Premier: (a) the arbitration election option for Executive set forth in this Section 21 shall not apply to such action or proceeding, but shall otherwise remain in full force and effect for all other actions/disputes not otherwise related to Premiers Restrictive Covenant Enforcement; and (b) such Restrictive Covenant Enforcement shall be brought by Premier exclusively in Mecklenburg County, North Carolina, notwithstanding that Executive
may not be a resident of North Carolina when the action or proceeding is commenced and/or cannot be served with process within North Carolina. As such, Executive irrevocably consents to the jurisdiction of the courts in Mecklenburg County, North Carolina (whether state or federal) with respect to any Restrictive Covenant Enforcement by Premier and irrevocably consents to service of process via nationally recognized overnight carrier, without limiting other service methods available under applicable law. The Parties acknowledge and agree to the arbitration and other provisions contained in this provision by their initials to this Section 21: (Executives Initials) (Premier Signatorys Initials).
22. Dissolution or Merger. In the event that Premier consolidates or merges into or with, or transfers all or substantially all of its assets to, another entity, the term Premier as used herein shall mean such other entity, and the Parties agree that this Agreement shall continue in full force and effect without any further action on the part of either Premier, its successor or assign, or Executive.
23. Taxes Generally / Deductions / Estate. Executive understands and agrees that he is responsible for any federal or state tax liability, penalties, excise taxes, interest, tax payments or tax judgments against him that could arise as a result of this Agreement. In addition, Executive agrees that he has had the opportunity to consult with his own, independent accountant and/or counsel regarding any and all tax issues related to this Agreement. Executive also agrees that Premier and its officers, employees, accountants, attorneys and agents are in no way indemnifying or making any representation, statement or guarantee to Executive as to Executives past, current or future tax liability or the ultimate position that the IRS or any applicable state tax agency may take with respect to the tax treatment of Executives prior or future wages, payments, compensation and benefits, including those payments, awards and provisions set forth in this Agreement.
The Parties agree that all compensation, plan, benefit and potential severance or other payments to Executive set forth in this Agreement, if and as applicable, will be subject to all withholdings and deductions required by law or as authorized by Executive, as appropriate, and Premier will report such amounts set forth in this Agreement as W-2 income for the applicable tax year(s) in which they are received, if and as applicable or as otherwise required by law. The Parties further agree that in the event of Executives death, any applicable severance, change in control pay or other vested or accrued, non-forfeited compensation, equity or benefit payments outlined in this Agreement will be paid to Executives estate or legal representative, in accordance with the above terms, if and as applicable and otherwise eligible in accordance with applicable program, plan and benefit terms.
24. Section 409A.
a. Section 409A Compliance. Premier and Executive intend that any amounts payable hereunder that could constitute deferred compensation within the meaning of Section 409A of the Code (Section 409A), will be compliant with Section 409A. If Premier shall determine that any provision of this Agreement does not comply with the requirements of Section 409A, Premier may amend the Agreement to the extent necessary (including retroactively) in order to comply with Section 409A (which amendment shall not reduce the amounts payable to Executive under this Agreement). Premier shall also have the discretionary authority to take such other actions to correct any failures to comply in operation with the requirements of Section 409A. Such authority shall include the power to adjust the timing or other details relating to the awards and/or payments described in this Agreement (but not the amounts payable to Executive under this Agreement) if Premier determines that such adjustments are necessary in order to comply with or become exempt from the requirements of Section 409A. Notwithstanding the foregoing, to the extent that this Agreement or any payment or benefit (or portion thereof) under this Agreement or the plans referenced herein shall be deemed not to comply with Section 409A, then Premier and its Related Companies, the Board and Compensation Committee, and Premier, Inc.
and its Related Companies shareholders, owners, board members, officers, employees, and their designees and agents shall not be liable to Executive in any way. However, if and to the extent Executive incurs any Section 409A related excise taxes, penalties or interest charges as a result of the Companys breach of this Agreement not otherwise consented to by Executive in writing (e.g., with respect to payment timing), then Premier shall reimburse Executive in full for the amount of such excise taxes, penalties and interest charges so that Executive is restored to the same position in which Executive would have been had Premiers breach not occurred.
b. Separation From Service. Notwithstanding anything in this Agreement to the contrary, no separation benefits, if applicable, deemed deferred compensation subject to Section 409A shall be payable pursuant to this Agreement unless Executives separation from employment constitutes a separation from service with Premier within the meaning of Section 409A and the Department of Treasury regulations and other guidance promulgated thereunder (a Separation from Service).
c. Specified Employee. Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by Premier at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of benefits shall not be provided to Executive prior to the earlier of (1) the expiration of the six-month period measured from the date of Executives Separation from Service or (2) the date of Executives death. Upon the first business day following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section shall be paid in a lump sum to Executive, and any remaining payments due under this Agreement shall be paid as otherwise provided herein.
d. Expense Reimbursements. To the extent that any reimbursements payable pursuant to this Agreement are subject to the provisions of Section 409A, any such reimbursements payable to Executive pursuant to this Agreement shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
e. Installments. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Executives right to receive the installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment.
25. Tax Penalty Protection. Notwithstanding any other provision in this Agreement to the contrary, any payment or benefit received or to be received by Executive in connection with a change in ownership or control (as such term is defined under Section 280G of the Code a 280G Change in Ownership) or the termination of employment (whether payable under the terms of this Agreement or any other plan, arrangement or agreement with Premier or its subsidiaries and affiliates (collectively, the Payments) that would constitute a parachute payment within the meaning of Section 280G of the Code, shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), but only if, by reason of such reduction, the net after-tax benefit received by Executive shall exceed the net after-tax benefit that would be received by Executive if no such reduction was made. Whether and how the limitation under this Section 25 is applicable shall be determined under the Section 280G Rules set forth in Annex D hereto.
26. Incentive-Based Compensation Clawback. In accordance with the terms and conditions of Premier, Inc.s and the Companys Compensation Recoupment Policy as such policy may be established, modified, changed, replaced or terminated from time to time by Premier, Inc. in its sole discretion to comply with listing exchange / service rules and regulations and/or other applicable regulatory requirements, Executive agrees to repay any incentive or other compensation paid or otherwise made available to Executive by Premier or its Related Companies, as required by the terms of such policy. If Executive fails to return such compensation as required by the terms of the Compensation Recoupment Policy and/or applicable law, Executive hereby agrees and authorizes Premier and its Related Companies to, among other things as set forth in the policy: (a) deduct the amount of such identified compensation from any and all other compensation owed to Executive by Premier and/or its Related Companies; and/or (b) adjust and reduce future compensation to Executive. Executive acknowledges that Premier may take appropriate disciplinary action (up to, and including, Termination For Just Cause) if Executive fails to return / repay such identified compensation within the timeframe required by the Compensation Recoupment Policy. Further, the Parties agree that the provisions of this Section 26 shall remain in effect for the period required by applicable law.
27. Indemnification. Premier and Executive have entered into (or shall enter into concurrent with this Agreement) a separate indemnity agreement, consistent with Premier, Inc.s certificate of incorporation, by-laws and other corporate governance documents; provided that the entry into such an agreement shall not be a condition precedent to Executives right to be indemnified by Premier as provided in such corporate governance documents. In addition, Premier will indemnify Executive or cause Executive to be indemnified in his capacity as an officer, director or senior manager of any Related Company for which Executive serves as such, to the fullest extent permitted by the laws of the state of incorporation of such Related Company in effect from time to time, or the certificate of incorporation, by-laws or other corporate governance documents of such Related Company, whichever affords the greater protection to Executive. Premier may elect to satisfy its obligations pursuant to this Section 27 under insurance policies maintained generally for the benefit of its officers, directors and employees against covered costs, charges and expenses incurred in connection with any action, suit, investigation or proceeding to which Executive may be made a party by reason of being a director, officer or senior manager of Premier. In addition, Premier shall provide Executive with directors and officers insurance coverage to the same extent as provided to other senior executives of Premier.
28. Waiver of Breach. No waiver of any breach of this Agreement shall operate or be construed as a waiver of any subsequent breach by any Party. No waiver shall be valid unless in writing and signed by the party waiving any particular provision.
29. Severability. The Parties agree that every provision of this Agreement is severable from each other provision of this Agreement. Thus, the Parties agree that if any part of the covenants or provisions contained in this Agreement is determined by a court of competent jurisdiction or by any arbitration panel to which a dispute is submitted to be invalid, illegal or incapable of being enforced, then such covenant or provision, with such modification as shall be required in order to render such covenant or provision not invalid, illegal or incapable of being enforced, shall remain in full force and effect, and all other covenants and provisions contained in this Agreement shall, nevertheless, remain in full force and effect to the fullest extent permissible by law. The Parties further agree that, if any court or panel makes such a determination, such court or panel shall have the power to reduce the duration, scope and/or area of such provisions and/or delete specific words and phrases by blue penciling and, in its reduced or blue penciled form, such provisions shall then be enforceable as allowed by law.
30. Counterparts. This Agreement may be executed in duplicate counterparts, including via facsimile or electronic transmission, each of which shall be deemed an original and all of which shall constitute but one and the same instrument.
31. Construction. The Parties agree that this Agreement was jointly negotiated and drafted by the Parties, shall not be construed by a court of law or any arbitration panel against any of the Parties as a drafter thereof, and shall be construed as a settlement between the Parties negotiating at arms length. The Parties further agree that the section headings used in this Agreement are for convenience of reference only and shall not be construed to limit or affect scope of this Agreement or the intent of any provision.
32. Entire Agreement. This Agreement constitutes the entire agreement among the Parties pertaining to the subject matters contained herein and, going forward from the start of the Initial Period, replaces and supersedes any and all prior and contemporaneous related agreements, representations and understandings of the Parties, including but not limited to the Prior Employment Agreement, Executives July 17, 2013 Retention Agreement with Premier, and any prior offer or position assignment letters between Executive and Premier. Moreover, this Agreement shall not be modified or amended unless executed in writing by each of the Parties. Notwithstanding the foregoing, nothing contained herein shall prevent or restrain in any manner Premier from instituting an action or claim in court, or such other forum as may be appropriate, to enforce the terms of the post-employment noncompete, nonsolicitation, anti-raiding, confidentiality or intellectual property obligations of Executive set forth and/or referenced in this Agreement or any similar agreement relating to Premiers confidential or proprietary business information or trade secrets.
33. Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
34. Notices. All notices, demands, and other communication given hereunder shall be in writing and shall be given at the address set forth below or to such other address as either party may furnish to the other in writing either by (a) personal delivery; (b) nationally recognized overnight delivery service; or (c) by registered or certified mail, postage prepaid, return receipt requested. Notices shall be effective upon receipt
If to Executive: |
If to Premier: |
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Craig McKasson |
Premier, Inc. |
10254 Lariat Dr. |
Attn: General Counsel |
Santee, CA 92701 |
13034 Ballantyne Corporate Place |
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Charlotte, NC 28277 |
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With a copy to: |
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Stewart Reifler, Esq. |
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Vedder Price P.C. |
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1633 Broadway |
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New York, NY 10019 |
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[Signature Page Follows]
IN TESTIMONY THEREOF, the Board of Directors of Premier, Inc. have approved this Agreement and caused this instrument to be executed by the General Counsel of Premier Healthcare Solutions, Inc. on behalf and in the interests of Premier Healthcare Solutions, Inc., Premier, Inc. and their Related Companies, all by motion and resolution of the Board, and Craig McKasson has accepted this Agreement and has hereunto set his hand and seal, as of the dates set forth below.
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PREMIER, INC. |
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Title: General Counsel |
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Joining this Agreement as a Party solely as a guarantor of Premier Healthcare Solutions, Inc.s financial obligations hereunder |
Annex A: Core Competing Businesses
· Global Healthcare Exchange, Inc.
· MedAssets, Inc.
· HealthTrust Purchasing Group
· The Advisory Board Company
· VHA, Inc.
· Novation, Inc.
· Amerinet, Inc.
· Truven Health Analytics, Inc.
· University HealthSystem Consortium, Inc.
· Cardinal Health, Inc.
· McKesson Corp.
· Healthagen, Inc.
· Evolent Health, Inc.
· Parallon Business Solutions, Inc.
· Conifer Health Solutions, LLC; and/or
· Optum Health, Inc.
· Corsorta, Inc.
· AmerisourceBergen Corp.
· Solucient, LLC
· Owens & Minor, Inc.
· Cerner Corporation
· IBM Healthcare Division
· Accretive Health, Inc.
· Allscripts Healthcare Solutions, Inc.
· Huron Consulting Group, Inc.
· Navigant Consulting, Inc.
· Express Scripts, Inc.
Annex B: Termination for Just Cause Retention Period
For purposes of this Agreement from the Effective Date through July 17, 2016, Termination for Just Cause shall mean termination of the employment of Executive by Premier as the result of: (1) commission or omission of any act of embezzlement, theft, misappropriation, or breach of fiduciary duty by Executive in connection with Executives employment with Premier; (2) any conviction, guilty plea or plea of nolo contendere by Executive for any felony that results in any period of incarceration (if the Company CEO or Board Chair deem in his or her absolute discretion that such conviction or plea may have a significant adverse effect upon Premier or upon Executives ability to perform under this Agreement); (3) Executives willful insubordination or refusal to carry out or follow specific lawful instructions, duties or assignments established or given by Premiers CEO or the Board of Directors of Premier, Inc. (the Board) from time to time in accordance with this Agreement; (4) material breach of any securities or other law or regulation or any Premier or Related Company policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (5) failure to reasonably cooperate or interference with a Premier-related investigation; (6) the breach of or failure to perform the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; (7) the prospective breach of the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; or (8) the breach or prospective breach or failure to perform the obligations set forth in Sections 11-12 of this Agreement that is either willful or materially harmful to the business or reputation of the Company.
The Parties, however, agree that Termination For Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Subsections (7) or (8) as a result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than thirty (30) days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties further agree that Termination for Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Subsection (6) as result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than ten (10) days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties agree that Executives general failure to meet the performance objectives, milestones and goals established or given by the Company CEO or the Board from time to time shall not constitute grounds for Termination for Just Cause. Further, for purposes of this definition only, Termination for Just Cause shall not mean or include any act or failure to act by Executive if: (a) done or omitted to be done by Executive in good faith and with the reasonable belief that Executives act or omission was in the best interest of Premier and consistent with Premier and its Related Companies policies and applicable law; (b) based on and consistent with instructions pursuant to a resolution duly adopted by the Board; or (c) based on and consistent with the advice of Premier counsel.
In addition, the Parties agree that without expressly or constructively terminating this Agreement under Section 15.a. or Sections 15.c. or 15.d., Premier may place Executive on temporary leave with pay, temporarily exclude him from any premises of Premier, it Related Companies and Premier Affiliates and/or temporarily reassign Executives duties with Premier and/or its Related Companies during any pending Company investigation or disciplinary action involving Executive and/or Executives potential Termination for Just Cause. The Parties further agree such authority shall be invoked only in exceptional circumstances when the Company CEO and General Counsel determine that such action is in the best interests of the Company.
Notwithstanding anything contained in this Agreement to the contrary, in no event shall Executives Termination for Just Cause occur until Executive has been provided written notice from the
Company CEO stating with specificity the Just Cause grounds and basis therefor and providing Executive with an opportunity to appear and be heard before the Company CEO.
Annex C: Resignation for Good Reason Retention Period
For purposes of this Agreement from the Effective Date through July 17, 2016, Resignation by Executive for Good Reason means resignation by Executive for the following events without Executives written consent:
(1) a material reduction in Executives position, responsibilities or status, or a change in Executives title resulting in a material reduction in Executives responsibilities or position with Premier, or the assignment to Executive of duties, responsibilities, authorities and/or titles that are inconsistent with his position as CFO, but excluding for this purpose: (a) any suspensions, duty reassignments or duty limitations while Executive remains employed with Premier or its Related Companies with pay, implemented by Premier in response to any internal investigation or any actual or threatened temporary or permanent suspension or prohibition of Executive from participating in the conduct or affairs of Premier and/or its Related Companies or Affiliates by applicable federal, state or other regulatory, governmental or administrative order or action, and (b) any such reductions or changes made in good faith to conform with applicable law or generally accepted industry standards for Executives position after consultation with Executive;
(2) a change in Executives reporting responsibility such that Executive directly reports to an individual or individuals who are not either the Company CEO and/or members of the Board;
(3) a reduction in Executives Base Salary or a decrease in any Annual Plan or any potential Annual Plan Target award opportunity to which Executive may potentially have been entitled pursuant to Premiers Annual Plan or any potential Annual Plan, if and as may be later authorized and established in the future, provided, however, that a decrease in any Annual Plan or potential Annual Plan total Target award opportunity for Executive, if and as may be later authorized and established in the future, shall not constitute Good Reason and nothing herein shall be construed to guarantee such awards if: (a) such Target award opportunity is modified by Premier or a Related Company in connection with an overall modification or termination of an Annual Plan or in connection with an independent market study of Executives position and comparable compensation packages, provided that Premier or a Related Company substitutes a plan or plans for any terminated Annual Plan in a manner that allows for substantially equivalent compensation opportunities for Executive; or (b) if performance, either by Premier and its Related Companies or Executive, is below the level required for such targets as may reasonably and in good faith be determined under such plans;
(4) the relocation of Executive to a location outside a fifty (50) mile radius of Executives primary office location on the date of this Agreement (Charlotte, NC);
(5) the Companys failure to make any material non-forfeited payments earned and due Executive under this Agreement; or
(6) a failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to all or substantially all of the assets of the Company within 30 days after a merger, consolidation, sale or similar transaction.
The Parties further agree that for a resignation to constitute resignation by Executive for Good Reason, in addition to the advance notice of resignation requirement set forth above for this Section 15.d., Executive must provide written notice to the Company CEO of Executives intent to resign within ninety (90) days of one of the triggering events outlined in subsections (1)-(6) of this paragraph. Further, Resignation for Good Reason shall not mean or include resignation by Executive for subsections (1)-(6) of this paragraph for any isolated, insubstantial or inadvertent action not taken in bad faith if cured or remedied promptly by Premier, if such cure is possible, within no more than thirty (30) calendar days of receiving Executives notice.
Annex D: Section 280G Rules
The following rules shall apply for purposes of determining whether and how the limitations provided under Section 25 of this Agreement are applicable to Executive.
1. The net after-tax benefit shall mean (i) the Payments (as defined in Section 25) which Executive receives or is then entitled to receive from the Company or a subsidiary or affiliate that would constitute parachute payments within the meaning of Code Section 280G, less (ii) the amount of all federal, state and local income and employment taxes payable by Executive with respect to the foregoing calculated at the highest marginal income tax rate for each year in which the foregoing shall be paid to Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Tax imposed with respect to the payments and benefits described in (i) above.
2. All determinations under Section 25 of this Agreement and this Exhibit A will be made by an accounting firm or law firm that is selected for this purpose by Premier prior to a 280G Change in Ownership (the 280G Firm). All fees and expenses of the 280G Firm shall be borne by the Company. Premier will direct the 280G Firm to submit any determination it makes under Section 25 of this Agreement and this Exhibit A and detailed supporting calculations to both Executive and Premier as soon as reasonably practicable.
3. If the 280G Firm determines that one or more reductions are required under Section 25 of this Agreement, the 280G Firm shall also determine which Payments shall be reduced (first from cash payments and then from non-cash benefits) to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and Premier shall pay such reduced amount to Executive. The 280G Firm shall make reductions required under Section 25 of this Agreement in a manner that maximizes the net after-tax amount payable to Executive.
4. As a result of the uncertainty in the application of Section 280G at the time that the 280G Firm makes its determinations under this provision, it is possible that amounts will have been paid or distributed to Executive that should not have been paid or distributed (collectively, the Overpayments), or that additional amounts should be paid or distributed to Executive (collectively, the Underpayments). If the 280G Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against Premier or Executive, which assertion the 280G Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, Executive must repay the Overpayment amount promptly to Premier, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by Executive to Premier unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the 280G Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the 280G Firm will notify Executive and Premier of that determination, and the Underpayment amount will be paid to Executive promptly by Premier.
5. Executive will provide the 280G Firm access to, and copies of, any books, records and documents in Executives possession as reasonably requested by the 280G Firm, and otherwise cooperate with the 280G Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 25 of this Agreement.
Annex E: Equity Participation
Exhibit 10.24
FORM OF SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
THIS SENIOR EXECUTIVE EMPLOYMENT AGREEMENT (the Agreement) is made and entered into by and among Michael J. Alkire (Executive) and Premier Healthcare Solutions, Inc., a Delaware corporation with its principal places of business in Charlotte, North Carolina, Washington, D.C., and Ft. Lauderdale, Florida (Premier or the Company) (each and collectively defined and referred to herein as a Party and the Parties).
WITNESSETH:
WHEREAS, Premier, Inc., Premier Healthcare Solutions, Inc. and Premier Purchasing Partners, L.P. are currently contemplating a reorganization pursuant to which Premier Healthcare Solutions, Inc. and Premier Purchasing Partners, L.P. would become direct or indirect subsidiaries of Premier, Inc., and Premier, Inc. will engage in an initial public offering of Class A Common Stock (the reorganization and initial public offer for which is collectively referred to herein as the Reorganization);
WHEREAS, upon the Reorganization, the Company will be engaged in the business of, among other things, developing, marketing and providing the following services and products to (1) healthcare providers and affiliated entities throughout the United States, with respect to subsections (a)-(d); and (2) patients, healthcare providers and affiliated entities, and pharmaceutical manufactures, with respect to subsection (e): (a) proprietary information technology, health care informatics and computer software systems, and support, consulting and subscription services; (b) group purchasing, direct sourcing and supply chain management services; (c) clinical and operational healthcare performance, measurement, improvement and outcomes management/consulting services; (d) excess medical professional liability and other excess and non-excess insurance programs and risk management services; and (e) specialty pharmacy and related disease management, patient and manufacturer reporting, prior authorization and other pharmacy and patient support services (collectively defined as Health Care Products/Services);
WHEREAS, Executive is currently employed as the Chief Operating Officer of the Company in accordance with the terms of an Employment Agreement entered into by and between Executive and the Companys predecessor entity dated September 18, 2006, as amended (the Prior Employment Agreement);
WHEREAS, in connection with the Reorganization, the Company desires to enter into an employment agreement with Executive, and Executive wishes to enter into such employment on the basis set forth in this Agreement.
NOW, THEREFORE, in exchange for the promises and mutual covenants contained in this Agreement, the Parties, intending legally to be bound, agree as follows:
1. Employment. Premier agrees to employ Executive during the Employment Term (as defined in Section 3), and Executive hereby accepts such employment and agrees to serve Premier subject to the general supervision and direction of the President and Chief Executive Officer of Premier (the Company CEO), effective as of the Effective Date (as defined below). The Parties, however, agree that this Agreement is effective only upon the consummation of the Reorganization (the Effective Date) and shall be void ab initio and of no force or effect whatsoever unless and until such transactions are consummated.
2. Duties. During the Employment Term (as defined in Section 3), Executive shall be employed as Chief Operating Officer (COO) of both Premier and Premier, Inc. and shall also serve as an officer of the other Related Companies (as defined in Section 13) if and as appropriately elected. In addition, Executive shall perform the services and duties required of such position(s) for Premier and/or its Related Companies, including such other services and duties commensurate with Executives employment position and status as COO as the Company CEO or his or her designee may from time to time designate or assign to fulfill the requirements of such position(s); and shall devote Executives full time, attention and best efforts to the business of Premier and its Related Companies. In particular, during the Employment Term, Executive shall:
a. Perform the duties and exercise the powers and functions that from time to time may be reasonably assigned or vested in him by the Company CEO in relation to: (1) Premier and its Related Companies; and/or (2) Premiers partner hospitals, members and other affiliated health care organizations (collectively, Premiers Affiliates), including general responsibility for the operational management, affairs and leadership of Premiers and its Related Companies business and developing and maintaining close working relationships between Premier and its Affiliates, reporting directly to the Company CEO;
b. Faithfully and loyally serve Premier and its Related Companies to the best of his ability and use his utmost endeavors to promote their interests in all respects, including but not limited to refraining from any attempt to usurp Premier or its Related Companies corporate benefits or opportunities for Executives personal gain;
c. Adhere faithfully to all applicable professional ethics and business practices, including but limited to Premier and its Related Companies Code of Conduct and Conflict of Interest policies;
d. Be fully and readily available to work on and perform his duties consistent and commensurate with his position as COO as assigned from time to time (other than at times involving approved vacation, leave or disability); and
e. Assist in succession planning for Executives and other key employees positions as may be requested prior to the termination or end of Executives Employment Term.
Except as specifically authorized in advance by the Company CEO in writing, during the Employment Term, Executive shall work full-time and exclusively for Premier and its Related Companies and shall not be engaged as an employee, consultant or otherwise in any other business or commercial activity pursued for gain, profit or other pecuniary advantage, either on a full-time or part-time basis. Nonetheless, this Agreement shall not be construed as prohibiting Executive during the Employment Term from: (1) with the advance written consent of the Board, serving as a member of a board of directors of a public or private corporation or other entity; (2) participating in charitable or non-profit activities or serving on the board of directors of any charitable or non-profit organization; (3) serving as a director, officer or committee member of or in equivalent positions with Premiers Related Companies and/or any Affiliate during the Employment Term, for which Executive shall not receive any additional compensation except as otherwise provided in Section 4; and (4) making or managing personal investments in such form or manner as will neither require his services in the operation or affairs of the companies or enterprises in which such investments are made nor violate the terms of Sections 2.b.-2.d. and 7-14 hereof. The Parties, however, agree that such activities must not singly or in the aggregate prevent, unduly limit or materially interfere with Executives ability to perform his duties and responsibilities to Premier under this Agreement.
3. Term. Unless sooner terminated as provided in Section 15, the Parties agree that Executive shall be employed by Premier pursuant to this Agreement for a term of three (3) years
commencing on the Effective Date (the Initial Period). In addition, after the Initial Period, this Agreement and Executives employment shall be deemed to have been automatically extended for an additional one year term on each anniversary of the Effective Date or such other period as mutually agreed to between the Parties, unless either party provides written notice at least ninety (90) days prior to the expiration of the Initial Period or any extended term that the Agreement is not to be extended, or unless sooner terminated as provided in Section 15. Executives total term of employment with Premier during the Initial Period and any extended term of this Agreement is collectively defined and referred to as the Employment Term.
4. Compensation.
a. Base Salary. During the Employment Term, Premier will pay Executive a base salary as compensation for Executives services hereunder at a semi-monthly base rate of $33,229.16, equivalent to $797,500 per year (the Base Salary). Such Base Salary shall be payable to Executive by Premier in accordance with customary payment cycles as may be established by Premier for other senior executive level employees (but not less frequently than monthly). In addition, the Parties agree that the amount of Executives Base Salary may be reviewed annually by the Compensation Committee of the Board (the Compensation Committee) during the Employment Term, at which time Executives Base Salary may be increased beyond that which is provided for in this Section 4.a., at Premiers absolute and sole discretion. If the Base Salary is increased, such increased amount shall thereafter become the Base Salary under this Agreement.
b. Annual Incentive Plan. During the Employment Term, Executive shall participate in any annual incentive plan sponsored by Premier or a Related Company (as defined in Section 13) (the Annual Plan) applicable to Executive or other similarly situated senior executive level employees, in accordance with the terms and conditions of such Annual Plans as they may be established, modified, changed, replaced or terminated from time to time. The Parties further agree that for Fiscal Year 2014, Executives Target incentive opportunity in the Annual Plan shall equal 100% of Executives plan year earnings as defined in the Annual Plan.
c. Ending Long-Term Incentive Plan. During the Employment Term, Premier shall provide Executive with his eligible payments as a participant under the long-term incentive compensation program sponsored by Premier or a Related Company (as defined in Section 13) that expired effective June 30, 2013 (the 2013 LTIP) in accordance with the terms and conditions of such plan, as it may be established, modified, changed, replaced or terminated from time to time.
d. Equity. As additional consideration for entering into this Agreement, during the Employment Term, and provided Executive signs the applicable award agreements within the time period required and is employed by Premier at the time of related equity awards, Executive shall be eligible to participate in the Premier, Inc. 2013 Equity Incentive Plan and any other equity-based or cash-based long-term incentive compensation plan applicable to Executive or other similarly situated senior executive level employees in accordance with terms and conditions of such plans as they may be established, modified, changed, replaced or terminated from time to time. In connection with such equity participation, and provided the conditions outlined above in this Subsection 4.d. are met, Executive shall be initially awarded / issued, effective as of the Effective Date: (1) restricted stock unit award shares; (2) target performance shares of Premier, Inc.s Class A common stock, with the potential to earn up to 150% of target based on performance; and (3) non-qualified stock options to purchase shares of Premier, Inc.s Class A common stock, in amounts as described and set forth in Annex E. All such restricted stock units, target performance shares and stock options will vest and be awarded / issued in accordance with the terms of the applicable award agreements and the Premier, Inc. 2013 Equity Incentive Plan, as such plans and award
agreements may be established, modified, changed, replaced or terminated from time to time. Executives total current and future equity participation under this Agreement shall be collectively referred to as Executives Equity Participation.
e. Other Benefits. During the Employment Term, Premier will provide to Executive those other benefits customarily provided by Premier or a Related Company (as defined in Section 13) to other similarly situated senior executive level employees, including five (5) weeks of annual vacation per applicable Premier policy, 401(k), deferred compensation or other retirement plans, and all group health, hospitalization, life and disability plans or other employee welfare benefit plans, as such plans may be modified, changed, replaced or terminated from time to time in the absolute and sole discretion of Premier and/or its Related Companies; provided that Executive is otherwise eligible to participate in such plans and desires to be covered. In addition, upon the execution of this Agreement by all Parties, and following approval of related invoices submitted by Executive to the Chair of the Compensation Committee for review, Premier shall reimburse Executive for the reasonable amount of attorneys and tax advisors fees and costs incurred by him in connection with the negotiation and review of this Agreement, up to a maximum amount of $15,000. Nothing contained in this Agreement shall be construed to obligate Premier or its Related Companies in any manner to put into effect any plans not presently in existence or to provide special benefits to Executive.
5. Reimbursement of Expenses. During the Employment Term, upon submission of proper vouchers and receipts to Premier by Executive, Premier shall promptly pay or reimburse Executive for all normal and reasonable business expenses, including authorized business cell phone/smartphone expenses and authorized business travel expenses, incurred by Executive in connection with Executives performance of his responsibilities with Premier and its Related Companies (as defined in Section 13) in accordance with the terms of applicable Premier policy and procedures then in effect concerning the same as may be established or amended from time to time in the absolute discretion of Premier. Any and all such business expenses shall further be subject to periodic review by the Company CEO, Chair of the Board (the Board Chair) and/or Chair of the Compensation Committee.
6. Consulting Period. Following Executives separation from employment from Premier for any reason except death, Executive agrees to provide consulting services to Premier for a period of twenty-four (24) months following such separation from employment (the Consulting Period). Executive shall be available during the Consulting Period to provide advice to Premier regarding its operations or management as Premier may reasonably request; provided, however, that Executive shall not be required to perform more than ten (10) hours of service per month for Premier during the Consulting Period and may perform such services in a manner that does not unreasonably interfere with Executives schedule or other post-Premier employment commitments. Moreover, provided Executive is and remains so available, during the Consulting Period, Premier shall pay Executive a reasonable consulting fee on a monthly basis at the rate of one-tenth (.10x) Executives then current monthly Base Salary upon his separation (the Consulting Fee), and Executive shall be promptly reimbursed for any expenses reasonably incurred by Executive in the performance of the services set forth in this Section 6. Notwithstanding the forgoing, except as otherwise provided in this Agreement under Section 24.c., the first Consulting Fee shall be paid on the sixtieth (60th) day following the effective date of Executives applicable separation from employment with Premier and will include any Consulting Fee payments for the period from the end of Executives employment with Premier through the first Consulting Fee payment date. The remaining Consulting Fee payments will continue thereafter for the applicable payment period. In addition, the Parties agree that despite the limited consulting obligations outlined in this Section 6, nothing in this Section should be interpreted or implemented in such a way that is otherwise inconsistent with Executives overall separation from service with Premier pursuant to Section 409A of the Internal Revenue Code of 1986, as amended (the Code).
7. Conflicts of Interest. Throughout Executives employment with Premier, Executive shall not: (a) render any services, with or without compensation, to any other person or firm engaged in the sale, marketing and/or provision of Health Care Products/Services (as defined in the Recitals to this Agreement); or (b) in any other way compete with the business then being conducted by Premier. Executive further agrees that except for actions otherwise undertaken for the benefit of Premier in the normal course of Executives assigned duties as an employee of Premier, during the Employment Term, Executive shall not engage in any prohibited activity outlined in Sections 8-10. In addition, during Executives employment with Premier, Executive agrees that he shall not actively engage in any other business for his own account and will not be an employee or independent contractor for any other person or entity without the prior written approval of the Company CEO. Executive also agrees to comply with the terms of Premiers Code of Conduct and Conflict of Interest policies, including but not limited to all terms relating to the divestiture or transfer to a blind trust of any equity interest that Executive may hold in participating vendors, as defined in such policies.
8. Agreement Not To Compete/Competitively Use Confidential Information. Executive acknowledges and agrees that he has and will continue to acquire a considerable amount of knowledge and goodwill with respect to the health care group purchasing, supply chain management, information technology, informatics, healthcare management/consulting, insurance programs industry, specialty pharmacy services and Premiers business in particular, which knowledge and goodwill are extremely valuable to Premier and which would be extremely detrimental to Premier if used by Executive to compete with Premier or to work or consult with Premiers competitors in the United States. Executive also understands and agrees that, because of the nature of the business of Premier and the broad, nationwide hospital, customer and Affiliate base to which it markets and sells, it is necessary to afford fair protection to Premier from such competition by Executive.
Consequently, for and in consideration of this Agreement, the employment of Executive pursuant to this Agreement, the new Executive Equity Participation, and Executives continued exposure and access to confidential Premier information, Executive agrees that during the Consulting Period (as defined in Section 6) he shall not:
a. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity engage in Competitive Activity (as defined below) within the Prohibited Territory (as defined below);
b. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity engage in Competitive Activity within the Prohibited Territory in which Executive competitively uses or attempts to use Premiers Confidential Information (as defined in Section 11); and/or
c. Individually, as an employee, agent, partner, shareholder, investor, director or consultant, or in any other capacity directly assist any of the Core Competing Businesses (as defined below) to engage in Competitive Activity within the Prohibited Territory, where Executive hereby acknowledges and agrees that disclosure or use of Premiers Confidential Information would be inevitable in the event of any such future employment or engagement.
Core Competing Businesses means the direct core competitors of Premier listed on Annex A hereto.
Competitive Activity means engaging in work for a competitor of Premier that is the same as or substantially similar to work that Executive performed on behalf of the Company at any point during the last twelve (12) months of Executives employment with the Company.
Competitive Activity further means the management, administration, sale, development,
marketing and/or provision of: (1) Health Care Products/Services (as defined in the Recitals to this Agreement) that are competitive with services or products which Executive assisted Premier to provide at any time during the last twelve (12) months of Executives employment with the Company; and/or (2) other services or products that are competitive with services or products which Executive assisted Premier to provide at any time during the last twelve (12) months of Executives employment with the Company. Provided, however, beneficially owning the stock or options to acquire stock totaling less than 5% of the outstanding shares in a public competitor shall not constitute by itself Competitive Activity. Premier and Executive further agree that the term Competitive Activity shall not include academic and other lectures presented or taught by Executive for or on behalf of non-competitive entities or service as an expert witness for matters not involving Premier or any Premier Affiliate. Premier and Executive also agree that following Executives separation from employment with Premier, the term Competitive Activity shall not include: (a) service on boards of directors of non-Premier hospitals / members, non-Premier Affiliates or other businesses that are not competitive with Premier or its Affiliates; or (b) service on boards of directors of Premier hospitals / members or Premier Affiliates.
Prohibited Territory means: (1) the continental United States, which Executive acknowledges is the area that he is to assist Premier to engage in Competitive Activity; and/or (2) the geographic territory and areas in which Executive assisted Premier to engage in Competitive Activity at any time during Executives last twelve (12) months as a Company employee. Executive further acknowledges that Premier provides its products and services to Affiliates and customers widely dispersed throughout the United States.
In addition, Premier agrees that nothing in this Section 8 shall prohibit Executive from serving in an employee leadership or management capacity or otherwise being employed by a hospital, healthcare system, healthcare managed care provider, medical practice or a non-group purchasing organization medical supplier, provided that: (i) as part of Executives service with or for such organizations and entities, Executive does not engage in activities or directly assist others to engage in activities that compete with Premier in providing Health Care Products/Services (as defined in the Recitals to this Agreement) to other healthcare providers and affiliated entities (i.e., in the market engaged in by Premier); (ii) during the Employment Term prior to Executives separation, Executive abides by his obligations outlined in Sections 2.b.-2.c. with respect to such entities; and (iii) Executive abides by the confidentiality, agreement not to raid, and agreement not to interfere with Premiers business obligations set forth in this Agreement.
Executive agrees that in the event he is later employed by a non-group purchasing organization medical supplier following his employment with Premier, he will also recuse himself during the Consulting Period from any consideration of decisions or other communications or discussions that would result in the termination of a contract, discontinuance of business, or reduction of business with or amounts paid to Premier involving the products or services that Executives new employer supplies Premier. Executive further expressly acknowledges and agrees that as part of his post-employment confidentiality commitments to Premier, he cannot and will not use any confidential Premier pricing, contract or other supplier-related information obtained during his employment with Premier in connection with any supply contract or other negotiations between Premier and his new non-group purchasing organization medical supplier employer, if applicable, or to obtain a competitive advantage against or otherwise harm Premier or its Affiliates.
9. Agreement Not To Raid Employees. In addition to the agreement not to compete/not to competitively use confidential information above, Executive agrees that during the Consulting Period (as defined in Section 6) after Executives employment by Premier has terminated or ended (whatever the reason for the end of the employment relationship), Executive shall not, for the purpose of providing products or services similar to the Health Care Products/Services (as defined in the Recitals to this Agreement) or engaging in any Competitive Activity (as defined in Section 8), whether on behalf of any other entity or on Executives own behalf: (a) hire or engage as an employee or as an independent
contractor any employee then presently employed by Premier with whom Executive worked or about whose work Executive was familiar during Executives employment with Premier (each a Restricted Employee); and/or (b) solicit, encourage or cause or attempt to solicit, encourage or cause any Restricted Employee to leave his or her employment relationship with Premier; provided, however, that this Section 9 shall not apply to Executives personal administrative assistant.
10. Agreement Not To Interfere With the Companys Business. In addition to the above agreements not to compete/not to competitively use confidential information and not to raid Premiers employees, and given Premiers legitimate business interests and the consideration provided to Executive as noted above, Executive agrees that during the Consulting Period (as defined in Section 6) after Executives employment by Premier has terminated or ended (whatever the reason for the end of the employment relationship), he shall not:
a. Solicit, market, call upon, divert or contact or attempt to solicit, market, call upon, divert or contact any then current Premier Customer (as defined below) for the purpose of engaging in Competitive Activity (as defined in Section 8);
b. Solicit, market, call upon, divert or contact or attempt to solicit, market, call upon, divert or contact any then current Premier Customer for the purpose of causing such Premier Customer to discontinue doing, or to reduce, modify or transfer all or any part of their business or other relationship with Premier; and/or
c. Solicit, encourage, cause, or attempt to cause any Restricted Supplier (as defined below) of goods or services to Premier not to do business with, to discontinue doing business with, or to reduce any part of their business with, the Company and shall further recuse himself from certain supplier decisions, discussions and actions as specifically provided in Section 8 above.
The term Premier Customer means any Premier Affiliate or Premier customer: (1) for which Executive earned or was paid incentive pay at any point during Executives last 12 months as a Premier employee; (2) with which Executive worked or for which Executive supervised or assisted in Premiers work at any point during Executives last 12 months as a Premier employee; and/or (3) about which Executive obtained Confidential Information during the last twelve (12) months of Executives employment with Premier. The term Premier Customer shall also include any prospective customer of the Company: (a) who contacted Executive, whom Executive contacted, or for whom Executive supervised or assisted with contact, as part of his employment with the Company at any time during the last six (6) months of Executives employment with Premier; and/or (b) about whom Executive obtained Confidential Information during the last six (6) months of Executives employment with Premier.
The term Restricted Supplier means any supplier of goods or services to Premier: (a) with which Executive had dealings; (b) for which Executive supervised or assisted in Premiers dealings; and/or (c) about which Executive obtained Confidential Information (as defined in Section 11), all at any point during Executives last 36 months as a Premier employee.
Premier, however, agrees that nothing in this agreement not to interfere with Premiers business shall prohibit Executive from serving as a director or officer of or being employed by or engaging in services for a participating Restricted Supplier, vendor or other supplier of Premier following his separation from employment with Premier, provided that: (i) during the Employment Term prior to his separation, Executive abides by his obligations outlined in Sections 2.b.-2.c. with respect to such participating vendors and suppliers; (iii) Executive abides by this Section 10; (iii) Executive abides by the confidentiality and agreement not to raid obligations set forth in this Agreement; and (iv) such employment or engagement does not entail Executive performing Competitive Activity within the
Prohibited Territory with or for a Competing Business in violation of Section 8 or otherwise violate the other noncompete obligations set forth in Section 8.
11. Confidentiality. For and in consideration of this Agreement, the employment of Executive pursuant to this Agreement, and Executives continued exposure and access to confidential Premier information, Executive agrees to the following for the protection of Premier:
a. Duty to Maintain Confidentiality. Executive promises and agrees that, except to the extent the use or disclosure of any Confidential Information (as defined below) is required to carry out Executives assigned duties with the Company, during Executives employment with the Company and for five (5) years thereafter (or for such longer periods as required by law or such other periods as Premier may specifically agree with its Affiliates, customers, vendors, suppliers and other third parties prior to Executives separation from employment with Premier regarding the non-disclosure of Confidential Information shared or provided by such entities): (1) Executive will keep strictly confidential and not disclose to any person not employed by the Company any Confidential Information; and (2) Executive will not use for himself or for any other person, firm, corporation or entity any Confidential Information. However, this provision shall not preclude Executive (a) from the use or disclosure of information known generally to the public (other than information known generally to the public as a result of Executives violation of this Section), or (b) from any disclosure required by law or court order, by any governmental entity having regulatory authority over the business of the Company, or by any administrative or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information, provided Executive provides Premier prompt written notice of any potential disclosure under this subsection (b) within forty-eight (48) hours of Executives receipt of the request for disclosure or executives election to disclose such information under this subsection (b), whichever is earliest, to the fullest extent permitted by applicable law.
b. Scope. For purposes of this Agreement, Confidential Information means confidential, trade secret or proprietary information furnished to or obtained by Executive within the course of Executives prior or ongoing employment with Premier (including, without limitation, information created, discovered, or developed by him), whether such information is in the form of electronic data, forecasts, reports, e-mail, other documents, or otherwise. Such Confidential Information includes, by way of illustration, but is not limited to: (1) information regarding any Premier Affiliate or any other Premier customer, including but not limited to Affiliate/customer lists, contact information, contracts, billing histories, Affiliate/customer preferences, and information regarding products or services provided by the Company to such entities; (2) all non-public financial information concerning the Company, including but not limited to commissions and salaries paid to employees, sales data and projections, forecasts, cost analyses, and similar information; (3) all plans and projections for business opportunities for new or developing business of Premier, including but not limited to marketing concepts and business plans; (4) all Premier Intellectual Property (as defined in Section 12), software, source and object codes, computer data, research information and technical data, including but not limited to information regarding Premiers Advisor Suite of products and services and other automated tools/services; (5) all information relating to the Companys services, products, prices, costs, research and development activities, service performance, operating results, pricing strategies, employee lists or personnel matters; (6) all Premier information regarding sources and methods of supply to Premier, including but not limited to supply agreements, supply terms, product discounts and similar information; and/or (7) any of the information described in subsections (1)-(6) of this Section that the Company obtains from another party or entity and that the Company treats or designates as confidential or proprietary information, whether or not such information is owned or was developed by the Company.
The Parties further agree that Confidential Information shall not include information that: (a) is generally known or available to the public or the health care industry in general other than as a result of an act or failure to act by Executive or Executives violation of this Agreement; (b) is lawfully obtained by Executive from a non-party that is under no obligation of confidentiality (except as otherwise provided in subsection (7) of this Section 11.b. above); or (c) is developed, created or discovered by Executive on Executives own time and independent of Premiers resources or the Confidential Information disclosed by Premier, unless such information relates to Premier Intellectual Property (as defined in Section 12).
c. Return of Documents/Data/Property. Executive acknowledges and agrees that (with the exception of information that Executive can demonstrate was possessed by him prior to Executives employment with Premier that has not been purchased or leased by the Company, or modified, updated or improved by Executive or the Company in connection with Executives employment with Premier) all materials, documents and data used, prepared or collected by Executive as part of Executives employment with Premier, in whatever form, are and will remain the property of the Company. Executive also understands and agrees that all Confidential Information that comes into Executives possession in the course of Executives employment with Premier, whether prepared by Executive or others, is and will remain the property of the Company. Thus, Executive agrees that he will return upon Premiers request at any time (and, in any event, on or before Executives last day as a Premier employee) all (1) business items purchased for use in Executives employment with Premier and reimbursed or paid for by Premier; and (2) documents, information, and other property belonging to the Company, as well as all documents and other materials of any kind that constitute or contain any Confidential Information, in Executives possession or control, regardless of how stored or maintained, including all originals, copies and compilations and all electronic data.
12. Company Intellectual Property Rights. Executive and Premier agree that Premier shall be the sole owner of all work and all tangible and intangible materials and products, Intellectual Property (as defined below), improvements and ideas that Executive jointly or singly developed or develops, or of which Executive becomes aware, while acting on behalf of Premier as an employee prior to or during the Employment Term. Thus, Executive shall promptly and fully disclose all Intellectual Property (as defined below) to Premier, and Executive hereby acknowledges that all Intellectual Property is the property of the Company. Executive hereby assigns and agrees in the future to assign to the Company (or as otherwise directed by the Company) Executives full right, title and interest in and to all Intellectual Property. Executive agrees to provide, at the Companys reasonable request, all further cooperation that the Company determines is necessary or desirable to accomplish the complete transfer of the Intellectual Property and all associated rights to the Company, its successors, assigns and nominees, and to ensure the Company the full enjoyment of the Intellectual Property. In addition, all copyrightable works that Executive creates during Executives employment with the Company shall be considered work made for hire and shall, upon creation, be owned exclusively by Premier.
For purposes of this Agreement, Intellectual Property means any invention, formula, process, discovery, development, design, innovation or improvement (whether or not patentable or registrable under copyright statutes) made, conceived or first actually reduced to practice by Executive solely or jointly with others, during Executives employment with Premier; provided, however, that, as used in this Agreement, the term Intellectual Property shall not apply to any invention that Executive develops on his own time, without using the equipment, supplies, facilities or trade secret information of the Company, unless such invention relates at the time of conception or reduction to practice to: (1) the business of the Company, (2) the actual or demonstrably anticipated research or development of the Company, or (3) any work performed by Executive for the Company.
13. Related Companies. For purposes of the restrictions and commitments in Sections 7 (Conflicts of Interest), 8 (Agreement Not to Compete / Competitively Use Confidential Information), 9
(Agreement Not To Raid Employees), 10 (Agreement Not To Interfere With the Companys Business), 11 (Confidentiality), 12 (Company Intellectual Property Rights) and 14 (Reasonableness of Restrictions), Premier or the Company shall mean: (a) the Company as defined in the Recitals to this Agreement; and; (b) any Related Company (as defined below) or successor of Premier for or with whom Executive performed or supervised any services at any time during the last 12 months of Executives employment with Premier.
Related Company means (1) any Premier parent company, subsidiary company, sister company or joint venture, or related subsidiary companies of such entities; and/or (2) any parent corporation with respect to Premier within the meaning of Section 424(e) of the Code, any subsidiary corporation with respect to Premier within the meaning of Code Section 424(f) but substituting the phrase 20 percent for the phrase 50 percent each place it appears in that section, and any corporation or other entity in a chain of corporations or other entities in which each corporation or other entity has a controlling interest in another corporation or other entity in the chain, beginning with the corporation or other entity in which Premier has a controlling interest. For this purpose, controlling interest shall have the same meaning as in Treasury Regulations Section 1.409A-1(b)(5)(E)(1) (or any successor provision) but substituting the phrase at least 20 percent for the phrase at least 50 percent where it appears in that section.
14. Reasonableness of Restrictions. Executive has carefully read and considered the provisions of this Agreement and, having done so, agrees that the restrictions placed upon him by Sections 7-13 of this Agreement are reasonable given the nature of his senior executive position with Premier, the area in which Premier markets and provides its products and services, the expansive nationwide nature of Premiers business, and the consideration provided by Premier to Executive pursuant to this Agreement. Specifically, Executive agrees that the length and scope of the covenant not to compete, the length and scope of the noninterference and anti-raiding provisions, and the other restricted activities set forth in Sections 7-13 are reasonable and that the definitions of Competitive Activity, Core Competing Businesses, Prohibited Territory, Restricted Employee, Restricted Supplier, Premier Customer, Confidential Information and Intellectual Property are reasonable. Executive further agrees that the restrictions set forth herein are reasonably required for the protection of the legitimate business interests of the Company. Thus, although the Parties acknowledge and agree that Executive retains the right to contest the application or interpretation of Sections 7-13 of this Agreement to particular facts/circumstances, Executive agrees not to contest the general validity or enforceability of Sections 7-13 of this Agreement before any court, agency, arbitration panel, or other body. Executive agrees that Sections 8-13 of this Agreement shall survive the termination or end of his employment relationship with the Company and shall be in addition to any restrictions imposed on Executive by statute, at common law, or other agreements. In addition, Section 8-13 shall continue to be enforceable, regardless of the date, reason or manner of Executives separation or whether there is a subsequent dispute between the Parties concerning any alleged breach of this Agreement, and such separation shall not in any way impair or affect Executives continued obligation to observe such Sections of this Agreement.
Executive further acknowledges and agrees that because his abilities and skills are readably useable in a variety of capacities in most all geographic areas, the foregoing restrictions do not unreasonably restrict him with respect to seeking employment elsewhere or unduly impair his ability to earn a living in non-competitive ventures should his employment with Premier end.
15. Termination. In addition to the provisions set forth in Section 3, the Employment Term shall terminate upon the occurrence of any of the following events: (i) immediately upon retirement on or after the normal retirement age established under the Premier Employees Pension Plan (Retirement), or early retirement as defined under the Premier Employees Pension Plan (Early Retirement); (ii) immediately and automatically upon Executives death; (iii) upon the effective date of Resignation by Executive Without Good Reason (as defined below); (iv) upon the effective date of Resignation by
Executive With Good Reason (as defined below); (v) upon the close of business on the date the Company CEO gives Executive notice of Termination for Just Cause (as defined below) or, if and as applicable, upon the expiration of any cure period provided by the Company to Executive if and as required herein for Termination for Just Cause, if the violation remains uncured by Executive as prescribed; (vi) upon the close of business on the date the Company CEO gives Executive notice of Termination Without Cause (as defined below); or (vii) upon the Disability of Executive (as defined below) and the end of the elimination period specified in the long-term disability plan sponsored by Premier or a Related Company in which Executive participates. In addition, notwithstanding the provisions of this Section 15 below, Executive agrees that upon the termination or end of Executives Employment Term for any reason, Executive shall resign and does resign from all positions as an officer, director and employee of Premier and Premiers Related Companies, with such resignations to be effective upon the termination or end of Executives Employment Term.
a. Termination for Just Cause Retention Period. For purposes of this Agreement from the Effective Date through July 18, 2016, Termination for Just Cause shall have the meaning set forth in Annex B hereto.
b. Termination for Just Cause Post-Retention Period. For purposes of this Agreement following July 18, 2016, Termination for Just Cause means termination of the employment of Executive by Premier as the result of: (1) commission or omission of any act of dishonesty, embezzlement, theft, misappropriation or breach of fiduciary duty by Executive in connection with Executives employment with Premier; (2) any conviction, guilty plea or plea of nolo contendere by Executive for any felony, a misdemeanor in which fraud and dishonesty is a material element, or a crime of moral turpitude, that is likely to result in incarceration if later sentenced (if the Company CEO or Board Chair deem in his or her absolute discretion that such conviction or plea may have a significant adverse effect upon Premier or upon Executives ability to perform under this Agreement); (3) willful action or willful inaction with respect to Executives performance of his employment duties that constitutes a violation of law or governmental regulations or that causes Premier or its Related Companies or Affiliates to violate such law or regulation; (4) a material breach of any securities or other law or regulation or any Premier or Related Company policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (5) failure to reasonably cooperate or interference with a Premier-related investigation; (6) willful violation by Executive of Premiers or its Related Companies lawful material policies, rules and procedures, including but not limited to Premier and its Related Companies Code of Conduct and Conflict of Interest policies; (7) the regulatory, governmental or administrative suspension, removal or prohibition of Executive as defined in this Section below; (8) willful misconduct, willful insubordination or willful refusal or unwillingness to carry out or follow specific lawful, reasonable directives, duties or assignments established or given by Premiers CEO or the Board from time to time in accordance with this Agreement; (9) willful inattention to or dereliction of duty by Executive with respect to the business affairs of Premier or its Related Companies to which Executive is assigned material responsibilities or duties that is materially harmful to the business or reputation of Premier; (10) the breach of or failure to perform the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; (11) the prospective breach of the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; or (12) the breach or prospective breach or failure to perform the obligations set forth in Sections 11-12 of this Agreement that is either willful or materially harmful to the business or reputation of the Company.
The Parties, however, agree that Termination For Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Sections 15.b. (9) or (11) as a result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than thirty (30)
days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties further agree that Termination for Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Sections 15.b.(10) or (12) as result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than ten (10) days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties agree that Executives general failure to meet the performance objectives, milestones and goals established or given by the Company CEO or the Board from time to time shall not constitute grounds for Termination for Just Cause. Further, for purposes of this definition only, no act or failure to act by Executive shall be deemed willful if: (a) done or omitted to be done by Executive in good faith and with the reasonable belief that his act or omission was in the best interest of Premier and consistent with Premier and its Related Companies policies and applicable law; (b) based on and consistent with instructions pursuant to a resolution duly adopted by the Board; or (c) based on and consistent with the advice of Premier counsel.
Notwithstanding the above and Sections 15.c. and 15.d., the Parties also acknowledge and agree that:
(i) If Executive is suspended and/or temporarily prohibited from participating in the conduct of the affairs of the Company and/or its Related Companies or Affiliates by a regulatory, governmental or administrative notice served under federal or state law, the obligations of Premier under this Agreement shall be suspended as of the date of service of such notice, unless stayed by appropriate proceedings. If the charges in the notice are dismissed or withdrawn, Premier may in its discretion, upon approval by the Board, pay Executive all or part of the compensation withheld while its contract obligations were suspended and/or reinstate in whole or in part any of its obligations that were suspended. Vested rights of Executive shall not otherwise be affected by this provision.
(ii) If Executive is permanently removed and/or prohibited from participating in the conduct of the affairs of the Company and/or its Related Companies or Affiliates by applicable federal, state or other regulatory, governmental or administrative order or action, all obligations of Premier under this Agreement shall terminate as of the effective date of the order, but vested rights of the Parties hereto shall not be affected.
In addition, the Parties agree that without expressly or constructively terminating this Agreement under this Section 15.b. or Sections 15.c. or 15.d., Premier may place Executive on temporary leave with pay, temporarily exclude him from any premises of Premier, its Related Companies and Premier Affiliates and/or temporarily reassign Executives duties with Premier and/or its Related Companies during any pending Company investigation or disciplinary action involving Executive and/or Executives potential Termination for Just Cause. The Parties further agree such authority shall be invoked only in exceptional circumstances when the Company CEO and General Counsel determine that such action is in the best interests of the Company.
Notwithstanding anything contained in this Agreement to the contrary, in no event shall Executives Termination for Just Cause occur until Executive has been provided written notice from the Company CEO stating with specificity the Just Cause grounds and basis therefor and providing Executive with an opportunity to appear and be heard before the Company CEO.
c. Termination Without Cause. For purposes of this Agreement, Termination Without Cause means any termination of the employment of Executive by Premier for any reason other than Retirement, Early Retirement, death, Disability or Termination for Just Cause. For purposes of clarity, the Parties further agree that Termination Without Cause shall include Premiers election not to extend Executives Employment Term at any time after the Effective Date for any reason other than Retirement, Early Retirement, death, Disability or Termination for Just Cause.
d. Resignation by Executive. For purposes of this Agreement, Resignation by Executive means any termination or resignation by Executive of his employment relationship with Premier and all its Related Companies or Executives election not to extend his Employment Term under Section 3 for any reason, including but not limited to Retirement or Early Retirement by Executive under this Agreement. Executive is required to give at least ninety (90) days advance written notice of resignation to the Company CEO, and the Company CEO is entitled upon receiving such notice, in his or her discretion, to accept such resignation as effective on the resignation date proposed by Executive, or such other earlier date designated by the Company CEO. In addition, except as otherwise set forth in Sections 15 and 16, Premier will be required to pay Executive his Base Salary and other applicable accrued, non-forfeited compensation or other vested benefits set forth in Section 4 through the complete advance resignation notice period, regardless of whether Executives final resignation date is revised/accelerated by the Company CEO, and regardless of whether Executive is required or permitted to perform any services for Premier during such final transition period.
For purposes of this Agreement from the Effective Date through July 18, 2016, Resignation by Executive for Good Reason shall have the meaning set forth in Annex C hereto.
For purposes of this Agreement following July 18, 2016, Resignation by Executive for Good Reason means resignation by Executive for the following events without Executives written consent:
(1) a material reduction in Executives position, responsibilities or status, or a change in Executives title resulting in a material reduction in Executives responsibilities or position with Premier, or the assignment to Executive of duties, responsibilities, authorities and/or titles that are inconsistent with his position as COO, but excluding for this purpose: (a) any suspensions, removals, duty reassignments, duty limitations or other actions as set forth and allowed in Section 15.b., and (b) any such reductions or changes made in good faith to conform with applicable law or generally accepted industry standards for Executives position after consultation with Executive;
(2) a change in Executives reporting responsibility such that Executive directly reports to an individual or individuals who are not either the Company CEO and/or members of the Board;
(3) a reduction in Executives Base Salary (unless such percentage deduction is effectively made across the board for all other senior executives of Premier) or a decrease in any Annual Plan or any potential Annual Plan Target award opportunity to which Executive may potentially have been entitled pursuant to Premiers Annual Plan or any potential Annual Plan, if and as may be later authorized and established in the future, provided, however, that a decrease in any Annual Plan or potential Annual Plan total Target award opportunity for Executive, if and as may be later authorized and established in the future, shall not constitute Good Reason and nothing herein shall be construed to guarantee such awards if: (a) such Target award opportunity is modified by Premier or a Related Company in connection with an overall modification or termination of an Annual
Plan or in connection with an independent market study of Executives position and comparable compensation packages, provided that Premier or a Related Company substitutes a plan or plans for any terminated Annual Plan in a manner that allows for substantially equivalent compensation opportunities for Executive, or (b) if performance, either by Premier and its Related Companies or Executive, is below the level required for such targets as may reasonably and in good faith be determined under such plans;
(4) the relocation of Executive to a location outside a fifty (50) mile radius of Executives primary office location on the date of this Agreement (Charlotte, NC); provided, however that relocation of Executive to Premiers current or future headquarters location (with or without Executives consent) shall not constitute Resignation by Executive for Good Reason.
(5) the Companys failure to make any material non-forfeited payments earned and due to Executive under this Agreement; or
(6) a failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to all or substantially all of the assets of the Company within 30 days after a merger, consolidation, sale or similar transaction.
The Parties further agree that for a resignation to constitute resignation by Executive for Good Reason, in addition to the advance notice of resignation requirement set forth above for this Section 15.d., Executive must provide written notice to the Company CEO of Executives intent to resign within ninety (90) days of one of the triggering events outlined in subsections (1)-(6) of this paragraph. Further, Resignation for Good Reason shall not mean or include resignation by Executive for subsections (1)-(6) of this paragraph for any isolated, insubstantial or inadvertent action not taken in bad faith if cured or remedied promptly by Premier, if such cure is possible, within no more than thirty (30) calendar days of receiving Executives notice.
For purposes of this Agreement, Resignation by Executive Without Good Reason means any termination or resignation by Executive of his employment relationship with Premier for any reason other than death, Disability or Resignation for Good Reason.
e. Disability. Disability means Executives inability to perform the essential functions and duties of Executives position with Premier, with or without reasonable accommodation, by reason of any medically determinable physical or mental impairment that can be expected to result in death or that is to last or can be expected to last for a continuous period of not less than twelve months, as determined under the long-term disability plan sponsored by Premier or a Related Company in which Executive participates.
The Parties further agree that without expressly or constructively terminating this Agreement under this Section 15.e. or Sections 15.a.-15.d. above, Premier may designate another employee to act in Executives place during any period of Executives Disability which extends over ninety (90) consecutive calendar days or an aggregate of ninety (90) calendar days during any three hundred and sixty five (365) consecutive calendar day period. Notwithstanding whether any such designation is made, Executive shall continue to receive his full Base Salary and other compensation, incentives and benefits under this Agreement (offset by any Company-paid short-term disability and/or long-term disability plan payments) during any period of Disability during the Employment Term.
16. Effect of Termination/Severance. Following the termination or end of the Employment Term for any reason, Executive or, in the event of Executives death, Executives estate shall: (i) be
entitled to any earned but unpaid Base Salary due at the time of the termination or end of the Employment Term; (ii) be entitled to pay for any vacation time earned but not used through the date of termination; (iii) be entitled to any non-forfeited amounts earned that may be payable to Executive pursuant to the terms of an applicable Annual Plan or the 2013 LTIP; (iv) be entitled to any non-forfeited vested Executive Equity Participation granted or established for Executive under the 2013 Equity Incentive Plan (or such other equity or derivative equity plan sponsored by Premier or a Related Company) in accordance with the terms and conditions of such plans and any applicable award agreements; (v) be entitled to any non-forfeited vested Retirement Savings Plan (i.e., 401(k)), Premier Employees Pension Plan, or other vested pension, retirement or deferred compensation benefits with Premier, if any, pursuant to the terms of such plans; (vi) be entitled to any accrued, non-forfeited vested benefits pursuant to the terms of any other plans or programs in which Executive is a participant, if any; (vii) be entitled to reimbursement of all reasonable business expenses incurred but unreimbursed as of the date of the termination or end of the Employment Term, provided that such expenses and required substantiation and documentation thereof are submitted within thirty (30) days of the termination or end of the Employment Term (or within one-hundred and eighty (180) days, in the case of termination due to death) and that such expenses are reimbursable under Company policy in accordance with Section 5 of this Agreement; and (viii) be entitled to any short-term disability plan, long-term disability plan and/or other Premier insurance plan payments or awards in connection with Executives Disability or other separation per the terms of such plans, if and as applicable (collectively, the Final Compensation). The parties further agree that in the event of Executives death, Final Compensation shall also include his dependents general right to elect certain coverage continuation under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), as applicable, provided the dependents are and remain eligible for such continuation coverage. In addition, in the event of the termination or end of the Employment Term for any other reason other than death, Final Compensation shall also include Executives general right to elect certain coverage continuation for himself and/or his dependents, as applicable, under COBRA, provided he and/or his dependents are and remain eligible for such continuation coverage.
Except for any additional benefits or payments which may be due as set forth in this Section 16, Executive and/or his estate, as applicable, shall not be entitled to receive any additional compensation, payments, wages, awards, bonuses, incentive pay, commissions, severance pay, vacation pay, leave pay, sick pay, Executive Equity Participation or interests, options, consideration or benefits of any kind from Premier hereunder upon the termination or end of the Employment Term, nor shall Executive or his estate be entitled to receive reimbursement for business expenses incurred after the end of the Employment Term. However:
a. If the termination of this Agreement occurs at any time during the Employment Term due to termination by Premier Without Cause or resignation by Executive For Good Reason, either of which occur within twenty-four (24) months following a Change in Control (as defined in Section 17), and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, then in addition to the Final Compensation set forth above, Executive shall be entitled to severance pay equal to 2.4 times (2.4x) the sum of Executives (x) then current Base Salary, plus (y) the higher of (a) Executives target Annual Plan bonus as of the date of termination, or (b) the average of the Annual Plan bonuses paid to Executive in the 36-month period immediately preceding the date of termination.
b. If the termination of this Agreement occurs at any time during the Employment Term due to termination by Premier Without Cause or resignation by Executive For Good Reason that do not occur within twenty-four (24) months following a Change in Control (as defined in Section 17), and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, then in addition to the Final Compensation set forth above,
Executive shall be entitled to severance pay equal to 1.9 times (1.9x) Executives then current Base Salary.
The payment of the Without Cause or For Good Reason severance amount set forth in this Section 16 shall be treated by the Parties as severance pay to assist Executive in transitioning to other employment, conditioned upon the expectation that before Executives separation, Executive did not violate the obligations set forth in Section 7, and after Executives separation, any employment and other activities of Executive do not violate the obligations set forth in Sections 8-14 or the Prior Obligations referenced in Section 19. In the event of any such breach, then the severance payments set forth in this Section 16 shall automatically end. Moreover, in exchange for and as a further condition precedent to receiving such potential severance pay, Executive agrees that upon his separation, he must sign within 45 days of receipt from Premier and not revoke a release of any and all claims that Executive has or may have against Premier, its Related Companies and such entities past and then current officers, directors shareholders, owners, members, agents and employees relating to or arising out of his employment with Premier under this Agreement or otherwise, in a form to be prepared by Premier at such time (but excluding any release of the obligations of such entities under the release itself, Executives vested and accrued, non-forfeited rights as a participant in any applicable 401(k), pension, deferred compensation, equity award or plan, or annual or long-term incentive plans and/or any other vested and accrued, non-forfeited retirement or other benefits, Executives rights under COBRA or right to exercise any conversion rights provided in applicable insurance and benefits plans, if any, and Executives right to potential indemnification and/or defense as a prior officer of such entities under applicable certificates of incorporation, corporate bylaws, policies, regulations, indemnity agreements, insurance plans or law) (the Release Condition).
The Parties agree that except as otherwise set forth in Section 24.c of this Agreement, the above severance pay amounts shall be payable to Executive by Premier or its successor, as applicable, in monthly equal installments over: (a) a thirty (30) month period following Executives separation if paid in accordance with Section 16.a. above, or (b) a twenty-four (24) month period following Executives separation if paid in accordance with Section 16.b. above. Further, except as otherwise provided in this Agreement under Section 24.c., the first installment of the severance pay will be on the sixtieth (60th) day following the effective date of Executives applicable separation from employment with Premier (provided the Release Condition is satisfied) and will include severance pay for the period from the end of Executives employment with Premier through the first installment payment date. The remaining installments will continue thereafter for the applicable payment period.
In the event of any termination of Executives employment entitling Executive to severance under this Section 16 above, and provided Executive abided by Section 7 and continues to abide by the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19, Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due Executive under this Agreement on account of any compensation attributable to any subsequent employment that Executive may obtain.
17. Change in Control. For purposes of this Agreement, a Change in Control shall have the meaning set forth in Section 13.3 (or subsequent applicable sections, if and as later amended) of the Premier, Inc. 2013 Equity Incentive Plan, as it may be established, modified, changed or replaced from time to time.
18. Agreement Confidentiality and Disclosure. The Parties agree that except where otherwise required by law, the terms of this Agreement shall remain confidential. The Parties, however, agree that: (a) Premier may disclose the terms of this Agreement to officers of Premier, members of the Board, and any potential investors in or purchasers of Premier; (b) Premier may disclose the terms of this Agreement to senior management, human resources, payroll and financial services employees of Premier, to professionals representing Premier, to Premiers insurance agents and carriers, and to
affiliates and employees of the same with a need to know to the extent necessary to give effect to this Agreement, provided that such third parties comply with the confidentiality requirements set forth above; (c) Executive may disclose the terms of this Agreement to his spouse, children, accountants, attorneys, financial advisors, estate planners, tax preparers, and other professional advisors, provided that such third parties comply with the confidentiality requirements set forth above; and (d) either Premier or Executive may disclose the terms of this Agreement in order to notify prospective or actual future employers or contracting principals of Executive, or their applicable representatives and agents, of the post-employment obligation terms contained in this Agreement, or to otherwise enforce the terms of this Agreement. In addition, the Parties agree that they are permitted to disclose the terms of this Agreement to the IRS, applicable state departments of taxation, if necessary, and as otherwise required by law and/or when lawfully requested as part of or in connection with a governmental, regulatory, exchange or listing service inquiry, hearing or investigation. The Parties further agree that Premier may disclose the compensation and other terms of this Agreement: (i) to Premiers shareholders/owners; and (ii) in its proxy statements or other public securities filings as required by law.
Anytime this Agreement is filed with the Securities and Exchange Commission and becomes a public record, this Section 18 shall no longer apply.
Further, Executive agrees that he shall notify any prospective employer, entity or individual with whom Executive seeks to be employed or provide independent contractor services of the non-competition, confidentiality and other requirements set forth in Sections 8-14 and the Prior Obligations referenced in Section 19 of this Agreement during the applicable term for each, and the Company may likewise provide such notice during the same period to any prospective employer, entity or individual with whom Executive seeks to be employed or provide independent contractor services.
19. Notification Requirement and Breach. Through and up to the conclusion of the Consulting Period, Executive shall give notice to Premier of each new business activity he plans to undertake, at least seven (7) calendar days prior to beginning any such activity, including but not limited to work as an employee or independent contractor. Such notice shall state the name and address of the person or entity for whom such activity is undertaken and the nature of Executives business relationship(s) and position(s) with such person or entity. Executive shall provide Premier with such other pertinent information concerning such business activity as Premier may reasonably request in order to determine Executives post-employment compliance with his obligations under Sections 8-14 of this Agreement.
Executive and Premier agree that, in the event of any breach or threatened breach of Sections 7-14 of this Agreement by Executive or of Executives prior conflicts of interest, confidentiality or intellectual property obligations contained in Executive prior employment agreements with Premiers predecessor corporation, including but not limited to Sections 7, 11 and 12 of the Prior Employment Agreement (the Prior Obligations), Premier and/or its Related Companies shall be entitled to an injunction, without bond, restraining such breach. In addition, Executive and Premier agree that the prevailing party in any legal action to enforce the terms of this Agreement, including but not limited to Sections 7-14 and the Prior Obligations, shall be entitled to costs and attorneys fees related to any such proceeding as allowed by law, but nothing herein shall be construed as prohibiting Premier, its Related Companies or Executive from pursuing other remedies available to them for any breach or threatened breach. Further, the Parties agree that the restricted time period for the post-employment covenants in Sections 8-11 and the Prior Obligations shall be tolled during any period of time in which Executive is violating those provisions.
Moreover, Executive agrees that, in addition to any other remedies available to Premier and/or its Related Companies by operation of law or otherwise, if Executive breaches of any of the obligations contained in Sections 7-14 or the Prior Obligations, he shall: (a) forfeit at the time of the breach the right to any additional severance pay under Section 16 of the Agreement; (b) forfeit the right to all further unpaid / unawarded, amounts that may otherwise be payable under the terms of any Annual Plan, the
2013 LTIP, the 2013 Equity Incentive Plan or any other equity or incentive compensation plan in which he participates and to which he might otherwise then be entitled by virtue thereof at the time of the breach, if any, notwithstanding any provisions of this Agreement or such plans or programs to the contrary; and (c) be required to refund to Premier and its Related Companies, and Premier and its Related Companies shall be entitled to recover of Executive, the amount of any and all such severance, Annual Plan, 2013 LTIP, 2013 Equity Incentive plan, or other equity or incentive plan pay or awards already paid or provided to or on behalf of Executive by Premier and/or its Related Companies following the initial breach, if any, notwithstanding any provisions of this Agreement or such plans or programs to the contrary. Executive further agrees that in the event of any such breach, Premier and/or its Related Companies shall be entitled to costs and reasonable attorneys fees as allowed by law relating to any proceeding to enforce or collect a refund of any such amount(s) already received by Executive following the initial breach.
20. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Executive, Premier, and their respective successors, assigns, heirs and personal representatives; provided that Executive may not assign any of his rights, title or interest in this Agreement. Executive further acknowledges and agrees that in the event of the transfer and/or assignment of this Agreement to any affiliated entity or successor or assignee to all or a part of Premiers business, this Agreement shall remain valid and be fully enforceable by such entity, and Executive irrevocably consents to any such assignment or transfer. The Parties, however, agree that except as otherwise provided pursuant to the terms of applicable plans, policies and programs, nothing in this Agreement shall preclude: (a) Executive from designating a beneficiary to receive any benefit payable upon Executives death; (b) Executive from designating a beneficiary to receive any benefit payable as part of any domestic, equitable distribution, child support or similar settlement, order or agreement; or (c) the executors, administrators or other legal representatives of Executive or Executives estate from assigning any rights hereunder to the person or persons entitled thereunto.
21. Governing Law / Forum / Jurisdiction. The Parties agree that this Agreement shall be deemed to be a contract made under, and for all purposes shall be governed by and construed in accordance with, the internal laws and judicial decisions of the State of North Carolina, except as superseded by federal law. The Parties further agree that any dispute between them of any kind arising out of or relating to this Agreement or to Executives employment shall at either Partys election or demand be submitted to final, conclusive and binding arbitration before and according to the Employment Dispute Resolution Rules then prevailing of the American Arbitration Association, at its offices in Mecklenburg County, North Carolina, unless the Parties otherwise mutually agree in writing. Such election or demand may be made by Premier or Executive at any time prior to the filing of an action by Premier or Executive or the last day to answer and/or respond to a summons and/or complaint or counterclaim made by Premier or Executive, as applicable, whichever is later. Such arbitration, if demanded by either Party, shall be conducted as soon as is practicable, and in no event, later than one-hundred and eighty (180) days after demand for the same is filed or such other time as mutually agreed to by the Parties. The results of any such arbitration proceeding shall be final and binding both upon Premier and Executive, and shall be subject to judicial confirmation as provided by the Federal Arbitration Act or the North Carolina Revised Uniform Arbitration Act, including specifically the terms of N.C. Gen. Stat. § 1-569.4, which are incorporated herein by reference. Nothing, herein, however, shall be construed to alter, abridge or affect in any way Premiers right, at its absolute and sole election, to seek injunctive and other relief in federal or state court to enforce the noncompete, confidentiality, intellectual property, and other obligations contained in Sections 7-14 of this Agreement or the Prior Obligations (collectively, Restrictive Covenant Enforcement). The Parties further hereby acknowledge and agree that in the event of any such Restrictive Covenant Enforcement by Premier: (a) the arbitration election option for Executive set forth in this Section 21 shall not apply to such action or proceeding, but shall otherwise remain in full force and effect for all other actions/disputes not otherwise related to Premiers Restrictive Covenant Enforcement; and (b) such Restrictive Covenant Enforcement shall be brought by Premier exclusively in Mecklenburg County, North Carolina, notwithstanding that Executive
may not be a resident of North Carolina when the action or proceeding is commenced and/or cannot be served with process within North Carolina. As such, Executive irrevocably consents to the jurisdiction of the courts in Mecklenburg County, North Carolina (whether state or federal) with respect to any Restrictive Covenant Enforcement by Premier and irrevocably consents to service of process via nationally recognized overnight carrier, without limiting other service methods available under applicable law. The Parties acknowledge and agree to the arbitration and other provisions contained in this provision by their initials to this Section 21: (Executives Initials) (Premier Signatorys Initials).
22. Dissolution or Merger. In the event that Premier consolidates or merges into or with, or transfers all or substantially all of its assets to, another entity, the term Premier as used herein shall mean such other entity, and the Parties agree that this Agreement shall continue in full force and effect without any further action on the part of either Premier, its successor or assign, or Executive.
23. Taxes Generally / Deductions / Estate. Executive understands and agrees that he is responsible for any federal or state tax liability, penalties, excise taxes, interest, tax payments or tax judgments against him that could arise as a result of this Agreement. In addition, Executive agrees that he has had the opportunity to consult with his own, independent accountant and/or counsel regarding any and all tax issues related to this Agreement. Executive also agrees that Premier and its officers, employees, accountants, attorneys and agents are in no way indemnifying or making any representation, statement or guarantee to Executive as to Executives past, current or future tax liability or the ultimate position that the IRS or any applicable state tax agency may take with respect to the tax treatment of Executives prior or future wages, payments, compensation and benefits, including those payments, awards and provisions set forth in this Agreement.
The Parties agree that all compensation, plan, benefit and potential severance or other payments to Executive set forth in this Agreement, if and as applicable, will be subject to all withholdings and deductions required by law or as authorized by Executive, as appropriate, and Premier will report such amounts set forth in this Agreement as W-2 income for the applicable tax year(s) in which they are received, if and as applicable or as otherwise required by law. The Parties further agree that in the event of Executives death, any applicable severance, change in control pay or other vested or accrued, non-forfeited compensation, equity or benefit payments outlined in this Agreement will be paid to Executives estate or legal representative, in accordance with the above terms, if and as applicable and otherwise eligible in accordance with applicable program, plan and benefit terms.
24. Section 409A.
a. Section 409A Compliance. Premier and Executive intend that any amounts payable hereunder that could constitute deferred compensation within the meaning of Section 409A of the Code (Section 409A), will be compliant with Section 409A. If Premier shall determine that any provision of this Agreement does not comply with the requirements of Section 409A, Premier may amend the Agreement to the extent necessary (including retroactively) in order to comply with Section 409A (which amendment shall not reduce the amounts payable to Executive under this Agreement). Premier shall also have the discretionary authority to take such other actions to correct any failures to comply in operation with the requirements of Section 409A. Such authority shall include the power to adjust the timing or other details relating to the awards and/or payments described in this Agreement (but not the amounts payable to Executive under this Agreement) if Premier determines that such adjustments are necessary in order to comply with or become exempt from the requirements of Section 409A. Notwithstanding the foregoing, to the extent that this Agreement or any payment or benefit (or portion thereof) under this Agreement or the plans referenced herein shall be deemed not to comply with Section 409A, then Premier and its Related Companies, the Board and Compensation Committee, and Premier, Inc. and its Related Companies shareholders, owners, board members, officers, employees, and
their designees and agents shall not be liable to Executive in any way. However, if and to the extent Executive incurs any Section 409A related excise taxes, penalties or interest charges as a result of the Companys breach of this Agreement not otherwise consented to by Executive in writing (e.g., with respect to payment timing), then Premier shall reimburse Executive in full for the amount of such excise taxes, penalties and interest charges so that Executive is restored to the same position in which Executive would have been had Premiers breach not occurred.
b. Separation From Service. Notwithstanding anything in this Agreement to the contrary, no separation benefits, if applicable, deemed deferred compensation subject to Section 409A shall be payable pursuant to this Agreement unless Executives separation from employment constitutes a separation from service with Premier within the meaning of Section 409A and the Department of Treasury regulations and other guidance promulgated thereunder (a Separation from Service).
c. Specified Employee. Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by Premier at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of benefits shall not be provided to Executive prior to the earlier of (1) the expiration of the six-month period measured from the date of Executives Separation from Service or (2) the date of Executives death. Upon the first business day following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Section shall be paid in a lump sum to Executive, and any remaining payments due under this Agreement shall be paid as otherwise provided herein.
d. Expense Reimbursements. To the extent that any reimbursements payable pursuant to this Agreement are subject to the provisions of Section 409A, any such reimbursements payable to Executive pursuant to this Agreement shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
e. Installments. For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Executives right to receive the installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment.
25. Tax Penalty Protection. Notwithstanding any other provision in this Agreement to the contrary, any payment or benefit received or to be received by Executive in connection with a change in ownership or control (as such term is defined under Section 280G of the Code a 280G Change in Ownership) or the termination of employment (whether payable under the terms of this Agreement or any other plan, arrangement or agreement with Premier or its subsidiaries and affiliates (collectively, the Payments) that would constitute a parachute payment within the meaning of Section 280G of the Code, shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), but only if, by reason of such reduction, the net after-tax benefit received by Executive shall exceed the net after-tax benefit that would be received by Executive if no such reduction was made. Whether and how the limitation under this Section 25 is applicable shall be determined under the Section 280G Rules set forth in Annex D hereto.
26. Incentive-Based Compensation Clawback. In accordance with the terms and conditions of Premier, Inc.s and the Companys Compensation Recoupment Policy as such policy may
be established, modified, changed, replaced or terminated from time to time by Premier, Inc. in its sole discretion to comply with listing exchange / service rules and regulations and/or other applicable regulatory requirements, Executive agrees to repay any incentive or other compensation paid or otherwise made available to Executive by Premier or its Related Companies, as required by the terms of such policy. If Executive fails to return such compensation as required by the terms of the Compensation Recoupment Policy and/or applicable law, Executive hereby agrees and authorizes Premier and its Related Companies to, among other things as set forth in the policy: (a) deduct the amount of such identified compensation from any and all other compensation owed to Executive by Premier and/or its Related Companies; and/or (b) adjust and reduce future compensation to Executive. Executive acknowledges that Premier may take appropriate disciplinary action (up to, and including, Termination For Just Cause) if Executive fails to return / repay such identified compensation within the timeframe required by the Compensation Recoupment Policy. Further, the Parties agree that the provisions of this Section 26 shall remain in effect for the period required by applicable law.
27. Indemnification. Premier and Executive have entered into (or shall enter into concurrent with this Agreement) a separate indemnity agreement, consistent with Premier, Inc.s certificate of incorporation, by-laws and other corporate governance documents; provided that the entry into such an agreement shall not be a condition precedent to Executives right to be indemnified by Premier as provided in such corporate governance documents. In addition, Premier will indemnify Executive or cause Executive to be indemnified in his capacity as an officer, director or senior manager of any Related Company for which Executive serves as such, to the fullest extent permitted by the laws of the state of incorporation of such Related Company in effect from time to time, or the certificate of incorporation, by-laws or other corporate governance documents of such Related Company, whichever affords the greater protection to Executive. Premier may elect to satisfy its obligations pursuant to this Section 27 under insurance policies maintained generally for the benefit of its officers, directors and employees against covered costs, charges and expenses incurred in connection with any action, suit, investigation or proceeding to which Executive may be made a party by reason of being a director, officer or senior manager of Premier. In addition, Premier shall provide Executive with directors and officers insurance coverage to the same extent as provided to other senior executives of Premier.
28. Waiver of Breach. No waiver of any breach of this Agreement shall operate or be construed as a waiver of any subsequent breach by any Party. No waiver shall be valid unless in writing and signed by the party waiving any particular provision.
29. Severability. The Parties agree that every provision of this Agreement is severable from each other provision of this Agreement. Thus, the Parties agree that if any part of the covenants or provisions contained in this Agreement is determined by a court of competent jurisdiction or by any arbitration panel to which a dispute is submitted to be invalid, illegal or incapable of being enforced, then such covenant or provision, with such modification as shall be required in order to render such covenant or provision not invalid, illegal or incapable of being enforced, shall remain in full force and effect, and all other covenants and provisions contained in this Agreement shall, nevertheless, remain in full force and effect to the fullest extent permissible by law. The Parties further agree that, if any court or panel makes such a determination, such court or panel shall have the power to reduce the duration, scope and/or area of such provisions and/or delete specific words and phrases by blue penciling and, in its reduced or blue penciled form, such provisions shall then be enforceable as allowed by law.
30. Counterparts. This Agreement may be executed in duplicate counterparts, including via facsimile or electronic transmission, each of which shall be deemed an original and all of which shall constitute but one and the same instrument.
31. Construction. The Parties agree that this Agreement was jointly negotiated and drafted by the Parties, shall not be construed by a court of law or any arbitration panel against any of the Parties as a drafter thereof, and shall be construed as a settlement between the Parties negotiating at arms
length. The Parties further agree that the section headings used in this Agreement are for convenience of reference only and shall not be construed to limit or affect scope of this Agreement or the intent of any provision.
32. Entire Agreement. This Agreement constitutes the entire agreement among the Parties pertaining to the subject matters contained herein and, going forward from the start of the Initial Period, replaces and supersedes any and all prior and contemporaneous related agreements, representations and understandings of the Parties, including but not limited to the Prior Employment Agreement, Executives July 18, 2013 Retention Agreement with Premier, and any prior offer or position assignment letters between Executive and Premier. Moreover, this Agreement shall not be modified or amended unless executed in writing by each of the Parties. Notwithstanding the foregoing, nothing contained herein shall prevent or restrain in any manner Premier from instituting an action or claim in court, or such other forum as may be appropriate, to enforce the terms of the post-employment noncompete, nonsolicitation, anti-raiding, confidentiality or intellectual property obligations of Executive set forth and/or referenced in this Agreement or any similar agreement relating to Premiers confidential or proprietary business information or trade secrets.
33. Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
34. Notices. All notices, demands, and other communication given hereunder shall be in writing and shall be given at the address set forth below or to such other address as either party may furnish to the other in writing either by (a) personal delivery; (b) nationally recognized overnight delivery service; or (c) by registered or certified mail, postage prepaid, return receipt requested. Notices shall be effective upon receipt
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Michael J. Alkire |
Premier, Inc. |
2821 Hanover Street |
Attn: General Counsel |
University Park, TX 75225 |
13034 Ballantyne Corporate Place |
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Charlotte, NC 28277 |
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With a copy to: |
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Stewart Reifler, Esq. |
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Vedder Price P.C. |
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1633 Broadway |
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New York, NY 10019 |
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IN TESTIMONY THEREOF, the Board of Directors of Premier, Inc. have approved this Agreement and caused this instrument to be executed by the General Counsel of Premier Healthcare Solutions, Inc. on behalf and in the interests of Premier Healthcare Solutions, Inc., Premier, Inc. and their Related Companies, all by motion and resolution of the Board, and Michael J. Alkire has accepted this Agreement and has hereunto set his hand and seal, as of the dates set forth below.
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Joining this Agreement as a Party solely as a guarantor of Premier Healthcare Solutions, Inc.s financial obligations hereunder | |||
Annex A: Core Competing Businesses
· Global Healthcare Exchange, Inc.
· MedAssets, Inc.
· HealthTrust Purchasing Group
· The Advisory Board Company
· VHA, Inc.
· Novation, Inc.
· Amerinet, Inc.
· Truven Health Analytics, Inc.
· University HealthSystem Consortium, Inc.
· Cardinal Health, Inc.
· McKesson Corp.
· Healthagen, Inc.
· Evolent Health, Inc.
· Parallon Business Solutions, Inc.
· Conifer Health Solutions, LLC; and/or
· Optum Health, Inc.
· Corsorta, Inc.
· AmerisourceBergen Corp.
· Solucient, LLC
· Owens & Minor, Inc.
· Cerner Corporation
· IBM Healthcare Division
· Accretive Health, Inc.
· Allscripts Healthcare Solutions, Inc.
· Huron Consulting Group, Inc.
· Navigant Consulting, Inc.
· Express Scripts, Inc.
Annex B: Termination for Just Cause Retention Period
For purposes of this Agreement from the Effective Date through July 18, 2016, Termination for Just Cause shall mean termination of the employment of Executive by Premier as the result of: (1) commission or omission of any act of embezzlement, theft, misappropriation, or breach of fiduciary duty by Executive in connection with Executives employment with Premier; (2) any conviction, guilty plea or plea of nolo contendere by Executive for any felony that results in any period of incarceration (if the Company CEO or Board Chair deem in his or her absolute discretion that such conviction or plea may have a significant adverse effect upon Premier or upon Executives ability to perform under this Agreement); (3) Executives willful insubordination or refusal to carry out or follow specific lawful instructions, duties or assignments established or given by Premiers CEO or the Board of Directors of Premier, Inc. (the Board) from time to time in accordance with this Agreement; (4) material breach of any securities or other law or regulation or any Premier or Related Company policy governing inappropriate disclosures or tipping related to (or the trading or dealing of) securities, stock or investments; (5) failure to reasonably cooperate or interference with a Premier-related investigation; (6) the breach of or failure to perform the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; (7) the prospective breach of the obligations set forth in Sections 7-10 and/or 13-14 of this Agreement by Executive; or (8) the breach or prospective breach or failure to perform the obligations set forth in Sections 11-12 of this Agreement that is either willful or materially harmful to the business or reputation of the Company.
The Parties, however, agree that Termination For Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Subsections (7) or (8) as a result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than thirty (30) days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties further agree that Termination for Just Cause shall not mean or include termination of the employment of Executive by Premier pursuant to Subsection (6) as result of an isolated, insubstantial and inadvertent action not taken in bad faith by Executive and which is remedied promptly by Executive, if such cure is possible, within no more than ten (10) days after receipt of notice from the Company CEO or his or her authorized agents of such performance issue(s).
The Parties agree that Executives general failure to meet the performance objectives, milestones and goals established or given by the Company CEO or the Board from time to time shall not constitute grounds for Termination for Just Cause. Further, for purposes of this definition only, Termination for Just Cause shall not mean or include any act or failure to act by Executive if: (a) done or omitted to be done by Executive in good faith and with the reasonable belief that Executives act or omission was in the best interest of Premier and consistent with Premier and its Related Companies policies and applicable law; (b) based on and consistent with instructions pursuant to a resolution duly adopted by the Board; or (c) based on and consistent with the advice of Premier counsel.
In addition, the Parties agree that without expressly or constructively terminating this Agreement under Section 15.a. or Sections 15.c. or 15.d., Premier may place Executive on temporary leave with pay, temporarily exclude him from any premises of Premier, it Related Companies and Premier Affiliates and/or temporarily reassign Executives duties with Premier and/or its Related Companies during any pending Company investigation or disciplinary action involving Executive and/or Executives potential Termination for Just Cause. The Parties further agree such authority shall be invoked only in exceptional circumstances when the Company CEO and General Counsel determine that such action is in the best interests of the Company.
Notwithstanding anything contained in this Agreement to the contrary, in no event shall Executives Termination for Just Cause occur until Executive has been provided written notice from the
Company CEO stating with specificity the Just Cause grounds and basis therefor and providing Executive with an opportunity to appear and be heard before the Company CEO.
Annex C: Resignation for Good Reason Retention Period
For purposes of this Agreement from the Effective Date through July 18, 2016, Resignation by Executive for Good Reason means resignation by Executive for the following events without Executives written consent:
(1) a material reduction in Executives position, responsibilities or status, or a change in Executives title resulting in a material reduction in Executives responsibilities or position with Premier, or the assignment to Executive of duties, responsibilities, authorities and/or titles that are inconsistent with his position as COO, but excluding for this purpose: (a) any suspensions, duty reassignments or duty limitations while Executive remains employed with Premier or its Related Companies with pay, implemented by Premier in response to any internal investigation or any actual or threatened temporary or permanent suspension or prohibition of Executive from participating in the conduct or affairs of Premier and/or its Related Companies or Affiliates by applicable federal, state or other regulatory, governmental or administrative order or action, and (b) any such reductions or changes made in good faith to conform with applicable law or generally accepted industry standards for Executives position after consultation with Executive;
(2) a change in Executives reporting responsibility such that Executive directly reports to an individual or individuals who are not either the Company CEO and/or members of the Board;
(3) a reduction in Executives Base Salary or a decrease in any Annual Plan or any potential Annual Plan Target award opportunity to which Executive may potentially have been entitled pursuant to Premiers Annual Plan or any potential Annual Plan, if and as may be later authorized and established in the future, provided, however, that a decrease in any Annual Plan or potential Annual Plan total Target award opportunity for Executive, if and as may be later authorized and established in the future, shall not constitute Good Reason and nothing herein shall be construed to guarantee such awards if: (a) such Target award opportunity is modified by Premier or a Related Company in connection with an overall modification or termination of an Annual Plan or in connection with an independent market study of Executives position and comparable compensation packages, provided that Premier or a Related Company substitutes a plan or plans for any terminated Annual Plan in a manner that allows for substantially equivalent compensation opportunities for Executive; or (b) if performance, either by Premier and its Related Companies or Executive, is below the level required for such targets as may reasonably and in good faith be determined under such plans;
(4) the relocation of Executive to a location outside a fifty (50) mile radius of Executives primary office location on the date of this Agreement (Charlotte, NC);.
(5) the Companys failure to make any material non-forfeited payments earned and due Executive under this Agreement; or
(6) a failure of the Company to obtain the assumption in writing of its obligations under this Agreement by any successor to all or substantially all of the assets of the Company within 30 days after a merger, consolidation, sale or similar transaction.
The Parties further agree that for a resignation to constitute resignation by Executive for Good Reason, in addition to the advance notice of resignation requirement set forth above for this Section 15.d., Executive must provide written notice to the Company CEO of Executives intent to resign within ninety (90) days of one of the triggering events outlined in subsections (1)-(6) of this paragraph. Further, Resignation for Good Reason shall not mean or include resignation by Executive for subsections (1)-(6) of this paragraph for any isolated, insubstantial or inadvertent action not taken in bad faith if cured or remedied promptly by Premier, if such cure is possible, within no more than thirty (30) calendar days of receiving Executives notice.
Annex D: Section 280G Rules
The following rules shall apply for purposes of determining whether and how the limitations provided under Section 25 of this Agreement are applicable to Executive.
1. The net after-tax benefit shall mean (i) the Payments (as defined in Section 25) which Executive receives or is then entitled to receive from the Company or a subsidiary or affiliate that would constitute parachute payments within the meaning of Code Section 280G, less (ii) the amount of all federal, state and local income and employment taxes payable by Executive with respect to the foregoing calculated at the highest marginal income tax rate for each year in which the foregoing shall be paid to Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of Excise Tax imposed with respect to the payments and benefits described in (i) above.
2. All determinations under Section 25 of this Agreement and this Exhibit A will be made by an accounting firm or law firm that is selected for this purpose by Premier prior to a 280G Change in Ownership (the 280G Firm). All fees and expenses of the 280G Firm shall be borne by the Company. Premier will direct the 280G Firm to submit any determination it makes under Section 25 of this Agreement and this Exhibit A and detailed supporting calculations to both Executive and Premier as soon as reasonably practicable.
3. If the 280G Firm determines that one or more reductions are required under Section 25 of this Agreement, the 280G Firm shall also determine which Payments shall be reduced (first from cash payments and then from non-cash benefits) to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and Premier shall pay such reduced amount to Executive. The 280G Firm shall make reductions required under Section 25 of this Agreement in a manner that maximizes the net after-tax amount payable to Executive.
4. As a result of the uncertainty in the application of Section 280G at the time that the 280G Firm makes its determinations under this provision, it is possible that amounts will have been paid or distributed to Executive that should not have been paid or distributed (collectively, the Overpayments), or that additional amounts should be paid or distributed to Executive (collectively, the Underpayments). If the 280G Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against Premier or Executive, which assertion the 280G Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, Executive must repay the Overpayment amount promptly to Premier, without interest; provided, however, that no loan will be deemed to have been made and no amount will be payable by Executive to Premier unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which Executive is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the 280G Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the 280G Firm will notify Executive and Premier of that determination, and the Underpayment amount will be paid to Executive promptly by Premier.
5. Executive will provide the 280G Firm access to, and copies of, any books, records and documents in Executives possession as reasonably requested by the 280G Firm, and otherwise cooperate with the 280G Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 25 of this Agreement.
Annex E: Equity Participation
Exhibit 10.26
FORM OF STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this Agreement) is effective immediately prior to the closing of the initial public offering of Premier, Inc., a newly formed Delaware corporation (Premier) (the Effective Date), and is made by and between the purchasers listed on Schedule I hereto, as purchasers (collectively, the Purchasers and, each a Purchaser), and Premier, as seller.
WHEREAS, the Board of Directors of Premier (the Board) has determined to effect an underwritten initial public offering (the IPO) of Premiers Class A common stock, par value $0.01 per share (the Class A Common Stock); and
WHEREAS, in connection with the consummation of the IPO, Premier wishes to sell to Purchasers and each Purchaser wishes to purchase from Premier Class B common stock, par value $0.000001 per share (the Class B Common Stock) of Premier.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms shall have the meanings set forth below:
Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close.
Commission means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act.
Governmental Authority means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
Group has the meaning set forth in Section 13(d)(3) and Rule 13d-5 of the Securities Exchange Act of 1934, as amended.
IPO Closing means the closing of the sale of Class A Common Stock in the IPO.
Person means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity or organization of any nature whatsoever or any Group of two or more of the foregoing.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.
ARTICLE 2
PURCHASE AND SALE OF UNITS
2.1 Purchase and Sale.
(a) Subject to the terms and conditions herein set forth, at the Closing (as defined herein), Premier agrees to issue and sell to each Purchaser the number of shares of Class B Common Stock set forth opposite such Purchasers name under the column entitled Purchased Shares on Schedule I to this Agreement (Purchased Shares), and each Purchaser agrees to purchase such Purchased Shares from Premier for a purchase price per share of Class B Common Stock equal to $0.000001.
2.2 Closing.
(a) The closing of the purchase of the Purchased Shares (the Closing) shall occur at the offices of McDermott Will & Emery LLP, 340 Madison Avenue, New York, New York 10173 at the same time and date as the IPO Closing.
(b) At the Closing, (i) each Purchaser authorizes Premier Purchasing Partners, L.P., a California limited partnership (together with its successors and assigns, Premier LP), on behalf of such Purchaser, to deliver to Premier the purchase price for the Purchased Shares being purchased by such Purchaser, by check or wire transfer of immediately available funds to a bank account designated in writing by Premier and to deduct such funds from the next cash distribution otherwise due from Premier LP to such Purchaser, (ii) if not already a party to such agreement, each Purchaser shall deliver a duly executed counterpart of or joinder to that certain Voting Trust Agreement Relating to Shares of Premier, Inc. by and among Premier LP, the Stockholders listed on Schedule I thereto, and the Trustee (as defined therein) (the Voting Trust Agreement), and (iii) Premier shall deliver to the Trustee pursuant to the terms of the Voting Trust Agreement certificates representing the Purchased Shares in the names of the Purchasers.
2.3 Conditions to Closing.
(a) The obligations of each Purchaser to be performed at the Closing shall be subject to the condition that the representations and warranties set forth in Article 3 shall be true and correct as of the Closing as if then made.
(b) The obligations of Premier to be performed at the Closing with respect to a Purchaser shall be subject to the condition that the representations and warranties of such Purchaser set forth in Article 4 shall be true and correct as of the Closing as if then made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PREMIER
Premier makes the following representations and warranties for the benefit of each Purchaser as of the date of its execution of this Agreement, the Effective Date and Closing (unless otherwise specified below):
3.1 Representations and Warranties of Premier.
(a) Premier represents and warrants to each Purchaser that (i) it is duly incorporated or organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, without the consent, waiver, approval or authorization of, or filing with, any Person or under any applicable law, and has taken all actions necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement; (ii) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of Premier, enforceable against it in accordance with its terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles); (iii) neither the execution and delivery of this Agreement by Premier nor the consummation of the transactions contemplated hereby conflicts with or results in a breach of any of the terms, conditions or provisions of the organizational documents of Premier, any agreement or instrument to which Premier is a party or by which the material assets of Premier are bound, or constitutes a default under any of the foregoing, or violates any law or regulation; (iv) there are no actions, suits or proceedings pending, or, to the knowledge of Premier, threatened against or affecting Premier or Premiers assets in any court or before or by any Governmental Authority which, if adversely determined, would impair the ability of Premier to perform its obligations under this Agreement; and (v) the performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or Governmental Authority to which Premier is subject.
(b) Premier (i) is solvent with assets of a value that exceeds the amounts of its liabilities, (ii) is able to meet its debts as they mature, and (iii) in its reasonable opinion, has adequate capital to conduct the businesses in which it is engaged.
(c) Premier has good, valid and marketable title to the Purchased Shares and has the power and authority to issue and sell to each Purchaser such Purchased Shares, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind, other than pursuant to this Agreement.
(d) Premier represents that (i) the Purchased Shares have been duly authorized and validly issued by Premier and (ii) no stockholder of Premier has any preemptive or other subscription right to acquire any stock in Premier.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser makes the following representations and warranties, severally with respect to itself only, for the benefit of Premier as of the date of its execution of this Agreement, the Effective Date and the Closing:
4.1 Representations and Warranties of Each Purchaser.
(a) Each Purchaser represents, severally with respect to itself only, that it is duly incorporated or organized, validly existing and in good standing under the laws of the state of its incorporation or organization and has all necessary power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, without the consent, waiver, approval or authorization of, or filing with, any other Person or under any applicable law, and has taken all actions necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement.
(b) Each Purchaser represents, severally with respect to itself only, that this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of such Purchaser enforceable in accordance with the terms hereof (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles).
(c) Each Purchaser represents, severally with respect to itself only, that neither the execution and delivery of this Agreement by such Purchaser nor the consummation of the transactions contemplated herein (i) conflicts with or results in a breach of any of the terms, conditions or provisions of the organizational documents of such Purchaser or any agreement or instrument to which such Purchaser is a party or by which the material assets of such Purchaser are bound or (ii) constitutes a default under any of the foregoing, violates any law or regulation, except to the extent that any conflict, breach or default under this subsection (c) would not prevent or materially hinder the performance of the actions contemplated by this Agreement.
(d) Each Purchaser represents, severally with respect to itself only, that there are no actions, suits or proceedings pending or, to the knowledge of such Purchaser, threatened against or affecting such Purchaser or assets of such Purchaser in any court or before or by any Governmental Authority which, if adversely determined, would impair the ability of such Purchaser to perform such Purchasers obligations under this Agreement.
(e) Each Purchaser represents, severally with respect to itself only, that its performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or Governmental Authority to which such Purchaser is subject.
(f) Each Purchaser represents and warrants, severally with respect to itself only, that no agent, broker, investment banker, financial advisor or other person or entity is or will be entitled, by reason of any agreement, act or statement by it or any of its representatives to any
financial advisory, brokers, finders or similar fee or commission, to reimbursement of expenses or to indemnification or contribution in connection with the transactions contemplated hereby.
(g) All Purchased Shares acquired by or for each Purchaser are and will be acquired solely for such Purchasers own account for investment purposes only and not with a present view toward the distribution thereof or with any present intention of distributing or reselling any such Purchased Shares in violation of the Securities Act or any state securities laws. Irrespective of any other provisions of this Agreement, any sale of any of the Purchased Shares acquired by each Purchaser will be made only in compliance with all applicable federal and state securities laws, including the Securities Act.
(h) Each Purchaser is aware of the need to conduct its own investigation of the Purchased Shares and has had the opportunity to ask questions and receive answers concerning the Purchased Shares acquired by or for such Purchaser. Each Purchaser has had full access to such information and materials concerning Premier and its subsidiaries as each Purchaser has requested. Premier has answered all inquiries that each Purchaser has made to Premier relating to Premier and its subsidiaries or the Purchased Shares acquired by such Purchaser.
(i) Each Purchaser is able to fend for itself in the transactions contemplated by this Agreement and has such knowledge and experience in financial and business matters such that such Purchaser is capable of evaluating the merits and risks of an investment in the Purchased Shares and of making an informed investment decision with respect thereto, or has consulted with advisors who possess such knowledge and experience.
(j) Each Purchaser is able to bear the economic risk of its investment in the Purchased Shares for an indefinite period of time. Each Purchaser understands that the Purchased Shares have not been registered under the Securities Act and therefore cannot be sold unless subsequently registered under the Securities Act or unless an exemption from such registration is available.
(k) An investment in the Purchased Shares involves risk. Each Purchaser acknowledges and agrees that such Purchaser has reviewed and considered the risks and uncertainties described in the Private Placement Memorandum and Information Statement Regarding Reorganization of Premier, Inc. and Premier Purchasing Partners, L.P. and Request for Execution of Consent, Power of Attorney and Reorganization Documents attached hereto and incorporated herein by reference and made a part hereof before making an investment decision with respect to the Purchased Shares. The risk factors described therein are not the only ones that Premier faces or that may relate to an investment in the Purchased Shares. Any of these risks, alone or in combination with other risks, could result in a material and adverse impact upon the business, financial condition, results of operations, plans or prospects of Premier. In such case, the value of the Purchased Shares could decline, and each Purchaser could lose part or all of its investment in Premier.
(l) Premier is relying upon the truth and accuracy of the representations, warranties and acknowledgements of each Purchaser and each Purchaser agrees that if any of the representations, warranties and acknowledgements deemed to have been made by such Purchaser
by its execution of this Agreement are no longer accurate, it shall promptly notify Premier. Each Purchaser consents to such reliance.
ARTICLE 5
MISCELLANEOUS
5.1 Notices. Any written notice required or permitted to be delivered pursuant to this Agreement shall be in writing and shall be deemed delivered (i) upon delivery if delivered in person, (ii) upon transmission if sent by facsimile, with receipt confirmed by the recipient thereof, (iii) one Business Day after deposit with a nationally recognized overnight courier service; provided, that confirmation of such overnight delivery is received by the sender thereof or (iv) upon transmission if sent by e-mail, with receipt confirmed by the recipient thereof. Notices to Premier or any Purchaser shall be delivered to the respective addresses as set forth below:
(a) if to a Purchaser to the address indicated below the name of such Purchaser on Schedule I hereto.
(b) If to Premier, to:
Premier, Inc.
13034 Ballantyne Corporate Place
Charlotte, NC 28277
Attention: Chief Financial Officer and General Counsel
Facsimile: (704) 816-6307
Email: craig_mckasson@premierinc.com and
Jeffrey_Lemkin2@premierinc.com, respectively
Any party hereto may change its address for notices by giving written notice of such partys new address to the other parties hereto in accordance with this Section 5.1.
5.2 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. No Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. No party hereto may assign its rights under this Agreement without the prior written consent of the other party hereto.
5.3 Amendment and Waiver.
(a) No failure or delay on the part of the Purchasers or Premier in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Purchasers or Premier at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of this Agreement and any waiver of any provision of this Agreement shall be effective only if it is made or given in writing and signed by the Purchasers and Premier.
5.4 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, all of which when so executed shall be deemed to be an original and both of which taken together shall constitute one and the same agreement.
5.5 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
5.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.
5.7 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.
5.8 Entire Agreement. This Agreement, together with the schedules hereto are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
5.9 Further Assurances. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations, or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement.
5.10 Void Date. If the Effective Date does not occur prior to March 31, 2014, this Agreement shall be null and void and of no further force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dates set forth below.
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Schedule I
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Exhibit 10.27
FORM OF UNIT PUT/CALL AGREEMENT
This UNIT PUT/CALL AGREEMENT (the Agreement) is made effective as of July 1, 2013 (the Effective Date) by and between Premier, Inc., a Delaware corporation, as purchaser (Premier), and each of the Persons listed on Schedule I hereto, as sellers (each a Seller and collectively, the Sellers).
WHEREAS, the Board of Directors of Premier (the Board) has determined to effect an underwritten initial public offering (the IPO) of Premiers Class A common stock, par value $0.01 per share (the Class A Common Stock);
WHEREAS, in conjunction with the IPO, Premier Purchasing Partners, L.P., a California limited partnership (together with its successors and assigns, Premier LP) will undergo a reorganization (the Reorganization) which will include Premier LP adopting an Amended and Restated Limited Partnership Agreement, in the form approved by its general partner and a majority of its limited partners (the LP Agreement), pursuant to which Premier LP will (a) change its name to Premier Healthcare Alliance, L.P. and (b) designate Class A Common Units (Class A Common Units) and Class B Common Units (Class B Common Units) of Premier LP;
WHEREAS, Premier LP desires to have the option to require Premier to purchase Class A Common Units in the amount set forth opposite Premier LPs name under the column entitled Optioned Equity Interests on Schedule I to this Agreement and the other Sellers desire to have the option to require Premier to purchase from the Sellers the Class B Common Units and the corresponding number of shares of Premiers Class B common stock, $0.000001 par value per share (the Class B Common Stock) set forth opposite such Sellers names under the column entitled Optioned Equity Interests on Schedule I to this Agreement (collectively, the Optioned Equity Interests), in each case at the price and upon the terms and conditions set forth in this Agreement;
WHEREAS, in connection with the consummation of the Reorganization and IPO, Premier desires to have the option to require each Seller to transfer such Sellers Optioned Equity Interests to Premier at the price and upon the terms and conditions set forth in this Agreement;
WHEREAS, if the Sellers elect to exercise their Put Option (as defined below) or Premier elects to exercise its Call Option (as defined below) or Additional Call Option (as defined below), Premier intends to use a portion of the proceeds received from the IPO to complete such purchase;
WHEREAS, Premier will contribute the Optioned Equity Interests and any Additional Class A Common Units (as defined below), as applicable, to Premier Services, LLC, a Delaware limited liability company, its wholly owned subsidiary and general partner of Premier LP (Premier Services), in which event any Class B Common Units contributed by Premier to Premier Services will be converted automatically into Class A Common Units pursuant to Section 3.2(a) of the LP Agreement; and
WHEREAS, the Board or a sub-committee thereof has approved the transactions contemplated by this Agreement for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 (the Exchange Act), which approval is intended to exempt each issuance to a Seller who may be deemed an officer or director of Premier, including a director by deputization, from Section 16(b) of the Exchange Act.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms shall have the meanings set forth below:
Business Day means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close.
Commission means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act.
Governmental Authority means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
Group has the meaning set forth in Section 13(d)(3) and Rule 13d-5 of the Securities Exchange Act of 1934, as amended.
IPO Price means the price paid per share for the Class A Common Stock by the underwriters to Premier in the IPO.
Person means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, Governmental Authority or other entity or organization of any nature whatsoever or any Group of two or more of the foregoing.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.
Underwriting Agreement means the Underwriting Agreement to be entered into between Premier and certain underwriters providing for the purchase and sale of Premiers Class A Common Stock in conjunction with the IPO.
ARTICLE 2
PUT/CALL OPTIONS
2.1 Seller Put Option. Each Seller shall have the option to require Premier to purchase from such Seller all but not less than all of such Sellers Optioned Equity Interests on the terms and conditions described in this Agreement (the Put Option). Each Seller may exercise such Sellers Put Option one time on or after the Effective Date, by delivering written notice of its exercise to Premier (a Put Option Notice). The obligation of Premier to purchase the Optioned Equity Interests from such Seller pursuant to the Put Option shall be subject to the following conditions: (a) the consummation of the IPO prior to the Closing (as defined below); (b) the representations and warranties of such Seller set forth in this Agreement shall be true and correct in all material respects as of the Closing; and (c) such Seller shall have complied in all material respects with all of the covenants required to be performed by such Seller pursuant to this Agreement on or prior to the Closing. If not previously exercised, the Put Option will expire on the earlier of March 31, 2014 or the date and time the Call Option is exercised.
2.2 Premier Call Option. Premier shall have the option to require each Seller to transfer all but not less than all of such Sellers Optioned Equity Interests to Premier on the terms and conditions described in this Agreement (the Call Option). Premier may exercise the Call Option on or after the Effective Date, by delivering written notice of its exercise to such Seller (a Call Option Notice). The obligations of such Seller to issue, sell and/or transfer, as applicable, the Optioned Equity Interests to Premier pursuant to the Call Option shall not be subject to any conditions. If not previously exercised, the Call Option will expire on the earlier of March 31, 2014 or the date and time the Put Option is exercised. The Call Option may not be exercised by Premier with respect to any Optioned Equity Interests with respect to which the Put Option has already been exercised by a Seller.
2.3 Purchase Price. The purchase price for each Optioned Equity Interest shall be equal to the IPO Price.
2.4 Closing. Subject to satisfaction or waiver of the applicable conditions precedent, the closing of the Put Option or Call Option and the transfer of the Optioned Equity Interests from the Sellers to Premier (the Closing) shall take place at the offices of McDermott Will & Emery LLP (McDermott), 340 Madison Avenue, New York, New York 10173 promptly after receipt of the Put Option Notice or Call Option Notice, or at such other time and place as may be agreed upon by Premier and the Sellers. At the Closing, Premier shall deliver to each Seller, by wire transfer of immediately available funds to a bank account designated in writing by such Seller, an amount equal to the number of Optioned Equity Interests set forth opposite such Sellers name in Schedule I multiplied by the IPO Price. At the Closing, each Seller (other than Premier LP with respect to newly issued Class A Common Units) shall deliver to Premier a duly endorsed instrument of assignment with respect to the Optioned Equity Interests being sold at such Closing in substantially the form attached hereto as Exhibit A (a Class B Common Unit Assignment Agreement).
ARTICLE 3
OVER-ALLOTMENT OPTION
In the event that any over-allotment option granted to the underwriters of the IPO pursuant to the Underwriting Agreement is exercised in whole or in part, Premier shall have the option to require Premier LP to issue, sell and transfer additional Class A Common Units (the Additional Class A Common Units) to Premier in an amount equal to the number of shares of Premiers Class A common stock being purchased by the underwriters through the exercise of such over-allotment option (the Over-Allotment Call Option). Premier may exercise the Over-Allotment Call Option on or after the Effective Date, by delivering written notice of its exercise to Premier LP (an Over-Allotment Call Option Notice). The obligations of Premier LP to transfer Additional Class A Common Units to Premier pursuant to the Over-Allotment Call Option shall not be subject to any conditions. If not previously exercised, the Over-Allotment Call Option with respect to any Additional Class A Common Units will expire on the earlier of March 31, 2014 or the time and date upon which the underwriters over-allotment option expires. The purchase price for each Additional Class A Common Unit shall be equal to the IPO Price. The closing of each Over-Allotment Call Option and the transfer of the Additional Class A Common Units from Premier LP to Premier (each, an Over-Allotment Closing) shall take place at the offices of McDermott on or after the Effective Date promptly after receipt of the Over-Allotment Call Option Notice, or at such other time and place as may be agreed upon by Premier and Premier LP. At the Over-Allotment Closing, Premier shall deliver to Premier LP, by wire transfer of immediately available funds to a bank account designated in writing by Premier LP, an amount equal to the number of Additional Class A Common Units being purchased multiplied by the IPO Price.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller makes the following representations and warranties, severally with respect to itself only, for the benefit of Premier as of the date of its execution of this Agreement, the Effective Date, the Closing and, with respect to Premier LP only, the Over-Allotment Closing:
4.1 Representations and Warranties of Sellers.
(a) Each Seller represents and warrants, severally with respect to itself only, to Premier that (i) it is duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all necessary power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, without the consent, waiver, approval or authorization of, or filing with, any other Person or under any applicable law, and has taken all actions necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement; (ii) this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of such Seller, enforceable against it in accordance with its terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles); (iii) neither the execution and delivery of this Agreement by such Seller nor the
consummation of the transactions contemplated herein conflicts with or results in a breach of any of the terms, conditions or provisions of the organizational documents of such Seller, any agreement or instrument to which such Seller is a party or by which the material assets of such Seller are bound, or constitutes a default under any of the foregoing, or violates any law or regulation; (iv) there are no actions, suits or proceedings pending, or, to the knowledge of such Seller, threatened against or affecting such Seller or such Sellers assets in any court or before or by any Governmental Authority which, if adversely determined, would impair the ability of such Seller to perform its obligations under this Agreement; and (v) the performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or Governmental Authority to which such Seller is subject.
(b) Each Seller represents and warrants, severally with respect to itself only, to Premier that (i) it is solvent with assets of a value that exceeds the amounts of its liabilities, (ii) it is able to meet its debts as they mature, and (iii) in its reasonable opinion, has adequate capital to conduct the businesses in which it is engaged.
(c) Immediately prior to the delivery of the Optioned Equity Interests or Additional Class A Common Units, as applicable, to Premier at the Closing, each Seller represents and warrants, severally with respect to itself only, to Premier that such Seller will have good, valid and marketable title to the Optioned Equity Interests or the Additional Class A Common Units, as applicable, and has the power and authority to issue (solely in the case of Premier LP), transfer, sell, assign and convey to Premier such Optioned Equity Interests or Additional Class A Common Units, as applicable, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind, other than pursuant to this Agreement.
(d) Each Seller represents and warrants, severally with respect to itself only, to Premier that no agent, broker, investment banker, financial advisor or other person or entity is or will be entitled, by reason of any agreement, act or statement by it or any of its representatives to any financial advisory, brokers, finders or similar fee or commission, to reimbursement of expenses or to indemnification or contribution in connection with the transactions contemplated hereby.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PREMIER
Premier makes the following representations and warranties for the benefit of each Seller as of the date of its execution of this Agreement, the Effective Date, the Closing and the Over-Allotment Closing:
5.1 Representations and Warranties of Premier.
(a) Premier represents that it is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all necessary power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, without the consent, waiver, approval or authorization of, or filing with, any other Person or
under any applicable law, and has taken all actions necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement.
(b) Premier represents that this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of Premier enforceable in accordance with the terms hereof (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles).
(c) Premier represents that neither the execution and delivery of this Agreement by Premier nor the consummation of the transactions contemplated herein (i) conflicts with or results in a breach of any of the terms, conditions or provisions of the organizational documents of Premier or any agreement or instrument to which Premier is a party or by which the material assets of Premier are bound or (ii) constitutes a default under any of the foregoing, or violates any law or regulation, except to the extent that any conflict, breach or default under this subsection (c) would not prevent or materially hinder the performance of the actions contemplated by this Agreement.
(d) Premier represents that there are no actions, suits or proceedings pending or, to the knowledge of Premier, threatened against or affecting Premier or assets of Premier in any court or before or by any Governmental Authority which, if adversely determined, would impair the ability of Premier to perform Premiers obligations under this Agreement.
(e) Premier represents that its performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or Governmental Authority to which Premier is subject.
(f) All Optioned Equity Interests and Additional Class A Common Units acquired by Premier will be acquired solely for Premiers own account for investment purposes only and not with a present view toward the distribution thereof or with any present intention of distributing or reselling any such Optioned Equity Interests or Additional Class A Common Units in violation of the Securities Act or any state securities laws. Irrespective of any other provisions of this Agreement, any sale of any of the Optioned Equity Interests or Additional Class A Common Units acquired by Premier will be made only in compliance with all applicable federal and state securities laws, including the Securities Act.
(g) Premier is aware of the need to conduct its own investigation of the Optioned Equity Interests and Additional Class A Common Units and has had the opportunity to ask questions and receive answers concerning the Optioned Equity Interests and Additional Class A Common Units acquired by Premier. Premier has had full access to such information and materials concerning Premier LP and its subsidiaries as Premier has requested. Sellers have answered all inquiries that Premier has made to Sellers relating to Premier LP and its subsidiaries or the Optioned Equity Interests and Additional Class A Common Units.
(h) Premier is able to fend for itself in the transactions contemplated by this Agreement and has such knowledge and experience in financial and business matters such that
Premier is capable of evaluating the merits and risks of an investment in the Optioned Equity Interests and Additional Class A Common Units and of making an informed investment decision with respect thereto, or has consulted with advisors who possess such knowledge and experience.
(i) Premier is able to bear the economic risk of its investment in the Optioned Equity Interests and Additional Class A Common Units for an indefinite period of time. Premier understands that the Optioned Equity Interests and Additional Class A Common Units have not been registered under the Securities Act and therefore cannot be sold unless subsequently registered under the Securities Act or unless an exemption from such registration is available.
(j) Sellers are relying upon the truth and accuracy of the representations, warranties and acknowledgements of Premier and Premier agrees that if any of the representations, warranties and acknowledgements deemed to have been made by Premier by its execution of this Agreement are no longer accurate, it shall promptly notify Sellers. Premier consents to such reliance.
ARTICLE 6
TERMINATION
This Agreement shall automatically terminate and be of no further force and effect (a) with respect to the Optioned Equity Interests, in the event that neither the Put Option nor the Call Option has been exercised as set forth in Sections 2.1 or 2.2 on or prior to March 31, 2014; and (b) with respect to any Additional Class A Common Units, in the event that the Over-Allotment Call Option applicable to such Additional Class A Common Units has been exercised as set forth in Article 3 on or prior to March 31, 2014.
ARTICLE 7
MISCELLANEOUS
7.1 Notices. Any written notice required or permitted to be delivered pursuant to this Agreement shall be in writing and shall be deemed delivered (i) upon delivery if delivered in person, (ii) upon transmission if sent by facsimile, with receipt confirmed by the recipient thereof, (iii) one Business Day after deposit with a nationally recognized overnight courier service; provided, that confirmation of such overnight delivery is received by the sender thereof or (iv) upon transmission if sent by e-mail, with receipt confirmed by the recipient thereof. Notices to Premier or any Seller shall be delivered to the respective addresses as set forth below:
If to Premier, to: |
Premier, Inc. |
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13034 Ballantyne Corporate Place Charlotte, NC 28277 Attention: Chief Financial Officer and General Counsel Facsimile: (704) 816-6307 Email: craig_mckasson@premierinc.com and Jeffrey_Lemkin2@premierinc.com, respectively |
If to any Seller: |
The address indicated below the name of such Seller on Schedule I hereto. |
Any party hereto may change its address for notices by giving written notice of such partys new address to the other parties hereto in accordance with this Section 7.1.
7.2 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. No Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. No party hereto may assign its rights under this Agreement without the prior written consent of the other party hereto.
7.3 Amendment and Waiver.
(a) No failure or delay on the part of any Seller or Premier in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Sellers or Premier at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of this Agreement and any waiver of any provision of this Agreement shall be effective only if it is made or given in writing and signed by the Sellers and Premier.
7.4 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, all of which when so executed shall be deemed to be an original and both of which taken together shall constitute one and the same agreement.
7.5 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
7.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.
7.7 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.
7.8 Entire Agreement. This Agreement, together with the schedules hereto are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
7.9 Further Assurances. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations, or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dates set forth below.
Schedule I
Name and Address of Seller |
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EXHIBIT A
FORM OF CLASS B COMMON UNIT ASSIGNMENT AGREEMENT
This ASSIGNMENT AGREEMENT (this Agreement), and is made by and among the undersigned seller (the Seller), Premier, Inc., a Delaware corporation (Premier) and Premier Healthcare Alliance, L.P., a California limited partnership (together with its successors and assigns, Premier LP). Each capitalized term used herein without definition shall have the meaning assigned to it in the Unit Put/Call Agreement (as defined below). This Agreement is effective as of the Closing.
RECITALS
WHEREAS, Premier, the Seller and the other sellers named therein have entered into a Unit Put/Call Agreement (the Unit Put/Call Agreement), pursuant to which the Seller agreed to sell, assign, convey and transfer Class B Common Units to Premier; and
WHEREAS, Premier has agreed to purchase such Class B Common Units from Seller pursuant to the Unit Put/Call Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Unit Put/Call Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement agree as follows:
1. Transfer. Seller hereby sells, assigns, conveys and transfers to Premier at the Closing the number of Class B Common Units set forth below its signature on the signature pages hereto.
2. Acknowledgement of Sale by Premier LP. Premier LP hereby acknowledges the sale, assignment, conveyance and transfer by Seller to Premier at the Closing of the number of Class B Common Units set forth under Sellers signature hereto and shall update Exhibit 3.1 to the LP Agreement to reflect the sale and transfer of Class B Common Units as contemplated in the Unit Put/Call Agreement and herein.
3. Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regard to the conflicts of laws principles thereof that would mandate the application of the laws of another jurisdiction.
4. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
5. Further Assurances. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations, or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement.
6. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, all of which when so executed shall be deemed to be an original and both of which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dates set forth below.
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PREMIER, INC. | ||
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Craig McKasson | |
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Chief Financial Officer | |
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PREMIER HEALTHCARE ALLIANCE, L.P. | ||
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Premier Services, LLC, its general partner | |
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Chief Financial Officer | |
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Exhibit 10.28
FORM OF CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (this Agreement) is effective immediately prior to the closing of the initial public offering of a newly formed Delaware corporation named Premier, Inc. (the Public Company) (the Effective Date), and is made by and between (Stockholder) and Premier Purchasing Partners, L.P. (Premier LP), with respect to the shares of common stock of Premier, Inc., an existing Delaware corporation (Premier, Inc.), owned by Stockholder. Premier, Inc. and Premier LP are collectively referred to in this Agreement as Premier.
RECITALS
WHEREAS, Stockholder owns the number of shares of common stock of Premier, Inc. set forth opposite its name in Schedule A (the Premier, Inc. Common Stock);
WHEREAS, in conjunction with the proposed reorganization of Premier and its affiliates (the Reorganization) and the initial public offering of Class A shares of the common stock of the Public Company, Premier LP will adopt an Amended and Restated Limited Partnership Agreement, in the form approved by its general partner and a majority of its limited partners (the LP Agreement), pursuant to which Premier LP will (a) change its name to Premier Healthcare Alliance, L.P. and (b) issue Class A Common Units to its general partner and Class B Common Units to its limited partners, collectively representing a 100% interest in Premier LP; and
WHEREAS, Stockholder desires to contribute all of its Premier, Inc. Common Stock to Premier LP in exchange for Class B Common Units of Premier LP (the Premier LP Class B Common Units), upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE 1
CONTRIBUTION
SECTION 1.1 Contribution: Closing.
(a) Upon the terms and subject to the conditions contained herein, and in reliance on the representations, warranties, covenants, terms and conditions of this Agreement, Stockholder hereby contributes to Premier LP, and Premier LP hereby accepts, the Premier, Inc. Common Stock (the Contribution) and in consideration therefor Premier LP hereby issues to Stockholder, and Stockholder hereby accepts, the number of Premier LP Class B Common Units determined as set forth in Section 1.2 below. The Contribution made and accepted hereunder shall be free from all pledges, liens, security interests, charges, claims, equities or encumbrances of any kind and from all rights exercisable by or claims by third parties and together with all
rights attached or accruing to them. The parties shall treat the Contribution as a tax-free transaction for applicable tax purposes.
(b) Subject to the approval by the general partner and the majority of the limited partners of Premier LP of the Reorganization and the adoption of the LP Agreement, the Contribution shall be effective immediately prior to the closing of the initial public offering of the Public Company (the Effective Date) without any further action on the part of Stockholder.
SECTION 1.2 Exchange Formula. The number of Premier LP Class B Common Units to be issued to each Stockholder in consideration of the Contribution, when added to the Class B Common Units issued to such Stockholder based upon such Stockholders Premier LP capital account balance prior to giving effect to the Contribution, shall be equal to the total number of Premier LP Class B Common Units outstanding immediately following the Reorganization multiplied by Stockholders Percentage Interest in the Premier LP Class B Common Units as calculated by Premier LP. For purposes of this Agreement, the term Percentage Interest means (a) the independently appraised fair market value of Premier, Inc. prior to giving effect to the Reorganization multiplied by Stockholders percentage interest in the total issued and outstanding common stock of Premier, Inc. as of the Effective Date (but prior to the Reorganization) plus (b) the independently appraised fair market value of Premier LP prior to giving effect to the Reorganization multiplied by Stockholders percentage interest in the aggregate capital accounts of all partners as of the Effective Date (but prior to the Reorganization), divided by (c) the sum of the independently appraised fair market value of Premier, Inc. and the independently appraised fair market value of Premier LP, in each case prior to giving effect to the Reorganization. An illustrative calculation is set forth on Annex I attached hereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 Representations and Warranties of Stockholder.
(a) Stockholder represents and warrants to Premier LP, as of the date hereof, and as of the Effective Date that (i) Stockholder is duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all necessary power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, without the consent, waiver, approval or authorization of, or filing with, any other person, entity or governmental authority or under any applicable law, and has taken all actions necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement, (ii) this Agreement has been duly executed and delivered by Stockholder and constitutes the legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles); (iii) neither the execution and delivery of this Agreement by Stockholder nor the consummation of the transactions contemplated herein (including the Reorganization) conflicts with or results in a breach of any of the terms, conditions or provisions of the organizational documents of Stockholder, any agreement or instrument to which Stockholder is a party or by which the material assets of Stockholder are bound, or constitutes a default under any of the
foregoing; (iv) there are no actions, suits or proceedings pending, or, to the knowledge of Stockholder, threatened against or affecting Stockholder or Stockholders assets in any court or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality which, if adversely determined, would impair the ability of Stockholder to perform Stockholders obligations under this Agreement; and (v) the performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality to which Stockholder is subject.
(b) Stockholder (i) is solvent with assets of a value that exceeds the amounts of its liabilities, (ii) is able to meet its debts as they mature, and (iii) in its reasonable opinion, has adequate capital to conduct the businesses in which it is engaged.
(c) Stockholder represents and warrants to Premier LP, as of the Effective Date, that (i) Stockholder has good, valid and marketable title to the Premier, Inc. Common Stock to be contributed to Premier LP pursuant to Article 1 hereof and has the power and authority to transfer, sell, assign and convey to Premier LP such Premier, Inc. Common Stock, free and clear of any pledge, lien, security interest, charge, claim, equity or encumbrance of any kind, other than pursuant to this Agreement, and (ii) the number of shares of Premier, Inc. Common Stock set forth on Schedule A hereto constitutes all of the Premier, Inc. Common Stock owned by Stockholder.
(d) All Premier LP Class B Common Units acquired by or for Stockholder are and will be acquired solely for Stockholders own account for investment purposes only and not with a present view toward the distribution thereof or with any present intention of distributing or reselling any such Premier LP Class B Common Units in violation of the Securities Act of 1933, as amended (the Securities Act) or any state securities laws. Irrespective of any other provisions of this Agreement, any sale of any of the Premier LP Class B Common Units acquired by Stockholder will be made only in compliance with all applicable federal and state securities laws, including the Securities Act.
(e) Stockholder is aware of the need to conduct its own investigation of the Premier LP Class B Common Units and has had the opportunity to ask questions and receive answers concerning the Premier LP Class B Common Units acquired by or for Stockholder. Stockholder has had full access to such information and materials concerning Premier LP and its subsidiaries as Stockholder has requested. Premier LP has answered all inquiries that Stockholder has made to Premier LP relating to Premier LP and its subsidiaries or the Premier LP Class B Common Units acquired by such Stockholder.
(f) Stockholder is able to fend for itself in the transactions contemplated by this Agreement and has such knowledge and experience in financial and business matters such that Stockholder is capable of evaluating the merits and risks of an investment in the Premier LP Class B Common Units and of making an informed investment decision with respect thereto, or has consulted with advisors who possess such knowledge and experience.
(g) Stockholder is able to bear the economic risk of its investment in the Premier LP Class B Common Units for an indefinite period of time. Stockholder understands that the Premier LP Class B Common Units have not been registered under the Securities Act
and therefore cannot be sold unless subsequently registered under the Securities Act or unless an exemption from such registration is available.
(h) Premier LP is relying upon the truth and accuracy of the representations, warranties and acknowledgements of Stockholder and Stockholder agrees that if any of the representations, warranties and acknowledgements deemed to have been made by Stockholder by its execution of this Agreement are no longer accurate, it shall promptly notify Premier LP. Stockholder consents to such reliance.
(i) An investment in the Premier LP Class B Common Units involves risk. Stockholder acknowledges and agrees that Stockholder has reviewed and considered the risks and uncertainties described in the Private Placement Memorandum and Information Statement Regarding Reorganization of Premier, Inc. and Premier Purchasing Partners, L.P. and Request for Execution of Consent, Power of Attorney and Reorganization Documents attached hereto and incorporated herein by reference and made a part hereof before making an investment decision with respect to the Premier LP Class B Common Units. The risk factors described therein are not the only ones that Premier LP faces or that may relate to an investment in the Premier LP Class B Common Units. Any of these risks, alone or in combination with other risks, could result in a material and adverse impact upon the business, financial condition, results of operations, plans or prospects of Premier LP. In such case, the value of the Premier LP Class B Common Units could decline, and Stockholder could lose part or all of its investment in Premier LP.
SECTION 2.2 Representations and Warranties of Premier LP.
(a) Premier LP represents that it is a limited partnership duly organized, validly existing and in good standing under the laws of California and has all necessary power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, without the consent, waiver, approval or authorization of, or filing with, any other person, entity or governmental authority or under any applicable law, and has taken all actions necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement.
(b) Premier LP represents that this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of Premier LP enforceable in accordance with the terms hereof (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles).
(c) Premier LP represents, as of the Effective Date, that (i) the Premier LP Class B Common Units have been duly authorized and validly issued by Premier LP, (ii) no limited partner of Premier LP has any preemptive or other subscription right to acquire any limited partnership interests of Premier LP and (iii) Premier LP shall convey to Stockholder good and valid title to the Premier LP Class B Common Units, in the amount determined in accordance with Section 1.2 above, free and clear of any liens, claims, security interests and encumbrances.
(d) Premier LP represents that neither the execution and delivery of this Agreement by Premier LP nor the consummation of the transactions contemplated herein,
including the Reorganization, (i) conflicts with or results in a breach of any of the terms, conditions or provisions of the organizational documents of Premier LP or any agreement or instrument to which Premier LP is a party or by which the material assets of Premier LP are bound or (ii) constitutes a default under any of the foregoing, except to the extent that any conflict, breach or default under this subsection (d) would not prevent or materially hinder the performance of the actions contemplated by this Agreement.
(e) Premier LP represents that there are no actions, suits or proceedings pending or, to the knowledge of Premier LP, threatened against or affecting Premier LP or assets of Premier LP in any court or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality which, if adversely determined, would impair the ability of Premier LP to perform Premier LPs obligations under this Agreement.
(f) Premier LP represents that its performance of this Agreement will not violate any order, writ, injunction, decree or demand of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality to which Premier LP is subject.
ARTICLE 3
MISCELLANEOUS
SECTION 3.1 Entire Agreement. This Agreement shall constitute the entire agreement among the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.
SECTION 3.2 Amendment, Modification or Waiver. This Agreement may be amended, modified, waived or supplemented, in whole or in part, as to any party hereto by a written agreement signed by each party hereto. No failure or delay on the part of any party in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. The waiver by such parties of any breach of this Agreement shall not be construed as a waiver of any subsequent breach.
SECTION 3.3 Successors and Assigns. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns, but neither this Agreement nor any of the rights, interests and obligations hereunder shall be assigned or otherwise transferred, in whole or in part, by any party without the prior written consent of each of the parties.
SECTION 3.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
SECTION 3.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California (other than the laws regarding choice of laws
and conflicts of laws that would apply the substantive laws of any other jurisdiction) as to all matters, including matters of validity, construction, effect, performance and remedies.
SECTION 3.6 Interpretation. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.
SECTION 3.7 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party.
SECTION 3.8 Void Date. If the Effective Date does not occur prior to March 31, 2014, this Agreement shall be null and void and of no further force or effect.
[Signature page follows]
IN WITNESS WHEREOF, the undersigned have executed this Contribution Agreement as of the dates set forth below.
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STOCKHOLDER | ||
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Date: , 2013 |
By: |
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Name: |
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Title: |
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PREMIER PURCHASING PARTNERS, L.P. | ||
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Date: , 2013 |
By: |
Premier Plans, LLC, its general partner | |
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By: |
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Name: |
Craig McKasson |
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Title: |
Chief Financial Officer |
Schedule A
Holder |
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Number of Shares |
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Annex I
Examples of Calculation of Premier LP Class B Common Units
to be Issued to Stockholder After Giving Effect to the Contribution
Owner Percentage Interest Formula |
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Example |
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Example |
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Example |
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Example: Fair Market Value of Premier LP |
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a |
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$3,240M |
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Example: Fair Market Value of Premier, Inc. |
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b |
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$360M |
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Example: Combined Fair Market Value |
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c |
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$3,600M |
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Owner Interest in Premier LP |
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d |
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1.00 |
% |
1.00 |
% |
1.00 |
% |
Owner Interest in Premier, Inc. |
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e |
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0.50 |
% |
1.00 |
% |
1.50 |
% |
Owner Combined Interest in Premier LP |
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(a*d + b*e)/c |
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0.95 |
% |
1.00 |
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1.05 |
% |
Exhibit 10.30
EXECUTION COPY
LOAN AGREEMENT
Dated as of December 16, 2011
among
PREMIER, INC.,
a Delaware corporation
and
PREMIER PURCHASING PARTNERS, L.P.,
a California limited partnership
(collectively the Borrowers)
THE GUARANTORS FROM TIME TO TIME PARTIES HERETO
(the Guarantors)
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
(the Lender)
TABLE OF CONTENTS
SECTION 1 DEFINITIONS |
1 | |
1.1 |
Definitions |
1 |
1.2 |
Computation of Time Periods |
20 |
1.3 |
Accounting Terms |
20 |
SECTION 2 LOAN FACILITIES |
21 | |
2.1 |
Revolving Loans |
21 |
2.2 |
Letters of Credit |
23 |
SECTION 3 OTHER PROVISIONS RELATING TO LOAN FACILITIES |
24 | |
3.1 |
Default Rate |
24 |
3.2 |
Continuation of Outstanding Advances |
24 |
3.3 |
Prepayments |
25 |
3.4 |
Termination and Reduction of Revolving Committed Amount |
25 |
3.5 |
Fees |
25 |
3.6 |
Special Provisions Regarding LIBOR-Based Rate |
26 |
3.7 |
Credit Parties Agent |
28 |
3.8 |
Payments, Computations, Etc. |
28 |
3.9 |
Evidence of Debt |
29 |
SECTION 4 GUARANTY |
30 | |
4.1 |
The Guaranty |
30 |
4.2 |
Obligations Unconditional; Subordination |
30 |
4.3 |
Reinstatement |
32 |
4.4 |
Certain Additional Waivers |
32 |
4.5 |
Remedies |
32 |
4.6 |
Guarantee of Payment; Continuing Guarantee |
32 |
4.7 |
Indemnity and Subrogation |
32 |
4.8 |
Contribution and Subrogation |
33 |
4.9 |
Subordination |
33 |
4.10 |
Termination |
34 |
4.11 |
Savings Clause |
34 |
SECTION 5 CONDITIONS |
35 | |
5.1 |
Closing Conditions |
35 |
5.2 |
Conditions to all Extensions of Credit |
38 |
SECTION 6 REPRESENTATIONS AND WARRANTIES |
39 | |
6.1 |
Financial Condition |
39 |
6.2 |
No Material Change |
39 |
6.3 |
Organization and Good Standing |
39 |
6.4 |
Power; Authorization; Enforceable Obligations |
40 |
6.5 |
No Conflicts |
40 |
6.6 |
No Default |
41 |
6.7 |
Ownership |
41 |
6.8 |
Indebtedness |
41 |
6.9 |
Litigation |
41 |
6.10 |
Taxes |
41 |
6.11 |
Compliance with Law |
42 |
6.12 |
ERISA |
42 |
6.13 |
Corporate Structure; Capital Stock, Etc. |
43 |
6.14 |
Governmental Regulations, Etc. |
43 |
6.15 |
Purpose of Loans |
43 |
6.16 |
Environmental Matters |
44 |
6.17 |
Intellectual Property |
45 |
6.18 |
Solvency |
45 |
6.19 |
Investments |
45 |
6.20 |
Business Locations |
45 |
6.21 |
Disclosure |
46 |
6.22 |
Brokers Fees |
46 |
6.23 |
Labor Matters |
46 |
6.24 |
Certificates |
46 |
6.25 |
Subsidiaries |
47 |
6.26 |
Names |
47 |
6.27 |
No Governmental Approvals |
47 |
6.28 |
Compliance with OFAC Rules and Regulations |
47 |
6.29 |
Anti-Terrorism Laws |
47 |
SECTION 7 AFFIRMATIVE COVENANTS |
48 | |
7.1 |
Information Covenants |
48 |
7.2 |
Preservation of Existence and Franchises |
50 |
7.3 |
Books and Records |
51 |
7.4 |
Compliance with Law |
51 |
7.5 |
Payment of Taxes and Other Claims |
51 |
7.6 |
Insurance |
51 |
7.7 |
Maintenance of Property |
51 |
7.8 |
Use of Proceeds |
52 |
7.9 |
Audits/Inspections |
52 |
7.10 |
Financial Covenants |
52 |
7.11 |
New Subsidiaries |
52 |
7.12 |
Pledged Assets |
53 |
7.13 |
Landlord and Mortgagee Consents |
53 |
7.14 |
Deposit Accounts |
53 |
7.15 |
Further Assurances |
54 |
SECTION 8 NEGATIVE COVENANTS |
54 | |
8.1 |
Indebtedness |
54 |
8.2 |
Liens |
56 |
8.3 |
Conduct of Business |
58 |
8.4 |
Consolidation, Merger, Dissolution, Etc. |
58 |
8.5 |
Acquisition; Asset Dispositions |
58 |
8.7 |
Restricted Payments |
60 |
8.8 |
Prepayment of Other Indebtedness, Etc. |
60 |
8.9 |
Transactions with Insiders |
60 |
8.10 |
Fiscal Year; Organizational Documents; Change of Credit Party Name |
60 |
8.11 |
Limitation on Restricted Actions |
61 |
8.12 |
Ownership of Subsidiaries |
61 |
8.13 |
Sale Leasebacks |
61 |
8.14 |
No Negative Pledges |
61 |
SECTION 9 EVENTS OF DEFAULT |
62 | |
9.1 |
Events of Default |
62 |
9.2 |
Acceleration; Remedies |
65 |
SECTION 10 MISCELLANEOUS |
65 | |
10.1 |
Notices |
65 |
10.2 |
Right of Set-Off; Adjustments |
67 |
10.3 |
Successors and Assigns |
67 |
10.4 |
No Waiver; Remedies Cumulative |
67 |
10.5 |
Expenses; Indemnification |
68 |
10.6 |
Amendments, Waivers and Consents |
69 |
10.7 |
Counterparts |
69 |
10.8 |
Headings |
69 |
10.9 |
Survival |
69 |
10.10 |
Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial |
69 |
10.11 |
Severability |
70 |
10.12 |
Entirety |
70 |
10.13 |
Binding Effect; Termination |
70 |
10.14 |
Confidentiality |
71 |
10.15 |
Conflict |
71 |
10.16 |
No Advisory or Fiduciary Responsibility |
71 |
10.17 |
Continuing Agreement |
72 |
10.18 |
Concerning Joint and Several Obligations of the Borrowers |
73 |
Schedules |
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Schedule 1.1 |
Investment Guidelines |
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Schedule 6.4 |
Required Consents, Authorizations, Notices and Filings |
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Schedule 6.13 |
Company Structure/Credit Parties |
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Schedule 6.16 |
Environmental Permits |
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Schedule 6.17 |
Intellectual Property |
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Schedule 6.20(a) |
Real Property Locations |
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Schedule 6.20(b) |
Personal Property Collateral Locations |
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Schedule 6.20(c) |
Chief Executive Offices/Principal Places of Business |
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Schedule 6.22 |
Brokers Fees |
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Schedule 6.25 |
Names of Subsidiaries |
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Schedule 6.26 |
Names |
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Schedule 7.6 |
Insurance |
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Schedule 8.1 |
Indebtedness |
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Schedule 8.2 |
Liens |
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Schedule 8.6 |
Investments |
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Exhibits |
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Exhibit 1.1 |
Form of Permitted Acquisition Certificate |
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Exhibit 2.1(b)(i) |
Form of Notice of Borrowing |
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Exhibit 2.1(e) |
Form of Revolving Note |
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Exhibit 3.2 |
Form of Notice of Continuation |
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Exhibit 5.1(g) |
Form of Financial Condition Certificate |
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Exhibit 5.1(l) |
Form of Solvency Certificate |
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Exhibit 7.1(d) |
Form of Officers Compliance Certificate |
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Exhibit 7.11 |
Form of Joinder Agreement |
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LOAN AGREEMENT
THIS LOAN AGREEMENT, effective as of December 16, 2011 (as amended, modified, restated or supplemented from time to time, the Loan Agreement), is by and among PREMIER, INC., a Delaware corporation (the Company) and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership (PPPLP, and together with the Company, each individually, a Borrower and collectively, the Borrowers), the Guarantors (as hereinafter defined) and WELLS FARGO BANK, NATIONAL ASSOCIATION (the Lender).
W I T N E S S E T H
WHEREAS, the Credit Parties (as hereinafter defined) have requested that the Lender make loans and other financial accommodations to the Credit Parties in an aggregate amount of up to $100,000,000, as more particularly described herein; and
WHEREAS, the Lender has agreed to make such loans and other financial accommodations to the Credit Parties on the terms and conditions contained herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions.
As used in this Loan Agreement, the following terms shall have the meanings specified below unless the context otherwise requires:
Acquisition by any Person, means the acquisition by such Person, in a single transaction or in a series of related transactions, of all of the Capital Stock or all or substantially all of the Property of another Person, whether or not involving a merger or consolidation with such other Person and whether for cash, property, services, assumption of Indebtedness, securities or otherwise.
Adjusted Base Rate means the Base Rate plus the Applicable Percentage.
Adjusted LIBOR-Based Rate means the LIBOR-Based Rate plus the Applicable Percentage.
Affiliate means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For purposes of this definition, control when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing.
Agreement or Loan Agreement means this Agreement, as amended, modified, extended, restated, replaced, or supplemented from time to time in accordance with its terms.
Application and Agreement for Standby Irrevocable Letter of Credit means an application and agreement for the issuance by the Lender of a Letter of Credit in form and substance acceptable to the Lender in its discretion.
Applicable Percentage means for (a) Loans that are Base Rate Loans, 0.25% per annum and (b) Loans that are LIBOR Loans, 1.25% per annum.
Approved Bank has the meaning assigned to such term in the definition of Cash Equivalents.
Asset Disposition means any disposition (including pursuant to Sale and Leaseback Transactions) of any or all of the Property (including, without limitation the disposition by any Credit Party of Capital Stock of an Affiliate) of any Credit Party whether by sale, lease, licensing, transfer or otherwise (other than pursuant to any casualty or condemnation event), provided, however, that the term Asset Disposition shall be deemed to exclude any Equity Issuance.
Avoidance Provisions has the meaning set forth in Section 4.11(b).
Bank Product means any of the following products, services or facilities extended to any Credit Party or any Subsidiary by the Lender: (a) Cash Management Services; (b) products under any Hedging Agreement; and (c) commercial credit card, purchase card and merchant card services.
Bank Product Debt means the Indebtedness and other obligations of any Credit Party or Subsidiary relating to Bank Products.
Bankruptcy Code means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
Bankruptcy Event means, with respect to any Person, the occurrence of any of the following: (a) the entry of a decree or order for relief by a court or governmental agency in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the appointment by a court or governmental agency of a receiver, liquidator, assignee. custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or the ordering of the winding up or liquidation of its affairs by a court or governmental agency; or (b) the commencement against such Person of an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or of any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed for a period of sixty (60) consecutive days, or the repossession or seizure by a creditor of such Person of a substantial part of its
Property; or (c) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or the taking possession by a receiver, liquidator, assignee, secured creditor, custodian, trustee, sequestrator (or similar official) of such Person or for any substantial part of its Property or make any general assignment for the benefit of creditors; or (d) such Person shall admit in writing its inability to pay its debts generally as they become due.
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 Effective Rate in effect on such day plus 1/2 of 1% and (c) the sum of (i) the LIBOR-Based Rate (as determined pursuant to the definition of LIBOR-Based Rate), for a LIBOR Interest Period of one (1) month commencing on such day plus (ii) 1.00%, in each instance as of such date of determination. For purposes hereof: Prime Rate shall mean, at any time, the rate of interest per annum publicly announced or otherwise identified from time to time by Wells Fargo at its principal office in Charlotte, North Carolina as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by Wells Fargo as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks; and Federal Funds Effective Rate shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Lender from three federal funds brokers of recognized standing selected by it. If for any reason the Lender shall have determined in good faith (which determination shall be conclusive in the absence of manifest error) (A) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Lender to obtain sufficient quotations in accordance with the terms above or (B) that the Prime Rate or LIBOR-Based Rate no longer accurately reflects an accurate determination of the prevailing Prime Rate or LIBOR-Based Rate, the Lender may select a reasonably comparable index or source to use as the basis for the Base Rate, until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in any of the foregoing will become effective on the effective date of such change in the Federal Funds Rate, the Prime Rate or LIBOR-Based Rate for a LIBOR Interest Period of one (1) month. Notwithstanding anything contained herein to the contrary, to the extent that the provisions of Section 3.6(e) or (f) shall be in effect in determining the LIBOR-Based Rate pursuant to clause (c) hereof, the Base Rate shall be the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
Base Rate Loan means any Loan bearing interest at a rate determined by reference to the Adjusted Base Rate.
Books and Records means: customer, inventory, billing and supply records; product information; product drawings; production documentation; materials specifications; technical reference materials; equipment lists; formulae; specifications; plans; reports; financial data; notes; correspondence; marketing and production materials; files; instruction or maintenance
manuals for equipment; organizational documents and filings; bylaws; shareholder agreements; operating agreements; minutes of meetings; resolutions of owners, directors, or officers; tax returns, filings, elections, and notices; employee records and files; regulatory materials and documents; and all other books and records relating to the operation of the Business.
Business means, in the aggregate, all operations, businesses, and enterprises of the Credit Parties and any operations, businesses or enterprises reasonably related, complementary or ancillary thereto.
Business Day means a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina are authorized or required by law to close, except that, when used in connection with a LIBOR Loan, such day shall also be a day on which dealings between banks are carried on in Dollar deposits in London, England.
Capital Lease means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is required to be accounted for as a capital lease on the balance sheet of that Person.
Capital Lease Obligations shall mean the capitalized lease obligations relating to a Capital Lease determined in accordance with GAAP.
Capital Stock means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests (regardless of class), and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
Cash Equivalents means, as at any date, (a) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (b) Dollar denominated time deposits and certificates of deposit of (i) the Lender, (ii) any domestic commercial bank of recognized standing or any U.S. branch of a foreign bank having capital and surplus in excess of $250,000,000 or (iii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moodys is at least P-1 or the equivalent thereof (any such bank being an Approved Bank), in each case with maturities of not more than 360 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moodys and maturing within 12 months of the date of acquisition, (d) repurchase agreements with a term of not more than thirty (30) days entered into by any Person with a bank or trust company (including the Lender) or recognized securities dealer having capital and surplus in excess of $250,000,000 for direct obligations issued by or fully guaranteed by the United States in which such Person shall have a perfected
first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations and (e) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by one or more reputable financial institutions having capital of at least $250,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing subdivisions (a) through (d).
Cash Management Services means any services provided from time to time to any Credit Party or Subsidiary in connection with operating, collections, payroll, trust, or other depository or disbursement accounts, including automatic clearinghouse, controlled disbursement, depository, electronic funds transfer, information reporting, lockbox, stop payment, overdraft and/or wire transfer services and all other treasury and cash management services.
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 and (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, shall in each case be deemed to be a Change in Law, regardless of the date enacted, adopted or issued.
Change of Control means at any time the occurrence of any of the following events: (a) prior to an IPO, Persons constituting beneficial owners (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act, as amended) as of the Closing Date of the outstanding Voting Stock of the Company and PPPLP shall cease, for any reason, to be the beneficial owners of greater than 50% of the outstanding Voting Stock of each of the Company and PPPLP; (b) subsequent to an IPO, Persons constituting beneficial owners (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act, as amended) as of the Closing Date of the outstanding Voting Stock of the Company and PPPLP shall cease, for any reason, to be the beneficial owners of at least 25% of the outstanding Voting Stock of each of the Company and PPPLP; (c) the replacement of a majority of the board of directors of the Company over a two-year period from the directors who constituted the board of directors at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the board of directors of the Company then still in office who either were members of such board of directors at the beginning of such period or whose election as a member of such board of directors was previously so approved; or (d) the Company or any entity reasonably acceptable to the Lender shall cease to be the general partner of PPPLP.
Claiming Guarantor has the meaning set forth in Section 4.8.
Closing Date means the date hereof.
Code means the Internal Revenue Code of 1986, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections.
Collateral means a collective reference to all personal Property with respect to which Liens in favor of the Lender are purported to be granted pursuant to and in accordance with the terms of the Collateral Documents; provided, however, in no event shall (a) the Excluded Assets or (b) the ownership interests in Excluded Entities be included as Collateral.
Collateral Documents means a collective reference to the Security Agreement, the Pledge Agreement and such other documents executed and delivered in connection with the attachment and perfection of the Lenders security interests and liens arising thereunder, including without limitation, UCC financing statements and patent and trademark filings.
Combined means, when used with reference to financial statements or financial statement items of the Credit Parties and their Subsidiaries or any other Person, such statements or items on a combined basis in accordance with the combination principles of GAAP.
Combined Assets means, as of any date of determination, the Combined assets of the Credit Parties and their Subsidiaries at such date, as determined in accordance with GAAP.
Combined EBITDA means, as of any date of determination for the Four-Quarter Period ending on such date, without duplication, (a) Combined Net Income of the Credit Parties and their Subsidiaries for such period plus (b) the sum of the following to the extent deducted in calculating Combined Net Income for such period: (i) Combined Interest Expense of the Credit Parties and their Subsidiaries for such period; (ii) tax expense (including, without limitation, any federal, state, local and foreign income and similar taxes) of the Credit Parties and their Subsidiaries for such period on a Combined basis; (iii) depreciation and amortization expense of the Credit Parties and their Subsidiaries for such period on a Combined basis (including amortization of intangibles (including, but not limited to, goodwill) and organization costs); (iv) other non-cash charges, non-cash expenses and non-cash items reducing Combined Net Income for such period, including (A) charges against goodwill, (B) the amount of any non-cash loss that is recognized pursuant to SFAS 141(R) in connection with the recognition or re-measurement of any earnout payment liability, (C) the amount of any non-cash loss associated with foreign exchange contracts, (D) the amount of any amortization of customer contracts, non-compete agreements or other intangible assets, and (E) the impact of acquisition accounting or similar adjustments required or permitted by GAAP in connection with any Permitted Acquisition; provided, that cash payments made in such period or in any future period in respect of such non-cash charges, expenses or losses (excluding any such charge, expense or loss incurred in the ordinary course of business that constitutes an accrual of or a reserve for cash charges for any future period) shall be subtracted from Combined Net Income in calculating Combined EBITDA in the period when such payments are made; (v) following any Permitted Acquisition, for each quarter during the four consecutive fiscal quarter period preceding the date
of any such Permitted Acquisition, such amounts of trailing twelve month EBITDA for the target business acquired by any Credit Party in such Permitted Acquisition as the Credit Parties and the Lender shall agree to in writing; and (vi) non-recurring cash charges of up to $1,000,000 for any 12-month period.
Combined Interest Expense means, as of any date of determination for the Four-Quarter Period ending on such date, all interest expense (excluding amortization of debt discount and premium, but including the interest component under Capital Leases and synthetic leases, tax retention operating leases, off-balance sheet loans and similar off-balance sheet financing products) for such period of the Credit Parties and their Subsidiaries on a Combined basis.
Combined Net Income means for any period, on a Combined basis in accordance with GAAP with respect to the Credit Parties, the income of such Person for such period, after deducting therefrom all operating expenses, provisions for all taxes and reserves and all other proper deductions, all determined in accordance with GAAP
Commitment Fee has the meaning given such term in Section 3.5(a) hereof.
Commitment Fee Calculation Period has the meaning given such term in Section 3.5(a) hereof.
Company has the meaning assigned to such term in the opening paragraph of this Agreement.
Continue, Continuation and Continued means the continuation pursuant to Section 3.2 hereof of a LIBOR Loan, only with respect to Revolving Loans, from one LIBOR Interest Period to the next LIBOR Interest Period.
Contributing Guarantor has the meaning set forth in Section 4.8.
Credit Parties means, collectively, the Borrowers and the Guarantors, and Credit Party means any one of them.
Credit Parties Agent means the Company, in its capacity as agent for the Credit Parties in accordance with Section 3.7.
Credit Party Obligations means, without duplication, (a) all of the obligations (whether in the capacity of a borrower, guarantor, indemnitor or otherwise) of the Credit Parties to the Lender whenever arising under this Loan Agreement, the Revolving Notes, the Collateral Documents, the LC Documents or any of the other Loan Documents (including, but not limited to, any interest accruing after the occurrence of a Bankruptcy Event with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code), specifically including, without limitation, the Guaranteed Obligations, and (b) all liabilities and obligations, whenever arising, owing from any Credit Party to the Lender, or any Affiliate of the Lender, arising under any Bank Product.
Default means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
Default Rate means when used with respect to the Obligations or any other fee or amount due hereunder, a rate equal to the then-applicable interest rate (including the Applicable Percentage) plus 2% per annum.
Defined Category has the meaning set forth in Section 3.6(a).
Delivered Financial Statements has the meaning set forth in Section 6.1.
Dollars and $ means dollars in lawful currency of the United States.
Domestic Subsidiary means any direct or indirect Subsidiary of any Credit Party which is incorporated or organized under the laws of any State of the United States or the District of Columbia.
EBITDA Coverage Ratio means as of any date of determination for the Four-Quarter Period ending on such date with respect to the Credit Parties and their Subsidiaries on a Combined basis, the ratio of (a) Combined EBITDA to (b) the sum of (i) Combined Interest Expense paid or payable in cash plus (ii) Scheduled Funded Debt Payments made during such period (including the principal component of payments due on Capital Leases) plus (iii) $5,000,000.
Environmental Laws means any and all lawful and applicable Federal, state, local and foreign statutes, laws (including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Toxic Substances Control Act, the Water Pollution Control Act, the Clean Air Act and the Hazardous Materials Transportation Act), regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, Licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
Equipment means all equipment of the Credit Parties, as such term is defined by the UCC, together with all accessions, parts and additions now or hereafter affixed thereto or used in connection therewith.
Equity Issuance means any issuance by any Credit Party to any Person of (a) shares of its Capital Stock, (b) any shares of its Capital Stock pursuant to the exercise of options or warrants, (c) any shares of its Capital Stock pursuant to the conversion of any debt securities to equity or (d) any options or warrants relating to its Capital Stock. The term Equity Issuance shall not be deemed to include any Asset Disposition.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, as interpreted by the rules and regulations thereunder, all as the same may be in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections.
ERISA Affiliate means an entity which is under common control with any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is a member of a group which includes any Credit Party and which is treated as a single employer under Sections 414(b) or (c) of the Code.
ERISA Event means (a) with respect to any Plan, the occurrence of a Reportable Event or the substantial cessation of operations (within the meaning of Section 4062(e) of ERISA); (b) the withdrawal by any Credit Party or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan; (c) the distribution of a notice of intent to terminate or the actual termination of a Plan pursuant to Section 4041 (a)(2) or 4041A of ERISA; (d) the institution of proceedings to terminate or the actual termination of a Plan by the PBGC under Section 4042 of ERISA; (e) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (f) the complete or partial withdrawal of any Credit Party or any ERISA Affiliate from a Multiemployer Plan; (g) the conditions for imposition of a lien under Section 302(f) of ERISA exist with respect to any Plan; or (h) the adoption of an amendment to any Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA.
Event of Default has the meaning assigned to such term in Section 9.1.
Excess Funding Borrower has the meaning set forth in Section 10.18.
Excess Payment has the meaning set forth in Section 10.18.
Excluded Accounts means all deposit accounts of the Credit Parties that are (i) exclusively used for payroll, payroll taxes and other employee wage and benefit payments or other fiduciary obligations to or for the benefit of a Credit Partys salaried employees, (ii) accounts containing cash collateral supporting letters of credit in favor of the State of Vermont in an aggregate amount not to exceed $7,500,000 at any time, (iii) cash collateral accounts for amounts serving as cash collateral for obligations with respect to any letters of credit as required by any Requirement of Law or by any Governmental Authority; provided that the aggregate amount of such cash collateral shall not exceed $10,000,000 at any time, (iv) zero balance accounts, (v) petty cash accounts so long as the aggregate amount of funds on deposit in such accounts does not exceed $50,000 during any three consecutive Business Days, or (vi) located outside the United States.
Excluded Assets means each of the following assets: (a) any Excluded Account; (b) any lease, license, contract, property right or agreement to which any Credit Party is a party or any of its rights or interests thereunder if and for so long as the grant of the security interest of the Lender, with respect thereto shall constitute or result in (i) the abandonment, invalidation or
unenforceability of any right, title or interest of any Credit Party therein or (ii) a breach, default or termination pursuant to the terms thereof, other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, such asset shall no longer be an Excluded Asset (and such security interest shall attach) immediately at such time as the contractual prohibition shall no longer be applicable and to the extent severable, shall attach immediately to any portion of such asset that does not result in any of the consequences specified herein; (c) any lease, license, contract, property right or agreement to which any Credit Party is a party or any of its rights or interests thereunder if and for so long as the grant of the security interest of the Lender, with respect thereto (i) is prohibited by applicable law or (ii) requires a consent pursuant to any applicable law that has not been obtained from any governmental authority; provided, such asset shall no longer be an Excluded Asset (and such security interest shall attach) immediately at such time the grant of a security interest therein shall no longer be prohibited by applicable law; (d) any of the outstanding Capital Stock of a Foreign Subsidiary in excess of 65% of the voting power of all classes of Capital Stock of such Foreign Subsidiary entitled to vote; provided, that immediately upon the amendment of the Code to allow the pledge of a greater percentage of the voting power of Capital Stock in a Foreign Subsidiary without adverse tax consequences to any Credit Party, the Collateral shall include, and the security interest granted by the applicable Credit Party shall attach to, such greater percentage of Capital Stock of each Foreign Subsidiary; and (e) any asset with respect to which the Lender shall have reasonably determined in writing (in consultation with the applicable Credit Party) that the cost of obtaining a security interest in such asset is excessive in relation to the value of the security to be afforded thereby.
Excluded Entities means (a) Global Healthcare Exchange, LLC, (b) Innovatix, LLC, (c) Premier Medical Partner Fund, L.P., (d) Premier Research Institute, Inc., (e) Premier, Inc. Employees Civic Action Fund, (f) Premier Hospitals Alliance of New York, Inc., (g) AmHS Heritage, LLC, (h) Sun Alliance, LLC and (i) the Excluded Subsidiaries.
Excluded Subsidiaries means (a) Premier UK Health Care Consulting Limited, (b) Premier Insurance Management Services and (c) SVS LLC; provided, however SVS LLC shall cease to be an Excluded Subsidiary as of the date on which the credit facility of SVS LLC in favor of First Midwest Bank shall be repaid in full, and SVS LLC shall be joined as a Credit Party pursuant to the terms of Section 7.11 hereof as if it were a new Subsidiary.
Executive Officer of any Person means any of the chief executive officer, chief operating officer, president, vice-president, treasurer or chief financial officer of such Person.
Fees means all fees payable pursuant to Section 3.5.
Foreign Subsidiary means any direct or indirect Subsidiary of any Credit Party which is not a Domestic Subsidiary.
Four-Quarter Period means the rolling, prior four consecutive fiscal quarters ending on the date of any computation of any ratio or other provision contained herein (including the quarter ending on the date as of which such computation is made).
Fully Satisfied means, with respect to the Credit Party Obligations as of any date, that as of such date: (a) all principal of and interest accrued to such date which constitute Credit Party Obligations shall have been finally paid in full in cash, (b) all reasonable and documented fees, out-of-pocket expenses and other amounts then due and payable which constitute Credit Party Obligations shall have been finally paid in cash, and (c) the Revolving Commitment shall have been expired or terminated in full.
Funded Debt means, with respect to any Person, without duplication, all Indebtedness of such Person (other than Indebtedness set forth in clauses (d), (e) and (i) of such definition).
GAAP means generally accepted accounting principles in the United Stales applied on a consistent basis and subject to the terms of Section 1.3.
Governmental Authority means any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body.
Guaranteed Obligations has the meaning set forth in Section 4.1.
Guarantors means the Subsidiaries of the Borrowers (other than the Excluded Subsidiaries) as are, or may from time to time become, parties to this Agreement as Guarantors.
Guaranty Obligations means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (a) to purchase any such Indebtedness or any Property constituting security therefor, (b) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (c) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (d) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount available to be advanced, if larger) of the Indebtedness in respect of which such Guaranty Obligation 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.
Hedging Agreement means, with respect to any Person, any agreement entered into to protect such Person against fluctuations in interest rates, or currency or raw materials values, including, without limitation, any interest rate swap, cap or collar agreement or similar
arrangement between such Person and one or more counterparties, any foreign currency exchange agreement, currency protection agreements, commodity purchase or option agreements or other interest or exchange rate hedging agreements.
Increased Costs has the meaning set forth in Section 3.6(a).
Incremental Revolving Facility has the meaning set forth in Section 2.3.
Indebtedness means, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations (including, without limitation, earnout obligations) of such Person incurred, issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (e) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all Guaranty Obligations of such Person with respect to Indebtedness of another Person, (h) the principal portion of all Capital Lease Obligations plus any accrued interest thereon, (i) all net obligations of such Person under Hedging Agreements, (j) the maximum amount of all letters of credit issued or bankers acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (k) all preferred Capital Stock issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration, (l) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product plus any accrued interest thereon and (m) all obligations of the foregoing types of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer.
Indemnified Party has the meaning assigned to such term in Section 10.5(b).
Information has the meaning assigned to such term in Section 10.14.
Intellectual Property has the meaning assigned to such term in Section 6.17.
Interest Payment Date means (a) as to any Base Rate Loan, the last Business Day of each March, June, September and December and on the Maturity Date, (b) as to any LIBOR Loan having a LIBOR Interest Period of three months or less, the last day of such LIBOR Interest Period and (c) as to any Loan which is the subject of a mandatory prepayment required pursuant to Section 3.3(b), the date on which such mandatory prepayment is due.
Investment in any Person means (a) any Acquisition of such Person, (b) any other acquisition of Capital Stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of such Person, (c) any deposit with, or advance, loan or other extension of credit to, such Person, or (d) any other capital contribution to or investment in such Person, including, without limitation, any Guaranty Obligations (including any support for a letter of credit issued on behalf of such Person) incurred for the benefit of such Person and any Asset Disposition to such Person for consideration less than the fair market value of the Property disposed in such transaction, but excluding any Restricted Payment to such Person. Investments which are capital contributions or purchases of Capital Stock which have a right to participate in the profits of the issuer thereof shall be valued at the amount (or, in the case of any Investment made with Property other than cash, the book value of such Property) actually contributed or paid (including cash and non-cash consideration and any assumption of Indebtedness) to purchase such Capital Stock as of the date of such contribution or payment. Investments which are loans, advances, extensions of credit or Guaranty Obligations shall be valued at the principal amount of such loan, advance or extension of credit outstanding as of the date of determination or, as applicable, the principal amount of the loan or advance outstanding as of the date of determination actually guaranteed by such Guaranty Obligation.
Investment Guidelines means the Investment Policies and Guidelines of Premier, Inc. and Related Companies in existence as of the Closing Date and attached hereto as Schedule 1.1.
Involuntary Disposition means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any Property of any Credit Party.
IPO shall mean the first bona fide underwritten public offering by any Borrower of its Capital Stock after the Closing Date pursuant to an effective registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act.
Issuing Lender Fees has the meaning set forth in Section 3.5(c).
Joinder Agreement means a Joinder Agreement substantially in the form of Exhibit 7.11 hereto, executed and delivered by a new Guarantor in accordance with the provisions of Section 7.11 hereof.
Joint Obligations has the meaning set forth in Section 10.18(h).
LC Disbursement means a payment made by the Lender pursuant to a Letter of Credit.
LC Documents means the Letters of Credit and all applications, agreements and instruments relating to the Letters of Credit.
LC Exposure means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit plus (b) the aggregate amount of all LC Disbursements, that have not been reimbursed by or on behalf of the Credit Parties at such time.
Lender means Wells Fargo Bank, National Association and its successors and assigns.
Letter of Credit means any standby letter of credit issued pursuant to Section 2.2 by the Lender for the account of any Credit Party.
Letter of Credit Fee has the meaning set forth in Section 3.5(b).
LIBOR Loan means any advance or portion of any Loan that bears interest at a rate based upon the Adjusted LIBOR-Based Rate.
LIBOR-Based Rate means, for any LIBOR Loan and with respect to each applicable LIBOR Interest Period, on any date of determination, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBOR01 Page (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two (2) Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period. If for any reason such rate is not available, then LIBOR-Based Rate shall mean the rate per annum at which, as determined by the Lender in accordance with its customary practices consistently applied, Dollars in an amount comparable to the Loans then requested are being offered to leading banks in the London interbank market at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected
LIBOR Interest Period means the applicable period during which the amounts outstanding on the Loans shall accrue interest at a specified LIBOR-Based Rate, which applicable period shall be a period of one (1), two (2), three (3) or six (6) months, as the Credit Parties Agent may elect. The specified LIBOR-Based Rate shall apply daily or until the next Business Day when a new LIBOR-Based Rate is established.
Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance, lien (statutory or otherwise), preference, priority or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof).
Loan or Loans means the Revolving Loans (or a portion of any Revolving Loan bearing interest at the Adjusted Base Rate or the Adjusted LIBOR-Based Rate and referred to as a Base Rate Loan or a LIBOR Loan), individually or collectively, as appropriate.
Loan Documents means a collective reference to this Loan Agreement, the Revolving Notes, the Collateral Documents, the LC Documents, any Joinder Agreement and all other related agreements and documents issued or delivered hereunder or thereunder or pursuant hereto or thereto (but specifically excluding any Bank Products and all subordination agreements) (in each case as the same may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time), and Loan Document means any one of them.
Loan Facilities has the meaning assigned to such term in the Recitals of this Loan Agreement.
Material Adverse Effect means a material adverse effect on (a) the financial condition, operations, business, assets or liabilities of the Credit Parties, taken as a whole, (b) the ability of the Credit Parties taken as a whole to perform their obligations under the Loan Documents or (c) the rights and remedies of the Lender under the Loan Documents.
Materials of Environmental Concern means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
Maturity Date means December 16, 2014.
Moodys means Moodys Investors Service, Inc. or any successor or assignee of the business of such company in the business of rating securities.
Multiemployer Plan means a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
Multiple Employer Plan means a Plan (other than a Multiemployer Plan) which any Credit Party or any ERISA Affiliate and at least one employer other than the Credit Parties or any ERISA Affiliate are contributing sponsors.
Notice of Borrowing means a written notice of borrowing in substantially the form of Exhibit 2.1(b)(i), as required by Section 2.1(b)(i).
Notice of Continuation means the written notice of extension as referenced and defined in Section 3.2.
OFAC means the United States Department of the Treasurys Office of Foreign Assets Control or any successor thereto.
Operating Lease means, as applied to any Person, any lease (including, without limitation, leases which may be terminated by the lessee at any time) of any Property (whether real, personal or mixed) which is not a Capital Lease by that Person as lessee.
PBGC means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
Permitted Acquisition means an acquisition or any series of related acquisitions by a Credit Party of (a) all or substantially all of the assets or a majority of the outstanding Capital Stock or economic interests of a Person that is incorporated, formed or organized in the United States, (b) a Person that is incorporated, formed or organized in the United States by a merger, amalgamation or consolidation or any other combination with such Person or (c) any division, line of business or other business unit of a Person that is incorporated, formed or organized in the United States (such Person or such division, line of business or other business unit of such Person shall be referred to herein as the Target), in each case so long as:
(i) no Default or Event of Default shall then exist or would exist after giving effect thereto;
(ii) the Credit Parties shall demonstrate to the reasonable satisfaction of the Lender that, after giving effect to the acquisition on a pro forma basis, the Credit Parties are in compliance with each of the financial covenants set forth in Section 7.10;
(iii) the Lender shall have received (or shall receive in connection with the closing of such acquisition) a first priority perfected security interest in all property (including, without limitation, Capital Stock) acquired with respect to the Target in accordance with the terms of 7.12 and the Target, if a Person, shall have executed a Joinder Agreement in accordance with the terms of Section 7.11;
(iv) the Lender shall have received (A) a description of the material terms of such acquisition, (B) audited financial statements (or, if unavailable, management-prepared financial statements) of the Target for its two most recent fiscal years and for any fiscal quarters ended within the fiscal year to date, (C) projected income statements of the Credit Parties (giving effect to such acquisition), and (D) not less than five (5) Business Days prior to the consummation of any Permitted Acquisition with a purchase price in excess of $20,000,000, a certificate substantially in the form of Exhibit 1.1, executed by an authorized officer of the Credit Parties Agent certifying that such Permitted Acquisition complies with the requirements of this Agreement;
(v) with respect to any Permitted Acquisition with a purchase price in excess of $15,000,000, the Target shall have earnings before interest, taxes, depreciation and amortization for the four fiscal quarter period prior to the acquisition date in an amount greater than $0;
(vi) such acquisition shall not be a hostile acquisition and shall have been approved by the Board of Directors (or equivalent) and/or shareholders (or equivalent) of the applicable Credit Party and the Target; and
(vii) the aggregate consideration (including, without limitation, equity consideration, the reasonably projected value of earn out obligations as determined by the applicable Credit Partys senior management, deferred compensation, non-competition arrangements and the amount of Indebtedness and other liabilities incurred or assumed by the Credit Parties and their Subsidiaries) paid by the Credit Parties and their Subsidiaries in connection with (A) all acquisitions made during any calendar year shall not exceed $100,000,000 and (B) all acquisitions made during the term of this Agreement shall not exceed $200,000,000.
Permitted Investments means, at any time, Investments by the Credit Parties permitted to exist at such time pursuant to the terms of Section 8.6.
Permitted Liens means, at any time, Liens in respect of Property of the Credit Parties permitted to exist at such time pursuant to the terms of Section 8.2.
Permitted Refinancing means, with respect to any Person, any modification, refinancing, refunding, renewal or extension of any Indebtedness of such Person; provided, that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so modified, refinanced, refunded, renewed or extended except by an amount equal to (i) unpaid accrued interest and premiums thereon (including tender premiums) plus fees and expenses (including upfront fees and original issue discount) reasonably incurred, in connection with such modification, refinancing, refunding, renewal or extension, plus (ii) any existing commitments unutilized thereunder, (b) such modification, refinancing, refunding, renewal or extension has a final maturity date equal to or later than the final maturity date of the Indebtedness being modified, refinanced, refunded, renewed or extended, (c) immediately before and after giving effect thereto, no Event of Default shall have occurred and be continuing, and (d) the direct and contingent obligors with respect to such Indebtedness are not changed.
Person means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated) or any Governmental Authority.
Plan means (a) each of the employee benefit plans (as such term is defined in Section 3(3) of ERISA), of which any Credit Party or any ERISA Affiliate is or ever was a sponsor or participating employer or as to which any Credit Party or any of its ERISA Affiliates makes contributions or is required to make contributions, and (b) any similar employment, severance or other arrangement or policy of any of any Credit Party or any of its ERISA Affiliates (whether written or oral) providing for health, life, vision or dental insurance coverage (including self-insured arrangements), workers compensation, disability benefits, supplemental unemployment benefits, vacation benefits or retirement benefits, fringe benefits, or for profit sharing, deferred compensation, bonuses, stock options, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits.
Pledge Agreement means the Pledge Agreement dated as of the Closing Date to be executed in favor of the Lender by each of the Credit Parties, as amended, modified, restated or supplemented from time to time.
PPPLP has the meaning assigned to such term in the opening paragraph of this Agreement.
Pro Rata Share has the meaning set forth in Section 10.18.
Property means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.
Real Properties means, at any time, a collective reference to each of the facilities and real properties owned, leased or operated by any Credit Party at such time.
Regulation T, U or X means Regulation T, U or X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof.
Reportable Event means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation.
Requirement of Law means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or to which any of its Property is subject.
Restricted Payment means (a) any dividend or other payment or distribution, direct or indirect, on account of any shares of any class of Capital Stock of any Credit Party now or hereafter outstanding (including without limitation any payment in connection with any dissolution, merger, consolidation or disposition involving any Credit Party), or to the holders, in their capacity as such, of any shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding (other than dividends or distributions payable in Capital Stock of the applicable Person to any Credit Party), (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding and (d) any payment or prepayment of principal, premium (if any) or interest on, redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Indebtedness of any Credit Party or any of its Subsidiaries.
Revolving Commitment means the commitment of the Lender to make Revolving Loans in an aggregate principal amount not to exceed the Revolving Committed Amount.
Revolving Committed Amount has the meaning assigned to such term in Section 2.1(a).
Revolving Loans has the meaning assigned to such term in Section 2.1(a).
Revolving Note has the meaning assigned to such term in Section 2.1(e).
S&P means Standard & Poors Ratings Group, a division of The McGraw Hill Companies, Inc., or any successor or assignee of the business of such division in the business of rating securities.
Sale and Leaseback Transaction means any arrangement pursuant to which any Credit Party, directly or indirectly, becomes liable as lessee, guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any Property (a) which any Credit Party has sold or transferred (or is to sell or transfer) to a Person which is not a Credit Party or (b) which any Credit Party intends to use for substantially the same purpose as any other
Property which has been sold or transferred (or is to be sold or transferred) by any Credit Party to another Person which is not a Credit Party in connection with such lease.
Sanctioned Entity means (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, or (d) a person or entity resident in or determined to be resident in a country, that is subject to a country sanctions program administered and enforced by OFAC.
Sanctioned Person means a person named on the list of Specially Designated Nationals maintained by OFAC.
Scheduled Funded Debt Payments means, as of any date for the Four-Quarter Period ending on such date, the sum of all regularly scheduled payments of principal on Funded Debt of the Credit Parties and their Subsidiaries on a Combined basis for the applicable period ending on the date of determination (including the principal component of payments due on Capital Leases during the applicable period ending on the date of determination).
Securities Act means the Securities Act of 1933, as amended, and all regulations issued pursuant thereto.
Securities Exchange Act means the Securities Exchange Act of 1934, as amended, and all regulations issued pursuant thereto.
Security Agreement means the Security Agreement dated as of the Closing Date to be executed in favor of the Lender by each of the Credit Parties, as amended, modified, restated or supplemented from time to time.
Shareholder Equity means, as to the Credit Parties, the value as determined in accordance with GAAP of all outstanding equity of the Borrowers by their respective members, inclusive of all preferred membership interests, restricted membership interests, common membership interests, other classes of membership interests and other equity.
Single Employer Plan means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
Subordinated Indebtedness means any Indebtedness incurred by any Credit Party which by its terms is subordinated in right of payment to the prior payment of the Credit Party Obligations and contains subordination and other terms acceptable to the Lender.
Subsidiary means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, limited liability company, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a Subsidiary or to Subsidiaries in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower. For avoidance of doubt, PPPLP is not, and shall not be deemed to be, a Subsidiary of the Company.
Target has the meaning set forth in the definition of Permitted Acquisition.
Tangible Net Worth means, as of any date of determination, on a Combined basis an amount equal to Shareholder Equity on such date plus Subordinated Indebtedness of the Credit Parties and their Subsidiaries on such date minus the value of any intangible assets of the Credit Parties and their Subsidiaries on such date.
Total Leverage Ratio means as of any date of determination, for the Four-Quarter Period ending on such date, the ratio of (a) Funded Debt of the Credit Parties and their Subsidiaries on the last day of such period on a Combined basis to (b) Combined EBITDA of the Credit Parties and their Subsidiaries for such period.
Total Liabilities means as of any date of determination, on a Combined basis) the aggregate amount of all current liabilities and non-current liabilities of the Credit Parties and their Subsidiaries minus the aggregate amount of Subordinated Indebtedness of the Credit Parties and their Subsidiaries.
Transactions means the closing of this Agreement and the other Loan Documents and the other transactions contemplated hereby and pursuant to the other Loan Documents (including, without limitation, the initial borrowings under the Loan Documents and the payment of fees and expenses in connection with all of the foregoing).
UCC means the Uniform Commercial Code of the State of New York from time-to-time.
Unused Commitment Amount means, for any period, the amount by which (a) the then applicable Revolving Commitment Amount, exceeds (b) the daily average outstanding aggregate principal amount of all Revolving Loans plus LC Exposure for such period.
Voting Stock means, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote on any matter requiring the vote of holders of such Capital Stock as set forth in such Persons organizational documents or as provided by applicable law, even though the right so to vote has been suspended by the happening of such a contingency.
Wells Fargo means Wells Fargo Bank, National Association, a national banking association, together with its successors and/or assigns.
1.2 Computation of Time Periods.
For purposes of computation of periods of time hereunder, the word from means from and including and the words to and until each mean to but excluding.
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lender hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. All calculations made for the purposes of determining compliance with this Loan Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly financial statements delivered pursuant to Section 7.1. If (a) any Credit Party shall object to determining such compliance on such basis at the time of delivery of such financial statements due to any change in GAAP or the rules promulgated with respect thereto or (b) the Lender shall so object in writing within sixty (60) days after delivery of such financial statements, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by the Credit Parties to the Lender as to which no such objection shall have been made. Notwithstanding the foregoing or anything to the contrary in this Agreement or any other Loan Document, (i) any obligations of a Person under a lease (whether now existing or entered into in the future) that is not (or would not be) a Capital Lease Obligation under GAAP as in effect on the Closing Date, shall not be treated as a Capital Lease Obligation solely as a result of the adoption of changes in GAAP, and (ii) all terms of an accounting or financial nature used herein shall be construed (without limitation) without giving effect to any election under Accounting Standards Codification 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Credit Party at fair value. The parties hereto acknowledge and agree that, for purposes of all calculations made in determining compliance for any applicable period with the financial covenants set forth in Section 7.10, after consummation of any Permitted Acquisition, (a) income statement items and other balance sheet items (whether positive or negative) attributable to the Target acquired in such transaction shall be included in such calculations to the extent relating to such applicable period, subject to adjustments mutually acceptable to the Borrowers and the Lender and (b) Indebtedness of a Target which is retired in connection with a Permitted Acquisition shall be excluded from such calculations and deemed to have been retired as of the first day of such applicable period.
SECTION 2
LOAN FACILITIES
2.1 Revolving Loans.
(a) Revolving Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, the Lender agrees to make available revolving credit loans requested by the Credit Parties Agent in Dollars (Revolving Loans) to the applicable Borrower from time to time in an aggregate principal amount of up to ONE HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000) (as increased from time to time as provided in Section 2.3 and as such aggregate maximum amount may be reduced from time to time as provided in Section 3.4(a), the Revolving Committed Amount) from time to time from the Closing Date until the Maturity Date, or such earlier date as the Revolving Commitment shall have been terminated as provided herein; provided, however, that the sum of the (i) aggregate outstanding principal amount of Revolving Loans plus (ii) LC Exposure shall not exceed the Revolving Committed Amount then in effect, provided, further, that the LC
Exposure shall at no time exceed TWENTY MILLION AND NO/100 DOLLARS ($20,000,000); provided, however, the Loans made on the Closing Date or the Business Day following the Closing Date, may only consist of Base Rate Loans. Revolving Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Credit Parties Agent shall request a Revolving Loan borrowing on behalf of itself or on behalf of another Borrower by delivering written notice (or telephonic notice promptly confirmed in writing) to the Lender not later than 11:00 A.M. (Charlotte, North Carolina time) one Business Day prior to the date of the requested borrowing. Each such request for borrowing shall be irrevocable and shall specify (A) that a Revolving Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, (D) the applicable Borrower, (E) whether the Credit Parties elect to borrow at the Base Rate or the LIBOR-Based Rate, and (F) if a LIBOR-Based Rate loan is selected by the Credit Parties, the LIBOR Interest Period(s) therefor (it being understood that, for purposes hereof, LIBOR Loans with different LIBOR Interest Periods shall be considered as separate LIBOR Loans, even if they begin on the same date, although borrowings and extensions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Loan with a single LIBOR Interest Period). With respect to Revolving Loans only, if the Credit Parties Agent shall fail to specify an applicable LIBOR Interest Period in any such Notice of Borrowing, then such notice shall be deemed to be a request for an Interest Period of one (1) month.
(ii) Minimum Amounts. Each Revolving Loan that is made as a Base Rate Loan shall be in a minimum aggregate amount of $1,000,000 and in integral multiples of $250,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less). Each Revolving Loan that is made as a LIBOR Loan shall be in a minimum aggregate amount of $1,000,000 and in integral multiples of $250,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less).
(iii) Advances. The Lender will make each Revolving Loan borrowing available to the applicable Borrower by crediting the account of the applicable Borrower on the books of such office.
(iv) Other Borrowing Methods. Notwithstanding anything to the contrary contained in this clause (b), the Lender may, in its sole discretion, permit the Credit Parties Agent to use additional methods to request borrowings of Revolving Loans hereunder.
(c) Repayment. The Borrowers hereby jointly, severally and collectively promise to pay the principal amount of all outstanding Revolving Loans (including all LC Exposure) in full on the Maturity Date, or such earlier date if accelerated sooner pursuant to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Revolving Loans shall be comprised of Base Rate Loans, such Base Rate Loans shall bear interest at a per annum rate equal to the Adjusted Base Rate.
(ii) LIBOR Loans. During such periods as Revolving Loans shall be comprised of LIBOR Loans, such LIBOR Loans shall bear interest at a per annum rate equal to the applicable Adjusted LIBOR-Based Rate.
The Borrowers hereby jointly, severally and collectively promise to pay interest on Revolving Loans in arrears on each Interest Payment Date commencing December 31, 2011 (or at such other times as may be specified herein).
(e) Revolving Note. The Borrowers, on the Closing Date, will execute and deliver to the Lender a promissory note evidencing all the Revolving Loans to be made by the Lender in an original principal amount equal to the Revolving Committed Amount and in substantially the form of Exhibit 2.1(e) (the Revolving Note).
2.2 Letters of Credit.
(a) Until the Maturity Date, or such earlier date as the Revolving Commitment shall have been terminated as provided herein, the Lender agrees to issue, at the request of the Credit Parties Agent, Letters of Credit for the account of any Credit Party on the terms and conditions hereinafter set forth; provided, that (i) each Letter of Credit shall expire on the earlier of (A) the date one year after the date of issuance of such Letter of Credit (or in the case of any renewal or extension thereof, one year after such renewal or extension) and (B) the date that is five (5) Business Days prior to the Maturity Date; and (ii) the Credit Parties Agent may not request any Letter of Credit, if after giving effect to such issuance, (A) the LC Exposure would exceed $20,000,000, or (B) the LC Exposure plus the aggregate outstanding principal amount of all Revolving Loans would exceed the Revolving Committed Amount.
(b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Credit Parties Agent shall submit to the Lender a completed Application and Agreement for Standby Irrevocable Letter of Credit at least three (3) Business Days prior to the requested date of issuance specifying (i) the date (which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or renewed, as the case may be), (ii) the expiration date of such Letter of Credit, (iii) the amount of such Letter of Credit, (iv) the name and address of the beneficiary thereof and (v) such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Article V, the issuance of such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Lender shall reasonably approve and that the Credit Parties Agent shall have executed and delivered any additional applications, agreements and instruments relating to such Letter of Credit as the Lender shall reasonably require.
(c) If any Event of Default shall occur and be continuing, on the Business Day that the Credit Parties Agent receives notice from the Lender demanding the deposit of cash collateral pursuant to this paragraph, the Credit Parties Agent shall deposit in an account with the Lender, in the name of the Lender and for the benefit of the Lender, an amount in cash equal to the (i) LC Exposure as of such date plus any accrued and unpaid interest thereon; provided, that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, with demand or notice of any kind, upon the occurrence of any Event of Default with respect to any Credit Party described in Section 9.1(f) of this Loan Agreement. Such deposit shall be held by the Lender as collateral for the payment and performance of the Credit Party Obligations of the Credit Parties under this Loan Agreement. Subject to the last sentence of this subsection (c), the Lender shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and reasonable discretion of the Lender and at the Credit Parties risk and expense, such deposits shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Lender to reimburse itself for LC Disbursements for which it has not been reimbursed and to the extent so applied, shall be held for the satisfaction of the reimbursement obligations of the Credit Parties for the LC Exposure at such time or, if the Maturity Date has been accelerated, be applied to satisfy other Credit Party Obligations of the Credit Parties under this Loan Agreement. If the Credit Parties are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not so applied as aforesaid) shall be returned to the Credit Parties Agent within three (3) Business Days after all Events of Default have been cured or waived.
(d) Unless otherwise expressly agreed by the Lender and the Credit Parties, when a Letter of Credit is issued and subject to applicable laws, performance under Letters of Credit by the Lender, its correspondents, and the beneficiaries thereof will be governed by the rules of the International Standby Practices 1998 (ISP98) (or such later revision as may be published by the Institute of International Banking Law & Practice on any date any Letter of Credit may be issued) and to the extent not inconsistent therewith, the governing law of this Loan Agreement.
2.3 Incremental Revolving Facility. The Borrowers shall have the right prior to the Maturity Date, to request additional Indebtedness under this Agreement in the form of an increase to the Revolving Committed Amount (each an Incremental Revolving Facility) by an aggregate amount of up to $100,000,000. The Lender shall have no obligation to provide an Incremental Revolving Facility and any Incremental Revolving Facility shall be on terms and conditions mutually acceptable to the Lender and the Borrowers.
SECTION 3
OTHER PROVISIONS RELATING TO LOAN FACILITIES
3.1 Default Rate.
At the election of the Lender, upon the occurrence and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Loan Documents shall bear interest, payable on demand, at a per annum rate equal to the Default Rate.
3.2 Continuation of Outstanding Advances.
The Credit Parties shall have the option, on any Business Day, to extend any existing LIBOR Loan into a LIBOR Loan having a subsequent permissible Interest Period; provided, however, that (a) except as provided in Section 3.6 hereof, LIBOR Loans may be Continued as LIBOR Loans for new Interest Periods only on the last day of the Interest Period applicable thereto, (b) Loans Continued as LIBOR Loans shall be subject to the terms of the definition of LIBOR Interest Period set forth herein (c) no more than eight (8) (or if the Incremental Revolving Facility is in effect, 16) LIBOR Loans shall be outstanding hereunder at any time (it being understood that, for purposes hereof, LIBOR Loans with different Interest Periods shall be considered as separate LIBOR Loans, even if they begin on the same date, although advances and Continuations may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Loan with a single Interest Period) and (d) any request for Continuation of a LIBOR loan which shall fail to specify an Interest Period shall be deemed to be a request for an Interest Period of one (1) month. Each such Continuation shall be effected by the Credit Parties Agent by giving a Notice of Continuation (or telephonic notice promptly confirmed in writing) in the form of Exhibit 3.2 hereto to the office of the Lender specified in Section 10.1 hereof, or at such other office as the Lender may designate in writing, prior to 11:00 A.M. (Charlotte, North Carolina time) one (1) Business Day prior to the proposed date Continuation, specifying the date of the proposed Continuation, the Revolving Loans to be so Continued and the applicable LIBOR Interest Periods with respect thereto. Each request for a Continuation shall be irrevocable and shall constitute a representation and warranty by the Credit Parties Agent of the mailers specified in Section 5.2 hereof. In the event the Credit Parties Agent fails to request Continuation of any LIBOR Loan in accordance with this Section 3.2, or any such Continuation is not permitted or required by this Section 3.2, then such LIBOR Loan shall be Continued as a LIBOR Loan with a 1-month Interest Period.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrowers shall have the right to prepay Loans in whole or in part from time to time. Subject to the foregoing terms, amounts prepaid under this Section 3.3(a) shall be applied as the Credit Parties Agent may elect; provided that if the Credit Parties Agent shall fail to specify with respect to any voluntary prepayment, such voluntary prepayment shall be applied as the Lender elects. All prepayments under this Section 3.3(a) shall be subject to Section 3.6, but otherwise without premium or penalty, and shall be accompanied by interest on the principal amount prepaid through the date of prepayment.
(b) Mandatory Prepayments. If at any time, the sum of the (i) aggregate outstanding principal amount of Revolving Loans plus (ii) LC Exposure, shall exceed the Revolving Committed Amount, the Borrowers shall immediately prepay the Revolving Loans in an amount sufficient to eliminate such excess.
3.4 Termination and Reduction of Revolving Committed Amount.
(a) Voluntary Reductions. The Credit Parties Agent may from time to time permanently reduce or terminate the Revolving Committed Amount in whole or in part (in minimum aggregate amounts of $500,000 or in integral multiples of $100,000 in excess thereof (or, if less, the full remaining amount of the then applicable Revolving Committed Amount)) upon five (5) Business Days prior written notice to the Lender; provided, however, no such termination or reduction shall be made which would cause the (i) sum of the aggregate outstanding principal amount of Revolving Loans plus (ii) LC Exposure to exceed the Revolving Committed Amount, unless, concurrently with such termination or reduction, the Revolving Loans are repaid to the extent necessary to eliminate such excess.
(b) Maturity Date. Unless terminated sooner pursuant to Section 3.4(a) or Section 9.2, the Revolving Commitment of the Lender shall automatically terminate on the Maturity Date.
(c) General. The Borrowers shall pay to the Lender in accordance with the terms of Section 3.5(a), on the date of each termination or reduction of the Revolving Commitment, the Commitment Fee accrued through the date of such termination or reduction on the amount of the Revolving Commitment so terminated or reduced.
3.5 Fees.
(a) Commitment Fee. In consideration of the Revolving Commitment of the Lender hereunder, the Borrowers jointly and severally promise to pay to the Lender a fee (the Commitment Fee) in an amount equal to 0.22% per annum on the Unused Commitment Amount. The Commitment Fee shall commence to accrue on the Closing Date and shall be due and payable in arrears on the last Business Day of each March, June, September and December (and on any date that the Revolving Commitment is reduced and on the Maturity Date) for the immediately preceding quarter (or portion thereof) (each such quarter or portion thereof for which the Commitment Fee is payable hereunder being herein referred to as an Commitment Fee Calculation Period), beginning with the first of such dates to occur after the Closing Date.
(b) Letter of Credit Fees. In consideration of the LOC Commitments, the Credit Parties agree to pay to the Lender, a fee (the Letter of Credit Fee) equal to the Applicable Percentage for Loans that are LIBOR Rate Loans on the average daily maximum amount available to be drawn under each Letter of Credit from the date of issuance to the date of expiration. The Letter of Credit Fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter.
(c) Issuing Lender Fees. In addition to the Letter of Credit Fees payable pursuant to subsection (b) hereof, the Credit Parties shall pay to the Lender for its own account the reasonable and customary charges from time to time of the Lender with respect to the amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit (collectively, the Issuing Lender Fees). The fees outlined in this Section 3.5 shall apply only to standby letters of credit issued by the Lender.
3.6 Special Provisions Regarding LIBOR-Based Rate.
The following additional provisions shall apply regarding the LIBOR-Based Rate:
(a) If, as a result of any Change in Law (i) the basis of taxation of payments to the Lender of any interest accruing with respect to any LIBOR Loan or any other amounts payable hereunder in respect thereof (other than taxes imposed on the overall net income of the Lender by the United States of America, any State of the United States or any subdivision thereof) is changed, (ii) any reserve, special deposit or similar requirements (including but not limited to, state law requirements and Regulations D and K) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of the Lender are imposed, modified or deemed applicable, or (iii) any other condition affecting the application of the LIBOR-Based Rate, the Loans evidenced hereby or the interest payable hereunder is imposed on the Lender, or on the London Interbank Market, and the Lender reasonably determines that, by reason thereof, the Lender will incur increased costs, or if, as a result of any Change in Law, the Lender incurs increased costs measured by the excess above a base level of (1) a category of liabilities which includes deposits by reference to which LIBOR-Based Rate is determined or (2) a category of assets which includes loans which bear interest at a rate determined in part by reference to the LIBOR-Based Rate (each such category herein a Defined Category), then the Credit Parties shall jointly and severally pay to the Lender upon demand such additional amount as will compensate the Lender for such increased costs (herein Increased Costs).
(b) the Lender will promptly notify Credit Parties Agent of any Change in Law which effects Increased Costs.
(c) If by reason of any Change in Law (i) the Lender becomes restricted in the amount of a Defined Category which it may hold or (ii) it shall be unlawful or impossible for the Lender to maintain the Loan hereunder bearing interest at the applicable Adjusted LIBOR-Based Rate, the Lender shall give notice thereof to Credit Parties Agent, and upon the giving of such notice, interest at the Adjusted LIBOR-Based Rate shall be payable at the Adjusted Base Rate. If at any time subsequent to the giving of such notice by the Lender, the Lender determines that because of a change in circumstances, within a reasonable amount of time, the LIBOR-Based Rate is again available to the Borrowers, the Lender will so advise Credit Parties Agent and Credit Parties Agent may convert the rate of interest payable from the Adjusted Base Rate to the Adjusted LIBOR-Based Rate by giving the Lender reasonable advance written notice of its election to do so, the applicable Interest Period, as well as the date such conversion is to become effective.
(d) Any determination made by the Lender in good faith under this Section 3.6 as to the effect of any Change in Law shall be conclusive absent manifest error.
(e) If the Lender shall have determined in good faith (which determination shall be conclusive absent manifest error and binding on the Credit Parties) that by reason of circumstances affecting the London Interbank Market, adequate and reasonable means do not exist for (i) ascertaining the applicable LIBOR-Based Rate or (ii) obtaining Dollars in an amount equal to the principal balance hereof as applicable (if the Lender in its reasonable discretion
determines that the obtaining of such funds is necessary and then only after the Lender has used its best efforts to obtain such funds), the Lender shall notify Credit Parties Agent of such determination. If such notice is given by the Lender, the Lender shall have no obligation to apply the applicable Adjusted LIBOR-Based Rate until such notice is withdrawn and the Adjusted Base Rate shall apply.
(f) If in the reasonable judgment of the Lender (i) the relevant office of the Lender is not for any reason whatsoever quoting rates for the offering of dollars for deposit in immediately available funds for a particular Interest Period and in an amount comparable to the computation of the rate of interest for such applicable period or (ii) the applicable Adjusted LIBOR-Based Rate will not adequately and fairly reflect the cost to the Lender of maintaining these Loans (or any portion thereof), then the Lender shall give Credit Parties Agent prompt notice thereof and the Loans shall immediately bear interest at the Adjusted Base Rate. The Lender shall, within a reasonable amount of time, advise Credit Parties Agent of a change in circumstances resulting in the Adjusted LIBOR-Based Rate again being available to the Borrowers and Credit Parties Agent may convert the rate of interest payable on the loan from the Adjusted Base Rate to the Adjusted LIBOR-Based Rate by giving the Lender reasonable advance written notice of its election to do so, as well as the date such conversion is to become effective, and the Adjusted LIBOR-Based Rate shall apply thereafter.
(g) Should the rate of interest hereunder be converted from the Adjusted LIBOR-Based Rate to the Adjusted Base Rate in accordance with this Article, the Borrowers shall jointly and severally pay to the Lender, on the next Business Day following a request by the Lender, such amounts as shall compensate the Lender for any losses sustained by the Lender as a result of such conversion, as determined by the Lender, which determination shall be conclusive, absent manifest error, and provided such determination is reasonable and is made in good faith, including, without limitation, any amounts as shall compensate the Lender or any Affiliate of the Lender incurred in connection with the prepayment or early termination of any LIBOR Loan subject to a Hedging Agreement
3.7 Credit Parties Agent.
Each Credit Party (other than the Company) hereby appoints the Company, and the Company shall act under this Loan Agreement and the other Loan Documents, as the agent, attorney-in-fact and legal representative of all Credit Parties for all purposes, including requesting Loans and receiving account statements and other notices and communications to Credit Parties (or any of them, as applicable) from the Lender. The Lender may rely, and shall be fully protected in relying, on any request for an advance, disbursement instruction, report, information or any other notice or communication made or given by the Company, whether in its own name, as Credit Parties Agent, on behalf of one or more Credit Parties, and the Lender shall not have any obligation to make any inquiry or request any confirmation from or on behalf of any other Credit Party as to the binding effect on it of any such request, instruction, report, information, other notice or communication, nor shall the joint and several character of Credit Parties obligations hereunder be affected, provided, that the provisions of this paragraph shall not be construed so as to preclude any Credit Party from taking actions permitted to be taken by a Credit Party hereunder.
3.8 Payments, Computations, Etc.
(a) Generally. Except as otherwise specifically provided herein, all payments hereunder shall be made to the Lender in Dollars in immediately available funds, without condition or deduction for any counterclaim, defense, recoupment or setoff of any kind, at the Lenders office in Charlotte, North Carolina, not later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Lender may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Credit Parties Agent. The Credit Parties Agent shall, at the time it makes any payment under this Loan Agreement, specify to the Lender the Loans, Fees, interest or other amounts payable by the applicable Credit Parties hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, as the Lender reasonably deems appropriate). Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject to accrual of interest and Fees for the period of such extension). Except as expressly provided otherwise herein, all computations of interest and fees shall be made on the basis of actual number of days elapsed over a year of 360 days (except with respect to any Base Rate Loan based on the Prime Rate which shall be calculated on the basis of a year of 365 days (or 366 days, as applicable) for the actual days elapsed). Interest shall accrue from and include the date of borrowing, but exclude the date of payment.
(b) Allocation of Payments After Acceleration. Notwithstanding any other provisions of this Loan Agreement to the contrary, after acceleration of the Credit Party Obligations pursuant to Section 9.2, all amounts collected or received by the Lender on account of the Credit Party Obligations or any other amounts outstanding under any of the Loan Documents or in respect of the Collateral shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable and documented out-of-pocket costs and expenses (including without limitation reasonable attorneys fees) of the Lender in connection with enforcing the rights of the Lender under the Loan Documents and any protective advances made by the Lender with respect to the Collateral under or pursuant to the terms of the Collateral Documents;
SECOND, to payment of any fees owed to the Lender;
THIRD, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest (including, without limitation, accrued fees and interest arising under any Bank Products between the any Credit Party and the Lender, or any Affiliate of the Lender);
FOURTH, to the payment of the outstanding principal amount of the Credit Party Obligations (including, without limitation, the outstanding principal amount arising under any Bank Products between any Credit Party and the Lender, or any Affiliate of the Lender);
FIFTH, to the payment of all reasonable and documented out-of-pocket costs and expenses (including without limitation, reasonable attorneys fees) of the Lender in connection with enforcing its rights under the Loan Documents or otherwise with respect to the Credit Party Obligations owing to the Lender;
SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Loan Documents or otherwise and not repaid pursuant to clauses FIRST through FIFTH above; and
SEVENTH, to the payment of the surplus, if any, to whomever may be lawfully entitled to receive such surplus.
In carrying out the foregoing, amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category.
3.9 Evidence of Debt.
(a) The Lender shall maintain an account or accounts evidencing each Loan made by the Lender to, and each Letter of Credit issued at the request of the Credit Parties from time to time, including the amounts of principal and interest payable and paid to the Lender from time to time under this Loan Agreement. The Lender will make reasonable efforts to maintain the accuracy of its account or accounts and to promptly update its account or accounts from time to time, as necessary.
(b) The entries made in the accounts maintained pursuant to clause (a) of this Section 3.9 shall be conclusive evidence in the absence of manifest error of the existence and amounts of the obligations of the Credit Parties therein recorded; provided, however, that the failure of the Lender to maintain any such account, or any error therein, shall not in any manner affect the obligation of the Credit Parties to repay the applicable Credit Party Obligations owing to the Lender.
SECTION 4
GUARANTY
4.1 The Guaranty.
Each Guarantor unconditionally guarantees, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment of all Credit Party Obligations including, without limitation, (a) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans and Letters of Credit, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (b) each payment required to be made by the Borrowers under the Loan Agreement or any other Loan Document, when and as due, and (c) all other monetary obligations, including (i) reasonable and documented fees, out-of-pocket costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrowers to the Lender under the Loan Agreement and the other Loan Documents, (ii) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrowers under or pursuant to the Loan Agreement and the other Loan Documents; and (iii) the due and punctual payment and performance of all obligations of the Borrowers, monetary or otherwise, arising under any Bank Products (all the monetary and other obligations referred to in the preceding clauses (i) through (iii) being collectively called the Guaranteed Obligations). Each Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice to or further assent from such Guarantor, and that such Guarantor will remain bound upon its guarantee notwithstanding any extension or renewal of any Guaranteed Obligations.
Each of the Guarantors hereby represents and warrants that it is a direct or indirect Subsidiary of one or both of the Borrowers, and has derived substantial benefit from the making of the Loans and Letters of Credit by the Lender to the Borrowers.
4.2 Obligations Unconditional; Subordination.
The obligations of the Guarantors under Section 4.1 are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents or Bank Products, 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 Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any 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 Guarantors hereunder shall be absolute and unconditional under any and all circumstances other than the Guaranteed Obligations being Fully Satisfied or the express written release of any such Guarantor by the Lender. Upon payment by any Guarantor of any sums to the Lender, all rights of such Guarantor against any Credit Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior final payment in cash of all the Guaranteed Obligations. In addition, any Indebtedness of any Credit Party now or hereafter held by any Guarantor is hereby subordinated in right of payment to the prior payment in full in immediately available funds of the Guaranteed Obligations. If any amount shall erroneously be paid to any Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such Indebtedness of any Credit Party, such amount shall be held in trust for the benefit of the Lender and shall forthwith be paid to the Lender to be credited against the payment of the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. 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 Guarantors hereunder which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of any of the Loan Documents, any Bank Product between any Credit Party and the Lender, or any Affiliate of the Lender, or any other agreement or instrument referred to in the Loan Documents or such Bank Products shall be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall be accelerated, or any of the Credit Party Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents, any Bank Product between any Credit Party and the Lender, or any Affiliate of a the Lender, or any other agreement or instrument referred to in the Loan Documents or such Bank Products shall be waived or any other guarantee of any of the Guaranteed 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 Lender as security for any of the Guaranteed Obligations shall fail to attach or be perfected; or
(e) any of the Guaranteed Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of Guarantors) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of Guarantors).
With respect to its obligations hereunder, Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Lender exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents, any Bank Product between any Credit Party and the Lender, or any Affiliate of the Lender, or any other agreement or instrument referred to in the Loan Documents or such Bank Products, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.
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 Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and Guarantors agree that they will jointly and severally indemnify the Lender on demand for all reasonable and documented costs and out-of-pocket expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the 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.
4.4 Certain Additional Waivers.
Guarantors further agree that Guarantors shall have no right of recourse to security for the Guaranteed Obligations, except through the exercise of rights of subrogation pursuant to Sections 4.2 and 4.7.
4.5 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Lender, on the other hand, the Guaranteed Obligations may be declared to be forthwith due and payable as provided in Section 9.2 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 9.2) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Guaranteed Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Guaranteed Obligations being deemed to have become automatically due and payable), the Guaranteed 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 guarantee in this Section 4 is secured by the Collateral in accordance with the terms of the Collateral Documents, and that the Lender may exercise its remedies thereunder in accordance with the terms thereof.
4.6 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 Guaranteed Obligations whenever arising.
4.7 Indemnity and Subrogation.
In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law (but subject to Section 4.2), the Borrowers agree that (a) in the event a payment shall be made by any Guarantor under Section 4 of this Loan Agreement, the Borrowers shall jointly and severally indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the Person to whom such payment shall have been made to the extent of such payment and (b) in the event any assets of any Guarantor shall be sold to satisfy a claim of the Lender under Section 4 of this Loan Agreement, the Borrowers shall indemnify such Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold.
4.8 Contribution and Subrogation.
Each Guarantor (a Contributing Guarantor) agrees (subject to Section 4.2) that, in the event a payment shall be made by any other Guarantor under Section 4 of this Loan Agreement or assets of any other Guarantor shall be sold to satisfy a claim of the Lender and such other Guarantor (the Claiming Guarantor) shall not have been fully indemnified by the Borrowers as provided in Section 4.7, the Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Guarantor on the date hereof and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof (or, in the case of any Guarantor becoming a party hereto pursuant to Section 7.11, the date of the Joinder Agreement executed and delivered by such Guarantor). Any Contributing Guarantor making any
payment to a Claiming Guarantor pursuant to this Section 4.8 shall be subrogated to the rights of such Claiming Guarantor under Section 4.7 to the extent of such payment.
4.9 Subordination.
Notwithstanding any provision of this Loan Agreement to the contrary, all rights of the Guarantors under Section 4.7 and Section 4.8 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the final payment in full in cash of the Guaranteed Obligations. No failure on the part of the Borrowers or any Guarantor to make the payments required under applicable law or otherwise shall in any respect limit the obligations and liabilities of any Guarantor with respect to its obligations hereunder, and each Guarantor shall remain liable for the full amount of the obligations of such Guarantor hereunder.
4.10 Termination.
Unless any Guarantor is expressly released in writing prior to such time by the Lender, the guarantees made under this Section 4 (a) shall terminate when all the Guaranteed Obligations (other than those Guaranteed Obligations relating to Bank Products) have been paid in full in cash, and (b) shall continue to be effective if at any time payment, or any part thereof, of any Credit Party Obligation is rescinded or must otherwise be restored by the Lender or any Guarantor upon the bankruptcy or reorganization of any Borrower, any Guarantor or otherwise. In connection with the foregoing, the Lender shall execute and deliver to such Guarantor or Guarantors designee, at such Guarantors expense, any documents or instruments, without representation or recourse, which such Guarantor shall reasonably request from time to time to evidence such termination and release.
4.11 Savings Clause.
(a) It is the intent of each Guarantor and the Lender that each Guarantors maximum obligations hereunder shall be, but not in excess of:
(i) in a case or proceeding commenced by or against any Guarantor under the Bankruptcy Code on or within two years from the date on which any of the Guaranteed Obligations are incurred, the maximum amount which would not otherwise cause the Guaranteed Obligations (or any other obligations of such Guarantor owed to the Lender) to be avoidable or unenforceable against such Guarantor under (i) Section 548 of the Bankruptcy Code or (ii) any state fraudulent transfer or fraudulent conveyance act or statute applied in such case or proceeding by virtue of Section 544 of the Bankruptcy Code; or
(ii) in a case or proceeding commenced by or against any Guarantor under the Bankruptcy Code subsequent to two years from the date on which any of the Guaranteed Obligations are incurred, the maximum amount which would not otherwise cause the Guaranteed Obligations (or any other obligations of such Guarantor to the Lender) to be avoidable or unenforceable against such Guarantor under any state fraudulent transfer or fraudulent conveyance act or statute applied in any such case or proceeding by virtue of Section 544 of the Bankruptcy Code; or
(iii) in a case or proceeding commenced by or against any Guarantor under any law, statute or regulation other than the Bankruptcy Code (including, without limitation, any other bankruptcy, reorganization, arrangement, moratorium, readjustment of debt, dissolution, liquidation or similar debtor relief laws), the maximum amount which would not otherwise cause the Guaranteed Obligations (or any other obligations of such Guarantor to the Lender) to be avoidable or unenforceable against such Guarantor under such law, statute or regulation including, without limitation, any state fraudulent transfer or fraudulent conveyance act or statute applied in any such case or proceeding.
(b) The substantive laws under which the possible avoidance or unenforceability of the Guaranteed Obligations (or any other obligations of such Guarantor to the Lender) as may be determined in any case or proceeding shall hereinafter be referred to as the Avoidance Provisions. To the extent set forth in Section 4.11(a)(i), (ii), and (iii), but only to the extent that the Guaranteed Obligations would otherwise be subject to avoidance or found unenforceable under the Avoidance Provisions, if any Guarantor is not deemed to have received valuable consideration, fair value or reasonably equivalent value for the Guaranteed Obligations, or if the Guaranteed Obligations would render such Guarantor insolvent, or leave such Guarantor with an unreasonably small capital to conduct its business, or cause such Guarantor to have incurred debts (or to have intended to have incurred debts) beyond its ability to pay such debts as they mature, in each case as of the time any of the Guaranteed Obligations are deemed to have been incurred under the Avoidance Provisions and after giving effect to the contribution by such Guarantor, the maximum Guaranteed Obligations for which such Guarantor shall be liable hereunder shall be reduced to that amount which, after giving effect thereto, would not cause the Guaranteed Obligations (or any other obligations of such Guarantor to the Lender), as so reduced, to be subject to avoidance or unenforceability under the Avoidance Provisions.
(c) This Section 4.11 is intended solely to preserve the rights of the Lender hereunder to the maximum extent that would not cause the Guaranteed Obligations of such Guarantor to be subject to avoidance or unenforceability under the Avoidance Provisions, and neither the Guarantors nor any other Person shall have any right or claim under this Section 4.11 as against the Lender that would not otherwise be available to such Person under the Avoidance Provisions.
SECTION 5
CONDITIONS
5.1 Closing Conditions.
The obligation of the Lender to enter into this Loan Agreement and to make the initial loans shall be subject to satisfaction of the following conditions:
(a) Executed Loan Documents. Receipt by the Lender of duly executed copies of: (i) this Loan Agreement, (ii) the Collateral Documents, and (iii) all other Loan Documents.
(b) Organizational Documents. Receipt by the Lender of the following with respect to each Credit Party:
(i) Charter Documents. Certified articles of incorporation, articles of organization or other charter documents of each Credit Party, as applicable, certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation and certified by a secretary or assistant secretary of each Credit Party to be true and correct as of the Closing Date.
(ii) Bylaws; Etc. A copy of the bylaws, operating agreement or other governing document of each Credit Party, as applicable, certified by a secretary or assistant secretary of each Credit Party to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the board of directors or consent of members, as applicable for each Credit Party, approving and adopting the Loan Documents to which it is a party, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of each Credit Party to be true and correct and in force and effect as of the Closing Date.
(iv) Good Standing. Copies of certificates of good standing, existence or its equivalent with respect to each Credit Party certified as of a recent date by the appropriate Governmental Authorities of the state or other jurisdiction of organization and each other jurisdiction in which the failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect.
(v) Incumbency. An incumbency certificate of each Credit Party certified by a secretary or assistant secretary to be true and correct as of the Closing Date.
(c) Opinions of Counsel. The Lender shall have received, dated as of the Closing Date, and in form and substance reasonably satisfactory to the Lender, customary legal opinions of counsel for the Credit Parties.
(d) Personal Property Collateral. The Lender shall have received:
(i) searches of Uniform Commercial Code filings in the jurisdiction of the chief executive office and state of organization of each of the Credit Parties, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens;
(ii) duly authorized UCC financing statements for each appropriate jurisdiction as is necessary, in the Lenders sole discretion, to perfect the Lenders security interest in the Collateral;
(iii) searches of ownership of Intellectual Property in the appropriate governmental offices and such patent/trademark/copyright filings as requested by the Lender in order to perfect the Lenders security interest in the Intellectual Property;
(iv) duly executed notices of grant of security interest in the form required by the Security Agreement and Pledge Agreement as are necessary, in the Lenders reasonable discretion, to perfect the Lenders security interest in the Collateral;
(v) all Capital Stock certificates and, as requested by the Lender at any time and from time to time, instruments and chattel paper in the possession of any of any Credit Party, together with allonges, stock powers or assignments as may be necessary or appropriate to perfect the Lenders security interest in the Collateral; and
(vi) in the case of any personal property Collateral located at a premises leased by any Credit Party, use commercially reasonable efforts to obtain such estoppel letters, consents and waivers (consisting of those previously delivered to the Lender) from the landlords on such real property as may be reasonably required by the Lender.
(e) Evidence of Insurance. Receipt by the Lender of copies of insurance policies or certificates of insurance of each Credit Party evidencing liability and casualty insurance meeting the requirements set forth in the Loan Documents, including, but not limited to, naming the Lender as additional insured (in the case of liability insurance) or loss payee (in the case of casualty insurance) on behalf of the Lender.
(f) Consents. Receipt by the Lender of evidence that all governmental, investor and third party consents and approvals necessary or desirable in connection with the Transactions and no law or regulation shall be applicable which in the judgment of the Lender could have such effect.
(g) Officers Certificates. The Lender shall have received a certificate or certificates executed by an Executive Officer of each Credit Party, substantially in the form of Exhibit 5.1(g), stating that (i) there does not exist any pending or ongoing, action, suit, investigation, litigation or proceeding in any court or before any other Governmental Authority (A) affecting this Agreement or the other Loan Documents, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date or (B) that purports to affect any Credit Party or any of its Subsidiaries, or any Transaction, which action, suit, investigation, litigation or proceeding could reasonably be expected to have a Material Adverse Effect, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date, (ii) immediately after giving effect to this Agreement, the other Loan Documents, and all the Transactions contemplated to occur on such date, (A) no Default or Event of Default exists, (B) all representations and warranties contained herein and in the other Loan Documents are (1) with respect to representations and warranties that contain a materiality qualification, true and correct and (2) with respect to representations and warranties that do not contain a materiality qualification, true and correct in all material respects, and (C) the Credit Parties are in pro forma compliance with each of the financial covenants set forth in Section 7.10 (as evidenced through detailed calculations of such financial covenants on a schedule to such certificate) as of September 30, 2011 and (iii) each of the other conditions precedent in Section 5.1 have been satisfied, except to the extent the satisfaction of any such condition is subject to the reasonable judgment or discretion of the Lender.
(h) Corporate Structure. The corporate capital and ownership structure, operating agreement and management of each Credit Party (after giving effect to the Transactions) shall be satisfactory to the Lender.
(i) Financial Statements. The Lender shall have received copies of the financial statements referred to in Section 6.1, each in form and substance satisfactory thereto.
(j) No Material Change. There shall not have occurred a Material Adverse Effect since June 30, 2011.
(k) Solvency Certificate. The Lender shall have received an officers certificate prepared by an Executive Officer as to the solvency of the Credit Parties and their Subsidiaries, taken as a whole, after giving effect to the Transactions and the initial borrowings under the Loan Documents, in substantially the form of Exhibit 5.1(l) hereto.
(l) Existing Indebtedness of the Credit Parties. All of the existing Indebtedness for borrowed money of the Credit Parties and their Subsidiaries (other than Indebtedness permitted to exist pursuant to Section 8.1) shall be repaid in full and all security interests related thereto shall be terminated on or prior to the Closing Date.
(m) Existing Liens. The Lender shall have received satisfactory evidence that the UCC-1 Financing Statement bearing file number 200900293207 recorded with the Florida Department of State on April 9, 2009, naming NS3 Health, LLC as debtor and McKesson Corporation as secured party, has been terminated or subordinated in a manner satisfactory to the Lender.
(n) Fees and Expenses. Payment by the Credit Parties to the Lender of all reasonable and documented fees and out-of-pocket expenses relating to the Loan Facilities which are due and payable on the Closing Date.
(o) Other. Receipt and approval by the Lender of such other documents, instruments, agreements or information as reasonably requested by the Lender, including, but not limited to, information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, environmental matters, material contracts, debt agreements, property ownership, management agreements, employment agreements, stockholder agreements, contingent liabilities and management of the Credit Parties.
5.2 Conditions to all Extensions of Credit.
The obligations of the Lender to make any Loan (including the initial Loans) or to issue, amend, renew or extend any Letter of Credit, are subject to satisfaction of the following conditions in addition to satisfaction on the Closing Date of the conditions set forth in Section 5.1:
(a) The Credit Parties Agent shall have delivered, in the case of any Revolving Loan, an appropriate Notice of Borrowing, Notice of Continuation or Application and Agreement for Standby Irrevocable Letter of Credit;
(b) The representations and warranties set forth in Section 6 shall (i) with respect to representations and warranties that contain a materiality qualification, be true and correct and (ii) with respect to representations and warranties that do not contain a materiality
qualification, be true and correct in all material respects, in each case on and as of the date of such extension of credit as if made on and as of such date, in each case except for any representation or warranty made as of an earlier date, which representation and warranty shall remain true and correct as of such earlier date; and
(c) No Default or Event of Default shall exist and be continuing either prior to or after giving effect thereto.
The delivery of each Notice of Borrowing or Application and Agreement for Standby Irrevocable Letter of Credit and each request for a Loan and each issuance, amendment, extension or renewal of any Letter of Credit shall constitute a representation and warranty by the Credit Parties of the correctness of the matters specified in subsections (b) and (c) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Lender that:
6.1 Financial Condition.
(a) The audited Combined financial statements of the Credit Parties and their Subsidiaries for the fiscal year ended June 30, 2009, June 30, 2010 and June 30, 2011 together with the related Combined statements of income or operations, equity and cash flows for such fiscal years (collectively, the Delivered Financial Statements) were prepared in accordance with GAAP consistently applied throughout the periods indicated, are correct and complete in all material respects and are consistent with the books and records of the Credit Parties and their Subsidiaries. Subject to the foregoing, the Delivered Financial Statements fairly present the Combined financial condition of the Credit Parties and their Subsidiaries for the periods covered thereby or the dates thereof, as applicable, and the related statements of income and cash flows fairly present in all material respects the Combined results of the operations of the Credit Parties and their Subsidiaries for the periods indicated. During the period from June 30, 2011, to and including the Closing Date, (i) there has been no sale, transfer or other disposition by the Credit Parties and their Subsidiaries of any material part of the business or property of the Credit Parties and their Subsidiaries, taken as a whole, and (ii) no purchase or other acquisition by any of them of any business or property (including any Capital Stock of any other Person) material in relation to the Combined financial condition of the Credit Parties and their Subsidiaries, taken as a whole, in each case, which is not reflected in the foregoing financial statements or in the notes thereto and has not otherwise been disclosed in writing to the Lender on or prior to the Closing Date. As of the Closing Date, the Credit Parties and their Subsidiaries have no material liabilities (contingent or otherwise) that are not reflected in the foregoing financial statements or in the notes thereto.
(b) The financial statements of the Credit Parties and their Subsidiaries delivered to the Lender pursuant to Section 7.1(a) and (b) from time to time have been prepared in accordance with GAAP (except as may otherwise be permitted under Section 7.1(a) and (b)) and present fairly (on the basis disclosed in the footnotes to such financial statements) in all
material respects the Combined financial condition, results of operations and cash flows of the Credit Parties and their Subsidiaries as of such date and for such applicable periods.
6.2 No Material Change.
Since June 30, 2011, there has been no development or event relating to or affecting any of the Credit Parties which has had or could reasonably be expected to have a Material Adverse Effect.
6.3 Organization and Good Standing.
Each Credit Party (a) is duly organized, validly existing and is in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the corporate or other necessary power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, and (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, other than in such jurisdictions where the failure to be so qualified and in good standing could not reasonably be expected to have a Material Adverse Effect.
6.4 Power; Authorization; Enforceable Obligations.
Each of the Credit Parties has the corporate or other necessary company power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and to obtain extensions of credit hereunder, and has taken all necessary corporate or other necessary action to authorize the borrowings, other extensions of credit and guarantees on the terms and conditions of this Loan Agreement and to authorize the execution, delivery and performance of the Loan Documents to which it is a party. No consent or authorization of, filing with, notice to or other similar act by or in respect of, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of any Credit Party in connection with the borrowings or other extensions of credit hereunder, or with the execution, delivery, performance, validity or enforceability of the Loan Documents to which any Credit Party is a party, except for consents, authorizations, notices and filings described in Schedule 6.4, all of which have been obtained or made or have the status described in such Schedule 6.4, or consents, authorizations, notices and filings, the failure of which to obtain could not reasonably be expected to have a Material Adverse Effect. This Loan Agreement has been, and each other Loan Document to which any Credit Party is a party will be, duly executed and delivered on behalf of such Credit Party. This Loan Agreement constitutes, and each other Loan Document to which each Credit Party is a party when executed and delivered will constitute, a legal, valid and binding obligation of such Credit Party enforceable against such party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).
6.5 No Conflicts.
Neither the execution and delivery of the Loan Documents, nor the consummation of the transactions contemplated therein, nor performance of and compliance with the terms and provisions thereof by any Credit Party will (a) violate or conflict with any provision of its articles or certificate of incorporation or bylaws or other organizational or governing documents of such Person, (b) (i) with respect to the execution and delivery of the Loan Documents, violate, contravene or conflict in any material respect with any Requirement of Law or any other law, regulation (including, without limitation, Regulation T, U or X), order, writ, judgment, injunction, decree or permit applicable to it or (ii) with respect to the consummation of the transactions contemplated in the Loan Documents and the performance of and compliance with the terms and provisions thereof by any Credit Party, violate, contravene or conflict in any material respect with any Requirement of Law or any other law, regulation (including, without limitation, Regulation T, U or X), order, writ, judgment, injunction, decree or permit applicable to it, unless such violation, contravention or conflict could not reasonably be expected to have a Material Adverse Effect, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any material indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound unless such violation, contravention or conflict could not reasonably be expected to have a Material Adverse Effect, or (d) result in or require the creation of any Lien (other than those contemplated in or created in connection with the Loan Documents) upon or with respect to its properties.
6.6 No Default.
No Credit Party is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default could reasonably be expected to have a Material Adverse Effect. No Credit Party is in default in any respect under any lease, which default entitles the lessor to any prepayment penalties, accelerated payments or similar remedies unless such default could not reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred or exists.
6.7 Ownership.
Each Credit Party has good title to, or has the rights to use, all of its owned assets, and none of such owned assets is subject to any Lien other than Permitted Liens.
6.8 Indebtedness.
Except as otherwise permitted under Section 8.1, the Credit Parties and their Subsidiaries have no Indebtedness.
6.9 Litigation.
There does not exist any pending or, to the knowledge of the Credit Parties, threatened action, suit, investigation, claim or legal, equitable, arbitration or administrative proceeding against any Credit Party or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect.
6.10 Taxes.
Each of the Credit Parties and its Subsidiaries has filed, or caused to be filed, all income tax returns involving an amount in excess of $20,000 and all other material tax returns (federal, state, local and foreign) required to be filed and paid (a) all amounts of taxes shown thereon to be due (including interest and penalties) and (b) all other material taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes (i) that are not yet delinquent or (ii) that are being contested (or with respect to which a dispute exists in connection with an ongoing audit by an appropriate governmental agency) in good faith and by appropriate proceedings, and against which adequate reserves are being maintained in accordance with GAAP. None of the Credit Parties or their Subsidiaries is aware as of the Closing Date of any proposed tax assessments against it or any of its Subsidiaries that if made could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
6.11 Compliance with Law.
Each Credit Party is in compliance with all Requirements of Law and all other laws, rules, regulations, orders and decrees (including without limitation Environmental Laws) applicable to it, or to its properties, unless such failure to comply could not reasonably be expected to have a Material Adverse Effect. There exists no event, occurrence, condition or act, which, with the giving of notice, the lapse of time or the occurrence of any further event or condition, would constitute a violation of any Requirement of Law by any Credit Party which could reasonably be expected to cause a Material Adverse Effect.
6.12 ERISA.
(a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the knowledge of the Executive Officers of the Credit Parties, no event or condition has occurred or exists as a result of which any ERISA Event could reasonably be expected to occur, with respect to any Plan; (ii) no accumulated funding deficiency, as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable Federal or state laws; and (iv) no Lien in favor of the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all benefit liabilities (as defined in Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer Plan, as of the last annual valuation date prior to the date on which this representation is made or deemed made (determined, in each case, in accordance with Financial Accounting Standards Board Statement 87, utilizing the actuarial assumptions used in such Plans most recent actuarial valuation report), did not exceed as of such valuation date the fair market value of the assets of such Plan.
(c) None of the Credit Parties, nor any ERISA Affiliate, has incurred, or, to the knowledge of the Executive Officers of the Credit Parties, could be reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. None of the Credit Parties, nor any ERISA Affiliate, would become subject to any withdrawal liability under ERISA if any Credit Party or any ERISA Affiliate were to withdraw completely from all Multiemployer Plans and Multiple Employer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No Credit Party, nor any ERISA Affiliate, has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the knowledge of the Executive Officers of such parties, reasonably expected to be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or may subject any Credit Party or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which any Credit Party or any ERISA Affiliate has agreed or is required to indemnify any Person against any such liability.
(e) No Credit Party, nor any ERISA Affiliate, has any material liability with respect to expected post-retirement benefit obligations within the meaning of the Financial Accounting Standards Board Statement 106. Each Plan which is a welfare plan (as defined in Section 3(l) of ERISA) to which Sections 601-609 of ERISA and Section 49808 of the Code apply has been administered in compliance in all material respects with such sections.
(f) Neither the execution and delivery of this Loan Agreement nor the consummation of the financing transactions contemplated thereunder will involve any transaction which is subject to the prohibitions of Sections 404, 406 or 407 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Code.
6.13 Corporate Structure; Capital Stock, Etc.
Set forth on Schedule 6.13 is a complete and accurate list of all Subsidiaries, joint ventures and partnerships of the Credit Parties (other than Excluded Entities) as of the Closing Date. Information on the attached Schedule includes the following: (i) jurisdiction of incorporation, (ii) number of shares of each class of, or membership interests constituting, Capital Stock outstanding, (iii) number and percentage of outstanding shares of each class or membership interests owned (directly or indirectly) by the Credit Parties 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 as of the Closing Date. The outstanding Capital Stock of all such Persons is validly issued, fully paid and non-assessable (or, if applicable, all required contributions of equity have been made with respect to any outstanding Capital Stock) and is owned by the Credit Parties, directly or indirectly, in the manner set forth on Schedule 6.13, free and clear of all Liens (other than Permitted Liens). No Credit Party has outstanding any securities convertible into or exchangeable for its Capital Stock, nor does any such Person have
outstanding any rights to subscribe for or to purchase or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to its Capital Stock.
6.14 Governmental Regulations, Etc.
(a) None of the transactions contemplated by this Loan Agreement (including, without limitation, the direct or indirect use of the proceeds of the Loans) will violate or result in a violation of the Securities Act, the Securities Exchange Act or of Regulation U and in no event shall the proceeds of the Loans be used for the purpose of purchasing or carrying margin stock within the respective meanings of each of such terms under Regulation U.
(b) None of the Credit Parties is (i) an investment company, or a company controlled by an investment company, within the meaning of the Investment Company Act of 1940, as amended or (ii) subject to regulation under any other Federal or state statute or regulation which limits its ability to incur Indebtedness.
6.15 Purpose of Loans.
The proceeds of the Loans hereunder shall be or have been used as follows: (a) to refinance certain existing Indebtedness of the Credit Parties and their Subsidiaries, (b) to provide for financing of Permitted Acquisitions, working capital and other corporate purposes of the Credit Parties and (c) to pay any costs, fees or other expenses arising from, or associated with, the Transactions.
6.16 Environmental Matters.
(a) Each of the Real Properties and all operations at the Real Properties are in compliance with all applicable Environmental Laws, there is no violation of any Environmental Law with respect to the Real Properties or the Business, and, to the knowledge of any Credit Party, there are no conditions relating to the Real Properties or the Business that could reasonably be expected to give rise to liability in excess of $500,000.00 under any applicable Environmental Laws.
(b) None of the Real Properties contains, or has previously contained, any Materials of Environmental Concern at, on or under the Real Properties in amounts or concentrations that constitute or constituted a violation of, or that could reasonably be expected to give rise to liability in excess of $500,000.00 under, Environmental Laws.
(c) No Executive Officer of the Credit Parties has received any written or verbal notice of, or inquiry from any Governmental Authority regarding, any violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Real Properties or the Business, nor does any Executive Officer of any Credit Party have knowledge or reason to believe that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or disposed of from the Real Properties, or generated, treated, stored or disposed of at, on or under any of the Real Properties or any other location, in each case by or on behalf of the Credit Parties in violation of, or in a manner that could reasonably be expected to give rise to liability in excess of $500,000.00 under, any applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Executive Officers of the Credit Parties, threatened, under any Environmental Law to which any Credit Party is or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Credit Parties, the Real Properties or the Business.
(f) There has been no release, or threat of release, of Materials of Environmental Concern at or from the Real Properties, or arising from or related to the operations (including, without limitation, disposal) of the Credit Parties in connection with the Real Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably be expected to give rise to liability in excess of $500,000.00 under Environmental Laws.
(g) Except as set forth in Schedule 6.16, no Credit Party requires any environmental permits for the operation of its business as of the Closing Date.
(h) Each Credit Party has at all times complied in all material respects with all Environmental Laws except to the extent that non-compliance could not reasonably be expected to have a Material Adverse Effect.
6.17 Intellectual Property.
The Credit Parties own, or have the legal right to use, all trademarks, service marks, trade names, trade dress, patents, copyrights, trade secrets, technology, internet domain names, know-how and processes (the Intellectual Property) necessary for such parties to conduct their respective businesses as currently conducted except for those the failure to own or have such legal right to use could not reasonably be expected to have a Material Adverse Effect. Set forth on Schedule 6.17 is a list of all Intellectual Property registered or pending registration with the United States Copyright Office or the United States Patent and Trademark Office and owned by the Credit Parties, or that the Credit Parties have the right to use. Other than as set forth on Schedule 6.17, no claim has been asserted and is pending by any Person challenging or questioning the use of the Intellectual Property or the validity or effectiveness of the Intellectual Property, nor does any Credit Party know of any such claim, and, to its knowledge, the use of the Intellectual Property by the Credit Parties or the granting of a right or a license in respect of the Intellectual Property from the Credit Parties does not infringe on the rights of any Person. As of the Closing Date, none of the owned Intellectual Property of the Credit Parties is subject to any licensing agreement or similar arrangement except as set forth on Schedule 6.17.
6.18 Solvency.
After giving effect to the execution and delivery of the Loan Documents, the making of any Loans under this Loan Agreement and the consummation of the Transactions, the Credit Parties, taken as a whole, will not be insolvent, within the meaning of such term as defined in §101 of the Bankruptcy Code, be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated.
6.19 Investments.
All Investments of each of the Credit Parties and their Subsidiaries are Permitted Investments.
6.20 Business Locations.
Set forth on Schedule 6.20(a) is a list of all offices and places of business of each Credit Party located in the United States of America as of the Closing Date. Set forth on Schedule 6.20(b) is a list of all locations where any tangible personal property of each Credit Party is located as of the Closing Date. Set forth on Schedule 6.20(c) is the chief executive office, jurisdiction of incorporation or formation and principal place of business of each Credit Party as of the Closing Date.
6.21 Disclosure.
The Credit Parties have disclosed to the Lender all agreements, instruments, and corporate or other restrictions to which each Credit Party is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information (other than projections) furnished by or on behalf of the Credit Parties to the Lender in connection with the negotiation of this Loan Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading. All projections delivered prior to, at, or after the Closing Date are based upon estimates and assumptions, all of which the Credit Parties believe to be in good faith in light of conditions and facts known to Credit Parties as of the date of delivery of such projections and, as of the Closing Date, reflect the Credit Parties good faith estimate of the future financial performance of the Credit Parties and of the other information projected therein for the period set forth therein as of the date of the applicable projections (it being recognized by the Lender that actual results during the period or periods covered by any such projections may materially differ from projected results).
6.22 Brokers Fees.
Except in connection with the closing of the Transactions, as further set forth in Schedule 6.22, or as provided in the Loan Documents, no Credit Party has an obligation to any Person in respect of any finders, brokers, investment banking or other similar fee in connection with any of the transactions contemplated under the Loan Documents.
6.23 Labor Matters.
Except as set forth on Schedule 6.23, (a) there are no collective bargaining agreements covering the employees of any of the Credit Parties or their Subsidiaries as of the Closing Date, and (b) neither any Credit Party nor any Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years.
6.24 Certificates.
Each Credit Party is in good standing with respect to all governmental approvals, permits, licenses, certificates (including, without limitation, doing business certificates in all states it currently does business), inspections, consents and franchises necessary to continue to conduct its business and the businesses heretofore conducted by its predecessors and to own or lease and operate its properties except where the failure to possess the same could not reasonably be expected to have a Material Adverse Effect.
6.25 Subsidiaries.
The Credit Parties have no Subsidiaries other than listed on Schedule 6.25 or permitted pursuant to Section 8.12 of this Loan Agreement.
6.26 Names.
No Credit Party, nor any predecessor of such parties has, during the five (5) years preceding the Closing Date, been known as or used any other corporate, fictitious or trade names or trade styles, other than the present corporate name of the Credit Parties and the names listed on Schedule 6.26 hereto;
6.27 No Governmental Approvals.
No governmental approvals, permits, certificates, consents or franchises in existence as of the date of this Loan Agreement contains and, except as otherwise disclosed in writing to the Lender hereafter, none of said governmental approvals, permits, certificates, consents or franchises granted after the date of this Loan Agreement will contain any term, provision, condition or limitation to the knowledge of the Credit Parties which is more burdensome than such as are generally applicable to Persons engaged in the same or similar businesses as the Credit Parties, and which term, provision, condition or limitation could reasonably be expected to have a Material Adverse Effect.
6.28 Compliance with OFAC Rules and Regulations.
(a) None of the Credit Parties or their Subsidiaries or their respective Affiliates is in violation of and shall not violate 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.
(b) None of the Credit Parties or their Subsidiaries or their respective Affiliates (i) is a Sanctioned Person or a Sanctioned Entity, (ii) has a more than 10% of its assets located in Sanctioned Entities, or (iii) derives more than 10% of its operating income from investments in, or transactions with Sanctioned Persons or Sanctioned Entities. No proceeds of any Loan will be used nor have any been used to fund any operations in, finance any investments or activities in or make any payments to, a Sanctioned Person or a Sanctioned Entity.
6.29 Anti-Terrorism Laws.
Neither any 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.) (the Trading with the Enemy Act), as amended. Neither any Credit Party nor any of its Subsidiaries is in violation of (a) the Trading with the Enemy Act, as amended, (b) 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 (c) the Patriot Act. None of the Credit Parties (i) is a blocked person described in Section 1 of the Anti-Terrorism Order or (ii) to the best of its knowledge, engages in any dealings or transactions, or is otherwise associated, with any such blocked person.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that until such time as this Loan Agreement has been terminated in accordance with the terms of Section 10.13(b):
7.1 Information Covenants.
The Credit Parties will furnish, or cause to be furnished, to the Lender:
(a) Annual Financial Statements. As soon as available, and in any event within one hundred twenty (120) days after the close of each fiscal year of the Borrowers, a Combined balance sheet, profit and loss statement and statement of cash flow of the Credit Parties and their Subsidiaries as of the end of such fiscal year, together with related Combined statements of retained earnings and cash flows for such fiscal year, in each case setting forth in comparative form figures for the preceding fiscal year, all such financial information described above to be in reasonable form and detail and audited by independent certified public accountants acceptable to the Lender and whose opinion shall be to the effect that such financial statements have been prepared in accordance with GAAP and shall not be limited as to the scope of the audit or qualified as to the status of each of the Credit Parties and their Subsidiaries as a going concern or any other material qualifications or exceptions.
(b) Quarterly Financial Statements. As soon as available, and in any event within forty-five (45) days after the close of each fiscal quarter of the Borrowers, a Combined balance sheet and profit and loss statement of the Credit Parties and their Subsidiaries as of the end of such quarter, in each case setting forth in comparative form Combined figures for the corresponding period of the preceding fiscal year, together with statements of retained earnings
and cash flows for such quarter for each Borrower and its respective Subsidiaries. All such financial information described above to be in reasonable form and detail and acceptable to the Lender, and accompanied by a certificate of an Executive Officer of each of the Borrowers to the effect that such quarterly financial statements fairly present the financial condition of the Credit Parties and their Subsidiaries and have been prepared in accordance with GAAP (exclusive of footnotes required under GAAP), subject to changes resulting from audit and normal year-end audit adjustments and the absence of footnotes.
(c) Annual Operating Budget and Cash Flow. As soon as available, but in any event no later than thirty (30) days after the end of each fiscal year (including the fiscal year ending June 30, 2012), a copy of the reasonably detailed annual operating budget or plan including cash flow projections of the Credit Parties and their Subsidiaries for the next four fiscal quarter period prepared on a quarterly basis, in form reasonably acceptable to the Lender, together with a summary of the material assumptions made in the preparation of such annual budget or plan.
(d) Officers Compliance Certificate. Concurrently with the delivery of the financial statements referred to in Sections 7.1(a) and 7.1(b) above, a certificate of an Executive Officer of the Credit Parties Agent substantially in the form of Exhibit 7.1(d), (i) demonstrating compliance with the financial covenants contained in Section 7.10 by calculation thereof as of the end of each such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Credit Parties propose to take with respect thereto.
(e) Auditors Reports. Promptly upon receipt thereof, a copy of any management letter or other report submitted by independent accountants to the Credit Parties in connection with any annual, interim or special audit of the books of such Person reporting any internal control deficiencies, and upon the occurrence and during the continuance of any Event of Default, a copy of any management letter or other report submitted by independent accountants to the Credit Parties in connection with any annual, interim or special audit of the books of such Person reporting on any other matter other than with respect to internal control deficiencies.
(f) Aging and Member Volume Reports. As soon as available, but in any event within forty-five (45) days after the end of each fiscal quarter of the Borrowers, (i) aging reports with respect to accounts receivable of the Credit Parties and their Subsidiaries and (ii) a member volume report, in each case prepared in accordance with prior practices and otherwise in form and detail reasonably acceptable to the Lender.
(g) Reports. Promptly upon transmission or receipt thereof, (i) if the Company is a publicly reporting company, copies of any filings and registrations with, and reports to or from, the Securities and Exchange Commission, or any successor agency, and copies of all financial statements, proxy statements, notices and reports as any Credit Party shall send to its shareholders or to a holder of any Indebtedness owed by any Credit Party in its capacity as such a holder and (ii) with reasonable promptness, upon the request of the Lender, all reports and written information to and from the United States Environmental Protection Agency, or any state
or local agency responsible for environmental matters, the United States Occupational Health and Safety Administration, or any state or local agency responsible for health and safety matters, or any successor agencies or authorities concerning environmental, health or safety matters.
(h) Notices. Upon any Executive Officer of any Credit Party obtaining knowledge thereof, such Credit Party will give written notice to the Lender immediately of (i) the occurrence of an event or condition consisting of a Default or Event of Default, specifying the nature and existence thereof and what action the Credit Party proposes to take with respect thereto, and (ii) the occurrence of any of the following with respect to any Credit Party: (A) the pendency or commencement of any litigation, arbitral or governmental proceeding against such Person which if adversely determined could reasonably be expected to have a Material Adverse Effect, or (B) the institution of any proceedings against such Person with respect to, or the receipt of notice by such Person of potential liability or responsibility for violation, or alleged violation of any Federal, slate or local law, rule or regulation, including but not limited to, Environmental Laws, the violation of which could reasonably be expected to have a Material Adverse Effect.
(i) ERISA. Upon any Executive Officer of any Credit Party obtaining knowledge thereof, such Credit Party will give written notice to the Lender promptly (and in any event within five (5) Business Days) of: (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or might reasonably lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against any such Credit Party or any ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which any such Credit Party or any ERISA Affiliate is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto; or (iv) any change in the funding status of any Plan that could reasonably be expected to have a Material Adverse Effect, together with a description of any such event or condition or a copy of any such notice and a statement by an Executive Officer of the Credit Party briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken by the Credit Party with respect thereto. Promptly upon request, the Credit Parties shall furnish the Lender and the Lender with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each plan year (within the meaning of Section 3(39) of ERISA).
(j) Additional Patents and Trademarks. At the time of delivery of the financial statements and reports provided for in Section 7.1(a), a report signed by an Executive Officer of the Credit Parties setting forth (i) a list of registration numbers for all patents, trademarks, service marks, trade names and copyrights awarded to the Credit Parties since the last day of the immediately preceding fiscal year and (ii) a list of all patent applications, trademark applications, service mark applications, trade name applications and copyright
applications submitted by any Credit Party since the last day of the immediately preceding fiscal year and the status of each such application, all in such form as shall be reasonably satisfactory to the Lender.
(k) Annual Insurance Certificates. At the time of delivery of the financial statements and reports provided for in Section 7.1(a), copies of insurance certificates of insurance of the Credit Parties evidencing liability and casualty insurance meeting the requirements set forth in the Loan Documents, including, but not limited to, naming the Lender as additional insured (in the case of liability insurance) or loss payee (in the case of hazard insurance) on behalf of the Lender.
(l) Other Information. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of the Credit Parties as the Lender may reasonably request.
7.2 Preservation of Existence and Franchises.
Except as a result of or in connection with a dissolution, merger or disposition of a Subsidiary not prohibited by Section 8.4, the Credit Parties will do, and will cause all of the Subsidiaries to do, all things necessary to preserve and keep in full force and effect its existence, rights, franchises and authority.
7.3 Books and Records.
Each Credit Party will, and will cause each of its Subsidiaries to, keep complete and accurate Books and Records of their respective transactions in accordance with its historical accounting practices on the basis of GAAP to the extent applicable to such transactions (including the establishment and maintenance of appropriate reserves).
7.4 Compliance with Law.
Each Credit Party will, and will cause each of its Subsidiaries to, comply in all material respects with all laws, rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its Property.
7.5 Payment of Taxes and Other Claims.
Each Credit Party will, and will cause each of its Subsidiaries to, pay and discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent and (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties; provided, however, that the Credit Parties and their Subsidiaries shall not be required to pay any such tax, assessment, charge, levy or claim which is being contested (or with respect to which a dispute exists in connection with an ongoing audit by an appropriate governmental agency) in good faith by appropriate proceedings and as to which adequate reserves therefore have been established in accordance with GAAP, unless the failure to make any such payment could reasonably be expected to have a Material Adverse Effect.
7.6 Insurance.
Each Credit Party will, and will cause each of its Subsidiaries to, at all times maintain in full force and effect insurance (including workers compensation insurance, liability insurance, casualty insurance and business interruption insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice. The Lender shall be named as loss payee or mortgagee, as its interest may appear, and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Lender, that it will give the Lender ten (10) days prior written notice before any such policy or policies shall be altered or canceled. The present insurance coverage of the Credit Parties is outlined as to carrier, policy number, expiration date, type and amount on Schedule 7.6.
7.7 Maintenance of Property.
Each Credit Party will, and will cause each of its Subsidiaries to, maintain and preserve its properties and equipment material to the conduct of its business in good repair, working order and condition, normal wear and tear excepted, and will make, or cause to be made, in such properties and equipment from time to time all repairs, renewals, replacements, extensions, additions, betterments and improvements thereto as may be needed or proper, to the extent and in the manner customary for companies in similar businesses.
7.8 Use of Proceeds.
The Credit Parties will use the proceeds of the Loans solely for the purposes set forth in Section 6.15.
7.9 Audits/Inspections.
During normal business hours and, for so long as no Event of Default exists, upon reasonable prior written notice by the Lender to the Credit Parties Agent, the Credit Parties will permit representatives appointed by the Lender, including, without limitation, independent accountants, the Lenders attorneys, and appraisers to audit, visit and inspect its property, including its Books and Records, its accounts receivable and inventory, its facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Lender or its representatives to investigate and verify the accuracy of information provided to the Lender and to discuss all such matters with the officers of such Credit Parties. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, the Credit Parties shall not be obligated to reimburse the Lender for the costs and expenses of more than one such audit, visit and inspection in any 12 month period.
7.10 Financial Covenants.
The following shall be effective and applicable to the Credit Parties:
(a) Maximum Ratio of Total Liabilities to Tangible Net Worth. The Ratio of Total Liabilities to Tangible Net Worth, calculated as of the last day of each fiscal quarter, shall not exceed 1.00 to 1.00.
(b) Minimum EBITDA Coverage Ratio. The EBITDA Coverage Ratio, calculated as of the last day of each fiscal quarter, shall be greater than or equal to 3.00 to 1.00.
(c) Maximum Total Leverage Ratio. The Total Leverage Ratio, calculated as of the last day of each fiscal quarter, shall be less than or equal to 1.50 to 1.00.
7.11 New Subsidiaries.
As soon as practicable and in any event within thirty (30) days after any Person becomes a direct or indirect Subsidiary (other than the Excluded Subsidiaries) of any Credit Party, such Credit Party shall (a) provide the Lender with written notice thereof, (b) cause any such Subsidiary to execute a Joinder Agreement in substantially the same form as Exhibit 7.11, (c) deliver such other documentation as the Lender may reasonably request in connection with the foregoing, including, without limitation, items of the types required to be delivered pursuant to Section 5.1(b), (c), (d) and (e) with respect to a Person of such type, all in form, content and scope reasonably satisfactory to the Lender and (d) otherwise comply with Section 7.12 in respect of such Person. In addition, such Credit Party shall cause all Domestic Subsidiaries (other than the Excluded Subsidiaries), now or hereafter formed or acquired, to execute a Security Agreement and Pledge Agreement in the form executed by each Credit Party on the Closing Date and any related documents as may be reasonably required by the Lender.
7.12 Pledged Assets.
Each of the Credit Parties will (a) cause all of their owned personal Property other than Excluded Assets to be subject at all times to first priority, perfected Liens in favor of the Lender to secure the Credit Party Obligations pursuant to the terms and conditions of the Collateral Documents or, with respect to any such Property acquired subsequent to the Closing Date with reasonable promptness, such other additional security documents as the Lender shall reasonably request, subject in any case to Permitted Liens and (b) with reasonable promptness, deliver such other documentation as the Lender may reasonably request in connection with the foregoing, including, without limitation, appropriate UCC-1 financing statements, mortgages, fixture filings, real estate title insurance policies, surveys, environmental reports, landlords waivers, certified resolutions and other organizational and authorizing documents of such Person, favorable 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 Lenders Liens thereunder) and other items of the types required to be delivered pursuant to this Agreement, all in form, content and scope reasonably satisfactory to the Lender. It is understood and agreed that the Credit Parties shall not be required to pledge the Capital Stock of any Excluded Subsidiary or any other Excluded Entity to the Lender as Collateral for the Loans.
7.13 Landlord and Mortgagee Consents.
If any of the Collateral at any time will be located on any premises which are leased by any Credit Party from a third party, such Credit Party shall, at the request of the Lender, use commercially reasonable efforts to cause each such third party lessor to execute in favor of the Lender a landlords waiver and consent in a form requested by the Lender or otherwise reasonably acceptable to the Lender.
7.14 Deposit Accounts.
(a) The Credit Parties shall maintain all of their primary deposit accounts with the Lender.
(b) Within 30 days after the request from the Lender, the Credit Parties will (i) cause all cash receipts, checks and cash proceeds of accounts receivable and other Collateral to be deposited only into depository accounts with financial institutions that have entered into account control agreements in a form acceptable to the Lender and (ii) cause all securities accounts to be maintained with financial institutions that have entered into account control agreements in a form acceptable to the Lender. Such account control agreements shall provide that at any time following the occurrence and during the continuance of an Event of Default, the Lender shall be entitled to direct the financial institutions party thereto to cause all funds of the Credit Parties held in such accounts to be transferred immediately and at any time thereafter to the Lender to be applied to the Credit Party Obligations or held as Collateral, as the Lender deems appropriate. The provisions of this Section 7.14(b) shall not apply to (i) deposit accounts or securities accounts for which the Lender or its Affiliates is the depositary or securities intermediary, (ii) the deposit account with Bank of America, N.A. identified to the Lender prior to the Closing Date, so long as the aggregate balance in such account does not exceed $8,000,000 at any time, (iii) deposit accounts that are Excluded Accounts and (iv) other securities account, so long as the balance in any such account does not exceed $1,000,000 and the aggregate balance in all such accounts does not exceed $5,000,000.
7.15 Further Assurances.
Upon the reasonable request of the Lender, promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents for filing under the provisions of the UCC or any other Requirement of Law which are necessary or advisable to maintain in favor of the Lender, Liens on the Collateral that are duly perfected in accordance with the requirements of, or the obligations of the Credit Parties under, the Loan Documents and all applicable Requirements of Law.
SECTION 8
NEGATIVE COVENANTS
The Credit Parties hereby covenant and agree that until such time as this Loan Agreement has been terminated in accordance with the terms of Section 10.13(b):
8.1 Indebtedness.
The Credit Parties will not, nor will they permit any Subsidiary to, contract, create, incur, assume or permit to exist any Indebtedness, except, without duplication:
(a) Indebtedness arising under this Loan Agreement and the other Loan Documents;
(b) Indebtedness of the Credit Parties and their Subsidiaries existing as of the Closing Date set forth in Schedule 8.1;
(c) Purchase money Indebtedness hereafter incurred by the Credit Parties and their Subsidiaries to finance the purchase of fixed assets (including through Capital Leases), provided that (i) the total of all such Indebtedness shall not exceed an aggregate principal amount of $5,000,000 at any one time outstanding; (ii) such Indebtedness when incurred shall not exceed the purchase price of the asset(s) acquired; (iii) no such Indebtedness shall be refinanced other than by a Permitted Refinancing thereof, and (iv) any such Indebtedness is incurred prior to or within ninety (90) days after such acquisition of the fixed asset or in connection with a Permitted Refinancing thereof;
(d) Obligations of any Credit Party or any Subsidiary in respect of Bank Products;
(e) Indebtedness for taxes not at the time due and payable or which are being actively contested in good faith by appropriate proceedings and against which reserves (to the extent required) in accordance with GAAP have been established by such Credit Party or Subsidiary, but only if the non-payment of such taxes being contested does not result in a Lien upon any property of any Credit Party or Subsidiary that has priority over the Lenders Lien on the Property;
(f) Contingent liabilities arising out of the endorsement of negotiable instruments in the ordinary course of collection or similar transactions in the ordinary course of business;
(g) Unsecured intercompany Indebtedness among the Credit Parties;
(h) Guaranties by a Credit Party or any Subsidiary of a Credit Partys obligations of the types listed in clauses (a) through (f) above;
(i) Indebtedness of PPPLP to its limited partners arising pursuant to its Partnership Agreement or the Company to its stockholders arising pursuant to its Stockholders Agreement;
(j) Indebtedness of any Person that becomes a Subsidiary or is merged with and into a Borrower, in each case, after the date hereof, or any Permitted Refinancing thereof; provided, that (i) such Indebtedness exists at the time such Person becomes a Subsidiary or is merged with and into a Borrower and is not created in contemplation of or in connection with such Person becoming a Subsidiary or being merged with and into a Borrower or is a Permitted
Refinancing thereof and (ii) the aggregate principal amount of Indebtedness permitted by this clause (j) shall not exceed $5,000,000 at any time outstanding;
(k) Indebtedness owed to any Person providing workers compensation, health, disability or other employee benefits (including contractual and statutory benefits) or property, casualty, liability or credit insurance, pursuant to reimbursement or indemnification obligations to such Person, in each case incurred in the ordinary course of business;
(l) Indebtedness consisting of the financing of insurance premiums;
(m) Indebtedness of a Credit Party (including, without limitation, letters of credit) in respect of workers compensation claims, performance bonds, bid bonds, surety and appeal bonds, performance and completion guarantees and similar obligations, payment obligations in connection with self-insurance or similar obligations, in the ordinary course of business;
(n) guarantees by Credit Parties in respect of letters of credit issued in the ordinary course of business for the account of the following insurance entities associated with the Company: Premier Insurance Management Services, Inc., American Excess Insurance Exchange, RRG, Premier Insurance Exchange, RRG and American Diversified Reinsurance Limited; provided that the sum of (i) the aggregate undrawn amount of such letters of credit and (ii) the aggregate amount of all letter of credit disbursements made pursuant to such letters of credit that have not been reimbursed on behalf of such insurance entity shall not exceed $15,000,000 at any time; and
(o) other unsecured Indebtedness of the Credit Parties which does not exceed $7,500,000 in the aggregate at any time outstanding.
8.2 Liens.
The Credit Parties will not, nor will they permit any Subsidiary to, contract, create, incur, assume or permit to exist any Lien with respect to any of their Property, whether now owned or hereafter acquired, except for:
(a) Liens in favor of the Lender to secure the Credit Party Obligations;
(b) Liens (other than Liens created or imposed under ERISA) for taxes, assessments or governmental charges or levies not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established;
(c) Statutory Liens of landlords (subordinated to the liens of the Lender) and Liens of carriers, warehousemen, mechanics, materialmen, repairmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising in the ordinary course of business, provided that such Liens secure only amounts not yet due and payable or, if due and payable, are unfiled and no other action has been taken to enforce the same
or are being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established;
(d) Liens (other than Liens created or imposed under ERISA) incurred or deposits made by any Credit Party or any Subsidiary in the ordinary course of business in connection with workers compensation, unemployment insurance and other types of social security;
(e) Easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances not, in any material respect, impairing the use or marketability of the encumbered Property for its intended purposes;
(f) Liens on Property of any Person securing purchase money Indebtedness (including Capital Leases) of such Person permitted under Section 8.1(c), provided that any such Lien attaches to such Property concurrently with or within ninety (90) days after the acquisition thereof or any Permitted Refinancing thereof, and provided, further, that no such Lien shall at any time be extended to or cover any Property other the Property acquired with such purchase money Indebtedness or subject to such Capital Lease (or Property replacing such Property);
(g) Normal and customary rights of setoff upon deposits of cash in favor of banks or other depository institutions;
(h) Liens of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection;
(i) any Lien existing on any Property or asset prior to the acquisition thereof by a Credit Party or existing on any Property or asset of any Person that becomes a Subsidiary or is merged with and into a Credit Party after the date hereof prior to the time such Person becomes a Subsidiary or is merged with and into the Borrower or any Subsidiary or any Permitted Refinancing thereof; provided that such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary or is merged with and into a Credit Party, as the case may be, or any Permitted Refinancing thereof;
(j) Liens that are contractual rights of set-off relating to (i) the establishment of depository relations with banks or other financial institutions not given in connection with the issuance or incurrence of Indebtedness or (ii) pooled deposit, automatic clearing house or sweep accounts of a Credit Party to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of a Credit Party;
(k) non-exclusive licenses, sublicenses, leases or subleases granted to others (i) not interfering in any material respect with the business of the Credit Parties, taken as a whole, and (ii) not securing any Indebtedness;
(l) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto, which Indebtedness is permitted to be incurred pursuant to Section 8.1;
(m) pledges or deposits of cash and Permitted Investments (i) securing deductibles, self-insurance, co-payment, co-insurance, retentions, indemnification and similar obligations to providers of insurance or (ii) related to workers compensation, unemployment insurance and social security laws or regulations, in each case, not securing Indebtedness and in the ordinary course of business;
(n) deposits to secure performance bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other similar obligations, in each case in the ordinary course of business;
(o) Liens solely on any cash earnest money deposits or deposits in connection with the indemnity obligations made by a Credit Party in connection with any letter of intent or purchase agreement with respect to any Permitted Acquisition;
(p) Liens on the assets of any Foreign Subsidiary of a Borrower solely securing Indebtedness of such Foreign Subsidiary;
(q) Liens so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined by senior management of the applicable Credit Party as of the date such Lien is incurred) of the assets subject thereto exceeds (as to all Credit Parties) $1,000,000 at any one time.
(r) Liens arising out of judgments for the payment of money not constituting an Event of Default;
(s) Liens on cash or Cash Equivalents securing a Credit Partys obligations under guarantees permitted under Section 8.1(n); and
(t) Liens existing as of the Closing Date and set forth on Schedule 8.2, provided that no such Lien shall at any time be extended to or cover any Property other than the Property subject thereto on the Closing Date.
8.3 Conduct of Business.
The Credit Parties will not, nor will they permit any Subsidiary to, conduct any business, operations or enterprises other than the Business.
8.4 Consolidation, Merger, Dissolution, Etc.
Without the Lenders prior written consent, no Credit Party will, nor will they permit any Subsidiary to, enter into any transaction of merger or consolidation or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution) or redeem any of its Capital Stock. Notwithstanding the foregoing, any one or more of the Credit Parties or their Subsidiaries may acquire, merge, or consolidate with one or more of the other Credit Parties or with a Target without the Lenders consent so long as (a) Credit Parties Agent gives the Lender no less than ten (10) days prior written notice of any such event, (b) such event would not result in a Material Adverse Effect, (c) before and after giving effect to any such event no Default or Event of
Default exists or would result therefrom and (d) such acquisition, merger or consolidation is consummated in connection with a Permitted Acquisition, it being understood and agreed that any Credit Party shall be permitted to merge with and into a Target in connection with a Permitted Acquisition; provided, that, to the extent any such Permitted Acquisition is consummated by a Borrower, such Borrower shall be the surviving entity.
8.5 Acquisition; Asset Dispositions.
Without the Lenders prior written consent, no Credit Party will, nor will they permit any Subsidiary to, make any Asset Disposition other than any Asset Disposition consisting of (i) the sale, lease, license, transfer or other disposition of inventory in the ordinary course of such Credit Partys business, (ii) the sale, lease, license, transfer or other disposition of used, worn out, obsolete or surplus property or property no longer used or useful in the conduct of such Credit Partys business, (iii) the sale, lease, license or transfer of assets in connection with the closing of the Credit Parties leased locations to the extent such leased locations are no longer used or useful in the conduct of such Credit Partys business, (iv) any Involuntary Disposition by any Credit Party, (v) Intellectual Property that is, in the reasonable judgment of the Credit Parties, no longer economically practicable to maintain or useful in the conduct of the business of the Credit Parties, taken as a whole, (vi) assignments, licenses, sublicenses, leases or subleases (including, of intellectual property) granted to others not interfering in any material respect with the business of the Credit Parties, taken as a whole, (vii) any Credit Party making any Asset Disposition to any other Credit Party, (ix) any sale or discount without recourse of accounts receivable or notes receivable or similar obligations arising in the exercise of the sound business judgment of senior management of the Borrowers or the applicable Subsidiary in connection with the compromise, settlement or collection thereof, (x) any transfer of cash and any sale or liquidation of Permitted Investments, in each case, for cash at fair market value (as determined by senior management of such Credit Party), and (xi) any other Asset Disposition at fair market value; provided that (1) at the time of such Asset Disposition, no Event of Default shall have occurred and be continuing or shall result from such Asset Disposition and (2) the aggregate amount of all Asset Dispositions shall not exceed $125,000,000 during the term of this facility.
8.6 Investments.
No Credit Party will, nor will they permit any Subsidiary to, make any Investments, except for:
(a) Investments consisting of cash and Cash Equivalents including amounts held in any Credit Partys deposit accounts or investment accounts;
(b) Investments consisting of accounts receivable created, acquired or made by any a Credit Party or any Subsidiary in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;
(c) Investments consisting of Capital Stock, obligations, securities or other property received by any Credit Party or any Subsidiary in settlement of accounts receivable
(created in the ordinary course of business) (i) from bankrupt or insolvent obligors or (ii) arising from any litigation, arbitration or other dispute;
(d) Investments existing as of the Closing Date and set forth in Schedule 8.6;
(e) Investments in the form of one or more Permitted Acquisitions;
(f) Loans to and other Investments in any Credit Party;
(g) guarantees by any Credit Party of leases (other than Capital Leases) or of other obligations that do not constitute Indebtedness, in each case entered into in the ordinary course of business;
(h) Investments in connection with Hedging Agreements;
(i) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and other similar deposits provided to third parties in the ordinary course of business;
(j) Investments with respect to performance of bonds, bankers acceptances, workers compensation claims, surety and appeal bond payments, obligations in connection with self insurance or similar obligations and bank overdrafts;
(k) Investments made in accordance with the Investment Guidelines; and
(l) other Investments by the Credit Parties which do not exceed $50,000,000 in the aggregate at any time outstanding.
8.7 Restricted Payments.
(a) The Credit Parties (other than PPPLP) will not, nor will they permit any Subsidiary (including any Subsidiary of PPPLP) to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment, except (i) to make dividends payable solely in the Capital Stock of such Person and (ii) to make dividends or other distributions payable to the Credit Parties.
(b) PPPLP will not, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment; provided, however, PPPLP shall be permitted to make dividends or other distributions so long as (i) no Default or Event of Default has occurred or is continuing or would result therefrom, (ii) the Credit Parties have demonstrated to the reasonable satisfaction of the Lender that, after giving effect to such Restricted Payment on a pro forma basis, the Credit Parties are in compliance with each of the financial covenants set forth in Section 7.10 and (iii) the aggregate amount of all Restricted Payments made by PPPLP in any Four Quarter Period shall not exceed an amount equal to 95% of the portion of Combined EBITDA determined as of the end of the Four Quarter Period most recently ended attributable to PPPLP during such Four Quarter Period.
8.8 Prepayment of Other Indebtedness, Etc.
Except with respect to the Credit Party Obligations and Indebtedness permitted under Section 8.1(c), the Credit Parties will not, nor will they permit any Subsidiary to amend or modify any of the terms of any Indebtedness if such amendment or modification would add or change any terms in a manner adverse to any such Credit Party or such Subsidiary or the Lender, or shorten the final maturity or average life to maturity or require any payment to be made sooner than originally scheduled or increase the interest rate applicable thereto.
8.9 Transactions with Insiders.
Without the Lenders prior written consent (which consent shall not be unreasonably withheld), no Credit Party will, nor will they permit any Subsidiary to, enter into or permit to exist any transaction or series of transactions with any officer, director or Affiliate of a Credit Party that is not a Credit Party other than (a) normal compensation, fees and advances to and reimbursement of expenses of and indemnities provided for the benefit of officers and directors, (b) transactions in the ordinary course of business and under terms and conditions no less favorable to the Credit Party than could be obtained if disinterested parties were involved at arms-length, and (c) transactions and payments otherwise permitted by this Section 8.
8.10 Fiscal Year; Organizational Documents; Change of Credit Party Name.
The Credit Parties will not, nor will they permit any Subsidiary to, (a) amend, modify or change their respective articles of organization (or corporate charter or other similar organizational document), operating agreement (or bylaws or other similar document) in a manner adverse to the rights of the Lender under the Loan Documents, (b) change their respective fiscal year or (c) change or permit the change of its name without providing the Lender with prior written notice. In the event of any change of a Credit Party name, such Credit Party does hereby authorize the Lender to file such additional UCC financing statements as the Lender may deem necessary or desirable in the Lenders reasonable discretion. No Credit Party will, nor will it permit any of its Subsidiaries to, change its accounting method (except in accordance with GAAP) in any manner adverse to the interests of the Lender without the prior written consent of the Lender.
8.11 Limitation on Restricted Actions.
Except as is otherwise expressly provided for in this Loan Agreement, the Credit Parties will not, nor will they permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction (other than restrictions imposed by law) on the ability of any such Person to (a) pay dividends or make any other distributions to any Credit Party or any Subsidiary on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness or other obligation owed to any Credit Party, (c) make loans or advances to any Credit Party, (d) sell, lease or transfer any of its Property to any Person, or (e) (i) pledge its Property except pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extensions (including any Permitted Refinancing) thereof or (ii) act as a Credit Party pursuant to the Loan
Documents or any renewals, refinancings, exchanges, refundings or extensions (including any Permitted Refinancing) thereof, except (in respect of any of the matters referred to in clauses (a)-(e)(i) above) for such encumbrances or restrictions existing under or by reason of (A) this Loan Agreement and the other Loan Documents, (B) applicable law, (C) any document or instrument governing Indebtedness incurred pursuant to Section 8.1(c), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith or (D) 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.
8.12 Ownership of Subsidiaries.
Notwithstanding any other provisions of this Loan Agreement to the contrary, the Credit Parties will not, nor will they permit any Subsidiary to, (i) without the Lenders written approval, create any Foreign Subsidiary; or (ii) as to any Subsidiary approved in writing by the Lender, permit any Person (other than a Credit Party) to own any Capital Stock of any Subsidiary of any Credit Party, or (iii) permit, create, incur, assume or suffer to exist any Lien on any Capital Stock of any Subsidiary of any Credit Party.
8.13 Sale Leasebacks.
The Credit Parties will not, nor will they permit any Subsidiary to, enter into any Sale and Leaseback Transaction unless the underlying Asset Disposition would be permitted under Section 8.5.
8.14 No Negative Pledges.
The Credit Parties will not, nor will they permit any Subsidiary to, enter into, assume or become subject to any agreement prohibiting or otherwise restricting the existence of any Lien upon any of their respective Property in favor of the Lender (for the benefit of the Lender) for the purpose of securing the Credit Party Obligations, whether now owned or hereafter acquired, or requiring the grant of any security for any obligation if such Property is given as security for the Credit Party Obligations.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence and during the continuance of any of the following specified events (each an Event of Default):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal in respect of any of the Loans, or of any reimbursement obligation in respect of any LC Disbursement due by such Credit Party; or
(ii) default, and such default shall continue for three (3) or more Business Days, in payment (A) of any Fees, interest, expenses or other charges or other amounts owing hereunder (specifically excluding those amounts described in Section 9.1(a)(i)), or (B) in the payment of amounts owing under Bank Products, or (C) in the payment of other amounts owing under any of the other Loan Documents or in connection herewith or therewith; or
(iii) fail to pay on the Guaranty included in Section 4 of this Loan Agreement in respect of any of the foregoing or in respect of any other Guaranteed Obligation hereunder (after giving effect to the grace period in clause (ii)).
(b) Representations. Any representation, warranty or statement made or deemed to be made by any Credit Party herein, in any of the other Loan Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.1 (but only after the passage of five (5) Business Days without cure of such default), 7.2, 7.8, 7.10, 7.11, 7.12, 7.13, 7.15 or Section 8;
(ii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this Section 9.1) contained in this Loan Agreement or the other Loan Documents and such default shall continue unremedied for a period of thirty (30) days after the earlier of an Executive Officer of a Credit Party becoming aware of such default or notice thereof by the Lender to the Credit Parties Agent; or
(d) Other Loan Documents. any Loan Document shall fail to (i) be in full force and effect or (ii) give the Lender the Liens, rights, powers and privileges purported to be created thereby, or any Credit Party shall so state in writing; or
(e) Guaranties. The guaranty given by any Guarantor under Section 4 of this Loan Agreement (including any Person after the Closing Date in accordance with Section 7.11) or any provision thereof shall cease to be in full force and effect other than by the express written release of such Guarantor by the Lender, or any Guarantor (including any Person after the Closing Date in accordance with Section 7.11) hereunder or any Person acting by or on behalf of such Guarantor shall deny, terminate or disaffirm such Guarantors obligations under such guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any Credit Party; or
(g) Defaults under Other Agreements.
(i) Any Credit Party or any of its Subsidiaries shall default in the performance or observance (beyond the applicable grace or cure period with respect thereto, if any) or any obligation or condition of any contract or lease to any such Credit Party or Subsidiary if such default could reasonably be expected to have a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than Indebtedness outstanding under this Loan Agreement) in excess of $1,500,000 in the aggregate for the Credit Parties and their Subsidiaries: (A) either (1) default in any payment shall occur and continue (beyond the applicable grace or cure period with respect thereto, if any) with respect to any such Indebtedness, or (2) a default in the observance or performance relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or exist, the effect of which default or other event or condition is to cause, or permit, the holder or holders of such Indebtedness (or trustee or the Lender on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required), any such Indebtedness to become due prior to its stated maturity; or (B) any such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; or
(h) Judgments. A judgment or order by any court for the payment of money which causes the aggregate amount of all judgments and orders by any court in any fiscal year (to the extent not paid or fully covered by insurance provided by a carrier who has acknowledged coverage and has the ability to perform) to exceed $1,500,000 and any such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such event or condition could involve possible taxes, penalties, and other liabilities: (i) any accumulated funding deficiency, as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, shall exist with respect to any Plan, or any lien shall arise on the assets of any Credit Party or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA Event shall occur with respect to a Single Employer Plan, which is, in the reasonable opinion of the Lender, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall occur with respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the reasonable opinion of the Lender, likely to result in (A) the termination of such Plan for purposes of Title IV of ERISA, or (B) Any Credit Party or any ERISA Affiliate incurring any liability in connection with a withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or insolvency (within the meaning of Section 4245 of ERISA) of such Plan; or (iv) any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility shall occur which may subject a Credit Party or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which a Credit Party or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability; or
(j) Change of Control. There shall occur a Change of Control; or
(k) Actions. If any Credit Party shall be criminally indicted or convicted under any law that could lead to a forfeiture of the Property of any Credit Party that could reasonably be expected to result in a Material Adverse Effect; or
(l) Uninsured Losses; Unauthorized Dispositions. Any loss, theft, damage or destruction not fully covered by insurance (as required by this Agreement and other Loan Documents and subject to such deductibles as the Lender shall have agreed to in writing) of any of Property of any Credit Party that could reasonably be expected to result in a Material Adverse Effect; or
(m) Business Disruption; Condemnation, There shall occur a cessation of a substantial part of the business of any Credit Party for a period which significantly affects such Credit Partys capacity to continue its business, on a profitable basis for which such Credit Party does not have adequate business interruption insurance in an amount and in substance satisfactory to the Lender in the Lenders reasonable discretion, and such cessation of business of any such Credit Party could reasonably be expected to result in a Material Adverse Effect on the Credit Parties, taken as a whole, as determined by the Lender in the Lenders reasonable discretion; or any Credit Party shall suffer the loss or revocation of any license or permit now held or hereafter acquired by such Credit Party which is necessary to the continued or lawful operation of its business, and such loss or revocation of such license of permit of any such Credit Party could reasonably be expected to result in a Material Adverse Effect on the Credit Parties, taken as a whole, as determined by the Lender in the Lenders reasonable discretion; or any Credit Party shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs, and such action could reasonably be expected to result in a Material Adverse Effect on the Credit Parties, taken as a whole, as determined by the Lender in the Lenders reasonable discretion; or any material lease or agreement pursuant to which any Credit Party leases, uses or occupies any of its properties shall be canceled or terminated prior to the expiration of its stated term, and such cancellation or termination of any material lease or agreement of any such Credit Party could reasonably be expected to result in a Material Adverse Effect on the Credit Parties, taken as a whole, as determined by the Lender in the Lenders reasonable discretion; or any Property of any Credit Party shall be taken through condemnation or the value of such Property shall be impaired through condemnation, and such condemnation or impairment of Property of any such Credit Party could reasonably be expected to result in a Material Adverse Effect on the Credit Parties, taken as a whole, as determined by the Lender in the Lenders reasonable discretion; or
(n) Priority. If the Lender shall receive at any time following the Closing Date, a report indicating that, with the exception of Permitted Liens, the Lenders security interest does not have a first priority ranking.
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default described in Section 9.1(f) of this Loan Agreement or any other Loan Document, the unpaid balance of all Credit Party Obligations shall be automatically due and payable and the Revolving Credit Commitments shall automatically terminate. Upon the occurrence of any such Event of Default described in the first sentence
hereof, or any other Event of Default, the Lender may, at its option, take any of the following actions:
(a) Termination of Revolving Commitment. Declare the Revolving Commitment terminated whereupon the Revolving Commitment shall be immediately terminated.
(b) Acceleration. Declare any or all of the unpaid Credit Party Obligations to be due, whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Credit Parties.
(c) Enforcement of Rights. Enforce any and all rights and interests created and existing under the Loan Documents including, without limitation, all rights and remedies existing under the Collateral Documents, all rights and remedies against any Guarantor, all rights of set-off and all other rights and remedies existing under applicable law.
SECTION 10
MISCELLANEOUS
10.1 Notices.
Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below, (c) the Business Day following the day on which the same has been delivered prepaid by a reputable national overnight air courier service offering delivery service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address, in the case of the Credit Parties and the Lender, set forth below, or at such other address as such party may specify by written notice to the other parties hereto:
if to any Credit Party, to Credit Parties Agent:
Premier, Inc.
13034 Ballantyne Corporate Place
Charlotte, NC 28277
Attn: Treasury Manager
Tel: 704.816.5005
Fax: 704.816.5005
With copies (which shall not constitute notice to any Credit Party) to:
Premier, Inc.
13034 Ballantyne Corporate Place
Charlotte, NC 28277
Attn: General Counsel
Tel: 704-816.
Fax: 704-816.
McDermott Will & Emery LLP
2049 Century Park East
38th Floor
Los Angeles, CA 90067
Attn: David Klatsky, Esq.
Tel: 310-277-4110
Fax: 310-277-4730
if to the Lender:
Wells Fargo Bank, National Association
301 S. Tryon St., 28th Floor
MAC D1130-286
Charlotte, North Carolina 28288
Attn: Suzanne Morrison
Tel: 704-383-3497
Fax: 704-374-4820
With a copy (which shall not constitute notice to the Lender) to:
King & Spalding LLP
100 N. Tryon St., Suite 3900
Charlotte, North Carolina 28202
Attn: Bill Fuller, Esq.
Tel: 704-503-2589
Fax: 704-503-2622
10.2 Right of Set-Off; Adjustments.
Upon the occurrence and during the continuance of any Event of Default, the Lender (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, and without advance notice to any Credit Party (any such notice being expressly waived by each Credit Party) to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender (or any of its Affiliates) to or for the credit or the account of any Credit Party against any and all of the obligations of such Person now or hereafter existing under this Loan Agreement (specifically including the Guaranteed Obligations), under the Revolving Notes, under any other Loan Document or otherwise, irrespective of whether the Lender shall have made any demand hereunder or thereunder and although such obligations may be
unmatured. The rights of the Lender under this Section 10.2 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the Lender may have.
10.3 Successors and Assigns.
(a) The provisions of this Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Credit Parties may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by any Credit Party without such consent shall be null and void). Nothing in this Loan Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Indemnified Parties) any legal or equitable right, remedy or claim under or by reason of this Loan Agreement.
(b) The Lender may transfer (including guaranty rights of participation herein), syndicate or otherwise assign to one or more Persons all or a portion of its rights and obligations under this Loan Agreement (including all or a portion of its Revolving Commitment and the Loans) or any of the remaining Loan Documents with the prior written consent of the Credit Parties Agent; provided, however, such consent shall not be required to the extent an Event of Default shall have occurred and is continuing hereunder.
(c) The Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Loan Agreement (including under its Revolving Notes, if any) to secure obligations of the Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank.
10.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Lender in exercising any right, power or privilege hereunder or under any other Loan Document and no course of dealing between the Lender and any of the Credit Parties shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle the Credit Parties to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand.
10.5 Expenses; Indemnification.
(a) The Credit Parties jointly and severally agree to pay on demand all reasonable and documented costs and out-of-pocket expenses of the Lender in connection with the preparation, execution, delivery, administration, modification, and amendment of this Loan Agreement (including, without limitation, the cost of any field examination and audits of the Collateral), the other Loan Documents, and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees and expenses of counsel for the Lender with respect thereto and with respect to advising the Lender as to its rights and responsibilities under the Loan Documents. The Credit Parties further jointly and severally agree to pay on demand all reasonable and documented costs and out-of-pocket expenses of the Lender, if any (including, without limitation, reasonable attorneys fees and expenses), in connection with any work-out or restructuring relating to the Loan Facilities or any Letter of Credit or any enforcement (whether through negotiations, legal proceedings, or otherwise) of any of the Loan Documents.
(b) The Credit Parties jointly and severally agree to indemnify and hold harmless the Lender and each of its Affiliates and their respective officers, directors, employees, the Lender, and advisors (each, an Indemnified Party) from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys fees) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents (including any refusal by the Lender 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), any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans or any Letter of Credit, except to the extent such claim, damage, loss, liability, cost, or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Partys gross negligence, bad faith or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 10.5 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any of the Credit Parties, their respective directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Credit Parties agree not to assert any claim against any the Lender, any of its Affiliates, or any of their respective directors, officers, employees, attorneys, the Lender, and advisers, on any theory of liability, for special, indirect, consequential, or punitive damages arising out of or otherwise relating to the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans or any Letter of Credit.
(c) Without prejudice to the survival of any other agreement of the Credit Parties hereunder, the agreements and obligations of the Credit Parties contained in this Section 10.5 shall survive the repayment of the Credit Party Obligations and the termination of the Revolving Commitment hereunder.
(d) As used herein or elsewhere in the Loan Documents, reasonable attorneys fees shall mean attorneys fees actually incurred without regard to statutory presumption.
10.6 Amendments, Waivers and Consents.
Neither this Loan Agreement nor any other Loan Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment,
change, waiver, discharge or termination is in writing entered into by, or approved in writing by, each of the Credit Parties party thereto and the Lender.
10.7 Counterparts.
This Loan Agreement may be executed in any number of counterparts, each of which when so executed shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Loan Agreement to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile or other electronic transmission by any of the parties hereto of an executed counterpart of this Loan Agreement shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered.
10.8 Headings.
The headings of the sections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Loan Agreement.
10.9 Survival.
All indemnities set forth herein shall survive the execution and delivery of this Loan Agreement, the making of the Loans, the issuance, amendment or renewal of any Letter of Credit, the repayment of the Loans and other obligations under the Loan Documents and the termination of the Revolving Commitment hereunder, and all representations and warranties made by the Credit Parties herein shall survive until this Loan Agreement shall be terminated in accordance with the terms of Section 10.13(b).
10.10 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.
(a) THIS LOAN AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY PROVIDED THEREIN, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Loan Agreement or any other Loan Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York and, by execution and delivery of this Loan Agreement, each of the Credit Parties hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the nonexclusive jurisdiction of such courts. Each of the Credit Parties further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address set out for notices pursuant to Section 10.1, such service to become effective three (3) days after such mailing. Nothing herein shall affect the right of the Lender to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Loan Agreement or any other Loan Document brought in the courts referred to in subsection (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.
(c) EACH PARTY TO THIS LOAN AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS LOAN AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
10.11 Severability.
If any provision of any of the Loan Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
10.12 Entirety.
This Loan Agreement together with the other Loan Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Loan Documents or the transactions contemplated herein and therein.
10.13 Binding Effect; Termination.
(a) This Loan Agreement shall become effective at such time on or after the Closing Date when it shall have been executed by each Credit Party and the Lender, and the Lender shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signature of the Lender, and thereafter this Loan Agreement shall be binding upon and inure to the benefit of each Credit Party, the Lender and their respective successors and assigns.
(b) The term of this Loan Agreement shall be until the Credit Party Obligations are Fully Satisfied and no Letter of Credit is outstanding.
10.14 Confidentiality.
Each of the Credit Parties and the Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its (and its Affiliates) directors, officers, employees and the Lender, including accountants, legal counsel and other advisors (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 requested by any regulatory authority; (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; (d) to any other party to this Loan Agreement; (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Loan Agreement or the enforcement of rights hereunder; (f) subject to an agreement containing provisions substantially the same as those of this Section 10.14, to (i) any assignee of or participant in, or any prospective assignee of or participant in, any of the Lenders rights or obligations under this Loan Agreement or (ii) any direct or indirect contractual counterparty or prospective counterparty (or such contractual counterpartys or prospective counterpartys professional advisor) to any credit derivative transaction relating to Credit Party Obligations; (g) with the consent of the Credit Parties, (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 10.14 or (ii) becomes available to the Lender on a nonconfidential basis from a source other than the Credit Parties; or (i) to any nationally recognized rating agency that requires access to information about a the Lenders or its Affiliates investment portfolio in connection with ratings issued with respect to such the Lender or its Affiliates. For the purposes of this Section, Information means all information received from the Credit Parties relating to the Credit Parties or their business, other than any such information that is available to the Lender or any the Lender on a nonconfidential basis prior to disclosure by the Credit Parties; provided that, in the case of information received from the Credit Parties after the date hereof, such information is clearly identified in writing at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 10.14 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.
10.15 Conflict.
To the extent that there is a conflict or inconsistency between any provision hereof, on the one hand, and any provision of any Loan Document, on the other hand, this Loan Agreement shall control.
10.16 No Advisory or Fiduciary Responsibility.
In connection with all aspects of the Transactions, each of the Credit Parties acknowledges and agrees, and acknowledges its Affiliates understanding, that: (a) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arms-length commercial transaction between the Credit Parties and their Affiliates, on the one hand, and the Lender, on the other hand, and the Credit Parties are capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the Transactions and by the other Loan Documents (including any amendment,
waiver or other modification hereof or thereof); (b) in connection with the process leading to such transaction, the Lender is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for any Credit Party or any of their Affiliates, stockholders, creditors or employees or any other Person; (c) the Lender has not assumed nor will assume an advisory, agency or fiduciary responsibility in favor of any Credit Party with respect to the Transactions or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Lender has advised or is currently advising any Credit Party or any of its Affiliates on other matters) and the Lender has no obligation to any Credit Party or any of their Affiliates with respect to the Transactions except those obligations expressly set forth herein and in the other Loan Documents; (d) the Lender 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 Lender has no obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (e) the Lender has not provided and will not provide any legal, accounting, regulatory or tax advice with respect to the Transactions (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Credit Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. Each of the Credit Parties hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Lender with respect to any breach or alleged breach of agency or fiduciary duty.
10.17 Continuing Agreement.
This Credit Agreement shall be a continuing agreement and shall remain in full force and effect until all Credit Party Obligations (other than those obligations that expressly survive the termination of this Credit Agreement) have been Fully Satisfied and all Letters of Credit have been terminated. Upon termination, the Credit Parties shall have no further obligations (other than those obligations that expressly survive the termination of this Credit Agreement) under the Loan Documents and the Lender shall, at the request and expense of the Borrower, deliver all the Collateral in its possession to the Borrower and release all Liens on the Collateral; provided that should any payment, in whole or in part, of the Credit Party Obligations be rescinded or otherwise required to be restored or returned by the Lender, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then the Loan Documents shall automatically be reinstated and all Liens of the Lender shall reattach to the Collateral and all amounts required to be restored or returned and all costs and expenses incurred by the Lender in connection therewith shall be deemed included as part of the Credit Party Obligations.
10.18 Concerning Joint and Several Obligations of the Borrowers.
(a) Each of the Borrowers is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Lenders under this Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the undertakings of each of the Borrowers to accept joint and several liability for the obligations of each of them.
(b) Each of the Borrowers jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers with respect to the payment and performance of all of the Credit Party Obligations, it being the intention of the parties hereto that all the Credit Party Obligations shall be the joint and several obligations of each of the Borrowers without preferences or distinction among them.
(c) If and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Credit Party Obligations as and when due or to perform any of the Credit Party Obligations in accordance with the terms thereof, then in each such event, the other Borrowers will make such payment with respect to, or perform, such Credit Party Obligation.
(d) The obligations of each Borrower under the provisions of this Section constitute full recourse obligations of such Borrower, enforceable against it to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Credit Agreement or any other circumstances whatsoever.
(e) Except with respect to notices otherwise expressly provided for in this Loan Agreement and the Loan Documents or as otherwise expressly provided herein, each Borrower hereby waives, to the extent permitted by law, notice of acceptance of its joint and several liability, notice of any Loan made under this Credit Agreement, notice of occurrence of any Event of Default, or of any demand for any payment under this Credit Agreement, notice of any action at any time taken or omitted by the Lender under or in respect of any of the Credit Party Obligations, any requirement of diligence and, generally, all demands, notices and other formalities of every kind in connection with this Credit Agreement. Except with respect to notices otherwise expressly provided for in this Loan Agreement and the Loan Documents, each Borrower hereby assents to, and waives notice of, to the extent permitted by law, any extension or postponement of the time for the payment of any of the Credit Party Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by the Lender at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Credit Agreement, any and all other indulgences whatsoever by the Lender in respect of any of the Credit Party Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Credit Party Obligations or the addition, substitution or release, in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Borrower assents to any other action or delay in acting or failure to act on the part of the Lender, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with the applicable laws or regulations thereunder which might, but for the provisions of this Section, afford grounds for terminating, discharging or relieving such Borrower, in whole or in part, from any of its obligations under this Section, it being the intention of each Borrower that, so long as any of the Credit Party Obligations remain unsatisfied, the obligations of such Borrower under this Section shall not be discharged except by
performance or payment and then only to the extent of such performance or payment. The obligations of each Borrower under this Section shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any Borrower or the Lender. The joint and several liability of the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any Borrower or the Lender.
(f) The provisions of this Section are made for the benefit of the Lenders and their respective successors and assigns, and may be enforced by any such Person from time to time against any of the Borrowers as often as occasion therefor may arise and without requirement on the part of the Lender first to marshal any of its claims or to exercise any of its rights against the other Borrower or to exhaust any remedies available to it against the other Borrower or to resort to any other source or means of obtaining payment of any of the Credit Party Obligations or to elect any other remedy. The provisions of this Section shall remain in effect until all the Credit Party Obligations shall have been Fully Satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Credit Party Obligations, is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy or reorganization of any of the Borrowers, or otherwise, the provisions of this Section will forthwith be reinstated in effect, as though such payment had not been made.
(g) Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents, to the extent the joint obligations of a Borrower shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each Borrower hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code), after taking into account, among other things, such Borrowers right of contribution and indemnification from each other Credit Party under applicable law.
(h) The Borrowers hereby agree, as among themselves, that if any Borrower shall become an Excess Funding Borrower (as defined below), each other Borrower shall, on demand of such Excess Funding Borrower (but subject to the next sentence hereof and to subsection (B) below), pay to such Excess Funding Borrower an amount equal to such Borrowers Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, assets, liabilities and debts of such Excess Funding Borrower) of such Excess Payment (as defined below). The payment obligation of any Borrower to any Excess Funding Borrower under this Section shall be subordinate and subject in right of payment to the prior payment in full of the Credit Party Obligations of such Borrower under the other provisions of this Credit Agreement, and such Excess Funding Borrower shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such Credit Party Obligations. For purposes hereof, (i)
Excess Funding Borrower shall mean, in respect of any Credit Party Obligations arising under the other provisions of this Credit Agreement (hereafter, the Joint Obligations), a Borrower that has paid an amount in excess of its Pro Rata Share of the Joint Obligations; (ii) Excess Payment shall mean, in respect of any Joint Obligations, the amount paid by an Excess Funding Borrower in excess of its Pro Rata Share of such Joint Obligations; and (iii) Pro Rata Share, for the purposes of this Section, shall mean, for any Borrower, the ratio (expressed as a percentage) of (A) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Borrower (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Borrower hereunder) to (B) the amount by which the aggregate present fair salable value of all assets and other properties of such Borrower and the other Borrower exceeds the amount of all of the debts and liabilities (including contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Borrower and the other Borrower hereunder) of such Borrower and the other Borrower, all as of the Closing Date (if any Borrower becomes a party hereto subsequent to the Closing Date, then for the purposes of this Section such subsequent Borrower shall be deemed to have been a Borrower as of the Closing Date and the information pertaining to, and only pertaining to, such Borrower as of the date such Borrower became a Borrower shall be deemed true as of the Closing Date).
[SIGNATURE PAGE TO FOLLOW]
LOAN AGREEMENT
PREMIER, INC.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Loan Agreement to be duly executed and delivered as of the date first above written.
BORROWERS: |
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PREMIER, INC., | |
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a Delaware corporation | |
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By: |
/s/ Craig McKasson |
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Name: |
Craig McKasson |
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Title: |
Treasurer |
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PREMIER PURCHASING PARTNERS, L.P., | |
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a California limited partnership | |
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By: |
Premier Plans, LLC |
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General Partner |
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By: |
/s/ Michael Alkire |
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Name: |
Michael Alkire |
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Title: |
Chief Operating Officer |
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GUARANTORS: |
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PREMIER PHARMACY BENEFIT MANAGEMENT, LLC, | |
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a Delaware limited liability company | |
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By: |
/s/ Craig McKasson |
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Name: |
Craig McKasson |
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Title: |
Chief Financial Officer |
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By: |
/s/ Craig McKasson |
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Name: |
Craig McKasson |
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Title: |
Treasurer |
[signature pages continue]
LOAN AGREEMENT
PREMIER, INC.
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PREMIER CAP. CORPORATION, | |
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a California corporation | |
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By: |
/s/ Craig McKasson |
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Name: |
Craig McKasson |
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Title: |
Treasurer |
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PREMIER SUPPLY CHAIN IMPROVEMENT, INC., | |
|
a Delaware corporation | |
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| |
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By: |
/s/ Craig McKasson |
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Name: |
Craig McKasson |
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Title: |
Treasurer |
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|
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PROVIDER SELECT, LLC, | |
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a Delaware limited liability company | |
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|
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By: |
/s/ Craig McKasson |
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Name: |
Craig McKasson |
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Title: |
Treasurer |
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NS3 HEALTH, LLC, | |
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a Florida limited liability company | |
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|
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By: |
/s/Anna-Marie Forrest |
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Name: |
Anna-Marie Forrest |
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Title: |
Secretary |
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|
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NS3 SOFTWARE SOLUTIONS, LLC, | |
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a Florida limited liability company | |
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| |
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By: |
/s/Anna-Marie Forrest |
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Name: |
Anna-Marie Forrest |
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Title: |
Secretary |
[signature pages continue]
LOAN AGREEMENT
PREMIER, INC.
|
COMMCARE PHARMACY - FTL, LLC, | |
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a Florida limited liability company | |
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| |
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By: |
/s/Anna-Marie Forrest |
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Name: |
Anna-Marie Forrest |
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Title: |
Secretary |
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|
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|
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COMMCARE PHARMACY - WPB, LLC, | |
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a Florida limited liability company | |
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| |
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By: |
/s/Anna-Marie Forrest |
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Name: |
Anna-Marie Forrest |
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Title: |
Secretary |
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|
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|
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COMMCARE PHARMACY - MIA, LLC, | |
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a Florida limited liability company | |
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| |
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By: |
/s/Anna-Marie Forrest |
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Name: |
Anna-Marie Forrest |
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Title: |
Secretary |
LOAN AGREEMENT
PREMIER, INC.
|
LENDER: | |
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| |
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WELLS FARGO BANK, NATIONAL ASSOCIATION | |
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| |
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| |
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By: |
/s/Suzanne L. Morrison |
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Name: |
Suzanne L. Morrison |
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Title: |
Senior Vice-President |
SCHEDULE 1.1
INVESTMENT GUIDELINES
See Attached.
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|
|
PREMIER, INC. AND RELATED COMPANIES |
|
|
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|
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INVESTMENT POLICIES AND GUIDELINES |
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|
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Updated January 2010
PREMIER, INC. AND RELATED COMPANIES
INVESTMENT POLICIES AND GUIDELINES
I. SCOPE
This document is the investment policy and guidelines for management of the investing activities of Premier, Inc. and Related Companies (the Company). These Investment Guidelines support the Capital Retention Guidelines of the Company, which require that the retained capital of the Company is used to fund the operating expenses, cover balance sheet requirements and provide for current and future investments of the Company. Further, these Investment Guidelines comply with the Best Ethical Practices for the Group Purchasing Industry, prepared by Professor Kirk O. Hanson and released on October 23, 2002 (the Best Ethical Practices), the requirements of the Health Industry Group Purchasing Association Code of Conduct which was adopted on July 24, 2002 and subsequently approved by the Companys Board of Directors (the HIGPA Code), and the additional commitments made by the Company to Senator Herb Kohl and Senator Mike DeWine of the Subcommittee on Antitrust, Competition and Business and Consumer Rights in a letter dated August 5, 2002, which was also approved by the Companys Board of Directors (the Additional Commitments). The Best Ethical Practices, the HIGPA Code and the Additional Commitments are referred to herein as the Premier Ethical Standards.
In accordance with the Premier Ethical Standards and subject to the exception contained in the following paragraph, in no event shall any Premier entity acquire an equity interest (defined as securities, options, warrants, debt instruments (including loans) or rights to acquire any of the foregoing) in any manufacturer, distributor, supplier or other entity (referred to herein as a Vendor) that sells goods or services to any Premier GPOs members if such Vendor has a contract with or submits a formal bid or offer to contract with a Premier GPO to provide goods or services to such GPOs members (any such Vendor shall be referred to as a Participating Vendor). For purposes of these Investment Guidelines, a Premier GPO shall mean the group purchasing organizations operated by Premier Purchasing Partners, L.P., Provider Select, Inc. and any other Premier entity. A Premier entity shall mean any entity which is controlled by Premier, Inc. or a wholly owned subsidiary of Premier, Inc. In the event a Premier entity unintentionally acquires an equity interest in a Participating Vendor as a result of a merger or other transaction to which the Premier entity is not a party, the Premier entity shall liquidate the equity interest as soon as is reasonably possible unless the acquisition of such interest meets the requirements of the exception described in the following paragraph (other than the requirement of prior approval of the Premier, Inc. Board of Directors) and provided that the retention of such interest is approved by the Premier, Inc. Board of Directors promptly after acquisition.
Upon the prior approval of the Premier, Inc. Board of Directors, a Premier entity may acquire an equity interest in a Participating Vendor where such acquisition demonstrably benefits the applicable Premier GPOs members by creating a source of products or services where there is no other source or very limited sources. All such acquisitions shall be fully disclosed to the GPOs members and publicly disclosed on the Companys website.
This document shall govern the activities and decisions of individuals and organizations both internally and externally employed by the Company engaged in the investing of the Companys assets. The investing activities of the Company can be considered to fall into two distinct categories and as such these guidelines will address both categories separately. One is the Core portfolio, which consists of cash, money market, short term fixed income investments and other publicly available short-term investment vehicles. The other is the Strategic portfolio, which represents the investments made by the Company in private companies and other business development ventures. Until funds are employed in Strategic endeavors, they will be kept in the Core Portfolio to support the other Retention needs of the Company.
II. CORE PORTFOLIO
a) Overall Investment Objectives
Subject to the guidelines set forth herein and the Premier Ethical Standards, the general investment objective of the Core Portfolio of the Company is to achieve a maximum total return, while allowing for the goals of safety and liquidity to be achieved. Diversification should be used to minimize risk, without sacrificing the Companys desire for maximum total return.
For the assets in the Core Portfolio that are managed by an external Investment Manager the objective is two fold, both taken in the context that preservation of principal is a priority:
1. Maintain a tranche of the portfolio that will preserve principal and generate current income by investing in a portfolio of high-quality, short-term instruments (Liquidity tranche).
2. Maintain a separate tranche of the portfolio that will provide a higher level of current income by employing a broader range of sectors and tactically managing duration (Short-Term Fixed Income tranche).
For the assets in the Core Portfolio that are managed internally, the objective is to provide the highest returns while ensuring the safety and liquidity of the assets. These assets can be used to provide for the immediate cash needs of the Company.
b) Portfolio Segment Allocations
The Company has established the following allocation ranges for the Core portfolio:
|
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Minimum |
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Maximum |
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Core Portfolio |
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|
|
|
|
Liquidity (Money Market) |
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20 |
% |
100 |
% |
Short Term Fixed Income |
|
0 |
% |
80 |
% |
The Company will have the authority to rebalance the overall portfolio, with reasonable notice to the External Investment Managers, within these ranges based upon operational considerations.
c) Operating Parameters
Core Portfolio (Externally Managed)
|
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Liquidity Portfolio |
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Short Term Fixed Income |
Diversification |
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1. Single issuers limited to 5% of portfolio TMV, excluding US Govt & Agency securities, as well as all investments that are fully collateralized by U.S. Govt & Agency obligations. |
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1. Single issuers limited to 5% of portfolio TMV, excluding US Govt & Agency securities. |
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2. Portfolio to have a maximum of 25% of TMV in a single Industry, excluding asset backed commercial paper issuances which can represent up to 50% of the TMV. |
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2. Portfolio to have a maximum of 25% of TMV in a single industry. |
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|
|
|
Credit Quality |
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1. Average credit quality of the total portfolio will not be below A1/P1 or AA. |
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1. Average credit quality of the total portfolio will not be below A1/P1 or AA. |
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3. Money market securities must be at least A1 and/or P2, as rated by Standard & Poors and Moodys. |
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3. No issues below A/A3 shall be purchased. |
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4. Money market securities must be at least A1 and/or P1, as rated by Standard & Poors and Moodys. |
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|
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Maturity/Duration |
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1. Weighted average maturity of the total portfolio should be 90 days or less. |
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1. Effective or modified duration of the total portfolio should be between 0.25 to 1.0 year. |
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2. Individual securities should have a final maturity (or reset date for floaters) of no more than 397 days. |
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2. Individual securities average life or duration should be no longer than 5 years. |
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Eligible Securities |
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US Treasuries |
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US Treasuries |
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All Agencies & Supra Nationals (fixed and floating rate) |
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All Agencies & Supra Nationals (fixed and floating rate) |
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Short term investments, money market instruments and funds (one year or less duration). Includes Commercial Paper, Bankers Acceptances, Time Deposits, CDs. |
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Short term investments, money market instruments and funds (one year or less duration) |
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Repurchase Agreements |
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Corporate Fixed Income Securities |
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Triple AAA Rated Asset Backed Securities |
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US and Yankee non-convertible preferred |
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Investment Grade Corporates |
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Yankee securities |
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Eurodollar securities |
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Triple AAA Rated Asset backed securities |
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Mortgage Backed Securities |
The Adviser from time to time may make investments in proprietary registered mutual funds managed by the Adviser for purposes of meeting the short-term investment needs of the client. Such investment can be in money market mutual funds and in funds with longer duration meeting the guidelines specified by the client. Assets invested in mutual funds should not be diminished by front or back end charges.
For the Core Short-term Fixed Income portfolio the external Investment Manager is approved to use derivatives for the following purposes: to implement investment decisions in a more efficient manner, primarily for increased cost effectiveness and/or liquidity, particularly in managing the duration, yield curve and credit exposure; to manage a portfolios exposure to volatility and to take advantage of inefficiencies in derivatives markets. Pursuant to this policy, derivatives are only used when the structure is thoroughly understood and its total return profile and risk characteristics can be
analyzed. Also, any single derivative or derivatives in aggregate cannot create risk characteristics that are inconsistent with the overall risk profile and portfolio guidelines.
Core Portfolio (Internally Managed)
1. The Treasurer of the Company has the authority to direct up to 50% of the Companys Core Portfolio to provide for the immediate cash needs of the Company.
2. Eligible Securities include US Treasuries, all US Agencies, money market instruments and funds (one year or less duration), Repurchase Agreements, Asset Backed Securities and Investment Grade Corporates
3. The average maturity of the Internally Managed Core Portfolio should be 20-90 days.
d) Performance Benchmarks
Appropriate benchmarks will be approved by the Audit Committee of the Board of Directors.
e) General Core Portfolio Restrictions
Prohibited Transactions
Prohibited transactions include, but are not limited to, margin trades, short sales, leveraged transactions, options, and any other type of investment not specified elsewhere in these guidelines. However, with prior written approval from the Company, the Treasurer and the Investment Manager may purchase instruments not conforming to the policy guidelines. Such purchases will not exceed 10% of the current cost of total Core portfolio. Core portfolio transactions shall comply with the Premier Ethical Standards.
Realized Gains / Losses
The External Investment Manager should attempt to reduce transactions resulting in a material realized loss for which a realized gain will not offset. The External Investment Manager shall obtain approval for any transaction that will result in a greater than 5% loss of principal.
Conflicts of Interest
The Externally Investment Manager must wait for any issuance that is underwritten, managed or arranged by the Investment Manager or any of its associates to break for secondary trading before purchasing.
Investment Manager Reporting
Premier will receive a report on the externally managed portfolio holdings monthly and a quarterly analysis of performance, including Benchmark comparisons. Portfolio holdings shall be reported on a cost and fair market value basis.
III. STRATEGIC PORTFOLIO
For the assets in the Strategic portfolio, the objective is to allow for the investment of funds that will allow longer term development of strategic relationships and businesses, with higher risk and potentially greatly reduced liquidity, in order to enable corresponding higher returns. The Strategic portfolio includes the portion of the Companys assets that are invested in private or other illiquid joint ventures, venture capital funds, early stage and development stage private companies, equities or internally developed subsidiaries. The Treasurer and Chief Financial Officer is responsible for oversight of this portion of the Companys portfolio and will work with the Companys Executive Team and Board of Directors to ensure that investments meet the approval of the Companys management and comply with the Premier Ethical Standards. Funds will be invested with care, prudence and diligence. The Performance Benchmark for the Strategic Portfolio will be a rate of return of 20% annualized over a 5-year period.
IV. AUTHORITY AND MODIFICATIONS TO INVESTMENT POLICY
The Audit Committee of the Companys Board of Directors has the responsibility of oversight of the total investment holdings of the Company, as well as the Investment Policies and Guidelines. Annually, this Committee will review and formally approve the Investment Policies and Guidelines. This Committee will also recommend approval to the Board of Directors, of any exceptions, deletions, and/or modifications to the holdings and guidelines, which require Board of Directors approval.
SCHEDULE 6.4
REQUIRED CONSENTS, AUTHORIZATIONS, NOTICES AND FILINGS
None.
Schedule 6.13
Corporate Structure
Credit Party |
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Jurisdiction of |
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# of shares |
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Capital Stock |
|
Number and Percent of |
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Outstanding Options, |
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|
|
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Premier, Inc. |
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Delaware |
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12,250,000 shares common stock |
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6,227,729 |
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None. |
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None |
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Premier Purchasing Partners, L.P. |
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California |
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None |
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None |
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Premier Plans, LLC: General Partner, 1% partnership interest (uncertificated). |
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None |
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Premier Pharmacy Benefit Management, LLC |
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Delaware |
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None |
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None |
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Premier, Inc: 100% membership interest (uncertificated). |
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None |
|
Premier Plans, LLC |
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Delaware |
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20,000 shares common stock |
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20,000 shares common stock |
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Premier, Inc: 20,000 shares of common stock, 100% ownership interest. |
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None |
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Premier Cap. Corporation |
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California |
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300,000 |
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1 |
|
Premier, Inc: 1 share, 100% ownership interest. |
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None |
|
Premier Supply Chain Improvement, Inc. |
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Delaware |
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1,000 shares common stock |
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100 shares common stock |
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Premier Purchasing Partners, L.P.: 100 shares of common stock, 100% ownership interest. |
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None |
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Provider Select, LLC |
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Delaware |
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None |
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None |
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Premier Purchasing Partners, L.P.: 100% membership interest (uncertificated). |
|
None |
|
NS3 Health, LLC |
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Florida |
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None |
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None |
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Premier Supply Chain Improvement, Inc.: 100% membership interest (uncertificated). |
|
None |
|
Commcare Pharmacy-FTL, LLC |
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Florida |
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None |
|
None |
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NS3 Health, LLC: 100% membership interest (uncertificated). |
|
None |
|
Commcare Pharmacy-WPB, LLC |
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Florida |
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None |
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None |
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NS3 Health, LLC: 100% membership interest (uncertificated). |
|
None |
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Commcare Pharmacy-MIA, LLC |
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Florida |
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None |
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None |
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NS3 Health, LLC: 100% membership interest (uncertificated). |
|
None |
|
NS3 Software Solutions, LLC |
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Florida |
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None |
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None |
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NS3 Health, LLC: 100% membership interest (uncertificated). |
|
None |
|
SCHEDULE 6.16
ENVIRONMENTAL PERMITS
None.
SCHEDULE 6.17
INTELLECTUAL PROPERTY
Mark |
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Serial No. or Reg. No. |
|
Filing Date and Reg.Date |
INTELLECTUAL PROPERTY HELD BY PREMIER, INC. |
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|
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|
REGISTERED MARKS |
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|
|
|
ADVISOREXCHANGE |
|
Reg. No. 3,901,076 |
|
Filed 9/9/2008 Reg. 1/4/2011 |
ADVISOR LIVE |
|
3,629,082 |
|
Filed 9/8/2008 Reg. 5/26/2009 |
ADVISOR SUITE |
|
3,204,706 |
|
Filed 8/13/2003 Reg. 1/30/2007 |
|
|
3,753,897 |
|
Filed 2/20/2009 Reg. 3/2/2010 |
ASCEND |
|
3,751,373 |
|
Filed 2/13/2009 Reg. 2/23/2010 |
CARESCIENCE |
|
3,246,850 |
|
Filed 03/21/2006 Reg. 5/29/2007 |
CARESCIENCE |
|
3,224,683 |
|
File 03/21/2006 Reg. 4/3/2007 |
CARESCIENCE |
|
3,336,973 |
|
Filed 03/21/2006 Reg. 11/13/2007 |
CLINICAL ADVISOR |
|
3,199,852 |
|
Filed 8/13/2003 Reg. 1/16/2007 |
|
|
Supplemental |
|
|
CLINICALADVISOR |
|
3,673,007 |
|
Filed 3/23/2009 Reg. 8/25/2009 |
GREENCORNER |
|
3,653,853 |
|
Filed 10/23/2008 Reg. 7/14/2009 |
GREENHEALTHY |
|
3,730,576 |
|
Filed 10/23/2008 Reg. 12/29/2009 |
GREENLINK |
|
3,630,777 |
|
Filed 10/23/2008 Reg. 6/02/2009 |
KNOWLEDGEBOX |
|
3,806,820 |
|
Filed 11/3/2009 Reg. 6/22/2010 |
LABORCONNECT |
|
3,748,686 |
|
Filed 3/26/2009 Reg. 2/16/2010 |
|
|
|
|
|
MYPREMIER |
|
3,778,568 |
|
Filed 11/2/2007 Reg. 4/20/2010 |
|
|
|
|
|
OPERATIONS ADVISOR |
|
3,204,707 |
|
Filed 8/13/2003 Reg. 1/30/2007 |
|
|
Supplemental |
|
|
OPERATIONSADVISOR |
|
3,701,239 |
|
Filed |
PERCEPTION ADVISOR |
|
3,011,820 |
|
Filed 08/13/2003 Reg. 11/1/2005 |
PERSPECTIVE |
|
3,666,080 |
|
Filed 10/24/2008 Reg. 8/11/2009 |
PHARMACYCONNECT |
|
3,846,387 |
|
Filed 9/01/2009 Reg. 9/7/2010 |
|
|
3,597,963 |
|
Filed 8/14/2008 Reg. 3/31/2009 |
PREMIER |
|
3,597,964 |
|
Filed 8/14/2008 |
PREMIER SAFETY INSTITUTE |
|
3,666,078 |
|
Filed 10/23/2008 Reg. 08/11/2009 |
PREMIER SAFETY INSTITUTE |
|
3,666,077 |
|
Filed 10/23/2008 Reg. 08/11/2009 |
PROVIDER SELECT |
|
2,394,825 |
|
Filed 2/10/1998 Reg. 10/17/2000 |
PROVIDER SELECT:MD |
|
3,997,168 |
|
Filed 12/03/2010 Reg. 7/19/2011 |
QUALITY MEASURES REPORTER |
|
3,660,282 |
|
Filed 9/8/2008 Reg. 7/28/2009 |
QUEST |
|
3,682,291 |
|
Filed 9/9/2008 Reg. 9/15/2009 |
RATIONAL CHOICE |
|
2,517,984 |
|
Filed 1/21/1999 Reg. 12/11/2001 |
RATIONAL CHOICE MED/SURG |
|
3,453,428 |
|
Filed 10/30/2007 Reg. 6/24/2008 |
SAFETY ADVISOR |
|
3,204,708 |
|
Filed 8/13/2003 Reg. 1/30/2007 |
SAFETY SHARE |
|
3,660,368 |
|
Filed 10/23/2008 Reg. 7/28/2009 |
SAFETYSURVEILLOR |
|
3,618,849 |
|
Filed 9/8/2008 Reg. 5/12/2009 |
SELECT PRACTICE |
|
3,576,869 |
|
Filed 3/19/2007 Reg. 2/17/2009 |
SPENDADVISOR |
|
3,615,254 |
|
Filed 9/9/2008 Reg. 5/05/2009 |
SPHERE |
|
3,906,106 |
|
Filed 10/23/2008 Reg. 1/18/2011 |
SUPPLY CHAIN ADVISOR |
|
3,671,260 |
|
Filed 2/12/2009 Reg. 8/18/2009 |
SUPPLYFOCUS |
|
3,660,283 |
|
Filed 9/8/2008 Reg. 7/28/2009 |
TRANSFORMING HEALTHCARE TOGETHER |
|
3,573,351 |
|
Filed 6/15/2007 Reg. 2/10/2009 |
VALUEADVISOR |
|
3,795,304 |
|
Filed 10/22/2009 Reg. 5/25/2010 |
VALUECONNECT |
|
3,865,809 |
|
Filed 1/4/2010 Reg. 10/19/2010 |
PENDING MARKS |
|
|
|
|
|
|
77/892,674 |
|
12/14/2009 |
|
|
|
|
|
|
|
85/203,601 |
|
Filed |
CLINICIAN FOCUS |
|
85/272,119 |
|
Filed 3/21/2011 |
EXPRESSBUY |
|
85/228,740 |
|
Filed 1/28/2011 |
PACT |
|
85/379646 |
|
Filed 07/25/2011 |
PACT - PARTNERSHIP FOR CARE TRANSFORMATION |
|
85/378293 |
|
Filed 07/22/2011 |
PHYSICIAN FOCUS |
|
85/271,894 |
|
Filed 3/31/2011 |
|
|
85/456269 |
|
Filed 10/26/2011 |
|
|
|
|
|
PREMIER SUPPLY MIX INDEX |
|
85/187,934 |
|
Filed 12/01/2010 |
FOREIGN APPLICATIONS AND REGISTRATIONS |
|
|
|
|
MY PREMIER |
|
1,372,551 |
|
Filed |
MY PREMIER |
|
976363 |
|
1/7/2008 |
MY PREMIER |
|
976373 |
|
1/7/2008 |
DETERMINING A HARM AVOIDANCE PARAMETER |
|
13/294,050 |
|
Provisional Application Filed |
SUPPLY EXPENSE ANALYSIS |
|
12/892,897 |
|
Provisional patent application filed |
DETERMINING A WASTE PARAMETER |
|
13/300530 |
|
Provisional patent application filed |
INTELLECTUAL PROPERTY HELD BY PREMIER PURCHASING PARTNERS, L.P., |
|
|
|
|
MARKS |
|
|
|
|
DIALYSIS Assist |
|
Registration: 374648 |
|
Filed. 6/29/2009 |
HEPATITIS Assist |
|
Registration: 3786969 |
|
Filed 06/29/2009 |
HIV Assist |
|
Registration: 3351374 |
|
Filed 03/21/2007 |
IV Assist |
|
Registration: 3746477 |
|
Filed 06/29/2009 |
MS Assist |
|
Registration: 3786971 |
|
Filed 06/29/2009 |
ONCOLOGY Assist |
|
Registration: 3351379 |
|
Filed 03/21/2007 |
RA Assist |
|
Registration: 3833634 |
|
Filed 06/29/2009 |
RSV Assist |
|
Registration: 3746479 |
|
Filed 06/29/2009 |
RX COMMCARE PHARMACY |
|
Registration: 3281526 |
|
Filed: 10/17/2006 |
SP Assist |
|
Registration: 3746476 |
|
Filed 06/29/2009 |
Claims:
· Information Builders, Inc., filed an Opposition to Premiers applications for registration of the marks CLINICIAN FOCUS and PHYSICIAN FOCUS, however, resolution was reached pending re-description of services.
SCHEDULE 6.20(a)
BUSINESS LOCATIONS
Credit Party |
|
Address |
|
City |
|
State |
|
Zip |
Premier, Inc. |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Purchasing Partners, L.P. |
|
12544 High Bluff Drive, Suite 430 |
|
San Diego |
|
California |
|
92130 |
Premier Pharmacy Benefit Management, LLC |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Plans, LLC |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Cap. Corporation |
|
12544 High Bluff Drive, Suite 430 |
|
San Diego |
|
California |
|
92130 |
Premier Supply Chain Improvement, Inc. |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Provider Select, LLC |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
NS3 Health, LLC |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
Commcare Pharmacy-FTL, LLC |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
Commcare Pharmacy-WPB, LLC |
|
1689 Forum Place |
|
West Palm Beach |
|
Florida |
|
33401 |
Commcare Pharmacy-MIA, LLC |
|
1801 Coral Way |
|
Miami |
|
Florida |
|
33145 |
NS3 Software Solutions, LLC |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
SCHEDULE 6.20(b)
PERSONAL PROPERTY LOCATIONS
Credit Party |
|
Address |
|
City |
|
State |
|
Zip |
Premier, Inc. |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Purchasing Partners, L.P. |
|
12544 High Bluff Drive, Suite 430 13034 Ballantyne Corporation Place |
|
San Diego Charlotte |
|
California North Carolina |
|
92130 28277 |
Premier Pharmacy Benefit Management, LLC |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Plans, LLC |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Cap. Corporation |
|
12544 High Bluff Drive, Suite 430 |
|
San Diego |
|
California |
|
92130 |
Premier Supply Chain Improvement, Inc. |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Provider Select, LLC |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
NS3 Health, LLC |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
Commcare Pharmacy-FTL, LLC |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
Commcare Pharmacy-WPB, LLC |
|
1689 Forum Place |
|
West Palm Beach |
|
Florida |
|
33401 |
Commcare Pharmacy-MIA, LLC |
|
1801 Coral Way |
|
Miami |
|
Florida |
|
33145 |
NS3 Software Solutions, LLC |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
SCHEDULE 6.20(c)
PRINCIPAL PLACE OF BUSINESS
Credit Party |
|
Jurisdiction of |
|
Address |
|
City |
|
State |
|
Zip |
Premier, Inc. |
|
Delaware |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Purchasing Partners, L.P. |
|
California |
|
12544 High Bluff Drive, Suite 430 |
|
San Diego |
|
California |
|
92130 |
Premier Pharmacy Benefit Management, LLC |
|
Delaware |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Plans, LLC |
|
Delaware |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Premier Cap. Corporation |
|
California |
|
12544 High Bluff Drive, Suite 430 |
|
San Diego |
|
California |
|
92130 |
Premier Supply Chain Improvement, Inc. |
|
Delaware |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
Provider Select, LLC |
|
Delaware |
|
13034 Ballantyne Corporation Place |
|
Charlotte |
|
North Carolina |
|
28277 |
NS3 Health, LLC |
|
Florida |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
Commcare Pharmacy-FTL, LLC |
|
Florida |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
Commcare Pharmacy-WPB, LLC |
|
Florida |
|
1689 Forum Place |
|
West Palm Beach |
|
Florida |
|
33401 |
Commcare Pharmacy-MIA, LLC |
|
Florida |
|
1801 Coral Way |
|
Miami |
|
Florida |
|
33145 |
NS3 Software Solutions, LLC |
|
Florida |
|
2817 Oakland Park Blvd #303 |
|
Fort Lauderdale |
|
Florida |
|
33306 |
SCHEDULE 6.22
BROKERS FEES.
None.
SCHEDULE 6.25
SUBSIDIARIES
Premier, Inc. Subsidiaries and Managed Companies
Premier Cap Corporation
Premier Pharmacy Benefit Management, LLC
Premier Plans, LLC
Purchasing Partners Subsidiaries
Premier Supply Chain Improvement, Inc.
Provider Select, LLC
NS3 Health, LLC
Commcare Pharmacy MIA, LLC
Commcare Pharmacy FTL, LLC
Commcare Pharmacy WPB, LLC
NS3 Software Solutions, LLC
SCHEDULE 6.26
NAMES
Credit Party |
|
Fictitious Name |
Premier, Inc. |
|
Premier Inc. of Delaware |
SCHEDULE 7.6
INSURANCE
See attached.
|
CERTIFICATE OF LIABILITY INSURANCE |
DATE (MM/DD/YYYY) 12/14/2011 | ||||||||||||||||||||||||||||||||||||||
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
PRODUCER |
CONTACT | |||||||||||||||||||||||||||||||||||||||
Marsh Risk & Insurance Services |
NAME: | |||||||||||||||||||||||||||||||||||||||
4445 Eastgate Mall, Suite 300 |
PHONE |
FAX | ||||||||||||||||||||||||||||||||||||||
San Diego, CA 92121-1979 |
(A/C. No. Ext): |
(A/C. No): | ||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
|
ADDRESS: | |||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
|
INSURER(S) AFFORDING COVERAGE |
|
NAIC # | |||||||||||||||||||||||||||||||||||||
03100 -0000111-12 |
INSURER A : Hartford Fire Insurance Co |
|
19682 | |||||||||||||||||||||||||||||||||||||
INSURED |
INSURER B : N/A |
N/A | ||||||||||||||||||||||||||||||||||||||
PREMIER, INC. |
INSURER C : | |||||||||||||||||||||||||||||||||||||||
12544 HIGH BLUFF DR., SUITE 430 |
INSURER D : | |||||||||||||||||||||||||||||||||||||||
SAN DIEGO, CA 92130 |
INSURER E : | |||||||||||||||||||||||||||||||||||||||
|
INSURER F : | |||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
COVERAGES |
|
CERTIFICATE NUMBER: |
|
LOS-001479511-03 |
|
REVISION NUMBER:17 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
INSR |
|
TYPE OF INSURANCE |
|
ADDL |
|
SUBR WVD |
|
POLICY |
|
POLICY EFF |
|
POLICY EXP |
|
LIMITS | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
GENERAL LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
EACH OCCURRENCE |
$ |
1,000,000 | ||||||||||||||||||||||||
|
|
x COMMERCIAL GENERAL LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
DAMAGE TO RENTED |
$ |
500,000 | ||||||||||||||||||||||||
A |
|
o CLAIMS-MADE |
x OCCUR |
|
|
|
|
|
72CESOF1864 |
|
07/01/2011 |
|
07/01/2012 |
|
MED EXP (Any one person) |
$ |
Excluded | |||||||||||||||||||||||
|
|
x DED. $25,000 |
|
|
|
|
|
|
|
|
|
|
|
PERSONAL & ADV INJURY |
$ |
1,000,000 | ||||||||||||||||||||||||
|
|
o |
|
|
|
|
|
|
|
|
|
|
|
GENERAL AGGREGATE |
$ |
2,000,000 | ||||||||||||||||||||||||
|
|
GENL AGGREGATE LIMIT APPLIES PER: |
|
|
|
|
|
|
|
|
|
|
|
PRODUCTS - COMP/OP AGG |
$ |
2,000,000 | ||||||||||||||||||||||||
|
|
o POLICY |
o PROJECT |
x LOC |
|
|
|
|
|
|
|
|
|
|
|
|
$ | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
AUTOMOBILE LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
COMBINED SINGLE LIMIT (Ea accident) |
$ |
| ||||||||||||||||||||||||
|
|
o ANY AUTO |
|
|
|
|
|
|
|
|
|
|
|
BODILY INJURY (Per person) |
$ |
| ||||||||||||||||||||||||
|
|
o ALL OWNED AUTOS |
o SCHEDULED AUTOS |
|
|
|
|
|
|
|
|
|
|
|
BODILY INJURY (Per accident) |
$ |
| |||||||||||||||||||||||
|
|
o HIRED AUTOS |
o NON-OWNED AUTOS |
|
|
|
|
|
|
|
|
|
|
|
PROPERTY DAMAGE (Per accident) |
$ |
| |||||||||||||||||||||||
|
|
o |
o |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
o UMBRELLA LIAB |
o OCCUR |
|
|
|
|
|
|
|
|
|
|
|
EACH OCCURRENCE |
$ |
| |||||||||||||||||||||||
|
|
o EXCESS LIAB |
o CLAIMS-MADE |
|
|
|
|
|
|
|
|
|
|
|
AGGREGATE |
$ |
| |||||||||||||||||||||||
|
|
o DED o RETENTION $ |
|
|
|
|
|
|
|
|
|
|
|
|
$ | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
|
WORKERS COMPENSATION AND EMPLOYERS LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
|
o |
WC STATUTORY LIMITS |
o |
OTHER |
|
| ||||||||||||||||||||
|
|
ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED? |
Y/N o |
|
N/A |
|
|
|
|
|
|
|
|
|
E.L. EACH ACCIDENT |
$ |
| |||||||||||||||||||||||
|
|
(Mandatory in NH) |
|
|
|
|
|
|
|
|
|
|
|
E.L. DISEASE - EA EMPLOYEE |
$ |
| ||||||||||||||||||||||||
|
|
If yes, describe under DESCRIPTION OF OPERATIONS below |
|
|
|
|
|
|
|
|
|
|
|
E.L. DISEASE - POLICY LIMIT |
$ |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space is required) | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
NAMED INSURED INCLUDES THE ATTACHED LIST. CERTIFICATE HOLDER IS INCLUDED AS ADDITIONAL INSURED ON THE GENERAL LIABILITY AS REQUIRED BY CONTRACT. IF HARTFORD CANCELS THE POLICY, THEY WILL PROVIDE WELLS FARGO BANK 30 DAYS NOTICE OF CANCELLATION (EXCEPT 10 DAYS FOR NON-PAYMENT OF PREMIUM).
| ||||||||||||||||||||||||||||||||||||||||
CERTIFICATE HOLDER |
|
CANCELLATION | ||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||
WELLS FARGO BANK, NATIONAL ASSOCIATION ATTN: SUZANNE MORRISON 301 S. TRYON ST., 28TH FLOOR MAC D1130-286 |
|
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. | ||||||||||||||||||||||||||||||||||||||
CHARLOTTE, NC 28288 |
|
| ||||||||||||||||||||||||||||||||||||||
|
|
AUTHORIZED REPRESENTATIVE | ||||||||||||||||||||||||||||||||||||||
|
|
of Marsh Risk & Insurance Services | ||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||
|
|
Kristen A. Olson |
/s/ Kristen A. Olson | |||||||||||||||||||||||||||||||||||||
|
© 1988-2010 ACORD CORPORATION. All rights reserved. |
| ||||||||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||||||
ACORD 25 (2010/05) |
The ACORD name and logo are registered marks of ACORD |
| ||||||||||||||||||||||||||||||||||||||
Schedule of Named Insureds:
Premier Inc.
Premier Plans, LLC
Premier Purchasing Partners, LP
Provider Select, LLC
Premier Supply Chain Improvement, Inc.
Commcare Pharmacy - FTL, LLC
Commcare Pharmacy - WPB, LLC
Commcare Pharmacy- MIA, LLC
Sun Alliance, LLC
Premier Pharmacy Benefit Management, LLC
Premier CAP Corporation
NS3 Software Solutions, LLC
NS3 Health, LLC
|
CERTIFICATE OF LIABILITY INSURANCE |
DATE (MM/DD/YYYY) 12/14/2011 | ||||||||||
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. | ||||||||||||
| ||||||||||||
IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). | ||||||||||||
|
| |||||||||||
PRODUCER |
CONTACT | |||||||||||
Marsh Risk & Insurance Services |
NAME: | |||||||||||
4445 Eastgate Mall, Suite 300 |
PHONE |
FAX | ||||||||||
San Diego, CA 92121-1979 |
(A/C. No. Ext): |
(A/C. No): | ||||||||||
858-552-4200 |
| |||||||||||
|
ADDRESS: | |||||||||||
|
| |||||||||||
|
INSURER(S) AFFORDING COVERAGE |
|
NAIC # | |||||||||
03100 -0000511-12 |
INSURER A : N/A |
|
N/A | |||||||||
INSURED |
INSURER B : Hartford Casualty Ins Co |
29424 | ||||||||||
PREMIER, INC. |
INSURER C : | |||||||||||
12544 HIGH BLUFF DR., SUITE 430 |
INSURER D : | |||||||||||
SAN DIEGO, CA 92130 |
INSURER E : | |||||||||||
|
INSURER F : | |||||||||||
|
| |||||||||||
COVERAGES |
|
CERTIFICATE NUMBER: |
|
LOS-001479815-04 |
|
REVISION NUMBER: 4 | ||||||
|
|
|
|
|
|
| ||||||
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. | ||||||||||||
INSR LTR |
|
TYPE OF INSURANCE |
|
ADDL INSR |
|
SUBR WVD |
|
POLICY |
|
POLICY EFF (MM/DD/YYYY) |
|
POLICY EXP (MM/DD/YYYY) |
|
LIMITS | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
GENERAL LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
EACH OCCURRENCE |
$ |
| |||||||
|
|
o COMMERCIAL GENERAL LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
DAMAGE TO RENTED PREMISES (Ea occurrence) |
$ |
| |||||||
|
|
o CLAIMS-MADE |
o OCCUR |
|
|
|
|
|
|
|
|
|
|
|
MED EXP (Any one person) |
$ |
| ||||||
|
|
o |
|
|
|
|
|
|
|
|
|
|
|
PERSONAL & ADV INJURY |
$ |
| |||||||
|
|
o |
|
|
|
|
|
|
|
|
|
|
|
GENERAL AGGREGATE |
$ |
| |||||||
|
|
GENL AGGREGATE LIMIT APPLIES PER: |
|
|
|
|
|
|
|
|
|
|
|
PRODUCTS - COMP/OP AGG |
$ |
| |||||||
|
|
o POLICY |
o PROJECT |
o LOC |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
AUTOMOBILE LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
COMBINED SINGLE LIMIT (Ea accident) |
$ |
| |||||||
|
|
o ANY AUTO |
|
|
|
|
|
|
|
|
|
|
|
BODILY INJURY (Per person) |
$ |
| |||||||
|
|
o ALL OWNED |
o SCHEDULED AUTOS |
|
|
|
|
|
|
|
|
|
|
|
BODILY INJURY (Per accident) |
$ |
| ||||||
|
|
AUTOS |
o NON-OWNED |
|
|
|
|
|
|
|
|
|
|
|
PROPERTY DAMAGE (Per accident) |
$ |
| ||||||
|
|
o HIRED AUTOS |
AUTOS |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| ||||||
|
|
o |
o |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
o UMBRELLA LIAB |
o OCCUR |
|
|
|
|
|
|
|
|
|
|
|
EACH OCCURRENCE |
$ |
| ||||||
|
|
o EXCESS LIAB |
o CLAIMS-MADE |
|
|
|
|
|
|
|
|
|
|
|
AGGREGATE |
$ |
| ||||||
|
|
o DED o RETENTION $ |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
WORKERS COMPENSATION AND EMPLOYERS LIABILITY |
|
|
|
|
|
|
|
|
|
|
|
|
o |
WC STATUTORY LIMITS |
o OTHER |
|
| ||||
|
|
ANY PROPRIETOR/PARTNER/EXECUTIVE OFFICER/MEMBER EXCLUDED? |
Y/N o |
|
N/A |
|
|
|
|
|
|
|
|
|
E.L. EACH ACCIDENT |
$ |
| ||||||
|
|
(Mandatory in NH) |
|
|
|
|
|
|
|
|
|
|
|
E.L. DISEASE - EA EMPLOYEE |
$ |
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If yes, describe under DESCRIPTION OF OPERATIONS below |
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E.L. DISEASE - POLICY LIMIT |
$ |
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LIMIT |
47,409,213
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B |
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BLANKET PERSONAL PROPERTY |
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72UUNGM1600 |
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07/01/2011 |
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07/01/2012 |
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DEDUCTIBLE |
1,000 | ||||||||
DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space is required) | |||||
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NAMED INSURED INCLUDES THE ATTACHED LIST. CERTIFICATE HOLDER IS INCLUDED AS LOSS PAYEE ON THE PROPERTY POLICY AS REQUIRED BY CONTRACT PER THE ATTACHED ENDORSEMENT. IF HARTFORD CANCELS THE POLICY, THEY WILL PROVIDE WELLS FARGO BANK 30 DAYS NOTICE OF CANCELLATION (EXCEPT 10 DAYS FOR NON-PAYMENT OF PREMIUM).
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CERTIFICATE HOLDER |
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CANCELLATION | |||
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WELLS FARGO BANK, NATIONAL ASSOCIATION ATTN: SUZANNE MORRISON 301 S. TRYON ST., 28TH FLOOR MAC D1130-286 |
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SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. | |||
CHARLOTTE, NC 28288 |
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AUTHORIZED REPRESENTATIVE | |||
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of Marsh USA Inc. | |||
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Kristen A. Olson |
/s/ Kristen A. Olson | ||
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© 1988-2010 ACORD CORPORATION. All rights reserved. | |||
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ACORD 25 (2010/05) |
The ACORD name and logo are registered marks of ACORD |
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POLICY NUMBER. |
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COMMERCIAL PROPERTY |
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CP 12 18 06 95 |
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
LOSS PAYABLE PROVISIONS
This endorsement modifies insurance provided under the following:
BUILDING AND PERSONAL PROPERTY COVERAGE FORM
BUILDERS RISK COVERAGE FORM
CONDOMINIUM ASSOCIATION COVERAGE FORM
CONDOMINIUM COMMERCIAL UNIT-OWNERS COVERAGE FORM
STANDARD PROPERTY POLICY
SCHEDULE
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Provisions Applicable | ||||
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Description |
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Loss Payee |
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Contract |
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A. |
When this endorsement is attached to the STANDARD PROPERTY POLICY CP 00 99 the term Coverage Part in this endorsement is replaced by the term Policy. | |
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The following is added to the LOSS PAYMENT Loss Condition, as indicated in the Declarations or by an X in the Schedule: | ||
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B. |
LOSS PAYABLE
For Covered Property in which both you and a Loss Payee shown in the Schedule or in the Declarations have an insurable interest, we will: | |
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Adjust losses with you; and |
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Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear. |
C. |
LENDERS LOSS PAYABLE | |||
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The Loss Payee shown in the Schedule or in the Declarations is a creditor, including a mortgageholder ot trustee, whose interest in Covered Property is established by such written instruments as: | ||
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Warehouse receipts; | |
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A Contract for deed; | |
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Bills of lading; | |
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Financing statements; or | |
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e. |
Mortgages, deeds of trust, or security agreements. | |
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2. |
For Covered Property in which both you and a Loss Payee have an insurable interest: | ||
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We will pay for covered loss or damage to each Loss Payee in their order of precedence, as interests may appear. | |
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b. |
The Loss Payee has the right to receive loss payment even if the Loss Payee has started foreclosure or similar action on the Covered Property. | |
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c. |
If we deny your claim because of your acts or because you have failed to comply with the terms of the Coverage Part, the Loss Payee will still have the right to receive loss payment if the Loss Payee: | |
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(1) |
Pays any premium due under this Coverage Part at our request if you have failed to do so. |
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(2) |
Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so; and |
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(3) |
Has notified us of any change in ownership, occupancy or substantial change in risk known to the Loss Payee. |
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All of the terms of this Coverage Part will then apply directly to the Loss Payee. | |
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d. |
If we pay the Loss Payee for any loss or damage and deny payment to you because of your acts or because you have failed to comply with the terms of this Coverage Part: | |
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(1) |
The Loss Payees rights will be transferred to us to the extent of the amount we pay; and |
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(2) |
The Loss Payees rights to recover the full amount of the Loss Payees claim will not be impaired. |
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At our option, we may pay to the Loss Payee the whole principal on the debt plus any accrued interest. In this event, you will pay your remaining debt to us. |
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3. |
If we cancel this policy, we will give written notice to the Loss Payee at least: | ||
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10 days before the effective date of cancellation if we cancel for your nonpayment of premium; or | |
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30 days before the effective date of cancellation if we cancel for any other reason. | |
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If we elect not to renew this policy, we will give written notice to the Loss Payee at least 10 days before the expiration date of this policy. | ||
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CONTRACT OF SALE | |||
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The Loss Payee shown in the Schedule or in the Declarations is a person or organization you have entered a contract with for the sale of Covered Property. | ||
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For Covered Property in which both you and the Loss Payee have an insurable interest we will: | ||
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Adjust losses with you; and | |
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Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear. | |
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The following is added to the OTHER INSURANCE Condition: | ||
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For Covered Property that is the subject of a contract of sale, the word you includes the Loss Payee. |
Schedule of Named Insureds:
Premier Inc.
Premier Plans, LLC
Premier Purchasing Partners, LP
Provider Select, LLC
Premier Supply Chain Improvement, Inc.
Commcare Pharmacy - FTL, LLC
Commcare Pharmacy- WPB, LLC
Commcare Pharmacy- MIA, LLC
Sun Alliance, LLC
Premier Pharmacy Benefit Management, LLC
Premier CAP Corporation
NS3 Software Solutions, LLC
NS3 Health, LLC
SCHEDULE 8.1
PERMITTED INDEBTEDNESS
Debtor |
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Lender |
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Indebtedness Amount |
Premier, Inc. |
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IBM Credit LLC |
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Software Note: $7,890,038
Hardware short-term financing agreement: $3,104,410 |
SVS LLC
Premier Purchasing Partners, L.P. as Guarantor |
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First Midwest Bank |
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Loan: $3,000,000 |
NS3 Health, LLC |
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McKesson Corporation |
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Any indebtedness secured by the collateral listed in financing statement number 200900293207 filed with the Florida Secured Transactions Registry. |
NS3 Health, LLC |
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Wells Fargo Equipment Finance, Inc. |
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Any indebtedness secured by the collateral listed in financing statements numbers 200901130387, 200901273064, 200901358213 filed with the Florida Secured Transactions Registry. |
SCHEDULE 8.2
PERMITTED LIENS
Financing Statement |
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Secured Party & |
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Debtor & Address |
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Collateral |
State of Florida Filing Number: 200900293207 Dated: 4/2/2009 |
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McKesson Corporation 1515 Kendrik Lane Lakeland, FL 33805 |
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NS3 Health, LLC 2817 East Oakland Blvd, 303 Fort Lauderdale, FL 3306 |
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Exhibit A: all personal property of Debtor, including: all present and future accounts, all present and future inventory and all present and future equipment, fixtures and property used by Debtor in its business. |
Filing Number: TBD Dated: TBD |
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First Midwest Bank |
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SVS LLC |
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TBD |
State of Florida Filing Number: 200901130387 Dated: 9/1/2009 |
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Wells Fargo Equipment Finance, Inc. 733 Marquette Avenue, Suite 700 Minneapolis, MN 55402 |
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NS3 Health, LLC 2817 E. Oakland Park, Blvd, Suite 303 Ft. Lauderdale, FL 33306 |
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1 TLA Mini Beta Automated Pharmacy Dispensing System and all attachments and accessories. |
State of Florida Filing Number: 200901273064 Dated: 9/29/2009 |
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Wells Fargo Equipment Finance, Inc. 733 Marquette Avenue, Suite 700 Minneapolis, MN 55402 |
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NS3 Health, LLC 2817 E. Oakland Park, Blvd, Suite 303 Ft. Lauderdale, FL 33306 |
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1 Parata Mini Beta Pharmacy Dispensing System and all attachments and accessories. |
State of Florida Filing Number: 200901358213 Dated: 10/14/2009 |
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Wells Fargo Equipment Finance, Inc. 733 Marquette Avenue, Suite 700 Minneapolis, MN 55402 |
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NS3 Health, LLC 2817 E. Oakland Park, Blvd, Suite 303 Ft. Lauderdale, FL 33306 |
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1 Parata TLA Mini Beta Pharmacy Dispensing System and all attachments and accessories. |
State of Delaware Filing Number: 20112554411 Dated: 7/1/2011 |
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IBM Credit LLC 1 North Castle Drive Armonk, NY 10504 |
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Premier, Inc. 12225 El Camino Real San Diego, CA 92130 |
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9992-003 (IBM) including all software, additions, attachments, accessories and accessions, upgrades, substitutions, replacements, and proceeds and insurance related thereto. |
State of Delaware Filing Number: 20112554932 Dated: 7/1/2011 |
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IBM Credit LLC 1 North Castle Drive Armonk, NY 10504 |
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Premier, Inc. 12225 El Camino Real San Diego, CA 92130 |
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5692-A6P (IBM), 5765-AEZ (IBM), 5765-G99 IIBM), 5765-PVE (IBM), 5771-AEZ (IBM), 5771-PVE (IBM), 5771-RS1 (IBM), 7042-CR6 (IBM), 7316-TF3 (IBM), 7874-024 (IBM), 7874-036 (IBM), 8205-E6B (IBM), 8233-E8B (IBM), 9117-MMB (IBM), 9SSE-001 (IBM) including all software, additions, attachments, accessories and accessions, upgrades, substitutions, replacements, and proceeds and insurance related thereto. |
SCHEDULE 8.6
PERMITTED INVESTMENTS
Party |
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Investment |
Premier, Inc. |
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100% interest in Premier Insurance Management, LLC |
Premier, Inc. |
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100% interest in Premier UK Health Care Consulting Limited |
Premier Purchasing Partners, L.P. |
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13.2% membership interest in Global Healthcare Exchange, LLC |
Premier Purchasing Partners, L.P. |
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50% membership interest in Innovatix, LLC |
Premier Purchasing Partners, L.P. |
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40% partnership interest in Premier Medical Partner Fund, L.P. |
Premier Cap Corporation |
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20% partnership interest in Premier Medical Partner Fund, L.P. |
Premier Supply Chain Improvement, Inc. |
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60% interest in SVS, LLC |
AmHS Heritage, LLC |
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335,135 shares of CompuCyte Corporation |
Premier Medical Partner Fund |
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Earn out to receive shares of Boston Scientific expires January 2012 |
Premier, Inc. |
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15% allocated share of Premier Insurance Exchange, Risk Retention Group (PRx), a Vermont domiciled reciprocal risk retention group currently in run-off that historically provided directors and officers and primary hospital professional liability insurance to members of the company. Premiers 15% allocated share of capital as of June 30, 2011 and 2010 had a carrying value of zero. |
EXHIBIT 1.1
PERMITTED ACQUISITION CERTIFICATE(1)
TO: Wells Fargo Bank, National Association, as Lender
RE: Loan Agreement, dated as of December 16, 2011, by and among PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership, the guarantors from time to time party thereto and WELLS FARGO BANK, NATIONAL ASSOCIATION (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)
DATE: [Date]
[Credit Party] intends to acquire (the Acquisition) [substantially all of the assets] [a majority of the outstanding Capital Stock] of [ ] (the Target). The undersigned officer of the Credit Parties Agent, hereby certifies that:
(a) The Acquisition is of [check applicable box]:
o All or substantially all of the assets or a majority of the outstanding Capital Stock or economic interests of a Person that is incorporated, formed or organized in the United States that is a type of business (or assets used in a type of business) permitted to be engaged in by the Credit Parties and their Subsidiaries pursuant to Section 8.3 of the Credit Agreement.
o A Person that is incorporated, formed or organized in the United States by a merger, amalgamation or consolidation or any other combination with such Person that is a type of business (or assets used in a type of business) permitted to be engaged in by the Credit Parties and their Subsidiaries pursuant to Section 8.3 of the Credit Agreement.
o Any division, line of business or other business unit of a Person that is incorporated, formed or organized in the United States that is a type of business (or assets used in a type of business) permitted to be engaged in by the Credit Parties and their Subsidiaries pursuant to Section 8.3 of the Credit Agreement.
(b) No Default or Event of Default exists or would exist after giving effect to the Acquisition.
(c) After giving effect to the Acquisition on a Pro Forma Basis, the Credit Parties are in compliance with each of the financial covenants set forth in Section 7.10 of the Credit Agreement, as demonstrated by the financial covenant calculations set forth on Schedule A attached hereto.
(1) This certificate is to be used only with respect to Permitted Acquisitions with a purchase price in excess of $20 million.
(d) The Credit Parties [have complied/shall comply] with Section 7.11 and 7.12 of the Credit Agreement, to the extent required to do so thereby.
(e) Attached hereto as Schedule B is a description of the material terms of the Acquisition (including a description of the business and the form of consideration).
(f) Attached hereto as Schedule C are the [audited financial statements] [management-prepared financial statements] of the Target for its two most recent fiscal years and for any fiscal quarters ended within the fiscal year to date.
(g) Attached hereto as Schedule D are the Consolidated projected income statements of the Credit Parties (giving effect to the Acquisition).
(h) [WITH RESPECT TO ANY ACQUISITION WITH A PURCHASE PRICE GREATER THAN $15 MILLION] The Target has earnings before interest, taxes, depreciation and amortization for the four fiscal quarter period prior to the acquisition date in an amount greater than $0.
(i) The Acquisition is not a hostile acquisition and has been approved by the Board of Directors and/or shareholders (or their respective equivalents) of the applicable Credit Party and the Target.
(j) The aggregate consideration (including without limitation equity consideration, earn outs or deferred compensation or non-competition arrangements and the amount of Indebtedness and other liabilities assumed by the Credit Parties and their Subsidiaries) paid by the Credit Parties and their Subsidiaries (A) in connection with the Acquisition does not exceed $100,000,000 and (B) for all acquisitions made during the term of the Credit Agreement does not exceed $200,000,000.
This Certificate may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
EXHIBIT 2.1(b)(i)
NOTICE OF BORROWING
TO: Wells Fargo Bank, National Association, as Lender
RE: Loan Agreement, dated as of December 16, 2011, by and among PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership, the guarantors from time to time party thereto and WELLS FARGO BANK, NATIONAL ASSOCIATION (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)
DATE: [Date]
Pursuant to Section 2.1(b)(i) of the Loan Agreement, the Credit Parties Agent, as of the date hereof, does hereby request the following (the Proposed Borrowing):
Revolving Loans in the amount of: |
$ |
Applicable Borrower: |
[Premier, Inc.][Premier Purchasing Partners, L.P.] |
Date of requested borrowing: |
[ , ], 20 |
Interest Rate: |
[Base Rate] [LIBOR-Based Rate] |
LIBOR Interest Period (if applicable): |
[one (1)][two (2)][three (3)][six (6)] months |
The undersigned hereby certifies that the following statements are true on the date hereof and will be true on the date of the Proposed Borrowing:
1. The representations and warranties set forth in Section 6 of the Loan Agreement shall (i) with respect to representations and warranties that contain a materiality qualification, be true and correct and (ii) with respect to representations and warranties that do not contain a materiality qualification, be true and correct in all material respects, in each case on and as of the date of such extension of credit as if made on and as of such date, in each case except for any representation or warranty made as of an earlier date, which representation and warranty shall remain true and correct as of such earlier date;
2. No Default or Event of Default shall exist and be continuing either prior to or after giving effect to the Proposed Borrowing; and
3. Immediately after giving effect to the making of the Proposed Borrowing, the aggregate outstanding principal amount of Revolving Loans shall not exceed the Revolving Committed Amount then in effect.
The Credit Parties Agent does hereby execute this Notice of Borrowing as of the date set forth above. This Notice of Borrowing may, upon execution, be delivered by electronic mail, which shall be deemed for all purposes to be an original signature.
EXHIBIT 2.1(e)
FORM OF REVOLVING NOTE
REVOLVING NOTE
$100,000,000.00 |
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December 16, 2011 |
FOR VALUE RECEIVED, the undersigned, PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership (collectively, the Borrowers), hereby jointly and severally promise to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (the Lender, and all subsequent holders thereof hereafter referred to as the Holder), on the Maturity Date or sooner should this Revolving Note be declared immediately due and payable as hereafter provided, the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000.00) or so much thereof as shall have been advanced hereunder and remain outstanding, plus all accrued and unpaid interest thereon.
The Borrowers jointly and severally agree to pay interest (including, as and when applicable, the Default Rate pursuant to the terms of the Loan Agreement) on the principal amount advanced hereunder from the date of each Revolving Loan until payment in full of the principal amount hereof and accrued interest hereon, at the rates and on the dates set forth in that certain Loan Agreement dated of even date hereof by and between the Borrowers, the guarantors from time to time party thereto and Lender (as amended, modified and supplemented and in effect from time to time, the Loan Agreement). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them therein. Pursuant to the limitations and provisions of the Loan Agreement, the Borrowers may borrow, repay and reborrow principal under this Revolving Note. All payments of principal and interest hereunder shall be made in United States Dollars and in immediately available funds.
This Revolving Note evidences the Revolving Loan incurred under, and is subject to the terms and provisions of, the Loan Agreement.
Upon the occurrence of Event of Default as specified in the Loan Agreement, the Holder may declare the unpaid balance hereof, including principal and accrued and unpaid interest, to be immediately due and payable as provided for in the Loan Agreement and the interest rate on the unpaid amount from such date until the date of final payment shall be the Default Rate.
No delay or failure on the part of the Lender or other Holder in the exercise of any right, power or privilege granted under this Revolving Note or the Loan Agreement, or otherwise available by agreement, at law or in equity, shall impair any such right, power or privilege or be construed as a waiver of any event of default or any acquiescence therein. No single or partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege. No waiver shall be valid against the Holder unless made in writing and signed by the Holder, and then only to the extent expressly specified therein.
This note may be prepaid in accordance with the terms and provisions of the Loan Agreement.
This Revolving Note shall be governed by and construed under the laws of the State of New York.
PRESENTMENT, PROTEST AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY THE BORROWERS.
IN WITNESS WHEREOF, the Borrowers have caused this Revolving Note to be executed and delivered by its duly authorized officer as of the date first above written.
PREMIER, INC., |
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a Delaware corporation |
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PREMIER PURCHASING PARTNERS, L.P., |
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a California limited partnership |
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EXHIBIT 3.2
NOTICE OF CONTINUATION
TO: Wells Fargo Bank, National Association, as Lender
RE: Loan Agreement, dated as of December 16, 2011, by and among PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership, the guarantors from time to time party thereto and WELLS FARGO BANK, NATIONAL ASSOCIATION (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)
DATE: [Date]
Pursuant to Section 3.2 of the Loan Agreement, the Credit Parties Agent hereby requests a continuation of the following Revolving Loans be made as follows (the Proposed Continuation):
Applicable Loan |
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Current |
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Requested LIBOR |
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The undersigned hereby certifies that the following statements are true on the date hereof and will be true on the date of the Proposed Continuation:
1. The representations and warranties set forth in Section 6 of the Loan Agreement shall (i) with respect to representations and warranties that contain a materiality qualification, be true and correct and (ii) with respect to representations and warranties that do not contain a materiality qualification, be true and correct in all material respects, in each case on and as of the date of such extension of credit as if made on and as of such date, in each case except for any representation or warranty made as of an earlier date, which representation and warranty shall remain true and correct as of such earlier date; and
2. No Default or Event of Default shall exist and be continuing either prior to or after giving effect to the Proposed Continuation.
This Notice of Continuation may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
EXHIBIT 5.1(g)
FORM OF FINANCIAL CONDITION CERTIFICATE
TO: Wells Fargo Bank, National Association, as Lender
RE: Loan Agreement, dated as of December 16, 2011, by and among PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership, the guarantors from time to time party thereto and WELLS FARGO BANK, NATIONAL ASSOCIATION (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)
DATE: [Date]
Pursuant to the terms of Section 5.1 of the Loan Agreement, the undersigned Executive Officer of the Credit Parties Agent hereby certifies on behalf of the Credit Parties and not in any individual capacity that, as of the date hereof, the statements below are accurate and complete in all respects:
(i) there does not exist any pending or ongoing, action, suit, investigation, litigation or proceeding in any court or before any other Governmental Authority (A) affecting the Loan Agreement or the other Loan Documents that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date or (B) that purports to affect any Credit Party or any of its Subsidiaries, or any Transaction, which action, suit, investigation, litigation or proceeding could reasonably be expected to have a Material Adverse Effect that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date;
(ii) immediately after giving effect to the Loan Agreement, the other Loan Documents, and all the Transactions contemplated to occur on such date, (A) no Default or Event of Default exists, (B) the representations and warranties set forth in Section 6 of the Loan Agreement are (1) with respect to representations and warranties that contain a materiality qualification, true and correct and (2) with respect to representations and warranties that do not contain a materiality qualification, true and correct in all material respects, in each case on and as of the date of such extension of credit as if made on and as of such date, in each case except for any representation or warranty made as of an earlier date, which representation and warranty remain true and correct as of such earlier date, and (C) the Credit Parties are in pro forma compliance with each of the financial covenants set forth in Section 7.10 (as evidenced by the detailed calculations of such financial covenants attached hereto as Schedule A) as of September 30, 2011; and
(iii) each of the other conditions precedent set forth in Section 5.1 of the Loan Agreement have been satisfied, except to the extent the satisfaction of any such condition is subject to the judgment or discretion of the Lender.
This Financial Condition Certificate may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
Executed this day of , 20 .
PREMIER, INC., |
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a Delaware corporation |
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By: |
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PREMIER PURCHASING PARTNERS, L.P., |
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a California limited partnership |
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By: |
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Title: |
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EXHIBIT 5.1(l)
FORM OF SOLVENCY CERTIFICATE
TO: Wells Fargo Bank, National Association, as Lender
RE: Loan Agreement, dated as of December 16, 2011, by and among PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership, the guarantors from time to time party thereto and WELLS FARGO BANK, NATIONAL ASSOCIATION (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)
DATE: [Date]
The undersigned Executive Officer of Credit Parties Agent is familiar with the properties, businesses, assets and liabilities of the Credit Parties and is duly authorized to execute this certificate on behalf of the Credit Parties.
The undersigned certifies that he/she has made such investigation and inquiries as to the financial condition, solvency and related matters of the Credit Parties and their Subsidiaries, after giving effect to the Transactions and the initial borrowings under the Loan Documents, as the undersigned deems necessary and prudent for the purpose of providing this Certificate. The undersigned acknowledges that the Lender is relying on the truth and accuracy of this Certificate in connection with the making of Loans and other extensions of credit under the Loan Agreement.
The undersigned certifies that the projections and financial information delivered prior to, at, or after the Closing Date which underlie and form the basis for the representations made in this Certificate were based upon estimates and assumptions, all of which the Credit Parties believe to be reasonable when made and were made in good faith in light of conditions and facts known to Credit Parties as of the date of delivery of such projections and, as of the Closing Date, reflect the Credit Parties good faith estimate of the future financial performance of the Credit Parties and of the other information projected therein for the period set forth therein as of the date of the applicable projections (it being recognized by the Lender that actual results during the period or periods covered by any such projections may materially differ from projected results) and continue to be reasonable as of the date hereof.
BASED ON THE FOREGOING, the undersigned certifies that, after giving effect to the execution and delivery of the Loan Documents, the making of any Loans under the Loan Agreement and the consummation of the Transactions, the Credit Parties, taken as a whole, will not be insolvent, within the meaning of such term as defined in §101 of Title 11 of the United States Code, as amended from time to time, or be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated.
This Certificate may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
EXHIBIT 7.1(d)
FORM OF COMPLIANCE CERTIFICATE
TO: Wells Fargo Bank, National Association, as Lender
RE: Loan Agreement, dated as of December 16, 2011, by and among PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership, the guarantors from time to time party thereto and WELLS FARGO BANK, NATIONAL ASSOCIATION (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)
DATE: [Date]
For the fiscal [quarter] [year] ended [ , ].
In accordance with the requirements of Section 7.1(d) of the Loan Agreement, the undersigned Executive Officer of the Credit Parties Agent hereby certifies on behalf of the Borrowers and their Subsidiaries that, to the best of his/her knowledge, with respect to the Loan Agreement:
(1) Attached hereto on Schedule A are calculations in reasonable detail demonstrating compliance by the Credit Parties with the financial covenants contained in Section 7.10 of the Loan Agreement as of the last day of the fiscal period referred to above.
(2) And, no Default or Event of Default has occurred and is continuing on the date hereof, except as follows: (if none, so state).
EXHIBIT 7.11
[FORM OF]
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this Agreement), dated as of [ , ], is by and among [ , a ] (the Joinder Party), PREMIER, INC., a Delaware corporation and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership (collectively, the Borrowers) and Wells Fargo Bank, National Association, as Lender (the Lender) under that certain Loan Agreement, dated as of December 16, 2011 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement), by and among the Borrowers, the Guarantors and the Lenders. Capitalized terms used herein but not otherwise defined shall have the meanings provided in the Loan Agreement.
The Joinder Party is a Subsidiary of a Credit Party, and, consequently, the Credit Parties are required by Section 7.11 of the Loan Agreement to cause the Joinder Party to become a Guarantor thereunder.
Accordingly, the Joinder Party and the Borrowers hereby agree as follows with the Lender:
1. The Joinder Party hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Joinder Party will be deemed to be a party to and a Guarantor under the Loan Agreement and shall have all of the obligations of a Guarantor thereunder as if it had executed the Loan Agreement. The Joinder Party hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the applicable Credit Documents, including, without limitation (a) all of the representations and warranties set forth in Section 6 of the Loan Agreement and (b) all of the affirmative and negative covenants set forth in Sections 7 and 8 of the Loan Agreement. Without limiting the generality of the foregoing terms of this Paragraph 1, the Joinder Party hereby guarantees, jointly and severally together with the other Guarantors, the prompt payment of the Credit Party Obligations in accordance with Section 4 of the Loan Agreement.
2. The Joinder Party hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Joinder Party will be deemed to be a party to the Security Agreement, and shall have all the rights and obligations of a Debtor (as such term is defined in the Security Agreement) thereunder as if it had executed the Security Agreement. The Joinder Party hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Security Agreement. Without limiting the generality of the foregoing terms of this Paragraph 2, the Joinder Party hereby grants to the Lender, a continuing security interest in, and a right of set off, to the extent applicable, against any and all right, title and interest of the Joinder Party in and to the Collateral (as such term is defined in Section 2 of the Security Agreement) of the Joinder Party.
3. The Joinder Party hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Joinder Party will be deemed to be a party to the Pledge Agreement, and shall have all the rights and obligations of a Pledgor (as such term is defined in the Pledge Agreement) thereunder as if it had executed the Pledge Agreement. The Joinder Party hereby ratifies, as of the date hereof, and agrees to be bound by, all the terms, provisions and conditions contained in the Pledge Agreement. Without limiting the generality of the foregoing terms of this Paragraph 3, the Joinder Party hereby pledges and assigns to the Lender, and grants to the Lender, a continuing security interest in any and all right, title and interest of the Joinder Party in and to Collateral (as such term is defined in Section 2 of the Pledge Agreement).
4. The Joinder Party acknowledges and confirms that it has received a copy of the Loan Agreement and the schedules and exhibits thereto and each Collateral Document and the schedules and exhibits thereto. The information on the schedules to the Loan Agreement and the Collateral Documents are hereby supplemented (to the extent permitted under the Loan Agreement or Collateral Documents) to reflect the information shown on the attached Schedule A.
5. The information on Schedule B to this Joinder Agreement is true and correct as of the date hereof.
6. The Borrowers confirm that the Loan Agreement is, and upon the Joinder Party becoming a Guarantor, shall continue to be, in full force and effect. The parties hereto confirm and agree that immediately upon the Joinder Party becoming a Guarantor the term Credit Party Obligations, as used in the Loan Agreement, shall include all obligations of the Joinder Party under the Loan Agreement and under each other Credit Document.
7. Each of the Borrowers and the Joinder Party agrees that at any time and from time to time, upon the written request of the Lender, it will execute and deliver such further documents and do such further acts as the Lender may reasonably request in accordance with the terms and conditions of the Loan Agreement in order to effect the purposes of this Agreement.
8. This Agreement (a) may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract and (b) may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
9. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. The terms of Section 10.10 of the Loan Agreement are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.
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a Delaware corporation | ||
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PREMIER PURCHASING PARTNERS, L.P., | ||
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a California limited partnership | ||
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Acknowledged, accepted and agreed: |
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WELLS FARGO BANK, NATIONAL ASSOCIATION, |
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Schedule A
Schedules to Loan Agreement and Collateral Documents
[TO BE COMPLETED BY BORROWER]
Schedule B
Disclosure Information
Legal Name of Joinder Party (and any previous legal names within the past four months): |
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State of Organization: |
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Jurisdictions of Organization: |
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Type of Organization: |
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Address of Chief Executive Office: |
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Address of Principal Place of Business: |
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Business Phone Number: |
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Organizational Identification Number:(2) |
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Federal Tax Identification Number: |
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Ownership Information (e.g. publicly held, if private or partnershipidentity of owners/partners): |
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Each of the following locations: (a) all offices and places of business of the Joinder Party located in the United States of America, (b) all locations where any tangible personal property of the Joinder Party and (c) the chief executive office, jurisdiction of incorporation or formation and principal place of business of the Joinder Party: |
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Description of all commercial tort claims of the Joinder Party: |
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Description of all Instruments, Chattel Paper and Documents of the Joinder Party: |
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List the issued and outstanding equity interests owned by (a) the Joinder Party and (b) the owner of the Joinder Partys equity interests: |
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[TO BE COMPLETED BY BORROWER/JOINDER PARTY]
(2) This item does not apply to a Credit Party organized under the laws of Alabama, Indiana, Massachusetts, Nebraska, New Hampshire, New Mexico, New York, Oklahoma, South Carolina, Vermont or West Virginia.
Exhibit 10.31
EXECUTION VERSION
SECURITY AGREEMENT
This SECURITY AGREEMENT is made and entered into as of December 16, 2011, by and among PREMIER, INC., a Delaware corporation (the Company) and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership (PPPLP; together with the Company, collectively the Borrowers), each of the Domestic Subsidiaries of the Borrowers from time to time party hereto (individually a Guarantor and collectively the Guarantors; the Guarantors, together with the Borrowers (individually, an Obligor and collectively, the Obligors) and WELLS FARGO BANK, NATIONAL ASSOCIATION (the Secured Party).
RECITALS
WHEREAS, pursuant to that certain Loan Agreement dated as of the date hereof (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Loan Agreement), among the Borrowers, the Guarantors and the Secured Party, the Secured Party has agreed to make Loans and to issue Letters of Credit upon the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the effectiveness of the Loan Agreement and the obligation of the Secured Party to make Loans and to issue Letters of Credit under the Loan Agreement that the Obligors shall have executed and delivered this Security Agreement for the benefit of the Secured Party.
NOW, THEREFORE, in consideration of the promises 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. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Loan Agreement, and the following terms which are defined in the Uniform Commercial Code from time to time in effect in the State of New York (the UCC) are used herein as so defined: Accession, Account, Chattel Paper, Commercial Tort Claim, Consumer Good, Deposit Account, Document, Electronic Chattel Paper, Equipment, General Intangible, Good, Instrument, Inventory, Investment Property, Letter-of-Credit Right, Payment Intangible, Proceeds, Securities Account, Securities Intermediary, Software, Supporting Obligation and Tangible Chattel Paper.
2. Grant of Security Interest. (a) To secure the prompt payment and performance in full when due, whether by lapse of time, acceleration, mandatory prepayment or otherwise, of the Credit Party Obligations, each Obligor hereby grants to the Secured Party a continuing security interest in, and a right to set off against, any and all right, title and interest of such Obligor in and to the following, whether now owned or existing or owned, acquired, or arising hereafter (collectively, the Collateral):
(i) all Accounts;
(ii) all cash and Cash Equivalents;
(iii) all Chattel Paper (including Electronic Chattel Paper);
(iv) all Commercial Tort Claims as set forth on Schedule 2(a)(iv) to the this Security Agreement (as updated from time to time in accordance with provisions herein);
(v) all Copyright Licenses;
(vi) all Copyrights;
(vii) all Deposit Accounts (other than Excluded Accounts);
(viii) all Documents;
(ix) all Equipment;
(x) all Fixtures;
(xi) all General Intangibles;
(xii) all Goods;
(xiii) all Instruments;
(xiv) all Inventory;
(xv) all Investment Property;
(xvi) all Letter-of-Credit Rights;
(xvii) all Material Contracts and all such other agreements, contracts, leases, licenses, tax sharing agreements or hedging arrangements now or hereafter entered into by an Obligor, as such agreements may be amended or otherwise modified from time to time (collectively, the Assigned Agreements), including without limitation, (A) all rights of an Obligor to receive moneys due and to become due under or pursuant to the Assigned Agreements, (B) all rights of an Obligor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (C) claims of an Obligor for damages arising out of or for breach of or default under the Assigned Agreements and (D) the right of an Obligor to terminate the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder;
(xviii) all Patent Licenses;
(xix) all Patents;
(xx) all Payment Intangibles;
(xxi) all Securities Accounts;
(xxii) all Software;
(xxiii) all Supporting Obligations;
(xxiv) all Trademark Licenses;
(xxv) all Trademarks;
(xxvi) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks, and related data processing software (owned by such Obligor or in which it has an interest) that at any time evidence or contain information relating to any Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon;
(xxvii) all other personal property of any kind or type whatsoever owned by such Obligor; and
(xxviii) to the extent not otherwise included, all Accessions, Proceeds and products of any and all of the foregoing.
(b) The Obligors and the Secured Party hereby acknowledge and agree that the security interest created hereby in the Collateral (i) constitutes continuing collateral security for all of the Credit Party Obligations, whether now existing or hereafter arising and (ii) is not to be construed as a present assignment of any Intellectual Property.
(c) The term Collateral shall include any Bank Products and any rights of the Obligors thereunder only for purposes of this Section 2.
(d) Notwithstanding the foregoing grant of a security interest, (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 Sanctioned Entity or (ii) any lease in which the lessee is a Sanctioned Person or Sanctioned Entity shall be Collateral.
(e) Notwithstanding the foregoing grant of a security interest, this Security Agreement shall not constitute a grant of a security interest in (i) any Excluded Assets (as defined in the Credit Agreement), (ii) any real property or (iii) any property to the extent that such grant of a security interest is prohibited by any Requirements of Law of a Governmental Authority, requires a consent not obtained of any Governmental Authority pursuant to such Requirement of Law or is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under,
any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any Investment Property or Instruments, any applicable shareholder or similar agreement, except to the extent that such Requirement of Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable law (including, without limitation, Sections 9-406, 9- 407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles of equity); provided, that for purposes of the foregoing, it is understood and agreed that the applicable Obligor will use its reasonable efforts to obtain a consent if permissible by the applicable Requirement of Law or the applicable contract, license, agreement, instrument or other document.
3. Provisions Relating to Accounts, Contracts and Agreements.
(a) Anything herein to the contrary notwithstanding, each of the Obligors shall remain liable under each of its Accounts, contracts and agreements to observe and perform all of the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account or the terms of such contract or agreement. The Secured Party shall not have any obligation or liability under any Account (or any agreement giving rise thereto), contract or agreement by reason of or arising out of this Security Agreement or the receipt by the Secured Party of any payment relating to such Account, contract or agreement pursuant hereto, nor shall the Secured Party be obligated in any manner to perform any of the obligations of an Obligor under or pursuant to any Account (or any agreement giving rise thereto), contract or agreement, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.
(b) The Secured Party hereby authorizes the Obligors to collect the Accounts; provided, that the Secured Party may curtail or terminate such authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Secured Party at any time after the occurrence and during the continuation of an Event of Default, any payments of Accounts, when collected by the Obligors (i) shall be forthwith (and in any event within two (2) Business Days) deposited by the Obligors in a collateral account maintained under the sole dominion and control of the Secured Party, subject to withdrawal by the Secured Party only as provided herein, and (ii) until so turned over, shall be held by the Obligors in trust for the Secured Party, segregated from other funds of the Obligors.
4. Representations and Warranties. Each Obligor hereby represents and warrants to the Secured Party that:
(a) Chief Executive Office; Books & Records; Legal Name; State of Formation. No Obligor has in the four (4) months preceding the Closing Date changed its name, been party to a merger, consolidation or other change in structure or used any tradename not disclosed on Schedule 4(a) attached hereto (as updated from time to time).
(b) Ownership. Each Obligor is the legal and beneficial owner of its Collateral and, subject to Section 2(e), has the right to pledge, sell, assign or transfer the same.
(c) Security Interest/Priority. This Security Agreement creates a valid security interest in favor of the Secured Party in the Collateral of such Obligor and, when properly perfected by filing, obtaining possession, the granting of control to the Secured Party or otherwise, shall constitute a valid first priority, perfected security interest in such Collateral, to the extent such security interest can be perfected by (i) filing, obtaining possession, the granting of control or otherwise under the UCC, (ii) filing an appropriate notice with the United States Patent and Trademark Office or the United States Copyright Office, or (iii) such other action as may be required pursuant to any applicable jurisdictions certificate of title statute, free and clear of all Liens except for Permitted Liens.
(d) Consents. Except for (i) the filing or recording of UCC financing statements, (ii) the filing of appropriate notices with the United States Patent and Trademark Office, the United States Copyright Office and the Canadian Intellectual Property Office, (iii) obtaining control to perfect the Liens created by this Security Agreement, (iv) compliance with the Federal Assignment of Claims Act or comparable state law, and/or (v) the filing, registration or other action required pursuant to any applicable certificate of title statute, no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder, member or creditor of such Obligor) is required (A) for the grant by such Obligor of the security interest in the Collateral granted hereby or for the execution, delivery or performance of this Security Agreement by such Obligor or (B) for the perfection of such security interest or the exercise by the Secured Party of the rights and remedies provided for in this Security Agreement.
(e) Types of Collateral. None of the Collateral consists of, or is the Proceeds of, As-Extracted Collateral, Consumer Goods, Farm Products, Manufactured Homes or standing timber (as such term is used in the UCC).
(f) Inventory. No Inventory of an Obligor is held by a third party (other than an Obligor) pursuant to consignment, sale or return, sale on approval or similar arrangement.
(g) Intellectual Property.
(i) Each of the Obligors and its Subsidiaries owns, or has the legal right to use, all Intellectual Property, tradenames, technology, know-how and processes necessary for each of them to conduct its business as currently conducted.
(ii) Except as disclosed in Schedule 6.17 to the Loan Agreement, (A) each Obligor has the right to use its Intellectual Property in perpetuity and without payment of royalties, (B) all registrations with and applications to Governmental Authorities in respect of such Intellectual Property are valid and in full force and effect and are not subject to the payment of any taxes or maintenance fees or the taking of any interest therein, held by any of the Obligors to maintain their validity or effectiveness, and (C) there are no restrictions on the direct or indirect transfer of any Contractual Obligation, or any interest therein, held by any of the Obligors in respect of such Intellectual Property which has not been obtained.
(iii) None of the Obligors is in default (or with the giving of notice or lapse of time or both, would be in default) under any license to use its Intellectual Property; no claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor do the Obligors or any of their Subsidiaries know of any such claim; and, to the knowledge of the Obligors or any of their Subsidiaries, the use of such Intellectual Property by any of the Obligors or any of its Subsidiaries does not infringe on the rights of any Person.
(iv) The Obligors have recorded or deposited with and paid to the United States Copyright Office, the Register of Copyrights, the Copyrights Royalty Tribunal or other Governmental Authority, all notices, statements of account, royalty fees and other documents and instruments required under the terms and conditions of any Contractual Obligation of the Obligors and/or under Title 17 of the United States Code and the rules and regulations issued thereunder (collectively, the Copyright Act), and are not liable to any Person for copyright infringement under the Copyright Act or any other law, rule, regulation, contract or license as a result of their business operations.
(v) All Intellectual Property of each Obligor is valid, subsisting, unexpired, enforceable and has not been abandoned, and each Obligor is legally entitled to use each of its tradenames.
(vi) Except as set forth in Schedule 6.17 to the Loan Agreement, none of the Intellectual Property of the Obligors is the subject of any licensing or franchise agreement.
(vii) No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of any Intellectual Property of the Obligors.
(viii) No action or proceeding is pending seeking to limit, cancel or question the validity of any Intellectual Property of the Obligors, or which, if adversely determined, would have a material adverse effect on the value of any such Intellectual Property.
(ix) All applications pertaining to the Intellectual Property of each Obligor have been duly and properly filed, and all registrations or letters pertaining to such Intellectual Property have been duly and properly filed and issued, and all of such Intellectual Property is valid and enforceable.
(x) No Obligor has made any assignment or entered into any agreement in conflict with the security interest of the Secured Party in the Intellectual Property of each Obligor hereunder.
(h) Documents, Instruments and Chattel Paper. All Documents, Instruments and Chattel Paper describing, evidencing or constituting Collateral are, to the Obligors knowledge, complete, valid, and genuine.
(i) Equipment. With respect to each Obligors Equipment: (i) such Obligor has good and marketable title thereto; (ii) all such Equipment is in normal operating condition and repair, ordinary wear and tear alone excepted (subject to casualty events), and is suitable for the uses to which it is customarily put in the conduct of such Obligors business; and (iii) no Equipment used in the conduct of such Obligors business is leased, except for non-material items.
(j) Restrictions on Security Interest. None of the Obligors is party to any material license or any material lease that contains legally enforceable restrictions on the granting of a security interest therein.
5. Covenants. Each Obligor covenants that, so long as any of the Credit Party Obligations (other than contingent indemnity obligations that survive termination of the Loan Documents pursuant to the stated terms thereof) remain outstanding or any Loan Document is in effect, and until all of the Revolving Commitments shall have been terminated, such Obligor shall:
(a) Perfection of Security Interest by Filing, Etc. Execute and deliver to the Secured Party and/or file such agreements, assignments or instruments (including affidavits, notices, reaffirmations, amendments and restatements of existing documents, and any document as may be necessary if the law of any jurisdiction other than New York becomes or is applicable to the Collateral or any portion thereof, in each case, as the Secured Party may reasonably request) and do all such other things as the Secured Party may reasonably deem necessary or appropriate (i) to assure to the Secured Party that its security interests hereunder are perfected, including (A) such financing statements (including continuation statements) or amendments thereof or supplements thereto or other instruments as the Secured Party may from time to time reasonably request in order to perfect and maintain the security interests granted hereunder in accordance with the
UCC and any other personal property security legislation in the appropriate state(s) or province(s), (B) with regard to Copyrights, a Notice of Grant of Security Interest in Copyrights for filing with the United States Copyright Office and the Canadian Intellectual Property Office, as applicable in the form of Exhibit A attached hereto, (C) with regard to Patents, a Notice of Grant of Security Interest in Patents for filing with the United States Patent and Trademark Office and the Canadian Intellectual Property Office, as applicable in the form of Exhibit B attached hereto and (D) with regard to Trademarks, a Notice of Grant of Security Interest in Trademarks for filing with the United States Patent and Trademark Office and the Canadian Intellectual Property Office, as applicable in the form of Exhibit C attached hereto, (ii) to consummate the transactions contemplated hereby and (iii) to otherwise protect and assure the Secured Party of its rights and interests hereunder. Each Obligor hereby authorizes the Secured Party to prepare and file such financing statements (including continuation statements) or amendments thereof or supplements thereto or other instruments as the Secured Party may from time to time deem necessary or appropriate in order to perfect and maintain the security interests granted hereunder in accordance with the UCC, including, without limitation, any financing statement that describes the Collateral as all personal property or all assets of such Obligor or that describes the Collateral in some other manner as the Secured Party deems necessary or advisable. Each Obligor agrees to mark its books and records to reflect the security interest of the Secured Party in the Collateral.
(b) Perfection of Security Interest by Possession. If (i) any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Document, Instrument, Tangible Chattel Paper or Supporting Obligation or (ii) any Collateral shall be stored or shipped subject to a Document or (iii) any Collateral shall consist of Investment Property in the form of certificated securities, promptly notify the Secured Party of the existence of such Collateral and, at the request of the Lender, deliver such Instrument, Chattel Paper, Supporting Obligation, Document or Investment Property to the Secured Party, duly endorsed in a manner satisfactory to the Secured Party, to be held as Collateral pursuant to this Security Agreement.
(c) Perfection of Security Interest Through Control. Except as otherwise provided in Section 7.14 of the Loan Agreement, if any Collateral shall consist of Deposit Accounts, Electronic Chattel Paper, Letter-of-Credit Rights, Securities Accounts or uncertificated Investment Property, execute and deliver (and, with respect to any Collateral consisting of a Securities Account or uncertificated Investment Property, cause the Securities Intermediary or the issuer, as applicable, with respect to such Investment Property to execute and deliver) to the Secured Party all control agreements, assignments, instruments or other documents as reasonably requested by the Secured Party for the purposes of obtaining and maintaining control of such Collateral. If any Collateral shall consist of Deposit Accounts or Securities Accounts, comply with Section 7.14 of the Loan Agreement.
(d) Other Liens. Defend its interests in the Collateral against the claims and demands of all other parties claiming an interest therein and keep the Collateral free from all Liens, except for Permitted Liens. The Secured Party does not authorize any Obligor
to, and no Obligor shall, sell, exchange, transfer, assign, lease or otherwise dispose of the Collateral or any interest therein, except as permitted under the Loan Agreement.
(e) Preservation of Collateral. Keep the Collateral in good order, condition and repair in all material respects, ordinary wear and tear excepted and not use the Collateral in violation of the provisions of this Security Agreement or any other agreement relating to the Collateral or any policy insuring the Collateral or any applicable Requirement of Law; not permit any Collateral to be or become a fixture to real property or an accession to other personal property unless the Secured Party has a valid, perfected and first priority security interest in such real or personal property.
(f) Changes in Structure or Location. Except as permitted pursuant to Sections 7.2 or 8.4 of the Loan Agreement, no Obligor may (i) alter its legal existence or, in one transaction or a series of transactions, merge into or consolidate with any other entity, or sell all or substantially all of its assets, (ii) change its state of incorporation or organization, or (iii) change its registered legal name.
(g) Collateral Held by Warehouseman, Bailee, etc. If any Collateral is at any time in the possession or control of a warehouseman, bailee or any agent or processor of such Obligor, (i) notify the Secured Party of such possession, (ii) notify such Person of the Secured Partys security interest in such Collateral, (iii) instruct such Person to hold all such Collateral for the Secured Partys account subject to the Secured Partys instructions and (iv) obtain an acknowledgment from such Person that it is holding such Collateral for the benefit of the Secured Party.
(h) Treatment of Accounts. (i) Not grant or extend the time for payment of any Account, or compromise or settle any Account for less than the full amount thereof, or release any person or property, in whole or in part, from payment thereof, or allow any credit or discount thereon, other than in the ordinary course of an Obligors business and (ii) maintain at its principal place of business a record of Accounts consistent with customary business practices.
(i) Covenants Relating to Inventory.
(i) Maintain, keep and preserve its Inventory in good salable condition at its own cost and expense.
(ii) Comply with all reporting requirements set forth in the Loan Agreement with respect to Inventory.
(iii) If any of the Inventory is at any time evidenced by a document of title, promptly notify the Secured Party thereof and, upon the request of the Secured Party, deliver such document of title to the Secured Party.
(j) Covenants Relating to Copyrights.
(i) Employ the Copyright for each material Work with such notice of copyright as may be required by law to secure copyright protection.
(ii) Not do any act or knowingly omit to do any act whereby any Copyright may become invalidated and (A) not do any act, or knowingly omit to do any act, whereby any Copyright may become injected into the public domain; (B) notify the Secured Party immediately if it knows, or has reason to know, that any Copyright could reasonably be expected to become injected into the public domain or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in any court or tribunal in the United States, Canada or any other country) regarding an Obligors ownership of any such Copyright or its validity; (C) take all necessary steps as it shall deem appropriate under the circumstances to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of each Copyright owned by an Obligor including, without limitation, filing of applications for renewal where necessary; and (D) promptly notify the Secured Party of any material infringement of any Copyright of an Obligor of which it becomes aware and take such actions as it shall reasonably deem appropriate under the circumstances to protect such Copyright, including, where appropriate, the bringing of suit for infringement, seeking injunctive relief and seeking to recover any and all damages for such infringement.
(iii) Not make any assignment or agreement in conflict with the security interest in the Copyrights of each Obligor hereunder.
(k) Covenants Relating to Patents and Trademarks.
(i) (A) Continue to use each Trademark in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (B) maintain as in the past the quality of products and services offered under such Trademark, (C) employ such Trademark with the appropriate notice of registration, (D) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Secured Party shall obtain a perfected security interest in such mark pursuant to this Security Agreement, and (E) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated.
(ii) Not do any act, or omit to do any act, whereby any Patent may become abandoned or dedicated.
(iii) Promptly notify the Secured Party if it knows, or has reason to know, that any application or registration relating to any Patent or Trademark may become abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the Canadian Intellectual Property Office or any court or tribunal in any country) regarding an Obligors ownership of any such Patent or Trademark or its right to register the same or to keep, maintain and use the same.
(iv) Take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application, to obtain the relevant registration and to maintain each registration of the Patents and Trademarks, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability.
(v) Promptly notify the Secured Party after it learns that any Patent or Trademark included in the Collateral is infringed, misappropriated or diluted by a third party and promptly sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution, or take such other actions as it shall reasonably deem appropriate under the circumstances to protect such Patent or Trademark.
(vi) Not make any assignment or agreement in conflict with the security interest in the Patents or Trademarks of any Obligor hereunder.
(l) New Patents, Copyrights and Trademarks. At the time of delivery of the financial statements provided in accordance with Section 7.1(b) of the Loan Agreement, provide the Secured Party with (i) a listing of all applications, if any, for new Patents or Trademarks (together with a listing of application numbers), which new applications and issued registrations or letters shall be subject to the terms and conditions hereunder, and (ii) (A) with respect to Copyrights, a duly executed Notice of Grant of Security Interest in Copyrights, (B) with respect to Patents, a duly executed Notice of Grant of Security Interest in Patents, (C) with respect to Trademarks, a duly executed Notice of Grant of Security Interest in Trademarks or (D) such other duly executed documents as the Secured Party may request in a form acceptable to counsel for the Secured Party and suitable for recording to evidence the security interest of the Secured Party in the Copyright, Patent or Trademark which is the subject of such new application, and the goodwill and General Intangibles of such Obligor relating thereto or represented thereby.
(m) Intellectual Property Generally. Upon request of the Secured Party, execute and deliver any and all agreements, instruments, documents, and papers as the Secured Party may reasonably request to evidence the Secured Partys security interest in the Intellectual Property and the general intangibles relating thereto including, without limitation, the goodwill of the Obligors and their Subsidiaries relating thereto or represented thereby (or such other Intellectual Property or the general intangibles relating thereto or represented thereby as the Secured Party may reasonably request).
(n) Commercial Tort Claims; Notice of Litigation. At the time of delivery of the financial statements provided in accordance with Section 7.1(b) of the Loan Agreement, (i) forward to the Secured Party a listing of any and all Commercial Tort Claims of the Obligors, including, but not limited to, any and all actions, suits, and proceedings before any court or Governmental Authority by or affecting such Obligor or any of its Subsidiaries and (ii) execute and deliver such statements, documents and notices and do and cause to be done all such things as may be required by the Secured Party, or required by law, including all things which may from time to time be necessary under the UCC to fully create, preserve, perfect and protect the priority of the Secured Partys security interest in any Commercial Tort Claims.
(o) Status of Collateral as Personal Property. At all times maintain the Collateral as personal property and not affix any of the Collateral to any real property in a manner which would change its nature from personal property to real property or a Fixture, unless the Secured Party has a first priority, perfected Lien on such real property or Fixture.
(p) Regulatory Approvals. If an Event of Default shall have occurred and be continuing, each Obligor shall take any action which the Secured Party may reasonably request in order to transfer and assign to the Secured Party, or to such one or more third parties as the Secured Party may designate, or to a combination of the foregoing, each Governmental Approval of such Obligor. To enforce the provisions of this subsection, upon the occurrence and during the continuance of an Event of Default, the Secured Party is empowered to request the appointment of a receiver from any court of competent jurisdiction. Such receiver shall be instructed to seek from the Governmental Authority an involuntary transfer of control of each such Governmental Approval for the purpose of seeking a bona fide purchaser to whom control will ultimately be transferred. Each Obligor hereby agrees to authorize such an involuntary transfer of control upon the request of the receiver so appointed, and, if such Obligor shall refuse to authorize the transfer, its approval may be required by the court. Upon the occurrence and continuance of an Event of Default, such Obligor shall further use its reasonable best efforts to assist in obtaining Governmental Approvals, if required, for any action or transaction contemplated by this Security Agreement, including, without limitation, the preparation, execution and filing with the Governmental Authority of such Obligors portion of any necessary or appropriate application for the approval of the transfer or assignment of any portion of the assets (including any Governmental Approval) of such Obligor. Because each Obligor agrees that the Secured Partys remedy at law for failure of such Obligor to comply with the provisions of this subsection would be inadequate and that such failure would not be adequately compensable in damages, such Obligor agrees that the covenants contained in this subsection may be specifically enforced, and such Obligor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants.
(q) Insurance. Insure, repair and replace the Collateral of such Obligor as set forth in the Loan Agreement. All proceeds derived from insurance on the Collateral shall be subject to the security interest of the Secured Party hereunder.
(r) Covenants Relating to the Assigned Agreements.
(i) Upon the request of the Secured Party, each Obligor shall, at its expense, (A) furnish to the Secured Party copies of all material notices, requests and other documents received by such Obligor under or pursuant to the Assigned Agreements, and such other information and reports regarding the Assigned Agreements and (B) make to any other party to any Assigned Agreement such demands and requests for information and reports or for action as an Obligor is entitled to make thereunder.
(ii) Unless the applicable Obligor believes it is necessary in the prudent conduct of its business, no Obligor shall (A) cancel or terminate any Assigned Agreement of such Obligor or consent to or accept any cancellation or termination thereof; (B) amend or otherwise modify any Assigned Agreement of such Obligor or give any consent, waiver or approval thereunder; (C) waive any default under or breach of any Assigned Agreement of such Obligor; or (D) take any other action in connection with any Assigned Agreement of such Obligor which would impair the value of the interest or rights of such Obligor thereunder or which would impair the interests or rights of the Secured Party.
(s) Material Contracts. At any time during which an Event of Default is continuing and upon the request of the Secured Party, with respect to any Material Contract, each Obligor will (i) execute and deliver (or cause to be executed and delivered) to the Secured Party a collateral assignment of such Material Contract and a consent to such collateral assignment, in each case in a form acceptable to the Secured Party, (ii) use commercially reasonable efforts to cause the other parties to such Material Contract to execute such consent and (iii) do any act or execute any additional documents required by the Secured Party to ensure to the Secured Party the effectiveness and first priority of its security interest in such Material Contract.
6. License of Intellectual Property. The Obligors hereby assign, transfer and convey to the Secured Party, effective upon the occurrence and during the continuance of any Event of Default, the nonexclusive right and license to use all Intellectual Property owned or used by any Obligor that relate to the Collateral and any other collateral granted by the Obligors as security for the Credit Party Obligations, together with any goodwill associated therewith, all to the extent necessary to enable the Secured Party to use, possess and realize on the Collateral and to enable any successor or assign to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of all successors, assigns and transferees of the Secured Party and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge, without requirement that any monetary payment whatsoever be made to the Obligors.
7. Special Provisions Regarding Inventory. Notwithstanding anything to the contrary contained in this Security Agreement, each Obligor may, unless and until an Event of Default occurs and is continuing and the Secured Party instructs such Obligor otherwise, without further consent or approval of the Secured Party, use, consume, sell, lease and exchange its Inventory in the ordinary course of its business as presently conducted, whereupon, in the case of such a sale or exchange, the security interest created hereby in the Inventory so sold or exchanged (but not in any Proceeds arising from such sale or exchange) shall cease immediately without any further action on the part of the Secured Party.
8. Performance of Obligations; Advances by Secured Party. At any time during which an Event of Default is continuing and on failure of any Obligor to perform any of the covenants and agreements contained herein, the Secured Party may, in its reasonable discretion, perform or cause to be performed the same and in so doing may expend such sums as the Secured Party may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, a payment to obtain a release of a Lien or potential Lien, expenditures made in defending against any adverse claim and all other expenditures which the Secured Party may make for the protection of the security interest hereof or may be compelled to make by operation of law. All such sums and amounts so expended shall be repayable by the Obligors on a joint and several basis promptly upon timely notice thereof and demand therefor, shall constitute additional Credit Party Obligations and shall bear interest from the date said amounts are expended at the Default Rate. No such performance of any covenant or agreement by the Secured Party on behalf of any Obligor, and no such advance or expenditure therefor, shall relieve the Obligors of any default under the terms of this Security Agreement or the other Loan Documents. The Secured Party may make any payment hereby authorized in accordance with any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien, title or claim except to the extent such payment is being contested in good faith by an Obligor in appropriate proceedings and against which adequate reserves are being maintained in accordance with GAAP.
9. Events of Default.
The occurrence of an event which under the Loan Agreement would constitute an Event of Default shall be an event of default hereunder (an Event of Default).
10. Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default and during continuation thereof, the Secured Party shall have, in addition to the rights and remedies provided herein, in the Loan Documents or by law (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 Secured Party 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 Obligors, take possession of the Collateral, (ii) dispose of any Collateral on any such premises, (iii) require the Obligors to assemble and make available to the Secured Party at the expense of the Obligors any Collateral at any place and time designated by the Secured Party which is reasonably convenient to both parties, (iv) remove any Collateral from any such premises for the purpose of effecting the 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 Obligors hereby waives to the fullest extent permitted by law, at any place and time or times, sell and deliver any or all Collateral held by or for it at public or private sale, 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 Secured Party deems advisable, in its sole discretion (subject to any and all mandatory legal requirements). Neither the Secured Partys compliance with any applicable state or federal law in the conduct of such sale, nor its disclaimer of any warranties relating to the Collateral, shall be considered to adversely affect the commercial reasonableness of such sale. In addition to all other sums due the Secured Party with respect to the Credit Party Obligations, the Obligors shall pay the Secured Party all reasonable documented costs and expenses incurred by the Secured Party, including, but not limited to, reasonable attorneys fees and court costs, in obtaining or liquidating the Collateral, in enforcing payment of the Credit Party Obligations, or in the prosecution or defense of any action or proceeding by or against the Secured Party or the Obligors concerning any matter arising out of or connected with this Security Agreement, any Collateral or the Credit Party Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the Bankruptcy Code. To the extent the rights of notice cannot be legally waived hereunder, each Obligor agrees that any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Borrowers in accordance with the notice provisions of Section 10.1 of the Loan Agreement at least ten (10) days before the time of sale or other event giving rise to the requirement of such notice. The Secured Party 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 law, any Secured Party may be a purchaser at any such sale. To the extent permitted by applicable law, each of the Obligors hereby waives all of its rights of redemption with respect to any such sale. Subject to the provisions of applicable law, the Secured Party 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 law, be made at the time and place to which the sale was postponed, or the Secured Party may further postpone such sale by announcement made at such time and place.
(b) Remedies Relating to Accounts. Upon the occurrence of an Event of Default and during the continuation thereof, whether or not the Secured Party has exercised any or all of its rights and remedies hereunder, the Secured Party shall have the right to enforce any Obligors rights against any account debtors and obligors on such Obligors Accounts. Each Obligor acknowledges and agrees that the Proceeds of its
Accounts remitted to or on behalf of the Secured Party in accordance with the provisions of this Section shall be solely for the Secured Partys own convenience and that such Obligor shall not have any right, title or interest in such Proceeds or in any such other amounts except as expressly provided herein. After the occurrence and during the continuance of an Event of Default, to the extent required by the Secured Party, each Obligor agrees to execute any document or instrument, and to take any action, necessary under applicable law (including the Federal Assignment of Claims Act) in order for the Secured Party to exercise its rights and remedies (or be able to exercise its rights and remedies at some future date) with respect to any Accounts of such Obligor where the account debtor is a Governmental Authority. The Secured Party shall have no liability or responsibility to any Obligor 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.
(c) Access. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default and during the continuation thereof, the Secured Party shall have the right to enter and remain upon the various premises of the Obligors without cost or charge to the Secured Party, and use the same, together with materials, supplies, books and records of the Obligors 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, the Secured Party 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. If the Secured Party exercises its right to take possession of the Collateral, each Obligor shall also at its expense perform any and all other steps reasonably requested by the Secured Party to preserve and protect the security interest hereby granted in the Collateral, such as placing and maintaining signs indicating the security interest of the Secured Party, appointing overseers for the Collateral and maintaining inventory records.
(d) Nonexclusive Nature of Remedies. Failure by the Secured Party to exercise any right, remedy or option under this Security Agreement, any other Loan Document or as provided by law, or any delay by the Secured Party 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 Secured Party shall only be granted as provided herein. To the extent permitted by law, neither the Secured Party nor any party acting as attorney for the Secured Party 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 Secured Party under this Security Agreement shall be cumulative and not exclusive of any other right or remedy which the Secured Party may have.
(e) Retention of Collateral. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default and during the continuation thereof, the
Secured Party may, after providing the notices required by Sections 9-620 and 9-621 of the UCC (or any successor sections of the UCC) or otherwise complying with the notice requirements of applicable law of the relevant jurisdiction, accept or retain all or any portion of the Collateral in satisfaction of the Credit Party Obligations. Unless and until the Secured Party shall have provided such notices, however, the Secured Party shall not be deemed to have retained any Collateral in satisfaction of any Credit Party Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Secured Party are legally entitled, the Obligors shall be jointly and severally liable for the deficiency, together with interest thereon at the Default Rate, together with the costs of collection and the reasonable fees of any attorneys employed by the Secured Party to collect such deficiency. Any surplus remaining after the full payment and satisfaction of the Credit Party Obligations (other than contingent indemnity obligations that survive termination of the Loan Documents pursuant to the stated terms hereof) shall be returned to the Obligors or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto.
(g) Other Security. To the extent that any of the Credit Party Obligations are now or hereafter secured by property other than the Collateral (including, without limitation, real and other personal property and securities owned by an Obligor), or by a guarantee, endorsement or property of any other Person, then the Secured Party shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence and during the continuation of any Event of Default, and the Secured Party shall have the right, in its sole discretion, to determine which rights, security, Liens, security interests or remedies the Secured Party shall at any time pursue, relinquish, subordinate, modify or take with respect thereto, without in any way modifying or affecting any of them or any of the Secured Partys rights or the Credit Party Obligations under this Security Agreement or under any other of the Loan Documents.
11. Rights of the Secured Party.
(a) Power of Attorney. Each Obligor hereby designates and appoints the Secured Party and each of its designees or agents, as attorney-in-fact of such Obligor, irrevocably and with power of substitution, with authority to take any or all of the following actions upon the occurrence and during the continuation of an Event of Default:
(i) to demand, collect, settle, compromise, adjust and give discharges and releases concerning the Collateral of such Obligor, all as the Secured Party may reasonably determine in respect of such Collateral;
(ii) to commence and prosecute any actions at any court for the purposes of collecting any Collateral and enforcing any other right in respect thereof;
(iii) to defend, settle, adjust or compromise any action, suit or proceeding brought with respect to the Collateral and, in connection therewith, give such discharge or release as the Secured Party may deem reasonably appropriate;
(iv) to receive, open and dispose of mail addressed to an Obligor and endorse checks, notes, drafts, acceptances, money orders, bills of lading, warehouse receipts or other instruments or documents evidencing payment, shipment or storage of the goods giving rise to the Collateral of such Obligor, or securing or relating to such Collateral, on behalf of and in the name of such Obligor;
(v) to sell, assign, transfer, make any agreement in respect of, or otherwise deal with or exercise rights in respect of, any Collateral or the goods or services which have given rise thereto, as fully and completely as though the Secured Party were the absolute owner thereof for all purposes;
(vi) to adjust and settle claims under any insurance policy relating to the Collateral;
(vii) to execute and deliver and/or file all assignments, conveyances, statements, financing statements, continuation financing statements, security agreements, affidavits, notices and other agreements, instruments and documents that the Secured Party may determine necessary in order to perfect and maintain the security interests and Liens granted in this Security Agreement and in order to fully consummate all of the transactions contemplated herein;
(viii) to institute any foreclosure proceedings that the Secured Party may deem appropriate;
(ix) to execute any document or instrument, and to take any action, necessary under applicable law (including the Federal Assignment of Claims Act) in order for the Secured Party to exercise its rights and remedies (or to be able to exercise its rights and remedies at some future date) with respect to any Account of an Obligor where the account debtor is a Governmental Authority; and
(x) to do and perform all such other acts and things as the Secured Party may reasonably deem to be necessary, proper or convenient in connection with the Collateral.
This power of attorney is a power coupled with an interest and shall be irrevocable for so long as any of the Credit Party Obligations (other than contingent indemnity obligations that survive termination of the Loan Documents pursuant to the stated terms thereof) remain outstanding or any Loan Document is in effect, and until all of the Revolving Commitments shall have been terminated. The Secured Party shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options
expressly or implicitly granted to the Secured Party in this Security Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Secured Party shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on the Secured Party solely to perfect, protect, preserve and realize upon its security interest in the Collateral.
(b) Assignment by the Secured Party. The Secured Party may from time to time assign the Credit Party Obligations or any portion thereof and/or the Collateral or any portion thereof to a successor Secured Party in accordance with the terms of the Loan Agreement, and the assignee shall be entitled to all of the rights and remedies of the Secured Party under this Security Agreement in relation thereto.
(c) The Secured Partys Duty of Care. Other than the exercise of reasonable care to assure the safe custody of the Collateral while being held by the Secured Party hereunder, the Secured Party shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that the Obligors shall be responsible for preservation of all rights in the Collateral, and the Secured Party shall be relieved of all responsibility for the Collateral upon surrendering it or tendering the surrender of it to the Obligors. The Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Secured Party accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Secured Party shall not have responsibility for taking any necessary steps to preserve rights against any parties with respect to any of the Collateral. In the event of a public or private sale of Collateral pursuant to Section 10 hereof, the Secured Party shall have no obligation to clean-up, repair or otherwise prepare the Collateral for sale.
12. Application of Proceeds. After the exercise of remedies by the Secured Party pursuant to Section 9.2 of the Loan Agreement (or after the Revolving Commitments shall automatically terminate and the Loans (with accrued interest thereon) and all other amounts under the Loan Documents (including without limitation the maximum amount of all contingent liabilities under Letters of Credit) shall automatically become due and payable in accordance with the terms of such Section), any proceeds of the Collateral, when received by the Secured Party in cash or its equivalent, will be applied in reduction of the Credit Party Obligations in the order set forth in Section 3.8(b) of the Loan Agreement, and each Obligor irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that the Secured Party shall have the continuing and exclusive right to apply and reapply any and all such proceeds in the Secured Partys sole discretion, notwithstanding any entry to the contrary upon any of its books and records.
13. Continuing Agreement.
(a) This Security Agreement shall be a continuing agreement in every respect and shall remain in full force and effect so long as any of the Credit Party Obligations (other than contingent indemnity obligations that survive termination of the Loan Documents pursuant to the stated terms thereof) remain outstanding or any Loan Document is in effect, and until all of the Revolving Commitments shall have been terminated. Upon such payment and termination, this Security Agreement shall be automatically terminated and the Secured Party shall, upon the request and at the expense of the Obligors, forthwith release all of the Liens and security interests granted hereunder and shall execute and/or deliver all UCC termination statements and/or other documents reasonably requested by the Obligors evidencing such termination. Notwithstanding the foregoing all releases and indemnities provided hereunder shall survive termination of this Security Agreement.
(b) This Security Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Credit Party Obligations is rescinded or must otherwise be restored or returned by the Secured Party as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made; provided that in the event that payment of all or any part of the Credit Party Obligations is rescinded or must be restored or returned, all reasonable costs and expenses (including without limitation any reasonable legal fees and disbursements) incurred by the Secured Party in defending and enforcing such reinstatement shall be deemed to be included as a part of the Credit Party Obligations.
14. Amendments; Waivers; Modifications. This Security Agreement and the provisions hereof may not be amended, waived, modified, changed, discharged or terminated except as set forth in Section 10.6 of the Loan Agreement.
15. Successors in Interest. This Security Agreement shall create a continuing security interest in the Collateral and shall be binding upon each Obligor, its successors and assigns and shall inure, together with the rights and remedies of the Secured Party hereunder, to the benefit of the Secured Party and their successors and permitted assigns; provided, however, that none of the Obligors may assign its rights or delegate its duties hereunder except as permitted by the Loan Agreement.
16. Notices. All notices required or permitted to be given under this Security Agreement shall be in conformance with Section 10.1 of the Loan Agreement.
17. Counterparts. This Security Agreement may be executed in any number of counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Security Agreement to produce or account for more than one such counterpart. Delivery of executed counterparts of the Security Agreement by telecopy or other electronic means shall be
effective as an original and shall constitute a representation that an original shall be delivered upon the request of the Secured Party.
18. Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning, construction or interpretation of any provision of this Security Agreement.
19. Governing Law; Submission to Jurisdiction and Service of Process; Waiver of Jury Trial; Venue. THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. The terms of Section 10.10 of the Loan Agreement are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.
20. Severability. If any provision of this Security Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
21. Entirety. This Security Agreement and the other Loan Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to this Security Agreement, the other Loan Documents or the transactions contemplated herein and therein.
22. Survival. All representations and warranties of the Obligors hereunder shall survive the execution and delivery of this Security Agreement and the other Loan Documents, the delivery of the Notes and the making of the Loans and the issuance of the Letters of Credit under the Loan Agreement.
23. Joint and Several Obligations of Obligors.
(a) Each of the Obligors is accepting joint and several liability hereunder in consideration of the financial accommodations to be provided by the Secured Party under the Loan Agreement, for the mutual benefit, directly and indirectly, of each of the Obligors and in consideration of the undertakings of each of the Obligors to accept joint and several liability for the obligations of each of them.
(b) Each of the Obligors jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Obligors with respect to the payment and performance of all of the Credit Party Obligations, it being the intention of the parties hereto that all the Credit Party Obligations shall be the joint and several obligations of each of the Obligors without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained herein, in any other of the Loan Documents, to the extent the obligations of an Obligor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of such Obligor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code).
[signatures on following page]
SECURITY AGREEMENT
PREMIER, INC.
IN WITNESS WHEREOF, intending to be legally bound, each Obligor has caused this Agreement to be duly executed as of the date first above written.
|
PREMIER, INC., a Delaware corporation | ||
|
| ||
|
| ||
|
By: |
/s/ Craig McKasson | |
|
Name: |
Craig McKasson | |
|
Title: |
Treasurer | |
|
| ||
|
PREMIER PURCHASING PARTNERS, L.P., a | ||
|
California limited partnership | ||
|
| ||
|
By: |
Premier Plans, LLC | |
|
| ||
|
By: |
/s/ Michael Alkire | |
|
Name: |
Michael Alkire | |
|
Title: |
Chief Operating Officer | |
|
| ||
|
PREMIER PHARMACY BENEFIT MANAGEMENT, LLC, | ||
|
a Delaware limited liability company | ||
|
| ||
|
By: |
/s/ Craig McKasson | |
|
Name: |
Craig McKasson | |
|
Title: |
Treasurer | |
|
| ||
|
PREMIER PLANS, LLC, | ||
|
a Delaware limited liability company | ||
|
| ||
|
By: |
/s/ Craig McKasson | |
|
Name: |
Craig McKasson | |
|
Title: |
Treasurer | |
|
| ||
|
PREMIER CAP. CORPORATION, | ||
|
a California corporation | ||
|
| ||
|
By: |
/s/ Craig McKasson | |
|
Name: |
Craig McKasson | |
|
Title: |
Treasurer | |
[signature pages continue]
SECURITY AGREEMENT
PREMIER, INC.
|
PREMIER SUPPLY CHAIN IMPROVEMENT, INC., | |
|
a Delaware corporation | |
|
| |
|
By: |
/s/ Craig McKasson |
|
Name: |
Craig McKasson |
|
Title: |
Treasurer |
|
| |
|
PROVIDER SELECT, LLC, | |
|
a Delaware limited liability company | |
|
| |
|
By: |
/s/ Craig McKasson |
|
Name: |
Craig McKasson |
|
Title: |
Treasurer |
|
| |
|
NS3 HEALTH, LLC, | |
|
a Florida limited liability company | |
|
| |
|
By: |
/s/ Anna-Marie Forest |
|
Name: |
Anna-Marie Forest |
|
Title: |
Secretary |
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| |
|
NS3 SOFTWARE SOLUTIONS, LLC, | |
|
a Florida limited liability company | |
|
| |
|
By: |
/s/ Anna-Marie Forest |
|
Name: |
Anna-Marie Forest |
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Title: |
Secretary |
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| |
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COMMCARE PHARMACY - FTL, LLC, | |
|
a Florida limited liability company | |
|
| |
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By: |
/s/ Anna-Marie Forest |
|
Name: |
Anna-Marie Forest |
|
Title: |
Secretary |
[signature pages continue]
SECURITY AGREEMENT
PREMIER, INC.
|
COMMCARE PHARMACY - WPB, LLC, | |
|
a Florida limited liability company | |
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| |
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By: |
/s/ Anna-Marie Forest |
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Name: |
Anna-Marie Forest |
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Title: |
Secretary |
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| |
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COMMCARE PHARMACY - MIA, LLC, | |
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a Florida limited liability company | |
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| |
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By: |
/s/ Anna-Marie Forest |
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Name: |
Anna-Marie Forest |
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Title: |
Secretary |
[signature pages continue]
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SECURED PARTY: | |
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| |
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WELLS FARGO BANK, NATIONAL | |
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| |
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By: |
/s/ Suzanne L. Morrison |
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Name: |
Suzanne L. Morrison |
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Title: |
Senior Vice-President |
SCHEDULE 2(a)(iv)
COMMERCIAL TORT CLAIMS
None.
SCHEDULE 4(a)
NAME CHANGES/CHANGES IN
CORPORATE STRUCTURE/TRADENAMES
Tradenames
Credit Party |
Tradename |
Premier, Inc. |
Premier Inc. of Delaware |
EXHIBIT A
[FORM OF]
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
COPYRIGHTS
[United States Copyright Office][Canadian Intellectual Property Office]
Ladies and Gentlemen:
Please be advised that (a) pursuant to the Security Agreement dated as of December [ ], 2011 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Security Agreement), by and among the Obligors party thereto (each an Obligor and collectively, the Obligors) and Wells Fargo Bank, National Association (the Secured Party), the undersigned Obligor has granted a continuing security interest in and continuing lien upon [the copyrights, copyright licenses and copyright applications] shown on Schedule 1 attached hereto (the Copyrights) to the Secured Party and (b) the undersigned hereby grants to the Secured Party, a continuing security interest in, and a right to set off against, any and all right, title and interest of such Obligor in and to the Copyrights.
The Obligors and the Secured Party hereby acknowledge and agree that the security interest in the Copyrights (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any Copyright.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Very truly yours, | |||
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[OBLIGOR] | |||
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By: |
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Name: |
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Title: |
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Acknowledged and Accepted: |
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WELLS FARGO BANK, NATIONAL ASSOCIATION, |
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By: |
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Name: |
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Title: |
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Schedule 1
EXHIBIT B
[FORM OF]
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
PATENTS
[United States Patent and Trademark Office][Canadian Intellectual Property Office]
Ladies and Gentlemen:
Please be advised that (a) pursuant to the Security Agreement dated as of December [ ], 2011 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Security Agreement), by and among the Obligors party thereto (each an Obligor and collectively, the Obligors) and Wells Fargo Bank, National Association (the Secured Party), the undersigned Obligor has granted a continuing security interest in and continuing lien upon [the patents, patent licenses and patent applications] shown on Schedule 1 attached hereto (the Patents) to the Secured Party and (b) the undersigned hereby grants to the Secured Party, a continuing security interest in, and a right to set off against, any and all right, title and interest of such Obligor in and to the Patents.
The Obligors and the Secured Party hereby acknowledge and agree that the security interest in the Patents (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any Patent.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
|
Very truly yours, | |||
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|
[OBLIGOR] | |||
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By: |
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Name: |
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Title: |
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Acknowledged and Accepted: |
| |||
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WELLS FARGO BANK, NATIONAL ASSOCIATION, |
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By: |
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Name: |
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Title: |
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|
|
Schedule 1
EXHIBIT C
[FORM OF]
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS
[United States Patent and Trademark Office][Canadian Intellectual Property Office]
Ladies and Gentlemen:
Please be advised that (a) pursuant to the Security Agreement dated as of December [ ], 2011 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Security Agreement), by and among the Obligors party thereto (each an Obligor and collectively, the Obligors) and Wells Fargo Bank, National Association (the Secured Party), the undersigned Obligor has granted a continuing security interest in and continuing lien upon [the trademarks, trademark licenses and trademark applications] shown on Schedule 1 attached hereto (the Trademarks) to the Secured Party and (b) the undersigned hereby grants to the Secured Party, a continuing security interest in, and a right to set off against, any and all right, title and interest of such Obligor in and to the Trademarks.
The Obligors and the Secured Party hereby acknowledge and agree that the security interest in the Trademarks (i) may only be terminated in accordance with the terms of the Security Agreement and (ii) is not to be construed as an assignment of any Trademark.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
|
Very truly yours, | |||
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| ||
|
[OBLIGOR] | |||
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By: |
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Name: |
| ||
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Title: |
| ||
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| |||
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| |||
Acknowledged and Accepted: |
| |||
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| |||
WELLS FARGO BANK, NATIONAL ASSOCIATION, |
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By: |
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| |
Name: |
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| |
Title: |
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|
|
Schedule 1
Exhibit 10.32
LEASE
by and between
BOYLE BUILDING, LLC,
a North Carolina limited liability company, as Landlord,
and
PREMIER PURCHASING PARTNERS, L.P.,
a California limited partnership, as Tenant
Boyle Building
13034 Ballantyne Corporate Place
Charlotte, NC 28277
Table of Contents
|
Page | ||
|
| ||
ARTICLE I BASIC LEASE TERMS AND DEFINITIONS |
1 | ||
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|
Section 1.1 |
Building, Premises, Lease Term, Base Rent, Base Year, Tenant Improvements Allowance, Security Deposit, and Other Basic Terms |
1 |
|
Section 1.2 |
Address of Landlord and Tenant; Notices |
3 |
|
Section 1.3 |
Definitions |
4 |
|
|
|
|
ARTICLE II LEASED PREMISES |
10 | ||
|
|
|
|
|
Section 2.1 |
Description of Premises |
10 |
|
Section 2.2 |
Size of Premises |
10 |
|
Section 2.3 |
Status of Premises |
10 |
|
Section 2.4 |
Common Areas |
11 |
|
Section 2.5 |
Quiet Enjoyment; Ground Lease |
13 |
|
Section 2.6 |
Illustration of Concepts |
14 |
|
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|
|
ARTICLE III LEASE TERM |
14 | ||
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|
|
Section 3.1 |
Term |
14 |
|
Section 3.2 |
Holding Over |
16 |
|
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|
|
ARTICLE IV BASE RENT, ADDITIONAL RENT AND OPERATING COSTS |
17 | ||
|
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|
|
|
Section 4.1 |
Base Rent |
17 |
|
Section 4.2 |
Operating Costs Concepts and Provisions |
19 |
|
Section 4.3 |
Tenants Audit Rights |
30 |
|
Section 4.4 |
Late Payments |
30 |
|
Section 4.5 |
Application of Payments Received from Tenant |
31 |
|
|
|
|
ARTICLE V UTILITIES, SERVICES AND MAINTENANCE, TAXES |
31 | ||
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|
Section 5.1 |
Services and Maintenance |
31 |
|
Section 5.2 |
Business Hours |
36 |
|
Section 5.3 |
Twenty-Four Hour Access |
36 |
|
Section 5.4 |
Interruption of Services |
37 |
|
Section 5.5 |
Tenants Services and Maintenance |
38 |
|
Section 5.6 |
Building Standard Improvements |
41 |
|
|
|
|
ARTICLE VI ALTERATIONS, REPAIRS AND MAINTENANCE |
42 | ||
|
|
|
|
|
Section 6.1 |
Alterations |
42 |
|
Section 6.2 |
Right of Entry |
44 |
|
Section 6.3 |
Tenants Care of Premises |
44 |
|
Section 6.4 |
Refrigerators, Water Fountains, Water Coolers, Icemakers, and Other Water-Using Equipment |
45 |
|
Section 6.5 |
Landlords Repairs |
46 |
|
Section 6.6 |
Time for Repairs |
46 |
|
Section 6.7 |
Surrendering the Premises |
46 |
|
|
|
|
ARTICLE VII USE AND COVENANTS |
47 | ||
|
| ||
|
Section 7.1 |
Use and Occupancy |
47 |
|
Section 7.2 |
Signage |
48 |
|
Section 7.3 |
Parking |
51 |
|
Section 7.4 |
Building Rules and Regulations |
52 |
|
Section 7.5 |
Hazardous Substances |
52 |
|
Section 7.6 |
Compliance with Laws/Accessibility Issues |
54 |
|
Section 7.7 |
Non-Smoking Provision |
55 |
|
Section 7.8 |
Warning of Risks |
55 |
|
Section 7.9 |
Art Work Within Building |
55 |
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|
|
|
ARTICLE VIII INSURANCE AND INDEMNITY |
56 | ||
|
| ||
|
Section 8.1 |
Landlords Insurance |
56 |
|
Section 8.2 |
Tenants Insurance |
56 |
|
Section 8.3 |
Insurance Criteria |
57 |
|
Section 8.4 |
Increase in Insurance Premiums |
57 |
|
Section 8.5 |
Mutual Indemnities |
57 |
|
Section 8.6 |
Tenants Personal Property |
58 |
|
Section 8.7 |
Waiver of Subrogation |
58 |
|
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|
|
ARTICLE IX DAMAGES TO PREMISES |
58 | ||
|
| ||
|
Section 9.1 |
Definition |
58 |
|
Section 9.2 |
Repair of Damage |
58 |
|
Section 9.3 |
Abatement |
59 |
|
Section 9.4 |
Tenants Improvements and Personal Property |
59 |
|
Section 9.5 |
Landlords Right to Cancel |
60 |
|
Section 9.6 |
Termination |
60 |
|
|
|
|
ARTICLE X EMINENT DOMAIN |
60 | ||
|
| ||
|
Section 10.1 |
Right to Terminate |
60 |
|
Section 10.2 |
Compensation |
60 |
|
| ||
ARTICLE XI DEFAULT AND WAIVER |
61 | ||
|
| ||
|
Section 11.1 |
Tenants Default |
61 |
|
Section 11.2 |
Landlords Remedies |
61 |
|
Section 11.3 |
Waiver |
62 |
|
Section 11.4 |
Landlords Default |
63 |
|
Section 11.5 |
Survival |
63 |
|
| ||
ARTICLE XII ASSIGNMENT AND SUBLETTING |
63 | ||
|
| ||
|
Section 12.1 |
Consent Required |
63 |
|
Section 12.2 |
Affiliates |
64 |
|
Section 12.3 |
Reasonableness |
65 |
|
Section 12.4 |
Procedure |
65 |
|
Section 12.5 |
Conditions |
65 |
|
Section 12.6 |
Leasehold Mortgage or Security Interest |
66 |
|
Section 12.7 |
Implications for Single-Tenant/Multi-Tenant Status |
66 |
|
Section 12.8 |
Remedy |
66 |
|
|
|
|
ARTICLE XIII SUBORDINATION |
66 | ||
|
|
|
|
|
Section 13.1 |
Subordination |
66 |
|
Section 13.2 |
Execution of Instruments |
67 |
|
|
|
|
ARTICLE XIV GENERAL PROVISIONS |
67 | ||
|
|
|
|
|
Section 14.1 |
Transfer of Landlords Interest |
67 |
|
Section 14.2 |
Landlords Limited Liability |
68 |
|
Section 14.3 |
Landlord Not Partner |
68 |
|
Section 14.4 |
Recording |
68 |
|
Section 14.5 |
Additional Instruments |
69 |
|
Section 14.6 |
Pronouns |
69 |
|
Section 14.7 |
Counterparts |
69 |
|
Section 14.8 |
Entire Agreement, Amendment and Modification |
69 |
|
Section 14.9 |
Controlling Law |
69 |
|
Section 14.10 |
Binding Effect |
69 |
|
Section 14.11 |
Partial Invalidity |
69 |
|
Section 14.12 |
Captions |
69 |
|
Section 14.13 |
Time of Essence |
69 |
|
Section 14.14 |
Brokerage |
69 |
|
Section 14.15 |
Authority of Parties |
70 |
|
Section 14.16 |
Consent Not Unreasonably Withheld |
70 |
|
Section 14.17 |
Mechanics Liens |
70 |
|
Section 14.18 |
Estoppel Certificates |
71 |
|
Section 14.19 |
Rights Reserved by Landlord |
71 |
|
Section 14.20 |
Landlord and Tenant OFAC Representations |
72 |
|
Section 14.21 |
Attorneys Fees |
72 |
|
Section 14.22 |
Confidentiality |
73 |
|
Section 14.23 |
Date of Execution |
73 |
|
Section 14.24 |
Lease Guaranty |
73 |
|
Section 14.25 |
Additional Terms and Provisions |
74 |
Schedule of Exhibits
EXHIBIT A-1 |
LAND DESCRIPTION |
EXHIBIT A-2 |
ADJACENT LAND DESCRIPTION |
EXHIBIT B |
FLOOR PLAN |
EXHIBIT C-1 |
LANDLORD WORK LETTER |
EXHIBIT C-2 |
TENANT WORK LETTER |
EXHIBIT D |
EXAMPLES OF CAP ON CONTROLLABLE OPERATING COSTS CALCULATION |
EXHIBIT E |
PARKING RULES AND REGULATIONS |
EXHIBIT F |
BUILDING RULES AND REGULATIONS |
EXHIBIT G |
ADDITIONAL TERMS AND PROVISIONS |
EXHIBIT H |
JANITORIAL SPECIFICATIONS |
EXHIBIT I |
LOCATION OF GENERATOR PAD |
EXHIBIT J |
SUBMITTAL FORM FOR PLANS AND SPECIFICATIONS |
EXHIBIT K |
ILLUSTRATION OF MEANING OF GEOGRAPHIC TERMS USED |
EXHIBIT L |
FLOOR PLANS DEPICTING BUILDING-SPECIFIC COMMON AREAS WITHIN BUILDING INTERIOR |
EXHIBIT M |
LOCATION OF CERTAIN BUILDING-SPECIFIC COMMON AREAS OUTSIDE OF BUILDING INTERIOR |
EXHIBIT N |
ILLUSTRATION OF CERTAIN FORCE MAJEURE CONCEPTS |
EXHIBIT O |
LOCATION OF SCREENED MECHANICAL AND ELECTRICAL EQUIPMENT COURTYARD |
STATE OF NORTH CAROLINA |
|
|
|
COUNTY OF MECKLENBURG |
LEASE |
THIS LEASE, made and entered into this the 21 day of October, 2009, by and between BOYLE BUILDING, LLC, a North Carolina limited liability company, hereinafter referred to as Landlord, and PREMIER PURCHASING PARTNERS, L.P., a California limited partnership, hereinafter referred to as Tenant;
WITNESSETH:
In consideration of the mutual agreements of the parties herein, including the rental agreed to be paid by Tenant to Landlord, Landlord leases to Tenant, and Tenant leases from Landlord, the following described premises upon the following terms and conditions:
ARTICLE I
BASIC LEASE TERMS AND DEFINITIONS
Section 1.1 Building, Premises, Lease Term, Base Rent, Base Year, Tenant Improvements Allowance, Security Deposit, and Other Basic Terms.
Building Address: |
Boyle Building |
|
13034 Ballantyne Corporate Place |
|
|
Location of Premises: |
All rentable space in the Building (floors 1 10) |
|
|
Rentable Area of the Premises: |
262,500 square feet (see Section 2.2 herein for additional information.) |
|
|
Lease Term: |
Beginning on the Commencement Date and ending at midnight on the Termination Date. |
|
|
Commencement Date: |
The Date of Execution of this Lease. |
|
|
Rent Commencement Date: |
March 1, 2011 (as same may be extended pursuant to Section 3.1(a) herein). |
|
|
Termination Date: |
The day immediately preceding the fifteenth (15th) anniversary of the Rent Commencement Date or, in the event the Rent Commencement Date falls on a day other than the first day of a calendar month due to any extension thereof pursuant to Section 3.1(a) herein, the last day of the calendar month during which the fifteenth (15th) anniversary of the Rent Commencement Date occurs, provided the Termination Date may be extended pursuant to Section 3.1(c) herein. The initial Lease Term (the Initial Lease Term) shall commence on the Commencement |
|
Date and expire at midnight on the Termination Date (as same may be extended pursuant to Section 3.1(c) herein). The Lease Term shall end upon the expiration of the Initial Lease Term, unless extended pursuant to the terms and provisions of Section 4 of Exhibit G hereto. Applying the foregoing concepts, the Termination Date shall be the last day of the Initial Lease Term, unless the Lease Term is extended pursuant to the term and provisions of Section 4 of Exhibit G hereto. |
|
|
Base Rent: |
|
|
|
Initial Annual Base Rent: |
$6,300,000.00 (i.e., $24.00 x 262,500) |
Initial Monthly Base Rent: |
$525,000.00 (i.e., $6,300,000.00 ÷ 12) |
Annual Base Rent and Monthly Base Rent are subject to adjustment pursuant to Section 4.1(b) herein.
Rent Adjustment Date:
|
The day of the first (1st) anniversary of the Rent Commencement Date or, in the event the Rent Commencement Date falls on a day other than the first day of a calendar month due to any extension thereof pursuant to Section 3.1(a) herein, the first day of the first (1st) anniversary of the calendar month in which the Rent Commencement Date occurs. For example, if the Rent Commencement Date is March 15, 2011 due to an extension thereof pursuant to Section 3.1(a) herein, the Rent Adjustment Date shall be March 1, 2012. |
|
|
Base Year: |
February 1, 2011 January 31, 2012 |
|
|
Tenant Improvements Allowance: |
$12,343,050.00 (based on $50.00 x 246,861 square feet (i.e., the Rentable Area of the Premises less 15,639 square feet constituting those areas within the Rentable Area of the Premises previously completed by Landlord in accordance with Section 1 of Exhibit C-1 hereto)). |
|
|
Guarantors: |
Premier Supply Chain Improvement, Inc., a Delaware corporation; and Provider Select, LLC, a Delaware limited liability company. |
|
|
Security Deposit: |
None. |
Section 1.2 Address of Landlord and Tenant; Notices.
Rental and Other |
Boyle Building, LLC |
|
c/o The Bissell Companies, Inc. |
|
13860 Ballantyne Corporate Place, Suite 300 Charlotte, NC 28277 |
|
|
Correspondence To: |
Boyle Building, LLC |
|
c/o The Bissell Companies, Inc. |
|
13860 Ballantyne Corporate Place, Suite 300 Charlotte, NC 28277 |
|
|
with copy to: |
Lease Administrator c/o The Bissell Companies, Inc. 13860 Ballantyne Corporate Place, Suite 300 Charlotte, NC 28277
|
Address of Tenant: (prior to February 1, 2011) |
Premier Purchasing Partners, L.P. 12255 El Camino Real |
|
Suite 100 |
|
San Diego, CA 92130 |
|
Attn: Chief Financial Officer |
|
|
with copy to: |
Premier Purchasing Partners, L.P. |
|
2320 Cascade Pointe Blvd. |
|
Charlotte, NC 28208 |
|
Attn: Director of Facilities and Real Estate |
|
|
Address of Tenant: (from and after February 1, 2011) |
Premier Purchasing Partners, L.P. |
|
Suite 100 |
|
San Diego, CA 92130 |
|
Attn: Chief Financial Officer |
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with copy to: |
Premier Purchasing Partners, L.P. 13034 Ballantyne Corporate Place Charlotte, NC 28277 |
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Attn: Director of Facilities and Real Estate |
All moneys due and notices required under this Lease shall be sent to the respective addresses of Landlord and Tenant set forth above, as applicable, and unless otherwise provided, shall be in writing. Notice shall be deemed served (a) if sent by certified mail, return receipt requested, when the return receipt is signed or refused, (b) if sent by recognized national overnight courier, next day delivery, as of the next business day after delivery to such courier, or (c) if in any other manner, upon actual delivery to the party to whom/which such notice is addressed (provided any such alternate delivery method under this clause (c) must include documentary evidence of the
delivery having been made, such as a signed receipt from a person at the address where the notice is delivered). Either party may change the address to which money due or notices shall be sent by giving the other party written notice of such change of address.
Section 1.3 Definitions. Capitalized terms appearing in this Lease, unless defined elsewhere in this Lease, shall have these definitions:
(a) 90-Day Casualty Assessment Period is defined in Section 9.2 herein.
(b) ADA refers to the Americans With Disabilities Act and amendments thereto.
(c) Additional Rent refers to any payment due under this Lease from Tenant to Landlord, other than Base Rent, including, without limitation, amounts payable hereunder by Tenant to Landlord for reimbursement of costs and expenses incurred by Landlord on Tenants behalf and/or for reimbursement of the costs of improvements or any other items that are eligible to be capitalized by Landlord under sound accounting principles and policies which are industry standard and consistently applied.
(d) Additional Signage Rental Amount is defined in Section 7.2(e) herein.
(e) Adjacent Land is defined in Section 2.4(a) herein.
(f) Adjacent Land Owner is defined in Section 2.4(a) herein.
(g) Affected Space is defined in Section 3.1(b) herein.
(h) Affiliates is defined in Section 12.2 herein.
(i) Amenities Allowance is defined in Exhibit G hereto.
(j) Asserting Party is defined in Section 3.1(d) herein.
(k) Annual Backup Condenser Fee is defined in Section 5.5(d)(iii) herein.
(1) Annual Base Rent is defined in Section 2.2 herein.
(m) Architect/Engineer is defined in Exhibit C-2 hereto.
(n) Base Rent is defined in Section 1.1 herein.
(o) Base Rent Arbitration Notice is defined in Exhibit G hereto.
(p) Base Year is defined in Section 1.1 herein.
(q) Bissell Companies refers to The Bissell Companies, Inc. or any other entity that is owned (1) by any Bissell Family Member(s) and/or (2) by any entity that is owned or controlled by one or more Bissell Family Members.
(r) Bissell Family Member and Bissell Family Members are defined in Section 5.1(d)(i) herein.
(s) BOMA Standard refers to the Building Owners and Managers Association standard for measuring a single tenant office building (ANSI/BOMA Z65.1-1996).
(t) Brokerage Agreement is defined in Section 14.14(a) herein.
(u) Building refers to the office building where the Premises is located and is defined in Section 2.1 herein.
(v) Building-Specific Common Areas is defined in Section 2.4(b) herein.
(w) Building-Specific Digital Information Screens is defined in Section 7.2(a) herein.
(x) Buildings refers to the Building and the Harris Building, each as defined in this Section 1.3.
(y) Building Monument Sign is defined in Section 7.2(b) herein.
(z) Building Shell Improvements is defined in Exhibit C-1 hereto.
(aa) Building Rules and Regulations is defined in Section 6.1(c) herein.
(bb) Building Standard is defined in Section 5.6 herein.
(cc) Business Hours is defined in Section 5.2 herein.
(dd) Business Park refers to the business park commonly known as Ballantyne Corporate Park, consisting of all that certain real property encumbered by the Declaration Documentation.
(ee) Business Park Costs is defined in Section 4.2(a)(i)(H) herein.
(ff) Business Park-Specific Digital Information Screen is defined in Section 7.2(a) herein.
(gg) Ceiling Tile Credit is defined in Exhibit C-1 hereto.
(hh) Change Order and Change Orders are defined in Exhibit C-2 hereto.
(ii) Commencement Date is defined in Section 1.1 herein.
(jj) Communications Equipment is defined in Exhibit G hereto.
(kk) Condenser Usage Fee is defined in Section 5.5(d)(iii) herein.
(ll) Confidential Information is defined in Section 14.22 herein.
(mm) Contraction Space is defined in Exhibit G hereto.
(nn) Controllable Operating Costs is defined in Section 4.2(c) herein.
(oo) CPI is defined in Section 8.2 herein.
(pp) Data Center is defined in Section 5.1(c) herein.
(qq) Date of Execution is defined in Section 14.23 herein.
(rr) Declaration Documentation shall refer to (i) that certain Declaration of Covenants, Conditions, and Restrictions for Ballantyne recorded in the Office of the Mecklenburg County Register of Deeds in Book 7524, Page 1, as amended and supplemented, and (ii) that certain Declaration of Covenants, Conditions, and Restrictions for Ballantyne Corporate Park recorded in Book 7524, Page 90, as amended and supplemented.
(ss) Digital Information Screens is defined in Section 7.2(a) herein.
(tt) Estimated Operating Costs is defined in Section 4.2(b)(i)(A) herein.
(uu) Excess Consideration is defined in Section 12.5 herein.
(vv) Extension Notice is defined in Exhibit G hereto.
(ww) Extension Term and Extension Terms are defined in Exhibit G hereto.
(xx) Exterior Common Areas is defined in Section 2.4(a) herein.
(yy) Fair Market Value Base Rent Rate is defined in Exhibit G hereto.
(zz) Final Documents is defined in Exhibit C-2 hereto.
(aaa) First Refusal Space is defined in Exhibit G hereto.
(bbb) Floors 1 and 2 is defined in Section 4.1(c)(i) herein.
(ccc) Floors 1 and 2 Tenant Improvements Costs is defined in Exhibit C-2 hereto.
(ddd) Floors 3-10 is defined in Section 4.1(c)(ii) herein.
(eee) FMV Base Rent Negotiation Period is defined in Exhibit G hereto.
(fff) FMV Base Rent Rate Notice is defined in Exhibit G hereto.
(ggg) Force Majeure Delay is defined in Section 3.1(a) herein.
(hhh) Force Majeure Matter and Force Majeure Matters is defined in Section 3.1(d) herein.
(iii) Force Majeure Matter Extended Date is defined in Section 3.1(b) herein.
(jjj) General Contractor is defined in Exhibit C-2 hereto.
(kkk) Generator is defined in Exhibit G hereto.
(lll) Generator Pad is defined in Exhibit G hereto.
(mmm) Ground Lease is defined in Section 2.5(b) herein.
(nnn) Guarantors is defined in Section 1.1 herein.
(ooo) Handicapped Parking Areas is defined in Exhibit E hereto.
(ppp) Harris Building shall refer to that certain building located adjacent to the Building, as depicted on Exhibit K attached hereto, with an address of 13024 Ballantyne Corporate Place, Charlotte, NC, 28277.
(qqq) Harris Building Landlord is defined in Section 2.4(a) herein.
(rrr) Hazardous Substance and Hazardous Substances are defined in Section 7.5(a) herein.
(sss) Improvements is defined in Section 6.1 herein.
(ttt) Initial Lease Term is defined in Section 1.1 herein.
(uuu) Injured Party is defined in Section 8.7 herein.
(vvv) Irrigation Ponds is defined in Section 4.2(a)(i)(L) herein.
(www) Land is defined in Section 2.1 herein.
(xxx) Landlord-Caused Delay is defined in Section 3.1(a) herein.
(yyy) Land Owner is Ballantyne East, LLC, a North Carolina limited liability company.
(zzz) Landlord refers to Boyle Building, LLC, a North Carolina limited liability company, and its successors and assigns as Landlord hereunder.
(aaaa) Landlord Work Letter is defined in Exhibit C-1 hereto.
(bbbb) Landlords Best FMV Base Rent Rate Offer is defined in Exhibit G hereto.
(cccc) Landlords Broker is defined in Section 14.14(a) herein.
(dddd) Landlords Premises Dominion and Control is defined in Section 2.3(b) herein.
(eeee) Lease refers to this Lease between Landlord and Tenant.
(ffff) Lease Term is defined in Section 1.1 and Section 3.1(a) herein.
(gggg) Light Fixtures Credit is defined in Exhibit C-1 hereto.
(hhhh) Loading Dock Elevator is defined in Section 5.1(a)(ii) herein.
(iiii) Merged Interest Owner is defined in Section 2.5(b) herein.
(jjjj) Microbial Matter is defined in Section 7.5(c) herein.
(kkkk) Monthly Base Rent is defined in Section 2.2 herein.
(llll) NFPA is defined in Exhibit C-1 hereto.
(mmmm) Operating Costs is defined in Section 4.2(a)(i) herein.
(nnnn) Operating Costs Exclusions is defined in Section 4.2(a)(ii) herein.
(oooo) Order is defined in Section 14.20 herein.
(pppp) Outside Tenant Improvements Completion Date is defined in Section 3.1(a) herein.
(qqqq) Parking Areas is defined in Section 7.3(a) herein.
(rrrr) Parking Deck A is defined in Section 2.4(a) herein.
(ssss) Parking Deck B is defined in Section 2.4(a) herein.
(tttt) Parking Rules and Regulations is defined in Section 7.3(a) herein.
(uuuu) PCBs is defined in Section 7.5(a) herein.
(vvvv) Per Square Foot Base Year Operating Costs is defined in Section 4.1(b) herein.
(wwww) Premises is defined in Section 2.1 herein.
(xxxx) Premises Contraction Date is defined in Exhibit G hereto.
(yyyy) Premises Contraction Fee is defined in Exhibit G hereto.
(zzzz) Prime Rate shall be deemed to be that rate of interest announced by Bank of America, N.A., or any successor thereto, from time to time as its prime rate, and Landlord and Tenant acknowledge and understand that Bank of America, N.A., lends at rates of interest both above and below the Prime Rate.
(aaaaa) Property Management Standards is defined in Section 5.1(d) herein.
(bbbbb) Prospective Tenant is defined in Exhibit G hereto.
(ccccc) Recovery Ceiling Amount is defined in Section 14.2 herein.
(ddddd) Recreational Facility is defined in Section 7.8 herein.
(eeeee) Relevant Space is defined in Section 9.1 herein.
(fffff) Rent Adjustment Date is defined in Section 1.1 herein.
(ggggg) Rent Commencement Date is defined in Section 1.1 herein.
(hhhhh) Rentable Area of the Premises is defined in Section 1.1 herein.
(iiiii) ROFR Notification is defined in Exhibit G hereto.
(jjjjj) Supplemental HVAC Equipment is defined in Section 5.5(c) herein.
(kkkkk) Supporting Documents is defined in Exhibit C-2 hereto.
(lllll) Tenant refers to Premier Purchasing Partners, L.P., a California limited partnership, and its permitted successors and assigns as Tenant hereunder.
(mmmmm) Tenant Improvements is defined in Exhibit C-2 hereto.
(nnnnn) Tenant Improvements Allowance is defined in Section 1.1 herein.
(ooooo) Tenant Improvements Plans and Specifications is defined in Exhibit C-2 hereto.
(ppppp) Tenant Improvements Plans and Specifications Submittal Deadline Date is defined in Exhibit C-2 hereto.
(qqqqq) Tenant Work Letter is defined in Exhibit C-2 hereto.
(rrrrr) Tenants Best FMV Base Rent Rate Offer is defined in Exhibit G hereto.
(sssss) Tenants Broker is defined in Section 14.14(a) herein.
(ttttt) Tenants Estimated Proportionate Share is defined in Section 4.2(b)(i)(A) herein.
(uuuuu) Tenants Proportionate Share is defined in Section 4.2(a)(iii) herein.
(vvvvv) Tenants Security Property is defined in Section 12.1(b) herein.
(wwwww) Tenants Trade Name is defined in Section 7.2(b) herein.
(xxxxx) Termination Date is defined in Section 1.1 herein.
(yyyyy) Unaffected Space is defined in Section 3.1(b) herein.
(zzzzz) Unreserved Parking Areas is defined in Exhibit E hereto.
(aaaaaa) Visitor Parking Areas is defined in Exhibit E hereto.
(bbbbbb) Wire Transfer is defined in Section 4.1(a) herein.
ARTICLE II
LEASED PREMISES
Section 2.1 Description of Premises. The premises (the Premises) described in Section 1.1 are located within the building (the Building) also described in Section 1.1, which is located on the tract of land described in Exhibit A-1 attached hereto (the Land) and incorporated herein by reference. The Premises are shown on the floor plan attached hereto as Exhibit B and incorporated herein by reference.
Section 2.2 Size of Premises. The Premises have been measured in general compliance with the BOMA Standard and have been found to contain approximately 265,057 square feet; provided, however, Landlord and Tenant have stipulated and agreed that the square footage of the Building shall irrevocably be deemed to be the amount set forth as the Rentable Area of the Premises in Section 1.1 herein for all purposes under this Lease, including, without limitation, the calculation of annual Base Rent (Annual Base Rent), monthly Base Rent (Monthly Base Rent), Additional Rent (where applicable), Tenants Proportionate Share of Operating Costs, the Tenant Improvements Allowance or any other calculation under this Lease where the rentable area of the Building or the Premises is relevant. Additionally, whenever this Lease or the exhibits hereto (including, without limitation, Section 7 of Exhibit G hereto) refer to a certain percentage of space in the Building that is leased and/or occupied by Tenant from time to time or otherwise contemplates or requires a determination of the number of rentable square feet of space that is within the Premises at a given time, each floor of the Building conclusively shall be deemed to contain ten percent (10%) of the total Rentable Area of the Premises (i.e., 26,250 square feet).
Section 2.3 Status of Premises.
(a) Landlord represents and warrants that the Building and all Building systems, including, without limitation, the roof, slab, foundation, structural elements, HVAC systems,
electrical systems and plumbing systems are in good working order as of the Commencement Date. Tenant hereby acknowledges, as of the Date of Execution, that all Building Shell Improvements have been completed, some of which are described on Exhibit C-1 attached hereto and incorporated herein by reference, and that Landlord shall have no obligation to further upfit the Premises (subject, however, to Landlords Premises Dominion and Control). Provided, however, upon receipt of notice thereof from Tenant or otherwise, Landlord shall be obligated to correct any latent defects in the Building Shell Improvements in accordance with the terms and provisions of Section 6.5 and Section 6.6 herein. By executing this Lease, and subject to any latent defects in the Building Shell Improvements and the foregoing obligation of Landlord to correct same, Tenant shall hereby be deemed to have (i) examined and approved the as is condition of the Premises and (ii) acknowledged that the Premises and the Building Shell Improvements are in satisfactory condition as of the Date of Execution.
(b) Tenant and Landlord understand and acknowledge that Tenant shall not have occupancy rights with respect to the Premises, or any relevant portion thereof, until the Tenant Improvements are completed or substantially completed therein and a certificate of occupancy is issued with respect thereto. Landlord shall continue to exercise dominion and control over the Premises (Landlords Premises Dominion and Control) until such milestones are achieved, as evidenced by various rights of Landlord set forth elsewhere in this Lease and the exhibits hereto, including, without limitation, the right to (i) approve the General Contractor that will install the Tenant Improvements and the Architect/Engineer that will prepare the Tenant Improvements Plans and Specifications, (ii) review and approve the Tenant Improvements Plans and Specifications and Change Orders relating to same, (iii) inspect the progress and status of the installation of the Tenant Improvements, and (iv) condition and limit disbursements of the Tenant Improvements Allowance (consistent with Exhibit C-2 hereto). As set forth in Section 4.1(c) herein, Tenant is expected to assume dominion and control over portions of the Premises in stages; and as the relevant milestones are achieved relative to specific portions of the Premises, Landlord acknowledges and agrees that Landlord shall no longer have dominion and control over such portions of the Premises (except as and to the extent otherwise contemplated in this Lease relative to the period when Tenant is occupying such portions of the Premises for the purpose of conducting business therein).
Section 2.4 Common Areas.
(a) Exterior Common Areas. Tenant, its employees, agents, contractors, sublessees and invitees shall have the right, in common with other tenants who may lease and occupy space in the Building or the Harris Building from time to time and their respective employees, agents and invitees, to the nonexclusive use of all driveways, sidewalks, roadways, maintenance and mechanical areas, loading platforms, ramps, landscaped areas, the Parking Areas, including, without limitation, the parking deck located within the Land (Parking Deck A) and the parking deck located within the Adjacent Land (Parking Deck B) (subject to the terms and provisions in Section 7.3 herein relating to such Parking Areas), and other areas, improvements and amenities located within the boundaries of the Land or the Adjacent Land (but excluding the Building and the Harris Building) and designated by Landlord from time to time as exterior common areas (the Exterior Common Areas). For purposes hereof, Adjacent Land shall mean the tract of land upon which the Harris Building is situated, as more fully described on Exhibit A-2 attached hereto and incorporated herein by reference. Notwithstanding anything contained herein to the contrary, Landlord and the owner of the Harris Building (Harris Building
Landlord) shall have the right, from time to time, to modify, realign or reconfigure the Exterior Common Areas or any improvements, amenities or other elements located within such Exterior Common Areas, or to reduce the Exterior Common Areas in connection with the construction of additional buildings or other improvements thereon, so long as Tenants business operations are not materially adversely affected thereby. Additionally, in connection with the foregoing, Tenant hereby acknowledges that Landlord and Harris Building Landlord shall be entitled, in their sole discretion, to install within the portion of the Exterior Common Areas located between the Harris Building and Parking Deck A, an additional driveway leading from the right-of-way of Ballantyne Corporate Place to the driveways and roadways currently located within the Exterior Common Areas. The Exterior Common Areas shall be subject to such restrictions on the use thereof as Landlord and Harris Building Landlord shall reasonably require, and which shall be applied to all tenants in the Building and in the Harris Building in a uniform and non-discriminatory manner. Landlord agrees to cause Harris Building Landlord and Ballantyne East, LLC, a North Carolina limited liability company, the owner of fee simple title to the Adjacent Land (Adjacent Land Owner), to execute this Lease for the purpose of acknowledging and consenting to the right of Tenant to use the portion of the Exterior Common Areas located within the Adjacent Land in accordance with the terms and provisions of this Section 2.4(a). Furthermore, Tenants rights relative to the Exterior Common Areas shall be fully set forth in the memorandum of lease provided for in Section 14.4 herein and Harris Building Landlord and Adjacent Land Owner shall join in such memorandum of lease.
(b) Building-Specific Common Areas. Tenant, its employees, agents, contractors, sublessees and invitees shall have the right, in common with other tenants who may lease and occupy space in the Building from time to time and their respective employees, agents and invitees, to the nonexclusive use of such of the areas as are from time to time designated by Landlord as the Building-specific common areas of the Building (the Building-Specific Common Areas), which shall include (to the extent provided) all restrooms, maintenance and mechanical areas, lobbies, corridors, elevators and stairwells located within the Building shell, the Building Monument Sign and each of the following areas and improvements located on the Land, as generally shown and depicted on Exhibit M attached hereto and incorporated herein by reference: the above-ground walkway connecting the Building to Parking Deck A; the ground-level patio located at the back of the Building (i.e., the side of the Building directly opposite from the main entrance of the Building); any generators that exclusively serve the Building systems (which shall be located in the vicinity of the Generator Pad), including any screening associated therewith; the dumpster pads and dumpsters located thereon, including any screening associated therewith; and the concrete loading dock for the Building. The area included within the Building-Specific Common Areas shall be subject to such restrictions on the use thereof as Landlord may reasonably require, and as shall be applied to all tenants (in the event there are other tenants leasing and occupying space in the Building from time to time) in a uniform and non-discriminatory manner. Additionally, (i) during any portion of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, the only import of Building-Specific Common Areas shall be for the purposes of helping to define (A) the scope of Landlords maintenance and repair obligations and (B) Operating Costs (as Tenant shall be the sole tenant and occupant in the Building and shall have exclusive use with respect to such areas on the interior of the Building that otherwise would be characterized as Building-Specific Common Areas) and (ii) during any portion of the Lease Term when other tenants lease and occupy space in the Building pursuant to direct lease arrangements with Landlord (as opposed to subleases or other similar arrangements with Tenant), the Building-Specific Common Areas shall be subject
to the exclusive control and management of Landlord. Notwithstanding the foregoing, during any portion of the Lease Term when other tenants lease and occupy space in the Building pursuant to direct lease arrangements with Landlord (as opposed to subleases or other similar arrangements with Tenant), Tenant shall be entitled to exclude such other tenants from accessing the restrooms and/or maintenance and mechanical areas located on any floor of the Building being leased by Tenant in its entirety (i.e., all of the rentable space on such floor is being leased by Tenant), not including, however, the restrooms and/or maintenance and mechanical areas located on the first floor and the fourth floor of the Building (which restrooms and/or maintenance and mechanical areas shall remain accessible to such other tenants regardless of whether Tenant is leasing from Landlord all of the rentable space on such floors). For illustrative purposes only, floor plans showing the location and configuration of Building-Specific Common Areas with respect to individual floors that may be vacated by Tenant and leased to and occupied by different tenants in accordance with the terms of this Lease are attached hereto as Exhibit L; provided, however, during any portion of the Lease Term when Tenant is leasing from Landlord less than all of the rentable space in the Building, Landlord shall have the right to modify, realign and reconfigure the Building-Specific Common Areas within the Building shell so long as Tenants business operations within the Building are not materially adversely affected thereby. Even if Tenant is leasing from Landlord all of the rentable space in the Building, Landlord shall have the right to modify, realign and reconfigure Building-Specific Common Areas outside the Building shell so long as Tenants business operations within the Building are not materially adversely affected thereby.
Section 2.5 Quiet Enjoyment; Ground Lease.
(a) Landlord covenants that Tenant, upon performing its obligations hereunder, shall hold and peacefully enjoy the Premises and Tenants rights relative to the Building-Specific Common Areas and the Exterior Common Areas for the Lease Term, subject, however, to the terms of this Lease.
(b) Notwithstanding the provisions in Section 2.5(a) herein, Landlord represents to Tenant, and Tenant hereby acknowledges, that Landlords interest in the Building and the Land is by virtue of a ground lease (the Ground Lease) between Landlord (as successor to MM Realty Investors, LLC) and Land Owner, and in the event such Ground Lease is terminated prior to the expiration of the Lease Term, this Lease shall not expire and Tenant shall attorn to Land Owner as if said Land Owner was the Landlord hereunder, and Land Owner shall recognize and honor Tenants rights under this Lease so long as Tenant is not in default hereunder beyond applicable notice and cure periods (if any). Additionally, Landlord and Land Owner reserve the right to merge Landlords leasehold estate and Land Owners fee simple interest into a single interest, provided the owner of the merged estate recognizes and honors Tenants rights under this Lease as provided in the immediately preceding sentence. Landlord further represents to Tenant that (i) Landlord has the right and authority, under the Ground Lease and otherwise, to enter into this Lease and to perform Landlords obligations hereunder and (ii) the term of the Ground Lease exceeds the Lease Term and all extensions and renewals thereof that Tenant may exercise hereunder. In furtherance of the foregoing and not in limitation thereof, on any premature termination of the Ground Lease or the merger of Land Owners fee simple interest and Landlords leasehold interest, all of Landlords interest as landlord under this Lease shall be deemed automatically assigned, transferred and conveyed to, and assumed by, Land Owner or any owner of such merged interest (the Merged Interest Owner), and this Lease shall become a direct lease between Land Owner or
Merged Interest Owner, as applicable, and Tenant. Land Owner or Merged Interest Owner, as applicable, shall thereafter be bound to Tenant by all of the terms, covenants and conditions of this Lease (including, without limitation, the payment of the Tenant Improvements Allowance) for the balance of the Lease Term then remaining and any extensions or renewals hereof with the same force and effect as Landlord was bound as landlord by this Lease, and Tenant shall thereafter attorn to Land Owner or Merged Interest Owner, as applicable, as its landlord under this Lease pursuant to the terms of this Lease, and such attornment shall be effective and self-operative automatically upon the termination of the Ground Lease or the merger of Land Owners fee simple interest and Landlords leasehold interest. In the event that the Ground Lease is cancelled or terminated for any reason prior to the natural expiration of its term, the party terminating the Ground Lease shall, concurrently with its termination notice to the other party, provide Tenant notice of such termination at the address set forth in this Lease. In the event of a merger of property interests into Land Owner or Merged Interest Owner, Land Owner and Landlord shall provide Tenant notice of such occurrence and the name and address of the owner of the merged interest if different from Land Owner. The provisions of this Section 2.5(b) shall be included in the memorandum of lease provided for in Section 14.4 herein, which memorandum of lease shall be executed by Land Owner.
Section 2.6 Illustration of Concepts. Attached hereto as Exhibit K is a diagram which is intended to illustrate the meaning or location of various terms used in this Lease, including the Land, the Building, the Adjacent Land, the Harris Building, Parking Deck A and Parking Deck B.
ARTICLE III
LEASE TERM
Section 3.1 Term.
(a) The term of this Lease (the Lease Term) shall commence on the Commencement Date and shall end on the Termination Date, respectively, set forth in Section 1.1 herein. The Tenant Improvements to be installed in the Premises beyond the Building Shell Improvements are addressed on Exhibit C-2 hereto, and Tenant will bear the risk of being unable to substantially complete the Tenant Improvements in the Premises by the Rent Commencement Date, except as otherwise expressly provided in this Section 3.1. Tenants rental obligations shall begin on the Rent Commencement Date, regardless of whether or not the Tenant Improvements are substantially complete, except only in the case of a delay in the substantial completion of the Tenant Improvements beyond January 31, 2011 (the Outside Tenant Improvements Completion Date), caused by any Force Majeure Matter(s) or by Landlord (other than a delay caused by the justifiable exercise of Landlords rights under this Lease). As used herein, the term Force Majeure Delay shall mean any delay caused by any Force Majeure Matter(s), and the term Landlord-Caused Delay shall mean any delay caused by any improper act(s) or omission(s) of Landlord. If and only if the Tenant Improvements remain in a substantially incomplete state in all portions of the Premises as of the Outside Tenant Improvements Completion Date and such situation is due to one or more Force Majeure Matter(s) or one or more improper acts or omissions of Landlord, then in such case the Rent Commencement Date shall be deferred by one (1) day for each one (1) day of such delay so caused, and the Termination Date shall be deferred by the same number of days as the Rent Commencement Date; otherwise, there shall be no deferral of the Rent Commencement Date. Additionally, in such case, if the Rent Commencement Date falls on a day other than the first day of a calendar month, the Termination Date
shall be the last day of the calendar month during which the fifteenth (15th) anniversary of the Rent Commencement Date occurs. Notwithstanding the foregoing, in no event shall the Rent Commencement Date be deferred as a result of Force Majeure Delay(s) if (x) Tenant has failed to submit the Tenant Improvements Plans and Specifications for each floor of the Premises to Landlord for review and approval in accordance with Exhibit C-2 on or before the Tenant Improvements Plans and Specifications Submittal Deadline Date and (y) it would have been reasonably possible to substantially complete the Tenant Improvements (or the relevant portion thereof) on or prior to the Outside Tenant Improvements Completion Date, notwithstanding the occurrence of such Force Majeure Delay(s), but for Tenants failure to timely submit the Tenant Improvements Plans and Specifications, or the relevant portion thereof, to Landlord for review and approval.
(b) If the Tenant Improvements remain substantially incomplete in a portion, but not all, of the Premises as of the Outside Tenant Improvements Completion Date due to any Force Majeure Delay(s) or any Landlord-Caused Delay(s) (such portion(s) of the Premises where the Tenant Improvements remain substantially incomplete as of the Outside Tenant Improvements Completion Date are referred to herein as the Affected Space), then (i) with respect to the remaining space within the Premises (i.e., the portions of the Premises for which the substantial completion of the Tenant Improvements is unaffected by such Force Majeure Delay(s) or Landlord-Caused Delay(s) (collectively, the Unaffected Space), Tenants rental obligations shall begin on the Rent Commencement Date, and (ii) notwithstanding any term or provision herein to the contrary, the commencement of Tenants rental obligations with respect to the Affected Space shall be deferred by one (1) day for each one (1) day of the delay in the substantial completion of the Tenant Improvements therein.
(c) If there is Affected Space under Section 3.1(b) herein which is so characterized because of a Force Majeure Delay (as opposed to a Landlord-Caused Delay), the Termination Date (and the last day of the Initial Lease Term) relative to the entire Premises shall be extended beyond the fifteenth (15th) anniversary of the Rent Commencement Date by the number of days computed by multiplying (A) the total number of days of the Force Majeure Delay by (B) a fraction, the numerator of which is the total rentable area of the Affected Space and the denominator of which is the total Rentable Area of the Premises. If, as so extended, the Termination Date falls on a day other than the last day of a calendar month, then the Termination Date shall be further extended to be the last day of such calendar month. An example illustrating the concepts described in Section 3.1(b) herein and this Section 3.1(c)is set forth on Exhibit N attached hereto and incorporated herein.
(d) As used in this Lease, Force Majeure Matter shall mean any condition, matter or circumstance beyond the reasonable control of Landlord or Tenant, as applicable (the term Force Majeure Matters referring to more than one Force Majeure Matter), including, without limitation, the following (subject to the exclusions contained in clauses (i), (ii) and (iii) below in this Section 3.1(d)): strikes; lockouts; acts of God; governmental restrictions, war or enemy action or invasion; civil commotion; insurrection; riot; mob violence; malicious mischief or sabotage; fire or any other casualty; unusual adverse weather conditions or unusual inclement weather; a condemnation; any law, order or regulation of any governmental, quasi-governmental, judicial or military authority; or other similar cause; but expressly excluding any of the following delays as may applicable to Tenant: (i) delays in the shipment or availability of materials (provided (A) Tenant knows or has reason to know that such materials have lead times
that will delay the completion of the Tenant Improvements beyond the Outside Tenant Improvements Completion Date, and (B) a reasonable substitute for such materials is available on a shorter lead time), (ii) delays caused by or arising out of Change Orders, or (iii) any other delays that could reasonably have been avoided through careful planning and efficient oversight and management of the Tenant Improvements approval and construction process. Notwithstanding the foregoing, with respect to any Force Majeure Matter(s) which Landlord or Tenant (as applicable, the Asserting Party) desires to assert as the cause of a delay in such Asserting Partys performance of any of its obligation(s) under this Lease (and provided that such delay is a delay for which a Force Majeure Matter may be asserted pursuant to the express terms of this Lease), the Asserting Party shall furnish the other party with written notice within ten (10) business days after the date the Asserting Party was aware of or reasonably should have been aware of such Force Majeure Matter(s). Such written notice from the Asserting Party shall provide a reasonable description of, and reasonable evidence regarding the existence of, such Force Majeure Matter(s) and a description of the obligations of the Asserting Party under this Lease that the Asserting Party believes are likely to be affected by such Force Majeure Matter(s). If the Asserting Party fails to provide the other party with such written notice within such ten (10) business day period, as provided herein, the Asserting Party shall not be entitled to claim the benefit of any delay caused by such Force Majeure Matter(s) relative to any time period preceding the date that is ten (10) business days prior to the date the Asserting Party ultimately delivers such written notice to the other party.
Section 3.2 Holding Over.
(a) General. Subject to the terms in Section 3.2(b) herein, if Tenant continues to occupy the Premises after the last day of the Lease Term, or any extension thereof, and if Landlord elects to accept rent, a monthly tenancy terminable at will by either party on not less than thirty (30) days notice shall be created, which tenancy shall be on the same terms and conditions as those herein specified, except that Tenant shall pay (i) one hundred fifty percent (150%) of the Monthly Base Rent paid for the last full month of the Lease Term, or extension thereof, as applicable, prior to such holdover period and (ii) one hundred fifty percent (150%) of the Additional Rent for each month or partial month during which Tenant retains possession of the Premises after the Termination Date. If Tenant holds over in the Premises without Landlords prior written consent, then subject to Section 11.2(a) of this Lease, Tenant shall indemnify Landlord against all liabilities and damages sustained by Landlord by reason of such retention of possession; provided, however, the provisions of this Section 3.2(a) shall not constitute a waiver by Landlord of any reentry rights available under this Lease or in law or equity.
(b) Special Extension Option. Tenant shall be entitled, by giving Landlord at least two hundred seventy (270) days written notice prior to the Termination Date, to extend the Lease Term for one (1) three (3) month period, in which case (i) Tenant shall continue to lease the Premises from Landlord for such three (3) month period on the same terms and conditions as those herein specified, except that Tenant shall pay for such period (1) one hundred ten percent (110%) of the Monthly Base Rent paid for the last full month of the Lease Term, or extension thereof, as applicable, prior to such three (3) month period and (2) one hundred ten percent (110%) of the Additional Rent for such three (3) month period and (ii) Tenant may terminate such three (3) month extension of the Lease Term prior to the expiration of such three (3) month period by giving thirty (30) days advance written notice to Landlord. If Tenant exercises its three (3) month extension under this Section 3.2(b) and fails to properly vacate the Premises by
the end of such three (3) month period or any earlier termination date exercised by Tenant pursuant to clause (ii) in the immediately preceding sentence, then the terms and provisions of Section 3.2(a) herein shall become immediately applicable.
ARTICLE IV
BASE RENT, ADDITIONAL RENT AND OPERATING COSTS
Section 4.1 Base Rent.
(a) General. Tenant agrees to pay to Landlord on the first day of each calendar month, in advance, without setoff or demand, during the Lease Term (commencing on the Rent Commencement Date), the Initial Monthly Base Rent set forth in Section 1.1 herein, subject to annual increases as provided in Section 4.1(b) herein; provided, however, if the Rent Commencement Date ultimately is not the first day of a calendar month, the Monthly Base Rent for that partial month at the beginning of the Lease Term shall be prorated and shall be paid by Tenant to Landlord upon determination of the Rent Commencement Date. In lieu of Tenants delivery of rent payment checks to the address of Landlord set forth in Section 1.2 herein, Landlord may, by so notifying Tenant in writing from time to time, require Tenant to deliver rent payments hereunder to Landlord by federal wire transfer or other electronic funds transfer method (Wire Transfer) using electronic transfer instructions provided in writing by Landlord to Tenant. Landlord shall be entitled, but no more than once every calendar year, to change such Wire Transfer instructions or to discontinue the requirement that rent be paid to Landlord by Wire Transfer by so notifying Tenant in writing hereunder.
(b) Annual Increase of Base Rent. Commencing as of the Rent Adjustment Date and thereafter on each succeeding anniversary of the Rent Adjustment Date during the Lease Term, the Base Rent shall be adjusted annually in accordance with the following formula:
New Annual Base Rent |
= [((Annual Base Rent for the immediately preceding twelve (12) month period) (Per Square Foot Base Year Operating Costs x Rentable Area of the Premises)) x 102.75%] + (Per Square Foot Base Year Operating Costs x Rentable Area of the Premises) |
For purposes of applying the foregoing formula, Per Square Foot Base Year Operating Costs shall be determined by dividing the Base Year Operating Costs by the deemed rentable space in the Building (i.e., 262,500 square feet).
For example, presuming that the Per Square Foot Base Year Operating Costs are $7.25 and the Rentable Area of the Premises remains the same as set forth in Section 1.1 of this Lease, on the first (1st) anniversary of the Rent Commencement Date, the Base Rent hereunder for the immediately following twelve (12) month period shall be adjusted as follows:
New Annual Base Rent |
= [($6,300,000.00 ($7.25 x 262,500)) x 102.75%] + ($7.25 x 262,500) |
|
= [($6,300,000.00 $1,903,125.00) x 102.75%] + ($1,903,125.00) |
|
= [$4,396,875.00 x 102.75%] + $1,903,125.00 |
|
= $4,517,789.06 + $1,903,125.00 |
|
= $6,420,914.06 |
As a further example, presuming that the Per Square Foot Base Year Operating Costs are $7.25 and the Rentable Area of the Premises remains the same as set forth in Section 1.1. of this Lease, on the second (2nd) anniversary of the Rent Commencement Date the Base Rent hereunder for the immediately following twelve (12) month period shall be adjusted as follows:
New Annual Base Rent |
= [$6,420,914.06 ($7.25 x 262,500)) x 102.75%] + ($7.25 x 262,500) |
|
= [($6,420,914.06 $1,903,125.00) x 102.75%] + ($1,903,125.00) |
|
= [$4,517,789.06 x 102.75%] + $1,903,125.00 |
|
= $4,642,028.26 + $1,903,125.00 |
|
= $6,545,153.26 |
(c) Access and Occupancy Schedule.
(i) Notwithstanding anything to the contrary contained in this Lease, at any time during the period beginning on the Commencement Date and ending at midnight on the day immediately preceding the Rent Commencement Date, Tenant shall be entitled to occupy floors 1 and 2 of the Premises (Floors 1 and 2), or any portion thereof, for the purpose of conducting business therein (as opposed to merely entering upon such portion of the Premises in the context of completing the Tenant Improvements therein), provided the Tenant Improvements on Floors 1 and 2 (or the portion thereof to be occupied by Tenant at such time) shall have been substantially completed in accordance with Exhibit C-2 hereto and a certificate of occupancy for such portion of the Premises shall have been obtained. During such period, no Base Rent or Additional Rent (except for Additional Rent, if any, due and payable by Tenant under Section 4.2(a)(ii)(BB), Section 5.1(b), Section 5.1(c), Section 5.5(c), Section 6.1(c), Section 6.3 and Section 6.4 herein) shall be due and payable under this Lease with respect to such portion of the Premises, provided Tenant shall be obligated to abide by all other terms and conditions of this Lease.
(ii) Notwithstanding anything to the contrary contained in this Lease, commencing on November 1, 2010, and ending at midnight on the day immediately preceding the Rent Commencement Date, Tenant shall be entitled to occupy floors 3 through 10 of the Premises (Floors 3-10), or any portion thereof, for the purpose of conducting business therein (as opposed to merely entering upon such portion of the Premises in the context of completing the Tenant Improvements therein), provided the Tenant Improvements on Floors 3-10 (or the portion thereof to be occupied by Tenant at such time) shall have been substantially completed in accordance with Exhibit C-2 hereto and a certificate of occupancy for such portion of the Premises shall have been obtained. During such period, no Base Rent or Additional Rent (except for Additional Rent, if any, due and payable by Tenant under Section 4.2(a)(ii)(BB), Section 5.1(b), Section 5.1(c), Section 5.5(c), Section 6.1(c), Section 6.3 and Section 6.4 herein) shall be due and payable under this Lease with respect to such portion of the Premises, provided Tenant shall be obligated to abide by all other terms and conditions of this Lease. In no event shall Tenant be permitted to occupy Floors 3-10 for the purpose of conducting business therein (as opposed to merely entering upon such portion of the Premises in the context of completing the Tenant Improvements therein) at any time prior to November 1, 2010.
(d) Free Rent. Tenant shall be entitled to two (2) months of free Rent with respect to the entire Premises then being leased by Tenant on the following terms:
(i) With respect to the period beginning on the fifth (5th) anniversary of the Rent Commencement Date and ending on the day immediately preceding the tenth (10th) anniversary of the Rent Commencement Date, Tenant shall be entitled to designate one (1) calendar month in which it shall not be obligated to pay Base Rent or Additional Rent (except for Additional Rent, if any, due and payable by Tenant under Section 4.2(a)(ii)(BB), Section 5.1(b), Section 5.1(c), Section 5.5(c), Section 6.1(c), Section 6.3 and Section 6.4 herein); provided, however, to exercise such right, Tenant must provide Landlord with at least one hundred eighty (180) days advance written notice informing Landlord of the calendar month during the foregoing five (5) year period in which Tenant intends to avail itself of such free Rent. Such written notice may be given by Tenant to Landlord at any time on or after the Commencement Date. In the event Tenant fails to timely exercise such free Rent right as described above in this Section 4.1(d)(i), Tenant shall be deemed to have waived such right and shall have no further rights in connection therewith.
(ii) With respect to the period beginning on the tenth (10th) anniversary of the Rent Commencement Date and ending on the Termination Date, Tenant shall be entitled to designate one (1) calendar month in which it shall not be obligated to pay Base Rent or Additional Rent (except for Additional Rent, if any, due and payable by Tenant under Section 4.2(a)(ii)(BB), Section 5,1(b), Section 5.1(c), Section 5.5(c), Section 6.1(c), Section 6.3 and Section 6.4 herein); provided, however, to exercise such right, Tenant must provide Landlord with at least one hundred eighty (180) days advance written notice informing Landlord of the calendar month during the foregoing five (5) year period in which Tenant intends to avail itself of such free Rent. Such written notice may be given by Tenant to Landlord at any time on or after the Commencement Date. In the event Tenant fails to timely exercise such free Rent right as described above in this Section 4.1(d)(ii), Tenant shall be deemed to have waived such right and shall have no further rights in connection therewith.
Section 4.2 Operating Costs Concepts and Provisions. During all portions of the Lease Term, Landlord shall provide for the management of the Building and the Land as set forth in Section 5.1(a) herein. In such case, Tenant shall be obligated to pay to Landlord on a monthly basis, Tenants Proportionate Share of Operating Costs incurred by Landlord, subject to the following terms and provisions:
(a) Relevant Definitions.
(i) Operating Costs shall mean (x) one hundred percent (100%) of all costs and expenses incurred or accrued by Landlord in each calendar year in connection with the ownership, operation, maintenance, management, repair and protection of the Building and the Building-Specific Common Areas (such costs associated with the Building-Specific Common Areas to be included in Operating Costs regardless of whether Tenant is leasing from Landlord all or less than all of the rentable space in the Building) which are directly attributable or reasonably allocable to same, using sound accounting principles and policies standard for the industry and consistently applied, including Landlords personal property used in connection with the Building and the Building-Specific Common Areas, and (y) fifty percent (50%) of all costs and expenses incurred or accrued by Landlord and/or Harris Building Landlord in each calendar year in connection
with the ownership, operation, maintenance, repair and protection of the Exterior Common Areas which are directly attributable or reasonably allocable to same, including Landlords and Harris Building Landlords personal property used in connection with such Exterior Common Areas, such costs and expenses referenced in the foregoing clauses (x) and (y) to include costs and expenditures (including any sales, use, excise and other taxes) relating to the following, but not including any Operating Costs Exclusions:
(A) all costs of managing, operating, maintaining and repairing the Building, the Building-Specific Common Areas and the Exterior Common Areas, including all floor, wall and window coverings, and personal property owned by Landlord and used on site in the management, operation, maintenance and repair of the Building, the Building-Specific Common Areas, Building signage (including, without limitation, the Building Monument Sign and directional signage for the Building, but not including Building-mounted signage installed by Tenant pursuant to Section 7.2(c), Section 7.2(d) and Section 7.2(e) herein), Building systems such as HVAC systems, fire sprinkler systems, elevators, escalators, and all other mechanical or electrical systems serving the Building, the Building-Specific Common Areas and the Exterior Common Areas and service agreements for all such systems and equipment, but only as any such cost is consistent with that of other first-class suburban office buildings comparable to the Building in the south Charlotte area, and including the Buildings, the Building-Specific Common Areas and the Exterior Common Areas share of any such costs of facilities used in common by the Building and other buildings;
(B) the cost of compensation, including employment taxes, similar governmental charges and other normal fringe benefits (such as medical, dental, life insurance, etc., but not health club dues, tickets to special events, bonuses and similar expenses) with respect to all persons who perform duties (full time or part time) in connection with the management, landscaping, janitorial, painting, window cleaning and general cleaning services, security services and any other services related to the operation, maintenance or repair of the Building, the Building-Specific Common Areas and the Exterior Common Areas, including materials, supplies, and the rental costs of equipment and tools related to any of the foregoing, or contracts with independent third parties to provide such services or supplies, but any such cost shall be consistent with that of other first-class suburban office buildings comparable to the Building in the south Charlotte area, and including the Buildings, the Building-Specific Common Areas and the Exterior Common Areas share of any such costs of facilities used in common by the Building and other buildings; provided, however, to the extent such personnel costs are not attributable to persons devoted solely to the Building, the Building-Specific Common Areas and the Exterior Common Areas, then such costs shall be prorated accordingly;
(C) costs of providing rubbish and waste pickup and disposal;
(D) costs of providing security, but only to the extent necessary for the normal ongoing operation of the Building, the Building-Specific Common Areas and the Exterior Common Areas and only to the extent consistent with that utilized
by other first-class suburban office buildings comparable to the Building in the south Charlotte area;
(E) insurance premiums for property, rental value/rental interruption, liability and any other types of insurance carried by Landlord as required in accordance with the provisions of this Lease relating to the insurance required to be provided by Landlord with respect to the Building, the Building-Specific Common Areas and the Exterior Common Areas;
(F) actual supplier costs, without markup or any Landlord cost, of utilities furnished to the Building, the Building-Specific Common Areas and the Exterior Common Areas;
(G) the Buildings portion of charges of any easement maintained for the benefit of the Building, the Building-Specific Common Areas or the Exterior Common Areas;
(H) the Buildings portion of dues assessed from time to time by Ballantyne Corporate Park Owners Association, Inc. and by Ballantyne Joint Committee, Inc. (collectively, Business Park Costs), such portion of Business Park Costs allocable to the Building being based on the methodology previously established and currently being employed for allocating such expenses among the various buildings and undeveloped property within the Business Park;
(I) license, permit and inspection fees associated with the ongoing operation and maintenance of the Building, the Building-Specific Common Areas and the Exterior Common Areas;
(J) accounting and legal services directly attributable to the Building but excluding all such services in connection with negotiations and disputes with specific tenants;
(K) management fees for the Building equal to three and one-half percent (3.5%) of the aggregate base rental and operating expense reimbursements paid by all the tenants in the Building from time to time (including Tenant);
(L) costs of indoor and outdoor landscaping of the Building, the Building-Specific Common Areas and the Exterior Common Areas, including the replacing and replanting of trees, flowers, grass and bushes, and the maintenance thereof, which costs shall include, without limitation, the costs associated with irrigation of the landscaped portions of the Exterior Common Areas, it being understood by Tenant that (i) irrigation water for the landscaped portions of the Exterior Common Areas may be sourced from one or more ponds (collectively, the Irrigation Ponds) located within the Business Park, (ii) the costs associated with such irrigation shall be reasonably allocated to the Exterior Common Areas based upon actual measured use and shall be no greater than the costs that would be charged by the applicable public utility (i.e., as of the Date of Execution, Charlotte-Mecklenburg Utilities) for the same use, (iii) Landlord hereby makes no representation
or warranty regarding its continued ability (or the ability of Harris Building Landlord) to irrigate the landscaped portions of the Exterior Common Areas using irrigation water sourced from the Irrigation Ponds, (iv) in the event Landlord and/or Harris Building Landlord do not hereafter irrigate the landscaped portions of the Exterior Common Areas using water supplied from the Irrigation Ponds, Landlord and Harris Building Owner shall be entitled to irrigate the landscaped portions of the Exterior Common Areas using water supplied by the applicable public utility (provided, however, in the event Landlord chooses to have water supplied by the applicable public utility rather than from the Irrigation Ponds, the costs associated with irrigation of the landscaped portions of the Exterior Common Areas shall be deemed to be included within the definition of Controllable Operating Costs (and therefore subject to the five percent (5%) limitation described in Section 4.2(c) herein) unless the reason for such conversion is due to any Force Majeure Matter(s) (e.g., drought, lack of capacity, governmental requirements), in which case Landlord shall be entitled to pass through to Tenant as Operating Costs any cost increases resulting from such conversion without regard to any limitation set forth in Section 4.2(c) herein), and (v) regardless of whether Landlord and Harris Building Landlord irrigate the landscaped portions of the Exterior Common Areas using water sourced from the Irrigation Ponds or water received from the applicable public utility, Landlord shall be entitled to include in Operating Costs the costs associated with irrigation of the landscaped portions of the Exterior Common Areas in accordance with the terms and provisions of this Section 4.2(a)(i)(L).
(M) reasonable expenses and fees (including reasonable legal fees and costs and fees and reasonable costs of other third-party experts and consultants) incurred contesting the validity or applicability of any governmental enactments that affect the operation, maintenance and repair of the Building, the Building-Specific Common Areas and the Exterior Common Areas;
(N) costs of any capital improvement made to the Building, the Building-Specific Common Areas or the Exterior Common Areas, which shall be amortized over its useful life using methods permissible under the version of the Internal Revenue Code and associated regulations in effect at the time such costs were incurred; provided, however, any single capital expenditure made by Landlord in excess of $100,000.00 or any series of capital expenditures made by Landlord in connection with a single project within a six (6) month period in excess of $100,000.00 shall require Tenants approval (not to be unreasonably withheld, conditioned or delayed) in order to be included in Operating Costs, unless such capital expenditure(s) is/are (i) required by government regulation enacted following the Commencement Date, (ii) necessary due to emergency, or (iii) reasonably intended to decrease Operating Costs (but only to the extent Landlord can reasonably demonstrate that such capital expenditure has reduced or will reduce Operating Costs), in which cases Tenants approval shall not be required;
(O) all real property taxes, assessments and similar impositions imposed by any governmental authority or agency on the Building or the Land; any assessment levied in lieu of taxes; any non-progressive tax on or measured by
gross rentals received from the rental of space in the Building; and any other costs levied or assessed by, or at the direction of, any federal, state, or local governmental authority in connection with the use or occupancy of the Premises; and any tax on this Lease transaction (not including the Ground Lease or any other ground lease) or any documents to which Tenant is a party creating or transferring an interest in the Premises, but only such costs described in this Section 4.2(a)(i)(O) as are payable during the Lease Term; and
(P) all reasonable costs and expenses incurred by Landlord in contesting any of the items of expense enumerated in Section 4.2(a)(i)(O) herein. In that regard, Landlord agrees that it shall engage experts selected by Landlord to challenge any real property taxes and assessments that Landlord determines (exercising Landlords reasonable discretion and taking into consideration Tenants thoughts and perspectives) are unreasonable.
(ii) Operating Costs Exclusions shall mean:
(A) any expenses which, under sound accounting principles and policies which are standard in the industry and consistently applied, would not be considered a normal maintenance or operating expense;
(B) all costs associated with the operation of the business of the ownership or entity which constitutes Landlord, as distinguished from the costs of Building operations, including, but not limited to, costs of accounting and legal matters associated with the operation of the business of the ownership or entity which constitutes Landlord, costs of defending any lawsuits with any mortgagee (except as to matters where the actions of Tenant are in issue), costs of selling, syndicating, financing, mortgaging, or hypothecating any of Landlords interest in the Building, the Building-Specific Common Areas, the Land, and/or the Exterior Common Areas, costs of any disputes between Landlord and its employees, costs of disputes of Landlord with Building management, or costs paid in connection with disputes with Tenant or any other tenants;
(C) all costs (including permit, license and inspection fees) incurred in renovating or otherwise improving or decorating, painting or redecorating usable space intended to be exclusively occupied by tenants or other occupants (i.e., such space shall not include Building-Specific Common Areas), including the cost of alterations or improvements to the Premises or to the premises of any other tenant or occupant of the Building;
(D) any cash or other consideration paid by Landlord on account of, with respect to, or in lieu of the tenant improvement work or alterations described in Section 4.2(a)(ii)(C) herein;
(E) costs incurred by Landlord in connection with the construction of the Building, the Building-Specific Common Areas, the Exterior Common Areas and related facilities, the correction of defects in the construction thereof and/or relating to the Building systems, or the discharge of Landlords obligations under
the work letter attached to any lease; costs incurred by Landlord to cause the Building, the Building-Specific Common Areas, the Exterior Common Areas and related facilities to be in compliance with applicable laws, codes, regulations and orders in effect as of the date on which the plans and specifications for such improvements were prepared (including the ADA, as in existence on such date); or the cost of Landlords negligence, including, without limitation, in connection with the selection of building materials;
(F) cost of any improvement installed or work performed or any other cost or expense incurred by Landlord in order to comply with the requirements for obtaining or renewing a certificate of occupancy for the Building or any space therein (unless permitted to be included under Section 4.2(a)(i)(N) herein);
(G) any reserves for equipment or capital replacement;
(H) costs of a capital nature, including, but not limited to, capital improvements, capital repairs, capital equipment, capital alterations, capital replacements and capital tools, all as determined in accordance with sound accounting principles and policies which are standard in the industry and consistently applied, except those costs referenced in Section 4.2(a)(i)(N) herein; and for the purposes of this Lease, capital costs shall be defined as items or expenditures which, consistent with sound accounting principles and policies which are standard in the industry and consistently applied: (a) are replacing an item or expenditure which was originally capitalized and depreciated and (b) extend the life of the associated asset or component beyond its depreciable life;
(I) any costs of any services sold or provided to Tenant or other tenants or occupants for which Landlord or managing agent is entitled to be reimbursed by Tenant or such other tenants or occupants as an additional charge or rental over and above the basic rent (and escalations thereof);
(J) expenses in connection with services or other benefits which are provided to another tenant or occupant and not to Tenant;
(K) costs for all items and services for which Tenant or other tenants or occupants reimburse Landlord or pay to third parties or which Landlord provides selectively to one or more tenants or occupants of the Building (other than Tenant) without reimbursement;
(L) depreciation and amortization of the Building, the Building-Specific Common Areas and the Exterior Common Areas;
(M) costs incurred due to the violation by Landlord, managing agent or any tenant of the terms and conditions of any lease or the violation of applicable law;
(N) payments to subsidiaries or affiliates of Landlord or to any party as a result of a non-competitive selection process, for management or other services in or to the Building, the Building-Specific Common Areas and/or the Exterior
Common Areas, or for supplies or other materials, to the extent that the costs of such services, supplies, or materials exceed the costs that would have been paid had the services, supplies or materials been provided by parties unaffiliated with Landlord on a competitive basis (provided such analysis shall be based on what would be charged by unaffiliated parties who have comparable experience and who provide a comparable level of service or product to that delivered by the subsidiary or affiliate of Landlord which actually provides such service or product);
(O) interest, points and fees on debt or amortization payments on any mortgages or deeds of trust or any other debt service or instrument encumbering the Building, the Building-Specific Common Areas or the Exterior Common Areas, and all principal, escrow deposits and other sums paid on or in respect to any indebtedness and on any equity participations of any lender or ground landlord;
(P) Landlords or Landlords managing agents general corporate overhead and general administrative expenses;
(Q) wages, salaries, fringe benefits and other compensation paid to any executive employee of Landlord or any other employee of Landlord above the grade level of the individual who is designated as the property manager for the Building, and wages, salaries, fringe benefits and other compensation for personnel to the extent such personnel are not directly involved in the operation, maintenance, management, repair and protection of the Building, the Building-Specific Common Areas and/or the Exterior Common Areas;
(R) any cost or expense related to removal, cleaning, abatement or remediation of Hazardous Substances in or about the Building, the Building-Specific Common Areas, the Exterior Common Areas, the Land or other real property, including, without limitation, Hazardous Substances in the ground water or soil; provided, however, and notwithstanding the foregoing to the contrary, (i) Operating Costs may include any costs and expenses incurred by Landlord related to removal, cleaning, abatement or remediation of Hazardous Substances in or about the Building, the Building-Specific Common Areas, the Exterior Common Areas or the Land which are introduced to the Building, the Building-Specific Common Areas, the Exterior Common Areas or the Land after the Commencement Date through no fault of Landlord or Landlords agents, employees, contractors or subcontractors, if and to the extent Landlord has no right or remedy to recover such costs and expenses from a third party (e.g., an Anthrax-contaminated letter is anonymously delivered to the main Building lobby, and costs and expenses must be incurred by Landlord in dealing with the package) and (ii) Tenant shall pay directly to the third-party service provider(s) or as Additional Rent to Landlord within thirty (30) days after billed by Landlord all costs associated with any removal, clean-up or remediation of Hazardous Substance contamination caused by Tenant or Tenants agents, employees, invitees or licensees;
(S) any compensation paid to clerks, attendants, concierges or other persons working in or managing commercial concessions operated for profit by Landlord or Landlords managing agent;
(T) any rental payments and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature, except equipment which is used in providing janitorial services and which is not affixed to the Building or, in the case of emergencies, making repairs or keeping permanent systems in operation while repairs are being made;
(U) advertising and promotional costs; provided, however, the costs of maintaining and operating the Digital Information Screens are permitted to be included in Operating Costs, unless otherwise expressly stated in Section 7.2(a) herein;
(V) the cost of repairs or other work incurred by reason of fire, windstorm or other casualty (except that deductibles, which shall be limited to an amount consistent with those applicable to other first-class suburban office buildings comparable to the Building in the south Charlotte area, paid pursuant to any insurance policy shall be included as Operating Costs) or by the exercise of the right of eminent domain to the extent that Landlord is compensated therefor through proceeds of insurance or condemnation awards or would have been so reimbursed if Landlord had in force all of the insurance required to be carried by Landlord under the provisions of this Lease;
(W) leasing commissions, attorneys fees, costs and disbursements and other expenses incurred in connection with negotiations or disputes with tenants or other occupants or prospective tenants or other occupants or the ground lessor under the Ground Lease or any other ground lease, or associated with the enforcement of any leases (including the Ground Lease or any other ground lease) or the defense of Landlords title to or interest in the Building or any part thereof or the Exterior Common Areas or any part thereof or Landlords interest as tenant under the Ground Lease;
(X) any expenses of any kind or nature incurred by Landlord with respect to space located in another building in connection with the leasing of space in the Building, commonly known as takeover expenses;
(Y) all administrative and other costs related to the Buildings leasing, marketing, and construction (tenant improvements or otherwise, although nothing in this Section 4.2(a)(ii)(Y) shall be deemed or construed to affect any of the terms and provisions in Section 6.1 herein) programs, including, but not limited to, the reasonable allocation of the wages, salaries, employee benefits and taxes for all personnel involved in the Buildings leasing, marketing, and/or construction programs, and the reasonable allocation of the Building management office expenses, such as office supplies, office equipment, telephone expenses, and all other miscellaneous administrative expenses;
(Z) Landlords gross receipts taxes, personal and corporate income taxes, inheritance and estate taxes, and other business taxes and assessments, franchise, gift and transfer taxes;
(AA) any real estate taxes payable by Tenant or any other tenant in the Building under the applicable provisions in their respective leases;
(BB) any real estate taxes allocable to the tenant improvements of Tenant or other tenants or occupants in the Building, the Building-Specific Common Areas or the Exterior Common Areas which are over and above Landlords standard tenant improvement allowance and are payable by Tenant or such other tenants or occupants; provided, however, Tenant shall be responsible for fully reimbursing Landlord, as Additional Rent, within thirty (30) days after Landlord delivers an invoice(s) to Tenant with respect thereto, for all real estate taxes applicable to Improvements installed by Tenant in the Premises (including the initial Tenant Improvements installed in the Premises in conjunction with Tenants initial occupancy of the Premises) which are over and above Building Standard improvements for the Building;
(CC) any costs of repair or replacement of any item covered by a warranty, where such warranty covers such repair or replacement cost;
(DD) costs for which Landlord is reimbursed by its insurance carrier or by any tenants insurance carrier or by any other entity;
(EE) any fines, costs, penalties or interest resulting from the negligence or willful misconduct of Landlord or its agents, contractors, or employees;
(FF) rental payments and any related costs pursuant to any ground lease of land underlying all or any portion of the Building, the Building-Specific Common Areas and/or the Exterior Common Areas, provided the foregoing shall not be construed or applied in a manner that will prevent the inclusion in Operating Costs of items described in Section 4.2(a)(i)(H) and Section 4.2(a)(i)(O) herein;
(GG) any costs, fees, dues, contributions or similar expenses for political, charitable, industry association or similar organizations;
(HH) any rental and any associated costs, either actual or not, for Landlords or Landlords managing agents leasing office;
(II) any bad debt loss, rent loss, or reserves for bad debt or rent loss;
(JJ) any costs, other costs associated with Building-Specific Common Areas or Exterior Common Areas, separately incurred in connection with the ground floor or any other floor in the Building devoted to retail operations;
(KK) acquisition costs for sculptures, paintings, or other objects of art;
(LL) the costs of any utilities which are separately metered to the Premises, including, without limitation, the Data Center (as provided for under Section 5.1(c) herein), or to another tenants premises, and/or charges or fees for, or taxes on, the furnishing of such utilities; and
(MM) the costs of any janitorial services required by Tenant to be performed within the Data Center or any other portion of the Premises, to the extent such services are non-customary, unique or otherwise fall outside the scope of janitorial services provided by Landlord pursuant to Section 5.1(a)(iii) herein relative to the remainder of the Building; and the cost of providing any above standard janitorial services encompassed by this Section 4.2(a)(ii)(MM) shall be paid by Tenant to Landlord as Additional Rent pursuant to Section 5.1(a)(iii) herein or shall be paid by Tenant directly to the janitorial company that is supplying the above standard services.
(iii) Tenants Proportionate Share shall mean a fraction, the numerator of which is the Rentable Area of the Premises from time to time and the denominator of which is the total rentable area in the Building (which, as of the date this Lease is executed and delivered, is the amount set forth in Section 1.1 of this Lease). During portions of the Lease Term when the Premises includes all 262,500 deemed rentable square feet of space in the Building, Tenants Proportionate Share shall be one hundred percent (100%).
(b) Pass Through of Increases in Operating Costs to Tenant. With respect to each calendar year or portion thereof during the Lease Term following the Base Year (including, without limitation, any renewal or extension of the Lease Term), Tenant shall pay to Landlord as Additional Rent, in the manner hereafter provided, Tenants Proportionate Share of the amount by which Operating Costs paid or incurred by Landlord during such period exceed Base Year Operating Costs (subject, however, to the limitations in Section 4.2(c) herein relating to Controllable Operating Costs). If Tenant shall be obligated to make payments as aforesaid with regard to any partial calendar year during the Lease Term, Operating Costs in excess of Base Year Operating Costs shall be prorated on the basis of the number of days during such calendar year for which Tenant is obligated to make such payments. For any portion of the Lease Term (including the Base Year) during which any portion of the net rentable area of the Building is not occupied and being actively used for the conduct of business thereon by a tenant or other party entitled to occupy such area, any Operating Costs that are affected by the level of occupancy and use of the rentable area in the Building shall be grossed up using a mechanism that is reasonably designed to adjust such costs up to the amount that would have been incurred in such year had one hundred percent (100%) of the rentable area of the Building been occupied and used throughout such year (subject, however, to the limitations in Section 4.2(c) herein relating to Controllable Operating Costs).
(i) It is acknowledged and agreed that, with respect to increases in Operating Costs in excess of Base Year Operating Costs, it will not be possible to determine the actual amount of such excess, if any, until after the end of the applicable calendar year. Therefore, until Tenants liability for Tenants Proportionate Share of the increases in Operating Costs over Base Year Operating Costs shall have been finally determined, Tenant shall make payment on account of Operating Costs as follows:
(A) Commencing as of February 1, 2012, and continuing on or about January 1 of each succeeding calendar year during the Lease Term (and any renewal or extension thereof), Landlord shall make a good faith estimate of Operating Costs for such calendar year (or portion thereof, including the 2012 calendar year commencing on February 1) and Tenants Proportionate Share thereof (here-
inafter Estimated Operating Costs and Tenants Estimated Proportionate Share, respectively), and Tenant shall pay to Landlord during such calendar year (or portion thereof), as Additional Rent with each monthly installment of Base Rent, an amount equal to one-twelfth (1/12th) (or, with respect to the 2012 partial calendar year, one-eleventh (1/11th)) of Tenants Estimated Proportionate Share of the amount by which Estimated Operating Costs for such calendar year exceed Base Year Operating Costs. Such payments for any partial month shall be paid in advance at the daily rate equal to the monthly payment divided by the number of days in the month for which the same is due.
(B) On or about February 1, 2012, and January 1 of each succeeding calendar year during the Lease Term (and any renewal or extension thereof), Landlord shall furnish to Tenant a statement for such calendar year of Estimated Operating Costs (which statement shall include a reasonable line-item breakdown showing the various components of Estimated Operating Costs) and of Tenants Estimated Proportionate Share, and thereupon Tenant shall make payments under this Section 4.2(b)(i) in accordance with such statement. With respect to the procedure to be followed pursuant to this Section 4.2(b)(i) on February 1, 2012, no payments shall be made by Tenant under this Section 4.2(b)(i) until such time as the Base Year Operating Costs figure is determined, Once the Base Year Operating Costs figure is determined, Landlord shall provide Tenant with written notice thereof; and if Estimated Operating Costs for the 2012 calendar year exceed the Base Year Operating Costs, then (i) Tenant shall commence making payments under this Section 4.2(b)(i) as of the first day of the first calendar month immediately following Landlords delivery of the Base Year Operating Costs figure to Tenant and (ii) with the first such monthly payment made by Tenant to Landlord, Tenant shall also pay the total amount due under this Section 4.2(b)(i) for the months in the 2012 calendar year (commencing on February 1) which have already lapsed.
(ii) On or before May 1, 2013, and each succeeding May 1 during the Lease Term or next following the expiration of the Lease Term (and any renewal or extension thereof), Landlord shall furnish Tenant with a statement setting forth Tenants Proportionate Share of the amount by which Operating Costs for the preceding calendar year exceeded Base Year Operating Costs. If any such statement shall show an overpayment or underpayment of Tenants Proportionate Share of Operating Costs for the preceding calendar year pursuant to Section 4.2(b)(i) herein, any overpayment shall be refunded to Tenant or credited against payments next due from Tenant under this Lease, and the full amount of any underpayment shall be paid to Landlord by Tenant as Additional Rent within thirty (30) days of the delivery to Tenant of such statement.
(c) Cap on Controllable Operating Costs. For the purpose of determining the Additional Rent payable by Tenant relative to increases in Operating Costs pursuant to this Section 4.2, aggregate Controllable Operating Costs (as hereinafter defined) for any calendar year during the Lease Term shall not be increased over the amount of aggregate Controllable Operating Costs actually incurred during the Base Year (as same may be grossed up pursuant to Section 4.2(b) herein) by more than five percent (5%) per year on a cumulative basis, compounded annually; provided, however, Landlord may carry over any increase in aggregate Controllable Operating Costs exceeding the five percent (5%) threshold for a particular calendar year
to apply toward aggregate Controllable Operating Costs in future calendar years of the Lease Term, until fully recovered (assuming such sum can, in fact, be fully recovered prior to the expiration or earlier termination of this Lease). The parties understandings and intentions as expressed in this Section 4.2(c) are illustrated on Exhibit D attached hereto and incorporated herein by reference. As used herein, Controllable Operating Costs shall be deemed to refer to all Operating Costs except for utility expenses, snow and ice removal expenses, any expenses subject to collective bargaining, insurance premiums and real estate taxes. To avoid any confusion, Business Park Costs shall be deemed Controllable Operating Costs.
Section 4.3 Tenants Audit Rights. Landlord will keep separate and complete books of account covering (i) Operating Costs throughout the entire Lease Term, and Landlord shall preserve and retain, for at least two (2) years after the close of each calendar year, the books of account, and all vouchers, invoices, statements, payroll records and other documents, evidencing the foregoing costs for that calendar year. With respect to Operating Costs, Tenant shall have the right, at Tenants expense and no more frequently than once in any consecutive two-year period during the Lease Term, to inspect and copy, at Landlords office, Landlords books and records showing Operating Costs for the calendar year in question; provided, however, Tenant shall not have the right to withhold from payment of all or any portion of Tenants Proportionate Share of Operating Costs due and payable hereunder the amount of which may be in dispute, and Tenant must pay the entire amount due and payable hereunder prior to reviewing Landlords books and records. Such inspection shall be conducted only by Tenant or a certified public accountant, provided such certified public accountant agrees in writing that it will not, directly or indirectly (including by insinuation), disclose the results and findings of any such inspection to other tenants within the Business Park and that it will keep such information strictly confidential in accordance with the terms and provisions of Section 14.22 herein. If Tenants inspection of Landlords books and records reveals a verifiable error in Landlords computation of Tenants Proportionate Share of Operating Costs (after allowing for any adjustment pursuant to Section 4.2(b)(ii) herein), Landlord shall promptly reimburse the amount of such overpayment to Tenant, together with interest thereon from the date of overpayment until the date of reimbursement at a rate per annum equal to the Prime Rate in effect as of the date of overpayment. Additionally, if Tenants inspection of Landlords books and records reveals a verifiable error in Landlords computation of Tenants Proportionate Share of Operating Costs after allowing for any adjustment pursuant to Section 4.2(b)(ii) herein such that Tenants Proportionate Share of Operating Costs for the relevant calendar year (or portion thereof) was overstated by more than five percent (5%), then Landlord shall reimburse Tenant promptly upon demand for the reasonable third-party out-of-pocket costs incurred by Tenant in completing such review of Landlords books and records (provided Tenant shall provide to Landlord invoices or other reasonable evidence of the amount of such third-party out-of-pocket costs). Landlords statement setting forth the total amount of Tenants Proportionate Share of Operating Costs furnished to Tenant hereunder shall be deemed to have been approved by Tenant unless protested by Tenant in writing within two (2) years after the delivery of such statement to Tenant.
Section 4.4 Late Payments. With respect to any delinquent payment of Monthly Base Rent, Additional Rent or any other sum due hereunder which remains unpaid five (5) business days after said payment is due, Landlord agrees to waive any late charge for the first (1st) such delinquent payment in any consecutive twelve (12) month period during the Lease Term; provided, however, the late charge for the second (2nd) such delinquent payment in any consecutive twelve (12) month period shall be equal to one percent (1%) of the total amount of such delinquent
payment, and the late charge for the third (3rd) and subsequent delinquent payments in any consecutive twelve (12) month period shall be equal to two and twenty-five one hundredths percent (2.25%) of the total amount of each such delinquent payment, it being understood between the parties that late payments by Tenant shall result in additional expense to Landlord which is difficult and impractical to ascertain and that such late charges are a reasonable estimate of the loss and expense to be suffered by Landlord as a result of late payments. In addition, with respect to all delinquent payments during the Lease Term, Monthly Base Rent, Additional Rent and any other sum due hereunder that is past due shall bear interest at a per annum rate of interest equal to the Prime Rate plus five percent (5%) (or, if less, the highest rate permitted by law) beginning on the first (1st) day after said Monthly Base Rent or other payment is due until the past due monetary obligation is paid. Nothing herein, however, shall relieve Tenant of the obligation to pay rent or any other payment on or before the date on which any such payment is due nor in any way limit Landlords remedies under this Lease or at law or in equity in the event said rent or other payment is unpaid after it is due. If Tenant fails to pay a late payment charge or interest due hereunder, Landlord shall have the same remedies as are provided to Landlord hereunder for Tenants failure to pay Monthly Base Rent.
Section 4.5 Application of Payments Received from Tenant. Landlord, acting in its sole discretion, shall have the right to apply any payments made by Tenant to the satisfaction of any debt or obligation of Tenant to Landlord under this Lease regardless of the instructions of Tenant as to application of any sum, whether endorsed upon Tenants check or otherwise, and the acceptance by Landlord of a check or checks drawn by anyone other than Tenant shall not be deemed Landlords approval of any assignment of this Lease by Tenant.
ARTICLE V
UTILITIES, SERVICES AND MAINTENANCE, TAXES
Section 5.1 Services and Maintenance. During the Lease Term, Landlord shall provide for the management of the Building and the Land. In such case, the following terms and provisions shall be applicable:
(a) Services Provided by Landlord. Landlord shall provide the following services in a manner reasonably consistent with the standard of other first-class suburban office buildings comparable to the Building in the south Charlotte area:
(i) Heating, ventilation, and air conditioning (HVAC) for the Premises during Business Hours, as hereinafter defined (and at Tenants election and expense, during non-Business Hours requested by Tenant), to maintain temperatures for normal office use and occupancy; provided, however, subject to the provisions in Section 5.5(c) herein, Landlord shall operate the Buildings HVAC system in a manner that will maintain in the Premises the following conditions: (A) summer indoor temperature of approximately 74° F dry bulb (plus or minus 2° F); and (B) winter indoor temperature of approximately 72° F dry bulb (plus or minus 2° F);
(ii) Automatic passenger elevators providing service to the floors above the first floor in the Building on which the Premises are located twenty-four (24) hours per day, seven (7) days per week. Additionally, one (1) of the Building elevators (the Loading Dock Elevator) serves the loading dock for the Building with a separate rear door, and during any portion of the Lease Term in which Tenant is leasing from Landlord all of the rentable space in the Building, Tenant
shall at all times have access to such Loading Dock Elevator through such separate rear door (subject to occasional interruptions due to repairs and maintenance), and during any portion of the Lease Term in which Tenant is leasing from Landlord less than all of the rentable space in the Building, Landlord agrees to provide Tenant with access to the Loading Dock Elevator through such separate rear door on a reasonable basis (subject to occasional interruptions due to repairs and maintenance). Landlord shall install protective padding in such elevator during Tenants initial move and installation of its furniture and equipment into the Premises;
(iii) Janitorial services to the Premises for normal office use Monday through Friday, exclusive of holidays described in Section 5.2 herein, in substantial accordance with the janitorial specifications shown in Exhibit H hereto. At Tenants request, Landlord may, but shall not be obligated to, provide additional janitorial services beyond those required to be provided by Landlord pursuant to the immediately preceding sentence, provided the documented cost of such services shall be paid by Tenant to Landlord as Additional Rent within thirty (30) days of receipt of an invoice for such costs from Landlord;
(iv) Water sufficient for drinking, lavatory, toilet, and ordinary cleaning purposes to be drawn from approved fixtures in the Building (see Section 8 of Exhibit C-1 hereto regarding the inclusion of hot water tanks as a part of the Tenant Improvements);
(v) Electricity to the Premises during Business Hours in reasonable amounts necessary for normal office use, lighting, and HVAC, and providing for the Premises to have an electrical capacity of up to 6.0 watts per square foot of Rentable Area of the Premises, exclusive of lighting. Additionally, the Building is equipped with an emergency backup generator to operate emergency lights and one elevator in the event of an interruption of electric utility service. Notwithstanding the electrical capacity of up to 6.0 watts per square foot of Rentable Area of the Premises referenced above in this Section 5.1(a)(v), the threshold of above standard electrical consumption in the Premises that could trigger Additional Rent obligations of Tenant under Section 5.1(b) herein may be substantially lower than 6.0 watts per space foot of Rentable Area of the Premises, and reference is made to the terms and provisions in Section 5.1(b) herein to determine if such Additional Rent payment obligation has been triggered;
(vi) Replacement of Building Standard lighting tubes, lamp ballasts, and bulbs for 2 x 2 or 2 x 4 fluorescent fixtures only. Landlord shall also be responsible for maintaining, repairing and replacing any lamps, whether fluorescent or incandescent, for any special or non-Building Standard lighting fixtures, provided the costs incurred by Landlord in performing such work shall be reimbursed by Tenant to Landlord as Additional Rent within thirty (30) days after Landlords delivery to Tenant of an invoice for such costs;
(vii) Window washing in the Premises, inside and outside, at reasonable intervals;
(viii) Extermination and pest control when necessary;
(ix) Building security services, including a card access system for the exterior doors of the Building (provided the costs incurred by Landlord in providing the initial access cards and any replacements to Tenant for distribution to Tenants employees and agents shall be reimbursed by Tenant to Landlord within thirty (30) days after Landlords delivery to Tenant of an invoice for such costs), roving security within the Business Park on a periodic basis as determined
by Bissell Companies (in its capacity as property manager for the Building and for other buildings in the Business Park) and closed circuit surveillance cameras that record entries and exits via main Building access doors and activities in lobby foyers (provided, however, Landlord has informed Tenant that such surveillance cameras are not regularly monitored on a real-time basis). Notwithstanding the foregoing, during all portions of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Tenant shall have direct operational control over the surveillance cameras located in the interior of the Building, provided Tenant (A) runs such surveillance cameras and records footage therefrom twenty-four (24) hours a day, seven (7) days a week at Tenants sole cost and expense; (B) retains such footage for a period of at least thirty (30) days after such footage is recorded at Tenants sole cost and expense; (C) reasonably cooperates in making such tapes available to Landlord to view in connection with any break-in, breach of security or any other incident which affects, or could potentially affect, Landlords interest in the Building and/or any property contained therein, or which exposes, or could potentially expose, Landlord to liability, increased costs (e.g., increase in insurance premiums) or other similar risks; (D) maintains such equipment and appurtenances in good condition at Tenants sole cost and expense; and (E) agrees to indemnify and hold harmless Landlord from and against any loss, cost or damage arising in connection with the use of such equipment during the period in which such equipment is in Tenants direct control pursuant to the terms hereof. Additionally, other than the surveillance cameras (including associated cabling) installed in the Building as of the Date of Execution, Landlord shall have no obligation to provide Tenant with additional surveillance equipment (e.g., monitors) unless otherwise expressly set forth in this Section 5.1(a)(ix); and, upon the expiration or earlier termination of this Lease or, at such time during the Lease Term when Tenant is no longer leasing from Landlord all of the rentable space in the Building, Tenant shall relinquish control of such equipment and appurtenances owned by Landlord, and such equipment and appurtenances shall be in generally the same condition as when Tenant assumed direct operational control of such items, normal wear and tear excepted.
(x) Maintenance (including repair and replacement, where applicable) of the Exterior Common Areas (including, without limitation, the Parking Areas) and the Building-Specific Common Areas, including the Buildings security, life/safety (including sprinkler), HVAC, mechanical, electrical and plumbing systems (excluding, however, any security, life/safety (including sprinkler), HVAC, mechanical, electrical and plumbing improvements installed in the Premises as part of the initial Tenant Improvements or any subsequent Improvements), the costs of which Landlord shall be permitted to pass through to Tenant, as Additional Rent, to the full extent allowed under the terms and provisions of Section 4.2 herein, subject to the terms and provisions of Section 6.5 relating to warranties held by Tenant relative to the Tenant Improvements.
(b) Extra Services. If Tenant uses extra services because of either non-Business Hours use or high electricity installations or if Tenant uses any Landlord-provided services in excess of that required for normal and customary office use (it being understood that Landlord considers the following factors to be significant indicators that electrical consumption may be in excess of normal and customary office use (i.e., above standard): (i) heavy, intense and/or dedicated plug loads in rooms, closets or other areas of the Premises served by Supplemental HVAC Equipment or which Landlord has a right to require be served by Supplemental HVAC Equipment pursuant to Section 5.5(c) herein and (ii) the temperature in a specific area of the Premises exceeds 78° F dry bulb on a recurring basis due to Tenants surrounding equipment or activities in or near such area), the costs of such services shall be excluded from Operating Costs, and shall be paid by Tenant to Landlord as Additional Rent within thirty (30) days of receipt
of an invoice for such costs from Landlord. HVAC and lighting required by Tenant during non-Business Hours shall be supplied upon request by Tenants use of an override system in the Premises which will provide non-Business Hours HVAC and lighting to the Premises and which will provide Landlord with information to determine the length of time during which Tenant uses such non-Business Hours HVAC and lighting and Tenant shall pay the cost incurred by Landlord in providing such non-Business Hours HVAC and lighting. The current charge for non-Business Hours HVAC and lighting is $17.00 per hour per floor, but such charge is subject to increase based on increased costs incurred by Landlord in providing the same throughout the Lease Term. If Tenant determines that it will need to use HVAC and lighting service on a regular and sustained basis during non-Business Hours, Landlord agrees to collaborate with Tenant in a good faith effort to provide such non-Business Hours HVAC and lighting service at a reduced rate compared to the then applicable non-Business Hours HVAC and lighting rate. Subject to Section 5.1(c) herein, Tenant shall not place or operate in the Premises any electrically operated equipment or other machinery, other than machinery and equipment normally used in offices, including, but not limited to, a server room, state-of-the-art communications systems and other equipment requiring electrical capacity in excess of that required for normal and customary office use, and none of the equipment or machinery placed in the Premises by Tenant shall exceed the electrical capacity of the Premises, unless Tenant receives Landlords advance written consent. Landlord is not obligated to provide any services other than those listed in Section 5.1(a) herein, but at Tenants request, such other services may be provided by Landlord, in Landlords sole discretion, provided the cost of such services is paid by Tenant to Landlord as Additional Rent. Tenants failure to pay the correct charges required by this Section 5.1(b) within thirty (30) days after receiving an invoice for the same shall entitle Landlord to the same remedies it has upon Tenants failure to pay Base Rent or any other charges due under this Lease and the right to terminate any such services.
(c) Data Center. Notwithstanding anything to the contrary in Section 5.1(b) herein, as part of the initial Tenant Improvements to be installed prior to Tenants initial occupancy of the Premises, Tenant shall be permitted to cause the first floor of the Premises, or a portion thereof, to be upfitted as a corporate data center containing state-of-the-art communications and data systems and other machinery and equipment generally requiring electrical capacity in excess of that required for normal and customary office use (the Data Center); provided, however, any and all systems, machinery and equipment located in or otherwise serving the Data Center and/or other portions of the Premises exclusively (whether physically located in the Data Center or in other portions of the Building), including, without limitation, Supplemental HVAC Equipment, shall be separately metered for electrical usage. Such separate meter(s) must meet specifications provided by Landlord, and the costs of installing such meters and all associated data and electrical wiring (including all material and labor costs) shall be treated as part of the Tenant Improvements costs. The costs of such separately metered utility services shall be excluded from Operating Costs hereunder and shall be paid by Tenant to Landlord as Additional Rent within thirty (30) days of receipt of an invoice for such costs from Landlord. All equipment, electrical panels and breakers (including emergency power ATS and emergency electrical panels, breakers and switches), UPS, computers, and servers installed in and for the Data Center shall be maintained by Tenant at its sole cost and expense pursuant to Section 5.5(b) herein. Further, notwithstanding anything to the contrary contained in Section 5.1(a) herein, Landlord shall not be obligated to provide any additional janitorial services relative to the Data Center in excess of those services required to be provided by Landlord pursuant to Section 5.1(a)(iii) for the remaining areas of the Building; provided, however, at Tenants request, Landlord may provide
such additional janitorial services, in Landlords sole discretion, provided the cost of such services shall be paid by Tenant to Landlord as Additional Rent within thirty (30) days of receipt of an invoice for such costs from Landlord.
(d) Property Manager. Landlord shall cause the Building, the Building-Specific Common Areas and the Exterior Common Areas to be managed in accordance with standards reasonably consistent with the property management standards of other first-class suburban office buildings comparable to the Building in the south Charlotte area (the Property Management Standards), including effective oversight of Controllable Operating Costs. As of the Commencement Date, Bissell Companies serves as the property manager for the Building.
(i) Subject only to the terms in Section 5.1(d)(ii) herein, Landlord shall be entitled to have Bissell Companies continue to serve as property manager for the Building, and, accordingly, Tenant shall have no right to have, or seek to have, Bissell Companies removed as property manager for the Building, during portions of the Lease Term (including extensions thereof) when either of the following scenarios is applicable: (A) any of the following, or a combination thereof, owns a controlling interest in the Building: (1) H.C. Bissell, Sara H. Bissell, any of their descendants or the spouse of any of their descendants (all such persons being collectively referred to as Bissell Family Members; each, a Bissell Family Member)) or any combination thereof, and/or (2) any entity that is owned or controlled by one or more Bissell Family Members and/or (3) any charitable entity or organization that acquires title, in whole or in part, to the Building from any Bissell Family Members or from any entity that is owned or controlled by one or more Bissell Family Members, provided such charitable entity or organization is one over which one or more Bissell Family Members retain(s) significant operational discretion; or (B) the Building is owned by a person, group of persons or entity that does not fit within a scenario described in the foregoing clause (i) but such person, group of persons or entity elects to have Bissell Companies continue to serve as property manager for the Building.
(ii) Tenant may request that Landlord remove Bissell Companies as property manager for the Building if (and only if):
(A) Neither of the scenarios set forth in clauses (A) and (B) in Section 5.1(d)(i) herein continues to exist; or
(B) Bissell Companies is not performing its property management duties with respect to the Building in a manner that is consistent with the Property Management Standards and such performance is not adjusted to comply with the Property Management Standards within thirty (30) days after Tenant delivers to Landlord a written notice alleging such performance failure (such written notice shall explicitly refer to this Section 5.1(d)(ii)(B) and shall provide reasonably detailed comments and suggestions which, if instituted by Bissell Companies in the performance of its property management duties would, in Tenants opinion, comply with the Property Management Standards). If at the conclusion of such thirty (30) day period, Landlord and Tenant disagree as to whether Bissell Companies is in compliance with the Property Management Standards, either Landlord or Tenant shall be entitled to submit such disagreement to be settled by arbitration in Charlotte, North Carolina, in accordance with the then-prevailing Expedited Arbitration provisions of the American Arbitration Association or its successor for
arbitration of real estate-related disputes. If Bissell Companies is determined not to be in compliance with the Property Management Standards (either by mutual agreement of Landlord and Tenant or as a result of an arbitration of the issue as provided above), Landlord shall be compelled to replace Bissell Companies as property manager for the Building.
(iii) If Landlord is required to replace Bissell Companies as property manager for the Building pursuant to Section 5.l(d)(ii) herein or if Landlord voluntarily chooses to replace Bissell Companies as property manager for the Building during any portion of the Lease Term where Tenant is leasing from Landlord all of the rentable space in the Building, then Landlord shall select a replacement property manager which is mutually acceptable to both Landlord and Tenant, in their reasonable discretion. Provided, however, if Landlord and Tenant are unable to reach agreement regarding such replacement property manager within twenty (20) days after the date on which Landlord initially notifies Tenant in writing of the identity of the replacement property manager proposed by Landlord, then until such time as Landlord and Tenant succeed in reaching agreement relative to the replacement property manager, either Landlord or Tenant shall be entitled to cause the issue(s) in dispute to be settled by arbitration in Charlotte, North Carolina, in accordance with the then-prevailing Expedited Arbitration provisions of the American Arbitration Association or its successor for arbitration of real estate-related disputes.
(iv) Nothing in this Section 5.1(d) shall be deemed or construed at any time during the Lease Term to relieve Landlord from its obligation to cause the Building to be managed in accordance with the Property Management Standards, and Landlords failure to do so shall entitle Tenant to pursue its rights and remedies under Section 11.4 herein.
Section 5.2 Business Hours. When used in this Lease, Business Hours means: (i) Monday through Friday, 8:00 a.m. until 6:00 p.m., and (ii) Saturday, 8:00 a.m. until 1:00 p.m., but excludes the following holidays or the days on which the following holidays are designated for observance: New Years Day, Martin Luther King, Jr. Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day, and any other recognized national holiday generally observed by other first-class suburban office buildings comparable to the Building in the south Charlotte area.
Section 5.3 Twenty-Four Hour Access. Tenant and Tenants employees, agents and subtenants shall have access to the Premises and the Parking Areas twenty-four (24) hours per day, seven (7) days per week, subject to any additional security requirements that Tenant may elect to impose on access to the Premises by Tenants employees, agents, and subtenants, at Tenants sole cost and expense. Additionally, during any portion of the Lease Term when (i) Tenant is leasing from Landlord less than all of the rentable space in the Building or (ii) a party other than Tenant (i.e., subtenant or assignee of Tenant) is occupying space in the Building, such access shall also be subject to additional security requirements imposed by Landlord for after-Business Hours access to the Premises by Tenants employees, agents and subtenants (which requirements may include, but not be limited to, the exhibition of suitable identification and/or use of a particular entrance and/or exit with an access card, combination lock, or other security device), and Landlord shall be entitled to pass through to Tenant, as Additional Rent, Tenants Proportionate Share of the costs of such additional security requirements (to the extent allowed under Section 4.2 herein), but only to the extent such security requirements are reasonable in light of the circumstances and reasonably consistent with security requirements imposed or which would be
imposed in similar circumstances by landlords of other first-class suburban office buildings comparable to the Building in the south Charlotte area. Notwithstanding the foregoing, Landlord shall have the right to close the Building and temporarily deny access to any person otherwise entitled thereto in the event of a bona fide emergency or other situation which threatens a danger to persons or property. Landlord acknowledges that Tenant may install additional security measures in addition to those provided by Landlord, and Landlord agrees to cooperate with Tenant in achieving a tie-in to the Building security and life safety systems, if applicable.
Section 5.4 Interruption of Services. Landlord does not warrant that any services Landlord supplies will not be interrupted, including, without limitation, interruptions due to Force Majeure Matters, and any interruption shall not: (i) be considered an eviction or disturbance of Tenants use and possession of the Premises; (ii) make Landlord liable to Tenant for damages; (iii) abate Base Rent, Additional Rent or any other charge under this Lease; or (iv) relieve Tenant from performing Tenants Lease obligations. Notwithstanding the foregoing, (A) if any essential services provided by Landlord (such as HVAC or electricity) are interrupted so as to render the Premises untenantable or if twenty-five percent (25%) or more of the parking spaces provided for the use by Tenant pursuant to Section 7.3(a) herein are not available to Tenant (provided, however, Landlord shall be entitled during such period of interruption to provide Tenant with access to replacement or substitute parking spaces located within a reasonable distance from the Building in a quantity equal to Tenants share of the total number of parking spaces with respect to which accessibility has been interrupted, in which case the rights of Tenant set forth in this Section 5.4 arising out of the unavailability of parking spaces shall no longer apply) for six (6) consecutive business days and (B) such interruption is caused by the willful misconduct or negligence of Landlord or Landlords agents or employees and is not caused by the negligence or willful misconduct of Tenant or Tenants employees, agents or invitees, then beginning on the sixth (6th) consecutive business day of the interruption and untenantability, or if later, the day Tenant stops using the Premises, or the untenantable portion thereof, because of the interruption, the Monthly Base Rent payable hereunder and Additional Rent payable pursuant to Section 4.2 herein shall equitably abate on a daily basis in proportion to the area of the Premises that is untenantable, until the Premises (or the relevant portion thereof) are returned to a tenantable condition (Tenants actual use of the Premises, or the relevant portion thereof, to conduct business therein being conclusive evidence of the tenantability thereof). Provided, however, the following activities of Tenant within the Premises shall not constitute actual use of the Premises for the purposes of this Section 5.4: (i) Tenants entry into the Premises for the limited purpose of removing Tenants personal property and work files, or (ii) the use of the Premises, or the relevant portion thereof which is untenantable, by a limited number of Tenants employees for the purpose of conducting essential business operations therein, provided the total number of such employees shall be no greater than necessary to sustain Tenants limited and essential business operations within the Premises, or the relevant portion thereof which is untenantable, during such period of untenantability and shall in no event be greater than five percent (5%) of the total number of employees which occupied and conducted business in the Premises, or the relevant portion thereof which is untenantable, immediately prior to the interruption which caused same to become untenantable. Further, if Tenant desires to occupy and conduct business in the Data Center during any period in which the Data Center is untenantable pursuant to this Section 5.4 and if such occupancy and conduct of business in the Data Center constitutes actual use in accordance with the terms and conditions of this Section 5.4, then Tenant shall be entitled to do so, provided Tenant shall have no right to an abatement of rent during such period relative to the portion of the Premises comprising the Data Center.
Section 5.5 Tenants Services and Maintenance.
(a) Landlord shall provide Tenant and Tenants service provider access to existing conduits in the Building for the installation of Tenants voice/data cabling between floors in the Building. Should the existing Building conduits be insufficient for Tenants needs in this regard, Landlord will cooperate with Tenant to install additional conduits at Tenants cost. Tenant shall make arrangements directly with the data/voice company selected by Tenant (which company must be approved in writing by Landlord, such approval not to be unreasonably withheld) to provide such services to Tenant for data/voice service required by Tenant in the Premises and shall pay for all such service used or consumed in the Premises. Notwithstanding any term or provision to the contrary in Section 6.1 herein, Landlord reserves the right to require such data/voice company to remove its equipment and installations from the Building upon the expiration of the Lease Term. During any portion of the Lease Term when Tenant is leasing from Landlord less than all of the rentable space in the Building, Tenant understands that Landlord must have available for use by other tenants and occupants in the Building sufficient room and capacity in the conduits and in the Buildings data/voice system components to serve the reasonable needs of such other tenants and occupants. In such case, Tenant and Tenants data/voice company shall cooperate promptly with Landlord to free up the capacity reasonably required to serve such other tenants and occupants or to install additional conduits and Building data/voice system capacity, at Tenants sole cost and expense, to serve the reasonable needs of such other tenants and occupants. Additionally, any data/voice company that installs its equipment and installations in the Building to serve the Premises shall not be entitled to use such equipment and installations to serve any other tenants and occupants in the Building or in other portions of the Business Park without first obtaining Landlords written consent (which Landlord may grant, deny or condition in Landlords sole discretion). The requirements and provisions in this Section 5.5(a) shall be binding on Tenant, and Tenant shall be responsible to Landlord for causing Tenants data/voice company to comply with such requirements and provisions.
(b) Tenant shall be responsible for the maintenance, repair or replacement in a first-class condition and state of operation of (i) all equipment, electrical panels and breakers (including emergency power ATS and emergency electrical panels, breakers and switches), UPS, computers, and servers installed in and for the Data Center, (ii) any and all other systems which are located within the Premises and are supplemental or special to the Buildings standard systems, whether installed pursuant to a work letter or otherwise, including, without limitation, Supplement HVAC Equipment pursuant to Section 5.5(c) herein, (iii) floor and wall coverings in the Premises and (iv) all equipment and improvements (including, without limitation, the venting apparatus and system) in or serving the small commercial test kitchen anticipated to be installed in the Premises as part of the Tenant Improvements pursuant to Section 7.1 herein. Additionally, Tenant shall be responsible for all other services, maintenance and repairs not specifically delegated to Landlord hereunder which are required to keep the interior of the Premises in good condition and repair or are required by Tenant to conduct business in the Premises; provided, however, Tenant must obtain Landlords prior written consent before obtaining or contracting for any service not specifically provided for in this Lease.
(c) If heat generating machines or equipment are used in the Premises by Tenant which materially affect the temperature otherwise maintained by the Buildings HVAC system (it being understood that, without limiting the foregoing, if such machines or equipment cause the temperature in a specific area of the Premises in the vicinity of such machines or
equipment to exceed 78° F dry bulb on a recurring basis, then the provisions in this Section 5.5(c) shall be triggered), Landlord shall have the right to install, or to require Tenant to install, supplemental air conditioning units and any associated equipment, lines and appurtenances (including, without limitation, equipment to supply the necessary condenser water and chilled water for such supplemental air conditioning units) (collectively, the Supplemental HVAC Equipment) after providing Tenant not less than thirty (30) days written notice to correct the situation, in or for the Premises. Additionally, Tenant shall have the right to install Supplemental HVAC Equipment. With respect to any Supplemental HVAC Equipment that may be hereafter installed to serve the Premises, (i) all condenser water and chilled water as may be necessary to serve any such Supplemental HVAC Equipment shall be provided by separate equipment to be supplied by Tenant, (ii) the Supplemental HVAC Equipment shall be located on the Land as generally shown depicted and labeled as the Screened Mechanical and Electrical Equipment Courtyard on Exhibit O attached hereto and incorporated herein by reference or Landlord shall be entitled to approve any other location for such Supplemental HVAC Equipment within the Building, on the roof of the Building and/or on the Land (such approval not to be unreasonably withheld, conditioned or delayed), and, irrespective of the location of the Supplemental HVAC Equipment, Landlord shall be entitled to approve, in advance and in writing, plans and specifications for such Supplemental HVAC Equipment and the installation thereof, (iii) Landlord may require Tenant to provide screening (including precast screening) of any Supplemental HVAC Equipment located on the roof of the Building and/or on the Land, (iv) Landlord may, at Landlords option, require the separate metering of any Supplemental HVAC Equipment and charge Tenant as Additional Rent (to be paid within thirty (30) days after the delivery of an invoice therefor) for any excess electrical or other Building resources consumed by such Supplemental HVAC Equipment, (v) Landlord may reserve the right to require Tenant to remove any or all of the Supplemental HVAC Equipment at the expiration of the Lease Term and to restore any damage to the Building or the Land caused by such removal (provided, if Landlord desires to reserve such removal right, Landlord shall do so in writing at the time Landlord grants its approval for the installation of such Supplemental HVAC Equipment), (vi) the cost of the Supplemental HVAC Equipment shall be paid by Tenant to Landlord (if and to the extent such costs are incurred by Landlord) as Additional Rent within thirty (30) days after delivery of an invoice therefor to Tenant, and (vii) Tenant shall not be obligated to pay Landlord any other rent or charge for the location of such Supplemental HVAC Equipment on the roof of the Building and/or on the Land. Any activities by Tenant or Tenants agents, employees, licensees, contractors or subcontractors under this Section 5.5(c) that will involve venting, opening, sealing, waterproofing or altering the roof of the Building shall be performed by Landlords roofing contractor or other roofing contractor approved in writing in advance by Landlord (in Landlords sole discretion), at Tenants expense, and Tenant shall ensure that any use of the roof by Tenant and Tenants agents, employees, contractors, invitees and guests shall be conducted in a manner that does not void or impair Landlords roof warranty. Additionally, any activities by Tenant or Tenants agents, employees, licensees, contractors or subcontractors under this Section 5.5(c) that will involve venting, opening, sealing, waterproofing or altering any other structural portion of the Building, the Building slab or the Building Shell Improvements shall be performed by a contractor approved in writing in advance by Landlord (in Landlords sole discretion), at Tenants expense. As stated above, Landlord shall be entitled, at Landlords option, to require the installation of separate electrical meter(s) for any and all Supplemental HVAC Equipment that is installed in or to serve the Premises pursuant to this Section 5.5(c); all such separate meters must meet specifications provided by Landlord, and the costs of installing such meters and all associated data and electrical wiring (including all material and labor costs) shall be treated as part of
the Tenant Improvements costs or, if installed by Landlord at Landlords expense, the cost thereof shall be reimbursed by Tenant to Landlord as Additional Rent within thirty (30) days after the delivery by Landlord to Tenant of a statement for such costs.
(d) Subject to the terms and provisions in this Section 5.5(d) and provided Tenant has properly installed required Supplemental HVAC Equipment and otherwise complied with the terms and provisions of Section 5.5(c) herein, Tenant shall be entitled to obtain a secondary (i.e., backup) supply of condenser water from Landlord to serve the Supplemental HVAC Equipment in the event of an interruption of the primary condenser water supply to be provided by Tenant pursuant to Section 5.5(c) herein. As of the Date of Execution, the Building has, and except for causes relating to Force Majeure Matters, the Building shall have during the Lease Term, a condenser water loop that is capable of providing approximately one hundred fifty (150) tons of condenser water (approximately fifteen (15) tons per floor) to serve tenant premises in the Building. During any period when the primary condenser water supply to be provided by Tenant pursuant to Section 5.5(c) herein has been interrupted and subject to the terms and provisions of this Section 5.5(d), Tenant shall be entitled to obtain from Landlord and use that portion of the Buildings total condenser water supply that is determined by multiplying such total supply (i.e., approximately 150 tons) by a fraction, the numerator of which is the number of complete floors in the Building then being leased by Tenant and the denominator of which is the total number of floors in the Building (i.e., 10) (accordingly, during any period in which Tenant is leasing from Landlord all of the rentable space in the Building, Tenant shall be entitled to obtain from Landlord and use, as a backup source, all of the Buildings condenser water supply). With respect to the supply of the Buildings condenser water that Tenant is entitled to use pursuant to this Section 5.5(d), Landlord shall provide such condenser water for Tenants use on a 24-hour, 7 day-per-week basis (subject to causes related to Force Majeure Matters), in accordance with the following terms and conditions:
(i) Notwithstanding any other term or provision of this Lease to the contrary (including, without limitation, the terms and provisions of Section 5.4 herein), Landlord shall have no liability or responsibility to Tenant for, and Tenant agrees to indemnify and hold Landlord harmless from, any loss, cost, expense or damage arising out of, or in any way relating to, an interruption in supply of backup condenser water to be provided by Landlord pursuant to this Section 5.5(d), including, without limitation, damages to the Supplemental HVAC Equipment and any and all equipment and/or systems supported thereby.
(ii) Tenant shall pay Landlord a one-time fee of $900.00 for the tap charge, rebalancing and valves needed for each separate tap that is made into the Buildings condenser water loop system. Landlord shall provide valved taps at riser for connection of Tenants condenser pipes. This fee shall be deemed Additional Rent for all purpose under this Lease and shall be paid by Tenant to Landlord before the applicable connection is made. Landlord shall be entitled to approve, in advance and in writing, plans and specifications for each such connection to the Buildings condenser water loop system.
(iii) In the event that Tenant elects in writing to use the Buildings condenser water supply as a backup source, then on and after the date on which Tenant taps into the Buildings condenser water loop system and for so long as Tenant remains tapped into such condenser water loop system, Tenant shall pay to Landlord a $3,500 per year fee (the Annual Backup Condenser Fee) for the right to access such condenser water supply as a backup source. In addition,
Tenant shall pay to Landlord a $35.00 per hour usage fee (the Condenser Usage Fee) for periods during which the Buildings condenser water supply is used by Tenant (it being understood by Tenant that, in order to keep the Buildings condenser water loop system operational on an on-going basis for Tenants backup use, Landlord is required to run the Buildings condenser water loop system on a periodic basis for testing and maintenance purposes during periods in which such condenser water supply serves as a backup source and that the $35.00 per hour usage fee shall apply to such use for such purposes). Such fees are intended to cover electricity costs to operate the condenser water loop system as well as costs associated with the maintenance of the condenser water loop system. The Annual Backup Condenser Fee and the Condenser Usage Fee shall not be included in Operating Expenses, but shall be Additional Rent for all purposes under this Lease. Accordingly, Tenant shall pay to Landlord, as Additional Rent with each monthly installment of Base Rent, an amount equal to one-twelfth (1/12th) of the Annual Backup Condenser Fee, and Tenant shall pay to Landlord the cost of the Condenser Usage Fee within thirty (30) days of receipt by Tenant from time to time of invoices for the same from Landlord.
(iv) The fee amounts set forth in Section 5.5(d)(ii) and Section 5.5(d)(iii) herein are subject to increase, at Landlords reasonable discretion, to the extent of Landlords increased actual costs to provide the same. The term actual costs, in this Section 5.5(d)(iv), means Landlords out of pocket cost (without profit) excluding a depreciation charge for capital equipment.
(v) All installations, if any, by Tenant under this Section 5.5(d) shall be at Tenants expense and shall be performed in a diligent, good and workmanlike manner, according to plans and specifications and using only contractors, subcontractors and methods approved by Landlord in advance and in compliance with all applicable legal requirements. Additionally, all such installations by Tenant shall be permitted through the appropriate governmental agencies and shall meet all required legal codes and requirements.
Section 5.6 Building Standard Improvements. Building Standard improvements shall mean those tenant improvements which normally and customarily are provided for tenants leasing space in the Buildings which has been previously unleased. Such Building Standard improvements shall exclude any tenant improvements of higher quality or quantity than Building Standard improvements and shall exclude additional mechanical systems, fixtures, flooring, finishes, alterations or improvements which are normally and customarily required to be paid by such new tenants, such excluded improvements being called non-Building Standard improvements. With regard to other components and elements of the Buildings, for the purposes of this Lease, Building Standard means those components and elements of the Buildings utilized in the design and construction of the Buildings and the various suites and offices therein that have been pre-selected by Landlord to ensure uniformity of quality, function and appearance throughout the Buildings, including Building Standard lighting (which is described in Section 5,1(a)(vi) herein). However, Landlord, in Landlords reasonable discretion, may add, delete or change elements on this list when, in Landlords reasonable discretion, such addition, deletion or change is needed in order to maintain the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land in good condition and repair.
ARTICLE VI
ALTERATIONS, REPAIRS AND MAINTENANCE
Section 6.1 Alterations.
(a) Except as provided in Section 6.1(c) herein, and subject to the terms and provisions of Exhibit C-2 relating to the initial Tenant Improvements to be installed prior to Tenants initial occupancy of the Premises, no alterations, additions or improvements (collectively Improvements, which term shall include the Tenant Improvements) shall be made to the Premises, whether before or during the Lease Term, without the prior written consent of Landlord, and all such Improvements, including, without limitation, subdividing partitions, walls and railings of whatever type, material or height, shall, when made, become the property of Landlord and remain upon and be surrendered with the Premises as a part thereof at the end of the Lease Term, unless, at the end of the Lease Term and subject to the terms and provisions of this Section 6.1(a), with regard to Improvements (including, without limitation, cabling and wiring) made to the Premises during the Lease Term, Landlord shall notify Tenant to remove same, in which latter event Tenant shall do so. With respect to any Improvement(s) for which Tenant seeks Landlords approval (as contemplated in Section 6.1(b) herein), if Landlord approves the proposed Improvement(s), Landlord shall also notify Tenant in writing, simultaneously with the delivery to Tenant of the approval communication, as to whether Landlord reserves the right to require Tenant, at the expiration or earlier termination of the Lease Term, to remove all or any portion of such Improvement(s) and to restore the Premises to the condition that existed immediately prior to the installation of such Improvement(s). If Landlord does not reserve such right to require Tenant to remove the relevant Improvement(s) and to restore the Premises at the expiration or earlier termination of the Lease Term at the time Landlord approves such Improvement(s), then Landlord shall be deemed to have waived such removal and restoration right. Tenant shall remain subject to Landlords right to require the removal of all or any portion of Improvements and the associated restoration to be completed by Tenant at the expiration or earlier termination of the Lease Term unless Landlord, as provided above in this Section 6.1(a), either has waived or is deemed to have waived (i.e., because Landlord has allowed the ten (10) business day period in Section 6.1(b) herein to lapse without responding) the right to require the removal of such Improvements and the associated restoration to be completed at the expiration or earlier termination of the Lease Term, Notwithstanding the foregoing, Landlords consent shall not be required with respect to any alterations, additions or other Improvements (excluding, however, the initial Tenant Improvements installed prior to Tenants initial occupancy of the Premises) related to a single project so long as (i) the expenditures (or series of expenditures made with respect to such project in a six (6) month period) to be made in connection with such project do not exceed $50,000.00, (ii) such project does not involve connecting to or tampering with any Building system (including the Building systems referenced in Section 5.1(a)(x) herein) or any Building structural elements or components, (iii) such project does not require work to be performed inside the walls or above the ceiling of the Premises; (iv) such project does not involve any alterations, additions or other Improvements that are visible from the exterior of the Premises or the Building and (v) Tenant provides Landlord with written notice of such project at least thirty (30) days in advance of the commencement of same.
(b) If Tenant is required to seek or desires to seek Landlords approval of plans and specifications for Improvements that Tenant desires to install, Tenant shall deliver to Landlord two (2) complete sets of reasonably detailed plans and specifications for such Improvements,
including dimensions, materials, colors and similar information that landlords of other first-class suburban office buildings comparable to the Building in the south Charlotte area typically require in cases where they have a review right, and each such submittal shall be delivered to Landlord under the cover of a submittal form that is materially similar to the sample submittal form attached hereto as Exhibit J (with blanks completed). Upon Landlords receipt of a submittal of plans and specifications, Landlord shall complete such review and provide Landlords written response to such plans and specifications to Tenant within ten (10) business days after Tenant initially delivers such plans and specifications to Landlord. As provided in Section 6.1(a) herein, Landlords written response to Tenant also shall indicate whether Landlord reserves the right to require Tenant, at the expiration or earlier termination of the Lease Term, to remove all or any portion of such Improvement(s) and to restore the Premises to the condition that existed immediately prior to the installation of such Improvement(s). Landlords approval of any such plans and specifications shall not be unreasonably withheld, conditioned or delayed. If Landlord does not approve the plans and specifications, such written notice from Landlord to Tenant shall provide reasonably detailed comments and suggestions which, if incorporated in the plans and specifications, will render them acceptable to Landlord. Additionally, if Landlord requires more information in order to complete its review, Landlord shall so notify Tenant in writing within the foregoing ten (10) business day period. If Landlord initially does not approve plans and specifications or approves them conditioned upon certain modifications being made therein, the same process set forth above in this Section 6.1(b) shall apply to the resubmittal of such plans and specifications by Tenant to Landlord for Landlords approval or unconditional approval, as the case may be. Notwithstanding anything to the contrary contained in this Section 6.1(b), Exhibit C-2 shall control the procedure for submittal and approval of the Tenant Improvements Plans and Specifications (for the initial Tenant Improvements) to be prepared by the Architect/Engineer.
(c) In addition to the terms and provisions contained in the last sentence in Section 6.1(a) herein, Tenant shall not core drill or in any other manner attempt to penetrate the floors of the Building without the prior written consent of Landlord, which Landlord may withhold in its sole discretion. All Improvements shall be constructed in a diligent, good and workmanlike manner, using, at a minimum, finishes which are Building Standard, using only contractors and subcontractors approved in advance and in writing by Landlord, and in compliance with all applicable legal requirements, including, without limitation, the procurement of a building permit. With respect to any plans and specifications for Improvements which are approved by Landlord as contemplated in Section 6.1(b) herein, the relevant Improvements shall be constructed in accordance with the plans and specifications approved by Landlord. At Landlords request, Tenant shall obtain a Builders Risk Insurance Policy covering the Improvements in such amount as is reasonably requested by Landlord, naming Landlord and Landlords lender(s) as an additional insured and providing that such policy will not be canceled without giving Landlord and Landlords lender(s) at least fifteen (15) days prior written notice thereof, and upon completion of such Improvements, Tenant shall furnish Landlord with a complete set of as-built plans and specifications for the same along with a CAD or other electronic version (as reasonably requested by Landlord) of such plans and specifications. Tenant has no authority to allow, will not permit, and will indemnify Landlord and hold it harmless from, any contractors, laborers, mechanics, and/or materialmens liens, or any other similar liens filed against the Premises, the Land and/or the Building in connection with any Improvements. Also, with respect to any alterations, additions or other Improvements to the Premises made by Tenant (excluding, however, the initial Tenant Improvements installed prior to Tenants initial occupancy of the Premises),
if Tenant requests, or if Landlord requires, the involvement of or work by Landlords construction coordinator, Tenant shall pay to Landlord the reasonable cost thereof (generally two percent (2%) or more of the cost of the relevant Improvements), to be paid as Additional Rent within thirty (30) days of receipt of an invoice for the same; provided, however, Landlord shall not be entitled to require the involvement of or work by Landlords construction coordinator unless (i) Tenant is leasing from Landlord less than all of the rentable space of the Building, or (ii) Tenant is failing to comply, or has previously failed to comply, with Landlords construction requirements and guidelines. Landlord shall have no obligation to provide a construction coordinator relative to the initial Tenant Improvements. Landlords concerns and requirements for a supervisory role in connection with any Improvements will be greater relative to any portion of the Lease Term during which Tenant is leasing from Landlord less than all of the rentable space in the Building. In connection with any Improvements, Tenant shall be entitled to use only the Loading Dock Elevator (which Tenant shall pad and protect to prevent damage to same and the finishes therein) at no additional cost to Tenant beyond the rent otherwise provided for in this Lease, provided all such usage shall be subject to the standard Building Rules and Regulations in effect from time to time, as referenced in Section 7.4 herein and on Exhibit F attached hereto (the Building Rules and Regulations). Additionally, Tenant shall cause the construction of any Improvements to be completed in a manner that does not materially adversely impact or disrupt other tenants and occupants in the Building and in other buildings in the Business Park.
(d) Notwithstanding the foregoing terms and provisions in this Article VI to the contrary, reference is made to the terms and provisions of Exhibit G hereto regarding the rights and obligations of the parties relating to the Generator and the Communications Equipment.
Section 6.2 Right of Entry. Landlord and its authorized agents shall have the right to enter and grant licenses to enter the Premises at any time upon at least 24 hours advance verbal notice (except in emergencies, in which case no notice is required, or in connection with the performance of maintenance services which Landlord is obligated to perform under this Lease, in which case Landlord shall use reasonable efforts to verbally notify Tenant prior to Landlords entry into the Premises) (i) to examine the Premises, (ii) to make alterations and repairs to the Premises or to the Building (including the right, during the progress of such alterations or repairs, to store within the Premises necessary materials, tools and equipment in a manner not to unreasonably interfere with Tenants business operations), and (iii) to exhibit the Premises to prospective purchasers or, during the last twelve (12) months of the Lease Term, prospective tenants (provided, however, with respect to any entry into the Premises under the immediately preceding clauses (i)-(iii) in non-emergency circumstances, Tenant shall be afforded a reasonable opportunity to have a representative accompany Landlords representative, and, if applicable, the representative(s) of the prospective purchaser or tenant); and no such entry shall render Landlord liable to any claim or cause of action for loss of or damage to the property of Tenant by reason thereof, nor in any manner affect the agreements in this Lease, except to the extent any damage to or loss of Tenants property is caused by Landlords negligence or willful misconduct and is not covered by Tenants insurance or the insurance Tenant is required to carry hereunder, whichever is greater.
Section 6.3 Tenants Care of Premises. In addition to the applicable obligations and duties of Tenant under Article V herein, Tenant shall (i) keep the Premises and fixtures therein in good order and repair, including, without limitation, maintenance, repair and replacement, if necessary,
of doors (exterior and interior), interior plate glass and interior window glass, and wall and floor coverings, effecting all such maintenance, repairs and replacements at its own expense, employing materials and labor of a kind and quality at least equal to the original installations; (ii) make repairs and replacements to the Premises and the Building needed because of Tenants misuse or negligence, except to the extent that the repairs or replacements are covered by Landlords insurance or would be covered by Landlords insurance if Landlord carried the insurance Landlord is required to carry under Section 8.1; (iii) repair and replace special equipment or decorative treatments above Building Standard installed by or at Tenants request and that serve the Premises only, except to the extent the repairs or replacements are needed because of Landlords misuse or negligence, and are not covered by Tenants insurance or the insurance Tenant is required to carry under Section 8.2 and Section 8.6, whichever is greater, and (iv) not commit waste. If Tenant fails to maintain, repair or replace such equipment or other installations in or about the Premises as above provided within a reasonable time, not less than thirty (30) days, after written request from Landlord to do so, then Landlord may, but is not required to, complete the required work and Tenant shall pay the cost thereof to Landlord as Additional Rent within thirty (30) days of receipt of an invoice for the same.
Section 6.4 Refrigerators, Water Fountains, Water Coolers, Icemakers, and Other Water-Using Equipment. Before placing any water-using equipment, including, without limitation, refrigerators, water fountains, fish tanks, water walls, water coolers or icemakers in the Premises, Tenant must obtain Landlords prior written consent, which consent Landlord will not unreasonably withhold, condition or delay. Further, notwithstanding any other provisions of this Lease, including, without limitation, Section 8.7 herein, if Tenant places in the Premises any such water-using equipment, if any such water-using equipment is placed or installed in the Premises as a part of the original Tenant Improvements installed in the Premises, or if any such water-using equipment is placed within or made a part of the Premises by Tenant or at Tenants request at any other time during which this Lease is in force, whether or not Landlord has consented to the same, and such water-using equipment, including, without limitation, refrigerators, water fountains, fish tanks, water walls, water coolers or icemakers, leaks for any reason and/or causes damage to the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land, or any part thereof, including, without limitation, walls, floors, ceilings, or any coverings thereof, or to any other property of Landlord or of any other tenant, then in such case, Tenant shall be responsible for and shall pay and reimburse Landlord (as Additional Rent) and such other tenant(s) for the cost of the repair or replacement of any such part of the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land or other property of Landlord or such other tenant, whether covered by Landlords or such other tenants insurance or not, and the waiver of claims and subrogation in Section 8.7 herein shall not apply to such damage. As provided above, Landlords consent to any such water-using equipment being in the Premises shall not release Tenant from its liability under this Section 6.4, Notwithstanding the foregoing, this Section 6.4 shall not apply to leakage from pipes installed as a part of the base Building or from the base Building plumbing system located above the ceiling, below the floor or behind the walls. Further, this Section 6.4 shall not apply to the restrooms and water fountains installed in the Premises by Landlord as part of the Building Shell Improvements prior to the installation of the Tenant Improvements in the Premises, as contemplated in Exhibit C-2. However, any water-using equipment installed in the Premises as part of the installation of the Tenant Improvements or later during the Lease Term shall be subject to the terms and conditions of this Section 6.4.
Section 6.5 Landlords Repairs. Subject to Tenants obligations in Section 6.3 and Section 6.4 herein and in addition to Landlords obligations set forth in Section 2.3 and Section 5.1 herein, Landlord shall be responsible for maintenance (including repair and replacement, where applicable) of the Building, the Building slab, the Building Shell Improvements (including, without limitation, the elevators, the restrooms and fixtures located therein and the stairwells), the roof of the Building, the Building-Specific Common Areas and the Exterior Common Areas in a condition reasonably consistent with other first-class suburban office buildings comparable to the Building in the south Charlotte area, except as otherwise provided in this Lease and so long as the need for such maintenance, repair and/or replacement is not the result of Tenants construction and/or installation of the Tenant Improvements or other Improvements. Additionally, Landlord shall be responsible for defects in manufacture and construction which affect the Buildings HVAC, mechanical, electrical and plumbing systems for the period beginning on the Commencement Date and ending on September 30, 2011, provided Tenant provides Landlord with written notice thereof during such period of time. Landlord shall be entitled to pass through to Tenant, as Additional Rent, Tenants Proportionate Share of the costs of any work that Landlord is required to perform hereunder to the full extent allowed under the terms and provisions of Section 4.2 herein; provided, however, in the event any work which Landlord is required to perform under this Section 6.5 or under Section 2.3 or Section 5.1 herein is covered, in whole or in part, under any warranty held by Tenant relative to the Tenant Improvements, Landlord shall use commercially reasonable efforts to make a claim (or to coordinate with Tenant in making a claim) under such warranty before passing through the costs covered by such warranty to Tenant in accordance with the terms and provisions of Section 4.2 herein. Accordingly, Tenant shall provide Landlord with a comprehensive list of warranties held by Tenant relative to the Tenant Improvements as well as a copy of each such warranty, and Tenant agrees that Tenant shall cooperate with and assist Landlord, as reasonably requested by Landlord, in making or asserting claims under such warranties.
Section 6.6 Time for Repairs. Repairs or replacements required under Section 6.3, Section 6.4 and Section 6.5 herein shall be made within a reasonable time (depending on the nature of the repair or replacement needed) after receiving notice of the need for such repair or replacement.
Section 6.7 Surrendering the Premises. Tenant shall schedule its date(s) for vacating and moving out of the Premises, in writing, with Landlord in advance of the Termination Date and surrender the Premises to Landlord in a broom clean condition and otherwise in the same condition that existed immediately following the installation of the Tenant Improvements in the Premises, except for: (i) ordinary wear and tear; (ii) damage by the elements, fire, and other casualty, unless Tenant would be required to repair such damage under Section 6.3 or Section 6.4 herein; (iii) condemnation; and (iv) permitted Improvements, unless Landlord requires their removal under Section 6.1 herein. On surrender, Tenant shall remove from the Premises its personal property, trade fixtures, any Improvements required to be removed under Section 6.1 herein, and, at Landlords request given to Tenant at least ninety (90) days prior to the scheduled Termination Date (unless the termination is due to Tenants default, in which case Tenant will remove such cabling and wiring upon Landlords request without notice, or reimburse Landlord for the cost of such removal if Landlord removes the same), Tenant shall remove any communications or computer cabling and wiring placed in the Premises or other parts of the Building (including, without limitation, the Data Center) by Tenant, and Tenant shall repair any damage to the Premises or the Building (or reimburse Landlord for the cost of the same) caused by any such removal of such
personal property, trade fixtures, Improvements or cabling and wiring, required in this Section 6.7. Any items not removed by Tenant as required above shall be considered abandoned unless the parties agree otherwise in writing. Landlord may dispose of abandoned items as Landlord chooses and bill Tenant for the cost of their removal and disposal, minus any revenues received by Landlord for their disposal.
ARTICLE VII
USE AND COVENANTS
Section 7.1 Use and Occupancy. Tenant shall use the Premises for general office purposes only and all lawful uses ancillary thereto (which shall be deemed to include the operation of a small commercial test kitchen, provided the location of, plans and specifications for, and activities to be conducted within such kitchen shall be subject to Landlords prior written approval, such approval not to be unreasonably withheld) and shall otherwise make no unlawful use of the Premises. With respect to the small commercial test kitchen to be installed in the Premises as part of the Tenant Improvements pursuant to the immediately preceding sentence, such facility must be vented to Landlords reasonable satisfaction, and as part of Tenants maintenance obligations under Section 5.5 herein, Tenant shall keep the vent apparatus and system maintained in a first-class condition and state of operation throughout the Lease Term. Additionally, in no event shall the Premises, or any portion thereof, be used for the operation of (i) an executive office business where individual suites or offices within the Premises are leased, rented or licensed to individual tenants, renters or licensees, (ii) an office of any federal, state or local governmental entity or organization (provided, a professional governmental non-social service agency (e.g., FBI, Secret Service, FDIC) shall be permitted), (iii) a medical office or facility for the primary purpose of conducting laboratory research and/or treating or otherwise counseling patients, or (iv) any use that is inconsistent with the terms and provisions of the Declaration Documentation, without Landlords prior written consent, which Landlord may withhold in Landlords sole discretion. Further, Tenant shall not place or affix any sign, name, legend, notice or advertisement of any kind on any part of the Building, except as provided in Section 7.2 herein or elsewhere in this Lease, except for signage in the lobby of the Premises which is not visible from the exterior of the Building and except for name plates for offices and conference rooms, without the prior written approval of Landlord, which Landlord may withhold in its sole discretion. Provided, however, during any portion of the Lease Term when Tenant is leasing from Landlord less than all of the rentable space in the Building, Tenant shall not display any signs or other media in the lobby of the Building for the purpose of advertising Tenant, any product of Tenant or any other entity, event or thing. Regarding any patio, balcony, porch or similar contiguous space outside of the Building (including any balcony, porch or similar contiguous space located outside of the Building that may be attached to and accessible only from the Premises, e.g., exterior balconies accessible only from, and serving only, the Premises), Tenant shall not have the right to place furniture or equipment or any other personal property in such space without Landlords prior written consent, which Landlord may withhold in Landlords sole discretion. Also, notwithstanding any other provision of this Lease, such space shall not be used for office purposes, but shall be used by Tenants employees and visitors only for viewing, relaxing or talking purposes (which may include incidental use of laptop computers on a non-permanent basis); and in no event shall any smoking or other use of tobacco products be permitted on or in any such space. Also, Tenant shall cause its commercial general liability insurance required under this Lease to cover all such spaces.
Section 7.2 Signage.
(a) Directory Signage. During all portions of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Tenant shall be entitled to the use (and, under certain scenarios more fully described below in this Section 7.2(a) with regard to the Building-Specific Digital Information Screens, control) of two (2) electronic/digital directional and information screens (one of which is located on the first floor of the Building and one of which is located on the fourth floor of the building) which are devoted to providing information about tenants in the Building (e.g., tenant directory-type information) (the Building-Specific Digital Information Screens) and one (1) electronic/digital directional and information screen located on the first floor of the Building which is devoted to providing information about the Business Park (e.g., events occurring and opportunities available within the Business Park community) (the Business Park-Specific Digital Information Screen) (the Building-Specific Digital Information Screens and the Business Park-Specific Digital Information Screen being collectively referred to in this Lease as the Digital Information Screens). Moreover, during such portions of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Tenant shall have the right to have direct network control (using Tenants own computers, software and networking equipment) of the Building-Specific Digital Information Screens for the purpose of incorporating such screens into Tenants overall digital signage program for the Building, and in the event Tenant elects to exercise such right, Landlord agrees to cooperate with Tenant, at no cost or expense to Landlord, as reasonably necessary to enable Tenant to connect Tenants computers, software and networking equipment directly to the Building-Specific Digital Information Screens, and Tenant agrees to maintain such screens in good condition at Tenants sole cost and expense. However, during all portions of the Lease Term when Tenant is leasing from Landlord less than all of the rentable space in the Building, Landlord shall be entitled to control the content to be displayed on the Building-Specific Digital Information Screens (in addition to the Business Park-Specific Digital Information Screen, with respect to which Landlord shall have the right to control content during all portions of the Lease Term), and the amount of content to be displayed on such Building-Specific Digital Information Screens devoted to information relating to Tenant shall be reasonably determined by Landlord at such time in a manner that is consistent with standards used for other multi-tenant buildings in the Business Park (taking into account Tenants reasonable input and feedback and Tenants size (i.e., percentage of square feet leased and/or occupied by Tenant in the Building relative to other tenants in the Building). From time to time during the Lease Term when Landlord is controlling the content to be displayed on the Building-Specific Digital Information Screens, Tenant shall provide Landlord with relevant information about Tenant and Tenants business units, departments and employees to enable Landlords property manager to enter such information into the electronic database that populates the Building-Specific Digital Information Screens. The costs and expenses associated with managing, operating and maintaining the Digital Information Screens and the electronic database that populates the Digital Information Screens shall be included in Operating Costs under this Lease; provided, however, with respect to portions of the Lease Term when Tenant has direct network control of the Building-Specific Digital Information Screens, costs and expenses relating the Building-Specific Digital Information Screens (which costs and expenses shall be borne by Tenant), including costs of maintaining the Building-Specific Digital Information Screens in good condition and repair, shall not be included in the Operating Costs that may be passed through to Tenant pursuant to Section 4.2 herein. Upon the expiration or earlier termination of this Lease or, at such time during the Lease Term when Tenant is no longer leasing from Landlord all of the rentable space in the Building, Tenant shall relinquish
control of the Building-Specific Digital Information Screens, and at such time such screens shall be in generally the same condition as when Tenant assumed direct network control of such items, normal wear and tear excepted. Notwithstanding anything to the contrary contained in this Section 7.2(a), during any portion of the Lease Term following March 1, 2012, when Tenant is leasing from Landlord all of the rentable space in the Building, Tenant shall be entitled to direct Landlord to remove from the Building all three (3) (but not less than all three (3)) of the Digital Information Screens by delivering written notice of such election to Landlord. Landlord shall have ninety (90) days after the receipt of such written notice to remove such Digital Information Screens, and Tenant shall be required to pay to Landlord as Additional Rent, within thirty (30) days of receipt of an invoice therefor, the actual and reasonable costs and expenses incurred by Landlord in connection with the removal of the Digital Information Screens and the associated repair and restoration of the surfaces from which such Digital Information Screens were removed, and upon such removal, (i) the costs associated with the Digital Information Screens shall not be included thereafter in the Operating Costs that may be passed through to Tenant pursuant to Section 4.2 herein and (ii) the total Base Year Operating Costs shall be reduced thereafter by the portion of Base Year Operating Costs associated with the Digital Information Screens. Provided, however, during any portion of the Lease Term following Landlords removal of the Digital Information Screens when Tenant is leasing from Landlord less than all of the rentable space in the Building, and in any event, at the expiration or earlier termination of the Lease Term, Landlord shall have the right, in its sole discretion, to reinstall such Digital Information Screens in the areas of the Building where such Digital Information Screens were originally installed, and Tenant shall be required to pay to Landlord as Additional Rent, within thirty (30) days of receipt of an invoice therefor, the actual and reasonable costs and expenses incurred by Landlord in connection with the reinstallation of the Digital Information Screens; and upon such reinstallation, (i) the costs associated with the Digital Information Screens shall be included in the Operating Costs that may be passed through to Tenant pursuant to Section 4.2 herein and (ii) the total Base Year Operating Costs shall be prospectively increased by the portion of Base Year Operating Costs associated with the Digital Information Screens.
(b) Building Monument Signage. During all portions of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Tenant shall be entitled to exclusive tenant exposure on the monument sign for the Building (the Building Monument Sign, which shall include the Building name and address as well as Tenants information, as provided below) which is located or is to be located along the right-of-way of Ballantyne Corporate Place. During all portions of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Tenants Trade Name and logo (depicted using the same size lettering as is being used on the date this Lease is executed for building monument sign exposure for tenants in other multi-story, single-tenant buildings in the Business Park, provided Tenants Trade Name may use lettering in Tenants logo style) shall be included on the Building Monument Sign. During all portions of the Lease Term when Tenant is leasing from Landlord less than all of the rentable space in the Building, Tenant shall be entitled to non-exclusive exposure, in common with one or more other tenants and occupants in the Building (as determined by Landlord from time to time), on the Building Monument Sign, such non-exclusive exposure to include only Tenants Trade Name and not Tenants logo and to use the same size and style lettering as is being used at such time for building monument sign exposure for tenants in other multi-story, multi-tenant buildings in the Business Park. Subject to the foregoing criteria and details, plans and specifications for Tenants Trade Name and, if applicable, logo to be installed on the Building Monument Sign shall be subject to Landlords advance written approval, such
approval not to be unreasonably withheld, conditioned or delayed. As used in this Lease, Tenants Trade Name shall mean the name Premier or any name that in the future replaces the name Premier as a result of the original Tenant under this Lease being acquired by or merged into a different entity.
(c) Exterior Building-Mounted Signage Above Building Entrance. Tenant shall be entitled, during all portions of the Lease Term when (A) all of the rentable space in the Building is being leased by Tenant, and (B) at least sixty percent (60%) of the total rentable space in the Building is being occupied by either Tenant or one or more Affiliates of Tenant (as opposed to other subtenants or assignees), to replace the signage reading Boyle currently located on the silver band over the entrance to the Building with signage reading Premier, subject to the following terms and conditions: (i) such replacement signage shall be the same size, material, color and style as the signage being replaced, and the plans and specifications for such signage shall be subject to Landlords prior written approval, not to be unreasonably withheld, conditioned or delayed, (ii) the cost of designing, permitting, installing, maintaining (in a first-class condition) and removing the sign shall be borne entirely by Tenant, (iii) Tenant shall be responsible, at its sole cost and expense, for obtaining and maintaining any governmental approvals necessary for the installation and maintenance of the sign, (iv) such sign shall be promptly removed by Tenant, at its sole cost and expense, upon the Termination Date or any earlier termination of the Lease Term or, at Landlords option, at such earlier time as (A) Tenant is no longer leasing from Landlord all of the rentable space in the Building, or (B) less than sixty percent (60%) of the total rentable space in the Building is being occupied by either Tenant or one or more Affiliates of Tenant (as opposed to other subtenants or assignees), and Tenant, at its sole cost and expense, shall restore the exterior of the Building and any resulting damage to the Land to the condition that existed prior to the installation of such sign (including the reinstallation of the Boyle sign in the silver band above the Building entrance), and (v) such right is personal to Tenant named in this Lease (i.e., Premier Purchasing Partners, L.P.), including any Affiliate of Tenant, but shall not inure to the benefit of any other assignees or subtenants of Tenant hereunder, and shall permit the display of only Tenants Trade Name and associated logo.
(d) Exterior Building-Mounted Signage on Building Face. Tenant shall be entitled, during all portions of the Lease Term, to install and maintain one (1) Building-mounted sign with Tenants Trade Name and logo on the face of the Building, subject to the following terms and conditions: (i) the plans and specifications for such sign, including the size, materials, lighting, and placement on the exterior of the Building (placement is anticipated near the top of the Building, but not on the roof of the Building), shall be subject to Landlords prior written approval, not to be unreasonably withheld, conditioned or delayed, (ii) the cost of designing, permitting, installing, maintaining (in a first-class condition) and removing the sign shall be borne entirely by Tenant, (iii) Tenant shall be responsible, at its sole cost and expense, for obtaining and maintaining any governmental approvals necessary for the installation and maintenance of the sign, (iv) such sign shall be promptly removed by Tenant, at its sole cost and expense, upon the Termination Date or any earlier termination of the Lease Term, and Tenant, at its sole cost and expense shall restore the exterior of the Building and any resulting damage to the Land to the condition that existed prior to the installation of such sign, and (v) such right is personal to Tenant named in this Lease (i.e., Premier Purchasing Partners, L.P.), including any Affiliate of Tenant, but shall not inure to the benefit of any other assignees or subtenants of Tenant hereunder, and shall permit the display of only Tenants Trade Name and associated logo.
(e) Possible Second Exterior Building-Mounted Signage on Building Face. In addition to the Building-mounted sign which Tenant shall have the right to install pursuant to Section 7.2(d) herein, Tenant shall be entitled, during all portions of the Lease Term, to install and maintain one (1) additional Building-mounted sign with Tenants Trade Name and logo on the face of the Building (to be installed on a different face of the Building than the sign described in Section 7.2(d) herein), subject to all of the terms and conditions set forth in clauses (i)-(v) in Section 7.2(d) herein, and further subject to the obligation by Tenant to pay to Landlord during the period within which such additional Building-mounted sign shall be installed, as Additional Rent with each monthly installment of Base Rent, an amount equal to one-twelfth (1/12th) of the Additional Signage Rental Amount. For purposes hereof, Additional Signage Rental Amount shall mean an annualized rental amount equal to the total Rentable Area of the Premises multiplied by Twenty Cents ($0.20).
Section 7.3 Parking.
(a) General. Tenant, and its employees, agents and invitees shall be required by Tenant to comply with the Parking Rules and Regulations attached hereto as Exhibit E, together with all modifications thereto which Landlord may hereafter make (the Parking Rules and Regulations), and to use the parking areas located within the boundaries of the Land and the Adjacent Land (collectively, the Parking Areas, which shall include parking areas within Parking Deck A and Parking Deck B) only in a manner which is compatible with the day-to-day general use of the Buildings, the Land and the Adjacent Land. The Parking Areas are designed and intended to be used by tenants in the Buildings and their employees, agents, visitors, and invitees; and as of Date of Execution of this Lease, the Parking Areas are designed to contain approximately three and six-tenths (3.6) parking spaces for each 1,000 square feet of rentable area in the Building, and Tenant and its employees, agents, invitees and visitors shall be entitled to use three and six-tenths (3.6) parking spaces for each 1,000 square feet of Rentable Area of the Premises. Landlord shall have the right to tow vehicles of Tenant and Tenants employees, agents, visitors and invitees that are parked in violation of the Parking Rules and Regulations. Upon Landlords request, Tenant will provide Landlord with the license tag numbers of all its employees and agents using the Premises or the Building. Landlord reserves the right from time to time, with reasonable notice to Tenant, and provided Tenants business operations within the Premises are not materially adversely affected thereby, to (i) change the location or configuration of the Parking Areas; (ii) change the number of parking spaces located within the Parking Areas; (iii) install systems to control and monitor parking in the Parking Areas, including without limitation, a parking gate and identification card system; (iv) utilize parking guards or attendants to supervise and control parking within the Parking Areas; (v) make repairs, alterations, and improvements to the Parking Areas; (vi) modify the Parking Rules and Regulations; and (vii) enforce the Parking Rules and Regulations by appropriate legal action, including, without limitation, towing of vehicles parked in violation of the Parking Rules and Regulations. Tenant shall not be required to pay a separate charge for its use of the Parking Areas, which, except for the rentals and other sums required to be paid by Tenant under this Lease, shall be free of charge during the Lease Term for Tenant and Tenants employees, agents, visitors and invitees. Notwithstanding anything to the contrary in this Section 7.3(a) or elsewhere in this Lease, Landlord hereby reserves the right to (i) allow the owners, occupants and tenants of other buildings in the Business Park (including the employees and invitees of same) to use the Parking Areas from time to time for overflow or special event purposes and (ii) to reserve parking spaces in the Parking Areas for the exclusive use of other tenants in the Buildings, provided such actions do not
prevent Tenant from accessing the number of parking spaces within the Parking Areas which Tenant has the right to use under this Section 7.3(a) (i.e., three and six-tenths (3.6) parking spaces for each 1,000 square feet of Rentable Area of the Premises) during Business Hours. Landlord agrees to cause Harris Building Landlord and Adjacent Land Owner, to execute this Lease for the purpose of acknowledging and consenting to the rights and obligations of Tenant and Landlord pursuant to this Section 7.3(a) relative to the portion of the Parking Areas located within the Adjacent Land.
(b) Visitor Parking. Subject to the terms and provisions of Section 7.3(a) herein, Tenant shall be entitled to the exclusive use and designation of two (2) parking spaces per 26,250 square feet of Rentable Area of the Premises (i.e., twenty (20) parking spaces during all portions of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building) for the purpose of Tenants visitor parking, which shall be in a location mutually agreeable to both Landlord and Tenant on the grade level of Parking Deck A. Such visitor parking spaces shall be included within the total number of parking spaces within the Parking Areas which Tenant has the right to use under Section 7.3(a) herein and shall be clearly marked Premier Visitor Parking or similar verbiage. Notwithstanding the foregoing, Landlord shall have no obligation or responsibility to monitor or police the use of such visitor parking spaces or to take any enforcement action relative to any vehicles parked in such spaces.
Section 7.4 Building Rules and Regulations. Tenant shall obey and require its employees, agents and invitees to obey the Building Rules and Regulations attached hereto as Exhibit F and to such further reasonable and non-discriminatory rules and regulations as Landlord may hereafter make or adopt for the Building and/or the Land. During any portion of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Landlord may not unreasonably modify the Building Rules and Regulations without Tenants consent; provided, however, during any portion of the Lease when Tenant is leasing from Landlord less than all of the rentable space in the Building, Landlord may, in a commercially reasonable manner, waive or modify any of such Building Rules and Regulations in the case of any one or more tenants, or their employees, agents, invitees and visitors, so long as such waiver or modification does not materially adversely affect Tenants rights hereunder or materially interfere with Tenants use of the Building-Specific Common Areas or the Exterior Common Areas, without affecting Tenants obligations under this Lease, and Landlord shall not be responsible to Tenant for the nonconformance by any other tenant, or its employees, agents, invitees or visitors, to any of said Building Rules and Regulations.
Section 7.5 Hazardous Substances.
(a) Tenant shall not use, store, generate or dispose of any Hazardous Substances, or knowingly permit the same, in, on, above or below any part of the Premises, the Building, the Land or the Adjacent Land except for reasonable quantities of normal and customary office and cleaning supplies used in compliance with applicable laws, reasonable quantities of Hazardous Substances used in compliance with applicable laws in connection with construction and maintenance activities related to the Building and the Land, and reasonable amounts of fuel for the Generator provided for on Exhibit G (which shall be stored only in the fuel tank of the Generator and used only in compliance with applicable laws), all of which Tenant shall remove at the end of the Lease Term or earlier, if they pose a danger to persons or property. Tenant shall indemnify and hold Landlord harmless from all claims, damages, fines, judgments,
penalties, costs, liabilities or losses, and any and all sums reasonably paid by Landlord for settlement of claims, attorneys fees, consultants fees and experts fees, arising during or after the Lease Term as a result of a breach of this Section 7.5(a) by Tenant or as a result of the use, storage, generation or disposal of Hazardous Substances by Tenant or Tenants employees, agents or invitees (including Tenants contractors and subcontractors, but only with respect to the use, storage, generation or disposal of Hazardous Substances in connection with construction and maintenance activities relating to the Building and the Land) in, on, above, or below any part of the Premises, the Building, the Land or the Adjacent Land (provided such agent or invitee is using the Adjacent Land for a purpose related to the business operations of Tenant), whether permitted under this Section 7.5(a) or not. Hazardous Substance means any substance which is toxic, ignitable, reactive, or corrosive and which is regulated by any governmental body having jurisdiction over the same and includes any and all materials or substances which are defined as hazardous waste, extremely hazardous waste or a hazardous substance pursuant to state, federal or local law. Hazardous Substance includes, but is not restricted to, asbestos, polychlorobiphenyls (PCBs) and petroleum. Hazardous Substances refers to more than one Hazardous Substance. In no event shall Tenants liability to Landlord under this Section 7.5(a) extend to or encompass consequential, special or indirect damages.
(b) To the best of Landlords actual knowledge (without any inquiry or investigation), no Hazardous Substances currently exist or previously existed in the Building or on, in, above or below the Land or the Adjacent Land in violation of applicable laws. Throughout the Lease Term, Landlord shall not use, store, generate or dispose of any Hazardous Substances or knowingly cause, permit or allow any Hazardous Substances to be placed, stored, dumped, dispensed, released, discharged, used, sold, transported, or located, on or within any portion of the Premises, the Building, the Land or the Adjacent Land by itself or its servants, agents or employees; provided, however, reasonable quantities of normal and customary office and cleaning supplies may be used by tenants in the Building in compliance with applicable laws and reasonable quantities of Hazardous Substances may be used in compliance with applicable laws in connection with construction and maintenance activities relating to the Building and the Land. Landlord agrees to promptly clean up any Hazardous Substances which are placed in the Building, on the Land or on the Adjacent Land by Landlord or its servants, agents or employees and to remediate and remove any such contamination of the Building and/or the Land and/or the Adjacent Land resulting from the acts of Landlord and its servants, agents or employees, at Landlords cost and expense, in compliance with all applicable laws, ordinances, rules and regulations then in effect, at no cost or expense to Tenant. Landlord shall indemnify and hold Tenant harmless from all claims, damages, fines, judgments, penalties, costs, liabilities or losses, and any and all sums reasonably paid by Tenant for settlement of claims, attorneys fees, consultants fees and experts fees, arising during or after the Lease Term as a result of a breach of this Section 7.5(b) by Landlord or as a result of the use, storage, generation or disposal of Hazardous Substances by Landlord or Landlords employees or agents in, on, above, or below any part of the Premises, the Building, the Land or the Adjacent Land, whether permitted under this Section 7.5(b) or not. In no event shall Landlords liability to Tenant under this Section 7.5(b) extend to or encompass consequential, special or indirect damages.
(c) Additionally, in the event any Microbial Matter necessitating abatement is discovered in the Building following the Date of Execution, Landlord shall be responsible, at its sole cost and expense, for removing and remediating such Microbial Matter, but only if and to the extent the existence of such Microbial Matter is caused by Landlords negligent management
of the Building or the defective construction of the Building Shell Improvements. Notwithstanding the foregoing to the contrary, (i) in no event shall Landlord be responsible for the investigation, removal and/or remediation of Microbial Matter (or any costs or expenses associated therewith) where the existence of such Microbial Matter is caused by Landlords managing the Building consistent with Tenants instructions regarding the maintenance of Building temperature, Building humidity or any other Building factor which results in the existence of Microbial Matter in the Building and (ii) in order to trigger any duties of Landlord set forth in this Section 7.5(c), the Microbial Matter must be present in the Building in types, in locations and in amounts which, in the reasonable business judgment of a certified industrial hygienist (i.e., a licensed professional as established by the American Board of Industrial Hygiene) who has experience with Microbial Matter and who is mutually acceptable to both Landlord and Tenant, pose a hazard to the health and safety of Tenants employees, agents and invitees in the Building. As used herein, Microbial Matter shall mean fungi, mold or mildew, whether or not such Microbial Matter is living.
Section 7.6 Compliance with Laws/Accessibility Issues. Landlord represents that it has caused or shall cause the Building Shell Improvements to be completed in compliance with all applicable construction codes, laws, regulations and orders in effect as of the date on which the plans and specifications for such improvements were prepared (including the ADA, as in existence on such date). Landlord shall be responsible, at its sole cost and expense, for any modifications to the Building Shell Improvements that may be required to address or correct any inaccuracy (if any) in the representation of Landlord in the immediately preceding sentence, and any such expenses incurred by Landlord to address or correct any such inaccuracy in the foregoing representation of Landlord shall not be passed through to Tenant in any manner, including as Operating Costs under this Lease. Except as provided above in this Section 7.6 or elsewhere in this Lease or any exhibit to this Lease, (i) during all portions of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Tenant agrees, at Tenants sole cost and expense, to comply (relative to the entire Premises and the Building) with all applicable laws, ordinances, rules and regulations of any governmental entity or agency having jurisdiction over the Premises and the Building; provided, however, if and to the extent any such costs of compliance are for capital improvements that Landlord otherwise would be permitted to pass through to Tenant pursuant to Section 4.2 herein, Tenant shall be entitled to have such capital costs included within Operating Costs pursuant to the terms and provisions of Section 4.2 herein and (ii) during all portions of the Lease Term when Tenant is leasing from Landlord less than all of the rentable space in the Building:
(a) Tenant agrees to comply, relative to the Premises (but excluding any portions of the Premises which are Building Shell Improvements, for which Landlord generally shall be responsible under Section 7.6(c) herein), with all applicable laws, ordinances, rules and regulations of any governmental entity or agency having jurisdiction over the Premises. Without limiting the generality of the foregoing sentence, if the Premises must be modified or any other action relating to the Premises must be undertaken in the future to comply with the ADA or any similar federal, state or local statute, law, or ordinance, the responsibility for such modification or action (including the payment of all costs incurred in connection therewith) shall belong to Tenant.
(b) If the Building-Specific Common Areas, Exterior Common Areas or the exterior of the Building must be modified or any other action relating to the Building-Specific
Common Areas, Exterior Common Areas or the exterior of the Building must be undertaken to comply with the ADA or any similar federal, state or local statute, law, or ordinance and if such modification or action is required because of (a) any special or unique use or activity in the Premises or (b) the performance of any alterations within the Premises, the responsibility for such modification or action (including the payment of all costs incurred in connection therewith) shall belong to Tenant.
(c) Landlord agrees to comply (relative to the Building-Specific Common Areas, the Exterior Common Areas, the exterior of the Building and the Building Shell Improvements) with all applicable laws, ordinances, rules and regulations (including the ADA and any similar federal, state or local statute, law, or ordinance) of any governmental entity or agency having jurisdiction over the Building-Specific Common Areas, Exterior Common Areas, the exterior of the Building and the Building Shell Improvements, except as provided in Section 7.6(b) herein. Costs incurred by Landlord in such case may be included in Operating Costs under this Lease.
Section 7.7 Non-Smoking Provision. Landlord shall prohibit smoking at any location in the Building, including, without limitation, in the Premises and on all floors in the Building where any portion of the Premises is located, and on or in the patio and balcony areas attached to or contiguous to the Building and/or the Premises. Additionally, any outdoor smoking area designated by Landlord for use by Building tenants and occupants and their employees, invitees and guests shall be located at least twenty-five (25) feet from any Building entries, outdoor intakes serving the Building and operable windows in the Building; and Landlord has informed Tenant that, at least initially following the Date of Execution, the designated smoking area for the Building is expected to be in a parking deck near the Building.
Section 7.8 Warning of Risks. Tenant, acknowledges that (a) the Building and the Land is located directly adjacent to a recreational area that includes that certain public golf course commonly known as The Golf Club at The Ballantyne Hotel & Lodge (the Recreational Facility), and (b) occupying property adjacent to the Recreational Facility involves certain risks, including, without limitation, golf balls being hit onto the Land and elsewhere within the Business Park, with the potential of causing bodily injury (including death) or physical damage to property. Accordingly, Tenant agrees to undertake reasonable efforts to alert and warn Building occupants and/or visitors (including employees, agents, contractors, subcontractors, invitees and licensees) about the foregoing risks; provided, however, the size, style, colors, materials and other aspects of any signs erected by Tenant to communicate such risks shall be subject to Landlords prior written approval, not to be unreasonably withheld, conditioned or delayed).
Section 7.9 Art Work Within Building. Landlord has installed certain art work and other decorations within the Building prior to the Date of Execution. During any portion of the Lease Term when Tenant is leasing from Landlord all of the rentable area in the Building, Tenant may elect, by so notifying Landlord in writing, not to display all or a portion of the art work or other decorations provided by Landlord in the Building as of the Date of Execution, in which case (i) Landlord shall be responsible for the removal of such art work or other decorations (and in no event shall Tenant remove same) within a reasonable timeframe after receiving written notice from Tenant requesting that Landlord remove same and (ii) Landlord shall have the right to remove such art work or other decorations permanently from the Building.
ARTICLE VIII
INSURANCE AND INDEMNITY
Section 8.1 Landlords Insurance. Landlord shall keep the Building insured against damage and destruction by fire and such other perils as Landlord in Landlords sole discretion shall determine, in the amount of at least ninety-five (95%) percent of the replacement value of the Building. Landlord shall also maintain commercial general liability insurance with respect to the Building, the Building-Specific Common Areas and the Exterior Common Areas, covering bodily injury, including death, and property damage in the amount of at least Two Million Dollars ($2,000,000.00) per occurrence, and annual aggregate limit, with a contractual liability endorsement. Landlord is not obligated to insure fixtures or other property of Tenant.
Section 8.2 Tenants Insurance. In addition to the insurance coverage contemplated in Section 8.6 herein, Tenant shall keep in force, during the entire Lease Term, including any renewal or extension thereof, workers compensation insurance as required by law and commercial general liability insurance, with respect to the Premises, the Building and the Land, covering bodily injury, including death, and property damage, with such limits as may be reasonably requested by Landlord, but with minimum limits not less than Two Million Dollars ($2,000,000.00) per occurrence, and annual aggregate limit, with a contractual liability endorsement. Notwithstanding the foregoing, such minimum limit prescribed by Landlord may be increased from time to time during the Lease Term commensurate with increases over the same period in the CPI (provided such increases may be implemented only when the cumulative increase in the CPI since the last increase exceeds five percent (5%)). All insurance policies required to be maintained by Tenant under this Section 8.2 shall name Landlord, Land Owner and Landlords lender(s) as additional insureds and shall provide that they shall not be canceled for any reason unless Landlord, Land Owner and Landlords lender(s) are given fifteen (15) days notice in writing by the issuing insurance company. Tenant shall deposit with Landlord satisfactory evidence of the above insurance coverages prior to the Commencement Date and thereafter at least five (5) business days prior to the expiration date for any such coverages. Additionally, all insurance coverage required to be maintained by Tenant under this Section 8.2 shall include commercially reasonable, industry standard terms and provisions, including boilerplate provisions and special stipulations and conditions, that are in any event no less favorable to Landlord (as an additional insured) than the terms and provisions in third-party insurance policies maintained by landlords relative to multi-tenant buildings located in the Business Park from time to time during the Lease Term. Furthermore, such insurance coverage shall include coverage types, limits of coverage, and other terms and provisions that are reasonably required from time to time by Landlords third-party, institutional lenders whose loans are secured by a security interest in the Building and that are consistent with the requirements of other such lenders for loans on other similar buildings in the south Charlotte area, and such obligation shall include delivering to Landlord and Landlords lender (if and as requested from time to time) a certificate from Tenants third-party insurance provider confirming the insurance coverages then being maintained by Tenant hereunder. As used herein, CPI shall refer to the Department of Labor, Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers, U.S. City Average, Subgroup All Items (1982-84 = 100). If at any time the CPI is no longer published by the Bureau of Labor Statistics, Landlord shall substitute for the CPI any official index published by the Bureau of Labor Statistics or by such successor or similar governmental agency as may then be in existence and shall be most nearly equivalent thereto.
Section 8.3 Insurance Criteria. Insurance policies required by this Lease shall: (i) be issued by insurance companies licensed to do business in the state of North Carolina, or a non-admitted insurer authorized to write insurance in the state of North Carolina, with general policyholders ratings of at least A- and a financial rating of at least X in the most current Bests Insurance Reports available from time to time (if the Bests ratings are changed or discontinued, the parties shall agree at such time to an equivalent method of rating insurance companies, and if the parties cannot agree, they shall submit the dispute to arbitration); (ii) be primary policies - not as contributing with, or in excess of, the coverage that the other party may carry; (iii) be permitted to be carried through a blanket policy or umbrella coverage; (iv) be maintained during the entire Lease Term and any extension and renewal periods exercised by Tenant; and (v) with regard to Tenants insurance only, have deductibles of not less than Twenty-Five Thousand Dollars ($25,000.00).
Section 8.4 Increase in Insurance Premiums. If Tenant uses the Premises in any manner which causes the premium rate for any kind of insurance maintained by Landlord on the Building and/or the Land to be raised, including, without limitation, any increase due to Tenants use of the Generator, Tenant shall pay on demand as Additional Rent the amount of the increase in such premium upon the furnishing of reasonable documentation by Landlord showing such increase, and, at the request of Landlord, Tenant shall remedy the condition which caused the increase in premium upon written notice from Landlord; provided; however, in no event shall Landlord be entitled to require the removal of the Generator pursuant to this Section 8.4.
Section 8.5 Mutual Indemnities.
(a) Tenants Indemnity. Tenant agrees to indemnify and hold harmless Landlord and the agents and employees of Landlord from and against any claims or demands by or on behalf of any person, firm, corporation or other entity or party and any liability, loss, damage or expense, including reasonable attorneys fees, suffered or incurred by Landlord, or Landlords agents and employees, arising by reason of injury to any person, including death, or damage to property, occurring in, on, or about the Premises, the Building, the Building-Specific Common Areas or the Exterior Common Areas, occasioned, in whole or in part, by any negligent act or omission on the part of Tenant or any employee (whether or not acting within the scope of employment), agent, or subtenant of Tenant, or by reason of nonperformance of any covenant in this Lease on the part of Tenant, except, however, to the extent that such claims result from the negligent acts or omissions of Landlord or Landlords employees or agents or to the extent such claims result from the nonperformance of any covenant in this Lease on the part of Landlord. Landlord shall not be liable to Tenant for any damage by or from any act or omission of any other tenant or occupant of the Building or by any owner or occupant of adjoining or contiguous property.
(b) Landlords Indemnity. Landlord agrees to indemnify and hold harmless Tenant and the agents and employees of Tenant from and against any claims or demands by or on behalf of any person, firm, corporation or other entity or party and any liability, loss, damage or expense, including reasonable attorneys fees, suffered or incurred by Tenant, or Tenants agents and employees, arising by reason of injury to any person, including death, or damage to property, occurring in, on, or about the Premises, the Building, the Building-Specific Common Areas or the Exterior Common Areas, occasioned, in whole or in part, by any negligent act or omission on the part of Landlord, or any employee (whether or not acting within the scope of
employment) or agent of Landlord, by reason of nonperformance of any covenant in this Lease on the part of Landlord, except, however, to the extent that such claims result from the negligent acts or omissions of Tenant or Tenants employees or agents or to the extent such claims result from the nonperformance of any covenant in this Lease on the part of Tenant. Tenant shall not be liable to Landlord for any damage by or from any act or omission of any other tenant or occupant of the Building or by any owner or occupant of adjoining or contiguous property.
Section 8.6 Tenants Personal Property. Tenant shall insure its personal property, trade fixtures, and non-Building Standard improvements in the Premises and the Building with special form insurance in an amount sufficient to cover the full replacement cost of the same, and all personal property, trade fixtures and non-Building Standard improvements in the Premises, including that of Tenant and Tenants employees, agents and invitees, shall remain therein at Tenants sole risk, and Landlord shall not be liable for any damage to, or loss of, such personal property, trade fixtures or non-Building Standard improvements arising from fire or other casualty event, or from the bursting, leaking, or overflowing of water, sewer or steam pipes unless due to the negligent act or omission of Landlord, its employees or agents, subject, however, to the provisions of Section 8.7 herein in every case. Also, as provided in Section 6.4 herein, Tenant shall be responsible for and shall pay for the cost of repair of any water damage to the Building, the Building-Specific Common Areas or the Land, or any part thereof, as well as to any other property of Landlord or any other tenant, caused by the malfunction, leaking or misuse of any of Tenants water-using equipment, and Landlord shall not be responsible therefor, whether such damage is covered by Landlords or such other tenants insurance or not.
Section 8.7 Waiver of Subrogation. Each party waives claims arising in any manner in its (the Injured Partys) favor and against the other party for loss or damage to Injured Partys property located within or constituting a part or all of the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land. This waiver applies to the extent the loss or damage is covered by the Injured Partys insurance or the insurance the Injured Party is required to carry under this Article VIII, whichever is greater. This waiver also applies to each partys directors, officers, employees, members, partners, shareholders, and agents. This waiver does not apply to claims of Injured Party caused by the other partys willful misconduct. Each party shall cause its property and general liability insurance to contain a standard waiver of subrogation endorsement or provisions providing for a waiver of subrogation consistent with the terms and provisions in this Section 8.7.
ARTICLE IX
DAMAGES TO PREMISES
Section 9.1 Definition. Relevant Space means: (i) the Premises, excluding Tenants non-Building Standard Improvements and fixtures; (ii) access to the Premises; and (iii) any part of the Building that provides essential services to the Premises.
Section 9.2 Repair of Damage. If the Relevant Space is damaged by fire, storm, flood, earthquake or other insured casualty, Landlord and Tenant shall work cooperatively and diligently with one another to obtain estimates of the cost and time required to repair and restore such damage to the Building and the Relevant Space (which estimates Landlord shall be responsible for obtaining and sharing with Tenant) and to negotiate a settlement payment with the relevant insurance company as quickly as feasible following the date of the casualty event and in any
event within ninety (90) days after the date of such casualty event (the 90-Day Casualty Assessment Period). If it is determined that the damage to the Building and the Relevant Space can be substantially repaired and restored within one hundred eighty (180) days from the expiration of the 90-Day Casualty Assessment Period using standard working methods and procedures, Landlord shall use reasonable efforts to repair and restore the Relevant Space and the Building to its previous condition. Provided, however, if it is determined that the Building and the Relevant Space cannot be repaired and restored within such one hundred eighty (180) day period, then either party may, within ten (10) days after such determination is made and communicated to both Landlord and Tenant, terminate this Lease by giving notice to the other party; provided further, however, Tenant shall not be able to terminate this Lease if the damage was caused by Tenants willful misconduct. Notwithstanding the foregoing, Tenant shall reimburse Landlord for the cost of repairing and restoring the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land, or any part thereof, to the extent that any water damage is due to the malfunction, leaking or misuse of any Tenant personal property, equipment, or non- Building Standard Improvements, including, without limitation, refrigerators, fish tanks, icemakers, water fountains and water coolers, to the extent specified in Section 6.4 herein. Additionally, if it is determined that the Building and the Relevant Space will be repaired and restored as provided above, Tenant shall be entitled, by so notifying Landlord in writing during the 90-Day Casualty Assessment Period, to have Landlords repair and restoration obligations encompass only a scope of work that is consistent with the Building Shell Improvements originally completed by Landlord prior to the Commencement Date and, in such case, (i) Tenant shall be responsible for all additional work required to repair and restore the Building and the Relevant Space to the condition that existed immediately prior to the casualty event or to a modified condition and receive the relevant insurance proceeds related thereto which remain following the completion of Landlords repair and restoration obligations, subject to Landlords prior written approval of the plans and specifications for such modifications pursuant to Section 6.1(b) herein (and Tenant shall bear the risk of any shortfall in insurance proceeds to fully pay for such additional work if and to the extent such additional work exceeds the scope of work that would be required to restore the Improvements that existed in the Premises immediately prior to the casualty event), (ii) the foregoing one hundred eighty (180) day period for the completion of the repair and restoration project shall no longer be applicable and (iii) Tenant shall cause such additional work to be completed in an expeditious manner (so that rent hereunder will again be payable with respect to the Relevant Space) and otherwise in compliance with all relevant terms and provisions in this Lease relating to the installation of Improvements by Tenant.
Section 9.3 Abatement. Unless the damage is caused by Tenants willful misconduct, the Base Rent and other rentals hereunder shall abate in proportion to that part of the Premises that is unfit for use in Tenants business, considering the nature and extent of interference to Tenants ability to conduct business in the Premises and the need for access and essential services, and shall continue until repairs and restoration to the Relevant Space are completed, provided that in the event of a full abatement of rent, the Lease Term shall be extended automatically for a period equal to the period of such full abatement.
Section 9.4 Tenants Improvements and Personal Property. Landlord is not obligated to repair or restore damage to Tenants non-Building Standard Improvements, trade fixtures, furniture, equipment, or other personal property.
Section 9.5 Landlords Right to Cancel. If, with regard to damage to the Relevant Space: (i) the damage is not covered by insurance required to be maintained by Landlord or Tenant (as the case may be) hereunder and Landlord actually elects not to rebuild; or (ii) this Lease is in the last twenty-four (24) months of the Lease Term and Tenant has not exercised any renewal option that would extend the Lease Term beyond the then-current Lease Term, then Landlord may terminate this Lease by giving written notice of such decision to Tenant within thirty (30) days after Landlord knows of the event which gives Landlord the right to terminate, which notice shall specify the termination date, which shall be at least thirty (30) but not more than sixty (60) days after the date the termination notice is given.
Section 9.6 Termination. If either party terminates this Lease pursuant to this Article IX, Base Rent, Additional Rent and any other rentals hereunder shall be payable up to the termination date, subject to any abatement provided for herein beginning as of the date of damage.
ARTICLE X
EMINENT DOMAIN
Section 10.1 Right to Terminate. If a material part of the Premises or a material part of the Parking Areas is taken by right of eminent domain or private purchase in lieu thereof (i.e., under threat of eminent domain), then either party hereto shall have the right to terminate this Lease effective on the date physical possession is taken by the condemning authority or private purchaser, by written notice to the other party at least thirty (30) days prior to the said effective date (or if such taking is not known a sufficient amount of time prior to said thirty (30) day notice period to allow the terminating party to give such notice, such notice shall be given within thirty (30) days after the terminating party knows of such taking); provided, however, if this Lease is not so terminated, the rental specified herein shall be reduced during the unexpired portion of the Lease Term in proportion to the area of the Premises so taken and shall be effective on the date physical possession is taken by the condemning authority or private purchaser. If Landlord receives notice from an applicable government authority indicating that such authority intends to take a material portion of the Premises by right of eminent domain, Landlord shall notify Tenant within a reasonable time thereafter of Landlords receipt of such notice. Notwithstanding anything to the contrary in this Section 10.1, Tenant shall have no right to terminate this Lease due to a taking of a material portion of the Parking Areas so long as Landlord provides Tenant with access to replacement or substitute parking spaces in a quantity equal to Tenants share of the total number of parking spaces which were lost as a result of any such taking, provided either (i) such parking spaces are located within a reasonable walking distance from the Building or (ii) such parking spaces are located within the Business Park (or at a location outside of the Business Park that is no greater distance from the Building than the farthest location in the Business Park from the Building) and Landlord, at its sole cost and expense (not to be included in Operating Costs), provides shuttle transportation services to and from such parking spaces at reasonable intervals.
Section 10.2 Compensation. All compensation awarded for any taking (or the proceeds of private sale in lieu thereof), whether for the whole or a part of the Premises, shall be the property of Landlord whether such award is compensation for damages to Landlords or Tenants interest, provided Landlord shall have no interest in any award made to Tenant for loss of business, for moving expenses, or for the taking of Tenants fixtures and other tangible personal property within the Premises, if a separate award for such items is made to Tenant.
ARTICLE XI
DEFAULT AND WAIVER
Section 11.1 Tenants Default. Tenant shall be in default under this Lease if:
(a) Tenant fails to pay any installment of Monthly Base Rent or any other sum due hereunder within five (5) days after Tenant receives notice from Landlord that such payment was not received by Landlord by the due date; provided however, with regard to the payment of any extraordinary sum owed by Tenant to Landlord under this Lease (other than Base Rent and other regularly scheduled sums due and sums due for which a time period for payment is already specifically provided for elsewhere in this Lease) for which no time period for payment is provided (e.g., required reimbursements by Tenant to Landlord on demand, upon receipt of invoice or within thirty (30) days following receipt of invoice), Tenant shall not be in default for the failure to pay such extraordinary sums to Landlord until thirty (30) days after Tenants receipt of invoice for the same or other written notice that such extraordinary payment is due; provided, further, Tenant shall not be entitled to the benefit of any notice and cure period under this Section 11.1(a) more than once in any consecutive twelve (12) month period during the Lease Term;
(b) Tenant fails to perform any other Tenant covenant, representation, term or other obligation (other than those addressed in Section 11.1(c) and Section 11.1(d) herein) within a period of thirty (30) days or the additional time, if any, that is reasonably necessary to promptly and diligently cure the failure, after Tenant receives notice from Landlord setting forth in reasonable detail the nature and extent of the failure and identifying the applicable Lease provision; provided, however, such cure period shall not apply to emergencies or the failure of Tenant to maintain the insurance required by Article VIII herein;
(c) Tenant fails to vacate or stay any of the following within ninety (90) days after they occur:
(i) an involuntary petition in bankruptcy is filed against Tenant by an unrelated third party;
(ii) Tenant is adjudicated as bankrupt or insolvent; or
(iii) a receiver, trustee, or liquidator is appointed for all or a substantial part of Tenants property; or
(d) Any of the following occur (in which case no notice and cure period shall apply):
(i) a petition in bankruptcy is filed by Tenant or with Tenants consent; or
(ii) Tenant makes an assignment for the benefit of creditors.
Section 11.2 Landlords Remedies.
(a) Upon Tenants default, Landlord shall have all remedies provided in this Lease, as well as in law or equity, including, without limitation, the right to terminate this Lease
or Tenants right to possession hereunder, in which case Tenant shall immediately vacate the Premises and in such event if Tenant fails to vacate the Premises, Landlord, with due process of law, may have Tenant removed from the Premises; provided, however, in no event shall Tenant be liable for consequential or punitive damages in connection with this Lease.
(b) Landlords exercise of any of its remedies or its receipt of Tenants keys shall not be considered an acceptance of surrender of the Premises by Tenant, unless such acceptance of surrender is agreed to in writing by Landlord.
(c) If Landlord terminates this Lease or Tenants right to possess the Premises hereunder, Tenant shall be liable to Landlord for Monthly Base Rent, Additional Rent and all other indebtedness of Tenant under this Lease accrued to the date this Lease is terminated or Tenants right to possess the Premises ends and thereafter scheduled during the remainder of the Lease Term (which total Base Rent and Additional Rent may, at Landlords election be accelerated to be due and payable in full as of the event or events of default and recoverable as damages in a lump sum), less the rentals actually received from any reletting or, at Landlords election, less the reasonable rental value of the Premises for the remainder of the Lease Term reduced to present value using a discount rate equal to the then-current Prime Rate. Provided, however, if Landlord relets the Premises during all or any portion of the remainder of the scheduled Lease Term at a rental in excess of that provided for under this Lease, Tenant shall not be entitled to any such excess rental, and Tenant waives any claim thereto. Landlord shall use reasonable efforts to mitigate its damages suffered as a result of Tenants default, if and to the extent required by North Carolina law.
(d) Tenant shall also be liable for that part of the following sums paid by Landlord and attributable to the remainder of the scheduled Lease Term:
(i) reasonable brokers fees incurred by Landlord for reletting part or all of the Premises, prorated for the part of the reletting term ending concurrently with the scheduled Lease Term;
(ii) the cost of removing and storing Tenants property;
(iii) the cost of minor repairs, alterations, and remodeling necessary to put the Premises in a condition reasonably acceptable to a new tenant; and
(iv) other necessary and reasonable expenses incurred by Landlord in enforcing its remedies.
(e) Landlord may sue and take any other action provided by law to collect the amounts due hereunder at any time, and from time to time, without waiving its rights to sue for and collect further amounts due from Tenant hereunder.
Section 11.3 Waiver. The waiver of the breach of any agreement herein by either party in any one instance shall not be deemed to be a waiver of such agreement or any subsequent breach of the same or any other agreement herein contained, and the acceptance of rent hereunder by Landlord subsequent to the breach of this Lease by Tenant shall not be deemed to be a waiver of such breach, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlords knowledge of such breach at the time of acceptance of such rent.
Section 11.4 Landlords Default.
(a) Landlord shall not be in default for failure to perform any of its Lease covenants, representations, terms or other obligations until after a period of thirty (30) days or the additional time, if any, that is reasonably necessary to promptly and diligently cure the failure after receiving notice from Tenant, in writing and giving in reasonable detail the nature and extent of the failure and identifying the Lease provision(s) containing the relevant covenant(s), representation(s), term(s) or other obligation(s).
(b) If Landlord should be in default with respect to any of its covenant(s), representation(s), term(s) or other obligation(s) under this Lease and the applicable cure period has expired, Tenant shall be entitled to pursue any remedy now or hereafter permitted or available to Tenant under the laws or judicial decisions of the State of North Carolina; provided, however, in no event shall Landlord be liable for consequential or punitive damages in connection with this Lease.
(c) If Landlord fails to remedy any such Landlord default after receipt of written notice as aforesaid and Tenant delivers a second written notice to Landlord alleging such failure and Landlord does not thereafter commence to cure same within five (5) days of receipt of such second written notice, then Tenant may perform such obligation of Landlord and Landlord shall, within thirty (30) days of Landlords receipt of an invoice therefor, reimburse Tenant for the costs incurred by Tenant to remedy such Landlord default; provided, however, the foregoing self-help remedy shall apply only to a non-monetary default by Landlord which does not affect the base Building systems (e.g., electrical, mechanical, plumbing), is of a non-structural nature and does not affect other tenants in the Building, and nothing herein shall be construed as giving Tenant a claim for offset or abatement of rent relative to the costs incurred by Tenant in exercising the foregoing self-help remedy.
Section 11.5 Survival. The remedies provided in this Article XI and any covenants, representations, terms or other obligations in this Lease which, by their nature, would require the survival of the ending of this Lease shall survive the ending of this Lease.
ARTICLE XII
ASSIGNMENT AND SUBLETTING
Section 12.1 Consent Required.
(a) Tenant shall not transfer, mortgage, grant a security interest in, encumber, or assign this Lease, or any interest therein, or sublease all or part of the Premises, without Landlords advance written consent, which in the case of an assignment or sublease, shall not be unreasonably withheld or delayed; provided, however, Landlord may withhold its consent to the granting of a security interest in, or mortgaging of, Tenants leasehold estate, or any interest therein, in Landlords sole discretion. Assignments requiring Landlords consent shall include, and be deemed to mean, without limitation, an imposition (whether or not consensual) of a lien, mortgage, or encumbrance upon Tenants interest in this Lease (the consent to which Landlord may withhold in its sole discretion as provided above), an arrangement (including, without limitation, management agreements, concessions and licenses) that allow the use and occupancy of all or part of the Premises by anyone other than Tenant, a transfer of voting control of Tenant (if
Tenant is a corporation) and a transfer of more than fifty percent (50%) of the interest in the capital of Tenant if Tenant is a partnership or limited liability company. Notwithstanding the foregoing, Tenant has informed Landlord that Tenant intends to provide office space integrated within the various business units of Tenant located throughout the Premises for use by independent consultants of Tenant, and Landlord acknowledges that such arrangement shall not be deemed an assignment requiring Landlords consent under this Section 12.1(a) so long as such independent consultants use such portions of the Premises solely for the purpose of serving Tenant and Tenants business objectives. On sublease and assignment, Tenant will be responsible for any and all reasonable documented costs that Landlord incurs in connection with its review and/or approval of such sublease or assignment, including, but not limited to, reasonable attorneys fees.
(b) Notwithstanding anything to the contrary in Section 12.1(a) herein, Tenant shall be permitted to encumber with a first-lien security interest any equipment, furniture, inventory or other personal property located in the Premises which (i) is owned by Tenant; (ii) is not permanently affixed to the Premises and does not otherwise constitute real property improvements; (iii) is not central to the operation of the mechanical, electrical or other systems located in the Premises (independent of Tenants particular use of the Premises) and (iv) with respect only to the Initial Lease Term, was not constructed or purchased, in whole or in part, directly or indirectly, using the Tenant Improvements Allowance, or any portion thereof, or other funds provided by Landlord (collectively, the Tenants Security Property). Accordingly, Landlord hereby agrees to subordinate its right in and to Tenants Security Property to the lien of any holder of a first-lien security interest in and to Tenants Security Property; provided, however, such subordination shall not prevent Landlord from exercising any right or remedy against Tenant to which Landlord may be entitled under the terms of this Lease or as may be provided by applicable law, nor shall it prevent Landlord from exercising any rights it may have relative to Tenants Security Property, so long as Landlord recognizes the prior right of such first-lien security interest holder in and to Tenants Security Property. With respect to any first-lien security interest granted by Tenant hereunder, a three (3)-party agreement shall be entered into among Landlord, Tenant and the holder of such first-lien security interest at the time such first-lien security interest is created, which agreement shall contain terms and provisions reasonably satisfactory to Landlord relating to the processes and procedures to be followed by such first-lien security interest holder in exercising its rights relative to Tenants Security Property, including, without limitation, terms and provisions relating to the obligation of such first-lien security interest holder to (i) provide Landlord with reasonable advance written notice prior to removal of Tenants Security Property from the Premises, (ii) remove Tenants Security Property from the Premises after Business Hours and (iii) repair and restore any damage caused to the Premises, the Building and the Exterior Common Areas by removal of Tenants Security Property from the Premises.
Section 12.2 Affiliates. Notwithstanding Section 12.1(a) herein and subject to Section 12.5 herein, Tenant may assign this Lease or sublease part or all of the Premises without Landlords consent to the following (Affiliates): (i) any entity that controls, is controlled by, or is under common control with, Tenant; or (ii) any entity resulting from the merger or consolidation with Tenant or to any entity that acquires all of Tenants assets as a going concern of the business that is being conducted in the Premises, as long as the assignee or subtenant is a bona fide entity and assumes the obligations of Tenant. Tenant shall notify Landlord of any assignment or sublease
under this Section 12.2 at least thirty (30) days prior to the effective date of such assignment or sublease.
Section 12.3 Reasonableness. Where consent is required under this Article XII, Landlords consent, with regard to subleases and assignments, shall not be considered unreasonably withheld if, without limitation: (i) the proposed assignees financial responsibility does not meet the same criteria Landlord uses to select comparable Building tenants; (ii) the proposed subtenants or assignees use is inconsistent with the use permitted by Section 7.1 herein or violates an exclusive use granted to a then-current tenant; or (iii) the portion of the Premises proposed to be assigned or sublet by Tenant to a prospective assignee or subtenant exceeds 23,000 useable square feet in size (including contemplated or permitted expansions) and space containing comparable square footage exists within another building in the Business Park that is owned by Landlord or Land Owner or an affiliate of Landlord or Land Owner and such space is available to be leased to such assignee or subtenant.
Section 12.4 Procedure. With regard to a proposed sublease or assignment, Tenant shall provide Landlord in writing: (i) the name and address of the proposed subtenant or assignee; (ii) the nature of the business the proposed subtenant or assignee will operate in the Premises; (iii) the material terms (such as term, rent, available renewals, expansions, parking rights, upfit allowances and similar tenant concessions of financial value) of the proposed sublease or assignment; and (iv) reasonable financial information so that Landlord can evaluate the proposed subtenant or assignee under this Article XII, and Landlord shall, with regard to a sublease or assignment only, within ten (10) business days after receiving the information required (which Tenant shall deliver to Landlord under the cover of a memorandum or letter that boldly (e.g., all capital letters, etc.) alerts Landlord to the fact that, under the terms of Section 12.4 in this Lease, Landlords approval will be deemed given if Landlord fails to respond within ten (10) business days), give notice to Tenant to permit or deny the proposed sublease or assignment. If Landlord fails to deliver to Tenant a written response to such request for approval within such ten (10) business day period, then Landlord shall be deemed to have approved such proposed assignment or sublease transaction; but even in such case, the use provisions in Section 7.1 herein shall be fully binding on such assignee or subtenant.
Section 12.5 Conditions. Subleases and assignments by Tenant are also subject to: (i) the terms of this Lease; (ii) the current Lease Term (i.e., the term of the sublease or assignment shall not extend beyond the then-current Lease Term), and subtenants and assignees (except for an assignee that is an Affiliate and that receives an assignment of all of Tenants rights under this Lease for the entire Premises) shall not have the right to exercise any of the Lease Term renewal/extension rights provided for in this Lease; (iii) Tenant shall not be released of, and shall remain liable for, all Lease obligations; (iv) consent to one sublease or assignment shall not waive the consent requirement for future assignments or subleases; (v) subtenants and assignees shall not have the signage rights set forth in Section 7.2(b) , Section 7.2(c) and Section 7.2(d) herein, except as otherwise expressly set forth in such sections; and (vi) fifty (50%) percent of the consideration (the Excess Consideration) received by Tenant from an assignment or sublease that exceeds the total of (a) the amount Tenant must pay Landlord, which amount is to be prorated where only a part of the Premises is subleased or assigned, and (b) the actual reasonable costs incurred by Tenant in procuring said assignment or sublease, which amount is to be prorated over the term of such assignment or sublease, shall be paid to Landlord, within ten (10) days of receipt of same from time to time, with a detailed statement showing the total consideration
paid to Tenant by the subtenant or assignee and the actual reasonable costs incurred in procuring such assignment or sublease. Tenant shall provide Landlord with reasonable documentation of the information contained in the detailed statement.
Section 12.6 Leasehold Mortgage or Security Interest. If Landlord consents to Tenants granting a security interest in, or mortgaging, Tenants leasehold estate, which consent Landlord may withhold in its sole discretion, Tenant shall indemnify Landlord and hold Landlord harmless from and against any loss, cost or expense, including reasonable attorneys fees, incurred by Landlord with respect thereto, as a result of such security interest or mortgage, and such consent shall not be considered a waiver of the requirement to obtain Landlords consent with regard to any future security interest or mortgage of Tenants leasehold estate.
Section 12.7 Implications for Single-Tenant/Multi-Tenant Status. If Tenant assigns Tenants rights under this Lease with respect to less than all of the Premises to a party or entity that is not an Affiliate of Tenant or if Tenant subleases less than all of the Premises to a party or entity that is not an Affiliate of Tenant, then during the continuation of such assignment or sublease, all relevant provisions in this Lease and the exhibits attached hereto that stipulate what will occur if Tenant leases less than all of the rentable space in the Building during the Lease Term shall be automatically invoked and effective upon the effective date of such assignment or sublease transaction (presuming such provisions have not been previously invoked and made effective under any other provision in this Lease and the exhibits hereto).
Section 12.8 Remedy. If Tenant believes that Landlord has unreasonably withheld its consent under this Article XII, Tenant shall have such remedies as are available under this Lease and applicable law against Landlord if such withholding of consent is determined to be, in fact, unreasonable; provided however, in no event shall Tenant have the right to recover from Landlord consequential damages resulting therefrom.
ARTICLE XIII
SUBORDINATION
Section 13.1 Subordination. This Lease, and Tenants rights hereunder, shall at all times be subordinate to all mortgages and deeds of trust now existing or hereafter placed on the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land, provided the holder of any such mortgage or deed of trust enters into and delivers to Tenant a non-disturbance agreement in form and content reasonably acceptable to Tenant, such holder, Landlord and Harris Building Landlord (solely with respect to the portion of the Exterior Common Areas located on the Adjacent Land) whereby such holder agrees that, so long as Tenant is not in default hereunder beyond any applicable notice and cure period, (i) Tenant will not be disturbed in the use or enjoyment of the Premises, (ii) none of Tenants rights under this Lease will be disturbed or affected (including the rights of Tenant with respect to the Building-Specific Common Areas and the Exterior Common Areas), and (iii) this Lease shall remain in full force and effect, notwithstanding any default or foreclosure under any such mortgage or deed of trust. In such case, Tenant shall attorn to the mortgagee, trustee or beneficiary of such mortgage or deed of trust granted by Landlord, and the successor or assign of any of them, and to the purchaser or assignee under any foreclosure. Notwithstanding the foregoing, any secured lender of Landlord or Harris Building Landlord holding a mortgage or deed of trust on, or security interest in, the Building, the Harris Building, the Building-Specific Common Areas, the Exterior Common Areas
or the Land may, in its sole discretion, subordinate its interest to Tenants interest in this Lease by written notice of such subordination to Tenant. Landlord represents that, as of the Date of Execution of this Lease, there is no lien, mortgage or deed of trust on, or security interest in, the Building, the Building-Specific Common Areas, the portion of the Exterior Common Areas located on the Land, the Land or Landlords leasehold interest in the Ground Lease. Additionally, by executing the signature page attached to this Lease, (i) Land Owner represents that, as of the Date of Execution of this Lease, there is no lien, mortgage or deed of trust on, or security interest in, Land Owners fee simple interest in the Land, (ii) Harris Building Landlord represents that, as of the Date of Execution of this Lease, there is no lien, mortgage or deed of trust on, or security interest in, the portion of the Exterior Common Areas located on the Adjacent Land or Harris Building Landlords leasehold interest in the Adjacent Land pursuant to the ground lease between Harris Building Landlord and Adjacent Land Owner, and (iii) Adjacent Land Owner represents that, as of the Date of Execution of this Lease, there is no lien, mortgage or deed of trust on, or security interest in, Adjacent Land Owners fee simple interest in the portion of the Adjacent Land on which the Exterior Common Areas are located.
Section 13.2 Execution of Instruments. Tenant will, upon request by Landlord, execute and deliver to Landlord, or to any other person designated by Landlord, any instrument or instruments, including, but not limited to, such subordination, nondisturbance and attornment agreements, or estoppel letters, as may be reasonably required by any mortgagee in a mortgage or beneficiary in any deed of trust, on the Building and/or the Land, or other secured lender, to give effect to the provisions of Section 13.1 herein or reasonably requested by Landlord in connection with a sale or mortgage of the Building and/or the Land and shall execute and deliver to Landlord such amendments to this Lease as may be reasonably required by such proposed mortgagee, beneficiary, or other secured lender, on the Building and/or the Land, provided such amendments (a) provide for the nondisturbance of Tenant and Tenants rights under this Lease as long as Tenant is not in default under this Lease beyond any applicable notice and cure period and (b) do not adversely increase or affect the obligations and duties of Tenant hereunder or adversely decrease or affect the rights and benefits of Tenant hereunder or create any additional liability of Tenant hereunder. Tenant also agrees to require any subtenant of Tenant to execute any of the foregoing instruments if requested to do so by Landlord or any lender of Landlord. Landlord also agrees that it shall use commercially reasonable efforts to obtain and deliver to Tenant a subordination, nondisturbance and attornment agreement in form and content reasonably satisfactory to Tenant, Landlord and Landlords lender relative to any deeds of trust encumbering Landlords interest in the Building and/or the Land which are granted by Landlord to its lenders in the future. In connection with the foregoing, Landlord and Tenant further agree to employ good faith efforts to agree upon a subordination, nondisturbance and attornment agreement form which thereafter Landlord shall use good faith efforts to have accepted by Landlords lenders from time to time.
ARTICLE XIV
GENERAL PROVISIONS
Section 14.1 Transfer of Landlords Interest. The term Landlord, as used in this Lease, means only the owner, or the mortgagee in possession, for the time being, of the ground lease estate in the Building or the Land (unless the ground lease estate and the underlying fee simple interest are hereafter merged during the Lease Term, in which case Landlord shall be the owner of such merged estate), so that in the event of any sale of said estate, the transferring landlord shall be entirely freed and relieved of all obligations of Landlord hereunder coming due after the
date of transfer and provided the transferee or purchaser has assumed all obligations of Landlord hereunder, and Landlords assignment, sale or transfer of the Lease, or of any of its rights herein, shall in no manner affect Tenants obligations or rights hereunder, and Tenant shall thereafter attorn to such assignee, transferee, or purchaser, as Landlord, provided Tenant first has written notice of such transfer, assignment, or purchase of Landlords interest. Any security given by Tenant to Landlord to secure performance of Tenants obligations hereunder shall be transferred by Landlord to the successor in interest to Landlord; and, upon acknowledgment by such successor of receipt of such security and its express assumption of the obligation to account to Tenant for such security in accordance with the terms of this Lease, the transferring Landlord shall thereby be discharged of any further obligation relating thereto.
Section 14.2 Landlords Limited Liability. Notwithstanding any other provision in this Lease to the contrary, the liability of Landlord under this Lease shall be limited to an amount equal to the lesser of (i) Landlords equity interest in the Building and associated parking rights, or (ii) twenty-five percent (25%) of the value of the Building and associated parking rights (such value being derived from a then-current appraisal completed by an MAI-certified appraiser) (the Recovery Ceiling Amount) in the event of a failure by Landlord to perform any of the terms, covenants, conditions or agreements of this Lease to be performed by Landlord, and Tenant agrees that any judgment it may obtain against Landlord, or Landlords general partners, if any, as a result of the breach of this Lease, as aforesaid, shall be limited to the Recovery Ceiling Amount and enforceable solely against Landlords equity interest in the Building and associated parking rights. Notwithstanding any terms and provisions of this Section 14.2 to the contrary, with respect to liability relating to obligations of a prior landlord under this Lease which obligations were not assumed by such prior landlords successor, Tenant shall not be prohibited from seeking to enforce any judgment it may obtain against such prior landlord against any property of such prior landlord; provided, however, in no event shall the total amount of recovery sought by Tenant pursuant to the terms and provisions of this Section 14.2 (regardless of whether such recovery is sought from Landlord or any prior landlord(s), or both) exceed the Recovery Ceiling Amount. Furthermore, with respect to any conveyance of Landlords equity interest in the Building and associated parking rights, the Recovery Ceiling Amount shall be calculated one (1) minute prior to such conveyance and one (1) minute after such conveyance, and, if different (which might be the case, for example, if indebtedness encumbering the Building and associated parking rights varies immediately before and immediately after the relevant conveyance), then whichever calculation yields the highest number shall be the relevant figure under this Section 14.2.
Section 14.3 Landlord Not Partner. It is agreed that Landlord is not a partner, joint venturer or associate of Tenant in the conduct of Tenants business, that the provisions of this Lease with respect to the payment by Tenant of rent are not sharing of profits, that the relationship between the parties is and shall remain at all times that of landlord and tenant, and that no provision of this Lease shall be construed to impose upon the parties hereto any obligation or restriction not expressly set forth herein.
Section 14.4 Recording. The recording of this Lease is prohibited; provided, however, at the request of either party, the parties shall promptly execute and record, at the cost of the requesting party, a short form memorandum describing the Premises and stating the Lease Term, its Commencement Date and Termination Date, and any other information the parties agree to include or that is required by law.
Section 14.5 Additional Instruments. The parties agree to execute and deliver in a timely fashion any instruments in writing necessary to carry out any agreement, term, condition or assurance in this Lease whenever occasion shall arise and reasonable request for any such instrument shall be made.
Section 14.6 Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person(s), firm(s), or corporation(s) may require.
Section 14.7 Counterparts. This Lease may be executed in counterparts, all of which, taken together, shall be deemed one original.
Section 14.8 Entire Agreement, Amendment and Modification. This Lease embodies the full agreement of the parties and supersedes all prior understandings concerning the subject matter of this Lease, and any amendment or modification of this Lease must be in writing and signed by both parties.
Section 14.9 Controlling Law. This Lease shall be construed and enforced in accordance with the law of the State of North Carolina.
Section 14.10 Binding Effect. This Lease shall be binding upon and inure to the benefit of the parties hereto, their assigns, administrators, successors, estates, heirs and legatees, respectively, except as herein provided to the contrary.
Section 14.11 Partial Invalidity. In the event that any provision of this Lease shall be determined to be invalid or unenforceable, the remaining provisions of this Lease (which can be separated from the invalid, unenforceable provision) shall continue in full force and effect.
Section 14.12 Captions. The section titles, numbers and captions contained in this Lease are only for convenience and reference and in no way define, limit, extend, modify or describe the scope or intent of this Lease or any provision herein.
Section 14.13 Time of Essence. Except as otherwise provided in this Lease, time is of the essence in the performance of the provisions of this Lease.
Section 14.14 Brokerage.
(a) Tenant warrants that it has had no dealing with any broker or agent in connection with the negotiation or execution of this Lease other than The Bissell Companies, Inc. (Landlords Broker) and Jones Lang LaSalle Brokerage, Inc., a Texas Corporation (Tenants Broker). Landlord shall be responsible for any commission due to Landlords Broker, and Tenant shall not have any obligation with respect thereto. Subject to the terms and provisions of Section 14.14(b) herein, Landlord shall be responsible for the payment of a commission to Tenants Broker with regard to this leasing transaction, consistent with the terms and provisions of a previously-executed separate brokerage agreement (the Brokerage Agreement) entered into between Landlord and Tenants Broker. Landlord agrees to indemnify and hold Tenant harmless from and against any claims by Landlords Broker with regard to this leasing transaction, and Landlord agrees to indemnify and hold Tenant harmless from and against any claims by Tenants Broker with regard to this leasing transaction if and to the extent such claim is justified
by the obligations of Landlord under the Brokerage Agreement and under the terms and provisions of Section 14.14(b) herein. With respect to parties other than Landlords Broker and Tenants Broker, Tenant and Landlord each agree to indemnify and hold the other harmless from and against any claims by any such other broker, agent or person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to this leasing transaction.
(b) Landlord has agreed to pay to Tenants Broker the entire sum of the commission due and payable under the Brokerage Agreement within ten (10) days of the Date of Execution of this Lease; provided, however, in the event (i) the Tenant Improvements are not substantially completed or Tenant does not substantially occupy the Premises as of the Rent Commencement Date for any reason other than a material default by Landlord under the terms of this Lease beyond any applicable grace or cure period afforded to Landlord under the terms of this Lease, and/or (ii) Tenant fails to make the first monthly rent payment due following the Rent Commencement Date beyond any applicable grace or cure period afforded to Tenant under the terms of this Lease, then Landlord shall be entitled to a refund from Tenant of one-half (1/2) of such commission, which refund amount Tenant shall pay to Landlord within ten (10) days after Landlord delivers a written demand to Tenant for such payment. Additionally, in such case, Tenant shall indemnify and hold Landlord harmless from and against any and all costs and expenses incurred by Landlord in seeking a return of such commission, including, without limitation, legal fees incurred by Landlord to compel the payment of such commission by Tenant. Additionally, if the facts entitling Landlord to receive from Tenant a refund of one-half (1/2) of the commission under this Section 14.14(b) constitute a default with respect to other obligations of Tenant under this Lease, nothing in this Section 14.14(b) shall be deemed or construed as a limitation on rights or remedies afforded to Landlord by other provisions in this Lease; provided, however, if and to the extent Landlord recovers one-half (1/2) of the commission under this Section 14.14(b), the total amount which Landlord would otherwise be entitled to recover relative to Tenants default with respect to provisions of this Lease shall be reduced by such commission amount recovered, net of all costs and expenses (including, without limitation, legal fees) incurred by Landlord in seeking a return of such commission amount.
Section 14.15 Authority of Parties. Each party warrants that it is authorized to enter into this Lease, that the person signing on its behalf is duly authorized to execute this Lease, and that no other signatures are necessary, and each person signing this Lease certifies that he or she is authorized by the party on whose behalf such person is signing and that no further authorization or signatures are required for such persons signature to bind such party hereunder.
Section 14.16 Consent Not Unreasonably Withheld. When either party hereto is required to give its consent to the other party prior to doing or refraining from doing some act hereunder, it is agreed that the party whose consent is required shall not unreasonably withhold or delay such consent, unless it is specifically stated herein that the party whose consent is required may withhold such consent in its sole discretion, or words of similar import.
Section 14.17 Mechanics Liens. Tenant shall keep the Premises, the Building and the Land, and every part thereof, free from any liens for any work performed, material furnished, or obligations incurred by, or at the direction of, Tenant, whether or not the same shall be made or done with the consent of Landlord or by agreement between Tenant and Landlord. Tenant shall have no right to encumber or subject the interest of Landlord in the Premises, the Building or the Land, or any part
thereof, to any mechanics, materialmans, or other liens of any nature whatsoever, and upon the filing of any such lien, the failure of Tenant to have the same discharged by bond or otherwise within twenty (20) days after filing shall constitute a default and entitle Landlord at its option to take any action provided for elsewhere in this Lease. Additionally, Tenant shall indemnify and hold Landlord harmless from and against any and all claims, costs, expenses, and liabilities incurred by Landlord relating to any such liens.
Section 14.18 Estoppel Certificates.
(a) Tenant shall execute, acknowledge and deliver to Landlord, from time to time during the Lease Term, within ten (10) business days after Landlord provides Tenant with written notice to do so, an estoppel certificate certifying in writing that this Lease is in full force and effect, unmodified, or modified solely as set forth in such estoppel certificate, including confirmation of the Commencement Date, the Rent Commencement Date and the Termination Date, the date or dates to which rent has been paid and that Landlord has, as of the date of such estoppel certificate, fully and completely performed and complied with each of the terms and conditions of this Lease, without exception or except as only set forth in such estoppel certificate, and such other matters and facts as Landlord shall reasonably request Tenant to confirm relative to this Lease. Any such estoppel certificate may be conclusively relied upon by any prospective purchaser or encumbrancer of the Building and/or the Land, and the failure of Tenant to so deliver such estoppel certificate in such period of time shall mean that Tenant represents that this Lease is in full force and effect, without modification, that rent has not been prepaid under this Lease, except as expressly required in this Lease, and that Landlord has, as of the date on which Tenant failed to deliver such estoppel certificate, fully and completely performed and complied with each of the terms and conditions which Landlord is required to comply with hereunder, without exception.
(b) Upon written request from Tenant, Landlord shall provide Tenant, from time to time during the Lease Term, within ten (10) business days after receipt of said request, an estoppel certificate containing the same information required of Tenant in Tenants estoppel certificate to Landlord, except that Landlord will certify as to whether Tenant (instead of Landlord) has, as of the date of such estoppel certificate, fully and completely performed and complied with each of the terms and conditions of this Lease which Tenant is required to comply with hereunder, without exception, or except only as set forth in the estoppel certificate.
Section 14.19 Rights Reserved by Landlord.
(a) Miscellaneous Rights. Notwithstanding any other provision of this Lease, Landlord shall at all times have the right to (i) change the address of the Building if required to do so by any government authority, in which case each party shall pay its own costs regarding the same, (ii) retain pass keys to all locks within or into the Premises, and (iii) make any alterations, additions or improvements to the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land as Landlord may deem, in its reasonable discretion, necessary for the safety, protection, preservation, or improvement of the Building, the Building-Specific Common Areas, the Exterior Common Areas and/or the Land, and to change the arrangement and/or location of entrances, passageways, doors, corridors, elevators, stairs, toilets and public parts of the Building. Provided, however, (A) during any portion of the Lease Term when Tenant is leasing from Landlord all of the rentable space in the Building, Landlord shall
not be permitted to change the arrangement and/or location of entrances, passageways, doors, corridors, elevators, stairs, toilets and public parts of the Building without first obtaining Tenants prior written consent (not to be unreasonably withheld, conditioned or delayed), unless such changes are required by any government authority, in which case Tenants consent shall not be required, and (B) during any portion of the Lease Term when Tenant is leasing from Landlord less than all of the rentable space in the Building, Landlord shall be permitted to change the arrangement and/or location of entrances, passageways, doors, corridors, elevators, stairs, toilets and public parts of the Building to the extent such changes do not materially adversely affect Tenants business operations conducted within the Premises, unless such changes are required by any government authority, in which case Landlord shall be entitled to implement such changes without regard to the effect on Tenants business operations.
(b) Rights to Common Area Amenities. Additionally, Landlord shall at all times have the right to grant to other owners, occupants and tenants of other buildings within the Business Park (including the employees and invitees of same) the right to use, on a non-exclusive basis, certain amenities and features located within the Exterior Common Areas which have been provided (or which shall hereafter be provided) for the general use and enjoyment of such owners, occupants and tenants (including the employees and invitees of same), including, without limitation, walkways, running paths, driveways, sitting areas, putting greens, pocket parks, and other landscaped and open areas. Accordingly, Tenant hereby acknowledges that its right to use such areas shall be subject to the non-exclusive rights granted (or to be granted) by Landlord pursuant to the immediately preceding sentence.
Section 14.20 Landlord and Tenant OFAC Representations.
(a) Landlord, to its actual knowledge, is now and will in the future be, in compliance with U.S. Executive Order 13224 (Order), and no action, proceeding, investigation, charge, claim, report or notice has been filed, commenced or threatened against Landlord alleging any failure to so comply. Landlord has no actual knowledge and has not received actual notice of any fact, event, circumstance, situation or condition which could reasonably be expected to result in (i) any action, proceeding, investigation, charge, claim, report or notice being filed, commenced or threatened against Landlord alleging any failure to comply with the Order, or (ii) the imposition of any civil or criminal penalty against Landlord for any failure to so comply. Landlord is not included in the OFAC List set forth in the Order or 31 CFR Ch V (Part 595) Appendix A.
(b) Tenant, to its actual knowledge, is now and will in the future be, in compliance with the Order, and no action, proceeding, investigation, charge, claim, report or notice has been filed, commenced or threatened against Tenant alleging any failure to so comply. Tenant has no actual knowledge and has not received actual notice of any fact, event, circumstance, situation or condition which could reasonably be expected to result in (i) any action, proceeding, investigation, charge, claim, report or notice being filed, commenced or threatened against Tenant alleging any failure to comply with the Order, or (ii) the imposition of any civil or criminal penalty against Tenant for any failure to so comply. Tenant is not included in the OFAC List set forth in the Order or 31 CFR Ch V (Part 595) Appendix A.
Section 14.21 Attorneys Fees. In the event that any action, suit, or other proceeding is instituted concerning or arising out of this Lease, including, without limitation, any action on such for
the rentals due hereunder, the prevailing party shall recover all of such partys documented reasonable costs and reasonable attorneys fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom, from the non-prevailing party. As used herein, attorneys fees shall mean the full and actual costs of any legal services actually rendered in connection with the matters involved, calculated on the basis of the usual fee charged by the attorney performing such services.
Section 14.22 Confidentiality. Landlord and Tenant each agree, on behalf of their respective employees, agents, contractors, consultants, partners, affiliates, assignees and subtenants, not to disclose the terms of this Lease, the results of any audit of Landlords or Tenants books and records under or in connection with this Lease, or financial information not already in the public domain relating to the other party (collectively, the Confidential Information) to any third party except (i) their respective legal counsel, (ii) any assignee of Tenants interest in this Lease or any subtenant of Tenant relative to the Premises (or any portion thereof), (iii) in connection with litigation between Landlord and Tenant arising hereunder, (iv) as required by applicable law or by subpoena or other similar legal process, (v) for financial reporting purposes, (vi) as necessary to record a memorandum of this Lease, (vii) lending institutions from which Landlord or Tenant (as the case may be) has obtained, or in good faith intends to seek, financing, (viii) bona fide prospective transferees of Landlords interest under this Lease and prospective new joint venture partners of Landlord, or (ix) in any registration statement filed by Landlord or Tenant (as the case may be) with the Securities and Exchange Commission or similar body. Provided, however, with respect to any third party to whom Landlord or Tenant (as the case may be) discloses Confidential Information as permitted in this Section 14.22, the party disclosing such information shall inform such third party that such Confidential Information is confidential and shall secure from such third party a written agreement addressed to both Landlord and Tenant stating that such third party will not disclose such Confidential information and will keep such Confidential Information strictly confidential in accordance with the terms and provisions of this Section 14.22.
Section 14.23 Date of Execution. The submission of this Lease to Tenant for review does not constitute a reservation of or option for the Premises, and this Lease shall become effective as a contract only upon execution and delivery by both Landlord and Tenant. The date of execution (the Date of Execution) shall be inserted in the introductory paragraph on the first page of this Lease by Landlord, and shall be the date on which the last party signed and delivered this Lease, or as otherwise may be specifically agreed by both parties. Such date, once inserted, shall be established as the final date of ratification by all parties to this Lease.
Section 14.24 Lease Guaranty. Simultaneously with Tenants execution of this Lease, Tenant shall cause Guarantors, which are Tenants subsidiaries, to execute a Lease Guaranty pursuant to which Guarantors shall guaranty the obligations of Tenant under this Lease. In connection therewith, Tenant represents and warrants to Landlord the following: (i) as of the Date of Execution, the entities listed as Guarantors in Section 1.1 herein are Tenants only subsidiaries; and (ii) the financial statements and other information regarding the financial condition of Tenant and its subsidiaries which Tenant has provided to Landlord (and which Landlord has relied upon in entering into this Lease) fairly and accurately represent the combined financial condition of Tenant and the entities listed as Guarantors in Section 1.1 herein and do not include financial information for any other entities other than Tenant and the entities listed as Guarantors in Section 1.1 herein.
Section 14.25 Additional Terms and Provisions. The additional terms and provisions set forth on Exhibit G attached to this Lease are incorporated herein by reference, and such additional terms and provisions shall control if in conflict with any of the foregoing provisions of this Lease.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed under seal the date and year first above written.
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LANDLORD: | ||
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BOYLE BUILDING, LLC, a North Carolina limited liability company | ||
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Four Bissells, LLC, its Manager | |
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/s/ Edward L. Curran |
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Edward L. Curran |
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President |
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TENANT: | ||
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PREMIER PURCHASING PARTNERS, L.P., a California limited partnership | ||
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Premier Plans, LLC, a Delaware limited liability company, its General Partner | |
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/s/ Susan D. DeVore |
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Susan D. DeVore |
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President & CEO |
The undersigned, as Land Owner, hereby executes this Lease for the sole purpose of consenting thereto and agreeing to the terms of Section 2.4(a) and Section 2.5 herein and making the representation in Section 13.1 herein.
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LAND OWNER: | ||
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BALLANTYNE EAST, LLC, a North Carolina limited liability company | ||
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Bissell Real Estate Company, Inc., its Manager | |
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/s/ Edward L. Curran |
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Name: |
Edward L. Curran |
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Title: |
VP |
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The undersigned, as Harris Building Landlord, hereby executes this Lease for the sole purpose of (i) agreeing to be bound by and to comply with the terms of Section 2.4(a) herein relative to the Exterior Common Areas located within the Adjacent Land and the terms of Section 7.3(a) relative to the portion of the Parking Areas located within the Adjacent Land, and (ii) making the representation in Section 13.1 herein.
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JJH BUILDING, LLC, a North Carolina limited liability company | ||
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Four Bissells, LLC, its Manager | |
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/s/ Edward L. Curran |
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Edward L. Curran |
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President |
The undersigned, as Adjacent Land Owner, hereby executes this Lease for the sole purpose of (i) acknowledging the right and authority of Harris Building Landlord, under that certain ground lease between the undersigned, as landlord, and Harris Building Landlord, as tenant, to be bound by and to comply with the terms of Section 2.4(a) herein relative to the Exterior Common Areas located within the Adjacent Land and the terms of Section 7.3(a) relative to the portion of the Parking Areas located within the Adjacent Land, and (ii) making the representation in Section 13.1 herein.
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BALLANTYNE EAST, LLC, a North Carolina limited liability company | ||
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Bissell Real Estate Company, Inc., its Manager | |
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/s/ Edward L. Curran |
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Edward L. Curran |
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VP |
EXHIBIT A-1
LAND DESCRIPTION
Lying and being in the City of Charlotte, County of Mecklenburg, State of North Carolina, and being more particularly described as follows:
BEGINNING at a set #4 rebar disc along the Eastern right-of-way margin of Ballantyne Corporate Place (a variable width public right-of-way, Map Book 27, Page 249) having North Carolina Grid Coordinates (N.A.D. 83) of N = 480,597.112 and E = 1,448,369.333 and being located the following five (5) courses from N.C.G.S. Monument LOWERY with North Carolina Grid Coordinates N = 474,223.218 and E = 1,443,392.746: 1) N 39-22-05 E 7836.69 feet (ground distance combined grid factor of 0.999852732) to a found right-of-way disc; 2) N 35-00-27 W, a distance of 50.36 feet to a found right-of-way disc; 3) N 09-00-43 E, a distance of 215.03 feet to a set #4 rebar; 4) N 82-17-12 W, a distance of 5.36 feet to a set #4 rebar; 5) with the arc of a circular curve to the left having a radius of 1435.00 feet, an arc length of 62.44 feet and a chord bearing and distance of N 06-28-00 E, 62.44 feet to the POINT OF BEGINNING; THENCE continuing with the Eastern right-of-way margin of Ballantyne Corporate Place with the arc of a circular curve to the left having a radius of 1435.00 feet, an arc length of 454.64 feet and a chord bearing and distance of N 03-51-22 W, 452.74 feet to a set #4 rebar; THENCE departing said right-of-way of Ballantyne Corporate Place, and with five (5) new lines: 1) N 88-29-43 E, a distance of 380.80 feet to a set #4 rebar; 2) S 20-47-58 E, a distance of 192.55 feet to a set #4 rebar; 3) S 23-33-38 E, a distance of 270.28 feet to a set #4 rebar; 4) S 17-49-38 E, a distance of 191.69 feet to a set #4 rebar, a new corner in common with new parcel CBP-7F; THENCE two (2) new lines in common with new parcel CBP-7F: 1) N 76-43-16 W, a distance of 308.84 feet to a set #4 rebar; 2) N 74-45-33 W, a distance of 295.12 feet the POINT OF BEGINNING, containing 5.64 acres and being a portion of the property conveyed to B.E. Carnegie, LLC in Deed Book 18188, Page 216 and recorded in the Mecklenburg County Register of Deeds.
EXHIBIT A-2
ADJACENT LAND DESCRIPTION
Lying and being in the City of Charlotte, County of Mecklenburg, State of North Carolina, and being more particularly described as follows:
BEGINNING at a found right-of-way disc having North Carolina Grid Coordinates (N.A.D. 83) of N = 480,280.778 and E = 1,448,362.823 and being located N 39-22-05 E 7836.69 feet (ground distance combined grid factor of 0.999852732) from N.C.G.S. Monument LOWERY with North Carolina Grid Coordinates N = 474,223.218 and E = 1,443,392.746, said rebar being located on the Northern right-of-way margin or Ballantyne Commons Parkway (a variable width public right-of-way, NCDOT Project 9.8100354, Deed Book 7853 at Page 213); THENCE along and with the Northern right-of-way of Ballantyne Commons Parkway N 35-00-27 W, a distance 50.36 feet to a found right-of-way disc on the Eastern right-of-way of Ballantyne Corporate Place (a variable wide public right-of-way, Map Book 27, Page 249); THENCE along and with the Eastern right-of-way margin of Ballantyne Corporate Place the following three (3) courses: 1) N 09-00-43 E, a distance of 215.03 feet to a set #4 rebar; 2) N 82-17-12 W, a distance of 5.36 feet to a set #4 rebar; 3) with the are of a circular curve to the left having a radius of 1435.00 feet, an arc length of 62.44 feet and a chord bearing and distance of N 06-28-00 E, 62.44 feet to a set #4 rebar, a new corner in common with new parcel CBP-7E; THENCE departing said right-of-way a line in common with new parcel CBP-7E the following five (5) courses: 1) S 74-45-33 E, a distance of 295.12 feet to a set #4 rebar; 2) S 76-43-16 E, a distance of 308.84 feet to a set #4 rebar; 3) S 45-10-55 E, a distance of 188.60 feet to a set #4 rebar; 4) S 34-14-31 E, a distance of 168.06 feet to a set #4 rebar; 5) S 28-19-02 W, a distance of 202.50 feet to a set #4 rebar on the Northern right-of-way margin of said Ballantyne Commons Parkway; THENCE along and with the Northern right-of-way margin of Ballantyne Commons Parkway the following seven (7) courses: 1) N 61-40-58 W, a distance of 75.00 feet to a found #4 rebar; 2) S 28-19-02 W, a distance of 15.00 feet to a found #4 rebar; 3) S 73-19-02 W, a distance of 49.50 feet to a round right-of-way disc; 4) N 61-40-58 W, a distance of 178.72 feet to a found right-of-way disc; 5) with the arc if a circular curve to the left having a radius of 1650.00 feet, an arc length of 103.45 feet and a chord bearing and distance of N 63-28-43 W, 103.43 feet to a found right-of-way disc; 6) N 24-43-31 E, a distance of 26.00 feet to a found right-of-way disc; 7) with the arc of a circular curve to the left having a radius of 1676.00 feet, an arc length of 384.51 and a chord bearing and distance of N 71-50-50 W, 383.66 feet to the POINT OF BEGINNING, containing 6.319 acres and being a portion of the property conveyed to B.E. Carnegie, LLC in Deed Book 18188, Page 216 and recorded in the Mecklenburg County Register of Deeds.
EXHIBIT C-1
LANDLORD WORK LETTER
This Landlord Work Letter (this Landlord Work Letter) is part of that certain Lease dated October 21, 2009 (the Lease), between Boyle Building, LLC, as Landlord, and Premier Purchasing Partners, L.P., as Tenant, to which this Landlord Work Letter is attached as Exhibit C-1, and this Landlord Work Letter shall be subject to all of the terms, definitions and conditions of the Lease. Prior to the Date of Execution of the Lease, Landlord has caused the Building shell improvements (the Building Shell Improvements) to be completed at Landlords sole expense. The following describes, in part, the Building Shell Improvements:
1. Work shall be completed to a Building Standard finished condition in the main entry, all elevator lobbies and restrooms in the Building, and common area corridors on floors 1, 2 and 4.
2. HVAC distribution main loop shall be installed as well as approximately 20 fan-powered boxes per floor. The slot diffusers and duct installation shall be provided by Landlord and will be installed as part of the Tenant Improvements.
Type: Vertical self-contained water-cooled package units on each floor feeding variable volume boxes and fan powered boxes in each zone. Electric strip reheat is provided on perimeter fan powered boxes. Electronic digital controls provide constant control for total energy management system. Building HVAC system can handle an occupancy load of 1 person/150 square feet and meets ASHRAE Standard 62-2004 of outside air. Additional heat load retention capacity of 100 tons available at cooling tower. All fan/heat zones are used to provide make-up heat at roof level.
Zoning: 2000 gross square feet maximum per interior zone.
850 gross square feet maximum per exterior zone.
250 gross square feet maximum per corner zone.
Exterior and corner FPUs to have resistance heat for morning warm-up. Approximately 23 zones per floor.
Roof insulation: R-15 rigid foam insulation.
Wall insulation: R-11 foil backed fiberglass batts.
3. Electrical service is provided to the electrical closet on each floor, with panels and circuit breakers providing a capacity of 6.0 watts per square foot, along with a code compliant grounding system.
4. A lay-in acoustical ceiling system shall be in place. Ceiling tile installation shall be completed as part of the Tenant Improvements installation; provided, however, Landlord agrees to provide Tenant with a monetary credit of $91,950.00 (the Ceiling Tile
Credit, which shall be added to and treated as part of the Tenant Improvements Allowance) for Building Standard ceiling tiles for the Premises.
5. Installation of light fixtures shall be completed as part of the Tenant Improvements installation; provided, however, Landlord agrees to provide Tenant with a monetary credit of $175,375.00 (the Light Fixtures Credit, which shall be added to and treated as part of the Tenant Improvements Allowance) for two thousand eight hundred seventy-five (2,875) Building Standard 2'x4' parabolic light fixtures for the Premises. Alternatively, if Tenant so requests, Landlord shall supply such light fixtures for the Premises, in which case there shall be no Light Fixtures Credit.
6. Automatic sprinkler system, as same exists on the Date of Execution, shall be operational and tested in accordance with National Fire Protection Association (NFPA) and local jurisdictional requirements. All additional sprinkler system lines, heads and other equipment and appurtenances beyond what has been installed in the Building as of the Date of Execution shall be installed as part of the Tenant Improvements.
7. Floor slabs shall be consistent with the following specification: FFI-16/FFG-24 (1/4" +/- l0'-0"). All vertical penetrations shall be sealed and fireproofed.
8. Each wet column (approximately six per floor) shall offer stub outs for cold water and vents to the roof of the Building. Hot water shall be provided by hot water tanks to be installed as a part of the Tenant Improvements.
9. Connection point shall be installed on the floor(s) for the fire alarm system. The complete core fire alarm system shall be installed, operating and tested in accordance with NFPA and local jurisdictional requirements.
10. Exterior window coverings shall be furnished and installed.
All of the Building Shell Improvements are in place as of the Date of Execution. Thus, as of the Date of Execution, the Premises are ready for the installation of the Tenant Improvements to be commenced as soon as the Tenant Improvements Plans and Specifications (as defined below in this exhibit) are prepared and approved and the necessary building permit(s) is(are) issued, Additionally, as of the Date of Execution, Landlord has completed the application process for, is using commercially reasonable efforts to obtain, and shall continue to use commercially reasonable efforts to obtain, LEED® Core & Shell certification for the Building.
EXHIBIT C-2
TENANT WORK LETTER
This Tenant Work Letter (this Tenant Work Letter) is part of that certain Lease dated October 21, 2009 (the Lease), between Boyle Building, LLC, as Landlord, and Premier Purchasing Partners, L.P., as Tenant, to which this Tenant Work Letter is attached as Exhibit C-2, and this Tenant Work Letter shall be subject to all of the terms, definitions and conditions of the Lease,
1. As used in this exhibit and in the Lease, the Tenant Improvements shall mean the improvements to be constructed and installed in the Premises in accordance with the terms of this exhibit and subject to Landlords Premises Dominion and Control in all cases.
2. As soon as reasonably practicable following the Date of Execution and subject to the terms and provisions in Section 3 in this exhibit, Tenant shall proceed, at Tenants cost and expense (subject to reimbursement from the Tenant Improvements Allowance, as such term is defined below in this exhibit) and in accordance with the terms of this exhibit, to have Tenants architect/engineer (the Architect/Engineer) prepare a draft of the plans and specifications for the construction of the Tenant Improvements (the Tenant Improvements PIans and Specifications). The Tenant Improvements Plans and Specifications shall be comprised, at a minimum, of the following: (i) the partition layout plan for the Premises, (ii) the reflected ceiling plan for the Premises, (iii) detailed drawings depicting the location of light fixtures, electrical outlets, and telephone, computer and other communications outlets, (iv) doors, (v) wall finishes, (vi) floor coverings, (vii) air conditioning, heating and ventilation system ductwork, and (viii) plumbing lines and fixtures. The Architect/Engineer must be licensed in the State of North Carolina, must be in good professional standing and, as part of Landlords Premises Dominion and Control, must be approved in advance by Landlord (such approval not to be unreasonably withheld, conditioned or delayed). Landlord hereby approves the following architectural firms to serve as the Architect/Engineer hereunder: Little Diversified Architectural Consultants. Landlord shall use commercially reasonable efforts to cooperate with Tenant, upon Tenants reasonable request, in reviewing and providing comments relative to any preliminary plans and specifications and in meeting periodically with the Architect/Engineer in connection therewith. Tenant shall cause the Tenant Improvements Plans and Specifications to be delivered to Landlord accompanied by a letter or memorandum identifying them as the Tenant Improvements Plans and Specifications which are being submitted to Landlord for review and approval by Landlord (as part of Landlords Premises Dominion and Control) pursuant to this exhibit. The Tenant Improvements Plans and Specifications submitted by Tenant to Landlord hereunder shall consist of all drawings (final scale) and specifications necessary to construct the Tenant Improvements and shall be in form and detail sufficient to secure all required governmental approvals and permits for the installation of the Tenant Improvements. Upon receipt by Landlord of the Tenant Improvements Plans and Specifications, Landlord shall, within seven (7) business days, review and approve them or furnish to Tenant in writing a detailed description of any aspects of the Tenant Improvements Plans and Specifications which are not acceptable to Landlord, the reasons the matters so described are not acceptable and
the changes which will be required to make the Tenant Improvements Plans and Specifications acceptable to Landlord. Landlords written response to Tenant also shall indicate whether Landlord reserves the right to require Tenant, at the expiration or earlier termination of the Lease Term, to remove all or any portion of such Tenant Improvements and to restore the Premises to the condition that existed immediately prior to the installation of such Tenant Improvements. In the event Landlord objects to the Tenant Improvements Plans and Specifications as part of Landlords Premises Dominion and Control, Tenant shall cause the Architect/Engineer to revise and modify the Tenant Improvements Plans and Specifications to respond to Landlords comments with respect thereto; and Tenant shall thereupon resubmit the Tenant Improvements Plans and Specifications for review by Landlord. With respect to any such resubmittal to Landlord of the Tenant Improvements Plans and Specifications, the procedure set forth above for Landlords initial review shall apply. The following additional terms and provisions shall apply to the Tenant Improvements Plans and Specifications:
(a) Notwithstanding anything to the contrary contained herein, the submittal for approval of, and construction in conformity with, the Tenant Improvements Plans and Specifications may be completed in separate phases for separate full-floor increments of the Premises (provided, however, with respect to the first floor of the Premises, the Tenant Improvements Plans and Specifications for the portion of the first floor on which the Data Center will be located may be completed and submitted in a separate phase from the remaining area of the first floor) so long as the Tenant Improvements Plans and Specifications for each such phase otherwise comply with the requirements set forth in this exhibit; provided, however, in no event shall the Tenant Improvements Plans and Specifications for any portion of the Premises be submitted by Tenant later than May 31, 2010 (the Tenant Improvements Plans and Specifications Submittal Deadline Date).
(b) In no event shall construction of the Tenant Improvements be commenced until Landlord has approved all aspects of the Tenant Improvements Plans and Specifications for the applicable floor (or, with respect to the first floor, the relevant portion thereof in accordance with the terms and provisions of Section 2(a) of this exhibit) for which construction will be commenced.
(c) Landlord and Tenant shall cooperate with one another in good faith to reach agreement regarding the Tenant Improvements Plans and Specifications as soon as practicable. In the event Landlord and Tenant are unable, after complying with the foregoing terms and provisions in this Section 2, to reach agreement regarding the Tenant Improvements Plans and Specifications within thirty (30) business days after the date on which Tenant initially delivers the draft of the Tenant Improvements Plans and Specifications to Landlord pursuant to this Section 2, then until such time as Landlord and Tenant succeed in reaching agreement relative to the Tenant Improvements Plans and Specifications, either Landlord or Tenant shall be entitled to cause the issue(s) in dispute to be settled by arbitration in Charlotte, North Carolina, in accordance with the then-prevailing Expedited Arbitration
provisions of the American Arbitration Association or its successor for arbitration of real estate valuation disputes.
(d) The approval by Landlord of the Tenant Improvements Plans and Specifications shall not be construed as a representation, warranty or assurance by Landlord that the Tenant Improvements Plans and Specifications comply with applicable statutes, laws, ordinances, codes, rules, regulations and requirements and shall not constitute the assumption of any liability on Landlords part for their accuracy or compliance with such applicable statutes, laws, ordinances, codes, rules, regulations and requirements.
(e) Once the Tenant Improvements Plans and Specifications are finalized and approved by Landlord, Tenant shall cause the Architect/Engineer to certify to Landlord and Tenant that the Tenant Improvements Plans and Specifications comply with the ADA and all other pertinent city, county, state and federal rules, laws and regulations; and Tenant shall promptly deliver to Landlord an original of such certification.
(f) Tenant shall be required to submit to Landlord a copy of all change orders (Change Orders, each, a Change Order) relating to changes proposed to be made by Tenant to the Tenant Improvements Plans and Specifications, and any Change Order (or any series of Change Orders relating to the same aspect or portion of the Tenant Improvements) in excess of $50,000.00 shall require Landlords approval (as part of Landlords Premises Dominion and Control), not to be unreasonably withheld, conditioned or delayed. Upon receipt by Landlord of any proposed Change Order or series of proposed Change Orders which Landlord has the right to approve pursuant to the foregoing sentence, Landlord shall, within seven (7) business days of such delivery to Landlord, review and approve such proposed Change Order(s) or furnish to Tenant in writing a detailed description of any aspects of the proposed Change Order(s) which are not acceptable to Landlord, the reasons the matters so described are not acceptable and the changes which will be required to make the proposed Change Order(s) acceptable to Landlord. With respect to any resubmittal to Landlord of any proposed Change Order(s), the procedure set forth above for Landlords initial review of such proposed Change Order(s) shall apply. Notwithstanding anything to the contrary contained in this Section 2(f), under no circumstances shall any changes to the structure of the Building or to any mechanical, electrical or plumbing (including fire protection) systems or components thereof be made in conjunction with the construction of the Tenant Improvements without the prior written approval of Landlord (as part of Landlords Premises Dominion and Control), which Landlord may withhold in its sole discretion, and Tenant agrees to indemnify and hold Landlord harmless from and against any and all loss, cost or damage arising out of any such changes (including, without limitation, the cost of any repairs necessitated thereby) which have not been approved by Landlord as provided in this Section 2(f), regardless of whether Landlord would otherwise be responsible for such
loss, cost or damage under any other provisions of the Lease, including, without limitation, Section 2.3, Section 5.1 or Section 6.5 therein.
3. Following Landlords approval of the Tenant Improvements Plans and Specifications, the General Contractor selected by Tenant, with Landlords approval (as part of Landlords Premises Dominion and Control) as provided below, shall cause the Tenant Improvements to be diligently constructed and installed (i) using new materials of good quality and (ii) in a workmanlike and proper manner. As part of Landlords Premises Dominion and Control, Landlord and Landlords representative shall be entitled to enter the Premises from time to time during the installation of the Tenant Improvements for the purpose of inspecting same and confirming compliance by Tenant with the terms and provisions of the Lease, including this exhibit; provided, however, such entries shall be conducted in such a manner as not to unreasonably interfere with the installation of the Tenant Improvements.
4. As set forth in Section 14.17 of the Lease, Tenant shall not permit any mechanics lien(s) or other liens to be placed upon the Premises, the Building or the Land; and in the event any such lien(s) shall be placed upon the Premises, the Building or the Land as a result of the construction and installation of the Tenant Improvements, the terms and provisions in Section 14.17 of the Lease shall apply.
5. With respect to the construction of the Tenant Improvements, Tenant shall contract with a general contractor approved by Landlord as part of Landlords Premises Dominion and Control (the General Contractor). The following terms and provisions shall apply with regard to Tenants selection of the General Contractor and the qualifications of the General Contractor:
(a) The General Contractor selected to construct the Tenant Improvements must be licensed in the State of North Carolina to perform construction jobs having a cost equal to the cost of installing the Tenant Improvements, must be reputable and in good professional standing, must have the demonstrated ability to competently complete the Tenant Improvements, must have sufficient financial strength to ensure that the Tenant Improvements will be completed free of liens or other claims from subcontractors employed by the General Contractor and other laborers, mechanics and materialmen providing supplies or labor relative to the construction of the Tenant Improvements, and, as part of Landlords Premises Dominion and Control, must be approved in advance by Landlord (such approval not to be unreasonably withheld). If Tenant intends to competitively bid the construction of the Tenant Improvements to multiple general contractors, Tenant shall obtain Landlords prior written consent (as part of Landlords Premises Dominion and Control) with regard to the identity of each candidate general contractor that Tenant intends to invite to bid on the project. However, Landlord hereby approves the following general contractor firms to serve as the General Contractor hereunder: Cox and Schepp Construction, Rodgers Builders, Inc., Choate Construction Company, Turner Construction Company and Balfour Beatty.
(b) As part of Landlords Premises Dominion and Control, Landlord requires that the terms of any agreement to install the Tenant Improvements shall be governed by a separate construction contract signed by Tenant and the General Contractor, and the construction contract shall be prepared using the applicable AIA contract form or other contract form commonly used in the industry for such projects. A true and complete copy of such construction contract shall be delivered by Tenant to Landlord prior to the commencement of construction of the Tenant Improvements in the Premises.
(c) The construction of the Tenant Improvements shall not be commenced until Tenant or the General Contractor has delivered to Landlord original certificates (in form and amounts reasonably satisfactory to Landlord) of the builders risk and general liability insurance policies naming Landlord as an additional insured. Such insurance policies must be issued by and binding upon an insurance company approved by Landlord; and such certificates of insurance must state that the issuing insurance company will not cancel or modify such coverage in any manner which would cause Tenant to no longer be in compliance with the insurance obligations under this Exhibit C-2 without giving Landlord at least thirty (30) days prior written notice of such cancellation or modification. Further, such builders risk and general liability insurance coverage shall be maintained in full force and effect during the entire period the Tenant Improvements are being constructed. Additionally, the General Contractor shall maintain workers compensation insurance and all other insurance coverages (if any) that are required by applicable law and shall, if requested by Landlord, promptly provide to Landlord reasonable documentary evidence of such additional insurance coverage(s). The terms and provisions in this Section 5(c) are part of Landlords Premises Dominion and Control.
6. With regard to the activities of the General Contractor and subcontractors in the Building and the Premises, the following terms and provisions shall apply as part of Landlords Premises Dominion and Control:
(a) The General Contractor and subcontractors shall conduct their activities in the Building and the Premises in such a manner as not to materially interfere with the business activities of tenants in the Harris Building.
(b) The General Contractor (and ultimately Tenant) shall be responsible for the repair, replacement and clean-up of any damage caused to the Building, including the Building Shell Improvements, by the General Contractor or subcontractors.
(c) The General Contractor shall coordinate the delivery of all materials and supplies to the Building and the Premises with Landlords Building manager. Furthermore, the General Contractor shall store all materials and supplies and shall contain all construction operations within the Premises and such other areas (if any) as Landlord may specifically permit from time to time.
(d) The General Contractor shall promptly remove all trash, construction debris and surplus construction materials from the Premises and shall properly dispose of such trash, construction debris and surplus construction materials at a location outside the boundaries of the Land in compliance with all applicable statutes, laws, ordinances and codes.
(e) During the period of the Lease Term beginning on the Commencement Date and ending at midnight on the day immediately preceding the Rent Commencement Date, Landlord shall be responsible for the payment (without reimbursement by Tenant) of all utilities for the Building (including utilities used by the General Contractor and subcontractors during and in connection with the construction of the Tenant Improvements), subject to the terms and provisions of Section 4.1(c)(i) and Section 4.l(c)(ii) in the Lease relating to portions of the Building which Tenant has the right to occupy (for the purpose of conducting business) prior to the Rent Commencement Date.
7. Landlord shall, subject to and in accordance with the provisions of this exhibit, contribute the Tenant Improvements Allowance (i.e., $12,343,050.00), together with the Ceiling Tile Credit and, if applicable pursuant to Exhibit C-1 attached to the Lease, the Light Fixtures Credit (which, as to the Ceiling Tile Credit and, if applicable, the Light Fixtures Credit, shall be added to and treated as part of the Tenant Improvements Allowance), toward the costs of designing, preparing and finalizing the Tenant Improvements Plans and Specifications and the costs of designing, constructing and installing the Tenant Improvements, including, without limitation, the costs of building permits, Tenants construction management costs, security systems and equipment, and wiring and cabling. Landlord shall disburse the Tenant Improvements Allowance monthly in accordance with pay applications provided by the General Contractor, certified by the Architect/Engineer and approved by Tenant, all consistent with and pursuant to the following guidelines (which are part of Landlords Premises Dominion and Control):
(a) Landlord shall not be obligated to make any disbursements of the Tenant Improvements Allowance prior to (i) the General Contractors or the Architect/Engineers obtaining the applicable building permit (a true and complete copy of which shall be delivered to Landlord) and (ii) the actual commencement of the construction of the Tenant Improvements.
(b) Landlord shall not be obligated to make more than one disbursement of the Tenant Improvements Allowance in any calendar month.
(c) No more than thirty percent (30%) of the Tenant Improvements Allowance (i.e., $3,702,915.00) may be applied to the total costs (as detailed above in this Section 7) of Tenant Improvements for Floors 1 and 2 (the Floors 1 and 2 Tenant Improvements Costs), inclusive of the Data Center, and Tenant shall be solely responsible for the total amount, if any, by which the Floors 1 and 2 Tenant Improvements Costs, inclusive of the Data Center, exceed such amount (i.e., $3,702,915.00). For purposes of the concepts in Section 7(d) in this exhibit, the
Tenant Improvements Allowance shall be separated into two (2) components: (1) the Floors 1 and 2 Tenant Improvements Costs and (2) relevant costs covered by the Tenant Improvements Allowance relating to all portions of the Premises other than Floors 1 and 2. Thus, for purposes of the fraction referenced in Section 7(d) in this exhibit, (A) with respect to Floors 1 and 2, the numerator shall be $3,702,915.00 (or any lesser amount that represents 100% of the estimated Floors 1 and 2 Tenant Improvements Costs, if 100% of such estimated Floors 1 and 2 Tenant Improvements Costs is less than $3,702,915.00) and the denominator shall be 100% of the estimated Floors 1 and 2 Tenant Improvements Costs and (B) with respect to relevant costs covered by the Tenant Improvements Allowance relating to all portions of the Premises other than Floors 1 and 2, the numerator shall be the total Tenant Improvements Allowance minus $3,702,915.00 (or, if 100% of the estimated Floors 1 and 2 Tenant Improvements Costs is less than $3,702,915.00, then minus such smaller figure) and the denominator shall be the estimated relevant costs covered by the Tenant Improvements Allowance relating to all portions of the Premises other than Floors 1 and 2. Accordingly, if the estimated Floors 1 and 2 Tenant Improvements Costs are equal to or less than $3,702,915.00, then such portion of the Tenant Improvements Allowance allocated to Floors 1 and 2 may be used to fund all of the Floors 1 and 2 Tenant Improvements Costs (subject to any retainage holdback contemplated in Section 7(d) in this exhibit).
(d) A prorata portion of the Tenant Improvements Allowance shall be disbursed by Landlord as the Tenant Improvements are completed in accordance with the approved Tenant Improvements Plans and Specifications. Subject to the terms and provisions in Section 7(c) in this exhibit, the amount of each disbursement of the Tenant Improvements Allowance shall be the requested disbursement amount (i.e., excluding any retainage amount under the construction contract with the General Contractor) multiplied by a fraction equal to the Tenant Improvements Allowance divided by the total estimated cost of the Tenant Improvements. Each request for a disbursement of the Tenant Improvements Allowance shall be accompanied by the Supporting Documents (as defined in this Section 7(d)), and the amount of each such disbursement (excluding the final disbursement) shall not exceed the lesser of (i) Landlords prorata share (as described above) of the amount then due and payable to the General Contractor, laborers and material suppliers with respect to the Tenant Improvements, as certified pursuant to the Supporting Documents, or (ii) the total Tenant Improvements Allowance less the aggregate amount of all previous disbursements made hereunder. Provided Landlord receives a valid request for disbursement of the Tenant Improvements Allowance and all appropriate Supporting Documents not later than the fifteenth (15th) day of a calendar month, Landlord shall pay, consistent with written instructions provided and signed by Tenant, such disbursement amount to the Architect/Engineer, the General Contractor, subcontractors and/or material suppliers not later than the twenty-fifth (25th) day of such calendar month. If Landlord receives a valid request for disbursement of the Tenant Improvements Allowance and all appropriate Supporting Documents after the fifteenth (15th) day of a calendar
month, Landlord shall pay such disbursement amount to the Architect/Engineer, the General Contractor, subcontractors and/or material suppliers not later than the twenty-fifth (25th) day of the following calendar month. With respect to every disbursement of the Tenant Improvements Allowance timely paid in the amount stated on the applicable Supporting Documents (subject to any applicable retainage) directly by Landlord, at Tenants written direction, to any third party (including, without limitation, the Architect/Engineer, general contractor, subcontractors and/or material suppliers), Tenant shall indemnify and hold harmless Landlord from and against any loss, cost, expense or damage arising in connection with such payment. The obligation of Landlord to make each such disbursement of the Tenant Improvements Allowance is subject to the condition precedent that, on the date of such disbursement, no event has occurred and is continuing which constitutes (or with the lapse of time without being cured will constitute) an event of default of Tenant under the Lease. As used in this exhibit, the term Supporting Documents shall mean, with respect to each disbursement (excluding the final disbursement) of the Tenant Improvements Allowance hereunder:
(1) a written certification reasonably satisfactory to Landlord, signed by a responsible officer of Tenant, certifying an itemized statement of the actual costs and expenses incurred with respect to the work performed and the materials provided in connection with the Tenant Improvements, together with a true and complete copy of all relevant invoices from subcontractors to the General Contractor and from the General Contractor therefor;
(2) an affidavit signed by the General Contractor affirming that all subcontractors, laborers, artisans, mechanics and material suppliers engaged in or supplying labor or materials for the Tenant Improvements have been or will be (with payment of the relevant installment) paid in full prior to delinquency, with the exception only of labor and materials supplied to complete punch list items;
(3) a waiver of liens for work and materials relative to which prior disbursements of the Tenant Improvements Allowance were made with respect to the Premises, the Building and the Land executed by the General Contractor; provided, however, if a claim of lien or a lien has been filed by any subcontractor, laborer, artisan, mechanic or material supplier engaged in or supplying labor or materials for the Tenant Improvements, either (i) Landlord must have received an unconditional waiver of such lien or (ii) Tenant or the General Contractor must have posted a bond or other surety sufficient under North Carolina law to effect a release of such lien or claim of lien from the Premises, the Building and the Land before Landlord shall be obligated to disburse the relevant installment; and
(4) a written certification by the Architect/Engineer to the effect that the Tenant Improvements represented by the current and prior disbursements of
the Tenant Improvements Allowance have been completed substantially (subject only to the completion of punch list items) in accordance with the approved Tenant Improvements Plans and Specifications and applicable legal requirements.
(e) Within ten (10) days following Landlords receipt of the Final Documents (as defined in this Section 7(e)) and Tenants request for the final disbursement of the Tenant Improvements Allowance, Landlord shall make the final disbursement of the Tenant Improvements Allowance, provided that such final disbursement shall not exceed the amount of the actual final costs and expenses incurred with respect to the Tenant Improvements (as certified to pursuant to the Final Documents) less the aggregate amount of all previous disbursements of the Tenant Improvements Allowance hereunder. As used in this exhibit, the term Final Documents shall mean:
(1) a copy of the permanent certificate of occupancy for the Premises issued by the appropriate governmental authority adequate to support occupancy of the Premises;
(2) a written certification reasonably satisfactory to Landlord, signed by a responsible officer of Tenant, certifying (i) an itemized statement of the final, actual costs and expenses incurred with respect to the work performed and the materials provided in connection with the Tenant Improvements, together with a true and complete copy of all relevant invoices from subcontractors to the General Contractor and from the General Contractor therefor, and (ii) that all such costs and expenses either have been or will be (with payment of the final installment) paid in full prior to delinquency;
(3) an affidavit signed by the General Contractor affirming that all subcontractors, laborers, artisans, mechanics and material suppliers engaged in or supplying labor or materials for the Tenant Improvements have been or will be (with payment of the final installment) paid in full prior to delinquency, with the exception only of labor and materials supplied to complete punch list items;
(4) a waiver of liens with respect to the Premises, the Building and the Land executed by the General Contractor and, if obtainable on the condition that they not be delivered and released except upon payment to the General Contractor, a waiver of liens executed by all subcontractors, laborers, artisans, mechanics and material suppliers engaged in or supplying labor or materials for the Tenant Improvements; provided, however, if a claim of lien or a lien has been filed by any such subcontractor, laborer, artisan, mechanic or material supplier, either (i) Landlord must have received an unconditional waiver of such lien or (ii) Tenant or the General Contractor must have posted a bond or other surety sufficient under North Carolina law to effect a release of such lien or claim of lien from the Premises, the
Building and the Land before Landlord shall be obligated to disburse the final installment;
(5) a written certification by the Architect/Engineer to the effect that all of the Tenant Improvements have been completed substantially (i.e., subject only to the completion of punch list items) in accordance with the approved Tenant Improvements Plans and Specifications and applicable legal requirements;
(6) a complete set of as built plans for the Tenant Improvements, along with a CAD or other electronic version (as reasonably requested by Landlord) of such as built plans; and
(7) an executed, original estoppel certificate satisfying the requirements of Section 14.18 of the Lease.
8. Any portion of the Tenant Improvements Allowance that is not used pursuant to Section 7 in this exhibit to fund the cost of preparing and finalizing the Tenant Improvements Plans and Specifications and the construction and installation of the Tenant Improvements (as detailed in Section 7 in this exhibit) may be used and applied to fund (i) the cost of equipment and installation services associated with the Data Center (in addition to amounts Tenant is entitled to have disbursed under Section 7(c) of this exhibit), (ii) moving costs incurred in connection with Tenants move into the Premises; and any then-remaining portion of the Tenant Improvements Allowance shall be credited for Tenants benefit to fund payments of rent due under the Lease for periods immediately following the first full calendar month after the Rent Commencement Date.
EXHIBIT D
EXAMPLES OF CAP ON CONTROLLABLE
OPERATING COSTS CALCULATION
EXAMPLE 1:
Assume that Base Year Controllable Operating Costs are $4.00 and that actual Controllable Operating Costs for the first four (4) calendar years following the Base Year are $4.25, $4.50, $4.70 and $4.80, respectively:
The cap on Controllable Operating Costs for each of the first four (4) calendar years following the Base Year (using five percent (5%) annual compounding) shall be as follows:
Year 1: |
|
$4.20 (i,e., $4.00 x 105%) |
Year 2: |
|
$4.41 (i.e., $4.00 x 105% x 105%) |
Year 3: |
|
$4.63 (i.e., $4.00 x 105% x 105% x 105%) |
Year 4: |
|
$4.86 (i.e., $4.00 x 105% x 105% x 105% x 105%) |
Applying the foregoing assumptions, the amount of Controllable Operating Costs which Landlord shall be entitled to pass through to Tenant during each of the four (4) calendar years following the Base Year shall be as follows:
Year 1: |
|
$0.20 (i.e., $4.20 - $4.00) with a carry-over of $0.05 (i.e., $4.25 - $4.20) |
Year 2: |
|
$0.41 (i.e., $4.41 - $4.00) with a carry-over of $0.09 (i.e., $4.50 - $4.41), making the aggregate carry-over balance $0.14 (i.e., $0.09 + $0.05 of unused carry-over from prior year) |
Year 3: |
|
$0.63 (i.e., $4.63 - $4.00) with a carry-over of $0.07 (i.e., $4.70 - $4.63), making the aggregate carry-over balance $0.21 (i.e., $0.07 + $0.14 of unused carry-over from prior years) |
Year 4: |
|
$0.86 (i.e., ($4.80 - $4.00) + $0.06 from aggregate carry-over balance), making the aggregate carry-over balance $0.15 (i.e., $0.21 of unused carry-over from prior years less $0.06 of such carry-over applied to Year 4) |
EXAMPLE 2:
Next, assuming that actual Controllable Operating Costs for the first four (4) calendar years following the Base Year are $4.25, $4.95, $4.20 and $4.50, respectively, and that all other facts and assumptions set forth in Example 1 remain unchanged, the amount of Controllable Operating Costs which Landlord shall be entitled to pass through to Tenant during each of the first four (4) calendar years following the Base Year shall be as follows:
Year 1: |
|
$0.20 (i.e., $4.20 - $4.00) with a carry-over of $0.05 (i.e., $4.25 - $4.20) |
Year 2: |
|
$0.41 (i.e., $4.41 - $4.00) with a carry over of $0.54 (i.e., $4.95 - $4.41), making the aggregate carry-over balance $0.59 (i.e., $0.54 + $0.05 of unused carry-over from prior year) |
Year 3: |
|
$0.63 (i.e., ($4.20 - $4.00) + $.043 from aggregate carry-over balance), making the aggregate carry-over balance $0.16 (i.e., $0.59 of unused carry-over from prior years less $0.43 of carry-over applied to Year 3) |
Year 4: |
|
$0.66 (i.e., ($4.50 - $4.00) + $0.16 from aggregate carry-over balance), making the aggregate carry-over balance $0.00 (i.e., $0.16 of unused carry-over from .prior years less $0.16 of unused carry-over applied to Year 4) |
EXHIBIT E
PARKING RULES AND REGULATIONS
Parking: The following rules and regulations (the Parking Rules and Regulations) apply to the use of the Parking Areas:
(a) Tenants may park their motor vehicles only in those portions of the Parking Areas designated by Landlord from time to time as unreserved tenant parking areas (the Unreserved Parking Areas) and may not park in any other parking spaces, except as specifically provided herein.
(b) Only visitors of tenants or others entitled to the use of the Parking Areas may park their motor vehicles in those portions of the Parking Areas designated by Landlord from time to time as visitor parking areas (the Visitor Parking Areas).
(c) Only persons entitled to use the Parking Areas who are physically handicapped may park their motor vehicles in those portions of the Parking Areas designated by Landlord from time to time as handicapped parking areas (the Handicapped Parking Areas).
(d) Parking in Unreserved Parking Areas, Visitor Parking Areas and Handicapped Parking Areas shall be on a nonexclusive, as-available basis.
(e) Motor vehicles may only be parked in striped parking spaces located within the Parking Areas, and no motor vehicles may be parked in any other location within the Land.
(f) Not more than one motor vehicle may be parked on each parking space, and no motor vehicle may be parked on more than one parking space within the Parking Areas.
(g) Parking Areas shall not be used for any purpose other than the parking of permitted motor vehicles thereon (provided, however, bicycles may be parked in any portion(s) of the Parking Areas designed and designated for such purpose by Landlord), and no commercial activity shall be conducted from the Parking Areas.
(h) No repairs (other than emergency repairs) or washing of motor vehicles is permitted in the Parking Areas.
(i) All persons using the Parking Areas assume full responsibility for, and Landlord shall have no liability for, (a) loss, damage, injury or death caused to the person or property of anyone using the Parking Areas; and (b) protecting their motor vehicles against theft, vandalism and damage.
(j) A violation of these Parking Rules and Regulations shall entitle Landlord to revoke the parking privileges of the offending party, in addition to other rights and remedies available to Landlord.
(k) The term tenant, when used in these Parking Rules and Regulations, shall be deemed to also include such tenants agents, employees, contractors and subcontractors.
Landlord shall act reasonably to administer the use of the Parking Areas by the tenants and occupants in the different buildings that are served, now or in the future, by the Parking Areas if and as reasonably required to provide Tenant with the benefit of the use of the Parking Areas as contemplated in the Lease to which this exhibit is attached.
EXHIBIT F
BUILDING RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by tenants or used by any tenant for any purpose other than ingress and egress to and from the leased premises and for going from one to another part of the Building.
2. Corridor doors, when not in use, shall be kept closed.
3. Plumbing fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein.
4. Landlord shall provide all locks for doors into each tenants leased premises, and no tenant shall place any additional lock or locks on any door in its leased premises without Landlords prior written consent. Two keys for each lock on the doors in each tenants leased premises shall be furnished by Landlord. Additional keys shall be made available to tenants at each tenants cost. Tenants shall not have any duplicate keys made except by Landlord.
5. Electric current shall not be used for cooking (except for normal and customary microwaves and stoves and food preparation facilities approved in advance by Landlord which comply with applicable law and conform to customary fire insurance underwriting guidelines), or heating or any other purpose not specifically provided for in the relevant lease without Landlords prior written permission.
6. Tenants shall refer all contractors, contractors representatives and installation technicians who are to perform any substantial work within the Building (which encompasses any work that involves connecting to, or tampering with, any Building systems) to Landlord or Landlords Building manager for Landlords supervision, approval and control before the performance of any such work. This provision shall apply to all substantial work performed in the Building, including, but not limited to, installations of telephones, medical type equipment, telegraph equipment, electrical devices and attachments, and any and all installations of every nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment, and any other physical portion of the Building.
7. If Tenant is then leasing less than all of the rentable area in the Building, movement in or out of the Building of furniture or office equipment, or dispatch or receipt by tenants of any heavy equipment, bulky material or merchandise shall be performed only in such manner, during such hours and using such elevators and passageways as Landlord may designate and approve in advance and if reasonable, necessary or appropriate in view of all the circumstances, and then only upon having been scheduled in advance with Landlord or Landlords Building manager. If Tenant is then leasing all of the rentable area in the Building, Tenant shall give Landlords Building manager reasonable advance notice of movement of items in and out of the Building, as contemplated in this Section 7, to allow Landlords Building manager to install padding in the Loading Dock Elevator. Tenant shall not be permitted to park its moving or equipment delivery vehicles on or within
(i) the Adjacent Land, (ii) the traffic circle in front of the Building between the Building and the Harris Building within the Exterior Common Areas or (iii) any portion of the Land which would impede access to, or the free flow of vehicular traffic within, the Exterior Common Areas. Additionally, no equipment, furniture, merchandise or supplies may be moved into or out of the Building through the main Building doors (i.e., the front entrance of the Building).
8. The location, weight and supporting devices for any medical type equipment, safes and other heavy equipment shall in all cases be approved by Landlord prior to initial installation or relocation.
9. No portion of any tenants leased premises shall be used for cooking (except for normal and customary microwaves and stoves and food preparation facilities approved in advance by Landlord which comply with applicable law and conform to customary fire insurance underwriting guidelines or except as otherwise provided in the relevant lease) or sleeping or lodging quarters, and no birds, animals or pets of any type, with the exception of guide dogs accompanying handicapped persons, shall be brought into or kept in, on or about any tenants leased premises or the Building. Tenant shall not bring bicycles or other vehicles within tenants leased premises or the Building; engage in or permit games of chance or any form of gambling or immoral conduct in or about tenants leased premises or the Building; mark or defile any part of the Building, the Land or the Adjacent Land; or tamper or interfere in any way with windows, doors, locks, air conditioning controls, heating, lighting, electric or plumbing fixtures in or serving the Building. If a tenant is leasing from Landlord less than all of the rentable area in the Building, all moving in or out of the Building must be done after Business Hours. If a tenant is leasing from Landlord all of the rentable area in the Building, such tenant shall be permitted to move in or out of the Building during Business Hours. Landlord is not responsible for damage to furniture caused by janitorial or other cleaning personnel nor for any loss of property from the leased premises, however occurring. The attaching of wires to the outside of the Building is absolutely prohibited, and no wires shall be run or installed in any part of the Building without Landlords prior written permission and at Landlords direction. No smoking of tobacco or similar products shall be allowed in any portion of the Building or the leased premises. Smoking shall be allowed only in designated areas outside of the Building.
10. Tenants shall not make or permit Tenants employees, agents, contractors, subcontractors or invitees to make any loud or annoying noises in or about the Building or otherwise interfere in any way with other tenants or persons having business with them. Tenants shall not allow any noxious or offense odors, smells, fumes or other airborne particles or materials to emanate or be released from their respective leased premises.
11. Each tenant shall endeavor to keep its leased premises neat and clean. Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairways, nor shall tenants place any trash receptacles in these areas.
12. Tenants shall not employ any person for the purpose of cleaning other than the authorized cleaning and maintenance personnel for the Building, unless otherwise approved in writing by Landlord.
13. No tenant shall allow concessionaires, vending machine operators or other distributors of cold drinks, coffee, food or other concessions, water, towels or newspapers or other similar products within the leased premises or the Building without the prior consent of Landlord, which Landlord may withhold in its sole discretion,
14. There shall be no activity by Tenant or Tenants employees, agents, officers, servants, contractors, subcontractors, invitees or licensees on any patio, balcony, porch or other portion of the Building or the Land, including Exterior Common Areas, that unreasonably disturbs enjoyment of the Recreational Facility by guests thereof, including, without limitation, the hanging or display of any signs or banners from the Building or any other portion of the Land visible from the Recreational Facility, undue noise, unsightly trash and debris, or any other noxious or offensive activity.
15. Landlord is not responsible for any loss of money, jewelry or other personal property from any leased premises or from the Building-Specific Common Areas or Exterior Common Areas or for any damage to any property therein from any cause whatsoever, whether such loss or damage occurs when an area is locked against entry or not.
16. Tenants shall exercise reasonable precautions in protection of their personal property from loss or damage by keeping doors to unattended areas locked. Tenants shall also report any thefts or losses to the Building manager and security personnel as soon as reasonably possible after discovery and shall also notify the Building manager and security personnel of the presence of any persons whose conduct is suspicious or causes a disturbance.
17. Tenants, their employees, guests and invitees may be called upon to show suitable identification and sign a Building register when entering or leaving the Building at times other than normal Building business hours, and all tenants shall cooperate fully with Building personnel in complying with such requirements.
18. Tenants shall not solicit from or circulate advertising material among other tenants of the Building or allow their employees, agents or invitees to do so, except through the regular use of the U.S. Postal Service. Tenants shall notify the Building manager or the Building personnel promptly if it comes to their attention that any unauthorized persons are soliciting from or causing annoyance to tenants, their employees, guests or invitees.
19. Landlord reserves the right to deny entrance to the Building or remove any person or persons from the Building in any case where the conduct of such person or persons involves a hazard or nuisance to any tenant of the Building or to the public or in the event of fire or other emergency, riot, civil commotion or similar disturbance involving risk to the Building, tenants or the general public. Solicitation or similar conduct shall not be allowed in the Building or on the Land without Landlords prior approval, which approval
Landlord may withhold in its sole discretion. Landlord shall have no liability for denying access to the Building or the Land to any person or persons engaging in such conduct.
20. Landlord reserves the right to rescind or modify any of these Building Rules and Regulations and to make such other and further Building Rules and Regulations as in its judgment shall from time to time be needed for the safety, protection, care and cleanliness of the Building and the Land, the operation thereof, the preservation of good order therein and the protection and comfort of the tenants and their agents, employees and invitees, which Building Rules and Regulations, when made and written notice thereof is given to a tenant, shall be binding upon it in like manner as if originally herein prescribed.
21. The term tenant, when used in these Building Rules and Regulations, shall be deemed to also include such tenants agents, employees, invitees, contractors and subcontractors.
EXHIBIT G
ADDITIONAL TERMS AND PROVISIONS
I. Generator. Landlord has provided Tenant with a screened generator pad (the Generator Pad) in the location shown on Exhibit I to the Lease, together with stubbed conduits to the Building. Tenant shall have the right to install, at Tenants sole cost and expense and prior to the date the Data Center is operational, an electricity generator (the Generator) of a size and type approved in writing by Landlord in advance, such approval not to be unreasonably withheld, conditioned or delayed, on the Generator Pad. Tenant, at Tenants sole cost and expense, shall install a containment system reasonably acceptable to Landlord to contain the leakage or flow of oil, fuel or other Hazardous Substances from the Generator (if and to the extent the containment structure currently existing as part of the Generator Pad is not sufficient for the Generator). Prior to the installation of the Generator, Tenant shall submit plans and specifications relative to the type and size of the Generator to Landlord for review and written approval. Additionally, in the event the existing screening for the Generator Pad is insufficient for the Generator, Tenant shall be responsible for installing such additional screening as may be necessary to adequately conceal the Generator in accordance with plans and specifications prepared by Tenant and approved in writing in advance by Landlord. Landlord shall permit Tenant to install wires and similar appurtenant facilities underground in the existing conduit between the location of the Generator and the Building and in the Building-Specific Common Areas (including using the Buildings risers, conduits and towers, subject to reasonable space limitations and Landlords requirements for use of such areas, for purposes of installing cabling from the Generator to the Premises), provided (i) such installation shall be completed pursuant to plans and specifications approved in writing in advance by Landlord and (ii) such installation and maintenance shall be at Tenants sole cost and expense and shall be completed in a good and workmanlike manner and pursuant to all other relevant terms and provisions in the Lease. In the event the noise from the Generator creates a substantial nuisance and/or distraction to other tenants within the Building (if applicable), the Harris Building or in other locations in the Business Park, Tenant agrees to use commercially reasonable efforts to cooperate with Landlord, at Tenants cost, in seeking a reasonable solution to the noise containment of the Generator (it being understood that Landlord shall apply any noise containment standards and requirements consistently to all other similarly situated tenants in the Business Park, taking into consideration relevant factors, such as location in the Business Park and proximity to other tenants, other buildings and other uses that are sensitive to noises created by generators). If Landlord and Tenant are unable to agree upon a reasonable solution within thirty (30) days of the date Landlord notifies Tenant that the noise from the Generator is creating a substantial nuisance and/or distraction, either Landlord or Tenant shall be entitled to submit such disagreement to be settled by arbitration in Charlotte, North Carolina, in accordance with the then-prevailing Expedited Arbitration provisions of the American Arbitration Association or its successor for arbitration of real estate-related disputes. The installation of the Generator shall otherwise be subject to the terms and conditions of Section 6.1 in the Lease. Tenant shall (i) operate the Generator only in the case of a failure of electric service to the Premises (except only as specifically provided in the next sentence), (ii) maintain, repair and keep the Generator in good condition and repair, at Tenants sole cost and expense, and (iii) pay for all operating costs for the same, including, without limitation, fuel and other operational requirements. Except in the case of an emergency, Tenants operation of the Generator shall be limited to the following times and for the following purposes only: (a) for normal and customary tests
and/or maintenance, at reasonable and normal and customary intervals after sunset and before sunrise (not to exceed one (1) such test and/or maintenance per week), which testing and/or maintenance may require the Generator to be fired up not to exceed thirty (30) minutes per test and/or maintenance; (b) for extraordinary maintenance and/or repairs, which shall be performed after sunset and before sunrise only and shall not exceed two (2) hours per instance and once. per month; and (c) for any annual load bank test which shall be performed after sunset and before sunrise only and shall not exceed three (3) hours per instance and once per year. Provided, however, notwithstanding anything to the contrary in clauses (a) and (b) of the immediately preceding sentence, upon at least twenty-four (24) hours advance notice to Landlord, Tenant shall be permitted to operate the Generator during daylight hours (but only for a period of time not to exceed thirty (30) minutes) in connection with certain scheduled maintenance which requires a test fire of the Generator (e.g., testing the Generator following the completion of an oil change to ensure oil is not leaking from the Generator), it being agreed and acknowledged by Tenant that such scheduled maintenance shall occur on a very infrequent basis. Tenant shall operate the Generator so as to not interfere with the operation of generators or other equipment by other tenants of the Building, if applicable, or by Landlord or with the use of the Building by Landlord or other tenants and occupants of the Building and use of the Harris Building by its tenants and occupants. Tenant, at Tenants sole cost and expense, shall also comply with all laws, ordinances, rules and regulations, and other legal requirements regarding the Generator, including, without limitation, obtaining all necessary licenses and permits for the construction, installation, and operation of the Generator, and compliance with all such laws, ordinances, rules and regulations regarding the use of petroleum products and other Hazardous Substances for the Generator. Tenant shall indemnify Landlord and Landlords agents and employees, and hold them harmless from and against any and all claims, losses, damages and expenses, including reasonable attorneys fees, resulting from the construction, installation, use and operation of the Generator by Tenant, or Tenants agents, employees or contractors, except, however, to the extent caused by any negligent act or omission of Landlord or Landlords agents and employees. Tenant also shall cause the Generator and the area where it is located on the Land to be covered by Tenants property and commercial general liability insurance required under the Lease. Tenant shall not be entitled to grant or assign to any third party (other than a permitted assignee of Tenants rights under the Lease or a permitted subtenant relative to the Premises (or a portion thereof) under the Lease) the right to use the Generator without Landlords prior written consent (which consent may be granted or withheld in Landlords sole discretion). Upon reasonable advance notice to Tenant, Landlord shall be entitled to cause the Generator to be moved to another location on the Land, at Landlords cost and expense, so long as Landlord provides Tenant with access to a backup generator comparable in capacity to the Generator during any period of such move in which the Generator will not be operational. At the end of the Lease Term, Tenant may, or at Landlords option, shall, remove the Generator and all appurtenant wires, apparatus and equipment from the Generator Pad and the Land (including in the Building and in the conduits leading to and from the Generator Pad), repair any damage caused by such removal and return the area where the Generator was located and any area disturbed by such removal to the same condition as existed immediately prior to the initial installation of the Generator and appurtenant wires, apparatus and equipment, at Tenants sole cost and expense, provided if Tenant leaves the Generator (and all associated lines, cables, wires, equipment, apparatus and supplies used by Tenant in connection with the operation and maintenance of the Generator) on the Land the Generator and the associated lines, cables, wires, equipment, apparatus and supplies shall become Land-
lords property, free and clear of any rights of Tenant or third parties claiming by, through or under Tenant. Notwithstanding the foregoing, and in addition to its right to require Tenant to remove the Generator prior to the expiration of the Lease Term as provided above in this Section 1, Landlord shall have thirty (30) days following the expiration of the Lease Term to require Tenant to remove the Generator in the event Landlord determines, in its reasonable discretion, that such Generator is not in a good condition of repair or in good working order as of the expiration of the Lease Term.
2. Rooftop Communications Equipment. Tenant shall be granted the non-exclusive right to install on the roof of the Building up to four (4) satellite dishes (including associated communications equipment), each of which shall be no larger than forty-eight (48) inches in diameter, and up to four (4) antennae, the size and dimensions of which are subject to Landlords prior written approval (collectively, the Communications Equipment), in location(s) approved in writing in advance by Landlord (such approval not to be unreasonably withheld, conditioned or delayed). The weight of the Communications Equipment shall not exceed the load factor of the roof. Prior to the installation of the Communications Equipment on the roof of the Building, Tenant shall submit plans and specifications relative to the type, size and proposed location (including proposed screening) of the Communications Equipment to Landlord for review and written approval, not to be unreasonably withheld, conditioned or delayed, The Communications Equipment must be properly screened as determined by Landlord (in Landlords sole discretion), at Tenants sole cost. In connection with Tenants installation of the Communications Equipment on the roof, Landlord shall permit Tenant to install wires, conduits, and similar appurtenant facilities in the Building-Specific Common Areas (including using the Buildings risers, conduits and towers, subject to reasonable space limitations and Landlords requirements for use of such areas, for purposes of installing cabling from the Communications Equipment to the Premises) to connect the Communications Equipment with Tenants communications equipment located in the Premises, provided (i) such installation shall be completed pursuant to plans and specifications approved in writing in advance by Landlord and (ii) such installation and maintenance shall be at Tenants sole cost and expense and shall be completed in a good and workmanlike manner and pursuant to all other relevant terms and provisions in the Lease. Notwithstanding the foregoing to the contrary, any activities by Tenant or Tenants agents, employees, licensees, contractors or subcontractors under this Section 2 that will involve venting, opening, sealing, waterproofing or altering the roof shall be performed by Landlords roofing contractor or other roofing contractor approved in writing in advance by Landlord (in Landlords sole discretion), at Tenants expense, and Tenant shall ensure that any use of the roof by Tenant and Tenants agents, employees, contractors, invitees and guests shall be conducted in a manner that does not void or impair Landlords roof warranty. All costs associated with the installation, maintenance, use, repair and removal of the Communications Equipment shall be paid by Tenant, and Tenant shall install, maintain and operate the Communications Equipment in accordance with all federal, state, and local laws, statutes, ordinances, rules and regulations, including, without limitation, obtaining and maintaining any and all permits, approvals and licenses required to install and operate the Communications Equipment by any governmental authority having jurisdiction (including, without limitation, the Federal Communication Commission and the Federal Aviation Administration). Tenant also shall comply with all reasonable rules and regulations that Landlord may adopt from time to time governing the use of Communications Equipment on the roof of the Building. Additionally, Tenant shall repair, or, at Landlords option, reimburse Landlord for the cost of repairing, any damage to the roof or any other
part of the Building caused by the installation, maintenance, repair, use or removal of the Communications Equipment. Tenant shall use and operate the Communications Equipment so as not to interfere with the use of communications equipment placed on the roof by Landlord (including Landlords licensee(s)) or other tenants and occupants in the Building, or interfere with the operation of the Building by Landlord or the use of adjoining properties by persons entitled thereto. Any claims for bodily injury, including death, or property damage resulting from the installation, maintenance, use, repair or removal of the Communications Equipment shall be covered by Tenants indemnity and insurance obligations under the Lease; and, without limiting the foregoing, Tenant shall cause the area of the roof used by Tenant for its Communications Equipment to be covered under Tenants commercial general liability insurance policy required under the Lease. Tenant shall not be entitled to grant or assign to any third party (other than a permitted assignee of Tenants rights under the Lease or a permitted subtenant relative to the Premises (or a portion thereof) under the Lease) the right to use the Communications Equipment without Landlords prior written consent (which consent may be granted or withheld in Landlords sole discretion); and in any event, the Communications Equipment may be used by Tenant and its subtenants and assignees exclusively for the purpose of serving the business(es) conducted in the Premises by such parties from time to time. Upon reasonable advance notice to Tenant, Landlord shall be entitled to cause the Communications Equipment to be moved to another location on the roof, at Landlords cost and expense. Landlord and Tenant agree that the Communications Equipment shall remain the personal property of Tenant and shall not become a fixture. Accordingly, the Communications Equipment and appurtenances shall be removed by Tenant, at Tenants sole cost and expense, at the termination or any earlier expiration of the Lease Term, and the relevant portion of the roof and any other portions of the Building (including Building-Specific Common Areas) affected by the removal of the Communications Equipment and appurtenances shall be restored to their original condition, reasonable wear and tear excepted. Subject to the foregoing terms and conditions, Landlord shall provide Tenant with reasonable, non-exclusive access to the roof of the Building for the installation, maintenance, use, repair or removal of the Communications Equipment.
3. Ballantyne Amenities Allowance. As an incentive to Tenant for entering into the Lease, Landlord hereby grants to Tenant an allowance (the Amenities Allowance) in the amount of One Hundred Thousand and No/100 Dollars ($100,000.00) per twelve (12) month period, for three (3) consecutive twelve (12) month periods commencing on the earlier of (A) January 1, 2010 (in which case the three (3) consecutive twelve (12) month periods would be the 2010, 2011 and 2012 calendar years) or (B) the date on or after the Date of Execution and prior to January 1, 2010, on which Tenant first uses the Amenities Allowance (for example, if Tenant first uses the Amenities Allowance to acquire goods or services, as provided below, on October 15, 2009, then the three (3) consecutive twelve (12) month periods would be October 15, 2009 October 14, 2010, October 15, 2010 October 14, 2011 and October 15, 2011 October 14, 2012). With respect to any of the relevant twelve (12) month periods, the Amenities Allowance may be applied by Tenant toward (1) the published standard rate, before taking into account any discounts, coupons or promotions, for lodging, food or services provided by, or (2) the advertised retail price, before taking into account any discounts, coupons or promotions, of any retail merchandise sold within, any of the following Business Park properties:
(a) The Ballantyne Hotel & Lodge, 10000 Ballantyne Commons Parkway, Charlotte, NC;
(b) The Golf Club at The Ballantyne Hotel & Lodge, 10000 Ballantyne Commons Parkway, Charlotte, NC;
(c) The Spa at The Ballantyne Hotel & Lodge, 10000 Ballantyne Commons Parkway, Charlotte, NC;
(d) Aloft Hotel, 13139 Ballantyne Corporate Place, Charlotte, NC;
(e) Courtyard by Marriott, 15660 John J. Delaney Drive, Charlotte, NC;
(f) Staybridge Suites, 15735 John J. Delaney Drive, Charlotte, NC; and
(g) Gallery Restaurant, 10000 Ballantyne Commons Parkway, Charlotte, NC.
The Amenities Allowance shall be used by Tenant and Tenants designees on site at the various Business Park properties enumerated above. In the event Tenant fails to use the entire Amenities Allowance (i.e., $100,000.00) prior to the end of the last day of any applicable twelve (12) month period for which such allowance is provided, as described herein, Tenant shall have no right to carry forward such unused balance to future twelve (12) month periods and shall relinquish any and all rights it may have to such unused balance. Promptly following the Date of Execution of the Lease, Landlord and Tenant shall coordinate with one another regarding the processes and procedures that will be employed to administer the Amenities Allowance (to account for the tracking of use of the Amenities Allowance and the outstanding balance of the Amenities Allowance that remains from time to time).
4. Lease Term Extension Options.
(a) Extension Procedure. Tenant shall be entitled to extend the Initial Lease Term for three (3) additional and consecutive five (5) year periods (each, an Extension Term; collectively, the Extension Terms) as to all or a portion of the Premises, provided any exercise of an extension option by Tenant relative to less than all of the then-current Rentable Area of the Premises shall be subject to the terms and provisions in Section 4(d) below in this exhibit. The first Extension Term, if timely and properly exercised by Tenant, shall commence as of the expiration of the Initial Lease Term, and each subsequent Extension Term, if timely and properly exercised by Tenant, shall commence as of the expiration of the immediately preceding Extension Term. Provided, however, it shall be a condition precedent to Tenants right to exercise its option for any of the Extension Terms that Tenant shall have timely and properly exercised its option to extend the Lease Term for all prior Extension Terms (unless Landlord shall have recognized Tenants exercise of such prior Extension Term(s) notwithstanding Tenants failure to timely and properly exercise same, in which case such failure by Tenant shall be deemed to have been cured). In the event Tenant desires to exercise its option to extend the Lease Term for the first Extension Term, Tenant shall so notify Landlord by delivering to Landlord a written notice confirming such exercise by Tenant (an Extension Notice) not later than two hundred seventy (270) days prior to the last day of the Initial Lease Term. In the event Tenant desires to exercise its option to extend the Lease Term for the second and subsequent Extension Terms, Tenant shall so notify Landlord by delivering to Landlord an Extension Notice not later than two hundred seventy (270) days prior to the last day of the then-current Extension Term.
(b) Terms and Provisions Applicable During Extension Terms. Except as provided below in this Section 4, all terms and provisions in the Lease shall be fully applicable during each Extension Term to the same extent as if such Extension Term had been included originally in the Lease as part of the Lease Term. Accordingly, with regard to each Extension Term that is timely and properly exercised by Tenant pursuant to Section 4(a) above in this exhibit, all references in the Lease to the Lease Term shall thereafter be construed to include and encompass such Extension Term. Provided, however, once Tenant has exercised its third (3rd) Extension Term option hereunder, there shall be no additional Extension Term options available to Tenant. Accordingly, the maximum length of the Lease Term following the Rent Commencement Date (assuming Tenant timely and properly exercises all three (3) of the Extension Term options) shall be thirty (30) years plus any partial calendar month that may be added to the Initial Lease Term pursuant to Section 3.1 in the Lease.
(c) Base Rent During Extension Terms. The Annual Base Rent applicable under the Lease during each Extension Term shall be the Fair Market Value Base Rent Rate (as defined below). As used herein, the term Fair Market Value Base Rent Rate shall mean the base rent rate being charged at such time for comparable premises (i.e., premises of a similar size and condition in buildings of a size, location (including proximity to, and visibility from, an interstate highway), condition and utility comparable to the Building and with improvements and amenities comparable to the Building) in the south Charlotte area, taking into consideration all relevant factors, including, without limitation, the location, quality and age of the building, the floor level(s) of the premises, the extent of leasehold improvements, if any, to be provided, rental abatements, lease takeovers/assumptions, payment of moving expenses and other concessions, term of the lease, services to be provided, base year or other amounts allowed for rent escalation purposes (e.g., an expense stop), the time the particular rent rate under consideration became or is to become effective, brokerage commissions, and the creditworthiness of the tenant. Within twenty (20) business days after Landlords receipt of an Extension Notice, Landlord shall determine, in Landlords reasonable discretion, the Fair Market Value Base Rent Rate for such Extension Term and shall provide notice of such Fair Market Value Base Rent Rate (the FMV Base Rent Rate Notice) to Tenant. If Tenant believes in good faith that the Fair Market Value Base Rent Rate contained in the FMV Base Rent Rate Notice is not reasonable and Landlord and Tenant have not reached agreement as to the Fair Market Value Base Rent Rate to be applicable during the relevant Extension Term on or before the day that is twenty (20) business days after the date on which Landlord delivers the FMV Base Rent Rate Notice to Tenant (such twenty (20) business day period being referred to herein as the FMV Base Rent Negotiation Period), Tenant shall have the right, at Tenants sole option, to submit the issue of the Fair Market Value Base Rent Rate for such Extension Term to arbitration as provided below in this Section 4(c) by so notifying Landlord in writing (the Base Rent Arbitration Notice) before the expiration of the FMV Base Rent Negotiation Period. If Tenant fails to timely and properly deliver the Base Rent Arbitration Notice to Landlord, then the Base Rent during the Extension Term shall be the Fair Market Value Base Rent Rate set forth in the FMV Base Rent Rate Notice. If Tenant properly and timely gives the Base Rent Arbitration Notice to Landlord, then within five (5) business days after the expiration of the FMV
Base Rent Negotiation Period, Landlord shall deliver to Tenant Landlords final and best offer regarding the Fair Market Value Base Rent Rate that Landlord believes should apply during the relevant Extension Term together with any written information or documentation that Landlord offers in support thereof (Landlords Best FMV Base Rent Rate Offer), and Tenant shall deliver to Landlord Tenants final and best offer regarding the Fair Market Value Base Rent Rate that Tenant believes should apply during the relevant Extension Term together with any written information or documentation that Tenant offers in support thereof (Tenants Best FMV Base Rent Rate Offer). To ensure consistency of format, Landlords Best FMV Base Rent Rate Offer and Tenants Best FMV Base Rent Rate Offer each shall be structured to contemplate annual increases in the Base Rent rate during the Extension Term. Landlord and Tenant shall coordinate with one another to ensure a simultaneous exchange of their respective Fair Market Value Base Rent Rate best offers within the foregoing five (5) business day period. Such arbitration, if invoked by Tenant, shall be conducted and determined in Charlotte, North Carolina, in accordance with the then-prevailing Expedited Arbitration provisions of the American Arbitration Association or its successor for arbitration of real estate valuation disputes, except that the procedures mandated by such rules shall be modified as follows:
(1) Within ten (10) days after the expiration of the foregoing five (5) business day period, Landlord and Tenant shall cooperate reasonably with one another to mutually agree upon an individual to serve as the arbitrator to determine the Fair Market Value Base Rent Rate for the Extension Term. The arbitrator shall be a competent and impartial real estate appraiser with at least five (5) years full-time commercial appraisal experience who is familiar with the Fair Market Value Base Rent Rate applicable to first-class office space in the south Charlotte area. If Landlord and Tenant fail to agree upon the identity of the arbitrator within the foregoing ten (10) day period, the arbitrator shall be selected by the then-president of the Charlotte Region Commercial Board of Realtors. The arbitrator shall decide the dispute, if it has not been previously resolved, by following the procedures set forth in Section 4(c)(2) below in this exhibit.
(2) Within two (2) business days after the appointment of the arbitrator, Landlord shall deliver to the arbitrator a true and complete copy of Landlords Best FMV Base Rent Rate Offer previously delivered by Landlord to Tenant, and Tenant shall deliver to the arbitrator a true and complete copy of Tenants Best FMV Base Rent Rate Offer previously delivered by Tenant to Landlord. The role of the arbitrator shall be to select whichever of the two proposed resolutions (i.e., Landlords Best FMV Base Rent Rate Offer or Tenants Best FMV Base Rent Rate Offer) most closely approximates the arbitrators own determination of the Fair Market Value Base Rent Rate for the Extension Term. The arbitrator shall have no right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution the arbitrator chooses as that most closely approximating the arbitrators determination of the Fair Market Value Base Rent Rate shall constitute the decision of the arbitrator and shall be final and binding upon the parties.
(3) In the event of a failure, refusal, or inability of the arbitrator to act, a successor shall be appointed in the same manner as set forth herein with respect to the appointment of the original arbitrator.
(4) The arbitrator shall attempt to decide the issue within ten (10) business days after his or her appointment. Landlord and Tenant shall share equally the fees and expenses of the arbitrator. Attorneys fees and expenses of counsel and of witnesses for the respective parties shall be paid by the respective party engaging such counsel or calling such witnesses.
(5) The arbitrator shall have the right to consult experts and competent authorities for factual information or evidence pertaining to a determination of the Fair Market Value Base Rent Rate, but any such consultation shall be made in the presence of both parties with full right on their part to cross-examine. The arbitrator shall render the decision and award in writing with counterpart copies to each party. The arbitrator shall have no power to modify the provisions of the Lease or any exhibit thereto.
(d) Pass Through of Increases in Operating Costs to Tenant During Extension Terms. With respect to any Extension Term exercised by Tenant in accordance with this Section 4, the term Base Year shall be deemed to mean, with respect to such Extension Term, the calendar year in which such Extension Term commences, provided, however, in the event Operating Costs during any such calendar year fail, in Landlords reasonable discretion, to reflect normal and customary office use in accordance with the terms of the Lease, then the term Base Year shall mean the applicable Base Year for the immediately preceding term of the Lease (i.e., the initial Lease Term or the prior Extension Term, as the case may be). Except as otherwise provided herein, Section 4.2(b) of the Lease shall govern the pass through of Operating Costs to Tenant during the Extension Terms.
(e) Extension Relative to Only Part of Premises. If Tenant exercises an extension option under Section 4(a) in this exhibit relative to less than all of the then-current Rentable Area of the Premises, the space that is to be removed from the definition of Premises during the Extension Term and vacated by Tenant shall be in full-floor increments of space and, if more than one floor is being released and vacated, such floors shall be contiguous to one another. At Tenants sole cost and expense, such portion of the Premises shall be vacated and returned to Landlord in the same condition as provided in Section 6.7 in the Lease for the return of the Premises at the expiration of the Lease Term, all of Tenants wiring and cabling shall be removed from the portion of the Premises vacated by Tenant, and Tenant shall remove any Improvements or Tenant Improvements which Landlord has notified Tenant to remove in accordance with Section 6.1(a) of the Lease, Exhibit C-2 to the Lease, or any other term or provision of the Lease. Additionally, the Premises shall be deemed as of the commencement of the relevant Extension Term to exclude the Building lobby, elevator lobbies on floors (if any) that will become multi-tenant floors upon the commencement of the relevant Extension Term and other portions of the Building that Landlord must control as Building-Specific Common Areas such that the Building will be consistent with other multi-tenant buildings within the Business Park. Furthermore, if
Tenant exercises an extension option under Section 4(a) in this exhibit relative to less than all of the then-current Rentable Area of the Premises, then the various provisions in the Lease and the exhibits attached thereto that stipulate what will occur if Tenant leases less than all of the rentable space in the Building during the Lease Term shall be automatically invoked and effective upon the commencement of the relevant Extension Term (presuming such provisions have not been previously invoked and made effective under any other provision in the Lease and the exhibits thereto). In accordance with Section 2.2 of the Lease, in the event Tenant exercises an extension option relative to less than all of the then-current Rentable Area of the Premises, thereafter the Rentable Area of the Premises conclusively shall be deemed, for all purposes under this Lease, to be an amount equal to the number of floors with respect to which Tenant exercises such extension option multiplied by 26,250 square feet.
(f) Lease Amendment. Promptly after Landlord and Tenant reach agreement pursuant to Section 4(c) in this exhibit regarding the Base Rent that shall be applicable relative to an Extension Term that has been timely and properly exercised by Tenant or, in the absence of such mutual agreement, promptly after the Fair Market Value Base Rent Rate for such Extension Term is determined by arbitration pursuant to Section 4(c) in this exhibit, Landlord and Tenant shall enter into an amendment to the Lease for the purpose of confirming the extension of the Lease Term and the Base Rent that shall be applicable during such Extension Term.
(g) Condition to Exercise. Notwithstanding any term or provision herein or in the Lease to the contrary, in no event shall Tenant be entitled to exercise its right to extend the Lease Term for an Extension Term pursuant to this Section 4 if Tenant is then in default under the terms of the Lease beyond any applicable grace or cure period (if any) afforded to Tenant under the terms of the Lease.
5. Right of First Refusal to Lease. Subject to the terms and conditions of this Section 5, Tenant shall have, during the Lease Term (including any Extension Terms), a right of first refusal to lease the third (3rd) and fourth (4th) floors of the Harris Building (the First Refusal Space).
(a) Offer by Harris Building Landlord. If Harris Building Landlord (which as of the Date of Execution of the Lease is Landlords affiliate, JJH Building, LLC, a North Carolina limited liability company) has entered into discussions with a Prospective Tenant regarding the lease of part or all of the First Refusal Space, and if (and only if) the portion of the First Refusal Space for which such offer or proposal has been received exceeds 10,000 rentable square feet of such First Refusal Space, then prior to entering into any lease with such Prospective Tenant, Harris Building Landlord shall provide Tenant with notification (a ROFR Notification) which ROFR Notification shall set forth (i) the fact that discussions are taking place between Harris Building Landlord and a Prospective Tenant, (ii) the exact location and square footage of the space proposed to be leased by such Prospective Tenant (the Prospective Space), (iii) other general terms that have been discussed (but not necessarily agreed upon and not necessarily the business terms proposed by such Prospective Tenant) between Harris Building Landlord and the Prospective Tenant (such terms to be set forth in reasonably sufficient detail so as to enable Tenant to reasonably evaluate the key
business components of a potential lease entered into on such terms), and (iv) the identity of such Prospective Tenant (unless the Prospective Tenant requests to remain anonymous, in which case the ROFR Notification will set forth the industry and business type of the Prospective Tenant); provided, however, in the event Harris Building Landlord is permitted to, and accordingly does, provide Tenant with the identity of the Prospective Tenant, Tenant agrees to take all necessary action to keep such information strictly confidential, including, without limitation, entering into a confidentiality agreement with the Prospective Tenant at the Prospective Tenants request and if the Prospective Tenant does not so request, then employing the same confidentiality standards and requirements set forth in Section 14.22 in the Lease). Tenant shall have seven (7) business days after such notification is delivered to Tenant by Harris Building Landlord to elect (by so notifying Harris Building Landlord in writing) to lease from Harris Building Landlord all (but not less than all) of the Prospective Space identified in the ROFR Notification on all of the same terms and conditions set forth in such ROFR Notification. There is no implication, express or implied, that any lease agreement entered into by Tenant and Harris Building Landlord as a result of the exercise by Tenant of Tenants first refusal right under this Section 5 shall be based on, or shall contain terms and provisions comparable or similar to, the terms and provisions in the Lease to which this Exhibit G is attached unless such terms and provisions are included on the ROFR Notification. As used herein, a Prospective Tenant shall mean a bona fide tenant prospect, either directly or through its agent, which has engaged in written (including e-mail) correspondence with Harris Building Landlord communicating general business terms relative to the proposed lease of the Prospective Space. Also, as used herein, the term Prospective Tenant shall be deemed and construed to encompass all affiliates and subsidiaries of the primary party that is the Prospective Tenant.
(b) Tenants Election of Right. If Tenant elects, pursuant to Section 5(a) above in this exhibit, to lease from Harris Building Landlord all of the Prospective Space identified in the ROFR Notification, Tenant and Harris Building Landlord shall proceed diligently and in good faith to finalize and execute a lease agreement for such purpose within twenty (20) business days after the expiration of the seven (7) business day period referenced in Section 5(a) above in this exhibit.
(c) Tenants Failure to Exercise Right. If Tenant elects not to lease from Harris Building Landlord all of the Prospective Space identified in the ROFR Notification (as evidenced either by Tenants written notice to Harris Building Landlord to that effect or by Tenants failure to respond to Harris Building Landlord within the seven (7) business day period referenced in Section 5(a) above in this exhibit), then, in such event, Harris Building Landlord shall be entitled, at any time within the six (6) month period commencing on the expiration of such seven (7) business day period (without triggering any further rights of Tenant under this Section 5), to negotiate exclusively with the Prospective Tenant regarding the lease of the Prospective Space identified on the ROFR Notification and to enter into a lease agreement with such Prospective Tenant for such Prospective Space on terms not materially more favorable to such party than those included in the ROFR Notification, in which case all of Tenants rights under this Section 5 shall immediately and automatically become subordinate to the rights (including renewal rights) acquired by the Prospective Tenant in and to the First Refusal Space, or any portion thereof contained within the Prospective
Space leased by the Prospective Tenant (provided Tenants rights under this Section 5 shall be revived in full at any time the First Refusal Space so leased again becomes available for leasing by Harris Building Landlord). If Harris Building Landlord fails to enter into a lease with the Prospective Tenant for the Prospective Space during the six (6) month period referenced above in this Section 5(c) and provided that Harris Building Landlord intends to continue to negotiate exclusively with such Prospective Tenant regarding the lease of the Prospective Space identified in the ROFR Notification, Harris Building Landlord shall have the right to one (1) additional three (3) month period in which to continue exclusive lease negotiations with the Prospective Tenant and to enter into a lease agreement with such Prospective Tenant for such Prospective Space on terms not materially more favorable to such Prospective Tenant than those included in the relevant ROFR Notification previously delivered to Landlord by Tenant. Harris Building Landlord shall be entitled to exercise such extension right by delivering written notice to Tenant within fifteen (15) days before the expiration of the six (6) month period referenced above in this Section 5(c) and such written notice shall reaffirm the general business terms applicable to the proposed lease with such Prospective Tenant. If Harris Building Landlord does not enter into a lease agreement for such Prospective Space with the Prospective Tenant (as contemplated in this Section 5(c)) within the aforesaid six (6) month period or the additional three (3) month period (provided Landlord has properly exercised the extension set forth above), Tenants rights under this Section 5 shall be revived in full with regard to the relevant portion or all (as the case may be) of such First Refusal Space not leased to the Prospective Tenant.
(d) Condition to Exercise. Notwithstanding any term or provision herein or in the Lease to the contrary, in no event shall Tenant be entitled to exercise its right of first refusal pursuant to this Section 5 if Tenant is then in default under the terms of the Lease beyond any applicable grace or cure period (if any) afforded to Tenant under the terms of the Lease.
(e) Binding on Landlords Affiliates. Landlord agrees to cause JJH Building, LLC, as the current Harris Building Landlord, to consent to the terms and provisions of this Section 5 by executing the signature page attached to this exhibit and to join as a party to any memorandum of lease entered into between Landlord and Tenant in connection with the Lease.
6. Premises Contraction Option. Tenant shall have a one-time-only right to reduce the size of the Premises by removing from the Premises one (1) full floor of space in the Premises (the Contraction Space); provided, however, only the third (3rd) floor or the fourth (4th) floor may be removed from the Premises pursuant to Tenants option to contract under this Section 6. If Tenant desires to exercise its option to contract the Premises under this Section 6, written notice of Tenants exercise of such option must be given to Landlord not later than twelve (12) months before the fourth (4th) anniversary of the Rent Commencement Date. Additionally, no later than thirty (30) days after giving to Landlord such written notice of its exercise of such contraction option, Tenant shall give Landlord written notice designating which floor (i.e., either the third (3rd) floor or the fourth (4th) floor of the Premises) Tenant desires to be covered by the contraction and removed from the Premises. If Tenant timely and properly exercises its contraction option under this Section 6, the Contraction Space (i.e., the third (3rd) floor or the fourth (4th)
floor, depending upon Tenants election) shall be deemed removed from the Premises (and shall be vacated by Tenant consistent with the requirements in Section 6.7 of the Lease) as of midnight on the day immediately preceding the fourth (4th) anniversary of the Rent Commencement Date (the Premises Contraction Date), and thereafter, the Rentable Area of the Premises conclusively shall be deemed, for all purposes under this Lease, to have been reduced by ten percent (10%) (i.e., by 26,250 square feet) in accordance with Section 2.2 of the Lease, and the new total Rentable Area of the Premises will be irrevocably deemed to be 236,250 square feet for the remainder of the Lease Term and for all purposes under this Lease, and Tenants Proportionate Share shall be adjusted accordingly.
(a) Tenants Election of Right. Tenants option to reduce the size of the Premises relative to the Contraction Space under this Section 6 is a one-time-only right and may not be exercised at any time other than the specific time set forth above in this Section 6, time being of the essence with respect thereto. If Tenant fails to exercise its option to reduce the size of the Premises under this Section 6 by not timely delivering written notice of such exercise to Landlord, Tenants right to reduce the size of the Premises under this Section 6 shall automatically expire and terminate and shall be of no further force and effect.
(b) Premises Contraction Fee. If Tenant timely exercises its option to reduce the size of the Premises relative to the Contraction Space under this Section 6, then, as a condition to the effectiveness of the exercise of such option, Tenant shall pay and deliver to Landlord a premises contraction fee (the Premises Contraction Fee) in the amount of the sum of:
(1) ten percent (10%) (i.e., the percentage each floor of the Building, including each of the third (3rd) and fourth (4th) floors, bears in relation to the total rentable area of the Building) of the then-unamortized portion (as of midnight on the day immediately preceding the Premises Contraction Date) of the Tenant Improvement Allowance, including the Ceiling Tile Credit and, if applicable, the Light Fixtures Credit (using for such computation a 15-year straight-line amortization schedule beginning on the Rent Commencement Date), discounted at an imputed interest rate of ten percent (10%) per annum); and
(2) ten percent (10%) (i.e., the percentage each floor of the Building, including each of the third (3rd) and fourth (4th) floors, bears in relation to the total rentable area of the Building) of the then-unamortized portion (as of midnight on the day immediately preceding the Premises Contraction Date) of any brokerage fees or commissions incurred by Landlord for Tenants Broker and Landlords Broker (using for such computation a 15-year straight-line amortization schedule beginning on the Rent Commencement Date) discounted at an imputed interest rate of ten percent (10%) per annum).
The Premises Contraction Fee must be delivered to Landlord by Tenant before or with the rent payment for the last full calendar month immediately preceding the Premises Contraction Date.
(c) Modifications; Multi-Tenant Concepts. The Contraction Space shall be vacated and returned to Landlord in the same condition as provided in Section 6.7 in the Lease for the return of the Premises at the expiration of the Lease Term, and the Premises shall be redefined to exclude the first floor Building lobby and other portions of the Building that Landlord must control as Building-Specific Common Areas such that the Building will be consistent with other multi-tenant buildings within the Business Park, Landlord shall be entitled to require such modifications to the Building to accommodate the reduction in the size of the Premises relative to the Contraction Space. The cost of such modifications shall be borne entirely by Tenant and, if such modifications are performed by Landlord (rather than Tenant, which performance by Tenant shall require Landlords advance written approval), such costs and expenses shall be paid, as Additional Rent, by Tenant to Landlord from time to time within thirty (30) days after the delivery of an invoice therefor by Landlord to Tenant, Such modifications shall include, without limitation, changes to the first floor Building entrance lobby and Building-Specific Common Areas such that the Building would be consistent with other multi-tenant buildings within the Business Park, the installation of common corridors, and the removal of Tenants wiring and cabling in the Contraction Space. Without limiting the foregoing, (i) if the Contraction Space is the third (3rd) floor in the Building, such modifications shall include the cost of retrofitting the third (3rd) floor elevator lobby and installing access corridors on the third (3rd) floor to prepare the third (3rd) floor for leasing to multiple tenants, and (ii) if the Contraction Space is in the fourth (4th) floor in the Building, such modifications shall include the cost of retrofitting the fourth (4th) floor elevator lobby to prepare the fourth (4th) floor for leasing to multiple tenants. All such work shall be consistent with Building Standard requirements and finishes and shall be completed (if the work is completed by Tenant) in compliance with all construction-related provisions in the Lease, including, without limitation, Section 6.1, Section 7.6, and Section 14,17. Furthermore, if Tenant exercises its option to contract the Premises under this Section 6, then the various provisions in the Lease and the exhibits attached thereto that stipulate what will occur if Tenant leases less than all of the rentable space in the Building during the Lease Term shall be automatically invoked and effective upon the Premises Contraction Date (presuming such provisions have not been previously invoked and made effective under any other provision in the Lease and the exhibits thereto).
(d) Condition to Exercise. Notwithstanding any term or provision herein or in the Lease to the contrary, in no event shall Tenant be entitled to exercise its Premises contraction right under this Section 6 if Tenant is then in default under the terms of the Lease beyond any applicable grace or cure period (if any) afforded to Tenant under the terms of the Lease.
[Signatures Begin On Next Page]
The undersigned, as Harris Building Landlord, hereby executes this Exhibit G for the sole purpose of agreeing to be bound by and to comply with the terms of Section 5 herein relative to the Harris Building, which contains the First Refusal Space.
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JJH BUILDING, LLC, a North Carolina limited liability company | ||
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By: |
Four Bissells, LLC, its Manager | |
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By: |
/s/ Edward L. Curran |
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Name: |
Edward L. Curran |
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Title: |
VP |
EXHIBIT H
JANITORIAL SPECIFICATIONS
CLEANING SCHEDULE |
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T/Y |
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S/C |
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GENERAL CLEANING |
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Empty all waste baskets and trash containers |
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X |
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Replace soiled trash liners |
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Empty and damp wipe all ash trays |
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Dust all horizontal surfaces |
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Dust all vertical surfaces |
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Dust all high ledges, shelves, picture frames, etc. |
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Dust all baseboards and all low dusting not performed daily |
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X |
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Clean and sanitize all drinking fountains |
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Sweep or vacuum upholstered furniture |
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X |
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Dust all venetian blinds |
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Upon completion of cleaning, turn off lights and lock all doors, as instructed by manager |
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FLOOR WORK- HARD RESILIENT |
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Dust mop or sweep |
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Spot mop and remove spillage |
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Damp mop or wet mop |
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Buff or spray buff |
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Machine clean |
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CARPET CARE |
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Vacuum traffic lanes |
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Remove all spots and stains when possible |
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Completely vacuum all carpet including edges |
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Pile lift carpeted areas |
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Machine clean |
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RESTROOMS |
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Polish mirrors and all metal surfaces |
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Clean and disinfect all toilets and urinals |
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Clean and polish all wash basins |
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Mop floors using disinfectant |
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Fill soap dispensers, towel and tissue holders |
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Clean partitions and ledges |
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Scrub bathroom floors |
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Turn off all lights |
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Report all stopped up commodes and leaks to building manager |
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CLEANING SCHEDULE- CONTINUED |
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WALLS, WOODWORK AND OVERHEAD |
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Remove hand prints from door frames and light switches only |
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Clean air vents and diffusers |
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Dust light fixtures |
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STAIRWELLS |
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Police for debris |
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Sweep or vacuum |
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Damp mop and dust hand rails |
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ELEVATORS |
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Vacuum or mop floors |
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Polish all metal surfaces |
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Vacuum elevator tracks |
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Polish elevator tracks |
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OTHER REQUESTED OPERATIONS |
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Spot clean entrance door glass |
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Spot clean partition glass |
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Clean partition glass |
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Clean windows inside |
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Clean windows outside |
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CODES: | |
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SEPARATE CONTRACT |
EXHIBIT J
SUBMITTAL FORM FOR PLANS AND SPECIFICATIONS
IMMEDIATE ATTENTION REQUIRED
To: |
Boyle Building, LLC |
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c/o The Bissell Companies, Inc. |
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13860 Ballantyne Corporate Place, Suite 300 |
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Charlotte, NC 28277 |
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From: |
Premier Purchasing Partners, L.P. |
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Date: |
, 200 |
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Re: |
Lease between Boyle Building, LLC (as Landlord) and Premier Purchasing Partners, L.P., as Tenant |
This delivery constitutes a formal submittal by Tenant to Landlord of plans and specifications for review and approval by Landlord under Section 6.1 in the above-referenced Lease.
Please note that Landlords response period under Section 6.1(b) in the Lease is ten (10) business days from the date this package is delivered to Landlord. Additionally, Landlord is reminded that Landlord must notify Tenant, as part of Landlords response to this delivery, as to whether Landlord intends to reserve the right to require Tenant to remove the proposed improvements described in the attached plans and specifications upon the expiration or earlier termination of the lease term under the Lease. If Landlord fails to respond to this notice, Landlord will be deemed to have waived certain rights under the Lease. Reference is made to Section 6.1(a) and Section 6.1(b) in the Lease for the relevant provisions.
EXHIBIT M
LOCATION OF CERTAIN BUILDING-SPECIFIC COMMON AREAS OUTSIDE OF BUILDING INTERIOR
EXHIBIT N
ILLUSTRATION OF CERTAIN FORCE MAJEURE CONCEPTS
Assumptions:
· Tenant is able to substantially complete the Tenant Improvements by the Outside Tenant Improvements Completion Date for all portions of the Premises on floors 1 2 in the Building.
· Tenant fails to substantially complete the Tenant Improvements by the Outside Tenant Improvements Completion Date for all portions of the Premises on floors 3 4 in the Building as a result of Change Orders (i.e., not a Force Majeure Delay and not a Landlord-Caused Delay).
· Tenant fails to substantially complete the Tenant Improvements by the Outside Tenant Improvements Completion Date for all portions of the Premises on floors 5 8 as a result of a Force Majeure Delay; the Tenant Improvements for all portions of the Premises on floors 5 8 are substantially completed 120 days after the Outside Tenant Improvements Completion Date.
· Tenant fails to substantially complete the Tenant Improvements by the Outside Tenant Improvements Completion Date for all portions of the Premises on floors 9 10 as a result of a Landlord-Caused Delay; the Tenant Improvements for all portions of the Premises on floors 9 10 are substantially completed 30 days after the Outside Tenant Improvements Completion Date.
Outcomes:
When will Tenants rent payment obligations actually commence?
The defined term Rent Commencement Date remains March 1, 2011, in the fact situation described above (because the Tenant Improvements were substantially completed in some portions of the Premises by the Outside Tenant Improvements Completion Date), and
· Rent under the Lease shall commence on March 1, 2011, for floors 1 4.
· Rent under the Lease shall commence on June 29, 2011, for floors 5 8.
· Rent under the Lease shall commence on March 31, 2011, for floors 9 10.
What will the Termination Date be deemed to be for the entire Premises?
There is no impact on the determination of the Termination Date relative to floors 1 2.
There is no impact on the determination of the Termination Date as a result of the Change Order caused-delay relative to floors 3 4 (because it was caused by Tenant and Landlord began receiving rent for such floors on March 1, 2011).
There is no impact on the determination of the Termination Date as a result of the Landlord-Caused Delay relative to floors 9 10 (because it was caused by Landlord).
The Termination Date will be February 28, 2026, plus the number of days of extension attributable to the Force Majeure Delay relative to floors 5 8.
Number of days of delay attributable to floors 5 8 |
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120 days x (105,000 RSF ÷ 262,500 RSF) |
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120 days x .4 |
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48 days |
Thus, the Termination Date for all of the Premises shall be February 28, 2026 plus 48 days (i.e., April 17, 2026). Applying the concepts in the definition of Termination Date in Section 1.1 in the Lease, the Termination Date will be further extended to April 30, 2026.
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 August 26, 2013, in the Registration Statement (Form S-1) and related Prospectus of Premier, Inc. for the registration of shares of its common stock.
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/s/ Ernst & Young LLP |
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Charlotte, North Carolina |
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August 26, 2013 |
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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 August 26, 2013, with respect to the consolidated financial statements of Premier Healthcare Solutions, Inc. included in the Registration Statement (Form S-1) and related Prospectus of Premier, Inc. for the registration of shares of its common stock.
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/s/ Ernst & Young LLP |
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Charlotte, North Carolina |
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August 26, 2013 |
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