UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
FORM 10-K
xx ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
¨¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 001-31812
ANI PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
58-2301143
(I.R.S. Employer Identification No.)
210 Main Street West
Baudette, Minnesota
(Address of principal executive offices)
56623
(Zip Code)
(218) 634-3500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Name of each exchange on which registered
The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨
NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨
NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES x
NO ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES
x
NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
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
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Non-accelerated filer ¨
Accelerated filer x
Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨
NO x
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2018 was $609.3 million (based
upon the last reported sale price of $66.80 per share on June 30, 2018, on The NASDAQ Global Market).
As of February 20, 2019, 11,851,329 shares of common stock and 10,864 shares of Class C Special stock of the registrant were outstanding.
Portions of the definitive proxy statement for the registrant’s 2019 annual meeting of stockholders to be filed within 120 days after the end of the period
covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
ANI PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2018
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Page
3
16
37
37
37
38
39
41
42
67
68
116
116
117
118
118
118
118
118
119
124
Available Information
ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI Pharmaceuticals,” “ANI,” the “Company,” “we,” “us,” or “our”) files annual,
quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the
Securities and Exchange Commission ("SEC"). We make available free of charge on our website (www.anipharmaceuticals.com) our annual reports on Form 10-
K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those filings as soon as reasonably practicable after such
material is electronically filed with or furnished to the SEC. Also posted on our website in the “Investors – Corporate Governance” section are our Corporate
Governance Guidelines, Code of Ethics and the charters for the Audit and Finance, Compensation, and Nominating and Corporate Governance Committees.
Information on, or accessible through, our website is not a part of, and is not incorporated into, this report or any other SEC filing. Copies of our SEC filings or
corporate governance materials are available without charge upon written request to Investor Relations, c/o ANI Pharmaceuticals, Inc., 210 Main Street West,
Baudette, Minnesota, 56623.
In this annual report, references to “ANI Pharmaceuticals,” “ANI,” the “Company,” “we,” “us,” and “our” refer, unless the context requires otherwise, to ANI
Pharmaceuticals, Inc., a Delaware c-corporation, and its consolidated subsidiaries. References to “named executive officers” refer to our current named executive
officers, except where the context requires otherwise. References to the "Merger" refer to the merger of BioSante Pharmaceuticals, Inc. ("BioSante") and ANIP,
completed on June 19, 2013, wherein ANI Merger Sub, Inc., a wholly owned subsidiary of BioSante, merged with and into ANIP with ANIP continuing as the
surviving company and becoming a wholly owned subsidiary of BioSante. On July 17, 2013, BioSante changed its name to ANI Pharmaceuticals, Inc.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
Annual
Report
on
Form
10-K
and
certain
information
incorporated
herein
by
reference
contain
forward-looking
statements
within
the
meaning
of
Section
27A
of
the
Securities
Act
of
1933,
as
amended
(the
“Securities
Act”),
and
Section
21E
of
the
Exchange
Act.
Such
statements
include,
but
are
not
limited
to,
statements
about
future
operations,
products,
financial
position,
operating
results
prospects,
pipelines
or
potential
markets
therefor,
and
other
statements
that
are
not
historical
in
nature,
particularly
those
that
utilize
terminology
such
as
“anticipates,”
“will,”
“expects,”
“plans,”
“potential,”
“future,”
“believes,”
“intends,”
“continue,”
other
words
of
similar
meaning,
derivations
of
such
words,
and
the
use
of
future
dates.
Uncertainties
and
risks
may
cause
our
actual
results
to
be
materially
different
than
those
expressed
in
or
implied
by
such
forward-looking
statements.
Uncertainties
and
risks
include,
but
are
not
limited
to,
the
risk
that
we
may
face
with
respect
to
importing
raw
materials,
increased
competition,
acquisitions,
contract
manufacturing
arrangements,
delays
or
failure
in
obtaining
product
approvals
from
the
U.S.
Food
and
Drug
Administration
("FDA"),
general
business
and
economic
conditions,
market
trends,
regulatory
environment,
product
development,
regulatory
and
other
approvals,
and
marketing.
These
factors
should
not
be
construed
as
exhaustive
and
should
be
read
in
conjunction
with
our
other
disclosures,
including
but
not
limited
to
the
“Risk
Factors”
section
in
Part
I,
Item
1A.
of
this
Annual
Report
on
Form
10-K
and
in
other
cautionary
statements
and
risks
included
in
other
reports
we
file
with
the
SEC.
New
risks
emerge
from
time
to
time.
It
is
not
possible
for
our
management
to
predict
all
risks.
The
forward-looking
statements
contained
in
this
document
are
made
only
as
of
the
date
of
this
document.
We
undertake
no
obligation
to
update
or
revise
any
forward-looking
statement,
whether
as
a
result
of
new
information,
future
events,
or
otherwise.
1
NOTE REGARDING TRADEMARKS
Cortenema®, Cortrophin® Gel, Cortrophin-Zinc®, Inderal® LA, Inderal® XL, InnoPran XL®, Lithobid®, Reglan®, and Vancocin® are registered
trademarks subject to trademark protection and are owned by ANI Pharmaceuticals, Inc. and its consolidated subsidiaries. Atacand® and Atacand HCT® are the
property of AstraZeneca AB and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products. Arimidex® and Casodex® are the property of
AstraZeneca UK Limited and are licensed to ANI Pharmaceuticals, Inc. for U.S. sales of those products.
2
Item 1. Business
PART I
ANI Pharmaceuticals is an integrated specialty pharmaceutical company focused on delivering value to our customers by developing, manufacturing, and
marketing high quality branded and generic prescription pharmaceuticals. We focus on niche and high barrier to entry opportunities including controlled
substances, anti-cancer (oncolytics), hormones and steroids, and complex formulations. Our three pharmaceutical manufacturing facilities, of which two are
located in Baudette, Minnesota and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids
and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. Our strategy is to use our assets to develop,
acquire, manufacture, and market branded and generic specialty prescription pharmaceuticals. By executing this strategy, we believe we will be able to continue to
grow our business, expand and diversify our product portfolio, and create long-term value for our investors.
On June 19, 2013, pursuant to a merger agreement dated as of April 12, 2013, ANIP Acquisition Company d/b/a ANI Pharmaceuticals, Inc. ("ANIP") became
a wholly-owned subsidiary of BioSante Pharmaceuticals, Inc. (“BioSante”) in an all-stock, tax-free reorganization (the "Merger"). The Merger was accounted for
as a reverse acquisition, pursuant to which ANIP was considered the acquiring entity for accounting purposes. Since the Merger, we have been operating under the
leadership of the ANIP management team and ANIP's historical results of operations have replaced BioSante's historical results of operations for all periods prior
to the Merger. The results of operations of both companies are included in our consolidated financial statements for all periods after completion of the Merger. In
July 2013, we changed our name from “BioSante Pharmaceuticals, Inc.” to “ANI Pharmaceuticals, Inc.”
In March 2014, we completed a follow-on public offering of common stock, yielding net proceeds of $46.7 million. In December 2014, we issued $143.8
million of our Convertible Senior Notes (the “Notes”) in a registered public offering, yielding net proceeds of $122.6 million. In December 2018, we repurchased
$25.0 million of our outstanding Notes. At the same time, we unwound a corresponding portion of the bond hedge and warrant. In December 2017, we entered into
a five-year senior secured credit facility (the “Credit Agreement”) with Citizens Bank N.A. The Credit Agreement is comprised of a $75.0 million five-year
secured term loan (the “Term Loan”) and a $50.0 million senior secured revolving credit facility (the “Revolving Credit Facility”). In December 2018, we
refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility (the “Credit Facility”) for up to $265.2
million. The principal new feature of the Credit Facility is a $118.0 million Delayed Draw Term Loan (the “DDTL”), which can only be drawn on in order to pay
down the Company’s remaining 3.0% Convertible Senior Notes, which will mature in December 2019. The Credit Facility also extended the maturity of the $72.2
million secured term loan balance to December 2023. In addition, the Credit Facility increased the previous $50.0 million line of credit (the “Revolver”) to $75.0
million. As of December 31, 2018, we had not drawn on the Revolver or DDTL.
With the additional funds resulting from the public and convertible debt offerings, and from the Credit Agreement, we have acquired Abbreviate New Drug
Applications (“ANDAs”), New Drug Applications (“NDAs”), and product rights, and have also entered into agreements to obtain the distribution rights for various
products. As a result of these acquisitions and distribution agreements, we launched three products in 2014, six products in 2015, 11 products in 2016, six products
in 2017, and 11 products in 2018, bringing our portfolio of products to 42 as of December 31, 2018. In addition, in January 2016, we acquired the Cortrophin gel
and Cortrophin-Zinc NDAs. We have continued to focus on the re-commercialization of these products while increasing our portfolio of generic and mature brand
products.
On August 6, 2018, our subsidiary, ANI Pharmaceuticals Canada Inc. (“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring
Pharma Services Inc. (“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price
of $18.0 million, subject to certain customary adjustments. Pursuant to these customary adjustments, the total purchase consideration was $16.7 million. The
consideration was paid entirely from cash on hand. In conjunction with the transaction, we acquired WellSpring’s pharmaceutical manufacturing facility,
laboratory, and offices, its current book of commercial business, as well as an organized workforce. Following the consummation of the transaction, WellSpring
was merged into ANI Canada with the resulting entity’s name being ANI Pharmaceuticals Canada Inc.
Unless otherwise required by the context, references in this Annual Report on Form 10-K to the "Company," "we," us," and "our" refer to ANI
Pharmaceuticals, Inc., a Delaware corporation formed in April 2001. Our principal executive offices are located at 210 Main Street West, Baudette, Minnesota,
56623, our telephone number is (218) 634-3500, and our website address is www.anipharmaceuticals.com.
3
Mission and Strategy
We are an integrated specialty pharmaceutical company focused on delivering value to our customers by developing, manufacturing, and marketing high
quality branded and generic prescription pharmaceuticals. We focus on niche and high barrier to entry opportunities including controlled substances, anti-cancer
(oncolytics), hormones and steroids, and complex formulations. At our three facilities, of which two are located in Baudette, Minnesota and one is located in
Oakville, Ontario, we manufacture oral solid dose products, as well as semi-solids, liquids and topicals, controlled substances, and potent products that must be
manufactured in a fully-contained environment. We also perform contract manufacturing for other pharmaceutical companies.
In addition to laboratories that support the requirements of raw material, finished product, and stability testing, we have a 1,000-square foot pilot laboratory
offering liquid, suspension and solid dose development capabilities. This pilot laboratory offers a full range of analytical capabilities including method
development, validation and de-formulation, and is licensed by the Drug Enforcement Administration (“DEA”). Finally, a separate development suite located
within our high-potency manufacturing facility offers additional capabilities for product development.
Our objective is to create long term shareholder value by building a sustainable and growing base business in generic and mature brand pharmaceutical
products while advancing an opportunity to re-commercialize Cortrophin gel and Cortrophin-Zinc.
We believe our strategies effectively leverage our human and capital assets and will result in measurable growth of our business. Since 2014, we have
successfully:
Increased prescription product sales through a combination of market share gains on existing products and new product launches.
·
· Acquired the NDAs for and began marketing Atacand, Atacand HCT, Arimidex, Casodex, Lithobid, Vancocin, Inderal LA, Inderal XL, and InnoPran XL.
·
·
·
·
Filed one ANDA.
Increased our product pipeline, through development, partnership, and acquisition, to 75 total products.
Closed a public offering of common stock, netting $46.7 million.
Closed a public offering of $143.8 million of convertible debt, with simultaneous bond hedge and warrant transactions, $25.0 of which we repurchased in
December 2018.
Entered into a $265.2 million credit agreement with Citizens Bank, N.A.
·
· Acquired WellSpring Pharma Services Inc.
· Acquired the NDAs for Cortrophin gel and Cortrophin-Zinc in January 2016; have since assembled a Cortrophin re-commercialization team of scientists,
executed a long-term supply agreement with a supplier of pig pituitary glands, our primary raw material for corticotrophin active pharmaceutical
ingredient (“API”), executed a long-term supply agreement with a corticotrophin API manufacturer, with whom we have advanced the manufacture of
corticotropin API via manufacture of both intermediate and commercial-scale batches, and executed a long-term commercial supply agreement with a
Cortrophin gel fill/finish contract manufacturer.
We believe that our cash resources and forecasted cash flows from operations will be sufficient to enable us to meet our operational needs for the foreseeable
future.
Product Development Considerations
We consider a variety of criteria in determining which products to develop or acquire, all of which relate to the level of potential competition and expected
profitability upon product launch. These criteria include:
·
Formulation Complexity. Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are difficult to produce,
including highly potent, extended release, combination, and low dosage products. This ability to manufacture a variety of complex products is a
competitive strength that we intend to leverage in selecting products to develop or manufacture.
Patent Status. We seek to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges.
·
· Market Size. When determining whether to develop or acquire an individual product, we review the current and expected market size for that product at
launch, as well as forecasted price erosion upon conversion from branded to generic pricing. We endeavor to manufacture products with sufficient market
size to enable us to enter the market with a strong likelihood of being able to price our products both competitively and at a profit.
4
·
Profit Potential. We research the availability and cost of active pharmaceutical ingredients in determining which products to develop or acquire. In
determining the potential profit of a product, we forecast our anticipated market share, pricing, including the expected price erosion caused by
competition from other generic manufacturers, and the estimated cost to manufacture the products.
· Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants in order to optimize the utilization of our
·
facilities, ensure quality control in our products, and maximize profit potential.
Competition. When determining whether to develop or acquire a product, we research existing and expected competition. We seek to develop products
for which we can obtain sufficient market share, and may decline to develop a product if we anticipate significant competition. Our specialized
manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies are able to compete.
Products and Markets
Products
As of December 31, 2018, our products include both branded and generic pharmaceuticals, specifically:
Branded Products
Arimidex
Atacand
Atacand HCT
Casodex
Cortenema
Inderal LA
Inderal XL
InnoPran XL
Lithobid
Reglan
Vancocin
Generic Products
Candesartan Hydrochlorothiazide
Cholestyramine
Desipramine Hydrochloride
Diphenoxylate Hydrochloride and Atropine Sulfate
Erythromycin Ethylsuccinate
Esterified Estrogen with Methyltestosterone
Etodolac
Ezetimibe-Simvastatin
Felbamate
Fenofibrate
Flecainide
Fluvoxamine
Hydrocortisone Enema
Hydrocortisone Rectal Cream (1% and 2.5%)
Indapamide
Lithium Carbonate ER
Mesalamine Enema
Methazolamide
Metoclopramide Syrup
Morphine Sulfate Oral Solution
Nilutamide
Nimodipine
Opium Tincture
Oxycodone Hydrochloride Capsules
Oxycodone Hydrochloride Oral Solution (5 mg/5 mL)
Oxycodone Hydrochloride Oral Solution (100 mg/5 mL)
Pindolol
Propafenone
Propranolol ER
Terbutaline Sulfate
Vancomycin
Arimidex is an aromatase inhibitor indicated for adjuvant treatment of postmenopausal women with hormone receptor-positive early breast cancer.
Atacand is an angiotensin II receptor blocker indicated for treatment of hypertension to lower blood pressure and the treatment of heart failure.
Candesartan hydrochlorothiazide and its branded equivalent, Atacand HCT, combine an angiotensin II receptor antagonist and a diuretic, hydrochlorothiazide,
and is used for the treatment of hypertension to lower blood pressure.
5
Casodex is an androgen receptor inhibitor indicated for use in combination therapy with a luteinizing hormone-releasing hormone analog for the treatment of
Stage D2 metastatic carcinoma of the prostate.
Cholestyramine for Oral Suspension USP is indicated as adjunctive therapy to diet for the reduction of elevated serum cholesterol in patients with primary
hypercholesterolemia (elevated low-density lipoprotein “LDL” cholesterol) who do not respond adequately to diet. It is also indicated for the relief of pruritus
associated with partial biliary obstruction.
Desipramine Hydrochloride is used to treat depression.
Diphenoxylate Hydrochloride and Atropine Sulfate is used as an adjunctive therapy in the management of diarrhea.
Erythromycin Ethylsuccinate is used to treat infections caused by susceptible strains of designated organisms for selected diseases.
Esterified Estrogen with Methyltestosterone (“EEMT”) is used to treat moderate to severe vasomotor symptoms of menopause that are not improved by
estrogen alone.
Etodolac is used to treat mild to moderate pain caused by osteoarthritis and rheumatoid arthritis, as well as other conditions.
Ezetimibe-Simvastatin is used to lower high cholesterol and triglyceride levels to reduce the risk of heart attack, stroke, and blood vessel problems.
Felbamate is an anticonvulsant used in the treatment of epilepsy. It is used to treat partial seizures (with and without generalization) in adults and partial and
generalized seizures associated with Lennox–Gastaut syndrome in children.
Fenofibrate is a peroxisome proliferator receptor alpha activator indicated as an adjunct with diet to reduce elevated LDL-C, Total-C, TG and Apo B, and to
increase HDL-C in adult patients with primary hypercholesterolemia or mixed dyslipidemia. Fenofibrate is also indicated as an adjunct with diet for adult patients
with severe hypertriglyceridemia.
Flecainide is used to treat arrhythmia (irregular heartbeat) in patients and to help patients maintain a normal heart rate.
Fluvoxamine is used to treat patients with obsessive-compulsive disorder and social anxiety disorder. It is generally used when the patient’s symptoms
interfere with the patient’s ability to function socially and occupationally.
Hydrocortisone Enema and its branded equivalent, Cortenema, are used for the treatment of ulcerative colitis, especially distal forms, including ulcerative
proctitis, ulcerative proctosigmoiditis, and left-sided ulcerative colitis. The products have also proved useful in some cases involving the transverse and ascending
colons.
Hydrocortisone Rectal Cream is used for the relief of inflammatory and pruritic manifestations of
corticosteroid-responsive dermatoses.
Indapamide tablets are indicated for the treatment of hypertension, alone or in combination with other antihypertensive drugs. Indapamide is also indicated for
the treatment of salt and fluid retention (swelling) associated with congestive heart failure.
Inderal XL is a beta-adrenergic blocker indicated for the treatment of hypertension, to lower blood pressure. Lowering blood pressure reduces the risk of fatal
and nonfatal cardiovascular events, primarily strokes and myocardial infarctions.
InnoPran XL is a beta-adrenergic blocker indicated for the treatment of hypertension, to lower blood pressure. Lowering blood pressure reduces the risk of
fatal and nonfatal cardiovascular events, primarily strokes and myocardial infarctions.
Lithium Carbonate ER and its branded equivalent, Lithobid, are indicated in the treatment of manic episodes of bipolar disorder. Lithium Carbonate ER and
Lithobid are also indicated as a maintenance treatment for individuals with a diagnosis of bipolar disorder. Maintenance therapy reduces the frequency and
intensity of manic episodes.
Mesalamine Enema is used to treat active to moderate distal ulcerative colitis, proctosigmoiditis, or proctitis.
6
Methazolamide is indicated in the treatment of ocular conditions where lowering intraocular pressure is likely to be of therapeutic benefit, such as chronic
open-angle glaucoma, secondary glaucoma, and preoperatively in acute angle-closure glaucoma where lowering the intraocular pressure is desired before surgery.
Metoclopramide and its branded equivalent, Reglan, are prescribed for periods of four to twelve weeks in adults with symptomatic, documented
gastroesophageal reflux who fail to respond to conventional therapy. The products relieve daytime heartburn and heartburn after meals and also help ulcers in the
esophagus to heal. The products also relieve symptoms associated with acute and recurrent diabetic gastric stasis and help treat symptoms such as nausea,
vomiting, heartburn, feeling full long after a meal, and loss of appetite.
Morphine Sulfate oral solution is indicated for the management of acute and chronic pain severe enough to require an opioid analgesic and for which
alternative treatments are inadequate.
Nilutamide is indicated for use in combination with surgical castration for the treatment of metastatic prostate cancer.
Nimodipine is used to improve neurological outcomes by reducing the incidence and severity of ischemic deficits in patients with subarachnoid hemorrhage
from ruptured brain aneurysms.
Opium Tincture is used is to treat diarrhea in adults by slowing the movement of the intestines and decreasing the number and frequency of bowel movements.
Oxycodone Hydrochloride capsules are indicated for the management of acute moderate to severe pain and chronic pain.
Oxycodone Hydrochloride oral solution (both 5 mg/5 mL and 100 mg/5 mL) is used to relieve acute moderate to severe pain and chronic pain.
Pindolol is indicated in the management of hypertension. It may be used alone or concomitantly with other antihypertensive agents, particularly with a
thiazide-type diuretic.
Propafenone is used to treat arrhythmia (irregular heartbeat) in patients and to help patients maintain a normal heart rate.
Propranolol ER and its branded equivalent, Inderal LA, are indicated in the management of hypertension, to decrease angina frequency and increase exercise
tolerance in patients with angina pectoris, for the prophylaxis of common migraine headache, and to improve New York Heart Association (“NYHA”) functional
class in symptomatic patients with hypertrophic subaortic stenosis.
Terbutaline Sulfate is indicated for the prevention and reversal of bronchospasm in patients 12 years of age or older with asthma and reversible bronchospasm
associated with bronchitis and emphysema.
Vancomycin and its branded equivalent, Vancocin, are indicated for the treatment of C. difficile-associated diarrhea, as well as enterocolitis caused by
staphylococcus aureus (including methicillin-resistant strains). The capsules are not effective for other types of infections, as the drugs are not systematically
absorbed.
Markets
In determining which products to pursue for development, we target products that are complex to manufacture and therefore have higher barriers to entry.
These factors provide opportunities for growth, utilizing our competitive strengths at the same time that they decrease the number of potential competitors in the
markets for these products. These markets currently include controlled substances, oncolytics, hormones and steroids, and complex formulations, including
extended release and combination products.
Controlled
Substances
One of our manufacturing facilities in Baudette, Minnesota is licensed by the DEA for the manufacture of Schedule II controlled substances. Our
manufacturing facility in Oakville, Ontario is licensed by Health Canada for the manufacture of Schedule II controlled substances. Controlled substances are drugs
considered to have a high abuse risk but that also have safe and accepted medical uses. In addition to our five Schedule II products currently on the market, our
pipeline includes one ANDA in this market.
7
Oncolytics
Due to the capabilities of our containment facility and our expertise in manufacturing segregation, we are focused on developing and manufacturing niche
oncolytic (anti-cancer) drugs. In particular, we are targeting products subject to priority review by the FDA, more specifically those with no blocking patents and
no generic competition. We currently have three oncolytic products on the market.
Hormone
and
Steroid
Drugs
The market for hormone and steroid drugs includes hormone therapy to alleviate menopausal symptoms in women, contraceptives, testosterone replacement
therapies for men, and therapies for treating hormone-sensitive cancers.
Hormone Therapy (“HT”) has been an accepted medical treatment for alleviating the symptoms of menopause since the 1930s, with formal FDA approval for
that use granted in 1942. Initially, HT consisted of estrogen only, but has evolved to include combination therapies of estrogen, progesterone, and androgens. We
target niche products in the HT and steroid product market for several reasons, including:
· Hormone and steroid products are a core competency based on our manufacturing and product development teams' long history of manufacturing these types
of products; and
The aging baby boom population, of which women represent a majority, is expected to support continued growth in the HT market.
·
Complex
Formulations
Our manufacturing facilities can be used to manufacture complex formulations, including, but not limited to, extended release and combination products,
which have higher barriers to entry and, therefore, fewer competitors. In addition to our 11 complex formulation products currently on the market, our pipeline
includes eight extended-release products and five combination products.
8
Contract Manufacturing
We manufacture pharmaceutical products for several branded and generic companies, who outsource production in order to:
Free-up internal resources to focus on sales and marketing as well as research and development;
Employ internal capacity to manufacture higher volume or more critical products; and
·
·
· Utilize our specialized equipment and expertise.
Given our specialized manufacturing capabilities, we are focused on attracting niche contract manufacturing opportunities that offer high margins.
On August 6, 2018, we acquired all the issued and outstanding equity interests of WellSpring Pharma Services Inc., a Canadian company that performs
contract development and manufacturing of pharmaceutical products. In conjunction with the transaction, we acquired WellSpring’s pharmaceutical manufacturing
facility, laboratory, and offices, its current book of contract manufacturing business, as well as an organized workforce. As a result of this transaction, we perform
contract manufacturing in both our Baudette, Minnesota and Oakville, Ontario facilities.
Manufacturing, Suppliers, and Raw Materials
We require a supply of quality raw materials, including active pharmaceutical ingredients (“API”), and components to manufacture and package our
pharmaceutical products. In order to manufacture Morphine Sulfate oral solution, Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL),
Oxycodone Hydrochloride oral solution (100 mg/5 mL), and Oxycodone Hydrochloride capsules, we must submit a request to the DEA for a quota to purchase the
amount of morphine sulfate, opium, and oxycodone hydrochloride needed to manufacture the respective products. Without approved quotas from the DEA, we
would not be able to purchase these ingredients from our suppliers.
We source the raw materials for our products from both domestic and international suppliers, which we carefully select. Generally, we qualify only a single
source of API for use in each product due to the cost and time required to validate and qualify a second source of supply. Any change in one of our API suppliers
must usually be approved through a Prior Approval Supplement (“PAS”) by the FDA. The process of obtaining an approval of such a PAS can require between
four and 18 months. While we also generally qualify a single source for non-API raw materials, the process required to qualify an alternative source of a non-API
raw material is typically much less rigorous. If we were to change the supplier of a raw material for a product, the cost for the material could be greater than the
amount we paid with the previous supplier. Changes in suppliers are rare, but could occur as a result of a supplier’s business failing, an issue arising from an FDA
inspection, or failure to maintain our required standards of quality. As a result, we select suppliers with great care, based on various factors including quality,
reliability of supply, and long-term financial stability. Certain of the APIs for our drug products, including those that are marketed without approved NDAs or
ANDAs, such as EEMT, are sourced from international suppliers. From time to time, we have experienced temporary disruptions in the supply of certain of such
imported API due to FDA inspections.
Government Regulation
The pharmaceutical industry in the U.S. and Canada is highly regulated by multiple U.S. and Canadian government agencies, such as the FDA, the DEA, the
Centers for Medicare and Medicaid Services (“CMS”), and Health Canada. As a result, we are subject to extensive and complex rules and regulations, which are
subject to revision from time to time. While we have experience with these regulations, there can be no assurance that we will be able to fully comply with all
applicable regulations.
Branded and Generic Pharmaceutical Products
All prescription pharmaceutical products distributed in the U.S., whether branded or generic, must be approved by the FDA. All applications for FDA
approval must contain information relating to product formulation, raw material suppliers, stability, manufacturing processes, packaging, labeling, and quality
control. Information to support the bioequivalence of generic drug products or the safety and effectiveness of new drug products for their intended use is also
required to be submitted. There are generally two types of applications used for obtaining FDA approval of new products:
9
New
Drug
Application
(“NDA”)
—An NDA is filed when approval is sought to market a newly developed branded product and, in certain instances, for a
new dosage form, a new delivery system, or a new indication for an approved drug. We market Arimidex, Atacand, Atacand HCT, Casodex, Cortenema,
generic Candesartan Hydrochlorothiazide, generic Fenofibrate, generic Fluvoxamine Maleate, generic Hydrocortisone Enema, generic Terbutaline Sulfate,
Inderal LA, Inderal XL, InnoPran XL, generic Lithium Carbonate ER, Lithobid, generic Mesalamine, generic Propranolol ER, Reglan, Vancocin, and generic
Vancomycin under approved NDAs.
Abbreviated
New
Drug
Application
(“ANDA”)
—An ANDA is filed when approval is sought to market a generic equivalent of a drug approved under an
NDA. We market Cholestyramine, Desipramine Hydrochloride, Diphenoxylate Hydrochloride and Atropine Sulfate, Erythromycin Ethylsuccinate, Etodolac,
Ezetimibe-Simvastatin, Felbamate, Flecainide, Hydrocortisone rectal cream (1% and 2.5%), Indapamide, Methazolamide, Metoclopramide oral solution,
Morphine Sulfate oral solution, Nilutamide, Nimodipine, Oxycodone Hydrochloride capsules, Oxycodone Hydrochloride oral solution (5 mg/5 mL),
Oxycodone Hydrochloride oral solution (100 mg/5 mL), Pindolol, and Propafenone under approved ANDAs.
The ANDA development process is generally less time-consuming and less complex than the NDA development process. It typically does not require new
preclinical and clinical studies, because it relies on the studies establishing safety and efficacy conducted for the branded drug approved through the NDA process.
The ANDA process, however, typically requires one or more bioequivalence studies to show that the ANDA drug is bioequivalent to the previously approved
reference listed drug (“RLD”).
The Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”) provides that generic drugs may enter the market after the
approval of an ANDA, which requires (1) that bioequivalence to the branded product be demonstrated through clinical studies, and (2) either the expiration,
invalidation or circumvention of any patents or the end of any other relevant market exclusivity periods related to the branded drug.
Accordingly, generic products generally provide a safe, effective, and cost-efficient alternative to users of branded products. Growth in the generic
pharmaceutical industry has been driven by the increased market acceptance of generic drugs, as well as the number of branded drugs for which patent terms
and/or other market exclusivities have expired.
Generic products are generally commercialized after the expiration of patent protection for the branded product and after the end of a period of non-patent
market exclusivity. In addition to patent exclusivity, the holder of the NDA may be entitled to a period of non-patent market exclusivity, during which the FDA
cannot approve an application for a generic product. Also, if the NDA is a new chemical entity (“NCE”), the FDA may not approve an ANDA for a generic
product for up to five years following approval of the NDA for the NCE. If an NDA is not an NCE, but the holder of the NDA conducted clinical trials essential to
approval of the NDA or a supplement thereto, the FDA may not approve a generic equivalent to the NDA for three years. Certain other periods of exclusivity may
be available if the branded drug is indicated for treatment of a rare disease or is studied for pediatric indications.
In order to obtain FDA approval of NDAs and ANDAs, our manufacturing procedures and operations must conform to FDA requirements and guidelines,
generally referred to as “cGMP.” The requirements for FDA approval encompass all aspects of the production process, including validation and recordkeeping, the
standards around which are continuously changing and evolving. As a result, we must consistently monitor and comply with these changes.
Our facilities, procedures, operations, and testing of products are subject to periodic inspection by the FDA, the DEA, Health Canada, and other authorities. In
addition, the FDA and Health Canada conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in
compliance with cGMP and other FDA and Health Canada regulations. Our suppliers are subject to similar regulations and periodic inspections.
10
Controlled Substances
The DEA regulates certain drug products containing controlled substances, pursuant to the U.S. Controlled Substances Act (“CSA”). Morphine Sulfate, which
is a significant component of our Morphine Sulfate oral solution product, is classified as a controlled substance. Opium, which is a significant component of our
Opium Tincture product, is also classified as a controlled substance. Oxycodone Hydrochloride, a significant component of our Oxycodone Hydrochloride oral
solution (5 mg/5 mL), Oxycodone Hydrochloride oral solution (100 mg/5 mL), and Oxycodone Hydrochloride capsule products, is also classified as a controlled
substance. CSA and DEA regulations impose specific requirements on manufacturers and other entities that handle these substances including registration,
recordkeeping, reporting, storage, security, and distribution. Recordkeeping requirements include accounting for the amount of product received, manufactured,
stored, and distributed. Companies handling controlled substances also are required to maintain adequate security and to report suspicious orders, thefts, and
significant losses. The DEA periodically inspects facilities for compliance with the CSA and its regulations. Failure to comply with current and future regulations
of the DEA could lead to a variety of sanctions, including revocation or denial of renewal of DEA registrations, injunctions, or civil or criminal penalties.
In addition, we must submit a request to the DEA for a quota to purchase the amount of morphine sulfate, opium, and oxycodone hydrochloride we need to
manufacture Morphine Sulfate oral solution, Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone Hydrochloride oral solution (100
mg/5 mL), and Oxycodone Hydrochloride capsules. Without approved quotas from the DEA, we would not be able to purchase these ingredients from our
suppliers. As a result, we are dependent upon the DEA to approve quotas large enough to support our continued manufacture of Morphine Sulfate oral solution,
Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone Hydrochloride oral solution (100 mg/5 mL), and Oxycodone Hydrochloride
capsules.
Unapproved Products
Two of our products, EEMT and Opium Tincture, are marketed without approved NDAs or ANDAs. The FDA's policy with respect to the continued
marketing of unapproved products appears in the FDA's September 2011 Compliance Policy Guide Sec. 440.100 titled "Marketed New Drugs without Approved
NDAs or ANDAs." Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against marketing of unapproved
products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in
certain categories, such as those with potential safety risks or that lack evidence of effectiveness. While we believe that, so long as we comply with applicable
manufacturing standards, the FDA will not take action against us under the current enforcement policy, we can offer no assurances that the FDA will continue this
policy or not take a contrary position with any individual product or group of products.
Medicaid/Medicare
Medicaid and Medicare, both of which are U.S. federal health care programs administered by CMS, are major purchasers of pharmaceutical products,
including those we produce.
Medicaid is administered by the states and jointly funded by the federal and state governments. Its focus is on low income populations. State drug coverage
policies under Medicaid may vary significantly state by state. The Patient Protection and Affordable Care Act (“PPACA”), as amended by the Health Care and
Education and Reconciliation Act of 2010, together known as the Affordable Care Act ("ACA"), required states to expand their Medicaid programs to individuals
with incomes up to 138% of the federal poverty level. Although the United States Supreme Court in 2011 made the Medicaid expansion optional, many states are
expanding their Medicaid programs.
The ACA also made changes to Medicaid law that could negatively impact us. In particular, pharmaceutical manufacturers must enter into rebate agreements
with state Medicaid agencies, which require manufacturers to pay rebates based on their drugs dispensed to Medicaid beneficiaries. The ACA raised the rebate
percentages for both generic and branded pharmaceuticals effective January 1, 2010. The required rebate is currently 13% of the average manufacturer price for
sales of Medicaid-reimbursed products marketed under ANDAs. Sales of Medicaid-reimbursed products marketed under NDAs require manufacturers to rebate the
greater of 23.1% of the average manufacturer price or the difference between the average manufacturer price and the "best price" (as defined in the Medicaid
statute) during a specific period. Federal and/or state governments may continue to enact measures aimed at reducing the cost of drugs to the Medicaid program.
11
Medicare is run by the federal government and is largely focused on the elderly and disabled. The Medicare Modernization Act of 2003 (“MMA”) created
Medicare Part D to provide prescription drug coverage for Medicare beneficiaries. The MMA has increased usage of pharmaceuticals, a trend that we believe will
continue to benefit the generic pharmaceutical industry. The ACA made some changes to Part D to make it easier for Medicare beneficiaries to obtain drugs, such
as reducing coinsurance amounts. The ACA also required pharmaceutical companies to provide discounts to Medicare Part D beneficiaries for the cost of branded
prescription drugs. Under the Medicare Coverage Gap Discount Program authorized by the ACA, any pharmaceutical product marketed under an NDA, regardless
of whether the product is marketed as a "generic," is subject to the discount requirement. Our Candesartan Hydrochlorothiazide, Fenofibrate, Fluvoxamine,
Hydrocortisone Enema, Lithium Carbonate ER, Mesalamine, Propranolol ER, and Vancomycin products, while marketed as "generics," are marketed under
approved NDAs and, therefore, are subject to the discount requirement. While we may benefit from Medicare changes that have reduced obstacles to drug usage,
resulting sales increases, if any, may be offset by existing and future legislative efforts to curb the cost of drugs to the Medicare program.
Most of our products are covered by Medicaid and Medicare. Our reporting and payment obligations under the Medicaid rebate program and other
governmental purchasing and rebate programs are complex and may involve subjective decisions. Any determination that we have failed to comply with those
obligations could subject us to penalties and sanctions, and we could be subject to federal or state false claims litigation.
Patents, Trademarks, and Licenses
We own the trademark names for most of our branded products, including Cortenema, Cortrophin gel, Cortrophin-Zinc, Inderal LA, Inderal XL, InnoPran XL,
Lithobid, Reglan, and Vancocin. We license the trademark names for Atacand, Atacand HCT, Arimidex, and Casodex. With the exception of a license for patent
technology for InnoPran XL and Inderal XL, we do not own or license any patents associated with these products. Further, patent protection and market exclusivity
for these branded products have expired, with the exception of the InnoPran XL and Inderal XL products, who have market exclusivity until 2022. Therefore, we
consider the trademark names to be of material value and we act to protect these rights from infringement. However, our business is not dependent upon any single
trademark. Trademark protection continues in some countries as long as used; in other countries, as long as registered. Registration is for fixed terms and may be
renewed indefinitely. We believe that sales of our branded products have benefited and will continue to benefit from the value of the product name. In addition, we
receive royalties from a license for patent rights initially owned by Cell Genesys, Inc., which merged with BioSante in 2009. The royalties are received as a result
of sales and milestones related to the Yescarta® product. In 2018, we recorded $1.8 million of royalties related to the license of these patent rights.
Distribution Agreements
In addition to selling products under our own NDAs and ANDAs, we enter into marketing and distribution agreements with third parties in which we sell
products under ANDAs or NDAs owned or licensed by these third parties. These products are sold under our own label.
We market and distribute Fenofibrate, an authorized generic of Lipofen®, under an agreement with Kowa Pharmaceuticals America, Inc. Under the
agreement, we retain 7.5% of gross profits on sales of the product. We launched the Fenofibrate product under our own label in May 2016. The agreement may be
terminated by either party under certain specified circumstances.
Customers
Our customers purchase and distribute our products. Our products are sold by three major retail pharmacy chains: CVS, Rite Aid, and Walgreens. Our
customers include five major national wholesalers: AmerisourceBergen, Cardinal Health, McKesson, Anda, and Morris Dickson. In addition, our customers
include national mail order houses, including CVS Caremark, Humana, and ExpressScripts, as well as group purchasing organizations.
12
In recent years, the wholesale distributor network for pharmaceutical products has been subject to increasing consolidation, which has increased the
concentration of our wholesale customers. In addition, the number of retail market chains and, in particular, the number of independent drug stores and small
chains, has decreased as retail consolidation has occurred, also increasing the concentration of our retail customers. As a result of this trend toward consolidation, a
smaller number of companies each control a larger share of pharmaceutical distribution channels. For the year ended December 31, 2018, approximately 81% of
our net revenues were attributable to three wholesalers: McKesson Corporation (21%), AmerisourceBergen Corporation (33%), and Cardinal Health, Inc. (23%).
For the years ended December 31, 2017 and 2016, McKesson Corporation, Cardinal Health, Inc., and AmerisourceBergen Corporation, together accounted for
approximately 78% and 68% of our net revenues, respectively. In addition, as noted below, our customers also distribute our products. The loss of any of these
customers, including in their role as distributors, could have a material adverse effect on our business.
Due to a strategic partnership between Amerisource Bergen and Walgreens, Amerisource Bergen handles product distribution for Walgreens. Similarly,
Cardinal Health and CVS established a partnership in which Cardinal performs some product distribution for CVS. McKesson also entered into a strategic alliance
with both Wal-Mart and Rite Aid. As a result of these strategic partnerships between wholesalers and pharmacy chains, we have experienced, and expect to
continue to experience, increases in net sales to the wholesalers, with corresponding decreases in net sales to the pharmacy chains.
Consistent with industry practice, we maintain a return policy that allows customers to return product within a specified period prior to and subsequent to the
expiration date. Generally, product may be returned for a period beginning six months prior to its expiration date to up to one year after its expiration date. See
"Management's Discussion and Analysis of Results of Operations and Financial Condition—Critical Accounting Estimates" for a discussion of our accruals for
chargebacks, rebates, returns, and other allowances.
Sales, Marketing, and Distribution
We market, sell, and distribute our products in the United States. Our products are distributed through the following channels:
· Wholesalers. We conduct business with five major wholesalers in the United States: AmerisourceBergen, Cardinal, McKesson, Anda, and Morris Dickson.
·
· Distributors and Mail Order Pharmacies. We have contracts with several major distributors and mail order pharmacies in the United States, including CVS
Retail Market Chains. We conduct business with three major retail chains in the United States: CVS, Rite Aid, and Walgreens.
Caremark, Humana, and ExpressScripts.
· Group Purchasing Organizations. We have contracts with group purchasing organizations in the United States, such as ClarusONE, Rx Sourcing Strategies,
Walgreens Boots Alliance Development Group, Red Oak Sourcing, Premier Inc., Managed Health Care Associates Inc., Innovatix, MedAssets, Minnesota
Multi-State, Optisource, and The Premier Group.
Competition
Certain of our products face limited competition due to complexities in formulation, active pharmaceutical ingredient sourcing, materials handling and
manufacturing, and regulatory hurdles. Nevertheless, we compete with numerous other pharmaceutical companies, including large, global pharmaceutical
manufacturers capable of addressing these complexities and hurdles with respect to products that we currently produce and products that are in our pipeline. In
addition, our products are subject to competition from other generic products and non-prescription alternative therapies.
Our branded pharmaceutical products currently face competition from generic products and we expect them to continue to face competition from generic
products in the future. In order to launch a generic product, a manufacturer must apply to the FDA for an ANDA showing that the generic product is
therapeutically equivalent to the RLD. (See “Government Regulation.”)
The primary means of competition among generic drug manufacturers are pricing, contract terms, service levels, and reliability. To compete effectively, we
seek to consistently produce high-quality, reliable, and effective products. We also establish active working relationships with each of our customers, continually
gather important market information in order to respond successfully to requests for proposals, maintain sufficient inventories to assure high service levels, and
work to reduce product costs by sourcing and qualifying alternative suppliers whenever possible.
13
Our sales can be impacted by new studies that indicate that a competitor's product has greater efficacy than one of our products. If competitors introduce new
products with therapeutic or cost advantages, our products can be subject to progressive price reductions and/or decreased volume of sales.
Principal competitors for the pharmaceutical market in which we do business include Amneal Pharmaceuticals, Inc., Alvogen, Inc., Apotex Inc., Glenmark
Pharmaceuticals Ltd, Hikma Pharmaceuticals plc, Method Pharmaceuticals, LLC, Mylan N.V., Par Pharmaceutical, Inc., Perrigo Company plc, Rising
Pharmaceuticals, Inc., Sun Pharmaceutical Industries Ltd., and Teva Pharmaceuticals USA, Inc.
Pharmaceutical Industry Trends
In recent years, the pharmaceutical industry has experienced significant consolidation, particularly in distribution channels and amongst generic and brand
drug companies.
The wholesale distributor network for pharmaceutical products has been subject to increasing consolidation, which has increased the concentration of our
wholesale customers. In addition, the number of retail market chains and, in particular, the number of independent drug stores and small chains, has decreased as
retail consolidation has occurred, also increasing the concentration of our retail customers. As a result of this trend toward consolidation, a smaller number of
companies each control a larger share of pharmaceutical distribution channels.
In addition, consolidation amongst pharmaceutical companies has created opportunities by reducing the number of competitors. However, as competitors grow
larger through consolidation, so do their resources. Larger competitors may be able to aggressively decrease prices in order to gain market share on certain
products and may have resources that would allow them to more effectively market their products to potential customers.
Product Liability
Product liability litigation represents an inherent risk to all firms in the pharmaceutical industry. We utilize traditional third-party insurance policies with
regard to our product liability claims. Such insurance coverage at any given time reflects current market conditions, including cost and availability, when the policy
is written.
All manufacturers of the drug Reglan and its generic equivalent metoclopramide, including ANI, have faced allegations from plaintiffs in various states,
including California, New Jersey, and Pennsylvania, claiming bodily injuries as a result of ingestion of metoclopramide or its brand name, Reglan, prior to the
FDA's February 2009 Black Box warning requirement. In August 2012, we were dismissed with prejudice from all New Jersey complaints. In August 2016, we
settled the outstanding California short form complaints and in February 2018, we settled the remaining four complaints that were not captured in the 2016
settlement. We consider our exposure to this litigation to be limited due to several factors: (1) the only generic metoclopramide that we manufactured prior to the
implementation of the FDA's warning requirement was an oral solution introduced after May 28, 2008; (2) our market share for the oral solution was a very small
portion of the overall metoclopramide market; and (3) once we received a request for change of labeling from the FDA, we submitted our proposed changes within
30 days, and such changes were subsequently approved by the FDA.
At the present time, we are unable to assess the likely outcome of the cases in the remaining states. Our insurance company has assumed the defense of this
matter and paid all losses in settlement of the California cases. We cannot provide assurances that the outcome of these matters will not have an adverse effect on
our business, financial condition, and operating results. Furthermore, like all pharmaceutical manufacturers, we may be exposed to other product liability claims in
the future, which could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business,
financial condition, and operating results.
Backlog
We define backlog as firm orders received prior to December 31, 2018 that have not been shipped as of December 31, 2018. We had a backlog of $6.3 million,
$0.5 million, and $0.8 million at December 31, 2018, 2017, and 2016, respectively, relating to contract manufacturing purchase orders from customers.
Employees
As of December 31, 2018, we had 299 full-time employees.
14
Seasonality of Business
We do not believe our business is subject to seasonality. However, our business can be affected by the business practices of our business partners. To the
extent that the availability of inventory or materials from or development practices of our partners is seasonal, our sales may be subject to fluctuations quarter to
quarter or year to year.
15
Item 1A. Risk Factors
The following are significant factors known to us that could materially harm our business, financial position, or operating results or could cause our actual
results to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statement made in this report. The
risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may
adversely affect our business, financial position, and operating results. If any of these risks actually occur, our business, financial position, and operating results
could suffer significantly. As a result, the market price of our common stock could decline and investors could lose all or part of their investment.
Risks Related to our Industry
The continuing trend toward consolidation of customer groups could result in declines in the sales volume and prices of our products, and increased fees
charged by customers, each of which could have a material adverse effect on our business, financial position, and operating results.
Consolidation and the formation of strategic partnerships among and between wholesale distributors, chain drug stores, and group purchasing organizations
has resulted in a smaller number of companies, each controlling a larger share of pharmaceutical distribution channels. For example, our net revenues are
concentrated among three customers representing 21%, 23%, and 33% of net revenues, respectively, during the year ended December 31, 2018. As of December
31, 2018, accounts receivable from these three customers was approximately 81% of accounts receivable, net. Drug wholesalers and retail pharmacy chains, which
represent an essential part of the distribution chain for generic pharmaceutical products, have undergone, and are continuing to undergo, significant consolidation.
This consolidation may result in declines in our sales volumes if a customer is consolidated into another company that purchases products from a competitor. In
addition, the consolidation of drug wholesalers and retail pharmacy chains could result in these groups gaining additional purchasing leverage and consequently
increasing the product pricing pressures facing our business and enabling those groups to charge us increased fees. Additionally, the emergence of large buying
groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enable those
groups to extract price discounts on our products. The result of these developments may have a material adverse effect on our business, financial position, and
operating results.
Our reporting and payment obligations under the Medicaid rebate program and other governmental purchasing and rebate programs are complex and
may involve subjective decisions. Any determination that we have failed to comply with those obligations could subject us to penalties and sanctions, which
could adversely affect our business, financial position, and operating results.
The regulations regarding reporting and payment obligations with respect to Medicaid rebates and other governmental programs are complex. Because our
processes for these calculations and the judgments involved in making these calculations involve subjective decisions and complex methodologies, these
calculations are subject to the risk of errors. Our calculations and methodologies are subject to review and challenge by governmental agencies, and it is possible
that such reviews could result in changes. Any determination by governmental agencies that we have failed to comply with our reporting and payment obligations
could subject us to penalties and sanctions, which could have a material adverse effect on our business, financial position, and operating results.
Two of our products, which together comprised 12% of our total revenue in 2018, are marketed without approved New Drug Applications (“NDAs”) or
Abbreviated New Drug Applications (“ANDAs”) and we can offer no assurances that the U.S. Food and Drug Administration (“FDA”) will not require us to
either seek approval for these products or withdraw them from the market. In either case, our business, financial position, and operating results could be
materially adversely affected.
Two of our products, Esterified Estrogen with Methyltestosterone (“EEMT”) and Opium Tincture, are marketed without approved NDAs or ANDAs. During
the years ended December 31, 2018, 2017, and 2016, revenues for EEMT were 11%, 13%, and 23% of total revenue, respectively, and revenues from Opium
Tincture were 1%, 2%, and 4% of total revenue, respectively.
16
The FDA's policy with respect to the continued marketing of unapproved products appears in the FDA's September 2011 Compliance Policy Guide Sec.
440.100 titled "Marketed New Drugs without Approved NDAs or ANDAs." Under this policy, the FDA has stated that it will follow a risk-based approach with
regard to enforcement against marketing of unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives
higher priority to enforcement action against products in certain categories, such as those with potential safety risks or that lack evidence of effectiveness. While
we believe that, so long as we comply with applicable manufacturing standards, the FDA will not take action against us under the current enforcement policy, we
can offer no assurances that the FDA will continue this policy or not take a contrary position with any individual product or group of products.
In addition, we manufacture a group of products on behalf of a contract manufacturing customer and receive royalties on the customer’s sales of products,
which are marketed by that customer without an FDA-approved NDA or ANDA. If the FDA took enforcement action against such customer, the customer may be
required to seek FDA approval for the group of products or withdraw them from the market, which could materially adversely affect our contract manufacturing
and royalty revenues. Our contract manufacturing revenues from this group of unapproved products for the years ended December 31, 2018, 2017, and 2016 were
1.0%, 1.1%, and 1.2% of total revenues, respectively. Our royalties on the net sales of these unapproved products for the years ended December 31, 2018, 2017,
and 2016 were less than 1% of total revenues.
Imported active pharmaceutical ingredients (“API”) are subject to inspection by the FDA and the FDA can refuse to permit the importation of API for use
in products that are marketed without approved NDAs or ANDAs. We are entirely dependent on imported API to make EEMT. If the FDA detained or refused
to allow the importation of such API, our revenues from EEMT would be reduced or eliminated and our business, financial position, and operating results
could be materially adversely affected.
We source some of the API for our products, including those that are marketed without approved NDAs or ANDAs, from international suppliers. From time to
time, due to FDA inspections, we have experienced temporary disruptions in the supply of imported API, including for EEMT. Any prolonged disruption in the
supply of imported API could materially affect our ability to manufacture and distribute our products, such as EEMT, reduce or eliminate our revenues from
EEMT, and have a material adverse effect on our business, financial position, and operating results. In addition, as regulatory fees and compliance oversight of API
manufacturers increase, this could result in certain companies discontinuing their supply of API to ANI, which would materially affect ANI’s ability to
manufacture its products.
The FDA does not provide guidance on safety labeling for products that are marketed without approved NDAs or ANDAs. As a result, we are dependent
on our internal post-approval drug safety surveillance program to identify necessary safety-related changes to the labels for EEMT and Opium Tincture.
Pharmaceutical product labels contain important safety information including Black Box warnings, contraindications, dosing and administration, adverse
reactions, drug interactions, use in specific populations such as pregnant women, pediatric, and geriatric patients, and other warnings and precautions.
Pharmaceutical manufacturers may change product labels when post-approval drug safety surveillance programs identify previously unknown side-effects, drug
interactions, and other risks. Manufacturers may also change product labels after conducting post-approval clinical studies and may receive or seek guidance from
the FDA regarding updating safety labeling information. However, the FDA does not provide guidance on labeling for products that are marketed without
approved NDAs or ANDAs. As a result, we are dependent on our internal post-approval drug safety surveillance program to identify necessary safety-related
changes to the labels for EEMT and Opium Tincture, which could increase our potential liability with respect to failure-to-warn claims for these products. Such
claims, even if successfully defended, could have an adverse impact on our business, financial position, and operating results.
17
We are entirely dependent on periodic approval by the Drug Enforcement Administration (“DEA”) for the supply of the API needed to make our
Morphine Sulfate oral solution, Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone Hydrochloride oral solution (100 mg/5
mL), and Oxycodone Hydrochloride capsule products. An inability to obtain such approvals would reduce or eliminate our revenues from Morphine Sulfate
oral solution, Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone Hydrochloride oral solution (100 mg/5 mL), and Oxycodone
Hydrochloride capsules, and could have a material adverse effect on our business, financial position, and operating results. In addition, we are subject to strict
regulation by the DEA and are subject to sanctions if we are unable to comply with related regulatory requirements.
The DEA regulates products containing controlled substances, such as opiates, pursuant to the U.S. Controlled Substances Act (“CSA”). The CSA and DEA
regulations impose specific requirements on manufacturers and other entities that handle these substances including registration, recordkeeping, reporting, storage,
security, and distribution. Recordkeeping requirements include accounting for the amount of product received, manufactured, stored, and distributed. Companies
handling controlled substances also are required to maintain adequate security and to report suspicious orders, thefts and significant losses. The DEA periodically
inspects facilities for compliance with the CSA and its regulations. Failure to comply with current and future regulations of the DEA could lead to a variety of
sanctions, including revocation or denial of renewal of DEA registrations, injunctions, or civil or criminal penalties.
In addition, each year, we must submit a request to the DEA for a quota to purchase the amount of API needed to manufacture Morphine Sulfate oral solution,
Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone Hydrochloride oral solution (100 mg/5 mL), and Oxycodone Hydrochloride
capsules. Without approved quotas from the DEA, we would not be able to purchase these ingredients from our suppliers. As a result, we are entirely dependent
upon the DEA to approve, on an annual basis, a quota of API that is sufficiently large to support our plans for the continued manufacture of Morphine Sulfate oral
solution, Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone Hydrochloride oral solution (100 mg/5 mL), and Oxycodone
Hydrochloride capsules at commercial levels. In 2017, the DEA announced that the administration would decrease the total quotas approved for Schedule II opioid
painkillers. The DEA did decrease quotas approved for Schedule II opioid painkillers in 2018, which resulted in moderate decreases to our quotas for certain of our
products. If the DEA does not approve our requested quotas, we may be unable to obtain sufficient API to manufacture these products at levels required by our
customers, which could have an adverse impact on our business, financial position, and operating results.
Pharmaceutical product quality standards are steadily increasing and all products, including those already approved, may need to meet current standards.
If our products are not able to meet these standards, we may be required to discontinue marketing and/or recall such products from the market.
Steadily increasing quality standards are applicable to pharmaceutical products still under development and those already approved and on the market. These
standards result from product quality initiatives implemented by the FDA, such as criteria for residual solvents, and updated U.S. Pharmacopeial Convention
(“USP”) Reference Standards. The USP is a scientific nonprofit organization that sets standards for the identity, strength, quality, and purity of medicines, food
ingredients, and dietary supplements manufactured, distributed, and consumed worldwide. Pharmaceutical products approved prior to the implementation of new
quality standards, including those produced by us, may not meet these standards, which could require us to discontinue marketing and/or recall such products from
the market, either of which could adversely affect our business, financial position, and operating results.
18
We may become subject to federal and state false claims litigation brought by private individuals and the government.
We are subject to state and federal laws that govern the submission of claims for reimbursement. The Federal False Claims Act (“FFCA”), also known as Qui
Tam, imposes civil liability and criminal fines on individuals or entities that knowingly submit, or cause to be submitted, false or fraudulent claims for payment to
the government. Violations of the FFCA and other similar laws may result in criminal fines, imprisonment, and civil penalties for each false claim submitted and
exclusion from federally funded health care programs, including Medicare and Medicaid. The FFCA also allows private individuals to bring a suit on behalf of the
government against an individual or entity for violations of the FFCA. These suits, also known as Qui Tam actions, may be brought by, with only a few exceptions,
any private citizen who has material information of a false claim that has not yet been previously disclosed. These suits have increased significantly in recent years
because the FFCA allows an individual to share in any amounts paid to the federal government from a successful Qui Tam action. If our past or present operations
are found to be in violation of any of such laws or other applicable governmental regulations, we may be subject to civil and criminal penalties, damages, fines,
exclusion from federal health care programs, and/or the curtailment or restructuring of our operations, any of which could materially adversely affect our business,
financial position, and operating results. Actions brought against ANI for violations of these laws, even if successfully defended, could also have a material adverse
effect on our business, financial position, and operating results.
We face significant uncertainty with respect to the litigation brought against us and other manufacturers of metoclopramide and cannot provide
assurances that the outcome of the matter will not have an adverse effect on our business, financial position, and operating results. In addition, we may be
exposed to other product liability claims in the future.
All manufacturers of the drug Reglan and its generic equivalent metoclopramide, including ANI, have faced allegations from plaintiffs in various states,
including California, New Jersey, and Pennsylvania, claiming bodily injuries as a result of ingestion of metoclopramide or its brand name, Reglan, prior to the
FDA's February 2009 Black Box warning requirement. In August 2012, we were dismissed with prejudice from all New Jersey complaints. In August 2016, we
settled the outstanding California short form complaints and in February 2018, we settled the remaining four complaints that were not captured in the 2016
settlement. We consider our exposure to this litigation to be limited due to several factors: (1) the only generic metoclopramide that we manufactured prior to the
implementation of the FDA's warning requirement was an oral solution introduced after May 28, 2008; (2) our market share for the oral solution was a very small
portion of the overall metoclopramide market; and (3) once we received a request for change of labeling from the FDA, we submitted our proposed changes within
30 days, and such changes were subsequently approved by the FDA.
At the present time, we are unable to assess the likely outcome of the cases in the remaining states. Our insurance company has assumed the defense of this
matter and paid all losses in settlement of the California cases. We cannot provide assurances that the outcome of these matters will not have an adverse effect on
our business, financial condition, and operating results. Furthermore, like all pharmaceutical manufacturers, we may be exposed to other product liability claims in
the future, which could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business,
financial condition, and operating results.
We may not be able to maintain sufficient product liability insurance to cover claims against us.
Product liability insurance for the healthcare industry is generally expensive to the extent it is available at all. We may not be able to maintain such insurance
on acceptable terms or be able to secure increased coverage if the commercialization of our products progresses, nor can we be sure that claims against us will be
covered by our product liability insurance. Moreover, the existing coverage of our insurance policy or any rights of indemnification and contribution that we may
have may not be sufficient to offset existing or future claims. A successful claim against us, in excess of insurance coverage and not subject to any indemnification
or contribution, could have a material adverse effect on our future business, financial condition, and results of operations.
19
The use of legal, regulatory, and legislative strategies by competitors, both branded and generic, including "authorized generics," citizen's petitions, and
legislative proposals, may increase the costs to develop and market our generic products, could delay or prevent new product introductions, and could reduce
significantly our profit potential. These factors could have a material adverse effect on our business, financial position, and operating results.
Our competitors, both branded and generic, often pursue legal, regulatory, and/or legislative strategies to prevent or delay competition from generic
alternatives to branded products. These strategies include, but are not limited to:
·
·
·
·
·
·
·
·
·
·
entering into agreements whereby other generic companies will begin to market an authorized generic, a generic equivalent of a branded product, at the
same time generic competition initially enters the market;
launching a generic version of their own branded product at the same time generic competition initially enters the market;
filing citizen petitions with the FDA or other regulatory bodies, including timing the filings so as to thwart generic competition by causing delays of
generic product approvals;
seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence or meet other approval requirements;
initiating legislative and regulatory efforts to limit the substitution of generic versions of branded pharmaceuticals;
filing suits for patent infringement that may delay regulatory approval of generic products;
introducing "next-generation" products prior to the expiration of market exclusivity for the reference product, which often materially reduces the demand
for the first generic product;
obtaining extensions of market exclusivity by conducting clinical trials of branded drugs in pediatric populations or by other potential methods;
persuading regulatory bodies to withdraw the approval of branded name drugs for which the patents are about to expire, thus allowing the branded
company to obtain new patented products serving as substitutes for the products withdrawn; and
seeking to obtain new patents on drugs for which patent protection is about to expire.
If we cannot compete with such strategies, our business, financial position, and operating results could be adversely impacted.
If third-party payers deny coverage, substitute another company’s product for our product, or offer inadequate levels of reimbursement, we may not be
able to market our products effectively or we may be required to offer our products at prices lower than anticipated.
Third-party payers are increasingly challenging the prices charged for medical products and services. For example, third-party payers may deny coverage,
choose to provide coverage for a competitor’s bioequivalent product rather than our product, or offer limited reimbursement if they determine that a prescribed
product has not received appropriate clearances from the FDA, is not used in accordance with cost-effective treatment methods as determined by the third-party
payer, or is experimental, unnecessary, or inappropriate. Prices also could be driven down by health maintenance organizations that control or significantly
influence purchases of healthcare services and products. If third-party payers deny coverage or limit reimbursement, we may not be able to market our products
effectively or we may be required to offer our products at prices lower than anticipated.
We are subject to federal, state, and local laws and regulations, and complying with these may cause us to incur significant additional costs.
The pharmaceutical industry is subject to regulation by various federal authorities, including the FDA, the DEA, and state governmental authorities. Federal
and state statutes and regulations govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising,
promotion, sale, and distribution of our products. Noncompliance with applicable legal and regulatory requirements can have a broad range of consequences,
including warning letters, fines, seizure of products, product recalls, total or partial suspension of production and distribution, refusal to approve NDAs or other
applications or revocation of approvals previously granted, withdrawal of product from marketing, injunctions, withdrawal of licenses or registrations necessary to
conduct business, disqualification from supply contracts with the government, civil penalties, debarment, and criminal prosecution.
20
All U.S. facilities where prescription drugs are manufactured, tested, packaged, stored, or distributed must comply with FDA current good manufacturing
practices (“cGMPs”). All of our products are manufactured, tested, packaged, stored, and distributed according to cGMP regulations. The FDA performs periodic
audits to ensure that our facilities remain in compliance with all applicable regulations. If it finds violations of cGMP, the FDA could make its concerns public and
could impose sanctions including, among others, fines, product recalls, total or partial suspension of production and/or distribution, suspension of the FDA's review
of product applications, injunctions, and civil or criminal prosecution. If imposed, enforcement actions could have a material adverse effect on our business,
financial position, and operating results. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although we
have internal compliance programs in place that we believe are adequate, the FDA may conclude that these programs do not meet regulatory standards. If
compliance is deemed deficient in any significant way, it could have a material adverse effect on our business.
The U.S. government has enacted the Federal Drug Supply Chain Security Act ("DSCSA") that requires development of an electronic pedigree to track and
trace each prescription drug at the salable unit level through the distribution system, which will be effective incrementally over a 10-year period. All prescription
pharmaceutical products distributed in the U.S. must be serialized with unique product identifiers by November 27, 2017. On June 30, 2017, the FDA issued draft
guidance that indicated that they are delaying enforcement of those requirements until November 27, 2018 to provide manufacturers additional time and avoid
supply disruptions. ANI started manufacturing serialization-compliant products in November 2018. The final requirement for tracking the products will commence
on November 27, 2023. Compliance with DSCSA and future U.S. federal or state electronic pedigree requirements may increase the Company's operational
expenses and impose significant administrative burdens. In addition, if we are unable to comply with DSCSA as of the required dates, we could face penalties or be
unable to sell our products.
Our research, product development, and manufacturing activities involve the controlled use of hazardous materials, and we may incur significant costs in
complying with numerous laws and regulations. We are subject to laws and regulations enforced by the FDA, the DEA, and other regulatory statutes including the
Occupational Safety and Health Act (“OSHA”), the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act, and other current and potential federal, state, local, and foreign laws and regulations governing the use, manufacture, storage, handling, and disposal of our
products, materials used to develop and manufacture such products, and resulting waste products. For example, some of our products, including EEMT, must be
manufactured in a fully contained environment due to their potency and/or toxicity, and compliance with related OSHA requirements is costly.
We cannot completely eliminate the risk of contamination or injury, by accident or as the result of intentional acts, from these materials. In the event of an
accident, we could be held liable for any damages that result, and any resulting liability could exceed our resources. We may also incur significant costs in
complying with environmental laws and regulations in the future. We are also subject to laws generally applicable to businesses, including but not limited to,
federal, state, and local regulations relating to wage and hour matters, employee classification, mandatory healthcare benefits, unlawful workplace discrimination,
and whistle-blowing. Any actual or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim, even if without merit,
could result in costly litigation, regulatory action or otherwise harm our business, financial position, and operating results.
Our operations in an international market subject us to additional regulatory oversight both in the international market and in the U.S., as well as
economic, social, and political uncertainties, which could cause a material adverse effect on our business, financial position, and operating results.
We are subject to certain risks associated with having assets and operations located in a foreign jurisdiction, including our operations in Canada. Our Canadian
operations are subject to regulation by Health Canada and other federal, provincial, and local regulatory authorities. Health Canada regulates the testing,
manufacture, labeling, marketing, and sale of pharmaceutical products manufactured and distributed in Canada. Our operations in this jurisdiction may be
adversely affected by general economic conditions and economic and fiscal policy, including changes in exchange rates and controls, interest rates and taxation
policies, and increased government regulation, which could have a material adverse effect on our business, financial position, and operating results.
21
Currency fluctuations and changes in exchange rates could have a material adverse effect on our business, financial position, and operating results.
A portion of our transactions are denominated in a foreign currency, the Canadian dollar. Because we engage in certain transactions in a foreign currency, we
are subject to the effects of exchange rate fluctuations. If the U.S. dollar depreciates against the Canadian dollar, the expenses we recognize from Canadian-
denominated transactions made by our Canadian subsidiary could be translated at an unfavorable rate, leading to foreign exchange losses. Foreign exchange gains
or losses as a result of exchange rate fluctuations in any given period could harm our operating results and negatively impact our financial position and results of
operations.
Uncertainties associated with the impact of published studies regarding the adverse health effects of certain forms of hormone therapy could affect
adversely the market for our hormone products.
The market for hormone therapy products has been affected negatively by the Women's Health Initiative (“WHI”) study and other studies that have found that
the overall health risks from the use of certain hormone therapy products may exceed the benefits from the use of those products among postmenopausal women.
In July 2002, the National Institutes of Health (“NIH”) released data from its WHI study on the risks and benefits associated with long-term use of oral hormone
therapy by women. The NIH announced that it was discontinuing the arm of the study investigating the use of oral estrogen/progestin combination hormone
therapy products after an average follow-up period of 5.2 years because the product used in the study was shown to cause an increase in the risk of invasive breast
cancer. The study also found an increased risk of stroke, heart attacks, and blood clots and concluded that overall health risks exceeded benefits from use of
combined estrogen plus progestin among postmenopausal women. Also, in July 2002, results of an observational study sponsored by the National Cancer Institute
on the effects of estrogen therapy were announced. The main finding of the study was that postmenopausal women who used estrogen therapy for 10 or more years
had a higher risk of developing ovarian cancer than women who never used hormone therapy. In October 2002, a significant hormone therapy study being
conducted in the United Kingdom also was halted. In March 2004, the NIH announced that the estrogen-alone study was discontinued after nearly seven years
because the NIH concluded that estrogen alone does not affect (either increase or decrease) heart disease, the major question being evaluated in the study. The
findings indicated a slightly increased risk of stroke as well as a decreased risk of hip fracture and breast cancer. Preliminary data from the memory portion of the
WHI study suggested that estrogen alone may possibly be associated with a slight increase in the risk of dementia or mild cognitive impairment.
Researchers continue to analyze data from both arms of the WHI study and other studies. Some reports indicate that the safety of estrogen products may be
affected by the age of the woman at initiation of therapy. The markets for female hormone therapies for menopausal symptoms declined as a result of these
published studies. The release of any follow-up or other studies that show adverse effects from hormone therapy, including in particular, hormone therapies similar
to our products, also could adversely affect our business, financial position, and operating results.
Continuing studies of our products could produce negative results, which could require us to implement risk management programs, or discontinue
product marketing. In addition, ongoing post-approval drug safety surveillance of our products could result in the submission of adverse event reports to the
FDA.
Studies of the proper utilization, safety, and efficacy of pharmaceutical products are being conducted by the industry, government agencies, and others on a
continuous basis. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety, and efficacy of
current and previously marketed products, including those that we produce. In addition, we are required by the FDA to submit reports of adverse events involving
the use of our products. In some cases, studies and safety surveillance programs have resulted, and in the future may result, in the one or more of the following:
·
·
·
·
product label changes including FDA-mandated Black Box warnings;
risk management programs such as patient registries;
reduced product sales due to concerns among patients and physicians; and
discontinuance of product marketing.
These situations, should they occur with respect to any of our products, could have a material adverse effect on our business, financial position, and operating
results.
22
Companies with greater resources than us could lobby Congress and other regulators for additional regulations that would benefit their businesses and
negatively affect us.
We are at the early stages of growth and currently do not engage in lobbying activities. In the U.S., some companies have lobbied Congress for amendments to
the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”) that would give them additional advantages over generic
competitors. For example, although the term of a company's drug patent can be extended to reflect a portion of the time an NDA is under regulatory review, some
companies have proposed extending the patent term by the full amount of time spent in clinical trials rather than by only one half of the time that is currently
permitted.
If proposals like these were to become effective, our entry into the market and our ability to generate revenues associated with new products may be delayed,
reduced, or eliminated, which could have a material adverse effect on our business, financial position, and operating results.
Healthcare reform legislation could have a material adverse effect on our business, financial position, and operating results.
In recent years, there have been numerous initiatives on the federal and state levels for comprehensive reforms affecting the payment for, the availability of,
and reimbursement for healthcare services in the U.S., and it is likely that federal and state legislatures and health agencies will continue to focus on health care
reform in the future. The Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education and Reconciliation Act of 2010, which
amends the PPACA (collectively, “the ACA”), were signed into law in March 2010. While the ACA may increase the number of patients who have insurance
coverage for our products and may otherwise increase drug coverage, it also includes provisions such as, among others, the assessment of a pharmaceutical
manufacturer fee, the requirement that manufacturers provide discounts to Medicare beneficiaries through the Medicare Coverage Gap Discount program, and an
increase in the amount of rebates that manufacturers pay for coverage of their drugs by Medicaid programs.
The cost-containment measures that government programs and healthcare insurers are instituting both as a result of general cost pressure in the industry and
healthcare reforms contained in the ACA may prevent us from maintaining prices for our products that are sufficient for us to realize profits and may otherwise
harm our business, financial position, and operating results. In addition, to the extent that our products are marketed outside of the U.S., foreign government
pricing controls and other regulations may prevent us from maintaining prices for such products that are sufficient for us to realize profits and may otherwise harm
our business, financial position, and operating results.
Risks Related to our Business
Our anticipated revenue growth and profitability, if achieved, is dependent upon our ability to develop, license or acquire, and commercialize new products
on a timely basis in relation to our competitors' product introductions, and to address all regulatory requirements applicable to the development and
commercialization of new products. Our failure to do so successfully could impair our growth strategy and plans and could have a material adverse effect on
our business, financial position, and operating results.
Our future revenues and profitability are dependent upon our ability to successfully develop, license or acquire, and commercialize pharmaceutical products in
a timely manner. Product development is inherently risky and time-consuming. Likewise, product licensing involves inherent risks, including uncertainties due to
matters that may affect the achievement of milestones, as well as the possibility of contractual disagreements with regard to the supply of product meeting
specifications and terms such as license scope or termination rights. The development and commercialization process also requires substantial time, effort, and
financial resources. We may not be successful in commercializing products on a timely basis, if at all, which could adversely affect our business, financial position,
and operating results.
The FDA must approve any new prescription product before it can be marketed in the U.S. The process of obtaining regulatory approval to manufacture and
market branded and generic pharmaceutical products is rigorous, time consuming, costly, and largely unpredictable. We may be unable to obtain requisite
approvals on a timely basis for branded or generic products that we may develop, license, or acquire. Moreover, if we obtain regulatory approval for a drug, we
may be limited with respect to the indicated uses and delivery methods for which the drug may be marketed, which in turn could restrict the potential market for
the drug. Also, for products pending approval, we may obtain raw materials or produce batches of inventory. In the event that regulatory approval is denied or
delayed, we could be exposed to the risk of any such inventory becoming obsolete. The timing and cost of obtaining regulatory approvals could adversely affect
our product introduction plans, business, financial position, and operating results.
23
The approval process for generic pharmaceutical products often results in the FDA granting simultaneous final approval to a number of generic
pharmaceutical products at the time a patent claim for a corresponding branded product or other market exclusivity expires. This often forces a generic firm to face
immediate competition when it introduces a generic product into the market. Additionally, further generic approvals often continue to be granted for a given
product subsequent to the initial launch of the generic product. These circumstances generally result in significantly lower prices, as well as reduced margins, for
generic products compared to branded products. New generic market entrants generally cause continued price and margin erosion over the generic product life
cycle. As a result, we could be unable to grow or maintain market share with respect to our generic pharmaceutical products, which could have a material adverse
effect on our ability to market that product profitably and on our business, financial position, and operating results.
Furthermore, if we are unable to address all regulatory requirements applicable to the development and commercialization of new products in a timely manner,
our product introduction plans, business, financial position, and operating results could be materially adversely affected.
The FDA regulates and monitors all promotion and advertising of prescription drugs after approval. All promotion must be consistent with the conditions of
approval and submitted to the agency. Failure to adhere to FDA promotional requirements can result in enforcement letters, warning letters, changes to existing
promotional material, and corrective notices to healthcare professionals. Promotion of a prescription drug for uses not approved by the FDA can have serious
consequences and result in lawsuits by private parties, state governments and the federal government, significant civil and criminal penalties, and compliance
agreements that require a company to change current practices and prevent unlawful activity in the future.
We depend on a limited number of suppliers for API. Generally, only a single source of API is qualified for use in each product due to the costs and time
required to validate a second source of supply. Changes in API suppliers must usually be approved through a Prior Approval Supplement (“PAS”) by the FDA.
Our ability to manufacture and distribute products is dependent, in part, upon ingredients and components supplied by others, including entities based outside
the U.S. We purchased approximately 13% of our inventory from one supplier during the year ended December 31, 2018. We purchased approximately 23% of our
inventory from two suppliers during the year ended December 31, 2017 and approximately 25% of our inventory from one supplier during the year ended
December 31, 2016. Any disruption in the supply of these ingredients or components or any problems in their quality could materially affect our ability to
manufacture and distribute our products and could result in legal liabilities that could materially affect our ability to realize profits or otherwise harm our business,
financial, and operating results. Virtually all of our contracts for the supply of pharmaceutical products to customers contain "failure to supply" clauses. Therefore,
our ability to source sufficient quantities of API for manufacturing is critical. We source the raw materials for our products from both domestic and international
suppliers, which we carefully select. Generally, we qualify only a single source of API for use in each product due to the cost and time required to validate and
qualify a second source of supply. Any change in one of our API suppliers must usually be approved through a PAS by the FDA. The process of obtaining an
approval of such a PAS can require between four and 18 months. While we also generally qualify a single source for non-API raw materials, the process required
to qualify an alternative source of a non-API raw material is typically much less rigorous. If we were to change the supplier of a raw material for a product, the cost
for the material could be greater than the amount we paid with the previous supplier. Changes in suppliers are rare, but could occur as a result of a supplier’s
business failing, an issue arising from an FDA inspection, or failure to maintain our required standards of quality. As a result, we select suppliers with great care,
based on various factors including quality, reliability of supply, and long-term financial stability. Certain of the APIs for our drug products, including those that are
marketed without approved NDAs or ANDAs, such as EEMT, are sourced from international suppliers. From time to time, we have experienced temporary
disruptions in the supply of certain of such imported API due to FDA inspections.
24
Several of the products we have acquired cannot be manufactured in our facilities. If we are unable to secure or maintain qualified contract
manufacturers for those products or if a contract manufacturer fails to comply with federal, state, and local laws and regulations, our business, financial
position, and operating results could be materially, adversely affected.
We have acquired, and may continue to acquire, a variety of products that we seek to commercialize. Some of these products, including injectables and softgel
capsules, are products that we cannot manufacture in our facilities. As a result, we may seek partners to contract manufacture the products on our behalf. Like our
company, these firms must comply with cGMPs and other federal, state, and local laws and regulations regarding pharmaceutical manufacturing. Noncompliance
by those firms may result in warning letters, fines, product recalls, and partial or total suspension of production and distribution. If we are unable to find qualified
contract manufacturers or if a contract manufacturer fails to comply with federal, state, and local laws and regulations, we may be unable to commercialize these
products, which could have a material adverse effect on our business, financial position, and operating results, including an impairment of the acquired product.
Several of our products are manufactured and/or packaged by third parties, which we cannot control.
We rely on third parties to manufacture and/or package our Arimidex, Atacand, Atacand HCT, Candesartan, Casodex, Cholestyramine, Desipramine,
Ezetimibe-Simvastatin, Felbamate, Fenofibrate, Hydrocortisone rectal cream, Inderal LA, Inderal XL, InnoPran XL, Nimodipine, and Propranolol ER products.
We relied on third parties to manufacture and/or package our Erythromycin Ethylsuccinate, Vancocin, and Vancomycin products for part of 2018. We expect our
reliance on third party manufacturers to continue to increase in the future as we receive approvals for new products to be manufactured through our collaborative
arrangements, and as we seek additional growth opportunities outside of the capabilities of our current manufacturing facilities. If we are unable to secure third-
party manufacturers for these products on commercially acceptable terms, we may not be able to market and distribute such products at a profit. Any delays or
difficulties with third-party manufacturers could adversely affect the marketing and distribution of Arimidex, Atacand, Atacand HCT, Candesartan, Casodex,
Cholestyramine, Desipramine, Ezetimibe-Simvastatin, Felbamate, Fenofibrate, Hydrocortisone rectal cream, Inderal LA, Inderal XL, InnoPran XL, Nimodipine,
Propranolol ER, or future products, which could have a material adverse effect on our business, financial position, and operating results.
Our branded products may become subject to increased generic competition.
Many of our branded products have not been patent-protected for several years and no longer have market exclusivity. As a result, trends moving toward
increased substitution and reimbursement of generics for cost-containment purposes may reduce and limit the sales of our mature brand products. Additionally,
increased focus by the FDA on approval of generic products may accelerate this trend. If generic products are substituted for these branded products, our revenue
from these products will decrease, which could have an adverse effect on our business, financial position, and operating results.
25
Future acquisitions and investments could disrupt our business and harm our financial position and operating results.
Our growth will depend, in part, on our continued ability to develop, commercialize, and expand our products, including in response to changing regulatory
and competitive pressures. In some circumstances, we may determine to accelerate our growth through the acquisition of complementary businesses and
technologies rather than through internal development. The identification of suitable acquisition candidates or products can be difficult, time-consuming, and
costly, and we may not be able to successfully complete or successfully execute strategies for identified acquisitions. The risks faced in connection with
acquisitions include:
·
·
·
·
·
·
·
·
diversion of management time and focus from operating our business to addressing acquisition and/or product integration challenges;
coordination of research and development and sales and marketing functions;
retention of key employees from the acquired company;
integration of the acquired company’s accounting information, management, human resources, and other administrative systems;
the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls,
procedures and policies;
liability for activities of the acquired company and/or products before the acquisition, including patent infringement claims, violations of laws,
commercial disputes, tax liabilities and other known and unknown liabilities;
unanticipated write-offs or charges; and
litigation or other claims in connection with the acquired company or product, including claims from product users, former stockholders, or other third
parties.
In any acquisition that we may undertake, our failure to address these risks or other problems encountered in connection with any acquisitions and investments
could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business
generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of additional debt, contingent liabilities, amortization
expenses, incremental operating expenses, or the write-off of goodwill, any of which could harm our business, financial position, and operating results.
Our Medicaid rebate accruals have increased and continue to increase due to our acquisitions of and subsequent sales of branded products and authorized
generics of branded products, such as Arimidex, Atacand, Lithium Carbonate, and Propranolol ER, as well as the acquisition of a distribution agreement
under which we market our Fenofibrate product, and the estimates on which our accruals are based are subject to change. Any such change could have a
material adverse effect on our business, financial position, and operating results.
Our Medicaid rebate accruals have increased significantly due to our acquisitions of and subsequent sales of branded products and authorized generics of
branded products, such as Arimidex, Atacand, Lithium Carbonate, and Propranolol ER, as well as the acquisition of a distribution agreement under which we
market our Fenofibrate product. We accrue for these rebates at the time of sale based on our estimates of the amount of our product that will be prescribed to
Medicaid beneficiaries. The resulting accruals are significant, and as Medicaid utilization trends change, we may need to change our estimates accordingly. We
cannot guarantee that actual results will not differ from our estimates. In addition, the PPACA included a significant expansion of state Medicaid programs. As
more individuals become eligible for coverage under these programs, Medicaid utilization of our products could increase, resulting in a corresponding increase in
our rebate payments. Increases in Medicaid rebate payments could decrease our revenues from product sales, including Arimidex, Atacand, Fenofibrate, Lithium
Carbonate, and Propranolol ER which in turn could adversely affect our business, financial position, and operating results.
26
Our accruals for the Medicare Coverage Gap Discount Program have increased due to our acquisitions of Inderal LA, InnoPran XL, Vancomycin, as well
as the acquisition of a distribution agreement under which we market our Fenofibrate product, and the estimates on which our accruals are based are subject
to change. Any such change could have a material adverse effect on our business, financial position, and operating results.
Our accruals for the rebates under the Medicare Coverage Gap Discount Program have increased due to our acquisitions of Inderal LA, InnoPran XL,
Vancomycin, and the acquisition of a distribution agreement under which we market our Fenofibrate product. We accrue for these rebates at the time of sale based
on our estimates of the amount of product that will be prescribed to patients in the Medicare Coverage Gap Discount program, which is primarily for the benefit of
persons aged 65 years and over. As our Fenofibrate, Inderal LA, InnoPran XL, and Vancomycin products are often used by patients in this age range, our estimates
of these rebates have grown. Increases in Medicare Coverage Gap Discount rebates could decrease our revenues from product sales, including Fenofibrate, Inderal
LA, InnoPran XL, and Vancomycin, which in turn could adversely affect our business, financial position, and operating results.
We have entered into distribution agreements under which we market products under ANDAs and NDAs owned by third parties. Any changes to these
agreements could have a material adverse effect on our business, financial position, and operating results.
We have entered into several distribution agreements to market and distribute products under our own label that are sold under ANDAs and NDAs owned by
third parties, over which we have no control. Generally, the responsibility for maintaining the ANDAs and NDAs lies with these third parties. If any regulatory
issues were to arise with the underlying ANDA or NDA for one of these products, we could be required to discontinue sales of the product, which could have an
adverse effect on our business, financial position, and operating results.
We may not achieve the anticipated benefits from our acquisition of WellSpring Pharma Services Inc. (“WellSpring”) and we may face integration
difficulties, which could have a material adverse effect on our business, financial position, and operating results.
Our acquisition of WellSpring Pharma Services Inc., now ANI Pharmaceuticals Canada Inc. (“ANI Canada”) involved the combination of two companies that
operated as independent companies prior to the closing of the business combination. The integration of the business may be more time consuming and require more
resources than initially estimated and we may fail to realize some or all of the anticipated benefits of the acquisition if the integration process takes longer than
expected or is more costly than expected. The integration process could also result in the diversion of management’s attention, the disruption or interruption of, or
the loss of momentum in, the businesses of ANI and ANI Canada or inconsistencies in standards, controls, procedures, and policies, any of which could adversely
affect our ability to maintain relationships with customers, partners, and employees or our ability to achieve the anticipated benefits of the acquisition. Any of these
could reduce our earnings or otherwise have a material adverse effect our business, financial position, and operating results.
In January 2016, we acquired two NDAs for $75.0 million and a percentage of future net sales of products under the NDAs. We continue to invest in the
NDAs and if we are unable to commercialize these products, it could have a material adverse effect on our business, financial position, and operating results.
In January 2016, we acquired the right, title, and interest in the NDA for Cortrophin gel, 40 units/mL and 80 units/mL and the NDA for Cortrophin-Zinc, 40
units/mL, along with certain documentation and trademark applications, for $75.0 million and a percentage of future net sales of the products under the NDAs. We
have and intend to continue to incur significant research and development expense with respect to development of the product. In order to commercialize
Cortrophin gel, we have executed long-term commercial supply agreements with a supplier for pig pituitary glands, our primary API raw material. We have also
executed long-term supply agreements with a corticotropin API manufacturer and a Cortrophin gel fill/finish contract manufacturer. We have continued to advance
the manufacture of the corticotropin API, scaling up from intermediate scale batches to commercial-scale batches of corticotrophin API. We will need to
manufacture demo and registration batches of Cortrophin gel at commercial scale and initiate registration stability before we can submit our supplementary NDA
to the FDA. We will also need to obtain approval from the FDA of our supplementary NDA filing in order to commercialize the product. In addition, we will need
to market the products directly to physicians and negotiate with third-party payers to provide coverage and adequate levels of reimbursement for the products, none
of which is required for our current products. If we are unable to perform any of these steps, we may be unable to commercialize the products, which could have a
material adverse effect on our business, financial position, and operating results.
27
We face vigorous competition from other pharmaceutical manufacturers that threatens the commercial acceptance and pricing of our products. If we are
unable to successfully compete, such competition could have a material adverse effect on our business, financial position, and operating results.
The generic pharmaceutical industry is highly competitive. We face intense competition from U.S. and foreign manufacturers, many of whom are significantly
larger than us. Our competitors may be able to develop products and processes competitive with or superior to ours for many reasons, including but not limited to
the possibility that they may have:
greater financial resources;
proprietary processes or delivery systems;
larger research and development and marketing staffs;
larger production capabilities;
·
·
·
·
· more products; or
· more experience in developing new drugs.
Any of our significant competitors, due to one or more of these and other factors, could have a material adverse effect on our business, financial position, and
operating results.
Our approved products may not achieve commercialization at levels of market acceptance that allow us to achieve profitability, which could have a
material adverse effect on our business, financial position, and operating results.
We seek to develop, license, or acquire products that we can commercialize at levels of market acceptance that would allow us to recoup our costs, grow
market share, and achieve profitability. Even if we are able to obtain regulatory approvals for our pharmaceutical products, if we fail to predict accurately demand
for such products, our business, financial position, and operating results could be adversely affected. Levels of market acceptance for our products could be
impacted by several factors, including but not limited to:
·
·
·
·
·
·
availability of alternative products from our competitors;
our products’ pricing relative to that of our competitors;
our marketing effectiveness relative to that of our competitors;
timing of our market entry;
our ability to market our products effectively to the retail level; and
acceptance of our products by government and private formularies.
Some of these factors are outside of our control and, if any arise, our profitability, business, financial position, and operating results could be materially
adversely affected.
We have entered into several collaborative arrangements that may not result in marketable products.
We have entered into several collaborative arrangements to develop generic products for us to market in the U.S. We can offer no assurances that these
arrangements will result in additional approved products, or that we will be able to market the products at a profit. In addition, any expenses related to clinical
trials, or additional studies required by the FDA, that we may incur in connection with these collaborative arrangements may negatively affect our business,
financial position, and operating results. Specifically:
clinical trials could be more costly than we anticipate;
formulation development could take longer and be more costly than we expect; and
·
·
· we may be required to obtain specialized equipment in order to manufacture products on a commercial scale.
Any of these events could have a material adverse effect on our business, financial position, and operating results.
28
We expect to spend a significant amount of resources on research and development efforts, and such efforts may not result in marketable products.
Failure to successfully introduce products into the market could have a material adverse effect on our business, financial position, and operating results.
We conduct research and development primarily to enable us to manufacture and market approved products in accordance with applicable regulations.
Research and development is expensive and time-consuming. As we seek to develop new products, or re-commercialize products that were previously approved,
our research expenses will increase, potentially significantly, and we cannot be certain that we will recover our investment in a product, even if that product is
commercialized. If we spend significant resources on research and development efforts and are not able to introduce new products, our business, financial position,
and operating results may be materially adversely affected.
We own three manufacturing facilities that produce the majority of our products. Production at any or all of these facilities could be interrupted, which
could cause us to fail to deliver sufficient product to customers on a timely basis and have a material adverse effect on our business, financial position, and
operating results.
Our manufacturing operations are based in three facilities. While these facilities are sufficient for our current needs, the facilities are highly specialized and
any damage to or need for replacement of all or any significant function of our facilities could be very costly and time-consuming and could impair or prohibit
production and shipping. A significant disruption at any of the facilities, even on a short-term basis, whether due to a labor strike, adverse quality or compliance
observation, vandalism, natural disaster, storm or other environmental damage, or other events could impair our ability to produce and ship products on a timely
basis and, among other consequences, could subject us to “failure to supply” claims from our customers, as discussed below. Although we believe we carry
commercially reasonable business interruption and liability insurance, we might suffer losses because of business interruptions that exceed the coverage available
under our insurance policies or for which we do not have coverage. Any of these events could have a material adverse effect on our business, financial position,
and operating results.
Virtually all our contracts for the supply of products to our customers contain "failure to supply" clauses. Under these clauses, if we are unable to supply the
requested quantity of product within a certain period after receipt of a customer's purchase order, the customer is entitled to procure a substitute product elsewhere
and we must reimburse the customer for the difference between our contract price and the price the customer was forced to pay to procure the substitute product.
This difference can be substantial because of the much higher spot price at which the customer must cover its requirements, and can be far in excess of the revenue
that we would otherwise have received on the sale of our own product. Therefore, our ability to produce and ship a sufficient quantity of product on a consistent
basis is critical. Failure to deliver products could have a material adverse effect on our business, financial position, and operating results.
We rely on third parties to assist with our clinical studies. If these third parties do not perform as required or expected, or if they are not in compliance
with FDA rules and regulations, our clinical studies may be extended, delayed or terminated, or may need to be repeated, and we may not be able to obtain
regulatory approval for or commercialize the products being tested in such studies. Further, we may be required to audit or redo previously completed trials or
recall already-approved commercial products.
We rely on third parties, such as medical institutions, clinical investigators, and contract laboratories, to assist with our clinical studies. We are responsible for
confirming that our studies are conducted in accordance with applicable regulations and that each of our clinical studies is conducted in accordance with our
general investigational plan and protocol. The FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices for
conducting, monitoring, recording, and reporting the results of clinical studies, to assure that data and reported results are accurate and that the clinical study
participants are adequately protected. Our reliance on these third parties does not relieve us of these responsibilities. If the third parties assisting us with our clinical
studies do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with the FDA's good clinical practice regulations, do
not adhere to our protocols or otherwise fail to generate reliable clinical data, we may need to enter into new arrangements with alternative third parties and our
clinical studies may be extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the
products being tested in such studies. For our already-approved commercial products, we may be required to audit or redo previously completed trials or recall our
products from the market, which could have a material adverse effect on our business, financial position, and operating results.
29
With the exception of a license for patent technology for Inderal XL and InnoPran XL, we do not own or license any material patents associated with our
products, and our ability to protect and control unpatented trade secrets, know-how, and other technological innovation is limited.
Generally, the branded pharmaceutical business relies upon patent protection to ensure market exclusivity for the life of the patent. Except for a license for
patent technology for Inderal XL and InnoPran XL, we do not own or license any material patents associated with our products and therefore do not enjoy the same
level of intellectual property protection with respect to such products as would a pharmaceutical manufacturer that markets a patented product. We have limited
ability to protect and control trade secrets, know-how, and other technological innovation, all of which are unpatented. Others independently may develop similar
or better proprietary information and techniques and disclose them publicly. In addition, others may gain access to our trade secrets, and we may not be able to
protect our rights to our unpatented trade secrets. In addition, confidentiality agreements and other measures may not provide protection for our trade secrets in the
event of unauthorized use or disclosure of such information. Failure to protect and control such trade secrets, know-how and innovation could harm the value of
our trade secrets, know-how and other technological innovation, which could have a material adverse effect on our business, financial position, and operating
results.
Inability to protect our intellectual property in the U.S. and foreign countries could negatively affect sales of our branded products.
We own the trademark names for most of our branded products, including, Cortenema, Cortrophin Gel, Cortrophin-Zinc, Inderal LA, Inderal XL, InnoPran
XL, Lithobid, Reglan, and Vancocin. We license the trademark names for Atacand, Atacand HCT, Arimidex, and Casodex. While we will seek to protect those
trademarks through timely renewal in applicable jurisdictions, we may not be able to renew our trademarks in a timely manner or to prevent third parties from
using our trademarks, which could have a material adverse effect on our business, financial position, and operating results.
We have very limited staffing and are dependent upon key employees, the loss of whom could adversely affect our operations. Competition for talent is
intense, especially in northern Minnesota, where the population is small. If we cannot attract and retain qualified personnel, the growth and success of our
business could be adversely affected.
Our success is dependent upon the efforts of a relatively small management team and staff. We have employment arrangements in place with our executive
and other officers, but none of these executive and other officers are bound legally to remain employed with ANI for any specific term. We do not have key person
life insurance policies covering our executive and other officers or any of our other employees. If key individuals were to leave ANI, our business could be
affected adversely if suitable replacement personnel are not recruited quickly. The population in northern Minnesota, where two of our manufacturing facilities are
located, is small, and as a result, there is a limited number of qualified personnel available in all functional areas, which could make it difficult to retain and attract
the qualified personnel necessary for the development and growth of our business. If we were unable to attract and retain qualified personnel, our business,
financial position, and operating results could be materially adversely affected.
We rely significantly on information technology and any failure, inadequacy, interruption, or security lapse of that technology, including any
cybersecurity incidents, could harm our ability to operate the business effectively.
We rely significantly on our information technology and manufacturing infrastructure to effectively manage and maintain inventory and financial reports,
manufacture and ship products, and invoice customers in a timely manner. While we have invested in the protection of data and information technology, any
failure, accidents, inadequacy, or interruption of that infrastructure or security lapse of that technology, including cybersecurity incidents, could harm our ability to
operate our business effectively. Our ability to manage and maintain inventory and financial reports, manufacture and ship products, and invoice customers timely
depends significantly on our general ledger, our contracted electronic data interface system, and other information systems. Cybersecurity attacks in particular are
evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead
to disruptions in systems, misappropriation of confidential or otherwise protected information and corruption of data. Cybersecurity incidents resulting in the
failure of our information systems to operate effectively or to integrate with other systems, or a breach in security or other unauthorized access of these systems,
may affect our ability to manage and maintain inventory and financial reports, and result in delays in product fulfillment and reduced efficiency of operations. A
breach in security, unauthorized access resulting in misappropriation, theft, or sabotage with respect to proprietary and confidential information, including research
or clinical data could require significant capital investments to remediate any such failure, problem or breach, all of which could adversely affect our business,
financial position, and operating results.
30
Risks Related to Accounting, Tax, and SEC Rules and Regulations
Our ability to utilize our net operating loss and tax credit carryforwards in the future is subject to substantial limitations and we may not be able to use
some identified net operating loss and tax credit carryforwards, which could result in increased tax payments in future periods.
Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value)
in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss (“NOL”) carryforwards and other pre-change tax
attributes to offset its post-change income may be limited. On June 19, 2013, BioSante experienced an ownership change. Accordingly, our ability to utilize
BioSante’s NOL and tax credit carryforwards attributable to periods prior to June 19, 2013 is subject to substantial limitations. These limitations, in turn, could
result in increased future tax payments, which could be material.
We have increased exposure to tax liabilities, including foreign tax liabilities.
As a company based in the U.S. with a subsidiary in Canada, we are subject to, or potentially subject to, income taxes as well as non-income based taxes in
this jurisdiction as well as the U.S. Significant judgment is required in determining our international provision for income taxes and other tax liabilities. Changes in
tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. In addition, we have potential tax exposures resulting from the varying
application of statutes, regulations, and interpretations, which include exposures on intercompany terms of cross-border arrangements between our U.S. operations
and our Canadian subsidiary in relation to various aspects of our business, including tech transfers and contract manufacturing. Tax authorities in various
jurisdictions may disagree with, and subsequently challenge, the amount of profits taxed in such jurisdictions; such challenges may result in increased tax liability,
including accrued interest and penalties, which would cause our tax expense to increase and which could have a material adverse effect on our business, financial
position and results of operations and our ability to satisfy our debt obligations.
We use a variety of estimates, judgments, and assumptions in preparing our consolidated financial statements. Estimates, judgments, and assumptions are
inherently subject to change, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenues, expenses, and income.
Any such changes could have a material adverse effect on our business, financial position, and operating results.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires
us to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and expenses during the period. There are inherent uncertainties involved in estimates,
judgments and assumptions, and any changes in estimates, judgments and assumptions used could have a material adverse effect on our business, financial
position, and operating results.
In the consolidated financial statements included in the periodic reports filed with the SEC, estimates, judgments, and assumptions are used for, but not limited
to, revenue recognition, allowance for doubtful accounts, accruals for chargebacks, rebates, returns and other allowances, allowance for inventory obsolescence,
stock-based compensation, valuation of financial instruments and intangible assets, allowances for contingencies and litigation, deferred tax assets and liabilities,
deferred tax valuation allowance, and the depreciable lives of fixed and intangible assets. Actual results could differ from those estimates. Estimates, judgments,
and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities,
revenues, expenses, and income. Any such changes could have a material adverse effect on our business, financial position, and operating results.
Changes in estimates regarding the fair value of goodwill or intangible assets may result in an adverse impact to our business, financial position, and
operating results.
We test goodwill for impairment annually, or more frequently if changes in circumstances indicate that the carrying amount of goodwill might not be
recoverable. Judgment is used in determining when these events and circumstances arise. We perform our review of goodwill based on our one reporting unit. If
we determine that the carrying value of our assets may not be recoverable, we assess, using judgment and estimates, the fair value of our assets and to determine
the amount of any impairment loss, if any. Changes in judgments and estimates may result in the recognition of an impairment loss, which could have a material
negative impact on our business, financial position, and operating results. While our testing in fiscal 2018 did not result in an impairment charge related to
goodwill, there can be no assurances that our goodwill will not be impaired in the future.
31
Our material definite-lived intangible assets consist of ANDAs for previously marketed generic products, NDAs and product rights for our branded products,
marketing and distribution rights related to certain generic products, and a non-compete agreement. These assets are being amortized over their useful lives of four
to 10 years. For these definite-lived intangible assets, we perform an impairment analysis when events or circumstances indicate that the carrying value of the
assets may not be recoverable. An impairment loss is recognized if, based on our impairment analysis, the carrying amount of the asset is not recoverable and its
carrying amount exceeds its fair value. Any significant change in market conditions, estimates or judgments used to determine expected future cash flows that
indicate a reduction in carrying value may give rise to impairment in the period that the change becomes known. An impairment charge could have a material
negative impact on our business, financial position, and operating results. No impairment charge was recognized during the year ended December 31, 2018. We
recorded impairment charges of $0.9 million and $6.7 million in the years ended December 31, 2017 and 2016, respectively, in relation to our testosterone gel
NDA asset and there can be no assurances that our intangible assets won’t be impaired in the future.
Our management is required to devote substantial time to comply with public company regulations. If we are unable to comply with these regulations,
investors could lose confidence in us, which could have a material adverse effect on our stock price, business, financial position, and operating results.
As a public company, we are required to comply with significant legal, accounting, and other requirements that ANIP Acquisition Company did not face as a
private company and as such, have incurred significant regulatory compliance-related expenses. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street
Reform and Consumer Protection Act as well as rules implemented by the SEC and The NASDAQ Global Market, impose various requirements on public
companies, including those related to corporate governance practices. Our management and other personnel devote a substantial amount of time to these
requirements. Some members of management do not have significant experience in addressing these requirements. Moreover, these rules and regulations have
increased our legal and financial compliance costs relative to those of previous years and make some activities more time consuming and costly.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and
procedures. In particular, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to
report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. The Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) provides a framework for companies to assess and improve their internal control systems. Our compliance
with these requirements has required that we incur substantial accounting and related expenses and expend significant management efforts. Moreover, if we are
not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, are unable to assert that our internal controls over financial reporting are
effective, or identify deficiencies that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of our financial
reports, the market price of our common stock could decline and we could be subject to sanctions or investigations by The NASDAQ Global Market, the SEC, or
other regulatory authorities. Any of these events could have a material adverse effect on our business, financial position, and operating results.
Our policies regarding returns, allowances and chargebacks, and marketing programs adopted by wholesalers may reduce revenues in future fiscal
periods.
We, like other generic drug manufacturers, have agreements with customers allowing chargebacks, product returns, administrative fees, and other rebates.
Under many of these arrangements, we may match lower prices offered to customers by competitors. If we choose to lower our prices, we generally give the
customer a credit on the products that the customer is holding in inventory, which could reduce sales revenue and gross margin for the period the credit is provided.
Like our competitors, we also give credits for chargebacks to wholesalers with whom we have contracts for their sales to hospitals, group purchasing organizations,
pharmacies, or other customers. A chargeback is the difference between the price at which we invoice the wholesaler and the price that the wholesaler’s end-
customer pays for a product. Although we establish reserves based on prior experience and our best estimates of the impact that these policies may have in
subsequent periods, we cannot ensure that our reserves are adequate or that actual product returns, allowances, and chargebacks will not exceed our estimates.
32
Risks Related to our Debt
Making interest and principal payments on our remaining Convertible Senior Notes (the “Notes”), which are due December 1, 2019, requires and will
continue to require a significant amount of cash. In addition, the amended and restated Senior Secured Credit Facility (the “Credit Facility”) limits our ability
to draw funds under the delayed draw term loan feature in order to pay down our remaining Notes if certain material adverse events occur.
Our ability to continue to make scheduled interest payments and to make future principal payments on our debt, including the Notes, depends on our future
performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flows
from operations sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flows, we may be required to adopt
one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive. We have
effectively refinanced our indebtedness via a delayed draw term loan feature (the “DDTL”) under our Credit Facility, as the DDTL is to be used to pay down the
remaining balance on our Notes. However, we are prohibited from drawing funds under the DDTL if certain material adverse events, as set forth in our Credit
Facility, occur. If we are unable to utilize the DDTL, we will be forced to seek alternative means to refinance our indebtedness, which we may not be able to obtain
on desirable terms, which could result in a default on our debt obligations, including the Notes, which would have a material adverse effect on our business,
financial position, and operating results.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial results. In addition, if we were to undergo a fundamental
change, we would be required to repurchase the Notes, which could adversely affect our business, financial position, and operating results.
In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified
periods at their option. If one or more holders elect to convert their Notes, or if one or more holders elect to require us to repurchase their Notes in the event we
undergo a fundamental change, as described below, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other
than paying cash in lieu of delivering any fractional shares), we would be required to settle a portion or all of our conversion obligation through the payment of
cash, which could adversely affect our liquidity.
In addition, holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change, as at a price equal to
100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. A “fundamental change” is deemed to occur if: (i) a person
or group, other than us, directly or indirectly becomes the beneficial owner of common equity representing more than 50% of or voting power, (ii) consummation
of a transaction that would result in the conversion or exchange of our common stock into other securities, cash, or assets, (iii) the sale of substantially all our
assets, (iv) a change in the majority of our board of directors, (v) our stockholders approve a plan of liquidation, or (vi) our common stock ceases to be listed on the
New York Stock Exchange, the NASDAQ Global Select Market, or the NASDAQ Global Market. If one or more holders requires us to repurchase their Notes,
unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional
shares), we would be required to make cash payments as a result of the Notes being converted, which could adversely affect our liquidity. However, we may not
have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes surrendered or being converted. In addition, our
ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, by regulatory authority, or by agreements governing any future
indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the
Notes as required by the indenture would constitute a default under the indenture. If the repayment of the related indebtedness were accelerated after any applicable
notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof,
which would have a negative impact on our business, financial position, and operating results
Provisions in the indenture for the Notes may deter or prevent a business combination.
If a fundamental change occurs prior to the maturity date of the Notes, holders of the Notes will have the right, at their option, to require us to repurchase all or
a portion of their Notes. In addition, if a fundamental change occurs prior to the maturity date of Notes, we will in some cases be required to increase the
conversion rate for a holder that elects to convert its Notes in connection with such fundamental change. Also, the indenture for the Notes prohibits us from
engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. These and other provisions
could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to our stockholders.
33
The convertible note hedge and warrant transactions may affect the value of our common stock.
In connection with the pricing of the Notes, we entered into a convertible note hedge transaction with Nomura Global Financial Products Inc. (“Nomura”). The
convertible note hedge transaction reduces the potential dilution to our common stock upon any conversion of Notes and/or offsets any cash payments we are
required to make in excess of the principal amount of converted Notes, as the case may be. We also entered into a warrant transaction with Nomura. The warrant
transaction could separately have a dilutive effect on our common stock to the extent that the market price of our common stock exceeds the applicable strike price
of the warrants.
Nomura, or an affiliate thereof, established its initial hedge position on the convertible note hedge and warrant transactions by entering into various derivative
transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes. Nomura, or an affiliate thereof, may modify its hedge
position by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of
ours in secondary market transactions at any time prior to the maturity of the Notes (and is likely to do so during any observation period related to a conversion of
Notes). This activity could either cause or help avoid an increase or a decrease in the market price of our common stock.
Accounting for the Notes could have a material effect on our reported financial results.
Accounting for the Notes has and will continue to impact our balance sheet, income statement, and earnings (loss) per share. In accounting for the Notes, we
will recognize non-cash interest expense, which has and will continue to reduce our net income and earnings (loss) per share.
In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are accounted for
utilizing a modified treasury stock method to determine diluted earnings per share, the effect of which is that the shares issuable upon conversion of the Notes are
not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount. Under the
modified treasury stock method, for diluted earnings per share purposes, the transaction is treated as if the number of shares of common stock that would be
necessary to settle such excess, if we elected to settle such excess in shares, are issued. Under the current standards, if we were to settle some or all of the Notes
with shares of our common stock instead of with cash, we would be unable to use the treasury method. If we are unable to use the treasury stock method in
accounting for the shares issuable upon conversion of the Notes, our diluted earnings per share would be adversely affected.
Our secured term loan (the “Term Loan”), senior secured revolving credit facility (the “Revolver”), and DDTL contain restrictive and financial covenants.
If we are unable to comply with these covenants, we will be in default. A default could result in the acceleration of our outstanding indebtedness, which would
have an adverse effect on our business and stock price.
In December 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility for up to
$265.2 million. Our Term Loan under the Credit Facility as described in Note 3 - Indebtedness, in the notes to the consolidated financial statements in Part II - Item
8 of this Annual Report on Form 10-K, has a loan balance of $72.2 million as of December 31, 2018. As of December 31, 2018, we had not drawn on the Revolver
or Delayed Draw Term Loan.
The Credit Facility contains customary covenants that require maintenance of certain specified financial ratios and restricts our ability make certain
distributions with respect to our capital stock, prepay other debt, encumber our assets, incur additional indebtedness, make capital expenditures, engage in certain
business combinations, transfer, lease or dispose of our assets, alter the character of our business in any material respect or undertake various other corporate
activities. Therefore, as a practical matter, these covenants restrict our ability to engage in or benefit from such activities. Further, we must limit our total and
senior secured leverage ratios and maintain our fixed charge coverage ratio at or above specified thresholds. In addition, we pledged our assets in order to secure
our repayment obligations under the Credit Facility. This pledge may reduce our operating flexibility because it restricts our ability to dispose of our assets or
engage in other transactions that may be beneficial to us.
If we are unable to comply with the covenants in the Credit Facility, we will be in default, which could result in the acceleration of our outstanding
indebtedness. If such an acceleration occurs, we may not be able to repay our debt and we may not be able to borrow sufficient additional funds to refinance our
debt, which would have a material adverse effect on our business, financial position, and operating results.
34
Changes in the method of determining London Interbank Offered Rate ("LIBOR"), or the replacement of LIBOR with an alternative reference rate, may
adversely affect interest expense related to outstanding debt.
Amounts drawn under the Credit Facility may bear interest rates in relation to LIBOR, depending on our selection of repayment options. On July 27, 2017, the
Financial Conduct Authority (“FCA”) in the United Kingdom announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether
new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative
Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the Secured
Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by Treasury securities. If LIBOR ceases to exist, we
may need to renegotiate the Credit Facility and may not able to do so with terms that are favorable to us. The overall financial market may be disrupted as a result
of the phase-out or replacement of LIBOR. Disruption in the financial market or the inability to renegotiate the Credit Facility with favorable terms could have a
material adverse effect on our business, financial position, and operating results.
Risks Related to our Common Stock
Our principal stockholders, directors, and executive officers own a significant percentage of our stock and will be able to exercise meaningful influence
over our business.
Our current principal stockholders, directors, and executive officers beneficially own approximately 23% of our outstanding capital stock entitled to vote as of
December 31, 2018. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders,
including the election of directors and the approval of mergers, acquisitions, or other extraordinary transactions. They may also have interests that differ from
stockholders generally and may vote in a way with which other stockholders disagree and which may be adverse to their interests. This concentration of ownership
may have the effect of delaying, preventing, or deterring a change of control of ANI, could deprive stockholders of an opportunity to receive a premium for their
common stock as part of a sale of ANI, and might ultimately affect the market price of our common stock.
Shares of our common stock are relatively illiquid which may affect the market price of our common stock.
For the twelve months ended December 31, 2018, the average daily trading volume of our common stock on the NASDAQ Global Market was approximately
98 thousand shares. Because of our relatively small public float, our common stock may be less liquid than the stock of companies with broader public ownership
and trading of a relatively small volume of our common stock may have a greater impact on the market price for our shares than would be the case if our public
float were larger.
Raising additional funds by issuing additional equity securities may cause dilution to our current stockholders. Raising additional funds by issuing new
debt financing may restrict our operations.
We may seek to raise additional funds through the issuance of equity or equity-linked securities. If we were to raise funds through the issuance of equity or
equity-linked securities, the percentage ownership of our stockholders could be diluted, potentially significantly, and these newly issued securities may have rights,
preferences, or privileges senior to those of our existing stockholders. In addition, the issuance of any equity securities could be at a discount to the then-prevailing
market price of our common stock.
If we require new debt financing, there is no assurance that such a transaction will be available on terms acceptable to us, or at all. In addition, we could be
subject to onerous repayment terms or covenants that restrict our ability to operate our business and make distributions to our stockholders. These restrictive
covenants may include limitations on additional borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens,
pay dividends, redeem our stock, or make investments. We can offer no assurance that any equity or debt financing transaction will be available on terms
acceptable to us, or at all.
35
The market price of our common stock has been volatile, and an investment in our common stock could decline in value.
The market price of our common stock has fluctuated in the past, has increased significantly since the completion of the Merger, and is likely to continue to
fluctuate in the future. From time to time, the securities of small capitalization, pharmaceutical companies, including ANI, experience significant market price
fluctuations, often unrelated to these companies’ operating performance. In particular, the market price of our common stock may fluctuate significantly due to a
variety of factors, including, but not limited to, regulatory or legal developments with respect to our industry, variations in our financial results or those of
companies that are perceived to be similar to us, and rumors or new announcements by third parties, many of which are beyond our control and that may not be
related to our operating performance.
In addition, the occurrence of any of the risks described in this report or in subsequent reports we file with the SEC could have a material adverse impact on
the market price of our common stock. Securities class action litigation is sometimes brought against a company following periods of volatility in the market price
of its securities or for other reasons. Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and
resources, which could harm our business, financial position, and operating results, as well as the market price of our common stock.
Provisions in our charter documents and Delaware law could discourage or prevent a takeover, even if such a transaction would be beneficial to our
stockholders.
Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire ANI,
even if doing so would be beneficial to our stockholders. These provisions include:
·
·
·
·
authorizing the issuance of “blank check” preferred shares that could be issued by our board of directors to increase the number of outstanding shares and
thwart a takeover attempt;
prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
advance notice provisions in connection with stockholder proposals and director nominations that may prevent or hinder any attempt by our stockholders
to bring business to be considered by our stockholders at a meeting or replace our board of directors; and
as a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which
prevents certain stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval
of the holders of at least two-thirds of our outstanding common stock not held by such 15% or greater stockholder.
Any provision of our certificate of incorporation and bylaws or Delaware law that has the effect of delaying, preventing, or deterring a change in control could
limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing
to pay for our common stock.
36
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate offices are located at 210 Main Street West, Baudette, Minnesota 56623. The facility, which we own, includes oral solid dose and liquid
manufacturing and packaging, warehouse facilities, analytical, stability, and microbiological laboratory space, and employee office and mechanical space. We also
own a manufacturing facility that includes oral solid dose manufacturing and packaging for pharmaceutical products that must be manufactured in a fully contained
environment, warehouse facilities, and employee office and mechanical space. This facility is also located in Baudette, Minnesota. We also own a cold storage
facility located in Baudette, Minnesota. In addition, we own a manufacturing facility located in Oakville, Ontario that includes oral solid dose, semi-solids, and
non-sterile liquid manufacturing and packaging, warehouse facilities, analytical, stability, and microbiological laboratory space, and employee office and
mechanical space.
We lease spaces for finance offices in Minnetonka, Minnesota and Media, Pennsylvania. The leases will expire in September 2022 and March 2023,
respectively. We also lease space for a regulatory affairs office in Raleigh, North Carolina. The lease will expire in April 2021.
We consider our leased and owned properties suitable and adequate for our current and foreseeable needs.
Item 3. Legal Proceedings
A discussion of legal matters as of December 31, 2018 follows:
Louisiana Medicaid Lawsuit
On September 11, 2013, the Attorney General of the State of Louisiana filed a lawsuit in Louisiana state court against numerous pharmaceutical companies,
including us, under various state laws, alleging that each defendant caused the state’s Medicaid agency to provide reimbursement for drug products that allegedly
were not approved by the FDA and therefore allegedly not reimbursable under the federal Medicaid program. The lawsuit relates to three cough and cold
prescription products manufactured and sold by our former Gulfport, Mississippi operation, which was sold in September 2010. Through its lawsuit, the state seeks
unspecified damages, statutory fines, penalties, attorneys’ fees, and costs. While we cannot predict the outcome of the lawsuit at this time, we could be subject to
material damages, penalties, and fines. We intend to vigorously defend against all claims in the lawsuit.
Civil Action
In November of 2017, we were served with a complaint filed by Arbor Pharmaceuticals, LLC, in the United States District Court, District of Minnesota. The
complaint alleges false advertising and unfair competition in violation of Section 43(a) of the Lanham Act, Section 1125(a) of Title 15 of the United States Code,
and Minnesota State law, and seeks injunctive relief and damages. The action is currently in the discovery phase. We intend to defend this action vigorously.
Other Commitments and Contingencies
All manufacturers of the drug Reglan and its generic equivalent metoclopramide, including ANI, have faced allegations from plaintiffs in various states,
including California, New Jersey, and Pennsylvania, claiming bodily injuries as a result of ingestion of metoclopramide or its brand name, Reglan, prior to the
FDA's February 2009 Black Box warning requirement. In August 2012, we were dismissed with prejudice from all New Jersey complaints. In August 2016, we
settled the outstanding California short form complaints and in February 2018, we settled the remaining four complaints that were not captured in the 2016
settlement. We consider our exposure to this litigation to be limited due to several factors: (1) the only generic metoclopramide that we manufactured prior to the
implementation of the FDA's warning requirement was an oral solution introduced after May 28, 2008; (2) our market share for the oral solution was a very small
portion of the overall metoclopramide market; and (3) once we received a request for change of labeling from the FDA, we submitted our proposed changes within
30 days, and such changes were subsequently approved by the FDA.
37
At the present time, we are unable to assess the likely outcome of the cases in the remaining states. Our insurance company has assumed the defense of this
matter and paid all losses in settlement of the California cases. We cannot provide assurances that the outcome of these matters will not have an adverse effect on
our business, financial condition, and operating results. Furthermore, like all pharmaceutical manufacturers, we may be exposed to other product liability claims in
the future, which could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business,
financial condition, and operating results.
Our ANDA for Erythromycin Ethylsuccinate (“EES”) was originally approved by the FDA on November 27 th , 1978. We purchased the EES ANDA from
Teva on July 10, 2015, and subsequently launched EES on September 27, 2016. In August 2016, we filed with the FDA to reintroduce this product under a
Changes Being Effected in 30 Days submission (a “CBE-30 submission”). Under a CBE-30 submission, certain defined changes to an ANDA can be made if the
FDA does not object in writing within 30 days. The FDA’s regulations, guidance documents, and historic actions support the filing of a CBE-30 for the types of
changes that we proposed for our EES ANDA. We received no formal written letter from the FDA within 30 days of the CBE-30 submission date, and as such,
launched the product in accordance with FDA regulations. On December 16, 2016, and nearly four months after our CBE-30 submission, the FDA sent us a formal
written notice that a Prior Approval Supplement (“PAS”) was required for this ANDA. Under a PAS, proposed changes to an ANDA cannot be implemented
without prior review and approval by the FDA. Because we did not receive this notice in the timeframe prescribed by the FDA’s regulations, we believe that our
supplemental ANDA is valid, and as such continued to market the product. In addition, we filed a PAS which was approved by the FDA on November 2, 2018.
On or about September 20, 2017, the Company and certain of its employees were served with search warrants and/or grand jury subpoenas to produce
documents and possibly testify relating to a federal investigation of the generic pharmaceutical industry. The Company has been cooperating and intends to
continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.
Item 4. Mine Safety Disclosures
Not applicable.
38
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Market Information
Our common stock trades on the NASDAQ Global Market under the symbol “ANIP.”
Stockholder Information
As of February 20, 2019, there were approximately 100 shareholders of record of our common stock, which does not include stockholders that beneficially
own shares held in a “nominee” or in “street” name, and six holders of record of Class C stock.
Dividends
We did not pay cash dividends in the years ended December 31, 2018 and 2017. We do not anticipate paying cash dividends in the near term. Our Credit
Facility with Citizens Bank N.A. limits our ability to pay dividends or redeem or repurchase shares of our capital stock, and as such, we are not permitted to do so
unless we are in compliance with certain financial covenants.
Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities
None.
Issuer Purchases of Equity Securities
None.
39
Performance Graph
The graph below compares the five-year cumulative total stockholder return on our common stock, the NASDAQ Stock Market (US) Index, and the
NASDAQ Pharmaceuticals Index, assuming the investment of $100.00 on December 31, 2013, with dividends being reinvested. The stock price performance in the
graph below is not necessarily indicative of future price performance.
On June 19, 2013, ANI Merger Sub, Inc., a wholly owned subsidiary of BioSante Pharmaceuticals, Inc. (“BioSante”), merged with and into ANIP Acquisition
Company (“ANIP”), with ANIP continuing as the surviving company and becoming a wholly owned subsidiary of BioSante. On July 17, 2013, BioSante changed
its name to ANI Pharmaceuticals, Inc. The five-year cumulative total stockholder return on our common stock includes the performance of BioSante common
stock for periods prior to the Merger and ANI Pharmaceuticals, Inc. common stock for periods subsequent to the Merger.
40
Item 6. Selected Consolidated Financial Data
The following table sets forth selected financial data as of and for the five years ended December 31, 2018. The information has been derived from our audited
consolidated financial statements for each of the years ended December 31, 2018, 2017, 2016, 2015, and 2014. The data presented below should be read in
conjunction with our consolidated financial statements, the notes to our consolidated financial statements, and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
(in thousands, except per share data)
Statement of Operations Data:
Net revenues
Total operating expenses
Operating income from continuing operations
(Provision)/benefit for income taxes
Net income/(loss) from continuing operations
Years Ended December 31,
2018 (1)
2017 (2)
2016
2015
2014
$ 201,576 $ 176,842 $ 128,622 $
108,543
20,079
(4,744)
3,934 $
166,217
35,359
(4,557)
15,494 $
148,513
28,329
(17,425)
(1,076) $
$
76,322 $
43,622
32,700
(6,358)
15,375 $
55,970
35,964
20,006
9,368
28,747
Basic and diluted income/(loss) from continuing operations per share:
Basic income/(loss) per share from continuing operations
Diluted income/(loss) per share from continuing operations
$
$
1.31 $
1.30 $
(0.09) $
(0.09) $
0.34 $
0.34 $
1.34 $
1.32 $
2.61
2.59
Balance Sheet Data:
Total assets
Total convertible notes, net of discount and deferred financing costs
Long-term borrowing, net of deferred financing costs and current
borrowing component
Total stockholder's equity
$ 430,604 $ 412,138 $ 322,864 $ 285,265 $ 259,558
120,643 113,427 106,540
112,463
128,208
67,296
-
$ 197,263 $ 174,756 $ 169,648 $ 160,082 $ 139,785
69,946
-
-
(1) On August 6, 2018, our subsidiary, ANI Pharmaceuticals Canada Inc. (“ANI Canada”), acquired all the issued and outstanding equity interests of
WellSpring Pharma Services Inc. (“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical
products for a purchase price of $18.0 million, subject to certain customary adjustments. Pursuant to these customary adjustments, the total purchase
consideration was $16.7 million. The consideration was paid entirely from cash on hand.
(2) The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Tax Cuts and Jobs Act includes a number of changes to existing U.S. tax laws,
most notably the reduction of the U.S. corporate income tax rate from 35% to 21%, which began in 2018. Deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and
laws that are expected to be in effect when the differences are expected to reverse. As a result, we remeasured our deferred tax assets and deferred tax
liabilities to reflect the reduction in the enacted U.S. corporate income tax rate, resulting in a $13.4 million increase in income tax expense for the year
ended December 31, 2017. See Note 11. Income Taxes, in the notes to the consolidated financial statements in Part II. Item 8. of this Annual Report on
Form 10-K for further information.
41
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Please
read
the
following
discussion
in
conjunction
with
Item
1A.
(“Risk
Factors”)
and
our
audited
consolidated
financial
statements
included
elsewhere
in
this
annual
report.
Some
of
the
statements
in
the
following
discussion
are
forward-looking
statements.
See
the
discussion
about
forward-looking
statements
on
page
1
of
this
Annual
Report
on
Form
10-K.
Executive Overview
ANI Pharmaceuticals, Inc. and its consolidated subsidiaries, ANIP Acquisition Company and ANI Pharmaceuticals Canada Inc. (together, “ANI,” the
“Company,” “we,” “us,” or “our”) is an integrated specialty pharmaceutical company focused on delivering value to our customers by developing, manufacturing,
and marketing high quality branded and generic prescription pharmaceuticals. We focus on niche and high barrier to entry opportunities including controlled
substances, anti-cancer (oncolytics), hormones and steroids, and complex formulations. Our three pharmaceutical manufacturing facilities, of which two are
located in Baudette, Minnesota and one is located in Oakville, Ontario are together capable of producing oral solid dose products, as well as semi-solids, liquids
and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. Our strategy is to use our assets to develop,
acquire, manufacture, and market branded and generic specialty prescription pharmaceuticals. By executing this strategy, we believe we will be able to continue to
grow our business, expand and diversify our product portfolio, and create long-term value for our investors.
On June 19, 2013, BioSante Pharmaceuticals, Inc. (“BioSante”) acquired ANIP Acquisition Company (“ANIP”) in an all-stock, tax-free reorganization (the
“Merger”), in which ANIP became a wholly-owned subsidiary of BioSante. BioSante was subsequently renamed ANI Pharmaceuticals, Inc. The Merger was
accounted for as a reverse acquisition pursuant to which ANIP was considered the acquiring entity for accounting purposes.
In 2014, we acquired Abbreviated Drug Applications (“ANDAs”) for 31 generic products, the New Drug Application (“NDA”) for Lithobid, and the NDA for
Vancocin, along with two related ANDAs. We also launched our Methazolamide product. In addition, we completed a follow-on public offering of common stock,
yielding net proceeds of $46.7 million, and closed a public offering of $143.8 million of 3.0% Convertible Senior Notes due in 2019 (the “Notes”), with
simultaneous bond hedge and warrant transactions.
In 2015, we acquired ANDAs for 23 generic products, the NDA for Testosterone gel, and entered into a distribution agreement with IDT Australia Limited
(“IDT”) to market several generic products in the U.S. We also launched six products during the year.
In 2016, we acquired the NDAs and product rights for Cortrophin gel, Cortrophin-Zinc, and Inderal LA, and acquired the rights to market and distribute our
Fenofibrate and Hydrocortisone rectal cream products. We also entered into a three-year senior secured asset-based revolving credit facility for up to $30.0 million.
During the 2016 year, we launched 11 products.
In 2017, we acquired the right, title, and interest in the NDAs and the U.S. rights to market Atacand, Atacand HCT, Arimidex, and Casodex. In addition, we
acquired the NDA, trademarks, and certain finished goods inventory for Inderal XL and InnoPran XL. We also entered into a five-year senior secured credit
facility (the “Credit Agreement”) comprised of a $75.0 million five-year term loan (the “Term Loan”) and a $50.0 million senior secured revolving credit facility
(the “Revolving Credit Facility”). During the 2017 year, we launched six products.
In 2018, our subsidiary, ANI Pharmaceuticals Canada Inc. (“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring Pharma
Services Inc. (“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical products. In conjunction with the
transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices, its current book of commercial business, as well as an
organized workforce. Following the consummation of the transaction, WellSpring was merged into ANI Canada with the resulting entity’s name being ANI
Pharmaceuticals Canada Inc. In addition, we acquired the ANDAs for three previously-commercialized generic products, the approved ANDAs for two generic
products that have yet to be commercialized, the development package for one generic product, a license, supply, and distribution agreement for a generic product
with an ANDA that is pending approval, and certain manufacturing equipment required to manufacture one of the products. We also acquired the ANDAs for 23
previously-marketed generic products and API for four of the acquired products. During the 2018 year, we launched 11 products.
42
In addition, in December 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility
(the “Credit Facility”) for up to $265.2 million. The principal new feature of the Credit Facility is a $118.0 million Delayed Draw Term Loan (the “DDTL”), which
can only be drawn on in order to pay down the Company’s remaining 3.0% Convertible Senior Notes, which will mature in December 2019. The Credit Facility
also extended the maturity of the $72.2 million secured term loan balance to December 2023. In addition, the Credit Facility increased the previous $50.0 million
line of credit (the “Revolver”) to $75.0 million. As of December 31, 2018, we had not drawn on the Revolver or DDTL.
Recent Developments
Acquisition of WellSpring Pharma Services Inc.
On August 6, 2018, our subsidiary, ANI Canada, acquired all the issued and outstanding equity interests of WellSpring, a Canadian company that performs
contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary adjustments. Pursuant to
these customary adjustments, the total purchase consideration was $16.7 million. The consideration was paid entirely from cash on hand. In conjunction with the
transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices, its current book of commercial business, as well as an
organized workforce. Following the consummation of the transaction, WellSpring was merged into ANI Canada with the resulting entity’s name being ANI
Pharmaceuticals Canada Inc.
We acquired WellSpring to provide an additional tech transfer site in order to accelerate the re-commercialization of the previously-approved ANDAs in our
pipeline, to expand our contract manufacturing revenue base, and to broaden our manufacturing capabilities to three manufacturing facilities.
Asset Acquisitions
In April 2018, we entered into an agreement with Impax Laboratories, Inc. (now Amneal Pharmaceuticals, Inc., or “Amneal”) to purchase the approved
ANDAs for three previously-commercialized generic drug products, the approved ANDAs for two generic drug products that have not yet been commercialized,
the development package for one generic drug product, a license, supply, and distribution agreement for a generic drug product with an ANDA that is pending
approval, and certain manufacturing equipment required to manufacture one of the products, for $2.3 million in cash up front. The transaction closed in May 2018
and we made the $2.3 million payment using cash on hand.
At the same time, we entered into a supply agreement with Amneal under which we may elect to purchase the finished goods for one of the products for up to
17 months beginning October 1, 2019, under certain conditions. If we do elect to purchase the finished goods from Amneal for this period, we may be required to
pay a milestone payment of up to $10.0 million upon launch, depending on the number of competitors selling the product at the time of launch.
In April 2018, we entered into an agreement with IDT Australia, Limited to purchase the ANDAs for 23 previously-marketed generic drug products and active
pharmaceutical ingredient (“API”) of four of the acquired products for $2.7 million in cash and a single-digit royalty on net profits from sales of one of the
products. The transaction closed in April 2018 and we made the $2.7 million payment using cash on hand.
Amendment to Teva Pharmaceuticals Asset Purchase Agreement
In January 2019, we entered into Amendment No. 4 to our Asset Purchase Agreement with Teva Pharmaceuticals USA, Inc. (“Teva”). Under the terms of the
Purchase Agreement Amendment, all royalty obligations of the Company owed to Teva with respect to products associated with ten ANDAs under the Asset
Purchase Agreement shall cease effective as of December 31, 2018. In consideration for the termination of such future royalty obligations, we paid Teva a sum of
$16.0 million.
Product Launches
In October 2018, we launched Candesartan Hydrochlorothiazide Tablets, 16mg/12.5mg, 32mg/12.5mg, and 32mg/25mg, an authorized generic of Atacand
HCT, for the treatment of hypertension.
In October 2018, we launched Terbutaline Sulfate Tablets USP, 2.5mg and 5mg, an authorized generic of Brethine®. Terbutaline sulfate is indicated for the
prevention and reversal of bronchospasm in patients 12 years of age and older with asthma and reversible bronchospasm associated with bronchitis and
emphysema.
43
In August 2018, we launched Morphine Sulfate Oral Solution 10mg/5mL, 20mg/5mL and 100mg/5mL. Morphine Sulfate Oral Solution is indicated for the
management of acute and chronic pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate. Morphine Sulfate Oral
Solution 100 mg per 5 mL (20 mg/mL) is indicated for the relief of acute and chronic pain in opioid-tolerant patients.
In June 2018, we launched Cholestyramine for Oral Suspension. Cholestyramine for Oral Suspension USP is indicated as adjunctive therapy to diet for the
reduction of elevated serum cholesterol in patients with primary hypercholesterolemia (elevated low-density lipoprotein “LDL” cholesterol) who do not respond
adequately to diet. It is also indicated for the relief of pruritus associated with partial biliary obstruction.
Cortrophin Gel Re-commercialization Update
In the fourth quarter of 2018, we completed our first commercial scale batch of Corticotropin API, which met specifications and was analytically-consistent
with commercial API batches from the legacy API commercial manufacturer. We continue to manufacture additional commercial scale batches of Corticotropin
API and are on track to initiate API process validation and registration batch manufacturing in the first quarter of 2019. We have completed validation for some
API analytical methods to be used for API batch release and stability testing and will validate the remaining API release methods in the first quarter of 2019, prior
to initiation of process validation and registration batch manufacturing. Commercial scale registration batch manufacturing and process validation for Cortrophin
Gel is scheduled to begin in the second quarter of 2019.
Vancocin Oral Solution Update
We are currently advancing a commercialization effort for Vancocin oral solution. We filed a prior approval supplement (“PAS”) for the product in September
2018. This product will be manufactured at our site in Baudette, Minnesota.
44
General
The following table summarizes our results of operations for the years ended December 31, 2018, 2017, and 2016.
(in thousands)
Net revenues
Operating expenses
2018
Years Ended December 31,
2017
2016
$
201,576 $
176,842 $
128,622
Cost of sales (excluding depreciation and amortization)
Research and development
Selling, general, and administrative
Depreciation and amortization
Intangible asset impairment charge
Operating income
Interest expense, net
Other (expense)/income, net
Income before provision for income taxes
Provision for income taxes
Net income/(loss)
$
73,024
15,388
44,063
33,742
-
35,359
(14,758)
(550)
20,051
(4,557)
15,494 $
79,032
9,070
31,580
27,928
903
28,329
(12,035)
55
16,349
(17,425)
(1,076) $
48,780
2,906
27,829
22,343
6,685
20,079
(11,327)
(74)
8,678
(4,744)
3,934
The following table sets forth, for the periods indicated, items in our consolidated statements of operations as a percentage of net revenues.
Net revenues
Operating expenses
Cost of sales (excluding depreciation and amortization)
Research and development
Selling, general, and administrative
Depreciation and amortization
Intangible asset impairment charge
Operating income
Interest expense, net
Other (expense)/income, net
Income before provision for income taxes
Provision for income taxes
Net income/(loss)
2018
Years Ended December 31,
2017
2016
100.0%
100.0%
100.0%
36.2%
7.6%
21.9%
16.7%
-%
17.6%
(7.3)%
(0.3)%
10.0%
(2.3)%
7.7%
44.7%
5.1%
17.9%
15.8%
0.5%
16.0%
(6.8)%
-%
9.2%
(9.8)%
(0.6)%
37.9%
2.3%
21.6%
17.4%
5.2%
15.6%
(8.8)%
(0.1)%
6.7%
(3.7)%
3.0%
45
Results of Operations for the Years Ended December 31, 2018 and 2017
Net Revenues
(in thousands)
Generic pharmaceutical products
Branded pharmaceutical products
Contract manufacturing
Royalty and other income
Total net revenues
(1) Not Meaningful
Years Ended December 31,
2018
2017
Change
% Change
$
$
117,451 $
60,554
9,119
14,452
201,576 $
118,437 $
50,919
7,046
440
176,842 $
(986)
9,635
2,073
14,012
24,734
(0.8)%
18.9%
29.4%
NM(1)
14.0%
We derive substantially all of our revenues from sales of generic and branded pharmaceutical products, contract manufacturing, and contract services, which
include product development services, laboratory services, and royalties on net sales of certain products.
Net revenues for the year ended December 31, 2018 were $201.6 million compared to $176.8 million for the same period in 2017, an increase of $24.7
million, or 14.0%, primarily as a result of the following factors:
· Net revenues for generic pharmaceutical products were $117.5 million during the year ended December 31, 2018, a slight decrease of 0.8% compared to
$118.4 million for the same period in 2017. The primary reason for the decrease was volume decreases for Fenofibrate and Nilutamide, as well as sales
decreases for Propranolol ER driven by price, tempered by the impact of the second quarter 2017 launch of Diphenoxylate Hydrochloride and Atropine
Sulfate, the second quarter 2018 launch of Ezetimibe-Simvastatin, and other products launched in 2018. In 2019, we anticipate increases in generic
pharmaceutical product revenues, primarily related to products we expect to launch in 2019.
As described in Item 1. Business – Government Regulations – Unapproved Products, we market EEMT and Opium Tincture without FDA approved
NDAs. The FDA's policy with respect to the continued marketing of unapproved products appears in the FDA's September 2011 Compliance Policy
Guide Sec. 440.100 titled "Marketed New Drugs without Approved NDAs or ANDAs." Under this policy, the FDA has stated that it will follow a risk-
based approach with regard to enforcement against marketing of unapproved products. The FDA evaluates whether to initiate enforcement action on a
case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those with potential safety risks or that
lack evidence of effectiveness. While we believe that, so long as we comply with applicable manufacturing standards, the FDA will not take action
against us under the current enforcement policy, we can offer no assurances that the FDA will continue this policy or not take a contrary position with any
individual product or group of products. Our combined net revenues for these products for the years ended December 31, 2018 and 2017 were $24.9
million and $27.6 million, respectively.
· Net revenues for branded pharmaceutical products were $60.6 million during the year ended December 31, 2018 an increase of 18.9% compared to the
$50.9 million for the same period in 2017. The primary reason for the increase was sales of Arimidex and Casodex, which were launched under our label
in July 2018, sales of Atacand and Atacand HCT, which were launched under our label in October 2018, and sales of Inderal XL and InnoPran XL, both
of which were acquired in the first quarter of 2017, and which were re-launched under our label in the first quarter of 2018. These increases were
tempered by lower unit sales of Inderal LA and Vancocin. In 2019, we anticipate increases in branded pharmaceutical product revenues related to a full
year of sales of Atacand, Atacand HCT, Arimidex, and Casodex, all of which were launched under our label in 2018.
46
·
·
Contract manufacturing revenues were $9.1 million during the year ended December 31, 2018, an increase of 29.4% compared to $7.0 million for the
same period in 2017, due primarily to contract manufacturing revenue in our ANI Canada subsidiary, partially offset by timing of orders from contract
manufacturing customers in the period. We acquired WellSpring in August 2018. As described in Item 1. Business – Government Regulations –
Unapproved Products, we contract manufacture a group of products on behalf of a customer that are marketed by that customer without an FDA-approved
NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or
withdraw them from the market. Our contract manufacturing revenues for the group of unapproved products for both the years ended December 31, 2018
and 2017 were $2.0 million. In 2019, we anticipate increases in contract manufacturing revenues, primarily related to a full year of contract
manufacturing revenue in our ANI Canada subsidiary.
Royalty and other income were $14.5 million during the year ended December 31, 2018, an increase of $14.0 million from $0.4 million for the same
period in 2017, due primarily to royalties on sales of Atacand, Atacand HCT, Casodex, and Arimidex. We acquired the right, title, and interest in the
NDAs and the U.S. right to market these products in December 2017. During the year ended December 31, 2018, we also recognized $1.8 million of
royalties from a license for patent rights initially owned by Cell Genesys, Inc., which merged with BioSante in 2009. The royalties stem from sales and
milestones related to the Yescarta® product. Royalty and other income also includes the impact of product development and laboratory services revenue
from our ANI Canada subsidiary. Upon full transition of the products and upon launching the products under our own labels, we recognize revenue for
the products as sales of generic or branded pharmaceutical products. In 2019, we anticipate a decrease in royalty and other income primarily related to the
launch of Atacand, Atacand HCT, Arimidex, and Casodex under our own label in 2018.
As described in Item 1. Business – Government Regulations – Unapproved Products, we receive royalties on the net sales of a group of contract-
manufactured products, which are marketed by the customer without an FDA-approved NDA. If the FDA took enforcement action against such customer,
the customer may be required to seek FDA approval for the group of products or withdraw them from the market. Our royalties on the net sales of these
unapproved products were less than 1% of total revenues for the years ended December 31, 2018 and 2017.
Cost of Sales (Excluding Depreciation and Amortization)
(in thousands)
Cost of sales (excl. depreciation and amortization)
2018
2017
Change
% Change
$
73,024 $
79,032 $
(6,008)
(7.6)%
Years Ended December 31,
Cost of sales consists of direct labor, including manufacturing and packaging, active and inactive pharmaceutical ingredients, freight costs, packaging
components, and royalties related to profit-sharing arrangements. Cost of sales does not include depreciation and amortization expense, which is reported as a
separate component of operating expenses on our consolidated statements of operations.
For the year ended December 31, 2018, cost of sales decreased to $73.0 million from $79.0 million for the same period in 2017, a decrease of $6.0 million or
7.6%, primarily due to lower sales of products subject to profit-sharing arrangements, as well as the lack of $7.5 million of costs of sales related to the excess of
fair value over cost on Inderal XL and InnoPran XL inventory, which impacted 2017. This decrease was tempered by $5.6 million of cost of sales related to the
excess of fair value over costs on Inderal XL and InnoPran XL inventory and the write-off of remaining inventory acquired as part of the acquisition when we re-
launched the products under our own label during the first quarter of 2018. Cost of sales as a percentage of net revenues decreased to 36.2% during the year ended
December 31, 2018, from 44.7% during same period in 2017, primarily as a result of increased royalty income and a change in product mix towards higher-margin
brand products and lower sales of products subject to profit-sharing arrangements. Cost of sales for the year ended December 31, 2017 also included $7.5 million
net impact on cost of sales (5.9% as a percent of net revenues) of the excess of fair value over cost for Inderal XL and InnoPran XL inventory sold during the
period.
47
We source the raw materials for our products from both domestic and international suppliers, which we carefully select. Generally, we qualify only a single
source of API for use in each product due to the cost and time required to validate and qualify a second source of supply. Any change in one of our API suppliers
must usually be approved through a PAS by the FDA. The process of obtaining an approval of such a PAS can require between four and 18 months. While we also
generally qualify a single source for non-API raw materials, the process required to qualify an alternative source of a non-API raw material is typically much less
rigorous. If we were to change the supplier of a raw material for a product, the cost for the material could be greater than the amount we paid with the previous
supplier. Changes in suppliers are rare, but could occur as a result of a supplier’s business failing, an issue arising from an FDA inspection, or failure to maintain
our required standards of quality. As a result, we select suppliers with great care, based on various factors including quality, reliability of supply, and long-term
financial stability. Certain of the APIs for our drug products, including those that are marketed without approved NDAs or ANDAs, such as EEMT, are sourced
from international suppliers. From time to time, we have experienced temporary disruptions in the supply of certain of such imported API due to FDA inspections.
During the year ended December 31, 2018, we purchased 13% of our inventory from one supplier. As of December 31, 2018, amounts payable to this supplier was
immaterial. In the year ended December 31, 2017, we purchased 23% of our inventory from two suppliers.
In order to manufacture Morphine Sulfate oral solution, Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone Hydrochloride
oral solution (100 mg/5 mL), and Oxycodone Hydrochloride capsules, we must submit a request to the Drug Enforcement Agency (“DEA”) for a quota to purchase
the amount of morphine sulfate, opium, and oxycodone hydrochloride needed to manufacture the respective products. Without approved quotas from the DEA, we
would not be able to purchase these ingredients from our suppliers. As a result, we are dependent upon the DEA to annually approve a sufficient quota of API to
support the continued manufacture of Morphine Sulfate oral solution, Opium Tincture, Oxycodone Hydrochloride oral solution (5 mg/5 mL), Oxycodone
Hydrochloride oral solution (100 mg/5 mL), and Oxycodone Hydrochloride capsules.
Other Operating Expenses
(in thousands)
Research and development
Selling, general, and administrative
Depreciation and amortization
Intangible asset impairment charge
Total other operating expenses
Years Ended December 31,
2018
2017
Change
% Change
$
$
15,388 $
44,063
33,742
-
93,193 $
9,070 $
31,580
27,928
903
69,481 $
6,318
12,483
5,814
(903)
23,712
69.7%
39.5%
20.8%
(100.0)%
34.1%
Other operating expenses consist of research and development costs, selling, general, and administrative expenses, depreciation and amortization, and
impairment charges.
For the year ended December 31, 2018, other operating expenses increased to $93.2 million from $69.5 million for the same period in 2017, an increase of
$23.7 million, or 34.1%, primarily as a result of the following factors:
·
·
Research and development expenses increased from $9.1 million to $15.4 million, an increase of 69.7%, due to timing of work on development projects,
primarily the Cortrophin gel re-commercialization project and work on the ANDAs acquired in the asset purchase agreement with Impax Laboratories,
Inc. (now Amneal), as well as $1.3 million of expense related to in-process research and development acquired from Amneal in an asset purchase in May.
We anticipate that research and development costs will continue to increase in 2019, in support of our strategy to expand our product portfolio and as we
continue to focus on the development of our Cortrophin product.
Selling, general, and administrative expenses increased from $31.6 million to $44.1 million, an increase of 39.5%, primarily due to increases in personnel
and related costs and costs associated with the WellSpring acquisition. We anticipate that selling, general, and administrative expenses will continue to
increase in 2019, as we support anticipated additional revenue growth.
· Depreciation and amortization increased from $27.9 million to $33.7 million, an increase of 20.8%, primarily due to the amortization of the rights, title,
and interest in the NDAs for Atacand, Atacand HCT, Arimidex, and Casodex, which were acquired in December 2017. We anticipate that depreciation
and amortization expense will continue to increase in 2019, as a result of a full year of depreciation recognized from the property, plant and equipment
acquired in the WellSpring acquisition.
48
· As discussed under Intangible Assets in our Critical Accounting Estimates, we recognized an impairment charge of $0.9 million in relation to our
testosterone gel NDA asset during the year ended December 31, 2017. No impairment charge was recognized during the year ended December 31, 2018.
Other Expense, net
(in thousands)
Interest expense, net
Other (expense)/income, net
Total other expense, net
(1) Not Meaningful
Years Ended December 31,
2018
2017
Change
% Change
$
$
(14,758) $
(550)
(15,308) $
(12,035) $
55
(11,980) $
(2,723)
(605)
(3,328)
22.6%
NM(1)
27.8%
For the year ended December 31, 2018, we recognized other expense, net of $15.3 million versus other expense, net of $12.0 million for the same period in
2017, an increase of $3.3 million. Interest expense, net in 2018 consisted primarily of interest expense on our convertible debt and interest expense on borrowings
under our term loan. Interest expense, net in 2017 consisted primarily of interest expense on our convertible debt and interest expense on borrowings under our line
of credit. For the year ended December 31, 2018, we also recorded a loss of $0.5 million on the repurchase of our Notes in other (expense)/income, net. For the
years ended December 31, 2018 and 2017, there was $0.7 million and $0.6 million of interest capitalized into construction in progress, respectively.
Provision for Income Taxes
(in thousands)
Provision for income taxes
Years Ended December 31,
2018
2017
Change
% Change
$
(4,557) $
(17,425) $
12,868
(73.8)%
Our provision for income taxes consists of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and
our valuation allowance. The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, included a number of changes to existing U.S. tax laws, most
notably the reduction of the U.S. corporate income tax rate from 35% to 21%, which began in 2018. We measure our deferred tax assets and liabilities using the tax
rates that we believe will apply in the years in which the temporary differences are expected to be recovered or paid. See Note 11. Income Taxes, in the notes to the
consolidated financial statements in Part II. Item 8. of this Annual Report on Form 10-K for further information.
For the year ended December 31, 2018, we recognized income tax expense of $4.6 million, versus $17.4 million in the prior year period, a provision decrease
of $12.9 million. The effective tax rate for the year ended December 31, 2018 was 22.7% of pre-tax income reported in the period. Our effective tax rate for the
year ended December 31, 2018 was impacted primarily by the Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017 and lowered the U.S.
corporate tax rate from 35% to 21%, which began in 2018. Our effective tax rate was also impacted by the discrete impact of current period awards of stock-based
compensation, stock option exercises, and disqualifying dispositions of incentive stock options, all of which impact the consolidated effective rate in the period in
which they occur.
The effective tax rate for the year ended December 31, 2017 was 106.6% of pre-tax income reported in the period. Our effective tax rate for the year ended
December 31, 2017 was primarily impacted by the $13.4 million revaluation of our deferred tax assets and liabilities at the lower 21% U.S. corporate income tax
rate. Our effective tax rate was also impacted by the Domestic Production Activities Deduction, as well as the impact of current period awards of stock-based
compensation, stock option exercises, and disqualifying dispositions of incentive stock options, all of which impact the consolidated effective rate in the period in
which they occur.
49
Results of Operations for the Years Ended December 31, 2017 and 2016
Net Revenues
(in thousands)
Generic pharmaceutical products
Branded pharmaceutical products
Contract manufacturing
Royalty and other income
Total net revenues
Years Ended December 31,
2017
2016
Change
% Change
$
$
118,437 $
50,919
7,046
440
176,842 $
95,201 $
26,443
5,537
1,441
128,622 $
23,236
24,476
1,509
(1,001)
48,220
24.4%
92.6%
27.3%
(69.5)%
37.5%
Net revenues for the year ended December 31, 2017 were $176.8 million compared to $128.6 million for the same period in 2016, an increase of $48.2
million, or 37.5%, primarily as a result of the following factors:
· Net revenues for generic pharmaceutical products were $118.4 million during the year ended December 31, 2017, an increase of 24.4% compared to
$95.2 million for the same period in 2016. The primary reason for the increase was the annualization of 2016 launches, notably Nilutamide, Erythromycin
Ethylsuccinate, and Fenofibrate, the impact of the third quarter 2017 launch of Diphenoxylate Hydrochloride and Atropine Sulfate, and increased unit
sales of Methazolamide and Flecainide. These increases were tempered by volume decreases in EEMT sales, driven by market contraction, and sales
decreases for Propranolol ER driven by price.
As described in Item 1. Business – Government Regulations – Unapproved Products, we market EEMT and Opium Tincture without FDA approved
NDAs. While we believe that, so long as we comply with applicable manufacturing standards, the FDA will not take action against us under the current
enforcement policy, we can offer no assurances that the FDA will continue this policy or not take a contrary position with any individual product or group
of products. Our combined net revenues for these products for the years ended December 31, 2017 and 2016 were $27.6 million and $34.3 million,
respectively.
· Net revenues for branded pharmaceutical products were $50.9 million during the year ended December 31, 2017 an increase of 92.6% compared to the
$26.4 million for the same period in 2016. The primary reason for the increase was sales of Inderal XL and InnoPran XL, both of which were launched in
first quarter of 2017, as well as sales of Inderal LA, which was launched in the second quarter of 2016. These increases were partially offset by decreased
unit sales for Vancocin. We experience periodic larger orders for our Vancocin product that relate to clinical trials. Such orders constituted $2.4 million of
our branded pharmaceutical product revenue for the year ended December 31, 2016. We had no such orders in the year ended December 31, 2017.
·
·
Contract manufacturing revenues were $7.0 million during the year ended December 31, 2017, an increase of 27.3% compared to $5.5 million for the
same period in 2016, due to the timing and volume of orders from contract manufacturing customers in the period. As described in Item 1. Business –
Government Regulations – Unapproved Products, we contract manufacture a group of products on behalf of a customer that are marketed by that
customer without an FDA-approved NDA. If the FDA took enforcement action against such customer, the customer may be required to seek FDA
approval for the group of products or withdraw them from the market. Our contract manufacturing revenues for the group of unapproved products for the
years ended December 31, 2017 and 2016 were $2.0 million and $1.5 million, respectively.
Royalty and other income were $0.4 million during the year ended December 31, 2017, a decrease of 69.5% from $1.4 million for the same period in
2016, primarily because sales of Fenofibrate in the ANI label have replaced the royalties previously received on the product. We launched Fenofibrate
under our own label in the second quarter of 2016.
As described in Item 1. Business – Government Regulations – Unapproved Products, we receive royalties on the net sales of a group of contract-
manufactured products, which are marketed by the customer without an FDA-approved NDA. If the FDA took enforcement action against such customer,
the customer may be required to seek FDA approval for the group of products or withdraw them from the market. Our royalties on the net sales of these
unapproved products were less than 1% of total revenues for the years ended December 31, 2017 and 2016.
50
Cost of Sales (Excluding Depreciation and Amortization)
(in thousands)
Cost of sales (excl. depreciation and amortization)
2017
2016
Change
% Change
$
79,032 $
48,780 $
30,252
62.0%
Years Ended December 31,
For the year ended December 31, 2017, cost of sales increased to $79.0 million from $48.8 million for the same period in 2016, an increase of $30.3 million or
62.0%, primarily as a result of increased sales of products subject to profit-sharing arrangements, as well as increased volumes and the impact on cost of sales of
the excess of fair value over cost for Inderal XL and InnoPran XL inventory acquired during the first three months of 2017 through asset acquisition transactions
and subsequently sold during the period. Cost of sales as a percentage of net revenues increased to 44.7% during the year ended December 31, 2017, from 37.9%
during same period in 2016, primarily as a result of increased sales of products subject to profit-sharing arrangements and the $10.4 million net impact on cost of
sales (5.9% as a percent of net revenues) of the excess of fair value over cost for Inderal XL and InnoPran XL inventory sold during the period. This trend
continued until such time that the inventory acquired as components of the Inderal XL and InnoPran XL asset purchases were consumed. During the year ended
December 31, 2016, cost of sales included $5.9 million (4.6% as a percent of net revenue) related to the excess of fair value over cost for Inderal LA and
Propranolol ER inventory sold during the period. During the second quarter 2017, we completed sales of the Inderal LA inventory acquired as a component of the
Inderal LA asset purchase.
During the year ended December 31, 2017, we purchased 23% of our inventory from two suppliers. As of December 31, 2017, amounts payable to these
suppliers was $0.2 million. In the year ended December 31, 2016, we purchased 25% of our inventory from one supplier.
Other Operating Expenses
(in thousands)
Research and development
Selling, general, and administrative
Depreciation and amortization
Intangible asset impairment charge
Total other operating expenses
Years Ended December 31,
2017
2016
Change
% Change
$
$
9,070 $
31,580
27,928
903
69,481 $
2,906 $
27,829
22,343
6,685
59,763 $
6,164
3,751
5,585
(5,782)
9,718
212.1%
13.5%
25.0%
(86.5)%
16.3%
For the year ended December 31, 2017, other operating expenses increased to $69.5 million from $59.8 million for the same period in 2016, an increase of
$9.7 million, or 16.3%, primarily as a result of the following factors:
·
·
Research and development expenses increased from $2.9 million to $9.1 million, an increase of 212.1%, due to timing of work on development projects,
primarily the Cortrophin gel re-commercialization project and the Vancocin oral solution project. Projects included work on the ANDAs purchased in
2014 and 2015.
Selling, general, and administrative expenses increased from $27.8 million to $31.6 million, an increase of 13.5%, primarily due to increases in personnel
and related costs and $0.5 million of expenses related to a proposed transaction that we ultimately decided not to pursue further. These increases were
partially offset by the lack of the $1.3 million of expenses related to the transition of our CFO in the second quarter of 2016.
· Depreciation and amortization increased from $22.3 million to $27.9 million, an increase of 25.0%, due primarily to the amortization of the distribution
license and trademark for Inderal XL, which were acquired in February 2017, the amortization of the product rights for InnoPran XL, which were
acquired in February 2017, and the amortization of the rights, title, and interest in the NDA for Inderal LA, which were acquired in April 2016.
· As discussed under Intangible Assets in our Critical Accounting Estimates, we recognized an impairment charge of $0.9 million and $6.7 million in
relation to our testosterone gel NDA asset during the years ended December 31, 2017 and 2016, respectively.
51
Other Expense, net
(in thousands)
Interest expense, net
Other income/(expense), net
Total other expense, net
Years Ended December 31,
2017
2016
Change
% Change
$
$
(12,035) $
55
(11,980) $
(11,327) $
(74)
(11,401) $
(708)
129
(579)
6.3%
(174.3)%
5.1%
For the year ended December 31, 2017, we recognized other expense, net of $12.0 million versus other expense, net of $11.4 million for the same period in
2016, an increase of $0.6 million. Interest expense, net for both periods consists primarily of interest expense on our convertible debt and, in 2017, included
interest expense on borrowings under our line of credit. For the years ended December 31, 2017 and 2016, there was $0.6 million and $0.2 million of interest
capitalized into construction in progress, respectively.
Provision for Income Taxes
(in thousands)
Provision for income taxes
Years Ended December 31,
2017
2016
Change
% Change
$
(17,425) $
(4,744) $
(12,681)
267.3%
For the year ended December 31, 2017, we recognized income tax expense of $17.4 million, versus $4.7 million in the prior year period, a provision increase
of $12.7 million. The effective tax rate for the year ended December 31, 2017 was 106.6% of pre-tax income reported in the period. Our effective tax rate for the
year ended December 31, 2017 was primarily impacted by the $13.4 million revaluation of our deferred tax assets and liabilities at the lower 21% U.S. corporate
income tax rate. Our effective tax rate was also impacted by the Domestic Production Activities Deduction, as well as the impact of current period awards of stock-
based compensation, stock option exercises, and disqualifying dispositions of incentive stock options, all of which impact the consolidated effective rate in the
period in which they occur.
The effective tax rate for the year ended December 31, 2016 was 54.7% of pre-tax income reported in the period. The effective tax rate for the period was
primarily driven by permanent differences related to our international tax structure surrounding our Cortrophin NDAs, which resulted in significant non-deductible
amortization, research and development expenses, and interest expense in 2016. In addition, the effective tax rate was impacted by other permanent differences,
changes in temporary differences, and by the tax effect of discrete items. These discrete items included changes in our estimated pre-tax income resulting from
various asset acquisitions that occurred during the periods and associated changes to temporary differences arising from those asset acquisitions, changes in
temporary differences as a result of our impairment charge related to our testosterone gel NDA asset, as well as the impact of current period awards of stock-based
compensation, stock option exercises, vesting of restricted stock, and disqualifying dispositions of incentive stock options, all of which impact the estimated annual
effective rate in the period in which they occur.
52
Liquidity and Capital Resources
The following table highlights selected liquidity and working capital information from our consolidated balance sheets.
(in thousands)
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid income taxes, net
Prepaid expenses and other current assets
Total current assets
Current component of long-term borrowing, net of deferred financing costs
Convertible notes, net of discount and deferred financing costs
Accounts payable
Accrued expenses and other
Accrued royalties
Accrued compensation and related expenses
Current income taxes payable, net
Accrued government rebates
Returned goods reserve
Deferred revenue
Total current liabilities
December 31,
2018
2017
43,008 $
64,842
40,503
-
4,524
152,877 $
3,256 $
112,463
8,884
1,707
8,456
3,524
5,022
8,974
12,552
711
165,549 $
31,144
58,788
37,727
1,162
2,784
131,605
3,353
-
3,630
1,571
12,164
2,306
-
7,930
8,274
-
39,228
$
$
$
$
At December 31, 2018, we had $43.0 million in unrestricted cash and cash equivalents. At December 31, 2017, we had $31.1 million in unrestricted cash and
cash equivalents. We generated $67.1 million of cash from operations in the year ended December 31, 2018. In August 2018, we acquired WellSpring, a Canadian
company that performs contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary
adjustments. Pursuant to these customary adjustments, the total purchase consideration was $16.7 million. The consideration was paid entirely from cash on hand.
As a result of the transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices, current book of commercial business, as
well as an organized workforce. In April 2018, we purchased from IDT Australia, Limited the ANDAs for 23 previously-marketed generic drug products and API
for four of the acquired products for $2.7 million in cash and a single-digit royalty on net profits from sales of one of the products. We made the $2.7 million
payment using cash on hand. In May 2018, we purchased from Impax Laboratories, Inc. (now Amneal) the approved ANDAs for three previously-commercialized
generic drug products, the approved ANDAs for two generic drug products that have not yet been commercialized, the development package for one generic drug
product, a license, supply, and distribution agreement for a generic drug product with an ANDA that is pending approval, and certain manufacturing equipment
required to manufacture one of the products, for $2.3 million in cash. We made the $2.3 million payment using cash on hand.
In December 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility (the “Credit
Facility”) for up to $265.2 million. The principal new feature of the Credit Facility is a $118.0 million Delayed Draw Term Loan (the “DDTL”), which can only be
drawn on in order to pay down the Company’s remaining 3.0% Convertible Senior Notes, which will mature in December 2019. The Credit Facility also extended
the maturity of the $72.2 million secured term loan (the “Term Loan”) balance to December 2023. In addition, the Credit Facility increased the previous $50.0
million line of credit (the “Revolver”) to $75.0 million. In December 2018, we entered into separate, privately negotiated agreements with certain holders of our
Notes and repurchased $25.0 million aggregate principal amount of Notes for a total of $26.1 million in cash, including accrued but unpaid interest up to but
excluding the closing date for the transactions. At the same time, we unwound a corresponding portion of the bond hedge and warrant, which are described in
further detail below under “ -
Sources
and
Uses
of
Cash
–
Debt
Financing
”. As a result of unwinding this portion of the bond hedge and warrant, we received a net
amount of $0.4 million.
53
In February 2017, we purchased from Cranford Pharmaceuticals, LLC a distribution license, trademark and certain finished goods inventory for Inderal XL for
$20.2 million in cash. We made the $20.2 million cash payment using cash on hand. In February 2017, we purchased from Holmdel Pharmaceuticals, LP the NDA,
trademark, and certain finished goods inventory for InnoPran XL, including a license to an Orange Book listed patent, for $30.6 million in cash. We made the
$30.6 million cash payment using $30.0 million of funds from our line of credit and $0.6 million of cash on hand. In December 2017, we purchased from
AstraZeneca AB and AstraZeneca UK Limited the right, title, and interest in the NDAs and the U.S. rights to market Atacand, Atacand HCT, Arimidex, and
Casodex, for $46.5 million in cash. We made the $46.5 million cash payment with funds from the $75.0 million five-year Term Loan we entered into with Citizens
Bank N.A., which was refinanced as discussed above.
We are focused on expanding our business and product pipeline through collaborations, and also through acquisitions of products and companies. We are
continually evaluating potential asset acquisitions and business combinations. To finance such acquisitions, we might raise additional equity capital, incur
additional debt, or both.
Our working capital ratio, defined as total current assets divided by total current liabilities, is 0.9 as of December 31, 2018. We believe that our financial
resources, consisting of current working capital and anticipated future operating revenue, will be sufficient to enable us to meet our working capital requirements
for at least the next 12 months. If our assumptions underlying estimated revenue and expenses are wrong, or if our cash requirements change materially as a result
of shifts in our business or strategy, we could require additional financing. If in the future we do not remain profitable or generate cash from operations as
anticipated and additional capital is needed to support operations, we may be unable to obtain such financing, or obtain it on favorable terms, in which case we may
be required to curtail development of new products, limit expansion of operations, or accept financing terms that are not as attractive as desired.
Consolidation among wholesale distributors, chain drug stores, and group purchasing organizations has resulted in a smaller number of companies each
controlling a larger share of pharmaceutical distribution channels. Our net revenues were concentrated among three customers representing 21%, 23%, and 33% of
net revenues during the year ended December 31, 2018. As of December 31, 2018, accounts receivable from these three customers totaled approximately 81% of
accounts receivable, net. As a result, negotiated payment terms with these customers have a material impact on our liquidity and working capital.
One of our pharmaceutical products, EEMT, accounted for approximately 11% of our net revenues in 2018. Three of our pharmaceutical products, EEMT,
Inderal LA, and Fenofibrate, accounted for approximately 40% of our net revenues in 2017. Three of our pharmaceutical products, EEMT, Inderal LA, and
Propranolol ER, accounted for approximately 44% of our net revenues in 2016. As a result, market pricing for these products, combined with the costs of raw
materials and payment terms with suppliers, have a material impact on our liquidity and working capital. Increases and decreases in revenue related to these
products have had a significant impact on our financial results and if revenues from any of these products were to decrease substantially or entirely, it would have a
material, negative impact on our cash flows and liquidity.
Our consolidated financial statements have been prepared on a basis that assumes that we will continue as a going concern and which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the normal course of business. These statements do not include any adjustments that
might result if the carrying amount of recorded assets and liabilities are not realized.
Sources and Uses of Cash
Debt
Financing
In December 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility for up to
$265.2 million. The principal new feature of the Credit Facility is a $118.0 million DDTL, which can only be drawn on in order to pay down the Company’s
remaining 3.0% Convertible Senior Notes, which will mature in December 2019. The DDTL was accounted for as new debt. The Credit Facility also extended the
maturity of the $72.2 million secured term loan balance to December 2023. In addition, the Credit Facility increased the previous $50.0 million line of credit to
$75.0 million. The Term Loan and Revolver were accounted for as a modification of our existing term loan and line of credit, respectively. As of December 31,
2018, we had not drawn on the Revolver or DDTL.
We may at any time repay borrowings under the term loans, including the initial term loan and any delayed draw term loans, and the revolving credit facility
without any premium or penalty, and so long as we meet certain conditions by August 30, 2019 relating to our total net leverage ratio and liquidity or to the
repayment or refinancing of our outstanding Notes, we must repay all borrowings thereunder by December 27, 2023. We may use the proceeds of revolving loans
for working capital and other general corporate purposes and may only use the proceeds from the delayed draw term loans, if borrowed, to refinance our
outstanding Notes.
54
Amounts drawn bear an interest rate equal to, at our option, either a LIBOR rate plus 1.50% to 2.75% per annum, depending on our total leverage ratio or an
alternative base rate plus an applicable base rate margin, which varies within a range of 0.50% to 1.75%, depending our total leverage ratio. We will incur a
commitment fee at a rate per annum that varies within a range of 0.25% to 0.50%, depending on our leverage ratio. We will also incur a delayed draw ticking fee at
a rate per annum that varies within a range of 0.25% to 0.50%, depending on our leverage ratio. We must comply with various customary financial and non-
financial covenants under the Credit Facility. The primary financial covenants under the Credit Facility consist of a maximum total leverage ratio, which initially
shall be no greater than 3.75 to 1.00 and a minimum fixed charge coverage ratio which shall be greater than or equal to 1.25 to 1.00. The primary non-financial
covenants under the Credit Agreement limit, subject to various exceptions, the Company’s ability to incur future indebtedness, to place liens on assets, to pay
dividends or make other distributions on the Company’s capital stock, to repurchase the Company’s capital stock, to conduct acquisitions, to alter its capital
structure and to dispose of assets.
In December 2017, we entered into a $125.0 million Credit Agreement with Citizens Bank, N.A, which was replaced by the $265.2 million Credit Facility
described above. The Credit Agreement was comprised of a $75.0 million five-year term loan and a $50.0 million senior secured revolving credit facility and was
secured by the assets of the Company. The funds from the Term Loan were used to pay down the $25.0 million balance on our existing Line of Credit, as well as to
purchase the right, title, and interest in the NDAs and the U.S. rights to market Atacand, Atacand HCT, Arimidex, and Casodex, for $46.5 million in cash, as noted
above.
In May 2016, we entered into a credit arrangement with Citizens Bank Capital, a division of Citizens Asset Finance, Inc. that provided for a $30.0 million
asset-based revolving credit loan facility. In February 2017, we implemented the accordion feature and increased the Line of Credit to $40.0 million. In December
2017, we refinanced our $25.0 million outstanding on the line of credit into the $75.0 million term loan as noted above.
In December 2014, we issued $143.8 million of 3.0% Convertible Senior Notes in a registered public offering (the “December 2014 Offering”), which
includes the $18.8 million of Notes issued pursuant to the full exercise of the over-allotment option granted to the underwriters in the December 2014 Offering.
After deducting the underwriting discounts and commissions and other expenses (including the net cost of the bond hedge and warrant, discussed below), the net
proceeds from the offering were approximately $122.6 million. The Notes were issued in order to raise funds to research, develop and commercialize our drug
products; to acquire complementary businesses, products, and technologies that we may identify from time to time; and for other working capital and general
corporate purposes. The Notes pay 3.0% interest semi-annually in arrears on June 1 and December 1 of each year, starting on June 1, 2015. In December 2018, we
repurchased $25.0 million of our outstanding Notes. At the same time, we unwound a corresponding portion of the bond hedge and warrant, which are described in
further detail below. As a result of unwinding this portion of the bond hedge and warrant, we received a net amount of $0.4 million. The remaining Notes are
convertible into 1,709,002 shares of common stock, based on an initial conversion price of $69.48 per share.
A portion of the offering proceeds was used to simultaneously enter into “bond hedge” (or purchased call) and “warrant” (or written call) transactions with an
affiliate of one of the offering underwriters (collectively, the “Call Option Overlay”). We entered into the Call Option Overlay to synthetically raise the initial
conversion price of the Notes to $96.21 per share and reduce the potential common stock dilution that may arise from the conversion of the Notes. The exercise
price of the bond hedge is $69.48 per share, with an underlying 1,709,002 common shares remaining as of December 31, 2018; the exercise price of the warrant is
$96.21 per share, also with an underlying 1,709,002 common shares remaining as of December 31, 2018.
Customer
Payments
In addition to the financings in prior years, payments from customers are a significant source of cash in 2018, 2017, and 2016 and were our primary source of
cash in 2018 and 2016.
55
Uses
of
Cash
Our primary cash requirements are to fund operations, including research and development programs and collaborations, to support general and administrative
activities, to purchase equipment and machinery to expand our manufacturing capabilities as our product lines grow, and to expand our business and product
pipeline through acquisitions of products and companies. We are continually evaluating potential asset acquisitions and business combinations. Our future capital
requirements will depend on many factors, including, but not limited to:
·
·
·
·
·
product mix and pricing for product sales and contract manufacturing;
pricing and payment terms with customers;
costs of raw materials and payment terms with suppliers;
capital expenditures and equipment purchases to support product launches; and
business and product acquisitions.
In the second quarter of 2018, we purchased from IDT Australia, Limited the ANDAs for 23 previously-marketed generic drug products and API for four of
the acquired products for $2.7 million in cash. In the second quarter 2018, we also purchased from Impax Laboratories, Inc. (now Amneal) the approved ANDAs
for three previously-commercialized generic drug products, the approved ANDAs for two generic drug products that have not yet been commercialized, the
development package for one generic drug product, a license, supply, and distribution agreement for a generic drug product with an ANDA that is pending
approval, and certain manufacturing equipment required to manufacture one of the products, for $2.3 million in cash. In the third quarter of 2018, we acquired
WellSpring, a Canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject
to certain customary adjustments. Pursuant to these customary adjustments, the total purchase consideration was $16.7 million. The consideration was paid entirely
from cash on hand. In December 2018, we entered into separate, privately negotiated agreements with certain holders of our Notes and repurchased $25.0 million
of our outstanding Notes. At the same time, we unwound a corresponding portion of the bond hedge and warrant. As a result of unwinding this portion of the bond
hedge and warrant, we received a net amount of $0.4 million. In 2018, we had $5.7 million of capital expenditures.
In the first quarter of 2017, we purchased from Cranford Pharmaceuticals, LLC a distribution license, trademark and certain finished goods inventory for
Inderal XL for $20.2 million in cash. In the first quarter of 2017, we purchased from Holmdel Pharmaceuticals, LP the NDA, trademark and certain finished goods
inventory for InnoPran XL, including a license to an Orange Book listed patent, for $30.6 million in cash. In the fourth quarter of 2017, we acquired the right, title,
and interest in the NDAs and the U.S. rights to market Atacand, Atacand HCT, Arimidex, and Casodex for $46.5 million in cash. In 2017, we had $10.4 million of
capital expenditures.
In the first quarter of 2016, we purchased from Merck Sharp & Dohme B.V. the NDAs and associated product rights and manufacturing licenses for
Cortrophin gel and Cortrophin-Zinc for $75.0 million in cash and a percentage of future net sales of the products under the NDAs. In the first quarter of 2016 we
purchased from H2-Pharma, LLC the rights to market, sell, and distribute two products for $8.8 million in cash and the assumption of an accrued royalty of $1.2
million, for a total of $10.0 million in consideration. In the second quarter of 2016, we purchased from Cranford Pharmaceuticals, LLC the rights, title, and interest
in the NDA for Inderal LA, as well as certain documentation, trademark rights, and finished goods for $60.0 million in cash and milestone payments based on
future gross profits from sales of products under the NDA. At closing, we also transferred $5.0 million to an escrow account as security for future milestone
payments. In 2016, we had $4.6 million of capital expenditures.
56
Discussion of Cash Flows
The following table summarizes the net cash and cash equivalents provided by/(used in) operating activities, investing activities and financing activities for the
periods indicated:
(in thousands)
Operating Activities
Investing Activities
Financing Activities
Net
Cash
Provided
by
Operating
Activities
2018
Years Ended December 31,
2017
2016
$
$
$
67,074 $
(27,379) $
(27,816) $
39,419 $
(107,993) $
72,357 $
27,472
(149,060)
(729)
Net cash provided by operating activities was $67.1 million for the year ended December 31, 2018, compared to $39.4 million during the same period in 2017,
an increase of $27.7 million. This increase was principally due to changes in working capital, as well as increased sales volume and corresponding gross profit
dollars.
Net cash provided by operating activities was $39.4 million for the year ended December 31, 2017, compared to $27.5 million during the same period in 2016,
an increase of $11.9 million between the periods. This increase was principally due to increased sales volume and corresponding gross profit dollars.
Net
Cash
Used
in
Investing
Activities
Net cash used in investing activities for the year ended December 31, 2018 was $27.4 million, principally due to the payment of $16.5 million of
consideration, net of cash acquired, to acquire WellSpring, the April and May 2018 asset acquisitions of ANDAs for $5.2 million, and $5.7 million of capital
expenditures during the period.
Net cash used in investing activities for the year ended December 31, 2017 was $108.0 million, principally due to the February 2017 payment of $20.2 million
for the asset acquisition of the product rights for Inderal XL, the February 2017 payment of $30.6 million for the asset acquisition of the NDAs for InnoPran XL,
the December 2017 payment of $46.5 million for the asset acquisition of the product rights for Atacand, Atacand HCT, Arimidex, and Casodex, and $10.4 million
of capital expenditures during the period, primarily related to new equipment to expand our manufacturing capability.
Net cash used in investing activities for the year ended December 31, 2016 was $149.1 million, principally due to the January 2016 asset acquisition of the
NDAs for Cortrophin gel and Cortrophin-Zinc for $75.0 million, the January 2016 payment of $8.8 million to H2-Pharma, LLC for marketing and distribution
rights associated with two products, the April 2016 payment of $60.0 million for the asset acquisition of the NDA for Inderal LA, and $4.6 million of capital
expenditures during the period.
Net
Cash
(Used
In)/Provided
By
Financing
Activities
Net cash used in financing activities was $27.8 million for the year ended December 31, 2018, principally due to $26.1 million related to the repurchase of the
Notes, $1.6 million relating to debt issuance and convertible debt repurchase costs, $2.8 million of payments on the term loan, and $0.7 million of treasury stock
purchased in relation to restricted stock vestings, partially offset by $3.0 million of proceeds from stock option exercises.
Net cash provided by financing activities was $72.4 million for the year ended December 31, 2017, principally due to the cash inflows from establishing the
$75.0 million Term Loan, partially offset by the $1.7 million of debt issuance fees allocated to the Term Loan and $1.0 million of debt issuance fees allocated to
the Revolving Credit Facility.
Net cash used in financing activities was $0.7 million for the year ended December 31, 2016, principally due to the $2.5 million repurchase of the Company’s
common stock under our Stock Repurchase Program and $0.3 million of debt issuance costs paid in relation to the Line of Credit, partially offset by $1.6 million of
proceeds from stock option exercises and $0.6 million of excess tax benefit from share-based compensation awards.
57
Contractual Obligations
The following table summarizes our long-term contractual obligations and commitments as of December 31, 2018.
(in thousands)
Long-term debt obligations (1)
Interest on long-term debt obligations (2)
Operating lease obligations
Purchase obligations (3)
Total
Payments Due by Period
Total
Less than 1
year
$
$
190,937 $
16,274
525
12,848
220,584 $
122,359 $
6,496
159
10,947
139,961 $
1-3 years
3-5 years
More than 5
years
9,023 $
5,338
282
1,839
16,482 $
59,555 $
4,440
84
62
64,141 $
-
-
-
-
-
(1) Represents our $72.2 million Term Loan due December 27, 2023 and our $118.8 million remaining Convertible Senior Notes due December 2019. (Note 3,
Indebtedness, in the notes to the consolidated financial statements in Part II. Item 8. of this Annual Report on Form 10-K.)
(2) Represents interest due on our Term Loan and our Convertible Senior Notes. Interest for the Term Loan is calculated based on our payment schedule as
proscribed in the Credit Facility and using an estimated interest rate of 4.10%, which is the estimated interest rate on the Term Loan as fixed by our interest rate
swap. Interest for our Convertible Senior Notes is calculated based on 3.0% interest due semi-annually and assumes all interest is paid and the remaining notes are
not converted prior to the December 1, 2019 due date. This amount could change if any noteholders convert their notes prior to the due date.
(3) Purchase obligations primarily includes contractual obligations for inventory purchase minimums and service agreements.
Critical Accounting Estimates
This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In our consolidated
financial statements, estimates are used for, but not limited to, stock-based compensation, allowance for doubtful accounts, accruals for chargebacks, government
rebates, returns, and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent
liabilities, fair value of long-lived assets, deferred taxes and valuation allowance, and the depreciable lives of long-lived assets.
Our significant accounting policies are discussed in Note 1. Description of Business and Summary of Significant Accounting Policies, in the notes to the
consolidated financial statements in Part II. Item 8. of this Annual Report on Form 10-K. On an ongoing basis, we evaluate these estimates and assumptions,
including those described below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from those estimates. Due to the estimation processes involved, the following summarized accounting
policies and their application are considered to be critical to understanding our business operations, financial condition, and operating results.
58
Revenue Recognition
As of January 1, 2018, we adopted guidance for revenue recognition for contracts, using the modified retrospective method. The adoption of the new guidance
impacted the way we analyze, document, and disclose revenue recognition under customer contracts and resulted in additional disclosures in our financial
statements. The implementation of the guidance had no material impact on the measurement or recognition of revenue from customer contracts of prior periods and
did not have a material impact on our net revenues. For our revenue recognition policies prior to adopting the guidance for revenue recognition for contracts, please
see Item 8. Consolidated Financial Statements, Note 1, Description
of
Business
and
Summary
of
Significant
Accounting
Policies
, in our Annual Report on Form
10-K for the year ended December 31, 2017.
Upon adoption of this new guidance, we recognize revenue using the following steps:
Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
·
·
· Determination of the transaction price, including the identification and estimation of variable consideration;
· Allocation of the transaction price to the performance obligations in the contract; and
·
Recognition of revenue when we satisfy a performance obligation.
We derive our revenues primarily from sales of generic and branded pharmaceutical products. Revenue is recognized when our obligations under the terms of
our contracts with customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer. We estimate variable
consideration after considering applicable information that is reasonably available. We generally do not have incremental costs to obtain contracts that would
otherwise not have been incurred. We do not adjust revenue for the promised amount of consideration for the effects of a significant financing component because
our customers generally pay us within 100 days.
Our revenue recognition accounting methodologies contain uncertainties because they require management to make assumptions and to apply judgment to
estimate the amount of discounts, rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments, which are accounted
for as reductions to revenue. We make these estimates based on historical experience. In addition, for our product development services revenue, we recognize
revenue on a percentage of completion basis, which requires judgments related to how much work has been completed on various components our projects.
Revenue
from
Sales
of
Generic
and
Branded
Pharmaceutical
Products
Product sales consist of sales of our generic and brand pharmaceutical products. Our sole performance obligation in our contracts is to provide pharmaceutical
products to customers. Our products are sold at pre-determined standalone selling prices and our performance obligation is considered to be satisfied when control
of the product is transferred to the customer. Control is transferred to the customer upon delivery of the product to the customer, as our pharmaceutical products are
sold on an FOB destination basis and because inventory risk and risk of ownership passes to the customer upon delivery. Payment terms for these sales are
generally less than 100 days. We recognized $178.0 million, $169.4 million, and $121.6 million of revenue related to sales of generic and branded pharmaceutical
products in 2018, 2017, and 2016, respectively.
Revenue from Distribution Agreements
From time to time, we enter into marketing and distribution agreements with third parties in which we sell products under ANDAs or NDAs owned or licensed
by these third parties. These products are sold under our own label. We have assessed and determined that we control the products sold under these marketing and
distribution agreements and therefore are the principal for sales under each of these marketing and distribution agreements. As a result, we recognize revenue on a
gross basis when control has passed to the customer and we have satisfied our performance obligation. Under these agreements, we pay these third parties a
specified percentage of the gross profit earned on sales of the products. These profit-sharing percentages are recognized in cost of sales in our consolidated
statements of operations and are accrued in accrued royalties in our consolidated balance sheets until payment has occurred.
59
Chargebacks
As discussed in Note 1 of Item 8. Consolidated Financial Statements, we estimate the amount of chargebacks based our actual historical experience. A number
of factors influence current period chargebacks by impacting the average selling price (“ASP”) of products, including customer mix, negotiated terms, volume of
off-contract purchases, and wholesale acquisition cost (“WAC”).
If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to chargeback estimates
could cause an increase or decrease in revenue recognized during the year and increase or decrease accounts receivable. If there were a 10% change in the
chargeback estimates throughout the year, our net revenues would be affected by $23.0 million for the year ended December 31, 2018.
Government Rebates
As discussed in Note 1 of Item 8. Consolidated Financial Statements, our estimates for government rebates are based upon several factors. Our estimates for
Medicaid rebates are based upon our average manufacturer price, best price, product mix, levels of inventory in the distribution channel that we expect to be
subject to Medicaid rebates, and historical experience, which are invoiced in arrears by state Medicaid programs. Our estimates for Medicare rebates are based on
historical experience. While such experience has allowed for reasonable estimation in the past, history may not always be an accurate indicator of future rebate
experience, and trends in Medicaid and Medicare enrollment and which products are covered by Medicaid and Medicare could change.
We anticipate that we will have further increases in our quarterly Medicaid rebate amounts related to sales of our recently acquired branded and authorized
generic products and increases in our quarterly Medicare rebates related to sales of our Fenofibrate, Inderal LA, InnoPran XL, and Vancomycin products. If actual
results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to government rebate estimates could cause
an increase or decrease in revenue recognized during the year and decrease or increase the government rebate reserve. If there were a 10% change in the
government rebate estimates throughout the year, our net revenues would be affected by $1.1 million for the year ended December 31, 2018.
Returns
As discussed in Note 1 of Item 8. Consolidated Financial Statements, our estimate for returns is based upon our historical experience with actual returns.
While such experience has allowed for reasonable estimation in the past, history may not always be an accurate indicator of future returns.
If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to returns estimates could
cause an increase or decrease in revenue recognized during the year and decrease or increase the returned goods reserve. If there were a 10% change in the returns
estimates throughout the year, our net revenues would be affected by $1.4 million for the year ended December 31, 2018.
Administrative Fees and Other Rebates
As discussed in Note 1 of Item 8. Consolidated Financial Statements, we accrue for fees and rebates by product by wholesaler, at the time of sale based on
contracted rates, ASPs, and on-hand inventory counts obtained from wholesalers.
If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material, as changes to these estimates could cause
an increase or decrease in revenue recognized during the year and increase or decrease accounts receivable. If there were a 10% change in the administrative fees
estimates throughout the year, our net revenues would be affected by $3.3 million for the year ended December 31, 2018.
Prompt Payment Discounts
As discussed in Note 1 of Item 8. Consolidated Financial Statements, we reserve for sales discounts based on invoices outstanding, assuming, based on past
experience, that 100% of available discounts will be taken.
60
If customers do not take 100% of available discounts as we estimate, we could need to re-adjust our methodology for calculating the prompt payment discount
reserve. If there were a 10% decrease in the prompt payment discounts estimates throughout the year, our net revenues would increase by $0.9 million for the year
ended December 31, 2018.
Contract
Manufacturing
Product
Sales
Revenue
Contract manufacturing arrangements consist of agreements in which we manufacture a pharmaceutical product on behalf of third party. Our performance
obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies. The contract manufactured products are sold
at pre-determined standalone selling prices and our performance obligations are considered to be satisfied when control of the product is transferred to the
customer. Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our pharmaceutical products are sold on an
FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time. Payment terms for these sales are generally less than two
months. We estimate returns based on historical experience. Historically, we have not had material returns for contract manufactured products. We recognized $9.1
million, $7.0 million, and $5.5 million of revenue related to sales of contract manufactured products in 2018, 2017, and 2016, respectively.
Royalties
from
Licensing
Agreements
From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the
acquired products. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we
recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the sellers. In addition, we receive royalties from
a license for patent rights initially owned by Cell Genesys, Inc., which merged with BioSante in 2009. The royalties are the results of sales and milestones related
to the Yescarta® product. We recognize revenue for sales-based royalties when the underlying sales occur. We estimate variable consideration related to
milestones, which requires significant judgment. We recognized $12.5 million of revenue related to royalties from licensing agreements in 2018. We did not
recognize revenue for royalties from licensing agreements in 2017 and 2016.
Product
Development
Services
Revenue
We provide product development services to customers, which are performed over time. These services primarily relate to the technology transfer of products
to our facility in Oakville, Ontario. Technology transfer refers to the process required to move the manufacture of a product to a new manufacturing site and may
include performance obligations such as formulation development, production of small-scale batches, process development, and analytical method development
and validation. The duration of these technology transfer projects is generally 18 months to three years. Deposits received from these customers are recorded as
deferred revenue until revenue is recognized. For contracts with no deposits and for the remainder of contracts with deposits, we invoice customers as our
performance obligations are satisfied. We recognize revenue on a proportional basis, which results in contract assets on our balance sheet. We recognized $1.0
million of revenue related to product development services in 2018. We did not recognize revenue for product development services in 2017 and 2016.
Intangible Assets
As discussed in Note 1 of Item 8. Consolidated Financial Statements, our definite-lived intangible assets have a carrying value of $201.6 million as of
December 31, 2018. These assets include ANDAs, NDAs and product rights, marketing and distribution rights, and a non-compete agreement. These intangible
assets were originally recorded at fair value for business combinations and at relative fair value based on the purchase price for asset acquisitions and are stated net
of accumulated amortization.
The ANDAs, NDAs and product rights, marketing and distribution rights, and non-compete agreement are amortized over their remaining estimated useful
lives, ranging from four to 10 years, based on the straight-line method. The estimated useful lives directly impact the amount of amortization expense recorded for
these assets on a quarterly and annual basis.
In addition, we test for impairment of definite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be
recoverable. Judgment is used in determining when these events and circumstances arise. If we determine that the carrying value of the assets may not be
recoverable, judgment and estimates are used to assess the fair value of the assets and to determine the amount of any impairment loss. If the fair value of an
intangible asset is determined to be lower than its carrying value, we could be exposed to an impairment charge that could be material.
61
In conjunction with our 2013 merger with BioSante (the “Merger”), we acquired a testosterone gel product that was licensed to Teva (the “Testosterone Gel
NDA”) and this product was assigned an intangible asset value of $10.9 million in accounting for the Merger. In May 2015, Teva transferred the rights of the
product back to ANI. In exchange, we will pay Teva a royalty of up to $5.0 million, at a rate of 5% of the consideration we receive as a result of commercial sale
of the product. We assessed the value of the Testosterone Gel NDA under the new arrangement and determined that the net asset value was recoverable as of the
May 2015 transfer date and subsequent balance sheet dates. We began the commercialization process for the product during the second half of 2015 and it
continued throughout 2016. In late 2016, we determined that the development and manufacturing costs required to commercialize the product had increased and
would pose a significant barrier to commercializing the product ourselves. Generic competition in the testosterone replacement market had increased substantially
by the end of 2016, leading to significant decreases in pricing for the product. In the fourth quarter, management began putting forth efforts to sell the Testosterone
Gel NDA rather than commercialize it ourselves. As a result of all these factors, in the fourth quarter of 2016, we determined that the facts and circumstances
indicated that the asset could be impaired. We performed an impairment assessment, which indicated that the fair value of the asset was lower than the carrying
value. We determined the fair value of the Testosterone Gel NDA by using a discounted cash flows model. As a result of this assessment, we recorded an
impairment of $6.7 million in the year ended December 31, 2016. We also determined in the fourth quarter of 2016 that the asset met the criteria for being held for
sale. Throughout 2017, we continued to attempt to sell the Testosterone Gel NDA and were unable to complete a sale. As a result, in the fourth quarter of 2017, we
determined that the asset could be impaired. After performing an impairment assessment, which indicated that the fair value of the asset was lower than the
carrying value, we recorded an additional impairment of $0.9 million in the year ended December 31, 2017, writing off the asset in its entirety.
No events or circumstances arose in 2018 that indicated that the carrying value of any of our other definite-lived intangible assets may not be recoverable. If
the fair value of an intangible asset is determined to be lower than its carrying value, we could be exposed to an impairment charge that could be material.
Goodwill
As discussed in Note 1 of Item 8. Consolidated Financial statements, our goodwill balance relates to the Merger and the acquisition of WellSpring and
represents the excess of the total purchase consideration over the fair value of acquired assets and assumed liabilities, using the purchase method of accounting.
Goodwill is not amortized, but is subject to periodic review for impairment. As a result, the amount of goodwill is directly impacted by the estimates of the fair
values of the assets acquired and liabilities assumed.
In addition, goodwill is reviewed annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the
goodwill might not be recoverable. Judgment is used in determining when these events and circumstances arise. We perform our review of goodwill on our one
reporting unit. If we determine that the carrying value of the assets may not be recoverable, judgment and estimates are used to assess the fair value of the assets
and to determine the amount of any impairment loss.
The carrying value of goodwill at December 31, 2018 was $3.6 million. We believe it is unlikely that there will be a material change in the future estimates or
assumptions used to test for impairment losses on goodwill. However, if actual results were not consistent with our estimates or assumptions, we could be exposed
to an impairment charge that could be material.
Stock-Based Compensation
Our Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”) includes stock options and restricted stock, which are awarded in exchange for
employee and non-employee director services. In July 2016, we commenced administration of our Employee Stock Purchase Plan (“ESPP”). In 2018, the stock-
based compensation expense related to the ESPP was $102 thousand. We recognize the estimated fair value of stock-based awards and classify the expense where
the underlying salaries are classified.
62
The following table summarizes stock-based compensation expense incurred under the 2008 Plan and included in our consolidated statements of operations:
(in thousands)
Cost of sales
Research and development
Selling, general, and administrative
2018
Years Ended December 31,
2017
2016
$
$
87 $
771
5,822
6,680 $
86 $
677
5,259
6,022 $
60
112
5,870
6,042
Stock-based compensation cost for stock options is determined at the grant date using an option pricing model and stock-based compensation cost for
restricted stock is based on the closing market price of the stock at the grant date. The value of the award is recognized as expense on a straight-line basis over the
employee’s requisite service period.
Valuation of stock awards requires us to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments
include estimating the future volatility of our stock price and dividend yields. Changes in these assumptions can affect the fair value estimate.
Through December 31, 2016, we estimated the awards that would ultimately vest, using judgment for the amounts that would be forfeited due to failure to
fulfill service conditions. To the extent actual results or updated estimates differed from current estimates, such amounts were recorded as a cumulative adjustment
in the period estimates were revised. As of January 1, 2017, in accordance with new guidance from the FASB, we no longer estimate forfeitures, instead we
account for forfeitures as they occur. Changes in estimates could affect compensation expense within individual periods. If there were to be a 10% change in our
stock-based compensation expense for the year, our Net Income before Provision for Income Taxes would be affected by $0.7 million for the year ended December
31, 2018.
Income Taxes
We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences
are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, includes a number of changes to existing U.S. tax laws, most notably the reduction of the
U.S. corporate income tax rate from 35% to 21%, which began in 2018. We measure our deferred tax assets and liabilities using the enacted tax rates that we
believe will apply in the years in which the temporary differences are expected to be recovered or paid. As a result, we remeasured our deferred tax assets and
deferred tax liabilities to reflect the reduction in the enacted U.S. corporate income tax rate, resulting in a $13.4 million increase in income tax expense for the year
ended December 31, 2017. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We
have not identified any uncertain income tax positions that could have a material impact to the consolidated financial statements. We are subject to taxation in
various U.S. jurisdictions and remain subject to examination by taxing jurisdictions for the years 1998 and all subsequent periods due to the availability of net
operating loss carryforwards. To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our
established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would
require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may reduce our
effective income tax rate and would be recognized in the period of resolution.
We consider potential tax effects resulting from discontinued operations and record intra-period tax allocations, when those effects are deemed material. Our
effective income tax rate is also affected by changes in tax law, our level of earnings, and the results of tax audits. Our effective tax rate decreased as a result of the
change in U.S. corporate income tax rate from the Tax Cuts and Jobs Act.
Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains
that could be material .
63
Recent Accounting Pronouncements
Recent
Accounting
Pronouncements
Not
Yet
Adopted
In November 2018, the Financial Accounting Standards Board (“FASB”) issued guidance clarifying that certain transactions between collaborative
arrangement participants should be accounted for revenue under Accounting Standards Codification Topic 606 when the collaborative arrangement participant is a
customer in the context of a unit of account. The guidance is effective for reporting periods beginning after December 15, 2019, including interim periods within
that fiscal year. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact, if any, that the adoption of this
guidance will have on our consolidated financial statements.
In October 2018, the FASB issued guidance for accounting for derivatives and hedging. The guidance provides for the inclusion of the Secured Overnight
Financing Rate (“SOFR”) Overnight Index swap rate as a benchmark interest rate for hedge accounting purposes. In July 2017, the Financial Conduct Authority in
the United Kingdom announced that it would phase out London Interbank Offered Rate (“LIBOR”) as a benchmark by the end of 2021. As a result, the U.S.
Federal Reserve identified the SOFR as its preferred alternative reference rate, calculated with a broad set of short-term repurchase agreements backed by treasury
securities. Amounts drawn under our five-year senior secured credit facility bear interest rates in relation to LIBOR, and our interest rate swap is designated in
LIBOR. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The guidance must be adopted on a
modified retrospective basis and provides for certain practical expedients. We will adopt this guidance as of January 1, 2019. The adoption of this guidance is not
expected to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued guidance aligning the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for reporting
periods beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period.
We will adopt this guidance as of January 1, 2019 on a prospective basis. The adoption of this guidance is not expected to have a material impact on our
consolidated financial statements.
In August 2018, the FASB issued guidance modifying the disclosure requirements on fair value measurements. The amendments add, modify, and eliminate
certain disclosure requirements on fair value measurements. The guidance is effective for reporting periods beginning after December 15, 2019, including interim
periods within that fiscal year. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact, if any, that the
adoption of this guidance will have on our consolidated financial statements.
In June 2018, the FASB issued guidance simplifying the accounting for nonemployee stock-based compensation awards. The guidance aligns the
measurement and classification for employee stock-based compensation awards to nonemployee stock-based compensation awards. Under the guidance,
nonemployee awards will be measured at their grant date fair value. Upon transition, the existing nonemployee awards will be measured at fair value as of the
adoption date. The guidance is effective for reporting periods beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption
is permitted, including adoption in an interim period. We will adopt this guidance as of January 1, 2019. The adoption of this guidance is not expected to have a
material impact on our consolidated financial statements.
In June 2016, the FASB issued guidance with respect to measuring credit losses on financial instruments, including trade receivables. The guidance eliminates
the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now
reflect an entity's current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions.
The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be
applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. We currently expect that the
adoption of this guidance will likely change the way we assess the collectability of our receivables and recoverability of other financial instruments. We have not
yet begun to evaluate the specific impacts of this guidance nor have we determined the manner in which we will adopt this guidance.
64
In February 2016, the FASB issued guidance for accounting for leases. The guidance requires lessees to recognize assets and liabilities related to long-term
leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued additional guidance, which offers
a transition option to entities adopting the new lease standards. Under the transition option, entities can elect to apply the new guidance using a modified
retrospective approach at the beginning of the year in which the new lease standard is adopted, rather than to the earliest comparative period presented in their
financial statements. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The guidance must be
adopted on a modified retrospective basis and provides for certain practical expedients. We will elect to use the transition option, as well as the package of practical
expedients when we adopt the guidance using the modified retrospective approach as of January 1, 2019. As a result of adoption of this guidance, we anticipate
that we will record right-of-use assets and lease liabilities totaling approximately $450 thousand to $500 thousand primarily related to our long-term office
operating leases. We also expect that the adoption of this guidance will result in additional lease-related disclosures in the footnotes to our consolidated financial
statements.
We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact
on our consolidated statements of operations, comprehensive income, balance sheets, or cash flows.
Recently
Adopted
Accounting
Pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule amending certain disclosure requirements that have become
redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders'
equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must
be provided in a note or separate statement. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date.
The adoption of this guidance will result in the inclusion of the statement of stockholder’s equity in our interim financial statement filings, as well as the removal
of certain redundant disclosures in this Annual Report on Form 10-K for the year ending December 31, 2018.
In August 2017, the FASB issued guidance improving accounting for hedging activities. The guidance is intended to simplify hedge accounting by better
aligning how an entity’s risk management activities and hedging relationships are presented in its financial statements. The guidance also simplifies the application
of hedge accounting guidance in certain situations. The guidance is effective for the fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. Early adoption was permitted, including adoption in an interim period. The guidance with respect to the cash flow and net investment
hedge relationships existing on the date of adoption must be applied on a modified retrospective basis and the new disclosure requirements must be applied on a
prospective basis. We adopted this guidance as of January 1, 2018. The adoption of this guidance did not have a material impact on our consolidated financial
statements. However, the adoption of this guidance did impact how we accounted for the interest rate swap we entered into in April 2018. See Note 4 of Item 8.
Consolidated Financial Statements for further details regarding the interest rate swap.
In May 2017, the FASB issued guidance clarifying when modification accounting should be used for changes to the terms or conditions of a share-based
payment award. The guidance does not change the accounting for modifications, but clarifies that modification accounting guidance should only be applied if there
is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The guidance is
effective for the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption was permitted, including
adoption in an interim period. We adopted this guidance as of January 1, 2018 on a prospective basis. The adoption of this guidance did not have a material impact
on our consolidated financial statements.
65
In May 2014, the FASB issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most
existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations,
3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the
nature, amount, timing, and uncertainty of revenue arising from contracts with customers. In August 2015, the FASB issued guidance approving a one-year
deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods
beginning after December 15, 2016. In March 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations for
reporting revenue gross rather than net, with the same deferred effective date. In April 2016, the FASB issued guidance to clarify the implementation guidance on
identifying performance obligations and the accounting for licenses of intellectual property, with the same deferred effective date. In May 2016, the FASB issued
guidance rescinding SEC paragraphs related to revenue recognition, pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force
meeting. In May 2016, the FASB also issued guidance to clarify the implementation guidance on assessing collectability, presentation of sales tax, noncash
consideration, and contracts and contract modifications at transition, with the same effective date. In September 2017, the FASB issued guidance amending and
rescinding prior SEC staff announcements and observer comments related to revenue recognition, pursuant to the SEC Staff Announcement at the July 20, 2017
Emerging Issues Task Force meeting.
We performed a comprehensive review of our existing revenue arrangements as of January 1, 2018 following the five-step model. Our analysis indicated that
there were no significant changes to how the amount and timing of revenue is recognized under the new guidance as compared to existing guidance. Additionally,
our analysis indicated that there were no significant changes to how costs to obtain and fulfill our customer contracts are recognized under the new guidance as
compared to existing guidance. We adopted this guidance as of January 1, 2018 using the modified retrospective method and the impact of adoption on our
consolidated balance sheet, statement of operations, and statement of cash flows was not material. The adoption of the new guidance impacted the way we analyze,
document, and disclose revenue recognition under customer contracts beginning on January 1, 2018 and resulted in additional disclosures in our financial
statements. ANI Canada adopted this guidance as of the acquisition date, August 6, 2018. The adoption of this guidance did not have a material impact on our
consolidated financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2018, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
66
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risks include interest rate risk, equity risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks. Of
these risks, interest rate risk, equity risk, and foreign currency exchange rate risk could have a significant impact on our results of operations.
As of December 31, 2018, our largest debt obligation was related to our Notes. In order to reduce the potential equity dilution that would result upon
conversion of the Senior Convertible Notes issued in December 2014, we entered into note hedge transactions with a financial institution affiliated with one of the
underwriters of the Senior Convertible Note offering. The note hedge transactions are expected generally, but not guaranteed, to reduce the potential dilution to our
common stock and/or offset the cash payments we are required to make in excess of the principal amount upon any conversion of Senior Convertible Notes, in the
event that the market price per share of our common stock, as measured under the terms of the Convertible Note Hedge Transactions, is greater than the conversion
price of the Senior Convertible Notes, which is initially approximately $69.48. In addition, in order to partially offset the cost of the note hedge transactions, we
issued warrants to the hedge counterparty to purchase shares of our common stock at a strike price of $96.21. The warrants would separately have a dilutive effect
to the extent that the market value per share of our common stock exceeds the strike price of the warrants. In addition, non-performance by the counterparties under
the hedge transactions would potentially expose us to dilution of our common stock to the extent our stock price exceeds the conversion price.
Interest on the Notes accrues at a fixed rate of 3.0% on the outstanding principal amount of the Notes and is paid semi-annually every December 1st and June
1st until the Notes mature on December 1, 2019. Since the interest rate is fixed, we have no interest-rate market risk related to the Notes. However, if our stock
price increases, the fair value of our Notes, and their likelihood of being converted, will change accordingly. As a result, we face equity risk in relation to our
Notes.
On December 27, 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility (the
“Credit Facility”) for up to $265.2 million. The principal new feature of the Credit Facility is a $118.0 million Delayed Draw Term Loan (the “DDTL”), which can
only be drawn on in order to pay down the Company’s remaining 3.0% Convertible Senior Notes, which will mature in December 2019. The Credit Facility also
extended the maturity of the $72.2 million secured term loan balance (the “Term Loan”) to December 2023. In addition, the Credit Facility increased the previous
$50.0 million line of credit (the “Revolver”) to $75.0 million. Amounts drawn bear an interest rate equal to, at our option, either a LIBOR rate plus 1.50% to 2.75%
per annum, depending on our total leverage ratio or an alternative base rate plus an applicable base rate margin, which varies within a range of 0.50% to 1.75%,
depending our total leverage ratio. We will incur a commitment fee at a rate per annum that varies within a range of 0.25% to 0.50%, depending on our leverage
ratio. We will also incur a delayed draw ticking fee at a rate per annum that varies within a range of 0.25% to 0.50%, depending on our leverage ratio. As of
December 31, 2018, we had a $72.2 million outstanding balance on the Credit Facility. As of December 31, 2018, we had not drawn on the Revolver or DDTL.
On December 27, 2018, we entered into an interest rate swap to manage our exposure to the variable interest rate on our refinanced secured Term Loan. The
interest rate swap hedges the variable cash flows associated with the secured Term Loan borrowings under the secured Term Loan, effectively providing a fixed
rate of interest throughout the life of the secured Term Loan. As a result of the interest rate swap, our exposure to interest rate volatility is minimized.
We are exposed to risks associated with changes in interest rates. The returns from certain of our cash and cash equivalents will vary as short-term interest
rates change. A 100 basis-point adverse movement (decrease) in short-term interest rates would decrease the interest income earned on our cash balance in the year
ended December 31, 2018 by approximately $15 thousand.
We are exposed to risks associated with foreign currency exchange rate risks as we remeasure certain Canadian dollar-denominated transactions from our ANI
Pharmaceuticals Canada Inc. subsidiary from the Canadian dollar to the U.S. dollar. Changes in exchange rates can positively or negatively impact our revenue,
income, assets, liabilities, and equity. Currency exchange rates did not have a material impact on our revenue, income, assets, liabilities, or equity during the year
ended December 31, 2018.
67
Item 8. CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
ANI Pharmaceuticals, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ANI Pharmaceuticals, Inc. and Subsidiaries (the "Company") as of December 31, 2018 and
2017, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal
control over financial reporting as of December 31, 2018, based on criteria established in Internal
Control
-
Integrated
Framework
( 2013
) issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report dated February 27, 2019 expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ EisnerAmper LLP
We have served as the Company's auditor since 2013.
EISNERAMPER LLP
Iselin, New Jersey
February 27, 2019
68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
ANI Pharmaceuticals, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited ANI Pharmaceuticals, Inc. and Subsidiaries’ (the “Company") internal control over financial reporting as of December 31, 2018, based on criteria
established in the Internal
Control
-
Integrated
Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria
established in the Internal
Control
-
Integrated
Framework
( 2013
) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance
sheets of ANI Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive
income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes and our report dated
February 27, 2019 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. An entity’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the entity; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with
authorizations of management and directors of the entity; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ EisnerAmper LLP
EISNERAMPER LLP
Iselin, New Jersey
February 27, 2019
69
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Assets
Current Assets
Cash and cash equivalents
Accounts receivable, net of $47,705 and $34,686 of adjustments for chargebacks
and other allowances at December 31, 2018 and 2017, respectively
Inventories, net
Prepaid income taxes, net
Prepaid expenses and other current assets
Total Current Assets
Property and equipment, net
Restricted cash
Deferred tax assets, net of deferred tax liabilities and valuation allowance
Intangible assets, net
Goodwill
Other long-term assets
Total Assets
Current Liabilities
Liabilities and Stockholders' Equity
Current component of long-term borrowing, net of deferred financing costs
Convertible notes, net of discount and deferred financing costs
Accounts payable
Accrued expenses and other
Accrued royalties
Accrued compensation and related expenses
Current income taxes payable, net
Accrued government rebates
Returned goods reserve
Deferred revenue
Total Current Liabilities
Long-term Liabilities
Long-term borrowing, net of deferred financing costs and current borrowing component
Convertible notes, net of discount and deferred financing costs
Other long-term liabilities
Total Liabilities
Commitments and Contingencies (Note 12)
Stockholders' Equity
Common Stock, $0.0001 par value, 33,333,334 shares authorized; 11,862,508 shares issued and 11,851,329
outstanding at December 31, 2018; 11,655,768 shares issued and 11,650,565 shares outstanding at December 31,
2017
Class C Special Stock, $0.0001 par value, 781,281 shares authorized; 10,864 shares issued and outstanding at
December 31, 2018 and 2017, respectively
Preferred Stock, $0.0001 par value, 1,666,667 shares authorized; 0 shares issued and outstanding at December 31,
2018 and 2017, respectively
Treasury stock, 11,179 shares of common stock, at cost, at December 31, 2018 and 5,203 shares of common stock, at
cost, at December 31, 2017
Additional paid-in capital
Retained earnings/(accumulated deficit)
Accumulated other comprehensive loss, net of tax
Total Stockholders' Equity
December 31,
2018
December 31,
2017
$
43,008 $
31,144
$
$
$
64,842
40,503
-
4,524
152,877
38,090
5,021
27,964
201,604
3,580
1,468
430,604 $
3,256 $
112,463
8,884
1,707
8,456
3,524
5,022
8,974
12,552
711
165,549
67,296
-
496
233,341 $
1
-
-
(659)
186,812
11,488
(379)
197,263
58,788
37,727
1,162
2,784
131,605
20,403
5,006
22,667
229,790
1,838
829
412,138
3,353
-
3,630
1,571
12,164
2,306
-
7,930
8,274
-
39,228
69,946
128,208
-
237,382
1
-
-
(259)
179,020
(4,006)
-
174,756
Total Liabilities and Stockholders' Equity
$
430,604 $
412,138
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
70
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
Net Revenues
Operating Expenses
Cost of sales (excluding depreciation and amortization)
Research and development
Selling, general, and administrative
Depreciation and amortization
Intangible asset impairment charge
Total Operating Expenses
Operating Income
Other Expense, net
Interest expense, net
Other (expense)/income, net
Years Ended December 31,
2017
2018
2016
$
201,576 $
176,842 $
128,622
73,024
15,388
44,063
33,742
-
79,032
9,070
31,580
27,928
903
48,780
2,906
27,829
22,343
6,685
166,217
148,513
108,543
35,359
28,329
20,079
(14,758)
(550)
(12,035)
55
(11,327)
(74)
Income Before Provision for Income Taxes
20,051
16,349
8,678
Provision for income taxes
Net Income/(Loss)
Basic and Diluted Earnings/(Loss) Per Share:
Basic Earnings/(Loss) Per Share
Diluted Earnings/(Loss) Per Share
Basic Weighted-Average Shares Outstanding
Diluted Weighted-Average Shares Outstanding
$
$
$
(4,557)
(17,425)
(4,744)
15,494 $
(1,076) $
3,934
1.31 $
1.30 $
11,677
11,772
(0.09) $
(0.09) $
11,547
11,547
0.34
0.34
11,445
11,573
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
71
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in
thousands)
Years Ended December 31,
2017
2018
2016
Net income/(loss)
$
15,494 $
(1,076) $
3,934
Other comprehensive income/(loss), net of tax:
Change in fair value of interest rate swap, net of tax
Total other comprehensive loss, net of tax
Total comprehensive income/(loss), net of tax
(379)
(379)
15,115 $
-
-
(1,076) $
-
-
3,934
$
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
72
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2018, 2017, and 2016
(in thousands)
Common Common Class C Additional Treasury
Special
Stock
Stock
Par Value Shares
Paid-in
Capital
Shares
Stock
Stock Treasury Other Comprehensive (Accumulated Deficit)/
Stock
Loss, Net of Tax
Retained Earnings
Total
Accumulated
$
Balance, December 31, 2015
$
Stock-based Compensation Expense
Treasury Stock purchases for
restricted stock vestings
Issuance of Common Shares upon
Stock Option and ESPP Exercise
Repurchase of Common Stock under
Stock Repurchase Program
Issuance of Restricted Stock Awards
Excess Tax Benefit from Share-based
Compensation Awards
Net Income
Balance, December 31, 2016
Stock Option Forfeiture Cumulative-
effect Adjustment
Balance, net of Cumulative-
effectAdjustment
$
Stock-based Compensation Expense
Treasury Stock purchases for
restricted stock vestings
Issuance of Common Shares upon
Stock Option and ESPP Exercise
Issuance of Restricted Stock Awards
Net Loss
Balance, December 31, 2017
$
Stock-based Compensation Expense
Treasury Stock purchases for
restricted stock vestings
Issuance of Common Shares upon
Stock Option and ESPP Exercise
Issuance of Restricted Stock Awards
Change in fair value of interest rate
swap, net of tax
Repurchase of Convertible notes and
unwind of call option overlay
Net Income
Balance, December 31, 2018
$
1
-
11,498 $
-
- $ 164,431
6,067
-
- $
-
- $
-
-
119
(65)
37
-
-
-
-
-
-
-
10
(122)
1,448
(10)
122
-
-
11,589 $
617
-
-
-
- $ 172,563
-
-
14
11,589 $
-
- $ 172,577
6,090
-
-
-
-
-
- $
-
- $
-
-
-
-
-
- $
-
- $
-
-
-
-
5
(259)
17
50
-
11,656 $
-
-
142
65
-
353
-
-
-
-
-
- $ 179,020
6,782
-
-
-
-
5 $
-
-
-
-
(259) $
-
-
11
(659)
-
-
-
-
2,719
-
-
(5)
-
-
-
-
11 $
259
-
-
-
-
(659) $
-
-
11,863 $
(1,709)
-
-
-
- $ 186,812
-
-
-
-
-
-
1
-
1
-
-
-
-
-
1
-
-
-
-
-
-
-
1
- $
-
-
-
-
-
-
-
- $
-
- $
-
-
-
-
-
- $
-
-
-
-
(379)
-
-
(379) $
(4,350) $ 160,082
6,067
-
-
(122)
-
1,570
(2,500)
-
(2,500)
-
617
-
3,934
3,934
(2,916) $ 169,648
(14)
-
(2,930) $ 169,648
6,090
-
-
(259)
353
-
-
-
(1,076)
(1,076)
(4,006) $ 174,756
6,782
-
-
-
-
-
(659)
2,978
-
(379)
(1,709)
-
15,494
15,494
11,488 $ 197,263
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
73
ANI PHARMACEUTICALS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31,
Cash Flows From Operating Activities
2018
2017
2016
Net income/(loss)
Adjustments to reconcile net income/(loss) to net cash and cash equivalents provided by
$
15,494 $
(1,076) $
3,934
operating activities:
Stock-based compensation
Deferred taxes
Depreciation and amortization
Acquired in-process research and development ("IPR&D")
Non-cash interest relating to convertible notes and loan cost amortization
Loss on repurchase of Convertible notes
Intangible asset impairment charge
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Accounts payable
Accrued royalties
Current income taxes, net
Accrued government rebates
Returned goods reserve
Accrued expenses, accrued compensation, and other
6,782
(5,180)
33,742
1,335
8,465
468
-
(4,743)
(379)
(1,142)
3,466
(3,708)
6,184
1,044
4,278
968
6,090
3,560
27,928
-
7,666
-
903
(12,893)
5,356
(17)
3
(417)
(3,560)
2,039
2,518
1,319
6,067
(8,911)
22,343
-
7,281
-
6,685
(23,963)
(1,938)
(647)
1,076
6,269
3,525
1,260
3,108
1,383
Net Cash and Cash Equivalents Provided by Operating Activities
67,074
39,419
27,472
Cash Flows From Investing Activities
Acquisiton of WellSpring Pharma Services Inc., net of cash acquired
Acquisition of product rights, IPR&D, and other related assets
Acquisition of property and equipment, net
(16,467)
(5,169)
(5,743)
-
(97,624)
(10,369)
-
(144,494)
(4,566)
Net Cash and Cash Equivalents Used in Investing Activities
(27,379)
(107,993)
(149,060)
Cash Flows From Financing Activities
Payment of debt issuance and convertible debt repurchase costs
Payments on term loan agreement
Borrowings under term loan agreement
Proceeds from stock option exercises
Excess tax benefit from share-based compensation awards
Repurchase of common stock under the stock repurchase program
Repurchase of Convertible notes
Unwinding of portion of call option overlay, net
Treasury stock purchases for restricted stock vestings
(1,572)
(2,813)
-
2,978
-
-
(26,125)
375
(659)
(2,737)
-
75,000
353
-
-
-
-
(259)
(294)
-
-
1,570
617
(2,500)
-
-
(122)
Net Cash and Cash Equivalents (Used in)/Provided by Financing Activities
(27,816)
72,357
(729)
Net Change in Cash and Cash Equivalents
11,879
3,783
(122,317)
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Reconciliation of cash, cash equivalents, and restricted cash, beginning of period
$
Cash and cash equivalents
Restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
Reconciliation of cash, cash equivalents, and restricted cash, end of period
Cash and cash equivalents
Restricted cash
Cash, cash equivalents, and restricted cash, end of period
Supplemental disclosure for cash flow information:
Cash paid for interest, net of amounts capitalized
36,150
48,029 $
31,144
5,006
36,150
43,008
5,021
48,029
32,367
36,150 $
27,365
5,002
32,367
31,144
5,006
36,150
154,684
32,367
154,684
-
154,684
27,365
5,002
32,367
$
6,285 $
3,759 $
4,078
Cash paid for income taxes
Supplemental non-cash investing and financing activities:
Accrued royalties related to asset purchase
Property and equipment purchased and included in accounts payable
$
$
$
6,397 $
17,786 $
- $
521 $
- $
485 $
9,537
3,882
247
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
74
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
ANI Pharmaceuticals, Inc. and its consolidated subsidiaries, ANIP Acquisition Company and ANI Pharmaceuticals Canada Inc. (together, “ANI,” the
“Company,” “we,” “us,” or “our”) is an integrated specialty pharmaceutical company focused on delivering value to our customers by developing, manufacturing,
and marketing high quality branded and generic prescription pharmaceuticals. ANI was organized as a Delaware corporation in April 2001. At our three facilities,
of which two are located in Baudette, Minnesota and one is located in Oakville, Ontario, we manufacture oral solid dose products, as well as semi-solids, liquids
and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment. We also perform contract manufacturing for
other pharmaceutical companies.
On June 19, 2013, BioSante Pharmaceuticals, Inc. (“BioSante”) acquired ANIP Acquisition Company (“ANIP”) in an all-stock, tax-free reorganization (the
“Merger”), in which ANIP became a wholly-owned subsidiary of BioSante. BioSante was renamed ANI Pharmaceuticals, Inc. The Merger was accounted for as a
reverse acquisition pursuant to which ANIP was considered the acquiring entity for accounting purposes.
On August 6, 2018, our subsidiary, ANI Pharmaceuticals Canada Inc. (“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring
Pharma Services Inc. (“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price
of $18.0 million, subject to certain customary adjustments. Pursuant to these customary adjustments, the total purchase consideration was $16.7 million. The
consideration was paid entirely from cash on hand. In conjunction with the transaction, we acquired WellSpring’s pharmaceutical manufacturing facility,
laboratory, and offices, its current book of commercial business, as well as an organized workforce. Following the consummation of the transaction, WellSpring
was merged into ANI Canada with the resulting entity’s name being ANI Pharmaceuticals Canada Inc.
Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on
significant customers, and possible fluctuations in financial results. The accompanying consolidated financial statements have been prepared assuming that we will
continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The
propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient
cash from operations, and potential other funding sources, including cash on hand, to meet our obligations as they become due. We believe the going-concern basis
is appropriate for the accompanying consolidated financial statements based on our current operating plan and business strategy for the 12 months following the
issuance of this report.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”). Certain prior period information has been reclassified to conform to the current period presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of ANI Pharmaceuticals, Inc. and its subsidiaries. All intercompany accounts and transactions are
eliminated in consolidation.
Foreign Currency
We have a subsidiary located in Canada. The subsidiary conducts its transactions in U.S. dollars and Canadian dollars, but its functional currency is the U.S.
dollar. The results of any non-U.S. dollar transactions are remeasured in U.S. dollars at the applicable exchange rates during the period and resulting foreign
currency transaction gains and losses are included in the determination of net income. Our gain on transactions determined in foreign currencies was immaterial for
the year ended December 31, 2018. Unless otherwise noted, all references to “$” or “dollar” refer to the U.S. dollar.
75
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses
during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, revenue
recognition, allowance for doubtful accounts, variable consideration determined based on accruals for chargebacks, administrative fees and rebates, government
rebates, returns and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals for contingent
liabilities, fair value of long-lived assets, income tax provision, deferred taxes and valuation allowance, purchase price allocations, and the depreciable lives of
long-lived assets. Because of the uncertainties inherent in such estimates, actual results may differ from those estimates. Management periodically evaluates
estimates used in the preparation of the financial statements for reasonableness.
Comprehensive Income
Comprehensive income, which is reported in the statement of comprehensive income, consists of net income, changes in fair value of our interest rate swap,
and other comprehensive income, net of tax.
Credit Concentration
Our customers are primarily wholesale distributors, chain drug stores, group purchasing organizations, and other pharmaceutical companies.
During the year ended December 31, 2018, three customers represented approximately 21 %, 23%, and 33% of net revenues, respectively. As of December 31,
2018, accounts receivable from these customers totaled 81% of net accounts receivable. During the year ended December 31, 2017, three customers represented
approximately 29%, 29%, and 20% of net revenues, respectively. During the year ended December 31, 2016, three customers represented approximately 28%,
22%, and 18% of net revenues, respectively.
Vendor Concentration
We source the raw materials for products, including active pharmaceutical ingredients (“API”), from both domestic and international suppliers. Generally,
only a single source of API is qualified for use in each product due to the costs and time required to validate a second source of supply. As a result, we are
dependent upon our current vendors to supply reliably the API required for ongoing product manufacturing. During the year ended December 31, 2018, we
purchased approximately 13% of our inventory from one supplier. As of December 31, 2018, amounts payable to this supplier was immaterial. During the year
ended December 31, 2017, we purchased approximately 23% of our inventory from two suppliers. During the year ended December 31, 2016, we purchased
approximately 25% of our inventory from one supplier.
Revenue Recognition
As of January 1, 2018, we adopted guidance for revenue recognition for contracts, using the modified retrospective method. The implementation of the
guidance had no material impact on the measurement or recognition of revenue from customer contracts of prior periods. For our revenue recognition policies prior
to adopting the guidance for revenue recognition for contracts, please see Item 8. Consolidated Financial Statements, Note 1, Description
of
Business
and
Summary
of
Significant
Accounting
Policies
, in our Annual Report on Form 10-K for the year ended December 31, 2017.
Upon adoption of this new guidance, we recognize revenue using the following steps:
Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
·
·
· Determination of the transaction price, including the identification and estimation of variable consideration;
· Allocation of the transaction price to the performance obligations in the contract; and
·
Recognition of revenue when we satisfy a performance obligation.
76
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
We derive our revenues primarily from sales of generic and branded pharmaceutical products. Revenue is recognized when our obligations under the terms of
our contracts with customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer. We estimate variable
consideration after considering applicable information that is reasonably available. We generally do not have incremental costs to obtain contracts that would
otherwise not have been incurred. We do not adjust revenue for the promised amount of consideration for the effects of a significant financing component because
our customers generally pay us within 100 days.
All revenue recognized in our consolidated statements of operations is considered to be revenue from contracts with customers. The following table depicts the
disaggregation of revenue:
Products and Services
(in thousands)
Sales of generic pharmaceutical products
Sales of branded pharmaceutical products
Sales of contract manufactured products
Royalties from licensing agreements
Product development services
Other (1)
Total net revenues
Years Ended December 31,
2017
2016
2018
$
$
117,451 $
60,554
9,119
12,504
1,019
929
201,576 $
118,437 $
50,919
7,046
-
-
440
176,842 $
95,201
26,443
5,537
-
-
1,441
128,622
(1) Primarily includes laboratory services and royalties on sales of contract manufactured products
Timing of Revenue Recognition
(in thousands)
Performance obligations transferred at a point in time
Performance obligations transferred over time
Total
Years Ended December 31,
2017
2016
2018
$
$
200,557 $
1,019
201,576 $
176,842 $
-
176,842 $
128,622
-
128,622
During the year ended December 31, 2018, we did not incur, and therefore did not defer, any material incremental costs to obtain contracts. We recognized
$5.3 million of net revenue from performance obligations satisfied in prior periods during the year ended December 31, 2018, consisting primarily of royalties
from licensing agreements and revised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period
sales. In August 2018, we acquired WellSpring (see Note 3), a contract manufacturing company that also provides technical transfer services to customers, for
which services are transferred over time. As a result, we had $0.1 million of contract assets related to revenue recognized based on percentage of completion but
not yet billed and $0.7 million of deferred revenue at December 31, 2018. We had no contract assets or deferred revenue at December 31, 2017 and 2016.
77
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue from Sales of Generic and Branded Pharmaceutical Products
Product sales consists of sales of our generic and brand pharmaceutical products. Our sole performance obligation in our contracts is to provide
pharmaceutical products to customers. Our products are sold at pre-determined standalone selling prices and our performance obligation is considered to be
satisfied when control of the product is transferred to the customer. Control is transferred to the customer upon delivery of the product to the customer, as our
pharmaceutical products are sold on an FOB destination basis and because inventory risk and risk of ownership passes to the customer upon delivery. Payment
terms for these sales are generally less than 100 days.
Revenue
from
Distribution
Agreements
From time to time, we enter into marketing and distribution agreements with third parties in which we sell products under Abbreviated New Drug
Applications (“ANDAs”) or New Drug Applications (“NDAs”) owned or licensed by these third parties. These products are sold under our own label. We have
assessed and determined that we control the products sold under these marketing and distribution agreements and therefore are the principal for sales under each of
these marketing and distribution agreements. As a result, we recognize revenue on a gross basis when control has passed to the customer and we have satisfied our
performance obligation. Under these agreements, we pay these third parties a specified percentage of the gross profit earned on sales of the products. These profit-
sharing percentages are recognized in cost of sales in our consolidated statements of operations and are accrued in accrued royalties in our consolidated balance
sheets until payment has occurred.
Sales of our pharmaceutical products are subject to variable consideration due to chargebacks, government rebates, returns, administrative and other rebates,
and cash discounts. Estimates for these elements of variable consideration require significant judgment.
Chargebacks
Chargebacks, primarily from wholesalers, result from arrangements we have with indirect customers establishing prices for products which the indirect
customer purchases through a wholesaler. Alternatively, we may pre-authorize wholesalers to offer specified contract pricing to other indirect customers. Under
either arrangement, we provide a chargeback credit to the wholesaler for any difference between the contracted price with the indirect customer and the
wholesaler's invoice price, typically Wholesale Acquisition Cost ("WAC").
Chargeback credits are calculated as follows:
Prior period chargebacks claimed by wholesalers are analyzed to determine the actual average selling price ("ASP") for each product. This calculation is
performed by product by wholesaler. ASPs can be affected by several factors such as:
· A change in customer mix
· A change in negotiated terms with customers
· A change in the volume of off-contract purchases
·
Changes in WAC
As necessary, we adjust ASPs based on anticipated changes in the factors above.
The difference between ASP and WAC is recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable
in the consolidated balance sheets, at the time we recognize revenue from the product sale.
To evaluate the adequacy of our chargeback accruals, we obtain on-hand inventory counts from the wholesalers. This inventory is multiplied by the
chargeback amount, the difference between ASP and WAC, to arrive at total expected future chargebacks, which is then compared to the chargeback accruals. We
continually monitor chargeback activity and adjust ASPs when we believe that actual selling prices will differ from current ASPs.
78
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Government
Rebates
Our government rebates reserve consists of estimated payments due to governmental agencies for purchases made by third parties under various governmental
programs. The two largest government programs that impact our net revenue and our government rebates reserve are federal and state Medicaid rebate programs
and Medicare.
We participate in certain qualifying federal and state Medicaid rebate programs whereby discounts and rebates are provided to participating programs after the
final dispensing of the product by a pharmacy to a Medicaid plan participant. Medicaid rebates are typically billed up to 120 days after the product is shipped.
Medicaid rebate amounts per product unit are established by law, based on the Average Manufacturer Price (“AMP”), which is reported on a monthly and quarterly
basis, and, in the case of branded products, best price, which is reported on a quarterly basis. Our Medicaid reserves are based on expected claims from state
Medicaid programs. Estimates for expected claims are driven by patient usage, sales mix, calculated AMP or best price, as well as inventory in the distribution
channel that will be subject to a Medicaid rebate. As a result of the delay between selling the products and rebate billing, our Medicaid rebate reserve includes both
an estimate of outstanding claims for end-customer sales that have occurred but for which the related claim has not been billed, as well as an estimate for future
claims that will be made when inventory in the distribution channel is sold through to plan participants.
Many of our products are also covered under Medicare. We, like all pharmaceutical companies, must provide a discount for any products sold under NDAs to
Medicare Part D participants. This applies to all products sold under NDAs, regardless of whether the products are marketed as branded or generic. Our estimates
for these discounts are based on historical experience with Medicare rebates for our products. While such experience has allowed for reasonable estimations in the
past, history may not always be an accurate indicator of future rebates. Medicare rebates are typically billed up to 120 days after the product is shipped. As a result
of the delay between selling the products and rebate billing, our Medicare rebate reserve includes both an estimate of outstanding claims for end-customer sales
that have occurred but for which the related claim has not been billed, as well as an estimate for future claims that will be made when inventory in the distribution
channel is sold through to Medicare Part D participants.
To evaluate the adequacy of our government rebate reserves, we review the reserves on a quarterly basis against actual claims data to ensure the liability is
fairly stated. We continually monitor our government rebate reserve and adjust our estimates if we believe that actual government rebates may differ from our
established accruals. Accruals for government rebates are recorded as a reduction to gross revenues in the consolidated statements of operations and as an increase
to accrued government rebates in the consolidated balance sheets.
Returns
We maintain a return policy that allows customers to return product within a specified period prior to and subsequent to the expiration date. Generally, product
may be returned for a period beginning six months prior to its expiration date to up to one year after its expiration date. Our product returns are settled through the
issuance of a credit to the customer. Our estimate for returns is based upon historical experience with actual returns. While such experience has allowed for
reasonable estimation in the past, history may not always be an accurate indicator of future returns. We continually monitor our estimates for returns and make
adjustments when we believe that actual product returns may differ from the established accruals. Accruals for returns are recorded as a reduction to gross revenues
in the consolidated statements of operations and as an increase to the return goods reserve in the consolidated balance sheets.
Administrative
Fees
and
Other
Rebates
Administrative fees or rebates are offered to wholesalers, group purchasing organizations, and indirect customers. We accrue for fees and rebates, by product
by wholesaler, at the time of sale based on contracted rates and ASPs.
To evaluate the adequacy of our administrative fee accruals, we obtain on-hand inventory counts from the wholesalers. This inventory is multiplied by the
ASPs to arrive at total expected future sales, which is then multiplied by contracted rates. The result is then compared to the administrative fee accruals. We
continually monitor administrative fee activity and adjust our accruals when we believe that actual administrative fees will differ from the accruals. Accruals for
administrative fees and other rebates are recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the
consolidated balance sheets.
79
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Prompt
Payment
Discounts
We often grant sales discounts for prompt payment. The reserve for prompt payment discounts is based on invoices outstanding. We assume, based on past
experience, that all available discounts will be taken. Accruals for prompt payment discounts are recorded as a reduction in both gross revenues in the consolidated
statements of operations and accounts receivable in the consolidated balance sheets.
The following table summarizes activity in the consolidated balance sheets for accruals and allowances for the years ended December 31, 2018, 2017, and
2016:
(in thousands)
Balance at December 31, 2015
Accruals/Adjustments
Credits Taken Against Reserve
Balance at December 31, 2016
Accruals/Adjustments
Credits Taken Against Reserve
Balance at December 31, 2017
Accruals/Adjustments
Credits Taken Against Reserve
Balance at December 31, 2018
Contract Manufacturing Product Sales Revenue
Chargebacks
$
11,381 $
114,433
(99,029)
26,785 $
179,297
(177,852)
28,230 $
229,813
(219,036)
39,007 $
$
$
$
Accruals for Chargebacks, Returns, and Other Allowances
Government
Rebates
Returns
Administrative
Fees and Other
Rebates
Prompt
Payment
Discounts
4,631 $
9,671
(8,411)
5,891 $
12,237
(10,198)
7,930 $
11,383
(10,339)
8,974 $
2,648 $
10,271
(7,163)
5,756 $
12,184
(9,666)
8,274 $
14,243
(9,965)
12,552 $
1,653 $
12,747
(10,850)
3,550 $
24,037
(22,361)
5,226 $
33,167
(31,040)
7,353 $
674
5,517
(4,637)
1,554
8,126
(7,846)
1,834
9,371
(9,196)
2,009
Contract manufacturing arrangements consists of agreements in which we manufacture a pharmaceutical product on behalf of third party. Our performance
obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies. The contract manufactured products are sold
at pre-determined standalone selling prices and our performance obligations are considered to be satisfied when control of the product is transferred to the
customer. Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our pharmaceutical products are sold on an
FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time. Payment terms for these sales are generally less than two
months. We estimate returns based on historical experience. Historically, we have not had material returns for
As of December 31, 2018, the value of our unsatisfied performance obligations (or backlog) was $6.3 million, which consists of firm orders for contract
manufactured products, for which our performance obligations remain unsatisfied and for which the related revenue has yet to be recognized. We anticipate
satisfying these performance obligations within six months.
Royalties from Licensing Agreements
From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the
acquired products. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. Because these royalties are sales-based, we
recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the sellers. Upon full transition of the products
and upon launching the products under our own labels, we recognize revenue for the products as sales of generic or branded pharmaceutical products, as described
above.
In addition, we receive royalties from a license for patent rights initially owned by Cell Genesys, Inc., which merged with BioSante in 2009. The royalties are
the results of sales and milestones related to the Yescarta® product. We recognize revenue for sales-based royalties when the underlying sales occur and when
related milestones occur, which requires significant judgment.
80
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Product Development Services Revenue
We provide product development services to customers, which are performed over time. These services primarily relate to the technology transfer of products
to our facility in Oakville, Ontario. Technology transfer refers to the process required to move the manufacture of a product to a new manufacturing site and may
include performance obligations such as formulation development, production of small-scale batches, process development, and analytical method development
and validation. The duration of these technology transfer projects is generally 18 months to three years. Deposits received from these customers are recorded as
deferred revenue until revenue is recognized. For contracts with no deposits and for the remainder of contracts with deposits, we invoice customers as our
performance obligations are satisfied. We recognize revenue on a proportional basis, which results in contract assets on our balance sheet. As of December 31,
2018, the value of our unsatisfied performance obligations for product development services contracts was $2.0 million. We expect to satisfy these performance
obligations in the next 6 to 15 months.
Cash and Cash Equivalents
We consider all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. All interest bearing and non-interest
bearing accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250 thousand. The majority of our cash balances are in excess of
FDIC coverage. We consider this to be a normal business risk.
Accounts Receivable
We extend credit to customers on an unsecured basis. We use the allowance method to provide for doubtful accounts based on our evaluation of the
collectability of accounts receivable, whereby we provide an allowance for doubtful accounts equal to the estimated uncollectible amounts. Our estimate is based
on historical collection experience and a review of the current status of trade accounts receivable. We determine trade receivables to be delinquent when greater
than 30 days past due. Receivables are written off when it is determined that amounts are uncollectible. We determined that no allowance for doubtful accounts
was necessary as of December 31, 2018 and 2017.
Inventories
Inventories consist of raw materials, packaging materials, work-in-progress, and finished goods. Inventories are stated at the lower of standard cost or net
realizable value. We periodically review and adjust standard costs, which generally approximate weighted average cost.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is recorded on a
straight-line basis over estimated useful lives as follows:
Buildings and improvements
Machinery, furniture, and equipment
20 - 40 years
1 - 10 years
Construction in progress consists of multiple projects, primarily related to new equipment to expand our manufacturing capability as our product lines
continue to grow. Construction in progress includes the cost of construction and other direct costs attributable to the construction, along with capitalized interest.
Depreciation is not recorded on construction in progress until such time as the assets are placed in service.
We review property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the estimated fair value of the assets. No impairment loss related to property and equipment was recognized during the years ended
December 31, 2018, 2017, and 2016. Assets held for disposal are reportable at the lower of the carrying amount or fair value, less costs to sell. No assets were held
for disposal as of December 31, 2018 and 2017.
81
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangible Assets
Intangible assets were acquired as part of the Merger and several asset purchase transactions. These assets include ANDAs for a total of 54 previously
marketed generic products we acquired in 2014 and 2015, ANDAs for three previously-commercialized generic drug products, the approved ANDAs for two
generic drug products that have yet to be commercialized, the development package for one generic drug product, a license, supply, and distribution agreement for
a generic drug product with an ANDA that is pending approval, ANDAs for 23 previously-marketed generic products we acquired in 2018, NDAs and product
rights for our branded products Atacand, Atacand HCT, Arimidex, Casodex, Lithobid, Vancocin, Inderal LA, Inderal XL, InnoPran XL, and Cortrophin, acquired
marketing and distribution rights, a non-compete agreement, and fully amortized product rights for Reglan and a generic product. These intangible assets were
originally recorded at fair value for business combinations and at relative fair value based on the purchase price for asset acquisitions and are stated net of
accumulated amortization.
The ANDAs, NDAs and product rights, marketing and distribution rights, and non-compete agreement are amortized over their remaining estimated useful
lives, ranging from four to 10 years, based on the straight-line method. Management reviews definite-lived intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable, in a manner similar to that for property and equipment. No impairment losses
related to intangible assets were recognized in the year ended December 31, 2018. During the years ended December 31, 2017 and 2016 we recognized impairment
charges of $0.9 million and $6.7 million in relation to our testosterone gel NDA asset, respectively (Note 7).
Goodwill
Goodwill relates to the Merger and the acquisition of WellSpring and represents the excess of the total purchase consideration over the fair value of acquired
assets and assumed liabilities, using the purchase method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment. Goodwill is
reviewed for impairment annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the goodwill might not
be recoverable. We perform our review of goodwill on our one reporting unit.
Before employing detailed impairment testing methodologies, we first evaluate the likelihood of impairment by considering qualitative factors relevant to our
reporting unit. When performing the qualitative assessment, we evaluate events and circumstances that would affect the significant inputs used to determine the
fair value of the goodwill. Events and circumstances evaluated include: macroeconomic conditions that could affect us, industry and market considerations for the
generic pharmaceutical industry that could affect us, cost factors that could affect our performance, our financial performance (including share price), and
consideration of any company-specific events that could negatively affect us, our business, or the fair value of our business. If we determine that it is more likely
than not that goodwill is impaired, we will then apply detailed testing methodologies. Otherwise, we will conclude that no impairment has occurred.
Detailed impairment testing involves comparing the fair value of our one reporting unit to its carrying value, including goodwill. Fair value reflects the price a
market participant would be willing to pay in a potential sale of ANI. If the fair value exceeds carrying value, then it is concluded that no goodwill impairment has
occurred. If the carrying value of the reporting unit were to exceed its fair value, we would recognize an impairment charge for the amount by which the carrying
amount exceeded the reporting unit’s fair value. The loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. No impairment
loss related to goodwill was recognized in the years ended December 31, 2018, 2017, and 2016.
Collaborative Arrangements
At times, we have entered into arrangements with various commercial partners to further business opportunities. In collaborative arrangements such as these,
when we are actively involved and exposed to the risks and rewards of the activities and are determined to be the principal participant in the collaboration, we
classify third party costs incurred and revenues in the consolidated statements of operations on a gross basis. Otherwise, third party revenues and costs generated
by collaborative arrangements are presented on a net basis. Payments between us and the other participants are recorded and classified based on the nature of the
payments.
82
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Royalties
We have entered profit-sharing arrangements with third parties in which we sell products under ANDAs or NDAs owned or licensed by these third parties.
Under these agreements, we pay these third parties a specified percentage of the gross profit earned on sales of the products. These profit-sharing percentages are
recorded in cost of sales in our consolidated statements of operations when the associated revenue is recognized and are recorded in accrued royalties in our
consolidated balance sheets when the associated revenue is recognized and until payment has occurred.
Research and Development Expenses
Research and development costs are expensed as incurred and primarily consist of expenses relating to product development. Research and development costs
totaled $15.4 million, $9.1 million, and $2.9 million for the years ended December 31, 2018, 2017, and 2016, respectively.
Stock-Based Compensation
We have a stock-based compensation plan that includes stock options and restricted stock, which are awarded in exchange for employee and non-employee
director services. Stock-based compensation cost for stock options is determined at the grant date using an option pricing model and stock-based compensation cost
for restricted stock is based on the closing market price of the stock at the grant date. The value of the award is recognized as expense on a straight-line basis over
the employee’s requisite service period. We also account for forfeitures as they occur rather than using an estimated forfeiture rate. We recognize excess tax
benefits or tax deficiencies as a component of our current period provision for income taxes.
In addition, in July 2016, we commenced administration of our Employee Stock Purchase Plan (“ESPP”). We recognize the estimated fair value of stock-
based compensation awards and classify the expense where the underlying salaries are classified. We incurred $6.7 million, $6.1 million, and $6.1 million of non-
cash, stock-based compensation cost for the years ended December 31, 2018, 2017, and 2016, respectively, of which $102 thousand, $68 thousand, and $25
thousand of the 2018, 2017, and 2016 expense related to the ESPP, respectively.
Valuation of stock awards requires us to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments
include estimating the future volatility of our stock price and dividend yields. Changes in these assumptions can affect the fair value estimate.
Income Taxes
We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences
are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, includes a number of changes to existing U.S. tax laws, most notably the reduction of the
U.S. corporate income tax rate from 35% to 21%, which began in 2018. We measure our deferred tax assets and liabilities using the enacted tax rates that we
believe will apply in the years in which the temporary differences are expected to be recovered or paid. As a result, we remeasured our deferred tax assets and
deferred tax liabilities to reflect the reduction in the enacted U.S. corporate income tax rate, resulting in a $13.4 million increase in income tax expense for the year
ended December 31, 2017 (Note 11). Beginning with our acquisition of ANI Canada in August 2018, our Canadian operations are subject to corporate taxes at a
foreign statutory rate of 26.5%.
The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized. As of December 31, 2018 and 2017, we maintained a valuation allowance against certain state net operating loss carryforwards that
we believe may not be realizable within the individual state statutory carry forward periods. Additionally, as of December 31, 2018 we maintained a valuation
against all of our net deferred tax assets at ANI Canada based on our assessment of the eventual realization of those assets.
83
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We
have not identified any uncertain income tax positions that could have a material impact to the consolidated financial statements. We are subject to taxation in
various jurisdictions in the U.S. and remain subject to examination by taxing jurisdictions for the years 1998 and all subsequent periods due to the availability of
net operating loss carryforwards. We are subject to taxation in Canada and remain subject to examination by taxing jurisdictions for a period of four years.
We recognize interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. We did not have any such amounts
accrued as of December 31, 2018, 2017, and 2016.
We consider potential tax effects resulting from discontinued operations and record intra-period tax allocations, when those effects are deemed material. In
2018, we entered in an interest rate swap agreement (Note 4) that we designated as a cash flow hedge designed to manage exposure to changes in LIBOR-based
interest rate underlying our Term Loan with Citizen’s Bank., N.A. Due to the effective nature of the hedge, the initial fair value of the hedge and subsequent
changes in the fair value of the hedge are recognized in accumulated other comprehensive loss, net of tax in the accompanying consolidated balance sheets. Income
taxes are allocated to the hedge component of accumulated other comprehensive income based on appropriate intra-period tax allocations when those effects are
deemed material.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of common
stock outstanding during the period.
For periods of net income, and when the effects are not anti-dilutive, we calculate diluted earnings (loss) per share by dividing net income available to
common shareholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of
common stock options, shares to be purchased under our ESPP, unvested restricted stock awards, stock purchase warrants, and any conversion gain on the Notes,
using the treasury stock method. For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive
potential common shares is anti-dilutive.
Our unvested restricted shares and certain of our outstanding warrants contain non-forfeitable rights to dividends, and therefore are considered to be
participating securities; in periods of net income, the calculation of basic and diluted earnings (loss) per share excludes from the numerator net income (but not net
loss) attributable to the unvested restricted shares and to the participating warrants, and excludes the impact of those shares from the denominator.
For purposes of determining diluted earnings (loss) per share, we have elected a policy to assume that the principal portion of our 3.0% Convertible Senior
Notes due December 1, 2019 (the “Notes,” Note 3) is settled in cash. As such, the principal portion of the Notes has no effect on either the numerator or
denominator when determining diluted earnings (loss) per share. Any conversion gain is assumed to be settled in shares and is incorporated in diluted earnings
(loss) per share using the treasury method. The warrants issued in conjunction with the issuance of the Notes are considered to be dilutive when they are in-the-
money relative to our average stock price during the period; the bond hedge purchased in conjunction with the issuance of the Notes is always considered to be
anti-dilutive.
84
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The numerator for earnings per share for the years ended December 31, 2018, 2017, and 2016 are calculated for basic and diluted earnings (loss) per share as
follows:
(in thousands, except per share amounts)
Net income/(loss)
Net income allocated to restricted stock
Net income/(loss) allocated to common shares
Basic Weighted-Average Shares Outstanding
Dilutive effect of stock options and ESPP
Diluted Weighted-Average Shares Outstanding
Basic
Years Ended December 31,
2017
2018
2016
2018
Diluted
Years Ended December 31,
2017
2016
$
$
15,494 $
(154)
15,340 $
(1,076) $
-
(1,076) $
3,934 $
(21)
3,913 $
15,494 $
(154)
15,340 $
(1,076) $
-
(1,076) $
11,677
11,547
11,445
11,677
95
11,772
11,547
-
11,547
3,934
(21)
3,913
11,445
128
11,573
Earnings/(Loss) per share
$
1.31 $
(0.09) $
0.34 $
1.30 $
(0.09) $
0.34
The number of anti-dilutive shares, which have been excluded from the computation of diluted earnings (loss) per share, including the shares underlying the
Notes, were 4.4 million, 4.8 million, and 4.5 million for the years ended December 31, 2018, 2017, and 2016, respectively. Due to the net loss in the year ended
December 31, 2017, all dilutive potential common shares were also excluded from the diluted loss per share calculation, as the impact of those potential common
shares is anti-dilutive in the case of a net loss. Anti-dilutive shares consist of out-of-the-money Class C Special stock, out-of-the-money common stock options,
common stock options that are anti-dilutive when calculating the impact of the potential dilutive common shares using the treasury stock method, underlying
shares related to out-of-the-money bonds issued as convertible debt, and out-of-the-money warrants exercisable for common stock.
Hedge Accounting
As of January 1, 2018, we adopted guidance intended to simplify hedge accounting by better aligning how an entity’s risk management activities and hedging
relationships are presented in its financial statements. The guidance also simplified the application of hedge accounting guidance in certain situations. The adoption
of this guidance did not have a material impact on our consolidated financial statements. However, the adoption of this guidance did impact how we accounted for
the interest rate swaps we entered into in April 2018 and December 2018. See Note 4 for further details regarding the interest rate swap.
We use derivative financial instruments to hedge our exposure to interest rate risks. All derivative financial instruments are recognized as either assets or
liabilities at fair value on the consolidated balance sheet and are classified as current or long-term based on the scheduled maturity of the instrument.
When we enter into a hedge arrangement and intend to apply hedge accounting, we formally document the hedge relationship and designate the instrument for
financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. When we determine that a derivative financial instrument qualifies
as a cash flow hedge and is effective, the changes in fair value of the instrument are recorded in accumulated other comprehensive income/(loss), net of tax in our
consolidated balance sheets and will be reclassified to earnings when the hedged item affects earnings.
85
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
Our consolidated balance sheets include various financial instruments (primarily cash and cash equivalents, prepaid expenses, accounts receivable, accounts
payable, accrued expenses, and other current liabilities) that are carried at cost and that approximate fair value. The fair value of our long-term indebtedness is
estimated based on the quoted prices for the same or similar issues, or on the current rates we have been offered for debt of the same remaining maturities. Fair
value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at
the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in
measuring fair value. These tiers include:
·
·
·
Level 1—Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value
hierarchy gives the highest priority to Level 1 inputs.
Level 2—Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities.
Level 3—Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
See Note 8 for additional information regarding fair value.
Geographic Information
Based on the distinct nature of our operations, our internal management structure, and the financial information that is evaluated regularly by our Chief
Operating Decision Maker (“CODM”), we determined that we operate in one reportable segment. Our operations are located in the United States and Canada.
The following table depicts the Company’s revenue by geographic operations during the following periods:
(in thousands)
Location of Operations
United States
Canada
Total Revenue
Years Ended December 31,
2017
2018
2016
$
$
196,886 $
4,690
201,576 $
176,842 $
-
176,842 $
128,622
-
128,622
The following table depicts the Company’s property and equipment, net according to geographic location as of:
(in thousands)
United States
Canada
Total property and equipment, net
December 31,
2018
December 31,
2017
$
$
24,437 $
13,653
38,090 $
20,403
-
20,403
86
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
Recent
Accounting
Pronouncements
Not
Yet
Adopted
In November 2018, the Financial Accounting Standards Board (“FASB”) issued guidance clarifying that certain transactions between collaborative
arrangement participants should be accounted for revenue under Accounting Standards Codification Topic 606 when the collaborative arrangement participant is a
customer in the context of a unit of account. The guidance is effective for reporting periods beginning after December 15, 2019, including interim periods within
that fiscal year. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact, if any, that the adoption of this
guidance will have on our consolidated financial statements.
In October 2018, the FASB issued guidance for accounting for derivatives and hedging. The guidance provides for the inclusion of the Secured Overnight
Financing Rate (“SOFR”) Overnight Index swap rate as a benchmark interest rate for hedge accounting purposes. In July 2017, the Financial Conduct Authority in
the United Kingdom announced that it would phase out London Interbank Offered Rate (“LIBOR”) as a benchmark by the end of 2021. As a result, the U.S.
Federal Reserve identified the SOFR as its preferred alternative reference rate, calculated with a broad set of short-term repurchase agreements backed by treasury
securities. Amounts drawn under our five-year senior secured credit facility bear interest rates in relation to LIBOR, and our interest rate swap is designated in
LIBOR. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The guidance must be adopted on a
modified retrospective basis and provides for certain practical expedients. We will adopt this guidance as of January 1, 2019. The adoption of this guidance is not
expected to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued guidance aligning the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for reporting
periods beginning after December 15, 2019, including interim periods within that fiscal year. Early adoption is permitted, including adoption in an interim period.
We will adopt this guidance as of January 1, 2019 on a prospective basis. The adoption of this guidance is not expected to have a material impact on our
consolidated financial statements.
In August 2018, the FASB issued guidance modifying the disclosure requirements on fair value measurements. The amendments add, modify, and eliminate
certain disclosure requirements on fair value measurements. The guidance is effective for reporting periods beginning after December 15, 2019, including interim
periods within that fiscal year. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact, if any, that the
adoption of this guidance will have on our consolidated financial statements.
In June 2018, the FASB issued guidance simplifying the accounting for nonemployee stock-based compensation awards. The guidance aligns the
measurement and classification for employee stock-based compensation awards to nonemployee stock-based compensation awards. Under the guidance,
nonemployee awards will be measured at their grant date fair value. Upon transition, the existing nonemployee awards will be measured at fair value as of the
adoption date. The guidance is effective for reporting periods beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption
is permitted, including adoption in an interim period. We will adopt this guidance as of January 1, 2019. The adoption of this guidance is not expected to have a
material impact on our consolidated financial statements.
In June 2016, the FASB issued guidance with respect to measuring credit losses on financial instruments, including trade receivables. The guidance eliminates
the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now
reflect an entity's current estimate of all future expected credit losses. Under the previous guidance, an entity only considered past events and current conditions.
The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of certain amendments of this guidance must be
applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis. We currently expect that the
adoption of this guidance will likely change the way we assess the collectability of our receivables and recoverability of other financial instruments. We have not
yet begun to evaluate the specific impacts of this guidance nor have we determined the manner in which we will adopt this guidance.
87
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In February 2016, the FASB issued guidance for accounting for leases. The guidance requires lessees to recognize assets and liabilities related to long-term
leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued additional guidance, which offers
a transition option to entities adopting the new lease standards. Under the transition option, entities can elect to apply the new guidance using a modified
retrospective approach at the beginning of the year in which the new lease standard is adopted, rather than to the earliest comparative period presented in their
financial statements. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The guidance must be
adopted on a modified retrospective basis and provides for certain practical expedients. We will elect to use the transition option, as well as the package of practical
expedients when we adopt the guidance using the modified retrospective approach as of January 1, 2019. As a result of this guidance, we anticipate that we will
record right-of-use assets and lease liabilities totaling approximately $450 thousand to $500 thousand primarily related to our long-term office operating leases. We
also expect that the adoption of this guidance will result in additional lease-related disclosures in the footnotes to our consolidated financial statements.
We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact
on our consolidated statements of operations, comprehensive income, balance sheets, or cash flows.
Recently
Adopted
Accounting
Pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule amending certain disclosure requirements that have become
redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders'
equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must
be provided in a note or separate statement. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date.
The adoption of this guidance will result in the inclusion of the statement of stockholder’s equity in our interim financial statement filings, as well as the removal
of certain redundant disclosures in this Annual Report on Form 10-K for the year ending December 31, 2018.
In August 2017, the FASB issued guidance improving accounting for hedging activities. The guidance is intended to simplify hedge accounting by better
aligning how an entity’s risk management activities and hedging relationships are presented in its financial statements. The guidance also simplifies the application
of hedge accounting guidance in certain situations. The guidance is effective for the fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. Early adoption was permitted, including adoption in an interim period. The guidance with respect to the cash flow and net investment
hedge relationships existing on the date of adoption must be applied on a modified retrospective basis and the new disclosure requirements must be applied on a
prospective basis. We adopted this guidance as of January 1, 2018. The adoption of this guidance did not have a material impact on our consolidated financial
statements. However, the adoption of this guidance did impact how we accounted for the interest rate swap we entered into in April 2018. See Note 4 for further
details regarding the interest rate swap.
In May 2017, the FASB issued guidance clarifying when modification accounting should be used for changes to the terms or conditions of a share-based
payment award. The guidance does not change the accounting for modifications, but clarifies that modification accounting guidance should only be applied if there
is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The guidance is
effective for the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption was permitted, including
adoption in an interim period. We adopted this guidance as of January 1, 2018 on a prospective basis. The adoption of this guidance did not have a material impact
on our consolidated financial statements.
88
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 2014, the FASB issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most
existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations,
3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the
nature, amount, timing, and uncertainty of revenue arising from contracts with customers. In August 2015, the FASB issued guidance approving a one-year
deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods
beginning after December 15, 2016. In March 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations for
reporting revenue gross rather than net, with the same deferred effective date. In April 2016, the FASB issued guidance to clarify the implementation guidance on
identifying performance obligations and the accounting for licenses of intellectual property, with the same deferred effective date. In May 2016, the FASB issued
guidance rescinding SEC paragraphs related to revenue recognition, pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force
meeting. In May 2016, the FASB also issued guidance to clarify the implementation guidance on assessing collectability, presentation of sales tax, noncash
consideration, and contracts and contract modifications at transition, with the same effective date. In September 2017, the FASB issued guidance amending and
rescinding prior SEC staff announcements and observer comments related to revenue recognition, pursuant to the SEC Staff Announcement at the July 20, 2017
Emerging Issues Task Force meeting.
We performed a comprehensive review of our existing revenue arrangements as of January 1, 2018 following the five-step model. Our analysis indicated that
there were no significant changes to how the amount and timing of revenue is recognized under the new guidance as compared to existing guidance. Additionally,
our analysis indicated that there were no significant changes to how costs to obtain and fulfill our customer contracts are recognized under the new guidance as
compared to existing guidance. We adopted this guidance as of January 1, 2018 using the modified retrospective method and the impact of adoption on our
consolidated balance sheet, statement of operations, and statement of cash flows was not material. The adoption of the new guidance impacted the way we analyze,
document, and disclose revenue recognition under customer contracts beginning on January 1, 2018 and resulted in additional disclosures in our financial
statements. ANI Canada adopted this guidance as of the acquisition date, August 6, 2018. The adoption of this guidance did not have a material impact on our
consolidated financial statements.
89
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
2. BUSINESS COMBINATION
Summary
On August 6, 2018, our subsidiary, ANI Canada, acquired all the issued and outstanding equity interests of WellSpring, a Canadian company that performs
contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary adjustments. Pursuant to
these customary adjustments, the total purchase consideration was $16.7 million. The consideration was paid entirely from cash on hand. In conjunction with the
transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices, its current book of commercial business, as well as an
organized workforce. Following the consummation of the transaction, WellSpring was merged into ANI Canada with the resulting entity’s name being ANI
Pharmaceuticals Canada Inc.
We acquired WellSpring to provide an additional tech transfer site in order to accelerate the re-commercialization of the previously-approved ANDAs in our
pipeline, to expand our contract manufacturing revenue base, and to broaden our manufacturing capabilities to three manufacturing facilities.
Transaction Costs
In conjunction with the acquisition, we incurred approximately $1.1 million in transaction costs, all of which were expensed in 2018.
Purchase Consideration and Net Assets Acquired
The business combination was accounted for using the acquisition method of accounting, with ANI as the accounting acquirer of WellSpring. The acquisition
method requires that acquired assets and assumed liabilities be recorded at their fair values as of the acquisition date.
The following presents the preliminary allocation of the purchase price, which has been updated to reflect the December 2018 net working capital adjustment
of $0.6 million, resulting in a $0.6 million decrease to goodwill, to the assets acquired and liabilities assumed on August 6, 2018:
Total Purchase Consideration
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property and equipment
Deferred tax assets, net
Goodwill
Total assets acquired
Accounts payable and other current liabilities
Deferred revenue
Total liabilties assumed
Net assets acquired
(in thousands)
16,687
$
220
1,311
2,197
361
13,935
-
1,742
19,766
2,413
666
3,079
16,687
$
The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future
expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates.
90
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
2. BUSINESS COMBINATION (Continued)
The above allocation of the purchase price is based upon certain preliminary valuations and other analyses that have not been finalized as of the date of this
filing. Any changes in the estimated fair values of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts
and circumstances that existed at the date of the transaction may change the allocation of the purchase price. As such, the purchase price allocations for this
transaction are preliminary estimates, which may be subject to change within the measurement period.
Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled
workforce and synergies between the entities. Goodwill established as a result of the acquisition is not tax deductible in any taxing jurisdiction. There was no value
ascribed to any separately identifiable intangible assets.
Legacy WellSpring operations generated $4.7 million of revenue and recorded a net loss of $1.1 million from the acquisition date through December 31, 2018.
Pro Forma Condensed Combined Financial Information (unaudited)
The following unaudited pro forma condensed combined financial information summarizes the results of operations for the periods indicated as if the
WellSpring acquisition had been completed as of January 1, 2017.
(in thousands)
Net revenues
Net income/(loss)
Years Ended December 31,
2017 (1)
2018
$
$
208,213 $
13,287 $
188,758
(3,102)
(1) Net income for the year ended December 31, 2017 includes the impact to WellSpring of $4.4 million of related party debt forgiveness.
The pro forma amounts are not necessarily indicative of the results that would have been obtained if the transaction had occurred as of January 1, 2017 or that
may be obtained in the future. The unaudited pro forma condensed consolidated financial information includes pro forma adjustments primarily relating to the
following non-recurring items directly attributable to the business combination:
·
·
·
·
Elimination of amortization expense related to the acquiree’s historical intangible assets;
Elimination of transaction costs;
Elimination of profit on sales from WellSpring to ANI in the periods; and
Tax impacts of the adjustments to the acquirer’s net income, calculated as 23% in 2018 and 37% in 2017. As the acquiree has a loss in both years,
there is no tax impact to adjustments to the acquiree’s net income.
The pro forma financial information does not include the effects of any expected operational efficiencies or synergies resulting from the acquisition.
91
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
3. INDEBTEDNESS
Credit Facility
On December 27, 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility (the
“Credit Facility”) for up to $265.2 million. The principal new feature of the Credit Facility is a $118.0 million Delayed Draw Term Loan (the “DDTL”), which can
only be drawn on in order to pay down the Company’s remaining 3.0% Convertible Senior Notes, which will mature in December 2019. The Credit Facility (and
specifically the DDTL) has a subjective acceleration clause in case of a material adverse event. As a result, the remaining 3% Convertible Senior Notes are
classified as current in the accompanying consolidated balance sheets. The Credit Facility also extended the maturity of the $72.2 million secured term loan
balance (the “Term Loan”) to December 2023. In addition, the Credit Facility increased the previous $50.0 million line of credit (the “Revolver”) to $75.0 million.
Also on December 27, 2018, we entered into an interest rate swap arrangement to manage our exposure to changes in LIBOR-based interest rates underlying our
refinanced Term Loan (Note 4). The Term Loan includes a repayment schedule, subsequent to which $3.6 million of the loan will be paid in quarterly installments
during 2019. As a result, $3.6 million of the loan is recorded in current component of long-term borrowing, net of deferred financing in the accompanying
consolidated balance sheets. Amounts drawn on the Term Loan and, if drawn upon, the DDTL, bear an interest rate equal to, at our option, either a LIBOR rate
plus 1.50% to 2.75% per annum, depending on our total leverage ratio or an alternative base rate plus an applicable base rate margin, which varies within a range
of 0.50% to 1.75%, depending our total leverage ratio. We will incur a commitment fee at a rate per annum that varies within a range of 0.25% to 0.50%,
depending on our leverage ratio. We will also incur a delayed draw ticking fee at a rate per annum that varies within a range of 0.25% to 0.50%, depending on our
leverage ratio.
The Credit Facility is secured by a lien on substantially all of ANI Pharmaceuticals, Inc.’s and its principal domestic subsidiary’s assets and any future
domestic subsidiary guarantors’ assets. The Credit Facility imposes financial covenants consisting of a maximum total leverage ratio, which initially shall be no
greater than 3.75 to 1.00 and a minimum fixed charge coverage ratio, which shall be greater than or equal to 1.25 to 1.00. The primary non-financial covenants
under the Credit Facility limit, subject to various exceptions, our ability to incur future indebtedness, to place liens on assets, to pay dividends or make other
distributions on our capital stock, to repurchase our capital stock, to conduct acquisitions, to alter our capital structure, and to dispose of assets.
The carrying value of the current and long-term components of the Term Loan as of December 31, 2018 and 2017 are:
(in thousands)
Current borrowing on secured term loan
Deferred financing costs
Current component of long-term borrowing, net of deferred financing costs
(in thousands)
Long-term borrowing on secured term loan
Deferred financing costs
Long-term borrowing, net of deferred financing costs and current borrowing component
Current
2018
2017
3,609 $
(353)
3,256 $
Long-Term
2018
2017
68,578 $
(1,282)
67,296 $
3,750
(397)
3,353
71,250
(1,304)
69,946
$
$
$
$
92
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
3. INDEBTEDNESS (Continued)
The refinancing of the Term Loan was accounted for as a modification of our previous term loan and consequently, the remaining balance of the deferred
issuance costs related to the previous term loan are included with the lenders fees associated with the refinance of the Term Loan and amortized as interest expense
over the life of the Term Loan using the effective interest method. Fees to third parties associated with the refinance of the Term Loan were recognized as other
(expense)/income, net in the accompanying consolidated statements of operations. The refinancing of the Revolver was accounted for as a modification of our
previous revolving credit facility and consequently, the remaining balance of the deferred issuance costs related to the previous revolving credit facility are
included with the lenders fees and fees to third parties associated with the refinance of the Revolver and amortized as interest expense on a straight-line basis over
the life of the Revolver. All issuance costs allocated to the DDTL were deferred and will be amortized as interest expense on a straight-line basis over the five-year
term of the DDTL.
As of December 31, 2018, we had a $72.2 million balance on the Term Loan. As of December 31, 2018, we had not drawn on the Revolving Credit Facility or
DDTL. Of the $1.3 million of deferred debt issuance costs allocated to the Revolving Credit Facility, $1.0 million is included in other long-term assets in the
accompanying consolidated balance sheets and $0.3 million is included in prepaid expenses and other current assets in the accompanying consolidated balance
sheets. Of the $0.6 million of deferred debt issuance costs allocated to the DDTL, $0.5 million is included in other long-term assets in the accompanying
consolidated balance sheets and $0.1 million is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. Of the $1.6
million of deferred debt issuance costs allocated to the Term Loan, $0.3 million is classified as a direct deduction to the current portion of the Term Loan and is
included in current component of long-term borrowing, net of deferred financing costs in the accompanying consolidated balance sheets and $1.3 million is
classified as a direct deduction to the long-term portion of the Term Loan and is included in long-term borrowing, net of deferred financing costs and current
borrowing component in the accompanying consolidated balance sheets.
The contractual maturity for our Term Loan is as follows for the years ending December 31:
(in thousands)
2019
2020
2021
2022
2023
Total
Previous Credit Agreement
$
$
3,609
3,609
5,414
5,414
54,141
72,187
In December 2017, we entered into a five-year senior secured credit facility (the “Credit Agreement”) with Citizens Bank, N.A. as a lender and administrative
agent. As contemplated in the initial agreement, the Credit Agreement was syndicated to five additional lenders on February 5, 2018. The Credit Agreement was
comprised of a $75.0 million five-year term loan (the “previous Term Loan”) and a $50.0 million senior secured revolving credit facility (the “Revolving Credit
Facility”), with availability subject to a borrowing base consisting of eligible accounts receivable and inventory and the satisfaction of conditions precedent
specified in the agreement.
The proceeds of the $75.0 million previous Term Loan were used to finance our acquisition of the four NDAs acquired for $46.5 million in cash and to
refinance the existing indebtedness of $25.0 million that was outstanding on our now retired asset-based revolving credit facility with Citizens Business Capital, a
division of Citizens Asset Finance, Inc. We deferred $2.7 million of total debt issuance costs related to the Credit Agreement, of which $1.7 million was allocated
to the previous Term Loan and $1.0 million was allocated to the undrawn Revolving Credit Facility.
The Term Loan was accounted for as a modification of our existing Line of Credit and consequently, the remaining balance of the deferred issuance costs
related to the Line of Credit are included with the previous Term Loan issuance costs and amortized as interest expense over the life of the previous Term Loan
using the effective interest method. The issuance costs allocated to the Revolving Credit Facility will be deferred and amortized as interest expense on a straight-
line basis over the term of the Revolving Credit Facility. During the year ended December 31, 2018, we recorded $2.7 million of interest expense related to the
original Credit Agreement.
93
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
3. INDEBTEDNESS (Continued)
Convertible Senior Notes
In December 2014, we issued $143.8 million of our Notes in a registered public offering. After deducting the underwriting discounts and commissions and
other expenses (including the net cost of the bond hedge and warrant, discussed below), the net proceeds from the offering were approximately $122.6 million. The
Notes pay 3.0% interest semi-annually in arrears on June 1 and December 1 of each year, starting on June 1, 2015, and are due December 1, 2019. In December
2018, we entered into separate, privately negotiated agreements with certain holders of our Notes and repurchased $25.0 million of our outstanding Notes. We
accounted for the repurchase as an extinguishment of the portion of the Notes and recognized a loss on extinguishment of $0.5 million, which was recorded in
other (expense)/income, net in the accompanying consolidated statements of operations. At the same time, we unwound a corresponding portion of the bond hedge
and warrant, which are described in further detail below. As a result of unwinding this portion of the bond hedge and warrant, we received a net amount of $0.4
million. The repurchase of the notes and the unwinding of the bond hedge and warrant resulted in a $1.7 million net reduction in additional paid-in capital
(“APIC”) in the accompanying consolidated balance sheets. The remaining Notes are convertible into 1,709,002 shares of common stock, based on an initial
conversion price of $69.48 per share.
The Notes are convertible at the option of the holder (i) during any calendar quarter beginning after March 31, 2015, if the last reported sale price of the
common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the
immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the five business days
after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day of such period was less than
98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; and (iii) on or after June 1, 2019 until the
second scheduled trading day immediately preceding the maturity date.
Upon conversion by the holders, we may elect to settle such conversion in shares of our common stock, cash, or a combination thereof. As a result of our cash
conversion option, we separately accounted for the value of the embedded conversion option as a debt discount (with an offset to APIC) of $33.6 million. The
value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using
market comparables to estimate the fair value of similar non-convertible debt (Note 8); the debt discount is being amortized as additional non-cash interest expense
using the effective interest method over the term of the Notes.
Offering costs of $5.5 million were allocated to the debt and equity components in proportion to the allocation of proceeds to the components, as deferred
financing costs and equity issuance costs, respectively. The deferred financing costs of $4.2 million are being amortized as additional non-cash interest expense
using the straight-line method over the term of the debt, since this method was not significantly different from the effective interest method. Pursuant to guidance
issued by the FASB in April 2015, we have classified the deferred financing costs as a direct deduction to the net carrying value of our Convertible Debt. The $1.3
million portion allocated to equity issuance costs was charged to APIC.
A portion of the offering proceeds was used to simultaneously enter into “bond hedge” (or purchased call) and “warrant” (or written call) transactions with an
affiliate of one of the offering underwriters (collectively, the “Call Option Overlay”). We entered into the Call Option Overlay to synthetically raise the initial
conversion price of the Notes to $96.21 per share and reduce the potential common stock dilution that may arise from the conversion of the Notes. The exercise
price of the bond hedge is $69.48 per share and the exercise price of the warrant is $96.21 per share of our common stock. Because the bond hedge and warrant are
both indexed to our common stock and otherwise would be classified as equity, we recorded both elements as equity, resulting in a net reduction to APIC of $15.6
million. After the repurchase of $25.0 million of our outstanding Notes and the unwinding of the corresponding portion of the bond hedge and warrant, our
remaining bond hedge had an underlying 1,709,002 common shares as of December 31, 2018 and the remaining warrant had an underlying 1,709,002 common
shares as of December 31, 2018.
94
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
3. INDEBTEDNESS (Continued)
The carrying value of the Notes is as follows as of December 31:
(in thousands)
Principal amount
Unamortized debt discount
Deferred financing costs
Net carrying value
2018
2017
118,750 $
(5,648)
(639)
112,463 $
143,750
(13,924)
(1,618)
128,208
$
$
The effective interest rate on the Notes was 7.8% and 7.9%, on an annualized basis, as of December 31, 2018 and 2017, respectively.
The following table sets forth the components of total interest expense related to the Notes and Term Loan recognized in our consolidated statements of
operations for the year ended December 31:
(in thousands)
Contractual coupon
Amortization of debt discount
Amortization of finance fees
Capitalized interest
2018
2017
2016
$
$
7,170 $
7,002
1,463
(724)
14,911 $
4,313 $
6,720
845
(554)
11,324 $
4,312
6,372
844
(234)
11,294
4. DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY
In April 2018, we entered into an interest rate swap arrangement, which was considered a derivative financial instrument, with Citizens Bank, N.A. to manage
our exposure to changes in LIBOR-based interest rates underlying our previous Term Loan. The interest rate swap hedged the variable cash flows associated with
the borrowings under our previous Term Loan (Note 3), effectively providing a fixed rate of interest throughout the life of the previous Term Loan.
In December 2018, we refinanced our previous Credit Agreement and, as part of that refinancing, extended the maturity of our $72.2 million secured term loan
balance to December 2023. At the same time, we closed out the original interest rate swap and entered into a new interest rate swap arrangement, which is also
considered a derivative financial instrument, with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying our Term
Loan. We accounted for the close-out of the original interest rate swap as a termination of the interest rate swap and wrote the interest rate swap liability and
accumulated other comprehensive loss balance off as of the date of termination. As there were no excluded components, there was no net impact to the
consolidated statement of operations. The interest rate swap hedges the variable cash flows associated with the borrowings under our Term Loan (Note 3),
effectively providing a fixed rate of interest throughout the life of our Term Loan.
95
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
4. DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY (Continued)
The interest rate swap arrangement with Citizens Bank, N.A became effective on December 27, 2018, with a maturity date of December 27, 2023. The
notional amount of the swap agreement at inception was $72.2 million and will decrease in line with our Term Loan. As of December 31, 2018, the notional
amount of the interest rate swap was $72.2 million. The interest rate swap has a weighted average fixed rate of 2.60% and has been designated as an effective cash
flow hedge and therefore qualifies for hedge accounting. As of December 31, 2018, the fair value of the interest rate swap liability was valued at $0.5 million and
was recorded in other long-term liabilities in the accompanying consolidated balance sheets. As of December 31, 2018, $0.4 million, the fair value of the interest
rate swap net of tax, was recorded in accumulated other comprehensive loss, net of tax in the accompanying consolidated balance sheets. During the year ended
December 31, 2018, changes in the fair value of the interest rate swap of $0.4 million, net of tax, was recorded in accumulated other comprehensive (loss), net of
tax in our consolidated statements of comprehensive income. Differences between the hedged LIBOR rate and the fixed rate are recorded as interest expense in the
same period that the related interest is recorded for the Term Loan based on the LIBOR rate. In year ended December 31, 2018, $0.2 million of interest expense
was recognized in relation to the interest rate swap.
In February 2019, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying
our DDTL. The notional amount of the interest rate swap is $118.0 million and will go into effect beginning in December 2018. The interest rate swap provides an
effective fixed rate of 2.47%.
5. INVENTORIES
Inventories consist of the following as of December 31:
(in thousands)
Raw materials
Packaging materials
Work-in-progress
Finished goods
Reserve for excess/obsolete inventories
Inventories, net
(1) Includes inventory acquired in acquisition of WellSpring (Note 2).
(2) Includes finished goods acquired in asset purchases (Note 8).
96
2018 (1)
2017
$
$
27,671 $
2,563
1,210
10,620
42,064
(1,561)
40,503 $
22,139
1,527
510
13,901(2)
38,077
(350)
37,727
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
6. PROPERTY, PLANT, AND EQUIPMENT
Property and equipment consist of the following as of December 31:
(in thousands)
Land
Buildings
Machinery, furniture, and equipment
Construction in progress
Less: accumulated depreciation
Property and equipment, net
2018 (1)
2017
4,558 $
10,079
26,814
5,040
46,491
(8,401)
38,090 $
160
3,835
12,334
10,663
26,992
(6,589)
20,403
$
$
(1) Includes property and equipment acquired in acquisition of WellSpring (Note 2).
Depreciation expense for the years ended December 31, 2018, 2017, and 2016 totaled $2.1 million, $1.2 million, and $0.9 million, respectively. During the
years ended December 31, 2018 and 2017, there was $0.7 million and $0.6 million of interest capitalized into construction in progress, respectively.
7. INTANGIBLE ASSETS
Goodwill
As a result of the Merger we recorded goodwill of $1.8 million. As a result of our acquisition of WellSpring, we recorded additional goodwill of $1.7 million
in 2018. We assess the recoverability of the carrying value of goodwill on an annual basis as of October 31 of each year, and whenever events occur or
circumstances changes that would, more likely than not, reduce the fair value of our reporting unit below its carrying value.
Changes in the carrying amount of goodwill as of December 31 are as follows:
(in thousands)
Balance at beginning of year
Acquisition of WellSpring (Note 2)
Balance at end of year
2018
2017
1,838 $
1,742
3,580 $
1,838
-
1,838
$
$
For the goodwill impairment analyses performed at October 31, 2018 and 2017, we performed qualitative assessments to determine whether it was more likely
than not that our goodwill asset was impaired in order to determine the necessity of performing a quantitative impairment test, under which management would
calculate the asset’s fair value. When performing the qualitative assessments, we evaluated events and circumstances that would affect the significant inputs used
to determine the fair value of the goodwill. Events and circumstances evaluated include: macroeconomic conditions that could affect us, industry and market
considerations for the generic pharmaceutical industry that could affect us, cost factors that could affect our performance, our financial performance (including
share price), and consideration of any company-specific events that could negatively affect us, our business, or our fair value. Based on our assessments of the
aforementioned factors, it was determined that it was more likely than not that the fair value of our one reporting unit is greater than its carrying amount as of
October 31, 2018 and 2017, and therefore no quantitative testing for impairment was required.
In addition to the qualitative impairment analysis performed at October 31, 2018, there were no events or changes in circumstances that could have reduced the
fair value of our reporting unit below its carrying value from October 31, 2018 to December 31, 2018. No impairment loss was recognized during the years ended
December 31, 2018, 2017, and 2016, and the balance of goodwill was $3.6 million and $1.8 million as of December 31, 2018 and 2017, respectively.
Definite-lived Intangible Assets
Acquisition
of
Abbreviated
New
Drug
Applications
In April 2018, we entered into an agreement with Impax Laboratories, Inc. (now Amneal Pharmaceuticals, Inc., or “Amneal”) to purchase the approved
ANDAs for three previously-commercialized generic drug products, the approved ANDAs for two generic drug products that have not yet been commercialized,
the development package for one generic drug product, a license, supply, and distribution agreement for a generic drug product with an ANDA that is pending
approval, and certain manufacturing equipment required to manufacture one of the products, for $2.3 million in cash up front. The transaction closed in May 2018
and we made the $2.3 million payment using cash on hand. We also capitalized $0.1 million of costs directly related to the transaction. We accounted for this
transaction as an asset purchase. The $1.0 million acquired ANDA intangible assets are being amortized in full over their estimated useful lives of 10 years. Please
see Note 8 for further details regarding the transaction.
In April 2018, we entered into an agreement with IDT Australia, Limited to purchase the ANDAs for 23 previously-marketed generic drug products and API
for four of the acquired products for $2.7 million in cash and a single-digit royalty on net profits from sales of one of the products. The transaction closed in April
2018 and we made the $2.7 million payment using cash on hand. We also capitalized $18 thousand of costs directly related to the transaction. We accounted for
this transaction as an asset purchase. The $2.5 million acquired ANDA intangible assets are being amortized in full over their estimated useful lives of 10 years.
Please see Note 8 for further details regarding the transaction.
97
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
7. INTANGIBLE ASSETS (Continued)
Acquisition
of
New
Drug
Applications
and
Product
Rights
In December 2017, we entered into an agreement with AstraZeneca AB and AstraZeneca UK Limited to purchase the right, title, and interest in the NDAs and
the U.S. rights to market Atacand, Atacand HCT, Arimidex, and Casodex, for $46.5 million in cash. We also entered into a license agreement for use of these
trademarks in the U.S. We made the $46.5 million cash payment with funds from our Term Loan (Note 3). We also capitalized $0.2 million of costs directly related
to the asset purchase. We accounted for this transaction as an asset purchase. The $46.7 million product rights assets are being amortized in full over their
estimated useful lives of 10 years. Please see Note 8 for further details regarding the transaction.
In February 2017, we entered into an agreement with Cranford Pharmaceuticals, LLC to purchase a distribution license, trademark, and certain finished goods
inventory for Inderal XL for $20.2 million in cash. We made the $20.2 million cash payment using cash on hand. We accounted for this transaction as an asset
purchase. We also capitalized $40 thousand of costs directly related to the transaction. The $15.1 million product rights intangible asset acquired in the asset
purchase is being amortized in full over its estimated useful life of 10 years. Please see Note 8 for further details regarding the transaction.
In February 2017, we entered into an agreement with Holmdel Pharmaceuticals, LP to purchase the NDA, trademark, and certain finished goods inventory for
InnoPran XL, including a license to an Orange Book listed patent, for $30.6 million in cash. We made the $30.6 million cash payment using $30.0 million of funds
from our Line of Credit (Note 3) and $0.6 million of cash on hand. We accounted for this transaction as an asset purchase. We also capitalized $0.1 million of costs
directly related to the transaction. The $19.0 million product rights intangible asset acquired in the asset purchase is being amortized in full over its estimated
useful life of 10 years. Please see Note 8 for further details regarding the transaction.
In April 2016, we purchased the rights, title, and interest in the NDA for Inderal LA, as well as certain documentation, trademark rights, and finished goods
from Cranford Pharmaceuticals, LLC for $60.0 million in cash up front and milestone payments based on future gross profits from sales of products under the
NDA. We made the $60.0 million upfront cash payment using cash on hand, capitalized $0.3 million of costs directly related to the transaction, and recognized
$3.9 million of minimum milestone payments for a total purchase price of $64.2 million. We accounted for this transaction as an asset purchase and the resultant
$52.4 million NDA asset is being amortized in full over its estimated useful life of 10 years. The resultant $0.6 million non-compete agreement associated with the
transaction is being amortized in full over its estimated useful life of seven years.
In conjunction with our 2013 merger with BioSante (the “Merger”), we acquired a testosterone gel product that was licensed to Teva (the “Testosterone Gel
NDA”) and this product was assigned an intangible asset value of $10.9 million in accounting for the Merger. In May 2015, Teva transferred the rights of the
product back to ANI. In exchange, we will pay Teva a royalty of up to $5.0 million, at a rate of 5% of the consideration we receive as a result of commercial sale
of the product. We assessed the value of the Testosterone Gel NDA under the new arrangement and determined that the net asset value was recoverable as of the
May 2015 transfer date and subsequent balance sheet dates. We began the commercialization process for the product during the second half of 2015 and it
continued throughout 2016. In late 2016, we determined that the development and manufacturing costs required to commercialize the product had increased and
would pose a significant barrier to commercializing the product ourselves. Generic competition in the testosterone replacement market had increased substantially
by the end of 2016, leading to significant decreases in pricing for the product. In the fourth quarter, management began putting forth efforts to sell the Testosterone
Gel NDA rather than commercialize it ourselves. As a result of all these factors, in the fourth quarter of 2016, we determined that the facts and circumstances
indicated that the asset could be impaired. We performed an impairment assessment, which indicated that the fair value of the asset was lower than the carrying
value. We determined the fair value of the Testosterone Gel NDA by using a discounted cash flows model. As a result of this assessment, we recorded an
impairment of $6.7 million in the year ended December 31, 2016. In addition, the remaining $0.9 million asset was recorded as a short-term asset held for sale as
of December 31, 2016 in the prepaid expenses and other assets caption in the accompanying consolidated balance sheets. Throughout 2017, we continued to
attempt to sell the Testosterone Gel NDA and were unable to complete a sale. As a result, in the fourth quarter of 2017, we determined that the asset could be
impaired. After performing an impairment assessment, which indicated that the fair value of the asset was lower than the carrying value, we recorded an additional
impairment of $0.9 million in the year ended December 31, 2017, writing off the asset in its entirety.
98
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
7. INTANGIBLE ASSETS (Continued)
Marketing
and
Distribution
Rights
In January 2016, we purchased from H2-Pharma, LLC the rights to market, sell, and distribute the authorized generic of Lipofen® and a generic
hydrocortisone rectal cream product, along with the rights to an early-stage development project, for total consideration of $10.0 million. The consideration
consisted of a cash payment of $8.8 million and the assumption of $1.2 million in existing royalties owed on the acquired rights. We capitalized $42 thousand of
costs directly related to the purchase. We accounted for this transaction as an asset purchase. No value was ascribed to the early-stage development project because
the development was still at the preliminary stage, with no expenses incurred or research performed to date. The $10.0 million marketing and distribution rights
assets are being amortized in full over their average estimated useful lives of approximately four years.
The components of net definite-lived intangible assets are as follows:
(in thousands)
December 31, 2018
December 31, 2017
Weighted Average
Acquired ANDA intangible assets
NDAs and product rights
Marketing and distribution rights
Non-compete agreement
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
$
$
46,194 $
230,974
10,423
624
288,215 $
(17,093) $
(62,222)
(7,051)
(245)
(86,611) $
42,076 $
230,974
11,042
624
284,716 $
Accumulated
Amortization
(12,592)
(37,091)
(5,087)
(156)
(54,926)
Amortization
Period
10.0 years
10.0 years
4.7 years
7.0 years
Definite-lived intangible assets are stated at cost, net of amortization, generally using the straight-line method over the expected useful lives of the intangible
assets. In the case of the Inderal XL and InnoPran XL asset purchases, because we anticipate that the acquired assets will provide a greater economic benefit in the
earlier years, we are amortizing 80% of the value of the intangible assets over the first five years of useful lives of the assets and amortizing the remaining 20% of
the value of the intangible assets over the second five years of useful lives of the assets. Amortization expense was $31.7 million, $26.7 million, and $21.4 million
for the years ended December 31, 2018, 2017, and 2016, respectively.
We test for impairment of definite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable.
No impairment losses related to intangible assets were recognized in the year ended December 31, 2018. We recorded impairments of $0.9 million and $6.7 million
in the years ended December 31, 2017 and 2016, respectively, in relation to the Testosterone Gel NDA. No events or circumstances arose in 2018, 2017, or 2016
that indicated that the carrying value of any of our other definite-lived intangible assets may not be recoverable.
Expected future amortization expense is as follows for the years ending December 31:
(in thousands)
2019
2020
2021
2022
2023
2024 and thereafter
Total
$
$
31,761
31,279
29,833
26,428
26,360
55,943
201,604
99
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
8. FAIR VALUE DISCLOSURES
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous
market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in
measuring fair value.
The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy.
The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of our funds. The fair value of short-
term financial instruments (primarily accounts receivable, prepaid expenses, accounts payable, accrued expenses, and other current liabilities) approximate their
carrying values because of their short-term nature. While our Notes are recorded on our consolidated balance sheets at their net carrying value of $112.5 million as
of December 31, 2018, the Notes are being traded on the bond market and their full fair value is $119.5 million, based on their closing price on December 31,
2018, a Level 1 input. The Term Loan bears an interest rate that fluctuates with the changes in LIBOR and, because the variable interest rates approximate market
borrowing rates available to us, we believe the $72.2 million carrying value of the Term Loan approximated its fair value at December 31, 2018.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our contingent value rights (“CVRs”), which were granted coincident with our merger with BioSante and expire in June 2023, are considered to be contingent
consideration and are classified as liabilities. As such, the CVRs were recorded as purchase consideration at their estimated fair value, using Level 3 inputs, and are
marked to market each reporting period until settlement. The fair value of CVRs is estimated using the present value of management’s projection of the expected
payments pursuant to the terms of the CVR agreement, which is the primary unobservable input. If our projection or expected payments were to increase
substantially, the value of the CVRs could increase as a result. The present value of the liability was calculated using a discount rate of 15%. We determined that
the fair value of the CVRs was immaterial as of December 31, 2018 and 2017. We also determined that the changes in such fair value were immaterial for the years
ended December 31, 2018, 2017, and 2016.
In April 2018, we entered into an interest rate swap arrangement (Note 4), with Citizens Bank, N.A. to manage our exposure to the variable interest rate on our
previous Term Loan. The notional amount of this interest rate swap was set to match the balance of our previous Term Loan. The fair value of our interest rate
swap was estimated based on the present value of projected future cash flows using the LIBOR forward rate curve. The model used to value the interest rate swap
included inputs of readily observable market data, a Level 2 input.
In December 2018, we refinanced our previous Credit Agreement and, as part of that refinancing, extended the maturity of our $72.2 million secured term loan
balance to December 2023. At the same time, we closed out the original interest rate swap and entered into a new interest rate swap arrangement (Note 4) to
manage our exposure to the variable interest rate on our Term Loan (Note 3). The notional amount of our interest rate swap is set to match the balance of our Term
Loan. Both the notional amount of the interest rate swap and the balance of our Term Loan were $72.2 million as of December 31, 2018. The fair value of our
interest rate swap is estimated based on the present value of projected future cash flows using the LIBOR forward rate curve. The model used to value the interest
rate swap includes inputs of readily observable market data, a Level 2 input. As described in detail in Note 4, the fair value of the interest rate swap was a $0.5
million liability at December 31, 2018.
100
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
8. FAIR VALUE DISCLOSURES (Continued)
The following table presents our financial assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2018 and December 31,
2017, by level within the fair value hierarchy:
(in thousands)
Assets
Interest rate swap
Liabilities
Interest rate swap
CVRs
Assets
Interest rate swap
Liabilities
Interest rate swap
CVRs
Description
Fair Value at
December 31, 2018
Level 1
Level 2
Level 3
$
$
$
- $
496 $
- $
- $
- $
- $
- $
496 $
- $
Description
Fair Value at
December 31, 2017
Level 1
Level 2
Level 3
$
$
$
- $
- $
- $
- $
- $
- $
- $
- $
- $
-
-
-
-
-
-
Financial Liabilities Measured at Fair Value on a Non-Recurring Basis
In December 2014, we issued $143.8 million of Notes (Note 3). In December 2018, we repurchased $25.0 million of our outstanding Notes. At the same time,
we unwound a corresponding portion of bond hedge and warrant, which are described in further detail below. As a result of unwinding this portion of the bond
hedge and warrant, we received a net amount of $0.4 million. Because we have the option to cash settle the potential conversion of the Notes in cash, we separated
the embedded conversion option feature from the debt feature and account for each component separately, based on the fair value of the debt component assuming
no conversion option. The calculation of the fair value of the debt component required the use of Level 3 inputs, and was determined by calculating the fair value
of similar non-convertible debt, using a theoretical interest rate of 9%. The theoretical interest rate was determined from market comparables to estimate what the
interest rate would have been if there was no conversion option embedded in the Notes. The fair value of the embedded conversion option was calculated using the
residual value method and is classified as equity.
A portion of the offering proceeds was used to simultaneously enter into “bond hedge” (or purchased call) and “warrant” (or written call) transactions with an
affiliate of one of the offering underwriters (Note 3). The exercise price of the bond hedge is $69.48 per share, with an underlying 1,709,002 common shares
remaining as of December 31, 2018; the exercise price of the warrant is $96.21 per share of our common stock, also with an underlying 1,709,002 common shares
remaining as of December 31, 2018. We calculated the fair value of the bond hedge based on the price we paid to purchase the call. We calculated the fair value of
the warrant based on the price at which the affiliate purchased the warrants from us.
101
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
8. FAIR VALUE DISCLOSURES (Continued)
Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
We have no non-financial assets and liabilities that are measured at fair value on a recurring basis.
Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
In the fourth quarter of 2016, the facts and circumstances surrounding our testosterone gel NDA indicated that the asset could be impaired. The Testosterone
Gel NDA intangible asset was initially acquired as part of the Merger, when we acquired a testosterone gel product that was licensed to Teva. This product was
assigned an intangible asset value of $10.9 million in accounting for the Merger. In May 2015, Teva transferred the rights of the product back to ANI. In exchange,
we will pay Teva a royalty of up to $5.0 million, at a rate of 5% of the consideration we receive as a result of commercial sale of the product. We assessed the
value of the Testosterone Gel NDA under the new arrangement and determined that the net asset value was recoverable as of the May 2015 transfer date and
subsequent balance sheet dates. We began the commercialization process for the product during the second half of 2015 and it continued throughout 2016. In late
2016, we determined that the development and manufacturing costs required to commercialize the product had increased and would pose a significant barrier to
commercializing the product ourselves. Generic competition in the testosterone replacement market had increased substantially by the end of 2016, leading to
significant decreases in pricing for the product. In the fourth quarter, management began putting forth efforts to sell the Testosterone Gel NDA rather than
commercialize it ourselves. As a result of all these factors, in the fourth quarter of 2016, we determined that the facts and circumstances indicated that the asset
could be impaired. We performed an impairment assessment, which indicated that the fair value of the asset was lower than the carrying value. We determined the
fair value of the Testosterone Gel NDA by using a discounted cash flows model. Due to the uncertainty and risk regarding the potential commercialization of the
testosterone gel NDA, we used a discount rate of 30% in our valuation. As a result of this assessment, we recorded an impairment of $6.7 million in the year ended
December 31, 2016. We also determined in the fourth quarter of 2016 that the asset met the criteria for being held for sale. As of December 31, 2016, the
Testosterone Gel NDA was recorded as a short-term asset held for sale in the prepaid expenses and other assets caption in the accompanying consolidated balance
sheets at $0.9 million, which was the fair value of the asset less estimated costs to sell. Throughout 2017, we continued to attempt to sell the Testosterone Gel NDA
and were unable to complete a sale. As a result, in the fourth quarter of 2017, we determined that the asset could be impaired. After performing an impairment
assessment, which indicated that the fair value of the asset was lower than the carrying value, we recorded an additional impairment of $0.9 million in the year
ended December 31, 2017, writing off the asset in its entirety. No events or circumstances arose in 2017 or 2018 that indicated that the carrying value of any of our
other definite-lived intangible assets may not be recoverable.
We measure our long-lived assets, including property, plant and equipment, intangible assets and goodwill, at fair value on a non-recurring basis. These assets
are recognized at fair value when they are deemed to be other-than-temporarily impaired. No such fair value impairment was recognized in the year ended
December 31, 2018.
On August 6, 2018, our subsidiary, ANI Canada, acquired all the issued and outstanding equity interests of WellSpring, a Canadian company that performs
contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary adjustments. Pursuant to
these customary adjustments, the total purchase consideration was $16.7 million. The consideration was paid entirely from cash on hand. In conjunction with the
transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices, its current book of commercial business, as well as an
organized workforce. Following the consummation of the transaction, WellSpring was merged into ANI Canada with the resulting entity’s name being ANI
Pharmaceuticals Canada Inc. See Note 2, Business Combination.
102
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
8. FAIR VALUE DISCLOSURES (Continued)
In April 2018, we entered into an agreement with Impax Laboratories, Inc. (now Amneal) to purchase the approved ANDAs for three previously-
commercialized generic drug products, the approved ANDAs for two generic drug products that have not yet been commercialized, the development package for
one generic drug product, a license, supply, and distribution agreement for a generic drug product with an ANDA that is pending approval, and certain
manufacturing equipment required to manufacture one of the products, for $2.3 million in cash (Note 7). At the same time, we entered into a supply agreement
with Amneal under which we may elect to purchase the finished goods for one of the products for up to 17 months beginning October 1, 2019, under certain
conditions. If we do elect to purchase the finished goods from Amneal for this period, we may be required to pay a milestone payment of up to $10.0 million upon
launch, depending on the number of competitors selling the product at the time of launch. This milestone payment was determined to be contingent consideration
and will be recognized when the contingency is resolved. When one of the approved ANDAs that have not yet been commercialized is launched, we could be
required to pay a milestone of $25.0 million to Teva Pharmaceuticals USA, Inc. (“Teva”), depending on the number of competitors selling the product at the time
of launch. In addition, depending on the number of competitors selling the product one year after the launch date, we could be required to pay a second milestone
of $15.0 million to Teva. These milestones are determined to be contingent liabilities and will be recognized if and when they are both estimable and probable.
Because we believe that neither milestone is both estimable and probable, we did not record a contingent liability for the milestones. We made the $2.3 million
cash payment using cash on hand and capitalized $0.1 million of costs directly related to the asset purchase. We accounted for this transaction as an asset purchase.
The $1.0 million acquired ANDA intangible assets were recorded at their relative fair value, determined using Level 3 unobservable inputs. In order to determine
the fair value of the acquired ANDA intangible assets, we used the present value of the estimated cash flows related to the approved ANDAs, using discount rates
of 10 to 15%. The acquired ANDAs will be amortized in full over their 10-year useful lives, and will be tested for impairment when events or circumstances
indicate that the carrying value of the assets may not be recoverable. The $58 thousand of manufacturing equipment used to manufacture one of the products was
recorded at its relative fair value, based on the estimated net book value of the equipment purchased. The equipment will be amortized in full over its 5-year useful
life, and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events
were identified during the period from the date of acquisition to December 31, 2018 and therefore no impairment loss was recognized for the year ended December
31, 2018. The $1.3 million of in-process research and development related to products with significant further work required in order to commercialize the
products, and for which there is no alternative future use. The in-process research and development was recorded at its relative fair value, determined using Level 3
unobservable inputs. In order to determine the fair value of the in-process research and development, we used the present value of the estimated cash flows related
to the products, using a discount rate of 75%, reflective of the higher risk associated with these products. As the transaction was accounted for as an asset purchase,
the $1.3 million of in-process research and development was immediately recognized as research and development expense.
In April 2018, we entered into an agreement with IDT Australia, Limited to purchase the ANDAs for 23 previously-marketed generic drug products and API
for four of the acquired products for $2.7 million in cash and a single-digit royalty on net profits from sales of one of the products (Note 7). We made the $2.7
million cash payment using cash on hand and capitalized $18 thousand of costs directly related to the asset purchase. We accounted for this transaction as an asset
purchase. The $2.5 million acquired ANDA intangible assets were recorded at their relative fair value, determined using Level 3 unobservable inputs. In order to
determine the fair value of the product rights intangible assets, we used the present value of the estimated cash flows related to the product rights, using discount
rates of 10% to 15%. The acquired ANDA intangible assets will be amortized in full over their 10-year useful lives, and will be tested for impairment when events
or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were identified during the period from the date of
acquisition to December 31, 2018 and therefore no impairment loss was recognized for the year ended December 31, 2018. We also recorded $0.2 million of raw
materials inventory, measured at fair value. The fair value of the raw materials inventory was determined based on the estimated replacement cost.
103
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
8. FAIR VALUE DISCLOSURES (Continued)
In December 2017, we entered into an agreement with AstraZeneca AB and AstraZeneca UK Limited to purchase the right, title, and interest in the NDAs and
the U.S. right to market Atacand, Atacand HCT, Arimidex, and Casodex, for $46.5 million in cash (Note 7). We also licensed these trademarks for use in the U.S.
We made the $46.5 million cash payment with funds from our Term Loan (Note 3). We also capitalized $0.2 million of costs directly related to the asset purchase.
The agreement included a $3.0 million contingent payment due in early 2023 if the annual net sales of the Atacand and Atacand HCT products equals or exceeds
certain threshold amounts in 2020, 2021, and 2022. Because we believe that the likelihood of meeting or exceeding the threshold amounts is not probable, we did
not record a contingent liability in relation to the agreement. We accounted for this transaction as an asset purchase. The $46.7 million product rights intangible
assets were recorded at their relative fair value, determined using Level 3 unobservable inputs. In order to determine the fair value of the product rights intangible
assets, we used the present value of the estimated cash flows related to the product rights, using a discount rate of 10%. The product rights will be amortized in full
over their 10-year useful lives, and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable.
No such triggering events were identified during the period from the date of acquisition to December 31, 2018 and therefore no impairment loss was recognized for
the years ended December 31, 2017 and 2018.
In February 2017, we entered into an agreement with Cranford Pharmaceuticals, LLC to purchase a distribution license, trademark, and certain finished goods
inventory for Inderal XL for $20.2 million in cash (Note 7). We made the $20.2 million cash payment using cash on hand and capitalized $40 thousand of costs
directly related to the asset purchase. We accounted for this transaction as an asset purchase. The $15.1 million product rights intangible asset was recorded at its
relative fair value, determined using Level 3 unobservable inputs. In order to determine the fair value of the product rights intangible asset, we used the present
value of the estimated cash flows related to the product rights, using a discount rate of 10%. The product rights will be amortized in full over its 10-year useful life,
and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were
identified during the period from the date of acquisition to December 31, 2018 and therefore no impairment loss was recognized for the years ended December 31,
2017 and 2018. We also recorded $5.0 million of finished goods inventory. The fair value of the finished goods inventory was determined based on the estimated
selling price to be generated from the finished goods, less costs to sell, including a reasonable margin.
In February 2017, we entered into an agreement with Holmdel Pharmaceuticals, LP to purchase the NDA, trademark, and certain finished goods inventory for
InnoPran XL, including a license to an Orange Book listed patent, for $30.6 million in cash (Note 7). We made the $30.6 million cash payment using $30.0 million
of funds from our Line of Credit (Note 3) and $0.6 million of cash on hand. We also capitalized $0.1 million of costs directly related to the asset purchase. We
accounted for this transaction as an asset purchase. The $19.0 million product rights intangible asset was recorded at its relative fair value, determined using Level
3 unobservable inputs. In order to determine the fair value of the product rights intangible asset, we used the present value of the estimated cash flows related to the
product rights, using a discount rate of 10%. The product rights will be amortized in full over its 10-year useful life, and will be tested for impairment when events
or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were identified during the period from the date of
acquisition to December 31, 2018 and therefore no impairment loss was recognized for the years ended December 31, 2017 and 2018. We also recorded $11.6
million of finished goods inventory. The fair value of the finished goods inventory was determined based on the estimated selling price to be generated from the
finished goods, less costs to sell, including a reasonable margin.
104
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
8. FAIR VALUE DISCLOSURES (Continued)
In April 2016, we purchased the rights, title, and interest in the NDA for Inderal LA, as well as certain documentation, trademark rights, and finished goods
from Cranford Pharmaceuticals, LLC for $60.0 million in cash and milestone payments based on future gross profits from sales of products under the NDA (Note
7). In addition, at closing, we transferred $5.0 million to an escrow account as security for future milestone payments. This escrow account balance is not expected
to be released in less than one year and is included in restricted cash in our accompanying consolidated balance sheets as of December 31, 2016. We made the
$60.0 million upfront cash payment using cash on hand, capitalized $0.3 million of costs directly related to the transaction, and recognized $3.9 million of
minimum milestone payments for a total purchase price of $64.2 million. We accounted for this transaction as an asset purchase. These assets were recorded at
their relative fair values, which were determined based on Level 3 unobservable inputs. In order to determine the fair value of the NDA, we used the present value
of the estimated cash flows related to the product rights, using a discount rate of 12%. The $52.4 million NDA will be amortized in full over its 10-year useful life,
and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were
identified during the period from the date of acquisition to December 31, 2016 and therefore no impairment loss was recognized for the year ended December 31,
2016. We recorded $10.9 million of finished goods. The fair value of the finished goods was determined based on the estimated sales to be generated from the
finished goods, less costs to sell, including a reasonable margin. We recorded the $3.9 million of minimum milestone payments as accrued royalties. We recorded
$0.6 million for the non-compete agreement associated with the transaction. In order to determine the fair value of the non-compete agreement, we used the
probability-weighted lost cash flows method, using a discount rate of 10%. The non-compete agreement will be amortized in full over its seven-year useful life,
and will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable. No such triggering events were
identified during the period from the date of acquisition to December 31, 2018 and therefore no impairment loss was recognized for the years ended December 31,
2016, 2017, and 2018. We also recorded a $0.3 million prepaid balance related to a partially paid purchase order for inventory.
In January 2016, we purchased from Merck Sharp & Dohme B.V. the NDAs for two previously marketed generic drug products for $75.0 million in cash and
a percentage of future net sales from product sales (Note 7). In addition, we capitalized $0.3 million in legal costs directly related to the transaction. We accounted
for this transaction as an asset purchase. These assets were recorded at their relative fair values, which were determined based on Level 3 unobservable inputs. In
order to determine the fair value of the NDAs, we used the present value of the estimated cash flows related to the product rights, using a discount rate of 10%. The
NDAs will be amortized in full over their 10-year useful lives, and will be tested for impairment when events or circumstances indicate that the carrying value of
the assets may not be recoverable. No such triggering events were identified during the period from the date of acquisition to December 31, 2018 and therefore no
impairment loss was recognized for the years ended December 31, 2016, 2017, and 2018.
In January 2016, we purchased from H2-Pharma, LLC the rights to market, sell, and distribute the authorized generic of Lipofen® and a generic
hydrocortisone rectal cream product, along with the rights to an early-stage development project, for total consideration of $10.0 million (Note 7). The
consideration consisted of a cash payment of $8.8 million and the assumption of $1.2 million in existing royalties owed on the acquired rights. In addition, we
capitalized $42 thousand of costs directly related to the transaction. We accounted for this transaction as an asset purchase. These assets were recorded at their
relative fair values, which were determined based on Level 3 unobservable inputs. In order to determine the fair value of the rights for purposes of purchase price
allocation, we used the present value of the estimate cash flows related to the product rights, using a discount rate of 10%. No value was ascribed to the early-stage
development project because the development is still at the preliminary stage, with no expenses incurred or research performed to date. The marketing and
distribution rights will be amortized in full over their average estimated useful lives of approximately four years, and will be tested for impairment when events or
circumstances indicate that the carrying value of the assets may not be recoverable. No such triggering events were identified from the date of acquisition to
December 31, 2018 and therefore no impairment loss was recognized for the years ended December 31, 2016, 2017, and 2018.
105
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
9. STOCKHOLDERS’ EQUITY
Authorized shares
We are authorized to issue up to 33.3 million shares of common stock with a par value of $0.0001 per share, 0.8 million shares of class C special stock with a
par value of $0.0001 per share, and 1.7 million shares of undesignated preferred stock with a par value of $0.0001 per share at December 31, 2018.
There were 11.9 million and 11.7 million shares of common stock issued and outstanding as of December 31, 2018 and 2017, respectively.
There were 11 thousand shares of class C special stock issued and outstanding as of December 31, 2018 and 2017. Each share of class C special stock entitles
its holder to one vote per share. Each share of class C special stock is exchangeable, at the option of the holder, for one share of our common stock, at an exchange
price of $90.00 per share, subject to adjustment upon certain capitalization events. Holders of class C special stock are not entitled to receive dividends or to
participate in the distribution of our assets if we were to liquidate, dissolve, or wind-up the company. The holders of class C special stock have no cumulative
voting, preemptive, subscription, redemption, or sinking fund rights.
There were no shares of undesignated preferred stock outstanding as of December 31, 2018 and 2017.
Stock Repurchase Program
In October 2015, our Board of Directors authorized a program to repurchase up to $25.0 million of our outstanding common stock through December 31,
2016. The authorization allowed for repurchases to be conducted through open market or privately negotiated transactions. Shares acquired under the stock
repurchase program were returned to the status of authorized but unissued shares of common stock.
In January 2016, we purchased 65 thousand shares under the stock repurchase program for $2.5 million. The repurchased shares were returned to the status of
authorized but unissued shares of common stock. This program terminated on December 31, 2016.
Warrants
Warrants to purchase an aggregate of 1.7 million shares of our common stock were outstanding and exercisable as of December 31, 2018:
Issue Date
December 4, 2014
December 5, 2014
Number of
Underlying Shares
of Common Stock
(in thousands)
Per Share
Exercise Price Expiration Date
1,486 $
223 $
96.21
96.21
March 1, 2020
March 1, 2020
All outstanding warrants are classified as equity. No warrants were granted, exercised, or expired unexercised during the years ended December 31, 2018,
2017 and 2016.
106
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
10. STOCK-BASED COMPENSATION
In July 2016, we commenced administration of the ANI Pharmaceuticals, Inc. 2016 Employee Stock Purchase Plan, which was approved by shareholders in
our May 25, 2016 annual shareholder meeting. The Board of Directors and shareholders approved a maximum of 0.2 million shares of common stock, which were
reserved and made available for issuance under the ESPP. Under the ESPP, participants can purchase shares of our stock at a 15% discount. We issued five
thousand, four thousand, and one thousand shares in the years ended December 31, 2018, 2017, and 2016, respectively. In the year ended December 31, 2018, we
recognized $11 thousand, $16 thousand, and $75 thousand of stock-based compensation expense related to the ESPP in cost of sales, research and development,
and sales, general, and administrative expense in our consolidated statements of operations, respectively. In the year ended December 31, 2017, we recognized $6
thousand, $1 thousand, and $61 thousand of stock-based compensation expense related to the ESPP in cost of sales, research and development, and sales, general,
and administrative expense in our consolidated statements of operations, respectively. In the year ended December 31, 2016, we recognized $2 thousand and $23
thousand of stock-based compensation expense related to the ESPP in cost of sales and sales, general, and administrative expense in our consolidated statements of
operations, respectively.
All equity-based service awards are granted under the ANI Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”). As of
December 31, 2018, 0.6 million shares of our common stock remained available for issuance under the 2008 Plan.
We measure the cost of equity-based service awards based on the grant-date fair value of the award. The cost is recognized over the period during which an
employee is required to provide service in exchange for the award or the requisite service period. We recognize stock-based compensation expense ratably over the
vesting periods of the awards.
The following table summarizes stock-based compensation expense incurred under the 2008 Plan and included in our consolidated statements of operations:
(in thousands)
Cost of sales
Research and development
Selling, general, and administrative
Years Ended December 31,
2017
2018
2016
$
$
87 $
771
5,822
6,680 $
86 $
677
5,259
6,022 $
60
112
5,870
6,042
We recognized income tax benefits of $1.2 million, $0.6 million, and $1.0 million for stock-based compensation-related tax deductions in our 2018, 2017, and
2016 consolidated statements of operations, respectively.
Separation Agreement
On April 26, 2016, we entered into a Separation Agreement and Release (the “Separation Agreement”) with our former Chief Financial Officer (the “Former
Officer”), who resigned effective May 6, 2016. Under the Separation Agreement, 25,167 stock options previously granted to the Former Officer vested on May 6,
2016. In addition, 4,050 restricted stock awards and 2,000 stock options previously granted to the Former Officer vested on March 15, 2017. These actions were
accounted for as a modification of the underlying awards and the full expense for the modified awards was recorded in the second quarter 2016. In the second
quarter of 2016, we recorded $0.9 million of stock-based compensation expense, net of forfeitures, in relation to the Separation Agreement. In the second quarter
2016, we recognized $0.4 million of additional expense related to the Separation Agreement and transition that was not related to stock-based compensation. All
expenses related to the Separation Agreement and transition were recognized in the second quarter 2016.
107
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017, and 2016
10. STOCK-BASED COMPENSATION (Continued)
Stock Options
Outstanding stock options granted to employees and consultants generally vest over a period of four years and have 10-year contractual terms. Outstanding
stock options granted to non-employee directors generally vest over a period of one to four years and have 10-year contractual terms. Upon exercise of an option,
we issue new shares of our common stock or issue shares from treasury stock.
For 2018, 2017, and 2016, the fair value of each option grant was estimated using the Black-Scholes option-pricing model, using the following assumptions:
Expected option life (years)
Risk-free interest rate
Expected stock price volatility
Dividend yield
2018
5.48 - 6.25
2.64% - 2.93%
55.1% - 60.6%
—
Years Ended December 31,
2017
5.33 - 7.00
1.93% - 2.33%
50.3% - 57.4%
—
2016
5.50 - 6.25
1.14% - 1.55%
49.4% - 51.7%
—
We use the simplified method to estimate the life of options. The risk-free interest rate used is the yield on a U.S. Treasury note as of the grant date with a
maturity equal to the estimated life of the option. We calculated an estimated volatility rate based on the closing prices of several competitors that manufacture
similar products. We have not issued a cash dividend in the past nor do we have any current plans to do so in the future; therefore, an expected dividend yield of
zero was used.
In 2017, we granted options to two consultants. We used the Black-Scholes option-pricing model to determine the fair value of the option grants and the
valuation of the grants were marked to market through December 31, 2018. In June 2018, the FASB issued guidance simplifying the accounting for nonemployee
stock-based compensation awards (Note 1). We will be adopting this guidance as of January 1, 2019, therefore the nonemployee awards will be measured at fair
value as of the adoption date, and no longer marked to market.
108
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016, and 2015
10. STOCK-BASED COMPENSATION (Continued)
A summary of stock option activity under the 2008 Plan during the years ended December 31, 2018, 2017, and 2016 is presented below:
(in thousands, except per share and
remaining term data)
Outstanding December 31, 2015
Granted
Exercised
Forfeited
Expired
Outstanding December 31, 2016
Granted
Exercised
Forfeited
Expired
Outstanding December 31, 2017
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Option
Shares
Weighted
Average
Exercise Price
Weighted
Average
Grant-
date
Fair Value
Weighted
Average
Remaining
Term
(years)
474 $
265
(127)
(32)
(2)
578 $
207
(13)
(5)
-
767 $
156
(142)
(18)
(4)
759 $
326 $
29.40
45.60 $
11.79
47.84
139.32
39.28
51.66 $
15.92
53.29
-
42.93
57.60 $
19.47
60.17
74.53
49.74
45.88
22.45
27.04
31.76
Aggregate
Intrinsic Value
10,136
8.2 $
5,837
8.2 $
12,928
542
7.8 $
16,785
5,863
2,221
1,949
7.6 $
6.6 $
As of December 31, 2018, there was $8.6 million of total unrecognized compensation cost related to non-vested stock options granted under the 2008 Plan.
The cost is expected to be recognized over a weighted-average period of 2.4 years. During the year ended December 31, 2018, we received $2.8 million in cash
from the exercise of stock options and recorded a $0.6 million tax benefit related to these exercises. During the year ended December 31, 2017, we received $0.2
million in cash from the exercise of stock options and recorded a $0.2 million tax benefit related to these exercises. During the year ended December 31, 2016, we
received $1.5 million in cash from the exercise of stock options and recorded a $0.7 million tax benefit related to these exercises.
109
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016, and 2015
10. STOCK-BASED COMPENSATION (Continued)
Restricted Stock Awards
Restricted stock awards (“RSAs”) granted to employees generally vest over a period of four years. RSAs granted to non-officer directors generally vest over a
period of one year.
Shares of our common stock delivered to employees and directors will be unrestricted upon vesting. During the vesting period, the recipient of the restricted
stock has full voting rights as a stockholder and would receive dividends, if declared, even though the restricted stock remains subject to transfer restrictions and
will generally be forfeited upon termination of the officer prior to vesting. The fair value of each RSA is based on the market value of our stock on the date of
grant.
A summary of RSA activity under the Plan during the years ended December 31, 2018, 2017, and 2016 is presented below:
(in thousands, except per share and
remaining term data)
Unvested at December 31, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Weighted
Average Grant
Date Fair
Value
Weighted Average
Remaining Term
(years)
Shares
63 $
38
(30)
(8)
63 $
50
(28)
-
85 $
65
(33)
-
117 $
42.72
40.59
33.89
46.05
45.72
49.51
44.49
-
48.34
58.11
47.34
-
54.04
2.2
2.2
2.6
2.1
As of December 31, 2018, there was $4.7 million of total unrecognized compensation cost related to non-vested RSAs granted under the Plan, which is
expected to be recognized over a weighted-average period of 2.1 years.
110
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016, and 2015
11. INCOME TAXES
On August 6, 2018, ANI Canada acquired all the issued and outstanding equity interests of WellSpring in a non-taxable transaction (Note 2). Following the
consummation of the transaction, WellSpring was merged into ANI Canada. For U.S. Federal and state income tax purposes, ANI Canada is not part of ANI’s
consolidated group; rather, ANI Canada is subject to income taxes only in Canada and solely based on its stand-alone operations. The foreign current and foreign
deferred provisions (benefits) below represent ANI Canada’s tax provision (benefit) from the Canadian taxing jurisdictions.
As part of purchase accounting, as of the August 6, 2018 acquisition date the Company established net deferred tax assets relating to differences in the book
bases (determined based on fair value purchase accounting) and tax bases (determined based on the carryover nature of the nontaxable transaction) of ANI
Canada’s assets and liabilities of approximately $1.7 million. As discussed below, a valuation allowance was established for the full amount of ANI Canada’s net
deferred tax assets based on the Company’s assessment of the eventual realization of those assets.
Our total provision for income taxes consists of the following for the years ended December 31, 2018, 2017, and 2016:
(in thousands)
Current income tax provision:
Federal
State
Foreign
Total
Deferred income tax (benefit)/provision:
Federal
State
Foreign
Total
Change in valuation allowance
Excess tax benefit from stock-based compensation awards
2018
2017
2016
$
7,985 $
1,751
-
9,736
(4,630)
(556)
(214)
(5,400)
221
-
13,175 $
690
-
13,865
4,065
(556)
-
3,509
51
-
11,717
1,321
-
13,038
(8,387)
(658)
-
(9,045)
134
617
Total provision for income taxes
$
4,557 $
17,425 $
4,744
The difference between our expected income tax provision from applying federal statutory tax rates to the pre-tax income and actual income tax provision
relates primarily to the effect of the following:
US Federal statutory rate
State taxes, net of Federal benefit
Foreign taxes
Impact of Tax Cuts and Jobs Act
International tax structure impacts
Domestic production activities deduction
Change in valuation allowance
Stock-based compensation – no windfall tax benefits
Stock-based compensation – windfall tax benefit
Change in tax rates and other
Total income tax provision/(benefit)
111
2018
As of December 31,
2017
2016
21.0%
2.4%
26.5%
-%
-%
-%
(26.5)%
(0.7)%
(1.1)%
-%
21.6%
35.0%
2.0%
-%
81.9%
-%
(8.8)%
-%
1.0%
(0.2)%
(4.3)%
106.6%
35.0%
2.1%
-%
-%
23.3%
(14.4)%
1.6%
5.7%
-%
1.4%
54.7%
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016, and 2015
11. INCOME TAXES (Continued)
In 2017 our effective tax rate was impacted by the revaluation of our deferred tax assets and liabilities at the lower 21% U.S. corporate tax rate, as proscribed
by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, which began in 2018. We
measure our deferred tax assets and liabilities using the tax rates that we believe will apply in the years in which the temporary differences are expected to be
recovered or paid. As a result, we remeasured our deferred tax assets and deferred tax liabilities to reflect the reduction in the enacted U.S. corporate income tax
rate, resulting in a net $13.4 million increase in income tax expense for the year ended December 31, 2017.
Deferred income taxes reflect the net tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Our
deferred income tax assets and liabilities consisted of the following:
(in thousands)
Deferred tax assets:
Accruals and advances
Bond hedge
Accruals for chargebacks and returns
Inventory
Intangible asset
Net operating loss carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Debt discount
Intangible assets
Other
Total deferred tax liabilities
Valuation allowance
Deferred tax assets, net of deferred tax liabilities and valuation allowance
As of December 31,
2017
2018
$
$
$
$
$
7,748 $
3,019
7,132
1,228
9,393
5,604
4,682
38,806 $
(4,437) $
(1,316)
(11)
(2,813)
(8,577) $
(2,265)
27,964 $
5,254
5,617
4,927
857
6,355
3,029
3,030
29,069
(1,110)
(3,256)
(11)
(1,699)
(6,076)
(326)
22,667
As of December 31, 2018, we had federal net operating loss carryforwards of approximately $12.1 million, all of which arose as a result of the Merger and, if
not used, expire in annual increments through 2033. The utilization of the net operating loss carryforwards are limited in future years as prescribed by Section 382
of the U.S. Internal Revenue Code; our current annual limitation of the federal net operating loss is approximately $0.8 million per year. Additionally, as of
December 31, 2018 we have total net operating losses in Canada of CAD14.1 million that begin expiring in 2035.
We are required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. We consider the projected future taxable income and tax planning strategies in
making this assessment. Our net deferred tax assets in the Canadian jurisdiction are fully valued due to cumulative losses in that jurisdiction. As of December 31,
2018, we have provided a full valuation allowance against ANI Canada’s net deferred tax assets of $1.9 million. As of December 31, 2018, and 2017, deferred tax
assets in certain state jurisdictions are also fully valued against certain state net operating loss carryforwards.
We are subject to income taxes in numerous jurisdictions in the U.S. and in Canada. Significant judgment is required in evaluating our tax positions and
determining our provision for income taxes. We establish liabilities for tax-related uncertainties based on estimates of whether, and the extent to which, additional
taxes will be due. These liabilities are established when we believe that certain positions might be challenged despite our belief that our tax return positions are
fully supportable. We adjust these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes
includes the impact of changes to the liability that is considered appropriate. We identified no material uncertain tax positions as of December 31, 2018 and 2017.
112
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016, and 2015
11. INCOME TAXES (Continued)
We are subject to income tax audits in all jurisdictions for which we file tax returns. Tax audits by their nature are often complex and can require several years
to complete. Neither ANI Pharmaceuticals, Inc. nor any of its subsidiaries is currently under audit in any jurisdiction. All of our income tax returns remain subject
to examination by tax authorities due to the availability of net operating loss carryforwards.
12. COMMITMENTS AND CONTINGENCIES
Vendor Purchase Minimums
We have supply agreements with four vendors that include purchase minimums. Pursuant to these agreements, we will be required to purchase a total of $10.1
million of API from these four vendors during the year ended December 31, 2019.
Government Regulation
Our products and facilities are subject to regulation by a number of federal and state governmental agencies. The FDA, in particular, maintains oversight of the
formulation, manufacture, distribution, packaging, and labeling of all of our products. The Drug Enforcement Administration ("DEA") maintains oversight over
our products that are considered controlled substances.
Unapproved Products
Two of our products, Esterified Estrogen with Methyltestosterone (“EEMT”) and Opium Tincture, are marketed without approved NDAs or ANDAs. During
the years ended December 31, 2018, 2017, and 2016, net revenues for these products totaled $24.9 million, $27.6 million, and $34.3 million, respectively.
The FDA's policy with respect to the continued marketing of unapproved products is stated in the FDA's September 2011 Compliance Policy Guide Sec.
440.100 titled “Marketed New Drugs without Approved NDAs or ANDAs.” Under this policy, the FDA has stated that it will follow a risk-based approach with
regard to enforcement against such unapproved products. The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher
priority to enforcement action against products in certain categories, such as those marketed as unapproved drugs with potential safety risks or that lack evidence of
effectiveness. We believe that, so long as we comply with applicable manufacturing standards, the FDA will not take action against us under the current
enforcement policy. There can be no assurance, however, that the FDA will continue this policy or not take a contrary position with any individual product or
group of products. If the FDA were to take a contrary position, we may be required to seek FDA approval for these products or withdraw such products from the
market. If we decide to withdraw the products from the market, our net revenues for generic pharmaceutical products would decline materially, and if we decide to
seek FDA approval, we would face increased expenses and might need to suspend sales of the products until such approval was obtained, and there are no
assurances that we would receive such approval.
In addition, one group of products that we manufacture on behalf of a contract customer is marketed by that customer without an approved NDA. If the FDA
took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market.
Our contract manufacturing revenues for the group of unapproved products for the years ended December 31, 2018, 2017, and 2016 were $2.0 million,
$2.0 million, and $1.5 million, respectively.
We received royalties on the net sales of a group of contract-manufactured products, which are marketed by the contract customer without an approved NDA.
If the FDA took enforcement action against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from
the market. Our royalties on the net sales of these unapproved products were less than 1% of total revenues for the three years ended December 31, 2018, 2017, and
2016.
113
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016, and 2015
12. COMMITMENTS AND CONTINGENCIES (Continued)
Louisiana Medicaid Lawsuit
On September 11, 2013, the Attorney General of the State of Louisiana filed a lawsuit in Louisiana state court against numerous pharmaceutical companies,
including us, under various state laws, alleging that each defendant caused the state’s Medicaid agency to provide reimbursement for drug products that allegedly
were not approved by the FDA and therefore allegedly not reimbursable under the federal Medicaid program. The lawsuit relates to three cough and cold
prescription products manufactured and sold by our former Gulfport, Mississippi operation, which was sold in September 2010. Through its lawsuit, the state seeks
unspecified damages, statutory fines, penalties, attorneys’ fees, and costs. While we cannot predict the outcome of the lawsuit at this time, we could be subject to
material damages, penalties, and fines. We intend to vigorously defend against all claims in the lawsuit.
Civil Action
In November of 2017, we were served with a complaint filed by Arbor Pharmaceuticals, LLC, in the United States District Court, District of Minnesota. The
complaint alleges false advertising and unfair competition in violation of Section 43(a) of the Lanham Act, Section 1125(a) of Title 15 of the United States Code,
and Minnesota State law, and seeks injunctive relief and damages. The action is currently in the discovery phase. We intend to defend this action vigorously.
Other Commitments and Contingencies
All manufacturers of the drug Reglan and its generic equivalent metoclopramide, including ANI, have faced allegations from plaintiffs in various states,
including California, New Jersey, and Pennsylvania, claiming bodily injuries as a result of ingestion of metoclopramide or its brand name, Reglan, prior to the
FDA's February 2009 Black Box warning requirement. In August 2012, we were dismissed with prejudice from all New Jersey complaints. In August 2016, we
settled the outstanding California short form complaints and in February 2018, we settled the remaining four complaints that were not captured in the 2016
settlement. We consider our exposure to this litigation to be limited due to several factors: (1) the only generic metoclopramide that we manufactured prior to the
implementation of the FDA's warning requirement was an oral solution introduced after May 28, 2008; (2) our market share for the oral solution was a very small
portion of the overall metoclopramide market; and (3) once we received a request for change of labeling from the FDA, we submitted our proposed changes within
30 days, and such changes were subsequently approved by the FDA.
At the present time, we are unable to assess the likely outcome of the cases in the remaining states. Our insurance company has assumed the defense of this
matter and paid all losses in settlement of the California cases. We cannot provide assurances that the outcome of these matters will not have an adverse effect on
our business, financial condition, and operating results. Furthermore, like all pharmaceutical manufacturers, we may be exposed to other product liability claims in
the future, which could limit our coverage under future insurance policies or cause those policies to become more expensive, which could harm our business,
financial condition, and operating results.
Our ANDA for Erythromycin Ethylsuccinate (“EES”) was originally approved by the FDA on November 27 th , 1978. We purchased the EES ANDA from
Teva on July 10, 2015, and subsequently launched EES on September 27, 2016. In August 2016, we filed with the FDA to reintroduce this product under a
Changes Being Effected in 30 Days submission (a “CBE-30 submission”). Under a CBE-30 submission, certain defined changes to an ANDA can be made if the
FDA does not object in writing within 30 days. The FDA’s regulations, guidance documents, and historic actions support the filing of a CBE-30 for the types of
changes that we proposed for our EES ANDA. We received no formal written letter from the FDA within 30 days of the CBE-30 submission date, and as such,
launched the product in accordance with FDA regulations. On December 16, 2016, and nearly four months after our CBE-30 submission, the FDA sent us a formal
written notice that a Prior Approval Supplement (“PAS”) was required for this ANDA. Under a PAS, proposed changes to an ANDA cannot be implemented
without prior review and approval by the FDA. Because we did not receive this notice in the timeframe prescribed by the FDA’s regulations, we believe that our
supplemental ANDA is valid, and as such continued to market the product. In addition, we filed a PAS which was approved by the FDA on November 2, 2018.
On or about September 20, 2017, the Company and certain of its employees were served with search warrants and/or grand jury subpoenas to produce
documents and possibly testify relating to a federal investigation of the generic pharmaceutical industry. The Company has been cooperating and intends to
continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.
114
ANI Pharmaceuticals, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016, and 2015
13. SUBSEQUENT EVENTS
Amendment to Teva Pharmaceuticals Asset Purchase Agreement
In January 2019, we entered into Amendment No. 4 to our Asset Purchase Agreement with Teva Pharmaceuticals USA, Inc. (“Teva”). Under the terms of the
Purchase Agreement Amendment, all royalty obligations of the Company owed to Teva with respect to products associated with ten ANDAs under the Asset
Purchase Agreement shall cease effective as of December 31, 2018. In consideration for the termination of such future royalty obligations, we paid Teva a sum of
$16.0 million.
Interest Rate Swap
In February 2019, we entered into an interest rate swap with Citizens Bank, N.A. to manage our exposure to changes in LIBOR-based interest rates underlying
our DDTL. The notional amount of the interest rate swap is $118.0 million and will go into effect beginning in December 2018. The interest rate swap provides an
effective fixed rate of 2.47%.
14. QUARTERLY FINANCIAL DATA (unaudited)
The following table presents unaudited quarterly consolidated operating results for each of our last eight fiscal quarters. The information below has been
prepared on a basis consistent with our audited consolidated financial statements.
(in thousands, except per share data)
Net revenues
Total operating expenses
Operating income
Provision for income taxes
Net income
Basic and diluted earnings per share:
Basic earnings per share
Diluted earnings per share
(in thousands, except per share data)
Net revenues
Total operating expenses
Operating income
Provision for income taxes
Net income/(loss)
Basic and diluted earnings/(loss) per share:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
First
2018 Quarters (unaudited)
Third
Second
Fourth
46,483 $
39,946
6,537
(592)
2,250 $
0.19 $
0.19 $
47,268 $
40,005
7,263
(726)
2,777 $
0.24 $
0.23 $
50,703 $
40,589
10,114
(1,329)
5,037 $
0.43 $
0.42 $
57,122
45,677
11,445
(1,910)
5,430
0.46
0.46
First
2017 Quarters (unaudited)
Third
Second
Fourth
36,628 $
32,003
4,625
(523)
1,152 $
0.10 $
0.10 $
44,764 $
37,770
6,994
(1,269)
2,681 $
0.23 $
0.23 $
48,164 $
38,833
9,331
(1,654)
4,720 $
0.41 $
0.40 $
47,286
39,907
7,379
(13,979)
(9,629)
(0.83)
(0.83)
$
$
$
$
$
$
$
$
115
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed
or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to
management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act), as of December 31, 2018. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were effective. In designing and evaluating our disclosure controls and procedures, we recognize that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and
principal financial officers and effected by a company’s board of directors, management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over
financial reporting includes those policies and procedures that:
·
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of its assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and
that receipts and expenditures are being made only in accordance with authorizations of management and directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material
effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework (2013).
Based on this assessment, our management has concluded that, as of December 31, 2018, our internal control over financial reporting is effective based on
those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by EisnerAmper LLP, an independent registered
public accounting firm, as stated in their attestation report, which is included herein.
116
On August 6, 2018, our subsidiary, ANI Pharmaceuticals Canada Inc. (“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring
Pharma Services Inc. (“WellSpring”) in an all cash transaction. Following the consummation of the transaction, WellSpring was merged into ANI Canada with the
resulting entity’s name being ANI Pharmaceuticals Canada Inc. In conjunction with the transaction, we are currently in the process of integrating ANI Canada’s
policies, processes, people, technology, and operations into the consolidated company, and integrating ANI Canada’s operations into our system of internal control
over financial reporting. As permitted by the Securities and Exchange Commission, we are excluding ANI Canada from the assessment of internal control over
financial reporting the year ending December 31, 2018. WellSpring operations represented 5% of total assets at December 31, 2018 and 2% of total revenues for
the year ended December 31, 2018.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting, except as noted below.
Item 9B. Other Information
None.
117
Item 10. Directors and Executive Officers of the Registrant
PART III
The text of our Code of Ethics, which applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and
persons performing similar functions, is posted on our website, www.anipharmaceuticals.com, under the “Corporate Governance” subsection of the “Investors”
section of the site. We will disclose on our website amendments to, and, if any are granted, waivers of, our Code of Ethics for our principal executive officer,
principal financial officer, or principal accounting officer, controller, or persons performing similar functions.
Information required by this item with respect to our directors will be set forth under the caption “Election of Directors” in our definitive proxy statement for
our 2019 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein
by reference.
Information required by this item with respect to our executive officers will be set forth under the caption “Executive Officers of the Company” in our
definitive proxy statement for our 2019 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal
year, and is incorporated herein by reference.
Information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” in our definitive proxy statement for our 2019 annual meeting, to be filed with the SEC pursuant to Regulation 14A
no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.
Information required by this item with respect to our audit committee, our audit committee financial expert, and any material changes to the way in which our
security holders may recommend nominees to our Board of Directors will be set forth under the caption “Corporate Governance” in our definitive proxy statement
for our 2019 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated
herein by reference.
Item 11. Executive Compensation
Information required by this item with respect to executive compensation will be set forth under the caption “Executive Compensation” in our definitive proxy
statement for our 2019 annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item with respect to security ownership of certain beneficial owners and management will be set forth under the captions
“Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers” in our definitive proxy statement for our 2019
annual meeting, to be filed with the SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item with respect to certain relationships and related transactions and director independence will be set forth under the captions
“Certain Relationships and Related Transactions” and “Corporate Governance” in our definitive proxy statement for our 2019 annual meeting, to be filed with the
SEC pursuant to Regulation 14A no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information required by this item with respect to principal accounting fees and services will be set forth under the caption “Ratification of Selection of
Independent Registered Public Accountants” in our definitive proxy statement for our 2019 annual meeting, to be filed with the SEC pursuant to Regulation 14A
no later than 120 days after the close of our fiscal year, and is incorporated herein by reference.
118
Item 15. Exhibits, Financial Statement Schedules
Documents filed as part of this report on Form 10-K:
(a) Financial Statements:
PART IV.
The consolidated balance sheets of the Registrant as of December 31, 2018 and 2017, the related consolidated statements of operations, statements of
comprehensive income, changes in stockholders' equity, and cash flows for each of the years ended December 31, 2018, 2017, and 2016, the footnotes thereto,
and the reports of EisnerAmper LLP, independent registered public accounting firm, are filed herewith.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes
thereto.
(c) Exhibits
Exhibits included or incorporated by reference herein: see Exhibit Index on page 120.
119
ANI PHARMACEUTICALS, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2018
Exhibit
No.
Exhibit
Method of Filing
2.1
2.2
3.1
3.2
4.1
4.2
4.3
Amended and Restated Agreement and Plan of Merger, dated as of April 12,
2013, by and among BioSante Pharmaceuticals, Inc., ANI Merger Sub, Inc. and
ANIP Acquisition Company (1)
Asset Purchase Agreement, dated as of December 26, 2013, by and between ANI
Pharmaceuticals, Inc. and Teva Pharmaceuticals USA, Inc. (2)
Certificate of Amendment of the Restated Certificate of Incorporation of
BioSante Pharmaceuticals, Inc., dated as of July 17, 2013, Certificate of
Amendment of the Restated Certificate of Incorporation of BioSante
Pharmaceuticals, Inc., dated as of June 1, 2012, and Restated Certificate of
Incorporation of BioSante Pharmaceuticals, Inc.
Amended and Restated Bylaws of ANI Pharmaceuticals, Inc.
Indenture, dated December 10, 2014, between ANI Pharmaceuticals, Inc. and
The Bank of New York Mellon
First Supplemental Indenture, dated December 10, 2014, between ANI
Pharmaceuticals, Inc. and The Bank of New York Mellon (including the form of
the 3.00% Convertible Senior Note due 2019)
Form of Note
10.1*
ANI Pharmaceuticals, Inc. Fifth Amended and Restated 2008 Stock Incentive
Plan
120
Incorporated by reference to Exhibit 2.1 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on April 12, 2013 (File No. 001-
31812)
Incorporated by reference to Exhibit 2.2 to ANI's Annual
Report on Form 10-K as filed for the fiscal year ended
December 31, 2013 (File No. 001-31812)
Incorporated by reference to Exhibit 3.1 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2013 (File No. 001-31812)
Incorporated by reference to Exhibit 3.1 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on February 16, 2017 (File
No. 001-31812)
Incorporated by reference to Exhibit 4.1 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on December 10, 2014 (File No.
001-31812)
Incorporated by reference to Exhibit 4.2 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on December 10, 2014 (File No.
001-31812)
Incorporated by reference to Exhibit 4.2 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on December 10, 2014 (File No.
001-31812)
Incorporated by reference to Appendix A to ANI's
Definitive Proxy Statement on Schedule 14A as filed with
the Securities and Exchange Commission on April 6, 2017
(File No. 001-31812)
Exhibit
No.
10.2*
10.3*
10.4
10.5*
10.6*
10.7*
10.8
10.9
Exhibit
Method of Filing
Form of Incentive Stock Option Agreement under the ANI Pharmaceuticals, Inc.
Fifth Amended and Restated 2008 Stock Incentive Plan (included in Exhibit
10.1)
Form of Non-Statutory Option Agreement under the ANI Pharmaceuticals, Inc.
Fifth Amended and Restated 2008 Stock Incentive Plan (included in Exhibit
10.1)
Generic Wholesale Service Agreement, dated as of May 1, 2006, between ANI
Pharmaceuticals, Inc. and Cardinal Health, First Amendment to Generic
Wholesale Service Agreement, dated as of July 10, 2008, Letter Agreement,
dated as of July 10, 2008, regarding assignment of the Generic Wholesale
Service Agreement to ANIP Acquisition Company, d/b/a ANI Pharmaceuticals,
Inc., Letter from Cardinal Health, dated December 22, 2008 Regarding Increase
in Base Service Fee, and Second Amendment to Generic Wholesale Service
Agreement, dated May 7, 2012 (2)
Employment Letter Agreement, dated February 25, 2009, by and between ANIP
Acquisition Company, d/b/a ANI Pharmaceuticals, Inc., and Arthur S. Przybyl
Employment Agreement, dated as of May 1, 2007, by and between ANIP
Acquisition Company and James Marken
Employment Letter Agreement, dated July 12, 2013, by and between ANIP
Acquisition Company d/b/a ANI Pharmaceuticals, Inc. and Robert Schrepfer
Convertible note hedge transaction confirmation, dated December 4, 2014, by
and between Nomura Global Financial Products Inc. and ANI
Warrant transaction confirmation, dated December 4, 2014, by and between
Nomura Global Financial Products Inc. and ANI
Incorporated by reference to Appendix A to ANI's
Definitive Proxy Statement on Schedule 14A as filed with
the Securities and Exchange Commission on April 6, 2017
(File No. 001-31812)
Incorporated by reference to Appendix A to ANI's
Definitive Proxy Statement on Schedule 14A as filed with
the Securities and Exchange Commission on April 6, 2017
(File No. 001-31812)
Incorporated by reference to Exhibit 10.59 to ANI's
Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on December 11,
2012 (File No. 333-185391)
Incorporated by reference to Exhibit 10.62 to ANI's
Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on December 11,
2012 (File No. 333-185391)
Incorporated by reference to Exhibit 10.64 to ANI's
Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on December 11,
2012 (File No. 333-185391)
Incorporated by reference to Exhibit 10.52 to ANI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2013 (File No. 001-31812)
Incorporated by reference to Exhibit 10.1 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on December 8, 2014 (File
No. 001-31812)
Incorporated by reference to Exhibit 10.2 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on December 8, 2014 (File
No. 001-31812)
121
Exhibit
Method of Filing
Exhibit
No.
10.10
10.11
10.12
10.13
Additional convertible note hedge transaction confirmation, dated December 5,
2014, by and between Nomura Global Financial Products Inc. and ANI
Additional warrant transaction confirmation, dated December 5, 2014, by and
between Nomura Global Financial Products Inc. and ANI
Amendment No. 2 to Asset Purchase Agreement, dated as of July 10, 2015,
between Teva Pharmaceuticals, Inc. and ANI Pharmaceuticals, Inc. (2)
Asset Purchase Agreement, dated as of September 18, 2015, between Merck
Sharp & Dohme B.V. and ANI Pharmaceuticals, Inc. (2)
10.14 *
ANI Pharmaceuticals, Inc. 2016 Employee Stock Purchase Plan
10.15
10.16
Asset Purchase Agreement between H2-Pharma, LLC and ANI Pharmaceuticals,
Inc. (2)
Asset Purchase Agreement between Cranford Pharmaceuticals, LLC and ANI
Pharmaceuticals, Inc. (2)
10.17*
Employment Offer Letter between the Company and Stephen P. Carey
10.18
Asset Purchase Agreement between Cranford Pharmaceuticals, LLC and ANI
Pharmaceuticals, Inc. (2)
122
Incorporated by reference to Exhibit 10.3 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on December 10, 2014 (File
No. 001-31812)
Incorporated by reference to Exhibit 10.4 to ANI's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on December 10, 2014 (File
No. 001-31812)
Incorporated by reference to Exhibit 10.1 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2015 (File No. 001-31812)
Incorporated by reference to Exhibit 10.2 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2015 (File No. 001-31812)
Incorporated by reference to Appendix A to the
Registrant's Definitive Proxy Statement on Schedule 14A
filed with the Commission on April 14, 2016
Incorporated by reference to Exhibit 10.1 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2016 (File No. 001-31812)
Incorporated by reference to Exhibit 10.2 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2016 (File No. 001-31812)
Incorporated by reference to Exhibit 10.1 to ANI's Current
Report on Form 8-K for the fiscal quarter ended April 27,
2016 (File No. 001-31812)
Incorporated by reference to Exhibit 10.1 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2017 (File No. 001-31812)
Exhibit
No.
10.19
10.20
10.21
10.22
21
23.1
31.1
31.2
32.1
101
Exhibit
Method of Filing
Asset Purchase Agreement between Holmdel Pharmaceuticals, LP and ANI
Pharmaceuticals, Inc. (2)
Asset Purchase Agreement between AstraZeneca AB, AstraZeneca UK Limited,
and ANI Pharmaceuticals, Inc. (2)
Incorporated by reference to Exhibit 10.2 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2017 (File No. 001-31812)
Incorporated by reference to Exhibit 10.25 to ANI's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2017 (File No. 001-31812)
Stock Purchase Agreement by and among WellSpring Pharma Services Inc.,
WSP Pharma Holdings, LLC, ANI Pharmaceuticals Canada Inc., and ANI
Pharmaceuticals, Inc.
Incorporated by reference to Exhibit 10.1 to ANI's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2018 (File No. 001-31812)
Amended and Restated Credit Agreement between Citizens Bank, N.A. and ANI
Pharmaceuticals, Inc. (3)
Filed herewith
List of subsidiaries
Consent of EisnerAmper LLP
Filed herewith
Filed herewith
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14
Filed herewith
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14
Filed herewith
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to
Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Furnished herewith
The following materials from ANI Pharmaceuticals, Inc.’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2018, formatted in XBRL
(Extensible Business Reporting Language): (i) the audited consolidated Balance
Sheets, (ii) the audited consolidated Statements of Operations, (iii) the audited
consolidated Statements of Comprehensive Income, (iv) the audited consolidated
Statements of Stockholders’ Equity; (v) the audited consolidated Statements of
Cash Flows, and (vi) Notes to consolidated Financial Statements.
Filed herewith
(1) All exhibits to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. ANI will furnish the omitted exhibits to the SEC upon request by
the SEC.
(2) Confidential treatment has been granted with respect to redacted portions of this document.
(3) Confidential treatment has been requested with respect to redacted portions of this document.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(a).
123
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
SIGNATURES
by the undersigned, thereunto duly authorized.
ANI PHARMACEUTICALS, INC.
By:
By:
/s/ Arthur S. Przybyl
Arthur S. Przybyl
President and Chief Executive Officer
(principal executive officer)
Date: February 27, 2019
/s/ Stephen P. Carey
Stephen P. Carey
Vice President, Finance and
Chief Financial Officer
(principal financial officer)
Date: February 27, 2019
Pursuant to the requirements the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name
Capacity
/s/ Arthur S. Przybyl
Arthur S. Przybyl
/s/ Robert E. Brown, Jr.
Robert E. Brown, Jr.
/s/ Thomas J. Haughey
Thomas J. Haughey
/s/ David B. Nash, M.D., M.B.A.
David B. Nash, M.D., M.B.A.
/s/ Thomas A. Penn
Thomas A. Penn
/s/ Patrick D. Walsh
Patrick D. Walsh
Director, President, and
Chief Executive Officer
Director and Chairman of the Board of
Directors
Director
Director
Director
Director
124
Date
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Exhibit 10.22
EXECUTION VERSION
AMENDED AND RESTATED CREDIT AGREEMENT
among
ANI PHARMACEUTICALS, INC.,
as Borrower,
CERTAIN DOMESTIC SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO,
and
CITIZENS BANK, N.A.,
as Administrative Agent
Dated as of December 27, 2018
CITIZENS BANK, N.A.,
as Lead Arranger and Bookrunner
THE HUNTINGTON NATIONAL BANK and
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
as Joint Lead Arrangers, Joint Bookrunners and Co-Syndication Agents
REGIONS BANK,
as Documentation Agent
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
TABLE OF CONTENTS
Article I DEFINITIONS
Section 1.1
Section 1.2
Section 1.3
Section 1.4
Section 1.5
Defined Terms.
Other Definitional Provisions.
Accounting Terms.
Time References.
Execution of Documents.
Article II THE LOANS; AMOUNT AND TERMS
Revolving Loans.
Initial Term Loan; Delayed Draw Term Loans.
Letter of Credit Subfacility.
Swingline Loan Subfacility.
Fees.
Commitment Reductions.
Prepayments.
Default Rate and Payment Dates.
Conversion Options.
Computation of Interest and Fees; Usury.
Pro Rata Treatment and Payments.
Non-Receipt of Funds; Administrative Agent’s Clawback.
Inability to Determine Interest Rate.
Yield Protection.
Compensation for Losses.
Taxes.
Indemnification; Nature of Issuing Lender’s Duties.
Illegality.
Mitigation Obligations; Replacement of Lenders.
Cash Collateral.
Defaulting Lenders.
Incremental Facilities.
MIRE Events.
Section 2.1
Section 2.2
Section 2.3
Section 2.4
Section 2.5
Section 2.6
Section 2.7
Section 2.8
Section 2.9
Section 2.10
Section 2.11
Section 2.12
Section 2.13
Section 2.14
Section 2.15
Section 2.16
Section 2.17
Section 2.18
Section 2.19
Section 2.20
Section 2.21
Section 2.22
Section 2.23
Article III REPRESENTATIONS AND WARRANTIES
Section 3.1
Section 3.2
Section 3.3
Section 3.4
Section 3.5
Section 3.6
Section 3.7
Section 3.8
Section 3.9
Financial Condition.
No Material Adverse Effect; Internal Control Event.
Corporate Existence; Compliance with Law; Patriot Act Information.
Corporate Power; Authorization; Enforceable Obligations.
No Legal Bar; No Default.
No Material Litigation.
Investment Company Act; etc.
Margin Regulations.
ERISA.
i
Page
1
35
35
35
36
36
37
37
39
42
45
47
48
49
50
51
52
53
55
56
56
58
58
62
63
63
64
65
67
70
70
70
71
71
71
72
72
72
72
73
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.10
Section 3.11
Section 3.12
Section 3.13
Section 3.14
Section 3.15
Section 3.16
Section 3.17
Section 3.18
Section 3.19
Section 3.20
Section 3.21
Section 3.22
Section 3.23
Section 3.24
Section 3.25
Section 3.26
Section 3.27
Section 3.28
Section 3.29
Section 3.30
Section 3.31
Section 3.32
Section 3.33
Section 3.34
Section 3.35
Environmental Matters.
Use of Proceeds.
Subsidiaries; Joint Ventures; Partnerships.
Ownership.
Consent; Governmental Authorizations.
Taxes.
Collateral Representations.
Solvency.
Compliance with FCPA.
No Burdensome Restrictions.
[Reserved].
Labor Matters.
Accuracy and Completeness of Information.
Material Contracts.
Insurance.
Security Documents.
Classification of Senior Indebtedness.
Anti-Terrorism Laws; OFAC Rules and Regulations.
Authorized Officer.
Flood Hazard Property.
[Reserved].
EEA Financial Institution.
Trade Relations.
Leases.
Health Care Laws and Permits.
Regulatory Matters.
Article IV CONDITIONS PRECEDENT
Section 4.1
Section 4.2
Conditions to Closing Date.
Conditions to All Extensions of Credit.
Article V AFFIRMATIVE COVENANTS
Section 5.1
Section 5.2
Section 5.3
Section 5.4
Section 5.5
Section 5.6
Section 5.7
Section 5.8
Section 5.9
Section 5.10
Section 5.11
Section 5.12
Section 5.13
Financial Statements.
Certificates; Other Information.
Payment of Taxes and Other Obligations.
Conduct of Business and Maintenance of Existence.
Maintenance of Property; Insurance.
Maintenance of Books and Records.
Notices.
Environmental Laws.
Financial Covenants.
Additional Guarantors.
Compliance with Law.
Pledged Assets.
[Reserved].
ii
73
74
75
75
75
75
75
77
77
77
77
77
78
78
78
78
78
79
79
79
80
80
80
80
80
81
82
82
86
87
87
88
90
90
90
91
91
92
92
93
94
94
94
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 5.14
Section 5.15
Section 5.16
Landlord Waivers.
Further Assurances and Post-Closing Covenants.
Use of Proceeds.
Article VI NEGATIVE COVENANTS
Section 6.1
Section 6.2
Section 6.3
Section 6.4
Section 6.5
Section 6.6
Section 6.7
Section 6.8
Section 6.9
Section 6.10
Section 6.11
Section 6.12
Section 6.13
Section 6.14
Section 6.15
Indebtedness.
Liens.
Nature of Business.
Consolidation, Merger, Purchase and Sale of Assets, etc.
Advances, Investments and Loans.
Transactions with Affiliates.
Corporate Changes; Material Contracts.
Limitation on Restricted Actions.
Restricted Payments.
Sale Leasebacks.
No Further Negative Pledges.
Account Control Agreements; Additional Bank Accounts.
[Reserved].
Amendments to Subordinated Debt Documents.
Changes in Delaware Law.
Article VII EVENTS OF DEFAULT
Section 7.1
Section 7.2
Events of Default.
Acceleration; Remedies.
Article VIII THE ADMINISTRATIVE AGENT
Section 8.1
Section 8.2
Section 8.3
Section 8.4
Section 8.5
Section 8.6
Section 8.7
Section 8.8
Section 8.9
Section 8.10
Section 8.11
Section 8.12
Section 8.13
Appointment and Authority.
Rights as a Lender.
Exculpatory Provisions.
Reliance by Administrative Agent.
Delegation of Duties.
Resignation of Administrative Agent.
Non-Reliance on Administrative Agent and Other Lenders.
No Other Duties, Etc.
Administrative Agent May File Proof of Claim.
Collateral and Guaranty Matters.
Notice of Default.
Indemnification.
Credit Bidding.
Article IX MISCELLANEOUS
Section 9.1
Section 9.2
Section 9.3
Section 9.4
Section 9.5
Amendments, Waivers, Consents and Release of Collateral.
Notices.
No Waiver; Cumulative Remedies.
Survival of Representations and Warranties.
Payment of Expenses and Taxes; Indemnity.
iii
95
95
96
96
96
98
100
100
102
103
103
103
104
104
105
105
105
105
105
106
106
109
109
109
110
110
111
111
111
112
113
113
113
114
114
115
115
115
118
120
120
120
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.6
Section 9.7
Section 9.8
Section 9.9
Section 9.10
Section 9.11
Section 9.12
Section 9.13
Section 9.14
Section 9.15
Section 9.16
Section 9.17
Section 9.18
Section 9.19
Section 9.20
Section 9.21
Section 9.22
Section 9.23
Section 9.24
Section 9.25
Section 9.26
Section 9.27
Successors and Assigns; Participations.
Right of Set-off; Sharing of Payments.
Table of Contents and Section Headings.
Counterparts; Integration; Effectiveness; Electronic Execution.
Severability.
Integration.
Cashless Settlement.
Governing Law; Consent to Jurisdiction; Service of Process and Venue.
Treatment of Certain Information; Confidentiality.
Acknowledgments.
Waivers of Jury Trial.
Patriot Act Notice.
Resolution of Drafting Ambiguities.
Subordination of Intercompany Debt.
Continuing Agreement.
Press Releases and Related Matters.
Appointment of Borrower.
No Advisory or Fiduciary Responsibility.
Responsible Officers and Authorized Officers.
Acknowledgement and Consent to Bail-In of EEA Financial Institutions.
Certain ERISA Matters
Amendment and Restatement.
Article X GUARANTY
Section 10.1
Section 10.2
Section 10.3
Section 10.4
Section 10.5
Section 10.6
Section 10.7
Section 10.8
Section 10.9
Section 10.10
Section 10.11
The Guaranty.
Bankruptcy.
Nature of Liability.
Independent Obligation.
Authorization.
Reliance.
Waiver.
Limitation on Enforcement.
Confirmation of Payment.
Eligible Contract Participant.
Keepwell.
iv
122
126
127
127
127
127
128
128
129
129
130
130
130
130
131
131
131
132
132
132
133
135
135
135
136
136
136
137
137
137
138
138
139
139
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Schedules
Schedule 1.1(a)
Schedule 1.1(b)
Schedule 2.1(a)
Schedule 3.3
Schedule 3.6
Schedule 3.12
Schedule 3.16(a)
Schedule 3.16(b)
Schedule 3.16(c)
Schedule 3.16(d)
Schedule 3.16(e)
Schedule 3.16(f)(i)
Schedule 3.16(f)(ii)
Schedule 3.23
Schedule 3.24
Schedule 3.28
Schedule 3.33
Schedule 5.15
Schedule 6.1(b)
Exhibits
Exhibit 1.1(a)
Exhibit 1.1(b)
Exhibit 1.1(c)
Exhibit 1.1(d)
Exhibit 1.1(e)
Exhibit 1.1(f)
Exhibit 1.1(g)
Exhibit 2.1(a)
Exhibit 2.1(e)
Exhibit 2.2(c)
Exhibit 2.2(d)
Exhibit 2.4(d)
Exhibit 2.16(a)
Exhibit 2.16(b)
Exhibit 2.16(c)
Exhibit 2.16(d)
Exhibit 4.1(b)
Exhibit 4.1(g)
Exhibit 4.1(p)
Exhibit 5.2(b)
Investments
Liens
Lenders and Commitments
Patriot Act Information
Litigation
Subsidiaries
Intellectual Property
Documents, Instruments and Tangible Chattel Paper
Deposit Accounts, Electronic Chattel Paper, Letter-of-Credit Rights, Securities Accounts, Uncertificated Investment
Property
Commercial Tort Claims
Pledged Equity Interests
Mortgaged Properties
Other Collateral Locations
Material Contracts
Insurance
Authorized Officers
Leases
Post-Closing Matters
Indebtedness
Form of Account Designation Notice
Form of Assignment and Assumption
Form of Joinder Agreement
Form of Notice of Borrowing
Form of Notice of Conversion/Extension
Form of Permitted Acquisition Certificate
Form of Bank Product Provider Notice
Form of Funding Indemnity Letter
Form of Revolving Loan Note
Form of Initial Term Loan Note
Form of Delayed Draw Term Loan Note
Form of Swingline Loan Note
Form of U.S. Tax Compliance Certificate
Form of U.S. Tax Compliance Certificate
Form of U.S. Tax Compliance Certificate
Form of U.S. Tax Compliance Certificate
Form of Officer’s Certificate
Form of Solvency Certificate
Form of Financial Condition Certificate
Form of Officer’s Compliance Certificate
v
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
THIS AMENDED AND RESTATED CREDIT AGREEMENT , dated as of December 27, 2018, is by and among ANI PHARMACEUTICALS,
INC. , a Delaware corporation (the “ Borrower ”), the Guarantors (as hereinafter defined), the Lenders (as hereinafter defined) and CITIZENS BANK, N.A. , a
national banking association, as administrative agent for the Lenders hereunder (in such capacity, the “ Administrative Agent ”).
WITNESSETH :
WHEREAS, the Credit Parties (as hereinafter defined) have requested that the Lenders make loans and other financial accommodations to the Credit
Parties, as more particularly described herein;
WHEREAS , the Credit Parties and certain of the Lenders are parties to the Existing Credit Agreement (as hereinafter defined);
WHEREAS , the Lenders and the Credit Parties have agreed to amend and restate the Existing Credit Agreement in its entirety as set forth in this
Agreement; and
WHEREAS , the Lenders have 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:
Article I
DEFINITIONS
Section 1.1 Defined Terms .
As used in this Agreement, terms defined in the preamble to this Agreement have the meanings therein indicated, and the following terms have the
following meanings:
“ Accessible Borrowing Availability ” shall mean, as of any date of determination, the amount that the Borrower is able to borrow on such date under the
Revolving Committed Amount without a Default or Event of Default occurring or existing after giving pro forma effect to such borrowing.
“ Account Designation Notice ” shall mean the Account Designation Notice dated as of the Closing Date from the Borrower to the Administrative Agent
in substantially the form attached hereto as Exhibit 1.1(a) .
“ Additional Credit Party ” shall mean each Person that becomes a Guarantor by execution of a Joinder Agreement in accordance with Section 5.10.
“ Administrative Agent ” or “ Agent ” shall have the meaning set forth in the first paragraph of this Agreement and shall include any permitted successors
in such capacity.
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Administrative Questionnaire ” shall mean an Administrative Questionnaire in a form supplied by the Administrative Agent.
“ Agent Parties ” shall have the meaning set forth in Section 9.2(d)(ii) .
“ Affiliate ” shall mean, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by, or is under common Control with, the Person specified.
“ Agreement ” shall mean this Agreement, as amended, modified, extended, restated, replaced, or supplemented from time to time in accordance with its
terms.
“ Alternate Base Rate ” shall mean, 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) LIBOR (as determined pursuant to the definition of LIBOR), for an 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 Citizens at its principal office in Boston, Massachusetts 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 Citizens 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
Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined
(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 Administrative Agent to obtain sufficient quotations in accordance with the terms above or (B) that the Prime Rate or
LIBOR no longer accurately reflects an accurate determination of the prevailing Prime Rate or LIBOR, the Administrative Agent may select, after giving due
consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the U.S. market at such time by similarly situated
administrative agents, a reasonably comparable index or source to use as the basis for the Alternate Base Rate, until the circumstances giving rise to such inability
no longer exist. Any change in the Alternate 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 for an Interest Period of one (1) month. Notwithstanding anything contained herein to the contrary, to the extent that
the provisions of Section 2.13 shall be in effect in determining LIBOR pursuant to clause (c) hereof, the Alternate 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%. In no event shall the Alternate Base Rate be less than 0%.
“ Alternate Base Rate Loans ” shall mean Loans that bear interest at an interest rate based on the Alternate Base Rate.
“ Anti-Terrorism Law ” shall mean any Requirement of Law related to money laundering or financing terrorism, including, without limitation, (a) the
Patriot Act, (b) The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s),
1820(b) and 1951-1959), (c) the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) and (d) Executive Order 13224 (effective September 24, 2001).
2
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Applicable Margin ” shall mean, for any day, the rate per annum set forth below opposite the applicable level then in effect (based on the Total Net
Leverage Ratio), it being understood that the Applicable Margin for (a) Revolving Loans and Term Loans that are Alternate Base Rate Loans shall be the
percentage set forth under the column “Base Rate Margin”, (b) Revolving Loans and Term Loans that are LIBOR Rate Loans shall be the percentage set forth
under the column “LIBOR Margin & L/C Fee”, (c) the Letter of Credit Fee shall be the percentage set forth under the column “LIBOR Margin & L/C Fee”, (d) the
Commitment Fee shall be the percentage set forth under the column “Commitment Fee” and (e) subject to the provisions of Section 2.5(e) , the Delayed Draw
Ticking Fee shall be the percentage set forth under the column “Delayed Draw Ticking Fee”:
Level
I
II
III
IV
V
VI
Total Net
Leverage
Ratio
Greater than 3.50 to 1.00
Greater than 3.00 to 1.00
but less than or equal to
3.50 to 1.00
Greater than 2.50 to 1.00
but less than or equal to
3.00 to 1.00
Greater than 2.00 to 1.00
but less than or equal to
2.50 to 1.00
Greater than 1.50 to 1.00
but less than or equal to
2.00 to 1.00
Less than or equal to 1.50
to 1.00
Applicable Margin
LIBOR Margin
& L/C Fee
2.75%
2.50%
Base Rate Margin
1.75%
1.50%
Commitment
Fee
0.500%
0.450%
Delayed Draw
Ticking Fee
0.500%
0.450%
2.25%
2.00%
1.75%
1.50%
1.25%
1.00%
0.75%
0.50%
3
0.400%
0.350%
0.300%
0.250%
0.400%
0.350%
0.300%
0.250%
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
The Applicable Margin shall, in each case, be determined and adjusted quarterly on the date five (5) Business Days after the date on which the
Administrative Agent has received from the Borrower the financial information and the certifications required to be delivered to the Administrative Agent and the
Lenders in accordance with the provisions of Sections 5.1(a), 5.1(b) and 5.2(b) (each an “ Interest Determination Date ”). Such Applicable Margin shall be
effective from such Interest Determination Date until the next such Interest Determination Date. After the Closing Date, if the Credit Parties shall fail to provide
the financial information or certifications in accordance with the provisions of Sections 5.1(a), 5.1(b) and 5.2(b), the Applicable Margin shall, on the date five (5)
Business Days after the date by which the Credit Parties were so required to provide such financial information or certifications to the Administrative Agent and
the Lenders, be based on Level I until such time as such information or certifications or corrected information or corrected certificates are provided, whereupon the
Level shall be determined by the then current Total Net Leverage Ratio. For purposes of the Applicable Margin, the Consolidated Funded Debt used to determine
Total Net Leverage Ratio shall also be net of amounts outstanding of the Existing Notes. Notwithstanding the foregoing, the initial Applicable Margins shall be set
at Level VI until the financial information and certificates required to be delivered pursuant to Section 5.1 and 5.2 for the fiscal quarter ending December 31, 2018
have been delivered to the Administrative Agent, for distribution to the Lenders. In the event that any financial statement or certification delivered pursuant to
Sections 5.1 or 5.2 is shown to be inaccurate (regardless of whether this Agreement or the Commitments are in effect when such inaccuracy is discovered), and
such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for any period (an “ Applicable Period ”) than the Applicable
Margin applied for such Applicable Period, the Borrower shall immediately (a) deliver to the Administrative Agent a corrected compliance certificate for such
Applicable Period, (b) determine the Applicable Margin for such Applicable Period based upon the corrected compliance certificate, and (c) promptly pay to the
Administrative Agent for the benefit of the Lenders the accrued additional interest and other fees owing as a result of such increased Applicable Margin for such
Applicable Period, which payment shall be promptly distributed by the Administrative Agent to the Lenders entitled thereto. It is acknowledged and agreed that
nothing contained herein shall limit the rights of the Administrative Agent and the Lenders under the Credit Documents, including their rights under Sections 2.8
and 7.1.
“ Applicable Percentage ” shall mean, with respect to any Revolving Lender, the percentage of the total Revolving Commitments represented by such
Revolving Lender’s Revolving Commitment. If the Revolving Commitments have terminated or expired, the Applicable Percentage shall be determined based on
the Revolving Commitments most recently in effect, giving effect to any assignments.
“ Approved Bank ” shall have the meaning set forth in the definition of “Cash Equivalents.”
“ Approved Fund ” shall mean any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an
entity that administers or manages a Lender.
“ Arranger ” shall mean Citizens.
“ Asset Disposition ” shall mean the disposition of any or all of the assets (including, without limitation, the Equity Interests of a Subsidiary or any
ownership interest in a joint venture) of any Credit Party or any Subsidiary whether by sale, lease, transfer or otherwise, in a single transaction or in a series of
transactions. The term “Asset Disposition” shall not include (a) the sale, lease, transfer or other disposition of assets permitted by Subsections 6.4(a)(i) through (v),
or (b) any Equity Issuance.
“ Assignment and Assumption ” shall mean an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any
party whose consent is required by Section 9.6), and accepted by the Administrative Agent, in substantially the form of Exhibit 1.1(b) or any other form approved
by the Administrative Agent.
“ Authorized Officers ” shall mean the Responsible Officers set forth on Schedule 3.28 .
4
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Bail-In Action ” shall mean the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any
liability of an EEA Financial Institution.
“ Bail-In Legislation ” shall mean, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European
Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-
In Legislation Schedule.
“ Bank Product ” shall mean any of the following products, services or facilities extended to any Credit Party or any Subsidiary by any Bank Product
Provider: (a) Cash Management Services; (b) products under any Hedging Agreement; and (c) commercial credit card, purchase card and merchant card services;
provided , however , that for any of the foregoing to be included as “Credit Party Obligations” for purposes of a distribution under Section 2.11(b), the applicable
Bank Product Provider must have previously provided a Bank Product Provider Notice to the Administrative Agent which shall indicate the existence of such Bank
Product. Any Bank Product established from and after the time that the Lenders have received written notice from the Company or the Administrative Agent that
an Event of Default exists, until such Event of Default has been waived in accordance with Section 9.1, shall not be included as “Credit Party Obligations” for
purposes of a distribution under Section 2.11(b).
“ Bank Product Debt ” shall mean the Indebtedness and other obligations of any Credit Party or Subsidiary relating to Bank Products.
“ Bank Product Provider ” shall mean any Person that provides Bank Products to a Credit Party or any Subsidiary to the extent that (a) such Person is a
Lender, an Affiliate of a Lender or any other Person that was a Lender (or an Affiliate of a Lender) at the time it entered into the Bank Product but has ceased to be
a Lender (or whose Affiliate has ceased to be a Lender) under this Agreement or (b) such Person is a Lender or an Affiliate of a Lender on the Closing Date and the
Bank Product was entered into on or prior to the Closing Date (even if such Person ceases to be a Lender or such Person’s Affiliate ceased to be a Lender).
“ Bank Product Provider Notice ” shall mean a notice substantially in the form of Exhibit 1.1(g) .
“ Bankruptcy Code ” shall mean the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to
time.
“ Bankruptcy Event ” shall mean any of the events described in Section 7.1(f) .
“ Beneficial Ownership Certification ” shall mean a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.
“ Beneficial Ownership Regulation ” shall mean 31 C.F.R. § 1010.230.
“ Borrower ” shall have the meaning set forth in the first paragraph of this Agreement.
“ Borrowing Date ” shall mean, in respect of any Loan, the date such Loan is made.
“ Business ” shall have the meaning set forth in Section 3.10(c) .
5
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in Boston, Massachusetts or New York,
New York are authorized or required by law to close; provided , however , that when used in connection with a rate determination, borrowing or payment in
respect of a LIBOR Rate Loan, the term “Business Day” shall also exclude any day on which banks in London, England are not open for dealings in Dollar
deposits in the London interbank market.
“ Capital Lease ” shall mean any lease of property, real or personal, the obligations with respect to which are required to be capitalized on a balance sheet
of the lessee in accordance with GAAP.
“ Capital Lease Obligations ” shall mean the capitalized lease obligations relating to a Capital Lease determined in accordance with GAAP.
“ Cash Collateralize ” shall mean to deposit in a Controlled Account or to pledge and deposit with or deliver to the Administrative Agent, for the benefit
of one or more of the Issuing Lenders or Lenders, as collateral for LOC Obligations or obligations of Lenders to fund participations in respect of LOC Obligations,
cash or deposit account balances or, if the Administrative Agent and each applicable Issuing Lender shall agree in their sole discretion, other credit support, in each
case pursuant to documentation in form and substance satisfactory to the Administrative Agent and each applicable Issuing Lender. “Cash Collateral” shall have a
meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“ Cash Equivalents ” shall mean (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof ( provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than
twelve months from the date of acquisition (“ Government Obligations ”), (b) Dollar denominated time deposits, certificates of deposit, Eurodollar time deposits
and Eurodollar certificates of deposit of (i) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (ii) any
bank whose short-term commercial paper rating at the time of the acquisition thereof is at least A-1 or the equivalent thereof from S&P or from Moody’s is at least
P-1 or the equivalent thereof from Moody’s (any such bank being an “ Approved Bank ”), in each case with maturities of not more than 364 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 Moody’s
and maturing within six months of the date of acquisition, (d) repurchase agreements with a term of not more than thirty (30) days with a bank or trust company
(including a Lender) or a recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by
the United States of America, (e) obligations of any state of the United States or any political subdivision thereof for the payment of the principal and redemption
price of and interest on which there shall have been irrevocably deposited Government Obligations maturing as to principal and interest at times and in amounts
sufficient to provide such payment, (f) money market accounts subject to Rule 2a-7 of the Investment Company Act of 1940 (“ Rule 2a-7 ”) which consist
primarily of cash and cash equivalents set forth in clauses (a) through (e) above and of which 95% shall at all times be comprised of First Tier Securities (as
defined in Rule 2a-7) and any remaining amount shall at all times be comprised of Second Tier Securities (as defined in Rule 2a-7) and (g) shares of any so-called
“money market fund”; provided that such fund is registered under the Investment Company Act of 1940, has net assets of at least $500,000,000 and has an
investment portfolio with an average maturity of 365 days or less.
“ Cash Management Services ” shall mean 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.
6
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ CFC ” shall mean a “controlled foreign corporation” within the meaning of Section 957(a) of the Code.
“ CFC Holding Company ” shall mean any Domestic Subsidiary with no material assets other than the Equity Interests in one or more CFCs.
“ Change in Law ” shall mean the occurrence, after the Closing Date, 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 ” shall mean at any time the occurrence of any of the following events:
(a) the Borrower shall fail to own 100% of the Equity Interests of each Credit Party, except as otherwise permitted under the Credit Documents;
(b) (i) any “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), is or becomes the “beneficial owner” (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have “beneficial ownership” of all securities that such person
has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of thirty-five percent (35%) or more
of the then outstanding Voting Stock of the Borrower or (ii) any Person or two or more Persons acting in concert, shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of the Borrower or control over the Voting Stock of the Borrower on a fully-diluted basis (and
taking into account all such Voting Stock that such Person or group has the right to acquire pursuant to any option right) representing thirty-five percent (35%) or
more of the then outstanding Voting Stock of the Borrower; or
(c) there shall have occurred under the Existing Notes any “Fundamental Change” (as defined in the Existing Notes Indenture).
“ Citizens ” shall mean Citizens Bank, N.A., a national banking association, together with its permitted successors and/or assigns.
“ Closing Date ” shall mean the date of this Agreement.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.
7
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Collateral ” shall mean a collective reference to the collateral which is identified in, and at any time will be covered by, the Security Documents and any
other property or assets of a Credit Party, whether tangible or intangible and whether real or personal, that may from time to time secure the Credit Party
Obligations; provided that there shall be excluded from the Collateral (a) any 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, (b) any lease in which the lessee is a Sanctioned Person or Sanctioned Entity and (c)
property described in Section 2(e) of the Security Agreement.
“ Commitment ” shall mean the Revolving Commitments, the LOC Commitment, the Initial Term Loan Commitments, the Delayed Draw Term Loan
Commitments, and the Swingline Commitment, individually or collectively, as appropriate.
“ Commitment Fee ” shall have the meaning set forth in Section 2.5(a).
“ Commitment Percentage ” shall mean the Revolving Commitment Percentage and/or the Term Loan Commitment Percentage, as appropriate.
“ Commitment Period ” shall mean (a) with respect to Revolving Loans and Swingline Loans, the period from and including the Closing Date to but
excluding the Maturity Date and (b) with respect to Letters of Credit, the period from and including the Closing Date to but excluding the date that is thirty (30)
days prior to the Maturity Date.
“ Committed Funded Exposure ” shall mean, as to any Lender at any time, the aggregate principal amount at such time of its outstanding Loans, LOC
Obligations and Participation Interests at such time.
“ Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
“ Commonly Controlled Entity ” shall mean an entity, whether or not incorporated, which is under common control with the Borrower within the meaning
of Section 4001(b)(1) of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414(b) or 414(c) of the
Code or, solely for purposes of Section 412 of the Code to the extent required by such Section, Section 414(m) or 414(o) of the Code.
“ Communications ” shall have the meaning set forth in Section 9.2(d)(ii) .
“ Connection Income Taxes ” shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are
franchise Taxes or branch profits Taxes.
“ Consolidated ” shall mean, when used with reference to financial statements or financial statement items of the Borrower and its Subsidiaries or any
other Person, such statements or items on a consolidated basis in accordance with the consolidation principles of GAAP.
“ Consolidated Capital Expenditures ” shall mean, as of any date of determination for the four (4) consecutive fiscal quarter period ending on such date,
all expenditures of the Credit Parties and their Subsidiaries on a Consolidated basis for such period in respect of fixed or capital assets that in accordance with
GAAP would be classified as capital expenditures, including, without limitation, Capital Lease Obligations. The term “Consolidated Capital Expenditures” shall
not include (a) any Permitted Acquisition, (b) capital expenditures in respect of the reinvestment of proceeds from Extraordinary Receipts in accordance with the
terms of Section 2.7(b)(vi), (c) any Investment, or (d) any expenditures which are contractually required to be made and are reimbursed to the Credit Party in cash
by a third party, during the period of determination.
8
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Consolidated EBITDA ” shall mean, as of any date of determination for the four (4) consecutive fiscal quarter period ending on such date, without
duplication, (a) Consolidated Net Income for such period plus (b) the sum of the following to the extent deducted in calculating Consolidated Net Income for such
period: (i) Consolidated Interest Expense 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, (iii) depreciation and amortization expense of the Credit Parties and their Subsidiaries for such
period and, to the extent they do not result in a cash charge or expense in any future period, any other non-cash charges and expenses, including amortization of
goodwill, debt issue costs and amortization under FAS Rule 123 for such period, (iv) fees and reasonable and documented out-of-pocket expenses incurred in
connection with the negotiation, execution and delivery on the Closing Date of the Credit Documents and consummation on the Closing Date of the Transactions
in an aggregate amount not to exceed $5,000,000 during any four (4) consecutive fiscal quarter period, (v) non-recurring transaction costs, fees, expenses and
charges incurred in connection with Permitted Acquisitions, any other acquisitions, any Dispositions, any Equity Issuance or any issuance of Indebtedness
(whether or not such transaction was completed), in each case, permitted hereunder in an aggregate amount during any four (4) consecutive fiscal quarter period
not to exceed 5% of the Consolidated EBITDA in such period (calculated prior to giving pro forma effect to such amounts), (vi) non-cash deductions or charges
attributable to purchase accounting adjustments made in accordance with GAAP and taken in such period, (vii) non-cash charges incurred during such period with
respect to stock based compensation to employees and directors of the Credit Parties, (viii) upfront cash payments in respect of any Hedging Agreement made in
such period, (ix) in each case to the extent calculated in good faith by the Credit Parties, (A) the amount of any non-recurring restructuring charge, reserve,
integration cost or other business optimization expense or cost that is deducted in such period, including charges directly related to implementation of cost-savings
initiatives (including, without limitation, severance, retention, signing bonuses, relocation, recruiting and other employee related costs) and (B) any charges, costs
or expenses incurred pursuant to launches of new products (but excluding any research and development expenses), in each case in an aggregate amount during
any four (4) consecutive fiscal quarter period not to exceed 10% of the Consolidated EBITDA in such period (calculated prior to giving pro forma effect to such
amounts), (x) any provision for the reduction in carrying value of assets (including deferred Tax assets) recorded in accordance with GAAP, (xi) any non-cash
losses resulting from mark to market activity, (xii) extraordinary, unusual or non-recurring losses and (xiii) the amount of any expenses, charges or losses for such
period that are covered by indemnification or other reimbursement provisions in connection with any Permitted Acquisition, any other acquisition, Investment,
Restricted Payment, Equity Issuance, issuance of Indebtedness or Disposition, in each case, permitted hereunder, so long as the Borrower has made a determination
that a reasonable basis exists for indemnification or reimbursement and such amount is actually reimbursed within 365 days of such date of determination (it being
understood that to the extent not actually received within such 365-day period, such proceeds shall be deducted in the applicable future periods when calculating
Consolidated EBITDA), minus (c) non-cash charges previously added back to Consolidated Net Income in determining Consolidated EBITDA to the extent such
non-cash charges have become cash charges during such period minus (d) any other non-recurring, non-cash gains during such period (including, without
limitation, (i) gains from the sale or exchange of assets and (ii) gains from early extinguishment of Indebtedness or Hedging Agreements of the Credit Parties and
their Subsidiaries).
“ Consolidated Funded Debt ” shall mean, as of any date of determination, Funded Debt of the Credit Parties and their Subsidiaries on a Consolidated
basis.
9
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Consolidated Interest Expense ” shall mean, as of any date of determination for the four (4) consecutive fiscal 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
Consolidated basis, excluding any interest paid or payable with respect to discontinued operations and any upfront fees in connection with the issuance or
amendment of Indebtedness and any agent fees and expenses in connection with the issuance or amendment of any Indebtedness.
“ Consolidated Net Income ” shall mean, as of any date of determination for the four (4) consecutive fiscal quarter period ending on such date, the net
income (excluding (a) extraordinary losses and gains, (b) all non-cash income, (c) interest income, (d) tax credits, rebates and other benefits and (e) income
received from joint venture investments to the extent not received in cash) of the Credit Parties and their Subsidiaries on a Consolidated basis for such period, all as
determined in accordance with GAAP.
“ Contingent Payments ” shall mean additional consideration to be paid by any Credit Party or its Subsidiary for any Registration that has been previously
acquired or that may be acquired by any such Person, in each case, in accordance with the terms of this Agreement, that is payable out of a portion of net sales, net
profits or other sales-based milestone with respect to the acquired Registration; provided that the foregoing shall not include any royalty payments or obligations.
“ Contractual Obligation ” shall mean, as to any Person, any provision of any security issued by such Person or of any contract, agreement, instrument or
undertaking to which such Person is a party or by which it or any of its property is bound.
“ Control ” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” shall have meanings correlative thereto.
“ Controlled Account ” shall mean each deposit account and securities account that is subject to an account control agreement in form and substance
satisfactory to the Administrative Agent and each applicable Issuing Lender.
“ Copyright Licenses ” shall mean any agreement, whether written or oral, providing for the grant by or to a Person of any right under any Copyright.
“ Copyrights ” shall mean all copyrights in all Works, all registrations and recordings thereof, and all applications in connection therewith, including,
without limitation, registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state
thereof or any other country or any political subdivision thereof, or otherwise and all renewals thereof.
“ Credit Documents ” shall mean this Agreement, each of the Notes, any Joinder Agreement, the Letters of Credit, LOC Documents and the Security
Documents and all other agreements, documents, certificates and instruments delivered to the Administrative Agent or any Lender by any Credit Party in
connection therewith (other than any agreement, document, certificate or instrument related to a Bank Product).
10
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Credit Party ” shall mean any of the Borrower or the Guarantors.
“ Credit Party Obligations ” shall mean, without duplication, (a) the Obligations and (b) for purposes of the Guaranty, the Security Documents and all
provisions under the other Credit Documents relating to the Collateral, the sharing thereof and/or payments from proceeds of the Collateral, all Bank Product Debt,
but in all cases excluding Excluded Swap Obligations.
“ DDTL Account ” shall mean a lockbox account of the Borrower subject to a Deposit Account Control Agreement and containing the proceeds of any
drawn portion of the Delayed Draw Term Loans.
“ Debt Issuance ” shall mean the issuance of any Indebtedness by any Credit Party or any of its Subsidiaries (excluding any Equity Issuance or any
Indebtedness of any Credit Party and its Subsidiaries permitted to be incurred hereunder).
“ Debtor Relief Laws ” shall mean the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors,
moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time
to time in effect.
“ Default ” shall mean any of the events specified in Section 7.1, whether or not any requirement for the giving of notice or the lapse of time, or both, or
any other condition, has been satisfied.
“ Default Rate ” shall mean (a) when used with respect to the Obligations, other than Letter of Credit Fees, an interest rate equal to (i) for Alternate Base
Rate Loans (A) the Alternate Base Rate plus (B) the Applicable Margin applicable to Alternate Base Rate Loans plus (C) 2.00% per annum and (ii) for LIBOR
Rate Loans, (A) the LIBOR Rate plus (B) the Applicable Margin applicable to LIBOR Rate Loans plus (C) 2.00% per annum, (b) when used with respect to Letter
of Credit Fees, a rate equal to the Applicable Margin applicable to Letter of Credit Fees plus 2.00% per annum and (c) when used with respect to any other fee or
amount due hereunder, a rate equal to (A) the Alternate Base Rate plus (B) the Applicable Margin applicable to Alternate Base Rate Loans plus (C) 2.00% per
annum.
“ Defaulting Lender ” shall mean, subject to Section 2.21(b), any Lender that, (a) has failed to (i) fund all or any portion of its Loans within two (2)
Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that
such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any
applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any Issuing Lender, any Swingline
Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans)
within two (2) Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent or any Issuing Lender or Swingline Lender in writing
that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement
relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to
funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied),
(c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and
the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to
this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that
has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee
for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance
Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall
not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by
a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the
United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject,
repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting
Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a
Defaulting Lender (subject to Section 2.21(b)) upon delivery of written notice of such determination to the Borrower, each Issuing Lender, each Swingline Lender
and each Lender.
11
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Delayed Draw Availability Period ” shall mean the period from the Closing Date until December 1, 2019.
“ Delayed Draw Funding Date ” shall mean the date on which any portion of the Delayed Draw Term Loans is funded to the Borrower (or its designee) in
accordance with Section 2.2(b)(ii)(B).
“ Delayed Draw Term Loans ” shall have the meaning set forth in Section 2.2(b).
“ Delayed Draw Term Loan Commitment Percentage ” shall mean, for any Delayed Draw Term Loan Lender, the percentage identified as its Delayed
Draw Term Loan Commitment Percentage on Schedule 2.1(a), or in the Assignment and Assumption pursuant to which such Lender became a Lender hereunder,
as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(b).
“ Delayed Draw Term Loan Committed Amount ” shall have the meaning set forth in Section 2.2(b).
“ Delayed Draw Term Loan Facility ” shall have the meaning set forth in Section 2.2(b).
“ Delayed Draw Term Loan Lender ” shall mean a Lender holding a Delayed Draw Term Loan Commitment or a portion of the outstanding Delayed
Draw Term Loans.
“ Delayed Draw Ticking Fee ” shall have the meaning set forth in Section 2.5(e).
“ Deposit Account Control Agreement ” shall mean an agreement, among a Credit Party, a depository institution, and the Administrative Agent, which
agreement is in a form acceptable to the Administrative Agent and which provides the Administrative Agent with “control” (as such term is used in Article 9 of the
UCC) over the deposit account(s) described therein, as the same may be amended, modified, extended, restated, replaced, or supplemented from time to time.
12
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Disposition ” shall have the meaning set forth in Section 6.4.
“ Dollars ” and “ $ ” shall mean dollars in lawful currency of the United States of America.
“ Domestic Lending Office ” shall mean, initially, the office of each Lender designated as such Lender’s Domestic Lending Office shown in such
Lender’s Administrative Questionnaire; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent
and the Borrower as the office of such Lender at which Alternate Base Rate Loans of such Lender are to be made.
“ Domestic Subsidiary ” shall mean any Subsidiary that is organized and existing under the laws of the United States or any state or commonwealth
thereof or under the laws of the District of Columbia.
“ EEA Financial Institution ” shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the
supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of
this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this
definition and is subject to consolidated supervision with its parent.
“ EEA Member Country ” shall mean any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” shall mean any public administrative authority or any person entrusted with public administrative authority of any EEA
Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ Eligible Assignee ” shall mean any Person that meets the requirements to be an assignee under Sections 9.6(b)(iii) , (v) and (vi) (subject to such
consents, if any, as may be required under Section 9.6(b)(iii) ).
“ Engagement Letter ” shall mean the letter agreement dated December 5, 2018, addressed to the Borrower from Citizens, as amended, modified,
extended, restated, replaced, or supplemented from time to time.
“ Environmental Laws ” shall mean any and all applicable foreign, federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirement of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment, as now or may at any time be in effect during the term of this Agreement.
“ Equity Interests ” shall mean (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,
preferred or limited), (d) in the case of a limited liability company, membership interests and (e) any other interest or participation that confers or could confer on a
Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, without limitation, options, warrants and any other
“equity security” as defined in Rule 3a11-1 of the Exchange Act.
13
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Equity Issuance ” shall mean any issuance by any Credit Party or any Subsidiary to any Person which is not a Credit Party or a Subsidiary of (a) shares
or interests of its Equity Interests, (b) its Equity Interests pursuant to the exercise of options or warrants or similar rights, (c) any shares or interests of its Equity
Interests pursuant to the conversion of any debt securities to equity or (d) warrants or options or similar rights that are exercisable or convertible into shares or
interests of its Equity Interests. The term “Equity Issuance” shall not include (i) any Equity Interests issued as consideration for a Permitted Acquisition for which
there are no net cash proceeds, (ii) any Disposition or (iii) any Debt Issuance.
“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ ERISA Plan ” shall mean, as of any date of determination, any employee benefit plan which is covered by Title IV of ERISA and in respect of which
any Credit Party or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an
“employer” as defined in Section 3(5) of ERISA.
“ EU Bail-In Legislation Schedule ” shall mean the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person),
as in effect from time to time.
“ Eurodollar Reserve Percentage ” shall mean for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities, as defined in
Regulation D of such Board as in effect from time to time, or any similar category of liabilities for a member bank of the Federal Reserve System in New York
City.
“ Event of Default ” shall mean any of the events specified in Section 7.1; provided , however , that any requirement for the giving of notice or the lapse
of time, or both, or any other condition, has been satisfied.
“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
“ Excluded Domestic Subsidiary ” shall mean any Domestic Subsidiary that is (a) a direct or indirect Subsidiary of an Excluded Foreign Subsidiary or (b)
a CFC Holding Company.
“ Excluded Foreign Subsidiary ” shall mean a Foreign Subsidiary which is (a) a CFC, (b) owned by a CFC or (c) all or substantially all of whose assets
consist of Equity Interests of a CFC, in each case that has not guaranteed or pledged any of its assets to secure, or with respect to which there shall not have been
pledged 65% or more of the Voting Stock to secure, any Indebtedness (other than the Loans) of a Credit Party or any other Subsidiary of the Borrower which is a
United States person within the meaning of Section 7701(a)(30) of the Code.
“ Excluded Swap Obligation ” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guaranty of
such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guaranty thereof) is or becomes illegal under the
Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any
thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the
regulations thereunder at the time the Guaranty of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation. If
a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is
attributable to swaps for which such Guaranty or security interest is or becomes illegal.
14
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Excluded Taxes ” shall mean any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a
payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i)
imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office
located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal
withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a
law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower
under Section 2.19(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.16, amounts with respect to such
Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its
lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.16(g) and (d) any U.S. federal withholding Taxes imposed under
FATCA.
“ Existing Credit Agreement ” shall mean that certain Credit Agreement dated as of December 29, 2017 by and among the Borrower, the Guarantors, the
lenders named therein and Citizens, as administrative agent for the lenders, as amended by that certain First Amendment to Credit Agreement dated as of February
5, 2018, that certain Second Amendment and Waiver to Credit Agreement dated as of April 9, 2018 and that certain Second Waiver to Credit Agreement dated as
of August 3, 2018.
“ Existing Facilities ” shall have the meaning set forth in Section 2.22(c) .
“ Existing Notes ” shall mean the 3.00% Convertible Senior Notes due 2019 in the aggregate principal amount of $143,750,000 issued pursuant to the
Existing Notes Indenture.
“ Existing Notes Condition ” shall mean, as of any date, (a) (i) after giving effect to the Delayed Draw Term Loan Facility as if fully drawn on a Pro
Forma Basis, the Borrower shall demonstrate that as of such date, the Total Net Leverage Ratio shall not be greater than 3.75 to 1.00, (ii) Liquidity is no less than
[***] and (iii) no Default or Event of Default has occurred and is continuing, (b) the outstanding aggregate principal and interest amount of the Existing Notes as
of such date is no greater than[***], or (c) the Existing Notes have been refinanced in full with Permitted Refinancing Indebtedness.
“ Existing Notes Indenture ” shall mean the Indenture, dated as of December 10, 2014 between the Borrower and The Bank of New York Mellon, as
trustee, and as supplemented by the First Supplemental Indenture.
“ Extension of Credit ” shall mean, as to any Lender, the making of a Loan by such Lender, any conversion of a Loan from one Type to another Type, any
extension of any Loan or the issuance, extension or renewal of, or participation in, a Letter of Credit or Swingline Loan by such Lender.
15
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Extraordinary Receipt ” shall mean any cash received by or paid to or for the account of any Person not in the ordinary course of business, including
Recovery Events, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute
compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments (except indemnity payments reimbursing a Credit Party
for out of pocket expenses) and any purchase price adjustments (except standard net working capital adjustments); provided , however , that an Extraordinary
Receipt shall not include indemnity payments to the extent that payments are received by any Person in respect of any third party claim against such Person and
applied to pay (or to reimburse such Person for its prior payment of) such claim and the costs and expenses of such Person with respect thereto.
“ FATCA ” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is
substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement
entered into pursuant to Section 1471(b)(1) of the Code.
“ FDA ” shall mean the United States Food and Drug Administration and any successor thereto.
“ Federal Funds Effective Rate ” shall have the meaning set forth in the definition of “Alternate Base Rate”.
“ Fixed Charge Coverage Ratio ” shall mean, as of any date of determination, for the Credit Parties and their Subsidiaries on a Consolidated basis, the
ratio of (a) Consolidated EBITDA for the four (4) consecutive fiscal quarters ending on such date minus Consolidated Capital Expenditures made during the four
(4) consecutive fiscal quarter period ending on such date and not financed with Funded Debt minus dividends, distributions, stock repurchases and redemptions and
repayments of Indebtedness made pursuant to Section 6.9, in each case paid in cash, during the four (4) consecutive fiscal quarter period ending on such date minus
all cash income taxes paid during the four (4) consecutive fiscal quarter period ending on such date to (b) the sum of (i) Consolidated Interest Expense paid or
payable in cash during the four (4) consecutive fiscal quarter period ending on such date, (ii) Scheduled Funded Debt Payments made (or required (as of the
Closing Date) to be made) during the four (4) consecutive fiscal quarter period ending on such date (including the principal component of payments due on Capital
Leases) as such Scheduled Funded Debt Payments are reduced by prepayments of Funded Debt solely to the extent such prepayments were applied to ratably
reduce the scheduled amortization of such Funded Debt, if applicable and (iii) except to the extent previously deducted in calculating Consolidated Net Income or
Consolidated EBITDA, Contingent Payments made during the four (4) consecutive fiscal quarter period ending on such date.
“ Flood Hazard Property ” shall mean any Mortgaged Property that is in an area designated by the Federal Emergency Management Agency as having
special flood or mudslide hazards.
“ Flood Insurance Laws ” shall mean, collectively, (i) the National Flood Insurance Reform Act of 1994 (which comprehensively revised the National
Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973) as now or hereafter in effect or any successor statute thereto, (ii) the Flood Insurance
Reform Act of 2004 as now or hereafter in effect or any successor statute thereto and (iii) the Biggert-Waters Flood Insurance Reform Act of 2012 as now or
hereafter in effect or any successor statute thereto.
16
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Foreign Lender ” shall mean (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a
Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.
“ Foreign Subsidiary ” shall mean any Subsidiary that either (i) is not a Domestic Subsidiary or (ii) is a CFC Holding Company.
“ Fronting Exposure ” shall mean, at any time there is a Defaulting Lender, (a) with respect to any Issuing Lender, such Defaulting Lender’s Applicable
Percentage of the outstanding LOC Obligations with respect to Letters of Credit issued by such Issuing Lender other than LOC Obligations as to which such
Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect
to any Swingline Lender, such Defaulting Lender’s Applicable Percentage of outstanding Swingline Loans made by such Swingline Lender other than Swingline
Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders.
“ Fund ” shall mean any Person (other than a natural person) that is engaged in making, purchasing, holding or otherwise investing in commercial loans,
bonds and similar extensions of credit in the ordinary course of its activities.
“ Funded Debt ” shall mean, with respect to any Person, without duplication, all Indebtedness of such Person (other than Indebtedness set forth in clauses
(e), (i), (m) (to the extent non-recourse to such Person) and (n) of such definition).
“ GAAP ” shall mean generally accepted accounting principles in effect in the United States of America (or, in the case of Foreign Subsidiaries with
significant operations outside the United States of America, generally accepted accounting principles in effect from time to time in their respective jurisdictions of
organization or formation) applied on a consistent basis, subject , however , in the case of determination of compliance with the financial covenants set out in
Section 5.9 to the provisions of Section 1.3.
“ Government Acts ” shall have the meaning set forth in Section 2.17.
“ Government Obligations ” shall have the meaning set forth in the definition of “Cash Equivalents.”
“ Governmental Authority ” shall mean the government of the United States of America or any other nation, or of any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the
European Central Bank).
“ Guarantor ” shall mean the Domestic Subsidiaries of the Borrower that are, or may from time to time become, parties to this Agreement.
“ Guaranty ” shall mean the guaranty of the Guarantors set forth in Article X.
17
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Guaranty Obligations ” shall mean, 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, if larger) of the Indebtedness in respect of which such Guaranty Obligation is
made.
“ Health Care Laws ” shall mean the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b(b)), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the
civil False Claims Act (31 U.S.C. §§ 3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the civil monetary penalty laws (42 U.S.C. §
1320a-7a), the federal Food, Drug & Cosmetic Act (21 U.S.C. §§ 301 et seq.), the federal Controlled Substances Act (21 U.S.C. § 801 et seq.), HIPAA, the
Medicaid Drug Rebate Program (42 U.S.C. § 1396r-8), Medicare average sales price reporting (42 U.S.C. § 1395w-3a), the Public Health Service Act (42 U.S.C. §
256b), the federal TRICARE program (10 U.S.C. §1071 et seq.), the VA Federal Supply Schedule (38 U.S.C. § 8126), and the regulations promulgated pursuant to
such laws, each as amended from time to time.
“ Hedging Agreements ” shall mean, 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.
“ Included Products ” shall mean any and all drug products that, as of the Closing Date, the Borrower or any of the Subsidiaries sells, offers for sale,
imports, promotes, markets, distributes or otherwise commercializes (or possesses the rights to sell, offer for sale, import, promote, market, distribute or otherwise
commercialize) anywhere.
“ Incremental Facility Increase Amount ” shall have the meaning set forth in Section 2.22(f).
“ Incremental Term Facility ” shall have the meaning set forth in Section 2.22.
18
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Indebtedness ” shall mean, 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) 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, or payable out of the proceeds of production from, 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 Equity Interests 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, (m) all
obligations of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer and (n) obligations of such Person under
non-compete agreements to the extent such obligations are quantifiable contingent obligations of such Person under GAAP principles.
“ Indemnified Taxes ” shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any
obligation of any Credit Party under any Credit Document and (b) to the extent not otherwise described in (a), Other Taxes.
“ Indemnitee ” shall have the meaning set forth in Section 9.5(b) .
“ Information ” shall have the meaning set forth in Section 9.14 .
“ Information Materials ” shall have the meaning set forth in Section 5.15(a) .
“ Initial Term Loan ” shall have the meaning set forth in Section 2.2(a) .
“ Initial Term Loan Commitment ” shall mean, with respect to each Initial Term Loan Lender, the commitment of such Initial Term Loan Lender to make
its portion of the Initial Term Loan in a principal amount equal to such Initial Term Loan Lender’s Term Loan Commitment Percentage of the Initial Term Loan
Committed Amount.
“ Initial Term Loan Commitment Percentage ” shall mean, for any Initial Term Loan Lender, the percentage identified as its Initial Term Loan
Commitment Percentage on Schedule 2.1(a) , or in the Assignment and Assumption pursuant to which such Lender became a Lender hereunder, as such percentage
may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(b) .
“ Initial Term Loan Committed Amount ” shall have the meaning set forth in Section 2.2(a) .
“ Initial Term Loan Facility ” shall have the meaning set forth in Section 2.2(a) .
“ Initial Term Loan Lender ” shall mean a Lender holding an Initial Term Loan Commitment or a portion of the outstanding of the Initial Term Loan.
“ Insolvency ” shall mean, with respect to any Multiemployer Plan, the condition that such ERISA Plan is insolvent within the meaning of such term as
used in Section 4245 of ERISA.
19
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Intellectual Property ” shall mean, collectively, all Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses of the
Credit Parties and their Subsidiaries, all goodwill associated therewith and all rights to sue for infringement thereof.
“ Intercompany Debt ” shall have the meaning set forth in Section 9.19.
“ Interest Determination Date ” shall have the meaning specified in the definition of “Applicable Margin”.
“ Interest Payment Date ” shall mean (a) as to any Alternate Base Rate Loan, the last Business Day of each March, June, September and December and on
the applicable Maturity Date, (b) as to any LIBOR Rate Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any
LIBOR Rate Loan having an Interest Period longer than three months, (i) each three (3) month anniversary following the first day of such Interest Period and
(ii) the last day of such Interest Period and (d) as to any Loan which is the subject of a mandatory prepayment required pursuant to Section 2.7(b), the date on
which such mandatory prepayment is due.
“ Interest Period ” shall mean, with respect to any LIBOR Rate Loan,
(a) initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such LIBOR Rate Loan
and ending one, two, three or six months thereafter (or twelve months thereafter, subject to availability to all applicable Lenders), as selected by the
Borrower in the Notice of Borrowing or Notice of Conversion/Extension given with respect thereto; and
(b) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR Rate Loan
and ending one, two, three, six, or twelve months thereafter, subject to availability to all applicable Lenders, as selected by the Borrower by irrevocable
notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided
that the foregoing provisions are subject to the following:
(i) if any Interest Period pertaining to a LIBOR Rate Loan would otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of
the relevant calendar month;
(iii) if the Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected an Alternate Base
Rate Loan to replace the affected LIBOR Rate Loan;
20
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(iv) no Interest Period in respect of any Loan shall extend beyond the applicable Maturity Date and, further with regard to the Term
Loan, no Interest Period shall extend beyond any principal amortization payment date with respect to such Term Loan unless the portion of such
Term Loan consisting of Alternate Base Rate Loans together with the portion of such Term Loan consisting of LIBOR Rate Loans with Interest
Periods expiring prior to or concurrently with the date such principal amortization payment date is due, is at least equal to the amount of such
principal amortization payment due on such date; and
(v) no more than six (6) LIBOR Rate Loans may be in effect at any time. For purposes hereof, LIBOR Rate Loans with different
Interest Periods shall be considered as separate LIBOR Rate Loans, even if they shall begin on the same date and have the same duration,
although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest
Periods to constitute a new LIBOR Rate Loan with a single Interest Period.
“ Internal Control Event ” shall mean a material weakness in, or fraud that involves management or other employees who have a significant role in, any
Credit Party’s internal controls over financial reporting, in each case as described in the Securities Laws.
“ Investment ” shall mean (a) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of Equity
Interests, other ownership interests or other securities of any Person or bonds, notes, debentures or all or substantially all of the assets of any Person, (b) any
deposit with, or advance, loan or other extension of credit to, any Person (other than deposits made in the ordinary course of business) or (c) any other capital
contribution to or investment in any Person, including, without limitation, any Guaranty Obligation (including any support for a letter of credit issued on behalf of
such Person) incurred for the benefit of such Person.
“ IRS ” shall mean the United States Internal Revenue Service.
“ Issuing Lender ” shall mean Citizens, in its capacity as issuer of Letters of Credit hereunder, or such other Lender as designated by the Borrower and
approved by the Administrative Agent; provided that such Lender has agreed to be an Issuing Lender, together with any permitted successor thereto.
“ Issuing Lender Fees ” shall have the meaning set forth in Section 2.5(c).
“ Joinder Agreement ” shall mean a Joinder Agreement in substantially the form of Exhibit 1.1(c) , executed and delivered by an Additional Credit Party
in accordance with the provisions of Section 5.10.
“ Lenders ” shall mean the Persons listed on Schedule 2.1(a) and any other Person that shall have become party hereto pursuant to an Assignment and
Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless the context requires otherwise, the
term “Lenders” includes the Swingline Lenders.
“ Letter of Credit ” shall mean any letter of credit issued by the Issuing Lender pursuant to the terms hereof, as such letter of credit may be amended,
modified, restated, extended, renewed, increased, replaced or supplemented from time to time in accordance with the terms of this Agreement.
“ Letter of Credit Facing Fee ” shall have the meaning set forth in Section 2.5(c).
“ Letter of Credit Fee ” shall have the meaning set forth in Section 2.5(b).
21
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ LIBOR ” shall mean, for any LIBOR Rate Loan for any Interest Period therefor, the rate per annum determined by the Administrative Agent at
approximately 11:00 a.m. (London time), on the date that is two (2) Business Days prior to the commencement of such Interest Period by reference to the rate set
by ICE Benchmark Administration for deposits in Dollars (as set forth by any service selected by the Administrative Agent that has been nominated by ICE
Benchmark Administration as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided ,
however, that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition (other than as a result of LIBOR (or the
publishing of LIBOR) being discontinued), “LIBOR” shall be the interest rate per annum determined by the Administrative Agent to be the average of the rates per
annum at which deposits in Dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the
Administrative Agent at approximately 11:00 a.m. (London time) on the date that is two (2) Business Days prior to the beginning of such Interest Period. If such
day is not a Business Day, LIBOR shall be determined on the next preceding day which is a Business Day. If the LIBOR rate (or the publishing thereof) is
discontinued at any time, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend this definition to provide for a reference
rate to replace LIBOR (subject to the approval of the Required Lenders); provided that until such alternative reference rate is agreed, the Administrative Agent
may, in its reasonable discretion and after giving due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans
in the U.S. market at such time by similarly situated administrative agents, use an alternative method to select a rate calculated by the Administrative Agent to
adequately and fairly reflect the cost to the Lenders of funding Loans hereunder. Notwithstanding the foregoing, for purposes of this Agreement, LIBOR shall in
no event be less than 0% at any time.
If the U.K. Financial Conduct Authority has implemented a policy that LIBOR (or any component thereof) is no longer to be permitted to be a benchmark
rate then the Administrative Agent, the Required Lenders and the Borrower shall negotiate in good faith to enter into an amendment to this Agreement to agree to
an alternative benchmark rate.
“ LIBOR Lending Office ” shall mean, initially, the office(s) of each Lender designated as such Lender’s LIBOR Lending Office in such Lender’s
Administrative Questionnaire; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the
Borrower as the office of such Lender at which the LIBOR Rate Loans of such Lender are to be made.
“ LIBOR Rate ” shall mean a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent
pursuant to the following formula:
LIBOR Rate =
LIBOR
1.0 - Eurodollar Reserve Percentage
“ LIBOR Rate Loan ” shall mean Loans the rate of interest applicable to which is based on the LIBOR Rate.
“ LIBOR Tranche ” shall mean the collective reference to LIBOR Rate Loans whose Interest Periods begin and end on the same day.
22
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Lien ” shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation,
(a) any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing and (b) the
filing of, or the agreement to give, any UCC financing statement).
“ Liquidity ” shall mean the aggregate amount of (a) Unrestricted Cash plus (b) Accessible Borrowing Availability.
“ Loan ” shall mean a Revolving Loan, an Initial Term Loan, a Delayed Draw Term Loan, a Swingline Loan and/or an Incremental Term Facility, as
appropriate.
“ LOC Commitment ” shall mean the commitment of the Issuing Lender to issue Letters of Credit and with respect to each Revolving Lender, the
commitment of such Revolving Lender to purchase Participation Interests in the Letters of Credit up to such Lender’s LOC Commitment as specified in Schedule
2.1(a) , or in the Assignment and Assumption pursuant to which such Lender became a Lender hereunder, as such percentage may be modified in connection with
any assignment made in accordance with the provisions of Section 9.6(b), as such amount may be reduced from time to time in accordance with the provisions
hereof.
“ LOC Committed Amount ” shall have the meaning set forth in Section 2.3(a).
“ LOC Documents ” shall mean, with respect to each Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only
to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or (b) any collateral for such obligations.
“ LOC Obligations ” shall mean, at any time, the sum of (a) the maximum amount which is, or at any time thereafter may become, available to be drawn
under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters of Credit plus (b) the aggregate
amount of all drawings under Letters of Credit honored by the Issuing Lender but not theretofore reimbursed.
“ Mandatory LOC Borrowing ” shall have the meaning set forth in Section 2.3(e).
“ Mandatory Swingline Borrowing ” shall have the meaning set forth in Section 2.4(b)(ii).
“ Material Adverse Effect ” shall mean a material adverse effect on (a) the business, operations, property, assets, condition (financial or otherwise) or
liabilities (actual or contingent) of the Borrower or of the Credit Parties and their Subsidiaries taken as a whole, (b) the ability of the Borrower, individually, or the
Guarantors, taken as a whole, to perform its or their obligations, as applicable, when such obligations are required to be performed, under this Agreement, any of
the Notes or any other Credit Document or (c) the validity or enforceability of this Agreement, any of the Notes or any of the other Credit Documents, the
Administrative Agent’s Liens (for the benefit of the Secured Parties) on the Collateral or the priority of such Liens or the rights or remedies of the Administrative
Agent or the Lenders hereunder or thereunder.
23
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Material Contract ” shall mean (a) any contract or other agreement listed on Schedule 3.23 , (b) any contract or other agreement, written or oral, of the
Credit Parties or any of their Subsidiaries involving monetary liability of or to any such Person in an amount in excess of $10,000,000 per annum, (c) any contract
or other agreement, written or oral, of the Credit Parties or any of their Subsidiaries representing at least $10,000,000 of the total Consolidated revenues of the
Credit Parties and their Subsidiaries for any fiscal year and (d) any other contract, agreement, permit or license, written or oral, of the Credit Parties or any of their
Subsidiaries as to which the breach, nonperformance, cancellation or failure to renew by any party thereto, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
“ Materials of Environmental Concern ” shall mean any gasoline or petroleum (including crude oil or any extraction thereof) or petroleum products or any
pollutants, contaminants, hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without
limitation, asbestos, perchlorate, polychlorinated biphenyls and urea-formaldehyde insulation.
“ Maturity Date ” shall mean the earlier of (a) the date that is five (5) years following the Closing Date or (b) August 30, 2019, unless one or more of the
Existing Notes Conditions has occurred by such date; provided , however , if such date is not a Business Day, the Maturity Date shall be the preceding Business
Day.
“ Minimum Collateral Amount ” shall mean, at any time, (i) with respect to Cash Collateral consisting of cash or deposit account balances, an amount
equal to 105% of the Fronting Exposure of all Issuing Lenders with respect to Letters of Credit issued and outstanding at such time and (ii) otherwise, an amount
determined by the Administrative Agent and the Issuing Lenders in their sole discretion
“ Moody’s ” shall mean Moody’s Investors Service, Inc.
“ Mortgage Instrument ” shall mean any mortgage, deed of trust or deed to secure debt executed by a Credit Party in favor of the Administrative Agent,
for the benefit of the Secured Parties, as the same may be amended, modified, extended, restated, replaced, or supplemented from time to time.
“ Mortgaged Property ” shall mean any owned real property of a Credit Party listed on Schedule 3.16(f)(i) and any other owned real property of a Credit
Party that is or will become encumbered by a Mortgage Instrument in favor of the Administrative Agent in accordance with the terms of this Agreement.
“ Multiemployer Plan ” shall mean an ERISA Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“ Net Cash Proceeds ” shall mean the aggregate cash proceeds received by any Credit Party or any Subsidiary in respect of any Asset Disposition, Equity
Issuance, Debt Issuance or Extraordinary Receipt, net of (a) reasonable and customary direct costs (including, without limitation, legal, accounting and investment
banking fees, underwriting discounts, principal, interest and prepayment or penalty amounts of any Indebtedness that is secured by applicable assets and that is
required to be repaid and sales commissions) associated therewith and paid to Persons who are not Credit Parties or their Affiliates, (b) amounts held in escrow to
be applied as part of the purchase price of any Asset Disposition, (c) taxes paid or reasonably estimated to be payable as a result thereof and (d) amounts retained
by or paid to parties having superior rights to such proceeds; it being understood that “Net Cash Proceeds” shall include, without limitation, any cash received upon
the sale or other disposition of any non-cash consideration received by any Credit Party or any Subsidiary in any Asset Disposition, Debt Issuance or Extraordinary
Receipt and any cash released from escrow as part of the purchase price in connection with any Asset Disposition, to the extent not used to replace any asset, as
permitted herein.
24
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Non-Consenting Lender ” shall mean any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all or all
affected Lenders in accordance with the terms of Section 9.1 and (b) has been approved by the Required Lenders.
“ Non-Defaulting Lender ” shall mean, at any time, each Lender that is not a Defaulting Lender at such time.
“ Note ” or “ Notes ” shall mean the Revolving Loan Notes, the Term Loan Notes and/or the Swingline Loan Note, collectively, separately or
individually, as appropriate.
“ Notice of Borrowing ” shall mean a request for a Revolving Loan borrowing pursuant to Section 2.1(b)(i) , an Initial Term Loan borrowing pursuant to
Section 2.2(a) , a Delayed Draw Term Loan borrowing pursuant to Section 2.2(b) , a Swingline Loan borrowing pursuant to Section 2.4(b)(i) or an Incremental
Term Facility borrowing or Revolving Facility Increase, as applicable, pursuant to Section 2.22 , as appropriate. A Form of Notice of Borrowing is attached as
Exhibit 1.1(d) .
“ Notice of Conversion/Extension ” shall mean the written notice of conversion of a LIBOR Rate Loan to an Alternate Base Rate Loan or an Alternate
Base Rate Loan to a LIBOR Rate Loan, or extension of a LIBOR Rate Loan, in each case substantially in the form of Exhibit 1.1(e) .
“ Obligations ” shall mean, collectively, all of the obligations, Indebtedness and liabilities of the Credit Parties to the Lenders (including the Issuing
Lender) and the Administrative Agent, whenever arising, under this Agreement, the Notes or any of the other Credit Documents, including principal, interest, fees,
costs, charges, expenses, professional fees, reimbursements, all sums chargeable to the Credit Parties or for which any Credit Party is liable as an indemnitor and
whether or not evidenced by a note or other instrument and indemnification obligations and other amounts (including, but not limited to, any interest accruing after
the occurrence of a filing of a petition of bankruptcy under the Bankruptcy Code with respect to any Credit Party, regardless of whether such interest is an allowed
claim under the Bankruptcy Code). In no event shall the Obligations include any Excluded Swap Obligations.
“ OFAC ” shall mean the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“ OID ” shall have the meaning set forth in Section 2.22(c).
“ Operating Lease ” shall mean, 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 other than any such lease in which that Person is the lessor.
“ Other Connection Taxes ” shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such
Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its
obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Credit
Document, or sold or assigned an interest in any Loan or Credit Document).
25
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Other Parties ” shall have the meaning set forth in Section 10.7(c) .
“ Other Taxes ” shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment
made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with
respect to, any Credit Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made
pursuant to Section 2.19).
“ Participant ” shall have the meaning specified in Section 9.6(d).
“ Participant Register ” shall have the meaning specified in Section 9.6(d).
“ Participation Interest ” shall mean a participation interest purchased by a Revolving Lender in LOC Obligations as provided in Section 2.3(c) and in
Swingline Loans as provided in Section 2.4.
“ Patent Licenses ” shall mean any agreement, whether written or oral, providing for the grant by or to a Person of any right to manufacture, use or sell
any invention covered by a Patent.
“ Patents ” shall mean (a) all letters patent of the United States or any other country, now existing or hereafter arising, and all improvement patents,
reissues, reexaminations, patents of additions, renewals and extensions thereof and (b) all applications for letters patent of the United States or any other country
and all provisionals, divisions, continuations and continuations-in-part and substitutes thereof.
“ Patriot Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT ACT) Act of 2001 (Title III of Pub. L. No. 107-56 (signed into law October 26, 2001)), as amended or modified from time to time.
“ Payment Event of Default ” shall mean an Event of Default specified in Section 7.1(a).
“ PBGC ” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA.
“ Permit ” shall mean, with respect to any Person, any permit, approval, consent, clearance, authorization, license, registration, accreditation, certificate,
certification, certificate of need, concession, grant, franchise, variance or permission from, and any other contractual obligation with, any Governmental Authority,
in each case whether or not having the force of law and applicable to or binding upon such Person or any of its property or Products or to which such Person or any
of its property or Products is subject, including without limitation all Registrations and all Health Care Laws.
“ Permitted Acquisition ” shall mean 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 Voting Stock or economic interests of a Person, (b) a Person by a merger, amalgamation or consolidation or any other combination
with such Person or (c) any division, line of business or other business unit (including new drug applications or abbreviated new drug applications, together with
associated inventory in the ordinary course of business) of a Person (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 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 6.3, in each case so long as:
26
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(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 Administrative Agent that, after giving effect to the
acquisition on a Pro Forma Basis, (A) the Credit Parties are in compliance with each of the financial covenants set forth in Section 5.9 and (B)
the Total Net Leverage Ratio shall be not greater than 0.25 to 1.0 less than the then applicable level set forth in Section 5.9;
(iii) the Administrative Agent, on behalf of the Secured Parties, shall have received (or shall receive in connection with the closing
of such acquisition) a first priority perfected security interest in all property, subject to any Permitted Liens (including, without limitation, Equity
Interests) acquired with respect to the Target in accordance with the terms of Sections 5.10 and 5.12 and the Target, if a Person, shall have
executed a Joinder Agreement in accordance with the terms of Section 5.10;
(iv) the Administrative Agent and the Lenders shall have received (A) a description of the material terms of such acquisition, (B)
prior to the consummation of any Permitted Acquisition with a purchase price in excess of $25,000,000, 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 and (C) not less than five (5) Business Days prior to the consummation of any Permitted Acquisition with a
purchase price in excess of $25,000,000, a certificate substantially in the form of Exhibit 1.1(f) , executed by an Authorized Officer of the
Borrower certifying that such Permitted Acquisition complies with the requirements of this Agreement;
(v) if the Target is a Person, 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
(vi) after giving effect to such acquisition, Liquidity shall be no less than [***].
“ Permitted Investments ” shall have the meaning set forth in Section 6.5.
“ Permitted Liens ” shall have the meaning set forth in Section 6.2.
“ Permitted Refinancing Indebtedness ” shall mean Indebtedness incurred by the Borrower solely to refinance the Existing Notes so long as such
refinanced Indebtedness (a) (i) is not subject to a Lien or (ii) if subject to a Lien, is fully subordinated to the Credit Party Obligations hereunder on terms
reasonably satisfactory to the Administrative Agent, (b) does not mature prior to the date that is 180 days after the Maturity Date and (c) is otherwise subject to
terms and conditions reasonably acceptable to the Administrative Agent.
“ Person ” shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
27
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Plan Asset Regulations ” means 29 CFR § 2510.3-101 et seq., as modified by Section 3(42) of ERISA, as amended from time to time.
“ Platform ” shall mean Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.
“ Pledge Agreement ” shall mean the Amended and Restated Pledge Agreement dated as of the Closing Date executed by the Credit Parties in favor of the
Administrative Agent, for the benefit of the Secured Parties, as the same may from time to time be amended, modified, extended, restated, replaced, or
supplemented from time to time in accordance with the terms hereof and thereof.
“ Prime Rate ” shall have the meaning set forth in the definition of Alternate Base Rate.
“ Private Information ” shall have the meaning set forth in Section 5.15(a) .
“ Pro Forma Basis ” shall mean, with respect to any transaction, that such transaction shall be deemed to have occurred as of the first day of the four-
quarter period (or twelve month period, as applicable) ending as of the most recent quarter end (or month end, as applicable) preceding the date of such transaction
for which financial statement information is available.
“ Products ” shall mean any item or any service that is designed, created, manufactured, managed, performed, or otherwise used, offered, or handled by or
on behalf of the Credit Parties or any of their Subsidiaries.
“ Properties ” shall have the meaning set forth in Section 3.10(a) .
“PTE” shall mean a permitted transaction exemption established pursuant to Section 408(c) of ERISA.
“ Public Health Laws ” shall mean all applicable Requirements of Law relating to the procurement, development, manufacture, production, analysis,
distribution, dispensing, importation, exportation, use, handling, quality, sale, or promotion of any drug, medical device, food, dietary supplement, or other product
(including, without limitation, any ingredient or component of the foregoing products) subject to regulation under the Federal Food, Drug, and Cosmetic Act (21
U.S.C. et seq.) and similar state laws, controlled substances laws, pharmacy laws, or consumer product safety laws.
“ Public Information ” shall have the meaning set forth in Section 5.15(a) .
“ Qualified ECP Guarantor ” shall mean, in respect of any Swap Obligation, each Guarantor that has total assets exceeding $10,000,000 at the time such
Swap Obligation is incurred or such other person as constitutes an ECP under the Commodity Exchange Act or any regulations promulgated thereunder.
“ Real Estate ” shall have the meaning set forth in Section 5.12(c) .
“ Recipient ” shall mean (a) the Administrative Agent, (b) any Lender or (c) any Issuing Lender, as applicable.
28
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Recovery Event ” shall mean the receipt by any Credit Party or its Subsidiaries of any cash insurance proceeds or condemnation award payable by
reason of theft, loss, physical destruction or damage, taking or similar event with respect to any of their respective property or assets.
“ Register ” shall have the meaning set forth in Section 9.6(c).
“ Registrations ” shall mean all Permits and exemptions issued or allowed by any Governmental Authority (including but not limited to new drug
applications, abbreviated new drug applications, biologics license applications, investigational new drug applications, over-the-counter drug monograph, device
pre-market approval applications, device pre-market notifications, investigational device exemptions, product recertifications, manufacturing approvals and
authorizations, pricing and reimbursement approvals, labeling approvals or their foreign equivalent, controlled substance registrations, pharmacy registrations, and
wholesale distributor permits) held by, or applied by contract to, any Credit Party or any of its Subsidiaries, that are required for the research, development,
manufacture, distribution, marketing, storage, transportation, use and sale of the Products of any Credit Party or any of its Subsidiaries.
“ Regulatory Matters ” shall mean, collectively, activities and Products that are subject to Public Health Laws.
“ Reimbursement Obligation ” shall mean the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 2.3(d) for amounts drawn
under Letters of Credit.
“ Related Parties ” shall mean, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees,
administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“ Removal Effective Date ” shall have the meaning set forth in Section 8.6(a) .
“ Reorganization ” shall mean, with respect to any Multiemployer Plan, the condition that such ERISA Plan is in reorganization within the meaning of
such term as used in Section 4241 of ERISA.
“ Reportable Event ” shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty-day notice period
is waived under PBGC Reg. §4043.
“ Required Lenders ” shall mean, at any time, Lenders having Total Credit Exposures representing more than fifty percent (50)% of the Total Credit
Exposures of all Lenders. The Total Credit Exposure of any Defaulting Lender shall be disregarded in determining Required Lenders at any time .
“ Requirement of Law ” shall mean, as to any Person, (a) the articles or certificate of incorporation, by-laws or other organizational or governing
documents of such Person, and (b) all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes, executive
orders, and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with
the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of,
and agreements with, any Governmental Authority (in each case whether or not having the force of law); in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
29
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Resignation Effective Date ” shall have the meaning set forth in Section 8.6(a) .
“ Responsible Officer ” shall mean, for any Credit Party, the chief executive officer, the president or chief financial officer of such Credit Party and any
additional responsible officer that is designated as such to the Administrative Agent.
“ Restricted Payment ” shall mean (a) any dividend or other distribution, direct or indirect, on account of any shares (or equivalent) of any class of Equity
Interests of any Credit Party or any of its Subsidiaries, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares (or equivalent) of any class of Equity Interests of any Credit Party or any of its Subsidiaries, 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 Equity Interests of any Credit Party or any of its Subsidiaries, now or hereafter outstanding, (d) [reserved], (e) any payment or prepayment of principal of,
premium, if any, or interest on, redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, the Existing Notes or any
Subordinated Debt of any Credit Party or any of its Subsidiaries, (f) the payment by any Credit Party or any of its Subsidiaries of any management, advisory or
consulting fee to any Affiliate (excluding ordinary course investment banking fees and consulting fees) or (g) the payment of any extraordinary salary, bonus or
other form of compensation to any Person who is directly or indirectly a significant partner, shareholder or owner of any such Person, to the extent such
extraordinary salary, bonus or other form of compensation is not included in the corporate overhead of such Credit Party or such Subsidiary.
“ Revolving Commitment ” shall mean, with respect to each Revolving Lender, the commitment of such Revolving Lender to make Revolving Loans in
an aggregate principal amount at any time outstanding up to an amount equal to such Revolving Lender’s Revolving Commitment Percentage of the Revolving
Committed Amount as specified in Schedule 2.1(a) , or in the Assignment and Assumption pursuant to which such Lender became a Lender hereunder, as such
percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(b), as such amount may be reduced from
time to time in accordance with the provisions hereof.
“ Revolving Commitment Percentage ” shall mean, for any Revolving Lender, the percentage identified as its Revolving Commitment Percentage on
Schedule 2.1(a) , or in the Assignment and Assumption pursuant to which such Lender became a Lender hereunder, as such percentage may be modified in
connection with any assignment made in accordance with the provisions of Section 9.6(b).
“ Revolving Committed Amount ” shall have the meaning set forth in Section 2.1(a).
“ Revolving Credit Exposure ” shall mean, as to any Revolving Lender at any time, the aggregate principal amount at such time of its outstanding
Revolving Loans and such Revolving Lender’s participation in LOC Obligations and Swingline Loans at such time.
“ Revolving Facility ” shall have the meaning set forth in Section 2.1(a).
“ Revolving Facility Increase ” shall have the meaning set forth in Section 2.22.
“ Revolving Lender ” shall mean, as of any date of determination, a Lender holding a Revolving Commitment, a Revolving Loan or a Participation
Interest on such date.
30
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Revolving Loan ” shall have the meaning set forth in Section 2.1.
“ Revolving Loan Note ” or “ Revolving Loan Notes ” shall mean the promissory notes of the Borrower provided pursuant to Section 2.1(e) in favor of
any of the Revolving Lenders evidencing the Revolving Loan provided by any such Revolving Lender pursuant to Section 2.1(a), individually or collectively, as
appropriate, as such promissory notes may be amended, modified, extended, restated, replaced, or supplemented from time to time.
“ S&P ” shall mean Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw Hill Companies, Inc.
“ Sanctioned Entity ” shall mean (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 ” shall mean a person named on the list of Specially Designated Nationals maintained by OFAC.
“ Sanctions ” shall mean economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S.
government, including those administered by OFAC or the U.S. Department of State, (b) the United Nations Security Council, (c) the European Union, (d) any
European Union member state, (e) Her Majesty’s Treasury of the United Kingdom or (f) any other relevant sanctions authority.
“ Sarbanes-Oxley ” shall mean the Sarbanes-Oxley Act of 2002.
“ Scheduled Funded Debt Payments ” shall mean, as of any date of determination for the four (4) consecutive fiscal 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 Consolidated 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).
“ SEC ” shall mean the Securities and Exchange Commission or any successor Governmental Authority.
“ Secured Parties ” shall mean the Administrative Agent, the Lenders and the Bank Product Providers.
“ Securities Account Control Agreement ” shall mean an agreement, among a Credit Party, a securities intermediary, and the Administrative Agent, which
agreement is in a form reasonably acceptable to the Administrative Agent and which provides the Administrative Agent with “control” (as such term is used in
Articles 8 and 9 of the UCC) over the securities account(s) described therein, as the same may be as amended, modified, extended, restated, replaced, or
supplemented from time to time.
“ Securities Act ” shall mean the Securities Act of 1933, together with any amendment thereto or replacement thereof and any rules or regulations
promulgated thereunder.
31
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Securities Laws ” shall mean the Securities Act, the Exchange Act, Sarbanes-Oxley and the applicable accounting and auditing principles, rules,
standards and practices promulgated, approved or incorporated by the SEC or the Public Company Accounting Oversight Board, as each of the foregoing may be
amended and in effect on any applicable date hereunder.
“ Security Agreement ” shall mean the Amended and Restated Security Agreement dated as of the Closing Date executed by the Credit Parties in favor of
the Administrative Agent, for the benefit of the Secured Parties, as amended, modified, extended, restated, replaced, or supplemented from time to time in
accordance with its terms.
“ Security Documents ” shall mean the Security Agreement, the Pledge Agreement, any Deposit Account Control Agreement, any Securities Account
Control Agreement, the Mortgage Instruments and all other agreements, documents and instruments relating to, arising out of, or in any way connected with any of
the foregoing documents or granting to the Administrative Agent, for the benefit of the Secured Parties, Liens or security interests to secure, inter alia, the Credit
Party Obligations whether now or hereafter executed and/or filed, each as may be amended from time to time in accordance with the terms hereof, executed and
delivered in connection with the granting, attachment and perfection of the Administrative Agent’s security interests and liens arising thereunder, including,
without limitation, UCC financing statements.
“ Senior Funded Debt ” shall mean, as of any date of determination for the Credit Parties and their Subsidiaries, all Funded Debt (including, without
limitation, Extensions of Credit hereunder) which is not Subordinated Debt.
“ Single Employer Plan ” shall mean any ERISA Plan that is not a Multiemployer Plan.
“ Specified Equity Contribution ” shall have the meaning set forth in Section 5.9(d).
“ Subordinated Debt ” shall mean any Indebtedness incurred by any Credit Party which by its terms is specifically subordinated in right of payment to the
prior payment of the Credit Party Obligations and contains subordination and other terms acceptable to the Administrative Agent.
“ Subsidiary ” shall mean, 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.
“ Swap Obligations ” shall mean, with respect to any Guarantor, an obligation to pay or perform under any agreement, contract or transaction that
constitutes a “swap” within the meaning of § 1a(47) of the Commodity Exchange Act.
“ Swingline Commitment ” shall mean the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time
outstanding up to the Swingline Committed Amount, and the commitment of the Revolving Lenders to purchase participation interests in the Swingline Loans as
provided in Section 2.4(b)(ii), as such amounts may be reduced from time to time in accordance with the provisions hereof.
32
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Swingline Committed Amount ” shall mean the amount of the Swingline Lender’s Swingline Commitment as specified in Section 2.4(a).
“ Swingline Lender ” shall mean Citizens, in its capacity as lender of Swingline Loans hereunder, or such other Lender as designated by the Borrower and
approved by the Administrative Agent; provided that such Lender has agreed to be a Swingline Lender, together with any permitted successor thereto.
“ Swingline Loan ” shall have the meaning set forth in Section 2.4(a).
“ Swingline Loan Note ” shall mean the promissory note of the Borrower in favor of the Swingline Lender evidencing the Swingline Loans provided
pursuant to Section 2.4(d), as such promissory note may be amended, modified, extended, restated, replaced, or supplemented from time to time.
“ Target ” shall have the meaning set forth in the definition of “Permitted Acquisition”.
“ Taxes ” shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or
other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“ Term Loan ” or “ Term Loans ” shall mean the Initial Term Loan and/or the Delayed Draw Term Loans, as applicable.
“ Term Loan Commitment ” shall mean the Initial Term Loan Commitment and/or the Delayed Draw Term Loan Commitment, as applicable.
“ Term Loan Commitment Percentage ” shall mean the Initial Term Loan Commitment Percentage and/or Delayed Draw Term Loan Commitment
Percentage, as applicable.
“ Term Loan Committed Amount ” shall mean the Initial Term Loan Committed Amount plus the Delayed Draw Term Loan Committed Amount.
“ Term Loan Facility ” shall mean the Initial Term Loan Facility and/or the Delayed Draw Term Loan Facility, as applicable.
“ Term Loan Lender ” shall mean a Lender holding a Term Loan Commitment or a portion of the outstanding Term Loans.
“ Term Loan Note ” or “ Term Loan Notes ” shall mean the promissory notes of the Borrower (if any) in favor of any of the Lenders evidencing the
portion of the Initial Term Loan and/or the Delayed Draw Term Loan, as applicable, provided by any such Lender pursuant to Section 2.2(a) and/or Section 2.2(b) ,
individually or collectively, as appropriate, as such promissory notes may be amended, modified, extended, restated, replaced, or supplemented from time to time.
“ Total Credit Exposure ” shall mean, as to any Lender at any time, the unused Commitments, Revolving Credit Exposure and outstanding Term Loans of
such Lender at such time.
33
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Total Net Leverage Ratio ” shall mean, as of any date of determination, for the Credit Parties and their Subsidiaries on a Consolidated basis, the ratio of
(a) Consolidated Funded Debt on such date (net of (x) unrestricted cash and Cash Equivalents of the Borrower and its Subsidiaries in an aggregate principal
amount of up to $15,000,000 and (y) proceeds of any Revolving Facility Increase and any draw under the Delayed Draw Term Loan Facility to the extent
deposited into the DDTL Account) to (b) Consolidated EBITDA for the four (4) consecutive quarters ending on such date.
“ Trademark License ” shall mean any agreement, whether written or oral, providing for the grant by or to a Person of any right to use any Trademark.
“ Trademarks ” shall mean (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, service marks,
elements of package or trade dress of goods or services, logos and other source or business identifiers, together with the goodwill associated therewith, all
registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office
or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) all renewals thereof.
“ Tranche ” shall mean the collective reference to (a) LIBOR Rate Loans whose Interest Periods begin and end on the same day and (b) Alternate Base
Rate Loans made on the same day.
“ Transactions ” shall mean the closing of this Agreement and the other Credit Documents and the consummation of the transactions contemplated hereby
and pursuant to the other Credit Documents (including, without limitation, the initial borrowings under the Credit Documents and the payment of fees and
expenses in connection with all of the foregoing).
“ Type ” shall mean, as to any Loan, its nature as an Alternate Base Rate Loan or LIBOR Rate Loan, as the case may be.
“ UCC ” shall mean the Uniform Commercial Code from time to time in effect in any applicable jurisdiction.
“ U.K. Financial Conduct Authority ” shall mean that certain financial regulatory body in the United Kingdom.
“ Unrestricted Cash ” shall mean cash and Cash Equivalents of the Credit Parties, excluding cash and Cash Equivalents that are “restricted” (in
accordance with GAAP) on the Consolidated balance sheet of the Borrower and its Subsidiaries as of such date but including the aggregate amount of cash and
Cash Equivalents restricted in respect of the Obligations.
“ U.S. Borrower ” shall mean any Borrower that is a U.S. Person.
“ U.S. Person ” shall mean any Person that is a “United States Person” as defined in section 7701(a)(30) of the Code.
“ U.S. Tax Compliance Certificate ” shall have the meaning assigned to such term in Section 2.16(g).
“ Voting Stock ” shall mean, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote may be or
have been suspended by the happening of such a contingency.
34
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
“ Withholding Agent ” shall mean any Credit Party and the Administrative Agent.
“ Works ” shall mean all works which are subject to copyright protection pursuant to Title 17 of the United States Code.
“ Write-Down and Conversion Powers ” shall mean, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA
Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are
described in the EU Bail-In Legislation Schedule.
Section 1.2 Other Definitional Provisions .
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the
phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, restated, supplemented, amended and restated or otherwise modified (subject to any restrictions on such amendments,
supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s permitted successors and assigns,
(c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and
Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended,
modified or supplemented from time to time and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any
and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. For all purposes under the Credit Documents, in
connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right,
obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the
original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date
of its existence by the holders of its Equity Interests at such time.
Section 1.3 Accounting Terms .
(a) Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all
financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity
with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the most recently delivered
audited Consolidated financial statements of the Borrower, except as otherwise specifically prescribed herein. Notwithstanding anything to the contrary
contained herein, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein,
Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB
ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.
35
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Changes in GAAP . If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth
in any Credit Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall
negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the
Required Lenders); provided that , until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change
therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement
or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such
change in GAAP. Notwithstanding any other provision contained herein, any lease that is treated as an operating lease for purposes of GAAP as of the Closing
Date shall continue to be treated as an operating lease (and any future lease, if it were in effect on the Closing Date, that would be treated as an operating lease
for purposes of GAAP as of the Closing Date shall be treated as an operating lease), in each case for purposes of this Agreement, notwithstanding any change in
GAAP after the Closing Date.
(c) Financial Covenant Calculations . 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 5.9 and for purposes of determining the Applicable Margin,
(i) 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 (including by adding any cost saving
synergies associated with such Permitted Acquisition in a manner reasonably satisfactory to the Administrative Agent), subject to adjustments mutually
acceptable to the Borrower and the Administrative Agent 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 and (ii) after any Disposition permitted by
Section 6.4(a)(vi), (A) income statement items, cash flow statement items and balance sheet items (whether positive or negative) attributable to the property or
assets disposed of shall be excluded in such calculations to the extent relating to such applicable period, subject to adjustments mutually acceptable to the
Borrower and the Administrative Agent and (B) Indebtedness that is repaid with the proceeds of such Disposition shall be excluded from such calculations and
deemed to have been repaid as of the first day of such applicable period.
Section 1.4 Time References .
Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
Section 1.5 Execution of Documents .
Unless otherwise specified, all Credit Documents and all other certificates executed in connection therewith must be signed by an Authorized Officer.
36
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Article II
THE LOANS; AMOUNT AND TERMS
Section 2.1 Revolving Loans .
(a) Revolving Commitment . During the Commitment Period, subject to the terms and conditions hereof, each Revolving Lender severally,
but not jointly, agrees to make revolving credit loans in Dollars (“ Revolving Loans ”) to the Borrower from time to time in an aggregate principal amount of up
to SEVENTY-FIVE MILLION DOLLARS ($75,000,000) (as increased from time to time as provided in Section 2.22 and as such aggregate maximum amount
may be reduced from time to time as provided in Section 2.6, the “ Revolving Committed Amount ”) for the purposes hereinafter set forth (such facility, the “
Revolving Facility ”); provided , however , that (i) with regard to each Revolving Lender individually, the sum of such Revolving Lender’s Revolving
Commitment Percentage of the aggregate principal amount of outstanding Revolving Loans plus such Revolving Lender’s Revolving Commitment Percentage
of outstanding Swingline Loans plus such Revolving Lender’s Revolving Commitment Percentage of outstanding LOC Obligations shall not exceed such
Revolving Lender’s Revolving Commitment and (ii) with regard to the Revolving Lenders collectively, the sum of the aggregate principal amount of outstanding
Revolving Loans plus outstanding Swingline Loans plus outstanding LOC Obligations shall not exceed the Revolving Committed Amount then in effect.
Revolving Loans may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request, and may be repaid
and reborrowed in accordance with the provisions hereof; provided , however , the Revolving Loans made on the Closing Date or any of the three (3) Business
Days following the Closing Date, may only consist of Alternate Base Rate Loans unless the Borrower delivers a funding indemnity letter, substantially in the
form of Exhibit 2.1(a) , reasonably acceptable to the Administrative Agent not less than three (3) Business Days prior to the Closing Date. LIBOR Rate Loans
shall be made by each Revolving Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office.
(b) Revolving Loan Borrowings .
(i) Notice of Borrowing . The Borrower shall request a Revolving Loan borrowing by delivering a written Notice of Borrowing
(or telephone notice promptly confirmed in writing by delivery of a written Notice of Borrowing, which delivery may be by fax) to the Administrative Agent not
later than 11:00 A.M. on the Business Day prior to the date of the requested borrowing in the case of Alternate Base Rate Loans, and on the third Business Day
prior to the date of the requested borrowing in the case of LIBOR Rate Loans. Each such Notice of 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 and
(D) whether the borrowing shall be comprised of Alternate Base Rate Loans, LIBOR Rate Loans or a combination thereof, and if LIBOR Rate Loans are requested,
the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (1) an applicable Interest Period in the case of a LIBOR Rate
Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (2) the Type of Revolving Loan requested, then such notice shall be
deemed to be a request for an Alternate Base Rate Loan hereunder. The Administrative Agent shall give notice to each Revolving Lender promptly upon receipt of
each Notice of Borrowing, the contents thereof and each such Revolving Lender’s share thereof.
37
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(ii) Minimum Amounts . Each Revolving Loan that is made as an Alternate Base Rate Loan shall be in a minimum aggregate
amount of $100,000 and in integral multiples of $100,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less). Each
Revolving Loan that is made as a LIBOR Rate Loan shall be in a minimum aggregate amount of $100,000 and in integral multiples of $100,000 in excess thereof
(or the remaining amount of the Revolving Committed Amount, if less).
(iii) Advances . Each Revolving Lender will make its Revolving Commitment Percentage of each Revolving Loan borrowing
available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 9.2, or at such other office as
the Administrative Agent may designate in writing, by 1:00 P.M. on the date specified in the applicable Notice of Borrowing, in Dollars and in funds immediately
available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent by crediting the account of the
Borrower on the books of such office (or such other account that the Borrower may designate in writing to the Administrative Agent) with the aggregate of the
amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent.
(c) Repayment . Subject to the terms of this Agreement, Revolving Loans may be borrowed, repaid and reborrowed during the
Commitment Period, subject to Section 2.7(a). The principal amount of all Revolving Loans shall be due and payable in full on the Maturity Date, unless
accelerated sooner pursuant to Section 7.2.
(d) Interest . Subject to the provisions of Section 2.8, Revolving Loans shall bear interest as follows:
each such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Margin; and
(i) Alternate Base Rate Loans . During such periods as any Revolving Loans shall be comprised of Alternate Base Rate Loans,
Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Margin.
(ii) LIBOR Rate Loans . During such periods as Revolving Loans shall be comprised of LIBOR Rate Loans, each such LIBOR
Interest on Revolving Loans shall be payable in arrears on each Interest Payment Date.
(e) Revolving Loan Notes; Covenant to Pay . The Borrower’s obligation to pay each Revolving Lender shall be evidenced by this
Agreement and, upon such Revolving Lender’s request, by a duly executed promissory note of the Borrower to such Revolving Lender in substantially the form
of Exhibit 2.1(e) . The Borrower covenants and agrees to pay the Revolving Loans in accordance with the terms of this Agreement.
38
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.2 Initial Term Loan; Delayed Draw Term Loans .
(a) Initial Term Loan .
(i) Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Initial
Term Loan Lender severally, but not jointly, agrees to make available to the Borrower (through the Administrative Agent) on the Closing Date such Initial Term
Loan Lender’s Term Loan Commitment Percentage of a term loan in Dollars (the “ Initial Term Loan ”) in the aggregate principal amount of SEVENTY-TWO
MILLION ONE HUNDRED EIGHTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS ($72,187,500) (the “ Initial Term Loan Committed Amount ”) for the
purposes hereinafter set forth (such facility, the “ Initial Term Loan Facility ”). Upon receipt by the Administrative Agent of the proceeds of the Initial Term Loan,
such proceeds will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of the office of the
Administrative Agent specified in Section 9.2, or at such other office as the Administrative Agent may designate in writing, with the aggregate of such proceeds
made available to the Administrative Agent by the Initial Term Loan Lenders and in like funds as received by the Administrative Agent (or by crediting such other
account(s) as directed by the Borrower). The Initial Term Loan may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the
Borrower may request in the Notice of Borrowing delivered to the Administrative Agent prior to the Closing Date; provided , however , that the Initial Term Loan
made on the Closing Date may only consist of Alternate Base Rate Loans unless the Borrower delivers a funding indemnity letter, substantially in the form of
Exhibit 2.1(a) , reasonably acceptable to the Administrative Agent not less than three (3) Business Days prior to the Closing Date. LIBOR Rate Loans shall be
made by each Initial Term Loan Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office. Amounts repaid or prepaid on
the Initial Term Loans may not be reborrowed.
(ii) Repayment of Initial Term Loan . The principal amount of the Initial Term Loan shall be repaid in consecutive quarterly
installments on the dates set forth below, based on the quarterly percentages of the original principal amount of the Initial Term Loan set forth on the table below
(provided, however, if such payment date is not a Business Day, such payment shall be due on the preceding Business Day), unless accelerated sooner pursuant to
Section 7.2:
Quarterly Amortization Payment
Dates
March 31, 2019
June 30, 2019
September 30, 2019
December 31, 2019
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
March 31, 2021
June 30, 2021
September 30, 2021
December 31, 2021
March 31, 2022
June 30, 2022
September 30, 2022
December 31, 2022
March 31, 2023
June 30, 2023
September 30, 2023
Maturity Date
Amortization
1.250%
1.250%
1.250%
1.250%
1.250%
1.250%
1.250%
1.250%
1.875%
1.875%
1.875%
1.875%
1.875%
1.875%
1.875%
1.875%
2.500%
2.500%
2.500%
The remaining outstanding principal amount of
the Initial Term Loan
39
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
The outstanding principal amount of the Initial Term Loan and all accrued but unpaid interest and other amounts payable with respect to the Initial Term
Loan shall be repaid on the Maturity Date.
(b) Delayed Draw Term Loans.
(i) Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Term
Loan Lender severally, but not jointly, agrees to make available to the Borrower (through the Administrative Agent), to the extent requested by the Borrower
pursuant to clause (b)(ii)(A) hereof, such Delayed Draw Term Loan Lender’s Delayed Draw Term Loan Commitment Percentage term loans in Dollars (the “
Delayed Draw Term Loans ”) in the aggregate principal amount of ONE HUNDRED EIGHTEEN MILLION DOLLARS ($118,000,000 ) (the “ Delayed Draw
Term Loan Committed Amount ”) for the purposes hereinafter set forth (such facility, the “ Delayed Draw Term Loan Facility ”); provided that the Delayed Draw
Term Loans shall (A) be available in multiple draws during the Delayed Draw Availability Period, (B) be subject to satisfaction of the conditions contained in
Section 4.2 of this Agreement and (C) be used to repay the Existing Notes or deposited into the DDTL Account, in each case, immediately upon any borrowing
thereof. Upon receipt by the Administrative Agent of the proceeds of the Delayed Draw Term Loans, such proceeds will then be made available to the Borrower by
the Administrative Agent by crediting the account of the Borrower on the books of the office of the Administrative Agent specified in Section 9.2 , or at such other
office as the Administrative Agent may designate in writing, with the aggregate of such proceeds made available to the Administrative Agent by the Delayed Draw
Term Loan Lenders and in like funds as received by the Administrative Agent (or by crediting such other account(s) as directed by the Borrower). Delayed Draw
Term Loans may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request in the Notice of Borrowing
delivered to the Administrative Agent prior to such Delayed Draw Funding Date. LIBOR Rate Loans shall be made by each Delayed Draw Term Loan Lender at
its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office. Amounts repaid or prepaid on the Delayed Draw Term Loans may not
be reborrowed. Any interest accrued on amounts deposited in the DDTL Account shall be payable to the Borrower.
(ii) Delayed Draw Term Loan Borrowing .
(A) Notice of Borrowing . The Borrower may request a Delayed Draw Term Loan by delivering a Notice of Borrowing (or
telephone notice promptly confirmed in writing by delivery of a Notice of Borrowing which delivery may be by fax) to the Administrative Agent not later than
11:00 A.M. on the date of the requested borrowing in the case of Alternate Base Rate Loans and on the third Business Day prior to the date of the requested
borrowing in the case of LIBOR Rate Loans. The Notice of Borrowing shall be irrevocable and shall specify and certify (1) the amount of the Delayed Draw Term
Loan requested, (2) the date of the requested borrowing (which shall be a Business Day) and (3) whether the borrowing shall be comprised of Alternate Base Rate
Loans, LIBOR Rate Loans or a combination thereof, and if LIBOR Rate Loans are requested, the Interest Period(s) therefor. Additionally, each Notice of
Borrowing shall certify and demonstrate, as applicable, that all of the conditions set forth in Section 4.2 have been satisfied. If the Borrower shall fail to specify in
such Notice of Borrowing (y) an applicable Interest Period in the case of a LIBOR Rate Loan, then such notice shall be deemed to be a request for an Interest
Period of one month or (z) the type of Loan requested, then such notice shall be deemed to be a request for an Alternate Base Rate Loan hereunder. The
Administrative Agent shall give notice to each Delayed Draw Term Loan Lender promptly upon receipt of such Notice of Borrowing, the contents thereof and each
such Delayed Draw Term Loan Lender’s share thereof.
40
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
multiples of $1,000,000 in excess thereof (or the remaining amount of the Delayed Draw Term Loan Committed Amount, if less).
(B) Minimum Amounts . Each Delayed Draw Term Loan shall be in a minimum aggregate amount of $10,000,000 and in integral
(C) Advances . Each Delayed Draw Term Loan Lender will make its Delayed Draw Term Loan Commitment Percentage of the
Delayed Draw Term Loan borrowing available to the Administrative Agent, for the account of the Borrower, in Dollars and in funds immediately available to the
Administrative Agent, at the office of the Administrative Agent specified in Section 9.2, or at such other office as the Administrative Agent may designate in
writing, upon reasonable advance notice by 1:00 p.m. on the date specified in the applicable Notice of Borrowing. Such borrowing will then be made available to
the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available
to the Administrative Agent by the Delayed Draw Term Loan Lenders and in like funds as received by the Administrative Agent (or by crediting such other
account(s) as directed by the Borrower).
(iii) Repayment of Delayed Draw Term Loans . The principal amount of the Delayed Draw Term Loans then outstanding shall be
repaid in consecutive quarterly installments, beginning on the date that is the last day of the first full fiscal quarter following the initial Delayed Draw Funding
Date, based on the quarterly percentages of the Delayed Draw Term Loans then outstanding set forth on the table below (provided, for the avoidance of doubt, if
such payment date is not a Business Day, such payment shall be due on the preceding Business Day), unless accelerated sooner pursuant to Section 7.2.
Amortization Payment Periods
From the first fiscal quarter end following the
initial Delayed Draw Funding Date through and
including the eighth fiscal quarter end following
the initial Delayed Draw Funding Date
From the ninth fiscal quarter end following the
initial Delayed Draw Funding Date through and
including the sixteenth fiscal quarter end
following the initial Delayed Draw Funding
Date
From the seventeenth fiscal quarter end
following the initial Delayed Draw Funding
Date through and including the quarter ending
immediately prior to the Maturity Date
Amortization
1.250%
1.875%
2.500%
respect to the Delayed Draw Term Loans shall be repaid on the Maturity Date.
The outstanding principal amount of the Delayed Draw Term Loans and all accrued but unpaid interest and other amounts payable with
(c) Interest on the Term Loans . Subject to the provisions of Section 2.8, the Term Loans shall bear interest as follows:
41
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Margin; and
(i) Alternate Base Rate Loans . During such periods as the Term Loans shall be comprised of Alternate Base Rate Loans, each
Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Margin.
(ii) LIBOR Rate Loans . During such periods as the Term Loans shall be comprised of LIBOR Rate Loans, each such LIBOR
Interest on the Term Loans shall be payable in arrears on each Interest Payment Date.
(d) Term Loan Notes; Covenant to Pay . The Borrower’s obligation to pay each Term Loan Lender shall be evidenced by this Agreement
and, upon such Term Loan Lender’s request, by a duly executed promissory note of the Borrower to such Term Loan Lender in substantially the form of Exhibit
2.2(c) or Exhibit 2.2(d) , as applicable. The Borrower covenants and agrees to pay the Term Loans in accordance with the terms of this Agreement.
Section 2.3 Letter of Credit Subfacility .
(a) Issuance . Subject to the terms and conditions hereof and of the LOC Documents, if any, and any other terms and conditions which the
Issuing Lender may reasonably require, during the Commitment Period the Issuing Lender shall issue, and the Revolving Lenders shall participate in, standby
Letters of Credit for the account of the Borrower from time to time upon request in a form acceptable to the Issuing Lender; provided , however , that (i) the
aggregate amount of LOC Obligations shall not at any time exceed FIVE MILLION DOLLARS ($5,000,000) (the “ LOC Committed Amount ”), (ii) the sum of
the aggregate principal amount of outstanding Revolving Loans plus outstanding Swingline Loans plus outstanding LOC Obligations shall not at any time
exceed the Revolving Committed Amount then in effect, (iii) all Letters of Credit shall be denominated in Dollars and (iv) Letters of Credit shall be issued for
any lawful corporate purposes and shall be issued as standby letters of credit, including in connection with workers’ compensation and other insurance programs.
Except as otherwise expressly agreed in writing upon by all the Revolving Lenders, no Letter of Credit shall have an original expiry date more than twelve (12)
months from the date of issuance; provided , however , so long as no Default or Event of Default has occurred and is continuing and subject to the other terms
and conditions to the issuance of Letters of Credit hereunder, the expiry dates of Letters of Credit may be extended annually or periodically from time to time on
the request of the Borrower or by operation of the terms of the applicable Letter of Credit to a date not more than twelve (12) months from the date of extension;
provided , further , that no Letter of Credit, as originally issued or as extended, shall have an expiry date extending beyond the date that is ten (10) days prior to
the Maturity Date. Each Letter of Credit shall comply with the related LOC Documents. The issuance and expiry date of each Letter of Credit shall be a Business
Day. Each Letter of Credit issued hereunder shall be in a minimum original face amount of $100,000 or such lesser amount as approved by the Issuing Lender.
(b) Notice and Reports . The request for the issuance of a Letter of Credit shall be submitted to the Issuing Lender at least five (5) Business
Days prior to the requested date of issuance. The Issuing Lender will promptly upon request provide to the Administrative Agent for dissemination to the
Revolving Lenders a detailed report specifying the Letters of Credit which are then issued and outstanding and any activity with respect thereto which may have
occurred since the date of any prior report, and including therein, among other things, the account party, the beneficiary, the face amount, expiry date as well as
any payments or expirations which may have occurred. The Issuing Lender will further provide to the Administrative Agent promptly upon request copies of the
Letters of Credit. The Issuing Lender will provide to the Administrative Agent promptly upon request a summary report of the nature and extent of LOC
Obligations then outstanding.
42
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) Participations . Each Revolving Lender upon issuance of a Letter of Credit, shall be deemed to have purchased without recourse a risk
participation from the Issuing Lender in such Letter of Credit and the obligations arising thereunder and any Collateral relating thereto, in each case in an amount
equal to its Revolving Commitment Percentage of the obligations under such Letter of Credit and shall absolutely, unconditionally and irrevocably assume, as
primary obligor and not as surety, and be obligated to pay to the Issuing Lender therefor and discharge when due, its Revolving Commitment Percentage of the
obligations arising under such Letter of Credit; provided that any Person that becomes a Revolving Lender after the Closing Date shall be deemed to have
purchased a Participation Interest in all outstanding Letters of Credit on the date it becomes a Lender hereunder and any Letter of Credit issued on or after such
date, in each case in accordance with the foregoing terms. Without limiting the scope and nature of each Revolving Lender’s participation in any Letter of
Credit, to the extent that the Issuing Lender has not been reimbursed as required hereunder or under any LOC Document, each such Revolving Lender shall pay
to the Issuing Lender its Revolving Commitment Percentage of such unreimbursed drawing in same day funds pursuant to and in accordance with the provisions
of subsection (d) hereof. The obligation of each Revolving Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be
affected by the occurrence of a Default, an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the
obligation of the Borrower to reimburse the Issuing Lender under any Letter of Credit, together with interest as hereinafter provided.
(d) Reimbursement . In the event of any drawing under any Letter of Credit, the Issuing Lender will promptly notify the Borrower and the
Administrative Agent. The Borrower shall reimburse the Issuing Lender on the day of drawing under any Letter of Credit if notified prior to 3:00 P.M. on a
Business Day or, if after 3:00 P.M., on the following Business Day (either with the proceeds of a Revolving Loan obtained hereunder or otherwise) in same day
funds as provided herein or in the LOC Documents. If the Borrower shall fail to reimburse the Issuing Lender as provided herein, the unreimbursed amount of
such drawing shall automatically bear interest at a per annum rate equal to the Default Rate. Unless the Borrower shall immediately notify the Issuing Lender
and the Administrative Agent of its intent to otherwise reimburse the Issuing Lender, the Borrower shall be deemed to have requested a Mandatory LOC
Borrowing in the amount of the drawing as provided in subsection (e) hereof, the proceeds of which will be used to satisfy the Reimbursement Obligations, in
which event any such drawing shall not automatically bear interest at the Default Rate. The Borrower’s Reimbursement Obligations hereunder shall be absolute
and unconditional under all circumstances irrespective of any rights of set-off, counterclaim or defense to payment the Borrower may claim or have against the
Issuing Lender, the Administrative Agent, the Lenders, the beneficiary of the Letter of Credit drawn upon or any other Person, including, without limitation, any
defense based on any failure of the Borrower to receive consideration or the legality, validity, regularity or unenforceability of the Letter of Credit. The
Administrative Agent will promptly notify the other Revolving Lenders of the amount of any unreimbursed drawing and each Revolving Lender shall promptly
pay to the Administrative Agent for the account of the Issuing Lender, in Dollars and in immediately available funds, the amount of such Revolving Lender’s
Revolving Commitment Percentage of such unreimbursed drawing. Such payment shall be made on the Business Day such notice is received by such Revolving
Lender from the Administrative Agent if such notice is received at or before 2:00 P.M., otherwise such payment shall be made at or before 12:00 P.M. on the
Business Day next succeeding the Business Day such notice is received. If such Revolving Lender does not pay such amount to the Administrative Agent for the
account of the Issuing Lender in full upon such request, such Revolving Lender shall, on demand, pay to the Administrative Agent for the account of the Issuing
Lender interest on the unpaid amount during the period from the date of such drawing until such Revolving Lender pays such amount to the Administrative
Agent for the account of the Issuing Lender in full at a rate per annum equal to, if paid within two (2) Business Days of the date of drawing, the Federal Funds
Effective Rate and thereafter at a rate equal to the Alternate Base Rate. Each Revolving Lender’s obligation to make such payment to the Issuing Lender, and the
right of the Issuing Lender to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and without regard to
the termination of this Agreement or the Commitments hereunder, the existence of a Default or Event of Default or the acceleration of the Obligations hereunder
and shall be made without any offset, abatement, withholding or reduction whatsoever.
43
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) Repayment with Revolving Loans . On any day on which the Borrower shall have requested, or been deemed to have requested, a
Revolving Loan to reimburse a drawing under a Letter of Credit, the Administrative Agent shall give notice to the Revolving Lenders that a Revolving Loan has
been requested or deemed requested in connection with a drawing under a Letter of Credit, in which case a Revolving Loan borrowing comprised entirely of
Alternate Base Rate Loans (each such borrowing, a “ Mandatory LOC Borrowing ”) shall be made (without giving effect to any termination of the Commitments
pursuant to Section 7.2) pro rata based on each Revolving Lender’s respective Revolving Commitment Percentage (determined before giving effect to any
termination of the Commitments pursuant to Section 7.2) and the proceeds thereof shall be paid directly to the Administrative Agent for the account of the
Issuing Lender for application to the respective LOC Obligations. Each Revolving Lender hereby irrevocably agrees to make such Revolving Loans on the day
such notice is received by the Revolving Lenders from the Administrative Agent if such notice is received at or before 2:00 P.M., otherwise such payment shall
be made at or before 12:00 P.M. on the Business Day next succeeding the day such notice is received, in each case notwithstanding (i) the amount of Mandatory
LOC Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (ii) whether any conditions
specified in Section 4.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure for any such request or deemed request for
Revolving Loan to be made by the time otherwise required in Section 2.1(b), (v) the date of such Mandatory LOC Borrowing, or (vi) any reduction in the
Revolving Committed Amount after any such Letter of Credit may have been drawn upon. In the event that any Mandatory LOC Borrowing cannot for any
reason be made on the date otherwise required above (including, without limitation, as a result of the occurrence of a Bankruptcy Event), then each such
Revolving Lender hereby agrees that it shall forthwith fund its Participation Interests in the outstanding LOC Obligations on the Business Day such notice to
fund is received by such Revolving Lender from the Administrative Agent if such notice is received at or before 2:00 P.M., otherwise such payment shall be
made at or before 12:00 Noon on the Business Day next succeeding the Business Day such notice is received; provided , further , that in the event any Lender
shall fail to fund its Participation Interest as required herein, then the amount of such Revolving Lender’s unfunded Participation Interest therein shall
automatically bear interest payable by such Revolving Lender to the Administrative Agent for the account of the Issuing Lender upon demand, at the rate equal
to, if paid within two (2) Business Days of such date, the Federal Funds Effective Rate, and thereafter at a rate equal to the Alternate Base Rate.
(f) Modification, Extension . The issuance of any supplement, modification, amendment, renewal, or extension to any Letter of Credit
shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder.
44
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(g) ISP98 . Unless otherwise expressly agreed by the Issuing Lender and the Borrower, when a Letter of Credit is issued, the rules of the
“International Standby Practices 1998,” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at
the time of issuance) shall apply to each standby Letter of Credit.
(h) Conflict with LOC Documents . In the event of any conflict between this Agreement and any LOC Document (including any letter of
credit application), this Agreement shall control.
(i) Designation of Subsidiaries as Account Parties . Notwithstanding anything to the contrary set forth in this Agreement, including,
without limitation, Section 2.3(a), a Letter of Credit issued hereunder may contain a statement to the effect that such Letter of Credit is issued for the account of
a Subsidiary of the Borrower; provided that, notwithstanding such statement, the Borrower shall be the actual account party for all purposes of this Agreement
for such Letter of Credit and such statement shall not affect the Borrower’s Reimbursement Obligations hereunder with respect to such Letter of Credit.
(j) Cash Collateral . At any point in time in which there is a Defaulting Lender, the Issuing Lender may require the Borrower to Cash
Collateralize the LOC Obligations in accordance with and to the extent provided in Section 2.20.
Section 2.4 Swingline Loan Subfacility .
(a) Swingline Commitment . During the Commitment Period, subject to the terms and conditions hereof, the Swingline Lender, in its
individual capacity, may, in its discretion and in reliance upon the agreements of the other Lenders set forth in this Section, make certain revolving credit loans
to the Borrower (each a “ Swingline Loan ” and, collectively, the “ Swingline Loans ”) for the purposes hereinafter set forth; provided , however , (i) the
aggregate principal amount of Swingline Loans outstanding at any time shall not exceed FIVE MILLION DOLLARS ($5,000,000) (the “ Swingline Committed
Amount ”), and (ii) the sum of the aggregate principal amount of outstanding Revolving Loans plus outstanding Swingline Loans plus outstanding LOC
Obligations shall not exceed the Revolving Committed Amount then in effect. Swingline Loans hereunder may be repaid and reborrowed in accordance with the
provisions hereof.
(b) Swingline Loan Borrowings .
(i) Notice of Borrowing and Disbursement . Upon receiving a Notice of Borrowing from the Borrower not later than 12:00 P.M.
on any Business Day requesting that a Swingline Loan be made, the Swingline Lender will make Swingline Loans available to the Borrower on the same Business
Day such request is received by the Administrative Agent. Swingline Loan borrowings hereunder shall be made in minimum amounts of $100,000 (or the
remaining available amount of the Swingline Committed Amount if less) and in integral amounts of $100,000 in excess thereof.
45
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(ii) Repayment of Swingline Loans . Each Swingline Loan borrowing shall be due and payable on the earlier of (A) the Maturity
Date and (B) fifteen (15) days following such borrowing. The Swingline Lender may, at any time, in its sole discretion, by written notice to the Borrower and the
Administrative Agent, demand repayment of its Swingline Loans by way of a Revolving Loan borrowing, in which case the Borrower shall be deemed to have
requested a Revolving Loan borrowing comprised entirely of Alternate Base Rate Loans in the amount of such Swingline Loans; provided , however , that, in the
following circumstances, any such demand shall also be deemed to have been given one Business Day prior to each of (A) the Maturity Date, (B) the occurrence of
any Bankruptcy Event, (C) upon acceleration of the Obligations hereunder, whether on account of a Bankruptcy Event or any other Event of Default, and (D) the
exercise of remedies in accordance with the provisions of Section 7.2 hereof (each such Revolving Loan borrowing made on account of any such deemed request
therefor as provided herein being hereinafter referred to as “ Mandatory Swingline Borrowing ”). Each Revolving Lender hereby irrevocably agrees to make such
Revolving Loans promptly upon any such request or deemed request on account of each Mandatory Swingline Borrowing in the amount and in the manner
specified in the preceding sentence on the date such notice is received by the Revolving Lenders from the Administrative Agent if such notice is received at or
before 2:00 P.M., otherwise such payment shall be made at or before 12:00 P.M. on the Business Day next succeeding the date such notice is received
notwithstanding (1) the amount of Mandatory Swingline Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise
required hereunder, (2) whether any conditions specified in Section 4.2 are then satisfied, (3) whether a Default or an Event of Default then exists, (4) failure of
any such request or deemed request for Revolving Loans to be made by the time otherwise required in Section 2.1(b)(i), (5) the date of such Mandatory Swingline
Borrowing, or (6) any reduction in the Revolving Committed Amount or termination of the Revolving Commitments immediately prior to such Mandatory
Swingline Borrowing or contemporaneously therewith. In the event that any Mandatory Swingline Borrowing cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code), then each Revolving Lender hereby
agrees that it shall forthwith purchase (as of the date the Mandatory Swingline Borrowing would otherwise have occurred, but adjusted for any payments received
from the Borrower on or after such date and prior to such purchase) from the Swingline Lender such Participation Interest in the outstanding Swingline Loans as
shall be necessary to cause each such Revolving Lender to share in such Swingline Loans ratably based upon its respective Revolving Commitment Percentage
(determined before giving effect to any termination of the Commitments pursuant to Section 7.2); provided that (x) all interest payable on the Swingline Loans
shall be for the account of the Swingline Lender until the date as of which the respective Participation Interest is purchased, and (y) at the time any purchase of a
Participation Interest pursuant to this sentence is actually made, the purchasing Revolving Lender shall be required to pay to the Swingline Lender interest on the
principal amount of such Participation Interest purchased for each day from and including the day upon which the Mandatory Swingline Borrowing would
otherwise have occurred to but excluding the date of payment for such Participation Interest, at the rate equal to, if paid within two (2) Business Days of the date of
the Mandatory Swingline Borrowing, the Federal Funds Effective Rate, and thereafter at a rate equal to the Alternate Base Rate. The Borrower shall have the right
to repay the Swingline Loan in whole or in part from time to time in accordance with Section 2.7(a).
(c) Interest on Swingline Loans . Subject to the provisions of Section 2.8, Swingline Loans shall bear interest at a per annum rate equal to
the Alternate Base Rate plus the Applicable Margin for Revolving Loans that are Alternate Base Rate Loans. Interest on Swingline Loans shall be payable in
arrears on each Interest Payment Date.
(d) Swingline Loan Note; Covenant to Pay . The Swingline Loans shall be evidenced by this Agreement and, upon request of the
Swingline Lender, by a duly executed promissory note of the Borrower in favor of the Swingline Lender in the original amount of the Swingline Committed
Amount and substantially in the form of Exhibit 2.4(d) . The Borrower covenants and agrees to pay the Swingline Loans in accordance with the terms of this
Agreement.
46
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) Cash Collateral . At any point in time in which there is a Defaulting Lender, the Swingline Lender may require the Borrower to Cash
Collateralize the outstanding Swingline Loans pursuant to Section 2.20.
Section 2.5 Fees .
(a) Commitment Fee . Subject to Section 2.21, in consideration of the Revolving Commitments, the Borrower agrees to pay to the
Administrative Agent, for the ratable benefit of the Revolving Lenders, a commitment fee (the “ Commitment Fee ”) in an amount equal to the Applicable
Margin per annum on the average daily unused amount of the Revolving Committed Amount; provided , however that until March 31, 2019, the Commitment
Fee shall be in an amount equal to 0.25% per annum on the average daily unused amount of the Revolving Committed Amount. The Commitment Fee shall be
calculated quarterly in arrears. For purposes of computation of the Commitment Fee, LOC Obligations shall be considered usage of the Revolving Committed
Amount but Swingline Loans shall not be considered usage of the Revolving Committed Amount. The Commitment Fee shall be payable quarterly in arrears on
the last Business Day of each calendar quarter.
(b) Letter of Credit Fees . Subject to Section 2.21, in consideration of the LOC Commitments, the Borrower agrees to pay to the
Administrative Agent, for the ratable benefit of the Revolving Lenders, a fee (the “ Letter of Credit Fee ”) equal to the Applicable Margin for Revolving Loans
that are LIBOR Rate Loans per annum 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 Borrower shall pay to the
Issuing Lender for its own account without sharing by the other Lenders the reasonable and customary charges from time to time of the Issuing 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 Issuing Lender may charge, and retain for its own account without sharing by the other Lenders, an additional facing fee (the “ Letter of Credit
Facing Fee ”) of 0.125% per annum on the average daily maximum amount available to be drawn under each such Letter of Credit issued by it. The Issuing
Lender Fees and the Letter of Credit Facing Fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter.
(d) Administrative Fee . The Borrower agrees to pay to the Administrative Agent the annual administrative fee as described in the
Engagement Letter.
(e) Delayed Draw Ticking Fee . The Borrower agrees to pay to the Administrative Agent, for the ratable benefit of the Delayed Draw Term
Loan Lenders, a ticking fee (the “ Delayed Draw Ticking Fee ”) in an amount equal to the Applicable Margin per annum on the average daily unused amount of
the Delayed Draw Term Loan Committed Amount, commencing on the Closing Date and ending on the last day of the Delayed Draw Availability Period;
provided , however that from and after the date which is six months following the Closing Date, the Delayed Draw Ticking Fee shall be as set forth in Level I of
the grid set forth in the definition of Applicable Margin in Section 1.1 . The Delayed Draw Ticking Fee shall be paid quarterly in arrears on the last Business Day
of each calendar quarter and on the last day of the Delayed Draw Availability Period.
47
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.6 Commitment Reductions .
(a) Voluntary Reductions . The Borrower shall have the right to terminate or permanently reduce the unused portion of the Revolving
Committed Amount at any time or from time to time upon not less than five (5) Business Days’ prior written notice to the Administrative Agent (which shall
notify the Lenders thereof as soon as practicable) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of
any such reduction which shall be in a minimum amount of $100,000 or a whole multiple of $100,000 in excess thereof and shall be irrevocable and effective
upon receipt by the Administrative Agent; provided that no such reduction or termination shall be permitted if after giving effect thereto, and to any prepayments
of the Revolving Loans made on the effective date thereof, the sum of the aggregate principal amount of outstanding Revolving Loans plus outstanding
Swingline Loans plus outstanding LOC Obligations would exceed the Revolving Committed Amount then in effect. Any reduction in the Revolving Committed
Amount shall be applied to the Commitment of each Revolving Lender in accordance to its Revolving Commitment Percentage.
(b) LOC Committed Amount . If the Revolving Committed Amount is reduced below the then current LOC Committed Amount, the LOC
Committed Amount shall automatically be reduced by an amount such that the LOC Committed Amount equals the Revolving Committed Amount.
(c) Swingline Committed Amount . If the Revolving Committed Amount is reduced below the then current Swingline Committed Amount,
the Swingline Committed Amount shall automatically be reduced by an amount such that the Swingline Committed Amount equals the Revolving Committed
Amount.
(d) Maturity Date . The Revolving Commitments, the Swingline Commitment and the LOC Commitment shall automatically terminate on
the Maturity Date.
(e) Delayed Draw Commitment Termination . The Delayed Draw Term Loan Committed Amount shall be permanently reduced on each
Delayed Draw Funding Date by the amount drawn. The Delayed Draw Term Loan Commitments shall automatically terminate on the close of business on the
last day of the Delayed Draw Availability Period.
48
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.7 Prepayments .
(a) Optional Prepayments and Repayments . The Borrower shall have the right to prepay the Term Loans and repay the Revolving Loans
and Swingline Loans in whole or in part from time to time; provided , however , that each partial prepayment or repayment of (i) Revolving Loans or Term
Loans that are Alternate Base Rate Loans shall be in a minimum principal amount of $500,000 and integral multiples of $100,000 in excess thereof (or the
remaining outstanding principal amount), (ii) Revolving Loans or Term Loans that LIBOR Rate Loans shall be in a minimum principal amount of $500,000 and
integral multiples of $100,000 in excess thereof (or the remaining outstanding principal amount) and (iii) Swingline Loans shall be in a minimum principal
amount of $500,000 and integral multiples of $100,000 in excess thereof (or the remaining outstanding principal amount). The Borrower shall give three (3)
Business Days’ irrevocable notice of prepayment in the case of LIBOR Rate Loans and same-day irrevocable notice on any Business Day in the case of
Alternate Base Rate Loans, to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable). To the extent that the Borrower elects to
prepay the Term Loans, amounts prepaid under this Section shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in each case,
ratably to the then remaining amortization payments thereof; provided , that all prepayments pursuant to this Section 2.7(a) that are applied to the Term Loans
shall be applied pro rata between the Term Loans and any Incremental Term Facilities based on the then outstanding principal balances thereof. To the extent the
Borrower elects to repay the Revolving Loans and/or Swingline Loans, amounts prepaid under this Section shall be applied to the Revolving Loans and/or
Swingline Loans, as applicable of the Revolving Lenders in accordance with their respective Revolving Commitment Percentages. Within the foregoing
parameters, prepayments under this Section shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in direct order of Interest Period
maturities. All prepayments under this Section shall be subject to Section 2.15, but otherwise without premium or penalty. Interest on the principal amount
prepaid shall be payable on the next occurring Interest Payment Date that would have occurred had such loan not been prepaid or, at the request of the
Administrative Agent, interest on the principal amount prepaid shall be payable on any date that a prepayment is made hereunder through the date of
prepayment.
(b) Mandatory Prepayments .
(i) Revolving Committed Amount . If at any time after the Closing Date, the sum of the aggregate principal amount of
outstanding Revolving Loans plus outstanding Swingline Loans plus outstanding LOC Obligations shall exceed the Revolving Committed Amount, the Borrower
shall immediately prepay the Revolving Loans and Swingline Loans and (after all Revolving Loans and Swingline Loans have been repaid) Cash Collateralize the
LOC Obligations in an amount sufficient to eliminate such excess (such prepayment to be applied as set forth in clause (vii) below).
(ii) Asset Dispositions . Following any Asset Disposition (or related series of Asset Dispositions), the Borrower shall prepay the
Loans and/or Cash Collateralize the LOC Obligations in an aggregate amount equal to one hundred percent (100%) of the Net Cash Proceeds derived from such
Asset Disposition (or related series of Asset Dispositions) (such prepayment to be applied as set forth in clause (vii) below) within five (5) Business Days of the
receipt thereof; provided , however , that, so long as no Default or Event of Default has occurred and is continuing, such Net Cash Proceeds shall not be required to
be so applied to the extent the Borrower delivers to the Administrative Agent a certificate stating that the Credit Parties intend to use such Net Cash Proceeds to
acquire operating or capital assets (and pay transaction expenses associated therewith) useful to the business of the Credit Parties, including pursuant to a Permitted
Acquisition, and such reinvestment is consummated within 180 days of the receipt of such Net Cash Proceeds or the subject of a binding written agreement with a
third party entered into such 180 day period which is consummated with 120 days after the end of such 180 day period, it being expressly agreed that Net Cash
Proceeds not so reinvested shall be applied to prepay the Loans and/or Cash Collateralize the LOC Obligations immediately thereafter (such prepayment to be
applied as set forth in clause (vii) below).
(iii) Debt Issuances . Immediately upon receipt by any Credit Party or any of its Subsidiaries of proceeds from any Debt Issuance,
the Borrower shall prepay the Loans and/or Cash Collateralize the LOC Obligations in an aggregate amount equal to one hundred percent (100%) of the Net Cash
Proceeds of such Debt Issuance (such prepayment to be applied as set forth in clause (vii) below); provided , however , that such Net Cash Proceeds shall not be
required to be so applied to the extent they are (A) held in a deposit account subject to a Deposit Account Control Agreement and (B) used solely for the purpose of
repaying principal and interest on the Existing Notes.
49
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(iv) [Reserved] .
(v) [Reserved ].
(vi) Extraordinary Receipts . Within five (5) Business Days following receipt by any Credit Party or any of its Subsidiaries of
proceeds from any Extraordinary Receipt, the Borrower shall prepay the Loans and/or Cash Collateralize LOC Obligations in an aggregate amount equal to one
hundred percent (100%) of the Net Cash Proceeds of such Extraordinary Receipt in excess of $500,000 (such prepayment to be applied as set forth in clause (vii)
below); provided , however , that, so long as no Event of Default has occurred and is continuing, Net Cash Proceeds from insurance or condemnation proceeds
shall not be required to be so applied to the extent the Borrower delivers to the Administrative Agent a certificate stating that Credit Parties intend to use such Net
Cash Proceeds to acquire operating or capital assets (and pay transaction expenses associated therewith) useful to the business of the Credit Parties within 180 days
(or committed to be reinvested within such period and actually reinvested within 120 days thereafter) of the receipt of such Net Cash Proceeds, it being expressly
agreed that any Net Cash Proceeds not so reinvested shall be applied to prepay the Loans and/or Cash Collateralize the LOC Obligations immediately thereafter
(such prepayment to be applied as set forth in clause (vii) below).
(vii) Application of Mandatory Prepayments . All amounts required to be paid pursuant to this Section shall be applied as follows:
second to the outstanding Revolving Loans and (3) third to Cash Collateralize the LOC Obligations; and
(A) with respect to all amounts prepaid pursuant to Section 2.7(b)(i), (1) first to the outstanding Swingline Loans, (2)
(B) with respect to all amounts prepaid pursuant to Sections 2.7(b)(ii) through (vi), (1) first to the Term Loans and any
Incremental Term Facilities on a pro rata basis (in each case, ratably to the remaining amortization payments thereof) (including the bullet payment due
on the Maturity Date), (2) second to the Swingline Loans (without a simultaneous corresponding reduction of the Swingline Committed Amount), (3)
third to the Revolving Loans (without a simultaneous corresponding reduction of the Revolving Committed Amount) and (4) fourth to a cash collateral
account in respect of LOC Obligations (without a simultaneous corresponding reduction of the LOC Committed Amount). Within the parameters of the
applications set forth above, prepayments shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in each case, ratably to the
remaining amortization payments thereof. All prepayments under this Section shall be subject to Section 2.15 and be accompanied by interest on the
principal amount prepaid through the date of prepayment, but otherwise without premium or penalty.
(c) Bank Product Obligations Unaffected . Any repayment or prepayment made pursuant to this Section shall not affect the Borrower’s
obligation to continue to make payments under any Bank Product, which shall remain in full force and effect notwithstanding such repayment or prepayment,
subject to the terms of such Bank Product.
Section 2.8 Default Rate and Payment Dates .
(a) If all or a portion of the principal amount of any Loan which is a LIBOR Rate Loan shall not be paid when due or continued as a
LIBOR Rate Loan in accordance with the provisions of Section 2.9 (whether at the stated maturity, by acceleration or otherwise), such overdue principal amount
of such Loan shall be converted to an Alternate Base Rate Loan at the end of the Interest Period applicable thereto.
50
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Upon the occurrence and during the continuance of a (i) Bankruptcy Event or a Payment 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 Credit Documents shall automatically bear interest at a
rate per annum which is equal to the Default Rate and (ii) any other Event of Default hereunder, at the option of the Required Lenders, the principal of and, to
the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall automatically bear interest,
at a per annum rate which is equal to the Default Rate, in each case from the date of such Event of Default until such Event of Default is waived in accordance
with Section 9.1. Any default interest owing under this Section 2.8(b) shall be due and payable on the earlier to occur of (x) demand by the Administrative Agent
(which demand the Administrative Agent shall make if directed by the Required Lenders) and (y) the Maturity Date.
(c) Interest on each Loan shall be payable in arrears on each Interest Payment Date; provided that interest accruing pursuant to paragraph
(b) of this Section shall be payable from time to time on demand.
Section 2.9 Conversion Options .
(a) The Borrower may, in the case of Revolving Loans and the Term Loans, elect from time to time to convert Alternate Base Rate Loans
to LIBOR Rate Loans or to continue LIBOR Rate Loans, by delivering a Notice of Conversion/Extension to the Administrative Agent at least three Business
Days prior to the proposed date of conversion or continuation. In addition, the Borrower may elect from time to time to convert all or any portion of a LIBOR
Rate Loan to an Alternate Base Rate Loan by giving the Administrative Agent irrevocable written notice thereof by 11:00 A.M. one (1) Business Day prior to
the proposed date of conversion. If the date upon which an Alternate Base Rate Loan is to be converted to a LIBOR Rate Loan is not a Business Day, then such
conversion shall be made on the next succeeding Business Day and during the period from such last day of an Interest Period to such succeeding Business Day
such Loan shall bear interest as if it were an Alternate Base Rate Loan. LIBOR Rate Loans may only be converted to Alternate Base Rate Loans on the last day
of the applicable Interest Period. If the date upon which a LIBOR Rate Loan is to be converted to an Alternate Base Rate Loan is not a Business Day, then such
conversion shall be made on the next succeeding Business Day and during the period from such last day of an Interest Period to such succeeding Business Day
such Loan shall bear interest as if it were an Alternate Base Rate Loan. All or any part of outstanding Alternate Base Rate Loans may be converted as provided
herein; provided that (i) no Loan may be converted into a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing and (ii) partial
conversions shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. All or any part of outstanding LIBOR Rate
Loans may be converted as provided herein; provided that partial conversions shall be in an aggregate principal amount of $500,000 or a whole multiple of
$100,000 in excess thereof.
(b) Any LIBOR Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the
Borrower with the notice provisions contained in Section 2.9(a); provided , that no LIBOR Rate Loan may be continued as such when any Default or Event of
Default has occurred and is continuing, in which case such Loan shall be automatically converted to an Alternate Base Rate Loan at the end of the applicable
Interest Period with respect thereto. If the Borrower shall fail to give timely notice of an election to continue a LIBOR Rate Loan, or the continuation of LIBOR
Rate Loans is not permitted hereunder, such LIBOR Rate Loans shall be automatically converted to Alternate Base Rate Loans at the end of the applicable
Interest Period with respect thereto.
51
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.10 Computation of Interest and Fees; Usury .
(a) Interest payable hereunder with respect to any Alternate Base Rate Loan based on the Prime Rate shall be calculated on the basis of a
year of 365 days (or 366 days, as applicable) for the actual days elapsed. All other fees, interest and all other amounts payable hereunder shall be calculated on
the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each
determination of a LIBOR Rate on the Business Day of the determination thereof. Any change in the interest rate on a Loan resulting from a change in the
Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate shall become effective.
The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change.
(b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the computations used by the Administrative Agent in determining any interest rate.
(c) It is the intent of the Lenders and the Credit Parties to conform to and contract in strict compliance with applicable usury law from time
to time in effect. All agreements between the Lenders and the Credit Parties are hereby limited by the provisions of this subsection which shall override and
control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including, but not
limited to, prepayment or acceleration of the maturity of any Obligation), shall the interest taken, reserved, contracted for, charged, or received under this
Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable law. If, from any possible construction of any
of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall
be subject to the provisions of this paragraph and such interest shall be automatically reduced to the maximum nonusurious amount permitted under applicable
law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest
on the Loans under applicable law and which would, apart from this provision, be in excess of the maximum nonusurious amount, an amount equal to the
amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the
payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such
unpaid principal amount of the Loans. The right to demand payment of the Loans or any other Indebtedness evidenced by any of the Credit Documents does not
include the right to receive any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any
unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount
of interest on account of such Indebtedness does not exceed the maximum nonusurious amount permitted by applicable law.
52
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.11 Pro Rata Treatment and Payments .
(a) Allocation of Payments Prior to Exercise of Remedies . Each borrowing of Revolving Loans and any reduction of the Revolving
Commitments shall be made pro rata according to the respective Revolving Commitment Percentages of the Revolving Lenders. Each borrowing of the Term
Loans and any reduction of the Term Loan Commitments shall be made pro rata according to the respective Term Loan Commitment Percentages of the Term
Loan Lenders. Unless otherwise required by the terms of this Agreement, each payment under this Agreement shall be applied, first , to any fees then due and
owing by the Borrower pursuant to Section 2.5, second , to interest then due and owing hereunder of the Borrower and, third , to principal then due and owing
hereunder and under this Agreement of the Borrower. Each payment on account of any fees pursuant to Section 2.5 shall be made pro rata in accordance with the
respective amounts due and owing (except as to the Letter of Credit Facing Fees and the Issuing Lender Fees which shall be paid to the Issuing Lender). Each
optional repayment and prepayment by the Borrower on account of principal of and interest on the Revolving Loans and on the Term Loans, as applicable, shall
be applied to such Loans, as applicable, on a pro rata basis and, to the extent applicable, in accordance with the terms of Section 2.7(a) hereof. Each mandatory
prepayment on account of principal of the Loans shall be applied to such Loans, as applicable, on a pro rata basis and, to the extent applicable, in accordance
with Section 2.7(b). All payments (including prepayments) to be made by the Borrower on account of principal, interest and fees shall be made without defense,
set-off or counterclaim and shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agent’s office specified on Section
9.2 in Dollars and in immediately available funds not later than 1:00 P.M. on the date when due. The Administrative Agent shall distribute such payments to the
Lenders entitled thereto promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Rate Loans) becomes due
and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Rate Loan becomes due and payable on
a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day unless the result of such extension would be to
extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.
(b) Allocation of Payments After Exercise of Remedies . Notwithstanding any other provisions of this Agreement to the contrary, after the
exercise of remedies (other than the application of default interest pursuant to Section 2.8) by the Administrative Agent or the Lenders pursuant to Section 7.2
(or after the Commitments shall automatically terminate and the Loans (with accrued interest thereon) and all other amounts under the Credit 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), all amounts collected or received by the Administrative Agent or any Lender on account of the Credit Party
Obligations or any other amounts outstanding under any of the Credit Documents or in respect of the Collateral shall be paid over or delivered as follows
(irrespective of whether the following costs, expenses, fees, interest, premiums, scheduled periodic payments or Credit Party Obligations are allowed, permitted
or recognized as a claim in any proceeding resulting from the occurrence of a Bankruptcy Event):
FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys’ fees) of
the Administrative Agent in connection with enforcing the rights of the Lenders under the Credit Documents and any protective advances made
by the Administrative Agent with respect to the Collateral under or pursuant to the terms of the Security Documents;
53
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
SECOND, to the payment of any fees owed to the Administrative Agent and the Issuing Lender;
THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys’ fees) of
each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Credit Party Obligations
owing to such Lender;
FOURTH, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest, and including, with respect to
any Bank Product, any fees, premiums and scheduled periodic payments due under such Bank Product and any interest accrued thereon;
FIFTH, to the payment of the outstanding principal amount of the Credit Party Obligations and the payment or cash collateralization of
the outstanding LOC Obligations, and including with respect to any Bank Product, any breakage, termination or other payments due under such
Bank Product and any interest accrued thereon;
SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Credit
Documents or otherwise and not repaid pursuant to clauses “FIRST” through “FIFTH” above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the numerical order provided until exhausted prior to application to the
next succeeding category; (b) each of the Lenders and any Bank Product Provider shall receive an amount equal to its pro rata share (based on the
proportion that the then outstanding Loans and LOC Obligations held by such Lender or the outstanding obligations payable to such Bank Product
Provider bears to the aggregate then outstanding Loans and LOC Obligations and obligations payable under all Bank Products) of amounts available to be
applied pursuant to clauses “THIRD”, “FOURTH”, “FIFTH” and “SIXTH” above; and (c) to the extent that any amounts available for distribution
pursuant to clause “FIFTH” above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the
Administrative Agent in a cash collateral account and applied (i) first, to reimburse the Issuing Lender from time to time for any drawings under such
Letters of Credit and (ii) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses “FIFTH” and
“SIXTH” above in the manner provided in this Section. Notwithstanding the foregoing terms of this Section, only Collateral proceeds and payments under
the Guaranty (as opposed to ordinary course principal, interest and fee payments hereunder) shall be applied to obligations under any Bank Product.
Amounts distributed with respect to any Bank Product Debt shall be the amount of such Bank Product last reported to the Administrative Agent; provided
that any such Bank Product Provider may provide an updated amount of such Bank Product to the Administrative Agent prior to payments made pursuant
to this Section. The Administrative Agent shall have no obligation to calculate the amount to be distributed with respect to any Bank Product Debt, but
may rely upon written notice of the amount (setting forth a reasonably detailed calculation) from the applicable Bank Product Provider. In the absence of
such notice, the Administrative Agent may assume the amount to be distributed is the amount of such Bank Product last reported to the Administrative
Agent.
54
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.12 Non-Receipt of Funds; Administrative Agent’s Clawback .
(a) Funding by Lenders; Presumption by Administrative Agent . Unless the Administrative Agent shall have received written notice from a
Lender prior to the proposed date of any Extension of Credit that such Lender will not make available to the Administrative Agent such Lender’s share of such
Extension of Credit, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with this Agreement and
may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the
applicable Extension of Credit available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal
Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the
case of a payment to be made by the Borrower, the interest rate applicable to Alternate Base Rate Loans. If the Borrower and such Lender shall pay such interest
to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest
paid by the Borrower for such period. If such Lender pays its share of the applicable Extension of Credit to the Administrative Agent, then the amount so paid
shall constitute such Lender’s Loan included in such Extension of Credit. Any payment by the Borrower shall be without prejudice to any claim the Borrower
may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(b) Payments by Borrower; Presumptions by Administrative Agent . Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Lender hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith
and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Lender, as the case may be, the amount due. In such event, if the Borrower
has not in fact made such payment, then each of the Lenders or the Issuing Lender, as the case may be, severally agrees to repay to the Administrative Agent
forthwith on demand the amount so distributed to such Lender or the Issuing Lender, with interest thereon, for each day from and including the date such amount
is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by
the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under subsections (a) and (b) of this
Section shall be conclusive, absent manifest error.
55
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) Failure to Satisfy Conditions Precedent . If any Lender makes available to the Administrative Agent funds for any Loan to be made by
such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent
because the conditions to the applicable Extension of Credit set forth in Article IV are not satisfied or waived in accordance with the terms thereof, the
Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(d) Obligations of Lenders Several . The obligations of the Lenders hereunder to make Term Loans and Revolving Loans, to fund
participations in Letters of Credit and Swingline Loans and to make payments pursuant to Section 9.5(c) are several and not joint. The failure of any Lender to
make any Loan, to fund any such participation or to make any such payment under Section 9.5(c) on any date required hereunder shall not relieve any other
Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to
purchase its participation or to make its payment under Section 9.5(c).
(e) Funding Source . Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
Section 2.13 Inability to Determine Interest Rate .
Notwithstanding any other provision of this Agreement, if (a) the Administrative Agent shall reasonably determine (which determination shall be
conclusive and binding absent manifest error) that, by reason of circumstances affecting the relevant market, reasonable and adequate means do not exist for
ascertaining the LIBOR Rate for such Interest Period, (b) the supervisor for the administrator of LIBOR or a Governmental Authority with jurisdiction has made a
statement identifying a specific date after which LIBOR shall no longer be used for determining interest rates for loans, or (c) the Required Lenders shall
reasonably determine (which determination shall be conclusive and binding absent manifest error) that the LIBOR Rate does not adequately and fairly reflect the
cost to such Lenders of funding LIBOR Rate Loans that the Borrower has requested be outstanding as a LIBOR Tranche during such Interest Period, the
Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower, and the Lenders at least two (2) Business
Days prior to the first day of such Interest Period. Unless the Borrower shall have notified the Administrative Agent upon receipt of such telephone notice that it
wishes to rescind or modify its request regarding such LIBOR Rate Loans, any Loans that were requested to be made as LIBOR Rate Loans shall be made as
Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as LIBOR Rate Loans shall remain as or be converted into
Alternate Base Rate Loans. Until any such notice has been withdrawn by the Administrative Agent, no further Loans shall be made as, continued as, or converted
into, LIBOR Rate Loans for the Interest Periods so affected.
Section 2.14 Yield Protection .
(a) Increased Costs Generally . If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement
against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the LIBOR
Rate) or the Issuing Lender;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the
definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits,
reserves, other liabilities or capital attributable thereto; or
56
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein;
(iii) impose on any Lender or the Issuing Lender or the London interbank market any other condition, cost or expense (other than
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing or
maintaining any Loan or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, such Issuing Lender or such other
Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit),
or to reduce the amount of any sum received or receivable by such Lender, Issuing Lender or other Recipient hereunder (whether of principal, interest or
any other amount) then, upon request of such Lender, Issuing Lender or other Recipient, the Borrower will pay to such Lender, Issuing Lender or other
Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, Issuing Lender or other Recipient, as the case may be,
for such additional costs incurred or reduction suffered.
(b) Capital Requirements . If any Lender or the Issuing Lender determines that any Change in Law affecting such Lender or the Issuing
Lender or any lending office of such Lender or such Lender’s or the Issuing Lender’s holding company, if any, regarding capital or liquidity requirements has or
would have the effect of reducing the rate of return on such Lender’s or the Issuing Lender’s capital or on the capital of such Lender’s or the Issuing Lender’s
holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit or
Swingline Loans held by, such Lender, or the Letters of Credit issued by the Issuing Lender, to a level below that which such Lender or the Issuing Lender or
such Lender’s or the Issuing Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing
Lender’s policies and the policies of such Lender’s or the Issuing Lender’s holding company with respect to capital adequacy), then from time to time the
Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing
Lender or such Lender’s or the Issuing Lender’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement . A certificate of a Lender or the Issuing Lender setting forth the amount or amounts necessary to
compensate such Lender or the Issuing Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section and delivered to the
Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Lender, as the case may be, the amount shown as due on
any such certificate within ten (10) days after receipt thereof.
(d) Delay in Requests . Failure or delay on the part of any Lender or the Issuing Lender to demand compensation pursuant to this Section
shall not constitute a waiver of such Lender’s or the Issuing Lender’s right to demand such compensation, provided that the Borrower shall not be required to
compensate a Lender or the Issuing Lender pursuant to this Section for any increased costs incurred or reductions suffered more than nine (9) months prior to the
date such Lender or Issuing Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such
Lender’s or Issuing Lender’s intention to claim compensation therefore (except that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).
57
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.15 Compensation for Losses .
Promptly following demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such
Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than an Alternate Base Rate Loan on a day other than the last
day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert
any Loan other than an Alternate Base Rate Loan on the date or in the amount notified by the Borrower; or
(c) any assignment of a LIBOR Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the
Borrower pursuant to Section 2.19;
including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such
Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees
charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section, each Lender shall be deemed to have funded each LIBOR
Rate Loan made by it at the LIBOR Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a
comparable amount and for a comparable period, whether or not such LIBOR Rate Loan was in fact so funded.
Section 2.16 Taxes .
(a) Defined Terms . For purposes of this Section 2.16, the term “Lender” includes any Issuing Lender and the term “applicable law”
includes FATCA.
(b) Payments Free of Taxes . Any and all payments by or on account of any obligation of any Credit Party under any Credit Document
shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith
discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the
applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant
Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Credit Party shall be
increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums
payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been
made.
58
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) Payment of Other Taxes by the Borrower . The Credit Parties shall timely pay to the relevant Governmental Authority in accordance
with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(d) Indemnification by the Borrower . The Credit Parties shall jointly and severally indemnify each Recipient, within 10 days after demand
therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this
Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the
Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(e) Indemnification by the Lenders . Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand
therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Credit Party has not already indemnified the Administrative
Agent for such Indemnified Taxes and without limiting the obligation of the Credit Parties to do so), (ii) any Taxes attributable to such Lender’s failure to
comply with the provisions of Section 9.6(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in
each case, that are payable or paid by the Administrative Agent in connection with any Credit Document, and any reasonable expenses arising therefrom or with
respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the
Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Credit Document or otherwise payable by the
Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f) Evidence of Payments . As soon as practicable after any payment of Taxes by any Credit Party to a Governmental Authority pursuant
to this Section 2.16, such Credit Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
(g) Status of Lenders . (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made
under any Credit Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the
Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit
such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the
Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent
as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting
requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other
than such documentation set forth in Section 2.16(g)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such
completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or
commercial position of such Lender.
59
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Borrower,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on
which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the
Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative
Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this
Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is
applicable:
(iii) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with
respect to payments of interest under any Credit Document, executed copies of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal
withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Credit Document, IRS Form
W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax
treaty;
(iv) executed copies of IRS Form W-8ECI;
(v) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code,
(x) a certificate substantially in the form of Exhibit 2.16(a) to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the
Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in
Section 881(c)(3)(C) of the Code (a “ U.S. Tax Compliance Certificate ”) and (y) executed copies of IRS Form W-8BEN; or
(vi) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form
W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit 2.16(b) or Exhibit 2.16(c), IRS Form W-9, and/or other
certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of
such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form
of Exhibit 2.16(d) on behalf of each such direct and indirect partner;
(A) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative
Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this
Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form
prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such
supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding
or deduction required to be made; and
60
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(B) if a payment made to a Lender under any Credit Document would be subject to U.S. federal withholding Tax
imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section
1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by
law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law
(including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the
Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to
determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such
payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such
form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(h) Treatment of Certain Refunds . If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any
Taxes as to which it has been indemnified pursuant to this Section 2.16 (including by the payment of additional amounts pursuant to this Section 2.16), it shall
pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes
giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such
indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental
Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in
this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of
which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to
indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts
with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any
other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(i) Survival . Each party’s obligations under this Section 2.16 shall survive the resignation or replacement of the Administrative Agent or
any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations
under any Credit Document.
61
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 2.17 Indemnification; Nature of Issuing Lender’s Duties .
(a) In addition to its other obligations under Section 2.3, the Credit Parties hereby agree to protect, indemnify, pay and save the Issuing
Lender and each Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys’ fees) that the Issuing Lender or such Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit
or (ii) the failure of the Issuing Lender to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present
or future de jure or de facto government or Governmental Authority (all such acts or omissions, herein called “ Government Acts ”).
(b) As between the Credit Parties, the Issuing Lender and each Lender, the Credit Parties shall assume all risks of the acts, omissions or
misuse of any Letter of Credit by the beneficiary thereof. Neither the Issuing Lender nor any Lender shall be responsible: (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if
it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that
may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to
draw upon a Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (vii) for any consequences arising from causes beyond the
control of the Issuing Lender or any Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of
the Issuing Lender’s rights or powers hereunder.
(c) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the
Issuing Lender or any Lender, under or in connection with any Letter of Credit or the related certificates, if taken or omitted in the absence of gross negligence
or willful misconduct, shall not put such Issuing Lender or such Lender under any resulting liability to the Credit Parties. It is the intention of the parties that this
Agreement shall be construed and applied to protect and indemnify the Issuing Lender and each Lender against any and all risks involved in the issuance of the
Letters of Credit, all of which risks are hereby assumed by the Credit Parties, including, without limitation, any and all risks of the acts or omissions, whether
rightful or wrongful, of any Governmental Authority. The Issuing Lender and the Lenders shall not, in any way, be liable for any failure by the Issuing Lender or
anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of the Issuing Lender and
the Lenders.
(d) Nothing in this Section is intended to limit the Reimbursement Obligation of the Borrower contained in Section 2.3(d) hereof. The
obligations of the Credit Parties under this Section shall survive the termination of this Agreement. No act or omissions of any current or prior beneficiary of a
Letter of Credit shall in any way affect or impair the rights of the Issuing Lender and the Lenders to enforce any right, power or benefit under this Agreement.
62
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) Notwithstanding anything to the contrary contained in this Section, the Credit Parties shall have no obligation to indemnify the Issuing
Lender or any Lender in respect of any liability incurred by the Issuing Lender or such Lender arising out of the gross negligence or willful misconduct of the
Issuing Lender (including action not taken by the Issuing Lender or such Lender), as determined by a court of competent jurisdiction or pursuant to arbitration.
Section 2.18 Illegality .
Notwithstanding any other provision of this Agreement, if any Change in Law shall make it unlawful for such Lender or its LIBOR Lending Office to
make or maintain LIBOR Rate Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market through its LIBOR Lending Office the
funds with which to make such Loans, (a) such Lender shall promptly notify the Administrative Agent and the Borrower thereof, (b) the commitment of such
Lender hereunder to make LIBOR Rate Loans or continue LIBOR Rate Loans as such shall forthwith be suspended until the Administrative Agent shall give notice
that the condition or situation which gave rise to the suspension shall no longer exist, and (c) such Lender’s Loans then outstanding as LIBOR Rate Loans, if any,
shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law as Alternate Base Rate Loans. The Borrower
hereby agrees to promptly pay any Lender, promptly following its demand, any additional amounts necessary to compensate such Lender for actual and direct costs
(but not including anticipated profits) reasonably incurred by such Lender in making any repayment in accordance with this Section including, but not limited to,
any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder. A certificate (which
certificate shall include a description of the basis for the computation) as to any additional amounts payable pursuant to this Section submitted by such Lender,
through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including
reasonable efforts to change its LIBOR Lending Office) to avoid or to minimize any amounts which may otherwise be payable pursuant to this Section; provided ,
however , that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its sole
discretion to be material.
Section 2.19 Mitigation Obligations; Replacement of Lenders .
(a) Designation of a Different Lending Office . If any Lender requests compensation under Section 2.14, or requires the Borrower to pay
any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such
Lender shall (at the request of the Borrower) use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign
its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.14 or Section 2.16, as the case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses
incurred by any Lender in connection with any such designation or assignment.
63
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Replacement of Lenders . If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any
Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16 and, in each case,
such Lender has declined or is unable to designate a different lending office in accordance with Section 2.19(a), or if any Lender is a Defaulting Lender or a
Non-Consenting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to
assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.6), all of its interests,
rights (other than its existing rights to payments pursuant to Section 2.14 or Section 2.16) and obligations under this Agreement and the related Credit
Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided
that:
(i) the Borrower shall have paid to the Administrative Agent the assignment fee (if any) specified in Section 9.6;
(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in
Letters of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Credit Documents (including any
amounts under Section 2.15) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other
amounts);
made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments thereafter;
(iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be
(iv) such assignment does not conflict with applicable law; and
consented to the applicable amendment, waiver or consent.
(v) in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Section 2.20 Cash Collateral .
(a) Cash Collateral . At any time that there shall exist a Defaulting Lender, within one (1) Business Day following the written request of
the Administrative Agent or any Issuing Lender (with a copy to the Administrative Agent), the Borrower shall Cash Collateralize all Fronting Exposure of the
Issuing Lender with respect to such Defaulting Lender (determined after giving effect to Section 2.21(b) and any Cash Collateral provided by the Defaulting
Lender) in an amount not less than the Minimum Collateral Amount.
(b) Grant of Security Interest . The Borrower, and to the extent provided by any Defaulting Lender, such Defaulting Lender, hereby grants
to the Administrative Agent, for the benefit of the Issuing Lenders, and agrees to maintain, a first priority security interest in all such Cash Collateral as security
for the Defaulting Lenders’ obligation to fund participations in respect of LOC Obligations, to be applied pursuant to clause (c) below. If at any time the
Administrative Agent determines that Cash Collateral is subject to any right or claim of any Person other than the Administrative Agent and the Issuing Lenders
as herein provided, or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount, the Borrower will, promptly upon demand by
the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after
giving effect to any Cash Collateral provided by the Defaulting Lender).
64
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) Application . Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section 2.20
or Section 2.21 in respect of Letters of Credit, shall be applied to the satisfaction of the Defaulting Lender’s obligations to fund participations in respect of LOC
Obligations (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) for which the Cash Collateral was so
provided, prior to any other application of such property as may otherwise be provided for herein.
(d) Termination of Requirement . Cash Collateral (or the appropriate portion thereof) provided to reduce any Issuing Lender’s Fronting
Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section 2.20 following (i) the elimination of the applicable Fronting Exposure
(including by the termination of Defaulting Lender status of the applicable Lender), or (ii) the determination by the Administrative Agent and each Issuing
Lender that there exists excess Cash Collateral; provided that, subject to Section 2.21, the Person providing Cash Collateral and each Issuing Lender may agree
that Cash Collateral shall be held to support future anticipated Fronting Exposure or other obligations and provided further that to the extent that such Cash
Collateral was provided by the Borrower, such Cash Collateral shall remain subject to the security interest granted pursuant to the Credit Documents.
Section 2.21 Defaulting Lenders .
(a) Defaulting Lender Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a
Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 9.1.
(i) Waivers and Amendments . Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with
(ii) Defaulting Lender Waterfall . Any payment of principal, interest, fees or other amounts received by the Administrative Agent
for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise) or received by the Administrative
Agent from a Defaulting Lender pursuant to Section 9.7 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first
,
to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second
, to the payment on a pro rata basis of any
amounts owing by such Defaulting Lender to any Issuing Lender or Swingline Lender hereunder; third
, to Cash Collateralize the Issuing Lender’s Fronting
Exposure with respect to such Defaulting Lender in accordance with Section 2.20; fourth
, as the Borrower may request (so long as no Default or Event of Default
exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined
by the Administrative Agent; fifth
, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to
(x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the Issuing
Lender’s future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with
Section 2.20; sixth
, to the payment of any amounts owing to the Lenders, the Issuing Lenders or Swingline Lenders as a result of any judgment of a court of
competent jurisdiction obtained by any Lender, the Issuing Lenders or Swingline Lenders against such Defaulting Lender as a result of such Defaulting Lender’s
breach of its obligations under this Agreement; seventh
, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as
a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s
breach of its obligations under this Agreement; and eighth
, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if
(A) such payment is a payment of the principal amount of any Loans or LOC Obligations in respect of which such Defaulting Lender has not fully funded its
appropriate share and (B) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.2 were satisfied or
waived, such payment shall be applied solely to pay the Loans of, and LOC Obligations owed to, all Non-Defaulting Lenders on a pro rata basis prior to being
applied to the payment of any Loans of, or LOC Obligations owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations
in LOC Obligations and Swingline Loans are held by the Lenders pro rata in accordance with the Commitments under the applicable facility without giving effect
to Section 2.21(a) (iv). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a
Defaulting Lender or to post Cash Collateral pursuant to this Section 2.21(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender
irrevocably consents hereto.
65
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(iii) Certain Fees .
(A) Commitment Fees . No Defaulting Lender shall be entitled to receive any Commitment Fee or Delayed Draw
Ticking Fee for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise
would have been required to have been paid to that Defaulting Lender).
(B) Letter of Credit Fees . Each Defaulting Lender shall be entitled to receive Letter of Credit Fees for any period during
which that Lender is a Defaulting Lender only to the extent allocable to its Applicable Percentage of the stated amount of Letters of Credit for which it
has provided Cash Collateral pursuant Section 2.20.
(C) Reallocation of Fees . With respect to any Letter of Credit Fee not required to be paid to any Defaulting Lender
pursuant to clause (A) or (B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such
Defaulting Lender with respect to such Defaulting Lender’s participation in LOC Obligations or Swingline Loans that has been reallocated to such Non-
Defaulting Lender pursuant to clause (iv) below, (y) pay to each Issuing Lender and Swingline Lender, as applicable, the amount of any such fee
otherwise payable to such Defaulting Lender to the extent allocable to such Issuing Lender’s or Swingline Lender’s Fronting Exposure to such Defaulting
Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Participations to Reduce Fronting Exposure . All or any part of such Defaulting Lender’s participation in LOC
Obligations and Swingline Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Applicable Percentages (calculated
without regard to such Defaulting Lender’s Revolving Commitment) but only to the extent that such reallocation does not cause the aggregate Committed Funded
Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Revolving Commitment. No reallocation hereunder shall constitute a waiver or
release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a
Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
66
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(v) Cash Collateral, Repayment of Swingline Loans . If the reallocation described in clause (iv) above cannot, or can only
partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, (x) first
, prepay Swingline Loans in an
amount equal to the Swingline Lender’s Fronting Exposure and (y) second
, Cash Collateralize the Issuing Lender’s Fronting Exposure in accordance with the
procedures set forth in Section 2.20.
(b) Defaulting Lender Cure . If the Borrower, the Administrative Agent and each Swingline Lender and Issuing Lender agree in writing
that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such
notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent
applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be
necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held on a pro rata basis by the Lenders in
accordance with their Applicable Percentages (without giving effect to Section 2.21(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender;
provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a
Defaulting Lender; and provided , further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting
Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(c) New Swingline Loans/Letters of Credit . So long as any Lender is a Defaulting Lender, (i) the Swingline Lender shall not be required
to fund any Swingline Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swingline Loan and (ii) no Issuing Lender
shall be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.
Section 2.22 Incremental Facilities .
(a) Revolving Facility Increases .
(i) General Terms . Subject to the terms and conditions set forth herein and notwithstanding any previous reduction in the
Revolving Committed Amount or the Term Loan Committed Amount, as provided in Section 2.6, the Borrower shall have the right, at any time and from time to
time until the Maturity Date (but, when combined with the number of Incremental Term Facilities, no more than five (5) times during the term of this Agreement),
to increase the Revolving Committed Amount (each such increase, a “ Revolving Facility Increase ”) by an aggregate principal amount not to exceed, when
combined with the amount of any Incremental Term Facilities, the Incremental Facility Increase Amount.
67
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(ii) Terms and Conditions . The following terms and conditions shall apply to any Revolving Facility Increase: (A) any Revolving
Facility Increase shall be identical (including with respect to Applicable Margin) to the existing Revolving Loans, (B) no Default or Event of Default shall exist
immediately prior to or after giving effect to such Revolving Facility Increase, (C) any loans made pursuant to a Revolving Facility Increase shall constitute
Obligations and will be secured and guaranteed with the other Obligations on a pari passu basis, (D) any Lenders providing such Revolving Facility Increase shall
be entitled to the same voting rights as the existing Lenders and shall be entitled to receive proceeds of prepayments on the same terms as the existing Revolving
Lenders, (E) any such Revolving Facility Increase shall be in a minimum principal amount of $10,000,000 and integral multiples of $5,000,000 in excess thereof
(or the remaining amount of the Revolving Facility Increase, if less), (F) the Borrower shall execute a Revolving Loan Note in favor of any new Lender or any
existing Lender whose Revolving Commitment is increased pursuant to this Section, in each case, if requested by such Lender, (G) the conditions to Extensions of
Credit in Section 4.2 shall have been satisfied, (H) the Administrative Agent shall have received (1) upon request of the Administrative Agent, an opinion or
opinions of counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders, in form and substance reasonably acceptable to the
Administrative Agent and substantially similar to the opinion delivered to the Administrative Agent on the Closing Date, (2) any authorizing corporate documents
as the Administrative Agent may reasonably request and (3) if applicable, a duly executed Notice of Borrowing, (I) the maturity date of any Revolving Facility
Increase shall be no sooner than the Maturity Date, and (J) the Administrative Agent shall have received from the Borrower an updated Compliance Certificate, in
form and substance reasonably satisfactory to the Administrative Agent, demonstrating that, both immediately prior to and after giving effect to any such
Revolving Facility Increase and any borrowings thereunder on the closing date for such Revolving Facility Increase on a Pro Forma Basis, the Borrower will be in
compliance with the financial covenants set forth in Section 5.9 , (1) based on the financial statements most recently delivered pursuant to Section 5.1(a) or Section
5.1(b) and (2) assuming all amounts thereunder are fully drawn .
(iii) Revolving Facility Increase . In connection with the closing of any Revolving Facility Increase, the outstanding Revolving
Loans and Participation Interests shall be reallocated by causing such fundings and repayments among the Lenders of Revolving Loans as necessary such that, after
giving effect to such Revolving Facility Increase, each Lender will hold Revolving Loans and Participation Interests based on its Revolving Commitment
Percentage (after giving effect to such Revolving Facility Increase); provided that (i) such reallocations and repayments shall not be subject to any processing
and/or recordation fees and (ii) the Borrower shall be responsible for any costs arising under Section 2.18 resulting from such reallocation and repayments.
(b) Incremental Term Facilities .
(i) General Terms . Subject to the terms and conditions set forth herein, the Borrower shall have the right, at any time and from
time to time until the Maturity Date (but, when combined with the number of Revolving Facility Increases, no more than five (5) times during the term of this
Agreement), to incur additional Indebtedness under this Agreement pursuant to one or more tranches of term loans (each an “ Incremental Term Facility ”) in an
aggregate amount not to exceed, when combined with the amount of any Revolving Facility Increases, the Incremental Facility Increase Amount.
(ii) Terms and Conditions . The following terms and conditions shall apply to any Incremental Term Facility: (A) no Default or
Event of Default shall exist immediately prior to or after giving effect to such Incremental Term Facility, (B) any loans made pursuant to an Incremental Term
Facility shall constitute Obligations and will be secured and guaranteed with the other Obligations on a pari passu basis, (C) the terms and documentation in respect
of any Incremental Term Facility, to the extent not consistent with the Term Loan Facility, will be reasonably satisfactory to the Administrative Agent, (D) any
Lenders providing such Incremental Term Facility shall be entitled to the same voting rights as the existing Lenders and shall be entitled to receive proceeds of
prepayments on the same terms as the existing Term Loan Lenders, (E) any such Incremental Term Facility shall be in a minimum principal amount of
$10,000,000 and integral multiples of $5,000,000 in excess thereof (or the remaining amount of the Incremental Facility Increase Amount, if less), (F) the proceeds
of any such Incremental Term Facility will be used for the purposes set forth in Section 3.11, (G) the Borrower shall execute a promissory note in favor of any new
Lender or any existing Lender, in each case, if requested by such Lender, (H) the conditions to Extensions of Credit in Section 4.2 shall have been satisfied, (I) the
Incremental Term Facility shall have a maturity date no earlier than the Maturity Date, and shall have a weighted average life to maturity no shorter than the Term
Loans referenced under Section 2.2, and mandatory prepayment provisions no more favorable to the new Lenders than the prepayment provisions applicable to the
Term Loan Facility, (J) the Administrative Agent shall have received (1) upon request of the Administrative Agent, an opinion or opinions of counsel for the Credit
Parties, addressed to the Administrative Agent and the Lenders, in form and substance reasonably acceptable to the Administrative Agent and substantially similar
to the opinion delivered to the Administrative Agent on the Closing Date, (2) any authorizing corporate documents as the Administrative Agent may reasonably
request and (3) if applicable, a duly executed Notice of Borrowing and (K) the Administrative Agent shall have received from the Borrower an updated
Compliance Certificate, in form and substance reasonably satisfactory to the Administrative Agent, demonstrating that, both immediately prior to and after giving
effect to any such Incremental Term Facilities on the closing date for such Incremental Term Facilities on a Pro Forma Basis, the Borrower will be in compliance
with the financial covenants set forth in Section 5.9 based on the financial statements most recently delivered pursuant to Section 5.1(a) or Section 5.1(b) .
68
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) Applicable Margin and Yield . (i) The Applicable Margin and any other components of yield on any Incremental Term Facility shall be
determined by the Borrower and the Lenders thereunder; provided that in the event that the all-in yield for any Incremental Term Facility is higher than the all-in
yield for the Term Loan Facility or any existing Incremental Term Facility (the “ Existing Facilities ”) by more than 50 basis points, then the Applicable Margin
for the applicable Existing Facility shall be increased to the extent necessary so that such all-in yield is equal to the all-in yield for such Incremental Term
Facility minus 50 basis points; provided , further , that in determining the interest rate margins applicable to the Incremental Term Facility and the applicable
Existing Facility, (x) original issue discount (“ OID ”) or upfront fees (which shall be deemed to constitute like amounts of OID, with OID being equated to
interest based on assumed four-year life to maturity) payable by the Borrower to the Lenders under the applicable Existing Facility or any Incremental Term
Facility in the initial primary syndication thereof shall be included and the effect of any and all interest rate floors shall be included and (y) customary
arrangement or commitment fees payable to the Arranger (or their affiliates) in connection with the applicable Existing Facility or to one or more arrangers (or
their affiliates) of any Incremental Term Facility, shall be excluded and (ii) the Applicable Margin and Commitment Fees and any other components of yield on
any Revolving Facility Increase payable to the Lenders making such Revolving Facility Increase shall be the same as the Revolving Facility on the Closing Date.
(d) Participation . Participation in any such Incremental Term Facility or Revolving Facility Increase may be offered to each of the existing
Lenders, but no such Lender shall have any obligation to provide all or any portion of any such Incremental Term Facility or Revolving Facility Increase. The
Borrower may invite other banks, financial institutions and investment funds reasonably acceptable to the Administrative Agent (such consent not to be
unreasonably withheld or delayed) to join this Agreement as Lenders hereunder for any portion of such Incremental Term Facility or Revolving Facility
Increase; provided that such other banks, financial institutions and investment funds shall enter into such lender joinder agreements to give effect thereto as the
Administrative Agent may reasonably request.
(e) Amendments . The Administrative Agent is authorized to enter into, on behalf of the Lenders, any amendment to this Agreement or any
other Credit Document as may be necessary to incorporate the terms of any such Incremental Term Facility or Revolving Facility Increase.
69
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(f) Limitation on Amount . The aggregate principal amount of all Incremental Term Facilities and Revolving Facility Increases shall not
exceed the greater of (i) $100,000,000 plus
the amount of any voluntary prepayments of Term Loans permitted hereunder and (ii) an amount such that, after
giving effect to any such Incremental Term Facilities or Revolving Facility Increases on a Pro Forma Basis (and, in the case of any Revolving Facility Increase,
assuming all amounts thereunder are fully drawn), the Total Net Leverage Ratio shall not be greater than 0.50 to 1.00 less than the then applicable level set forth
in Section 5.9 (the “ Incremental Facility Increase Amount ”).
Section 2.23 MIRE Events .
Each of the parties hereto acknowledges and agrees that, (a) if there are any Mortgaged Properties, any increase, extension or renewal of any of the
Commitments or Loans (including the provision of incremental credit facilities hereunder pursuant to Section 2.22 or otherwise, but excluding (i) any continuation
or conversion of Loans under Section 2.9, (ii) the making of any Revolving Loans or Swingline Loans or (iii) the issuance, renewal or extension of Letters of
Credit) and (b) the addition of any Mortgage Properties, shall in each case be subject to (and conditioned upon) the prior delivery of all flood hazard determination
certifications, acknowledgements and evidence of flood insurance and other flood-related documentation with respect to such Mortgaged Properties as required by
laws relating to flood insurance and as otherwise reasonably required by the Administrative Agent or any Lender.
Article III
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the Extensions of Credit herein provided for, the Credit Parties hereby represent and
warrant to the Administrative Agent and to each Lender that:
Section 3.1 Financial Condition .
(a) (i) The audited Consolidated financial statements of the Borrower and its Subsidiaries for the fiscal years ended December 31,
2015, December 31, 2016 and December 31, 2017 together with the related Consolidated statements of income or operations, equity and cash flows for the fiscal
years ended on such dates, (ii) the unaudited Consolidated financial statements of the Borrower and its Subsidiaries for each fiscal quarter ending prior to the
Closing Date, together with the related pro forma Consolidated statements of income or operations, equity and cash flows for the year-to-date period ending on
such date and (iii) a pro forma balance sheet of the Borrower and its Subsidiaries for the four-fiscal quarter period as of the last day of the quarter that ended at
least thirty (30) days prior to the Closing Date:
otherwise expressly noted therein;
(A) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as
in the case of the unaudited financial statements, to normal year-end adjustments) and results of operations for the period covered thereby; and
(B) fairly present the financial position of the Borrower and its Subsidiaries, as applicable, as of the date thereof (subject,
70
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
applicable, as of the date thereof, including liabilities for taxes, material commitments and contingent obligations.
(C) show all material Indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries, as
(b) The five-year projections of the Credit Parties and their Subsidiaries (prepared on an annual basis for the term of this Agreement)
delivered to the Lenders on or prior to the Closing Date have been prepared in good faith based upon assumptions believed to be reasonable at the time in light of
the conditions existing at the time such projections were created but are not a guaranty of future performance.
Section 3.2 No Material Adverse Effect; Internal Control Event .
Since December 31, 2017 (and, in addition, after delivery of annual audited financial statements in accordance with Section 5.1(a), from the date of the
most recently delivered annual audited financial statements), (a) there has been no event or circumstance which has had or could reasonably be expected to have a
Material Adverse Effect and (b) no Internal Control Event is occurring.
Section 3.3 Corporate Existence; Compliance with Law; Patriot Act Information .
Each of the Credit Parties (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, organization
or formation, (b) has the requisite power and authority and the legal right to own and operate all its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged and has taken all actions necessary to maintain all rights, privileges, licenses and franchises necessary or
required in the normal conduct of its business, (c) is duly qualified to conduct business and in good standing under the laws of (i) the jurisdiction of its organization
or formation, (ii) the jurisdiction where its chief executive office is located and (iii) each other jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification except to the extent that the failure to so qualify or be in good standing in any such other jurisdiction could
not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) and its respective Registrations and Products is in
compliance with all Requirements of Law, organizational documents, government permits and government licenses except to the extent such non-compliance
could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Set forth on Schedule 3.3 as of the Closing Date, or as of the
last date such Schedule was required to be updated in accordance with Section 5.2, is the following information for each Credit Party: the exact legal name and any
former legal names of such Credit Party in the four (4) months prior to the Closing Date, the state of incorporation or organization, the type of organization, the
jurisdictions in which such Credit Party is qualified to do business, the chief executive office, the principal place of business, the business phone number, the
organization identification number, the federal tax identification number and ownership information (e.g. publicly held, if private or partnership, the owners and
partners of each of the Credit Parties).
Section 3.4 Corporate Power; Authorization; Enforceable Obligations .
Each of the Credit Parties has full power and authority to enter into, deliver and perform the Credit Documents to which it is party and has taken all
necessary limited liability company, partnership or corporate action to authorize the execution, delivery and performance by it of the Credit Documents to which it
is party. Each Credit Document to which it is a party has been duly executed and delivered on behalf of each Credit Party. Each Credit Document to which it is a
party constitutes a legal, valid and binding obligation of each Credit Party, enforceable against such Credit 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).
71
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.5 No Legal Bar; No Default .
The execution, delivery and performance by each Credit Party of the Credit Documents to which such Credit Party is a party, the borrowings thereunder
and the use of the proceeds of the Loans (a) will not violate any Requirement of Law of any Credit Party, except for any violation which could not be reasonably
expected to result in a Material Adverse Effect, (b) will not conflict with, result in a breach of or constitute a default under the articles of incorporation, bylaws,
articles of organization, operating agreement or other organization documents of the Credit Parties or any material Contractual Obligation to which such Person is a
party or by which any of its properties may be bound (except those as to which waivers or consents have been obtained) except for any violation which could not
be reasonably expected to result in a Material Adverse Effect, and (c) will not result in, or require, the creation or imposition of any Lien on any Credit Party’s
properties or revenues pursuant to any Requirement of Law or Contractual Obligation other than the Liens arising under or contemplated in connection with the
Credit Documents or Permitted Liens. No Credit Party is in default under or with respect to any of its Contractual Obligations in any material respect. No Default
or Event of Default has occurred and is continuing.
Section 3.6 No Material Litigation .
No litigation, investigation, claim, criminal prosecution, civil investigative demand, imposition of criminal or civil fines and penalties, or any other
proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Credit Parties, threatened by or against any Credit Party or
any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to the Credit Documents or any Extension of Credit or any of
the Transactions, or (b) which could reasonably be expected to have a Material Adverse Effect. No permanent injunction, temporary restraining order or similar
decree has been issued against any Credit Party or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. Set forth on
Schedule 3.6 hereto is a detailed description of all material litigation pending or threatened against any Credit Party or Subsidiary as of the Closing Date and as of
the last date such Schedule was required to be updated in accordance with Section 5.2.
Section 3.7 Investment Company Act; etc.
No Credit Party is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company
Act of 1940, as amended. No Credit Party is subject to regulation under the Federal Power Act, the Interstate Commerce Act, the Public Utility Holding Company
Act of 2005 or any federal or state statute or regulation limiting its ability to incur the Credit Party Obligations.
Section 3.8 Margin Regulations .
No part of the proceeds of any Extension of Credit hereunder will be used directly or indirectly for any purpose that violates, or that would require any
Lender to make any filings in accordance with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from
time to time hereafter in effect. The Credit Parties and their Subsidiaries (a) are not engaged, principally or as one of their important activities, in the business of
extending credit for the purpose of “purchasing” or “carrying” “margin stock” within the respective meanings of each of such terms under Regulation U and
(b) taken as a group do not own “margin stock” except as identified in the financial statements referred to in Section 3.1 or delivered pursuant to Section 5.1 and
the aggregate value of all “margin stock” owned by the Credit Parties and their Subsidiaries taken as a group does not exceed 25% of the value of their assets.
72
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.9 ERISA .
(a) Neither a Reportable Event nor an “accumulated funding deficiency” (within the meaning of Section 412 of the Code or Section 302
of ERISA) has occurred during the five year period prior to the date on which this representation is made or deemed made with respect to any ERISA Plan, and
each ERISA Plan has complied in all material respects with the applicable provisions of ERISA and the Code except for any failures which could not be
reasonably expected to result in a Material Adverse Effect. No termination of a Single Employer Plan has occurred resulting in any material liability that has
remained underfunded, and no Lien in favor of the PBGC or an ERISA Plan has arisen, during such five year period. The present value of all accrued benefits
under each Single Employer Plan (based on those assumptions used to fund such ERISA Plans) did not, as of the last annual valuation date prior to the date on
which this representation is made or deemed made, exceed the value of the assets of such ERISA Plan allocable to such accrued benefits. Neither any Credit
Party nor any Commonly Controlled Entity is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan except for
liabilities which could not be reasonably expected to result in a Material Adverse Effect.
(b) None of the Borrower or any of its Subsidiaries is an entity deemed to hold “plan assets” (within the meaning of the Plan Asset
Regulations), and neither the execution, delivery nor performance of the transactions contemplated under this Agreement, including the making of any Loan and
the issuance of any Letter of Credit hereunder, will give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
Section 3.10 Environmental Matters .
(a) The facilities and properties owned, leased or operated by the Credit Parties or any of their Subsidiaries (the “ Properties ”) do not
contain any Materials of Environmental Concern in amounts or concentrations which (i) constitute a violation of, or (ii) could give rise to liability on behalf of
any Credit Party under, any Environmental Law except for such non-compliance which could not be reasonably expected to result in a Material Adverse Effect.
(b) The Properties and all operations of the Credit Parties and/or their Subsidiaries at the Properties are and have in the last five years
been in compliance in all material respects, with all applicable Environmental Laws, except for any non-compliance which could not be reasonably expected to
result in a Material Adverse Effect.
(c) Neither the Credit Parties nor their Subsidiaries have received any material written or actual notice of material violation, alleged
material violation, material non-compliance, material liability or potential material liability on behalf of any Credit Party with respect to environmental matters
or Environmental Laws regarding any of the Properties or the business operated by the Credit Parties or any of their Subsidiaries (the “ Business ”), nor do the
Credit Parties or their Subsidiaries have knowledge that any such notice will be received or is being threatened.
73
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(d) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to
a location that could give rise to liability on behalf of any Credit Party under any Environmental Law, and no Materials of Environmental Concern have been
generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability on behalf of any
Credit Party under, any applicable Environmental Law except for such liabilities which could not be reasonably expected to result in a Material Adverse Effect.
(e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Credit Parties and their
Subsidiaries, threatened, under any Environmental Law to which any Credit Party or any Subsidiary is or to the knowledge of the Credit Parties or any
Subsidiary will be named as a party with respect to the Properties or the Business, 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 Properties or
the Business.
(f) There has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or
related to the operations of any Credit Party or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in material
violation of or in amounts or in a manner that could give rise to material liability on behalf of any Credit Party under Environmental Laws.
Section 3.11 Use of Proceeds .
The proceeds of the Extensions of Credit (other than with respect to Incremental Term Facilities and the Delayed Draw Term Loan Facility) shall be used
by the Borrower solely (a) to pay any costs, fees and expenses associated with this Agreement and (b) for working capital and other general corporate purposes of
the Credit Parties and their Subsidiaries, including, without limitation, to the extent permitted herein, to purchase or redeem the Existing Notes and to pay expenses
associated therewith, fund Permitted Acquisitions and expenses associated therewith and fund Capital Expenditures, in each case, as permitted hereunder. The
proceeds of any Incremental Term Facility will be used only for working capital and other general corporate purposes of the Credit Parties and their Subsidiaries.
The proceeds of the Delayed Draw Term Loans shall be used solely to redeem the Existing Notes.
The Borrower will not, directly or indirectly, use the proceeds of the Loans or use the Letters of Credit, or lend, contribute or otherwise make available
such proceeds to any subsidiary, joint venture partner or other Person, (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or
giving of money, or anything else of value, to any Person in violation of the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq. (and any foreign
counterpart thereto) or any other applicable anti-corruption law, or (ii) (A) to fund any activities or business of or with any Person, or in any country or territory,
that, at the time of such funding, is, or whose government is, the subject of Sanctions, or (B) in any other manner that would result in a violation of Sanctions by
any Person (including any Person participating in the Loans or Letters of Credit, whether as Administrative Agent, Arranger, Issuing Lender, Lender, underwriter,
advisor, investor, or otherwise).
74
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.12 Subsidiaries; Joint Ventures; Partnerships .
Set forth on Schedule 3.12 is a complete and accurate list of all Subsidiaries, joint ventures and partnerships of the Credit Parties as of the Closing Date
and as of the last date such Schedule was required to be updated in accordance with Section 5.2. Information on the attached Schedule includes the following:
(a) the number of shares of each class of Equity Interests of each Subsidiary outstanding and (b) the number and percentage of outstanding shares of each class of
Equity Interests owned by the Credit Parties and their Subsidiaries. The outstanding Equity Interests of all such Subsidiaries are validly issued, fully paid and non-
assessable and are owned free and clear of all Liens (other than those arising under or contemplated in connection with the Credit Documents and Permitted Liens).
As of the Closing Date, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options
granted to employees or directors and directors’ qualifying shares) of any nature relating to any Equity Interests of any Credit Party or any Subsidiary thereof,
except as contemplated in connection with the Credit Documents.
Section 3.13 Ownership .
Each of the Credit Parties and its Subsidiaries is the owner of, and has good and marketable title to or a valid leasehold interest in, all of its respective
assets, which, together with assets leased or licensed by the Credit Parties and their Subsidiaries, represents all assets in the aggregate material to the conduct of the
Business, and (after giving effect to the Transactions) none of such assets is subject to any Lien other than Permitted Liens. Each Credit Party and its Subsidiaries
enjoys peaceful and undisturbed possession under all of its leases and all such leases are valid and subsisting and in full force and effect.
Section 3.14 Consent; Governmental Authorizations .
No approval, consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required
in connection with acceptance of Extensions of Credit by the Borrower or the making of the Guaranty hereunder or with the execution, delivery or performance of
any Credit Document by the Credit Parties (other than those which have been obtained) or with the validity or enforceability of any Credit Document against the
Credit Parties (except such filings as are necessary in connection with the perfection of the Liens created by such Credit Documents).
Section 3.15 Taxes .
Each of the Credit Parties and its Subsidiaries has filed, or caused to be filed, all income tax returns and all other material tax returns (federal, state, local
and foreign) required to be filed and paid or made provision for payment of (a) all federal, state, local and other material taxes levied or imposed on their income
which are due and payable and (b) all other 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 in good faith and by proper proceedings,
and against which adequate reserves are being maintained in accordance with GAAP. None of the Credit Parties or their Subsidiaries has actual knowledge as of
the Closing Date of any proposed tax assessments against it or any of its Subsidiaries.
Section 3.16 Collateral Representations .
(a) Intellectual Property . Set forth on Schedule 3.16(a) , as of the Closing Date and as of the last date such Schedule was required to be
updated in accordance with Section 5.2, is a list of all registered Intellectual Property (including all applications for registration and issuance) owned by each of
the Credit Parties or that each of the Credit Parties licenses (including the name/title, current owner, registration or application number, and registration or
application date and such other information as reasonably requested by the Administrative Agent).
75
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Documents, Instrument, and Tangible Chattel Paper . Set forth on Schedule 3.16(b) , as of the Closing Date and as of the last date
such Schedule was required to be updated in accordance with Section 5.2, is a description of all Documents (as defined in the UCC), Instruments (as defined in
the UCC), and Tangible Chattel Paper (as defined in the UCC) of the Credit Parties (including the Credit Party owning such Document, Instrument and Tangible
Chattel Paper and such other information as reasonably requested by the Administrative Agent).
(c) Deposit Accounts, Electronic Chattel Paper, Letter-of-Credit Rights, Securities Accounts and Uncertificated Investment Property .
Set forth on Schedule 3.16(c) , as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 5.2, is a
description of all Deposit Accounts (as defined in the UCC), Electronic Chattel Paper (as defined in the UCC), Letter-of-Credit Rights (as defined in the UCC),
Securities Accounts (as defined in the UCC) and uncertificated Investment Property (as defined in the UCC) of the Credit Parties, including the name of (i) the
applicable Credit Party, (ii) in the case of a Deposit Account, the depository institution and average amount held in such Deposit Account, (iii) in the case of
Electronic Chattel Paper, the account debtor, (iv) in the case of Letter-of-Credit Rights, the issuer or nominated person, as applicable, and (v) in the case of a
Securities Account or other uncertificated Investment Property, the Securities Intermediary or issuer and the average amount held in such Securities Account, as
applicable.
(d) Commercial Tort Claims . Set forth on Schedule 3.16(d) , as of the Closing Date and as of the last date such Schedule was required
to be updated in accordance with Section 5.2, is a description of all Commercial Tort Claims (as defined in the UCC) of the Credit Parties (detailing such
Commercial Tort Claim in such detail as reasonably requested by the Administrative Agent).
(e) Pledged Equity Interests . Set forth on Schedule 3.16(e) , as of the Closing Date and as of the last date such Schedule was required to
be updated in accordance with Section 5.2, is a list of (i) 100% (or, if less, the full amount owned by such Credit Party) of the issued and outstanding Equity
Interests owned by such Credit Party of each Domestic Subsidiary (other than an Excluded Domestic Subsidiary), (ii) 65% (or, if less, the full amount owned by
such Credit Party) of each class of the issued and outstanding Equity Interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) and
100% (or, if less, the full amount owned by such Credit Party) of each class of the issued and outstanding Equity Interests not entitled to vote (within the
meaning of Treas. Reg. Section 1.956-2(c)(2)) owned by such Credit Party of each first-tier Foreign Subsidiary and (iii) all other Equity Interests required to be
pledged to the Administrative Agent pursuant to the Security Documents.
(f) Properties . Set forth on Schedule 3.16(f)(i) , as of the Closing Date and as of the last date such Schedule was required to be updated
in accordance with Section 5.2, is a list of all Mortgaged Properties (including the Credit Party owning such Mortgaged Property). Set forth on Schedule 3.16(f)
(ii) is a list of (i) each headquarter location of the Credit Parties (and an indication if such location is leased or owned), (ii) each other location where any
significant administrative or governmental functions are performed (and an indication if such location is leased or owned), (iii) each other location where the
Credit Parties maintain any books or records (electronic or otherwise) (and an indication if such location is leased or owned) and (iv) each location where any
personal property Collateral is located at any premises owned or leased by a Credit Party with a Collateral value in excess of $1,000,000 (and an indication
whether such location is leased or owned).
76
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.17 Solvency .
Each of the Credit Parties is solvent and is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the
normal course of business, and the fair saleable value of each Credit Party’s assets, measured on a going concern basis, exceeds all probable liabilities as they
become absolute and matured, including those to be incurred pursuant to this Agreement. None of the Credit Parties has unreasonably small capital in relation to
the business in which it is or proposes to be engaged. No Credit Party has incurred, or believes that it will incur, debts beyond its ability to pay such debts as they
become due in the ordinary course of business. In executing the Credit Documents and consummating the Transactions, none of the Credit Parties intends to
hinder, delay or defraud either present or future creditors or other Persons to which one or more of the Credit Parties is or will become indebted. On the Closing
Date, the foregoing representations and warranties shall be made both before and after giving effect to the Transactions.
Section 3.18 Compliance with FCPA .
Each of the Credit Parties and their Subsidiaries is in compliance with the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et
seq.
, and any foreign
counterpart thereto. None of the Credit Parties, their Subsidiaries nor, to the knowledge of the Credit Parties, any agent or other person acting on behalf of the
Credit Parties has (a) directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign
or domestic political activity, (b) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (c) failed to disclose fully any contribution made by any Credit Party (or made by any person acting on its behalf of
which such Credit Party is aware) which is in violation of law, or (d) violated in any material respect any provision of the Foreign Corrupt Practices Act, 15 U.S.C.
§§ 78dd-1, et
seq.
, and any foreign counterpart thereto.
Section 3.19 No Burdensome Restrictions .
None of the Credit Parties or their Subsidiaries is a party to any agreement or instrument or subject to any other obligation or any charter or corporate
restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could reasonably be expected to have a Material
Adverse Effect.
Section 3.20 [Reserved] .
Section 3.21 Labor Matters .
There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Credit Parties or any of their Subsidiaries as of the
Closing Date and none of the Credit Parties or their Subsidiaries (a) has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the
last five years or (b) has knowledge of any potential or pending strike, walkout or work stoppage. No unfair labor practice complaint is pending against any Credit
Party or any of its Subsidiaries. There are no strikes, walkouts, work stoppages or other material labor difficulty pending or to their knowledge, threatened against
any Credit Party.
77
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.22 Accuracy and Completeness of Information .
(a) All factual information heretofore, contemporaneously or hereafter furnished by or on behalf of any Credit Party or any of its
Subsidiaries to the Administrative Agent, the Arranger or any Lender for purposes of or in connection with this Agreement or any other Credit Document, or any
Transaction, is, or when furnished, will be true and accurate in all material respects and not incomplete by omitting to state any material fact necessary to make
such information not misleading. There is no fact now known to any Credit Party or any of its Subsidiaries which, individually or in the aggregate, has, or could
reasonably be expected to have, a Material Adverse Effect, which fact has not been set forth herein, in the financial statements of the Credit Parties and their
Subsidiaries furnished to the Administrative Agent and the Lenders, or in any certificate, opinion or other written statement made or furnished by any Credit
Party to the Administrative Agent and the Lenders.
(b) As of the Closing Date, the information included in the Beneficial Ownership Certificate is true and correct in all respects other than
immaterial typographical or clerical errors which do not impact the substance thereof.
Section 3.23 Material Contracts .
Schedule 3.23 sets forth a complete and accurate list of all Material Contracts of the Credit Parties and their Subsidiaries in effect as of the Closing Date
and as of the last date such Schedule was required to be updated in accordance with Section 5.2. Each Material Contract is, and after giving effect to the
Transactions will be, in full force and effect in accordance with the terms thereof. The Credit Parties have delivered to the Administrative Agent a true and
complete copy of each Material Contract.
Section 3.24 Insurance .
Subject to Section 5.15(e), the insurance coverage of the Credit Parties and their Subsidiaries is outlined as to carrier, policy number, expiration date, type
and amount on Schedule 3.24 as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 5.2 and such
insurance coverage complies with the requirements set forth in Section 5.5(b).
Section 3.25 Security Documents .
The Security Documents create valid and enforceable security interests in, and Liens on, the Collateral purported to be covered thereby. Except as set
forth in the Security Documents, such security interests and Liens are currently (or will be, upon (a) the filing of appropriate financing statements with the
Secretary of State of the state of incorporation or organization for each Credit Party, the filing of appropriate assignments or notices with the United States Patent
and Trademark Office and the United States Copyright Office, and the recordation of the Mortgage Instruments, in each case in favor of the Administrative Agent,
on behalf of the Lenders, and (b) the Administrative Agent obtaining control or possession over those items of Collateral in which a security interest is perfected
through control or possession) perfected security interests and Liens in favor of the Administrative Agent, for the benefit of the Secured Parties, prior to all other
Liens other than Permitted Liens.
Section 3.26 Classification of Senior Indebtedness .
The Credit Party Obligations constitute “Senior Indebtedness”, “Designated Senior Indebtedness” or any similar designation under and as defined in any
agreement governing any Subordinated Debt and the subordination provisions set forth in each such agreement are legally valid and enforceable against the parties
thereto.
78
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.27 Anti-Terrorism Laws; OFAC Rules and Regulations.
(a) No Credit Party, none of its Subsidiaries nor, to the knowledge of each Credit Party, the Affiliates or respective officers, directors,
brokers or agents of such Credit Party, Subsidiary or Affiliate (i) has violated any Anti-Terrorism Laws or (ii) has engaged in any transaction, investment,
undertaking or activity that conceals the identity, source or destination of the proceeds from any category of prohibited offenses designated by the Organization
for Economic Co-operation and Development's Financial Action Task Force on Money Laundering.
(b) No Credit Party, none of its Subsidiaries nor, to the knowledge of each Credit Party, the Affiliates or respective officers, directors,
employees, brokers or agents of such Credit Party, Subsidiary or Affiliate is a Person that is, or is owned or controlled by Persons that are: (i) the subject of any
Sanctions, or (ii) located, organized or resident in a country or territory that is, or whose government is, the subject of Sanctions (which on the Closing Date
includes Cuba, Iran, North Korea, and Syria).
(c) No Credit Party, none of its Subsidiaries nor, to the knowledge of each Credit Party, the Affiliates or respective officers, directors,
brokers or agents of such Credit Party, Subsidiary or Affiliate acting or benefiting in any capacity in connection with the Loans (i) conducts any business or
engages in making or receiving any contribution of goods, services or money to or for the benefit of any Person, or in any country or territory, that is the subject
of any Sanctions, (ii) deals in, or otherwise engages in any transaction related to, any property or interests in property blocked pursuant to any Anti-Terrorism
Law or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of
the prohibitions set forth in any Anti-Terrorism Law.
Section 3.28 Authorized Officer .
Set forth on Schedule 3.28 are Responsible Officers that are permitted to sign Credit Documents on behalf of the Credit Parties, holding the offices
indicated next to their respective names, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 5.2.
Such Authorized Officers are the duly elected and qualified officers of such Credit Party and are duly authorized to execute and deliver, on behalf of the respective
Credit Party, this Agreement, the Notes and the other Credit Documents.
Section 3.29 Flood Hazard Property .
No Mortgaged Property is a Flood Hazard Property unless the Administrative Agent shall have received the following: (a) the applicable Credit Party’s
written acknowledgment of receipt of written notification from the Administrative Agent (i) as to the fact that such Mortgaged Property is a Flood Hazard Property
and (ii) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program and (b) copies
of insurance policies or certificates of insurance of the applicable Credit Party evidencing flood insurance reasonably satisfactory to the Administrative Agent and
naming the Administrative Agent as loss payee on behalf of the Lenders and in compliance with the Flood Insurance Laws.
79
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 3.30 [Reserved] .
Section 3.31 EEA Financial Institution.
No Credit Party is an EEA Financial Institution.
Section 3.32 Trade Relations .
There exists no actual or, to the Credit Parties’ knowledge, threatened termination, cancellation or limitation of, or any modification or change in, the
business relationship between any Credit Party or any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the
aggregate are material to the business of the Credit Parties and their Subsidiaries, or with any material supplier, except in each case, where the same could not
reasonably be expected to have a Material Adverse Effect, and there exists no present condition or state of facts or circumstances which would prevent any Credit
Party or any of its Subsidiaries from conducting such business after the consummation of the transactions contemplated by this Agreement in substantially the
same manner in which it has heretofore been conducted.
Section 3.33 Leases .
Schedule 3.33 hereto, as of the Closing Date, is a complete listing of all capitalized leases of the Credit Parties and their Subsidiaries and all material real
property leases of the Credit Parties and their Subsidiaries as of the date hereof (which Schedule 3.33 shall be updated annually in connection with the delivery of
the financial statements required by Section 5.1(a) to reflect and additional capitalized leases or material real property leases entered into). Each Credit Party and
each of its Subsidiaries is in compliance with all of the terms of each of its respective capitalized and operating leases, except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
Section 3.34 Health Care Laws and Permits .
(a) Except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, each of the Borrower
and its Subsidiaries are in compliance with all applicable Health Care Laws.
(b) Each of the Borrower and its Subsidiaries holds and is operating in material compliance with all Permits, except where the failure to
hold or operate in material compliance with such Permits could not result in a Material Adverse Effect. Neither Borrower nor any of its Subsidiaries has received
any written notice of proceedings relating to, and to the knowledge of Borrower there are no facts or circumstances that would reasonably be expected to lead to,
the revocation, suspension, termination or modification of any such certificate Permit, except where such revocation, suspension, termination or modification of
any such Permit has not had, and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(c) The Borrower and its Subsidiaries have not received any written notice or, to the knowledge of Borrower, other communication from
any Governmental Authority, regarding any actual or alleged violation of, any applicable Health Care Law by Borrower or any of its Subsidiaries, except where
such actual or alleged violation has not had, and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
80
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(d) No Included Product is the subject of, or subject to (as applicable), any recall, market withdrawal or seizure, or any warning letter or
other written communication from any Governmental Authority to the Borrower or any of its Subsidiaries requiring such action or asserting that an Included
Product fails to comply with applicable law, except where such action, letter or communication has not had, and could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Neither Borrower nor any Subsidiary has received written notification from any Governmental
Authority that an Included Product fails to comply with applicable Law, which failure would reasonably be expected to result in sanctions or adversely affect the
Permits of the Borrower and its Subsidiaries’ facilities, except where such sanctions or adverse effect on the Permits have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 3.35 Regulatory Matters .
(a) To the knowledge of each Credit Party and its Subsidiaries, neither the FDA nor other Governmental Authority is considering
limiting, suspending, or revoking any Registrations or changing the marketing classification or labeling or other significant parameter affecting the Products of
the Credit Parties or any of their respective Subsidiaries in any manner that could be reasonably expected to result in a Material Adverse Effect. To the
knowledge of each Credit Party and its Subsidiaries, no event has occurred or condition or state of facts exists which could constitute a breach or default, or
could cause revocation or termination of any material Registrations. To the knowledge of each Credit Party and its Subsidiaries, any third party that is a
manufacturer or contractor for the Credit Parties or any of their respective Subsidiaries is in compliance with all Registrations required by the FDA or
comparable Governmental Authority and all Public Health Laws insofar as they reasonably pertain to the Products of the Credit Parties and their respective
Subsidiaries, except for any failures that could be reasonably expected to result in a Material Adverse Effect.
(b) Since January 1, 2018, no Credit Party has received a written warning letter, notice of violation letter, consent decree, request for
information or other material notice, response or commitment made to or with a Governmental Authority with respect to Regulatory Matters.
(c) As of the Closing Date, no Credit Party nor its Subsidiaries is undergoing any material inspection related to Regulatory Matters, or
any other Governmental Authority investigation.
(d) During the period of three (3) calendar years immediately preceding the Closing Date, no Credit Party nor any Subsidiary of any
Credit Party has knowledge that it has, nor has it received written notice that it has, introduced into commercial distribution any Products manufactured by or on
behalf of any Credit Party or any Subsidiary of a Credit Party or distributed any products on behalf of another manufacturer that were upon their shipment by any
Credit Party or any of its Subsidiaries adulterated or misbranded in violation of 21 U.S.C. § 331, and adverse determination with respect to which would result in
a Material Adverse Effect. No Credit Party nor any Subsidiary of any Credit Party has received any material written notice from any Governmental Authority
alleging material noncompliance with any Requirement of Law. No Product has been seized, withdrawn, recalled, detained, or subject to a suspension (other than
in the ordinary course of business) of research, manufacturing, distribution, or commercialization activity, and, to the knowledge of the Credit Parties, there are
no facts or circumstances reasonably likely to cause (i) the seizure, denial, withdrawal, recall, detention, public health notification, safety alert or suspension of
manufacturing or other activity relating to any Product; (ii) a material change in the labeling of any Product suggesting a compliance issue; or (iii) a termination,
seizure or material suspension of manufacturing, researching, distributing or marketing of any Product. No proceedings in the United States or any other
jurisdiction seeking the withdrawal, recall, revocation, suspension, import detention, or seizure of any Product are pending or to the knowledge of the Credit
Parties threatened against any Credit Party or any of its Subsidiaries.
81
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) As of the date hereof, no Credit Party nor any Subsidiary of any Credit Party nor any of their respective officers, directors or
employees, nor to the knowledge of the Credit Parties, any of their agents or contractors (i) have been excluded or debarred from any federal healthcare program
(including without limitation Medicare or Medicaid) or any other federal program or (ii) have received written notice from the FDA or any other Governmental
Authority with respect to debarment or disqualification of any Person that could reasonably be expected to have, in the aggregate, a Material Adverse Effect. As
of the date hereof, no Credit Party nor any Subsidiary of any Credit Party nor any of their respective officers, directors or employees, nor to the knowledge of the
Credit Parties, any of their agents or contractors have been convicted of any crime or engaged in any conduct for which (x) debarment is mandated or permitted
by 21 U.S.C. § 335a or (y) such Person could be excluded from participating in the federal health care programs under Section 1128 of the Social Security Act or
any similar law.
(f) Each Credit Party and its Subsidiaries is in material compliance with the written procedures, record-keeping and reporting
requirements required by the FDA or any comparable Governmental Authority pertaining to the reporting of adverse events and recalls involving the Products.
Article IV
CONDITIONS PRECEDENT
Section 4.1 Conditions to Closing Date .
This Agreement shall become effective upon, and the obligation of each Lender to make the initial Extensions of Credit on the Closing Date is subject to,
the satisfaction of the following conditions precedent:
(a) Execution of Credit Agreement and Credit Documents . The Administrative Agent shall have received (i) counterparts of this
Agreement, executed by a duly authorized officer of each party hereto, (ii) for the account of each Revolving Lender requesting a promissory note, a duly
executed Revolving Loan Note, (iii) for the account of each Term Loan Lender requesting a promissory note, a duly executed Term Loan Note, (iv) for the
account of the Swingline Lender requesting a promissory note, the Swingline Loan Note, (v) counterparts of the Security Agreement, the Pledge Agreement and
each Mortgage Instrument, in each case conforming to the requirements of this Agreement and executed by duly authorized officers of the Credit Parties or other
Person, as applicable and (vi) counterparts of any other Credit Document, executed by the duly authorized officers of the parties thereto.
(b) Authority Documents . The Administrative Agent shall have received the following:
(i) Articles of Incorporation/Charter Documents . Original certified articles of incorporation or other charter documents, as
applicable, of each Credit Party certified (A) by an officer of such Credit Party (pursuant to an officer’s certificate in substantially the form of Exhibit 4.1(b)
attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date, and (B) to be true and complete as of a recent date by the
appropriate Governmental Authority of the state of its incorporation or organization, as applicable.
82
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(ii) Resolutions . Copies of resolutions of the board of directors or comparable managing body of each Credit Party approving and
adopting the Credit Documents, the Transactions and authorizing execution and delivery thereof, certified by an officer of such Credit Party (pursuant to an
officer’s certificate in substantially the form of Exhibit 4.1(b) attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date.
(iii) Bylaws/Operating Agreement . A copy of the bylaws or comparable operating agreement of each Credit Party certified by an
officer of such Credit Party (pursuant to an officer’s certificate in substantially the form of Exhibit 4.1(b) attached hereto) as of the Closing Date to be true and
correct and in force and effect as of such date.
(iv) Good Standing . Original 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 of incorporation or organization and each other state in which the failure to so qualify and
be in good standing could reasonably be expected to have a Material Adverse Effect.
an officer’s certificate in substantially the form of Exhibit 4.1(b) attached hereto) to be true and correct as of the Closing Date.
(v) Incumbency . An incumbency certificate of each Authorized Officer of each Credit Party certified by an officer (pursuant to
(c) Legal Opinion of Counsel . The Administrative Agent shall have received an opinion or opinions (including, if requested by the
Administrative Agent, local counsel opinions) of counsel for the Credit Parties, dated the Closing Date and addressed to the Administrative Agent and the
Lenders, in form and substance acceptable to the Administrative Agent (which shall include, without limitation, opinions with respect to the due organization
and valid existence of each Credit Party, opinions as to perfection of the Liens granted to the Administrative Agent pursuant to the Security Documents and
opinions as to the non-contravention of the Credit Parties’ organizational documents and Material Contracts).
(d) Personal Property Collateral . The Administrative Agent shall have received, in form and substance satisfactory to the Administrative
Agent:
(i) (A) searches of UCC filings in the jurisdiction of incorporation or formation, as applicable, of each Credit Party and each
jurisdiction where any Collateral is located or where a filing would need to be made in order to perfect the Administrative Agent’s security interest in the
Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens and (B) tax lien and judgment
searches;
filings as requested by the Administrative Agent in order to perfect the Administrative Agent’s security interest in the Intellectual Property;
(ii) searches of ownership of Intellectual Property in the appropriate governmental offices and such patent/trademark/copyright
discretion, to perfect the Administrative Agent’s security interest in the Collateral;
(iii) completed UCC financing statements for each appropriate jurisdiction as is necessary, in the Administrative Agent’s sole
83
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Pledge Agreement and undated stock or transfer powers duly executed in blank;
(iv) stock or membership certificates, if any, evidencing the Equity Interests pledged to the Administrative Agent pursuant to the
(v) duly executed consents as are necessary, in the Administrative Agent’s sole discretion, to perfect the Lenders’ security interest
in the Collateral;
(vi) [Reserved]; and
(vii) the extent required to be delivered pursuant to the terms of the Security Documents, all instruments, documents and chattel
paper in the possession of any of the Credit Parties, together with allonges or assignments as may be necessary or appropriate to perfect the Administrative Agent’s
and the Lenders’ security interest in the Collateral.
(e) [ Reserved ].
(f) Liability, Casualty, Property and Business Interruption Insurance . The Administrative Agent shall have received copies of insurance
policies or certificates and endorsements of insurance evidencing liability, casualty, property and business interruption insurance meeting the requirements set
forth herein or in the Security Documents. The Administrative Agent shall be named (i) as lenders’ loss payee, as its interest may appear, with respect to any
such insurance providing coverage in respect of any Collateral and (ii) as additional insured, as its interest may appear, with respect to any such insurance
providing liability coverage, and the Credit Parties will use their commercially reasonable efforts to have each provider of any such insurance agree, by
endorsement upon the policy or policies issued by it or by independent instruments to be furnished to the Administrative Agent, that it will give the
Administrative Agent thirty (30) days prior written notice before any such policy or policies shall be altered or cancelled.
(g) Solvency Certificate . The Administrative Agent shall have received an officer’s certificate prepared by the chief financial officer or
other Authorized Officer approved by the Administrative Agent of the Borrower 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 Credit Documents, in substantially the form of Exhibit 4.1(g)
hereto.
(h) Account Designation Notice . The Administrative Agent shall have received the executed Account Designation Notice in the form of
Exhibit 1.1(a) hereto.
(i) Notice of Borrowing . The Administrative Agent shall have received a Notice of Borrowing with respect to the Loans to be made on
the Closing Date.
(j) Consents . The Administrative Agent shall have received evidence that all governmental, shareholder and material third party consents
and approvals necessary in connection with the Transactions have been obtained and all applicable waiting periods have expired without any action being taken
by any authority that could restrain, prevent or impose any material adverse conditions on such transactions or that could seek or threaten any of the foregoing.
and regulations (including all applicable securities and banking laws, rules and regulations).
(k) Compliance with Laws . The financings and other Transactions contemplated hereby shall be in compliance with all applicable laws
84
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(l) Bankruptcy . There shall be no bankruptcy or insolvency proceedings pending with respect to any Credit Party or any Subsidiary
thereof.
(m) 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 6.1) shall be repaid in full and all security interests related thereto shall be terminated
on or prior to the Closing Date.
(n) Financial Statements . The Administrative Agent and the Lenders shall have received copies of the financial statements referred to in
Section 3.1, in each case, in form and substance satisfactory to each of them.
(o) No Material Adverse Effect . Since December 31, 2017, there shall have been no Material Adverse Effect.
(p) Financial Condition Certificate . The Administrative Agent shall have received a certificate or certificates executed by an Authorized
Officer of the Borrower as of the Closing Date, substantially in the form of Exhibit 4.1(p) stating that (i) immediately after giving effect to this Agreement, the
other Credit Documents, and all the Transactions contemplated to occur on such date, (A) no Default or Event of Default exists and (B) the representations and
warranties made by the Credit Parties herein, in the other Credit Documents and which are contained in any certificate furnished at any time under or in
connection herewith are with respect to representations and warranties that contain a materiality qualification, true and correct and 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 Closing Date and (ii) each of
the other conditions precedent in Section 4.1 have been satisfied, except to the extent the satisfaction of any such condition is subject to the judgment or
discretion of the Administrative Agent or any Lender.
(q) Material Contracts . The Administrative Agent shall have received true and complete copies, certified by an officer of the Borrower as
true and complete, of all Material Contracts, together with all exhibits and schedules.
(r) [ Reserved ].
(s) PATRIOT Act, Beneficial Ownership Regulation, etc .
(i) At least five (5) Business Days prior to the Closing Date, the Administrative Agent shall have received the documentation and
other information requested by the Administrative Agent in order to comply with requirements of the PATRIOT Act, applicable “know your customer”, anti-
money laundering rules and regulations and Canadian Anti-Money Laundering & Anti-Terrorism Legislation.
Ownership Regulation shall deliver a Beneficial Ownership Certification in relation to such Credit Party.
(ii) At least five days prior to the Closing Date, any Credit Party that qualifies as a “legal entity customer” under the Beneficial
Engagement Letter and Section 2.5.
(t) Fees and Expenses . The Administrative Agent and the Lenders shall have received all fees and expenses, if any, owing pursuant to the
85
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(u) Additional Matters . All other documents and legal matters in connection with the Transactions shall be reasonably satisfactory in
form and substance to the Administrative Agent and its counsel.
Without limiting the generality of the provisions of Section 8.4, for purposes of determining compliance with the conditions specified in this Section 4.1,
each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter
required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from
such Lender prior to the proposed Closing Date specifying its objection thereto.
Section 4.2 Conditions to All Extensions of Credit .
The obligation of each Lender to make any Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent on the date of
making such Extension of Credit:
(a) Representations and Warranties . The representations and warranties made by the Credit Parties herein, in the other Credit
Documents and which are contained in any certificate furnished at any time under or in connection herewith 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 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.
(b) No Default or Event of Default . No Default or Event of Default shall have occurred and be continuing on such date or after giving
effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Agreement.
(c) Compliance with Commitments . Immediately after giving effect to the making of any such Extension of Credit (and the application
of the proceeds thereof), (i) the sum of the aggregate principal amount of outstanding Revolving Loans plus outstanding Swingline Loans plus outstanding LOC
Obligations shall not exceed the Revolving Committed Amount then in effect, (ii) the outstanding LOC Obligations shall not exceed the LOC Committed
Amount, and (iii) the outstanding Swingline Loans shall not exceed the Swingline Committed Amount.
(d) Beneficial Ownership Certificate . At least five (5) Business Days prior to any such Extension of Credit (and the application of the
proceeds thereof), the Administrative Agent shall have received, if Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a
Beneficial Ownership Certification in relation to Borrower.
(e) Additional Conditions to Revolving Loans . If a Revolving Loan is requested, all conditions set forth in Section 2.1 shall have been
satisfied.
(f) Additional Conditions to Letters of Credit . If the issuance of a Letter of Credit is requested, (i) all conditions set forth in Section 2.3
shall have been satisfied and (ii) there shall exist no Lender that is a Defaulting Lender unless the Issuing Lender has entered into satisfactory arrangements with
the Borrower or such Defaulting Lender to eliminate the Issuing Lender’s risk with respect to such Defaulting Lender’s LOC Obligations.
86
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(g) Additional Conditions to Swingline Loans . If a Swingline Loan is requested, (i) all conditions set forth in Section 2.4 shall have
been satisfied and (ii) there shall exist no Lender that is a Defaulting Lender unless the Swingline Lender has entered into satisfactory arrangements with the
Borrower or such Defaulting Lender to eliminate the Swingline Lender’s risk with respect to such Defaulting Lender’s in respect of its Swingline Commitment.
(h) Incremental Facilities . If a Revolving Facility Increase or an Incremental Term Facility is requested, all conditions set forth in
Section 2.22 shall have been satisfied.
(i) Additional Conditions to Delayed Draw Term Loans . If a Delayed Draw Term Loan is requested, (i) all conditions set forth in
Section 2.2(b) shall have been satisfied and (b) after giving effect to any such Delayed Draw Term Loan on a Pro Forma Basis, the Total Net Leverage Ratio
shall not be greater than 3.75 to 1.00.
Each request for an Extension of Credit and each acceptance by the Borrower of any such Extension of Credit shall be deemed to constitute
representations and warranties by the Credit Parties as of the date of such Extension of Credit that the conditions set forth above in paragraphs (a) through (g), as
applicable, have been satisfied.
Article V
AFFIRMATIVE COVENANTS
Each of the Credit Parties hereby covenants and agrees that on the Closing Date, and thereafter (a) for so long as this Agreement is in effect, (b) until the
Commitments have terminated, and (c) the Credit Party Obligations and all other amounts owing to the Administrative Agent or any Lender hereunder are paid in
full in cash, such Credit Party shall, and shall cause each of their Subsidiaries, to:
Section 5.1 Financial Statements .
Furnish to the Administrative Agent and each of the Lenders:
(a) Annual Financial Statements . As soon as available and in any event no later than ninety (90) days after the end of each fiscal year of
the Borrower, a copy of the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and the related Consolidated
statements of income and retained earnings and of cash flows of the Borrower and its Subsidiaries for such fiscal year, which shall be audited by Eisner Amper
LLP or another firm of independent certified public accountants of nationally recognized standing reasonably acceptable to the Administrative Agent, setting
forth in each case in comparative form the figures for the previous year, reported on without a “going concern” or like qualification or exception, or qualification
indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such
qualification;
87
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Quarterly Financial Statements . As soon as available and in any event no later than forty-five (45) days after the end of each fiscal
quarter of the Borrower (excluding the last fiscal quarter of the Borrower’s fiscal year), a copy of the Consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such period and related Consolidated statements of income and retained earnings and of cash flows for the Borrower and its
Subsidiaries for such quarterly period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form Consolidated
figures for the corresponding period or periods of the preceding fiscal year; and
(c) Annual Operating Budget and Cash Flow . As soon as available, but in any event within sixty (60) days after the end of each fiscal
year, beginning with the fiscal year ending December 31, 2019, a copy of the detailed annual operating budget or plan including cash flow projections of the
Borrower and its Subsidiaries for the next four fiscal quarter period prepared on a monthly basis, in form and detail reasonably acceptable to the Administrative
Agent and the Lenders, together with a summary of the material assumptions made in the preparation of such annual budget or plan;
all such financial statements shall be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year-end audit
adjustments) and to be prepared in reasonable detail and, in the case of the annual, quarterly financial statements provided in accordance with subsections (a) and
(b) above, in accordance with GAAP applied consistently throughout the periods reflected therein and further accompanied by a description of, and an estimation
of the effect on the financial statements on account of, a change, if any, in GAAP as provided in Section 1.3(b).
Notwithstanding the foregoing, financial statements and reports required to be delivered pursuant to the foregoing provisions of this Section may be
delivered electronically and if so, shall be deemed to have been delivered on the date on which the Administrative Agent receives such reports from the Borrower
through electronic mail; provided that, upon the Administrative Agent’s request, the Borrower shall provide paper copies of any documents required hereby to the
Administrative Agent.
Section 5.2 Certificates; Other Information .
Furnish to the Administrative Agent and each of the Lenders:
(a) [Reserved] .
(b) Officer’s Certificate . Concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and 5.1(b) above, a
certificate of an Authorized Officer substantially in the form of Exhibit 5.2(b) stating that (i) such financial statements present fairly the financial position of the
Credit Parties and their Subsidiaries for the periods indicated in conformity with GAAP applied on a consistent basis, (ii) to the knowledge of such Authorized
Officer, each of the Credit Parties during such period observed or performed all of its covenants and other agreements, and satisfied every condition, contained in
this Agreement to be observed, performed or satisfied by it, and (iii) such Authorized Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate and such certificate shall include the calculations in reasonable detail required to indicate compliance with Section 5.9 as
of the last day of such period.
88
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) Updated Schedules . Concurrently with or prior to the delivery of the financial statements referred to in Sections 5.1(a) and 5.1(b)
above, (i) an updated copy of Schedule 3.3 and Schedule 3.12 if the Credit Parties or any of their Subsidiaries has formed or acquired a new Subsidiary since the
Closing Date or since such Schedule was last updated, as applicable, (ii) an updated copy of Schedule 3.6 to the extent any litigation has been threatened, filed
or otherwise become pending since the Closing Date or since such Schedule was last updated, as applicable, which, individually or in the aggregate, could
reasonably be expected to involve a monetary claim in excess of $10,000,000, (iii) an updated copy of Schedule 3.16(a) if the Credit Parties have registered,
applied for registration of, acquired or otherwise obtained ownership of any new registered Intellectual Property since the Closing Date or since such Schedule
was last updated, as applicable, (iv) an updated copy of Schedule 3.16(b) if the Credit Parties have obtained any Documents (as defined in the UCC), Instruments
(as defined in the UCC) or Tangible Chattel Paper (as defined in the UCC) since the Closing Date or since such Schedule was last updated, as applicable, (v) an
updated copy of Schedule 3.16(c) if the Credit Parties maintain any Deposit Accounts (as defined in the UCC), Electronic Chattel Paper (as defined in the UCC),
Letter-of-Credit Rights (as defined in the UCC), Securities Accounts (as defined in the UCC) or uncertificated Investment Property (as defined in the UCC) to
the extent not otherwise set forth on such Schedule as of the Closing Date or since such Schedule was last updated, as applicable, (vi) an updated copy of
Schedule 3.16(d) if the Credit Parties have any Commercial Tort Claims not otherwise set forth on such Schedule as of the Closing Date or since such Schedule
was last updated, as applicable, (vii) an updated copy of Schedule 3.16(e) to the extent required to be updated to make the representation in Section 3.16(e) true
and correct, (viii) an updated copy of Schedule 3.16(f)(i) to the extent any Credit Party is obligated to provide a mortgage or deed of trust on any Property in
accordance with Section 5.12, (ix) an updated copy of Schedule 3.16(f)(ii) to the extent any Credit Party has a (1) headquarter location, (2) location where any
significant administrative or governmental functions are performed, (3) location where any Credit Party maintains books or records and (4) location where any
personal property Collateral is located at any premises owned or leased by a Credit Party with a Collateral value in excess of $1,000,000 (and an indication
whether such location is leased or owned), to the extent not otherwise set forth on such Schedule as of the Closing Date or since such Schedule was last updated,
as applicable, (x) an updated copy of Schedule 3.23 if any new Material Contract has been entered into since the Closing Date or since such Schedule was last
updated, as applicable, together with a copy of each new Material Contract and (xi) an updated copy of Schedule 3.24 if the Credit Parties or any of their
Subsidiaries has altered or acquired any insurance policies since the Closing Date or since such Schedule was last updated.
(d) Reports; SEC Filings; Regulatory Reports; Press Releases; Etc. Promptly upon their becoming available, (i) copies of all reports
(other than those provided pursuant to Section 5.1 and those which are of a promotional nature) and other financial information which any Credit Party sends to
its shareholders, (ii) copies of all reports and all registration statements and prospectuses, if any, which any Credit Party may make to, or file with, the SEC (or
any successor or analogous Governmental Authority) or any securities exchange or other private regulatory authority, (iii) all material regulatory reports and
(iv) all press releases and other statements made available by any of the Credit Parties to the public concerning material developments in the business of any of
the Credit Parties.
(e) Calculations . Within ninety (90) days after the end of each fiscal year of the Borrower, a certificate containing information including
the amount of all Restricted Payments, Investments (including Permitted Acquisitions), Asset Dispositions, Consolidated Capital Expenditures and Debt
Issuances that were made during the prior fiscal year and amounts received in connection with any Extraordinary Receipt during the prior fiscal year.
(f) Management Letters; Etc. Promptly upon receipt thereof, a copy or summary of any other report, or “management letter” or similar
report submitted by independent accountants to any Credit Party or any of their Subsidiaries in connection with any annual, interim or special audit of the books
of such Person.
89
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(g) Changes in Corporate Structure. Within ten days prior to any merger, consolidation, dissolution or other change in corporate
structure of any Credit Party or any of its subsidiaries permitted pursuant to the terms hereof, provide notice of such change in corporate structure to the
Administrative Agent.
(h) General Information . Promptly, such additional financial and other information as the Administrative Agent, on behalf of any
Lender, may from time to time reasonably request.
Section 5.3 Payment of Taxes and Other Obligations .
Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, subject, where applicable, to specified
grace periods, (a) all of its federal and other material taxes and (b) all of its other material obligations and material liabilities of whatever nature in accordance with
industry practice and (c) any additional material costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such taxes, obligations and
liabilities, except when the amount or validity of any such taxes, obligations and liabilities is currently being contested in good faith by appropriate proceedings
and reserves, if applicable, in conformity with GAAP with respect thereto have been provided on the books of the Credit Parties.
Section 5.4 Conduct of Business and Maintenance of Existence .
Except as expressly permitted under Section 6.4, continue to engage in business of the same general type as now conducted by it on the Closing Date and
preserve, renew and keep in full force and effect its corporate or other formative existence and good standing, take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its business and to maintain its goodwill and comply with all Contractual Obligations and
Requirements of Law.
Section 5.5 Maintenance of Property; Insurance .
(a) Keep all material property useful and necessary in its business in good working order and condition (ordinary wear and tear and
obsolescence and casualty resulting in a Recovery Event excepted).
(b) Maintain with financially sound and reputable insurance companies liability, casualty, property and business interruption insurance
(including, without limitation, insurance with respect to its tangible Collateral) in at least such amounts and against at least such risks as are usually insured
against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon the request of the
Administrative Agent, full information as to the insurance carried. The Administrative Agent shall be named (i) as lenders’ loss payee, as its interest may appear
with respect to any property insurance, and (ii) as additional insured, as its interest may appear, with respect to any such liability insurance, and each provider of
any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments to be furnished to the Administrative
Agent, that it will give the Administrative Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled, and such
policies shall provide that no act or default of the Credit Parties or any of their Subsidiaries or any other Person shall affect the rights of the Administrative
Agent or the Lenders under such policy or policies.
90
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) In case of any material loss, damage to or destruction of the Collateral of any Credit Party or any part thereof, such Credit Party shall
promptly give written notice thereof to the Administrative Agent generally describing the nature and extent of such damage or destruction.
Section 5.6 Maintenance of Books and Records .
Keep proper books, records and accounts in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of
all dealings and transactions in relation to its businesses and activities.
Section 5.7 Notices .
Give notice in writing to the Administrative Agent (which shall promptly transmit such notice to each Lender):
(a) promptly, but in any event within three (3) Business Days after any Credit Party knows thereof, the occurrence of any Default or
Event of Default;
(b) promptly, any default or event of default under any Contractual Obligation of any Credit Party or any of its Subsidiaries which,
individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or involve a monetary claim in excess of $10,000,000;
(c) promptly, any litigation, or any investigation or proceeding known or threatened to any Credit Party (i) affecting any Credit Party or
any of its Subsidiaries which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or involve a monetary claim in
excess of $10,000,000 or involving injunctions or requesting injunctive relief by or against any Credit Party or any Subsidiary of any Credit Party, (ii) affecting
or with respect to this Agreement, any other Credit Document or any security interest or Lien created thereunder, (iii) involving an environmental claim or
potential liability under Environmental Laws which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or (iv) by
any Governmental Authority relating to any Credit Party or any Subsidiary thereof and alleging fraud, deception or willful misconduct by such Person;
(d) of any labor controversy that has resulted in, or threatens to result in, a strike or other work action against any Credit Party which
could reasonably be expected to have a Material Adverse Effect;
Party other than Permitted Liens;
(e) of any attachment, judgment, lien, levy or order exceeding $10,000,000 that may be assessed against or threatened against any Credit
(f) as soon as possible and in any event within thirty (30) days after any Credit Party knows thereof: (i) the occurrence of any Reportable
Event with respect to any ERISA Plan, a failure to make any required contribution to an ERISA Plan, the creation of any Lien in favor of the PBGC (other than a
Permitted Lien) or an ERISA Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or any Credit Party, any Commonly Controlled Entity or any Multiemployer Plan, with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any ERISA Plan;
91
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(g) promptly, any written notice of any material violation received by any Credit Party from any Governmental Authority including,
without limitation, any written notice of a material violation of Environmental Laws;
(h) promptly, any other development or event which could reasonably be expected to have a Material Adverse Effect;
(i) (i) prompt written notice of any warning letter (or letter of similar effect or import) from the FDA received by any Person (to the
knowledge of the Borrower in the case of a person that is not the Borrower or a Subsidiary) seeking the withdrawal, recall, suspension, import detention or
seizure of any Product in excess of $10,000,000 or which could reasonably be expected to have, in the aggregate, a Material Adverse Effect; and
(j) promptly, any change in the information provided in the Beneficial Ownership Certification that would result in a change to the list of
beneficial owners identified in parts (c) and (d) of such certification.
Each notice pursuant to this Section shall be accompanied by a statement of an Authorized Officer setting forth details of the occurrence referred to therein and
stating what action the Credit Parties propose to take with respect thereto. In the case of any notice of a Default or Event of Default, the Borrower shall specify that
such notice is a Default or Event of Default notice on the face thereof.
Section 5.8 Environmental Laws .
(a) Comply in all material respects with all applicable Environmental Laws and obtain and comply in all material respects with and
maintain any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws; and
(b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with in all material respects all lawful orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by appropriate proceedings.
Section 5.9 Financial Covenants .
Comply with the following financial covenants:
(a) Total Net Leverage Ratio . The Total Net Leverage Ratio, calculated as of the last day of each fiscal quarter occurring during the
periods set forth below, shall be less than or equal to the following:
Period
Closing Date through and including September 30, 2019
October 1, 2019 through and including September 30, 2020
October 1, 2020 through and including September 30, 2021
October 1, 2021 and thereafter
Ratio
3.75 to 1.00
3.50 to 1.00
3.25 to 1.00
3.00 to 1.00
92
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) [ Reserved ].
(c) Fixed Charge Coverage Ratio . The Fixed Charge Coverage Ratio, calculated as of the last day of each fiscal quarter, shall be greater
than or equal to 1.25 to 1.00.
(d) Specified Equity Contribution . Notwithstanding the above, the parties hereto acknowledge and agree that, solely for purposes of
calculations made in determining compliance with this Section 5.9, any cash equity contribution (which equity shall be common equity or other equity having
terms reasonably satisfactory to the Administrative Agent and the Required Lenders) made to the Borrower by the holders of its Equity Interests following the
request therefor by the Borrower during the fiscal quarter or on or prior to the day that is ten (10) Business Days after the day on which financial statements are
required to be delivered with respect to a fiscal year pursuant to Section 5.1(a) or a fiscal quarter pursuant to Section 5.1(b) , as applicable, will be deemed to
increase, dollar for dollar, Consolidated EBITDA for the purposes of determining compliance with the financial covenants contained herein at the end of such
fiscal year or fiscal quarter and each applicable subsequent period (any such equity contribution, a “ Specified Equity Contribution ”); provided that (i) in any
four (4) fiscal quarter period, there shall be at least two (2) fiscal quarters in respect of which no Specified Equity Contribution is made, (ii) there shall not be
more than three (3) Specified Equity Contributions made during the term of this Agreement, (iii) the amount of any Specified Equity Contribution shall be no
greater than the amount required to cause the Credit Parties to be in compliance with the financial covenants set forth above, (iv) the amount of any Indebtedness
repaid with the proceeds of the Specified Equity Contribution shall be disregarded for purposes of calculating the financial covenants set forth above for each
such period during which the Specified Equity Contribution is included in the calculation of Consolidated EBITDA and (v) a Specified Equity Contribution shall
only be included in the computation of the financial covenants for purposes of determining compliance by the Credit Parties with this Section 5.9 and not for any
other purpose under this Agreement (including, without limitation, any determination of the Applicable Margin, any compliance with this Section 5.9 set forth in
the definition of Permitted Acquisition and in the determination of the availability of any baskets set forth in Article V or Article VI ). Upon the making of a
Specified Equity Contribution, the financial covenants in this Section 5.9 shall be recalculated giving effect to the increase in Consolidated EBITDA; provided
that nothing in this subsection shall waive any Default or Event of Default that exists pursuant to clauses (a), (b) or (c) of this Section 5.9 until such
recalculation. If, after giving effect to such recalculation, the Credit Parties are in compliance with the financial covenants, the Credit Parties shall be deemed to
have satisfied the requirements of the financial covenants as of the relevant date of determination with the same effect as though there had been no failure to
comply therewith at such date and the applicable Default or Event of Default that had occurred shall be deemed waived and not to have occurred for all purposes
of this Agreement and the other Credit Documents.
Section 5.10 Additional Guarantors .
The Credit Parties will cause each of their Subsidiaries (other than Excluded Foreign Subsidiaries), whether newly formed, after acquired or otherwise
existing to promptly (and in any event within thirty (30) days after such Subsidiary is formed or acquired (or such longer period of time as agreed to by the
Administrative Agent in its reasonable discretion)) become a Guarantor hereunder by way of execution of a Joinder Agreement. In connection therewith, the Credit
Parties shall give notice to the Administrative Agent not less than ten (10) days prior to creating a Subsidiary (or such shorter period of time as agreed to by the
Administrative Agent in its reasonable discretion), or acquiring the Equity Interests of any other Person. In connection with the foregoing, the Credit Parties shall
comply with the requirements of Section 5.12 and shall deliver to the Administrative Agent, with respect to each new Guarantor to the extent applicable,
substantially the same documentation required pursuant to Sections 4.1(b) – (f) and (j) and such other documents or agreements as the Administrative Agent may
reasonably request.
93
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 5.11 Compliance with Law .
Comply with all Requirements of Law and orders (including Environmental Laws, ERISA and the Patriot Act), and all applicable restrictions imposed by
all Governmental Authorities, applicable to it and the Collateral if noncompliance with any such Requirements of Law, order or restriction could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 5.12 Pledged Assets .
(a) Equity Interests . Each Credit Party will cause 100% of the Equity Interests in each of its direct or indirect Domestic Subsidiaries
(other than any Excluded Domestic Subsidiary) and 65% (to the extent the pledge of a greater percentage would be unlawful or would cause any materially
adverse tax consequences to the Borrower or any Guarantor) of the voting Equity Interests and 100% of the non-voting Equity Interests of its first-tier Foreign
Subsidiaries (and any Domestic Subsidiary owned by a Foreign Subsidiary and any CFC Holding Company), in each case to the extent owned by such Credit
Party, to be subject at all times to a first priority, perfected Lien in favor of the Administrative Agent pursuant to the terms and conditions of the Security
Documents or such other security documents as the Administrative Agent shall reasonably request.
(b) Personal Property . Subject to the terms of subsection (c) below, each Credit Party will cause all of its tangible and intangible
personal property now owned or hereafter acquired by it (other than Excluded Assets (as defined in the Security Agreement)) to be subject at all times to a first
priority, perfected Lien (subject in each case to Permitted Liens) in favor of the Administrative Agent for the benefit of the Secured Parties to secure the Credit
Party Obligations pursuant to the terms and conditions of the Security Documents or such other security documents as the Administrative Agent shall reasonably
request.
(c) Real Property . To the extent otherwise permitted hereunder, if any Credit Party intends to acquire a fee ownership interest in any
real property (“ Real Estate ”) after the Closing Date and such Real Estate has a fair market value in excess of $5,000,000, it shall provide to the Administrative
Agent within sixty (60) days of such acquisition (or such extended period of time as agreed to by the Administrative Agent) (i) such security documentation as
the Administrative Agent may request to cause such fee ownership interest in Real Estate to be subject at all times to a first priority, perfected Lien (subject in
each case to Permitted Liens) in favor of the Administrative Agent and (ii) such other documentation as the Administrative Agent may reasonably request in
connection with the foregoing, all in form and substance reasonably satisfactory to the Administrative Agent; provided , that no Credit Party shall pledge any
Real Estate to the Administrative Agent unless and until each Lender has received at least forty-five (45) days prior written notice that such Real Estate shall
become a Mortgaged Property.
Section 5.13 [ Reserved ].
94
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 5.14 Landlord Waivers .
In the case of (a) each headquarter location of the Credit Parties, each other location where any significant administrative or governmental functions are
performed and each other location where the Credit Parties maintain any books or records (electronic or otherwise) and (b) any personal property Collateral located
at any other premises leased by a Credit Party containing personal property Collateral with a value in excess of $1,000,000, the Credit Parties will provide the
Administrative Agent with such estoppel letters, consents and waivers from the landlords on such real property to the extent (i) requested by the Administrative
Agent and (ii) the Credit Parties are able to secure such letters, consents and waivers after using commercially reasonable efforts (such letters, consents and waivers
shall be in form and substance satisfactory to the Administrative Agent).
Section 5.15 Further Assurances and Post-Closing Covenants .
(a) Public/Private Designation . The Credit Parties will cooperate with the Administrative Agent in connection with the publication of
certain materials and/or information provided by or on behalf of the Credit Parties to the Administrative Agent and Lenders (collectively, “ Information
Materials ”) and will designate Information Materials (i) that are either available to the public or not material with respect to the Credit Parties and their
Subsidiaries or any of their respective securities for purposes of United States federal and state securities laws, as “ Public Information ” and (ii) that are not
Public Information as “ Private Information ”.
(b) Additional Information . The Credit Parties shall provide such information regarding the operations, business affairs and financial
condition of the Credit Parties and their Subsidiaries as the Administrative Agent or any Lender may reasonably request.
(c) Visits and Inspections . The Credit Parties shall permit representatives of the Administrative Agent or any Lender, from time to time
upon prior reasonable notice and at such times during normal business hours, to visit and inspect its properties (including the Collateral); inspect, audit and make
extracts from its books, records and files, including, but not limited to, management letters prepared by independent accountants; and discuss with its principal
officers, and its independent accountants, its business, assets, liabilities, financial condition, results of operations and business prospects; provided , that so long
as no Event of Default has occurred and is continuing, no more than one such inspection or visit shall occur per calendar year and the Borrower shall only be
required to pay for the reasonable out-of-pocket expenses of one such inspection or visit during a calendar year. Upon the occurrence and during the continuance
of an Event of Default, the Administrative Agent or any Lender may do any of the foregoing at any time without advance notice.
(d) Further Assurances . Upon the reasonable request of the Administrative Agent, promptly perform or cause to be performed any and
all acts, provide or cause to be provided additional financial information or other information similar to what was provided pursuant to Section 4.1(s), in each
case, with respect to the Credit Parties or any of their Subsidiaries 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 Administrative Agent, for the benefit of the Secured
Parties, Liens on the Collateral that are duly perfected in accordance with the requirements of, or the obligations of the Credit Parties under, the Credit
Documents and all applicable Requirements of Law.
95
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) Post-Closing Covenant . The Credit Parties shall execute and deliver the documents and complete the tasks set forth on Schedule
5.15 , in each case within the time limits specified on such schedule (or such later period of time as agreed to by the Administrative Agent in its sole discretion).
Section 5.16 Use of Proceeds.
The proceeds of the Extensions of Credit shall be used by the Borrower in accordance with Section 3.11 .
Article VI
NEGATIVE COVENANTS
Each of the Credit Parties hereby covenants and agrees that on the Closing Date, and thereafter (a) for so long as this Agreement is in effect, (b) until the
Commitments have terminated, and (c) the Credit Party Obligations and all other amounts owing to the Administrative Agent or any Lender hereunder are paid in
full in cash, that:
Section 6.1 Indebtedness .
No Credit Party will, nor will it permit any Subsidiary to, contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising or existing under this Agreement and the other Credit Documents;
(b) Indebtedness of the Credit Parties and their Subsidiaries existing as of the Closing Date as referred to in the financial statements
referenced in Section 3.1 (and set out more specifically in Schedule 6.1(b) hereto) and any renewals, refinancings or extensions thereof in a principal amount not
in excess of that outstanding as of the date of such renewal, refinancing or extension and the terms of any such renewal, refinancing or extension are not less
favorable to the obligor thereunder;
(c) Indebtedness of the Credit Parties and their Subsidiaries incurred after the Closing Date consisting of Capital Leases or Indebtedness
incurred to provide all or a portion of the purchase price or cost of construction of an asset; provided that (i) such Indebtedness when incurred shall not exceed
the purchase price or cost of construction of such asset; (ii) no such Indebtedness shall be renewed, refinanced or extended for a principal amount in excess of
the principal balance outstanding thereon at the time of such renewal, refinancing or extension; and (iii) the total amount of all such Indebtedness shall not
exceed $5,000,000 at any time outstanding;
(d) Unsecured intercompany Indebtedness among the Credit Parties and, to the extent permitted pursuant to Section 6.5, their
Subsidiaries; provided that any such Indebtedness shall be (i) fully subordinated to the Credit Party Obligations hereunder on terms reasonably satisfactory to the
Administrative Agent and (ii) to the extent required by the Administrative Agent, evidenced by promissory notes which shall be pledged to the Administrative
Agent as Collateral for the Credit Party Obligations;
96
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) Indebtedness and obligations owing under (i) Bank Products and (ii) other Hedging Agreements entered into in order to manage
existing or anticipated interest rate, exchange rate or commodity price risks and not for speculative purposes;
(f) Indebtedness of a Person existing at the time such Person becomes a Subsidiary of a Credit Party in a transaction permitted hereunder
in an aggregate principal amount not to exceed $15,000,000 for all such Persons; provided that (A) the Credit Parties shall be in compliance on a Pro Forma
Basis with the financial covenants set forth in Section 5.9 hereof, recalculated for the most recently ended fiscal quarter for which information is available and
(B) any such Indebtedness was not created in anticipation of or in connection with the transaction or series of transactions pursuant to which such Person became
a Subsidiary of a Credit Party;
(g) Indebtedness arising from agreements providing for indemnification and purchase price adjustment obligations or similar obligations,
or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of any Credit Party or its Subsidiaries pursuant to such
agreements, in connection with Dispositions, other sales of assets or Permitted Acquisitions;
(h) Subordinated Debt or unsecured Indebtedness; provided that (i) if such Indebtedness is secured, it shall be subordinated to the Credit
Party Obligations in a manner reasonably acceptable to the Administrative Agent and shall otherwise be issued on terms and conditions reasonably satisfactory
to the Administrative Agent, (ii) the Total Net Leverage Ratio of the Credit Parties and their Subsidiaries is not greater than 0.25 to 1.0 less than the then
applicable level set forth in Section 5.9, calculated on a Pro Forma Basis after giving effect to the incurrence of such Indebtedness and (iii) at the time such
Indebtedness is incurred, no Default or Event of Default shall exist or shall result therefrom;
(i) the Existing Notes or any Permitted Refinancing Indebtedness in respect thereof;
(j) Guaranty Obligations in respect of Indebtedness of a Credit Party to the extent such Indebtedness is permitted to exist or be incurred
pursuant to this Section;
(k) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business and other Indebtedness in respect of obligations under any agreement or arrangement to provide cash
management services, including treasury, depository, overdraft, return items, purchasing card, travel and entertainment card, credit or debit card, electronic funds
transfer, automated clearing house transfers of funds and other cash management arrangements in the ordinary course of business;
(l) trade payables, accruals and accounts payable in the ordinary course of business (in each case to the extent not overdue) not for
Funded Debt;
(m) Indebtedness owed to any Person providing workers’ compensation, health, disability or other employee benefits or property,
casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such person in each case incurred in the ordinary course of business;
(n) Indebtedness in respect of performance bonds, bid bonds, surety and (other than surety bonds required in connection with any 401(d)
plan(s) maintained by the Credit Parties) and similar obligations, not to exceed $1,000,000 in the aggregate at any time outstanding, in each case provided in the
ordinary course of business;
97
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(o) Indebtedness consisting of insurance premiums accrued but not yet due;
(p) [reserved];
(q) Indebtedness in respect of taxes, assessments or governmental charges which are permitted to be outstanding in accordance with the
terms hereof;
(r) Indebtedness consisting of judgments not otherwise constituting an Event of Default;
(s) Indebtedness consisting of deferred purchase price or notes issued to officers, directors and employees to purchase or redeem Equity
Interests of Borrower in an amount not to exceed $1,000,000 at any time outstanding;
(t) unsecured Indebtedness in the form of Contingent Payments; provided that (i) the Total Net Leverage Ratio of the Credit Parties and
their Subsidiaries is not greater than 0.25 to 1.0 less than the then applicable level set forth in Section 5.9, calculated on a Pro Forma Basis after giving effect to
the incurrence of such Indebtedness and (ii) at the time such Indebtedness is incurred, no Default or Event of Default shall exist or shall result therefrom; and
(u) refinancings of Indebtedness permitted under this Section 6.1.
Section 6.2 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
respective property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, except for the following (the
“ Permitted Liens ”):
(a) Liens created by or otherwise existing under or in connection with this Agreement or the other Credit Documents in favor of the
Administrative Agent on behalf of the Secured Parties;
(b) Liens in favor of a Bank Product Provider in connection with a Bank Product; provided that such Liens shall secure the Credit Party
Obligations on a pari passu basis;
(c) Liens securing purchase money Indebtedness and Capital Lease Obligations (and refinancings thereof) to the extent permitted under
Section 6.1(c); provided , that (i) any such Lien attaches to such property concurrently with or within thirty (30) days after the acquisition thereof and (ii) such
Lien attaches solely to the property so acquired in such transaction;
(d) Liens for taxes, assessments, charges or other governmental levies not yet due or as to which the period of grace, if any, related
thereto has not expired or which are being contested in good faith by appropriate proceedings; provided that adequate reserves with respect thereto are
maintained on the books of any Credit Party or its Subsidiaries, as the case may be, in conformity with GAAP;
98
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) statutory Liens such as carriers’, warehousemen’s, mechanics’, materialmen’s, landlords’, repairmen’s or other like Liens arising in
the ordinary course of business which are not overdue for a period of more than sixty (60) days or which are being contested in good faith by appropriate
proceedings; provided that a reserve or other appropriate provision shall have been made therefor and the aggregate amount of such Liens is less than
$1,000,000;
(f) pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security legislation (other
than any Lien imposed by ERISA) and deposits securing liability to insurance carriers under insurance or self-insurance arrangements;
(g) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(h) easements, rights of way, restrictions and other similar encumbrances affecting real property which do not in any case materially
interfere with the ordinary conduct of the business of the applicable Person;
(i) Liens existing on the Closing Date and set forth on Schedule 1.1(b) ; provided that (i) no such Lien shall at any time be extended to
cover property or assets other than the property or assets subject thereto on the Closing Date and improvements thereon and (ii) the principal amount of the
Indebtedness secured by such Lien shall not be extended, renewed, refunded or refinanced;
(j) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred
to in this definition (other than Liens set forth on Schedule 1.1(b) ); provided that such extension, renewal or replacement Lien shall be limited to all or a part of
the property which secured the Lien so extended, renewed or replaced (plus improvements on such property);
(k) Liens arising in the ordinary course of business by virtue of any contractual, statutory or common law provision relating to banker’s
Liens, rights of set-off or similar rights and remedies covering deposit or securities accounts (including funds or other assets credited thereto) or other funds
maintained with a depository institution or securities intermediary;
(l) any reservation, covenant, zoning, building or similar laws or rights reserved to or vested in any Governmental Authority;
(m) restrictions on transfers of securities imposed by applicable Securities Laws;
(n) Liens arising out of judgments or awards not resulting in an Event of Default; provided that the applicable Credit Party or Subsidiary
shall in good faith be prosecuting an appeal or proceedings for review, to the extent available;
(o) any Lien securing Indebtedness permitted under Section 6.1(f) existing on any property or asset (other than Accounts and Inventory
(each as defined in the Security Agreement)) prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset (other than
Accounts and Inventory (each as defined in the Security Agreement)) of any Person that becomes a Credit Party after the date hereof prior to the time such
Person becomes a Credit Party; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a
Credit Party, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Credit Party and (iii) such Lien shall secure only those
obligations which it secures on the date of such acquisition or the date such Person becomes a Credit Party, as the case may be;
99
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(p) any interest or title of a lessor, licensor or sublessor under any lease, license or sublease entered into by any Credit Party or any
Subsidiary thereof in the ordinary course of its business and covering only the assets so leased, licensed or subleased;
obligations of a Defaulting Lender to fund risk participations hereunder;
(q) Liens in favor of the Administrative Agent, Issuing Lender and/or Swingline Lender to Cash Collateralize or otherwise secure the
(r) assignments of insurance or condemnation proceeds provided to landlords (or their mortgagees) pursuant to the terms of any lease and
Liens or rights reserved in any lease for rent or for compliance with the terms of such lease;
(s) Liens securing Indebtedness permitted pursuant to Section 6.1(h);
(t) additional Liens so long as the principal amount of Indebtedness and other obligations secured thereby does not exceed $1,000,000 in
the aggregate;
(u) non-exclusive licenses or sublicenses of intellectual property granted by any Credit Party in the ordinary course of business;
(v) Liens on insurance premiums permitted under Section 6.1;
(w) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with
the importation of goods in the ordinary course of business; and
(x) Liens in the nature of setoff, refund or chargeback in favor of counterparties to contractual arrangements with Credit Parties in the
ordinary course of business.
Notwithstanding the foregoing, if a Credit Party shall grant a Lien on any of its assets in violation of this Section, then it shall be deemed to have
simultaneously granted an equal and ratable Lien on any such assets in favor of the Administrative Agent for the ratable benefit of the Secured Parties, to the extent
such Lien has not already been granted to the Administrative Agent.
Section 6.3 Nature of Business .
No Credit Party will, nor will it permit any Subsidiary to, alter the character of its business in any material respect from that conducted as of the Closing
Date.
Section 6.4 Consolidation, Merger, Purchase and Sale of Assets, etc .
The Credit Parties will not, nor will they permit any Subsidiary to,
or agree to do so at a future time, except the following, without duplication, shall be expressly permitted:
(a) dissolve, liquidate or wind up its affairs, or sell, transfer, lease or otherwise dispose of its property or assets (each a “ Disposition ”)
100
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
conversion of cash into Cash Equivalents and Cash Equivalents into cash, in each case so long as such Disposition is for fair market value;
(i) (A) the sale, transfer, lease or other disposition of inventory and materials in the ordinary course of business and (B) the
(ii) the sale, transfer or other disposition of property or assets to an unrelated party not in the ordinary course of business where
and to the extent that they are the result of a Recovery Event to the extent Net Cash Proceeds from such Recovery Event are reinvested or used to make mandatory
prepayments pursuant to Section 2.7(b)(vi) or resulting from any condemnation or taking under power of eminent domain or similar proceeding;
the conduct of the business of the Credit Parties or any of their Subsidiaries;
(iii) the sale, lease, transfer or other disposition for fair market value of machinery, parts and equipment no longer used or useful in
(iv) so long as no Default or Event of Default shall exist or shall result therefrom, the (A) sale, lease or transfer of property or
assets (1) from a Credit Party or a Subsidiary of a Credit Party to a Credit Party or (2) among Subsidiaries that are not Credit Parties or the (B) dissolution of (1)
any Credit Party (other than the Borrower) to the extent any and all assets of such Credit Party are distributed to another Credit Party or (2) any Subsidiary that is
not a Credit Party to the extent any and all assets of such Subsidiary are distributed to a Credit Party or another Subsidiary that is not a Credit Party;
(v) the termination of any Hedging Agreement; provided , that no Event of Default shall exist or shall result therefrom;
(vi) the sale, lease or transfer of property (including real property) or assets not to exceed $5,000,000 in the aggregate in any fiscal
year; provided , that (A) the Credit Parties shall be in compliance on a Pro Forma Basis with the financial covenants set forth in Section 5.9 hereof, recalculated for
the most recently ended fiscal quarter for which information is available, (B) such Disposition shall be for fair market value and (C) no Default or Event of Default
shall exist or shall result therefrom;
settlement or collection thereof;
(vii) sales, transfers and dispositions of Accounts (as defined in the Security Agreement) in connection with the compromise,
(viii) licenses of intellectual property granted in the ordinary course of business;
(ix) lapse or termination of immaterial intellectual property that is no longer useful to its business; and
(x) termination, surrender or sublease of a real estate lease in the ordinary course of business;
provided that with respect to clauses (i)(A), (ii), (iii) and (vi) above, at least 75% of the consideration received therefor by the Credit Parties or
any such Subsidiary shall be in the form of cash or Cash Equivalents; provided , further , that with respect to sales of assets permitted hereunder only, the
Administrative Agent shall be entitled, without the consent of any Lender, to release its Liens relating to the particular assets sold; or
101
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) effect any merger or consolidation, except for (i) Investments or acquisitions permitted pursuant to Section 6.5 so long as the Credit
Party subject to such merger or consolidation is the surviving entity, (ii) (y) the merger or consolidation of a Subsidiary that is not a Credit Party with and into a
Credit Party; provided that such Credit Party will be the surviving entity and (z) the merger or consolidation of a Credit Party with and into another Credit Party;
provided that if the Borrower is a party thereto, the Borrower will be the surviving corporation, and (iii) the merger or consolidation of a Subsidiary that is not a
Credit Party with and into another Subsidiary that is not a Credit Party.
Section 6.5 Advances, Investments and Loans .
The Credit Parties will not, nor will they permit any Subsidiary to, make any Investment or contract to make any Investment except for the following (the
“ Permitted Investments ”):
(a) cash and Cash Equivalents;
(b) Investments existing as of the Closing Date as set forth on Schedule 1.1(a) ;
(c) extensions of trade credit in the ordinary course of business, including receivables owing to the Credit Parties or any of their
Subsidiaries or any receivables and advances to suppliers, in each case if created, acquired or made in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
(d) Investments in and loans to any Credit Party;
(e) loans and advances to officers, directors and employees in an aggregate amount not to exceed $5,000,000 at any time outstanding;
provided that such loans and advances shall comply with all applicable Requirements of Law (including Sarbanes-Oxley);
(f) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and
in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;
(g) Permitted Acquisitions;
(h) Investments in (i) Subsidiaries that are not Credit Parties in an aggregate amount not to exceed $10,000,000 at any one time
outstanding, (ii) joint ventures in an aggregate amount not to exceed $5,000,000 at any one time outstanding and (iii) Subsidiaries that are not Credit Parties by
other Subsidiaries that are not Credit Parties;
(i) Investments consisting of Bank Products to the extent permitted hereunder;
(j) additional loan advances and/or Investments of a nature not contemplated by the foregoing clauses hereof; provided that (i) such
loans, advances and/or Investments made after the Closing Date pursuant to this clause shall not exceed an aggregate amount of $5,000,000 at any one time
outstanding, and (ii) no Default or Event of Default shall exist or shall result therefrom;
such account debtor’s Accounts (as defined in the Security Agreement) in the ordinary course of business;
(k) notes payable or stock or other securities issued by account debtors pursuant to negotiated agreements with respect to settlement of
102
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(l) salary advances, travel expense advances, advances against commissions and other similar advances to employees in the ordinary
course of business; and
(m) deposits with landlords in the ordinary course of business to secure or support obligations of Credit Parties under the lease of real
property.
Section 6.6 Transactions with Affiliates .
The Credit Parties will not, nor will they permit any Subsidiary to, enter into any transaction or series of transactions, whether or not in the ordinary
course of business, with any officer, director, shareholder or Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a
comparable arm’s-length transaction with a Person other than an officer, director, shareholder or Affiliate, other than (a) transactions solely between or among (i)
Credit Parties or (ii) Subsidiaries that are not Credit Parties, (b) investments in Subsidiaries permitted by Section 6.5 and (c) any Restricted Payment permitted by
Section 6.9.
Section 6.7 Corporate Changes; Material Contracts .
No Credit Party will, nor will it permit any of its Subsidiaries to, (a) change its fiscal year or (b) amend, modify or change its articles of incorporation,
certificate of designation (or corporate charter or other similar organizational document) operating agreement or bylaws (or other similar document) in any respect
materially adverse to the interests of the Lenders without the prior written consent of the Required Lenders. No Credit Party shall (a) (i) except as permitted under
Section 6.4, 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, without providing thirty (30) days prior written notice to the Administrative Agent and without
filing (or confirming that the Administrative Agent has filed) such financing statements and amendments to any previously filed financing statements as the
Administrative Agent may require, or (iii) change its registered legal name, without providing thirty (30) days prior written notice to the Administrative Agent and
without filing (or confirming that the Administrative Agent has filed) such financing statements and amendments to any previously filed financing statements as
the Administrative Agent may require, (b) [reserved], (c) have more than one state of incorporation, organization or formation or (d) change its accounting method
(except in accordance with GAAP) in any manner adverse to the interests of the Lenders without the prior written consent of the Required Lenders.
Section 6.8 Limitation on Restricted Actions .
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 on the ability of any such Person to (a) pay dividends or make any other distributions to any Credit Party on its Equity Interests 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 properties or assets to any Credit Party, or (e) act as a Guarantor and pledge its assets
pursuant to the Credit Documents or any renewals, refinancings, exchanges, refundings or extension thereof or amend or otherwise modify the Credit Documents,
except (in respect of any of the matters referred to in clauses (a)-(d) above) for such encumbrances or restrictions existing under or by reason of (i) this Agreement
and the other Credit Documents, (ii) applicable law, (iii) any document or instrument governing Indebtedness incurred pursuant to Section 6.1(c); provided that any
such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, (iv) customary provisions in leases, licenses
and contracts restricting assignments thereof, or (iv) 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.
103
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 6.9 Restricted Payments .
The Credit Parties will not, nor will they permit any Subsidiary to, directly or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment, except:
(a) to make dividends payable solely in the same class of Equity Interests of such Person;
(b) to make dividends or other distributions payable to the Credit Parties (directly or indirectly through its Subsidiaries);
(c) so long as no Default or Event of Default shall have occurred or would result therefrom and the Credit Parties are in compliance on a
Pro Forma Basis with the financial covenants set forth in Section 5.9 after giving effect thereto, to pay dividends and/or redeem shares of common stock in an
aggregate amount not to exceed $25,000,000 per fiscal year; and
(d) to make regularly scheduled payments of interest on the Existing Notes and similar payments in respect of Permitted Refinancing
Indebtedness and, so long as no Default or Event of Default shall have occurred or would result therefrom and the Credit Parties are in compliance on a Pro
Forma Basis with the financial covenants set forth in Section 5.9 after giving effect thereto, to redeem or repay principal Indebtedness under the Existing Notes
or any Permitted Refinancing Indebtedness in replacement thereof.
Notwithstanding the foregoing, and for the avoidance of doubt, the conversion by holders of (including any cash payment upon conversion), or required payment
of any principal or premium on, or required payment of any interest with respect to, any Existing Notes, in each case, in accordance with the terms of the Existing
Notes Indenture shall not constitute a Restricted Payment.
Notwithstanding the foregoing, the Borrower may repurchase, exchange or induce the conversion of Existing Notes by delivery of shares of the Borrower’s
common stock and/or Permitted Refinancing Indebtedness.
Section 6.10 Sale Leasebacks .
The Credit Parties will not, nor will they permit any Subsidiary to, directly or indirectly, become or remain liable as lessee or as guarantor or other surety
with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter
acquired, (a) which any Credit Party or any Subsidiary has sold or transferred or is to sell or transfer to a Person which is not a Credit Party or a Subsidiary or
(b) which any Credit Party or any Subsidiary intends to use for substantially the same purpose as any other property which has been sold or is to be sold or
transferred by a Credit Party or a Subsidiary to another Person which is not a Credit Party or a Subsidiary in connection with such lease.
104
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 6.11 No Further 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 creation or assumption of any Lien upon any of their properties or assets, whether now owned or hereafter acquired, or requiring the grant of any
security for such obligation if security is given for some other obligation, except (a) pursuant to this Agreement and the other Credit Documents, (b) pursuant to
any document or instrument governing Indebtedness incurred pursuant to Section 6.1(c); provided that any such restriction contained therein relates only to the
asset or assets constructed or acquired in connection therewith, (c) customary provisions in leases, licenses and contracts restricting assignments thereof and (d) in
connection with 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.
Section 6.12 Account Control Agreements; Additional Bank Accounts .
Set forth on Schedule 3.16(c) is a complete and accurate list of all checking, savings or other accounts (including securities accounts) of the Credit Parties
at any bank or other financial institution, or any other account where money is or may be deposited or maintained with any Person as of the Closing Date. Each of
the Credit Parties will not open, maintain or otherwise have any checking, savings or other accounts (including securities accounts) at any bank or other financial
institution, or any other account where money is or may be deposited or maintained with any Person, other than (a) deposit accounts that are subject to a Deposit
Account Control Agreement or are held with the Administrative Agent, (b) securities accounts that are subject to a Securities Account Control Agreement, (c)
deposit accounts established solely as payroll and other zero balance accounts and (d) other deposit accounts, so long as of any time the balance in such other
deposit accounts referred to in this clause (d) does not exceed $100,000 and the aggregate balance in all such accounts does not exceed $250,000.
Section 6.13 [Reserved] .
Section 6.14 Amendments to Subordinated Debt Documents .
The Credit Parties will not, nor will they permit any Subsidiary to, without the prior written consent of the Required Lenders, amend, modify, waive or
extend or permit the amendment, modification, waiver or extension of any term of any document governing or relating to any Subordinated Debt in a manner that
is adverse to the interests of the Lenders.
Section 6.15 Changes in Delaware Law .
Notwithstanding anything herein or any other Credit Document to the contrary, any Credit Party that is a limited liability company may divide itself into
two or more limited liability companies or series thereof (pursuant to a “plan of division” as contemplated under the Delaware Limited Liability Company Act or
otherwise) without the prior written consent of the Administrative Agent so long as all such limited liability companies or series thereof are Borrowers (if the entity
divided is a Borrower) or Guarantors (if the entity divided is a Guarantor) and such new Borrowers or new Guarantors, as applicable, comply with the obligations
set forth in Section 5.15 and the other applicable further assurances obligations set forth in the Credit Documents.
105
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Article VII
EVENTS OF DEFAULT
Section 7.1 Events of Default .
An Event of Default shall exist upon the occurrence of any of the following specified events (each an “ Event of Default ”):
(a) Payment . (i) Any Credit Party shall fail to pay any principal on any Loan or Note when due (whether at maturity, by reason of
acceleration or otherwise) in accordance with the terms hereof or thereof; or (ii) any Credit Party shall fail to reimburse the Issuing Lender for any LOC
Obligations when due (whether at maturity, by reason of acceleration or otherwise) in accordance with the terms hereof; or (iii) any Credit Party shall fail to pay
any interest on any Loan or any fee or other amount payable hereunder when due (whether at maturity, by reason of acceleration or otherwise) in accordance
with the terms hereof and such failure shall continue unremedied for three (3) days; or (iv) any Guarantor shall fail to pay on the Guaranty in respect of any of
the foregoing or in respect of any other Guaranty Obligations hereunder (after giving effect to the grace period in clause (iii)); or
(b) Misrepresentation . Any representation or warranty made or deemed made herein, in the Security Documents or in any of the other
Credit Documents or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this
Agreement shall prove to have been (i) with respect to representations and warranties that contain a materiality qualification, incorrect or false on or as of the
date made or deemed made and (ii) with respect to representations and warranties that do not contain a materiality qualification, incorrect or false in any material
respect on or as of the date made or deemed made; or
(c) Covenant Default .
(i) Any Credit Party shall fail to perform, comply with or observe any term, covenant or agreement applicable to it contained in
(A) Sections 5.4, 5.7, 5.9, 5.11, 5.15, 5.16 or Article VI hereof (other than Section 6.12) or (B) Sections 5.1 or 5.2 and, with respect to this clause (B) only, such
breach or failure to comply is not cured within five (5) Business Days of its occurrence; or
(ii) Any Credit Party shall fail to comply with any other covenant contained in this Agreement or the other Credit Documents or
any other agreement, document or instrument among any Credit Party, the Administrative Agent and the Lenders or executed by any Credit Party in favor of the
Administrative Agent or the Lenders (other than as described in Sections 7.1(a) or 7.1(c)(i) above) and, with respect to this clause (ii) only, such breach or failure
to comply is not cured within thirty (30) days of its occurrence; or
(d) Indebtedness Cross-Default . (i) Any Credit Party or any of its Subsidiaries shall default in any payment of principal of or interest on
any Indebtedness (other than the Loans, Reimbursement Obligations and the Guaranty) in a principal amount outstanding of at least $10,000,000 for the Credit
Parties and any of their Subsidiaries in the aggregate beyond any applicable grace period (not to exceed forty-five (45) days), if any, provided in the instrument
or agreement under which such Indebtedness was created; or (ii) any Credit Party or any of its Subsidiaries shall default in the observance or performance of any
other agreement or condition relating to any Indebtedness (other than the Loans, Reimbursement Obligations and the Guaranty) in a principal amount
outstanding of at least $10,000,000 in the aggregate for the Credit Parties and their Subsidiaries or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or to be repurchased,
prepaid, deferred or redeemed (automatically or otherwise); or (iii) any Credit Party or any of its Subsidiaries shall breach or default any payment obligation
under any Hedging Agreement that is a Bank Product; or
106
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) Criminal Forfeiture . Any Credit Party shall be criminally indicted or convicted under any law that could lead to a forfeiture of any
property of any Credit Party; or
(f) Bankruptcy Default . (i) A Credit Party or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or a Credit Party or any of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against a Credit Party or any of its Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) a Credit Party or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i) or (ii) above; or (iv) a Credit Party or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing their inability to, pay its debts as they become due; or
(g) Judgment Default . (i) One or more monetary judgments or decrees shall be entered against a Credit Party or any of its Subsidiaries
involving in the aggregate a liability (to the extent not covered by insurance) of $10,000,000 or more and all such judgments or decrees shall not have been paid
and satisfied, vacated, discharged, stayed or bonded pending appeal within forty-five (45) days from the entry thereof or (ii) any injunction, temporary
restraining order or similar decree shall be issued against a Credit Party or any of its Subsidiaries that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect; or
(h) ERISA Default . The occurrence of any of the following: (i) Any Person shall engage in any “prohibited transaction” (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any ERISA Plan, (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any ERISA Plan or any Lien in favor of the PBGC or an ERISA Plan (other than a Permitted Lien) shall arise
on the assets of the Credit Parties or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such ERISA Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) a Credit Party, any of its Subsidiaries or any
Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or
the Insolvency or Reorganization of, any Multiemployer Plan or (vi) any other similar event or condition shall occur or exist with respect to an ERISA Plan that,
individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect; or
107
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(i) Change of Control . There shall occur a Change of Control; or
(j) Invalidity of Guaranty . At any time after the execution and delivery thereof, the Guaranty, for any reason other than the satisfaction
in full of all Credit Party Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, or
any Credit Party shall contest the validity, enforceability, perfection or priority of the Guaranty, any Credit Document, or any Lien granted thereunder in writing
or deny in writing that it has any further liability, including with respect to future advances by the Lenders, under any Credit Document to which it is a party; or
(k) Invalidity of Credit Documents . Any Credit Document shall fail to be in full force and effect or to give the Administrative Agent
and/or the Lenders the security interests, liens, rights, powers, priority and privileges purported to be created thereby (except as such documents may be
terminated or no longer in force and effect in accordance with the terms thereof, other than those indemnities and provisions which by their terms shall survive)
or any Lien shall fail to be a first priority, perfected Lien (subject to Permitted Liens) on a material portion of the Collateral; or
(l) Subordinated Debt . Any default (which is not waived or cured within the applicable period of grace) or event of default shall occur
under any Subordinated Debt or the subordination provisions contained therein shall cease to be in full force and effect or shall cease to give the Lenders the
rights, powers and privileges purported to be created thereby; or
(m) Classification as Senior Debt . The Credit Party Obligations shall cease to be classified as “Senior Indebtedness,” “Designated
Senior Indebtedness” or any similar designation under any Subordinated Debt instrument; or
(n) Business Disruption . There shall occur a cessation of a substantial part of the business of any Credit Party which could reasonably
be expected to have a Material Adverse Effect; or any Credit Party shall suffer the loss or revocation of any material license or permit now held or hereafter
acquired by any Credit Party which loss could reasonably be expected to have a Material Adverse Effect; 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 which injunction, restraint or
other prevention could reasonably be expected to have a Material Adverse Effect; or
(o) Uninsured Loss . Any uninsured damage to or loss, theft or destruction of any assets of the Credit Parties or any of their Subsidiaries
shall occur that is in excess of $10,000,000 (excluding customary deductible thresholds established in accordance with historical past practices); or
(p) FDA . (i) The FDA or any other Governmental Authority initiates enforcement action against any Credit Party or any of its
Subsidiaries, or any suppliers that causes such Credit Party or Subsidiary to recall, withdraw, remove or discontinue marketing any of its Products which could
reasonably be expected, in the aggregate, to have a Material Adverse Effect or (ii) the FDA or any other Governmental Authority issues a warning letter to any
Credit Party or any of its Subsidiaries with respect to any Regulatory Matter which could reasonably be expected, in the aggregate, to have a Material Adverse
Effect.
108
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
If a Default shall have occurred under the Credit Documents, then such Default will continue to exist until it either is cured (to the extent specifically
permitted) in accordance with the Credit Documents or is otherwise expressly waived by Administrative Agent (with the approval of requisite Lenders (in their
sole and absolute discretion) as determined in accordance with Section 9.1); and once an Event of Default occurs under the Credit Documents, then such Event of
Default will continue to exist until it is expressly waived by the requisite Lenders or by the Administrative Agent with the approval of the requisite Lenders, as
required hereunder in Section 9.1.
Section 7.2 Acceleration; Remedies .
Upon the occurrence and during the continuance of an Event of Default, then, and in any such event, (a) if such event is a Bankruptcy Event,
automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon), and all other amounts under the Credit Documents
(including, without limitation, the maximum amount of all contingent liabilities under Letters of Credit) shall immediately become due and payable, and (b) if such
event is any other Event of Default, any or all of the following actions may be taken: (i) with the written consent of the Required Lenders, the Administrative
Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, declare the Commitments to be terminated forthwith, whereupon
the Commitments shall immediately terminate; (ii) the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent
shall, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith and direct
the Borrower to pay to the Administrative Agent cash collateral as security for the LOC Obligations for subsequent drawings under then outstanding Letters of
Credit an amount equal to the maximum amount of which may be drawn under Letters of Credit then outstanding, whereupon the same shall immediately become
due and payable; and/or (iii) with the written consent of the Required Lenders, the Administrative Agent may, or upon the written request of the Required Lenders,
the Administrative Agent shall, exercise such other rights and remedies as provided under the Credit Documents and under applicable law.
Article VIII
THE ADMINISTRATIVE AGENT
Section 8.1 Appointment and Authority .
Each of the Lenders and the Issuing Lender hereby irrevocably appoints Citizens to act on its behalf as the Administrative Agent hereunder and under the
other Credit Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are
solely for the benefit of the Administrative Agent, the Lenders and the Issuing Lender, and neither the Borrower nor any other Credit Party shall have rights as a
third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Credit Documents (or any other
similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship
between contracting parties.
109
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 8.2 Rights as a Lender .
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the
context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept
deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business
with, the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account
therefor to the Lenders.
Section 8.3 Exculpatory Provisions .
(a) The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Credit
Documents, and its obligations hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(i) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(ii) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and
powers expressly contemplated hereby or by the other Credit Documents that the Administrative Agent is required to exercise as directed in writing by the
Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Credit Documents), provided that the
Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or
that is contrary to any Credit Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any
Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(iii) shall not, except as expressly set forth herein and in the other Credit Documents, have any duty to disclose, and shall not be
liable for the failure to disclose, any information relating to any Credit Party or any of its Affiliates that is communicated to or obtained by the Person serving as
the Administrative Agent or any of its Affiliates in any capacity.
(b) The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary,
under the circumstances as provided in Sections 9.1 and 7.2) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of
competent jurisdiction by final and nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until
notice describing such Default is given to the Administrative Agent in writing by the Borrower, a Lender or an Issuing Lender.
110
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Credit Document, (ii) the contents of any certificate, report or other document
delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms
or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any
other Credit Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the Administrative Agent .
Section 8.4 Reliance by Administrative Agent .
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be
genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it
orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance
with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the
satisfaction of a Lender or the Issuing Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender or the Issuing Lender
unless the Administrative Agent shall have received notice to the contrary from such Lender or the Issuing Lender prior to the making of such Loan or the issuance
of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other
experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
Section 8.5 Delegation of Duties .
The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Credit Document by or
through any one or more sub agents appointed by the Administrative Agent. The Administrative Agent and any such sub agent may perform any and all of its
duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub agent
and to the Related Parties of the Administrative Agent and any such sub agent, and shall apply to their respective activities in connection with the syndication of
the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or
misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative
Agent acted with gross negligence or willful misconduct in the selection of such sub agents.
Section 8.6 Resignation of Administrative Agent .
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders, the Issuing Lender and the Borrower. Upon
receipt of any such notice of resignation, the Required Lenders shall have the right, with the written consent of Borrower (such consent not to be unreasonably
withheld and which consent shall not be required during any period in which a Default or Event of Default exists), to appoint a successor, which shall be a bank
with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation (or
such earlier day as shall be agreed by the Required Lenders) (the “ Resignation Effective Date ”), then the retiring Administrative Agent may (but shall not be
obligated to), on behalf of the Lenders and the Issuing Lender, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that
in no event shall any such successor Administrative Agent be a Defaulting Lender. Whether or not a successor has been appointed, such resignation shall
become effective in accordance with such notice on the Resignation Effective Date.
111
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required
Lenders may, to the extent permitted by applicable law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and,
in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “ Removal Effective Date ”), then such removal shall
nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed
Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents (except that in the case of any
Collateral held by the Administrative Agent on behalf of the Lenders or the Issuing Lender under any of the Credit Documents, the retiring Administrative Agent
shall continue to hold such Collateral until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments owed to the
retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent
shall instead be made by or to each Lender and the Issuing Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative
Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become
vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to
the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations
hereunder or under the other Credit Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agent’s resignation or removal
hereunder and under the other Credit Documents, the provisions of this Article and Section 9.5 shall continue in effect for the benefit of such retiring or removed
Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring
or removed Administrative Agent was acting as Administrative Agent.
Section 8.7 Non-Reliance on Administrative Agent and Other Lenders .
Each Lender and the Issuing Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or
any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender and the Issuing Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other
Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this Agreement, any other Credit Document or any related agreement or any document furnished
hereunder or thereunder.
112
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 8.8 No Other Duties, Etc .
Anything herein to the contrary notwithstanding, none of the bookrunners or arrangers listed on the cover page hereof shall have any powers, duties or
responsibilities under this Agreement or any of the other Credit Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or an
Issuing Lender hereunder.
Section 8.9 Administrative Agent May File Proof of Claim .
In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Credit Party, the Administrative
Agent (irrespective of whether the principal of any Loan or LOC Obligation shall then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated) by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LOC Obligations
and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders,
the Issuing Lender and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders,
the Issuing Lender and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuing Lender and the
Administrative Agent under Sections 2.5 and 9.5) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each
Lender and Issuing Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such
payments directly to the Lenders and the Issuing Lender, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses,
disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.5 and
9.5.
Section 8.10 Collateral and Guaranty Matters .
(a) The Lenders and the Bank Product Provider irrevocably authorize and direct the Administrative Agent:
(i) to release any Lien on any Collateral granted to or held by the Administrative Agent under any Credit Document (A) upon
termination of the Commitments and payment in full of all Credit Party Obligations (other than contingent indemnification obligations) and the expiration or
termination of all Letters of Credit, (B) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other
disposition permitted under the Credit Documents, or (C) subject to Section 9.1, if approved, authorized or ratified in writing by the Required Lenders;
113
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
holder of any Lien on such Collateral that is permitted by Section 6.2(c); and
(ii) to subordinate any Lien on any Collateral granted to or held by the Administrative Agent under any Credit Document to the
of a transaction permitted hereunder.
(iii) to release any Guarantor from its obligations under the applicable Guaranty if such Person ceases to be a Guarantor as a result
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to
release or subordinate its interest in particular types or items of Collateral, or to release any Guarantor from its obligations under the Guaranty pursuant to
this Section.
(b) The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty
regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon, or any
certificate prepared by any Credit Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders for any failure to
monitor or maintain any portion of the Collateral.
Section 8.11 Notice of Default .
The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received written notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a “notice of default”. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice
thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the
Required Lenders; provided , however , that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not taken, only with the consent or upon the
authorization of the Required Lenders, or all of the Lenders, as the case may be.
Section 8.12 Indemnification .
The Lenders agree to indemnify the Administrative Agent, the Issuing Lender, and the Swingline Lender in its capacity hereunder and their Affiliates and
their respective officers, directors, agents and employees (to the extent not reimbursed by the Credit Parties and without limiting the obligation of the Credit Parties
to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section, from and
against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the payment of the Credit Party Obligations) be imposed on, incurred by or asserted against
any such indemnitee in any way relating to or arising out of any Credit Document or any documents contemplated by or referred to herein or therein or the
Transactions or any action taken or omitted by any such indemnitee under or in connection with any of the foregoing; provided , however , that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent resulting from such indemnitee’s gross negligence or willful misconduct, as determined by a court of competent jurisdiction. The agreements in this Section
shall survive the termination of this Agreement and payment of the Notes, any Reimbursement Obligation and all other amounts payable hereunder.
114
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 8.13 Credit Bidding .
(a) The Administrative Agent, on behalf of itself and the Secured Parties, shall have the right to credit bid and purchase for the benefit of
the Administrative Agent and the Secured Parties all or any portion of Collateral at any sale thereof conducted by the Administrative Agent under the provisions
of the UCC, including pursuant to Sections 9-610 or 9-620 of the UCC, at any sale thereof conducted under the provisions of the Bankruptcy Code, including
Section 363 thereof, or a sale under a plan of reorganization, or at any other sale or foreclosure conducted by the Administrative Agent (whether by judicial
action or otherwise) in accordance with applicable law.
(b) Each Lender hereby agrees that, except as otherwise provided in any Credit Documents or with the written consent of the
Administrative Agent and the Required Lenders, it will not take any enforcement action, accelerate obligations under any Credit Documents, or exercise any
right that it might otherwise have under applicable law to credit bid at foreclosure sales, UCC sales or other similar dispositions of Collateral.
Article IX
MISCELLANEOUS
Section 9.1 Amendments, Waivers, Consents and Release of Collateral .
Neither this Agreement nor any of the other Credit Documents, nor any terms hereof or thereof may be amended, modified, extended, restated, replaced,
or supplemented (by amendment, waiver, consent or otherwise) except in accordance with the provisions of this Section, nor may Collateral be released except as
specifically provided for herein or in the Security Documents. The Required Lenders may or, with the written consent of the Required Lenders, the Administrative
Agent may, from time to time, (a) enter into with the Borrower written amendments, supplements or modifications hereto and to the other Credit Documents for
the purpose of adding any provisions to this Agreement or the other Credit Documents or changing in any manner the rights of the Lenders or of the Borrower
hereunder or thereunder or (b) waive or consent to the departure from, on such terms and conditions as the Required Lenders may specify in such instrument, any
of the requirements of this Agreement or the other Credit Documents or any Default or Event of Default and its consequences; provided , however , that no such
amendment, supplement, modification, release, waiver or consent shall:
(i) (A) reduce the amount or extend the scheduled date of maturity of any Loan or Note or any installment thereon, or (B) reduce
the stated rate of any interest or fee payable hereunder (except in connection with (x) a waiver of the Default Rate, which shall be determined by a vote of the
Required Lenders or (y) any amendment to this Agreement to provide for an alternative benchmark interest rate for LIBOR Rate Loans in the case where LIBOR
(or any component thereof) is no longer available on account of the implementation of the policy announced by the U.K. Financial Conduct Authority on July 27,
2017 (or otherwise), in which case, only the consent of the Borrower, the Required Lenders and the Administrative Agent shall be required)) or (C) extend the
scheduled date of any payment of any Loan or Note or any installment thereon or (D) increase the amount or extend the expiration date of any Lender’s
Commitment (or reinstate any Commitment terminated pursuant to Section 2.6), in each case without the written consent of each Lender directly affected thereby;
provided that, it is understood and agreed that (1) no waiver, reduction or deferral of a mandatory prepayment required pursuant to Section 2.7(b), nor any
amendment of Section 2.7(b) or the definitions of Asset Disposition, Debt Issuance, Equity Issuance or Extraordinary Receipt, shall constitute a reduction of the
amount of, or an extension of the scheduled date of, the scheduled date of maturity of, or any installment of, any Loan or Note, (2) any reduction in the stated rate
of interest on Revolving Loans shall only require the written consent of each Lender holding a Revolving Commitment, (3) any reduction in the stated rate of
interest on the Term Loans shall only require the written consent of each Lender holding a portion of the outstanding Term Loans and (4) in the event LIBOR is
discontinued, any amendment to the calculation of LIBOR in accordance with such definition shall only require the consent of the Required Lenders; or
115
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
without the written consent of all the Lenders; or
(ii) amend, modify or waive any provision of this Section or reduce the percentage specified in the definition of Required Lenders,
provided that the Administrative Agent may release any Guarantor permitted to be released pursuant to the terms of this Agreement; or
(iii) release the Borrower or all or substantially all of the value of the Guaranty, without the written consent of all of the Lenders;
Administrative Agent may release any Collateral permitted to be released pursuant to the terms of this Agreement or the Security Documents; or
(iv) release all or substantially all of the value of the Collateral without the written consent of all of the Lenders; provided that the
Lenders; or
(v) except as permitted by Section 8.10 , subordinate the Loans to any other Indebtedness without the written consent of all of the
(vi) permit a Letter of Credit to have an original expiry date more than twelve (12) months from the date of issuance without the
consent of each of the Revolving Lenders; provided , that the expiry date of any Letter of Credit may be extended in accordance with the terms of Section 2.3(a) ;
or
without the written consent of all of the Lenders; or
(vii) permit the Borrower to assign or transfer any of its rights or obligations under this Agreement or other Credit Documents
the written consent of all the Lenders; or
(viii) amend, modify or waive any provision of the Credit Documents requiring consent, approval or request of all Lenders without
and among the Lenders, in each case in accordance with Section 2.11(b) or Section 9.7(b) without the written consent of each Lender directly affected thereby; or
(ix) amend, modify or waive (A) the order in which Credit Party Obligations are paid or (B) the pro rata sharing of payments by
(x) amend, modify or waive any provision of Article VIII without the written consent of the then Administrative Agent; or
116
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
without the written consent of each Lender directly affected thereby; or
(xi) amend or modify the definition of Credit Party Obligations to delete or exclude any obligation or liability described therein
Product Provider that would be adversely affected thereby;
(xii) amend the definitions of “Hedging Agreement,” “Bank Product,” or “Bank Product Provider” without the consent of any Bank
provided , further , that no amendment, waiver or consent affecting the rights or duties of the Administrative Agent, the Issuing Lender or the Swingline Lender
under any Credit Document shall in any event be effective, unless in writing and signed by the Administrative Agent, the Issuing Lender and/or the Swingline
Lender, as applicable, in addition to the Lenders required hereinabove to take such action.
Any such waiver, any such amendment, supplement or modification and any such release shall apply equally to each of the Lenders and shall be binding
upon the Borrower, the other Credit Parties, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the
other Credit Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Loans and
Notes and other Credit Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to
any subsequent or other Default or Event of Default, or impair any right consequent thereon.
Notwithstanding any of the foregoing to the contrary, the consent of the Borrower and the other Credit Parties shall not be required for any amendment,
modification or waiver of the provisions of Article VIII (other than the provisions of Section 8.6).
Notwithstanding any of the foregoing to the contrary, the Credit Parties and the Administrative Agent, without the consent of any Lender, may enter into
any amendment, modification or waiver of any Credit Document, or enter into any new agreement or instrument, to (i) effect the granting, perfection, protection,
expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Secured Parties, or as required
by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply
with applicable law or (ii) correct any obvious error or omission of a technical nature, in each case that is immaterial (as determined by the Administrative Agent),
in any provision of any Credit Document, if the same is not objected to in writing by the Required Lenders within five (5) Business Days following receipt of
notice thereof. Furthermore, to the extent necessary to effect any modification in accordance with the terms of the Engagement Letter, the Credit Parties agree to
enter into any amendment, modification or waiver of any Credit Document to the extent reasonably required by the Administrative Agent.
117
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (a) each Lender is entitled to vote as
such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the
Bankruptcy Code supersedes the unanimous consent provisions set forth herein, (b) the Required Lenders may consent to allow a Credit Party to use cash collateral
in the context of a bankruptcy or insolvency proceeding and (c) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or
consent hereunder, except (i) that the Commitment of such Lender may not be increased or extended without the consent of such Lender and (ii) to the extent such
amendment, waiver or consent impacts such Defaulting Lender more than the other Lenders.
For the avoidance of doubt and notwithstanding any provision to the contrary contained in this Section 9.1, this Agreement may be amended (or amended
and restated) with the written consent of the Credit Parties and the Administrative Agent in accordance with Section 2.22.
Section 9.2 Notices .
(a) Notices Generally . Except in the case of notices and other communications expressly permitted to be given by telephone (and except
as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by facsimile as follows:
(i)
If to the Borrower or any other Credit Party:
ANI Pharmaceuticals, Inc.
210 Main Street West
Baudette, MN 56623
Attention: Stephen Carey
Telephone:
Fax:
Email: Stephen.carey@anipharmaceuticals.com
(ii)
If to the Administrative Agent:
Citizens Bank, N.A., as Administrative Agent
28 State Street
Boston, Massachusetts 02109
Attention: Harriette M. Batson
Telephone: (617) 944-7062
Email: Harriette.M.Batson@citizensbank.com
(iii)
If to the Issuing Lender:
Citizens Bank, N.A., as Administrative Agent
600 Washington Blvd, CS 117E
Stamford, CT 06901
Attention: Prasanna Manyem
Telephone: (203) 900-6832
Email: prasanna.manyem@citizensbank.com
(iv) if to a Lender, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices
sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in
paragraph (b) below, shall be effective as provided in said paragraph (b).
118
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Electronic Communications . Notices and other communications to the Lenders, the Swingline Lender and the Issuing Lender
hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by
the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender, the Swingline Lender or the Issuing Lender pursuant to Article II
if such Lender, the Swingline Lender or the Issuing Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under
such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to
it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices
or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the
sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written
acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended
recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website
address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the
recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) Change of Address, Etc . Any party hereto may change its address or facsimile number for notices and other communications
hereunder by notice to the other parties hereto.
(d) Platform .
defined below) available to the Issuing Lender and the other Lenders by posting the Communications on the Platform.
(i) Each Credit Party agrees that the Administrative Agent may, but shall not be obligated to, make the Communications (as
(ii) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of the
Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without
limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is
made by any Agent Party in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its Related Parties
(collectively, the “ Agent Parties ”) have any liability to the Borrower or the other Credit Parties, any Lender or any other Person or entity for damages of any kind,
including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out
of the Borrower’s, any Credit Party’s or the Administrative Agent’s transmission of communications through the Platform. “ Communications ” means,
collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Credit Party pursuant to any Credit
Document or the transactions contemplated therein which is distributed to the Administrative Agent, any Lender or any Issuing Lender by means of electronic
communications pursuant to this Section, including through the Platform.
119
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.3 No Waiver; Cumulative Remedies .
No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
Section 9.4 Survival of Representations and Warranties .
All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall
survive the execution and delivery of this Agreement and the Notes and the making of the Loans; provided that all such representations and warranties shall
terminate on the date upon which the Commitments have been terminated and all Credit Party Obligations have been paid in full.
Section 9.5 Payment of Expenses and Taxes; Indemnity .
(a) Costs and Expenses . The Credit Parties shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and
its Affiliates (including the fees, charges and disbursements of any counsel for the Administrative Agent or its Affiliates), and shall pay all fees and time charges
and disbursements for attorneys who may be employees of the Administrative Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Credit Documents or any amendments, modifications
or waivers of the provisions hereof or thereof, (ii) all reasonable out-of-pocket expenses incurred by the Issuing Lender and the Swingline Lender in connection
with the issuance, amendment, renewal or extension of any Letter of Credit or Swingline Loan or any demand for payment thereunder and (iii) all out-of-pocket
expenses incurred by the Administrative Agent, any Lender, the Issuing Lender or the Swingline Lender (including the fees, charges and disbursements of any
counsel for the Administrative Agent, any Lender, the Swingline Lender or the Issuing Lender), and shall pay all fees and time charges for attorneys who may be
employees of the Administrative Agent, any Lender, the Issuing Lender or the Swingline Lender, in connection with the enforcement or protection of its rights
(A) in connection with this Agreement and the other Credit Documents, including its rights under this Section, or (B) in connection with the Loans made or
Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans
or Letters of Credit.
120
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Indemnification by the Credit Parties . The Credit Parties shall indemnify the Administrative Agent (and any sub-agent thereof), each
Lender, the Issuing Lender and the Swingline Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “ Indemnitee ”)
against, and hold each Indemnitee harmless from, any and all losses, claims, penalties, damages, liabilities and related expenses (including the fees, charges and
disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for
attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or
any other Credit Party) other than such Indemnitee and its Related Parties arising out of, in connection with, or as a result of (i) the execution or delivery of this
Agreement, any other Credit Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective
obligations hereunder or thereunder or the consummation of the Transactions, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds
therefrom (including any refusal by the Issuing 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), (iii) any actual or alleged presence or release of Materials of Environmental
Concern on or from any property owned or operated by any Credit Party or any of its Subsidiaries, or any liability under Environmental Law related in any way
to any Credit Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Credit Party, and regardless of whether any
Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities
or related expenses (A) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the bad faith, gross
negligence or willful misconduct of an Indemnitee, (B) disputes solely between or among Indemnitees that does not result from any act or omission by any
Credit Party; provided that, if such a dispute involves a claim or proceeding brought against Citizens in its capacity as Administrative Agent or Arranger by other
Indemnitees, Citizens shall be entitled, subject to the other limitations and exceptions set forth in this Section 9.5(b), to the benefits of the indemnifications
provided for in this Section 9.5(b) or (C) result from a claim brought by the Borrower or any other Credit Party against an Indemnitee for breach in bad faith of
such Indemnitee’s obligations hereunder or under any other Credit Document, if the Borrower or such Credit Party has obtained a final and nonappealable
judgment in its favor on such claim as determined by a court of competent jurisdiction. This section (b) shall not apply with respect to Taxes other than any
Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim. Notwithstanding the foregoing, the Credit Parties shall only be responsible to
indemnify the Indemnitees for one external counsel and one external local counsel in each applicable jurisdiction if required and as selected by the
Administrative Agent (and to the extent an Indemnitee determines, after consultation with legal counsel, that an actual or potential conflict may exist, separate
legal counsel for such Indemnitee).
(c) Reimbursement by Lenders . To the extent that the Credit Parties for any reason fail to indefeasibly pay any amount required under
paragraph (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the Issuing Lender, Swingline Lender or any Related
Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Issuing Lender, Swingline Lender or
such Related Party, as the case may be, such Lender’s Commitment Percentage (determined as of the time that the applicable unreimbursed expense or
indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as
the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), the Issuing Lender or Swingline Lender in its capacity as
such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent), Issuing Lender or Swingline Lender in
connection with such capacity.
(d) Waiver of Consequential Damages, Etc . To the fullest extent permitted by applicable law, none of the Credit Parties shall assert, and
each of the Credit Parties hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Credit Document or any agreement or
instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in paragraph (b)
above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through
telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Credit Documents or the Transactions.
121
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(e) Payments . All amounts due under this Section shall be payable promptly/not later than five (5) days after demand therefor.
(f) Survival . Each party’s obligations under this Section shall survive the termination of the Credit Documents and payment of the
obligations hereunder.
Section 9.6 Successors and Assigns; Participations .
(a) Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Credit Party may assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise
transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of
participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the
restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted
hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders . Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (in each case with respect to any
Tranche) any such assignment shall be subject to the following conditions:
(i) Minimum Amounts .
(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and/or the Loans
at the time owing to it (in each case with respect to any Tranche) or contemporaneous assignments to related Approved Funds (determined after giving
effect to such assignment) that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to
a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for
this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans
of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is
delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than
$5,000,000, in the case of any assignment in respect of the Revolving Facility, or $1,000,000, in the case of any assignment in respect of the Term Loan
Facility, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents
(each such consent not to be unreasonably withheld or delayed).
122
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(ii) Proportionate Amounts . Each partial assignment shall be made as an assignment of a proportionate part of all the assigning
Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this clause (ii) shall not prohibit any
Lender from assigning all or a portion of its rights and obligations among separate Tranches on a non-pro rata basis.
this Section and, in addition:
(iii) Required Consents . No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x)
an Event of Default has occurred and is continuing at the time of such assignment, (y) such assignment is to a Lender, an Affiliate of a Lender or an
Approved Fund or (z) such assignment occurs within 60 days of the Closing Date; provided that (other than in the case of (x), (y) or (z) above) the
Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within ten
(10) Business Days after having received notice thereof and provided , further , that the Borrower’s consent shall not be required during the primary
syndication of the Loans;
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required
for assignments in respect of (x) the Revolving Facility or any unfunded Commitments with respect to the Term Loan Facility if such assignment is to a
Person that is not a Lender with a Commitment in respect of such facility, an Affiliate of such Lender or an Approved Fund with respect to such Lender or
(y) any Term Loans to a Person who is not a Lender, an Affiliate of a Lender or an Approved Fund; and
shall be required for assignments in respect of a Revolving Commitment.
(C) the consent of the Issuing Lender and Swingline Lender (such consent not to be unreasonably withheld or delayed)
(iv) Assignment and Assumption . The parties to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that the Administrative Agent may, in its sole discretion, elect to
waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire.
(v) No Assignment to Certain Persons . No such assignment shall be made to (A) any Credit Party or any Credit Party’s
Affiliates or Subsidiaries or (B) any Defaulting Lender or any of its Subsidiaries or any Person who, upon becoming a Lender hereunder, would constitute a
Defaulting Lender or a Subsidiary thereof.
investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person).
(vi) No Assignment to Natural Persons . No such assignment shall be made to a natural Person (or a holding company,
123
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(vii) Certain Additional Payments . In connection with any assignment of rights and obligations of any Defaulting Lender
hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall
make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright
payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and
the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable
assignee and assignor hereby irrevocably consent), to (A) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative
Agent, each Issuing Lender, each Swingline Lender and each other Lender hereunder (and interest accrued thereon), and (B) acquire (and fund as appropriate) its
full pro rata share of all Loans and participations in Letters of Credit and Swingline Loans in accordance with its Applicable Percentage. Notwithstanding the
foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without
compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement
until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective
date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned
by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an
Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party
hereto) but shall continue to be entitled to the benefits of Sections 2.14 and 9.5 with respect to facts and circumstances occurring prior to the effective date
of such assignment; provided , that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will
constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Any assignment or transfer
by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a
sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section.
(c) Register . The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in
Boston, Massachusetts a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders,
and the Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “
Register ”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations . Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell
participations to any Person (other than a natural Person, or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of,
a natural Person, or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “ Participant ”) in all or a portion of such Lender’s rights and/or
obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and
(iii) the Borrower, the Administrative Agent, the Issuing Lenders and Lenders shall continue to deal solely and directly with such Lender in connection with such
Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 9.5(c) with
respect to any payments made by such Lender to its Participant(s).
124
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or
instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in
Section 9.1 that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 (subject
to the requirements and limitations therein, including the requirements under Section 2.16(g) (it being understood that the documentation required under
Section 2.16(g) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 2.19 as if it were an assignee
under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 2.14 or Section 2.16, with respect to any
participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results
from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the
Borrower's request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.19 with respect to any
Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.7 as though it were a Lender; provided that
such Participant agrees to be subject to Section 9.7 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose
as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest)
of each Participant’s interest in the Loans or other obligations under the Credit Documents (the “ Participant Register ”); provided that no Lender shall
have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a
Participant's interest in any commitments, loans, letters of credit or its other obligations under any Credit Document) to any Person except to the extent
that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c)
of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat
each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any
notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for
maintaining a Participant Register.
(e) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such
pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
125
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.7 Right of Set-off; Sharing of Payments .
(a) If an Event of Default shall have occurred and be continuing, each Lender, the Issuing Lender, the Swingline Lender and each of their
respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time
owing, by such Lender, such Issuing Lender, such Swingline Lender or any such Affiliate, to or for the credit or the account of the Borrower or any other Credit
Party against any and all of the obligations of the Borrower or such Credit Party now or hereafter existing under this Agreement or any other Credit Document to
such Lender, the Swingline Lender or the Issuing Lender, irrespective of whether or not such Lender, the Swingline Lender or the Issuing Lender shall have
made any demand under this Agreement or any other Credit Document and although such obligations of the Borrower or such Credit Party may be contingent or
unmatured or are owed to a branch, office or affiliate of such Lender, the Swingline Lender or the Issuing Lender different from the branch, office or Affiliate
holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (i) all
amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.21 and,
pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent,
the Issuing Lender, the Swingline Lender and the other Lenders, and (ii) the Defaulting Lender shall provide promptly to the Administrative Agent a statement
describing in reasonable detail the Credit Party Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each
Lender, the Swingline Lender, the Issuing Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other
rights of setoff) that such Lender, the Swingline Lender, the Issuing Lender or their respective Affiliates may have. Each Lender, the Swingline Lender and the
Issuing Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such
notice shall not affect the validity of such setoff and application.
(b) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans or other obligations hereunder resulting in such Lender receiving payment of a proportion of the aggregate amount of its Loans and
accrued interest thereon or other such obligations greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion
shall (i) notify the Administrative Agent of such fact, and (ii) purchase (for cash at face value) participations in the Loans and such other obligations of the other
Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with
the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:
participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(A) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such
(B) the provisions of this paragraph shall not be construed to apply to (x) any payment made by the Borrower pursuant to
and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender) or (y)
any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in Letters of Credit
to any assignee or participant, other than to any Credit Party or any Subsidiary thereof (as to which the provisions of this paragraph shall apply).
126
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) Each Credit Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise against each Credit Party rights of setoff and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of each Credit Party in the amount of such participation.
Section 9.8 Table of Contents and Section Headings .
The table of contents and the Section and subsection headings herein are intended for convenience only and shall be ignored in construing this
Agreement.
Section 9.9 Counterparts; Integration; Effectiveness; Electronic Execution .
(a) Counterparts; Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto in different
counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other
Credit Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.
Except as provided in Section 4.1, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an
executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually
executed counterpart of this Agreement.
(b) Electronic Execution of Assignments . The words “execution,” “signed,” “signature,” and words of like import in any Assignment and
Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity
or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any
applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act,
or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 9.10 Severability .
Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
Section 9.11 Integration .
This Agreement and the other Credit Documents represent the agreement of the Borrower, the other Credit Parties, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the
Borrower, the other Credit Parties, or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or therein.
127
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.12 Cashless Settlement .
Notwithstanding anything to the contrary contained in this Agreement, any Lender may exchange, continue or rollover all or a portion of its Loans in
connection with any refinancing, extension, loan modification or similar transaction permitted by the terms of this Agreement, pursuant to a cashless settlement
mechanism approved by the Borrower, the Administrative Agent and such Lender.
Section 9.13 Governing Law; Consent to Jurisdiction; Service of Process and Venue .
(a) Governing Law . This Agreement and the other Credit Documents and any claims, controversy, dispute or cause of action (whether in
contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Credit Document (except, as to any other Credit Document, as
expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of
New York.
(b) Consent to Jurisdiction . The Borrower and each other Credit Party irrevocably and unconditionally agrees that it will not commence
any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Administrative
Agent, any Lender, any Issuing Lender, or any Related Party of the foregoing in any way relating to this Agreement or any other Credit Document or the
transactions relating hereto or thereto, in any forum other than the courts of the State of New York sitting in New York County, and of the United States District
Court of the Southern District of New York, and any appellate court from any thereof, and each of the parties hereto irrevocably and unconditionally submits to
the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York
State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action,
litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing
in this Agreement or in any other Credit Document shall affect any right that the Administrative Agent, any Lender or any Issuing Lender may otherwise have to
bring any action or proceeding relating to this Agreement or any other Credit Document against the Borrower or any other Credit Party or its properties in the
courts of any jurisdiction.
(c) Service of Process . Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 9.2.
Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law.
(d) Waiver of Venue . The Borrower and each other Credit Party irrevocably and unconditionally waives, to the fullest extent permitted by
applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or
any other Credit Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
128
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.14 Treatment of Certain Information; Confidentiality .
Each of the Administrative Agent, the Lenders and the Issuing Lenders agree to maintain the confidentiality of the Information (as defined below), except
that Information may be disclosed (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent required or requested by any
regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National
Association of Insurance Commissioners); (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; (d) to any other
party hereto; (e) in connection with the exercise of any remedies hereunder or under any other Credit Document or any action or proceeding relating to this
Agreement or any other Credit Document or the enforcement of rights hereunder or thereunder; (f) subject to an agreement containing provisions substantially the
same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this
Agreement , or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by
reference to the Borrower and its obligations, this Agreement or payments hereunder; (g) on a confidential basis to (i) any rating agency in connection with rating
the Borrower or its Subsidiaries or the Loans or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP
numbers with respect to the Loans; (h) with the written consent of the Borrower; or (i) to the extent such Information (x) becomes publicly available other than as a
result of a breach of this Section, or (y) becomes available to the Administrative Agent, any Lender, any Issuing Lender or any of their respective Affiliates on a
nonconfidential basis from a source other than the Borrower. In addition, the Administrative Agent and the Lenders may disclose the existence of this Agreement
and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers to the Agents and the
Lenders in connection with the administration of this Agreement, the other Credit Documents, and the Commitments.
For purposes of this Section, “ Information ” shall mean all information received from any Credit Party or any of its Subsidiaries relating to any Credit
Party or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender, the
Swingline Lender or the Issuing Lender on a nonconfidential basis prior to disclosure by any Credit Party or any of its Subsidiaries; provided that, in the case of
Information received from any Credit Party or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 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.
Section 9.15 Acknowledgments .
The Borrower and the other Credit Parties each hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of each Credit Document;
(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower or any other Credit Party
arising out of or in connection with this Agreement and the relationship between the Administrative Agent and the Lenders, on one hand, and the Borrower and
the other Credit Parties, on the other hand, in connection herewith is solely that of creditor and debtor; and
129
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(c) no joint venture exists among the Lenders and the Administrative Agent or among the Borrower, the Administrative Agent or the other
Credit Parties and the Lenders.
Section 9.16 Waivers of Jury Trial .
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 9.17 Patriot Act Notice .
Each Lender and the Administrative Agent (for itself and not on behalf of any other party) hereby notifies the Borrower that, (a) pursuant to the
requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Borrower and the other Credit Parties, which information
includes the name and address of the Borrower and the other Credit Parties and other information that will allow such Lender or the Administrative Agent, as
applicable, to identify the Borrower and the other Credit Parties in accordance with the Patriot Act, and (b) pursuant to the Beneficial Ownership Regulation, it is
required to obtain a Beneficial Ownership Certificate.
Section 9.18 Resolution of Drafting Ambiguities .
Each Credit Party acknowledges and agrees that it was represented by counsel in connection with the execution and delivery of this Agreement and the
other Credit Documents to which it is a party, that it and its counsel reviewed and participated in the preparation and negotiation hereof and thereof and that any
rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation hereof or thereof.
Section 9.19 Subordination of Intercompany Debt .
Each Credit Party agrees that all intercompany Indebtedness among Credit Parties (the “ Intercompany Debt ”) is subordinated in right of payment, to the
prior payment in full of all Credit Party Obligations. Notwithstanding any provision of this Agreement to the contrary, provided that no Event of Default has
occurred and is continuing, Credit Parties may make and receive payments with respect to the Intercompany Debt to the extent otherwise permitted by this
Agreement; provided that in the event of and during the continuation of any Event of Default, no payment shall be made by or on behalf of any Credit Party on
account of any Intercompany Debt. In the event that any Credit Party receives any payment of any Intercompany Debt at a time when such payment is prohibited
by this Section, such payment shall be held by such Credit Party, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to,
the Administrative Agent.
130
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.20 Continuing Agreement .
This 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 Agreement) have been paid in full and all Commitments and 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 Agreement) under the
Credit Documents and the Administrative Agent 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 Administrative Agent or any Lender, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then the
Credit Documents shall automatically be reinstated and all Liens of the Administrative Agent shall reattach to the Collateral and all amounts required to be restored
or returned and all costs and expenses incurred by the Administrative Agent or any Lender in connection therewith shall be deemed included as part of the Credit
Party Obligations.
Section 9.21 Press Releases and Related Matters .
The Credit Parties and their Affiliates agree that they will not in the future issue any press releases or other public disclosure using the name of
Administrative Agent or any Lender or their respective Affiliates or referring to this Agreement or any of the Credit Documents without the prior written consent
of such Person, unless (and only to the extent that) the Credit Parties or such Affiliate is required to do so under law and then, in any event, the Credit Parties or
such Affiliate will consult with such Person before issuing such press release or other public disclosure. The Credit Parties consent to the publication by
Administrative Agent or any Lender of customary advertising material relating to the Transactions using the name, product photographs, logo or trademark of the
Credit Parties.
Section 9.22 Appointment of Borrower .
Each of the Guarantors hereby appoints the Borrower to act as its agent for all purposes under this Agreement and agrees that (a) the Borrower may
execute such documents on behalf of such Guarantor as the Borrower deems appropriate in its sole discretion and each Guarantor shall be obligated by all of the
terms of any such document executed on its behalf, (b) any notice or communication delivered by the Administrative Agent or the Lender to the Borrower shall be
deemed delivered to each Guarantor and (c) the Administrative Agent or the Lenders may accept, and be permitted to rely on, any document, instrument or
agreement executed by the Borrower on behalf of each Guarantor.
131
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.23 No Advisory or Fiduciary Responsibility .
In connection with all aspects of each Transaction, 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 Credit Document) are an arm’s-length commercial transaction between the Credit Parties and their
Affiliates, on the one hand, and Citizens (in its capacity as the Administrative Agent and the Arranger), 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 Credit Documents (including any
amendment, waiver or other modification hereof or thereof); (b) in connection with the process leading to such transaction, Citizens (in its capacity as the
Administrative Agent and the Arranger) 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) Citizens, as either the Administrative Agent or the Arranger, has not assumed or
will assume an advisory, agency or fiduciary responsibility in favor of any Credit Party with respect to any of the Transactions or the process leading thereto,
including with respect to any amendment, waiver or other modification hereof or of any other Credit Document (irrespective of whether Citizens (in its capacity as
the Administrative Agent and the Arranger) has advised or is currently advising any Credit Party or any of its Affiliates on other matters) and Citizens, as either the
Administrative Agent or the Arranger, does not have any 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 Credit Documents; (d) Citizens and its 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 Citizens has no obligation to disclose any of such interests by virtue of any advisory,
agency or fiduciary relationship; and (e) Citizens has not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the
Transactions (including any amendment, waiver or other modification hereof or of any other Credit 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 Citizens with respect to any breach or alleged breach of agency or fiduciary duty.
Section 9.24 Responsible Officers and Authorized Officers .
The Administrative Agent and each of the Lenders are authorized to rely upon the continuing authority of the Responsible Officers and the Authorized
Officers with respect to all matters pertaining to the Credit Documents including, but not limited to, the selection of interest rates, the submission of requests for
Extensions of Credit and certificates with regard thereto. Such authorization may be changed only upon written notice to Administrative Agent accompanied by (a)
an updated Schedule 3.28 and (b) evidence, reasonably satisfactory to Administrative Agent, of the authority of the Person giving such notice and such notice shall
be effective not sooner than five (5) Business Days following receipt thereof by Administrative Agent (or such earlier time as agreed to by the Administrative
Agent).
Section 9.25 Acknowledgement and Consent to Bail-In of EEA Financial Institutions .
Notwithstanding anything to the contrary in any Credit Document or in any other agreement, arrangement or understanding among any such parties, each
party hereto acknowledges that any liability of any EEA Financial Institution arising under any Credit Document, to the extent such liability is unsecured, may be
subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder
which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-in Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
132
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial
Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of
ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Credit Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any
EEA Resolution Authority.
Section 9.26 Certain ERISA Matters
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date
such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the
Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that at least one of
the following is and will be true:
of one or more ERISA Plans in connection with the Loans, the Letters of Credit or the Commitments;
(i) such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA)
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions
determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general
accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain
transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is
applicable with respect to such Lender's entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and
this Agreement;
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI
of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and
perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the
Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the
best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender's entrance into, participation in,
administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement; or
discretion, and such Lender.
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole
(b) In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not
provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents
and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date
such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arranger and their respective Affiliates, and not, for the
avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that:
133
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(i) none of the Administrative Agent or the Arranger or any of their respective Affiliates is a fiduciary with respect to the assets of
such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any
Credit Document or any documents related to hereto or thereto);
(ii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in,
administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is independent (within the meaning
of 29 CFR § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under
management or control, total assets of at least $50,000,000, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E);
(iii) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in,
administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is capable of evaluating investment
risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Credit Party
Obligations);
(iv) the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in,
administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement is a fiduciary under ERISA or the
Code, or both, with respect to the Loans, the Letters of Credit, the Commitments and this Agreement and is responsible for exercising
independent judgment in evaluating the transactions hereunder; and
(v) no fee or other compensation is being paid directly to the Administrative Agent or the Arranger or any their respective
Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Letters of Credit, the Commitments or this
Agreement.
(c) The Administrative Agent and the Arranger hereby informs the Lenders that each such Person is not undertaking to provide impartial
investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial
interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans,
the Letters of Credit, the Commitments and this Agreement, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an
amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other
payments in connection with the transactions contemplated hereby, the Credit Documents or otherwise, including structuring fees, commitment fees,
arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum
usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker's acceptance
fees, breakage or other early termination fees or fees similar to the foregoing.
134
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 9.27 Amendment and Restatement .
This Agreement constitutes an amendment and restatement of the Existing Credit Agreement effective from and after the Closing Date. The execution and
delivery of this Agreement shall not constitute a novation of any indebtedness or other obligations owing to the lenders or the Administrative Agent under the
Existing Credit Agreement based on facts or events occurring or existing prior to the execution and delivery of this Agreement. On the Closing Date, the credit
facilities described in the Existing Credit Agreement shall be amended, supplemented, modified and restated in their entirety by the facilities described herein, and
all loans and other obligations of the Credit Parties outstanding as of such date under the Existing Credit Agreement shall be deemed to be loans and obligations
outstanding under the corresponding facilities described herein, without any further action by any Person, except that Administrative Agent shall make such
transfers of funds as are necessary in order that the outstanding balance of such loans, together with any extensions of credit made on the Closing Date, reflecting
the Commitments of the Lenders hereunder.
Article X
GUARANTY
Section 10.1 The Guaranty .
In order to induce the Lenders to enter into this Agreement and any Bank Product Provider to enter into any Bank Product and to extend credit hereunder
and thereunder and in recognition of the direct benefits to be received by the Guarantors from the Extensions of Credit hereunder and any Bank Product, each of
the Guarantors hereby agrees with the Administrative Agent, the Lenders and the Bank Product Provider as follows: each Guarantor hereby unconditionally and
irrevocably jointly and severally guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by
acceleration or otherwise, of any and all Credit Party Obligations. If any or all of the indebtedness becomes due and payable hereunder or under any Bank Product,
each Guarantor unconditionally promises to pay such indebtedness to the Administrative Agent, the Lenders, the Bank Product Providers, or their respective order,
on demand, together with any and all reasonable expenses which may be incurred by the Administrative Agent or the Lenders in collecting any of the Credit Party
Obligations. The Guaranty set forth in this Article X is a guaranty of timely payment and not of collection. The word “indebtedness” is used in this Article X in its
most comprehensive sense and includes any and all advances, debts, obligations and liabilities of the Borrower, including specifically all Credit Party Obligations,
arising in connection with this Agreement, the other Credit Documents or any Bank Product, in each case, heretofore, now, or hereafter made, incurred or created,
whether voluntarily or involuntarily, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether or not such indebtedness is from time
to time reduced, or extinguished and thereafter increased or incurred, whether the Borrower may be liable individually or jointly with others, whether or not
recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, and whether or not such indebtedness may be or hereafter
become otherwise unenforceable.
135
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor 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 such Guarantor 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).
Section 10.2 Bankruptcy .
Additionally, each of the Guarantors unconditionally and irrevocably guarantees jointly and severally the payment of any and all Credit Party Obligations
of the Borrower to the Lenders and any Bank Product Provider whether or not due or payable by the Borrower upon the occurrence of any Bankruptcy Event and
unconditionally promises to pay such Credit Party Obligations to the Administrative Agent for the account of the Lenders and to any such Bank Product Provider,
or order, on demand, in lawful money of the United States. Each of the Guarantors further agrees that to the extent that the Borrower or a Guarantor shall make a
payment or a transfer of an interest in any property to the Administrative Agent, any Lender or any Bank Product Provider, which payment or transfer or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise is avoided, and/or required to be repaid to the Borrower or a Guarantor,
the estate of the Borrower or a Guarantor, a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such avoidance or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.
Section 10.3 Nature of Liability .
The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Credit Party Obligations of the
Borrower whether executed by any such Guarantor, any other guarantor or by any other party, and no Guarantor’s liability hereunder shall be affected or impaired
by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the Credit Party Obligations of the Borrower, or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to the Administrative
Agent, the Lenders or any Bank Product Provider on the Credit Party Obligations which the Administrative Agent, such Lenders or such Bank Product Provider the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each of the Guarantors waives
any right to the deferral or modification of its obligations hereunder by reason of any such proceeding.
Section 10.4 Independent Obligation .
The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor or the Borrower, and a separate action or actions
may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor or the Borrower and whether or not any other
Guarantor or the Borrower is joined in any such action or actions.
136
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 10.5 Authorization .
Each of the Guarantors authorizes the Administrative Agent, each Lender and each Bank Product Provider without notice or demand (except as shall be
required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise,
extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Credit Party Obligations or any part thereof in
accordance with this Agreement and any Bank Product, as applicable, including any increase or decrease of the rate of interest thereon, (b) take and hold security
from any Guarantor or any other party for the payment of this Guaranty or the Credit Party Obligations and exchange, enforce waive and release any such security,
(c) apply such security and direct the order or manner of sale thereof as the Administrative Agent and the Lenders in their discretion may determine, (d) release or
substitute any one or more endorsers, Guarantors, the Borrower or other obligors and (e) to the extent otherwise permitted herein, release or substitute any
Collateral.
Section 10.6 Reliance .
It is not necessary for the Administrative Agent, the Lenders or any Bank Product Provider to inquire into the capacity or powers of the Borrower or the
officers, directors, members, partners or agents acting or purporting to act on its behalf, and any Credit Party Obligations made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
Section 10.7 Waiver .
(a) Each of the Guarantors waives any right (except as shall be required by applicable statute and cannot be waived) to require the
Administrative Agent, any Lender or any Bank Product Provider to (i) proceed against the Borrower, any other guarantor or any other party, (ii) proceed against
or exhaust any security held from the Borrower, any other guarantor or any other party, or (iii) pursue any other remedy in the Administrative Agent’s, any
Lender’s or any Bank Product Provider’s whatsoever. Each of the Guarantors waives any defense based on or arising out of any defense of the Borrower, any
other guarantor or any other party other than payment in full of the Credit Party Obligations (other than contingent indemnification obligations for which no
claim has been made or cannot be reasonably identified by an Indemnitee based on the then-known facts and circumstances), including, without limitation, any
defense based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the unenforceability of the Credit Party Obligations or
any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Credit Party Obligations. The
Administrative Agent may, at its election, foreclose on any security held by the Administrative Agent or a Lender by one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or
remedy the Administrative Agent or any Lender may have against the Borrower or any other party, or any security, without affecting or impairing in any way the
liability of any Guarantor hereunder except to the extent the Credit Party Obligations have been paid in full and the Commitments have been terminated. Each of
the Guarantors waives any defense arising out of any such election by the Administrative Agent or any of the Lenders, even though such election operates to
impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantors against the Borrower or any other party or any
security.
137
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
(b) Each of the Guarantors waives all presentments, demands for performance, protests and notices, including, without limitation, notices
of nonperformance, notice of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or
additional Credit Party Obligations. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrower’s financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of the Credit Party Obligations and the nature, scope and extent of the risks which
such Guarantor assumes and incurs hereunder, and agrees that neither the Administrative Agent nor any Lender shall have any duty to advise such Guarantor of
information known to it regarding such circumstances or risks.
(c) Each of the Guarantors hereby agrees it will not exercise any rights of subrogation which it may at any time otherwise have as a result
of this Guaranty (whether contractual, under Section 509 of the U.S. Bankruptcy Code, or otherwise) to the claims of the Lenders or any Bank Product Provider
against the Borrower or any other guarantor of the Credit Party Obligations of the Borrower owing to the Lenders or such Bank Product Provider (collectively,
the “ Other Parties ”) and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any Other Party which it may at any
time otherwise have as a result of this Guaranty until such time as the Credit Party Obligations shall have been paid in full and the Commitments have been
terminated. Each of the Guarantors hereby further agrees not to exercise any right to enforce any other remedy which the Administrative Agent, the Lenders or
any Bank Product Provider now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the Credit Party
Obligations of the Borrower and any benefit of, and any right to participate in, any security or collateral given to or for the benefit of the Lenders and/or the
Bank Product Providers to secure payment of the Credit Party Obligations of the Borrower until such time as the Credit Party Obligations (other than contingent
indemnification obligations for which no claim has been made or cannot be reasonably identified by an Indemnitee based on the then-known facts and
circumstances) shall have been paid in full and the Commitments have been terminated.
Section 10.8 Limitation on Enforcement .
The Lenders and the Bank Product Providers agree that this Guaranty may be enforced only by the action of the Administrative Agent acting upon the
instructions of the Required Lenders or such Bank Product Provider (only with respect to obligations under the applicable Bank Product) and that no Lender or
Bank Product Provider shall have any right individually to seek to enforce or to enforce this Guaranty, it being understood and agreed that such rights and remedies
may be exercised by the Administrative Agent for the benefit of the Lenders under the terms of this Agreement and for the benefit of any Bank Product Provider
under any Bank Product.
Section 10.9 Confirmation of Payment .
The Administrative Agent and the Lenders will, upon request after payment of the Credit Party Obligations which are the subject of this Guaranty and
termination of the Commitments relating thereto, confirm to the Borrower, the Guarantors or any other Person that such indebtedness and obligations have been
paid and the Commitments relating thereto terminated, subject to the provisions of Section 10.2.
138
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
Section 10.10 Eligible Contract Participant .
Notwithstanding anything to the contrary in any Credit Document, no Guarantor shall be deemed under this Article X to be a guarantor of any Swap
Obligations if such Guarantor was not an “eligible contract participant” as defined in § 1a(18) of the Commodity Exchange Act, at the time the guarantee under
this Article X becomes effective with respect to such Swap Obligation and to the extent that the providing of such guarantee by such Guarantor would violate the
Commodity Exchange Act; provided however that in determining whether any Guarantor is an “eligible contract participant” under the Commodity Exchange Act,
the guarantee of the Credit Party Obligations of such Guarantor under this Article X by a Guarantor that is also a Qualified ECP Guarantor shall be taken into
account.
Section 10.11 Keepwell .
Without limiting anything in this Article X , each Qualified ECP Guarantor hereby jointly and severally absolutely, unconditionally and irrevocably
undertakes to provide such funds or other support as may be needed from time to time to each Guarantor that is not an “eligible contract participant” under the
Commodity Exchange Act at the time the guarantee under this Article X becomes effective with respect to any Swap Obligation, to honor all of the Obligations of
such Guarantor under this Article X in respect of such Swap Obligations (provided, however, that each Qualified ECP Guarantor shall only be liable under this
Section 10.11 for the maximum amount of such liability that can be hereby incurred without rendering its undertaking under this Section 10.11 , or otherwise under
this Article X , voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The undertaking of each
Qualified ECP Guarantor under this Section 10.11 shall remain in full force and effect until termination of the Commitments and payment in full of all Loans and
other Credit Party Obligations. Each Qualified ECP Guarantor intends that this Section 10.11 constitute, and this Section 10.11 shall be deemed to constitute, a
“keepwell, support, or other agreement” for the benefit of each Guarantor that would otherwise not constitute an “eligible contract participant” under the
Commodity Exchange Act.
[Signature Pages Follow]
139
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by its proper and duly authorized officers as
of the day and year first above written.
BORROWER :
GUARANTORS :
ANI PHARMACEUTICALS, INC. ,
a Delaware corporation
By: /s/ Stephen Carey
Name: Stephen Carey
Title: VP and CFO
ANIP ACQUISITION COMPANY ,
a Delaware corporation
By:
/s/ Stephen Carey
Name: Stephen Carey
Title: VP and CFO
Confidential Materials Omitted and Filed Separately with the Securities and Exchange Commission Pursuant to a Request for Confidential Treatment
under Rule 406 under the Securities Act of 1933, as amended. Confidential Portions are marked: [***]
ADMINISTRATIVE AGENT :
CITIZENS BANK, N.A. , as a Lender and as Administrative Agent on behalf of
the Lenders
By: /s/ Terence Kelly
Name: Terence Kelly
Title: Vice President
ANI PHARMACUTICALS, INC.
Exhibit 21
The following is a list of subsidiaries of ANI Pharmaceuticals, Inc., omitting subsidiaries which, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary, as of December 31, 2018:
Name
ANIP Acquisition Company
ANI Pharmaceuticals Canada Inc.
Jurisdiction of Incorporation or Organization
Delaware
Canada
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of ANI Pharmaceuticals, Inc. on Form S-3 (No. 333-218671) and on Form S-8 (Nos.
333-196518, 333-214416, and 333-218120) of our reports dated February 27, 2019, on our audits of the consolidated financial statements as of December 31, 2018
and 2017 and for each of the years in the three-year period ended December 31, 2018, and the effectiveness of ANI Pharmaceuticals, Inc. and Subsidiaries’ internal
control over financial reporting as of December 31, 2018, which reports are included in this Annual Report on Form 10-K to be filed on or about February 27,
2019.
Exhibit 23.1
/s/ EisnerAmper LLP
EISNERAMPER LLP
Iselin, New Jersey
February 27, 2019
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Arthur S. Przybyl, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of ANI Pharmaceuticals, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the
registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 27, 2019
/s/ Arthur S. Przybyl
Arthur S. Przybyl
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen P. Carey, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of ANI Pharmaceuticals, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the
registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 27, 2019
/s/ Stephen P. Carey
Stephen P. Carey
Vice President, Finance and Chief Financial Officer
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of ANI Pharmaceuticals, Inc. (the "Company") for the year ended December 31, 2018 (the "Report") as
filed with the Securities and Exchange Commission on the date hereof, the undersigned Chief Executive Officer and Chief Financial Officer of the Company
hereby certify that, to such officer’s knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Dated: February 27, 2019
Dated: February 27, 2019
/s/ Arthur S. Przybyl
Arthur S. Przybyl
President and
Chief Executive Officer
(principal executive officer)
/s/ Stephen P. Carey
Stephen P. Carey
Vice President, Finance and
Chief Financial Officer
(principal financial officer)
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.