Item 1.01
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Entry into a Material Definitive Agreement
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JV Operating Agreement
In connection with the closing of the transactions under the Contribution Agreement, on April 19, 2016, a wholly-owned subsidiary of Allscripts (together with any permitted transferees, the “
Allscripts Members
”) and GI (together with any permitted transferees, the “
GI Members
”), entered into an Amended and Restated Limited Liability Company Agreement of the JV (the “
Operating Agreement
”).
The Operating Agreement governs the rights and obligations of the Allscripts Members and GI Members in their roles as members of the JV. As of the closing of the transactions contemplated by the Contribution Agreement and the Merger Agreement, including the Rollover, the Allscripts Members, collectively, owned approximately 49% of the outstanding equity interests in the JV, the GI Members, collectively, owned approximately 47% of the outstanding equity interests in the JV, and the Rollover equityholders, collectively, owned approximately 4% of the outstanding equity interests in the JV, in each case on an as-converted basis. Additionally, the JV has approved a management option pool that if fully earned could result in dilution of up to
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14% of the Allscripts Members’, the GI Members’ and the Rollover equityholders’ respective own
ership percentages.
The Operating Agreement provides that the JV is governed by a Board of Managers (the “
JV Board
”) comprised of up to three individuals appointed by the Allscripts Members (in any event, the Allscripts Members’ appointee(s) will collectively have three votes), up to three individuals appointed by the GI Members (in any event, the GI Members’ appointee (s) will collectively have three votes) and one member who would be the Chief Executive Officer of the JV (who will have one vote). Additionally, the JV Board will have three non-voting members who will be jointly designated by the Allscripts Members and the GI Members. Any action to be taken by the JV Board must be taken by members holding a majority of votes. The JV Board manages the business and affairs of the JV, subject to the Allscripts Members’ right to approve the JV’s annual operating budget. Further, certain significant actions to be taken by the JV require the consent of both the Allscripts Members and the GI Members, so long as they each maintain a minimum threshold ownership in the JV. These significant actions would include, but are not limited to, (i) issuing additional equity or debt securities other than as specifically addressed in the Operating Agreement; (ii) repurchasing, redeeming or paying dividends on the equity, except as specifically addressed in the Operating Agreement; (iii) selling the JV before the fifth anniversary, unless both the Allscripts Members and the GI Members receive a minimum return on their investment; (iv) an initial public offering, unless both the Allscripts Members and the GI Members receive a minimum return on their investment; (v) liquidating, dissolving or winding-up the JV or commencing a bankruptcy action; and (vi) entering into certain affiliate transactions.
The GI Members own Class A Preferred Units in the JV that are initially convertible into Class A Common Units of the JV on a one-for-one basis. The Operating Agreement provides that the Class A Preferred Units in the JV held by the GI Members entitle them, in certain liquidation events (including a sale of the JV), to the greater of (i) a return of the original issue price plus an 11% preferred return (compounded annually) or (ii) the as-converted value of Class A Common Units in the JV, and to cause the JV to redeem the GI Members’ equity upon the earlier of the fifth anniversary or a change in control of Allscripts.
Pursuant to the Operating Agreement, during the first two years of the JV, neither the Allscripts Members nor the GI Members are permitted to transfer their equity to a third party without the other party’s consent. The Operating Agreement also contains transfer restrictions, right of first offer provisions, preemptive rights, provisions governing rights with respect to initial public offerings, as well as tag-along and drag-along provisions.
Under the Operating Agreement, Allscripts and the JV have agreed to certain non-competition obligations to prevent Allscripts from engaging in the JV’s core line of business and the JV from engaging in Allscripts’ core line of business, subject to specified exceptions and limitations. In addition, the JV, Allscripts and the GI Members agreed to not make certain investments or acquisitions of competitive businesses, subject to specified exceptions and limitations.
JV Credit Facilities
In connection with the consummation of the Merger, on April 19, 2016, Intermediate, Merger Sub and Henderson entered into (i) that certain First Lien Credit Agreement by and among, prior to the consummation of the Merger, Merger Sub, Henderson, after giving effect to the Merger, Netsmart, Netsmart Technologies, Inc., a Delaware corporation (“
Netsmart Technologies
”), as Borrower Representative (as defined therein) (for purposes hereof, (a) prior to the consummation of the Merger, each of Henderson and Merger Sub, and (b) upon and after the consummation of the Merger, each of Henderson, Netsmart and Netsmart Technologies are hereinafter referred to collectively as the “
Borrowers
”), the subsidiaries of the Borrowers from time to time party thereto, Intermediate, the lenders party thereto, UBS AG, Stamford Branch (“
UBS AG
”), as
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administrative agent and collateral agent for the lenders party thereto (in its capacity as administrative and collateral agent, the “
First Lien Administ
rative Agent
”), providing for a $395,000,000 senior secured 7-year term loan credit facility and a $50,000,000 senior secured 5-year revolving loan credit facility (the “
First Lien Credit Agreement
”) and (ii) that certain Second Lien Term Loan Agreement by
and among the Borrowers, the subsidiaries of the Borrowers from time to time party hereto, Intermediate, the lenders party thereto, UBS AG, as administrative agent and collateral agent for the lenders party thereto (in its capacity as administrative and c
ollateral agent, the “
Second Lien Administrative Agent
”), providing for a $167,000,000 senior secured 7.5-year term loan credit facility (the “
Second Lien Credit Agreement
,” and, together with the First Lien Credit Agreement, the “
Credit Agreements
”).
Each of the Borrower’s obligations under the Credit Agreements are guaranteed by Intermediate, each other Borrower, each Subsidiary Guarantor (as defined in the Credit Agreements) and any other person who becomes a party to the Credit Agreements or any other Loan Document (under and as defined in the Credit Agreements), under an unconditional guaranty. Unless otherwise extended, the revolving credit facility under the First Lien Credit Agreement will terminate on April 19, 2021, the initial term loans under the First Lien Credit Agreement mature on April 19, 2023 and the term loans issued under the Second Lien Credit Agreement mature on October 19, 2023, when, in each case, all unpaid principal of, and interest accrued on, such loans must be repaid. The outstanding principal amount (i) of the Initial Term Loans and Initial Revolving Loans (in each case, as defined in the First Lien Credit Agreement) due under the First Lien Credit Agreement will bear interest at a rate equal to (a) with respect to LIBO Rate Loans, Adjusted LIBO Rate plus 4.75% and (b) with respect to ABR Loans, 3.75% (provided, however, that, in respect of the Initial Revolving Loans, such rate may step-down to 4.25% and 3.25%, respectively, depending on the then-applicable leverage ratio) and (b) of the Initial Term Loans (as defined in the Second Lien Credit Agreement) due under the Second Lien Credit Agreement will bear interest at a rate equal to (a) with respect to LIBO Rate Loans, Adjusted LIBO Rate plus 9.50% and (b) with respect to ABR Loans, 8.50%. The proceeds from the funding of the Credit Agreements were used to,
inter alia
, finance a portion of the Purchase Price and to pay fees and expenses in connection therewith.
The Credit Agreements contain a financial covenant that Intermediate and its subsidiaries maintain a maximum ratio of total debt to Consolidated Adjusted EBITDA (as defined in the Credit Agreements). The entire principal amount of the Credit Agreements and any accrued but unpaid interest may be declared immediately due and payable if an Event of Default occurs (as defined in the Credit Agreements). Events of Default under the Credit Agreements include (but are not limited to) failure to make payments when due, a default in the performance of any covenants in the Credit Agreements or related documents or certain changes of control of Intermediate and/or of the Borrowers.
The Borrowers’ debt under the Credit Agreements is non-recourse to Allscripts and its wholly-owned subsidiaries.
The foregoing descriptions of the Credit Agreements do not purport to be complete and are qualified in their entirety by reference to the Credit Agreements, copies of which are filed as Exhibits 10.1 and 10.2 to this Current Report on Form 8-K.