Note 4: Subsequent events

Reclassification and Contribution Transactions

In connection with the IPO, Holdco amended and restated its limited liability company agreement (the “Holdco LLC Agreement”) to, among other things, modify the capital structure of Holdco to create a single new class of units, the limited liability company interests (“LLC Interests”), which were allocated to its members, and appoint the Corporation as the sole managing member of Holdco.

Pursuant to a contribution agreement, the Sponsor Corps (ECP IV TS Investor Co., Eos TS Investor Co., and HCP-TS Blocker Corp) were contributed by their owners to the Corporation in exchange for 5,615,981 shares of Class A common stock and $30,526 aggregate principal amount of preference notes payable by PetIQ. The contribution resulted in PetIQ acquiring 1,907,858 LLC Interests for the preference notes and 5,615,981 LLC Interests for the shares of Class A common stock. The Corporation also acquired the tax attributes of the Sponsor Corps, which were recorded generally as deferred tax assets at the time of the IPO. Following the contribution, each Sponsor Corps became a wholly owned subsidiary of PetIQ.

In addition, certain employee owners exchanged their 419,102 LLC Interests in Holdco for 419,102 shares of Class A common stock and the Continuing LLC Owners (all the remaining owners of Holdco LLC Interests) sold to PetIQ 1,589,643 LLC Interests for $25,434 aggregate principal amount of preference notes payable by PetIQ. The Continuing LLC Owners received one share of Class B common stock for each LLC Interest they will continue to hold. As a result, the Continuing LLC Owners retain 8,268,188 LLC Interests and received the same number of shares of Class B common stock of the Corporation (the “Class B common stock”). The Continuing LLC owners will have the right, subject to the terms of the Holdco LLC Agreement, to exchange all or a portion of their LLC interests, along with a corresponding number of shares of our Class B common stock, for newly issued shares of Class A common stock on a one-for-one basis.

Intial Public Offering:

On July 26, 2017, PetIQ completed its IPO by issuing 7,187,500 Class A common shares at a price of $16.00 per share. Gross proceeds of $115,000, prior to underwriting discount and other offering expenses, were utilized to immediately repay $56,000 aggregate principal amount of preference notes, purchase 133,334 shares of Class B common stock from certain executives and purchase 3,556,666 newly issued LLC Interests from Holdco. Holdco utilized the proceeds from the sale of the LLC Interest to pay offering costs and expenses and for general corporate purposes.

Following the completion of the IPO:

the investors in the IPO collectively own 7,187,500 shares of our Class A common stock representing 33.4% of the voting power in the Corporation;

Certain Sponsors collectively own 5,615,981 shares of our Class A common stock, representing 26.1% of the voting power in the Corporation;

the Continuing LLC Owners collectively own 8,268,188 shares of our Class B common stock, representing 38.5% of the voting power in the Company; and

certain employee owners collectively own 419,102 shares of our Class A common stock, representing 1.9% of the voting power of the Company.

a total of 13,222,583 shares of our Class A Common Stock and 8,268,188 shares of our Class B common stock issued and outstanding, representing all voting shares of PetIQ.

As the sole managing member of HoldCo, we will operate and control all of the business and affairs of HoldCo and, through HoldCo and its subsidiaries, conduct our business. In addition, we will control the management of, and have a controlling interest in, HoldCo and, therefore, we will be the primary beneficiary of HoldCo. As a result, we will consolidate the financial results of Holdco pursuant to the variable-interest entity (“VIE”) accounting model, and a portion of our net income (loss) will be allocated to the non-controlling interest to reflect the entitlement of Continuing LLC Owners to a portion of Holdco’s net income (loss).

Equity-Based Compensation:

In connection with the IPO, the Corporation adopted the PetIQ, Inc 2017 Omnibus Incentive Plan (the “Omnibus Plan”) pursuant to which cash and equity-based incentives (including through an annual incentive program) may be granted to participating employees, directors, and consultants. The Corporation reserved a total of 1,914,047 shares of Class A common stock for future issuance under the Omnibus Plan.

On July 20, 2017, the Corporation granted stock options for 804,049 shares of Class A common stock in the aggregate under the Omnibus Plan at an exercise price of $16.00 per share (the IPO price). The options generally vest in ratable annual installments on each of the first four anniversaries of the grant date.