22. Related Party Transactions

Registration Rights Agreement

The Joint Venture, certain subsidiaries of the Joint Venture, McKesson and the Company are party to a registration rights agreement providing each of McKesson and the Legacy CHC Stockholders party thereto with customary demand and piggyback registration rights with respect to the Company’s common stock. These registration rights include the rights to register shares of the Company in an initial public offering, the rights to register shares of the Company during certain specified time windows and the rights to freely register shares of the Company after such specified time windows.

Advances Received from the Joint Venture

Under the terms of the LLC Agreement, the Joint Venture was required to periodically advance to its members amounts necessary to fund their respective tax obligations on an interim basis, subject to recoupment in the event that such advances exceed the final tax obligations of the respective Members for such year. Once the final tax obligations of each of the Members was determined for such year, the Joint Venture was obligated to formally distribute such amounts to the respective Members. To the extent that the amounts to be distributed were subject to interim advances, additional cash was distributed only to the extent that the interim advances were insufficient to fund the respective Member’s final tax obligation. Distributions up to the amount of interim advances resulted in full settlement of any advances to the respective Member.

The Company received advances of $625 during the year ended March 31, 2020, repaid $9,869 of previous advances during the year ended March 31, 2019 and received advances of $15,828 during the year ended March 31, 2018. Prior to the Merger, such amounts were classified within Due to the Joint Venture on the consolidated balance sheets.

Dilution

Under the terms of the LLC Agreement, the Company and the Joint Venture agreed to cooperate to ensure a 1:1 ratio of Company shares outstanding to units of the Joint Venture held by the Company for as long as the McKesson members hold units of the Joint Venture. Specifically, the parties agreed that:

In the event that the Company issues additional shares, the Joint Venture is required to issue a corresponding number of units to the Company.

Any net proceeds received by the Company with respect to a Company share must be concurrently contributed to the Joint Venture.

Any stock split or combination of other equity restructuring involving Company shares must be concurrent with an equivalent unit split or other equity restructuring of the Joint Venture.

The Company may not redeem, repurchase or otherwise acquire any Company shares unless substantially simultaneously the Joint Venture redeems, repurchases, or otherwise acquires from the Company an equal number of units for the same price per security.

The Joint Venture may not redeem, repurchase or otherwise acquire any units held by the Company unless substantially simultaneously the Company redeems, repurchases, or otherwise acquires an equal number of Company shares for the same price per security.

Services Provided to the Company by the Joint Venture

Prior to the Merger, the Company generally had no substantive independent assets or operations apart from its investment in the Joint Venture. As a result, the Company received certain services from the Joint Venture and its employees for which the Joint Venture was not reimbursed. These services include the utilization of office space and a portion of the salaries of the Company’s officers who are considered employees of the Joint Venture. In addition, the Joint Venture was responsible for funding certain costs incurred in connection with the Company’s contemplated initial public offering and the Merger. Accordingly, the consolidated statements of operations reflect no expense related to these services through the date of the Merger for the year ended March 31, 2020 and for the full years ended March 31, 2019 and 2018.

Management Fees

Under the terms of the LLC Agreement, the Joint Venture was required to fund the cost of preparing for and executing an initial registration statement. Such costs may include legal, accounting and other professional service fees. To the extent that these fees are incurred for the benefit of the Joint Venture and funded by the Joint Venture, they are excluded from the Company’s financial statements. For other costs that are incurred by the Company for its benefit but funded by the Joint Venture, the reimbursement of such costs has been presented in the consolidated statements of operations as Management fees.

Letter Agreement

The Company, the Joint Venture, McKesson and certain of McKesson’s affiliates entered into a letter agreement relating to the Contribution Agreement (the “Letter Agreement”). The Letter Agreement addressed miscellaneous tax-related matters, including (i) technical clarifications and modifications to the manner in which the Joint Venture allocates certain items of taxable income, loss and deduction among, and calculates and makes required tax distributions to, its members, (ii) the sharing of certain contingent tax benefits and expenses not addressed by the McKesson Tax Receivable Agreement or the tax matters agreement that the Company entered into with McKesson in connection with a spin-off or split-off transaction (or a combination of the foregoing) that McKesson could, at its election, initiate and complete that would result, among other things, in the acquisition by the Company of all of McKesson’s LLC Units and the issuance by the Company to McKesson and/or McKesson’s securityholders of an equal number of shares of its common stock and (iii) procedures applicable in the case of certain tax proceedings.

In particular, pursuant to the terms of the Letter Agreement, McKesson was permitted to adjust the manner in which depreciation or amortization deductions in respect of assets transferred to the Joint Venture at the closing of the Transactions are allocated among the Company, McKesson and certain of McKesson’s affiliates. If McKesson chose to allocate an amount of deductions to the Company in excess of a specified minimum threshold, the Company was required to make cash payments to McKesson equal to 100% of the tax savings of the Company attributable to such excess deductions for any tax period ending prior to the date on which McKesson ceased to own at least 20% of the outstanding LLC Units of the Joint Venture, after which the terms of the McKesson Tax Receivable Agreement would control. Effective with the consummation of the Merger, McKesson no longer holds an ownership interest in the Joint Venture and the matters addressed by the Letter Agreement are governed by the terms of McKesson Tax Receivable Agreement.

eRx Network Option Agreement

Prior to the Transactions, the equity interests for entities representing the eRx Network were distributed to the former Legacy CHC stockholders, and in connection therewith a Legacy CHC subsidiary and the Legacy CHC Stockholders entered into an option agreement for a subsidiary of the Joint Venture to acquire the eRx Network (the “Option Agreement”). Under the terms of the Option Agreement, the option to acquire the eRx Network will only become exercisable at any such time that McKesson owns (directly or indirectly), in the aggregate, less than 5% of the outstanding Units of the Joint Venture. Such option will expire, unexercised or unexercisable, on the fifth anniversary of the Transactions. Under the Option Agreement, upon exercise of the option, a Legacy CHC subsidiary will be required to pay an exercise price of $1.00 plus a fixed multiple of the incremental increase (if any) in the EBITDA (as defined in the Option Agreement) of the eRx Network for the trailing 12 months preceding the exercise of the option over a baseline level of such EBITDA. Upon completion of the Merger, the Option became exercisable. As a result, the Option Agreement was recognized as an Investment in business purchase option acquired as part of the purchase price allocation described in Note 2, Business Combinations. The value of the option was determined using a Monte Carlo simulation that utilizes assumptions with regard to future cash flows, which were then discounted to present value using an appropriate discount rate, and no adjustment to the carrying value of the option occurred between the Merger Effective Date and March 31, 2020. As of March 31, 2020, the option had not been exercised, but the Company subsequently exercised the option and completed its acquisition of eRx Network in May 2020. See Note 26, Subsequent Events, for additional information.