Item 1.01. Entry into a Material Definitive Agreement.
Standstill Agreement
and First Amendment to Loan Agreement
On May 6, 2019, Akorn,
Inc. (the “
Company
”), together with certain of its subsidiaries (the Company and such subsidiaries, collectively,
the “
Loan Parties
”) entered into a Standstill Agreement and First Amendment (the “
Standstill Agreement
”)
in respect of that certain Loan Agreement dated as of April 17, 2014 (as amended, supplemented or otherwise modified, the “
Loan
Agreement
”) with an ad hoc group of Lenders (the “
Ad Hoc Group
”), certain other Lenders (together
with the Ad Hoc Group, the “
Standstill Lenders
”) and JPMorgan Chase Bank, N.A., as administrative agent (the
“
Administrative Agent
” and, together with the Loan Parties and the Standstill Lenders, the “
Standstill
Parties
”). Capitalized terms used but not defined herein have the meanings given to them in the Standstill Agreement
or the Loan Agreement, as applicable.
The Standstill Agreement
provides that, for the duration of the Standstill Period (as defined below), among other matters, neither the Administrative Agent
nor the Lenders may (i) declare any Event of Default or (ii) otherwise seek to exercise any rights or remedies, in each case of
clauses (i) and (ii) above, to the extent directly relating to any alleged Event of Default arising from any alleged breach of
any of the covenants contained in Sections 5.01, 5.02, 5.03, 5.06 or 5.07 of the Loan Agreement (the “
Specified Covenants
”),
to the extent the facts and circumstances giving rise to any such breach have been (x) publicly disclosed by the Company or (y)
disclosed in writing by the Company to private side Lenders or certain advisors to the Ad Hoc Group (collectively, the “
Specified
Matters
”). “
Standstill Period
” means the period of time from the effective date of the Standstill
Agreement (the “
Effective Date
”) through the earliest of (a) December 13, 2019; (b) the delivery of a notice
of termination of the Standstill Period by Lenders holding a majority of the Loans (the “
Required Lenders
”)
upon the occurrence of a Default or Event of Default under the Loan Agreement, excluding any Default or Event of Default relating
to a Specified Matter; or (c) the delivery of a notice of termination of the Standstill Period by the Required Lenders as a result
of any breach of, or non-compliance with, any provision of the Standstill Agreement by the Company or any other Loan Party, including
without limitation any such breach or non-compliance by the Company or any other Loan Party of or with any Affirmative Covenants
and Milestones or Negative Covenants (each as defined below) or other covenants set forth in the Standstill Agreement, subject,
in each case, to any applicable cure period expressly set forth therein (each, a “
Standstill Event of Default
”).
The Standstill Agreement
is expected to allow the Company to focus on its business plan and its commitments to the U.S. Food and Drug Administration (“
FDA
”)
while avoiding disruption to its business during the Standstill Period. The Standstill Agreement shows that the Company has the
support of the Lenders during the Standstill Period as it carries out these key initiatives.
In exchange for the
agreement of the Lenders to standstill during the Standstill Period, the Standstill Agreement provides, among other matters, that:
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during the Standstill Period:
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the Company must deliver certain financial and other reporting to the Lenders or their advisors,
including without limitation, monthly financial statements, 13-week cash flow forecasts and variance reports and certain regulatory
information, and participate in various update calls with the Lenders and their advisors (the “
Affirmative Covenants and
Milestones
”);
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the Company and its subsidiaries are restricted, among other matters, from (i) consummating certain
asset sales and investments, (ii) making certain restricted payments with respect to the Company’s common stock and any subordinated
indebtedness, (iii) engaging in sale and leaseback transactions, (iv) incurring certain liens and indebtedness, (v) reinvesting
any proceeds received from certain asset sales, and (vi) without the consent of the Required Lenders at such time, (A) designating
any Restricted Subsidiary as an Unrestricted Subsidiary, or otherwise creating or forming any Unrestricted Subsidiary, and/or (B)
transferring any assets of the Company or any of its Restricted Subsidiaries to any Unrestricted Subsidiary, except as otherwise
permitted under the Loan Agreement (after giving effect to the Standstill Agreement) (collectively, the “
Negative Covenants
”);
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the Company must pay a fee in an amount equal to 0.625% of the outstanding principal of any Loans
prepaid or repaid during the Standstill Period (other than as a result of any asset sale, condemnation event, incurrence of non-permitted
indebtedness or excess cash flow);
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the Company must notify the Ad Hoc Group and/or such advisors before making certain payments in
respect of judgments or settlements of ongoing litigation matters (a “
Specified Litigation Payment
”); and
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the Company must pay the fees and expenses of certain advisors to the Ad Hoc Group;
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the Company and the Standstill Lenders must negotiate in good faith to enter into a comprehensive
amendment of the Loan Agreement (the “
Comprehensive Amendment
”), which Comprehensive Amendment must be satisfactory
in form and substance to the Required Lenders;
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on the Effective Date, the Company must pay a one-time in-kind fee in an amount equal to 1.75%
of the aggregate principal amount of the Loans of the Standstill Lenders (which fee was paid-in-kind on such date); and
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on the Effective Date, the interest margins payable by the Company with respect to outstanding
Loans shall be increased by 1.50% (
i.e.
, 150 basis points), with 0.75% (
i.e.
, 75 basis points) of such increase payable
in cash and 0.75% (
i.e.
, 75 basis points) of such increase payable in kind.
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Subject to a five
business day cure period (the “
Cure Period
”), the Company’s failure to comply with the Affirmative Covenants
and Milestones during the Standstill Period would permit the Required Lenders to terminate the Standstill Period and exercise any
rights and remedies under the Loan Agreement with respect to the Specified Matters or a Standstill Event of Default. The Company’s
failure to comply with the Negative Covenants during the Standstill Period would permit the Required Lenders to terminate the Standstill
Agreement and constitute an immediate Event of Default under the Loan Agreement. The Company’s failure to comply with any
Affirmative Covenants and Milestones (subject to the Cure Period), Negative Covenants or other covenants in the Standstill Agreement
would also result in a further increase of the interest margins payable with respect to outstanding Loans by 0.50% (
i.e.
,
50 basis points), which increased interest would be payable in kind.
Any Specified Litigation
Payment made over the objection of the Ad Hoc Group would (i) entitle the Required Lenders to terminate the Standstill Period and
(ii) constitute an Event of Default under the Loan Agreement if such payment has a Material Adverse Effect (as defined in the Loan
Agreement). The failure of the Company to comply with the covenant in respect of the Specified Litigation Payment during the Standstill
Period would result in an Event of Default under the Loan Agreement.
The failure to enter
into a Comprehensive Amendment on or prior to November 15, 2019 would result in payment by the Company of a one-time in-kind fee
in an amount equal to 0.625% of the Loans outstanding on such date and require the Company and the other Loan Parties to pledge
for the benefit of the Lenders all unpledged equity interests in foreign subsidiaries. The failure to enter into a Comprehensive
Amendment on or prior to December 13, 2019 constitutes an immediate Event of Default under the Loan Agreement.
The execution of the
Standstill Agreement should not be construed as (and does not constitute an admission as to) any right, remedy, claim, defense,
liability or wrongdoing or responsibility on the part of any Standstill Party. Entry into the Standstill Agreement also should
not be construed as (and does not constitute an admission as to) the occurrence of a Default or Event of Default. In the Standstill
Agreement, the Standstill Lenders acknowledged that, as of the Effective Date, to the best of their knowledge, they were not aware
of any potential Defaults or Events of Default under the Loan Agreement other than with respect to the Specified Covenants relating
to the Specified Matters.
The representations
and warranties of the Company and the other Loan Parties in the Standstill Agreement have been made solely for the benefit of the
Lenders and the Administrative Agent. In addition, such representations and warranties (a) have been made only for purposes of
the Standstill Agreement, (b) have been qualified by disclosures made to the Standstill Lenders and the Administrative Agent in
connection with the Standstill Agreement, (c) are subject to materiality and other qualifications contained in the Standstill Agreement
which may differ from what may be viewed as material by investors, (d) were made only as of the date of the Standstill Agreement
and such other dates as are specified in the Standstill Agreement and (e) have been included in the Standstill Agreement for the
purpose of allocating risk between the Company, on the one hand, and the Standstill Lenders and the Administrative Agent, on the
other hand, rather than establishing matters as facts. Accordingly, the Standstill Agreement is included with this filing only
to provide investors with information regarding the terms of the Standstill Agreement, and not to provide investors with any other
factual information regarding the Company, the other Loan Parties or their respective subsidiaries or businesses. Investors should
not rely on the representations and warranties or any descriptions thereof as characterizations of the actual state of facts or
condition of the Company, the other Loan Parties or any of their respective subsidiaries or businesses. Moreover, information concerning
the subject matter of the representations and warranties may change after the date of the Standstill Agreement, which subsequent
information may or may not be fully reflected in the Company’s public disclosures.
The foregoing description
of the Standstill Agreement is not complete and is qualified in its entirety by reference to the Standstill Agreement, which is
filed as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference.