Item 1.01. Entry into a Material
Definitive Agreement.
As previously disclosed,
on May 6, 2019, Akorn, Inc. (the “Company”) and an ad hoc group of Lenders (the “Ad Hoc Group”) and certain
other Lenders (together with the Ad Hoc Group, the “Standstill Lenders”) entered into a Standstill Agreement and First
Amendment (the “Original Standstill Agreement”) to the Company’s Loan Agreement, dated as of April 17, 2014 (as
amended, supplemented or otherwise modified, the “Term Loan Agreement”) among the Company and certain of its subsidiaries
(collectively, the “Loan Parties”), the lenders thereunder (the “Lenders”) and JPMorgan Chase Bank, N.A.,
as administrative agent (the “Administrative Agent”). Pursuant to the terms of the Original Standstill Agreement, the
Company was required to enter into a comprehensive amendment to the Term Loan Agreement (the “Comprehensive Amendment”).
If the Company did not enter into the Comprehensive Amendment by December 13, 2019 or refinance or otherwise address the outstanding
loans, an event of default would occur under the Term Loan Agreement. On December 15, 2019, the Loan Parties entered into a First
Amendment to Standstill Agreement and Second Amendment to Credit Agreement with certain Standstill Lenders, pursuant to which the
maximum duration of the “Standstill Period” was extended from December 13, 2019 to February 7, 2020.
On February 12,
2020, the Loan Parties entered into the Comprehensive Amendment in the form of a Second Amendment to Standstill Agreement and
Third Amendment to Credit Agreement (the “Amended Standstill Agreement”) with certain Standstill Lenders. Pursuant
to the terms of the Amended Standstill Agreement, the duration of the “Standstill Period” was extended from February
7, 2020 until the earliest of the delivery of a notice of termination of the Standstill Period by the Standstill Lenders upon
the occurrence of a default under the loan agreement, or a breach of, or non-compliance with certain provisions of the Amended
Standstill Agreement (the “Standstill Event of Default”) described below. Capitalized terms used but not defined herein
have the meanings given to them in the Amended Standstill Agreement or the Term Loan Agreement, as applicable.
The Amended Standstill
Agreement provides that, for the duration of the Extended Standstill Period, 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 Term 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”).
The Amended Standstill
Agreement provides, among other matters, that:
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during the Extended Standstill Period:
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the Company must deliver certain financial and other information to the Lenders or their advisors,
including without limitation, monthly financial statements with agreed upon adjustment, monthly operational statistics broken down
by facility, pipeline reporting, 13-week cash flow forecasts, weekly variance reports, certain valuation reports, weekly status
updates with respect to the Sale Process (as defined below) and certain regulatory information, and participate in various update
calls with the Lenders and their advisors (the “Affirmative Covenants and Milestones”); and
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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, (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, (B) transferring any assets of the Company or any of its Restricted Subsidiaries
to any Unrestricted Subsidiary, except as otherwise permitted under the Term Loan Agreement (after giving effect to the Amended
Standstill Agreement), and/or (C) releasing any existing Loan Guarantors or security interest granted under the Term Loan Agreement
outside of the ordinary course of business (collectively, the “Negative Covenants”);
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the Company will market and conduct a sale process for substantially all of its assets in accordance
with the milestones set forth in the Amended Standstill Agreement (the “Sale Process”), which milestones will depend
upon whether the bids submitted and then in effect in connection with the Sale Process are sufficient to pay all obligations under
the Term Loan Agreement;
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the Sale Process will be consummated on either an out-of-court or in-court basis (potentially through
the filing of chapter 11 cases under the U.S. Bankruptcy Code in order to effectuate the Sale Process);
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if at any time during the Sale Process, no third party bids exist that are sufficient to pay
all obligations under the Loan Agreement (taking into account available cash) there shall be an immediate Event of Default
under the Term Loan Agreement (a “Toggle Event”);
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the milestones with respect to the Sale Process include:
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subject to the alternative milestones described below upon the occurrence of a Toggle Event:
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on or before March 27, 2020, binding bids in connection with the Sale Process shall be due;
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on or before April 5, 2020, the Company shall select a stalking horse bidder and commence the Chapter
11 cases to effectuate the Sale Process; and
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thereafter, certain additional milestones shall be applicable during the Chapter 11 cases;
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upon the occurrence of a Toggle Event, the following alternative milestones will apply:
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on or before twenty-six (26) days after a Toggle Event, the Company and the Ad Hoc Group Advisors
shall reach an agreement in principle with respect to a restructuring support agreement (“RSA”) (such agreement not
to be unreasonably withheld, conditioned or delayed);
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on or before thirty (30) days after a Toggle Event, the Company shall commence the Chapter 11
cases to consummate either (A) a sale transaction pursuant with the Lenders serving as a stalking horse, and entering into a
stalking horse asset purchase agreement (the “Credit Bid APA”) in order to exercise their rights to credit bid
under the Loan Documents or (B) a transaction backstopped by an executed RSA; and
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thereafter, certain additional milestones shall be applicable during the Chapter 11 cases;
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To the extent either (i) a Toggle Event exists or (ii) the Company commences the Chapter 11
cases without a stalking horse asset purchase agreement with a bid sufficient to pay all obligations under the Term Loan
Agreement (taking into account available cash in the case of cash fee, debt free bids), the Company shall prepay, on a ratable
basis, within five (5) days prior to the commencement of the Chapter 11 cases all outstanding Loans under the Term Loan
Agreement in an amount that, after giving effect to such prepayment, leaves the Company’s pro forma cash balance at an
amount not to exceed $87,500,000.
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the following exit payments will be paid in cash to each Lender on a pro rata basis in connection with
repayment of the Loans under the Term Loan Agreement:
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if the Sale Process is approved by the Bankruptcy Court on or prior to July 15, 2020, then:
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if the Sale Process is consummated on or prior to July 15, 2020, 0.50% of the aggregate principal
amount of the Loans of such Lender then outstanding (i.e., 50 basis points); or
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if the Sale Process is consummated after July 15, 2020, 0.75% of the aggregate principal amount
of the Loans of such Lender then outstanding (i.e., 75 basis points); and
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if the Sale Process is not approved by the Bankruptcy Court on or prior to July 15, 2020, then:
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if the Sale Process is consummated on or prior to August 15, 2020, 1.00% of the aggregate principal
amount of the Loans of such Lender then outstanding (i.e., 100 basis points); or
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if the Sale Process is consummated after August 15, 2020, 2.00% of the aggregate principal amount
of the Loans of such Lender then outstanding (i.e., 200 basis points);
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upon the earlier to occur of (i) entry into the RSA, (ii) entry into the Credit Bid APA, and one
day prior to the Company commencing the Chapter 11 Cases without a Stalking Horse APA, 2.50% of the aggregate principal amount
of the Loans of such Lender then outstanding (i.e., 250 basis points);
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if at any time during the Sale Process no third-party bids exist which are sufficient to pay all
obligations (net of available cash), then from the occurrence of such date until the date of a Standstill Event of Default, the
interest margin payable in cash shall be further increased by 2.5% to LIBOR plus 12.50%.
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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
(other than perfection of the Lenders’ security interests (the “Excluded Milestones”)) during the Standstill
Period would permit the Required Lenders to terminate the Standstill Period and exercise any rights and remedies under the Term
Loan Agreement with respect to the Specified Matters or a Standstill Event of Default. The Company’s failure to comply with
the Negative Covenants and Excluded Milestones during the Standstill Period would permit the Required Lenders to terminate the
Standstill Agreement and constitute an immediate Event of Default under the Term Loan Agreement. The Company’s failure to
comply with any Affirmative Covenants and Milestones (subject to the Cure Period), the Excluded Milestones, Negative Covenants
or other covenants in the Amended Standstill Agreement would also result in a further increase of the interest margins payable
with respect to outstanding Loans by 0.50%, payable in kind.
In addition, the Company
agrees (1) not to make any payments in respect of judgments or settlements of certain ongoing litigation matters without the prior
written consent of the Required Lenders and (2) to make payment of fees and expenses to the advisors of Ad Hoc Group (collectively,
the “Other Covenants”). The failure to comply with any of the Other Covenants would constitute an immediate Event of
Default under the Term Loan Agreement.
If an Event of Default
occurs, the Lenders may accelerate the obligations under the Term Loan Agreement, foreclose upon the collateral securing the debt
and exercise other rights and remedies. If the Lenders take this action, the Company may not be able to repay the obligations under
the Term Loan Agreement. If the Company does not have sufficient funds on hand to pay its debt when due, it may be required to
seek Chapter 11 protection, refinance the debt, incur additional debt, sell assets, sell additional securities, and/or consummate the Sale Process. There can be no assurance that the Company
will be able to consummate any of these transactions on commercially reasonable terms or at all. The failure to repay or refinance
the obligations under the Term Loan Agreement when due and the uncertainties relating to the Company’s outstanding litigation
may have a material adverse impact on the Company’s business, financial condition and results of operations.
The Amended Standstill
Agreement is expected to allow the Company to focus on its business plan and sustain the significant momentum in its business as
it executes the Sale Process, although there can be no assurance as to the outcome
of these efforts. The Company could seek to implement a strategic transaction (including a sale of substantially all of its assets
as part of the Sale Process) out-of-court to the extent permitted by the Lenders or with the protections of a filing under Chapter
11 of the U.S. Bankruptcy Code, which the Company believes would provide a structured and orderly process through which the Company
could seek to address litigation liabilities and achieve its financial goals while continuing to operate its business.
The execution of the
Amended 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 Amended 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.
The representations
and warranties of the Company and the other Loan Parties in the Amended 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 Amended Standstill Agreement, (b) have been qualified by disclosures made to the Standstill Lenders and the Administrative
Agent in connection with the Amended Standstill Agreement, (c) are subject to materiality and other qualifications contained in
the Amended Standstill Agreement which may differ from what may be viewed as material by investors, (d) were made only as of the
date of the Amended Standstill Agreement and such other dates as are specified in the Amended Standstill Agreement and (e) have
been included in the Amended 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 Amended Standstill Agreement is included with this filing only to provide investors with information regarding the terms of
the Amended 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 Amended Standstill Agreement which subsequent information may or may not be fully
reflected in the Company’s public disclosures.
The summary of the
Amended Standstill Agreement set forth under this Item 1.01 is qualified in its entirety by reference to the complete terms and
conditions as set forth in the Amended Standstill Agreement which is filed as Exhibit 10.1 to this Current Report on Form 8-K
and incorporated by reference into this Item 1.01.