JOINDER AND FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND SECOND AMENDMENT TO PLEDGE AGREEMENT

This JOINDER AND FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND SECOND AMENDMENT TO PLEDGE AGREEMENT (this “Amendment”) is dated as of October 4, 2013, and is entered into by and among AKORN, INC., a Louisiana corporation (“Akorn”), AKORN (NEW JERSEY), INC., an Illinois corporation (“Akorn NJ”), OAK PHARMACEUTICALS, INC., a Delaware corporation (“Oak Pharma”), ADVANCED VISION RESEARCH, INC., a Delaware corporation (“AVR”), AKORN OPHTHALMICS, INC., a Delaware corporation (“Akorn Ophthalmics”, and together with Akorn, Akorn NJ, Oak Pharma, and AVR, the “Original Borrowers”), AKORN ENTERPRISES, INC., a Delaware corporation (“Akorn Enterprises”), AKORN ANIMAL HEALTH, INC., a Delaware corporation (“Akorn Animal” and together with Akorn Enterprises, the “New Borrowers”, and the New Borrowers together with the Original Borrowers, the “Borrowers”, and each a “Borrower”), the financial institutions party to the Loan Agreement from time to time as lenders (collectively, “Lenders”), and BANK OF AMERICA, N.A., a national banking association, as agent for the Lenders (“Agent”).

WHEREAS, the Original Borrowers, the Agent, and the Lenders have entered into that certain Loan and Security Agreement, dated as of October 7, 2011 (as amended, restated, or otherwise modified from time to time, the “Loan Agreement”), and certain of the Borrowers and the Agent have entered into that certain Pledge Agreement, dated as of October 7, 2011 (as amended, restated, or otherwise modified from time to time, the “Pledge Agreement”);

 

WHEREAS, on June 3, 2013, Akorn Animal was formed as a wholly-owned Subsidiary of Akorn and on August 16, 2013, Akorn Enterprises was formed as a wholly-owned Subsidiary of Akorn;

 

WHEREAS, Akorn Enterprises and Akorn Animal are willing to join the Credit Agreement as Borrowers pursuant to Section 10.1.9 of the Loan Agreement and have requested and the Agent has agreed to join Akorn Enterprises and Akorn Animal as Borrowers to the Loan Agreement; and

 

WHEREAS, the Original Borrowers have requested an increase in the Commitments under the Loan Agreement and certain other revisions to the Loan Agreement in connection with proposed acquisitions that the Borrowers would like to consummate;

 

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Loan Agreement and this Amendment, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

 

Initially capitalized terms used but not otherwise defined in this Amendment have the respective meanings set forth in the Loan Agreement, as amended hereby.

 

 

 2.02.  New Definitions.  The following new terms are hereby added to Section 1.1 of the Loan Agreement in the proper alphabetical order:

 

Commodity Exchange Act: the Commodity Exchange Act (7 U.S.C. § 1 et seq.).

 

 

Qualified ECP: an Obligor with total assets exceeding $10,000,000, or that constitutes an "eligible contract participant" under the Commodity Exchange Act and can cause another Person to qualify as an "eligible contract participant" under Section 1a(18)(A)(v)(II) of such act.

 

Specified Obligor: an Obligor that is not then an "eligible contract participant" under the Commodity Exchange Act (determined prior to giving effect to Section 5.10).

 

Swap Obligations: with respect to an Obligor, its obligations under a Hedging Agreement that constitutes a "swap" within the meaning of Section 1a(47) of the Commodity Exchange Act.

 

 2.03.  Amended Definitions.  The following definitions from Section 1.1 of the Loan Agreement are hereby amended in their entirety to read as follows:

 

Bank Product Reserve: the aggregate amount of reserves established by Agent from time to time in its reasonable credit determination in respect of Secured Bank Product Obligations, including, without limitation, derivative reserves to be set based on mark-to-market losses in excess of $1,000,000 at any time the Borrowers have less than $5,000,000 in cash or Cash Equivalents in deposit accounts over which Agent has a perfected security interest in such accounts and the deposits therein through control under the UCC.

 

 

Obligations: all (a) principal of and premium, if any, on the Loans, (b) LC Obligations and other obligations of Obligors with respect to Letters of Credit, (c) interest, expenses, fees, indemnification obligations, Extraordinary Expenses and other amounts payable by Obligors under Loan Documents, (d) Secured Bank Product Obligations, and (e) other Debts, obligations and liabilities of any kind owing by Obligors pursuant to the Loan Documents, whether now existing or hereafter arising, whether evidenced by a note or other writing, whether allowed in any Insolvency Proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, and whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint or several; provided, that Obligations of an Obligor shall not include its Excluded Swap Obligations.

 

Permitted Foreign Investment: each Investment in a Foreign Subsidiary with respect to which:

 

 

	(a)    the Obligors and their Subsidiaries and any newly created or acquired Foreign Subsidiary shall comply with the requirements of Section 7.7;
	(b)    the lines of business of the Foreign Subsidiary to be the subject of such Investment shall be similar, related, ancillary or complementary businesses to the principal business of Akorn and its Subsidiaries;
	(c)    such Investment shall be approved by the board of directors (or similar governing body) of the Person which is the subject of such Investment or such Person does not otherwise oppose such Investment;
	(d)    if, at the time of such Investment, the aggregate amount of Investments made in a Foreign Subsidiary by any Borrower or Subsidiary during the preceding twelve (12) month period (but excluding any period prior to the Closing Date and without giving effect to such contemplated Investment) is less than $10,000,000, (i) no Event of Default then exists and is continuing or would arise immediately as a result thereof, (ii) the Fixed Charge Coverage Ratio (measured as of the last day of the month ended immediately prior to the month during which the Investment occurs, both before and after giving effect to such Investment on a pro forma basis) shall not be less than 1.1 to 1.0, and (iii) Availability under this Agreement shall be an amount that is at least the greater of (i) $10,500,000 or (ii) 17.5% of the Commitments hereunder at such time;
	(e)    if, at the time of such Investment, the aggregate amount of Investments made in a Foreign Subsidiary by any Borrower or Subsidiary during the preceding twelve (12) month period (but excluding any period prior to the Closing Date and without giving effect to such contemplated Investment) is $10,000,000 or more but less than $20,000,000, (i) no Event of Default then exists and is continuing or would arise immediately as a result thereof, (ii) the Fixed Charge Coverage Ratio (measured as of the last day of the month ended immediately prior to the month during which the Investment occurs, both before and after giving effect to such Investment on a pro forma basis) is not less than 2.5 to 1.0, and (iii) Availability under this Agreement is at least equal to the greater of (i) $10,500,000 or (ii) 17.5% of the Commitments hereunder at such time;

 

 

	(f)    if, at the time of such Investment, the aggregate amount of Investments made in a Foreign Subsidiary by any Borrower or Subsidiary during the preceding twelve (12) month period (but excluding any period prior to the Closing Date and without giving effect to such contemplated Investment) is $20,000,000 or more but less than $40,000,000, (i) no Event of Default then exists and is continuing or would arise immediately as a result thereof, (ii) the Fixed Charge Coverage Ratio (measured as of the last day of the month ended immediately prior to the month during which the Investment occurs, both before and after giving effect to such Investment on a pro forma basis) is not less than 3.0 to 1.0, and (iii) Availability under this Agreement is at least equal to the greater of (i) $12,000,000 or (ii) 20.0% of the Commitments hereunder at such time (including if an increase in Commitments is consummated pursuant to Section 2.1.7 hereof); and
	(g)    the Borrower Agent shall have delivered to Agent at least five (5) Business Days prior to the date on which any such Investment is to be made, a certificate of a Senior Officer, in form and substance reasonably satisfactory to Agent, (i) certifying that all of the requirements set forth above will be satisfied on or prior to the date of such Investment and (ii) a reasonably detailed calculation evidencing compliance with either item (d) or item (e) above, as may be applicable (and such certificate shall be updated as necessary to make it accurate as of the date the Investment is made);

 

provided, however, that notwithstanding clauses (a) – (g) above, any Investment in a Foreign Subsidiary shall constitute a “Permitted Foreign Investment” hereunder if at the time of such Investment (i) there are no Loans or other Obligations outstanding under this Agreement and (ii) Borrowers have (x) with respect to Investments falling within clauses (d) or (e) above, at least $10,000,000 in cash or Cash Equivalents (both before and after giving effect to such Investment) in deposit accounts over which Agent has a perfected security interest in such accounts and the deposits therein through control under the UCC or (y) with respect to Investments falling within clause (f) above, at least $20,000,000 in cash or Cash Equivalents (both before and after giving effect to such Investment) in deposit accounts over which Agent has a perfected security interest in such accounts and the deposits therein through control under the UCC.

 

Permitted Transactions: an Acquisition or a Distribution if, at the time of such Acquisition or Distribution, the Borrower Agent has delivered not less than five (5) Business Days prior thereto a certificate demonstrating (a) no Event of Default then exists and is continuing or would arise immediately as a result thereof, (b) the Fixed Charge Coverage Ratio (measured as of the last day of the month ended immediately prior to the month during which the Acquisition or Distribution occurs, both before and after giving effect to such Acquisition or Distribution on a pro forma basis) is greater than 1.1 to 1.0, and (c) Availability under this Agreement (which Availability shall not include any amounts attributable to Suppressed Availability), after giving effect to such Acquisition or Distribution, is at least equal to the greater of (i) $10,500,000 or (ii) 17.5% of the Commitments hereunder at such time.

 

Restricted Investment: any Investment by a Borrower or Subsidiary, other than (a) Investments in Subsidiaries to the extent existing on the Closing Date; (b) Investments in Akorn Enterprises, Inc., a Delaware corporation and Akorn Animal Health, Inc., a Delaware corporation, each of which is a wholly-owned subsidiary of Akorn formed in 2013, and Investments in WorldAkorn Pharma Mauritius, a wholly-owned subsidiary of Akorn formed in Mauritius in 2012; (c) Investments of the proceeds of Borrowed Money under the Indenture in accordance with Borrowers’ investment guidelines that are, to the extent required under Section 7.6 hereunder, subject to Agent’s control pursuant to documentation in form and substance satisfactory to Agent; (d) Cash Equivalents that are subject to Agent’s Lien and control, pursuant to documentation in form and substance satisfactory to Agent; and (e) loans and advances permitted under Section 10.2.6.

 

Secured Bank Product Obligations: Bank Product Debt owing to a Secured Bank Product Provider, up to the maximum amount (in the case of any Secured Bank Product Provider other than Bank of America and its Affiliates) specified by such provider in writing to Agent, which amount may be established or increased (by further written notice to Agent from time to time) as long as no Default or Event of Default exists and no Overadvance would result from establishment of a Bank Product Reserve for such amount and all other Secured Bank Product Obligations; provided that Secured Bank Product Obligations of an Obligor shall not include its Excluded Swap Obligations.

 

Trigger Period: (a) with respect to the Borrowers’ obligation to comply with Section 10.3, the period (i) commencing on the day that an Event of Default occurs, or Availability is less than 15% of the Commitments hereunder at any time, and (ii) continuing until no Event of Default has existed and Availability has been greater than 17.5% of the Commitments hereunder on each day during the preceding 60 consecutive days, and (b) with respect to the Borrowers’ obligation to comply with all other Sections of this Agreement, the period (i) commencing on the day that an Event of Default occurs, or Availability is less than 15% of the Commitments hereunder at any time and (ii) continuing until no Event of Default has existed and Availability has been greater than 17.5% of the Commitments hereunder during the preceding 60 consecutive days, provided that, in any event, Borrowers may not exit a Trigger Period more than two (2) times in any calendar year with respect to clause (a) or more than two (2) times in any calendar year with respect to clause (b).

 

 2.04.  Joint and Several Liability.  Section 5.10.1 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

 

“5.10.1.  Joint and Several Liability.  Each Borrower agrees that it is jointly and severally liable for, and absolutely and unconditionally guarantees to Agent and Lenders the prompt payment and performance of, all Obligations, except its Excluded Swap Obligations.  Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and not of collection, that such obligations shall not be discharged until Full Payment of the Obligations, and that such obligations are absolute and unconditional, irrespective of (a) the genuineness, validity, regularity, enforceability, subordination or any future modification of, or change in, any Obligations or Loan Document, or any other document, instrument or agreement to which any Obligor is or may become a party or be bound; (b) the absence of any action to enforce this Agreement (including this Section) or any other Loan Document, or any waiver, consent or indulgence of any kind by Agent or any Lender with respect thereto; (c) the existence, value or condition of, or failure to perfect a Lien or to preserve rights against, any security or guaranty for any Obligations or any action, or the absence of any action, by Agent or any Lender in respect thereof (including the release of any security or guaranty); (d) the insolvency of any Obligor; (e) any election by Agent or any Lender in an Insolvency Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (f) any borrowing or grant of a Lien by any other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise; (g) the disallowance of any claims of Agent or any Lender against any Obligor for the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (h) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except Full Payment of the Obligations.”

 

 

 2.05.  Extent of Liability; Contribution.  Section 5.10.3 of the Loan Agreement is hereby amended by adding a new clause (d) as follows:

 

“(d)           Each Obligor that is a Qualified ECP when its guaranty of or grant of Lien as security for a Swap Obligation becomes effective hereby jointly and severally, absolutely, unconditionally and irrevocably undertakes to provide such funds or other support to each Specified Obligor with respect to such Swap Obligation as may be needed by such Specified Obligor from time to time to honor all of its obligations under the Loan Documents in respect of such Swap Obligation (but, in each case, only up to the maximum amount of such liability that can be hereby incurred without rendering such Qualified ECP's obligations and undertakings under this Section 5.10 voidable under any applicable fraudulent transfer or conveyance act).  The obligations and undertakings of each Qualified ECP under this Section shall remain in full force and effect until Full Payment of the Obligations.  Each Obligor intends this Section to constitute, and this Section shall be deemed to constitute, a guarantee of the obligations of, and a "keepwell, support or other agreement" for the benefit of, each Obligor for all purposes of the Commodity Exchange Act.”

 

 2.06.  Limitations.  Section 7.5 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

 

“7.5.           Limitations.  The Lien on Collateral granted hereunder is given as security only and shall not subject Agent or any Lender to, or in any way modify, any obligation or liability of Borrowers relating to any Collateral.  In no event shall the grant of any Lien under any Loan Document secure an Excluded Swap Obligation of the granting Obligor.”

 

 2.07.  WorldAkorn Pharma Mauritius.   A new Section 10.1.12 is hereby added to the Loan Agreement to read in its entirety as follows:

 

“10.1.12 WorldAkorn Pharma Mauritius.  By no later than November 4, 2013, with respect to WorldAkorn Pharma Mauritius, a company formed under the laws of Mauritius, obtain and deliver to Agent the certificates representing 65% of the Equity Interests thereof, and an undated stock powers (or appropriate transfer documents) for each such certificate executed in blank by a duly authorized officer of Akorn.”

 

 2.08.  Restrictions on Activity of Akorn, Inc, a Delaware corporation.   A new Section 10.2.19 is hereby added to the Loan Agreement to read in its entirety as follows:

 

“10.2.19 Akorn, Inc, a Delaware Corporation.  Allow, either directly or indirectly, Akorn, Inc, a Delaware corporation (“Akorn Delaware”) to engage in any business activities, hold or receive any assets (including any capital contributions), grant any Liens, or incur any Debt.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(h)   The Agent shall have received a written opinion of Polsinelli, PC, in form and substance satisfactory to the Agent;

 

 

(j)    The Obligors shall have paid to the Agent, in immediately available funds via wire transfer, an amendment closing fee of $60,000;

 

 

 

 

 

 

 

Without limiting the terms and conditions of the Loan Documents, the Obligors jointly and severally agree to pay within three (3) Business Days after Agent’s demand:  (i) all reasonable costs and expenses incurred by Agent in connection with the preparation, negotiation, and execution of this Amendment and the Notes and other Loan Documents executed pursuant to this Amendment, including without limitation, the costs and fees of the Agent’s legal counsel; (ii) all reasonable costs and expenses incurred by Agent in connection with the preparation, negotiation, and execution of any and all subsequent amendments, modifications, and supplements to this Amendment or to the other Loan Documents, including without limitation, the costs and fees of the Agent’s legal counsel; and (iii) all costs and expenses incurred by the Agent in connection with the enforcement or preservation of any rights under the Loan Agreement, this Amendment, and/or the other Loan Documents, including without limitation, the costs and fees of the Agent’s legal counsel.

 

 

 

 7.01.  Cross-References. References in this Amendment to any Section are, unless otherwise specified, to such Section of this Amendment.

 

 7.02.  Instrument Pursuant to Loan Agreement.  This Amendment is a Loan Document executed pursuant to the Loan Agreement and shall (unless otherwise expressly indicated herein) be construed, administered, and applied in accordance with the terms and provisions of the Loan Agreement.

 

 

 

 

 

 

 7.07.  Headings.  The headings, captions, and arrangements used in this Amendment are for convenience only, are not a part of this Amendment, and shall not affect the interpretation hereof.

 

 

 

 

 7.10.  Choice of Law.  THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO FEDERAL LAWS RELATING TO NATIONAL BANKS).

 

 

 

 

[Remainder of Page Intentionally Left Blank]

 

 

 

      IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the day and year first written above.

 

 

 

	AKORN (NEW JERSEY), INC.
	By:	/s/ Timothy Dick
	Name:	Timothy Dick
	Title:	Treasurer

	OAK PHARMACEUTICALS, INC.
	By:	/s/ Timothy Dick
	Name:	Timothy Dick
	Title:	Vice President

	ADVANCED VISION RESEARCH, INC.
	By:	/s/ Timothy Dick
	Name:	Timothy Dick
	Title:	Treasurer

	AKORN OPHTHALMICS, INC.
	By:	/s/ Timothy Dick
	Name:	Timothy Dick
	Title:	Vice President

	AKORN ENTERPRISES, INC.
	By:	/s/ Timothy Dick
	Name:	Timothy Dick
	Title:	Treasurer

	AKORN ANIMAL HEALTH, INC.
	By:	/s/ Timothy Dick
	Name:	Timothy Dick
	Title:	Vice President

 

SCHEDULE 1.1

to

Loan and Security Agreement

 

Lender	Total Commitments
Bank of America, N.A.	$60,000,000

 

 

SUPPLEMENT TO SCHEDULE 9.1.11

to

Loan and Security Agreement

 

See attached.

 

SCHEDULE A

to

Pledge Agreement

 

Pledgor	Issuer and Jurisdiction of its Organization	Class of Equity	Certificate No(s).	Number of Shares/Units	% of Outstanding Equity
AKorn, Inc.	Akorn (New Jersey), Inc. (Illinois)	Common Stock	2	100 Shares	100%
	Oak Pharmaceuticals, Inc. (Delaware)	Common Stock	1	100 Shares	100%
	Advanced Vision Research, Inc. (Delaware)	Common Stock	1	200 Shares	100%
	Akorn-Strides, LLC (Delaware)	Membership Interests	N/A	50% of the Membership Interests	50%
	Akorn Ophthalmics, Inc. (Delaware)	Common Stock	1	100	100%
	Akorn India Private Limited (India)	Shares	N/A	7,059 Shares, 10 Rupees face value each	1%
	Akorn Enterprises, Inc. (Delaware)	Common Stock	1	1,000 Shares	100%
	Akorn Animal Health, Inc. (Delaware)	Common Stock	1	1,000 Shares	100%
	WorldAkorn Pharma Mauritius (Mauritius)	Ordinary	To be confirmed	47,664,617 Shares, $1.00 face value each	65%

 

 

 

See attached.