Item 1.01 Entry into a Material Definitive Agreement.
As previously disclosed,
Akorn, Inc. (the “Company”) and certain current and former Company officers and directors were named defendants
in a putative class action litigation captioned In re Akorn, Inc. Data Integrity Securities Litigation, C.A. No. 18-cv-1713
(N.D. Ill.) (the “Securities Class Action”), filed in the United States District Court for the Northern District
of Illinois (the “Court”). On August 9, 2019, the Company and the other defendants in the Securities Class Action
entered into a Stipulation and Agreement of Settlement (the “Settlement Agreement”) to resolve the Securities
Class Action and the claims of the putative class. On August 26, 2019, the Court, among other things, preliminarily approved the
settlement, subject to final approval at a settlement hearing (the “Settlement Hearing”). At the Settlement
Hearing on March 13, 2020, the Court granted the lead plaintiff’s unopposed motion for final approval of the class action
settlement and plan of allocation, certified a plaintiffs’ class for settlement purposes, found the settlement consideration
fair, reasonable and adequate, and approved lead plaintiff’s application for an award of attorneys’ fees and litigation
expenses. Later on March 13, 2020, the Court entered a final order and judgment.
The terms of the Settlement
Agreement provide for the release of the class claims in exchange for a combination of (i) $27.5 million in insurance proceeds
from the Company’s D&O insurance policies, (ii) the issuance by the Company of approximately 6.5 million shares of the
Company’s common stock, no par value per share, and any additional shares of Company common stock that are released as a
result of the expiration of out of the money options through December 31, 2024 (collectively, the “Settlement Shares”)
and (iii) the issuance by the Company of contingent value rights, which have been designated the “Series A Contingent Value
Rights” (the “CVRs”), with a five year term, subject to an extension of up to two years under certain
circumstances. In accordance with the terms of the Settlement Agreement, a total of 6,713,905 Settlement Shares and a total of
6,713,905 CVRs were issued into separate escrow accounts on April 1, 2020.
The Settlement Shares
and the CVRs were issued pursuant to the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933,
as amended. The Company will submit a Shares Outstanding Change Form to NASDAQ in respect of the issuance of the Settlement Shares.
The Company has made an application to list the CVRs on the NASDAQ Global Select Market. If the listing is approved, the CVRs will
trade under the ticker symbol “AKRXZ”.
CVR Agreement
In connection
with the agreements contemplated by the Settlement Agreement, the Company entered into a Contingent Value Rights Agreement
(the “CVR Agreement”), dated April 1 2020, with American Stock
Transfer & Trust Company, LLC, as trustee. In accordance with the terms of the Settlement Agreement, and pursuant to the
CVR Agreement, holders of the CVRs are entitled to receive an annual cash payment from the Company of 33.3% of “Excess
EBITDA” (defined in the CVR Agreement as earnings before interest, taxes, depreciation and amortization (EBITDA) above
the amount of EBITDA required to meet a 3.0x net leverage ratio, assuming a $100.0 million minimum cash cushion, before any
such CVR payment is triggered). To the extent any such annual payments are triggered under the CVR Agreement, they are
capped at an aggregate of $12.0 million per year and $60.0 million in the aggregate during the term of the CVR Agreement.
Upon certain change
of control transactions during the term of the CVR Agreement, if the Company’s senior debt and other debt for borrowed money
is repaid in full in cash, the CVRs entitle the holders thereof to a cash payment in the aggregate amount of $30.0 million (the
“Change of Control Payment”). If the Company is the subject of a voluntary or involuntary bankruptcy filing
during the term of the CVR Agreement, holders of the CVRs are entitled to receive in the aggregate a $30.0 million general unsecured
claim, which general unsecured claim will be subordinated to the Company’s senior debt in accordance with the terms of the
Settlement Agreement (the “Bankruptcy Claim”). The $60.0 million cap on annual payments does not apply to the
Change of Control Payment, if any, or affect the Bankruptcy Claim, should it arise. No further amounts are payable under the CVR
Agreement following such a change of control transaction or bankruptcy event.
The foregoing description
of the CVR Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full terms of the
CVR Agreement, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.