EXHIBIT 10.4
SUBORDINATION AND STANDBY AGREEMENT
WHEREAS, AKORN, INC., a Louisiana corporation (hereinafter, together
with its successors and assigns, called "Akorn"), and AKORN (NEW JERSEY), INC.,
an Illinois corporation ("Akorn NJ"; together with Akorn, the "Borrowers" and
each individually a "Borrower") may from time to time hereafter become indebted
to the undersigned, including, without limitation, indebtedness under
Subordinated Note A and Subordinated Note B referred to below, and the Borrowers
have requested, and may from time to time hereafter request, THE NORTHERN TRUST
COMPANY, an Illinois banking corporation (hereinafter, together with its
successors and assigns, called the "Bank"), 00 Xxxxx XxXxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxx 00000, to make or agree to make loans, advances or other financial
accommodations to the Borrowers pursuant to the terms of the Credit Agreement
(as hereinafter defined); and
WHEREAS, the Borrowers and the Bank are party to that certain Amended
and Restated Credit Agreement dated as of September 15, 1999 (as amended,
restated or supplemented from time to time, the "Credit Agreement"; capitalized
terms not otherwise defined herein shall have the same meanings herein as in the
Credit Agreement); and
WHEREAS, Akorn has incurred an indebtedness to the undersigned in the
principal amount of $3,000,000 pursuant to a Convertible Promissory Note dated
July 12, 2001 ("Subordinated Note A"), a copy of which is attached hereto as
Schedule A; and
WHEREAS, Akorn intends to incur an additional indebtedness to the
undersigned in the principal amount of $2,000,000 pursuant to a second
Convertible Promissory Note ("Subordinated Note B") in the form attached hereto
as Schedule B; and
WHEREAS, the undersigned is a shareholder of Akorn and as such will
benefit from the continued making of loans, advances and other financial
accommodations from the Bank to the Borrowers;
NOW, THEREFORE, to induce the Bank, from time to time, at its option,
to make or agree to make loans, advances or other financial accommodations
(including, without limitation, renewals or extensions of, or forbearances with
respect to, any loans or advances heretofore or hereafter made) to Borrowers,
and for other valuable consideration, receipt whereof is hereby acknowledged,
the undersigned agrees as follows:
1. All obligations of each of the Borrowers, howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent or now
or hereafter existing, or due or to become due, are hereinafter called
"Liabilities". All Liabilities to the Bank (other than any arising solely by
reason of any pledge or assignment made to the Bank pursuant to paragraph 2(c)
hereof) are hereinafter called "Senior Liabilities"; and all Liabilities to the
undersigned, including under Subordinated Note A and Subordinated Note B
(including any that may be pledged or assigned to the Bank pursuant to paragraph
2(c) hereof), are hereinafter called "Junior Liabilities"; it being expressly
understood and agreed that the term "Senior Liabilities", as used herein, shall
include, without limitation, any and all interest accruing on any of the Senior
Liabilities after the commencement of any proceedings referred to in paragraph 4
hereof,
notwithstanding any provision or rule of law which might restrict the rights of
the Bank, as against the Borrowers or anyone else, to collect such interest.
2. The undersigned will, from time to time, (a) promptly notify the
Bank of the creation of any Junior Liabilities, and of the issuance of any
promissory note or other instrument to evidence any Junior Liabilities, (b) upon
request by the Bank, cause any Junior Liabilities which are not evidenced by a
promissory note or other instrument of either of the Borrowers to be so
evidenced, and (c) upon request by the Bank, and as collateral security for all
Senior Liabilities, indorse without recourse, deliver and pledge to the Bank any
or all promissory notes or other instruments evidencing Junior Liabilities, and
otherwise assign to the Bank any or all Junior Liabilities and any or all
security therefor and guaranties thereof, all in a manner satisfactory to the
Bank.
3. Except as the Bank may hereafter otherwise expressly consent in
writing, which consent may be given or withheld by the Bank in its sole and
absolute discretion, the payment of all Junior Liabilities shall be postponed
and subordinated to the payment in full of all Senior Liabilities, and no
payments or other distributions whatsoever in respect of any Junior Liabilities
shall be made by either of the Borrowers, or accepted by the undersigned, nor
shall any property or assets of rather of the Borrowers be applied by them, or
accepted by the undersigned, to or for the purchase or other acquisition or
retirement of any Junior Liabilities.
4. In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar proceedings relating to any
Borrower or its creditors, as such, or to their property (whether voluntary or
involuntary, partial or complete, and whether in bankruptcy, insolvency or
receivership, or upon an assignment for the benefit of creditors, or any other
marshalling of the assets and liabilities of any Borrower, or any sale of all or
substantially all of the assets of any Borrower, or otherwise), the Senior
Liabilities shall first be paid in full before the undersigned shall be entitled
to receive and to retain any payment or distribution in respect of the Junior
Liabilities, and, in order to implement the foregoing, (a) all payments and
distributions of any kind or character in respect of the Junior Liabilities to
which the undersigned would be entitled if the Junior Liabilities were not
subordinated, or subordinated and pledged or assigned, pursuant to this
Agreement shall be made directly to the Bank, (b) the undersigned shall promptly
file a claim or claims, in the form required in such proceedings, for the full
outstanding amount of the Junior Liabilities, and shall cause said claim or
claims to be approved and all payments and other distributions in respect
thereof to be made directly to the Bank, and (c) the undersigned hereby
irrevocably agrees that the Bank may, at its sole discretion, in the name of the
undersigned or otherwise, demand, xxx for, collect, receive and receipt for any
and all such payments or distributions, and file, prove, and vote or consent in
any such proceedings with respect to, any and all claims of the undersigned
relating to the Junior Liabilities.
5. In the event that the undersigned receives any payment or other
distribution of any kind or character from any Borrower or from any other source
whatsoever in respect of any of the Junior Liabilities, other than as expressly
permitted by the terms of this Agreement, such payment or other distribution
shall be received in trust for the Bank and promptly turned over by the
undersigned to the Bank. The undersigned will xxxx its books and records, and
cause the applicable Borrower to xxxx its books and records, so as to clearly
indicate that the Junior Liabilities are subordinated in accordance with the
terms of this Agreement, and will cause to be
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clearly inserted in any promissory note or other instrument which at any time
evidences any of the Junior Liabilities a statement to the effect that the
payment thereof is subordinated in accordance with the terms of this Agreement.
The undersigned will execute such further documents or instruments and take such
further action as the Bank may reasonably from time to time request to carry out
the intent of this Agreement.
6. All payments and distributions received by the Bank in respect of
the Junior Liabilities, to the extent received in or converted into cash, may be
applied by the Bank first to the payment of any and all expenses (including
attorneys fees and legal expenses) paid or incurred by the Bank in enforcing
this Agreement or in endeavoring to collect or realize upon any of the Junior
Liabilities or any security therefor, and any balance thereof shall, solely as
between the undersigned and the Bank, be applied by the Bank, in such order of
application as the Bank may from time to time select, toward the payment of the
Senior Liabilities remaining unpaid; but, as between any Borrower and its
respective creditors, no such payments or distributions of any kind or character
shall be deemed to be payments or distributions in respect of the Senior
Liabilities; and, notwithstanding any such payments or distributions received by
the Bank in respect of the Junior Liabilities and so applied by the Bank toward
the payment of the Senior Liabilities, the undersigned shall be subrogated to
the lien existing rights of the Bank, if any, in respect of the Senior
Liabilities only at such time as this Agreement shall have been discontinued and
the Bank shall have received payment of the full amount of the Senior
Liabilities, as provided for in paragraph 9 hereof.
7. The Undersigned hereby waives: (a) notice of acceptance by the Bank
of this Agreement; (b) notice of the existence or creation or non-payment of all
or any of the Senior Liabilities; and (c) all diligence in collection or
protection of or realization upon the Senior Liabilities or any thereof or any
security therefor.
8. The undersigned will not without the prior written consent of the
Bank: (a) cancel, waive, forgive, transfer or assign, or attempt to enforce or
collect, or subordinate to any Liabilities other than the Senior Liabilities,
any Junior Liabilities or any rights in respect thereof; (b) take any collateral
security for any Junior Liabilities; or (c) commence, or join with any other
creditor in commencing, any bankruptcy, reorganization or insolvency proceedings
with respect to any Borrower.
9. This Agreement shall in all respects be a continuing agreement and
shall remain in full force and effect (notwithstanding, without limitation, the
death, incompetency or dissolution of the undersigned or that at any time or
from time to time all Senior Liabilities may have been paid in full), subject to
discontinuance only upon receipt by the Bank of payment in full of all Senior
Liabilities and termination of any and all commitments by the Bank to extend
credit to either of the Borrowers.
10. The Bank may, from time to time, whether before or after any
discontinuance of this Agreement, at its sole discretion and without notice to
the undersigned, take any or all of the following actions: (a) retain or obtain
a security interest in any property to secure any of the Senior Liabilities, (b)
retain or obtain the primary or secondary obligation of any other obligor or
obligors with respect to any of the Senior Liabilities, (c) extend or renew or
forbear for one or more periods (whether or not longer than the original
period), alter or exchange any of the Senior Liabilities, or release or
compromise any obligation of any nature of any obligor with respect to any of
the Senior
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Liabilities, and (d) release its security interest in, or surrender, release or
permit any substitution or exchange for, all or any part of any property
securing any of the Senior Liabilities, or extend or renew or forbear for one or
more periods (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any obligor with
respect to any such property.
11. The Bank may, from time to time, whether "before or after any
discontinuance of this Agreement, without notice to the undersigned, assign or
transfer any or all of the Senior Liabilities or any interest therein; and,
notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Senior Liabilities shall be and remain Senior Liabilities
for the purposes of this Agreement, and every immediate and successive assignee
or transferee of any of the Senior Liabilities or of any interest therein shall,
to the extent of the interest of such assignee or transferee in the Senior
Liabilities, be entitled to the benefits of this Agreement to the same extent as
if such assignee or transferee were the Bank; provided, however, that, unless
the Bank shall otherwise consent in writing, the Bank shall have an unimpaired
right, prior and superior to that of any such assignee or transferee, to enforce
this Agreement, for the benefit of the Bank, as to those of the Senior
Liabilities which the Bank has not assigned or transferred.
12. The Bank shall not be prejudiced in its rights under this
Agreement by any act or failure to act of any Borrower or the undersigned, or
any noncompliance of any Borrower or the undersigned with any agreement or
obligation, regardless of any knowledge thereof which the Bank may have or with
which the Bank may be charged, and no action of the Bank permitted hereunder
shall in any way affect or impair the rights of the Bank and the obligations of
the undersigned under this Agreement.
13. No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
the Bank of any right or remedy shall preclude other or further exercise thereof
or the exercise of any other right or remedy, nor shall any modification or
waiver of any of the provisions of this Agreement be binding upon the Bank
except as expressly set forth m a writing duly signed and delivered on behalf of
the Bank. For the purposes of this Agreement, Senior Liabilities shall include
all obligations of each of the Borrowers to the Bank, notwithstanding any right
or power of either Borrower or anyone else to assert any claim or defense as to
the invalidity or unenforceability of any such obligation, and no such claim or
defense shall affect or impair the agreements and obligations of the undersigned
hereunder.
14. This Agreement shall be binding upon the undersigned and upon the
heirs, legal representatives, successors and assigns of the undersigned; and, to
the extent that either Borrower or the undersigned is either a partnership or a
corporation, all references herein to such Borrower and to the undersigned,
respectively, shall be deemed to include any successor or successors, whether
immediate or remote, to such partnership or corporation. If more than one party
shall execute this Agreement, the term "undersigned" as used herein shall mean
all parties executing this Agreement and each of them, and all such parties
shall be jointly and severally obligated hereunder.
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15. This Agreement shall be construed in accordance with and governed
by the laws of the State of Illinois. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to the effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
16. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. THE UNDERSIGNED HEREBY ABSOLUTELY AND IRREVOCABLY CONSENTS AND SUBMITS
TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS HAVING SITUS IN XXXX
COUNTY, ILLINOIS OR THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF
ILLINOIS IN CONNECTION WITH ANY SUITS, ACTIONS OR PROCEEDINGS BROUGHT AGAINST
THE UNDERSIGNED BY THE BANK ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE UNDERSIGNED HEREBY
WAIVES AND AGREES NOT TO ASSERT IN SUCH SUIT, ACTION OR PROCEEDING, IN EACH
CASE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (A) THE
UNDERSIGNED IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT; (B)
THE UNDERSIGNED IS IMMUNE FROM SUIT OR ANY LEGAL PROCESS (WHETHER THROUGH
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO IT OR ITS PROPERTY (C) ANY SUCH SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM; (D) THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER; OR (E) THIS AGREEMENT, MAY NOT BE
ENFORCED IN OR BY ANY SUCH COURT. NOTHING CONTAINED HEREIN SHALL AFFECT ANY
RIGHT THAT THE BANK MAY HAVE TO BRING ANY SUIT, ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT AGAINST THE UNDERSIGNED OR ITS PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTION.
[SIGNATURE PAGE(S) AND EXHIBIT(S),
IF ANY, FOLLOW THIS PAGE]
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IN WITNESS WHEREOF, this Agreement has been made and delivered at
Chicago, Illinois as of the 12th day of July, 2001.
THE XXXX X. XXXXXX TRUST
DATED SEPTEMBER 20, 1989
By /s/ Xxxx X. Xxxxxx
------------------------------
Name: Xxxx X. Xxxxxx
Title: Trustee
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ACKNOWLEDGMENT OF SUBORDINATION
The Borrowers each hereby acknowledge receipt of a copy of the
foregoing Subordination and Standby Agreement, waive notice of acceptance
thereof by the Bank, and agree to be bound by the terms and provisions thereof,
to make no payments or distributions contrary to the terms and provisions
thereof, and to do every other act and thing necessary or appropriate to carry
out such terms and provisions. In the event of any violation of any of the terms
and provisions of the foregoing Subordination and Standby Agreement, then, at
the election of the Bank, any and all obligations of each of the Borrowers to
the Bank shall forthwith become due and payable and any and all agreements of
the Bank to make loans, advances or other financial accommodations to the
Borrowers, or to forbear from exercising remedies, shall forthwith terminate,
notwithstanding any provisions thereof to the contrary.
Dated as of July 12, 2001 AKORN, INC.
By: /s/ Xxxxx X. Xxxxxx
----------------------------
Name: Xxxxx X. Xxxxxx
Title: C.F.O.
Dated as of July 12, 2001 AKORN (NEW JERSEY), INC.
By: /s/ Xxxxx X. Xxxxxx
----------------------------
Name: Xxxxx X. Xxxxxx
Title: C.F.O.
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