UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 7, 2003
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AKORN, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 0-13976 72-0717400
(State or other (Commission (IRS Employer
jurisdiction of incorporation) File Number) Identification No.)
2500 MILLBROOK DRIVE
BUFFALO GROVE, ILLINOIS 60089
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 279-6100
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On October 7, 2003, a group of investors (the "Investors") purchased
all of the Company's then outstanding senior bank debt from The Northern Trust
Company and exchanged such debt with the Company (the "Exchange Transaction")
for (i) 257,172 shares of Series A 6.0% Participating Convertible Preferred
Stock ("Preferred Stock") of the Company, (ii) subordinated promissory notes
(the "Notes") issued by the Company to The John N. Kapoor Trust dtd 9/20/89 (the
"Kapoor Trust"), Arjun Waney and Argent Fund Management Ltd. in the aggregate
principal amount of $2,767,139.03, (iii) warrants to purchase an aggregate of
8,572,400 shares of the Company's common stock ("Common Stock") with an exercise
price of $1.00 per share, and (iv) $5,473,862 in cash. The Company also issued
to the holders of the Notes warrants to purchase an aggregate of 276,714 shares
of Common Stock with an exercise price of $1.10 per share.
The Preferred Stock accrues dividends at a rate of 6.0% per annum,
which rate is fully cumulative, accrues daily and compounds quarterly, provided
that in the event stockholder approval authorizing sufficient shares of Common
Stock to be authorized and reserved for conversion of all of the Preferred Stock
and warrants issued in connection with the Exchange Transaction ("Stockholder
Approval") has not been received by October 7, 2004, such rate is to increase to
10.0% until Stockholder Approval has been received and sufficient shares of
Common Stock are authorized and reserved. Subject to certain limitations, on
October 31, 2011, the Company is required to redeem all shares of Preferred
Stock for an amount equal to $100 per share, as may be adjusted from time to
time as set forth in the Articles of Amendment attached as Exhibit 3.1.1 hereto
(the "Stated Value"), plus all accrued but unpaid dividends on such share.
Shares of Preferred Stock have liquidation rights in preference over junior
securities, including the Common Stock, and have certain antidilution
protections. The Preferred Stock is convertible at any time into a number of
shares of Common Stock equal to the quotient obtained by dividing (x) the Stated
Value plus any accrued but unpaid dividends by (y) $0.75, as such numbers may be
adjusted from time to time pursuant to the terms of the Articles of Amendment.
Provided that Stockholder Approval has been received and sufficient shares of
Common Stock are authorized and reserved for conversion, all shares of Preferred
Stock shall convert to shares of Common Stock on the earlier to occur of (i)
October 8, 2006 and (ii) the date on which the closing price per share of Common
Stock for at least 20 consecutive trading days immediately preceding such date
exceeds $4.00 per share.
Holders of Preferred Stock have full voting rights, with each holder
entitled to a number of votes equal to the number of shares of Common Stock into
which its shares can be converted. Holders of Preferred Stock and Common Stock
shall vote together as a single class on all matters submitted to a shareholder
vote, except in cases where a separate vote of the holders of Preferred Stock is
required by law or by the Articles of Amendment attached as Exhibit 3.1.1
hereto. The Articles of Amendment provide that the Company cannot take certain
actions, including (i) issuing additional Preferred Stock or securities senior
to or on par with the Preferred Stock, (ii) amending the Company's Articles of
Incorporation or By-laws to alter the rights of the Preferred Stock, (iii)
effecting a change of control or (iv) effecting a reverse split of the Preferred
Stock, without the approval of the holders of 50.1% of the Preferred Stock.
The Notes accrue interest at a rate of prime plus 1.75% and are due and
payable on April 7, 2006. The warrants issued in connection with the Exchange
Transaction (the "Warrants") are currently exercisable and expire on October 7,
2006.
As part of the Exchange Transaction, the Company and the Investors also
entered into a Registration Rights Agreement (the "Registration Rights
Agreement") pursuant to which the Investors were granted certain registration
rights with respect to the Preferred Stock and Warrants, including three (3)
demand registrations for holders of more than 5,000,000 shares of Common Stock,
incidental or piggy-back registrations upon a registration by the Company on
Form S-1, S-2 or S-3 and shelf registration rights. The Company further agreed
not to enter into any new agreement with more preferential registration rights.
Simultaneously with the consummation of the Exchange Transaction, the
Company entered into a credit agreement with LaSalle Bank providing the Company
with a $7,000,000 term loan and a revolving line of credit of up to $5,000,000
to provide for working capital needs (collectively, the "New Credit Facility")
secured by substantially all of the assets of the Company and its subsidiaries.
The obligations of the Company under the New Credit Facility have been
guaranteed by the Kapoor Trust and Arjun Waney. In exchange for this guaranty,
the Company issued additional warrants to purchase 880,000 and 80,000 shares of
Common Stock to the Kapoor Trust and Arjun Waney, respectively, and has agreed
to issue to each of them, on each anniversary of the date of the consummation of
the Exchange Transaction, warrants to purchase an additional number of shares of
Common Stock equal to 0.08 multiplied by the principal dollar amount of the
Company's indebtedness then guaranteed by them under the New Credit Facility.
The warrants issued in exchange for these guarantees have an exercise price of
$1.10 per share.
This report highlights selected terms of the Exchange Transaction and
may not contain all of the information that is important to you. To understand
the terms of the Preferred Stock, the Notes, the Warrants and the New Credit
Facility fully, you should read carefully the documents filed as exhibits to
this report.
After giving effect to the Exchange Transaction, the Investors hold
approximately 75% of the aggregate voting rights represented by outstanding
shares of Common and Preferred Stock. After giving effect to the Exchange
Transaction and to the exercise of all outstanding conversion rights, warrants
and options to acquire Common Stock, the Investors would hold approximately 77%
of the Common Stock, on a fully-diluted basis. Prior to the Exchange
Transaction, the
Investors held approximately 35% of the outstanding voting securities and would
have held approximately 42% of the Common Stock on a fully-diluted basis. The
following table shows the ownership of the Preferred Stock and Warrants of the
Investors:
INVESTOR NUMBER OF SHARES OF NUMBER OF SHARES OF COMMON NUMBER OF SHARES OF
PREFERRED STOCK STOCK INTO WHICH PREFERRED COMMON STOCK SUBJECT
STOCK WAS CONVERTIBLE AS OF TO WARRANTS
OCTOBER 7, 2003
The John N. Kapoor Trust dtd 107,350 14,313,333 4,670,047(1)
9/20/89
Arjun Waney 20,000 2,666,666 806,667(2)
Gulu Waney 10,000 1,333,333 333,333
Jai Waney 7,000 933,333 233,333
Argent Fund Management Ltd.(3) 2,672 356,266 94,067(4)
Arun K. Puri Living Trust 10,000 1,333,333 333,333
Arthur S. Przybyl 1,050 140,000 35,000
Other Company Employee Investors 1,600 213,332 53,332
All Other Investors 97,500 12,999,996 3,250,001
Total 257,172 34,289,592 9,809,113
(1) Includes Warrants to purchase 1,091,714 shares of Common Stock at $1.10
per share issued in respect of the Notes and a guaranty of indebtedness
under the New Credit Facility.
(2) Includes Warrants to purchase 140,000 shares of Common Stock at $1.10 per
share issued in respect of the Notes and a guaranty of indebtedness under
the New Credit Facility.
(3) Arjun Waney is Chairman and Managing Director of Argent Fund Management
Ltd.
(4) Includes Warrants to purchase 5,000 shares of Common Stock at $1.10 per
share issued in respect of the Notes.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits. The following exhibits are filed with this report:
Exhibit No. Description of Exhibit
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3.1 Composite Articles of Incorporation of the Company
3.1.1 Articles of Amendment to Articles of Incorporation of the
Company
3.2 Amended and Restated By-laws of the Company
4.1 First Amendment dated October 7, 2003 to Registration Rights
Agreement dated July 12, 2001 between the Company and The John
N. Kapoor Trust dtd 9/20/89
4.2 Form of Warrant Certificate
4.3 Form of Warrant Agreement dated October 7, 2003 between the
Company and each of the Investors
4.4 Warrant Agreement dated October 7, 2003 between the Company and
the Kapoor Trust issued with respect to New Credit Facility
guaranty
4.5 Warrant Agreement dated October 7, 2003 between the Company and
Arjun Waney issued with respect to New Credit Facility guaranty
4.6 Warrant Agreement dated October 7, 2003 between the Company and
the Kapoor Trust issued with respect to the Notes
4.7 Warrant Agreement dated October 7, 2003 between the Company and
Arjun Waney issued with respect to the Notes
4.8 Warrant Agreement dated October 7, 2003 between the Company and
Argent Fund Management Ltd. issued with respect to the Notes
4.9 Registration Rights Agreement dated October 7, 2003 among the
Company and each of the Investors
10.1 Credit Agreement dated October 7, 2003 among the Company, Akorn
(New Jersey), Inc., the lenders party thereto and LaSalle Bank
National Association, as Administrative Agent
10.2 Subordinated Promissory Note dated October 7, 2003 issued to
the Kapoor Trust
10.3 Subordinated Promissory Note dated October 7, 2003 issued to
Arjun Waney
10.4 Subordinated Promissory Note dated October 7, 2003 issued to
Argent Fund Management Ltd.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AKORN, INC
/s/ Arthur S. Przybyl
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BY: Arthur S. Przybyl
Chief Executive Officer
Date: October 24, 2003
EXHIBIT INDEX
Exhibit No. Description of Exhibit
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3.1 Composite Articles of Incorporation of the Company
3.1.1 Articles of Amendment to Articles of Incorporation of the
Company
3.2 Amended and Restated By-laws of the Company
4.1 First Amendment dated October 7, 2003 to Registration Rights
Agreement dated July 12, 2001 between the Company and The
John N. Kapoor Trust dtd 9/20/89
4.2 Form of Warrant Certificate
4.3 Form of Warrant Agreement dated October 7, 2003 between the
Company and each of the Investors
4.4 Warrant Agreement dated October 7, 2003 between the Company and
the Kapoor Trust issued with respect to New Credit Facility
guaranty
4.5 Warrant Agreement dated October 7, 2003 between the Company and
Arjun Waney issued with respect to New Credit Facility guaranty
4.6 Warrant Agreement dated October 7, 2003 between the Company and
the Kapoor Trust issued with respect to the Notes
4.7 Warrant Agreement dated October 7, 2003 between the Company and
Arjun Waney issued with respect to the Notes
4.8 Warrant Agreement dated October 7, 2003 between the Company and
Argent Fund Management Ltd. issued with respect to the Notes
4.9 Registration Rights Agreement dated October 7, 2003 among the
Company and each of the Investors
10.1 Credit Agreement dated October 7, 2003 among the Company, Akorn
(New Jersey), Inc., the lenders party thereto and LaSalle Bank
National Association, as Administrative Agent
10.2 Subordinated Promissory Note dated October 7, 2003 issued to
the Kapoor Trust
10.3 Subordinated Promissory Note dated October 7, 2003 issued to
Arjun Waney
10.4 Subordinated Promissory Note dated October 7, 2003 issued to
Argent Fund Management Ltd.