UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
Commission file number 000-04217
ACETO
CORPORATION
(Exact name of registrant as specified in its charter)
| New York | 11-1720520 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| 4 Tri Harbor Court, Port Washington, NY 11050 | ||
| (Address of principal executive offices) (Zip Code) | ||
(516) 627-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. Check one:
| Large accelerated filer | ¨ | Accelerated filer | x |
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
| Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The registrant had 30,839,470 shares of common stock outstanding as of February 12, 2019.
ACETO CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT FOR THE PERIOD ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
EXPLANATORY NOTE
On February 19, 2019, Aceto Corporation (“the Company”) and certain of our U.S. subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al. (the “Chapter 11 Cases”). All documents filed with the Bankruptcy Court are available for inspection at the Office of the Clerk of the Bankruptcy Court or online at www.primeclerk.com. In connection with the Chapter 11 Cases, the Company will enter into debtor-in-possession financing (the “DIP Credit Agreement”) and has entered into a “stalking horse” agreement (the “Asset Purchase Agreement”) to sell the Pharmaceutical Ingredients and Performance Chemical segments and the Nutritionals portion of the Human Health segment of the Company’s business (the “Chemicals Plus Business”).
For additional information regarding the Chapter 11 Cases, the DIP Credit Agreement and the Asset Purchase Agreement, see Note 12 to the Company’s Condensed Consolidated Financial Statements and see Item 5 Other Information. For a discussion of risk factors relating to the voluntary reorganization filed under chapter 11, see Item 1A Risk Factors. The disclosures in this Quarterly Report on Form 10-Q should be read in the context of the voluntary reorganizations filed under chapter 11.
ACETO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share amounts)
December 31, 2018 | June 30, 2018 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 41,782 | $ | 100,874 | ||||
| Investments | 1,013 | 3,030 | ||||||
| Trade receivables, less allowance for doubtful accounts (December 31, 2018, $965; June 30, 2018, $987) | 262,325 | 247,246 | ||||||
| Other receivables | 7,785 | 9,664 | ||||||
| Inventory | 184,307 | 137,076 | ||||||
| Prepaid expenses and other current assets | 7,475 | 4,737 | ||||||
| Total current assets | 504,687 | 502,627 | ||||||
| Property and equipment, net | 13,267 | 14,180 | ||||||
| Property held for sale | 6,113 | 6,113 | ||||||
| Goodwill | 1,862 | 1,883 | ||||||
| Intangible assets, net | 221,039 | 234,602 | ||||||
| Other assets | 6,191 | 7,619 | ||||||
| TOTAL ASSETS | $ | 753,159 | $ | 767,024 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 183,772 | $ | 14,482 | ||||
| Accounts payable | 132,375 | 106,790 | ||||||
| Accrued expenses | 187,587 | 181,246 | ||||||
| Total current liabilities | 503,734 | 302,518 | ||||||
| Long-term debt, net | 133,349 | 302,916 | ||||||
| Long-term liabilities | 64,033 | 64,558 | ||||||
| Environmental remediation liability | 3 | 211 | ||||||
| Deferred income tax liability | 1,729 | 1,536 | ||||||
| Total liabilities | 702,848 | 671,739 | ||||||
| Commitments and contingencies (Note 7) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, 2,000 shares authorized; no shares issued and outstanding | - | - | ||||||
| Common stock, $.01 par value, 75,000 shares authorized; 30,839 and 30,787 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively | 308 | 308 | ||||||
| Capital in excess of par value | 223,040 | 222,599 | ||||||
| Accumulated deficit | (170,398 | ) | (126,737 | ) | ||||
| Accumulated other comprehensive loss | (2,639 | ) | (885 | ) | ||||
| Total shareholders’ equity | 50,311 | 95,285 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 753,159 | $ | 767,024 | ||||
See accompanying notes to condensed consolidated financial statements and accountants’ review report.
| 2 |
ACETO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per-share amounts)
Six months Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Net sales | $ | 328,054 | $ | 356,484 | ||||
| Cost of sales | 278,528 | 282,531 | ||||||
| Gross profit | 49,526 | 73,953 | ||||||
| Selling, general and administrative expenses | 73,897 | 59,212 | ||||||
| Research and development expenses | 3,995 | 3,737 | ||||||
| Operating (loss) income | (28,366 | ) | 11,004 | |||||
| Other (expense) income: | ||||||||
| Interest expense | (13,707 | ) | (10,403 | ) | ||||
| Interest and other income, net | 1,168 | 1,038 | ||||||
| (12,539 | ) | (9,365 | ) | |||||
| (Loss) income before income taxes | (40,905 | ) | 1,639 | |||||
| Income tax provision | 2,537 | 15,049 | ||||||
| Net loss | $ | (43,442 | ) | $ | (13,410 | ) | ||
| Basic loss per common share | $ | (1.22 | ) | $ | (0.38 | ) | ||
| Diluted loss per common share | $ | (1.22 | ) | $ | (0.38 | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic | 35,540 | 35,093 | ||||||
| Diluted | 35,540 | 35,093 | ||||||
See accompanying notes to condensed consolidated financial statements and accountants’ review report.
| 3 |
ACETO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per-share amounts)
Three months Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Net sales | $ | 163,649 | $ | 171,229 | ||||
| Cost of sales | 139,603 | 137,259 | ||||||
| Gross profit | 24,046 | 33,970 | ||||||
| Selling, general and administrative expenses | 37,000 | 28,063 | ||||||
| Research and development expenses | 2,114 | 2,122 | ||||||
| Operating (loss) income | (15,068 | ) | 3,785 | |||||
| Other (expense) income: | ||||||||
| Interest expense | (7,569 | ) | (5,048 | ) | ||||
| Interest and other income, net | 827 | 764 | ||||||
| (6,742 | ) | (4,284 | ) | |||||
| Loss before income taxes | (21,810 | ) | (499 | ) | ||||
| Income tax provision | 540 | 13,365 | ||||||
| Net loss | $ | (22,350 | ) | $ | (13,864 | ) | ||
| Basic loss per common share | $ | (0.63 | ) | $ | (0.39 | ) | ||
| Diluted loss per common share | $ | (0.63 | ) | $ | (0.39 | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic | 35,592 | 35,210 | ||||||
| Diluted | 35,592 | 35,210 | ||||||
See accompanying notes to condensed consolidated financial statements and accountants’ review report.
| 4 |
ACETO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited and in thousands)
Six months Ended December 31, | Three months Ended December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net loss | $ | (43,442 | ) | $ | (13,410 | ) | $ | (22,350 | ) | $ | (13,864 | ) | ||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation adjustments | (1,050 | ) | 3,226 | (716 | ) | 906 | ||||||||||
| Change in fair value of interest rate swaps | (704 | ) | 982 | (916 | ) | 876 | ||||||||||
| Comprehensive loss | $ | (45,196 | ) | $ | (9,202 | ) | $ | (23,982 | ) | $ | (12,082 | ) | ||||
See accompanying notes to condensed consolidated financial statements and accountants’ review report.
| 5 |
ACETO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
| Six months Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (43,442 | ) | $ | (13,410 | ) | ||
| Adjustments to reconcile net (loss) to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | 16,160 | 16,547 | ||||||
| Amortization of debt issuance costs and debt discount | 3,223 | 3,048 | ||||||
| Amortization of deferred financing costs | 564 | 552 | ||||||
| Provision for doubtful accounts | (11 | ) | 166 | |||||
| Non-cash stock compensation | 454 | 4,514 | ||||||
| Deferred income taxes | 139 | 4,827 | ||||||
| Environmental charge | - | 902 | ||||||
| Earnings on equity investment in joint venture | (1,476 | ) | (1,086 | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Trade accounts receivable | (15,676 | ) | 19,938 | |||||
| Other receivables | 1,177 | (3,145 | ) | |||||
| Inventory | (47,833 | ) | (9,956 | ) | ||||
| Prepaid expenses and other current assets | (2,752 | ) | (472 | ) | ||||
| Other assets | 2,701 | (953 | ) | |||||
| Accounts payable | 25,899 | 16,221 | ||||||
| Accrued expenses and other liabilities | 6,374 | 9,212 | ||||||
| Net cash (used in) provided by operating activities | (54,499 | ) | 46,905 | |||||
| Investing activities: | ||||||||
| Purchases of investments | (660 | ) | (2,683 | ) | ||||
| Sales of investments | 2,664 | 1,694 | ||||||
| Payments for intangible assets | (1,326 | ) | (692 | ) | ||||
| Purchases of property and equipment, net | (498 | ) | (3,041 | ) | ||||
| Net cash provided by (used in) investing activities | 180 | (4,722 | ) | |||||
| Financing activities: | ||||||||
| Payment of cash dividends | (306 | ) | (3,929 | ) | ||||
| Proceeds from exercise of stock options | - | 595 | ||||||
| Repayment of bank loans | (3,865 | ) | (30,582 | ) | ||||
| Net cash used in financing activities | (4,171 | ) | (33,916 | ) | ||||
| Effect of exchange rate changes on cash | (602 | ) | 983 | |||||
| Net (decrease) increase in cash | (59,092 | ) | 9,250 | |||||
| Cash and cash equivalents at beginning of period | 100,874 | 55,680 | ||||||
| Cash and cash equivalents at end of period | $ | 41,782 | $ | 64,930 | ||||
See accompanying notes to condensed consolidated financial statements and accountants’ review report.
| 6 |
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
(1) Basis of Presentation and Going Concern
Basis of Presentation
The condensed consolidated financial statements of Aceto Corporation and subsidiaries (“Aceto” or the “Company”) included herein have been prepared by the Company and reflect all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented. Interim results are not necessarily indicative of results which may be achieved for the full year.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements and the disclosure of contingent assets and liabilities at the date of the financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. The Company’s most critical accounting policies relate to revenue recognition; allowance for doubtful accounts; inventory; goodwill and other indefinite-life intangible assets; long-lived assets; environmental matters and other contingencies; income taxes; stock-based compensation; and purchase price allocation.
These condensed consolidated financial statements do not include all disclosures associated with consolidated financial statements prepared in accordance with GAAP. Accordingly, these statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended June 30, 2018.
Going Concern Consideration
As indicated in the accompanying interim unaudited condensed consolidated financial statements, the Company had working capital at December 31, 2018 of $953 as compared with $200,109 at June 30, 2018. As more fully discussed in Note 6, the maturity date of the bank loans was revised from December 21, 2021 to June 30, 2019, resulting in the classification of the indebtedness outstanding under the Company’s credit facility as a current liability as of December 31, 2018. The Company has accumulated deficit and continued operating losses. The Company also continues to spend heavily on financial and legal professionals retained by the Company to deal with ongoing negative factors in the generic drug market and pending legal proceedings. As a result, the Company’s cash position declined from $100,874 at June 30, 2018 to $41,782 at December 31, 2018 and its working capital declined from $200,109 at June 30, 2018 to $953 at December 31, 2018. While the Company’s operating businesses continue to generate cash, the current demands upon the Company and its liquidity remain significant. These factors, among others, indicate that the Company will need to be reliant upon its previously announced strategic alternatives initiative to supplement its cash, liquid assets and operating cash flows, and to retire debt. Accordingly, because the Company cannot at this time conclude that these actions are probable of occurring, under applicable accounting standards and because of the high degree of uncertainty and dependence upon factors outside of our control associated with the Bankruptcy Filing described below, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern. These Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of certain liabilities and other commitments in the normal course of business. The accompanying Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.
On February 19, 2019, the Company and certain of its U.S. subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al. (the “Chapter 11 Case”).
For the duration of the Chapter 11 Cases, our operations are subject to risks and uncertainties associated with chapter 11 proceedings. As a result of these risks and uncertainties, our assets, liabilities, shareholders’ equity, officers and/or directors could be significantly different following the conclusion of the Chapter 11 Cases, and the description of our operations, properties and capital plans included in this quarterly report on Form 10-Q may not reflect our actual operations, properties and capital plans following the conclusion of the Chapter 11 Cases.
We intend to sell substantially all of our assets pursuant to one or more sales under Section 363 of the Bankruptcy Code. If we are unable to complete one or more sales of the Company’s assets, it may be necessary to explore a plan of reorganization or liquidation or our Chapter 11 Cases may be converted to a chapter 7 liquidation process.
(2) Revenue Recognition
The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) for all contracts in the first quarter of fiscal 2019 on a modified retrospective basis. The adoption of Topic 606 had no cumulative impact on the Company’s results of operations, cash flows or financial position. The amounts reported in these condensed consolidated financial statements were the same as the amounts would have been if the previous accounting guidance was in effect. As part of the adoption of this ASU, the Company completed its comprehensive evaluation of the amended guidance following the five-step model, including identification of revenue streams and determined that the timing of recognition of revenue is unchanged under the amended guidance.
All revenue recognized in the accompanying unaudited interim condensed consolidated financial statements of operations is considered to be revenue from contracts with customers. The Company recognizes revenue from product sales at the time of shipment and upon the transfer of control of the Company’s product. The Company has no acceptance or other post-shipment obligations and does not offer product warranties or services to its customers. The Company generally does not have incremental costs to obtain contracts that would otherwise not have been incurred. Payment terms can vary by the type and location of the customer. The term between invoicing and when payment is due is typically 30 to 90 days.
| 7 |
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
The following tables show the Company’s revenues disaggregated by business segment and product lines offered to customers:
| Six months ended December 31, 2018 | ||||||||||||||||
| Pharmaceutical | Performance | Consolidated | ||||||||||||||
| Human Health | Ingredients | Chemicals | Totals | |||||||||||||
| Finished dosage from generic drugs | $ | 142,876 | $ | - | $ | - | $ | 142,876 | ||||||||
| Nutraceutical products | 22,951 | - | - | 22,951 | ||||||||||||
| Pharmaceutical intermediates | - | 22,754 | - | 22,754 | ||||||||||||
| Active pharmaceutical ingredients (APIs) | - | 58,136 | - | 58,136 | ||||||||||||
| Specialty chemicals | - | - | 67,803 | 67,803 | ||||||||||||
| Agricultural protection products | - | - | 13,534 | 13,534 | ||||||||||||
| $ | 165,827 | $ | 80,890 | $ | 81,337 | $ | 328,054 | |||||||||
| Six months ended December 31, 2017 | ||||||||||||||||
| Pharmaceutical | Performance | Consolidated | ||||||||||||||
| Human Health | Ingredients | Chemicals | Totals | |||||||||||||
| Finished dosage from generic drugs | $ | 186,322 | $ | - | $ | - | $ | 186,322 | ||||||||
| Nutraceutical products | 23,159 | - | - | 23,159 | ||||||||||||
| Pharmaceutical intermediates | - | 19,975 | - | 19,975 | ||||||||||||
| Active pharmaceutical ingredients (APIs) | - | 50,230 | - | 50,230 | ||||||||||||
| Specialty chemicals | - | - | 64,553 | 64,553 | ||||||||||||
| Agricultural protection products | - | - | 12,245 | 12,245 | ||||||||||||
| $ | 209,481 | $ | 70,205 | $ | 76,798 | $ | 356,484 | |||||||||
| Three months ended December 31, 2018 | ||||||||||||||||
| Pharmaceutical | Performance | Consolidated | ||||||||||||||
| Human Health | Ingredients | Chemicals | Totals | |||||||||||||
| Finished dosage from generic drugs | $ | 73,663 | $ | - | $ | - | $ | 73,663 | ||||||||
| Nutraceutical products | 11,318 | - | - | 11,318 | ||||||||||||
| Pharmaceutical intermediates | - | 12,532 | - | 12,532 | ||||||||||||
| Active pharmaceutical ingredients (APIs) | - | 29,510 | - | 29,510 | ||||||||||||
| Specialty chemicals | - | - | 31,582 | 31,582 | ||||||||||||
| Agricultural protection products | - | - | 5,044 | 5,044 | ||||||||||||
| $ | 84,981 | $ | 42,042 | $ | 36,626 | $ | 163,649 | |||||||||
| 8 |
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
| Three months ended December 31, 2017 | ||||||||||||||||
| Pharmaceutical | Performance | Consolidated | ||||||||||||||
| Human Health | Ingredients | Chemicals | Totals | |||||||||||||
| Finished dosage from generic drugs | $ | 90,761 | $ | - | $ | - | $ | 90,761 | ||||||||
| Nutraceutical products | 12,705 | - | - | 12,705 | ||||||||||||
| Pharmaceutical intermediates | - | 9,839 | - | 9,839 | ||||||||||||
| Active pharmaceutical ingredients (APIs) | - | 23,790 | - | 23,790 | ||||||||||||
| Specialty chemicals | - | - | 30,533 | 30,533 | ||||||||||||
| Agricultural protection products | - | - | 3,601 | 3,601 | ||||||||||||
| $ | 103,466 | $ | 33,629 | $ | 34,134 | $ | 171,229 | |||||||||
Variable Consideration
The Company has arrangements with various third parties, such as drug store chains and managed care organizations, establishing prices for its finished dosage form generics. While these arrangements are made between Aceto and its customers, the customers independently select a wholesaler from which they purchase the products. Alternatively, certain wholesalers may enter into agreements with the customers, with the Company’s concurrence, which establishes the pricing for certain products which the wholesalers provide. Upon each sale of finished dosage form generics, significant estimates of chargebacks, rebates, returns, government reimbursed rebates, sales discounts and other adjustments are made. These estimates are accounted for as variable consideration and are recorded as reductions to gross revenues, with corresponding adjustments either as a reduction of accounts receivable or as a liability for price concessions.
The Company estimates variable consideration after considering applicable information that is reasonably available. These estimates are based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers, and other factors known to management at the time of accrual. The consideration the Company receives in exchange for its goods is only recognized when it is probable that a significant reversal will not occur.
Chargebacks
Under certain arrangements, Rising will issue a credit (referred to as a “chargeback”) to the wholesaler for the difference between the invoice price to the wholesaler and the customer’s contract price. In order to calculate the chargeback allowance, prior period chargebacks claimed by wholesalers are analyzed to determine the average chargeback amount for each product and wholesaler. These amounts are adjusted for any information that will better reflect future average chargeback amounts. Management receives on-hand inventory reports from wholesalers to which the average chargeback amount is applied. The provision for chargebacks varies in relation to changes in sales volume, product and customer mix, terms with customers, pricing, changes in Wholesale Acquisition Cost (“WAC”), the level of inventory at the wholesalers, and changes in the volume of off-contract purchases. As sales to the large wholesale customers increase or decrease, the liability for chargebacks will also generally increase or decrease. The Company continually monitors the liability for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback liability.
Returns
The Company maintains a policy that allows customers to return product within a specified period prior to and subsequent to the product expiration date. Product returns are settled through a credit issued to the customer. The Company estimates its provision for returns of finished dosage generics based on historical experience, product expiration dates, changes to business practices, credit terms, new competition, shortages in the market and any extenuating circumstances known to management. While historical experience has allowed for reasonable estimations in the past, future returns may or may not follow historical trends. Generally, the liability for returns increases as net sales increase. The Company continually monitors the liability for returns and makes adjustments when management believes that actual product returns may differ from the established liability.
| 9 |
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
Sales of nutraceutical products, pharmaceutical active ingredients and intermediates, specialty performance chemicals, including agricultural intermediates and agricultural protection products are recorded net of estimated returns of damaged goods from customers, which historically have been immaterial.
Government Rebates
Government rebates relate to our reimbursement arrangements with state and federal government agencies. Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by plan participants. The Company provides a provision for government reimbursed rebates at the time of sale based on historical redemption rates. Government rebate amounts per product unit for generic products are established by law, based on the Average Manufacturer Price (“AMP”), which is reported on a monthly and quarterly basis. Aceto regularly reviews the information related to these estimates and adjusts the provision accordingly.
Non-Governmental Rebates & Other
Other rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote customer loyalty and increase product sales. These rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other promotional programs are incentive programs offered to the customers. These rebates and other promotional programs vary by product and by volume purchase by each eligible customer. The Company provides a provision for other rebates at the time of sale based on contracted rates, actual product sales data and historical redemption rates. Aceto regularly reviews the information related to these estimates and adjusts the provision accordingly.
Sales of nutraceutical products, pharmaceutical active ingredients and intermediates, specialty performance chemicals, including agricultural intermediates and agricultural protection products are recorded net of sales incentives which include volume incentive rebates. The Company records volume incentive rebates based on the underlying revenue transactions that result in progress by the customer in earning the rebate.
Sales Discounts
Sales discount accruals are based on payment terms extended to customers purchasing our finished dosage form generic products. The sales discount liability is based on the invoices outstanding at period end and the sales discount rate.
The following table summarizes activity in the consolidated balance sheet for contra assets and liability for price concessions for the six months ended December 31, 2018:
| Accruals for Chargebacks, Rebates, Returns and Other Allowances | ||||||||||||||||||||
| Government | Non-Governmental | Sales | ||||||||||||||||||
| Chargebacks | Returns | Reimbursed Rebates | Rebates & Other | Discounts | ||||||||||||||||
| Balance at June 30, 2018 | $ | 66,687 | $ | 41,511 | $ | 9,658 | $ | 86,259 | $ | 6,408 | ||||||||||
| Current period provision | 344,813 | 8,949 | 7,562 | 83,023 | 14,541 | |||||||||||||||
| Credits issued during the period | (346,117 | ) | (4,824 | ) | (4,227 | ) | (85,254 | ) | (14,857 | ) | ||||||||||
| Balance at December 31, 2018 | $ | 65,383 | $ | 45,636 | $ | 12,993 | $ | 84,028 | $ | 6,092 | ||||||||||
| 10 |
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
Credits issued during a given period represent cash payments or credit memos issued to the Company’s customers as settlement for the related liability. Management has the experience and access to relevant information that it believes is necessary to reasonably estimate the amounts of such deductions from gross revenues. The Company regularly reviews the information related to these estimates and adjusts its liabilities accordingly, if and when actual experience differs from previous estimates. The Company has not experienced any significant changes in its estimates as it relates to its chargebacks, rebates, sales discounts or product returns for the periods presented.
(3) Stock-Based Compensation
Under the Aceto Corporation 2015 Equity Participation Plan (the “2015 Plan”), grants of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards (“Stock Awards”) may be offered to employees, non-employee directors, consultants and advisors of the Company, including the chief executive officer, chief financial officer and other named executive officers. The maximum number of shares of common stock of the Company that may be issued pursuant to Stock Awards granted under the 2015 Plan will not exceed, in the aggregate, 4,250 shares. Stock Awards that are intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, may be granted. Performance-based awards may be granted, vested and paid based on the attainment of specified performance goals.
Under the Aceto Corporation 2010 Equity Participation Plan (as amended and restated in 2012, the “2010 Plan”), grants of stock options, restricted stock, restricted stock units, stock appreciation rights, and stock bonuses may be made to employees, non-employee directors and consultants of the Company. The maximum number of shares of common stock of the Company that may be issued pursuant to awards granted under the 2010 Plan will not exceed, in the aggregate, 5,250 shares. In addition, restricted stock may be granted to an eligible participant in lieu of a portion of any annual cash bonus earned by such participant. Such award may include additional shares of restricted stock (premium shares) greater than the portion of bonus paid in restricted stock. The restricted stock award is vested at issuance and the restrictions lapse ratably over a period of years as determined by the Board of Directors, generally three years. The premium shares vest when all the restrictions lapse, provided that the participant remains employed by the Company at that time.
During the six months ended December 31, 2018, the Company granted 82 shares of restricted common stock to its employees that vest over three years. During the six months ended December 31, 2017, the Company granted 424 shares of restricted common stock to its employees that vest over three years and 27 shares of restricted stock to its non-employee directors, which vest over approximately one year. In addition, the Company also issued a target grant of 203 performance-vested restricted stock units, which grant could be as much as 355 units if certain performance criteria and market conditions are met. These performance-vested restricted stock units will cliff vest 100% at the end of the third year following grant in accordance with the performance metrics set forth in the applicable employee performance-vested restricted stock unit grant.
For the three and six months ended December 31, 2018, the Company recorded stock-based compensation expense of approximately $462 and $438, respectively, related to restricted common stock and restricted stock units. For the three and six months ended December 31, 2017, the Company recorded stock-based compensation expense of approximately $1,363 and $4,495, respectively, related to restricted common stock and restricted stock units. Included in the $4,495 for the six months ended December 31, 2017 is $2,017 in stock-based compensation expense associated with the separation of the Company’s former Chief Executive Officer in September 2017. As of December 31, 2018, the total unrecognized stock-based compensation cost is approximately $3,044.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
(4) Capital Stock
On November 2, 2018, the Board approved the adoption of a Tax Asset Protection Plan and on November 5, 2018, the Company entered into a Tax Asset Protection Rights Agreement (the “Rights Agreement”), between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agent”). The purpose of the Rights Agreement is to help preserve the Company’s ability to utilize its significant tax benefits. On November 5, 2018, in connection with the entry into the Rights Agreement, the Board authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each share of Common Stock outstanding as of the close of business on November 15, 2018 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth (subject to adjustment) of a share of Series A Participating Cumulative Preferred Stock, par value $2.50 per share (each, a “Series A Preferred Share” and collectively, the “Series A Preferred Shares”), of the Company at a price of $10.85 (as the same may be adjusted, the “Purchase Price”), and upon the terms and conditions set forth in the Rights Agreement.
The Rights become exercisable upon (i) a shareholder acquiring beneficial ownership of 4.99% or more of the outstanding shares of the Company’s common stock without prior approval of the Board, or (ii) a shareholder who already beneficially owns 4.99% or more of the outstanding shares of the Company’s common stock increasing its beneficial ownership by more than 0.5%. The Rights Agreement and the related Rights expire on November 5, 2020, or earlier upon the occurrence of certain other circumstances specified in the Rights Agreement. The Company intends to submit the Rights Agreement to a vote of its shareholders at the Company’s next annual meeting. For more information, please see the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2018.
On September 6, 2018, the Company's board of directors declared a regular quarterly dividend of $.01 per share which was distributed on October 9, 2018 to shareholders of record as of September 24, 2018.
On May 4, 2017, the Board of Directors of the Company authorized the continuation of the Company’s stock repurchase program, expiring in May 2020. Under the stock repurchase program, the Company is authorized to purchase up to 5,000 shares of common stock in open market or private transactions, at prices not to exceed the market value of the common stock at the time of such purchase. The Company did not repurchase shares in the three or six months ended December 31, 2018 or in fiscal year 2018.
The Company is authorized to issue 75,000 shares of Common Stock and 2,000 shares of Preferred Stock. The Board of Directors has authority under the Company’s Restated Certificate of Incorporation to issue shares of preferred stock with voting and other relative rights to be determined by the Board of Directors.
(5) Net Income Per Common Share
Basic income per common share is based on the weighted average number of common shares outstanding during the period. Diluted income per common share includes the dilutive effect of potential common shares outstanding. The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:
Six Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Weighted average shares outstanding | 35,540 | 35,093 | 35,592 | 35,210 | ||||||||||||
| Dilutive effect of stock options and restricted stock awards and units | - | - | - | - | ||||||||||||
| Diluted weighted average shares outstanding | 35,540 | 35,093 | 35,592 | 35,210 | ||||||||||||
The effect of approximately 6 and 20 common equivalent shares for the three and six months ended December 31, 2018, respectively, was excluded from the diluted weighted average shares outstanding due to a net loss for the periods. The effect of approximately 158 and 221 common equivalent shares for the three and six months ended December 31, 2017, respectively, was excluded from the diluted weighted average shares outstanding due to a net loss for the periods.
There were 2,024 and 1,598 common equivalent shares outstanding for the three and six months ended December 31, 2018, respectively, that were not included in the calculation of diluted net income per common share because their effect would have been anti-dilutive. There were 197 and 129 common equivalent shares outstanding for the three and six months ended December 31, 2017, respectively, that were not included in the calculation of diluted net income per common share because their effect would have been anti-dilutive.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
The weighted average shares outstanding for the three and six months ended December 31, 2018 and 2017 includes the effect of 5,122 shares to be issued in connection with the acquisition of certain products and related assets from Citron and Lucid. The Convertible Senior Notes (see Note 6) will only be included in the dilutive net income per share calculations using the treasury stock method during periods in which the average market price of Aceto’s common stock is above the applicable conversion price of the Convertible Senior Notes, or $33.215 per share, and the impact would not be anti-dilutive.
(6) Debt
Long-term debt
December 31, 2018 | June 30, 2018 | |||||||
| Convertible Senior Notes, net | $ | 131,080 | $ | 127,857 | ||||
| Revolving Bank Loans | 62,000 | 62,000 | ||||||
| Term Bank Loans | 121,574 | 124,959 | ||||||
| Mortgage | 2,467 | 2,582 | ||||||
| 317,121 | 317,398 | |||||||
| Less current portion | 183,772 | 14,482 | ||||||
| $ | 133,349 | $ | 302,916 | |||||
Convertible Senior Notes
In November 2015, Aceto offered $125,000 aggregate principal amount of Convertible Senior Notes due 2020 (the "Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In addition, Aceto granted the initial purchasers for the offering an option to purchase up to an additional $18,750 aggregate principal amount pursuant to the initial purchasers’ option to purchase additional Notes, which was exercised in November 2015. Therefore, the total offering was $143,750 aggregate principal amount. The Notes are unsecured obligations of Aceto and rank senior in right of payment to any of Aceto’s subordinated indebtedness, equal in right of payment to all of Aceto’s unsecured indebtedness that is not subordinated, effectively junior in right of payment to any of Aceto’s secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally junior in right of payment to all indebtedness and other liabilities (including trade payables) of Aceto’s subsidiaries. The Notes will be convertible into cash, shares of Aceto common stock or a combination thereof, at Aceto’s election, upon the satisfaction of specified conditions and during certain periods. The Notes will mature in November 2020. The Notes pay 2.0% interest semi-annually in arrears on May 1 and November 1 of each year, which commenced on May 1, 2016. The Notes are convertible into 4,328 shares of common stock, based on an initial conversion price of $33.215 per share.
Holders may convert all or any portion of their notes, in multiples of one thousand dollar principal amount, at their option at any time prior to the close of business on the business day immediately preceding May 1, 2020 only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the five consecutive business day period after any five consecutive trading day period (which is referred to as the “measurement period”) in which the trading price per one thousand dollar principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Aceto’s common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion option, the Company separately accounted for the value of the embedded conversion option as a debt discount (with an offset to capital in excess of par value). The debt discount is being amortized as additional non-cash interest expense using the effective interest method over the term of the Notes. Debt issuance costs are being amortized as additional non-cash interest expense. The Company presents debt issuance costs as a direct deduction from the carrying value of the debt liability rather than showing the debt issuance costs as a deferred charge on the balance sheet.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
In connection with the offering of the Notes, Aceto entered into privately negotiated convertible note hedge transactions with option counterparties, which are affiliates of certain of the initial purchasers. The convertible note hedge transactions are expected generally to reduce the potential dilution to Aceto’s common stock and/or offset any cash payments Aceto is required to make in excess of the principal amount of converted Notes upon any conversion of Notes. Aceto also entered into privately negotiated warrant transactions with the option counterparties. The warrant transactions could separately have a dilutive effect to the extent that the market price per share of Aceto’s common stock as measured over the applicable valuation period at the maturity of the warrants exceeds the applicable strike price of the warrants. By entering into these transactions with the option counterparties, the Company issued convertible debt and a freestanding “call-spread.”
The carrying value of the Notes is as follows:
December 31, 2018 | June 30, 2018 | |||||||
| Principal amount | $ | 143,750 | $ | 143,750 | ||||
| Unamortized debt discount | (11,104 | ) | (13,909 | ) | ||||
| Unamortized debt issuance costs | (1,566 | ) | (1,984 | ) | ||||
| Net carrying value | $ | 131,080 | $ | 127,857 | ||||
The following table sets forth the components of total “interest expense” related to the Notes recognized in the accompanying condensed consolidated statements of operations for the three and six months ended December 31:
Six Months Ended December 31, 2018 | Three Months Ended December 31, 2018 | |||||||
| Contractual coupon | $ | 1,378 | $ | 708 | ||||
| Amortization of debt discount | 2,805 | 1,414 | ||||||
| Amortization of debt issuance costs | 418 | 209 | ||||||
| $ | 4,601 | $ | 2,331 | |||||
Credit Facilities
On December 21, 2016 the Company entered into a Second Amended and Restated Credit Agreement (the “A&R Credit Agreement”), with eleven banks, which amended and restated in its entirety the Amended and Restated Credit Agreement, dated as of October 28, 2015, as amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of November 10, 2015, and Amendment No. 2 to Amended and Restated Credit Agreement, dated as of August 26, 2016 (collectively, the “First Amended Credit Agreement”). The A&R Credit Agreement increased the aggregate available revolving commitment under the First Amended Credit Agreement from $150,000 to an initial aggregate available revolving commitment of $225,000 (the “Initial Revolving Commitment”). Under the A&R Credit Agreement, the Company was permitted to borrow, repay and reborrow from and as of December 21, 2016, to but excluding December 21, 2021 (the “Maturity Date”) provided, that if any of the Notes remain outstanding on the date that is 91 days prior to the maturity date of the Notes (the “2015 Convertible Maturity Date”), then the Maturity Date shall mean the date that is 91 days prior to the 2015 Convertible Maturity Date. The A&R Credit Agreement provides for (i) Eurodollar Loans (as such terms are defined in the A&R Credit Agreement), (ii) ABR Loans (as such terms are defined in the A&R Credit Agreement), or (iii) a combination thereof. As of December 31, 2018, the principal balance on the outstanding Revolving Loans (as defined under the A&R Credit Agreement) aggregated $62,000, which loans are Eurodollar Loans at interest rates ranging from 9.51% to 9.76% at December 31, 2018. The applicable interest rate margin percentage is subject to adjustment quarterly based upon the Company’s senior secured net leverage ratio.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
Under the A&R Credit Agreement, the Company also borrowed $150,000 in term loans (the “Initial Term Loan). Subject to certain conditions, including obtaining commitments from existing or prospective lenders, the Company had the right to increase the amount of the Initial Revolving Commitment (each, a “Revolving Facility Increase” and, together with the Initial Revolving Commitment, the “Revolving Commitment”) and/or the Initial Term Loan in an aggregate amount not to exceed $100,000 pursuant to an incremental loan feature in the A&R Credit Agreement. As of December 31, 2018, the remaining principal amount outstanding under the Initial Term Loan was $123,750 and was payable as a Eurodollar Loan at an interest rate of 9.39%. The proceeds of the Initial Revolving Commitment and Initial Term Loan were used to partially finance the acquisition of generic products and related assets of Citron and its affiliate Lucid, and to pay fees and expenses related thereto. The applicable interest rate margin percentage is subject to adjustment quarterly based upon the Company’s senior secured net leverage ratio.
The Initial Term Loan is payable as to principal in nineteen consecutive, equal quarterly installments of $3,750, which commenced on March 31, 2017 and will continue on each March 31, June 30, September 30 and December 31 thereafter. To the extent not previously paid, the final payment on the Term Loan Maturity Date (as defined in the A&R Credit Agreement) shall be in an amount equal to the then outstanding unpaid principal amount of the Initial Term Loan.
The A&R Credit Agreement provides that commercial letters of credit shall be issued to provide the primary payment mechanism in connection with the purchase of any materials, goods or services in the ordinary course of business. The Company had no open letters of credit at December 31, 2018 and June 30, 2018.
In accordance with generally accepted accounting principles, deferred financing costs associated with the Initial Term Loan are presented as a direct deduction from the carrying value of the debt liability rather than showing the deferred financing costs as a deferred charge on the balance sheet. In addition, deferred financing costs associated with the Revolving Commitment have been recorded as a deferred charge on the balance sheet.
The A&R Credit Agreement provides for a security interest in substantially all of the personal property of the Company and certain of its subsidiaries. The A&R Credit Agreement contains several financial covenants including, among other things, maintaining a minimum level of debt service and certain leverage ratios. Under the A&R Credit Agreement, the Company and its subsidiaries are also subject to certain restrictive covenants, including, among other things, covenants governing liens, limitations on indebtedness, limitations on guarantees, limitations on sales of assets and sales of receivables, and limitations on loans and investments.
On December 13, 2017, the Company entered into a First Amendment to the Second Amended and Restated Credit Agreement (the “2017 Amendment”), which amended the A&R Credit Agreement. The 2017 Amendment, among other things, contained several amendments to the financial covenants in the A&R Credit Agreement.
On May 3, 2018, the Company entered into a Second Amendment and Waiver to the Second Amended and Restated Credit Agreement (the “May 2018 Amendment”). The May 2018 Amendment, among other things, contained a waiver of any event of default under the A&R Credit Agreement arising as a result of the non-compliance by the Company with Total Net Leverage Ratio and Debt Service Coverage Ratio financial covenants, in each case, solely for the fiscal quarter ended March 31, 2018. The May 2018 Amendment also contained several amendments to the A&R Credit Agreement including, among other things, reducing the available revolving commitment thereunder to $100,000, fixing the applicable margin on Loans (as defined in the A&R Credit Agreement) to the highest level provided under the A&R Credit Agreement at the time, fixing the commitment fee on the undrawn revolving commitments to the highest level provided under the A&R Credit Agreement at the time, requiring prior written consent of the Required Lenders (as defined in the A&R Credit Agreement) as a condition precedent to the lenders making any additional Revolving Loans or the issuing banks issuing, amending, renewing or extending any Letter of Credit (as defined in the A&R Credit Agreement), restricting dividends or distributions the Company may make to its shareholders to no more than $0.01 per share for the fiscal quarter ending on June 30, 2018 and restricting dividends or distributions thereafter, restricting the incurrence of certain indebtedness, limiting acquisitions and other investments and imposing certain other restrictions.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
As of June 30, 2018, the Company was not in compliance with its financial covenants relating to its Total Net Leverage Ratio, Senior Secured Net Leverage Ratio and Debt Service Coverage Ratio. The Company and its lenders agreed upon another amendment and waiver to the A&R Credit Agreement (referred to herein as the “September 2018 Amendment”). The September 2018 Amendment provided for a waiver of any event of default under the A&R Credit Agreement arising as a result of the non-compliance by the Company with the Total Net Leverage Ratio, Senior Secured Net Leverage Ratio and Debt Service Coverage Ratio financial covenants, in each case, solely for the fiscal quarters ended or ending June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019. The September 2018 Amendment also contains several amendments to the A&R Credit Agreement including, among other things, (a) a limitation on dividends for the fiscal quarters ending September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, to an amount not to exceed $325 for any fiscal quarter, (b) increasing the applicable margin with respect to the interest rates on all Loans by 450 basis points and fixing (during the September 2018 Amendment Limitation Period (as hereinafter defined)) the applicable margin with respect to the interest rate on all Loans to the highest level provided under the A&R Credit Agreement which is currently 6.00% in the case of ABR Loans and 7.00% in the case of Eurodollar Loans, (c) during the period commencing on the closing of the September 2018 Amendment and ending on the date the Company demonstrates compliance with each financial covenant set forth in the A&R Credit Agreement for the fiscal quarter ending September 30, 2019 (referred to herein as the “September 2018 Amendment Limitation Period”; provided that if the Company is not in compliance with any of the financial covenants set forth in the A&R Credit Agreement for the fiscal quarter ending September 30, 2019, then the September 2018 Amendment Limitation Period shall continue indefinitely), requiring the Company to maintain the sum of Domestic Liquidity (as defined in the A&R Credit Agreement) plus Foreign Liquidity (as defined in the A&R Credit Agreement) and the undrawn portion of the Revolving Commitment (referred to herein as “Covenant Liquidity”) to an amount of at least $55,000 (the “Covenant Liquidity Amount”) as of the last business day of each week following the effectiveness of the September 2018 Amendment; provided that the Company shall not be in breach of the minimum liquidity covenant unless the Covenant Liquidity is less than the Covenant Liquidity Amount as of the last business day of two consecutive weeks, (d) requiring the prior written consent of the Required Lenders as a condition precedent to the lenders extending any Loans or the issuing banks issuing, amending, renewing or extending any Letter of Credit, (e) permitting the purchase, during fiscal 2019, of assets for an aggregate consideration not to exceed $12,300, consisting of intangible assets relating to strategic product acquisitions and certain capital expenditures, and (f) restricting the incurrence of certain indebtedness, limiting acquisitions and other investments and imposing certain other restrictions.
On January 8, 2019 (the “Fourth Amendment Effective Date”), the Company further amended the A&R Credit Agreement, constituting a Fourth Amendment and Limited Waiver (the “January 2019 Amendment”). The January 2019 Amendment contains certain amendments to the Credit Agreement relating to the revolver access and vendor and business partner payments, under which the Company is permitted (a) to request and borrow up to an additional $23,000 as Revolving Loans; and (b) to purchase, prior to the repayment of these newly borrowed Revolving Loans and during (x) the Company’s fiscal year 2019, assets in an aggregate amount not to exceed $6,500 or (y) the third quarter of the Company’s fiscal year 2019, assets in an aggregate amount not to exceed $3,105, in each case, consisting of intangible assets relating to strategic product acquisitions, certain data compensation expenses and certain capital expenditures.
The January 2019 Amendment also contains modifications to the A&R Credit Agreement relating to cash management and liquidity. In general, further compliance with the minimum liquidity covenant from the September 2018 Amendment has been permanently waived, there is a cash anti-hoarding provision, and there are restrictions on the Company and its Domestic Subsidiaries (as defined in the A&R Credit Agreement) transferring funds to its Foreign Subsidiaries (as defined in the A&R Credit Agreement) and prohibitions on paying dividends and making similar distributions.
The January 2019 Amendment mandates certain milestones with respect to the Company’s strategic process. In general, the milestones require delivery to the Administrative Agent (as defined in the A&R Credit Agreement) and lenders of proposals and commitments from financially credible third parties, the proceeds of which would be sufficient and used to repay both the Revolving Loans borrowed on or after the Fourth Amendment Effective Date and the remaining Obligations (as defined in the A&R Credit Agreement). The Company has been taking steps to meet these milestones, but no assurance may be given that they will be successfully met. The January 2019 Amendment also revises both the Revolving Loan Maturity Date (as defined in the A&R Credit Agreement) and Term Loan Maturity Date to June 30, 2019, the last day of the Company’s current fiscal year. Based on the new maturity dates, the Company has classified the indebtedness outstanding under the Company’s credit facility as a current liability as of December 31, 2018.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
The January 2019 Amendment provides for a waiver of any event of default under the A&R Credit Agreement arising as a result of the failure by the Company (x) to make certain principal and interest payments under the A&R Credit Agreement that were due on or about December 31, 2018 (which were instead paid pursuant to the January 2019 Amendment on the Fourth Amendment Effective Date), (y) to pay interest on certain deferred payment amounts to the sellers under the 2016 Citron product purchase agreement, and (z) as described above, the non-compliance by the Company with the liquidity financial covenant. The January 2019 Amendment provides for the payment of a fee equal to 2.0% of each lender’s revolving commitment that is available or borrowed after the Fourth Amendment Effective Date, a 0.25% (of each such lender’s aggregate exposure) consent fee to the lenders who timely consented to the January 2019 Amendment, increases the waiver fees imposed under the September 2018 Amendment from 4.0% to 6.0% but only under certain circumstances, and provides for reimbursement of certain third party expenses incurred by the Administrative Agent and lenders.
On January 31, 2019, the Company entered into a Limited Waiver to the Second Amended and Restated Credit Agreement (the “January 2019 Waiver”). The January 2019 Waiver provides for a waiver of any event of default under the A&R Credit Agreement arising as a result of the failure by the Company to deliver to the Administrative Agent and the lenders a binding commitment letter with respect to subordinated financing by January 31, 2019.
In conjunction with the A&R Credit Agreement, the Company entered into an interest rate swap on March 21, 2017 for an additional interest cost of 2.005% on a notional amount of $100,000, which has been designated as a cash flow hedge. The expiration date of this interest rate swap was December 21, 2021. The remaining notional balance of this derivative as of December 31, 2018 is $80,000. In January 2019, the Company terminated the interest rate swap agreement resulting in a cash receipt of $1,145.
Mortgage
On June 30, 2011, the Company obtained a loan in the principal amount of $3,947, secured by a mortgage on its corporate headquarters in Port Washington, New York. This mortgage loan is being amortized over a period of 20 years. The mortgage loan bears interest at 4.92% per annum as December 31, 2018 and matures on June 30, 2021.
(7) Commitments, Contingencies and Other Matters
The Company and its subsidiaries are subject to various claims which have arisen in the normal course of business. The Company provides for costs related to contingencies when a loss from such claims is probable and the amount is reasonably determinable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, the Company reviews and evaluates its litigation and regulatory matters on a quarterly basis in light of potentially relevant factual and legal developments. If the Company determines an unfavorable outcome is not probable or reasonably estimable, the Company does not accrue for a potential litigation loss. While the Company has determined that there is a reasonable possibility that a loss has been incurred, no amounts have been recognized in the financial statements, other than what has been discussed below, because the amount of the liability cannot be reasonably estimated at this time.
In fiscal years 2011, 2009, 2008 and 2007, the Company received letters from the Pulvair Site Group, a group of potentially responsible parties (PRP Group) who are working with the State of Tennessee (the State) to remediate a contaminated property in Tennessee called the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous substances to the site which were released into the environment. The State had begun administrative proceedings against the members of the PRP Group and Aceto with respect to the cleanup of the Pulvair site and the PRP Group has begun to undertake cleanup. The PRP Group is seeking a settlement of approximately $1,700 from the Company for its share to remediate the site contamination. Although the Company acknowledges that it shipped materials to the site for formulation over twenty years ago, the Company believes that the evidence does not show that the hazardous materials sent by Aceto to the site have significantly contributed to the contamination of the environment and thus believes that, at most, it is a de minimis contributor to the site contamination. Accordingly, the Company believes that the settlement offer is unreasonable. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition or liquidity.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
The Company has environmental remediation obligations in connection with Arsynco, Inc. (“Arsynco”), a subsidiary formerly involved in manufacturing chemicals located in Carlstadt, New Jersey, which was closed in 1993 and is currently held for sale. Based on continued monitoring of the contamination at the site and the approved plan of remediation, Arsynco received an estimate from an environmental consultant stating that the costs of remediation could be between $22,900 and $24,700. Remediation commenced in fiscal 2010, and as of December 31, 2018 and June 30, 2018, a liability of $4,010 and $5,746, respectively, is included in the accompanying consolidated balance sheets for this matter. There were no environmental charges for the six months ended December 31, 2018. In accordance with GAAP, management believes that the majority of costs incurred to remediate the site will be capitalized in preparing the property which is currently classified as held for sale. In June 2018, the Company entered into an agreement to sell the Arsynco property to an unrelated third party for $6,340. The sale is subject to due diligence by the buyer and the Company is not sure when or if the sale will close. The sale price supports the assumption that the expected fair value after the remediation is in excess of the amount required to be capitalized. However, these matters, if resolved in a manner different from those assumed in current estimates, could have a material adverse effect on the Company’s financial condition, operating results and cash flows when resolved in a future reporting period.
In connection with the environmental remediation obligation for Arsynco, in July 2009, Arsynco entered into a settlement agreement with BASF Corporation (“BASF”), the former owners of the Arsynco property. In accordance with the settlement agreement, BASF paid for a portion of the prior remediation costs and going forward, will co-remediate the property with the Company. The contract requires that BASF pay $550 related to past response costs and pay a proportionate share of the future remediation costs. Accordingly, the Company had recorded a gain of $550 in fiscal 2009. This $550 gain relates to the partial reimbursement of costs of approximately $1,200 that the Company had previously expensed. The Company also recorded an additional receivable from BASF, with an offset against property held for sale, representing its estimated portion of the future remediation costs. The balance of this receivable for future remediation costs as of December 31, 2018 and June 30, 2018 is $1,805 and $2,586, respectively, which is included in the accompanying, consolidated balance sheets.
In March 2006, Arsynco received notice from the EPA of its status as a PRP under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for a site described as the Berry’s Creek Study Area (“BCSA”). Arsynco is one of over 150 PRPs which have potential liability for the required investigation and remediation of the site. The estimate of the potential liability is not quantifiable for a number of reasons, including the difficulty in determining the extent of contamination and the length of time remediation may require. In addition, any estimate of liability must also consider the number of other PRPs and their financial strength. In July 2014, Arsynco received notice from the U.S. Department of Interior (“USDOI”) regarding the USDOI’s intent to perform a Natural Resource Damage (NRD) Assessment at the BCSA. Arsynco has to date declined to participate in the development and performance of the NRD assessment process. Based on prior practice in similar situations, it is possible that the State may assert a claim for natural resource damages with respect to the Arsynco site itself, and either the federal government or the State (or both) may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any such claim with respect to Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has identified in connection with that site. Any claim for natural resource damages with respect to the Arsynco site itself may also be asserted against BASF, the former owners of the Arsynco property. In September 2012, Arsynco entered into an agreement with three of the other PRPs that had previously been impleaded into New Jersey Department of Environmental Protection, et al. v. Occidental Chemical Corporation, et al., Docket No. ESX-L-9868-05 (the "NJDEP Litigation") and were considering impleading Arsynco into the same proceeding. Arsynco entered into an agreement to avoid impleader. Pursuant to the agreement, Arsynco agreed to (1) a tolling period that would not be included when computing the running of any statute of limitations that might provide a defense to the NJDEP Litigation; (2) the waiver of certain issue preclusion defenses in the NJDEP Litigation; and (3) arbitration of certain potential future liability allocation claims if the other parties to the agreement are barred by a court of competent jurisdiction from proceeding against Arsynco. In July 2015, Arsynco was contacted by an allocation consultant retained by a group of the named PRPs, inviting Arsynco to participate in the allocation among the PRPs’ investigation and remediation costs relating to the BCSA. Arsynco declined that invitation. Since an amount of the liability cannot be reasonably estimated at this time, no accrual is recorded for these potential future costs. The impact of the resolution of this matter on the Company’s results of operations in a particular reporting period is not currently known.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
A subsidiary of the Company markets certain agricultural protection products which are subject to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). FIFRA requires that test data be provided to the EPA to register, obtain and maintain approved labels for pesticide products. The EPA requires that follow-on registrants of these products compensate the initial registrant for the cost of producing the necessary test data on a basis prescribed in the FIFRA regulations. Follow-on registrants do not themselves generate or contract for the data. However, when FIFRA requirements mandate that new test data be generated to enable all registrants to continue marketing a pesticide product, often both the initial and follow-on registrants establish a task force to jointly undertake the testing effort. The Company is presently a member of several such task force groups, which requires payments for such memberships. In addition, in connection with its agricultural protection business, the Company plans to acquire product registrations and related data filed with the United States Environmental Protection Agency to support such registrations and other supporting data for several products. The acquisition of these product registrations and related data filed with the United States Environmental Protection Agency as well as payments to various task force groups could approximate $5,644 in fiscal 2019.
In connection with the acquisition of certain products and related assets from Citron and Lucid, Aceto committed to make a $50,000 unsecured deferred payment that bears interest at a rate of 5% per annum to the sellers on December 21, 2021 and to issue 5,122 shares of Aceto common stock beginning on December 21, 2019. The product purchase agreement also provides for a 5-year potential earn-out of up to an additional $50,000 in cash, based on the financial performance of four pre-specified pipeline products that are currently in development. As of December 31, 2018, there was no amount accrued related to this contingent consideration based upon management’s evaluation and assessment of the financial performance of these products.
In February 2018, the Company was notified by the U.S. government that 11 generic drug products it acquired through its Acetris Health subsidiary in a product purchase agreement with Lucid were not in compliance with the federal Trade Agreement Act (“TAA”) country-of-origin provisions of a clause (the “Trade Agreements Clause”) contained in the government supply contracts acquired from Lucid (the “TAA Notification”). The 11 finished dosage form products purchased by the U.S. government are manufactured by Aurolife Pharma LLC which is located in Dayton, New Jersey using APIs sourced from India. In conjunction with this finding, the U.S. Department of Veterans Affairs (“VA”) requested that Acetris supply new TAA-compliant sources for the referenced products by March 9, 2018 and supply new TAA-compliant drugs to the government purchasers under the contracts by March 26, 2018. Acetris knew that it would be unable to meet these short deadlines. To avoid the government’s imposition of penalties for failure to meet these deadlines while Acetris appealed the above-mentioned findings, Acetris requested that the government defer imposition of these deadlines pending resolution of Acetris’ appeal. The Government declined this request and thereafter Acetris and the government entered into agreements that provided for a no-cost termination of each of the 11 supply contracts.
On July 10, 2018, the Company was informed that Acetris received a favorable ruling from the United States Court of Federal Claims (the “Court”), in Acetris Health, LLC v. United States, invalidating the VA interpretation of the Trade Agreements Clause, which had resulted in the termination of 11 Acetris contracts with the VA. Finding in favor of Acetris, the Court granted a declaratory judgment establishing that under the federal Buy America Act the agencies are permitted to buy domestic end products, including commercial off-the-shelf products like generic drugs, that are manufactured in the United States when the Trade Agreements Clause is incorporated in government supply contracts, even if their components are not all manufactured in the United States. Although Department of Defense (the “DoD”) contracts were not at issue in the case, the decision also impacts Acetris’ ability to supply DoD with its products. The government’s appeal of the ruling is pending. Even if the Court’s ruling is affirmed on appeal, the Court’s ruling did not have the effect of reinstating the 11 terminated government supply agreements. Acetris may seek new contracts with these agencies, but no assurance can be given that any such contracts will be awarded.
In March 2018, Sigmapharm Laboratories, LLC (“SigmaPharm”) commenced an action against Rising and the Company in the United States District Court for the Eastern District of Pennsylvania. The complaint arises out of an agreement, effective as of June 22, 2006 (the “SigmaPharm Agreement”), pursuant to which SigmaPharm agreed to supply certain generic pharmaceutical products (the “Products”) to Rising, and Rising in turn agreed to market and distribute the Products in the United States and pay SigmaPharm a share of the profits pursuant to a formula specified in the Agreement. The complaint alleges that Rising and Aceto breached the Agreement by failing to pay or timely make payments due under the Agreement and to disclose certain information to SigmaPharm. The complaint seeks, among other relief, a declaration that the Agreement has been terminated and that SigmaPharm has exclusive marketing and distribution rights to the Products; injunctive relief; and an unspecified amount of damages. In May 2018, Rising and the Company filed a motion to stay the action and compel arbitration, as required by the Agreement. In addition, SigmaPharm filed a “motion to enforce audit rights” in the federal litigation. On October 26, 2018, the district court granted Rising’s and the Company’s Motion to Stay and Compel Arbitration and denied Sigmapharm’s Motion to Enforce and Audit; thus the federal court action has been placed in suspense and the parties must proceed to arbitration.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
SigmaPharm has stopped supplying Products to Rising, claiming that it has validly terminated the Sigmapharm Agreement. Accordingly, in June 2018, Rising filed an arbitration claim against SigmaPharm in New Jersey, seeking recovery from SigmaPharm of any failure-to-supply losses Rising may incur as well as lost future profits on sale of the Products, among other relief. The Company intends to vigorously protect its rights in these matters and prosecute its claim for damages against SigmaPharm. The impact of the resolution of this matter on the Company’s results of operations in a particular reporting period is not currently known.
On April 16, 2018, the Company’s Rising subsidiary received a Grand Jury subpoena (the “DOJ Subpoena”) from the Antitrust Division of the DOJ. Rising is cooperating with the DOJ in response to the DOJ Subpoena.
The Company and certain of its current and former officers are named defendants in two putative securities class actions (the “Securities Class Action Lawsuits”) filed in the United States District Court for the Eastern District of New York in April 2018, captioned Mulligan v. Aceto Corporation, et al, No. 2:18-cv-02425, and Yang v. Aceto Corporation, No. 1:18-cv-02437. The complaints arise from the April 19, 2018 drop in the Company’s stock price following the Company’s announcement on April 18, 2018 that it would recognize a substantial impairment charge for the third fiscal quarter. The complaints generally allege that the defendants violated the Securities Exchange Act of 1934 by making false and misleading statements in public filings with the SEC and seek unspecified damages. On June 26, 2018, five motions were filed seeking to appoint lead plaintiff and approve lead plaintiff’s counsel pursuant to the Private Securities Litigation Reform Act of 1995, as well as to consolidate the Mulligan or Yang actions. Three motions were subsequently withdrawn or abandoned, and the remaining two motions are pending before the Court. Following the appointment of a lead plaintiff, the Company expects that the appointed lead plaintiff will file a single consolidated amended class action complaint to supersede the earlier complaints. The Company intends to vigorously defend itself. The impact of the resolution of this matter on the Company’s results of operations in a particular reporting period is not currently known.
(8) Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. GAAP establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted market prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 – Unobservable inputs that are not corroborated by market data.
On a recurring basis, Aceto measures at fair value certain financial assets and liabilities, which consist of cash equivalents, investments and foreign currency contracts. The Company classifies cash equivalents and investments within Level 1 if quoted prices are available in active markets. Level 1 assets include instruments valued based on quoted market prices in active markets which generally include corporate equity securities publicly traded on major exchanges. Time deposits are very short-term in nature and are accordingly valued at cost plus accrued interest, which approximates fair value, and are classified within Level 2 of the valuation hierarchy. The Company uses foreign currency futures contracts to minimize the risk caused by foreign currency fluctuation on its foreign currency receivables and payables by purchasing futures with one of its financial institutions. Futures are traded on regulated U.S. and international exchanges and represent commitments to purchase or sell a particular foreign currency at a future date and at a specific price. Aceto’s foreign currency derivative contracts are classified within Level 2 as the fair value of these hedges is primarily based on observable futures foreign exchange rates. At December 31, 2018, the Company had foreign currency contracts outstanding that had a notional amount of $61,904. Unrealized losses on hedging activities for the three and six months ended December 31 2018, was $362 and $693, respectively. Unrealized (losses) gains on hedging activities for the three and six months ended December 31, 2017 was ($34) and $261, respectively, and are included in interest and other income, net, in the consolidated statements of operations. The contracts have varying maturities of less than one year.
| 20 |
ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
In conjunction with its existing credit agreement (see Note 6), the Company entered into an interest rate swap on March 21, 2017 for an additional interest cost of 2.005% on a notional amount of $100,000, which has been designated as a cash flow hedge. The remaining notional balance of this derivative as of December 31, 2018 is $80,000. The expiration date of this interest rate swap was December 21, 2021. The unrealized gain to date associated with this derivative, which is recorded in accumulated other comprehensive loss in the consolidated balance sheet at December 31, 2018, is $1,135. Aceto’s interest rate swaps are classified within Level 2 as the fair value of this hedge is primarily based on observable interest rates. In January 2019, the Company terminated the interest rate swap agreement resulting in a cash receipt of $1,145.
At June 30, 2018, the Company had $683 of contingent consideration which related to the acquisition of certain products and related assets of Citron and Lucid, which was completed in December 2016. In the second quarter of fiscal 2019, the Company reversed $724 of contingent consideration due to management’s evaluation and assessment of the financial performance of these products. As a result, there is no remaining balance as of December 31, 2018.
The Company evaluates goodwill for impairment at the reporting unit level using a market participant approach using Level 3 inputs. Additionally, on a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. During the three and six months ended December 31, 2018 and 2017, there were no indicators of impairment. During the fiscal year ended June 30, 2018, the Company recognized a pre-tax non-cash goodwill impairment charge of $235,110 related to the Rising reporting unit.
Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. Measurements based on undiscounted cash flows are Level 3 inputs. During the three and six months ended December 31, 2018 and 2017 there was no loss of any major customers or a discontinuation of any major product and as such, there was no impairment.
In connection with the acquisition of certain products and related assets of Citron and Lucid, the Company will issue 5,122 shares of Aceto common stock beginning on December 21, 2019. The fair value of the future issuance of these shares was determined to be $90,400 at the time of the product acquisition after taking into effect that the shares won’t be issued until the third and fourth anniversary of the closing and the present value calculation of dividends.
In November 2015, the Company issued $143,750 aggregate principal amount of Notes (see Note 6). Since Aceto has the option to settle the potential conversion of the Notes in cash, the Company separated the embedded conversion option feature from the debt feature and accounts for each component separately, based on the fair value of the debt component assuming no conversion option. The calculation of the fair value of the debt component required the use of Level 3 inputs and was determined by calculating the fair value of similar non-convertible debt, using a theoretical borrowing rate of 6.5%. The value of the embedded conversion option was determined using an expected present value technique (income approach) to estimate the fair value of similar non-convertible debt and included utilization of convertible investors’ credit assumptions and high yield bond indices. The Notes approximate a full fair value of $109,000 at December 31, 2018 giving effect to certain factors, including the term of the Notes, current stock price of Aceto stock and effective interest rate.
The carrying values of all financial instruments classified as a current asset or current liability are deemed to approximate fair value because of the short maturity of these instruments. The fair values of the Company’s notes receivable and short-term and long-term bank loans were based upon current rates offered for similar financial instruments to the Company.
The following tables summarize the valuation of the Company’s financial assets and liabilities which were determined by using the following inputs at December 31, 2018 and June 30, 2018:
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
| Fair Value Measurements at December 31, 2018 Using | ||||||||||||||||
Quoted Prices in Active | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Time deposits | - | $ | 4,620 | - | $ | 4,620 | ||||||||||
| Investments: | ||||||||||||||||
| Time deposits | - | 1,013 | - | 1,013 | ||||||||||||
| Foreign currency contracts-assets (1) | - | 97 | - | 97 | ||||||||||||
| Foreign currency contracts-liabilities (2) | - | 462 | - | 462 | ||||||||||||
| Derivative asset for interest rate swap (3) | - | 1,135 | - | 1,135 | ||||||||||||
| (1) | Included in “Other receivables” in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2018. |
| (2) | Included in “Accrued expenses” in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2018. |
| (3) | Included in “Other receivables” in the accompanying Condensed Consolidated Balance Sheet as of December 31, 2018. |
| Fair Value Measurements at June 30, 2018 Using | ||||||||||||||||
Quoted Prices (Level 1) | Significant Other (Level 2) | Significant Unobservable (Level 3) | Total | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Time deposits | - | $ | 3,218 | - | $ | 3,218 | ||||||||||
| Investments: | ||||||||||||||||
| Time deposits | - | 3,030 | - | 3,030 | ||||||||||||
| Foreign currency contracts-assets (4) | - | 362 | - | 362 | ||||||||||||
| Foreign currency contracts-liabilities (5) | - | 304 | - | 304 | ||||||||||||
| Derivative asset for interest rate swap (6) | - | 1,839 | - | 1,839 | ||||||||||||
| Contingent consideration (7) | - | - | $ | 683 | 683 | |||||||||||
| (4) | Included in “Other receivables” in the accompanying Consolidated Balance Sheet as of June 30, 2018. |
| (5) | Included in “Accrued expenses” in the accompanying Consolidated Balance Sheet as of June 30, 2018. |
| (6) | Included in “Other Assets” in the accompanying Consolidated Balance Sheet as of June 30, 2018. |
| (7) | Included in “Long-term liabilities” in the accompanying Consolidated Balance Sheet as of June 30, 2018. |
(9) Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. The Company is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
In June 2018, the FASB issued ASU 2018-07 Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which gives entities the option to reclassify the disproportionate income tax effects ("stranded tax effects") caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The update also requires new disclosures, some of which are applicable for all entities. The guidance in ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which has the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in ASU 2017-12 make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting. The amendments in ASU 2017-12 and ASU 2018-16 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the provisions of ASU 2017-12 and ASU 2018-16.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-15 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended in July 2018 by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, that replace existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. These ASU’s are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of these ASU’s and anticipates recognition of additional assets and corresponding liabilities relating to these leases on its consolidated balance sheet but does not expect the adjustment to be material assuming no changes in lease activity.
(10) Segment Information
The Company's business is organized along product lines into three principal segments: Human Health, Pharmaceutical Ingredients and Performance Chemicals.
Human Health - includes finished dosage form generic drugs and nutraceutical products.
Pharmaceutical Ingredients – includes pharmaceutical intermediates and active pharmaceutical ingredients (“APIs”).
Performance Chemicals - The Performance Chemicals segment is made up of two product groups: Specialty Chemicals and Agricultural Protection Products. Specialty Chemicals include a variety of chemicals used in the manufacture of plastics, surface coatings, cosmetics and personal care, textiles, fuels and lubricants, perform to their designed capabilities. Dye and pigment intermediates are used in the color-producing industries such as textiles, inks, paper, and coatings. Organic intermediates are used in the production of agrochemicals.
Agricultural Protection Products include herbicides, fungicides and insecticides that control weed growth as well as control the spread of insects and other microorganisms that can severely damage plant growth.
The Company's chief operating decision maker evaluates performance of the segments based on net sales, gross profit and income before income taxes. Unallocated corporate amounts are deemed by the Company as administrative, oversight costs, not managed by the segment managers. The Company does not allocate assets by segment because the chief operating decision maker does not review the assets by segment to assess the segments' performance, as the assets are managed on an entity-wide basis. During all periods presented, our chief operating decision maker has been the Chief Executive Officer of the Company. In accordance with GAAP, the Company has aggregated certain operating segments into reportable segments because they have similar economic characteristics, and the operating segments are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) the nature of the regulatory environment.
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ACETO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited and in thousands, except per-share amounts)
Six months Ended December 31, 2018 and 2017:
| Human Health | Pharmaceutical Ingredients | Performance Chemicals | Unallocated Corporate | Consolidated Totals | ||||||||||||||||
| 2018 | ||||||||||||||||||||
| Net sales | $ | 165,827 | $ | 80,890 | $ | 81,337 | $ | - | $ | 328,054 | ||||||||||
| Gross profit | 19,298 | 13,247 | 16,981 | - | 49,526 | |||||||||||||||
| (Loss) income before income taxes | (23,643 | ) | 5,719 | 9,173 | (32,154 | ) | (40,905 | ) | ||||||||||||
| 2017 | ||||||||||||||||||||
| Net sales | $ | 209,481 | $ | 70,205 | $ | 76,798 | $ | - | $ | 356,484 | ||||||||||
| Gross profit | 47,545 | 10,221 | 16,187 | - | 73,953 | |||||||||||||||
| Income (loss) before income taxes | 7,314 | 2,808 | 7,422 | (15,905 | ) | 1,639 | ||||||||||||||
Three months Ended December 31, 2018 and 2017:
| Human Health | Pharmaceutical Ingredients | Performance Chemicals | Unallocated Corporate | Consolidated Totals | ||||||||||||||||
| 2018 | ||||||||||||||||||||
| Net sales | $ | 84,981 | $ | 42,042 | $ | 36,626 | $ | - | $ | 163,649 | ||||||||||
| Gross profit | 10,822 | 6,353 | 6,871 | - | 24,046 | |||||||||||||||
| (Loss) income before income taxes | (10,596 | ) | 2,321 | 3,245 | (16,780 | ) | (21,810 | ) | ||||||||||||
| 2017 | ||||||||||||||||||||
| Net sales | $ | 103,466 | $ | 33,629 | $ | 34,134 | $ | - | $ | 171,229 | ||||||||||
| Gross profit | 22,898 | 4,381 | 6,691 | - | 33,970 | |||||||||||||||
| Income (loss) before income taxes | 2,288 | 577 | 2,477 | (5,841 | ) | (499 | ) | |||||||||||||
(11) Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the TCJA”) was signed into law, which enacted various changes to the U.S. corporate tax law. Some of the most significant provisions impacting corporations include a reduced U.S. corporate income tax rate from 35% to 21% effective in 2018, a one-time "deemed repatriation" tax on unremitted earnings accumulated in non-U.S. jurisdictions, limitation on deductibility of interest, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system and other provisions. U.S. GAAP accounting for income taxes requires that Aceto record the impacts of any tax law change on the Company’s deferred income taxes in the quarter that the tax law change is enacted. Due to the complexities involved in accounting for the enactment of the TCJA, SEC Staff Accounting Bulletin (“SAB”) 118 allowed Aceto to provide a provisional estimate of the impacts of the TCJA in its earnings for the fiscal year ended June 30, 2018. Accordingly, based on the then currently available information, the Company recorded additional income tax expense of $13,739 for the year ended June 30, 2018. The charge was comprised of $5,075 related to the remeasurement of Aceto’s deferred tax assets arising from a lower U.S. corporate tax rate, $6,219 related to the deemed repatriation of unremitted earnings of foreign subsidiaries (the “transition tax”) and $2,445 related to deferred tax liabilities for local tax authorities as the Company no longer asserts permanent reinvestment of its undistributed non-U.S. subsidiaries' earnings. The Company finalized the calculations of the transition tax liability in the quarter ended December 31, 2018, with a reduction to the amount previously recorded of $405.
(12) Subsequent Events
On February 19, 2019, the Company and certain of its U.S. subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al. (the “Chapter 11 Cases”). Each of the Debtors remains in possession of its respective assets and will continue to operate its respective business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, on February 18, 2019, the Company and certain of its U.S. subsidiaries (collectively, the “Sellers”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with NMC Atlas, L.P., a Delaware limited partnership (the “Buyer”), an affiliate of New Mountain Capital, L.L.C., pursuant to which the Buyer agreed to acquire substantially all of the assets and assume certain liabilities of the Pharmaceutical Ingredients and Performance Chemicals segments and the Nutritionals portion of the Human Health segment of the Company pursuant to Sections 363 and 365 of the Bankruptcy Code for an aggregate purchase price of $338,000 in cash plus the assumption of certain liabilities (as set forth in the Asset Purchase Agreement), subject to adjustments with respect to net current assets at closing. The Asset Purchase Agreement is intended to constitute a “stalking horse” bid that is subject to higher and better bids by third parties in accordance with bidding procedures to be approved by the Bankruptcy Court. The Asset Purchase Agreement requires the Debtors to obtain Bankruptcy Court approval of the bidding procedures by April 1, 2019 and the Sale Order on or before 45 days after the Bankruptcy Court’s entry of the bidding procedures.
In connection with the Chapter 11 Cases, the Company and certain of its U.S. subsidiaries (collectively,
the “DIP Borrowers”) will enter into a Senior Secured, Priming and Superprioity Debtor-in-Possession Credit Agreement
(the “DIP Credit Agreement”) with the lenders party thereto from time to time (the “DIP Lenders”) and Wells
Fargo Bank, National Association, as administrative agent for the DIP Lenders (the “DIP Administrative Agent”),.
The DIP Credit Agreement is subject to approval of the Bankruptcy Court and will become effective upon, in addition to other customary
closing conditions, the entry of the Interim Order (as defined in the DIP Credit Agreement). The DIP Credit Agreement provides
for a $60,000 debtor-in-possession revolving credit facility (the “DIP Facility”). Pursuant to the terms of the DIP
Credit Agreement, interest will accrue on the principal balance of the DIP Loans (as defined in the DIP Credit Agreement) at a
rate per annum equal to (a) LIBOR for such interest period plus 7.00% in respect of Eurodollar Loans (as defined in the DIP Credit
Agreement) and (b) the alternate base rate plus 6.00% in respect of ABR Borrowings (as defined in the DIP Credit Agreement).
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Aceto Corporation
Port Washington, NY
Results of Review of Interim Consolidated Financial Statements
We have reviewed the condensed consolidated balance sheet of Aceto Corporation and subsidiaries as of December 31, 2018 and related condensed consolidated statements of operations and comprehensive income (loss) for the three-month and six-month periods ended December 31, 2018 and 2017, and cash flows for the six-month periods ended December 31, 2018 and 2017 included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended December 31, 2018. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of Aceto Corporation and subsidiaries as of June 30, 2018, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated September 28, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Emphasis of Matter Regarding Going Concern
The accompanying December 31, 2018 financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company has significant indebtedness due within the next twelve months and cash flow from operations has not been sufficient to meet the Company’s liquidity demands. As a result the Company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code on February 19, 2019. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management. We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
| /s/ BDO USA, LLP | |
| Melville, New York | |
February 20, 2019 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
On February 19, 2019, the Debtors filed the Chapter 11 Cases in the Bankruptcy Court. The Debtors have proposed to jointly administer the Chapter 11 Cases under the caption In re Aceto Corporation, et al. For a description of the Chapter 11 Cases and related matters, including the DIP Credit Agreement and the Asset Purchase Agreement, please see Item 5 Other Information.
CAUTIONARY STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to our business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, financing plans, projected or anticipated benefits from acquisitions that we may make, or projections involving anticipated revenues, earnings or other aspects of our operating results or financial position, and the outcome of any contingencies. Any such forward-looking statements are based on current expectations, estimates and projections of management. We intend for these forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements. Words such as “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward-looking statements. Among other statements, the statements in this Quarterly Report regarding the potential execution of a “stalking horse agreement” for the sale of Rising Pharmaceuticals, Inc. and its subsidiaries (the “Pharma Business”), the consequences of the Company having entered into a “stalking horse” agreement for the sale of the Chemicals Plus Business, the timing for consummation of the referenced sales, the effect of the bankruptcy process, the use of the proceeds of the DIP Credit Facility and the post-petition operation of the Company constitute forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control that may influence the accuracy of the statements and the projections upon which the statements are based. Potential risks, influences and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statement include, but are not limited to, our ability to remain competitive with competitors, risks associated with the generic product industry, dependence on a limited number of suppliers, risks associated with healthcare reform and reductions in reimbursement rates, difficulty in predicting revenue stream and gross profit, industry and market changes, the effect of fluctuations in operating results on the trading price of our common stock, risks associated with holding a significant amount of debt, inventory levels, reliance on outside manufacturers, risks of incurring uninsured environmental and other industry specific liabilities, governmental approvals and regulations, risks associated with hazardous materials, potential violations of government regulations, product liability claims, reliance on Chinese suppliers, potential changes to Chinese laws and regulations, potential changes to laws governing our relationships in India, fluctuations in foreign currency exchange rates, tax assessments, changes in tax rules, global economic risks, risk of unsuccessful acquisitions, effect of acquisitions on earnings, indemnification liabilities, terrorist activities, reliance on key executives, litigation risks, volatility of the market price of our common stock, changes to estimates, judgments and assumptions used in preparing financial statements, failure to maintain effective internal controls, compliance with changing regulations, our ability to obtain approval with respect to motions in the Chapter 11 Cases and the Bankruptcy Court’s rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the length of time the Company and its U.S. subsidiaries will operate under the Chapter 11 Cases, risks associated with third-party motions in the Chapter 11 Cases, which may interfere with our and our U.S. subsidiaries’ ability to develop and consummate the asset purchase transactions, the potential adverse effects of the Chapter 11 Cases on our and our U.S. subsidiaries’ liquidity, results of operations or business prospects, increased legal and advisor costs related to the Chapter 11 Cases and other litigation and the inherent risks involved in a bankruptcy process, the effect of the Chapter 11 Cases on the trading price of our securities, our ability to fulfill our obligations to our customers, suppliers and employees, the ability of our employees and customers to benefit from the pending transactions, delays in completing sales or other transactions, our access, on favorable terms, to any required financing as well as other risks and uncertainties discussed in our reports filed with the Securities and Exchange Commission, including, but not limited to, this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 and other filings. Copies of these filings are available at www.sec.gov.
Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
NOTE REGARDING DOLLAR AMOUNTS
In this quarterly report, all dollar amounts are expressed in thousands, except for per-share amounts.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide the readers of our financial statements with a narrative discussion about our business. The MD&A is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes.
Executive Summary
We are reporting net sales of $328,054 for the six months ended December 31, 2018, which represents an 8.0% decrease from the $356,484 reported in the comparable prior period. Gross profit for the six months ended December 31, 2018 was $49,526 and our gross margin was 15.1% as compared to gross profit of $73,953 and gross margin of 20.7% in the comparable prior period. Our selling, general and administrative costs (“SG&A”) for the six months ended December 31, 2018 was $73,897, an increase of $14,685 from what we reported in the prior period. Our net loss was $(43,442), or $(1.22) per diluted share, compared to a net loss of $(13,410), or $(0.38) per diluted share, in the prior period. Our cash, cash equivalents and short-term investments at December 31, 2018 totaled $42,795 as compared with $103,904 at June 30, 2018. Our working capital at December 31, 2018 was $953 (as compared with $200,109 at June 30, 2018). Our shareholders’ equity was $50,311 at December 31, 2018, as compared with $95,285 at June 30, 2018.
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As previously disclosed:
| · | During the third quarter of fiscal 2018, the Company recognized pre-tax non-cash impairment charges of $256,266 consisting of $235,110 of a goodwill impairment charge and a $21,156 write-down of other identifiable intangible assets for its Rising reporting unit, which is part of the Human Health segment. |
| · | The Company has incurred substantial expenses to address the issues that led to the impairment charges taken in fiscal 2018, to manage the Company’s other business units and to explore strategic alternatives. The Company has retained financial and legal advisors to assist it in dealing with the various challenges that the Company is currently facing, including legal advisors retained in connection with various ongoing legal proceedings. |
| · | As referenced in the Company’s press release issued April 18, 2018, the Board of Directors initiated a process to identify and evaluate a range of strategic alternatives. As a result of that process, the Company determined to file for relief under chapter 11 of the Bankruptcy Code. See Item 5 Other Information. |
Our business is separated into three principal segments: Human Health, Pharmaceutical Ingredients and Performance Chemicals.
Human Health
Products that fall within the Human Health segment include finished dosage form generic drugs and nutraceutical products. Aceto sells generic prescription products and over-the-counter pharmaceutical products to leading wholesalers, chain drug stores, distributors and mass merchandisers. On December 21, 2016, wholly owned subsidiaries of Rising Pharmaceuticals, Inc. (“Rising”), a wholly owned subsidiary of Aceto, completed the acquisition of certain generic products and related assets of entities formerly known as Citron Pharma LLC (“Citron”) and its affiliate Lucid Pharma LLC (“Lucid”). Citron was a privately-held New Jersey-based pharmaceutical company focused on developing and marketing generic pharmaceutical products in partnership with leading generic pharmaceutical manufacturers based in India and the United States. Lucid was a privately-held New Jersey-based generic pharmaceutical distributor specializing in providing cost-effective products to various agencies of the U.S. Federal Government including the Veterans Administration and the Defense Logistics Agency. Lucid serviced 18 national contracts with the Federal Government.
Rising formed two subsidiaries to consummate the product acquisition – Rising Health, LLC (which acquired certain products and related assets of Citron) and Acetris Health, LLC (which acquired certain products and related assets of Lucid).
Aceto supplies the raw materials used in the production of nutritional and packaged dietary supplements, including vitamins, amino acids, iron compounds and biochemicals used in pharmaceutical and nutritional preparations.
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Pharmaceutical Ingredients
The Pharmaceutical Ingredients segment has two product groups: Active Pharmaceutical Ingredients (APIs) and Pharmaceutical Intermediates.
We supply APIs to many of the major generic drug companies, who we believe view Aceto as a valued partner in their effort to develop and market generic drugs. The process of introducing a new API from pipeline to market spans a number of years and begins with Aceto partnering with a generic pharmaceutical manufacturer and jointly selecting an API, several years before the expiration of a composition of matter patent, for future genericizing. We then identify the appropriate supplier, and concurrently utilizing our global technical network, work to ensure they meet standards of quality to comply with regulations. Our client, the generic pharmaceutical company, will submit the ANDA for U.S. Food and Drug Administration (“FDA”) approval or European-equivalent approval. The introduction of the API to market occurs after all the development testing has been completed and the ANDA or European-equivalent is approved and the patent expires or is deemed invalid. Aceto, at all times, has a pipeline of APIs at various stages of development both in the United States and Europe. Additionally, as the pressure to lower the overall cost of healthcare increases, Aceto has focused on, and works very closely with our customers to develop new API opportunities to provide alternative, more economical, second-source options for existing generic drugs. By leveraging our worldwide sourcing, regulatory and quality assurance capabilities, we provide to generic drug manufacturers an alternative, economical source for existing API products.
Aceto has long been a supplier of pharmaceutical intermediates, the complex chemical compounds that are the building blocks used in producing APIs. These are the critical components of all drugs, whether they are already on the market or currently undergoing clinical trials. Faced with significant economic pressures as well as ever-increasing regulatory barriers, the innovative drug companies look to Aceto as a source for high quality intermediates.
Aceto employs, on occasion, the same second source strategy for our pharmaceutical intermediates business that we use in our API business. Historically, pharmaceutical manufacturers have had one source for the intermediates needed to produce their products. Utilizing our global sourcing, regulatory support and quality assurance network, Aceto works with the large, global pharmaceutical companies, sourcing lower cost, quality pharmaceutical intermediates that will meet the same high-level standards that their current commercial products adhere to.
Performance Chemicals
The Performance Chemicals segment includes specialty chemicals and agricultural protection products.
Aceto is a major supplier to many different industrial segments providing chemicals used in the manufacture of plastics, surface coatings, cosmetics and personal care, textiles, fuels and lubricants. The paint and coatings industry produces products that bring color, texture, and protection to houses, furniture, packaging, paper, and durable goods. Many of today's coatings are eco-friendly, by allowing inks and coatings to be cured by ultraviolet light instead of solvents or allowing power coatings to be cured without solvents. These growing technologies are critical in protecting and enhancing the world's ecology and Aceto is focused on supplying the specialty additives that make modern coating techniques possible.
The chemistry that makes much of the modern world possible is often done by building up simple molecules to sophisticated compounds in step-by-step chemical processes. The products that are incorporated in each step are known as intermediates and they can be as varied as the end uses they serve, such as crop protection products, dyes and pigments, textiles, fuel additives, electronics - essentially all things chemical.
Aceto provides various specialty chemicals for the food, flavor, fragrance, paper and film industries. Aceto’s raw materials are also used in sophisticated technology products, such as high-end electronic parts used for photo tooling, circuit boards, production of computer chips, and in the production of many of today's modern gadgets.
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According to a January 18, 2019 Federal Reserve Statistical Release, in the fourth quarter of calendar year 2018, the index for consumer durables, which impacts the Specialty Chemicals business of the Performance Chemicals segment, is expected to increase at an annual rate of 4.3%.
Aceto’s agricultural protection products include herbicides, fungicides and insecticides used on various crops including sugarcane and nuts, which control weed growth as well as the spread of insects and microorganisms that can severely damage plant growth. One of Aceto's most widely used agricultural protection products is a sprout inhibitor that extends the storage life of potatoes. Utilizing our global sourcing and regulatory capabilities, we identify and qualify manufacturers either producing the product or with knowledge of the chemistry necessary to produce the product, and then file an application with the U.S. EPA for a product registration. Aceto has an ongoing working relationship with manufacturers in China and India to determine which of the non-patented or generic, agricultural protection products they produce can be effectively marketed in the Western world. We have successfully brought numerous products to market. We have a strong pipeline, which includes future additions to our product portfolio. The combination of our global sourcing and regulatory capabilities makes the generic agricultural market a niche for us and we expect to continue to offer new product additions in this market. In the USDA, National Agricultural Statistics Service release dated June 29, 2018, the total crop acreage planted in the United States in 2018 increased by .9% to 322 million acres from 319 million acres in 2017. The number of peanut acres planted in 2018 decreased 19.7% from 2017 levels while sugarcane acreage harvested decreased 2.1% from 2017. In addition, the potato acreage harvested in 2018 decreased approximately 1.0% from the 2017 level.
We believe our main business strengths are sourcing, regulatory support, quality assurance and marketing and distribution. We distribute more than 1,100 chemical compounds used principally as finished products or raw materials in the pharmaceutical, nutraceutical, agricultural, coatings and industrial chemical industries. With business operations in ten countries, we believe that our global reach is distinctive in the industry, enabling us to source and supply quality products on a worldwide basis. Leveraging local professionals, we source more than two-thirds of our products from Asia, buying from approximately 500 companies in China and 200 in India.
In this MD&A, we explain our general financial condition and results of operations, including, among other things, the following:
| · | factors that affect our business |
| · | our earnings and costs in the periods presented |
| · | changes in earnings and costs between periods |
| · | sources of earnings |
| · | the impact of these factors on our overall financial condition |
Critical Accounting Estimates and Policies
As disclosed in our Form 10-K for the year ended June 30, 2018, the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. In preparing these financial statements, we were required to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We regularly evaluate our estimates including those related to allowances for bad debts, revenue recognition, partnered products, inventories, goodwill and indefinite-life intangible assets, long-lived assets, environmental and other contingencies, income taxes, stock-based compensation and purchase price allocation. We base our estimates on various factors, including historical experience, advice from outside subject-matter experts, and various assumptions that we believe to be reasonable under the circumstances, which together form the basis for our making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Since December 31, 2018, there have been no significant changes to the assumptions and estimates related to those critical accounting estimates and policies.
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RESULTS OF OPERATIONS
Six Months Ended December 31, 2018 Compared to Six Months Ended December 31, 2017
Net Sales by Segment Six months ended December 31, | ||||||||||||||||||||||||
| Comparison 2018 | ||||||||||||||||||||||||
| 2018 | 2017 | Over/(Under) 2017 | ||||||||||||||||||||||
| % of | % of | $ | % | |||||||||||||||||||||
| Segment | Net sales | Total | Net sales | Total | Change | Change | ||||||||||||||||||
| Human Health | $ | 165,827 | 50.5 | % | $ | 209,481 | 58.8 | % | $ | (43,654 | ) | (20.8 | )% | |||||||||||
| Pharmaceutical Ingredients | 80,890 | 24.7 | 70,205 | 19.7 | 10,685 | 15.2 | ||||||||||||||||||
| Performance Chemicals | 81,337 | 24.8 | 76,798 | 21.5 | 4,539 | 5.9 | ||||||||||||||||||
| Net sales | $ | 328,054 | 100.0 | % | $ | 356,484 | 100.0 | % | $ | (28,430 | ) | (8.0 | )% | |||||||||||
Gross Profit by Segment Six months ended December 31, | ||||||||||||||||||||||||
| Comparison 2018 | ||||||||||||||||||||||||
| 2018 | 2017 | Over/(Under) 2017 | ||||||||||||||||||||||
| Gross | % of | Gross | % of | $ | % | |||||||||||||||||||
| Segment | Profit | Sales | Profit | Sales | Change | Change | ||||||||||||||||||
| Human Health | $ | 19,298 | 11.6 | % | $ | 47,545 | 22.7 | % | $ | (28,247 | ) | (59.4 | )% | |||||||||||
| Pharmaceutical Ingredients | 13,247 | 16.4 | 10,221 | 14.6 | 3,026 | 29.6 | ||||||||||||||||||
| Performance Chemicals | 16,981 | 20.9 | 16,187 | 21.1 | 794 | 4.9 | ||||||||||||||||||
| Gross profit | $ | 49,526 | 15.1 | % | $ | 73,953 | 20.7 | % | $ | (24,427 | ) | (33.0 | )% | |||||||||||
Net Sales
Net sales decreased $28,430, or 8.0%, to $328,054 for the six months ended December 31, 2018, compared with $356,484 for the prior period. We reported sales increases in our Performance Chemicals and Pharmaceutical Ingredients segments and a sales decline in our Human Health segment.
Human Health
Net sales for the Human Health segment decreased by $43,654 for the six months ended December 31, 2018, to $165,827, which represents a 20.8% decrease over net sales of $209,481 for the prior period. Sales of Rising products decreased $43,446 from the prior year as the persistent adverse conditions in the generics market have continued including continued pricing pressure, intense competition and related consolidation of customers, delays in receiving supplies and delayed product launches. Rising incurred approximately $6,514 in failure to supply penalties charged by certain customers based upon replacement cost or contractual cost.
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Rising accrues for what it believes is a reasonable level for FTS charges as part of its revenue recognition policies. However, beginning in the third quarter of fiscal 2018, Rising was subjected to an extraordinary magnitude of FTS claims.
Rising’s asset-light business model leverages multiple drug development and manufacturing partnerships in the development of its finished dosage form generic products, placing it in an intermediate position in the product supply chain. As industry headwinds have made the supply chain more competitive, FTS charges have impacted intermediate entities such as Rising to a greater degree.
Rising becomes aware of an FTS claim when notified by a customer. Most of Rising’s customers and wholesalers can unilaterally deduct amounts claimed for FTS from product payments due Rising. If Rising believes the deduction was improper, it is in the difficult position of seeking a refund from a party that controls the flow of funds in the relationship. In addition, some customers that do not have a contractual right to an FTS claim may still take credit against the amount claimed by them for other products supplied by Rising.
On the other end of the supply chain, in order to recover FTS penalties paid, Rising must often seek full or partial reimbursement through deduction or collection from its suppliers, many of whom are also its partners. Thus, Rising is relegated to seeking payment from entities it must continue to rely on for future product supply.
FTS claim calculations vary from customer to customer – some use a replacement cost model and others use a contracted cost amount. The timing of when customer claims are made is also inconsistent; some claims are for prior periods as far back as several months.
Rising reviews all FTS claims and asserts a defense (and rebills the non-justifiable amount) to customers where appropriate. Rising is in continuing negotiations with its customers to recover amounts that Rising believes are not justified.
Rising bills its partners, who are also its suppliers, for either (i) (with the exception of one partner) the full amount of the FTS claim, if the charge was caused by non-performance on the part of the partner; (ii) the partner’s profit split percentage if the charge was caused by shared non-performance; or (iii) another negotiated amount. Rising has billed approximately $3,905 in FTS charges to supplier partners in the six months ended December 31, 2018.
In the event that the profits distributed to a partner, including the partner’s share of FTS and other expenses such as returned goods are insufficient to cover such expenses, Rising typically records a receivable from such partner. These receivables are reviewed for collectability and a liability is recorded if deemed appropriate.
Rising has taken several steps to remediate FTS challenges, including (i) a concerted effort to improve inventory levels; (ii) the institution of enhanced tracking of supply levels to minimize future instances of FTS; (iii) the development of a robust supply and demand forecast to align customer and supplier expectations, and (iv) increased communications at senior levels with suppliers. In addition, the Company is accelerating the review and adjudication of FTS claims.
Pharmaceutical Ingredients
Net sales for the Pharmaceutical Ingredients segment increased $10,685 or 15.2% to $80,890 when compared to the prior period net sales of $70,205. The increase in sales for this segment was due primarily to a rise in foreign sales of $9,071, of which $6,465 was from an increase in sales of APIs sold abroad, primarily from our German subsidiaries, and $2,606 was from an increase in foreign sales of pharmaceutical intermediates due to increased demand of certain API products, as well as new business.
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Performance Chemicals
Net sales for the Performance Chemicals segment was $81,337 for the six months ended December 31, 2018, representing an increase of $4,539 or 5.9%, from net sales of $76,798 for the prior period. The Specialty Chemicals business experienced an increase in sales of $3,250 over the prior period, predominantly due to increased domestic sales of $1,648 primarily due to a rise in sales of $1,503 in surface coatings. Sales of specialty chemicals sold abroad increased $1,602 over the prior period. The remaining increase was from an increase in agricultural protection products mainly due to the timing of orders of an herbicide.
Gross Profit
Gross profit decreased $24,427 to $49,526 (15.1% of net sales) for the six months ended December 31, 2018, as compared to $73,953 (20.7% of net sales) for the prior period.
Human Health
Human Health segment’s gross profit of $19,298 for the six months ended December 31, 2018 decreased $28,247 or 59.4%, over the prior period. The gross margin of 11.6% was lower than the prior period’s gross margin of 22.7%. The decrease in Human Health’s gross profit was primarily related to the decline of $28,146 in gross profit on Rising’s products, due to the sales decline. The decline in gross margin is primarily driven by unfavorable product mix on certain Rising products, continued pricing pressure, intense competition and related consolidation of customers and FTS charges. In addition, certain of our partners have not performed in accordance with their agreements with such partners, which have caused us to incur additional costs.
Pharmaceutical Ingredients
Pharmaceutical Ingredients’ gross profit of $13,247 for the six months ended December 31, 2018 increased $3,026, or 29.6%, over the prior period. The gross margin of 16.4% was higher than the prior period’s gross margin of 14.6%. The increase in gross profit and gross margin was predominantly the result of the increase in the sales volume of APIs sold abroad.
Performance Chemicals
Gross profit for the Performance Chemicals segment increased to $16,981 for the six months ended December 31, 2018, versus $16,187 for the prior period, an increase of $794 or 4.9%, predominantly from a sales increase of specialty chemical products sold abroad. The gross margin at 20.9% for the six months ended December 31, 2018 was consistent with the prior year’s gross margin of 21.1%.
Selling, General and Administrative Expenses
SG&A of $73,897 for the six months ended December 31, 2018 increased $14,685 or 24.8% from $59,212 reported for the prior period. As a percentage of sales, SG&A increased to 22.5% for the six months ended December 31, 2018 versus 16.6% in the prior period. As previously discussed, the Company has incurred substantial expenses to address the issues that led to the impairment charges taken in fiscal 2018, to manage the Company’s other business units and to explore strategic alternatives. As a result, the increase in SG&A is primarily due to approximately $18,004 of costs incurred by the Company to address the challenges impacting the Human Health business, including fees for financial advisors, professional fees, costs for senior staff retention and stabilization of corporate operations. SG&A also increased due to an increase of approximately $1,725 in legal fees and $493 increase in insurance costs related to various legal proceedings, an increase in payroll and fringe benefits of $2,811 due to annual merit increases and an increase of $562 due to additional accounting, audit and tax fees. These increases were offset by decreases of $4,060 in stock-based compensation, consulting fees of $1,382 and depreciation and amortization of $459. SG&A for the prior year included $4,064 of one-time costs associated with the separation of the Company’s former Chief Executive Officer, including $2,017 of stock-based compensation, and environmental remediation charges of $902.
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Research and Development Expenses
Research and development expenses (“R&D”) increased to $3,995 for the six months ended December 31, 2018 compared to $3,737 for the prior period. R&D expenses represent investment in our generic finished dosage form product pipeline. The majority of the R&D expenses are milestone based, which was the primary cause for such increase and will likely cause fluctuation from quarter to quarter.
Operating (Loss) Income
For the six months ended December 31, 2018 we had an operating loss of $(28,366) compared to operating income of $11,004 in the prior period, a decrease of $39,370.
Interest Expense
Interest expense was $13,707 for the six months ended December 31, 2018, an increase of $3,304 or 31.8% from the prior period. The increase in interest expense was primarily due to additional interest expense associated with the May 2018 Amendment and the September 2018 Amendment.
Interest and Other Income, Net
Interest and other income, net was $1,168 for the six months ended December 31, 2018, an increase of $130 from the prior period, primarily due to an increase in income related to a joint venture for one of our agricultural protection products offset by unrealized foreign exchange losses from mark-to-market valuation of foreign currency futures contracts.
Provision for Income Taxes
The effective tax rate for the six months ended December 31, 2018 was (6.2) % compared to 918.2% for the prior year. The effective tax rate in the current period represents the full valuation allowance on domestic operations, income tax associated with foreign jurisdictions as well as a discrete adjustment for additional tax related to a disallowance regarding the structure of our performance award program. In the six months ended December 31, 2017, we recorded $1,101 of additional income tax expense associated with net tax deficiencies under ASU 2016-09, which was adopted in the first quarter of fiscal 2018.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the TCJA”) was signed into law, which enacted various changes to the U.S. corporate tax law. Some of the most significant provisions impacting corporations include a reduced U.S. corporate income tax rate from 35% to 21% effective in 2018, a one-time "deemed repatriation" tax on unremitted earnings accumulated in non-U.S. jurisdictions, limitation on deductibility of interest, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system and other provisions. U.S. GAAP accounting for income taxes requires that Aceto record the impacts of any tax law change on the Company’s deferred income taxes in the quarter that the tax law change is enacted. Due to the complexities involved in accounting for the enactment of the TCJA, SEC Staff Accounting Bulletin (“SAB”) 118 allowed Aceto to provide a provisional estimate of the impacts of the TCJA in its earnings for the fiscal year ended June 30, 2018. Additional impacts from the enactment of the TCJA were to be recorded as they were identified during the measurement period ending no later than December 22, 2018 as provided for in SAB 118. For the six-month period ended December 31, 2018, we recorded a reduction of $405 of income tax expense associated with finalizing our calculations related to the TCJA. For the six months ended December 31, 2017, we recorded additional income tax expense of $13,909 related to the TCJA.
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Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017
Net Sales by Segment Three months ended December 31, | ||||||||||||||||||||||||
| Comparison 2018 | ||||||||||||||||||||||||
| 2018 | 2017 | Over/(Under) 2017 | ||||||||||||||||||||||
| % of | % of | $ | % | |||||||||||||||||||||
| Segment | Net sales | Total | Net sales | Total | Change | Change | ||||||||||||||||||
| Human Health | $ | 84,981 | 51.9 | % | $ | 103,466 | 60.4 | % | $ | (18,485 | ) | (17.9 | )% | |||||||||||
| Pharmaceutical Ingredients | 42,042 | 25.7 | 33,629 | 19.6 | 8,413 | 25.0 | ||||||||||||||||||
| Performance Chemicals | 36,626 | 22.4 | 34,134 | 20.0 | 2,492 | 7.3 | ||||||||||||||||||
| Net sales | $ | 163,649 | 100.0 | % | $ | 171,229 | 100.0 | % | $ | (7,580 | ) | (4.4 | )% | |||||||||||
Gross Profit by Segment Three months ended December 31, | ||||||||||||||||||||||||
| Comparison 2018 | ||||||||||||||||||||||||
| 2018 | 2017 | Over/(Under) 2017 | ||||||||||||||||||||||
| Gross | % of | Gross | % of | $ | % | |||||||||||||||||||
| Segment | Profit | Sales | Profit | Sales | Change | Change | ||||||||||||||||||
| Human Health | $ | 10,822 | 12.7 | % | $ | 22,898 | 22.1 | % | $ | (12,076 | ) | (52.7 | )% | |||||||||||
| Pharmaceutical Ingredients | 6,353 | 15.1 | 4,381 | 13.0 | 1,972 | 45.0 | ||||||||||||||||||
| Performance Chemicals | 6,871 | 18.8 | 6,691 | 19.6 | 180 | 2.7 | ||||||||||||||||||
| Gross profit | $ | 24,046 | 14.7 | % | $ | 33,970 | 19.8 | % | $ | (9,924 | ) | 29.2 | % | |||||||||||
Net Sales
Net sales decreased $7,580, or 4.4%, to $163,649 for the three months ended December 31, 2018, compared with $171,229 for the prior period. We reported a sales decrease in our Human Health segment and increases in our Performance Chemicals and Pharmaceutical Ingredients segments.
Human Health
Net sales for the Human Health segment decreased by $18,485 for the three months ended December 31, 2018, to $84,981, which represents a 17.9% decrease over net sales of $103,466 for the prior period. Sales of Rising products decreased $17,098 from the prior year as the persistent adverse conditions in the generics market have continued including continued pricing pressure, intense competition and related consolidation of customers. Rising experienced minimal FTS charges in the three months ended December 31, 2018. In addition, sales from Acetris Health declined over the prior period due to the reduction of the VA business previously discussed. Sales of nutritional products declined $1,387 over the prior period mainly due to a decrease in nutraceutical products sold abroad as a result of reduced demand on three products and timing of shipments.
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Pharmaceutical Ingredients
Net sales for the Pharmaceutical Ingredients segment increased $8,413 or 25.0% to $42,042 when compared to the prior period net sales of $33,629. The increase in sales for this segment was due primarily to an increase in sales of APIs of $5,720 sold both domestically and abroad. The increase in APIs was mainly due to increased demand on several products and two new launches. In addition, sales of pharmaceutical intermediaries sold abroad increased $2,817 due to increased demand on two products and new business.
Performance Chemicals
Net sales for the Performance Chemicals segment was $36,626 for the three months ended December 31, 2018, representing an increase of $2,492 or 7.3%, from net sales of $34,134 for the prior period. Sales of Performance Chemicals abroad increased by $1,904 primarily due to new business. Performance Chemicals sales were also impacted by a $1,443 increase in sales of our agricultural protection products, predominantly from orders that shipped in the second quarter this year compared to shipping in the third or fourth quarter in the prior fiscal period.
Gross Profit
Gross profit decreased $9,924 to $24,046 (14.7% of net sales) for the three months ended December 31, 2018, as compared to $33,970 (19.8% of net sales) for the prior period.
Human Health
Human Health segment’s gross profit of $10,822 for the three months ended December 31, 2018 decreased $12,076, or 52.7%, over the prior period. The gross margin of 12.7% was lower than the prior period’s gross margin of 22.1%.The decrease in Human Health’s gross profit was primarily related to the decline of $12,084 in gross profit on Rising’s products, due to the sales decline. The decline in gross margin is primarily driven by unfavorable product mix on certain Rising products, continued pricing pressure, intense competition and related consolidation of customers.
Pharmaceutical Ingredients
Pharmaceutical Ingredients’ gross profit of $6,353 for the three months ended December 31, 2018 increased $1,972, or 45.0%, over the prior period. The gross margin of 15.1% was higher than the prior period’s gross margin of 13.0%. The increase in gross profit and gross margin was predominantly the result of the increase in the sales volume of APIs sold abroad, as well as favorable product mix.
Performance Chemicals
Gross profit for the Performance Chemicals segment increased to $6,871 for the three months ended December 31, 2018, versus $6,691 for the prior year, an increase of $180 or 2.7%. The gross margin at 18.8% for the three months ended December 31, 2018 was lower than the prior year’s gross margin of 19.6%. The decrease in gross margin was due to unfavorable product mix on domestic sales of specialty chemical products.
Selling, General and Administrative Expenses
SG&A of $37,000 for the three months ended December 31, 2018 increased $8,937 or 31.8% from $28,063 reported for the prior period. As a percentage of sales, SG&A increased to 22.6% for the three months ended December 31, 2018 versus 16.4% in the prior period. As previously discussed, the Company has incurred substantial expenses to address the issues that led to the impairment charges taken in fiscal 2018, to manage the Company’s other business units and to explore strategic alternatives. As a result, the increase in SG&A is primarily due to approximately $9,461 of costs incurred by the Company to address the challenges impacting the Human Health business, including fees for financial advisors, professional fees, costs for senior staff retention and stabilization of corporate operations.
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Research and Development Expenses
R&D expenses decreased to $2,114 for the three months ended December 31, 2018 compared to $2,122 for the prior period. R&D expenses represent investment in our generic finished dosage form product pipeline.
Operating (Loss) Income
For the three months ended December 31, 2018 we had an operating loss of $(15,068) compared to operating income of $3,785 in the prior period, a decrease of $18,853 or 498.1%.
Interest Expense
Interest expense was $7,569 for the three months ended December 31, 2018, an increase of $2,521 or 49.9% from the prior period. The increase was primarily due to additional interest expense associated with the May 2018 Amendment and the September 2018 Amendment.
Provision for Income Taxes
The effective tax rate for the three months ended December 31, 2018 was (2.5)% compared to a not meaningful rate for the prior period. For the three months ended December 31, 2018, we recorded a reduction of $405 of income tax expense associated with finalizing our calculations related to the TCJA. For the three months ended December 31, 2017, we recorded $13,909 of additional income tax expense associated with the TCJA.
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Liquidity and Capital Resources
Cash Flows
At December 31, 2018, we had $41,782 in cash, of which $23,776 was outside the United States, $1,013 in short-term investments, all of which is held outside the United States, and $317,121 in long-term debt (including the current portion), all of which is an obligation in the United States. Working capital was $953 at December 31, 2018 compared to $200,109 at June 30, 2018. The $23,776 of cash held outside of the United States is fully accessible to meet any liquidity needs of our business located in any of the countries in which we operate. The majority of the cash located outside of the United States is held by our European operations and can be transferred into the United States. Although these amounts are fully accessible, transferring these amounts into the United States or any other countries could have certain local tax consequences. In accordance with the Tax Cuts and Jobs Act of 2017, we record additional income tax expense related to deferred tax liabilities for local tax authorities as we no longer assert permanent reinvestment of our undistributed non-U.S. subsidiaries' earnings. A portion of our cash is held in operating accounts that are with third party financial institutions. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts.
As significant demands on our cash persisted, our cash position at December 31, 2018 decreased $59,092 from the amount at June 30, 2018, predominantly due to the net loss of $43,442 during the period, as well as an increase in inventory and accounts receivable.
Operating activities for the six months ended December 31, 2018 used cash of $54,499 for this period, as compared to cash provided of $46,905 for the comparable period. The $54,499 use of cash resulted from $43,442 in net loss and $19,053 derived from adjustments for non-cash items and a net decrease of $30,110 from changes in operating assets and liabilities. The non-cash items included $16,160 in depreciation and amortization expense, $139 for deferred income taxes and $3,787 for amortization of debt issuance costs, debt discount and deferred financing costs offset in part by $1,476 of earnings on an equity investment in a joint venture. Trade accounts receivable increased $15,676 during the six months ended December 31, 2018, due predominantly to an increase in days sales outstanding, particularly at our Rising subsidiary, as well as an increase in sales of Rising products in the second quarter of fiscal 2019 compared to the fourth quarter of fiscal 2018. Inventories increased by $47,833 and accounts payable increased by $25,899 due primarily to inventories held in stock at our Rising subsidiary and a ramp up of inventory for our Pharmaceutical Ingredients segment due to shipments to occur in the following quarters of fiscal year 2019, as well as timing of payments processed at the end of the quarter. In addition, Specialty Chemicals inventories increased due to the build-up of inventory as a result of the Chinese tariffs as well as increased Agricultural Protection Products inventory for the anticipated sale of certain products expected to be shipped in the third and fourth quarters of fiscal 2019. Accrued expenses and other liabilities increased $6,374 due primarily to a rise in price concessions for our Rising business. Operating activities for the six months ended December 31, 2017 provided cash of $46,905 for this period. The $46,905 resulted from a $13,410 in net loss, $29,470 derived from net adjustments for non-cash items and a net $30,845 increase from changes in operating assets and liabilities.
Investing activities for the six months ended December 31, 2018 provided cash of $180 primarily from sales of investments in time deposits of $2,664 offset by purchases of investments of $660 and purchases of property and equipment and intangible assets of $1,824. Investing activities for the six months ended December 31, 2017 used cash of $4,722 primarily from purchases of property and equipment and intangible assets of $3,733 and purchases of investments in time deposits of $2,683, offset by sales of investments in time deposits of $1,694.
Financing activities for the six months ended December 31, 2018 used cash of $4,171, consisting of $3,865 in repayments of bank loans and $306 in payment of cash dividends. Financing activities for the six months ended December 31, 2017 used cash of $33,916 primarily from repayment of bank loans of $30,582 and $3,929 in payment of cash dividends.
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Credit Facilities
On December 21, 2016 the Company entered into a Second Amended and Restated Credit Agreement (the “A&R Credit Agreement”), with eleven banks, which amended and restated in its entirety the Amended and Restated Credit Agreement, dated as of October 28, 2015, as amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of November 10, 2015, and Amendment No. 2 to Amended and Restated Credit Agreement, dated as of August 26, 2016 (collectively, the “First Amended Credit Agreement”). The A&R Credit Agreement increased the aggregate available revolving commitment under the First Amended Credit Agreement from $150,000 to an initial aggregate available revolving commitment of $225,000 (the “Initial Revolving Commitment”). Under the A&R Credit Agreement, the Company was permitted to borrow, repay and reborrow from and as of December 21, 2016, to but excluding December 21, 2021 (the “Maturity Date”) provided, that if any of the Notes remain outstanding on the date that is 91 days prior to the maturity date of the Notes (the “2015 Convertible Maturity Date”), then the Maturity Date shall mean the date that is 91 days prior to the 2015 Convertible Maturity Date. The A&R Credit Agreement provides for (i) Eurodollar Loans (as such terms are defined in the A&R Credit Agreement), (ii) ABR Loans (as such terms are defined in the A&R Credit Agreement), or (iii) a combination thereof. As of December 31, 2018, the principal balance on the outstanding Revolving Loans (as defined under the A&R Credit Agreement) aggregated $62,000, which loans are Eurodollar Loans at interest rates ranging from 9.51% to 9.76% at December 31, 2018. The applicable interest rate margin percentage is subject to adjustment quarterly based upon the Company’s senior secured net leverage ratio.
Under the A&R Credit Agreement, the Company also borrowed $150,000 in term loans (the “Initial Term Loan). Subject to certain conditions, including obtaining commitments from existing or prospective lenders, the Company had the right to increase the amount of the Initial Revolving Commitment (each, a “Revolving Facility Increase” and, together with the Initial Revolving Commitment, the “Revolving Commitment”) and/or the Initial Term Loan in an aggregate amount not to exceed $100,000 pursuant to an incremental loan feature in the A&R Credit Agreement. As of December 31, 2018, the remaining principal amount outstanding under the Initial Term Loan was $123,750 and was payable as a Eurodollar Loan at an interest rate of 9.39%. The proceeds of the Initial Revolving Commitment and Initial Term Loan were used to partially finance the acquisition of generic products and related assets of Citron and its affiliate Lucid, and to pay fees and expenses related thereto. The applicable interest rate margin percentage is subject to adjustment quarterly based upon the Company’s senior secured net leverage ratio.
The Initial Term Loan is payable as to principal in nineteen consecutive, equal quarterly installments of $3,750, which commenced on March 31, 2017 and will continue on each March 31, June 30, September 30 and December 31 thereafter. To the extent not previously paid, the final payment on the Term Loan Maturity Date (as defined in the A&R Credit Agreement) shall be in an amount equal to the then outstanding unpaid principal amount of the Initial Term Loan.
The A&R Credit Agreement provides that commercial letters of credit shall be issued to provide the primary payment mechanism in connection with the purchase of any materials, goods or services in the ordinary course of business. The Company had no open letters of credit at December 31, 2018 and June 30, 2018.
In accordance with generally accepted accounting principles, deferred financing costs associated with the Initial Term Loan are presented as a direct deduction from the carrying value of the debt liability rather than showing the deferred financing costs as a deferred charge on the balance sheet. In addition, deferred financing costs associated with the Revolving Commitment have been recorded as a deferred charge on the balance sheet.
The A&R Credit Agreement provides for a security interest in substantially all of the personal property of the Company and certain of its subsidiaries. The A&R Credit Agreement contains several financial covenants including, among other things, maintaining a minimum level of debt service and certain leverage ratios. Under the A&R Credit Agreement, the Company and its subsidiaries are also subject to certain restrictive covenants, including, among other things, covenants governing liens, limitations on indebtedness, limitations on guarantees, limitations on sales of assets and sales of receivables, and limitations on loans and investments.
On December 13, 2017, the Company entered into a First Amendment to the Second Amended and Restated Credit Agreement (the “2017 Amendment”), which amended the A&R Credit Agreement. The 2017 Amendment, among other things, contained several amendments to the financial covenants in the A&R Credit Agreement.
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On May 3, 2018, the Company entered into a Second Amendment and Waiver to the Second Amended and Restated Credit Agreement (the “May 2018 Amendment”). The May 2018 Amendment, among other things, contained a waiver of any event of default under the A&R Credit Agreement arising as a result of the non-compliance by the Company with Total Net Leverage Ratio and Debt Service Coverage Ratio financial covenants, in each case, solely for the fiscal quarter ended March 31, 2018. The May 2018 Amendment also contained several amendments to the A&R Credit Agreement including, among other things, reducing the available revolving commitment thereunder to $100,000, fixing the applicable margin on Loans (as defined in the A&R Credit Agreement) to the highest level provided under the A&R Credit Agreement at the time, fixing the commitment fee on the undrawn revolving commitments to the highest level provided under the A&R Credit Agreement at the time, requiring prior written consent of the Required Lenders (as defined in the A&R Credit Agreement) as a condition precedent to the lenders making any additional Revolving Loans or the issuing banks issuing, amending, renewing or extending any Letter of Credit (as defined in the A&R Credit Agreement), restricting dividends or distributions the Company may make to its shareholders to no more than $0.01 per share for the fiscal quarter ending on June 30, 2018 and restricting dividends or distributions thereafter, restricting the incurrence of certain indebtedness, limiting acquisitions and other investments and imposing certain other restrictions.
As of June 30, 2018, the Company was not in compliance with its financial covenants relating to its Total Net Leverage Ratio, Senior Secured Net Leverage Ratio and Debt Service Coverage Ratio. The Company and its lenders agreed upon another amendment and waiver to the A&R Credit Agreement (referred to herein as the “September 2018 Amendment”). The September 2018 Amendment provided for a waiver of any event of default under the A&R Credit Agreement arising as a result of the non-compliance by the Company with the Total Net Leverage Ratio, Senior Secured Net Leverage Ratio and Debt Service Coverage Ratio financial covenants, in each case, solely for the fiscal quarters ended or ending June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019. The September 2018 Amendment also contains several amendments to the A&R Credit Agreement including, among other things, (a) a limitation on dividends for the fiscal quarters ending September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, to an amount not to exceed $325 for any fiscal quarter, (b) increasing the applicable margin with respect to the interest rates on all Loans by 450 basis points and fixing (during the September 2018 Amendment Limitation Period (as hereinafter defined)) the applicable margin with respect to the interest rate on all Loans to the highest level provided under the A&R Credit Agreement which is currently 6.00% in the case of ABR Loans and 7.00% in the case of Eurodollar Loans, (c) during the period commencing on the closing of the September 2018 Amendment and ending on the date the Company demonstrates compliance with each financial covenant set forth in the A&R Credit Agreement for the fiscal quarter ending September 30, 2019 (referred to herein as the “September 2018 Amendment Limitation Period”; provided that if the Company is not in compliance with any of the financial covenants set forth in the A&R Credit Agreement for the fiscal quarter ending September 30, 2019, then the September 2018 Amendment Limitation Period shall continue indefinitely), requiring the Company to maintain the sum of Domestic Liquidity (as defined in the A&R Credit Agreement) plus Foreign Liquidity (as defined in the A&R Credit Agreement) and the undrawn portion of the Revolving Commitment (referred to herein as “Covenant Liquidity”) to an amount of at least $55,000 (the “Covenant Liquidity Amount”) as of the last business day of each week following the effectiveness of the September 2018 Amendment; provided that the Company shall not be in breach of the minimum liquidity covenant unless the Covenant Liquidity is less than the Covenant Liquidity Amount as of the last business day of two consecutive weeks, (d) requiring the prior written consent of the Required Lenders as a condition precedent to the lenders extending any Loans or the issuing banks issuing, amending, renewing or extending any Letter of Credit, (e) permitting the purchase, during fiscal 2019, of assets for an aggregate consideration not to exceed $12,300, consisting of intangibles assets relating to strategic product acquisitions and certain capital expenditures, and (f) restricting the incurrence of certain indebtedness, limiting acquisitions and other investments and imposing certain other restrictions.
On January 8, 2019 (the “Fourth Amendment Effective Date”), the Company further amended the A&R Credit Agreement, constituting a Fourth Amendment and Limited Waiver (the “January 2019 Amendment”). The January 2019 Amendment contains certain amendments to the Credit Agreement relating to the revolver access and vendor and business partner payments, under which the Company is permitted (a) to request and borrow up to an additional $23,000 as Revolving Loans; and (b) to purchase, prior to the repayment of these newly borrowed Revolving Loans and during (x) the Company’s fiscal year 2019, assets in an aggregate amount not to exceed $6,500 or (y) the third quarter of the Company’s fiscal year 2019, assets in an aggregate amount not to exceed $3,105, in each case, consisting of intangible assets relating to strategic product acquisitions, certain data compensation expenses and certain capital expenditures.
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The January 2019 Amendment also contains modifications to the A&R Credit Agreement relating to cash management and liquidity. In general, further compliance with the minimum liquidity covenant from the September 2018 Amendment has been permanently waived, there is a cash anti-hoarding provision, and there are restrictions on the Company and its Domestic Subsidiaries (as defined in the A&R Credit Agreement) transferring funds to its Foreign Subsidiaries (as defined in the A&R Credit Agreement) and prohibitions on paying dividends and making similar distributions.
The January 2019 Amendment mandates certain milestones with respect to the Company’s strategic process. In general, the milestones require delivery to the Administrative Agent (as defined in the A&R Credit Agreement) and lenders of proposals and commitments from financially credible third parties, the proceeds of which would be sufficient and used to repay both the Revolving Loans borrowed on or after the Fourth Amendment Effective Date and the remaining Obligations (as defined in the A&R Credit Agreement). The Company has been taking steps to meet these milestones, but no assurance may be given that they will be successfully met. The January 2019 Amendment also revises both the Revolving Loan Maturity Date (as defined in the A&R Credit Agreement) and Term Loan Maturity Date to June 30, 2019, the last day of the Company’s current fiscal year. Based on the new maturity dates, the Company has classified the indebtedness outstanding under the Company’s credit facility as a current liability as of December 31, 2018.
The January 2019 Amendment provides for a waiver of any event of default under the A&R Credit Agreement arising as a result of the failure by the Company (x) to make certain principal and interest payments under the A&R Credit Agreement that were due on or about December 31, 2018 (which were instead paid pursuant to the January 2019 Amendment on the Fourth Amendment Effective Date), (y) to pay interest on certain deferred payment amounts to the sellers under the 2016 Citron product purchase agreement, and (z) as described above, the non-compliance by the Company with the liquidity financial covenant. The January 2019 Amendment provides for the payment of a fee equal to 2.0% of each lender’s revolving commitment that is available or borrowed after the Fourth Amendment Effective Date, a 0.25% (of each such lender’s aggregate exposure) consent fee to the lenders who timely consented to the January 2019 Amendment, increases the waiver fees imposed under the September 2018 Amendment from 4.0% to 6.0% but only under certain circumstances, and provides for reimbursement of certain third party expenses incurred by the Administrative Agent and lenders.
On January 31, 2019, the Company entered into a Limited Waiver to the Second Amended and Restated Credit Agreement (the “January 2019 Waiver”). The January 2019 Waiver provides for a waiver of any event of default under the A&R Credit Agreement arising as a result of the failure by the Company to deliver to the Administrative Agent and the lenders a binding commitment letter with respect to subordinated financing by January 31, 2019.
In conjunction with the A&R Credit Agreement, the Company entered into an interest rate swap on March 21, 2017 for an additional interest cost of 2.005% on a notional amount of $100,000, which has been designated as a cash flow hedge. The expiration date of this interest rate swap was December 21, 2021. The remaining notional balance of this derivative as of December 31, 2018 is $80,000. In January 2019, the Company terminated the interest rate swap agreement resulting in a cash receipt of $1,145.
On February 19, 2019, the Company entered into the DIP Credit Agreement. For information regarding the DIP Credit Agreement and certain related matters, see Item 5 Other Information.
Working Capital Outlook
Working capital was $953 at December 31, 2018 versus $200,109 at June 30, 2018.
In connection with the acquisition of certain products and related assets from Citron and Lucid, Aceto committed to make a $50,000 unsecured deferred payment that bears interest at a rate of 5% per annum to the sellers on December 21, 2021 and to issue 5,122 shares of Aceto common stock beginning on December 21, 2019.
In November 2015, we offered $125,000 aggregate principal amount of 2% Convertible Senior Notes due 2020 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In addition, we granted the initial purchasers for the offering an option to purchase up to an additional $18,750 aggregate principal amount pursuant to the initial purchasers’ option to purchase additional notes, which was exercised in November 2015. Therefore, the total offering was $143,750 aggregate principal amount. The remaining net proceeds received from the offering, after paying down our credit facilities and costs associated with the offering and a related hedge transaction, have been used for general corporate purposes, which may include funding research, development and product manufacturing, acquisitions or investments in businesses, products or technologies that are complementary to Aceto’s own, increasing working capital and funding capital expenditures.
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In connection with our agricultural protection business, we plan to continue to acquire product registrations and related data filed with the United States Environmental Protection Agency as well as payments to various task force groups, which could approximate $5,644 in fiscal 2019.
In connection with our environmental remediation obligation for Arsynco, we anticipate paying $4,010 towards remediation of the property in the next twelve months, which is included in accrued expenses in our Condensed Consolidated Balance Sheet as of December 31, 2018, and, as noted above, our working capital declined to $953 at December 31, 2018. Given the substantial reduction in the Company’s liquidity, the Company has determined to seek the protection of the Bankruptcy Code. See Item 5 Other Information.
As indicated in the accompanying interim unaudited condensed consolidated financial statements, the Company had working capital at December 31, 2018 of $953 as compared with $200,109 at June 30, 2018. As more fully discussed in Note 6, the maturity date of the bank loans was revised from December 21, 2021 to June 30, 2019, resulting in the classification of the indebtedness outstanding under the Company’s credit facility as a current liability as of December 31, 2018. The Company has accumulated deficit and continued operating losses. The Company also continues to spend heavily on financial and legal professionals retained by the Company to deal with ongoing negative factors in the generic drug market and pending legal proceedings. As a result, our cash position declined from $100,874 at June 30, 2018 to $41,782 at December 31, 2018.
On February 19, 2019, the Debtors each filed a voluntary petition for relief under chapter 11 of title 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al.
For the duration of the Chapter 11 Cases, our operations are subject to risks and uncertainties associated with chapter 11 proceedings. As a result of these risks and uncertainties, our assets, liabilities, shareholders’ equity, officers and/or directors could be significantly different following the conclusion of the Chapter 11 Cases, and the description of our operations, properties and capital plans included in this quarterly report on Form 10-Q may not reflect our actual operations, properties and capital plans following the conclusion of the Chapter 11 Cases.
We intend to sell substantially all of our assets pursuant to one or more sales under Section 363 of the Bankruptcy Code. If we are unable to complete one or more sales of the Company’s assets, it may be necessary to explore a plan of reorganization or liquidation or our Chapter 11 Cases may be converted to a chapter 7 liquidation process.
Therefore, the outcome of the chapter 11 process is subject to a high degree of uncertainty and is dependent upon factors outside of our control, including determinations by the Bankruptcy Court and actions and positions taken by our creditors. The significant risks and uncertainties related to the Company’s ability to pay significant indebtedness due within the next twelve months, our liquidity and the Chapter 11 Cases raise substantial doubt about our ability to continue as a going concern. The Company’s Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of certain liabilities and other commitments in the normal course of business. The Company’s Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.
Impact of Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. The Company is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.
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In June 2018, the FASB issued ASU 2018-07 Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which gives entities the option to reclassify the disproportionate income tax effects ("stranded tax effects") caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The update also requires new disclosures, some of which are applicable for all entities. The guidance in ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which has the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in ASU 2017-12 make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting. The amendments in ASU 2017-12 and ASU 2018-16 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the provisions of ASU 2017-12 and ASU 2018-16.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-15 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended in July 2018 by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, that replace existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. These ASU’s are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of these ASU’s and anticipates recognition of additional assets and corresponding liabilities relating to these leases on its consolidated balance sheet but does not expect the adjustment to be material assuming no changes in lease activity.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitive Instruments
The market risk inherent in our market-risk-sensitive instruments and positions is the potential loss arising from adverse changes in investment market prices, foreign currency exchange-rates and interest rates.
Investment Market Price Risk
We had short-term investments of $1,013 at December 31, 2018 and $3,030 at June 30, 2018. Those short-term investments consisted of time deposits. Time deposits are short-term in nature and are accordingly valued at cost plus accrued interest, which approximates fair value.
Foreign Currency Exchange Risk
In order to reduce the risk of foreign currency exchange rate fluctuations, we hedge some of our transactions denominated in a currency other than the functional currencies applicable to each of our various entities. The instruments used for hedging are short-term foreign currency contracts (futures). The changes in market value of such contracts have a high correlation to price changes in the currency of the related hedged transactions. At December 31, 2018, we had foreign currency contracts outstanding that had a notional amount of $61,904. At June 30, 2018 our outstanding foreign currency contracts had a notional amount of $56,108. The difference between the fair market value of the foreign currency contracts and the related commitments at inception and the fair market value of the contracts and the related commitments at December 31, 2018 was not material.
We are subject to risk from changes in foreign exchange rates for our subsidiaries that use a foreign currency as their functional currency and are translated into U.S. dollars. These changes result in cumulative translation adjustments, which are included in accumulated other comprehensive income (loss). On December 31, 2018, we had translation exposure to various foreign currencies, with the most significant being the Euro. The potential loss as of December 31, 2018, resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates amounted to $6,709. On June 30, 2018 such potential loss amounted to $6,573. Actual results may differ.
Interest rate risk
Due to our financing, investing and cash-management activities, we are subject to market risk from exposure to changes in interest rates. We utilize a balanced mix of debt maturities along with both fixed-rate and variable-rate debt to manage our exposure to changes in interest rates. Our financial instrument holdings were analyzed to determine their sensitivity to interest rate changes. In this sensitivity analysis, we used the same change in interest rate for all maturities. All other factors were held constant. If there were an adverse change in interest rates of 10%, the expected effect on net income related to our financial instruments would be immaterial. However, there can be no assurances that interest rates will not significantly affect our results of operations.
In conjunction with the Credit Agreement, the Company entered into an interest rate swap on March 21, 2017 for an additional interest cost of 2.005% on a notional amount of $100,000, which has been designated as a cash flow hedge. The expiration date of this interest rate swap is December 21, 2021. The remaining notional balance of this derivative as of December 31, 2018 is $80,000. The unrealized loss to date associated with this derivative, which is recorded in accumulated other comprehensive income in the consolidated balance sheet at December 31, 2018, is $1,135. In January 2019, the Company terminated the interest rate swap agreement resulting in a cash receipt of $1,145.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer, with assistance from other members of our management, have reviewed the effectiveness of our disclosure controls and procedures as of December 31, 2018 and, based on their evaluation, have concluded that our disclosure controls and procedures were effective as of such date.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As previously described in our Form 10-K for the year ended June 30, 2018, we are subject to various environmental proceedings for which there were no material changes during the six months ended December 31, 2018.
The Company incorporates by reference into this Item 1 the disclosures made with respect to pending legal proceedings set forth in Note 7 (Commitments, Contingencies and Other Matters) to the Company’s Condensed Consolidated Financial Statements presented elsewhere herein.
In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed under Part I - “Item 1A. Risk Factors” in our Form 10-K for the year ended June 30, 2018 which could materially adversely affect our business, financial condition, operating results and cash flows. The risks and uncertainties described in our Form 10-K for the year ended June 30, 2018 are not the only ones we face. Additionally, risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition, operating results or cash flows.
The material impairment charge that we recorded in fiscal 2018 was based on several adverse factors, certain of which have continued to materially adversely impact the Company beyond year-end.
In the third quarter of fiscal 2018, we recorded impairment charges for goodwill and intangible assets of $256,266, all of which related to the Rising Pharmaceuticals reporting unit which is part of the Human Health segment. During the third quarter of fiscal 2018, our Rising Pharmaceuticals reporting unit had a decline in actual and forecasted revenue and earnings due to the persistent adverse conditions in the generics market. In addition, the U.S. government made a determination (which was subsequently reversed) that 11 generic drug products we acquired through our Acetris Health subsidiary (part of the Rising Pharmaceuticals reporting unit) in a product purchase agreement with Lucid were not in compliance with the country-of-origin provisions of a clause contained in the government supply contracts acquired from Lucid. As a result of the foregoing, we conducted an impairment test and recognized a significant goodwill and intangible asset impairment charge.
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Many of the market and industry factors that led to the March 31, 2018 impairment charges have continued to impact us. The difficult conditions in the generic drug market have been compounded by the continuing impact of failures to supply and other negative market factors. We also continue to spend heavily on financial and legal professionals retained by us to deal with ongoing negative factors in the market and pending legal proceedings. As a result, our cash position declined from $100,874 at June 30, 2018 to $41,782 at December 31, 2018 and our working capital declined from $200,109 at June 30, 2018 to $953 at December 31, 2018.
We are subject to risks and uncertainties associated with our Chapter 11 Cases.
Our operations and our ability to continue as a going concern are subject to risks and uncertainties associated with the Chapter 11 Cases. These risks include the following:
| · | our ability to continue as a going concern; |
| · | our ability to obtain court approval with respect to motions filed in Chapter 11 Cases from time to time, including a motion to approve debtor-in-possession financing and one or more motions to approve sales of substantially all of the Company’s assets; |
| · | our ability to maintain our relationships with our suppliers, service providers, customers, employees and other third parties; |
| · | our ability to maintain contracts that are critical to our operations; |
| · | our ability to obtain acceptable and appropriate financing; |
| · | the ability of third parties to seek and obtain court approval to terminate or compel us to reject contracts and other agreements with us; |
| · | our ability to develop, confirm and consummate a chapter 11 plan or alternative restructuring transaction; |
| · | the ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity period for us to propose and confirm a chapter 11 plan, to appoint a chapter 11 trustee, or to convert the Chapter 11 Cases to a chapter 7 proceeding; and |
| · | the actions and decisions of our creditors and other third parties who are parties in interest in our Chapter 11 Cases that may be inconsistent with our actions and decisions. |
Because of the risks and uncertainties associated with our Chapter 11 Cases, we cannot accurately predict or quantify the ultimate impact of events that will occur during our Chapter 11 Cases.
We may not be able to complete any Bankruptcy Court-approved sales of our Company or assets through the chapter 11 process, or we may not be able to realize adequate consideration for such sales, which would adversely affect our financial condition.
In connection with the Chapter 11 Cases, we intend to sell substantially all of our assets pursuant to one or more sales under Section 363 of the Bankruptcy Code. The Company and certain of its subsidiaries entered into the Asset Purchase Agreement pursuant to which NMC Atlas, L.P. (the “Buyer”), a Delaware limited partnership (and an affiliate of New Mountain Capital, L.L.C.) agreed to acquire substantially all of the assets and assume certain liabilities of the Company’s Chemicals Plus Business pursuant to Sections 363 and 365 of the Bankruptcy Code. The Asset Purchase Agreement is subject to Bankruptcy Court approval and intended to constitute a “stalking horse” bid that is subject to higher and better bids by third parties in accordance with bidding procedures to be approved by the Bankruptcy Court. There can be no assurance that we will be able to obtain approval and complete the proposed sale because there may be objections from our stakeholders, which could include a committee of unsecured creditors or other debt holders or our equity holders.
The Debtors are also seeking bids for the sale of the Company’s Pharma Business segment. There can be no assurance that we will be successful in entering into an agreement for, or completing, any such sale because, among other things, we may not receive sufficient consideration for such assets, or there may be objections from our stakeholders, which could include a committee of unsecured creditors or other debt holders or our equity holders. Such a sale would also be subject to the approval of the Bankruptcy Court.
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If we are unable to complete one or more sales of the Company’s assets, it may be necessary to seek additional funding sources or possibly convert to a Chapter 7 liquidation process. If one or more sales of the Company’s assets are completed, they may not generate the anticipated or desired outcomes.
From time to time, we may also receive inquiries from third parties regarding our potential interest in disposing of certain of our assets, which we may choose to pursue in accordance with procedures approved by the Bankruptcy Court. Any dispositions may result in us recognizing significant losses. As a result, such asset dispositions could have a material adverse effect on our business, financial condition, liquidity and results of operations.
We are subject to risks and uncertainties with respect to the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 Cases that may be inconsistent with our plans.
These risks and uncertainties could significantly affect our business and operations in various ways. For example, negative publicity or events associated with the Chapter 11 Cases may adversely affect our relationships with our vendors and employees, as well as with customers and business partners, which in turn could materially and adversely affect our business, financial condition, liquidity and results of operations. In addition, pursuant to the Bankruptcy Code, we need Bankruptcy Court approval for transactions outside the ordinary course of business, which may impact our ability to take advantage of certain opportunities. Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot predict or quantify the ultimate impact that events occurring during the pendency of the Chapter 11 Cases will have on our business, financial condition, liquidity, results of operations, or the certainty as to our ability to continue as a going concern. As a result of the Chapter 11 Cases, realization of assets and liquidation of liabilities are subject to uncertainties. While operating under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of a portion or all of our assets and liquidate or settle liabilities for amounts other than those reflected in our Consolidated Condensed Financial Statements.
Our businesses could suffer from a long and protracted restructuring.
A long period of operations under Bankruptcy Court protection could have a material adverse effect on our business, financial condition, liquidity and results of operations. So long as the Chapter 11 Cases continue, our senior management will be required to spend a significant amount of time and effort dealing with the requirements associated with the Chapter 11 Cases instead of focusing exclusively on our business operations. A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary to the success and stability of our business.
Additionally, so long as the Chapter 11 Cases continue, we will be required to incur significant costs for professional fees and other expenses associated with the administration of the Chapter 11 Cases. In addition, the DIP financing may not be sufficient to meet our liquidity requirements or may be restricted or ultimately terminated by the lenders under the DIP financing in accordance with the terms of the definitive documents governing such financing. If our cash flows and borrowings under the DIP financing are not sufficient to meet our liquidity requirements, our chances of successfully selling our assets as a going concern may be seriously jeopardized and the likelihood that we instead will be required to liquidate our assets on a piecemeal basis may be enhanced, further negatively impacting the value of any of our debt or equity securities.
Operating as a debtor in possession under chapter 11 of the Bankruptcy Code may restrict our ability to pursue our business strategies.
Under the Bankruptcy Code, the entry into transactions outside the ordinary course of business will be subject to the prior approval of the Bankruptcy Court, which may limit our ability to take advantage of certain opportunities. We must obtain Bankruptcy Court approval to, among other things:
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| · | engage in certain transactions with our various stakeholders; |
| · | buy or sell assets outside the ordinary course of business; |
| · | consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and |
| · | borrow funds for our operations, investments or other capital needs or to engage in other business activities that would be in our best interest. |
Trading in our securities during the pendency of our Chapter 11 Cases poses substantial risks and is highly speculative.
We cannot predict the extent to which holders of our convertible notes will be able to realize the full amount of their investment upon conclusion of the Chapter 11 Cases. Under anticipated recovery levels, it is not anticipated that the Company’s common stock will have any value upon conclusion of the Chapter 11 Cases. Trading prices for our common stock or other securities may bear little or no relationship during the pendency of the Chapter 11 Cases to the actual recovery, if any, by the holders thereof at the conclusion of the Chapter 11 Cases. Accordingly, we urge extreme caution with respect to existing and future investments in our common stock or other securities.
The Company and certain of its U.S. subsidiaries may be unable to comply with restrictions imposed by the agreements governing the DIP financing and the Company and certain of its U.S. subsidiaries’ other financing arrangements.
The agreements governing the DIP financing impose a number of restrictions on the Company and certain of its U.S. subsidiaries. Specifically, the terms of the credit agreement governing the DIP credit facilities impose certain obligations including, among other things, affirmative covenants requiring the Debtors to provide financial information, budgets and other information to the agents under the DIP credit facilities, and negative covenants restricting the Debtors' ability to incur additional indebtedness, make additional investments, grant liens, dispose of assets, pay dividends, undertake transactions with affiliates or take certain other actions, in each case except as permitted by the terms and conditions of the credit agreements governing the DIP credit facilities. The Debtors' ability to borrow under the DIP credit facilities is subject to the satisfaction of certain customary conditions precedent set forth therein.
The Company and certain of its U.S. subsidiaries’ ability to comply with these provisions may be affected by events beyond their control and their failure to comply, or obtain a waiver in the event the Company and certain of its U.S. subsidiaries cannot comply with a covenant or achieve a milestone, could result in an event of default under the agreements governing the DIP financing and the Company and certain of its U.S. subsidiaries’ other financing arrangements.
In certain instances, including, among other things, if we are not able to obtain confirmation of a chapter 11 plan, if current financing is insufficient, or if exit financing is not available, a chapter 11 case may be converted to a case under chapter 7 of the Bankruptcy Code, and may result in significantly smaller distributions to the Debtors' creditors than under a chapter 11 plan.
In order to conclude the Chapter 11 Cases, we must develop and obtain confirmation of a chapter 11 plan by the Bankruptcy Court. There can be no assurance that we will be able to confirm a plan. There can be no assurance that our access to liquidity, including funds available from our DIP financing, will be sufficient to fund ongoing operations.
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If the Bankruptcy Court finds that it would be in the best interest of creditors and/or the Debtors, the Bankruptcy Court may convert our Chapter 11 Cases to cases under chapter 7 of the Bankruptcy Code. In such event, a chapter 7 trustee would be appointed or elected to liquidate the Debtors' assets for distribution in accordance with the priorities established by the Bankruptcy Code. The Debtors believe that liquidation under chapter 7 would result in significantly smaller distributions being made to the Debtors' creditors than those provided for in a chapter 11 plan because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time rather than selling in a controlled manner the Debtors' businesses as a going concern, (ii) additional administrative expenses involved in the appointment of a chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that may be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.
Our business, financial condition, results of operations and liquidity could be negatively impacted by the loss of customers and suppliers.
As a result of the Chapter 11 Cases, we may experience collection issues with otherwise valid receivables with respect to certain customers. Adverse resolution of these disagreements may impact our revenues and other costs of services, both prospectively and retroactively. It is too soon for us to predict with any certainty the ultimate impact of these disagreements. Many of our suppliers, vendors and service providers may require stricter terms and conditions, and we may not find these terms and conditions acceptable. In addition, we may continue to experience a loss of confidence by current and prospective suppliers, customers, landlords, employees or other stakeholders, which could make it more difficult for us to operate and have a material adverse effect on our businesses, financial condition, liquidity and results of operations. Any failure to timely obtain suitable inventory at competitive prices could materially adversely affect our businesses, financial condition, liquidity and results of operations.
Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
We face uncertainty regarding the adequacy of our liquidity and capital resources and have limited access to additional financing. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout our Chapter 11 Cases. In addition, we must comply with the covenants of our significant DIP financing in order to continue to access our borrowings thereunder. These covenants include, among other things, continuous and detailed financial reporting and budget requirements (including adhering to a budget subject to limited permitted variances), restrictions on transactions with affiliates, as well as general restrictions on the incurrence of debt, making additional investments, granting of liens and dispositions of assets. We cannot assure you that we will be able to comply with the covenants of our DIP financing or that cash on hand and cash flow from operations will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 Cases.
Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to comply with the terms and conditions of our DIP financing agreements, (ii) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (iii) our ability to maintain adequate cash on hand, (iv) our ability to generate cash flow from operations, (v) our ability to develop, confirm and consummate a chapter 11 plan or other alternative restructuring transaction, and (vi) the cost, duration and outcome of the Chapter 11 Cases.
The Chapter 11 Cases limit the flexibility of our management team in running our business.
While we operate our businesses as debtors-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the Bankruptcy Court and, in some cases, certain lenders prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with a committee of unsecured creditors and other parties-in-interest and one or more hearings. A creditors' committee and other parties-in-interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events in the marketplace. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.
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Adverse publicity in connection with the Chapter 11 Cases or otherwise could negatively affect our businesses.
Adverse publicity or news coverage relating to us, including, but not limited to, publicity or news coverage in connection with the Chapter 11 Cases, may negatively impact operations, liquidity and financial condition.
We may not have sufficient cash to maintain our operations during the Chapter 11 Cases.
Because of our financial condition, we will have heightened exposure to, and less ability to withstand, the operating risks that are customary in our industry. Any of these factors could result in the need for substantial additional funding. A number of other factors, including our Chapter 11 Cases, our financial results in recent years, our substantial indebtedness and the competitive environment we face, materially adversely affect the availability and terms of funding that might be available to us during the Chapter 11 Cases. As a result, we may not be able to source capital at rates acceptable to us, or at all, to fund our current operations outside of the anticipated DIP financing. The inability to obtain necessary additional funding on acceptable terms could have a material adverse impact on us and on our ability to sustain our operations and/or sell our assets as a going concern.
Transfers of our equity and issuances of equity in connection with the Chapter 11 Cases may impair our ability to utilize our federal income tax net operating loss carryforwards in future years.
Under federal income tax law, a corporation is generally permitted to deduct from taxable income net operating losses carried forward from prior years. Our ability to utilize net operating loss carryforwards to offset future taxable income and to reduce federal income tax liability is subject to certain requirements and restrictions. If we experience an “ownership change,” as defined in section 382 of the U.S. Internal Revenue Code, then our ability to use net operating loss carryforwards and other tax attributes may be substantially limited, which could have a negative impact on our financial position and results of operations. Generally, there is an “ownership change” if one or more shareholders owning 5% or more of a corporation’s common stock have aggregate increases in their ownership of such stock of more than 50 percentage points over the prior three-year period. While not currently expected, following the implementation of a plan of reorganization in the Chapter 11 Cases, we may experience an “ownership change.” Under section 382 of the U.S. Internal Revenue Code, absent an application exception, if a corporation undergoes an “ownership change,” the amount of its net operating losses that may be utilized to offset future taxable income generally is subject to an annual limitation on the amount of federal income tax net operating loss carry-forwards existing prior to the change that it could utilize to offset its taxable income in any future taxable year to an amount generally equal to the value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate, subject to adjustments to reflect the differences between the fair market value of the corporation’s assets and the tax basis in such assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
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Bankruptcy Filing
On February 19, 2019, the Company and certain of its U.S. subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al. (the “Chapter 11 Case”). All documents filed with the Bankruptcy Court are available for inspection at the Office of the Clerk of the Bankruptcy Court or online at www.primeclerk.com.
Each of the Debtors remains in possession of its respective assets and will continue to operate its respective business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
The Debtors have filed a series of “first day” motions, including motions for entry of orders authorizing the Debtors to obtain secured postpetition financing; to continue paying employee wages, salaries and benefit programs; to continue their cash management system; to continue customer programs; and to obtain other relief intended to assure the Debtors’ ability to continue ordinary course operations.
The Debtors currently intend to seek the approval of the Bankruptcy Court of one or more sales of substantially all of their assets under section 363 of the Bankruptcy Code.
Asset Purchase Agreement
On February 18, 2019, the Company and certain of its U.S. subsidiaries (collectively, the “Sellers”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with NMC Atlas, L.P., a Delaware limited partnership (the “Buyer”), an affiliate of New Mountain Capital, L.L.C., pursuant to which the Buyer agreed to acquire substantially all of the assets and assume certain liabilities of the Company’s Chemicals Plus Business for an aggregate purchase price of $338,000 in cash plus the assumption of certain liabilities (as set forth in the Asset Purchase Agreement), subject to adjustments for net current assets at closing.
The Asset Purchase Agreement is intended to constitute a “stalking horse” bid that is subject to higher and better bids by third parties in accordance with bidding procedures to be approved by the Bankruptcy Court. The Asset Purchase Agreement provides for the payment of a termination fee of $6,760, and reimbursement of Buyer’s expenses up to $2,000, in the event that the Asset Purchase Agreement is replaced by a higher and better bid.
Pursuant to the Asset Purchase Agreement, the Buyer has deposited $33,800 into escrow as a good faith deposit. The good faith deposit will be applied to the purchase price at closing or retained by the Sellers in the event the Asset Purchase Agreement is terminated due to certain breaches of the Asset Purchase Agreement by Buyer or returned to Buyer if the Asset Purchase Agreement is terminated for other reasons.
The Sellers and the Buyer have made customary representations, warranties and covenants in the Asset Purchase Agreement. The closing of the transactions contemplated by the Asset Purchase Agreement is subject to the satisfaction or waiver of a number of closing conditions, including the receipt of customary regulatory approvals and the entry of a sale order by the Bankruptcy Court approving the sale as provided in the Asset Purchase Agreement.
The foregoing description of the Asset Purchase Agreement is not complete and is qualified in its entirety by reference to the Asset Purchase Agreement which is attached as Exhibit 10.2 hereto and is incorporated herein by reference.
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Debtor-In-Possession Financing
In connection with the Chapter 11 Cases, the Company and certain of its U.S. subsidiaries (collectively, the “DIP Borrowers”) will enter into a Senior Secured, Priming and Superprioity Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”) with the lenders party thereto from time to time (the “DIP Lenders”) and Wells Fargo Bank, National Association, as administrative agent for the DIP Lenders (the “DIP Administrative Agent”) The DIP Credit Agreement is subject to approval of the Bankruptcy Court and will become effective upon, in addition to other customary closing conditions, the entry of the Interim Order (as defined in the DIP Credit Agreement). The DIP Credit Agreement provides for a $60,000 debtor-in-possession revolving credit facility (the “DIP Facility”). In accordance with the terms of the DIP Credit Agreement, a portion of the DIP Facility will be used to refinance up to $23,000 of outstanding revolving bridge loans along with additional revolving loans held by DIP Lenders under the Company’s prepetition credit agreement outstanding on the Effective Date. In addition, the DIP Borrowers will use the proceeds of the DIP Facility for the following purposes: (i) to finance the expenses of the DIP Borrowers, including ordinary course operating expenses related to the Chapter 11 Cases and professional fees and expenses set forth in an approved budget, which shall be in form and substance reasonably satisfactory to the DIP Administrative Agent, as updated by monthly supplementary forecasts to be delivered by the DIP Borrowers and that have been approved by the DIP Administrative Agent and (ii) to make adequate protection payments to its prepetition secured lenders and agents in connection with the use of their collateral.
Pursuant to the terms of the DIP Credit Agreement, interest will accrue on the principal balance of the DIP Loans at a rate per annum equal to (a) LIBOR for such interest period plus 7.00% in respect of Eurodollar Loans (as defined in the DIP Credit Agreement) and (b) the alternate base rate plus 6.00% in respect of ABR Borrowings (as defined in the DIP Credit Agreement). The DIP Facility is subject to certain customary representations, warranties, covenants and events of default, and the DIP Lenders’ obligations to fund are contingent upon the satisfaction of certain conditions, including, without limitation, the entry of the Interim DIP Order and final order (the “Final DIP Order”) by the Bankruptcy Court approving the DIP Facility and its terms (collectively, the “DIP Orders”).
Further, until the DIP Facility is paid in full, 100% of the net proceeds received in connection with the Asset Purchase Agreement must be used to prepay the DIP Facility.
The DIP Facility will mature and shall be paid in full, on the earliest of the following: (i) June 7, 2019 (which date may be extended for 30 days in accordance with the DIP Credit Agreement), (ii) 40 days after entry of the Interim DIP Order if the Final DIP Order has not been entered prior to such date; (iii) the close of the sale of the DIP Borrowers’ Chemicals Plus Business; and (iv) the acceleration of the maturity of the DIP Facility after the occurrence and during the continuance of an event of default under the DIP Credit Agreement.
Subject to entry of the DIP Orders, the DIP Credit Agreement will become effective and the DIP Borrowers’ obligations under the DIP Credit Agreement will be secured by, among other things, first priority, priming security interests in substantially all of the DIP Borrowers’ assets, subject only to certain carve-outs and permitted exceptions, as set forth in the DIP Credit Agreement and DIP Orders.
Executive Compensatory Arrangements
William C. Kennally, III
On February 14, 2019, we entered into a Key Executive Incentive Agreement (the “Key Executive Agreement”) with William Kennally, III, our President and Chief Executive Officer. The Key Executive Agreement is designed to incentivize Mr. Kennally to maximize the value of our assets and to ensure optimum recovery for all of our stakeholders. The total potential award opportunity for Mr. Kennally under the Key Executive Agreement is $800 (the “Bonus”).
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Under the Key Executive Agreement, Mr. Kennally was entitled to receive the Bonus upon the receipt of a binding offer for the purchase of the assets of either the Chemicals Plus Business or the Pharma Business, which would be subject to higher or otherwise better offers under the supervision of the Bankruptcy Court and subject to the terms of Bankruptcy Court order (a “Stalking Horse Bid”) prior to March 15, 2019. A Stalking Horse Bid was timely received, and accordingly, the Bonus was paid to Mr. Kennally on February 14, 2019.
Mr. Kennally is obligated to repay 100% of the Bonus if his employment with the Company terminates, for any reason other than by the Company without cause or as a result of his death or disability, prior to the earliest of (i) the consummation of a sale or reorganization of both the Pharma Business and the Chemicals Plus Business, (ii) the dismissal or conversion of the Bankruptcy Cases, if any, or (iii) September 13, 2019.
Steven Rogers
On February 14, 2019, we also entered into a letter agreement (the “Retention Bonus Amendment”) with Steven Rogers, our Senior Vice President and Chief Legal Officer, amending the Retention Bonus Agreement between us and Mr. Rogers, dated May 21, 2018 (the “Original Retention Agreement”). The Retention Bonus Amendment is also designed to incentivize Mr. Rogers to maximize the value of our assets and to ensure optimum recovery for all of our stakeholders.
Under the terms of the Original Retention Agreement, the $620.10 of Mr. Rogers’ retention bonus which remained unpaid as of February 11, 2019 (the “Balance”), was payable in connection with the earlier of (i) the consummation of a change of control transaction or (ii) September 13, 2019, subject to the terms and conditions of the Original Retention Agreement. Pursuant to the Retention Bonus Amendment, Mr. Rogers was entitled to receive the Balance upon the earlier of (x) a payment event under the Original Retention Agreement or (y) the receipt of a Stalking Horse Bid prior to March 15, 2019. A Stalking Horse Bid was timely received and accordingly, the Balance was paid to Mr. Rogers on February 14, 2019.
Mr. Rogers is obligated to repay 100% of the Bonus if his employment with the Company terminates, for any reason other than by the Company without cause or as result of his death or disability, prior to the earliest of (i) the consummation of a sale or reorganization of both the Pharma Business and the Chemicals Plus Business, (ii) the dismissal or conversion of the Bankruptcy Case, if any, or (iii) September 13, 2019. Additionally, if Mr. Rogers’ employment terminates, for any reason, prior to the date the Balance would have been paid absent the Retention Bonus Amendment, Mr. Rogers is obligated to repay the difference between (x) the Balance and (y) the portion of the Balance he would have been paid had his employment not terminated, if any, as determined by our Compensation Committee in its good faith discretion.
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The descriptions of the Key Executive Agreement and the Retention Bonus Amendment are not complete and are qualified in their entirety by reference to the Key Executive Agreement and the Retention Bonus Amendment filed as Exhibits 10.3 and 10.4, respectively, hereto and are incorporated herein by reference.
NASDAQ Notification of Delinquent Filing
On February 12, 2019, the Company filed with the SEC a report on Form 12b-25 advising the SEC that the Company would be late in filing this Quarterly Report on Form 10-Q which was due on February 11, 2019. The report on Form 12b-25 did not specify when this Quarterly Report on Form 10-Q would be filed. Since the report on Form 12b-25 did not indicate that the Company would file its Quarterly Report on Form 10-Q within the five day period permitted by Rule 12b-25 (which period ended on February 19, 2019), on February 13, 2019, the Company received a notification from the Nasdaq Stock Market (“Nasdaq”) informing the Company that since it had not yet filed its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2018 (the “Quarterly Report”), the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”). The Listing Rule requires listed companies to timely file all required periodic financial reports with the SEC. The Nasdaq notification letter specifies that the Company has 60 calendar days, or until April 14, 2019, to submit a plan to regain compliance with the Listing Rule. If Nasdaq accepts the plan from the Company, Nasdaq can grant an exception of up to 180 calendar days from the Quarterly Report’s due date, or until August 12, 2019, to regain compliance.
| 15.1 | Letter from BDO USA, LLP regarding unaudited interim financial information |
| 31.1 | Certifications of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certifications of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| 32.1** | Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2** | Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
| ** | Furnished, not filed |
| 55 |
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 thereunto duly authorized.
| ACETO CORPORATION | |||||
| DATE | February 20, 2019 | BY | /s/ William C. Kennally, III | ||
| William C. Kennally, III, President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| DATE | February 20, 2019 | BY | /s/ Rebecca Roof | ||
| Rebecca Roof, Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
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Exhibit 10.1
EXECUTION VERSION
FOURTH AMENDMENT AND LIMITED WAIVER TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDMENT AND LIMITED WAIVER TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Fourth Amendment”) is dated as of January 8, 2019, by and among ACETO CORPORATION, a New York corporation (the “Borrower”), certain other Loan Parties party hereto (the “Guarantors”), the Lenders party hereto (the “Consenting Lenders”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, as administrative agent for the Lenders party to the Credit Agreement (in such capacity, the “Administrative Agent”).
Statement of Purpose
The Borrower, the Guarantors, the lenders party thereto (the “Lenders”) and the Administrative Agent are parties to that certain Second Amended and Restated Credit Agreement dated as of December 21, 2016 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), pursuant to which the Lenders have extended a term loan and a revolving credit facility to the Borrower.
The Borrower has requested, and subject to the terms and conditions set forth herein, the Administrative Agent and the Consenting Lenders have agreed, to certain amendments and waivers to the Credit Agreement as specifically set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Capitalized Terms. All capitalized undefined terms used in this Fourth Amendment (including, without limitation, in the introductory paragraph and the Statement of Purpose hereto) shall have the meanings assigned thereto in the Credit Agreement (as amended by this Fourth Amendment).
2. Limited Waiver. Pursuant to Section 9.02(b) of the Credit Agreement and on the effectiveness of this Fourth Amendment, each Consenting Lender hereto hereby waives any Default or Event of Default arising under (a) Article VII(a) of the Credit Agreement as a result of the failure by the Borrower to pay principal or interest when due prior to the Fourth Amendment Effective Date; provided, that the Borrower shall have paid all such principal and interest on the Fourth Amendment Effective Date; provided, further, that the Consenting Lenders hereby irrevocably agree to forbear from exercising any rights and remedies with respect to the failure to pay such amounts when due prior to the Fourth Amendment Effective Date, (b) Article VII(b) of the Credit Agreement as a result of non-compliance by the Borrower with Section 6.12(d) (Covenant Liquidity) and (c) Article VII(d) of the Credit Agreement as a result of the failure of any Loan Party or any Subsidiary to make a payment in respect of the Deferred Payment Amount.
3. Amendments to Credit Agreement. Subject to and in accordance with the terms and conditions set forth herein, the parties hereto agree that the Credit Agreement is amended as follows:
(a) Section 1.01 (Defined Terms) of the Credit Agreement is hereby amended by adding the following new definitions in the appropriate alphabetical order:
“Bank Cash” shall mean the amount on deposit in bank accounts maintained by the Borrower and its subsidiaries on any date of determination.
“Fourth Amendment Effective Date” means January 8, 2019.
“Revolving Bridge Loans” means any Revolving Loans made on or after the Fourth Amendment Effective Date in an aggregate outstanding principal amount not to exceed $23,000,000.
“Waiver Fee” has the meaning given to such term in Section 2.12(e).
(b) Section 1.01 (Defined Terms) of the Credit Agreement is hereby further amended by deleting the terms “Revolving Loan Maturity Date” and “Term Loan Maturity Date” in their entirety and substituting the following in lieu thereof:
“Revolving Loan Maturity Date” means June 30, 2019.
“Term Loan Maturity Date” means June 30, 2019.
(c) Section 2.02 (Loans and Borrowings) of the Credit Agreement is hereby amended by adding clause (e) thereto immediately following clause (d) as follows:
“(e) Notwithstanding any other provision of this Agreement, on and after the Fourth Amendment Effective Date, the Borrower shall not be entitled to request, or elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would exceed one (1) month.”
(d) Section 2.10 (Repayment and Amortization of Loans; Evidence of Debt) of the Credit Agreement is hereby amended by adding clause (h) thereto immediately following clause (g) as follows:
“(h) Any repayment of the principal amount of the Revolving Loans after the Fourth Amendment Effective Date shall be first applied to reduce the outstanding principal amount of the Revolving Bridge Loans.”
(e) Section 2.12 (Fees) of the Credit Agreement is hereby amended by deleting clause (e) in its entirety and substituting the following in lieu thereof:
“(e) The Borrower agrees to pay to the Administrative Agent, for the ratable benefit of the Lenders, a waiver fee (the “Waiver Fee”) in an amount equal to 6.00% of the Aggregate Credit Exposure (determined as of the date such portion of the Waiver Fee is due and payable); provided, that if before February 28, 2019 the Revolving Bridge Loans have been paid in full, or the Borrower has entered into a definitive agreement, on terms and conditions reasonably acceptable to the Administrative Agent and the Required Lenders, to sell substantially all the equity and/or assets of itself or any of its Subsidiaries for an amount sufficient to pay the Obligations in full, then the Waiver Fee shall be reduced from 6.00% to 4.00% of the Aggregate Credit Exposure; provided, further, that if before April 30, 2019 the Obligations have been paid in full, then the Waiver Fee shall not be due and payable, otherwise 50% of the Waiver Fee shall be due and payable in cash on April 30, 2019; provided, further, that if before May 31, 2019 the Obligations have been paid in full, then the remaining Waiver Fee shall not be due and payable, otherwise the remaining Waiver Fee shall be due and payable in cash on May 31, 2019.”
(f) Section 2.12 (Fees) of the Credit Agreement is hereby further amended by adding the following as clause (g) thereto immediately following clause (f) as follows:
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“(g) The Borrower agrees to pay to the Administrative Agent a fee for the account of each Revolving Lender which shall equal 2.00% of the portion of the Revolving Loans attributable to such Lender and available or borrowed as Revolving Bridge Loans, which fee shall be payable in cash on January 31, 2019.”
(g) Section 3.23 (Foreign Subsidiaries) of the Credit Agreement is hereby amended by labeling the existing paragraph as clause (a) and adding clause (b) thereto immediately following clause (a) as follows:
“(b) On and after the Fourth Amendment Effective Date, the aggregate amount of the intercompany Indebtedness owed by the Borrower and the Domestic Subsidiaries to the Foreign Subsidiaries exceeds the aggregate amount of any intercompany Indebtedness owed by the Foreign Subsidiaries to the Borrower and the Domestic Subsidiaries.”
(h) Article III (Representations and Warranties) of the Credit Agreement is hereby amended by adding a new Section 3.24 thereto with the heading “Control Accounts” as follows:
“Control Accounts. The Loan Parties have obtained a control agreement as described in Section 3.04(b) of the Security Agreement with respect to each Deposit Account that does not constitute Excluded Property and a control agreement as described in Section 3.04(c) of the Security Agreement with respect to all Securities of any Loan Party held through a Securities Intermediary or Commodity Intermediary.”
(i) Section 4.02(d) (Each Credit Event; Required Lender Consent) of the Credit Agreement is hereby amended by adding the following proviso at immediately preceding the period at the end thereof:
“provided, that the Required Lenders hereby consent to the Borrowing, on or after the Fourth Amendment Effective Date, of the Revolving Bridge Loans”
(j) Article V (Affirmative Covenants) of the Credit Agreement is hereby amended by adding the following Section 5.13 thereto with the heading “Fourth Amendment Agreements” and the following clauses:
“(a) Subordinated Financing Commitment Letter. On or before January 18, 2019, the Borrower shall deliver to the Administrative Agent and the Lenders, in furtherance of the strategic process, a non-binding commitment letter (the “Commitment Letter”) duly executed by one or more financial institutions (or other Person reasonably believed by the Borrower to have sufficient financial resources to provide such financing), in form and substance reasonably acceptable to the Administrative Agent and the Required Lenders, providing for financing to the Borrower that is subordinated to the Liens securing, and Obligations outstanding under, the Credit Agreement in a principal amount of not less than $50,000,000 to be used to pay in full the Revolving Bridge Loans and to fund the working capital needs of the Borrower and its Domestic Subsidiaries. On or before January 31, 2019, the Borrower shall deliver to the Administrative Agent and the Lenders a binding Commitment Letter with respect to the foregoing financing. Upon repayment in full of the Revolving Bridge Loans, the then undrawn portion of the Revolving Commitments shall be deemed terminated.
(b) Take-Out Proposal. On or before January 22, 2019, the Borrower shall deliver to the Administrative Agent and the Lenders a written proposal in furtherance of the strategic process, in form, substance and detail reasonably acceptable to the Administrative Agent and the Required Lenders, that the Borrower believes in good faith is feasible, that provides for repayment in full of all Obligations under the Credit Agreement.
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(c) Field Examination. The Administrative Agent may, during normal business hours upon reasonable advance notice, conduct such field examinations at the Loan Parties’ U.S. locations as it may deem necessary or advisable in its reasonable discretion (including fair market value appraisals), to evaluate solely the accounts receivable and inventory of the Borrower and its Subsidiaries, which field examinations shall be at the Borrower's sole cost and expense.
(d) Anti-Hoarding. On and after the Fourth Amendment Effective Date, the Borrower shall not permit Domestic Liquidity (calculated based on Bank Cash) to exceed $7,500,000, which shall constitute (i) a condition precedent under Section 4.02 of the Credit Agreement to the Borrowing of any Revolving Bridge Loans and calculated after giving effect to the requested Borrowing and (ii) a financial covenant under Section 6.12 of the Credit Agreement, tested as of the last Business Day of each week, and reported in each weekly Cash Flow Forecast comparison delivered under Section 5.11(d) of the Credit Agreement (which financial covenant shall be subject to a two-day cure period in the event of any breach of such financial covenant).
(e) Transfers. On and after the Fourth Amendment Effective Date, the Loan Parties shall be prohibited from transferring any funds from the Borrower or any Domestic Subsidiary to any Foreign Subsidiary.
(f) Security in Foreign Subsidiaries. Borrower shall engage in commercially reasonable efforts to complete, within 10 Business Days of the Fourth Amendment Effective Date, all actions necessary to provide the Administrative Agent with a perfected security interest in 100% of the Equity Interests in the Borrower’s Material Foreign Subsidiaries.
(g) Weekly Cash Flow Calls. The Borrower shall participate in periodic conference calls not less than weekly with, and as requested by, FTI Consulting LLC to review and answer any questions and provide copies of materials as may be reasonably requested related to the to discuss the Cash Flow Forecasts of the Borrower.”
(k) Article V (Affirmative Covenants) of the Credit Agreement is hereby further amended by adding the following at the end thereof:
“The failure by the Borrower to comply with any of the requirements set forth in Sections 5.11, 5.12 or 5.13 shall constitute an Event of Default under Article VII of the Credit Agreement if such non-compliance therewith shall continue unremedied for a period of three (3) Business Days after delivery by the Administrative Agent to the Borrower of notice of such non-compliance.”
(l) Section 6.06 (Loans; Investments and Acquisitions) of the Credit Agreement is hereby amended in clause (d) by adding the following immediately preceding the semi-colon at the end thereof:
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“, or $100,000 (or the foreign equivalent thereof) at any time outstanding in excess of any amounts outstanding as of the Fourth Amendment Effective Date”
(m) Section 6.06 (Loans; Investments and Acquisitions) of the Credit Agreement is hereby further amended by deleting clause (l) in its entirety and substituting the following in lieu thereof:
“(l) the purchase, prior to repayment of the Revolving Bridge Loans and during (i) fiscal year 2019, of assets in an aggregate amount not to exceed $6,500,000 or (ii) the third quarter of fiscal year 2019, of assets in an aggregate amount not to exceed $3,105,000, in each case, consisting of (x) intangible assets relating to strategic product acquisitions for Rising Pharmaceuticals and data compensation expenses relating to Environmental Protection Agency approval for Agricultural Protection Products and (y) Capital Expenditures relating to information technology for development, serialization, warehouse automation, corporate equipment and hardware.”
(n) Section 6.14 (Restricted Payments; Dividends) of the Credit Agreement is hereby amended by deleting clause (a) in its entirety and substituting the following in lieu thereof:
“(a) at any time after termination of the Limitation Period, if (i) no Default or Event of Default has occurred and is continuing or would arise after giving effect (including giving effect on a pro forma basis) thereto, and (ii) at the time of and immediately after giving effect (including giving effect on a pro forma basis) thereto the Borrower is in compliance with the financial covenants set forth in Section 6.12, then the Borrower may make dividends and distributions to its shareholders which have been approved by the Board of Directors of the Borrower, consistent with past practices of the Borrower prior to the Fourth Amendment Effective Date, of up to $0.01 per share (but not to exceed $325,000 in the aggregate for any single fiscal quarter);”
(o) Article VI (Negative Covenants) of the Credit Agreement is hereby amended by adding a new Section 6.21 thereto with the heading “Deposit and Securities Accounts” as follows:
“SECTION 6.21. Deposit and Securities Accounts. Each Loan Party, and each direct or indirect Domestic Subsidiary of a Loan Party, will not open any new Deposit Account (as defined in the Security Agreement) or securities account during the Limitation Period without the prior written consent of the Administrative Agent.”
4. Conditions to Effectiveness. The effectiveness of this Fourth Amendment shall be subject to the satisfaction of each of the following conditions precedent:
(a) the Administrative Agent’s receipt of this Fourth Amendment duly executed by each Loan Party, the Administrative Agent and the Consenting Lenders constituting Required Lenders;
(b) the Borrower shall have paid all principal and interest due on or before the Fourth Amendment Effective Date as provided under the Credit Agreement;
(c) no Default or Event of Default shall have occurred and be continuing after giving effect to the limited waivers in this Fourth Amendment;
(d) the Administrative Agent’s receipt of an updated secretary’s certificate with authorizing resolutions for each Loan Party;
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(e) the Borrower shall have paid to the Administrative Agent, for the ratable benefit of each Lender that delivers its duly executed signature page to this Fourth Amendment to the Administrative Agent by email prior to January 7, 2019 at Noon (Eastern Time), or such later date or time as the Administrative Agent may (prior to the announced occurrence of the Fourth Amendment Effective Date) determined in its sole discretion (which shall, for the avoidance of doubt, be no later than 5:00 pm (Eastern Time) on January 7, 2019), a consent fee in an amount equal to 0.25% of the Aggregate Credit Exposure of such Consenting Lenders; and
(f) the Borrower shall have paid all expenses in connection with this Fourth Amendment, including without limitation, the reasonable fees and expenses of FTI Consulting Inc., as financial advisor to the Administrative Agent, and McGuireWoods LLP, as legal counsel for the Administrative Agent, for which summary invoices will be delivered to the Borrower (without waiver of any privilege or confidentiality).
For purposes of determining compliance with the conditions specified in this Section, each Consenting Lender shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Consenting Lender prior to the effectiveness of this Fourth Amendment specifying its objection thereto.
5. Further Assurances. Each Loan Party agrees to, to the extent required by the Loan Documents, make, execute and deliver all such additional and further acts, things, deeds, instruments and documents as the Administrative Agent may reasonably require for the purposes of implementing or effectuating the provisions of this Fourth Amendment and the other Loan Documents.
6. Limited Effect. Except as expressly provided herein, the Credit Agreement and the other Loan Documents shall remain unmodified and in full force and effect. This Fourth Amendment shall not be deemed (a) to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Credit Agreement or any other Loan Document other than as expressly set forth herein, (b) to prejudice any right or rights which the Administrative Agent or the Lenders may now have or may have in the future under or in connection with the Credit Agreement or the other Loan Documents or any of the instruments or agreements referred to therein, as the same may be amended, restated, supplemented or modified from time to time, or (c) to be a commitment or any other undertaking or expression of any willingness to engage in any further discussion with the Borrower, any of its Subsidiaries or any other Person with respect to any other waiver, amendment, modification or any other change to the Credit Agreement or the Loan Documents or any rights or remedies arising in favor of the Lenders or the Administrative Agent, or any of them, under or with respect to any such documents. References in the Credit Agreement to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein”, “hereof” or other words of like import) and in any Loan Document to the “Credit Agreement” shall be deemed to be references to the Credit Agreement as modified hereby.
7. Representations and Warranties. The Borrower and each Guarantor represents and warrants that (a) it has the corporate or other equivalent power and authority to make, deliver and perform this Fourth Amendment, (b) it has taken all necessary corporate or other equivalent action to authorize the execution, delivery and performance of this Fourth Amendment, (c) this Fourth Amendment has been duly executed and delivered on behalf of such Person, (d) this Fourth Amendment constitutes a legal, valid and binding obligation of such Person, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law), (e) each of the representations and warranties made by such Loan Party in or pursuant to the Loan Documents is true and correct in all material respects (except to the extent that such representation and warranty is subject to a materiality or Material Adverse Effect qualifier, in which case it shall be true and correct in all respects), in each case on and as of the date hereof as if made on and as of the date hereof, except to the extent that such representations and warranties relate to an earlier date, in which case such representations and warranties are true and correct in all material respects as of such earlier date, and (f) no Default or Event of Default has occurred and is continuing as of the date hereof after giving effect to the limited waivers in this Fourth Amendment or would result after giving effect to this Fourth Amendment and the transactions contemplated hereby.
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8. Acknowledgement and Reaffirmation. By their execution hereof, the Borrower and each Guarantor hereby expressly (a) consents to this Fourth Amendment, (b) acknowledges that the covenants, representations, warranties and other obligations set forth in the Credit Agreement and the other Loan Documents to which the Borrower or such Guarantor is a party remain in full force and effect (it being understood and agreed that to the extent any such covenants, representations, warranties or other obligations are expressly modified herein, such covenants, representations, warranties or obligations shall continue in full force and effect as expressly modified herein), (c) ratifies and reaffirms any guarantee and grant of security interests and Liens on any of their respective Collateral pursuant to any Loan Document as security for or otherwise guaranteeing the Obligations under or with respect to the Loan Documents and confirm and agree that such security interests and Liens are in all respects continuing and in full force and effect and shall continue to secure all of the Obligations under the Loan Documents (after giving effect to this Fourth Amendment), and (d) ratifies and reaffirms the First Amendment to Second Amended and Restated Credit Agreement, dated December 13, 2017, the Second Amendment and Waiver to Second Amended and Restated Credit Agreement, dated May 3, 2018, and the Third Amendment and Limited Waiver to Second Amended and Restated Credit Agreement, dated September 11, 2018.
9. Costs and Expenses. The Borrower agrees to pay all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration of this Fourth Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent.
10. Execution in Counterparts. This Fourth Amendment may be executed by one or more of the parties hereto in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Fourth Amendment by facsimile, telecopy, pdf or other electronic transmission shall be effective as delivery of a manually executed counterpart hereof.
11. Governing Law. This Fourth Amendment and the rights and obligations of the parties under this Fourth Amendment shall be governed by, and construed in accordance with, the law of the State of New York, without reference to the conflicts or choice of law principles thereof.
12. Entire Agreement. This Fourth Amendment is the entire agreement, and supersedes any prior agreements and contemporaneous oral agreements, of the parties concerning its subject matter. This Fourth Amendment is a Loan Document and is subject to the terms and conditions of the Credit Agreement.
13. Successors and Assigns. This Fourth Amendment shall be binding on and inure to the benefit of the parties and their heirs, beneficiaries, successors and permitted assigns.
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14. Release. The Borrower, on behalf of itself and its Subsidiaries, successors, assigns and other legal representatives, hereby releases, waives, and forever relinquishes all claims, demands, obligations, liabilities and causes of action of whatever kind or nature (collectively, the “Claims”), whether known or unknown, which any of them have, may have, or might assert at the time of the execution of this Fourth Amendment or in the future against the Administrative Agent, the Lenders and/or their respective present and former parents, affiliates, participants, officers, directors, employees, agents, attorneys, accountants, consultants, successors and assigns (each a “Releasee”), directly or indirectly, which occurred, existed, were taken, permitted or begun from the beginning of time through the date hereof, arising out of, based upon, or in any manner connected with (a) the Loan Documents and/or the administration thereof or the Obligations created thereby, (b) any discussions, commitments, negotiations, conversations or communications with respect to the refinancing, restructuring or collection of any of the Obligations, or (c) any matter related to the foregoing; provided, that the foregoing shall not release Claims arising following the date hereof.
[Remainder of page intentionally left blank; signature pages follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment and Limited Waiver to be executed under seal by their duly authorized officers, all as of the day and year first written above.
| LOAN PARTIES: | |
| ACETO CORPORATION, as Borrower | |
| By: /s/ Rebecca A. Roof | |
| Name: Rebecca A. Roof | |
| Title: Chief Financial Officer | |
ACETO
AGRICULTURAL CHEMICALS CORPORATION, | |
| By: /s/ Rebecca A. Roof | |
| Name: Rebecca A. Roof | |
| Title: Chief Financial Officer | |
| PACK PHARMACEUTICALS, LLC, as Guarantor | |
| By: /s/ Rebecca A. Roof | |
| Name: Rebecca A. Roof | |
| Title: Chief Financial Officer | |
| RISING PHARMACEUTICALS, INC., as Guarantor | |
| By: /s/ Rebecca A. Roof | |
| Name: Rebecca A. Roof | |
| Title: Chief Financial Officer | |
| RISING HEALTH, LLC, as Guarantor | |
| By: /s/ Rebecca A. Roof | |
| Name: Rebecca A. Roof | |
| Title: Chief Financial Officer |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| Administrative Agent and Lenders: | |
WELLS FARGO BANK, NATIONAL ASSOCIATION, individually as a Lender, and as Administrative Agent, Swingline Lender and an Issuing Bank | |
| By: /s/ Reginald T. Dawson | |
| Name: Reginald T. Dawson | |
| Title: Managing Director |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| JPMORGAN CHASE BANK, N.A., as a Lender | |
| By: /s/ Nicholas J. Watts | |
| Name: Nicholas J. Watts | |
| Title: Authorized Officer |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| CITIBANK, N.A., as a Lender | |
| By: /s/ Harry Vlandis | |
| Name: Harry Vlandis | |
| Title: Attorney in Fact, Citibank, N.A. |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| TD BANK, N.A., as a Lender | |
| By: /s/ Katherine Brunelle | |
| Name: Katherine Brunelle | |
| Title: Vice President |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| CITIZENS BANK, NATIONAL ASSOCIATION, | |
| as a Lender | |
| By: /s/ Chelsea Brophy | |
| Name: Chelsea Brophy | |
| Title: Associate |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| SANTANDER BANK, N.A., as a Lender | |
| By: /s/ Brian Braungard | |
| Name: Brian Braungard | |
| Title: Vice President |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| BANK LEUMI USA, as a Lender | |
| By: /s/ Douglas J. Meyer | |
| Name: Douglas J Meyer | |
| Title: Senior Vice President | |
| Bank Leumi USA | |
| By: /s/ Michael Zelazny | |
| Name: Michael Zelazny | |
| Title: AT |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| BMO HARRIS BANK, N.A., as a Lender | |
| By: /s/ Pam Wicker | |
| Name: Pam Wicker | |
| Title: Director |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| HSBC BANK USA, NATIONAL ASSOCIATION, | |
| as a Lender | |
| By: /s/ Patrick M. Hanley | |
| Name: Patrick M. Hanley | |
| Title: Senior Vice President |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
| PEOPLE’S UNITED BANK, NATIONAL ASSOCIATION, as a Lender | |
| By: /s/ James F. Cloudman | |
| Name: James F. Cloudman | |
| Title: Senior Vice President |
Aceto Corporation
Fourth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement
Signature Page
Exhibit 10.2
Execution Version
ASSET PURCHASE AGREEMENT
by and among
ACETO CORPORATION,
ACETO AGRICULTURAL CHEMICALS CORPORATION
and
ACETO REALTY LLC,
as Sellers,
and
NMC ATLAS, L.P.,
as Buyer
Dated as of February 18, 2019
TABLE OF CONTENTS
| PAGES | ||
| ARTICLE I PURCHASE AND SALE | 2 | |
| 1.1 | Purchased Assets | 2 |
| 1.2 | Excluded Assets | 4 |
| 1.3 | Assumed Liabilities | 5 |
| 1.4 | Excluded Liabilities | 6 |
| 1.5 | Assignments; Cure Amounts | 7 |
| 1.6 | Further Assurances | 8 |
| 1.7 | Bulk Sales Laws | 9 |
| ARTICLE II PURCHASE PRICE | 9 | |
| 2.1 | Purchase Price | 9 |
| 2.2 | Closing Date Payment | 9 |
| 2.3 | Good Faith Deposit | 10 |
| 2.4 | Adjustment to Base Purchase Price | 10 |
| 2.5 | Allocation of Purchase Price | 12 |
| 2.6 | Closing Date | 12 |
| 2.7 | Deliveries of Buyer | 12 |
| 2.8 | Deliveries of Sellers | 13 |
| 2.9 | Withholding Rights | 14 |
| ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS | 14 | |
| 3.1 | Organization | 14 |
| 3.2 | Acquired Subsidiaries. | 14 |
| 3.3 | Corporate Authority Relative to this Agreement; Consents and Approvals; No Violation | 15 |
| 3.4 | Financial Statements | 16 |
| 3.5 | Compliance with Law; Permits | 16 |
| 3.6 | Environmental Matters | 17 |
| 3.7 | Employee Benefit Plans | 17 |
| 3.8 | Litigation | 18 |
| 3.9 | Tax Matters | 18 |
| 3.10 | Employment and Labor Matters | 19 |
| i |
| 3.11 | Real and Tangible Property | 20 |
| 3.12 | Intellectual Property. | 20 |
| 3.13 | Material Contracts | 20 |
| 3.14 | Certain Regulatory Matters | 21 |
| 3.15 | Finders or Brokers | 21 |
| 3.16 | Sufficiency of Assets | 21 |
| 3.17 | Inventory | 21 |
| 3.18 | No Other Representations or Warranties | 22 |
| ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER | 22 | |
| 4.1 | Organization | 22 |
| 4.2 | Corporate Authority Relative to this Agreement; Consents and Approvals; No Violation | 22 |
| 4.3 | Litigation | 23 |
| 4.4 | Buyer Information | 23 |
| 4.5 | Finders or Brokers | 23 |
| 4.6 | Solvency | 24 |
| 4.7 | Adequate Assurances Regarding the Buyer Assumed Agreements | 24 |
| 4.8 | Certain Arrangements; Ownership of Sellers | 24 |
| 4.9 | Guarantee | 24 |
| 4.10 | Investment Intention | 24 |
| 4.11 | Investigation; No Other Representations | 25 |
| ARTICLE V COVENANTS AND AGREEMENTS | 26 | |
| 5.1 | Conduct of Business | 26 |
| 5.2 | Access | 26 |
| 5.3 | Employees and Employee Benefit Plans | 27 |
| 5.4 | Regulatory Approvals; Efforts | 29 |
| 5.5 | Notification of Certain Matters | 31 |
| 5.6 | Adequate Assurances regarding the Buyer Assumed Agreements | 31 |
| 5.7 | Bankruptcy Court Approval | 31 |
| 5.8 | Taxes | 32 |
| 5.9 | Public Announcements | 33 |
| 5.10 | Consents; Notices | 33 |
| 5.11 | WARN Act | 33 |
| 5.12 | Directors and Officers | 34 |
| 5.13 | Cooperation with Financing | 34 |
| ii |
| ARTICLE VI CONDITIONS TO THE PURCHASE AND SALE | 36 | |
| 6.1 | Conditions to Each Party’s Obligation to Close | 36 |
| 6.2 | Conditions to Obligation of Sellers to Close | 36 |
| 6.3 | Conditions to Obligation of Buyer to Close | 37 |
| ARTICLE VII TERMINATION | 37 | |
| 7.1 | Termination | 37 |
| 7.2 | Effect of Termination | 39 |
| 7.3 | Break-Up Fee; Expense Reimbursement. | 39 |
| 7.4 | Return of Good Faith Deposit | 39 |
| ARTICLE VIII MISCELLANEOUS | 40 | |
| 8.1 | No Survival | 40 |
| 8.2 | Expenses | 40 |
| 8.3 | Counterparts; Effectiveness | 40 |
| 8.4 | Governing Law; Jurisdiction | 40 |
| 8.5 | Remedies | 41 |
| 8.6 | WAIVER OF JURY TRIAL | 41 |
| 8.7 | Notices | 42 |
| 8.8 | Assignment; Binding Effect | 43 |
| 8.9 | Severability | 43 |
| 8.10 | Entire Agreement | 43 |
| 8.11 | Amendments; Waivers | 43 |
| 8.12 | Headings | 43 |
| 8.13 | No Third-Party Beneficiaries | 43 |
| 8.14 | Interpretation | 44 |
| 8.15 | Non-Recourse | 44 |
| 8.16 | Definitions | 44 |
| 8.17 | Sellers Disclosure Schedule | 56 |
| 8.18 | Limitation on Good Faith Deposit Escrow Holder’s Liability | 56 |
SCHEDULES
| Schedule 1.1(c) | Assumed Contracts |
| Schedule 1.1(d) | Assumed Real Property Lease(s) |
| Schedule 1.1(e) | Owned Real Property |
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| Schedule 1.1(f) | Products |
| Schedule 1.1(g) | Tangible Personal Property |
| Schedule 1.1(i) | Intellectual Property |
| Schedule 1.1(l) | Assumed Equipment Leases |
| Schedule 1.1(m) | Excluded Claims |
| Schedule 1.1(o) | Assumed Plans |
| Schedule 1.1(r) | Additional Purchased Assets |
| Schedule 1.2(o) | Additional Excluded Assets |
| Schedule 1.3(b) | Accounts Payable |
| Schedule 1.4(e) | Excluded Accrued Liabilities |
| Schedule 1.4(f) | Excluded Environmental Liabilities |
| Schedule 1.5 | Cure Costs |
| Schedule 2.8(h) | Additional Sellers’ Closing Deliverables |
Sellers Disclosure Schedule
Buyer Disclosure Schedule
EXHIBITS
| EXHIBIT A: | Purchase Price Allocation Constraints |
| EXHIBIT B: | Form of Assignment and Assumption Agreement |
| EXHIBIT C: | Form of Bidding Procedures |
| EXHIBIT D: | Form of Bidding Procedures Order |
| EXHIBIT E: | Form of Bill of Sale |
| EXHIBIT F: | Form of Sale Order |
| EXHIBIT G: | Form of TSA |
| iv |
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of February 18, 2019 (the “Agreement Date”), is by and among Aceto Corporation, a New York corporation (“Parent”), Aceto Realty LLC, a New York limited liability company (“Aceto Realty”), and Aceto Agricultural Chemicals Corporation, a New York corporation (“NY Agri” and together with Parent and Aceto Realty, “Sellers” and each, a “Seller”), and NMC Atlas, L.P., a Delaware limited partnership (“Buyer”). Capitalized terms used in this Agreement and not otherwise defined above or in the text below have the meanings given to them in Section 8.16.
WHEREAS, Parent, collectively with its direct and indirect wholly-owned subsidiaries (including NY Agri), is an international company engaged in the development, marketing, sales and distribution of finished dosage form generic pharmaceuticals, nutraceutical products, pharmaceutical active ingredients, pharmaceutical intermediates, and specialty performance chemicals, including agricultural intermediates and agricultural protection products (collectively, the “Business”);
WHEREAS, the Business is organized along product lines into three principal segments: (i) Human Health, (ii) Pharmaceutical Ingredients, and (iii) Performance Chemicals;
WHEREAS, Sellers intend to file voluntary petitions for relief commencing cases (collectively, the “Bankruptcy Case”) under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”), on February 19, 2019 (the “Petition Date”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”);
WHEREAS, Sellers desire to sell to Buyer all of the Purchased Assets, subject to the assumption by Buyer of the Assumed Liabilities (which Purchased Assets and Assumed Liabilities generally comprise the Chemical Plus Business), and Buyer desires to purchase from Sellers the Purchased Assets and assume the Assumed Liabilities, in each case, upon the terms and conditions hereinafter set forth;
WHEREAS, the Parties intend to effectuate the transactions contemplated hereby, including the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities (the “Asset Purchase”), pursuant to Section 363 and 365 of the Bankruptcy Code;
WHEREAS, the execution and delivery of this Agreement and Sellers’ ability to consummate the transactions contemplated hereby are subject, among other things, to consideration of Alternative Bids (if any) and the entry of the Sale Order pursuant to, inter alia, Sections 363 and 365 of the Bankruptcy Code;
WHEREAS, the Parties desire to consummate the transactions contemplated hereby as promptly as practicable after the Bankruptcy Court enters the Sale Order; and
WHEREAS, the Parties desire to make certain representations, warranties, covenants and agreements specified herein.
NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, Buyer and Sellers hereby agree as follows:
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ARTICLE I
PURCHASE AND SALE
1.1 Purchased Assets. In addition to all properties and assets of the Acquired Subsidiaries (which shall remain properties and assets of such entities upon the Closing, but which shall not constitute Purchased Assets for purposes of this Agreement), on the terms and subject to the conditions set forth in this Agreement, at the Closing, Sellers shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase, free and clear of all Liabilities and Liens (other than Liens created by Buyer and Permitted Liens), the right, title and interest of Sellers in, to or under all of the properties and assets of Sellers used primarily in the Chemical Plus Business (other than the Excluded Assets), including the following (herein collectively called the “Purchased Assets”):
(a) all outstanding shares of capital stock or other equity interests of the Purchased Subsidiaries (other than (i) 8,401 shares of Aceto HK that are owned by Aceto Bermuda, (ii) the Class A Preferred Shares of Aceto Bermuda which are owned by Aceto (Shanghai) Ltd. and (iii) 70% of the outstanding equity interests of the Joint Venture, which are owned by United Phosphorus Inc.); provided, notwithstanding anything contained herein to the contrary, Buyer may, upon prior written notice to Sellers, assign the right to purchase such shares of capital stock or other equity interests to one or more wholly-owned Subsidiaries of the Buyer; provided, further, that no such assignment shall relieve Buyer of any Liability or obligation under this Agreement;
(b) the Accounts Receivable of Sellers outstanding as of the Closing Date;
(c) to the extent assignable pursuant to Sections 363 and 365 of the Bankruptcy Code, the Contracts listed or described on Schedule 1.1(c) as of the Assumption Deadline, as may be amended by Buyer as provided herein (the “Assumed Contracts”), and all purchase orders of the Sellers in respect of the Acquired Business that are issued in the Ordinary Course of Business and outstanding as of the Closing Date (the “Assumed Purchase Orders”);
(d) to the extent assignable pursuant to Sections 363 and 365 of the Bankruptcy Code, the Real Property Lease(s) of Sellers, and rights thereunder, listed or described on Schedule 1.1(d) (such Real Property Lease(s), the “Assumed Real Property Lease(s)”);
(e) any Owned Real Property of a Seller set forth on Schedule 1.1(e);
(f) all rights (including goodwill, if any) in and to the products set forth on Schedule 1.1(f) (the “Products”) and all Product registrations and related registration information (including applications that are in the process of being prepared by a Seller or an Acquired Subsidiary for Product registrations);
(g) the equipment, machinery, forklifts, vehicles, fixtures, furniture, furnishings, signage, leasehold improvements and other tangible personal property owned by each Seller as of the Closing Date that are (A) located on or at the Acquired Real Property and held primarily for, or used primarily in, the Acquired Business, (B) held primarily for, or used primarily in, the Acquired Business and existing as of the Closing or (C) set forth on Schedule 1.1(g);
(h) to the extent assignable pursuant to Sections 363 and 365 of the Bankruptcy Code, all Permits and pending applications therefor;
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(i) to the extent assignable pursuant to Sections 363 and 365 of the Bankruptcy Code, all Intellectual Property that is owned or licensed by each Seller (A) held primarily for, or used primarily in, the Acquired Business and existing as of the Closing or (B) set forth on Schedule 1.1(i);
(j) all Books and Records related primarily to the Acquired Business, except those: (i) relating primarily to any Excluded Asset or Excluded Liability; (ii) relating primarily to employees of a Seller or any Purchased Subsidiary who are not Transferred Employees; or (iii) that a Seller or any Purchased Subsidiary is not permitted to transfer under applicable Law;
(k) all telephone and facsimile numbers, email and web addresses, social media accounts and other directory listings used primarily in connection with the Acquired Business, to the extent assignable;
(l) to the extent assignable pursuant to Sections 363 and 365 of the Bankruptcy Code, the equipment leases listed or described on Schedule 1.1(l) (the “Assumed Equipment Leases” and together with the Assumed Contracts and Assumed Real Property Lease(s), the “Buyer Assumed Agreements”);
(m) other than as set forth on Schedule 1.1(m), any rights, claims, credits, refunds, causes of action, choses in action, rights of recovery and rights of setoff of each Seller against third parties arising out of, or primarily related to, the Purchased Assets or the Acquired Business, including any rights in connection with product returns, rebates, credits and related claims and any rights under or pursuant to any and all warranties, representations and guarantees made by suppliers, manufacturers and contractors relating to products sold, or services provided, to each Seller primarily related to the Purchased Assets or the Acquired Business;
(n) all rights of each Seller under non-disclosure or confidentiality, non-disparagement, non-compete, or non-solicitation agreements with the Transferred Employees or any employees of each Seller terminated within two (2) years prior to the Closing Date, or with any agents of each Seller or with third parties, in each case, related primarily to the Acquired Business;
(o) (1) the Seller Benefit Plans listed on Schedule 1.1(o)(1), solely to the extent such pertains to a Transferred Employee and (2) the Seller Benefit Plans listed on Schedule 1.1(o)(2), whether or not pertaining to a Transferred Employee (collectively, the “Assumed Plans”), and any trusts, assets, reserves, credits and service agreements, but only to the extent of the Transferred Employees, and all documents created, filed or maintained in connection with the Assumed Plans to the extent transferable in accordance with the existing terms and conditions of such Assumed Plans, any applicable insurance policies related to the Assumed Plans and Bankruptcy Court approval;
(p) all Purchased Deposits;
(q) all Inventory held by each Seller primarily for use in the Acquired Business as of the Closing Date;
(r) the additional assets listed on Schedule 1.1(r);
(s) all rights under insurance policies of the Sellers to the extent relating to any Assumed Liability;
(t) all goodwill as of the Closing Date that is associated with the Acquired Business not expressly referenced in Sections 1.1(a) through 1.1(s); and
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(u) all avoidance actions (including any proceeds thereof), including all claims and causes of action arising under Sections 544 through 553 of the Bankruptcy Code or any analogous state law, but only to the extent such actions are against the following parties (collectively, the “Designated Parties”): (i) any of the Sellers’ vendors, suppliers, customers, or trade creditors in regards or related to the Purchased Assets or Acquired Business and (ii) any counterparties to any Buyer Assumed Agreements (collectively, the “Purchased Avoidance Actions”); provided, that it is understood and agreed by the parties that the Buyer will not assert or pursue any Purchased Avoidance Actions against any of the Designated Parties other than as a defense, offset, or counterclaim against any claim or cause of action raised or asserted by such Designated Party.
Buyer shall have the right at any time prior to five (5) days prior to the Sale Hearing in accordance with the Bidding Procedures and Bidding Procedures Order to amend Schedule 1.1(c) so as to exclude any Contract from being an Assumed Contract. A schedule of Assumed Contracts and any Cure Costs relating thereto shall be filed by Sellers with the Bankruptcy Court and served on the counterparties to the Assumed Contracts in accordance with the Bidding Procedures Order. Notwithstanding anything to the contrary, in connection with any change to Schedule 1.1(c) described in the preceding sentence, (i) any Purchased Assets attendant to any Contract that is excluded shall become an Excluded Asset to the extent applicable in accordance with Section 1.2, (ii) Sellers shall be permitted to update the Sellers Disclosure Schedule as necessary to correct or complete any such disclosure contained therein, (iii) Buyer acknowledges and agrees that there shall be no reduction in the Purchase Price if it elects to remove any Contract listed on Schedule 1.1(c), and (iv) the Cure Cost shall be adjusted, as applicable.
1.2 Excluded Assets. Notwithstanding the provisions of Section 1.1, nothing herein contained shall be deemed to sell, transfer, assign or convey to Buyer (i) the assets of the Excluded Subsidiaries or (ii) the Excluded Assets. The Excluded Subsidiaries shall retain all right, title and interest to, in and under the assets of the Excluded Subsidiaries, and the Sellers shall retain all right, title and interest to, in and under the Excluded Assets. For all purposes of and under this Agreement, the term “Excluded Assets” shall mean the following assets of each Seller:
(a) all shares of capital stock or other equity interest of each Seller and the Excluded Subsidiaries or any securities convertible into, exchangeable, or exercisable for shares of capital stock or other equity interest of Sellers or any of the Excluded Subsidiaries;
(b) all Cash of Sellers;
(c) any Contracts other than Assumed Contracts;
(d) any lease of Leased Real Property, and rights thereunder, that is not a Buyer Assumed Agreement (the “Excluded Real Property Leases”);
(e) any equipment leases other than Assumed Equipment Leases (the “Excluded Equipment Leases”);
(f) all minute books, stock ledgers, corporate seals and stock certificates of each Seller and other similar Books and Records (1) that are primarily related to any Excluded Assets or Excluded Liabilities, or (2) which a Seller or any of the Excluded Subsidiaries is required by Law or determines are necessary or advisable to retain, including all Tax Returns and related workpapers (other than Tax Returns and related workpapers of the Acquired Subsidiaries), financial statements and corporate or other entity filings (but copies of such Books and Records shall be retained by Sellers and made available to Buyer upon Buyer’s reasonable request and at Buyer’s expense);
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(g) all Seller Benefit Plans, except the Assumed Plans, and trusts or other assets attributable thereto (except to the extent provided by Section 5.3(f)), including any assets, reserves, credits and service agreements, and all documents created, filed or maintained in connection with such Seller Benefit Plans and any applicable insurance policies related to such Seller Benefit Plans;
(h) any rights, claims or causes of action of each Seller under this Agreement or the Ancillary Documents and as set forth on Schedule 1.1(m);
(i) all receivables, claims or causes of action related primarily to any Excluded Asset or Excluded Liability, including any such item to the extent arising under any guarantee, warranty, indemnity or similar right in favor of a Seller or any of the Excluded Subsidiaries in respect of an Excluded Asset or Excluded Liability;
(j) all refunds, credits and rebates of Taxes;
(k) all rights under insurance policies relating to claims for losses pending as of the Closing Date except to the extent such losses are an Assumed Liability;
(l) all Intellectual Property owned or licensed by Sellers that is neither: (i) held primarily for, nor (ii) used primarily in, the Acquired Business, with respect to subclauses (i) and (ii) other than as set forth on Schedule 1.1(i);
(m) all post-petition adequate assurance deposits provided to utilities and any deposits provided to suppliers or service providers to a Seller on a prepetition or post-petition basis;
(n) all derivative financial instruments, including future foreign currency contracts;
(o) all other assets set forth on Schedule 1.2(o); and
(p) all avoidance actions (including any proceeds thereof), including all claims or causes of action arising under Sections 544 through 553 of the Bankruptcy Code or any analogous state law, other than the Purchased Avoidance Actions.
For the avoidance of doubt, no goodwill or other intangible assets not expressly set forth in this Section 1.2 shall constitute “Excluded Assets.”
1.3 Assumed Liabilities. In addition to the Liabilities of the Acquired Subsidiaries (which shall remain Liabilities of such entities upon the Closing, but which shall not constitute Assumed Liabilities for purposes of this Agreement), upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Buyer shall assume and agree to pay, perform and discharge, when due (in accordance with its respective terms and subject to the respective conditions thereof), only the following Liabilities (without duplication) (collectively the “Assumed Liabilities”) and no others:
(a) any and all Liabilities of each Seller arising under the Buyer Assumed Agreements and the Assumed Purchase Orders;
(b) the obligation to pay the amounts owed (and no other Liabilities) for goods or services received by each Seller in the Ordinary Course of Business in respect of any trade and vendor accounts payable due as of, or after, the Petition Date, including the amounts set forth on Schedule 1.3(b), but only to the extent incurred in connection with the Acquired Business, and excluding any amounts owed to professionals retained by an order of the Bankruptcy Court under Section 327, 328, 1102 or 1103 of the Bankruptcy Code (such payables, the “Accounts Payable”);
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(c) all Accrued Liabilities;
(d) any and all Liabilities arising under any Assumed Plan, if any (to the extent transferable in accordance with the existing terms and conditions of the applicable Assumed Plan);
(e) other than as set forth on Schedule 1.4(f), any Liability directly related to the Acquired Business arising under Environmental Laws attributable to or incurred as a result of any acts, omissions, or conditions first occurring on or after the Closing Date, including any Liability with respect to the release, handling, discharge, treatment, storage, generation, disposal, or presence of Regulated Substances at any location and compliance with any Laws relating to the foregoing;
(f) all Liabilities arising out of the conduct of the Acquired Business, ownership of the Purchased Assets, or associated with the Transferred Employees on or after the Closing Date;
(g) all Taxes arising out of the conduct of the Acquired Business, ownership of the Purchased Assets or associated with the Transferred Employees, in each case, attributable to periods (or portions thereof) beginning after the Closing Date; and
(h) all Liabilities under the WARN Act arising as a result of a failure of Buyer to comply with Section 5.11.
1.4 Excluded Liabilities. Notwithstanding any provision in this Agreement to the contrary, Buyer shall not assume and shall not be obligated to assume or be obliged to pay, perform or otherwise discharge any Liability of any Seller, and each Seller shall be solely and exclusively liable with respect to all Liabilities of such Seller, other than the Assumed Liabilities (collectively, the “Excluded Liabilities”). For the avoidance of doubt, the Excluded Liabilities with respect to each Seller include (i) any claims under Sections 503 and 507 of the Bankruptcy Code and (ii) the following:
(a) any Liability of such Seller, arising out of, or relating to, this Agreement or the transactions contemplated hereby, whether incurred prior to, at or subsequent to the Closing Date, including all finder’s or broker’s fees and expenses and any and all fees and expenses of any Representatives of such Seller, but excluding (x) any Liabilities of such Seller arising from or otherwise attributable to a breach of the covenant in Section 5.8(a), and (y) any Transfer Taxes as provided in Section 5.8(b);
(b) any Liability incurred by either Seller’s respective directors, officers, managers, stockholders, members, partners, agents or employees (acting in such capacities);
(c) any Liability of such Seller to any Person on account of any Proceeding to the extent relating to facts, circumstances or events that existed or occurred before the Closing;
(d) any Liability to the extent relating to, resulting from, or arising out of the ownership or operation of an Excluded Asset;
(e) the accrued Liabilities of such Seller set forth on Schedule 1.4(e); provided, however, notwithstanding anything to the contrary set forth in this Agreement, in no event shall any Accrued Liability constitute an Excluded Liability;
(f) any Liability arising out of or incurred as a result of any actual or alleged violation by any Seller of any Law prior to the Closing, or related to the Acquired Business that arises under or relates to a violation of Environmental Laws, including as set forth on Schedule 1.4(f);
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(g) all checks and drafts that have been written or submitted by such Seller prior to the close of business on the Closing Date but have not yet cleared;
(h) other than as explicitly included in Assumed Liabilities, any Liability of such Seller for any Indebtedness, including Indebtedness under the Credit Facility, any Indebtedness owed to any stockholder or other Affiliate of any such Seller, and any Contract evidencing any such financing arrangement;
(i) all Liabilities under the WARN Act to the extent resulting from an employment loss or layoff (as defined in the WARN Act) initiated by Seller or any of its Affiliates or the purchaser of the Pharma Business;
(j) all Liabilities in respect of any employee or other service provider of Seller or any of its Affiliates who does not become a Transferred Employee (whether arising prior to, on or after the Closing Date), and all Liabilities (other than any Assumed Liability) in respect of any Transferred Employee arising prior to the Closing Date;
(k) other than (x) Tax Liabilities included in clauses (ii) or (vii) of the definition of Accrued Liabilities, and (y) Transfer Taxes for which Buyer is responsible pursuant to Section 5.8(b), (i) all Liabilities for Taxes of such Seller (other than the Acquired Subsidiaries) for any taxable period, and (ii) Liabilities for Taxes relating to the Acquired Business or the Purchased Assets attributable to periods (or portions thereof) ending on or prior to the Closing Date, except for any Taxes of an Acquired Subsidiary, in each case; and
(l) other than as specifically set forth herein, fees or expenses of such Seller incurred with respect to the transactions contemplated by this Agreement.
1.5 Assignments; Cure Amounts.
(a) Notwithstanding anything to the contrary contained herein, Buyer reserves the right, in consultation with Sellers, to amend or supplement, at any time prior to five (5) days prior to the Sale Hearing (the “Assumption Deadline”), Schedule 1.1(c) to add any contracts, so long as any such contract to be added to Schedule 1.1(c) (x) is not to be assumed or available to be assumed pursuant to any other sale or transaction previously approved by the Bankruptcy Court in connection with the Bankruptcy Case, and (y) is added to such schedule(s) prior to the entry of any Order of the Bankruptcy Court approving the rejection of such contract or lease, and subject to the party to such contract or lease receiving information evidencing Buyer’s adequate assurance of future performance and having an opportunity to object within seven (7) days or such other period of time set forth in an Order of the Bankruptcy Court of the receipt of such information to the assignment of such contract or lease on the ground that Buyer has not demonstrated adequate assurance of future performance of such contract or lease pursuant to Section 365 of the Bankruptcy Code. Any contract added to Schedule 1.1(c) (to the extent consistent with the prior sentence) shall be deemed an Assumed Contract. Each Seller shall transfer and assign all Buyer Assumed Agreements (that such Seller is a party thereto and to the extent assignable pursuant to Sections 363 and 365 of the Bankruptcy Code) to Buyer, and Buyer shall assume all Buyer Assumed Agreements from a Seller that is a party thereto, as of the Assumption Deadline pursuant to Section 365 of the Bankruptcy Code and the Sale Order. In connection with and as a prerequisite to such assignment and assumption, Buyer shall pay in full all costs (as determined by such Seller that is party thereto based on the Books and Records of such Seller or as otherwise determined by the Bankruptcy Court) to cure all defaults under such Buyer Assumed Agreements to the extent required by Section 365(b) of the Bankruptcy Code (such amounts, the “Cure Costs”) and Sellers shall have no Liability therefore. The Cure Costs for each Buyer Assumed Agreement are set forth opposite the name of each Buyer Assumed Agreement set forth on Schedule 1.5, but for the avoidance of doubt, to the extent that the Cure Costs for any Buyer Assumed Agreement are determined by the Bankruptcy Court to be higher than the amounts listed on Schedule 1.5, Buyer shall be fully responsible to pay such higher Cure Costs.
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(b) The Sale Order shall provide that as of the Closing, each Seller shall assign to Buyer the Buyer Assumed Agreements to which it is a party, with each Buyer Assumed Agreement identified by its name and date (if available), the other party to such Buyer Assumed Agreement and the address of such party for notice purposes, all included on one or more exhibit(s) attached to either the motion filed in connection with the Sale Order or one or more motion(s) or notice(s) regarding such Seller’s intention to have such Buyer Assumed Agreement assumed by, and assigned to, Buyer. Such exhibit(s) shall also (i) set forth the Cure Costs (if any) necessary to cure any defaults under each Buyer Assumed Agreement and (ii) delineate a procedure for transferring to Buyer the rights to any Purchased Deposits in the form of cash or letters of credit on deposit with the other party to any Assumed Real Property Lease.
(c) In the case of licenses, certificates, approvals, authorizations, leases, Contracts and other commitments included in the Purchased Assets that cannot be transferred or assigned effectively without the consent of third parties, which consent has not been obtained prior to the Closing (after giving effect to the Sale Order and the Bankruptcy Code), Sellers shall, at Buyer’s sole cost and expense, paid in advance, subject to any approval of the Bankruptcy Court that may be required and the terms set forth in Section 5.4, cooperate with Buyer in endeavoring to obtain such consent (or restructure the acquisition of the underlying asset and unwind any associated agreements to enable the acquisition thereof) and this Agreement shall not operate as an assignment thereof in violation of any such license, certificate, approval, authorization, Real Property Lease, Contract or other commitment. For the avoidance of doubt, Sellers shall not be obligated to pay any consideration to any third party from whom consent or approval is requested or otherwise incur any out-of-pocket costs or expenses, or to initiate any litigation or Proceedings to obtain any such consent or approval.
1.6 Further Assurances.
(a) At the Closing, and at all times thereafter as may be necessary, Sellers and Buyer shall, at Buyer’s sole cost and expense, execute and deliver such other instruments of transfer as shall be reasonably necessary to vest in Buyer title to the Purchased Assets free and clear of all Liens (other than Permitted Liens), and such other instruments as shall be reasonably necessary to evidence the assignment by Sellers and the assumption by Buyer or its designee of the Assumed Liabilities, including the Buyer Assumed Agreements. Each of Sellers, on the one hand, and Buyer, on the other hand, shall cooperate with one another to execute and deliver such other documents and instruments as may be reasonably required to carry out the transactions contemplated by this Agreement; provided, however, that Sellers’ compliance with its obligations under this Section 1.6 shall, in each case, be conditioned upon Buyer’s advancement of any expenses to be incurred by Sellers in connection therewith. At the Closing, and at all times thereafter as may be necessary, Buyer shall cooperate with Sellers, at Parent’s request, to facilitate the procurement, possession and return to Sellers of any Excluded Assets, including any equipment subject to any lease which does not constitute an Assumed Equipment Lease.
(b) At the Closing, and at all times thereafter as may be necessary, Sellers shall, at the reasonable request and expense of Buyer, execute, deliver, and file, or cause to be executed, delivered, and filed, such other instruments of conveyance and transfer and take such other actions as Buyer may reasonably request, in order to more effectively consummate the transactions contemplated hereby and to vest in Buyer good and marketable title to the Intellectual Property included in the Purchased Assets, including executing, filing, and recording, with all appropriate intellectual property registration authorities and other relevant entities, all assignment instruments and other filings that are necessary to correctly record the prior chain of title with respect to ownership of the Intellectual Property included in the Purchased Assets.
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1.7 Bulk Sales Laws. Buyer hereby waives compliance by Sellers with the requirements and provisions of any “bulk-transfer” Law of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer. Pursuant to Section 363(f) of the Bankruptcy Code, the transfer of the Purchased Assets shall be free and clear of any and all Liens and Liabilities in the Purchased Assets (other than Permitted Liens), including any Liens or claims arising out of any bulk- transfer Laws, and the Parties shall take such steps as may be necessary or appropriate to so provide in the Sale Order.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The aggregate consideration for the Purchased Assets (the “Base Purchase Price”) shall be the sum of the following:
(a) the Good Faith Deposit; plus
(b) (i) cash in the amount of three hundred four million two hundred thousand dollars ($304,200,000), plus the amount, if any, by which Net Current Assets exceeds one hundred twenty-six million one hundred eighty-one thousand eight hundred seven dollars ($126,181,807), minus (ii) the amount, if any, by which Net Current Assets are less than one hundred twenty-six million one hundred eighty-one thousand eight hundred seven dollars ($126,181,807), minus (iii) Net Debt (such amount, as adjusted pursuant to Section 2.4 below, the “Cash Balance”); plus
(c) the Cure Costs; plus
(d) the assumption by Buyer of the Assumed Liabilities.
2.2 Closing Date Payment. At the Closing, Buyer shall satisfy the Base Purchase Price as follows:
(a) Buyer shall deliver the Estimated Cash Balance less the Adjustment Escrow Amount, via wire transfer of immediately available funds into the account(s) designated in writing by Parent;
(b) Buyer shall deposit an amount equal to ten million dollars ($10,000,000) (the “Adjustment Escrow Amount”) via wire transfer of immediately available funds into an escrow account (the “Adjustment Escrow”) with Citibank, N.A. or such other financial institution as shall be satisfactory to Parent and Buyer (the “Escrow Agent”), to be held and disbursed by the Escrow Agent in accordance with the terms and conditions of this Agreement and an escrow agreement (the “Escrow Agreement”) with the Escrow Agent, such escrow agreement to be mutually acceptable to the Parties. The fees and expenses of the Escrow Agent shall be borne and paid by Buyer;
(c) Buyer shall pay directly to the obligees identified on Schedule 1.5 the Cure Costs; and
(d) Buyer shall assume the Assumed Liabilities; provided, however, that to the extent any such Assumed Liabilities are able to be satisfied at Closing, without preventing the transfer of the Purchased Assets or the assumption of the Assumed Liabilities, Buyer shall satisfy such Assumed Liabilities either at Closing or, in Buyer’s sole discretion, in the ordinary course of business.
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2.3 Good Faith Deposit. On or prior to the Petition Date, Buyer shall deposit into an escrow account (the “Good Faith Deposit Escrow”) at Bank of America maintained by Lowenstein Sandler LLP, counsel to Sellers (the “Good Faith Deposit Escrow Holder”), an amount equal to thirty-three million eight hundred thousand dollars $33,800,000 (the “Good Faith Deposit”) in immediately available funds. The Good Faith Deposit shall be funded by Buyer pursuant to the Bidding Procedures. Following the execution of this Agreement by the Parties, other than upon termination of this Agreement by Sellers pursuant to Section 7.1(d), in which case, the Good Faith Deposit shall be nonrefundable and paid to Sellers pursuant to the terms of this Section 2.3, the Good Faith Deposit shall be refunded to Buyer upon the termination of this Agreement for any reason. At the Closing, the Good Faith Deposit (and any interest or income accrued thereon) shall be paid over to Sellers by the Good Faith Deposit Escrow Holder and, upon such payment, the Good Faith Deposit shall be credited and applied toward payment of the Purchase Price (but shall not reduce the amount of the Cash Balance). In the event the Good Faith Deposit becomes nonrefundable as provided herein before the Closing by reason of Sellers terminating this Agreement pursuant to Section 7.1(d), the Good Faith Deposit Escrow Holder shall immediately disburse the Good Faith Deposit and all interest or income accrued thereon to Sellers to be retained by Sellers for their own account. Sellers’ retention of the Good Faith Deposit pursuant to the preceding sentence shall constitute liquidated damages and shall be the exclusive damages available to the Sellers in the event of any termination by Sellers pursuant to Section 7.1(d) (except in the case of a Willful Breach of this Agreement by Buyer, in which case Sellers’ retention of the Good Faith Deposit shall be in addition to any other remedies the Sellers may have under Section 8.5). If this Agreement terminates in accordance with the termination provisions hereof for any reason other than by Sellers pursuant to Section 7.1(d), the Good Faith Deposit Escrow Holder shall return to Buyer, without prejudice to Buyer’s right to receive the Break-Up Fee and Expense Reimbursement, if any, when payable in accordance with Section 7.3(a), the Good Faith Deposit (together with all income or interest accrued thereon), within three (3) Business Days after this Agreement is so terminated. The Parties hereto agree that, prior to the earliest of (i) application of the Good Faith Deposit against the payment of the Purchase Price, (ii) the Good Faith Deposit becoming nonrefundable as provided herein before the Closing by reason of Sellers terminating this Agreement pursuant to Section 7.1(d) or (iii) the return of the Good Faith Deposit to Buyer under the provisions of this Section 2.3, the Good Faith Deposit shall be treated for federal, and applicable state and local, income Tax purposes as owned by Buyer.
2.4 Adjustment to Base Purchase Price.
(a) Not later than three (3) Business Days prior to the Closing, Parent shall deliver to Buyer a statement setting forth Parent’s good faith and reasonably detailed estimate of Net Current Assets (the “Estimated Net Current Assets”), Net Debt (“Estimated Net Debt”), and the Cash Balance based thereon (the “Estimated Cash Balance”).
(b) Not later than forty-five (45) days following the Closing, Buyer shall deliver to Parent a statement (the “Closing Statement”) setting forth Buyer’s good faith and reasonably detailed calculation of Net Current Assets, Net Debt and the Cash Balance based thereon. If the Cash Balance, as finally determined by this Section 2.4, is less than the Estimated Cash Balance, the Base Purchase Price shall be adjusted downward by the absolute value of such difference (the “Shortfall”). If the Cash Balance, as finally determined by this Section 2.4, is greater than the Estimated Cash Balance, the Base Purchase Price shall be adjusted upward by the absolute value of such difference (the “Surplus”).
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(c) The Adjustment Escrow Amount shall be payable in accordance with the Closing Statement and Section 2.4(d) no later than forty-five (45) days after receipt by Parent of the Closing Statement (and Sellers and Buyer shall instruct the Escrow Agent accordingly) unless and to the extent Parent delivers a notice of disagreement in accordance with the following sentence, setting forth the basis for such disagreement and Parent’s calculation of Net Current Assets, Net Debt and the Cash Balance based thereon. During the forty five (45) day period referred to above, Buyer shall and shall cause the Acquired Subsidiaries to provide Parent and its representatives reasonable access to the relevant books, records, facilities and employees of the Acquired Business and the Acquired Subsidiaries to evaluate the calculation of Net Current Assets, Net Debt and the Cash Balance based thereon. In the event of any such disagreement, Parent shall so notify Buyer in writing prior to the end of the forty five (45) day period referred to above, and the Parties shall use their commercially reasonable efforts to resolve such disagreement. If the Parties are unable to resolve their disagreement through such consultation, the Parties shall refer the disagreement to the Accounting Firm to review promptly the Closing Statement and the disputed items or amounts. Promptly, but no later than twenty (20) days after acceptance of its appointment, the Accounting Firm shall determine (it being understood that in making such determination, the Accounting Firm shall be functioning as an expert and not as an arbitrator), based solely on written submissions by Buyer and Parent, and not by independent review, only those issues in dispute and shall render a written report as to the resolution of those issues in dispute and the resulting computation of Net Current Assets, Net Debt and the Cash Balance based thereon, as the case may be, which shall be conclusive and binding on the Parties. In resolving any disputed item, the Accounting Firm (x) shall be bound by the provisions of this Section 2.4 and (y) may not assign a value to any item greater than the greatest value for such items claimed by either Party or less than the smallest value for such items claimed by either Party or include in its computation any item not included in the computation provided by either Party. The Party (either Buyer, on the one hand, or Parent on behalf of Sellers, on the other hand) whose determination of the amount of the Cash Balance was farthest from the final determination of the Cash Balance by the Accounting Firm shall bear the fees and expenses of the Accounting Firm plus any out-of-pocket expenses (including attorneys’ and accountants’ fees) of the Party whose determination of the Cash Balance was closest to the final determination by the Accounting Firm. If the determination of the Cash Balance by the Accounting Firm is equidistant between the determinations of the parties, the fees of the Accounting Firm shall be borne equally by Buyer, on the one hand, and Sellers, on the other hand, and each of Buyer, on the one hand, and Sellers, on the other hand, shall bear the cost of their own out-of-pocket expenses.
(d) Any Shortfall shall be satisfied solely from the Adjustment Escrow Amount and the remainder, if any, of the Adjustment Escrow Amount shall be promptly paid over to Sellers by wire transfer of immediately available funds into the account(s) designated in writing by Parent (and Sellers and Buyer shall instruct the Escrow Agent accordingly promptly upon final resolution of such Shortfall in accordance with Section 2.4(c)). Sellers shall have no liability for a Shortfall in excess of the Adjustment Escrow Amount. Any Surplus shall be satisfied by payment of the amount of the Surplus to Sellers from Buyer via wire transfer of immediately available funds to the account(s) designated in writing by Parent (and, in such case, the full Adjustment Escrow Amount shall be promptly paid over to Sellers by wire transfer of immediately available funds into the account(s) designated in writing by Parent, and Sellers and Buyer shall instruct the Escrow Agent accordingly promptly upon final resolution of such Surplus in accordance with Section 2.4(c)). Buyer shall have no liability for a Surplus in excess of the Adjustment Escrow Amount.
(e) The Base Purchase Price less the Shortfall, if any, or plus the Surplus, if any, shall be the “Purchase Price”.
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2.5 Allocation of Purchase Price. Within one hundred and twenty (120) calendar days after the Closing Date, Parent shall deliver to Buyer an allocation of the Purchase Price (and all other capitalized costs) as determined for tax purposes, among the Purchased Assets. Such allocation shall be made pursuant to Code Section 1060 and the Treasury Regulations thereunder (and any similar provision of state, local or non-U.S. Law, as appropriate). If, within thirty (30) calendar days of Buyer’s receipt of Parent’s proposed allocation, Buyer does not deliver to Parent written notice (a “Buyer Allocation Objection Notice”) of any objections that it has to such allocation, Parent’s proposed allocation shall be final. If Buyer timely delivers to Parent a Buyer Allocation Objection Notice, then Parent and Buyer shall work together in good faith to resolve the disputed items. If Parent and Buyer are unable to resolve all of the disputed items within thirty (30) calendar days of Parent’s receipt of the Buyer Allocation Objection Notice (or such later date as Parent and Buyer may agree), then Parent and Buyer shall refer the disputed items for resolution, consistent with the side constraints set forth in Exhibit A, to the Accounting Firm in accordance with procedures analogous to those set forth in Section 2.4(c). Notwithstanding anything in this Section 2.5 to the contrary, in no event will the allocation finalized pursuant to this Section 2.5 include any allocations contrary to the restrictions set forth in Exhibit A. Sellers and Buyer agree that the allocation determined under this Section 2.5 shall be binding on all Parties, and that Sellers and Buyer will (and Buyer will cause the Acquired Subsidiaries to) report, act and file Tax Returns (including, but not limited to IRS Form 8594) in all respects and for all purposes consistent with such allocation, except to the extent inconsistent with applicable Law. Neither Sellers nor Buyer shall (and Buyer will not permit an Acquired Subsidiary to) take any position (whether in audits, tax returns or otherwise) that is inconsistent with such allocation unless required to do so by applicable Law.
2.6 Closing Date. Upon the terms and conditions set forth in this Agreement, the consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Lowenstein Sandler LLP, 1251 Avenue of the Americas, New York, New York 10020, at 10:00 a.m. local time on the third Business Day following the day on which the last of the conditions set forth in ARTICLE VI are satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions in accordance with this Agreement), or at such other place or time as Buyer and Sellers may agree in writing; provided, however, that without the prior written consent of Parent, the Closing shall not occur earlier than the earlier of (i) the date of the consummation of the sale of the Pharma Business pursuant to Section 363 of the Bankruptcy Code and (ii) July 1, 2019. The date on which the Closing actually occurs is referred to as the “Closing Date.”
2.7 Deliveries of Buyer. At or prior to the Closing, Buyer shall:
(a) satisfy the Base Purchase Price in accordance with Section 2.2; and
(b) deliver to Sellers:
(i) the Assignment and Assumption Agreement, the Assignment and Assumption of Leases, the Escrow Agreement, the TSA and each other Ancillary Document to which the Buyer is a party, each dated as of the Closing Date and duly executed by Buyer (and in the case of the Escrow Agreement, duly executed by the Escrow Agent);
(ii) a copy of resolutions of the governing body of the Buyer approving and authorizing the Asset Purchase;
(iii) the officer’s certificate required to be delivered pursuant to Section 6.2(c); and
(iv) such resale certificates for sales tax purposes as are reasonably requested by a Seller.
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2.8 Deliveries of Sellers. At or prior to the Closing, Sellers shall deliver to Buyer the following:
(a) the Bill of Sale, the Assignment and Assumption Agreement, the Escrow Agreement, the TSA and each other Ancillary Document to which a Seller is a party, dated as of the Closing Date and duly executed by such Seller (and in the case of the Escrow Agreement, duly executed by the Escrow Agent);
(b) instruments of assignment of the Registered Intellectual Property (the “Assignment of Intellectual Property”) that are owned by a Seller and included in the Purchased Assets, if any, dated as of the Closing Date, duly executed by such Seller, in form for recordation with the appropriate Governmental Entities, in form reasonably acceptable to the Parties;
(c) a copy of the final Sale Order;
(d) the officer’s certificates required to be delivered pursuant to Section 6.3(c);
(e) (i) with respect to each Seller that is not a disregarded entity (as defined for purposes of Treasury Regulations Section 1.1445-2(b)(2)(iii)), a statement from such Seller, dated as of the Closing Date prepared in accordance with Treasury Regulations Section 1.1445-2(b)(2) and Section 1446(f) of the Code certifying such Seller’s non-foreign status for purposes of Section 1445 and 1446(f)(2) of the Code; and (ii) with respect to each Seller that is a disregarded entity (as defined for purposes of Treasury Regulations Section 1.1445-2(b)(2)(iii)), a statement from the Person treated for federal income Tax purposes as the owner of such Seller, dated as of the Closing Date and in form reasonably satisfactory to Buyer, certifying (A) such Seller’s status as a disregarded entity (as defined for purposes of Treasury Regulations Section 1.1445-2(b)(2)(iii)) whose separate existence from such Person is disregarded and (B) such Person’s non-foreign status for purposes of Section 1445 and 1446(f)(2) of the Code;
(f) instruments of assignment and assumption of the Assumed Real Property Lease(s), dated as of the Closing Date, in form reasonably acceptable to the Parties (the “Assignment and Assumption of Leases”), duly executed by the applicable Seller, in form for recordation with the appropriate public land records, if necessary, and any other related documentation or instruments necessary for the conveyance of any Assumed Real Property Lease;
(g) a copy of resolutions of the governing body of each Seller approving and authorizing the Asset Purchase;
(h) share certificates (or an affidavit of lost or stolen share certificate, in form and substance acceptable to the Parties), with stock powers duly endorsed in blank, or other evidence of Sellers’ or each Purchased Subsidiaries’ ownership interest, if any, in each of the Acquired Subsidiaries and such other documents, if any, that may be required to effectively deliver title thereto under applicable non-U.S. Law; and
(i) such other bills of sale, deeds, endorsements, assignments and instruments of conveyance and transfer listed on Schedule 2.8(h), dated as of the Closing Date and in form reasonably satisfactory to Buyer, as Buyer may reasonably request to vest in Buyer all the right, title and interest of Sellers in, to or under any or all of the Purchased Assets.
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2.9 Withholding Rights. Buyer, the Escrow Agent, the Acquired Subsidiaries and any agent or affiliate thereof shall be entitled to deduct and withhold with respect to any payments made pursuant to this Agreement such amounts that are required to be deducted and withheld with respect to any such payments under the Code (or any other provision of applicable Law). To the extent that such amounts are withheld and remitted to the appropriate Taxing Authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to such Persons in respect of which such deduction and withholding was made. Notwithstanding anything to the contrary, any compensatory amounts payable to an employee pursuant to or as contemplated by this Agreement shall be remitted to the applicable payor for payment to the applicable Person through regular payroll procedures, as applicable. Prior to the withholding, Buyer shall (a) notify the Sellers of any anticipated withholding, (b) consult with the Sellers in good faith to determine whether such deduction and withholding is required under applicable Tax law, and (c) cooperate with the Sellers in good faith to minimize the amount of any applicable withholding.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
As an inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, except (a) as disclosed in any form, document or report publicly filed with or publicly furnished to the U.S. Securities and Exchange Commission (the “SEC”) by Parent or any of its Subsidiaries from and after July 1, 2015 and prior to the Agreement Date (excluding any disclosures set forth in any “risk factors,” “forward-looking statements” or “market risk” sections to the extent they are cautionary, predictive or forward-looking in nature) (collectively, the “Parent SEC Disclosures”), (b) as disclosed in any Bankruptcy Court filings by Sellers or any of their respective Subsidiaries made prior to the Agreement Date (the “Bankruptcy Court Filings”), or (c) as disclosed in the disclosure schedule delivered by Sellers to Buyer concurrently with the execution of this Agreement (the “Sellers Disclosure Schedule”), each Seller, jointly and severally, represents and warrants to Buyer as follows:
3.1 Organization. Such Seller is a legal entity duly incorporated, validly existing and in good standing under the laws of the State of New York. Subject to the limitations imposed on such Seller as a result of having filed a petition for relief under the Bankruptcy Code, such Seller has full power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted in the Acquired Business, except where the failure to have such power or authority would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
3.2 Acquired Subsidiaries.
(a) Section 3.2 of the Sellers Disclosure Schedule sets forth the name of each Acquired Subsidiary, and, with respect to each such entity, the jurisdiction in which it is incorporated or organized, the jurisdictions, if any, in which it is qualified to do business, the names of all shareholders or other equity owners and the number of shares of stock owned by each such shareholder or the amount of equity owned by each such equity owner. Each Acquired Subsidiary is a legal entity duly organized, validly existing and (where such concept is recognized) in good standing under the Laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted. Each Acquired Subsidiary (other than the Joint Venture) is duly qualified or licensed, and has all necessary governmental approvals, to do business and is in good standing (where such concept is recognized) in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such approvals, qualification or licensing necessary, except where the failure to be so duly approved, qualified or licensed and in good standing (where such concept is recognized) would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
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(b) The outstanding shares of capital stock of each Acquired Subsidiary are duly authorized, validly issued, fully paid and non-assessable and free of pre-emptive rights, and all such shares or other equity interests are owned by the applicable holder free and clear of any and all Liens (other than Permitted Liens and Liens created by Buyer). There is no existing option, warrant, call, right or Contract to which any Acquired Subsidiary (other than the Joint Venture) is a party requiring, and there are no convertible securities of any Acquired Subsidiary (other than the Joint Venture) outstanding which upon conversion would require, the issuance of any shares of capital stock or other equity interests of any Acquired Subsidiary (other than the Joint Venture) or other securities convertible into shares of capital stock or other equity interests of any Acquired Subsidiary (other than the Joint Venture).
3.3 Corporate Authority Relative to this Agreement; Consents and Approvals; No Violation.
(a) Such Seller has the full corporate power and authority to execute and deliver this Agreement and the Ancillary Documents to which it is a party and, subject to the entry of the Sale Order and such other authorization as is required by the Bankruptcy Code, perform its obligations under and consummate the transactions contemplated by this Agreement, including the Asset Purchase. The execution, delivery and performance by such Seller of this Agreement and the Ancillary Documents to which it is a party and the consummation of the transactions contemplated by this Agreement, including the Asset Purchase, have been duly and validly authorized by such Seller’s board of directors (or a committee thereof) and no other actions on the part of such Seller, subject to the entry of the Sale Order and such other authorization as is required by the Bankruptcy Code, are necessary to authorize the execution and delivery by such Seller of this Agreement and the Ancillary Documents to which it is a party or the consummation of the transactions contemplated by this Agreement, including the Asset Purchase. This Agreement has been, and the Ancillary Documents to which it is a party have been (or will be at Closing) duly and validly executed and delivered by such Seller and, assuming this Agreement constitutes the legal, valid and binding agreement of Buyer, this Agreement and the Ancillary Documents to which it is a party constitute (or upon execution at Closing will constitute, as applicable), subject to Alternative Bids (if any), the entry of the Sale Order and such other authorization as is required by the Bankruptcy Code, the legal, valid and binding agreements of such Seller, enforceable against such Seller in accordance with their terms, except as and to the extent that such validity and enforceability may be limited by equitable principles of general applicability (whether considered in a proceeding at law or in equity) (the “Enforceability Exceptions”).
(b) Other than in connection with or in compliance with (i) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), (ii) the approvals set forth in Section 3.3(b) of the Sellers Disclosure Schedule (covering the applicable Laws or other legal restraints of foreign countries designed to govern competition or trade regulation or to prohibit, restrict or regulate actions with the purpose or effect of monopolization or restraint of trade (collectively, “Antitrust Laws”)) and (iii) the Sale Order (clauses (i) through (iii), collectively, the “Transaction Approvals”), and subject to the accuracy of Buyer’s representations and warranties set forth in Section 4.2(b), no authorization, consent, order, license, permit or approval of, or registration, declaration, notice or filing with, any Governmental Entity is required to be made or obtained under applicable Law for the consummation by such Seller of the transactions contemplated hereby, except for such authorizations, consents, orders, licenses, permits, approvals, registrations, declarations, notices and filings that are not required to be made or obtained prior to the consummation of such transactions or that the failure to make or obtain would not, in the case of this Section 3.3(b), reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
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(c) Except as set forth in Section 3.3(c) of the Sellers Disclosure Schedule (the “Consents”), the execution and delivery by such Seller of this Agreement does not, and (assuming the Transaction Approvals are obtained and after giving effect to the Sale Order and such other authorization as is required by the Bankruptcy Code) the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, (i) require any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, constitute an impermissible change of control or default under, or result in termination or give to others any right of termination, vesting, amendment, acceleration or cancellation of, or result in the creation of a Lien (other than Permitted Liens) upon any of the respective properties or assets of such Seller or any of the Acquired Subsidiaries pursuant to, any Contract to which such Seller or any of the Acquired Subsidiaries is a party or by which they or any of their respective properties or assets are bound, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (ii) conflict with or result in any violation of any provision of the Organizational Documents of such Seller or (iii) conflict with or violate any applicable Laws except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
3.4 Financial Statements. Sellers have made available to Buyer copies of the audited balance sheet of the Acquired Business as of June 30, 2018 (the “Most Recent Balance Sheet”), the related audited income statement and audited statement of cash flows for the twelve month period ended June 30, 2018, together with the accompanying notes thereto (collectively, the “Financial Statements”). Each of the Financial Statements has been prepared in all material respects in conformity with U.S. generally accepted accounting principles (“GAAP”) (except as permitted by the SEC in connection with financial statements prepared on a carve-out basis) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto), and presents fairly in all material respects the consolidated financial position, results of operations and cash flows of the Acquired Business as at the dates and for the periods indicated therein.
3.5 Compliance with Law; Permits.
(a) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, such Seller and the Acquired Subsidiaries (other than the Joint Venture) are, and since July 1, 2016 have been, in compliance with all applicable federal, state, local and foreign laws, statutes, ordinances, rules, regulations, judgments, orders, injunctions, decrees or agency requirements of Governmental Entities (collectively, “Laws” and each, a “Law”) applicable to the Purchased Assets or the operation of the Acquired Business. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, since July 1, 2016, Sellers and the Acquired Subsidiaries (other than the Joint Venture) have not received any written notice or, to Sellers’ knowledge, other communication from any Governmental Entity regarding any actual or alleged failure to comply with any Law applicable to the Purchased Assets or the operation of the Acquired Business.
(b) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and subject to the limitations imposed on Sellers as a result of having filed a petition for relief under the Bankruptcy Code, Sellers and the Acquired Subsidiaries (other than the Joint Venture) hold all authorizations, licenses, permits, certificates, variances, exemptions, approvals, orders, registrations and clearances of any Governmental Entity necessary for Sellers and the Acquired Subsidiaries (other than the Joint Venture) to own, lease and operate the Purchased Assets, and to carry on and operate the Acquired Business as currently conducted.
(c) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, neither Sellers, nor the Acquired Subsidiaries (other than the Joint Venture), or, to Sellers’ knowledge, any of their respective directors or officers, in each case, acting on behalf of Sellers or the Acquired Subsidiaries (other than the Joint Venture), has in the past three years, directly or indirectly in respect of the Acquired Business, (i) used any funds of the Acquired Business for unlawful contributions, unlawful gifts, unlawful entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or campaigns from funds of the Acquired Business; or (iii) violated or is in violation of applicable Bribery Legislation of any jurisdiction in which the Acquired Business operates.
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(d) Notwithstanding anything contained in this Section 3.5, no representation or warranty shall be deemed to be made in this Section 3.5 in respect of the matters referenced in any other section of this ARTICLE III, including in respect of environmental, Tax, employee benefits or labor matters.
3.6 Environmental Matters. Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (a) Parent (solely in respect of the Acquired Business), NY Agri and the Acquired Subsidiaries (other than the Joint Venture) are, to Sellers’ knowledge, in compliance with applicable Environmental Laws, and each has, or has timely applied for, all Environmental Permits necessary for the conduct and operation of the Acquired Business as presently conducted, (b) since July 1, 2016, neither Sellers, nor the Acquired Subsidiaries (other than the Joint Venture), have received any written notice, demand, letter or claim alleging that Parent (solely in respect of the Acquired Business), NY Agri or such Acquired Subsidiary (other than the Joint Venture) is in violation of, or liable under, any Environmental Law and (c) neither any Sellers, nor the Acquired Subsidiaries (other than the Joint Venture), are subject to any Order in respect of the Acquired Business relating to compliance with Environmental Laws, Environmental Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Regulated Substances. Notwithstanding anything herein to the contrary, the representations and warranties contained in this Section 3.6 are the sole and exclusive representations of Sellers with respect to Environmental Laws, Environmental Permits, Regulated Substances or any other matter related to the environment or the protection of human health and worker safety.
3.7 Employee Benefit Plans.
(a) Section 3.7(a) of the Sellers Disclosure Schedule sets forth a correct and complete list, as of the Agreement Date, of each Seller Benefit Plan. With respect to each Assumed Plan, to the extent applicable, correct and complete copies of the following have been delivered or made available to Buyer by Sellers: (i) the most recent plan document (which, for the avoidance of doubt, with respect to any Assumed Plan for which a form agreement is used, shall consist of a copy of such form); (ii) the most recent related trust document; (iii) the most recent annual report (Form 5500) filed with the Internal Revenue Service (the “IRS”); (iv) the most recent determination, opinion or advisory letter from the IRS for any Assumed Plan that is intended to qualify under Section 401(a) of the Code; and (v) the most recent summary plan description.
(b) Except (i) as set forth on Section 3.7(b) of the Sellers Disclosure Schedule or (ii) as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (x) each U.S. Seller Benefit Plan has been established, operated and administered in accordance with its terms and the requirements of all applicable Laws, including ERISA and the Code, and (y) there are no pending or, to Sellers’ knowledge, threatened in writing claims (other than claims for benefits in the Ordinary Course of Business) with respect to any Seller Benefit Plan.
(c) Except as set forth on Section 3.7(c) of the Sellers Disclosure Schedule, none of the Sellers, the Acquired Subsidiaries (other than the Joint Venture) or any of their respective ERISA Affiliates, sponsor, maintain, or contribute to, any employee benefit plan that is (i) subject to Title IV of ERISA or Section 412 of the Code, (ii) a “multiple employer plan” within the meaning of Sections 4063 or 4064 of ERISA, or (iii) a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA (a “Multiemployer Plan”).
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(d) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, each Non-U.S. Seller Benefit Plan (i) if intended to qualify for special tax treatment, meets all the requirements for such treatment, (ii) if required to be funded, book-reserved or secured by an insurance policy, is funded, book-reserved, or secured by an insurance policy, as applicable, based on reasonable actuarial assumptions in accordance with applicable accounting principles, and (iii) has been maintained in compliance with all applicable Laws.
(e) Except (i) as set forth on Section 3.7(e) of the Sellers Disclosure Schedule, or (ii) as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, neither the execution of this Agreement nor the completion of the transactions contemplated by this Agreement (either alone or in conjunction with any other event) will result in (x) any compensation payment becoming due to any employee of Parent (who is or was primarily employed in respect of the Acquired Business), NY Agri or of the Acquired Subsidiaries (other than the Joint Venture), (y) the acceleration of vesting or payment to any employee of Parent (who is or was primarily employed in respect of the Acquired Business), NY Agri or of the Acquired Subsidiaries (other than the Joint Venture), or (z) any increase to the compensation or benefits otherwise payable under any Seller Benefit Plan.
3.8 Litigation. As of the Agreement Date, neither such Seller, nor any Acquired Subsidiary (other than the Joint Venture), is a party to any pending or, to such Seller’s knowledge, threatened Proceeding relating to the Acquired Business or the Purchased Assets that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. As of the Agreement Date, neither Sellers, nor the Acquired Subsidiaries (other than the Joint Venture), are subject to any outstanding Order relating to the Acquired Business or the Purchased Assets that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
3.9 Tax Matters. For purposes of this Section 3.9, the Joint Venture shall not be treated as either a Purchased Subsidiary or Acquired Subsidiary. Except as set forth on Section 3.9 of the Sellers Disclosure Schedule:
(a) Parent (solely in respect of the Acquired Business), NY Agri and the Acquired Subsidiaries have timely filed (taking into account any extension of time within which to file) all income and other material Tax Returns required to be filed by any of them and all such filed Tax Returns are complete and accurate in all material respects; (ii) Parent (solely in respect of the Acquired Business), NY Agri and the Acquired Subsidiaries have paid all income and other material Taxes that are required to be paid by any of them, except, in each case of clauses (i) and (ii), with respect to matters contested in good faith or for which adequate reserves have been established in the Most Recent Balance Sheet, in accordance with GAAP; and (iii) there are not pending, or to Sellers’ knowledge, threatened in writing, audits, examinations, investigations or other administrative or judicial Proceedings in respect of material Taxes of Parent (solely in respect of the Acquired Business), NY Agri or the Acquired Subsidiaries, in each case, other than in respect of matters for which adequate reserves have been established in the Most Recent Balance Sheet, in accordance with GAAP.
(b) There are no Liens for Taxes on any of the Purchased Assets or the assets of the Acquired Subsidiaries other than Permitted Liens.
(c) Sellers have not participated in any “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).
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(d) No Acquired Subsidiary (and no Seller in respect of the Acquired Business) has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency which waiver or extension remains outstanding.
(e) The Acquired Subsidiaries that are organized outside the United States are not subject to income Tax in any country other than their respective countries of incorporation or formation. Sellers expect to recognize a de minimis amount of Tax as a result of the inclusion of Subpart F income (as defined for purposes of Section 951(a)(1)(A) of the Code) and global intangible low-taxed income (as defined in Section 951A of the Code) through the Closing Date (exclusive of any election under Section 338(g) of the Code), determined as though the taxable year of the Acquired Subsidiaries ended on the Closing Date and calculated taking into account foreign Taxes paid and creditable and the Tax attributes of the Sellers, including the deduction available under Section 250 of the Code.
(f) Section 3.9(f) of the Sellers Disclosure Schedule lists the U.S. federal income tax classification of each of the Acquired Subsidiaries and all entity classification elections (and related effective dates) under Treasury Regulations Section 301.7701-3 made with respect to any of the Acquired Subsidiaries.
(g) The Most Recent Balance Sheet reflects all Liabilities for unpaid Taxes of the Acquired Subsidiaries for periods (or portions of periods) through the date of the Most Recent Balance Sheet. Since the date of the Most Recent Balance Sheet, none of Parent (solely in respect of the Acquired Business), NY Agri or the Acquired Subsidiaries has incurred any liability for Taxes outside the Ordinary Course of Business.
(h) Notwithstanding anything herein to the contrary, the representations and warranties contained in this Section 3.9 and, to the extent related to Taxes or Tax Matters, Section 3.7, are the sole and exclusive representations of such Seller with respect to Taxes and Tax matters.
3.10 Employment and Labor Matters.
(a) Neither Parent (solely in respect of the Acquired Business), NY Agri, nor any Acquired Subsidiary (other than the Joint Venture) is a party to any collective bargaining agreement, labor union contract, or trade union agreement (each, a “Collective Bargaining Agreement”) covering employees in the United States.
(b) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (i) there is not currently, nor has there been in the past year, any strike, lockout, slowdown, or work stoppage against Parent (solely in respect of the Acquired Business), NY Agri or the Acquired Subsidiaries (other than the Joint Venture) pending or, to Sellers’ knowledge, threatened in writing; (ii) there is no pending charge or complaint against Parent (solely in respect of the Acquired Business), NY Agri or the Acquired Subsidiaries (other than the Joint Venture) by the National Labor Relations Board or any comparable Governmental Entity; and (iii) Parent (solely in respect of the Acquired Business), NY Agri and the Acquired Subsidiaries (other than the Joint Venture) have complied with all Laws regarding employment and employment practices (including anti-discrimination), terms and conditions of employment and wages and hours (including classification of employees and equitable pay practices) and other Laws in respect of any reduction in force (including notice, information and consultation requirements), and no claims against Parent (solely in respect of the Acquired Business), NY Agri or the Acquired Subsidiaries (other than the Joint Venture) relating to non-compliance with the foregoing are pending or, to Sellers’ knowledge, threatened in writing.
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3.11 Real and Tangible Property. Such Seller or an Acquired Subsidiary has good and valid title to the Owned Real Property set forth on Schedule 1.1(e) and to all of the buildings, structures and other improvements thereon. Such Seller or an Acquired Subsidiary has a good and valid leasehold interest in each of the Assumed Real Property Leases numbered 1 through 3 on Schedule 1.1(d). Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, neither Sellers, nor the Acquired Subsidiaries, have received written notice of any material default under any agreement evidencing any Lien affecting the Owned Real Property set forth on Schedule 1.1(e) or any Assumed Real Property Lease, which default continues on the Agreement Date, and (d) such Seller or an Acquired Subsidiary has good and marketable title to, a good and enforceable leasehold interest in or a valid and enforceable license to, all tangible Purchased Assets, free and clear of all Liens (other than Permitted Liens).
3.12 Intellectual Property.
(a) The Patents, pending Patent applications, registered Marks, pending applications for registration of Marks and registered Copyrights owned by Sellers or the Acquired Subsidiaries (other than the Joint Venture) and used primarily or held primarily for use in the Acquired Business are referred to collectively as the “Registered Intellectual Property.”
(b) Sellers and/or the Acquired Subsidiaries own all right, title, and interest, free and clear of all Liens (except for Permitted Liens) to all Registered Intellectual Property, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(c) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (i) to Sellers’ knowledge, as of the Agreement Date, the conduct of the Acquired Business does not infringe, violate or constitute misappropriation of any Intellectual Property of any third Person; (ii) to Sellers’ knowledge, as of the Agreement Date, no third Person is infringing, violating, or misappropriating any Registered Intellectual Property; and (iii) as of the Agreement Date, there is no pending claim asserted in writing against a Seller or any Acquired Subsidiary (other than the Joint Venture) (including any “cease and desist” letters and invitations to license) asserting that Sellers’ or any Acquired Subsidiary’s (other than the Joint Venture’s) conduct of the Acquired Business has infringed, violated or misappropriated, or is infringing, violating or misappropriating, any Intellectual Property rights of any third Person.
(d) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (i) Sellers and the Acquired Subsidiaries (other than the Joint Venture) comply with their internal policies and procedures and any other legal requirements, to the extent applicable, relating to privacy, data protection, and the collection, retention, protection and use of personal information collected, used, or held for use in the operation of the Acquired Business and (ii) there are no claims pending or, to Sellers’ knowledge, threatened against Sellers or any Acquired Subsidiary (other than the Joint Venture) alleging a violation of any third Person’s privacy or personal information or data rights, solely with respect to the operation of the Acquired Business.
3.13 Material Contracts.
(a) Section 3.13(a) of the Sellers Disclosure Schedule sets forth each material Contract relating to the Purchased Assets and the Assumed Liabilities (the “Material Contracts”).
(b) Each Material Contract listed on Section 3.13(a) of the Sellers Disclosure Schedule is a valid and binding obligation of a Seller and, to Sellers’ knowledge, the other party or parties thereto in accordance with its terms and conditions, except as and to the extent that such validity and enforceability may be limited by (i) bankruptcy, insolvency, or other similar laws affecting the enforcement of creditors’ rights generally, (ii) the Enforceability Exceptions and (iii) the obligation to pay Cure Costs under Section 365 of the Bankruptcy Code and Section 1.3.
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(c) With respect to any Material Contract, no event has occurred or not occurred through such Seller’s action or inaction or, to Sellers’ knowledge, prior to the Agreement Date, through the action or inaction of any third party which, with notice or the lapse of time or both, would constitute a default or result in the termination of or a right of termination or cancelation under any Material Contract, accelerate the performance or obligations required thereby, or result in the loss of any benefit under the terms of any Material Contract to which such Seller is a party, except for the obligation to pay Cure Costs and/or such events that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
3.14 Certain Regulatory Matters.
(a) The facilities of Sellers used in the operation of the Acquired Business and the facilities of the Acquired Subsidiaries (other than the Joint Venture) are in compliance with the FDCA, to the extent applicable, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) Except as set forth in Section 3.14(b) of the Sellers Disclosure Schedule, as of the Agreement Date and for the three (3) years prior thereto, none of the Products have been subject to any material recall or market withdrawal and no material recall or market withdrawal is currently under consideration by such Seller or the Acquired Subsidiaries (other than the Joint Venture).
(c) Since July 1, 2016, neither Parent (solely in respect of the Acquired Business), NY Agri, nor any Acquired Subsidiaries (other than the Joint Venture) have been the subject of any material enforcement action by the FDA (solely in respect of the Acquired Business).
(d) Notwithstanding anything herein to the contrary, the representations and warranties in this Section 3.14 are the sole and exclusive representations and warranties of Sellers with respect to the regulatory matters expressly set forth in this Section 3.14.
3.15 Finders or Brokers. Other than PJT Partners, Inc. and AP Services LLC, no broker, finder or investment banker is entitled to any broker’s, finder’s or financial advisor’s fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Sellers, the Acquired Subsidiaries or a Seller’s board of directors.
3.16 Sufficiency of Assets. The Purchased Assets, together with the assets of the Acquired Subsidiaries, constitute all of the material assets used by Sellers in the current operations of the Acquired Business and necessary for Buyer to operate the Acquired Business immediately following the Closing in substantially the same manner as it is currently conducted.
3.17 Inventory. All Inventory, whether or not reflected in the Closing Statement, consists of a quality and quantity usable and salable in the Ordinary Course of Business, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established.
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3.18 No Other Representations or Warranties. THE PURCHASED ASSETS SOLD PURSUANT TO THIS AGREEMENT ARE SOLD, CONVEYED, TRANSFERRED, AND ASSIGNED ON AN “AS IS, WHERE IS” BASIS “WITH ALL FAULTS”, NOTWITHSTANDING ANYTHING SET FORTH HEREIN (OTHER THAN AS EXPRESSLY SET FORTH IN THIS ARTICLE III, AS QUALIFIED BY THE SELLERS DISCLOSURE SCHEDULE AND THE PARENT SEC DISCLOSURES AND BANKRUPTCY COURT FILINGS) OR IN ANY ANCILLARY DOCUMENT (INCLUDING ANY CERTIFICATE DELIVERED PURSUANT TO THIS AGREEMENT) TO THE CONTRARY. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS ARTICLE III (AS QUALIFIED BY THE SELLERS DISCLOSURE SCHEDULE AND THE PARENT SEC DISCLOSURES AND BANKRUPTCY COURT FILINGS) OR IN ANY ANCILLARY DOCUMENT (INCLUDING ANY CERTIFICATE DELIVERED PURSUANT TO THIS AGREEMENT), NONE OF SELLERS, ANY OF THEIR AFFILIATES OR ANY OTHER PERSON ON BEHALF OF SELLERS OR THEIR AFFILIATES MAKES ANY REPRESENTATIONS OR WARRANTIES (INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH WARRANTIES ARE ALSO HEREBY EXPRESSLY DISCLAIMED), TERMS, CONDITIONS, UNDERSTANDINGS OR COLLATERAL ASSIGNMENTS OF ANY NATURE OR KIND, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE WITH RESPECT TO (A) THE PURCHASED ASSETS, THE ACQUIRED BUSINESS, SELLERS, OR THEIR RESPECTIVE BUSINESSES, OR WITH RESPECT TO ANY OTHER INFORMATION PROVIDED, OR MADE AVAILABLE, TO BUYER OR ITS AFFILIATES OR THEIR OFFICERS, DIRECTORS, EMPLOYEES, ACCOUNTANTS, CONSULTANTS, LEGAL COUNSEL, INVESTMENT BANKERS, ADVISORS, REPRESENTATIVES OR AUTHORIZED AGENTS (COLLECTIVELY, “REPRESENTATIVES”) IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING THE ACCURACY OR COMPLETENESS THEREOF OR (B) THE CONDITION OF ANY REAL PROPERTY OWNED, LEASED OR USED IN THE ACQUIRED BUSINESS OR WITH REGARD TO THE USE, EXISTENCE OR RELEASE OF ANY REGULATED SUBSTANCES AT, ON, UNDER OR AROUND ANY REAL PROPERTY OWNED, LEASED OR USED IN THE ACQUIRED BUSINESS. NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED IN THIS SECTION SHALL LIMIT OR OTHERWISE IMPAIR IN ANY MANNER BUYER’S RIGHT TO MAKE A CLAIM FOR ACTUAL FRAUD.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Sellers to enter into this Agreement and to consummate the transactions contemplated hereby, except as disclosed in the disclosure schedule delivered by Buyer to Sellers concurrently with the execution of this Agreement (the “Buyer Disclosure Schedule”), Buyer represents and warrants to Sellers as follows:
4.1 Organization. Buyer is a limited partnership duly formed, validly existing and in good standing under the laws of the Delaware. Buyer has all requisite limited partnership power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted.
4.2 Corporate Authority Relative to this Agreement; Consents and Approvals; No Violation.
(a) Buyer has the requisite limited partnership power and authority to execute and deliver this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby, including the Asset Purchase. The execution, delivery and performance by Buyer of this Agreement and the Ancillary Documents to which it is a party and the consummation by Buyer of the transactions contemplated hereby, including the Asset Purchase, have been duly and validly authorized by the general partner of Buyer and, no other action or proceedings on the part of Buyer, or vote of Buyer’s partners, are necessary to authorize the execution and delivery by Buyer of this Agreement and the Ancillary Documents to which it is a party and the consummation of the transactions contemplated hereby, including the Asset Purchase. This Agreement and the Ancillary Documents to which it is a party have been duly and validly executed and delivered by Buyer and, assuming this Agreement constitutes the legal, valid and binding agreement of Sellers, this Agreement and the Ancillary Documents to which it is a party constitute the legal, valid and binding agreements of Buyer and are enforceable against Buyer in accordance with their terms, except as such enforcement may be subject to the Enforceability Exceptions.
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(b) Other than in connection with or in compliance with the Transaction Approvals, no authorization, consent, order, license, permit or approval of, or registration, declaration, notice or filing with, any Governmental Entity or other third party, is required to be made or obtained, under applicable Law, for the consummation by Buyer of the transactions contemplated hereby, including the Asset Purchase, except for such authorizations, consents, orders, licenses, permits, approvals, registrations, declarations, notices and filings that are not required to be made or obtained prior to the consummation of such transactions.
(c) The execution and delivery by Buyer of this Agreement does not, and (assuming the Transaction Approvals are obtained) the consummation of the transactions contemplated hereby, including the Asset Purchase, and compliance with the provisions hereof will not, (i) require the making by Buyer of any declaration, filing or registration with, any Person, other than filings with the Bankruptcy Court, (ii) conflict with or result in any violation of any provision of the Organizational Documents of Buyer or (iii) conflict with or violate any applicable Laws.
4.3 Litigation. There is no Proceeding to which Buyer or any of its Subsidiaries is a party pending or, to Buyer’s knowledge, threatened, and Buyer is not subject to any outstanding Order, in each case that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Buyer to perform its obligations under this Agreement and the Ancillary Documents to which it is a party, for Buyer to assume and perform the Assumed Liabilities or for Buyer to consummate on a timely basis the transactions contemplated hereby or thereby.
4.4 Buyer Information. None of the information supplied or to be supplied by Buyer to Parent in writing for inclusion or incorporation by reference in any filings required under the applicable U.S. federal securities Laws, including the rules and regulations of the SEC thereunder, relating to the Asset Purchase will, at the time such documents are filed with the SEC or at any time such documents are amended or supplemented, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, no representation or warranty is made by Buyer with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of Sellers expressly for inclusion or incorporation by reference therein.
4.5 Finders or Brokers. Other than CIM Partners and Vasto Advisors, no broker, finder or investment banker is entitled to any broker’s, finder’s or financial advisor’s fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Buyer or Buyer’s board of directors (or similar governing body).
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4.6 Solvency. Buyer has, as of the Agreement Date, and will have at and as of the Closing Date sufficient available funds to consummate the Asset Purchase and to promptly make, when due, all payments required to be made in connection with this Agreement, including payment of the Cash Balance, and satisfaction of all of the Assumed Liabilities and the Cure Costs. As of the Agreement Date, Buyer has no reason to believe that the representations contained in the immediately preceding sentence will not be true at and as of the Closing Date. Based on the accuracy of the representations and warranties set forth in Article III, immediately after giving effect to the transactions contemplated hereby, (a) Buyer and its Subsidiaries, taken as a whole, will not (i) be insolvent as defined in Section 101 of the Bankruptcy Code, (ii) have incurred Indebtedness beyond their ability to pay such Indebtedness as it matures or becomes due and (iii) have unreasonably small capital to carry on their businesses as presently conducted or as proposed to be conducted, (b) the then present fair saleable value of the assets of Buyer and its Subsidiaries, taken as a whole, will exceed the amount that will be required to pay their Liabilities (including the amount of all contingent Liabilities) and Indebtedness as it becomes absolute or matured, and (c) the assets of Buyer and its Subsidiaries, taken as a whole, at a fair valuation, will exceed their Liabilities (including the amount of all contingent Liabilities) and Indebtedness.
4.7 Adequate Assurances Regarding the Buyer Assumed Agreements. As of the Closing, Buyer will be capable of satisfying the conditions contained in Sections 365(b)(1)(C) and 365(c) of the Bankruptcy Code with respect to the Buyer Assumed Agreements.
4.8 Certain Arrangements; Ownership of Sellers. There are no contracts, undertakings, commitments, agreements, obligations or understandings, whether written or oral, between Buyer or any of its Affiliates, on the one hand, and any member of Sellers’ management or Sellers’ boards of directors, on the other hand, relating in any way to Sellers (including with respect to the management or control of Sellers), the transactions contemplated hereby or to the operations of Parent (solely related to the Acquired Business), NY Agri and the Acquired Subsidiaries after the Closing. Buyer does not hold, directly or indirectly, any beneficial or other ownership interest in any of Sellers or their Subsidiaries or any of their respective securities.
4.9 Guarantee. Concurrently with the execution of this Agreement, New Mountain Partners V, L.P., a Delaware limited partnership (the “Guarantor”), has delivered to Sellers a duly executed limited guarantee pursuant to which the Guarantor has guaranteed certain obligations under this Agreement (the “Guarantee”). The Guarantee is in full force and effect, has not been amended or modified and is a legal and valid and binding obligation of the Guarantor. No event has occurred which, with or without notice, lapse of time or both, would constitute a default or breach or failure to satisfy a conditions under the terms and conditions of the Guarantee on the part of the Guarantor under the Guarantee.
4.10 Investment Intention. Buyer is acquiring the capital stock of the Acquired Subsidiaries for its own account, for investment purposes only and not with a view to the distribution (as such term is used in Section 2(a)(11) of the Securities Act). Buyer understands that the capital stock of the Acquired Subsidiaries may not have been registered under the Securities Act and may not be sold unless subsequently registered under the Securities Act or an exemption from such registration is available
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4.11 Investigation; No Other Representations.
(a) BUYER HAS CONDUCTED ITS OWN INDEPENDENT REVIEW AND ANALYSIS OF THE BUSINESS, OPERATIONS, ASSETS, CONTRACTS, INTELLECTUAL PROPERTY, REAL ESTATE, TECHNOLOGY, LIABILITIES (CONTINGENT, PRESENT AND OTHERWISE), RESULTS OF OPERATIONS, FINANCIAL CONDITION AND PROSPECTS OF SELLERS, THE ACQUIRED SUBSIDIARIES AND THE ACQUIRED BUSINESS, AND ACKNOWLEDGES THAT IT AND ITS REPRESENTATIVES HAVE RECEIVED ACCESS TO SUCH BOOKS AND RECORDS, FACILITIES, EQUIPMENT, CONTRACTS AND OTHER ASSETS AND PROPERTIES OF SELLERS, THE ACQUIRED SUBSIDIARIES AND THE ACQUIRED BUSINESS THAT IT AND ITS REPRESENTATIVES HAVE REQUESTED TO REVIEW AND THAT IT AND ITS REPRESENTATIVES HAVE HAD THE OPPORTUNITY TO MEET WITH THE MANAGEMENT OF SELLERS AND TO DISCUSS THE RESPECTIVE BUSINESSES AND ASSETS OF PARENT (IN RESPECT OF THE ACQUIRED BUSINESS), NY AGRI AND THE ACQUIRED SUBSIDIARIES AND THE ACQUIRED BUSINESS. BUYER, ON BEHALF OF ITSELF AND ON BEHALF OF ITS RESPECTIVE AFFILIATES AND REPRESENTATIVES, ACKNOWLEDGES THAT THE PURCHASED ASSETS SOLD PURSUANT TO THIS AGREEMENT ARE SOLD, CONVEYED, TRANSFERRED, AND ASSIGNED ON AN “AS IS, WHERE IS” BASIS “WITH ALL FAULTS” AND THAT, NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER ANCILLARY DOCUMENT TO THE CONTRARY, OTHER THAN THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE III (AS QUALIFIED BY THE SELLERS DISCLOSURE SCHEDULE AND THE PARENT SEC DISCLOSURES AND BANKRUPTCY COURT FILINGS) OR IN ANY ANCILLARY DOCUMENT (INCLUDING ANY CERTIFICATE DELIVERED PURSUANT TO THIS AGREEMENT), NONE OF SELLERS, THE ACQUIRED SUBSIDIARIES, ANY OF THEIR RESPECTIVE AFFILIATES OR ANY OTHER PERSON ON BEHALF OF SELLERS, THE ACQUIRED SUBSIDIARIES OR THEIR AFFILIATES MAKES ANY REPRESENTATIONS OR WARRANTIES (INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH WARRANTIES ARE ALSO HEREBY EXPRESSLY DISCLAIMED), TERMS, CONDITIONS, UNDERSTANDINGS OR COLLATERAL ASSIGNMENTS OF ANY NATURE OR KIND, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE WITH RESPECT TO (A) THE PURCHASED ASSETS, THE ACQUIRED BUSINESS, SELLERS OR THE ACQUIRED SUBSIDIARIES, OR WITH RESPECT TO ANY OTHER INFORMATION PROVIDED, OR MADE AVAILABLE, TO BUYER OR ITS AFFILIATES OR REPRESENTATIVES IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING THE ACCURACY OR COMPLETENESS THEREOF, OR (B) THE CONDITION OF ANY REAL PROPERTY OWNED, LEASED OR USED IN THE ACQUIRED BUSINESS OR WITH REGARD TO THE USE, EXISTENCE OR RELEASE OF ANY REGULATED SUBSTANCES AT, ON, UNDER OR AROUND ANY REAL PROPERTY OWNED, LEASED OR USED IN THE ACQUIRED BUSINESS.
(b) WITHOUT LIMITING THE FOREGOING, BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR ANY REMEDIES AVAILABLE UNDER THIS AGREEMENT WITH RESPECT TO THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLE III (AS QUALIFIED BY THE SELLERS DISCLOSURE SCHEDULE AND THE PARENT SEC DISCLOSURES AND BANKRUPTCY COURT FILINGS) OR IN ANY ANCILLARY DOCUMENT (INCLUDING ANY CERTIFICATE DELIVERED PURSUANT TO THIS AGREEMENT), NONE OF SELLERS, THE ACQUIRED SUBSIDIARIES OR ANY OTHER PERSON WILL HAVE OR BE SUBJECT TO ANY LIABILITY OR OTHER OBLIGATION TO BUYER OR ITS REPRESENTATIVES OR AFFILIATES OR ANY OTHER PERSON RESULTING FROM BUYER’S, ITS REPRESENTATIVES’ OR AFFILIATES’ USE OF ANY INFORMATION, DOCUMENTS, PROJECTIONS, FORECASTS OR OTHER MATERIAL MADE AVAILABLE TO BUYER OR ITS REPRESENTATIVES OR AFFILIATES, INCLUDING ANY INFORMATION MADE AVAILABLE IN THE ELECTRONIC DATA ROOM MAINTAINED BY OR ON BEHALF OF SELLERS OR THEIR REPRESENTATIVES FOR PURPOSES OF THE TRANSACTIONS CONTEMPLATED HEREBY, TEASERS, MARKETING MATERIALS, CONSULTING REPORTS OR MATERIALS, CONFIDENTIAL INFORMATION MEMORANDA, MANAGEMENT PRESENTATIONS, FUNCTIONAL “BREAK-OUT” DISCUSSIONS, RESPONSES TO QUESTIONS SUBMITTED ON BEHALF OF BUYER OR ITS REPRESENTATIVES OR IN ANY OTHER FORM IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY. IN CONNECTION WITH THE DUE DILIGENCE INVESTIGATION OF SELLERS, THE ACQUIRED SUBSIDIARIES AND THE ACQUIRED BUSINESS BY BUYER, BUYER HAS RECEIVED AND MAY CONTINUE TO RECEIVE FROM SELLERS OR THEIR REPRESENTATIVES CERTAIN ESTIMATES, PROJECTIONS, FORECASTS AND OTHER FORWARD-LOOKING INFORMATION, AS WELL AS CERTAIN BUSINESS PLAN INFORMATION, REGARDING SELLERS, THE ACQUIRED SUBSIDIARIES, THE PURCHASED ASSETS AND/OR THE ACQUIRED BUSINESS. BUYER HEREBY ACKNOWLEDGES, ON BEHALF OF ITSELF AND ITS AFFILIATES AND REPRESENTATIVES, THAT THERE ARE UNCERTAINTIES INHERENT IN ATTEMPTING TO MAKE SUCH ESTIMATES, PROJECTIONS, FORECASTS AND OTHER FORWARD-LOOKING STATEMENTS, AS WELL AS IN SUCH BUSINESS PLANS, WITH WHICH BUYER IS FAMILIAR, THAT BUYER AND ITS AFFILIATES AND REPRESENTATIVES ARE NOT RELYING ON, AND ARE TAKING FULL RESPONSIBILITY FOR MAKING THEIR OWN EVALUATION OF, THE ADEQUACY AND ACCURACY OF ALL ESTIMATES, PROJECTIONS, FORECASTS AND OTHER FORWARD-LOOKING INFORMATION, AS WELL AS SUCH BUSINESS PLANS, SO FURNISHED TO THEM (INCLUDING THE REASONABLENESS OF THE ASSUMPTIONS UNDERLYING SUCH ESTIMATES, PROJECTIONS, FORECASTS, FORWARD-LOOKING INFORMATION OR BUSINESS PLANS). NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED IN THIS SECTION SHALL LIMIT OR OTHERWISE IMPAIR IN ANY MANNER BUYER’S RIGHT TO MAKE A CLAIM FOR ACTUAL FRAUD.
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ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. During the period from the Agreement Date until the earlier of the termination of this Agreement in accordance with its terms or the Closing, Sellers shall, and shall cause the Acquired Subsidiaries to, use commercially reasonable efforts to maintain the Purchased Assets and conduct the Acquired Business in all material respects in the Ordinary Course of Business, except (i) as may be required by applicable Law, (ii) with the prior written consent of Buyer (which shall not be unreasonably withheld, conditioned or delayed), (iii) with the approval of the Bankruptcy Court, (iv) as expressly permitted or contemplated or required by this Agreement (including Section 5.8(d)), (v) as set forth in Section 5.1 of the Sellers Disclosure Schedule or (vi) to the extent the effect their being in bankruptcy may have on them and the Acquired Business.
5.2 Access.
(a) For purposes of furthering the transactions contemplated hereby, Sellers shall afford Buyer and its Representatives reasonable access during normal business hours upon reasonable advance notice to Sellers, throughout the period from the Agreement Date until the earlier of the termination of this Agreement and the Closing, to Sellers’ and any Acquired Subsidiary’s personnel, properties, contracts, commitments, Books and Records and such other information concerning the business, properties and personnel of the Acquired Business as Buyer may reasonably request; provided that Sellers shall not be obligated to provide or give access to any minutes of meetings or resolutions of a Seller’s or any Acquired Subsidiary’s board of directors (or similar governing body) or any committees thereof or any other business records or reports of or communication with any of its advisors relating to the evaluation or negotiation of this Agreement or the transactions contemplated hereby or any alternatives thereto. Notwithstanding anything to the contrary contained in this Section 5.2(a), any document, correspondence or information or other access provided pursuant to this Section 5.2(a) may be redacted or otherwise limited to prevent disclosure of information concerning any aspect of the Pharma Business, the valuation of Sellers and/or the Acquired Business and the purchase of the Purchased Assets or other similarly confidential or competitively sensitive information. All access pursuant to this Section 5.2(a) shall be (i) conducted in such a manner as not to interfere unreasonably with the normal operations of Sellers and the Acquired Subsidiaries and (ii) coordinated exclusively through the designated Representatives of Sellers. For the avoidance of doubt, Buyer shall not contact any customers, suppliers, employees, contractors or landlords of Sellers or any of its Subsidiaries, including the Acquired Subsidiaries, without Sellers’ prior written consent, which shall not be unreasonably withheld.
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(b) Notwithstanding anything to the contrary contained in this Section 5.2, neither a Seller nor any Acquired Subsidiary shall be required to provide any access, or make available any document, correspondence or information, if doing so would, in the reasonable judgment of such Seller’s legal counsel, (i) jeopardize the attorney-client privilege of a Seller or any Acquired Subsidiary or (ii) conflict with any Law applicable to a Seller or any Acquired Subsidiary or the assets or operation of the Acquired Business; provided that in such instances, Sellers shall inform Buyer of the general nature of the information being withheld and, upon Buyer’s request, reasonably cooperate with the other party to provide such information, in whole or in part, in a manner that would not result in any of the outcomes described in the foregoing clauses (i) and (ii).
(c) The parties hereto hereby agree that all information provided to them or their respective Representatives in connection with this Agreement and the consummation of the transactions contemplated hereby shall be governed in accordance with the Confidentiality Agreement, dated as of October 19, 2018, between Parent and New Mountain Capital, L.L.C. (the “Confidentiality Agreement”), which shall continue in full force and effect in accordance with its terms.
(d) In order to facilitate a Seller’s efforts to (i) administer and close the Bankruptcy Case, including for purposes of administering and closing any insurance claims and any Proceedings to which any Seller or any of its Subsidiaries is a party (other than in connection with any Proceeding with Buyer) (together, the “Post-Close Proceedings”), and (ii) prepare Tax Returns (together, the “Post-Close Filings”), for a period of two (2) years following the Closing, Buyer shall permit Sellers and Sellers’ counsel, accountants and other Representatives (collectively, “Permitted Access Parties”) during regular business hours, with reasonable notice, and subject to reasonable rules and regulations, reasonable access to the financial and other Books and Records which comprised part of the Purchased Assets, and to employees, officers, advisors and accountants of Buyer, in each case to the extent required to complete the Post-Close Filings or to administer and Close the Post-Close Proceedings, which access shall include (A) the right of such Permitted Access Parties to copy, at such Permitted Access Parties’ expense, such required documents and records and (B) Buyer’s copying and delivering to the relevant Permitted Access Parties such documents or records as they require, but only to the extent such Permitted Access Parties furnish Buyer with reasonably detailed written descriptions of the materials to be so copied and applicable Permitted Access Party reimburses Buyer for the reasonable costs and expenses thereof; provided, however, that the foregoing rights of access shall not be exercisable in such a manner as to interfere with the normal operations of Buyer’s business. Notwithstanding anything contained in this Section 5.2 to the contrary, in no event shall a Seller have access to any information that, based on advice of Buyer’s counsel, could (i) reasonably be expected to create liability under applicable Law, or waive any legal privilege, (ii) result in the discharge of any Trade Secrets of Buyer, its affiliates or any third parties or (iii) violate any obligation of Buyer with respect to confidentiality.
5.3 Employees and Employee Benefit Plans.
(a) Transferred Employees. No later than fifteen (15) Business Days after the Agreement Date, Buyer shall offer employment to Sellers’ employees who are exclusively employed in respect of the Acquired Business as of the date hereof (the “Business Employees”) and who remain employed by Sellers or such Acquired Subsidiary immediately prior to the Closing (including employees on approved leave of absence) and who are listed on Section 5.3(b) of the Seller Disclosure Schedule, with Comparable Positions and Comparable Compensation and Benefits. Those employees who accept Buyer’s offer of employment and commence working for Buyer on the Closing Date (or upon return to work from approved leave of absence) shall hereafter be referred to as “Transferred Employees.” Sellers agree to cooperate with the Buyer Group (i) to ensure that offer letters described in this Section 5.3(a) are timely distributed to each applicable Business Employee and (ii) to the extent reasonably requested by Buyer, to provide a copy of any Seller Benefit Plan to Buyer to enable Buyer to satisfy its obligations under this Section 5.3(a).
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(b) Business Employees. Section 5.3(b) of the Sellers Disclosure Schedule sets out a complete and accurate list of all Business Employees, including, for each employee: (i) name (or to the extent not permitted by applicable Law, employee identification number); (ii) job title; (iii) hire date; (iv) work location; (v) current annual base compensation; (vi) commission, target bonus or other incentive-based compensation; (vii) leave status (including estimated return date), and (viii) visa or other work permit status (if applicable).
(c) Credit under Buyer Benefit Plans. Buyer will take commercially reasonable best efforts to cause any employee benefit plans of Buyer (or any Affiliate thereof sponsoring or maintaining such plans) in which the Transferred Employees are eligible to participate following the Closing Date (the “Buyer Benefit Plans”) to take into account for purposes of eligibility, vesting and accrual of and entitlement to benefits (but not for accrual of benefits under any “defined benefit plan,” as defined in Section 3(35) of ERISA), and all other purposes, all service by the Transferred Employees with Sellers prior to the Closing as if such service were with Buyer or its Affiliates, to the same extent such service was credited under a comparable Seller Benefit Plan prior to the Closing (except to the extent it would result in the duplication of benefits). In addition, with respect to each Buyer Benefit Plan that is a “welfare benefit plan” (as defined in Section 3(1) of ERISA), Buyer shall, or shall cause an Affiliate of Buyer sponsoring or maintaining such Buyer Benefit Plan, to take commercially reasonable best efforts to (i) cause there to be waived any pre-existing condition exclusions, actively at work requirements, insurability requirements or other eligibility limitations to the extent such exclusions, requirements or limitations were waived or were inapplicable under a comparable Seller Benefit Plan prior to the Closing, and (ii) give effect, in determining any deductible, co-insurance and maximum out-of-pocket limitations, to claims incurred and amounts paid by, and amounts reimbursed to, the Transferred Employees and their dependents under a comparable Seller Benefit Plan prior to the Closing. Buyer shall be solely responsible for complying with the requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code for any employee of any Seller who is an “M&A qualified beneficiary” as defined in Q&A-4 of Treas. Reg. §54.4980B-9 in connection with the transactions contemplated hereby.
(d) Employment Tax Reporting. With respect to Transferred Employees, Buyer and Sellers shall use the alternate procedure set forth in Revenue Procedure 2004-53, 2004-34 I.R.B. 320, provided that Sellers provide to Buyer all information necessary for Buyer to complete such alternate procedure and that third party payroll provider agrees it can accommodate utilization of the alternate procedure to properly report and remit federal and state payroll.
(e) No Obligation. Nothing contained in this Agreement shall be construed to require the employment of (or prevent the termination of employment of) any individual, require minimum benefit levels or prevent any change in the employee benefits provided to any individual Transferred Employee. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of a Seller or any Acquired Subsidiary or any other Person (including any beneficiary or dependent thereof) of any nature or kind whatsoever, including in respect of continued employment (or resumed employment) for any specified period. Nothing contained herein, express or implied, shall (i) be construed to establish, amend or modify any Seller Benefit Plan or other benefit plan, program, agreement or arrangement or (ii) alter or limit the ability of Sellers, Buyer or any of their respective Affiliates to amend, modify, or terminate any benefit plan, program, agreement or arrangement at any time assumed, established, sponsored or maintained by any of them. Nothing in this Section 5.3 is intended to interfere with Buyer’s right from and after the Closing to terminate the employment of, or change the compensation and benefits available to, any Transferred Employee.
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(f) Nonqualified Deferred Compensation Plans. To the extent that any Transferred Employee has an accrued benefit as of the Closing Date in the nonqualified deferred compensation plans of Sellers (each, a “NQ Plan”), Sellers shall, and shall cause its Affiliates to, split such NQ Plans into one or more separate plans that contains only the accrued benefits for Transferred Employees. Buyer and Sellers intend and agree in accordance with Treasury Regulation Section 1.409A-1(h)(4) that the transfer of employment of the Transferred Employees from Sellers (or their respective Affiliates) to Buyer (or its Affiliates) in connection with the transactions contemplated by this Agreement (and the related termination of employment of the Transferred Employees from Sellers) shall not constitute a “separation from service” for purposes of Code Section 409A and the Treasury Regulations thereunder. If Seller maintains a “rabbi trust” with respect to a NQ Plan (each an “Existing NQ Trust”), to the extent transferred pursuant to Section 1.1(o), Seller shall establish a new rabbi trust (each a “New NQ Trust”) and cause the assets of the Existing NQ Trust, to the extent earmarked for the benefit of a Transferred Employee who has an accrued benefit as of the Closing Date in the NQ Plan, to be transferred to the New NQ Trust, which New NQ Trust shall be assumed by Buyer.
5.4 Regulatory Approvals; Efforts.
(a) Prior to the Closing, Buyer and Sellers shall, and shall cause their respective Affiliates to, use their respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under any applicable Laws to consummate the Asset Purchase as promptly as practicable, including (i) preparing and filing all forms, registrations and notifications with any Governmental Entities or third parties required to be filed to consummate the Asset Purchase, (ii) using reasonable best efforts to satisfy the conditions to consummating the Asset Purchase, (iii) using reasonable best efforts to obtain (and to cooperate with each other in obtaining) any consent, authorization, expiration or termination of a waiting period, permit, Order or approval of, waiver or any exemption by, any Governmental Entity (including furnishing all information and documentary material required under the HSR Act) required to be obtained or made by Buyer, Sellers or any of their respective Affiliates in connection with the Asset Purchase or the taking of any action contemplated hereby, (iv) defending any lawsuits or other legal Proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the Asset Purchase, and (v) using reasonable best efforts with respect to the execution and delivery of all such instruments, deeds, assignments or assurances and do all other things reasonably necessary or desirable to consummate the Asset Purchase and to fully carry out the purposes or intent of this Agreement.
(b) Buyer, on the one hand, and Sellers, on the other hand, shall each keep the other apprised of the status of matters relating to the consummation of the Closing and work cooperatively in connection with obtaining all required consents, authorizations, Orders or approvals of, or any exemptions by, any Governmental Entity undertaken pursuant to the provisions of this Section 5.4. In that regard, prior to the Closing, each party shall promptly consult with the other parties to this Agreement with respect to and provide any necessary information and assistance as the other parties may reasonably request with respect to (and, in the case of correspondence, provide the other parties (or their counsel and, if reasonably determined necessary, advisable or convenient to protect attorney-client privilege or competitively sensitive information, outside counsel only basis) with copies of) all notices, submissions or filings made by or on behalf of such party or any of its Affiliates with any Governmental Entity or any other information supplied by or on behalf of such party or any of its Affiliates to, or correspondence with, a Governmental Entity in connection with this Agreement and the Asset Purchase. Each party to this Agreement shall promptly inform the other parties to this Agreement, and if in writing, furnish the other parties with copies of (or, in the case of oral communications, advise the other parties orally of) any communication from or to any Governmental Entity regarding the Asset Purchase, and permit the other parties to review and discuss in advance, and consider in good faith the views of the other parties in connection with, any proposed communication or submission with any such Governmental Entity. No party or any of its Affiliates shall participate in any meeting or teleconference with any Governmental Entity in connection with this Agreement and the Asset Purchase unless it consults with the other parties in advance and, to the extent not prohibited by such Governmental Entity, gives the other parties the opportunity to attend and participate thereat. Notwithstanding the foregoing, Buyer and Sellers may, as each deems advisable and necessary, reasonably designate any competitively sensitive material provided to the other under this Section 5.4(b) as “Antitrust Counsel Only Material.” Such materials and the information contained therein shall be given only to the outside counsel of the recipient and will not be disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the source of the materials (Buyer or Sellers, as the case may be) or its legal counsel. Notwithstanding anything to the contrary contained in this Section 5.4, materials provided pursuant to this Section 5.4 may be redacted (i) to remove references concerning the valuation of the Acquired Business and the purchase of the Purchased Assets, (ii) as necessary to comply with contractual arrangements and (iii) as necessary to address reasonable privilege concerns.
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(c) Sellers and Buyer shall make or file, as promptly as practicable, with the appropriate Governmental Entity all filings, forms, registrations and notifications required to be filed to consummate the purchase of the Purchased Assets under the HSR Act and any other applicable Antitrust Law, and subsequent to such filings, Sellers and Buyer shall, and shall cause their respective Affiliates to, as promptly as practicable, respond to inquiries from Governmental Entities, or provide any supplemental information that may be requested by Governmental Entities, in connection with filings made with such Governmental Entities. Sellers and Buyer shall file their notification and report forms under the HSR Act no later than ten (10) Business Days after the Agreement Date. In the event that the parties receive a request for information or documentary material pursuant to the HSR Act (a “Second Request”), the parties will use their commercially reasonable efforts to submit an appropriate response to, and to certify substantial compliance with, such Second Request as promptly as reasonably practicable, and counsel for both parties will closely cooperate during the entirety of any such Second Request review process.
(d) Notwithstanding anything to the contrary set forth in this Agreement, Buyer shall, in order to permit the satisfaction of the HSR Act and Section 5.4(b) so as to permit the Closing to occur as promptly as practicable and in any event before the End Date (i) propose, negotiate, commit to, effect and agree to, by consent decree, hold separate order, or otherwise, the sale, divestiture, license, holding separate, and other disposition of and restriction on the businesses, assets, properties, product lines, and equity interests of, or changes to the conduct of business of, the Acquired Business and Sellers, Buyer and their respective Affiliates (including, with respect to Sellers and the Acquired Subsidiaries), and (ii) create, terminate, or divest relationships, ventures, contractual rights or obligations of Buyer or its Affiliates or, solely in respect of the Acquired Business, Sellers, the Acquired Subsidiaries or their respective Affiliates,. If requested by Buyer, Sellers will agree to any action contemplated by this Section 5.4; provided that any such agreement or action is conditioned on the consummation of the Asset Purchase. Without limiting the foregoing, in no event will a Seller (and such Seller will not permit any of its Affiliates to) propose, negotiate, effect or agree to any such actions without the prior written consent of Buyer, such consent not to be unreasonably withheld, conditioned or delayed.
(e) In furtherance and not in limitation of the covenants of the parties contained in this Section 5.4, if any administrative or judicial action or Proceeding, including any Proceeding by a private party, is instituted (or threatened to be instituted) challenging the Asset Purchase or any other transaction contemplated hereby as violative of any Antitrust Law, Sellers and Buyer shall use reasonable best efforts to contest and resist any such action or Proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the Asset Purchase.
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(f) Except as specifically required by this Agreement, Buyer shall not, and shall not permit any of its Affiliates to, knowingly take any action, or knowingly refrain from taking any action, the effect of which would be to delay or impede the ability of the parties hereto to consummate the transactions contemplated hereby. Without limiting the generality of the foregoing, Buyer shall not, and shall not permit any of its Affiliates to, acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any Person or portion thereof, or otherwise acquire or agree to acquire any assets, if the entering into of a definitive agreement relating to or the consummation of such acquisition, merger or consolidation could reasonably be expected to (i) impose any delay in the obtaining of, or increase the risk of not obtaining, any consent, approval, authorization, declaration, waiver, license, franchise, permit, certificate or order of any Governmental Entity necessary to consummate the transactions contemplated hereby or the expiration or termination of any applicable waiting period, (ii) increase the risk of any Governmental Entity entering an Order prohibiting the consummation of the transactions contemplated hereby or (iii) delay the consummation of the transactions contemplated hereby.
(g) The fees and expenses for all filings under the HSR Act and any other necessary filings or submissions to any Governmental Entity pursuant to this Section 5.4 shall be borne in full by Buyer as and when due.
5.5 Notification of Certain Matters. Except for litigations or other Proceedings commenced, filed or pending in the Bankruptcy Court, each Party shall promptly (and in any event, within two (2) Business Days) notify the other Parties in writing of any litigation or other Proceeding brought or threatened in writing against it or its directors or executive officers or other Representatives relating to this Agreement, the Asset Purchase and/or the other transactions contemplated hereby and shall keep the other Parties informed on a reasonably current basis with respect to the status thereof (including by promptly furnishing to the other Parties and their respective Representatives such information relating to such litigation or other Proceeding as may be reasonably requested). Each Party shall, subject to the preservation of the attorney-client and similar privileges and confidential information, give the other Parties the opportunity to participate in (but not control) the defense or settlement of any litigation or other Proceeding against it and/or its directors or executive officers or other Representatives relating to this Agreement, the Asset Purchase or the other transactions contemplated hereby and shall give due consideration to such other Parties’ advice with respect to such litigation or other Proceeding.
5.6 Adequate Assurances regarding the Buyer Assumed Agreements. With respect to each Buyer Assumed Agreement, Buyer will use commercially reasonable efforts to provide adequate assurance as required under the Bankruptcy Code of the future performance by Buyer of each such Buyer Assumed Agreement. Sellers and Buyer agree that they will promptly take all actions reasonably required to assist in obtaining a Bankruptcy Court finding that there has been an adequate demonstration of adequate assurance of future performance under the Buyer Assumed Agreements, such as furnishing affidavits, non-confidential financial information or other documents or information for filing with the Bankruptcy Court and making Sellers’ and Buyer’s employees and representatives available to testify before the Bankruptcy Court.
5.7 Bankruptcy Court Approval.
(a) Sellers and Buyer acknowledge that this Agreement and the sale of the Purchased Assets are subject to Bankruptcy Court approval and the consideration by Sellers of Alternative Bids (if any). Sellers and Buyer acknowledge that (i) to obtain such approval, Sellers must demonstrate that they have taken reasonable steps to obtain the highest or otherwise best offer possible for the Purchased Assets, including giving notice of the transactions contemplated hereby to creditors and certain other interested parties as ordered by the Bankruptcy Court, and conducting an auction in respect of the Purchased Assets pursuant to the Bidding Procedures Order (the “Auction”), and (ii) Buyer must provide adequate assurance of future performance under the Buyer Assumed Agreements.
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(b) As soon as reasonably possible after the Parties execute this Agreement, but in any event no later than February 25, 2019, Sellers shall file the Sale Motion with the Bankruptcy Court, together with required supporting papers and required notices.
5.8 Taxes.
(a) Without the prior written consent of Sellers, Buyer shall not make any election under Section 336 or 338 of the Code for or with respect to any Acquired Subsidiary in connection with the transactions provided for herein. The provisions of this Section 5.8(a) shall expressly survive Closing or any earlier termination of this Agreement.
(b) Without limiting the other terms set forth in this Agreement, any sales Tax, use Tax, real property transfer, real property records recordation fees, documentary or stamp Tax, excise Tax or similar non-income Tax attributable to the sale or transfer of the Purchased Assets and not exempted under the Sale Order (“Transfer Taxes”) shall be borne by Buyer. Buyer shall, at its own expense, file any necessary Tax Returns relating to Transfer Taxes and other documentation with respect to any Transfer Taxes, and Sellers will provide such cooperation as Buyer shall reasonably request in connection with such filings, provided that Buyer shall reimburse Sellers for any reasonable and out of pocket expenses Sellers incur in connection with such cooperation. For the avoidance of doubt, any China Enterprise Income Tax (“EIT”) imposed on any capital gain in connection with a transfer of the Aceto (Shanghai) Ltd. shares (“Applicable EIT”) shall not be a Transfer Tax and shall not be borne by Buyer and shall be borne by Sellers. Buyer is entitled to withhold any amounts required to be withheld in respect of the Applicable EIT from amounts payable to Sellers pursuant to this Agreement and Sellers agree to provide any information reasonably requested by Buyer and such cooperation as may be reasonably requested by Buyer in order to permit the calculation of such Tax, and the making of required withholding and filings and other compliance with requirements of applicable Law. Any amounts withheld by Buyer in respect of Applicable EIT in excess of the amounts required to be paid in respect of Applicable EIT shall be paid to Sellers reasonably promptly following the determination that there is such an excess amount. Any refunds received by Buyer or any Acquired Subsidiary of any Applicable EIT imposed in connection with the transactions provided for herein paid with funds received or withheld from Sellers shall be paid by Buyer to Sellers reasonably promptly following such receipt. Notwithstanding anything to the contrary in this Agreement, any EIT imposed on any capital gain in connection with a direct or indirect transfer of the shares of Aceto HK (including indirect transfer of the real property owned by Aceto HK in China) shall be treated as a Transfer Tax for all purposes of this Agreement and borne by Buyer Any Tax, termination fee or similar payment attributable to an early termination of the “PILOT” (“payment in lieu of taxes”) program of the Nassau County Industrial Development Agency (“NCIDA”) applicable or otherwise relating to the Port Washington, NY property as to which Aceto Realty is the tenant pursuant to a sale leaseback arrangement with the NCIDA resulting from the transactions provided for herein shall be treated as a “Transfer Tax” for all purposes of this Agreement. The provisions of this Section 5.8(b) shall expressly survive Closing.
(c) Tax Liabilities for a period that includes but does not end on the Closing Date shall be treated for purposes of determining the amount attributable to the portion of such period that ends on the Closing Date as follows: (i) in the case of any sales, use, value-added, employment, or withholding Tax, any Tax based on or measured by income, profits, gains, receipts or the level of any item or on a transactional basis shall be determined based on an interim closing of the books as of the end of the day on the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis (including depreciation and amortization deductions), other than with respect to property placed in service after the Closing, shall be allocated on a per diem basis, unless otherwise required by applicable law, and (ii) in the case of all other Taxes, shall be deemed to be the amount of such Taxes for the entire period multiplied by a fraction, the numerator of which is the number of calendar days in the portion of the period ending on the Closing Date and the denominator of which is the number of calendar days in the entire period; provided that for these purposes any event occurring on the Closing Date following the Adjustment Time shall be treated as occurring on the day after the Closing Date to the extent such event is not provided for in this Agreement except that events on the Closing Date following the Adjustment Time but before the Closing that are not in the Ordinary Course of Business shall be treated as occurring on the day before the Closing Date.
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(d) It is intended by Sellers that, prior to Closing, NY Agri will merge into a newly formed Delaware corporation, with such Delaware corporation surviving, in a transaction intended to qualify as a reorganization under Section 368(a)(1)(F) of the Code and that such surviving Delaware corporation will, following such merger, convert to a limited liability company under the Delaware conversion statute. The Parties agree that nothing in this Agreement, including Section 5.1, shall prevent such merger or conversion or impose any Liability upon any Seller as a result of such conversion.
5.9 Public Announcements. Neither Sellers, on the one hand, nor Buyer, on the other hand, shall, without the approval of the other Parties, make any press release or other public announcement concerning the transactions contemplated hereby, except as and to the extent that any such Party shall be so obligated by Law, including as may be required by the Bankruptcy Case, securities laws, or the rules of any stock exchange, in which case, each Party shall be advised prior to such disclosure, consult with each other before issuing such press release or public announcement and consider in good faith any comments received from the other Party at least two (2) Business Days prior to such issuance. The provisions of this Section 5.9 shall expressly survive Closing or any earlier termination of this Agreement.
5.10 Consents; Notices. At or prior to the Closing, Buyer shall use commercially reasonable efforts to obtain all Consents and give all notices required for Sellers to assign the Buyer Assumed Agreements to which they are a party to Buyer to the extent not assignable without any such approval, consent, or notice pursuant to Section 363 or Section 365 of the Bankruptcy Code. If any Consent is not obtained prior to the Closing, then, subject to Sellers having appropriate levels of resources and personnel, Sellers, at the sole cost of Buyer, shall continue to use commercially reasonable efforts after the Closing to obtain the Consents and, to the extent permitted by applicable Law, will establish an agency type or other similar arrangement reasonably satisfactory to Sellers and Buyer under which Buyer would obtain, to the extent practicable, all rights under the Buyer Assumed Agreements and assume the corresponding Assumed Liabilities for the period of time that the Consents are not obtained and the Buyer Assumed Agreements are not assigned. For the avoidance of doubt, the Parties agree and acknowledge that (a) the failure by Sellers to obtain any Consents shall not relieve any party of its obligations to consummate the transactions contemplated hereby, (b) there will not be any adjustment to the Purchase Price if any Consents are not obtained or certain Buyer Assumed Agreements are not assigned, and (c) Buyer shall not have any claim against Sellers after the Closing in respect of any such Consents not being obtained or Buyer Assumed Agreements not being assigned.
5.11 WARN Act. Buyer shall, or shall cause the Acquired Subsidiaries to, provide any required notice under and to otherwise comply with, the WARN Act with respect to any event affecting the Transferred Employees on or after the Closing Date. Seller shall cooperate with Buyer in determining whether any event affecting the Transferred Employees on or after the Closing Date requires notification under the WARN Act. Buyer shall not, and shall cause the Acquired Subsidiaries not to, take any action on or after the Closing that would cause Seller or any of its Affiliates to incur liability under the WARN Act.
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5.12 Directors and Officers. After the Closing, Buyer shall cause the Acquired Subsidiaries to, honor all the Acquired Subsidiaries’ obligations to, exculpate, indemnify, defend and hold harmless (including advancing funds for expenses), to the fullest extent permitted by Law, the current and former directors and officers of the Acquired Subsidiaries, and any employee of the Acquired Subsidiaries who acts as a fiduciary under any employee benefit plan, in each case, solely with respect to acts or omissions by such persons occurring at or before the Closing and solely with respect to acts or omissions by such persons in their capacity as a director, officer or employee of the Acquired Subsidiaries (and not with respect to any other position with Sellers), and such obligations shall survive the Closing and shall continue in full force and effect in accordance with the terms of the certificate of incorporation and by-laws (or similar organizational documents) of the Acquired Subsidiaries and any individual indemnity agreements or other applicable documents from the Closing until the expiration of the applicable statute of limitations with respect to any claims against such persons arising from, relating to, or otherwise in respect of, such acts or omissions. After the Closing, Buyer shall cause the Acquired Subsidiaries to maintain in effect substantially similar exculpation, indemnification and advancement of expenses provisions of the certificates of incorporation and by-laws or similar organizational documents of the Acquired Subsidiaries and any indemnification agreements of the Acquired Subsidiaries with any of their respective directors, officers or employees, in each case as in effect as of the date hereof, and shall not amend, repeal or otherwise modify any such provisions in any manner that would materially adversely affect the rights thereunder of any individuals with respect to such periods on or prior to the Closing Date who at the time of the Closing were current or former directors, officers or employees of the Acquired Subsidiaries. If Buyer or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all its properties and assets, then, and in each case, Buyer shall ensure that such surviving corporation or entity or the transferees of such properties or assets assume the obligations set forth in this Section 5.12.
5.13 Cooperation with Financing.
(a) Prior to the Closing, the Sellers shall use commercially reasonable efforts to, and shall cause the Acquired Subsidiaries to use their commercially reasonable efforts to, provide to Buyer, at Buyer’s sole cost and expense, such cooperation as is reasonably requested by Buyer, or as otherwise reasonably necessary, in connection with the arrangement and consummation of any debt financing to be incurred by Buyer on the Closing Date to finance the consummation of the transactions contemplated hereunder (the “Debt Financing”) (provided that such requested cooperation does not unreasonably interfere with the operations of the Sellers or the Acquired Subsidiaries), including (i) providing prior to the Closing Date (a) the Financial Statements and (b) an unaudited balance sheet of the Acquired Business as of December 31, 2018 and, if the Closing has not occurred on or before May 1, 2019, to the extent such financials would otherwise be produced prior to the Closing in the ordinary course of business, March 31, 2019, and the related income statement and statement of cash flows for the six (6)-month period ended December 31, 2018 and, if the Closing has not occurred on or before May 1, 2019, to the extent such financials would otherwise be produced prior to the Closing in the ordinary course of business for the nine (9)-month period ended March 31, 2019 (all such statements and information referred to in this clause (i), the “Required Information”); (ii) assist with obtaining customary legal opinions, appraisals, surveys, title insurance, insurance certificates and endorsements, waivers, environmental reports and other customary documentation and items contemplated by the Debt Financing as reasonably requested by Buyer; (iii) facilitating the granting of a security interest (and perfection thereof) in collateral, guarantees, mortgages or other certificate or documents as may reasonably be requested by Buyer, in each case effective on or after the Closing, including obtaining releases of existing liens; (iv) furnish no later than four (4) Business Days prior to the Closing all documentation and other information required by a Governmental Entity under applicable “know your customer” and anti-money laundering rules and regulations, including the U.S.A. Patriot Act of 2001, but in each case, solely as relating to the Acquired Subsidiaries to the extent requested at least nine (9) days prior to the Closing; and (v) assist in the preparation, execution and delivery of one or more credit agreements, pledge and security documents and other definitive financing documents as may be reasonably requested by Buyer. The Sellers hereby consent to the reasonable use of all of its and the Acquired Subsidiaries’ logos, names, and trademarks in connection with the Debt Financing; provided, however, that such logos, names and trademarks are used solely in a manner that is not intended to or reasonably likely to harm or disparage the Sellers or the reputation or goodwill of the Sellers or any of their respective products, services, offerings or intellectual property rights; provided, further, that prior to the Closing Date no financing sources in connection with the Debt Financing (including any Affiliates thereof) shall obtain rights in such logos, names or trademarks. Sellers shall, and shall cause the Acquired Subsidiaries to, use reasonable best efforts to promptly supplement the Required Information and all other information provided pursuant to this Section 5.13 to the extent that any such Required Information and all other information, to the knowledge of Sellers, when taken as a whole, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements made in such Required Information, in light of the circumstances under which they were made, not materially misleading. Buyer shall keep Sellers informed on a current basis and in reasonable detail of the status of its efforts to arrange the Debt Financing and promptly upon request provide to Sellers copies (including drafts) of any definitive debt financing agreement and any other material documents relating to the Debt Financing. No obligations of Sellers, the Acquired Subsidiaries or any of their Subsidiaries or any of their respective officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives under any definitive debt financing agreement executed pursuant to this Section 5.13 shall be required to be effective until the Closing. In addition, notwithstanding anything in this Section 5.13 to the contrary, in fulfilling its obligations pursuant to this Section 5.13, none of Sellers, their Subsidiaries or their respective officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives shall be required to (i) pay any commitment or other fee, provide any security or incur any Liability or obligation in connection with the Debt Financing or any other financing, (ii) take or permit the taking of any action that would reasonably be expected to conflict with, result in any violation or breach of, or default (with or without lapse of time, or both) under, the Organizational Documents of Sellers or any of their Subsidiaries, or any applicable Law or material contracts of Sellers or any of their Subsidiaries, (iii) pass resolutions or consents or approve or authorize the execution of the Debt Financing or any definitive debt financing agreements, (iv) provide any cooperation that would unreasonably interfere with the ongoing operations of the Acquired Business or (v) disclose any information which is legally privileged. Buyer acknowledges that the information being provided to it in connection with the Debt Financing is subject to the terms of Section 5.9 and the Confidentiality Agreement, and none of Sellers or any of Sellers’ Subsidiaries or Affiliates shall have any liability to Buyer or any other Person in respect of any financial statements, other financial information or data or other information provided pursuant to this Section 5.13.
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(b) Buyer shall, following request by Sellers, immediately reimburse Sellers for all reasonable and documented out-of-pocket fees, costs and expenses incurred by Sellers and their Subsidiaries in cooperating with the Debt Financing (including reasonable attorneys’ fees). Buyer shall indemnify, defend, and hold harmless the Sellers and the Acquired Subsidiaries (and their respective Representatives) from and against any and all liabilities, losses, damages, claims, costs and expenses suffered or incurred by them in connection with the Debt Financing or any other financing (including the arrangement thereof) and its assistance to Buyer in connection with the Debt Financing or any other financing (including the arrangement thereof) and any information utilized in connection therewith (other than any liabilities, losses, damages, claims, costs or expenses resulting from any Required Information or other financial statements provided pursuant to this Section 5.13 by the Sellers or the Acquired Subsidiaries to Buyer).
(c) With respect to information disclosed to any rating agency (the “Confidential Rating Agency Information”), Buyer shall (i) inform such rating agency of the confidential nature of the Confidential Rating Agency Information and mark any such information provided in writing to such rating agency as “confidential” and (ii) require such rating agency not to disclose the Confidential Rating Agency Information to any third party or to specifically exclude such information in such ratings agency’s ratings report. Buyer shall be responsible for any breach of this covenant by any such rating agency. Notwithstanding anything in this Agreement to the contrary, in no event shall the receipt or availability of any funds or financing (including the Debt Financing) by or to Buyer or any of its Affiliates or any other financing transaction be a condition to any of Buyer’s obligations hereunder.
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ARTICLE VI
CONDITIONS TO THE PURCHASE AND SALE
6.1 Conditions to Each Party’s Obligation to Close. The respective obligations of each Party to effect the Asset Purchase shall be subject to the fulfillment (or waiver in a writing signed by the waiving party, to the extent permissible under applicable Law and provided that such waiver shall only be effective as to the conditions of the waiving party) at or prior to the Closing of the following conditions:
(a) no injunction by any court or other tribunal of competent jurisdiction shall have been entered and shall continue to be in effect and no Law shall have been adopted that remains in effect or be effective, in each case, that prevents, enjoins, prohibits or makes illegal the consummation of the Asset Purchase; and
(b) any waiting periods applicable to the Asset Purchase under the HSR Act and any other Antitrust Laws have expired or been terminated and/or the relevant approvals under such Laws have been acquired, and all material consents, licenses, registrations, or declarations of, or filings with, any Governmental Entities in any such jurisdictions required under any Laws for the Asset Purchase to be completed have been obtained or made on a basis acceptable to Sellers and Buyer, such acceptance not to be unreasonably withheld, delayed or conditioned.
6.2 Conditions to Obligation of Sellers to Close. The obligation of Sellers to sell the Purchased Assets at Closing is further subject to the fulfillment (or waiver in a writing signed by Sellers, to the extent permissible under applicable Law) at or prior to the Closing of the following conditions:
(a) the representations and warranties of Buyer contained herein shall be true and correct in all material respects as of the Agreement Date and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties speak as of an earlier date, in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date);
(b) Buyer shall have performed and complied in all material respects with all covenants required by this Agreement to be performed or complied with by Buyer prior to Closing;
(c) Buyer shall have delivered to Sellers a certificate, dated the Closing Date and signed by a duly authorized executive officer (in such officer’s capacity as such and not individually) of Buyer, certifying to the effect that the conditions set forth in Section 6.2(a) and Section 6.2(b) have been satisfied;
(d) Buyer shall have paid the Purchase Price in accordance with Section 2.2;
(e) Buyer shall be prepared to deliver, or cause to be delivered, to Sellers the items set forth in Section 2.7; and
(f) the Sale Order shall have been entered, is not subject to any stay and is in effect.
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6.3 Conditions to Obligation of Buyer to Close. The obligation of Buyer to purchase the Purchased Assets at Closing is further subject to the fulfillment (or the waiver in a writing signed by Buyer, to the extent permissible under applicable Law) at or prior to the Closing of the following conditions:
(a) (i) the representations and warranties contained in Section 3.2 (other than the second sentence of Section 3.2(a)) shall be true and correct as of the Agreement Date and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties speak as of an earlier date, in which case, such representations and warranties shall be true and correct in all respects as of such earlier date) in all respects except for de minimis inaccuracies and (ii) each of the representations and warranties contained herein (other than those listed in clause (i)) shall be true and correct as of the Agreement Date and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties speak as of an earlier date, in which case, such representations and warranties shall be true and correct in all respects as of such earlier date), interpreted without giving effect to any Material Adverse Effect or materiality qualifications or exceptions contained therein, except where all failures of such representations and warranties to be true and correct, in the aggregate, do not have, or would not reasonably be expected to have, a Material Adverse Effect;
(b) Sellers shall have performed and complied in all material respects with all covenants required by this Agreement to be performed or complied with by them prior to the Closing (which, for the avoidance of doubt, shall not include Section 5.13 or the transactions referred to in Section 5.8(d));
(c) each Seller shall have delivered to Buyer a certificate, dated the Closing Date and signed by a duly authorized executive officer (in such officer’s capacity as such and not individually) of such Seller, certifying to the effect that the conditions set forth in Section 6.3(a) and Section 6.3(b) have been satisfied;
(d) Sellers shall be prepared to deliver, or cause to be delivered, to Buyer all of the items set forth in Section 2.8; provided, however, that (i) provision of the certifications referenced in Section 2.8(e) shall not be a condition to Closing and (ii) the sole remedy for failure to provide such certifications shall be that Buyer shall be entitled to withhold any amount required to be withheld pursuant to applicable Law;
(e) the Sale Order shall have been entered, is not subject to any stay, is in effect and has become a Final Order; and
(f) from the date of this Agreement until the Closing, there shall not have been a Material Adverse Effect.
ARTICLE VII
TERMINATION
7.1 Termination. Notwithstanding anything in this Agreement to the contrary, this Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Closing, as follows:
(a) by the mutual written consent of Sellers and Buyer;
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(b) by either Sellers or Buyer, if the transactions contemplated hereby (other than the transactions referred to in Section 5.8(d)), including the Asset Purchase, shall not have been consummated on or prior to 5:00 p.m. New York City Time, on September 30, 2019 (the “End Date”); provided that, if as of the End Date any of the conditions set forth in Section 6.1(a) (solely to the extent such condition has not been satisfied due to an order or injunction arising under any Antitrust Law) or Section 6.1(b) shall not have been satisfied or waived, the End Date may be extended on one occasion by either Buyer or Sellers for a period of up to ninety (90) days by written notice to the other Party, and such date, as so extended, shall be the End Date; provided further that the right to terminate this Agreement pursuant to this Section 7.1(b) shall not be available to a Party if the failure of the transactions contemplated hereby to be consummated by such date shall be due to the breach by such Party of any covenant or other agreement of such Party set forth in this Agreement;
(c) by either Sellers or Buyer, if an Order by a Governmental Entity of competent jurisdiction shall have been issued permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby and such order shall have become final and nonappealable; provided that the right to terminate this Agreement pursuant to this Section 7.1(c) shall not be available to a Party if such Order resulted from, or could have been avoided but for, the breach by such Party of any covenant or other agreement of such Party set forth in this Agreement;
(d) by Sellers, if Buyer shall have materially breached or there is a material inaccuracy in any of its representations or warranties, or shall have materially breached or materially failed to perform any covenants or other agreements contained in this Agreement, which material breach, material inaccuracy or material failure to perform (i) if it occurred or was continuing to occur on the Closing Date, would result in a failure of a condition set forth in Section 6.2(a) or Section 6.2(b) and (ii) is either not curable or is not cured by the End Date; provided that the Sellers’ right to terminate this Agreement pursuant to this Section 7.1(d) shall not be available to Sellers if a Seller shall have materially breached or there is any material inaccuracy in any of its representations or warranties, or shall have materially breached or materially failed to perform any of its covenants or other agreements contained in this Agreement;
(e) by Buyer, if Sellers shall have materially breached or there is a material inaccuracy in any of their representations or warranties, or shall have materially breached or materially failed to perform any of their covenants or other agreements contained in this Agreement, which material breach, material inaccuracy or material failure to perform (i) if it occurred or was continuing to occur on the Closing Date, would result in a failure of a condition set forth in Section 6.3(a) or Section 6.3(b) and (ii) is either not curable or is not cured by the End Date; provided that the Buyer’s right to terminate this Agreement pursuant to this Section 7.1(e) shall not be available to Buyer if Buyer shall have materially breached or there is any material inaccuracy in any of its representations or warranties, or shall have materially breached or materially failed to perform any of its covenants or other agreements contained in this Agreement;
(f) by Buyer, if (i) the Bidding Procedures Order has not been entered by the Bankruptcy Court within forty (40) days after the Petition Date, or (ii) subject to Section 7.1(j), the Sale Order has not been entered by the Bankruptcy Court within forty-five (45) days after entry of the Bidding Procedures Order;
(g) by Buyer, if the Bankruptcy Case is dismissed or converted to a case under Chapter 7 of the Bankruptcy Code for any reason prior to the Closing Date;
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(h) by Buyer, if (i) the Bidding Procedures Order (including the Bidding Procedures, Break- Up Fee, or Expense Reimbursement) or (ii) the Sale Order is modified in any material respect to the detriment of Buyer without the consent of Buyer, such consent not to be unreasonably withheld, conditioned or delayed;
(i) by Buyer, if the Bankruptcy Court enters an order pursuant to Section 362 of the Bankruptcy Code lifting or modifying the automatic stay with respect to any material portion of the Purchased Assets; or
(j) by either Sellers or Buyer, if (A) the Bankruptcy Court approves, and Sellers consummate, an Alternative Transaction or (B) Buyer is not the Successful Bidder at the Auction; provided that, if Buyer is not the Successful Bidder at the Auction, but is the Back-Up Bidder, then notwithstanding anything to the contrary contained herein, (i) Buyer shall not be permitted to terminate this Agreement pursuant to this Section 7.1(j), Section 7.1(f)(ii) or Section 7.1(h)(ii) until the Back-Up Period End Date; provided, further, that Buyer shall not be permitted to terminate this Agreement pursuant to this Section 7.1(j) if Buyer is then in breach of the terms of this Agreement, which such breach would give rise to the failure of a condition set forth in Section 6.2 and cannot be cured or, if such breach can be cured, has not been cured within twenty (20) days following delivery of written notice of such breach.
7.2 Effect of Termination. In the event of termination of this Agreement pursuant to Section 7.1, this Agreement shall terminate (except that the Confidentiality Agreement, Section 2.3, the last sentence of Section 5.8(d), Section 5.13(b), this Section 7.2, Section 7.3, and ARTICLE VIII shall survive any termination), and there shall be no other Liability on the part of Sellers or Buyer to the other Party, other than as set forth in Section 2.3; provided that nothing herein shall relieve any Party from Liability for a Willful Breach of its covenants or agreements set forth in this Agreement prior to such termination or relieve Buyer from Liability for any Willful Breach of its obligations to consummate the transactions contemplated hereby, in which case, the aggrieved Party shall be entitled to all rights and remedies available at law or in equity. In the event of termination of this Agreement, and regardless of the reason for the termination, the Confidentiality Agreement shall continue in full force and effect in accordance with its terms and any such termination shall not amend, modify, release, waive or otherwise limit any rights or obligations under the Confidentiality Agreement.
7.3 Break-Up Fee; Expense Reimbursement.
(a) Sellers acknowledge (i) that Buyer has made a substantial investment in time and incurred substantial out-of-pocket expenses in connection with the negotiation and execution of this Agreement, its due diligence with respect to the Purchased Assets, and its efforts to consummate the transactions contemplated hereby, and (ii) that Buyer’s efforts have substantially benefited Sellers and will benefit Sellers and will benefit the bankruptcy estate of Sellers through the submission of the offer reflected in this Agreement which will serve as a minimum bid on which other potentially interested bidders can rely. Therefore, as compensation for entering into this Agreement, taking action to attempt to consummate the transactions contemplated hereby and incurring the costs and expenses related thereto and other losses and damages, including foregoing other opportunities, subject to limitations set forth in the Bidding Procedures, Sellers agree, jointly and severally, to pay to Buyer the Expense Reimbursement, plus an amount equal to six million seven hundred sixty thousand dollars ($6,760,000.00) (the “Break-Up Fee”) promptly following (a) this Agreement being validly terminated by Buyer or Sellers pursuant to Section 7.1(j) and (b) Sellers receiving the cash consideration in connection with the closing of the Alternative Transaction.
7.4 Return of Good Faith Deposit. In the event that this Agreement is validly terminated pursuant to Section 7.1(a), 7.1(b), 7.1(c), 7.1(e), 7.1(f), 7.1(g), 7.1(h), 7.1(i), or 7.1(j), the Good Faith Deposit Escrow Holder shall disburse to Buyer any amounts held in the Good Faith Deposit Escrow pursuant to the Bidding Procedures.
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ARTICLE VIII
MISCELLANEOUS
8.1 No Survival. The representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Closing and shall be extinguished by the Closing and the consummation of the transactions contemplated hereby, except for covenants and agreements that, by their terms, contemplate performance after, or otherwise expressly by their terms survive, the Closing.
8.2 Expenses. Except as otherwise provided in this Agreement, whether or not the Asset Purchase is consummated, all costs and expenses incurred in connection with the Asset Purchase, this Agreement and the transactions contemplated hereby shall be paid by the Party incurring or required to incur such expenses; provided that Buyer shall pay all filing fees required under the HSR Act and all fees and expenses of the Escrow Agent.
8.3 Counterparts; Effectiveness. This Agreement may be executed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered (by telecopy, electronic delivery or otherwise) to the other Parties. Signatures to this Agreement transmitted by facsimile transmission, by electronic mail in “portable document format” form, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing the original signature.
8.4 Governing Law; Jurisdiction.
(a) This Agreement, and all claims or causes of action (whether at Law, in contract, in tort or otherwise) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance hereof, shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
(b) All Proceedings arising out of or relating to this Agreement, including the resolution of any and all disputes hereunder, shall be heard and determined in the Bankruptcy Court, and the Parties irrevocably submit to the exclusive jurisdiction of the Bankruptcy Court in any such Proceeding and irrevocably waive the defense of an inconvenient forum to the maintenance of any such Proceeding. The Parties consent to service of process by mail (in accordance with Section 8.7) or any other manner permitted by law.
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8.5 Remedies.
(a) The Parties agree and acknowledge that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine, and accordingly (i) each of the Parties shall be entitled to, and may seek in the alternative, such remedies as are available at law and in equity, and (ii) (A) except as otherwise provided in Section 8.5(b) and Section 8.5(c), the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and shall be entitled to specific performance of the terms hereof, in each case, in the Bankruptcy Court (as set forth in Section 8.4(b)), this being in addition to any other remedy to which they are entitled at law or in equity, (B) the Parties waive any requirement for the securing or posting of any bond in connection with the obtaining of any specific performance or injunctive relief and (C) the Parties agree, in any action for specific performance, that there is no adequate remedy at law. In circumstances where Buyer is obligated to consummate the Asset Purchase and the Asset Purchase has not been consummated, Buyer expressly acknowledges and agrees that Sellers shall have suffered irreparable harm, that monetary damages will be inadequate to compensate Sellers, and that Sellers shall be entitled (in addition to any other remedy that may be available to them whether in law or equity, including monetary damages) to enforce specifically Buyer’s obligations to consummate the Asset Purchase. Sellers’ pursuit of specific performance at any time will not be deemed an election of remedies or waiver of the right to pursue any other right or remedy to which Sellers may be entitled. In no event shall the Parties be entitled to receive both a grant of specific performance of the consummation of the Asset Purchase pursuant to this Section 8.5 and monetary damages to which it is entitled pursuant to this Agreement with respect to termination of this Agreement. For the avoidance of doubt, the Parties shall be entitled to seek the remedies provided herein in the alternative, and not be required to elect their remedies, in any Proceeding brought to seek redress for the failure of Buyer to consummate the Asset Purchase pursuant to this Agreement.
(b) In the event of any breach prior to the Closing by Sellers of any of Sellers’ agreements, representations, or warranties contained herein or in the Bidding Procedures Order or the Sale Order, including any Willful Breach, Buyer’s sole and exclusive remedies shall be (i) to exercise Buyer’s rights to terminate this Agreement pursuant to ARTICLE VII, in accordance with the terms of such ARTICLE VII, (ii) the return of the Good Faith Deposit as provided in Section 2.3, and (iii) to the Break-Up Fee or the Expense Reimbursement, as applicable, if earned in accordance with Section 7.3, and Buyer shall not have any further cause of action for damages, specific performance, or any other legal or equitable relief against Sellers with respect thereto.
(c) In the event of any breach prior to the Closing by Buyer of any of Buyer’s agreements, representations, or warranties contained herein, including any Willful Breach, Sellers’ sole and exclusive remedies shall be (i) to exercise Sellers’ rights to terminate this Agreement pursuant to ARTICLE VII, in accordance with the terms of such ARTICLE VII, (ii) the payment of the Good Faith Deposit as provided in Section 2.3, and (iii) to enforce any provision of this Agreement pursuant to clause (ii) of Section 8.5(a) and the two sentences that immediately follow such clause (and, in the case of a Willful Breach of this Agreement by Buyer, to enforce any provision of this Agreement pursuant to any provision of Section 8.5(a)).
8.6 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY.
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8.7 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (a) upon personal delivery to the Party to be notified; (b) when received when sent by email or facsimile by the Party to be notified; provided that notice given by email or facsimile shall not be effective unless either (i) a duplicate copy of such email or fax notice is promptly given by one of the other methods described in this Section 8.7 or (ii) the receiving Party delivers a written confirmation of receipt for such notice either by email or fax or any other method described in this Section 8.7; or (c) when delivered by a courier (with confirmation of delivery); in each case to the Party to be notified at the following address:
To Buyer:
| c/o New Mountain Capital, L.L.C. | |
| 787 Seventh Avenue, 49th Floor | |
| New York, New York 10019 | |
| Attention: Andre Moura; Joe Walker | |
| Email: AMoura@newmountaincapital.com; JWalker@newmountaincapital.com |
with a copy (which shall not constitute notice) to:
| Ropes & Gray LLP | ||
| 1211 Avenue of the Americas | ||
| New York, New York 10036 | ||
| Attention: | John E. Sorkin; Robb Tretter; Matthew Roose | |
| Email: john.sorkin@ropesgray.com; robb.tretter@ropesgray.com; Matthew.Roose@ropesgray.com | ||
To Sellers:
| Aceto Corporation | |
| 4 Tri Harbor Ct. | |
| Port Washington, NY 11050 | |
| Attention: Steven S. Rogers, Chief Legal Officer | |
| Facsimile: (516) 478-9857 | |
| Email: srogers@aceto.com |
with a copy (which shall not constitute notice) to:
| Lowenstein Sandler LLP | ||
| 1251 Avenue of the Americas | ||
| New York, New York 10020 | ||
| Facsimile: | (973) 597-2507 | |
| Attention: | Steven E. Siesser, Esq. | |
| Peter H. Ehrenberg, Esq. | ||
| Email: | ssiesser@lowenstein.com | |
| pehrenberg@lowenstein.com | ||
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or to such other address as any Party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated or personally delivered. Any Party may notify any other Party of any changes to the address or any of the other details specified in this Section 8.7; provided that such notification shall only be effective on the date specified in such notice or five (5) Business Days after the notice is given, whichever is later. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice as of the date of such rejection, refusal or inability to deliver.
8.8 Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or delegated by any of the Parties without the prior written consent of the other Parties. Subject to the first sentence of this Section 8.8, this Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and assigns. Any purported assignment not permitted under this Section 8.8 shall be null and void. Notwithstanding anything in this Section 8.8 to the contrary, Buyer may, without any required consent from any other Party, assign or transfer this Agreement or any of its rights or obligations hereunder (a) to any of its Affiliates, (b) to any acquirer of all or substantially all of the business or assets of the Acquired Business or Buyer after the Closing or (c) as a collateral assignment to its or its Affiliates lenders in connection with any debt financing arrangements of Buyer or its Affiliates; provided, that no such assignment shall relieve Buyer of any Liability or obligation hereunder until such Liability or obligation has been performed.
8.9 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable.
8.10 Entire Agreement. This Agreement together with the exhibits hereto, schedules hereto and the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, between the Parties, or any of them, with respect to the subject matter hereof and thereof, and this Agreement is not intended to grant standing to any Person other than the Parties.
8.11 Amendments; Waivers. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Sellers and Buyer or, in the case of a waiver, by the Party against whom the waiver is to be effective. Notwithstanding the foregoing, no failure or delay by any Party in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise of any other right hereunder.
8.12 Headings. Headings of the Articles and Sections of this Agreement are for convenience of the Parties only and shall be given no substantive or interpretive effect whatsoever. The table of contents to this Agreement is for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
8.13 No Third-Party Beneficiaries. Each of Sellers and Buyer agree that (a) its representations, warranties, covenants and agreements set forth herein are solely for the benefit of the other Parties, in accordance with and subject to the terms of this Agreement, and (b) this Agreement is not intended to, and does not, confer upon any Person other than the Parties any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein.
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8.14 Interpretation. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, unless the context otherwise requires. The word “or” shall not be deemed to be exclusive. The word “extent” and the phrase “to the extent” when used in this Agreement shall mean the degree to which a subject or other thing extends, and such word or phrase shall not mean simply “if.” All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant thereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. References in this Agreement to specific laws or to specific provisions of laws shall include all rules and regulations promulgated thereunder. Each of the Parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of authorship of any of the provisions of this Agreement.
8.15 Non-Recourse. Notwithstanding anything herein to the contrary, no director, manager, officer, agent or representative of, Affiliate (or director, manager, officer, agent or representative of an Affiliate) of, or direct or indirect equity owner in, any Sellers shall have any personal liability to either Buyer or any other Person as a result of the breach of any representation, warranty, covenant, agreement or obligation of Sellers in this Agreement, and no director, manager, officer, agent or representative of, Affiliate (or director, manager, officer, agent or representative of an Affiliate) of, or direct or indirect equity owner in, Buyer shall have any personal liability to Sellers or any other Person as a result of the breach of any representation, warranty, covenant, agreement or obligation of Buyer in this Agreement.
8.16 Definitions.
(a) Certain Specified Definitions. As used in this Agreement:
“Accounting Firm” means an accounting firm of national reputation mutually acceptable to Buyer and Sellers, with no existing relationship with either Buyer or Sellers.
“Accounting Principles” means GAAP applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Most Recent Balance Sheet and the Illustrative Calculation, subject to the modifications and limitations set forth on Section 8.16(a) of the Sellers Disclosure Schedule.
“Accounts Receivable” means all third party accounts receivable and other rights to payment of Sellers or the Acquired Subsidiaries, and the full benefit of all security for such accounts receivable or rights to payment, including all accounts receivable in respect of goods shipped or products sold or services rendered to customers by Sellers or the Acquired Subsidiaries, any other miscellaneous accounts receivable of Sellers or the Acquired Subsidiaries, and any claim, remedy or other right of Sellers or the Acquired Subsidiaries related to any of the foregoing, in each case derived primarily from the operation of the Acquired Business, as reflected in the Closing Statement prepared in accordance with the Accounting Principles and consistent with the Illustrative Calculation.
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“Accrued Liabilities” means, without duplication, any Liabilities of the Acquired Business for: (i) deferred income (including any profit sharing arrangements); (ii) accrued payroll (including, for the avoidance of any doubt, both the employee and employer portions of accrued payroll Taxes, Assumed Plan contributions and premium payments and unemployment contributions); (iii) accrued (to the extent not paid by Sellers) and unused vacation and paid time off (“PTO”) to which the employees of the Acquired Business are entitled pursuant to the PTO policies of Sellers applicable to such employees immediately prior to the Closing Date; (iv) retention bonus and key employee incentive obligations, severance obligations, enhanced executive severance arrangements and change of control payments; (v) any liabilities in connection with product returns, rebates, credits and related claims and any rights under or pursuant to any and all warranties, representations and guarantees made by suppliers, manufacturers and contractors relating to products sold, or services provided, to each Seller; (vi) unearned revenue; (vii) accrued and unpaid property, public utility commission and sales Taxes of Sellers attributable to periods (or portions thereof) ending on or before the Closing Date (as determined in accordance with the past practices of the relevant Seller and reduced (but not below zero) by refunds, credits or other receivables (including VAT receivable) in respect of such Taxes) and (viii) annual bonuses, annual cash incentives, short-term cash bonuses or commissions, in each case as reflected in the Closing Statement prepared in accordance with the Accounting Principles and consistent with the Illustrative Calculation.
“Aceto Bermuda” means Aceto Ltd., a company organized under the laws of Bermuda.
“Aceto HK” means Aceto (Hong Kong) Ltd., a company organized under the laws of the Hong Kong Special Administrative Region of the People's Republic of China.
“Acquired Business” means the Chemical Plus Business as conducted by Sellers and the Acquired Subsidiaries as of the Agreement Date. For the avoidance of doubt, the Acquired Business excludes the assets and liabilities related to the Pharma Business.
“Acquired Real Property” means the Owned Real Property and Leased Real Property subject to Assumed Real Property Lease(s).
“Acquired Subsidiaries” means, collectively, the Purchased Subsidiaries and the Subsidiaries of the Purchased Subsidiaries.
“Adjustment Time” means 12:01 a.m. New York, New York time on the Closing Date.
“Affiliate” means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) shall mean possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of such Person.
“Alternative Bid” means a higher or better competing bid, including in consideration of any sale, transfer, liquidation, or disposition of the Acquired Business, the Purchased Assets or the Acquired Subsidiaries or of a plan of reorganization or liquidation with respect to the Acquired Business, the Purchased Assets or the Acquired Subsidiaries.
“Alternative Transaction” means one or more agreements to sell, transfer, liquidate or otherwise dispose of any material portion of the Purchased Assets, either alone or together with any other portion of the Business, in a transaction or series of transactions (other than in the Ordinary Course of Business) with one or more Persons, other than Buyer, pursuant to an Alternative Bid that actually closes.
“Ancillary Documents” means the Bill of Sale, the Assignment and Assumption Agreement, the Assignment of Intellectual Property, the Assignment and Assumption of Leases, the Escrow Agreement, the TSA and each other agreement, document or instrument (other than this Agreement) executed and delivered by the Parties in connection with the consummation of the transactions contemplated hereby.
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“Assignment and Assumption Agreement” means an assignment and assumption agreement in substantially the form of Exhibit B.
“Back-Up Bidder” has the meaning specified in the Bidding Procedures Order.
“Back-Up Period End Date” means the earliest of (a) the date upon which an Alternative Transaction has been consummated following approval by the Bankruptcy Court, (b) 90 days after entry of the Order of the Bankruptcy Court pursuant to, inter alia, Section 363 and/or Section 365 of Bankruptcy Code approving the sale of the Acquired Business (or a substantial portion thereof) to the Successful Bidder (to the extent the Successful Bidder is not Buyer) and (c) August 15, 2019.
“Bidding Procedures” means the bidding procedures in substantially the form attached hereto as Exhibit C or otherwise in form and substance reasonably acceptable to Buyer, together with any changes thereto reasonably approved by Buyer, if any, as shall have been required by the Bankruptcy Court.
“Bidding Procedures Order” means an order of the Bankruptcy Court, in substantially the form attached hereto as Exhibit D or otherwise in form and substance reasonably acceptable to Buyer, approving the Bidding Procedures and the amount, timing and terms of payment of the Break-Up Fee as set forth herein, together with any changes thereto reasonably approved by Buyer.
“Bill of Sale” means a bill of sale in substantially the form attached hereto as Exhibit E.
“Books and Records” means all Tax Returns, books, records, files, invoices, inventory records, personnel records and Forms I-9, product specifications, advertising, marketing, and promotional materials, customer lists, cost and pricing information, supplier lists, business plans, catalogs, customer literature, quality control records and manuals, research and development files, records and laboratory books and credit records of customers (including all data and other information stored on discs, tapes or other media).
“Bribery Legislation” means all and any of the following: the Foreign Corrupt Practices Act of 1977, as amended; the Organization For Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related implementing legislation; the relevant common law or legislation in England and Wales relating to bribery and/or corruption, including, the Public Bodies Corrupt Practices Act 1889; the Prevention of Corruption Act 1906 as supplemented by the Prevention of Corruption Act 1916 and the Anti-Terrorism, Crime and Security Act 2001; the Bribery Act 2010; the Proceeds of Crime Act 2002; and any applicable anti-bribery or anti-corruption related provisions in criminal and anti-competition laws and/or anti-bribery, anti-corruption and/or anti-money laundering laws of any jurisdiction in which the Acquired Business operates.
“Business Day” means any day other than a Saturday, Sunday or any other calendar day on which commercial banks in New York, New York are authorized or required by Law to remain closed.
“Cash” means, as of Adjustment Time, all cash and cash equivalents of the Acquired Business, as determined in accordance with GAAP using the same accounting methods, policies, practices and procedures, with consistent classifications, judgments and estimation methodology, as were used in the preparation of the Most Recent Balance Sheet, excluding the effects of transactions on the Closing Date after the Closing outside of the Ordinary Course of Business. Notwithstanding the foregoing, “Cash” shall include uncashed and uncleared checks and other deposits or transfers received or deposited for the accounts of Sellers or the Acquired Subsidiaries, including ACH transactions and other wire transfers, but shall exclude all outbound ACH and issued but uncleared checks, in each case, as of the Adjustment Time.
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“Chemical Plus Business” means the Nutritional Business Sub Segment, Performance Chemicals, and Pharmaceutical Ingredients.
“Claim” has the meaning given that term in Section 101(5) of the Bankruptcy Code and includes, inter alia, all rights, claims, causes of action, defenses, debts, demands, damages, offset rights, setoff rights, recoupment rights, obligations and liabilities of any kind or nature under contract, at law or in equity, known or unknown, contingent or matured, liquidated or unliquidated, and all rights and remedies with respect thereto.
“Closing Cash Amount” means, as of the Adjustment Time, an amount equal to (a) Cash of the Acquired Subsidiaries up to an amount equal to $8,000,000 (such amount, the “Operating Cash Amount”) and (b) (i) Cash of the Acquired Subsidiaries in excess the Operating Cash Amount multiplied by (ii) 0.90 (such amount, the “Excess Cash Amount”), in each case, calculated as of the Adjustment Time and calculated less any amounts of Cash used on the Closing Date after the Adjustment Time and prior to the Closing to repay Indebtedness of the Acquired Subsidiaries or Transaction Expenses that would have otherwise been taken into account in calculating the Purchase Price if unpaid at the Closing.
“Closing Debt Amount” means the aggregate amount of Indebtedness of the Acquired Subsidiaries (including any intercompany Indebtedness owed to the Sellers or their respective Affiliates (other than another Acquired Subsidiary)) existing as of the time of the Closing.
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Comparable Compensation and Benefits” means a base salary, wage rate, annualized fixed or guaranteed remuneration, and opportunities to receive target incentive, commission or performance pay (other than equity compensation, change-in-control, retention, and severance, in each case, other than any such obligations under the Assumed Plans), as applicable, and other employee benefit plans and arrangements (including medical insurance plans and other welfare benefit plans and 401(k) or retirement plans, but excluding any retiree medical benefits, qualified defined benefit plans, or nonqualified deferred compensation plans, in each case, other than any such obligations under the Assumed Plans), that are generally comparable in the aggregate to those provided to the applicable employee by Sellers and the Acquired Subsidiaries immediately prior to the Closing Date.
“Comparable Position” means, with respect to any employee, a position that is substantially similar to the type and geographic location of the position held by such employee immediately prior to the Closing Date.
“Contract” means any written contract, note, bond, mortgage, indenture, deed of trust, license, lease, agreement, arrangement, commitment or other instrument or obligation that is legally binding.
“Credit Facility” means that certain Second Amended and Restated Credit Agreement, dated as of December 21, 2016 (as it may be amended or modified from time to time), among Parent, as borrower, the other loan parties party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent.
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“Environmental Law” means any Law (i) relating to pollution or the protection, preservation or restoration of the environment (including air, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or any exposure to or release of, or the management of (including the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production or disposal of) any Regulated Substances or (ii) that regulates, imposes liability (including for enforcement, investigatory costs, cleanup, removal or response costs, natural resource damages, contribution, injunctive relief, personal injury or property damage) or establishes standards of care with respect to any of the foregoing. The term “Environmental Law” includes any common law or equitable doctrine (including injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations for injuries or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Regulated Substance.
“Environmental Permit” means any permit, certificate, registration, notice, approval, identification number, license or other authorization required under any applicable Environmental Law.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code that includes or included the first entity, trade or business.
“Excluded Subsidiaries” means the Subsidiaries of Sellers other than the Acquired Subsidiaries.
“Expense Reimbursement” means the actual out-of-pocket legal, accounting and other third party advisory or service costs and expenses of Buyer in connection with the transactions contemplated hereby, in an amount not to exceed two million dollars ($2,000,000).
“FDA” means the U.S. Food and Drug Administration or a successor thereto.
“FDCA” means the Federal Food, Drug and Cosmetic Act of 1938, as amended.
“Final Order” means an action taken or Order issued by the applicable Governmental Entity as to which: (i) no request for stay of the action or Order is pending, no such stay is in effect, and, if any deadline for filing any such request is designated by statute or regulation, it is passed, including any extensions thereof; (ii) no petition for rehearing or reconsideration of the action or Order, or protest of any kind, is pending before the Governmental Entity and the time for filing any such petition or protest is passed; (iii) the Governmental Entity does not have the action or Order under reconsideration or review on its own motion and the time for such reconsideration or review has passed; and (iv) the action or Order is not then under judicial review, there is no notice of appeal or other application for judicial review pending, and the deadline for filing such notice of appeal or other application for judicial review has passed, including any extensions thereof.
“Governmental Entity” means any federal, state, local or foreign governmental entity, transnational governmental organization or any subdivision, court of competent jurisdiction, judicial authority, court, tribunal, arbitral, self-regulatory organization, agency, authority, department, board, bureau, official or commission or instrumentality, in each case, whether domestic or foreign.
“Human Health” means the business segment of the Sellers historically identified as “Human Health” and comprised of: (i) finished dosage form generic drugs and nutraceutical products, including the sale of generic prescription products and over-the-counter pharmaceutical products to leading wholesalers, chain drug stores, distributors and mass merchandisers and (ii) the Nutritional Business Sub Segment.
“Illustrative Calculation” means the illustrative calculation set forth in Section 8.16(b) of the Sellers Disclosure Schedule.
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“Indebtedness” means, as to any Person, without duplication, as of the date of determination (i) all obligations of such Person for borrowed money, including accrued and unpaid interest, and any prepayment fees or penalties, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iii) all lease obligations of such Person capitalized on the Books and Records of such Person, (iv) all Indebtedness of others secured by a Lien on property or assets owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (v) all letters of credit or performance bonds issued for the account of such Person, to the extent drawn upon, and (vi) all guarantees of such Person of any Indebtedness of any other Person other than a wholly owned subsidiary of such Person.
“Intellectual Property” means all intellectual property and similar proprietary rights existing anywhere in the world associated with (i) patents and patent applications, including continuations, divisionals, continuations-in-part, reissues or reexaminations and patents issuing thereon (collectively, “Patents”), (ii) trademarks, service marks, trade dress, logos, corporate names, trade names and Internet domain names, together with the goodwill exclusively associated with any of the foregoing, and all applications and registrations therefor (collectively, “Marks”), (iii) copyrights (including such rights in software) and registrations and applications therefor, and works of authorship (collectively, “Copyrights”), (iv) designs, databases and data compilations, and (v) trade secrets and other proprietary and confidential information, including know-how, inventions (whether or not patentable), processes, formulations, technical data and designs, in each case, excluding any rights in respect of any of the foregoing that comprise or are protected by Patents (collectively, “Trade Secrets”); in each case, used for the operation of the Acquired Business.
“Inventory” means inventories of materials, parts, raw materials, packaging materials, supplies, spare parts, work-in-process, goods in transit, finished goods and products, in each case, primarily related to the Acquired Business.
“Joint Venture” means Canegrass LLC, a Delaware limited liability company.
“knowledge” means (i) with respect to Buyer, the actual knowledge, after due inquiry, of the individuals listed in Section 8.16(c) of the Buyer Disclosure Schedule, and (ii) with respect to Sellers, the actual knowledge, after due inquiry, of the individuals listed on Section 8.16(d) of the Sellers Disclosure Schedule.
“Leased Real Property” means real property leased by, licensed to or otherwise used or occupied (but not owned) by one or more Seller or any Acquired Subsidiary (other than the Joint Venture) with respect to the Acquired Business.
“Liability” means any debt, loss, Claim, damage, demand, fine, judgment, penalty, liability or obligation (whether direct or indirect, known or unknown, absolute or contingent, asserted or unasserted, accrued or unaccrued, matured or unmatured, determined or determinable, liquidated or unliquidated, or due or to become due, and whether in contract, tort, strict liability, successor liability or otherwise), and including all costs and expenses relating thereto (including fees, discounts and expenses of legal counsel, experts, engineers and consultants and costs of investigations).
“Lien” means any “Interest” as that term is used in Section 363(f) of the Bankruptcy Code, lien (including any mechanics lien), encumbrance, pledge, mortgage, indenture, deed of trust, security interest, pledge, hypothecation, claim, lease, charge, escrow, option, right of first offer, right of first refusal, preemptive right, easement, servitude, reservation, covenant, encroachment, right of use, right of way, security agreement or other similar agreement, arrangement, contract, commitment, understanding or obligation (whether written or oral and whether or not relating in any way to credit or the borrowing of money) of any kind with respect to any Person, or any proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement or encumbrance or any other right of a third party in respect of an asset of such Person.
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“Material Adverse Effect” means, with respect to Parent (but solely with respect to the Acquired Business), NY Agri and the Acquired Subsidiaries, any change, effect, event, occurrence or development that has had, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, operations or financial condition of Sellers and the Acquired Subsidiaries, taken as a whole and primarily in respect of the Acquired Business, excluding, however, the impact of (i) the filing of the Bankruptcy Case or operating in bankruptcy, (ii) any changes or developments in domestic, foreign or global markets or domestic, foreign or global economic conditions generally, including (A) any changes or developments in or affecting the domestic or any foreign securities, equity, credit or financial markets and the industry in which Sellers or Acquired Subsidiaries are engaged or (B) any changes or developments in or affecting domestic or any foreign interest or exchange rates and the industry in which Sellers or Acquired Subsidiaries are engaged, (iii) changes in GAAP or any official interpretation or enforcement thereof, (iv) changes in Law or any changes or developments in the official interpretation or enforcement thereof by Governmental Entities, (v) changes in domestic, foreign or global political conditions (including the outbreak or escalation of war, military actions, or acts of terrorism), including any worsening of such conditions threatened or existing on the Agreement Date, (vi) changes or developments in the business conditions or regulatory conditions affecting the industries in which the Acquired Business operates, (vii) the announcement or the existence of, compliance with or performance under, this Agreement or the transactions contemplated hereby (including the impact thereof on the relationships, contractual or otherwise, of Sellers or any Acquired Subsidiary with employees, labor unions, financing sources, customers, suppliers or partners), (viii) weather conditions or other acts of God (including storms, earthquakes, tornados, floods or other natural disasters), (ix) a decline in the trading price or trading volume of Parent’s common stock or any change in the ratings or ratings outlook for Parent (provided that the underlying causes thereof may be considered in determining whether a Material Adverse Effect has occurred if not otherwise excluded hereunder), (x) the failure to meet any projections guidance, budgets, forecasts or estimates (provided that the underlying causes thereof may be considered in determining whether a Material Adverse Effect has occurred if not otherwise excluded hereunder), (xi) taken or omitted to be taken by a Seller or any Acquired Subsidiary at the written request of Buyer or that is not prohibited by this Agreement, (xii) any Proceeding threatened, made or brought by any of the current or former shareholders of a Seller (or on their behalf or on behalf of such Seller) against such Seller or any of their respective directors, officers or employees arising out of this Agreement or the transactions contemplated hereby, (xiii) any Proceeding threatened, made or brought against a Seller for breach of a Material Contract in connection with the collection of payment due thereunder (whether alone or with other claims) or any modification of credit, cash on delivery or similar terms of a Material Contract, (xiv) the failure to obtain any approvals or consents from any Governmental Entity in connection with the transactions contemplated hereby, and (xv) changes in legislation or Law that directly or indirectly affect the purchasing or selling of products or services sold or provided by Sellers and the Acquired Subsidiaries; except, with respect to clauses (ii), (iv), (vi), (viii) and (xv), to the extent that such impact is disproportionately adverse to Sellers and the Acquired Subsidiaries, taken as a whole and primarily in respect of the Acquired Business, relative to others in the industry or industries in which the Acquired Business operates.
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“Net Current Assets” means, without duplication (x) the sum of Inventory, Accounts Receivable and Purchased Deposits and other current assets of the Acquired Subsidiaries as set forth on the Illustrative Calculation minus (y) the sum of Accounts Payable, Accrued Liabilities (other than the liabilities described in clause (iv) of the definition of Accrued Liabilities, including any payments made pursuant to the Scheduled Agreement as described in Schedule 1.1(o) and any related Tax Liabilities) and other current liabilities of the Acquired Subsidiaries as set forth on the Illustrative Calculation and accrued and unpaid Tax Liabilities of the Acquired Subsidiaries (limited to 30% of such Tax Liabilities in the case of the Joint Venture) attributable under the principles of Section 5.8(c), to periods (or portions thereof) ending on or before the Closing Date (as determined in accordance with the past practices of the relevant Acquired Subsidiary and reduced (potentially below zero) by any rights to refunds, credits or other receivables (including VAT receivables) in respect of such Taxes), as calculated in a manner consistent with the Illustrative Calculation and the Accounting Principles as of the Adjustment Time (other than, in the case of Tax liabilities and Tax assets as contemplated by Section 5.8(c)). For the avoidance of doubt, none of (i) Cash, (ii) Cure Costs, (iii) time deposits, (iv) Transfer Taxes for which Buyer is responsible pursuant to Section 5.8(b) or (v) Applicable EIT liability shall be included in the calculation of Net Current Assets.
“Net Debt” means the Closing Debt Amount plus the Transaction Expenses minus the Closing Cash Amount.
“Non-U.S. Seller Benefit Plan” means each Seller Benefit Plan that is maintained outside the jurisdiction of the United States.
“Nutritional Business Sub Segment” means the supply of ingredients and raw materials used in the production of food, nutritional and packaged dietary supplements, including vitamins, supplements, botanical extracts, amino acids, minerals, iron compounds and biochemicals used in pharmaceutical and nutritional preparations.
“Order” means any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award of a Governmental Entity.
“Ordinary Course of Business” means the ordinary and usual course of day-to-day operations of the Acquired Business (including acts and omissions of a Seller in the ordinary and usual course) through the date hereof, consistent with past practice or operations in or pending a bankruptcy.
“Organizational Documents” means (a) the articles or certificates of incorporation and the by-laws of a corporation, (b) the partnership agreement and any statement of partnership of a general partnership, (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership, (d) the operating or limited liability company agreement and the certificate of formation of a limited liability company, (e) any charter, joint venture agreement or similar document adopted or filed in connection with the creation, formation or organization of a Person not described in clauses (a) through (d), and (f) any amendment to or equivalent of any of the foregoing.
“Owned Real Property” means any real property and interests in real property owned by a Seller or any Acquired Subsidiary (other than the Joint Venture) and used primarily for the operation of the Acquired Business, together with all buildings, structures, fixtures and improvements erected thereon, and any and all rights, privileges, easements, licenses, hereditaments and other appurtenances of a Seller or such Acquired Subsidiary relating thereto, but excluding any leasehold, license or other use or occupancy real property interest).
“Party” or “Parties” means, individually or collectively, Buyer and each Seller.
“Performance Chemicals” means the business segment of the Sellers historically identified as “Performance Chemicals” and consisting of the sourcing and distribution of specialty chemicals, including the supply to various industrial segments of chemicals used in the manufacture of plastics, surface coatings, cosmetics and personal care, textiles, fuels and lubricants, and agricultural protection products.
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“Permits” means all material approvals, permits, certificates, qualifications, authorizations, licenses, franchises, consents, Orders and registrations, together with all modifications, amendments, supplements and extensions thereof, of all United States federal, state and local Governmental Entities and any other Person that are necessary for Sellers to own and operate the Acquired Business.
“Permitted Liens” means (i) any Liens for Taxes not yet due or that are being contested in good faith by appropriate Proceedings or for which adequate reserves have been established by a Seller or any Acquired Subsidiary in accordance with GAAP, (ii) vendors’, mechanics’, materialmen’s, carriers’, workers’, landlords’, repairmen’s, warehousemen’s, construction and other similar Liens (A) with respect to Liabilities that are not yet due and payable or, if due, are not delinquent or (B) that are being contested in good faith by appropriate Proceedings and for which adequate reserves (based on good faith estimates of management) have been set aside for the payment thereof or (C) arising or incurred in the Ordinary Course of Business and which are not, individually or in the aggregate, material to the operation of the Acquired Business and do not materially adversely affect the market value or continued use of the asset encumbered thereby, (iii) Liens imposed or promulgated by applicable Law or any Governmental Entity with respect to real property, including zoning, building or similar restrictions but only to the extent that Sellers and the Acquired Subsidiaries and their respective assets are materially in compliance with the same, (iv) pledges or deposits in connection with workers’ compensation, unemployment insurance, and other social security legislation, (v) Liens relating to intercompany borrowings among a Person and its wholly owned subsidiaries, (vi) utility easements, minor encroachments, rights of way, imperfections in title, charges, easements, rights of way (whether recorded or unrecorded), restrictions, declarations, covenants, conditions, defects and similar Liens or Claims, but not including any monetary Liens, that are imposed by any Governmental Entity having jurisdiction thereon or otherwise are typical for the applicable property type and locality as do not individually or in the aggregate materially interfere with the present occupancy under the real property interest, or the use or market value of the real property interest, or materially impair the operation of the Acquired Business, (vii) Intellectual Property licenses, (viii) Liens to be released at or prior to Closing, (ix) Liens that do not have and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; provided that, in each case, enumerated in this definition, such Lien shall only be a Permitted Lien if it cannot be satisfied solely through the payment of money or otherwise removed, discharged, released or transferred, as the case may be, pursuant to Section 363(f) of the Bankruptcy Code or otherwise and (x) liens consented to in writing by Buyer.
“Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, Governmental Entity or other entity.
“Pharma Business” means Human Health, excluding the Nutritional Business Sub Segment.
“Pharmaceutical Ingredients” means the business segment of the Sellers historically identified as “Pharmaceutical Ingredients” and comprised of the following two product groups: Active Pharmaceutical Ingredients (APIs) and Pharmaceutical Intermediates.
“Proceeding” means any action, suit, claim, hearing, arbitration, litigation or other proceeding, in each case, by or before any Governmental Entity.
“Purchased Deposits” means all deposits (including customer deposits and security deposits for rent (including such deposits made by a Seller, as lessee, or to a Seller, as lessor, in connection with the Assumed Real Property Lease(s)) and prepaid charges and expenses of, and advance payments made by a Seller, in each case, primarily for the operation of the Acquired Business and reflected in the Closing Statement.
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“Purchased Subsidiaries” means Aceto (Shanghai) Ltd., Aceto Bermuda, Aceto Agricultural Chemicals Corp Mx S. de R.L. de CV, Aceto Agricultural Chemicals Corporation Ltd., the Joint Venture and Aceto HK; provided, however, that within 30 days after the date hereof, upon written notice to Parent, Buyer may elect to exclude Aceto Agricultural Chemicals Corporation Ltd. as a Purchased Subsidiary, subject to the Parties agreeing in good faith to any appropriate modifications to this Agreement, including Sellers’ representations and warranties set forth in this Agreement, and/or the Schedules to this Agreement (including the Seller Disclosure Schedule), to the extent necessary to reflect that Aceto Agricultural Chemicals Corporation Ltd. is not a Purchased Subsidiary.
“Real Property Lease” means any lease, sublease, license or other agreement under which a Seller or any Acquired Subsidiary (other than the Joint Venture) leases, subleases, licenses, uses or occupies (in each case whether as landlord, tenant, sublandlord, subtenant or by other occupancy arrangement), or has the right to use or occupy, now or in the future, any real property, in each case, used for the operation of the Acquired Business.
“Regulated Substances” means pollutants, contaminants, radioactive, hazardous or toxic substances, compounds or related materials or chemicals, hazardous materials, solid or hazardous wastes, flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products (including waste petroleum and petroleum products) as regulated under applicable Environmental Laws.
“Sale Hearing” means the hearing conducted by the Bankruptcy Court to approve the transactions contemplated hereby or a competing transaction.
“Sale Motion” means one or more motions, in form and substance satisfactory to Buyer, filed by Sellers pursuant to, inter alia, Sections 363 and 365 of the Bankruptcy Code to secure entry of the Bidding Procedures Order and the Sale Order by the Bankruptcy Court.
“Sale Order” means an Order of the Bankruptcy Court in substantially the form attached hereto as Exhibit F or otherwise in a form and substance reasonably acceptable to Buyer, pursuant to, inter alia, Sections 105, 363 and 365 of the Bankruptcy Code (i) approving this Agreement and the terms and conditions hereof, (ii) authorizing and approving, inter alia, the sale of the Purchased Assets to Buyer on the terms and conditions set forth herein free and clear of all Liabilities and Liens (other than Permitted Liens), the assignment to Buyer of, and the assumption by Buyer of, the Assumed Liabilities, and the assignment to Buyer of, and the assumption by Buyer of, the Buyer Assumed Agreements and (iii) containing certain findings of facts, including a finding that Buyer is a good faith purchaser pursuant to Section 363(m) of the Bankruptcy Code.
“Seller Benefit Plan” means any material “employee benefit plan” (within the meaning of Section 3(3) of ERISA) and any other material pension, retirement, profit-sharing, supplemental retirement or deferred compensation, stock option, change in control, retention, equity or equity-based compensation, stock purchase, employee stock ownership, severance pay, employment (including offer letters), consultancy, vacation, bonus or other incentive plans, medical or other welfare, retiree medical, vision, dental or other health plans, or life insurance plan, program, agreement, or arrangement, funded or unfunded, or insured or self-insured, (i) that is maintained, established, or sponsored by a Seller or any Acquired Subsidiary for the benefit of any current or former employee, officer or director of Parent (who are or were primarily employed in respect of the Acquired Business), NY Agri or any Acquired Subsidiary, or (ii) to which Parent (in respect of the Acquired Business), NY Agri or any Acquired Subsidiary contributes or is obligated to contribute or has any material Liability, other than a Multiemployer Plan and other than any plan or program maintained by a Governmental Entity to which Parent (in respect of the Acquired Business), NY Agri or any Acquired Subsidiary contributes pursuant to applicable Law.
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“Subsidiaries” means, as to any Person, any corporation, partnership, association, trust or other form of legal entity of which (i) 50% or more of the voting power of the outstanding voting securities are directly or indirectly owned by such Person or (ii) such Person or any Subsidiary of such Person is a general partner.
“Successful Bidder” means the bidder who shall have submitted the highest or otherwise best bid at the conclusion of the Auction in accordance with the Bidding Procedures and Bidding Procedures Order.
“Tax” or “Taxes” means any and all federal, state, local or foreign taxes imposed by any Taxing Authority, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, environmental, stamp, occupation, premium, and property (real or personal) taxes, including any and all interest, penalties, additions to tax or additional amounts imposed by any Governmental Entity with respect thereto.
“Tax Return” means any return, declaration, report or similar filing required to be filed with respect to Taxes, including any information return, claim for refund, amended return, or declaration of estimated Taxes.
“Taxing Authority” means any Governmental Entity responsible for the administration or the imposition of any Tax.
“Transaction Expenses” means, without duplication, the unpaid amount of (i) any finder’s, broker’s or dealer’s fees incurred by any Acquired Subsidiary in connection with the Closing as a result of the consummation of the transactions contemplated by this Agreement (including the Bankruptcy Case) and (ii) any third party legal, accounting or similar advisor fees and expenses incurred by any Acquired Subsidiary in connection with the negotiation, execution and delivery of this Agreement or the consummation of the transactions contemplated hereby (including the Bankruptcy Case) (except to the extent any such amount is caused by actions of the Buyer or any of its Affiliates after the Closing Date), in each case that are to be paid by any Acquired Subsidiary and that have not yet been paid as of the Closing; provided, that in no event shall “Transaction Expenses” be deemed to include any fees and expenses to the extent incurred by or at the direction of Buyer or any of its Affiliates otherwise relating to Buyer’s or its Affiliates’ financing (including obtaining any consent or waiver relating thereto) for the transactions contemplated hereby or any other liabilities or obligations incurred or arranged by or on behalf of Buyer or its Affiliates in connection with the transactions contemplated hereby (including any fees payable to any financing institution or the Sellers’ or the Acquired Subsidiaries’ accountants on behalf of Buyer or its Affiliates).
“TSA” means a transitional services agreement between Buyer and Sellers (or an appropriate Affiliate thereof) in substantially the form of Exhibit G.
“U.S. Seller Benefit Plan” means, each Seller Benefit Plan that is not a Non-U.S. Seller Benefit Plan.
“VAT” means any value added Tax or similar Tax.
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“WARN Act” means, collectively, the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any other similar statutes or regulations of any jurisdiction relating to any plant closing or mass layoff (or such similar terms used in such statutes or regulations).
“Willful Breach” means, with respect to any representation, warranty, agreement or covenant, an action or omission where the breaching party knows such action or omission is a breach of such representation, warranty, agreement or covenant.
(b) The following terms are defined elsewhere in this Agreement, as indicated below:
| Defined Term | Section | |
| Accounts Payable | 1.3(b) | |
| Adjustment Escrow | 2.2(b) | |
| Adjustment Escrow Amount | 2.2(b) | |
| Agreement | Preamble | |
| Agreement Date | Preamble | |
| Antitrust Laws | 3.3(b) | |
| Asset Purchase | Recitals | |
| Assignment and Assumption of Leases | 2.8(f) | |
| Assignment of Intellectual Property | 2.8(b) | |
| Assumed Contracts | 1.1(c) | |
| Assumed Equipment Leases | 1.1(l) | |
| Assumed Liabilities | 1.3 | |
| Assumed Plans | 1.1(o) | |
| Assumed Purchase Orders | 1.1(c) | |
| Assumed Real Property Lease(s) | 1.1(c) | |
| Assumption Deadline | 1.5(a) | |
| Aceto Realty | Preamble | |
| Auction | 5.7(a) | |
| Bankruptcy Case | Recitals | |
| Bankruptcy Code | Recitals | |
| Bankruptcy Court | Recitals | |
| Base Purchase Price | 2.1 | |
| Break-Up Fee | 7.3(a) | |
| Business | Recitals | |
| Buyer | Preamble | |
| Buyer Allocation Objection Notice | 2.5 | |
| Buyer Assumed Agreements | 1.1(l) | |
| Buyer Benefit Plans | 5.3(b) | |
| Buyer Disclosure Schedule | ARTICLE IV | |
| Cash Balance | 2.1(b) | |
| Closing | 2.6 | |
| Closing Date | 2.6 | |
| Closing Statement | 2.4(b) | |
| Collective Bargaining Agreement | 3.10(a) | |
| Confidential Rating Agency Information | 5.13(c) | |
| Confidentiality Agreement | 5.2(c) | |
| Consents | 3.3(c) | |
| Cure Costs | 1.5(a) | |
| End Date | 7.1(b) | |
| Enforceability Exceptions | 3.3(a) | |
| Escrow Agent | 2.2(b) | |
| Escrow Agreement | 2.2(b) | |
| Estimated Cash Balance | 2.4(a) | |
| Estimated Net Current Assets | 2.4(a) | |
| Excluded Assets | 1.2 | |
| Excluded Equipment Leases | 1.2(e) | |
| Excluded Liabilities | 1.4 | |
| Excluded Real Property Leases | 1.2(d) | |
| Existing NQ Trust | 5.3(e) | |
| Filing | Recitals | |
| Financial Statements | 3.4 | |
| GAAP | 3.4 | |
| Good Faith Deposit | 2.3 | |
| Good Faith Deposit Escrow | 2.3 | |
| Good Faith Deposit Escrow Holder | 2.3 | |
| Guarantee | 4.9 | |
| Guarantor | 4.9 | |
| HSR Act | 3.3(b) | |
| IRS | 3.7(a) | |
| Law | 3.5(a) | |
| Laws | 3.5(a) | |
| Material Contracts | 3.13(a) | |
| Most Recent Balance Sheet | 3.4 | |
| Multiemployer Plan | 3.7(c) | |
| New NQ Trust | 5.3(e) | |
| NQ Plan | 5.3(e) | |
| NY Agri | Preamble | |
| Parent | Preamble | |
| Parent SEC Disclosures | ARTICLE III | |
| Permitted Access Parties | 5.2(d) | |
| Petition Date | Recitals | |
| Pharma Business | Recitals | |
| Post-Close Filings | 5.2(d) | |
| Post-Close Proceedings | 5.2(d) | |
| Products | 1.1(f) | |
| Purchase Price | 2.4(e) | |
| Purchased Assets | 1.1 | |
| Purchased Avoidance Actions | 1.1(u) | |
| Registered Intellectual Property | 3.12(a) | |
| Representatives | 3.18 | |
| SEC | ARTICLE III | |
| Second Request | 5.4(c) | |
| Sellers | Preamble | |
| Sellers Disclosure Schedule | ARTICLE III | |
| Shortfall | 2.4(b) | |
| Surplus | 2.4(b) | |
| Transaction Approvals | 3.3(b) | |
| Transfer Taxes | 5.8(b) | |
| Transferred Employees | 5.3(a) |
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(c) Other Definitional and Interpretive Matters. Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:
(i) Calculation of Time Period. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.
(ii) Dollars. Any reference in this Agreement to $ shall mean U.S. dollars.
(iii) Exhibits/Schedules. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.
8.17 Sellers Disclosure Schedule. The Sellers Disclosure Schedule is qualified in its entirety by reference to specific provisions of this Agreement and is not intended to constitute, and shall not be construed as constituting, representations, warranties and covenants of Sellers, except as and to the extent expressly provided in this Agreement. Each section or subsection referenced in the Sellers Disclosure Schedule corresponds to the section or subsection set forth in this Agreement; provided, however, that any matter set forth in any section or subsection of the Sellers Disclosure Schedule shall be deemed to be referred to and incorporated in all other sections or subsections of the Sellers Disclosure Schedule to which the relevance of such matter is reasonably apparent on its face to inform Buyer that such information is relevant to such other section or subsection. The inclusion of any information or reference in the Sellers Disclosure Schedule shall not be deemed to be an admission, acknowledgment or representation, in and of itself, that such information is required by the terms hereof to be disclosed, is material, has resulted in a Material Adverse Effect, is outside the Ordinary Course of Business or defines further the meaning of such terms for purposes of this Agreement. Nothing in this Agreement or in the Sellers Disclosure Schedule constitutes an admission (i) to any third party of any liability or obligation of Sellers to any third-party or (ii) that any information disclosed, set forth or incorporated by reference in the Sellers Disclosure Schedule or in this Agreement is material or has (or may result in) a Material Adverse Effect.
8.18 Limitation on Good Faith Deposit Escrow Holder’s Liability. The Good Faith Deposit Escrow Holder’s responsibilities and liabilities shall be limited as follows:
(a) The Good Faith Deposit Escrow Holder shall not be responsible for or be required to enforce any of the terms or conditions of this Agreement or any other agreement between Sellers and Buyer. The Good Faith Deposit Escrow Holder shall not be responsible or liable in any manner whatsoever for the performance by Sellers or Buyer or any other party for their respective obligations under this Agreement, nor shall the Good Faith Deposit Escrow Holder be responsible or liable in any manner whatsoever for the failure of the other parties to this Agreement or of any third party to honor any of the provisions of this Agreement.
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(b) The duties and obligations of the Good Faith Deposit Escrow Holder shall be limited to and determined solely by the express provisions of this Agreement and no implied duties or obligations shall be read into this Agreement against the Good Faith Deposit Escrow Holder. The Good Faith Deposit Escrow Holder is not bound by and is under no duty to inquire into the terms or validity of any other agreements or documents, including any agreements which may be related to, referred to in or deposited with the Good Faith Deposit Escrow Holder in connection with this Agreement.
(c) The Good Faith Deposit Escrow Holder shall be entitled to rely upon and shall be protected in acting in reliance upon any instruction, notice, information, certificate, instrument or other document which is submitted to it in connection with its duties under this Agreement and which the Good Faith Deposit Escrow Holder in good faith believes to have been signed or presented by the proper party or parties. The Good Faith Deposit Escrow Holder shall have no liability with respect to the form, execution, validity or authenticity thereof.
(d) The Good Faith Deposit Escrow Holder shall not be liable for any act which the Good Faith Deposit Escrow Holder may do or omit to do hereunder, or for any mistake of fact or law, or for any error of judgment, or for the misconduct of any employee, agent or attorney appointed by it, while acting in good faith, unless caused by or arising from its own willful misconduct.
(e) The Good Faith Deposit Escrow Holder shall be entitled to consult with counsel of its own selection and the opinion of such counsel shall be full and complete authorization and protection to the Good Faith Deposit Escrow Holder in respect of any action taken or omitted by the Good Faith Deposit Escrow Holder hereunder in good faith and in accordance with the opinion of such counsel.
(f) The Good Faith Deposit Escrow Holder shall have the right at any time to resign for any reason and be discharged of its duties as Good Faith Deposit Escrow Holder hereunder by giving written notice of its resignation to the parties hereto prior to the date specified for such resignation to take effect. All obligations of the Good Faith Deposit Escrow Holder hereunder shall cease and terminate on the effective date of its resignation and its sole responsibility thereafter shall be to hold the Good Faith Deposit, for a period of no more than thirty (30) calendar days following the effective date of resignation, at which time:
(i) if a successor holder of the Good Faith Deposit shall have been appointed, by the mutual consent of Buyer and the Sellers, and written notice thereof shall have been given to the resigning Good Faith Deposit Escrow Holder by the parties hereto and such successor holder, then the resigning Good Faith Deposit Escrow Holder shall deliver the Good Faith Deposit to such successor holder; or
(ii) if a successor holder of the Good Faith Deposit shall not have been appointed, for any reason whatsoever, the resigning holder of the Good Faith Deposit shall deliver the Good Faith Deposit to a court of competent jurisdiction in the county in which the Good Faith Deposit is then being held and give written notice of the same to the parties hereto.
The resigning Good Faith Deposit Holder shall be reimbursed by Buyer and Sellers for any expenses incurred in connection with its resignation and transfer of the Good Faith Deposit Holder pursuant to and in accordance with the provisions of this Section 8.18.
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(g) Buyers and Seller, jointly and severally, agree to indemnify and hold the Good Faith Deposit Holder harmless from and against any and all liabilities, causes of action, claims, demands, judgments, damages, costs and expenses (including reasonable attorneys’ fees and expenses) that may arise out of or in connection with the Good Faith Deposit Holder’s acceptance of or performance of its duties and obligations under this Agreement. The Good Faith Deposit Holder shall be under no duty to institute any suit, or to take any remedial procedures under this Agreement, or to enter any appearance or in any way defend any suit in which it may be made a defendant hereunder until it shall be indemnified as provided above.
(h) If the Good Faith Deposit Holder shall be uncertain as to its duties or rights hereunder or shall receive instructions with respect to the Good Faith Deposit which, in its sole discretion, are in conflict either with other instructions received by it or with any provision of this Agreement, the Good Faith Deposit Holder shall have the absolute right to suspend all further performance under this Agreement (except for the safekeeping of the Good Faith Deposit) until such uncertainty or conflicting instructions have been resolved to the Good Faith Deposit Holder’s sole satisfaction by final judgment of a court of competent jurisdiction, joint written instructions from all of the other parties hereto, or otherwise.
(i) The parties acknowledge that Lowenstein Sandler LLP, as Good Faith Deposit Holder, has agreed to serve in such capacity as an accommodation to the parties on the condition that it be allowed to continue to act as legal counsel to Sellers. Buyer acknowledges that Lowenstein Sandler LLP has acted as legal counsel to Sellers in connection with this Agreement, the transactions contemplated hereby and other matters relating thereto and that Lowenstein Sandler LLP shall continue such representation of Sellers, including with respect to the Seller’s rights and obligations under this Agreement, and all other matters. Nothing in this Agreement, nor Lowenstein Sandler LLP’s serving as Good Faith Deposit Holder hereunder, shall prevent or inhibit Lowenstein Sandler LLP from continuing to serve as legal counsel to Sellers and Buyer hereby consents to the continued representation of Sellers by Lowenstein Sandler LLP as its legal counsel.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed the day and year first above written.
| BUYER: | |
| NMC ATLAS, L.P. | |
| By: NMC Atlas GP, L.L.C., its general partner |
| By: | /s/ Joseph Walker | |
| Name: Joseph Walker | ||
| Title: Vice President and Secretary |
[Signature Page to Asset Purchase Agreement]
| SELLERS: | |
| ACETO CORPORATION |
| By: | /s/ William C. Kennally, III | |
| Name: William C. Kennally, III | ||
| Title: Chief Executive Officer and President |
| ACETO REALTY LLC |
| By: | /s/ William C. Kennally, III | |
| Name: William C. Kennally, III | ||
| Title: Chief Executive Officer |
| ACETO AGRICULTURAL CHEMICALS CORPORATION |
| By: | /s/ William C. Kennally, III | |
| Name: William C. Kennally, III | ||
| Title: Authorized Signatory |
[Signature Page to Asset Purchase Agreement]
EXHIBIT A
PURCHASE PRICE ALLOCATION CONSTRAINTS
| · | The purchase price allocable to 100% of the shares of Aceto (Shanghai) Ltd. will be limited to the greater of: (i) 4.21% of the Purchase Price, which represents Aceto (Shanghai) Ltd.’s percentage of the total gross margin of the Purchased Assets, or (ii) the book net equity value of Aceto (Shanghai) Ltd. as of the Closing. |
| · | The purchase price allocable to 100% of the shares of Aceto Agricultural Chemicals Corp Mx S. de R.L. de CV shall not exceed $1.00. |
EXHIBIT B
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Agreement”), dated as of [●], 2019, is made and entered into by and among Aceto Realty, LLC, a New York limited liability company (“Aceto Realty”), and Aceto Agricultural Chemicals Corporation, a New York corporation (“NY Agri” and together with Parent and Aceto Realty, “Sellers” and each, a “Seller”), each a debtor and debtor in possession under Case No. [●] pending in the United States Bankruptcy Court for the District of New Jersey, on the one hand, and NMC Atlas, L.P., a Delaware limited partnership (“Buyer”), on the other hand. As used in this Agreement, “Party” or “Parties” means, individually or collectively, Sellers and Buyer. Unless otherwise defined herein, all capitalized terms used in this Agreement shall have the meanings ascribed to such terms in that certain Asset Purchase Agreement dated as of February [●], 2019 (the “Purchase Agreement”), by and among Sellers and Buyer.
WHEREAS, concurrently with the execution and delivery of this Agreement, Sellers and Buyer are consummating the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and as contemplated by the Purchase Agreement, Sellers and Buyer hereby agree as follows:
1. Assignment. Each Seller hereby sells, transfers, assigns, conveys and delivers to Buyer, free and clear of all Liens, sales, transfer or transaction taxes of any kind whatsoever, all of such Seller’s right, title and interest in, to or under the Purchased Assets. Notwithstanding the foregoing, the Parties acknowledge that the Purchased Assets constituting the Assumed Real Property Leases are being assigned to, and assumed by, Buyer pursuant to the Assignment and Assumption of Leases and not pursuant this Agreement.
2. Assumption. (a) Each Seller hereby delegates to Buyer such Seller’s Assumed Liabilities (to the extent assumed by Buyer herein or in the Purchase Agreement), and (b) Buyer hereby assumes and agrees to discharge when due (in accordance with its respective terms and subject to the respective conditions thereof) only the Assumed Liabilities and no others. Notwithstanding any provision in this Agreement to the contrary, Buyer shall not assume and shall not be obligated to assume or be obligated to pay, perform or otherwise discharge any Excluded Liability, and Sellers shall be solely and exclusively liable with respect to all Excluded Liabilities.
3. Delivery Pursuant to Purchase Agreement. Notwithstanding anything to the contrary herein, Sellers and Buyer are executing and delivering this Agreement in accordance with and subject to all of the terms and provisions of the Purchase Agreement, including, without limitation, the provisions of Section 3.23 thereof. To the extent of any conflict between the terms and conditions of this Agreement and the terms and conditions of the Purchase Agreement, the terms and conditions of the Purchase Agreement shall govern, supersede and prevail.
4. Successors and Assigns; Binding Effect.
(a) Except as expressly permitted in this Agreement, the rights and obligations of the Parties under this Agreement shall not be assignable by such Parties without the written consent of the other Parties hereto; provided, however, that Buyer shall be entitled to assign any or all of its rights under this Agreement to one or more of its Affiliates; provided that Buyer is not relieved of any of its obligations hereunder by virtue of any such assignment.
(b) This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns. The successors and permitted assigns hereunder shall include any permitted assignee as well as the successors in interest to such permitted assignee (whether by merger, consolidation, liquidation (including successive mergers, consolidations or liquidations) or otherwise). Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon any Person other than the Parties and successors and assigns permitted by this Section 4 any right, remedy or claim under or by reason of this Agreement.
5. Amendments. This Agreement shall not be amended, modified or supplemented except by a written instrument signed by an authorized representative of each of the Parties.
6. Governing Law.
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State.
(b) All Actions arising out of or relating to this Agreement, including the resolution of any and all disputes hereunder, shall be heard and determined in the Bankruptcy Court, and the Parties hereby irrevocably submit to the exclusive jurisdiction of the Bankruptcy Court in any such Proceeding and irrevocably waive the defense of an inconvenient forum to the maintenance of any such Proceeding. The Parties hereby consent to service of process by mail (in accordance with Section 8.7 of the Purchase Agreement) or any other manner permitted by law.
(c) THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SELLERS, BUYER, OR THEIR RESPECTIVE REPRESENTATIVES IN THE NEGOTIATION OR PERFORMANCE HEREOF.
7. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
8. Execution in Counterparts. This Agreement may be executed in counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement, and shall become binding when one or more counterparts have been signed by and delivered to each of the Parties. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or electronic delivery (i.e., by electronic mail of a PDF signature page) shall be effective as delivery of a manually executed counterpart of this Agreement.
[SIGNATURE PAGE FOLLOWS]
| -2- |
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto as of the date first above written.
| SELLERS: | ||
| ACETO CORPORATION | ||
| By: | ||
| Name: | ||
| Title: | ||
| ACETO REALTY, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| ACETO AGRICULTURAL CHEMICALS CORPORATION | ||
| By: | ||
| Name: | ||
| Title: | ||
| BUYER: | ||
| NMC ATLAS, L.P. | ||
| By: | ||
| Name: | ||
| Title: | ||
| -3- |
EXHIBIT C
FORM OF BIDDING PROCEDURES
BIDDING PROCEDURES
Set forth below are the bidding procedures (the “Bidding Procedures”) to be used by Aceto Corporation, Aceto Agricultural Chemicals Corporation and Aceto Realty LLC (together, the “Sellers” and each a “Seller”) for the proposed sale of substantially all assets (as defined in the Stalking Horse Agreement, the “Purchased Assets”) comprising the Debtors’ Chemical Plus Business and assumption of certain related liabilities, in the Sellers’ jointly administered chapter 11 cases pending in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”), case number 19-[______ (__)], pursuant to that certain Asset Purchase Agreement, dated as of [●], 2019 (together with the schedules thereto and related documents, and as may be amended, supplemented or otherwise modified from time to time, the “Stalking Horse Agreement”), by and among the Sellers and [●] (the “Buyer” or “Stalking Horse Bidder”).
The Buyer has submitted a Qualified Bid (as defined below) for the Purchased Assets pursuant to the terms of the Stalking Horse Agreement (the “Stalking Horse Bid”).
On [●], 2019, the Bankruptcy Court entered an order, which, among other things, authorized the Sellers to determine the highest or otherwise best offer for the Purchased Assets through the Bidding Procedures (the “Bidding Procedures Order”).
The sale transaction pursuant to the Stalking Horse Agreement is subject to competitive bidding as set forth herein.
| A. | ASSETS TO BE SOLD |
The Sellers seek to complete the sale of the Purchased Assets and the assumption of the Assumed Liabilities described in the Stalking Horse Agreement.
Except as otherwise provided in the Stalking Horse Agreement or such other approved purchase agreement of the Successful Bidder (as defined below), all of each Seller’s respective right, title and interest in and to the Purchased Assets to be acquired shall be sold free and clear of all Liens, Claims and other Liabilities (each as defined in the Stalking Horse Agreement), except for Permitted Liens and Assumed Liabilities (each as defined in the Stalking Horse Agreement) as may be specified in the Stalking Horse Agreement, and with any such Liens, Claims and other Liabilities to attach solely to the net proceeds of the sale of each applicable Purchased Asset.
A party may participate in the bidding process by submitting a Qualified Bid for any or all of the Purchased Assets.
| B. | THE BIDding PROCEDURES |
To ensure that the Sellers receive the maximum value for the Purchased Assets, the Stalking Horse Agreement is subject to higher or otherwise better offers at the Auction (if any) in accordance with these Bidding Procedures, and, as such, the Stalking Horse Agreement will serve as the “stalking horse” bid for the Purchased Assets.
| 1. | Key Dates |
The key dates for the process contemplated herein are as follows:1
| Sale Dates and Deadlines | |
| Bid Deadline |
[●], 2019 at 5:00 p.m. prevailing ET
|
|
Deadline to Notify Qualified Bidders
|
[●], 2019 at 5:00 p.m. prevailing ET 2
|
| Auction (if required) |
[●], 2019 at 10:00 a.m. prevailing ET
|
| Notice of Successful Bidder |
[●], 2019 at 5:00 p.m. prevailing ET 3
|
| Sale Hearing |
[●], 2019 at 10:00 a.m. prevailing ET
|
| 2. | Confidentiality |
In order to participate in the bidding process, each person other than the Stalking Horse Bidder who wishes to participate in the bidding process (a “Potential Bidder”) must (to the extent not previously provided) provide an executed confidentiality agreement (to be delivered prior to the distribution of any confidential information by the Sellers to any Potential Bidder) in form and substance satisfactory to the Sellers, on terms not less favorable in the aggregate to the Sellers than the confidentiality agreement signed by the Stalking Horse Bidder, as determined by the Sellers, and without limiting the foregoing, each confidentiality agreement executed by a Potential Bidder shall contain standard non-solicitation provisions, as determined by the Sellers.
| 3. | Due Diligence |
The Sellers will afford any Potential Bidder that has executed or that will execute a confidentiality agreement in accordance with paragraph 2 above such due diligence access or additional information as the Sellers, in consultation with their advisors, deem appropriate, in their discretion and within their reasonable business judgment. The Sellers will use good faith efforts to provide to the Stalking Horse Bidder access to written information made available to any Qualified Bidder (as defined below) if not previously made available to the Stalking Horse Bidder.
| 1 | These dates are subject to extension or adjournment as provided for herein or in the Stalking Horse Agreement and in consultation with the Consultation Parties (as defined below). |
| 2 | [One (1) business day after the Bid Deadline.] |
| 3 | [One (1) business day after conclusion of the Auction.] |
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The due diligence period shall end on the Bid Deadline, and none of the Sellers nor any of their representatives shall be obligated to furnish any due diligence information to any Qualified Bidder after the Bid Deadline, provided that the Sellers shall continue to provide due diligence to the Stalking Horse Bidder.
| 4. | Provisions Governing Qualified Bids |
A bid submitted will be considered a “Qualified Bid” only if the bid complies with all of the following, in which case the party submitting the bid shall be a “Qualified Bidder”; provided that, if the Debtors receive a bid prior to the Bid Deadline that is not a Qualified Bid, the Debtors may provide the bidder with the opportunity to remedy any deficiencies prior to the Auction:
| a. | it expressly discloses whether the bid is for some or all of the Purchased Assets; |
| b. | it fully discloses the identity of each entity that will be bidding for or purchasing some or all of the Purchased Assets, including any equity holders in the case of a Potential Bidder which is an entity specially formed for the purpose of effectuating the contemplated transaction, or otherwise participating in connection with such bid (including any co-bidder or team bidder), and the complete terms of any such participation, including any agreements, arrangements or understandings concerning a collaborative or joint bid or any other combination concerning the proposed bid. A bid must also fully disclose any connections, relationships (business or otherwise), whether or not known, to the Sellers or agreements or understandings with the Sellers, the Stalking Horse Bidder or any other known bidders, Potential Bidder or Qualified Bidder, and/or any officer, director or equity security holder of the Sellers; |
| c. | it states that the Qualified Bidder offers to purchase, in cash, some or all of the Purchased Assets upon terms and conditions that the Sellers reasonably determine are at least as favorable to the Sellers as those terms and conditions set forth in the Stalking Horse Agreement (or pursuant to an alternative structure that the Sellers reasonably determine is no less favorable to the Sellers than the terms and conditions of the Stalking Horse Agreement). For the avoidance of doubt, any Qualified Bid must, either on its own or when considered together with other Qualified Bid(s), provide value in excess of the Stalking Horse Agreement plus the Break-Up Fee, Expense Reimbursement and minimum overbid requirements detailed below in Section 4(k); |
| d. | it provides a detailed description of any anticipated regulatory or governmental approvals necessary to consummate the bid including, but not limited to, all foreign antitrust or anti-competition approvals required; |
| e. | it includes a commitment to close the transactions within the timeframe contemplated by the Stalking Horse Agreement; |
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| f. | it includes a binding and enforceable signed writing that the Qualified Bidder’s offer is irrevocable unless and until the Sellers accept a higher or otherwise better bid and such Qualified Bidder is not selected as a Back-Up Bidder (as defined below); provided that if such Qualified Bidder is selected as the Successful Bidder, its offer shall remain irrevocable until four (4) months after the execution of the applicable Proposed Asset Purchase Agreement (as defined herein). Such writing shall guarantee performance of the Qualified Bidder by its parent entities, if any, or provide such other guarantee of performance requested by and acceptable to the Sellers; |
| g. | it shall be accompanied by a deposit into escrow with the Sellers of an amount in cash equal to ten percent (10%) of the aggregate purchase price in the Proposed Asset Purchase Agreement (the “Good Faith Deposit”); |
| h. | it includes confirmation that all necessary internal and shareholder or similar approvals have been obtained prior to the bid; |
| i. | it includes a duly authorized and executed copy of an asset purchase agreement, including the purchase price for the Purchased Assets expressed in U.S. Dollars, together with all exhibits and schedules thereto, together with copies marked to show any amendments and modifications to the Stalking Horse Agreement (collectively, the “Proposed Asset Purchase Agreement”) and a proposed form of order to approve the sale, together with a copy marked to show amendments and modifications to the proposed form of sale approval order attached to the motion to approve the sale of the Purchased Assets to the Stalking Horse Bidder; provided, however, that such Proposed Asset Purchase Agreement shall not include any financing or diligence conditions, or any other conditions that are less favorable to the Sellers than the conditions in the Stalking Horse Agreement; |
| j. | it includes written evidence of (i) sufficient cash on hand to fund the purchase price or (ii) sources of immediately available funds that are not conditioned on third-party approvals or commitments, in each case, that will allow the Sellers to make a reasonable determination as to the Qualified Bidder’s financial and other capabilities to consummate the transaction contemplated by the Proposed Asset Purchase Agreement. Such written evidence shall include the most current audited and the most current unaudited financial statements, or such other financial information of the Qualified Bidder as may be requested by and acceptable to the Sellers (collectively, the “Financials”), or, if the Qualified Bidder is an entity formed for the purpose of acquiring some or all of the Purchased Assets, the Financials of the Qualified Bidder’s equity holder(s) or other financial backer(s) that are guaranteeing the Qualified Bidder’s performance; provided that if a Potential Bidder is unable to provide Financials, the Sellers may accept such other information sufficient to demonstrate to each Seller’s reasonable satisfaction that such Potential Bidder has the financial wherewithal to consummate the applicable sale transaction. The Potential Bidder also must establish to the Sellers’ satisfaction that it has the financial ability to consummate its proposed transaction within the timeframe contemplated for consummation of the Stalking Horse Agreement; |
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| k. | it (in combination with any other bids for some or all of such assets) provides for a cash purchase price that exceeds the aggregate cash consideration to be paid to or for the benefit of the Sellers’ estates set forth in the Stalking Horse Agreement by at least $9,760,000, which represents the sum of: (i) the Break-Up Fee of $6,760,000, plus (ii) the maximum amount of the Expense Reimbursement of $2,000,000, plus (iii) an overbid of $1,000,000, and otherwise has a value to the Sellers, in their exercise of their reasonable business judgment, after consultation with their advisors, that is greater or otherwise better than the value offered under the Stalking Horse Agreement (including taking into account the impact of any liabilities assumed in the Stalking Horse Agreement); |
| l. | it identifies with particularity which executory contracts and unexpired leases the Qualified Bidder wishes to assume and provides details of the Qualified Bidder’s proposal for the treatment of related Cure Costs (as defined in the Bidding Procedures Order), and contains sufficient information concerning the Qualified Bidder’s ability to provide adequate assurance of performance with respect to executory contracts and unexpired leases to be assumed and assigned; |
| m. | it includes an express acknowledgement and representation that the Qualified Bidder: (i) has had an opportunity to conduct any and all required due diligence regarding acquiring the Purchased Assets prior to making its offer; (ii) has relied solely upon its own independent review, investigation and/or inspection of any documents and/or the Purchased Assets in making its bid; (iii) did not rely upon any written or oral statements, representations, promises, warranties or guaranties whatsoever, whether express or implied (by operation of law or otherwise), regarding the Purchased Assets or the completeness of any information provided in connection therewith or with the Auction, except as expressly stated in the Proposed Asset Purchase Agreement; and (iv) is not entitled to any expense reimbursement, break-up fee, termination fee, or similar type of payment in connection with its bid; |
| n. | it includes evidence, in form and substance satisfactory to the Sellers, of authorization and approval from the Qualified Bidder’s board of directors (or comparable governing body) or, if required, the equity holders of the Qualified Bidder, with respect to the submission, execution, delivery, performance and closing of the Proposed Asset Purchase Agreement; |
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| o. | it provides an irrevocable undertaking by the Qualified Bidder to execute and deliver to the Sellers such other guarantee of performance or assurance acceptable to the Sellers in their discretion; |
| p. | it states that the Qualified Bidder consents to the jurisdiction of the Bankruptcy Court, as applicable; |
| q. | it contains such other information reasonably requested by the Sellers; |
| r. | it contains written confirmation that the bidder has not engaged in any collusion with respect to the bidding or the sale process; and |
| s. | it is received by the applicable Notice Parties (as defined in, and in accordance with, Section B.5) on or prior to 5:00 p.m. (prevailing Eastern Time) on [●], 2019 (the “Bid Deadline”). |
Notwithstanding anything in these Bidding Procedures to the contrary, the Buyer is deemed to be a Qualified Bidder with respect to the Purchased Assets and the Stalking Horse Bid is deemed to be a Qualified Bid for all purposes in connection with the Bidding Procedures, the Auction, and the Sale, and the Stalking Horse Bidder shall not be required to take any further action in order to attend and participate in the Auction (if any) or, if the Stalking Horse Bidder is the Successful Bidder, to be named the Successful Bidder at the Sale Hearing.
The [DIP Agent], on behalf of the [DIP Lenders], and the [Prepetition Agent], on behalf of the [Prepetition Lenders], shall, at their sole discretion, also be deemed Qualified Bidders and may submit such bids and/or Subsequent Bids in cash, cash equivalents or other forms of consideration, including a credit bid, either in whole or in part, to the extent permitted under and consistent with section 363(k) of the Bankruptcy Code, up to the full allowed amount of their claims, which credit bid(s) shall be deemed as a part of a Qualified Bid and/or Subsequent Bid in connection with the bidding process, the Auction, and the sale of the Purchased Assets. 4
The Sellers shall promptly notify each Qualified Bidder in writing (including via email) as to whether or not its bid constitutes a Qualified Bid. If any bid is determined by the Sellers not to be a Qualified Bid, the Debtors will refund such bidder’s Good Faith Deposit and all accumulated interest thereon within ten (10) business days after the Bid Deadline. The Sellers shall also notify the Stalking Horse Bidder and all other Qualified Bidders in writing (including via email) as to whether or not any bids constitute Qualified Bids no later than one (1) business day after the notification to any Qualified Bidder that its bid constitutes a Qualified Bid and provide a copy of Qualified Bids (excluding the Stalking Horse Agreement) to the Stalking Horse Bidder. The notices described in this paragraph shall not be given later than one (1) business day following the expiration of the Bid Deadline.
| 4 | [Note to Bidder: The DIP Term Sheet requires us to give the DIP Lenders the right to credit bid.] |
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Consultation Parties. The “Consultation Parties” are (a) the DIP Agent and its counsel and advisors with respect to the Purchased Assets, and (b) counsel and any other retained advisors to the creditors’ committee appointed in the Sellers’ bankruptcy cases. Notwithstanding anything herein to the contrary, the Sellers shall not be required to consult with any Consultation Party during the bidding and Auction process to the extent such Consultation Party is a Potential Bidder, a Qualified Bidder, or a financing source for a bidder, including, if the Sellers determine, in their reasonable business judgment, that consulting with such Consultation Party regarding any issue, selection or determination would be likely to have a chilling effect on potential bidding or otherwise be contrary to goal of maximizing value for the Sellers’ estates from the sale process.
Subject to the terms of any orders entered by the Bankruptcy Court, after consultation with the Consultation Parties, the Sellers shall have the right and obligation to make all decisions regarding bids and the Auction as provided herein as the Sellers determine to be in the best interest of their estates, whether or not the Consultation Parties agree with that decision.
| 5. | Submission of Bids |
A Qualified Bidder that desires to make a bid regarding some or all of the Purchased Assets must deliver written copies of its bid, so as to be received on or before the Bid Deadline, to each of the following parties (the “Notice Parties”):
| a. | counsel to the Sellers: Lowenstein Sandler LLP, 1251 Avenue of the Americas, New York, New York 10020 (Attn: Steven E. Siesser, Esq. (ssiesser@lowenstein.com), Paul Kizel, Esq. (pkizel@lowenstein.com), Kenneth A. Rosen, Esq. (krosen@lowenstein.com), and Philip J. Gross, Esq. (pgross@lowenstein.com)); |
| b. | counsel to the DIP Agent: McGuireWoods LLP, 1251 Avenue of the Americas, 20th Floor, New York, New York 10020-1104 (Attn: Kenneth Noble, Esq. (knoble@mcguirewoods.com ) and Benjamin B. Iselin, Esq. (biselin@mcguirewoods.com)); and |
| c. | counsel to the Official Committee of Unsecured Creditors: ________________________ (Attn: ________________________, Esq. (________________________) and ________________________, Esq. (________________________)). |
| 6. | Evaluation of Competing Bids |
A Qualified Bid will be valued based upon several factors including, without limitation: (a) the amount of such bid (including value provided by the assumption of liabilities); (b) the risks and timing associated with consummating such bid; (c) any proposed revisions to the Stalking Horse Agreement (including any additional conditions to closing); and (d) any other factors deemed relevant by the Sellers.
| 7. | No Qualified Bids |
If the Sellers do not receive a Qualified Bid with respect to the Purchased Assets other than the Stalking Horse Bid, the Sellers will not hold an Auction (as defined below) and the Stalking Horse Bidder will be deemed the Successful Bidder upon the Bid Deadline with respect to the Purchased Assets.
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| 8. | Auction Process |
If the Sellers receive one or more Qualified Bids with respect to the Purchased Assets in addition to the Stalking Horse Bid, the Sellers will conduct an auction (the “Auction”) for the Purchased Assets (which the Sellers intend to transcribe) at 10:00 a.m. (prevailing Eastern Time) on [●], 2019, at the offices of Lowenstein Sandler LLP, 1251 Avenue of the Americas, New York, New York 10020, or such other location as shall be timely communicated by the Sellers to all entities entitled to attend the Auction. The Auction shall be conducted in accordance with the following procedures:
| a. | only the Sellers, the Notice Parties, the Stalking Horse Bidder, and any other Qualified Bidders, in each case along with their representatives and advisors, shall be entitled to attend the Auction (such attendance to be in person); |
| b. | only the Stalking Horse Bidder and such other Qualified Bidders will be entitled to participate as bidders in, or make any Subsequent Bids at, the Auction; provided that all such Qualified Bidders wishing to attend the Auction must have at least one individual representative with authority to bind such Qualified Bidder attending the Auction in person; |
| c. | each Qualified Bidder shall be required to confirm in a manner acceptable to the Sellers that it has not engaged in any collusion with respect to the bidding or the sale; |
| d. | at least one (1) business day prior to the Auction, each Qualified Bidder (other than a Stalking Horse Bidder) must inform the Sellers whether it intends to attend the Auction; provided that in the event a Qualified Bidder elects not to attend the Auction, such Qualified Bidder’s Qualified Bid shall, subject to the terms of the Stalking Horse Agreement, nevertheless remain fully enforceable against such Qualified Bidder until (i) the date of the selection of the Successful Bidder at the conclusion of the Auction, or (ii) if selected as the Successful Bidder, four (4) months after the execution of the applicable Proposed Asset Purchase Agreement. No later than two (2) business days prior to the start of the Auction, the Sellers will provide copies of the Qualified Bid (or combination of Qualified Bids, if applicable) which the Sellers believe, in their discretion, is the highest or otherwise best offer for the Purchased Assets (the “Starting Bid”) to the Stalking Horse Bidder and all other Qualified Bidders; |
| e. | all Qualified Bidders who have timely submitted Qualified Bids will be entitled to be present for all Subsequent Bids at the Auction and the actual identity of each Qualified Bidder will be disclosed on the record at the Auction; |
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| f. | the Sellers, after consultation with their advisors, may employ and announce at the Auction additional procedural rules that are reasonable under the circumstances for conducting the Auction, provided that such rules: (i) are not inconsistent with these Bidding Procedures, title 11 of the United States Code (the “Bankruptcy Code”), any order of the Bankruptcy Court entered in connection herewith or the Stalking Horse Agreement; (ii) provide that bids be made and received on an open basis, with all material terms of each bid to be fully disclosed to all other Qualified Bidders at the Auction; and (iii) are disclosed to each Qualified Bidder at the Auction; |
| g. | bidding at the Auction will begin with the Starting Bid and continue in bidding increments (each a “Subsequent Bid”) providing a net value to the Sellers’ estates of at least an additional $1,000,000 above the prior bid for the Purchased Assets. After the first round of bidding and between each subsequent round of bidding, the Sellers shall announce the bid (including the identity of the bidder or bidders and the value of such bid(s)) that they believe to be the highest or otherwise best offer for the Purchased Assets (the “Highest Bid”). A round of bidding will conclude after each participating Qualified Bidder has had the opportunity, as determined by the Sellers, to submit a Subsequent Bid with full knowledge of the then Highest Bid. For the purpose of evaluating the value of the consideration provided by the Subsequent Bids (including any Subsequent Bid by the Stalking Horse Bidder), the Sellers will give effect (on a dollar for dollar basis) to the Break-Up Fee and the maximum amount of the Expense Reimbursement payable to the Stalking Horse Bidder under the Stalking Horse Agreement as well as any additional liabilities to be assumed by a Qualified Bidder and any additional costs which may be imposed on the Sellers, as well as any other items of value included in such Subsequent Bid. If the Stalking Horse Bidder bids at the Auction, the Stalking Horse Bidder will be entitled to credit bid on a dollar for dollar basis the amount of the Break-Up Fee and the maximum amount of the Expense Reimbursement. To the extent a Subsequent Bid has been accepted entirely or in part because of the addition, deletion or modification of a provision or provisions in the applicable Proposed Asset Purchase Agreement or Stalking Horse Agreement, the Sellers will identify such added, deleted or modified provision or provisions and the Qualified Bidders shall be given the opportunity to modify the applicable Proposed Asset Purchase Agreement or Stalking Horse Agreement in a manner that materially provides any additional value that factored into selecting a Subsequent Bid from another Qualified Bidder. The Sellers shall, in consultation with the Consultation Parties, determine whether an addition, deletion or modification of the applicable Proposed Asset Purchase Agreement or Stalking Horse Agreement meets the standard of materially providing additional value. For the avoidance of doubt, the Stalking Horse Bidder shall be entitled to submit additional bids and make modifications to the Stalking Horse Agreement at the Auction consistent with these Bidding Procedures; |
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| h. | the Sellers shall, in their reasonable discretion and after consultation with the Consultation Parties, honor reasonable requests for breaks in the auction; and |
| i. | the Auction may be adjourned as the Sellers, in consultation with the Consultation Parties, deem appropriate. Reasonable notice of such adjournment and the time and place for the resumption of the Auction shall be given to the Stalking Horse Bidder, all other Qualified Bidders, the United States Trustee and the Consultation Parties. |
| 9. | Selection of Successful Bid |
Prior to the conclusion of the Auction, the Sellers, in consultation with their advisors and the Consultation Parties, will review and evaluate each Qualified Bid in accordance with the procedures set forth herein and determine which offer for the Purchased Assets is the highest or otherwise best offer from among the Qualified Bidders (including the Stalking Horse Bidder) submitted at or prior to the Auction by a Qualified Bidder (such bid, the “Successful Bid” and the bidder making such bid, the “Successful Bidder”) and communicate to the Stalking Horse Bidder and the other Qualified Bidders the identity of the Successful Bidder and the material terms of the Successful Bid. The determination of the Successful Bid by the Sellers at the conclusion of the Auction shall be final, subject only to approval by the Bankruptcy Court.
By submitting a Qualified Bid, all Qualified Bidders and the Stalking Horse Bidder expressly agree that they shall not submit additional bids or seek to reopen the Auction after the Sellers have selected the Successful Bid and Back-Up Bid, if any, and any such bid shall not be considered by the Sellers or the Bankruptcy Court. As soon as reasonably practicable after conclusion of the Auction, the Successful Bidder shall complete and execute all agreements, contracts, instruments and other documents evidencing and containing the terms and conditions upon which the Successful Bid was made. Within one (1) business day after conclusion of the Auction, the Sellers shall file a notice identifying the Successful Bidder with the Bankruptcy Court.
The Sellers will sell the Purchased Assets to the Successful Bidder pursuant to the terms of the Successful Bid upon the approval of such Successful Bid by the Bankruptcy Court.
| 10. | Designation of Back-Up Bidder |
Notwithstanding anything in these Bidding Procedures to the contrary, if an Auction is conducted, the Qualified Bidder with the next highest or otherwise best bid at the conclusion of the Auction for the Purchased Assets, as determined by the Sellers, in the exercise of their business judgment, shall be deemed to have submitted the next highest or otherwise best bid for such assets (such bid, a “Back-Up Bid” and the Qualified Bidder submitting such bid, a “Back-Up Bidder”) and shall be announced at the time to all Qualified Bidders participating in the Auction.
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If for any reason the Successful Bidder fails to consummate its Successful Bid within the time permitted after the entry of the Sale Order, then the Sellers may deem the Back-Up Bidder to be the new Successful Bidder and its Back-Up Bid to be the new Successful Bid, and the Sellers will be authorized (but not directed), without further order of the Bankruptcy Court, to consummate a sale transaction with such Back-Up Bidder on the terms of its Back-Up Bid; provided, that if the Sellers elect to do so, the Sellers, within their discretion, (i) will file a written notice of such transaction with the Bankruptcy Court at least 24 hours in advance of consummation thereof, and/or (ii) may (but shall not be required to) seek approval for the consummation of such sale transaction with such Back-Up Bidder pursuant to a separate order to be submitted at a later date consistent with the terms of the Back-Up Bid.
Each Back-Up Bid must remain open until four (4) months after execution of the applicable Stalking Horse Agreement or Proposed Asset Purchase Agreement (the “Outside Back-Up Date”), except in the event the Stalking Horse Bidder is designated as the Back-Up Bidder in which case the Stalking Horse Bidder shall not be permitted to terminate the Stalking Horse Agreement until the earlier of (a) the date upon which an Alternative Transaction has been consummated following approval by the Bankruptcy Court, (b) 90 days after entry of an order approving a sale to a Successful Bidder other than the Stalking Horse Bidder and (c) August 15, 2019.
| 11. | Good Faith Deposit |
Except as otherwise provided in this paragraph with respect to the Successful Bid and Back-Up Bid, if any, the Good Faith Deposits of all Qualified Bidders that submitted such a deposit under the Bidding Procedures shall be returned upon or within three (3) business days after the Auction. The Good Faith Deposit of a Successful Bidder shall be held until the closing of the sale of the Purchased Assets and applied in accordance with the Successful Bid. The Good Faith Deposit of any Back-Up Bidder (other than the Stalking Horse Bidder) shall be returned within three (3) business days after the Outside Back-Up Date. If the Successful Bidder fails to consummate an approved sale because of a breach or failure to perform on the part of such Successful Bidder, the Sellers will not have any obligation to return the Good Faith Deposit deposited by such Successful Bidder, which may be retained by the Sellers as liquidated damages, in addition to any and all rights, remedies and/or causes of action that may be available to the Sellers at law or in equity, and, the Sellers shall be free to consummate the proposed transaction at the next highest or otherwise best bid at the Auction by a Qualified Bidder, without the need for an additional hearing or order of the Bankruptcy Court. Notwithstanding any provision hereof, the terms pertaining to any Good Faith Deposit submitted by the Stalking Horse Bidder pursuant to the Stalking Horse Agreement (including, without limitation, the entitlements of the Stalking Horse Bidder and Sellers to such good faith deposit and the timing of return of any Good Faith Deposit to the Stalking Horse Bidder) shall be governed by the terms of the Stalking Horse Agreement and the Bidding Procedures Order.
| 12. | Sale Is As Is/Where Is |
Except as otherwise provided in the Stalking Horse Agreement, any Proposed Asset Purchase Agreement, the Successful Bid or any order of the Bankruptcy Court approving the sale of the Purchased Assets, the Purchased Assets sold pursuant to these Bidding Procedures shall be conveyed at the closing of the sale in their then-present condition, “AS IS, WITH ALL FAULTS, AND WITHOUT ANY WARRANTY WHATSOEVER, EXPRESS OR IMPLIED.”
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| C. | THE BID PROTECTIONS |
In recognition of the expenditure of time, energy, and resources, and because the agreement to make payment thereof is necessary to preserve the value of each of the Sellers’ estates, the Sellers have agreed that, among other triggering events, if the Buyer is not the Successful Bidder, then the Sellers will pay the Buyer, pursuant to and in accordance with the terms of the Stalking Horse Agreement, (a) an aggregate “break-up” fee of $6,760,000, as more fully described in the Stalking Horse Agreement (as defined therein, the “Break-Up Fee”), and (b) an amount in cash equal to the Expense Reimbursement (as such term is defined in the Stalking Horse Agreement (the “Expense Reimbursement”), which is not to exceed $2,000,000. The Break-Up Fee and Expense Reimbursement shall be payable as provided for pursuant to the terms of the Stalking Horse Agreement, and nothing herein shall be deemed to limit or otherwise modify the terms thereof, including other circumstances pursuant to which the Break-Up Fee and Expense Reimbursement may be payable.
Except for the Stalking Horse Bidder, no Qualified Bidder or other party submitting a bid shall be entitled to any expense reimbursement, breakup fee, termination or similar fee or payment.
| D. | SALE HEARING |
The Sellers will seek entry of an order from the Bankruptcy Court, at a hearing (the “Sale Hearing”) to begin at 10:00 a.m. (prevailing Eastern Time) on [●], 2019 or as soon thereafter as counsel may be heard, to approve and authorize the sale to the Successful Bidder (including, without limitation, the assumption and assignment to the Successful Bidder of any executory contracts or unexpired leases to be assigned to the Successful Bidder in accordance with the Stalking Horse Agreement or Proposed Asset Purchase Agreement, as applicable, at the Sale Hearing on terms and conditions determined in accordance with the Bidding Procedures).
| E. | MISCELLANEOUS |
The Auction and the Bidding Procedures are solely for the benefit of the Sellers and the Stalking Horse Bidder, and nothing contained in the Bidding Procedures Order, the Bidding Procedures or the Stalking Horse Agreement shall create any rights in any other person or bidder (including, without limitation, rights as third-party beneficiaries or otherwise) other than the rights expressly granted to the Successful Bidder under the Bidding Procedures Order.
Without prejudice to the rights of the Stalking Horse Bidder under the terms of the Stalking Horse Agreement and the Bidding Procedures Order, the Sellers may modify the rules, procedures and deadlines set forth herein, or adopt new rules, procedures and deadlines that, in their reasonable discretion, will better promote the goals of these Bidding Procedures (namely, to obtain the highest or otherwise best bid); provided, however, that the Sellers may not modify the Bid Protections afforded to the Stalking Horse Bidder in accordance with the Stalking Horse Agreement, unless agreed in writing by the Stalking Horse Bidder and Sellers. For the avoidance of doubt, the Sellers may not modify the rules, procedures, or deadlines set forth herein, or adopt new rules, procedures, or deadlines that would impair in any material respect the Stalking Horse Bidder’s right to payment of the Break-Up Fee or the Expense Reimbursement without the express written consent of the Stalking Horse Bidder. All such modifications and additional rules will be communicated to each of the Notice Parties, Potential Bidders, and Qualified Bidders (including the Stalking Horse Bidder) or announced at the Auction.
The Bankruptcy Court shall retain exclusive jurisdiction to hear and determine all matters arising from or relating to implementation of the Bidding Procedures Order.
| -12- |
EXHIBIT D
FORM OF BIDDING PROCEDURES ORDER
| UNITED STATES BANKRUPTCY COURT | |
| DISTRICT OF NEW JERSEY | |
| Caption in Compliance with D.N.J. LBR 9004-1 | |
| LOWENSTEIN SANDLER LLP | |
| Kenneth A. Rosen, Esq. (krosen@lowenstein.com) | |
| Michael S. Etkin, Esq. (metkin@lowenstein.com) | |
| Paul Kizel, Esq. (pkizel@lowenstein.com) | |
| Jeffrey Cohen, Esq. (jcohen@lowenstein.com) | |
| Philip J. Gross, Esq. (pgross@lowenstein.com) | |
| One Lowenstein Drive | |
| Roseland, New Jersey 07068 | |
| (973) 597-2500 (Telephone) | |
| (973) 597-2400 (Facsimile) | |
| Proposed Counsel to the Debtors and | |
| Debtors-in-Possession | |
| In re: | Chapter 11 |
| ACETO CORPORATION, INC., et al.,5 | Case No. 19-_____ (___) |
| Debtors. | (Jointly Administered) |
ORDER (A) AUTHORIZING AND APPROVING BIDDING PROCEDURES IN CONNECTION WITH THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS; (B) AUTHORIZING AND APPROVING BID PROTECTIONS; (C) APPROVING PROCEDURES FOR THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES; (D) SCHEDULING A SALE HEARING; (E) APPROVING THE FORM AND MANNER OF NOTICE THEREOF; AND (F) GRANTING RELATED RELIEF
The relief set forth on the following pages, numbered two (2) through ________ (__), is hereby ORDERED.
5 The Debtors in these chapter 11 cases and the last four digits of each Debtor’s taxpayer identification number are as follows: Aceto Corporation (0520); Aceto Agricultural Chemicals Corporation (3948); Aceto Realty LLC (7634); Rising Pharmaceuticals, Inc. (7959); Rising Health, LLC (1562); Acetris Health, LLC (3236); PACK Pharmaceuticals, LLC (2525); Arsynco, Inc. (7392); and Acci Realty Corp. (4433).
Upon the motion (the “Motion”)6 of the above-captioned debtors and debtors-in-possession (collectively, the “Debtors”), seeking entry of an order (this “Order”), pursuant to sections 105, 363, 365 and 503 of title 11 of the United States Code (the “Bankruptcy Code”), Rules 2002, 6004 and 6006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rules 6004-1, 6004-2 and 6004-3 of the Local Rules of the United States Bankruptcy Court for the District of New Jersey (the “Local Rules”):
| 6 | Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Motion or the Bidding Procedures attached hereto as Exhibit 1. |
| -2- |
(i) (a) authorizing and approving certain bidding procedures (as attached hereto as Exhibit 1, the “Bidding Procedures”) in connection with the sale (the “Sale”) of substantially all assets (as defined in the Stalking Horse Agreement (defined below), the “Purchased Assets”) comprising the Debtors’ Chemical Plus Business (as defined in the Motion) pursuant to that certain Asset Purchase Agreement, dated as of [●], 2019 (together with the schedules thereto and related documents, and as may be amended, supplemented or otherwise modified from time to time, the “Stalking Horse Agreement”), substantially in the form attached to the Motion as Exhibit [●], by and among Aceto Corporation, Aceto Agricultural Chemicals Corporation and Aceto Realty LLC (together, the “Sellers” and each a “Seller”) and [●] (the “Buyer” or “Stalking Horse Bidder”), subject to the outcome of an auction (the “Auction”) if the Sellers receive one or more timely and acceptable Qualified Bids (as defined in the Bidding Procedures); (b) authorizing and approving the Break-Up Fee and Expense Reimbursement (each as defined in the Bidding Procedures, and together, the “Bid Protections”) for the Stalking Horse Bidder; (c) scheduling the Auction and a hearing (the “Sale Hearing”) to consider approval of the Sale; (d) approving procedures related to the assumption and assignment of certain of the Sellers’ executory contracts and unexpired leases (the “Assumption and Assignment Procedures”); (e) approving the form and manner of notice thereof; and (f) granting related relief (collectively, the “Bidding Procedures Relief”); and (ii) (a) authorizing the Sale of the Purchased Assets free and clear of Liens, Claims and other Liabilities (each as defined in the Stalking Horse Agreement), except as provided in the Stalking Horse Agreement or other Proposed Asset Purchase Agreement of the Successful Bidder (each as defined in the Bidding Procedures); (b) approving the assumption and assignment of certain of the Sellers’ executory contracts (each, an “Executory Contract”) and unexpired leases (each, an “Unexpired Lease”) related thereto (any such Executory Contract or Unexpired Lease designated by the Successful Bidder to be assumed and assigned pursuant to the Sale, a “Buyer Assumed Agreement” and collectively, the “Buyer Assumed Agreements”); and (c) granting related relief; and upon the First Day Declaration; and this Court having jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334; and this Court having the power to enter a final order consistent with Article III of the United States Constitution; and this Court having found that venue of this proceeding and the Motion in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409; and this Court having found that notice of the Motion and opportunity for a hearing on the Motion were appropriate under the circumstances and no other notice need be provided; and this Court having reviewed the Motion and heard the statements in support of the relief requested therein at a hearing before this Court; and this Court having determined that the legal and factual bases set forth in the Motion and at the hearing establish just cause for the relief granted herein; and this Court having determined that the relief requested by the Motion is in the best interests of the Debtors, their estates, their creditors, and other parties in interest; and upon all of the proceedings in these Chapter 11 Cases had before this Court; and after due deliberation and sufficient cause appearing therefor, it is hereby
| -3- |
FOUND, CONCLUDED, AND DETERMINED THAT:
A. The Debtors have demonstrated good and sufficient reasons for, and the best interests of their estates, creditors, and other parties in interest will be served by, this Court granting, to the extent provided herein, the relief requested in the Motion relating to the bidding process, including approval of (1) the Bidding Procedures, (2) the Bid Protections, (3) the Assumption and Assignment Procedures, and (4) the forms of the Sale Notice (as defined below) and Cure Notice (as defined below) attached to the Motion as Exhibit [●] and Exhibit [●], respectively.
B. Good and sufficient business reasons exist for the Court to authorize the Debtors to enter into Stalking Horse Agreement in accordance with the terms of this Order and the Bidding Procedures.
C. The Debtors have demonstrated good and sufficient reasons for, and the best interests of their estates will be served by, this Court scheduling the Sale Hearing to consider granting the other relief requested in the Motion, including approval of the Sale and the transfer of the Purchased Assets (and the assumption and assignment of the Buyer Assumed Agreements) to the Successful Bidder free and clear of all Liens, Claims and other Liabilities, except as set forth in the Stalking Horse Agreement, pursuant to sections 363(f) and 365 of the Bankruptcy Code.
D. The Bid Protections as set forth in Section [7.3] of the Stalking Horse Agreement to be paid under the circumstances described therein to the Stalking Horse Bidder are: (1) an actual and necessary cost of preserving the value of the respective Debtors’ estates within the meaning of section 503(b) of the Bankruptcy Code; (2) commensurate to the real and substantial benefits conferred upon the Debtors’ estates by the Stalking Horse Bidder; and (3) reasonable and appropriate in light of the size and nature of the proposed Sale and comparable transactions, the commitments and accommodations of the Stalking Horse Bidder that have been made for the benefit of the Debtors’ estates, and the efforts that have been and will be expended by the Stalking Horse Bidder.
| -4- |
E. The Bid Protections are the product of negotiations between the Debtors and the Stalking Horse Bidder conducted in good faith and at arm’s length, and the Stalking Horse Agreement (including the Bid Protections) is the culmination of a process undertaken by the Debtors and their professionals to negotiate a transaction with a bidder who was prepared to pay the highest or otherwise best purchase price for the Purchased Assets to maximize the value of the Debtors’ estates.
F. Moreover, the Bid Protections are an essential and material inducement and express condition of the Stalking Horse Bidder’s entry into, and continuing obligations under, the Stalking Horse Agreement. Unless it is assured that the Bid Protections will be available, the Stalking Horse Bidder is unwilling to remain obligated to consummate the Sale or otherwise be bound under the Stalking Horse Agreement (including the Stalking Horse Bidder’s obligation to maintain its committed offer while such offer is subject to higher or otherwise better offers as contemplated by the Bidding Procedures). The Bid Protections have induced the Stalking Horse Bidder to submit a bid that will serve as a minimum or floor bid for the Purchased Assets on which the Debtors, their creditors and other bidders can rely, and which encourages and facilitates the Auction process. The Stalking Horse Bidder has thus provided a material benefit to the Debtors, their estates and creditors by increasing the likelihood that the best possible purchase price for the Purchased Assets will be realized. Accordingly, the Bid Protections are fair, reasonable and appropriate, and necessary to facilitate a competitive, value-maximizing Sale for the benefit of the Debtors’ estates.
| -5- |
G. The Stalking Horse Bidder is not an “insider” or “affiliate” of any of the Debtors, as those terms are defined in section 101 of the Bankruptcy Code, and no common identity of incorporators, directors, or controlling stakeholders exist between the Stalking Horse Bidder and the Debtors. The Stalking Horse Bidder and its counsel and advisors have acted in “good faith” within the meaning of section 363(m) of the Bankruptcy Code in connection with the Stalking Horse Bidder’s negotiations of the Bid Protections and the Bidding Procedures and entry into the Stalking Horse Agreement.
H. The Bidding Procedures are fair, reasonable, and appropriate and are designed to maximize the recovery from the Sale of the Purchased Assets.
I. The process for submitting Qualified Bids is fair, reasonable, and appropriate and is designed to maximize recoveries for the benefit of the Debtors’ estates, creditors, and parties in interest.
J. Good and sufficient notice of the relief sought in the Motion has been provided under the circumstances, and no other or further notice is required except as set forth in the Bidding Procedures and the Assumption and Assignment Procedures. A reasonable opportunity to object or be heard regarding the relief requested in the Motion has been afforded to all parties in interest.
K. The Sale Notice, the Cure Notice, and the Supplemental Cure Notice (each as defined below) are appropriate and reasonably calculated to provide all interested parties with timely and proper notice of this Order, the Bidding Procedures, the Sale, the Sale Hearing, and any and all objection deadlines related thereto, including with respect to cure amounts and the assumption and assignment of Executory Contracts and Unexpired Leases, and no other or further notice is required of the foregoing.
| -6- |
L. The findings and conclusions set forth herein constitute the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052 made applicable to this proceeding pursuant to Bankruptcy Rule 9014. To the extent any of the foregoing findings of fact constitute conclusions of law, they are adopted as such. To the extent any of the following conclusions of law constitute findings of fact, they are adopted as such.
IT IS HEREBY ORDERED THAT:
1. The Motion and Bidding Procedures Relief is GRANTED as set forth herein.
2. All objections or reservations of rights to the Motion or the Bidding Procedures Relief requested therein that have not been withdrawn, waived or settled are hereby overruled.
| I. | Sales Dates and Deadlines |
3. The Debtors are authorized to proceed with the Sale in accordance with the Bidding Procedures and are authorized to take any and all actions necessary or appropriate to implement the Bidding Procedures (subject to the terms thereof) in accordance with the following dates and deadlines:
| Sale Dates and Deadlines | |
|
Deadline to Serve Sale Notice and Cure Notice
|
[●], 2019 |
| Cure Objection Deadline and Assignment Objection Deadline |
No later than ten (10) days after service of the Cure Notice or Supplemental Cure Notice, as applicable
|
| Bid Deadline |
[●], 2019 at 5:00 p.m. prevailing ET
|
|
Sale Objection Deadline
|
[●], 2019 at 5:00 p.m. prevailing ET
|
|
Deadline to Notify Qualified Bidders
|
[●], 2019 at 5:00 p.m. prevailing ET7 |
| Auction (if required) |
[●], 2019 at 10:00 a.m. prevailing ET
|
|
Deadline for Reply Pleadings in Support of Sale
|
[●], 2019 |
| Notice of Successful Bidder |
[●], 2019 at 5:00 p.m. prevailing ET8
|
| Sale Hearing |
[●], 2019 at 10:00 a.m. prevailing ET
|
| 7 | [One (1) business day after the Bid Deadline.] |
| 8 | [One (1) business day after conclusion of the Auction.] |
| -7- |
| II. | The Bidding Procedures |
4. The Bidding Procedures attached hereto as Exhibit 1 are approved and shall govern all bids and bid proceedings relating to the sale of the Purchased Assets.
5. If the Sellers do not receive a Qualified Bid with respect to the Purchased Assets other than the Stalking Horse Bid (as defined in the Bidding Procedures), the Sellers will not hold the Auction and the Stalking Horse Bidder shall be deemed the Successful Bidder upon the Bid Deadline with respect to the Purchased Assets. If the Sellers receive one or more Qualified Bids with respect to the Purchased Assets in addition to the Stalking Horse Bid, the Sellers will conduct the Auction for the Purchased Assets.
6. In the event of a competing Qualified Bid with respect to the Purchased Assets, the Stalking Horse Bidder shall be entitled, but not obligated, to submit Subsequent Bids (as defined in the Bidding Procedures) and shall be entitled, but not obligated, in any and all such Subsequent Bids to credit bid the full amount of the Bid Protections in lieu of cash, and for purposes of evaluating the Subsequent Bid, the full amount of such Bid Protections shall be treated as equal to cash in the same amount.
| -8- |
| III. | Stalking Horse Bidder, Bid Protections, and Stalking Horse Agreement |
7. The Debtors’ entry into the Stalking Horse Agreement is authorized and approved, subject to higher and better offers at the Auction regarding the Purchased Assets in accordance with the Bidding Procedures.
8. The Debtors are authorized to perform all obligations of the Debtors set forth in the Stalking Horse Agreement that are intended to be performed prior to the Sale Hearing and prior to the entry of the Sale Order, subject to the terms of the Bidding Procedures.
9. The Bid Protections for the Stalking Horse Bidder are approved in their entirety. The Debtors are authorized to pay any amounts that may become due to the Stalking Horse Bidder on account of the Bid Protections on the terms set forth in the Stalking Horse Agreement. The Stalking Horse Bidder shall be granted an allowed administrative expense claim under sections 503(b)(1) and 507(a)(2) of the Bankruptcy Code in an amount equal to the Break-Up Fee and Expense Reimbursement to the extent they become due in accordance with the terms of the Stalking Horse Agreement, which (if triggered) shall be payable from the proceeds of the Sale of the Purchased Assets at the closing of such Sale, in accordance with the terms of the Stalking Horse Agreement, without further order of or proceedings before this Court. Nothing in this Order shall be construed as authorizing and directing the payment of any Bid Protections to the Stalking Horse Bidder in the event the Stalking Horse Bidder becomes the Successful Bidder with respect to the Purchased Assets.
10. No person or entity, other than the Stalking Horse Bidder, shall be entitled to any expense reimbursement, break-up fee, “topping,” or other similar fee or payment.
11. Any deposit provided by the Stalking Horse Bidder and all other Qualified Bidders shall be held in escrow by the Debtors or their agent, and shall not become property of the Debtors’ bankruptcy estates unless and until released from escrow to the Debtors pursuant to the terms of the applicable escrow agreement or order of this Court.
| -9- |
12. The Stalking Horse Bidder shall not be required to seek or obtain relief from the automatic stay under section 362 of the Bankruptcy Code to take any action necessary or required under the Stalking Horse Agreement or any other sale-related document. The automatic stay imposed by section 362 of the Bankruptcy Code is modified solely to the extent necessary to implement the preceding sentence, provided, however, that this Court shall retain exclusive jurisdiction over any and all disputes with respect thereto.
| IV. | Sale Hearing |
13. The Sale Hearing shall be held on [●], 2019 at 10:00 a.m. (prevailing Eastern Time) before this Court, the United States Bankruptcy Court for the District of New Jersey, Martin Luther King, Jr. Federal Building, 50 Walnut Street, 3rd Floor, Newark, New Jersey 07102. Any objections to the Sale (a “Sale Objection”) must (a) be in writing, (b) state the basis of such objection with specificity, (c) conform to the Bankruptcy Rules and the Local Rules and (d) be filed with the Bankruptcy Court and served upon the Notice Parties (as defined below) so as to be received not later than 5:00 p.m. prevailing Eastern Time on [●], 2019 (the “Sale Objection Deadline”). Any party failing to timely file a Sale Objection by the Sale Objection Deadline shall be forever barred from objecting and shall be deemed to have consented to the Sale, including the transfer of the Debtors’ right, title and interest in, to, and under the Purchased Assets free and clear of any and all Liens, Claims and other Liabilities (each as defined in the Stalking Horse Agreement) in accordance with the Stalking Horse Agreement or other definitive agreement with respect to the Sale.
| -10- |
14. The Sale Hearing may be adjourned by the Debtors from time to time without further notice to creditors or parties in interest other than by announcement of the adjournment in open court on the date scheduled for the Sale Hearing.
| V. | Notice Procedures |
15. The Notice of Proposed Sale, Auction Date, Objection Deadline and Sale Hearing, in the form substantially similar to that attached to the Motion as Exhibit [●] (the “Sale Notice”), is approved.
16. The Debtors shall, on or before [●], 2019, serve a copy of the Sale Notice by first class mail, postage prepaid to: (a) the Office of The United States Trustee for the District of New Jersey; (b) McGuireWoods LLP, c/o Kenneth Noble, Esq., as counsel for the DIP Agent and Prepetition Agent; (c) the Indenture Trustee for the Noteholders; (d) any proposed counsel to the Official Committee of Unsecured Creditors; (e) the U.S. Securities and Exchange Commission, New York Regional Office; (f) the Internal Revenue Service; (g) the U.S. Food and Drug Administration; (h) the Assistant Attorney General in charge of the Antitrust Division of the U.S. Department of Justice; (i) all applicable state and local taxing authorities; (j) all persons known by the Debtors to have expressed an interest to the Debtors in a transaction with respect to the Purchased Assets during the previous six months; (k) all entities known by the Debtors that may have a lien, claim, encumbrance, or other interest in the Purchased Assets (for which identifying information and addresses are available to the Debtors); (l) all non-Debtor parties to the Executory Contracts and Unexpired Leases; (m) all of the Debtors’ known creditors; (n) the Office of the Attorney General of the State of New York; (o) the Office of the Attorney General of the State of New Jersey; (p) the United States Attorney’s Office for the District of New Jersey; (q) the United States Attorney’s Office for the Eastern District of New York and (r) all parties that have requested to receive notice in these cases under Bankruptcy Rule 2002.
| -11- |
17. Additionally, on or before [●], 2019 or as soon as reasonably practicable thereafter, the Debtors shall publish a notice, setting forth the information contained in the Sale Notice, on one occasion, in either The New York Times, Wall Street Journal or USA Today. Such publication notice shall be deemed sufficient and proper notice of the Sale to any other interested parties whose identities are unknown to the Debtors.
| VI. | Assumption and Assignment Procedures |
18. The Notice of Assumption and Assignment of Executory Contracts and Unexpired Leases in Connection with Proposed Sale of Certain Assets of the Debtors, in the form substantially similar to that attached to the Motion as Exhibit [●] (the “Cure Notice”)9, is approved.
19. The Debtors shall, within five (5) business days of the entry of this Order, serve the Cure Notice upon each non-Debtor counterparty to each Executory Contract or Unexpired Lease to which a Seller is a party that may be assumed and assigned to the Stalking Horse Bidder, regardless of whether, at that time, the Executory Contract or Unexpired Lease is listed as being proposed to be assumed and assigned to the Stalking Horse Bidder. The Cure Notice shall state the date, time and place of the Sale Hearing and the date by which any objection to the assumption and assignment of such Executory Contract or Unexpired Lease must be filed and served. The Cure Notice shall also identify the amounts, if any, that the Debtors believe are owed to each counterparty to an Executory Contract or Unexpired Lease to cure any defaults that exist under such contract or lease (such amounts, the “Cure Costs”) pursuant to section 365 of the Bankruptcy Code. The Cure Notice does not constitute an admission that an Executory Contract or Unexpired Lease is in fact an executory contract or unexpired lease for the purposes of section 365 of the Bankruptcy Code, and the Debtors reserve any and all rights with respect to the Executory Contracts and Unexpired Leases. The inclusion of an Executory Contract or Unexpired Lease on the Cure Notice shall not obligate the Successful Bidder to take assignment of such Executory Contract or Unexpired Lease. Only those contracts that constitute (a) Buyer Assumed Agreements pursuant to the Stalking Horse Agreement or (b) if the Successful Bidder is not the Stalking Horse Bidder, Buyer Assumed Agreements identified in the Successful Bidder’s Proposed Asset Purchase Agreement, shall be assumed, assigned and sold to such Successful Bidder.
9 [To be provided.]
| -12- |
20. If any counterparty to an Executory Contract or Unexpired Lease objects for any reason to any proposed Cure Costs set forth in the Cure Notice or any Supplemental Cure Notice, such counterparty must (a) file with the Court a written objection (a “Cure Costs Objection”) and (b) serve such Cure Costs Objection, so as to be received no later than ten (10) days after service of the Cure Notice or Supplemental Cure Notice, as applicable (the “Cure Objection Deadline”), on: (i) counsel to the Debtors, Lowenstein Sandler LLP, 1251 Avenue of the Americas, New York, NY 10020 (Attn: Steven E. Siesser, Esq. (ssiesser@lowenstein.com), Paul Kizel, Esq. (pkizel@lowenstein.com) and Philip J. Gross, Esq. (pgross@lowenstein.com)); (ii) counsel to the Buyer, Ropes & Gray LLP, 1211 Avenue of the Americas, New York, New York 10036 (Attn: John E. Sorkin, Esq. (john.sorkin@ropesgray.com), Robb Tretter, Esq. (robb.tretter@ropesgray.com) and Matthew Roose, Esq. (Matthew.Roose@ropesgray.com); (iii) the Office of The United States Trustee, One Newark Center 1085, Raymond Boulevard, Suite 2100, Newark, NJ 07102 [(Attn: _____________________, Esq.)]; and (iv) proposed counsel to the Official Committee of Unsecured Creditors, ________________________, ________________________ (Attn: ________________________, Esq. (________________________) and ________________________, Esq. (________________________)) (collectively, the “Notice Parties”).
| -13- |
21. If, at any time and from time to time after the entry of this Order, the Debtors or the Stalking Horse Bidder or other Successful Bidder identify additional Executory Contracts or Unexpired Leases to be assumed and assigned as Buyer Assumed Agreements in accordance with the terms of the Stalking Horse Agreement or Successful Bidder’s Proposed Asset Purchase Agreement, the Debtors shall serve a supplemental Cure Notice (the “Supplemental Cure Notice”) by facsimile, electronic transmission, hand delivery or overnight mail on the applicable non-debtor counterparty and its counsel (if known) no later than ten (10) days before the closing (“Closing”) of the Sale, or, if such Executory Contract or Unexpired Lease is identified less than ten (10) days prior to the Closing, by the date set forth on the Supplemental Cure Notice. Each Supplemental Cure Notice shall: (a) state the date, time and place of the Sale Hearing (or later hearing, if applicable); (b) state the date by which any objection to the assumption and assignment of such Buyer Assumed Agreement must be filed and served; and (c) identify the proposed Cure Costs, if any.
22. Each Cure Costs Objection must set forth with specificity each and every asserted default in any Executory Contract or Unexpired Lease and the monetary cure amount asserted by such counterparty to the extent it differs from the Cure Costs, if any, specified by the Debtors in the Cure Notice or Supplemental Cure Notice, as applicable.
23. In the event that the Debtors and the non-debtor party cannot resolve a Cure Costs Objection, disputed Cure Costs shall not be paid until the resolution of any such disputes by the Court or mutual agreement of the Debtors, with the consent of the Stalking Horse Bidder to the extent required in the Stalking Horse Agreement, and the objecting party. Cure Costs Objections may be resolved by the Court at the Sale Hearing, or at a separate hearing either before or after the Sale Hearing.
| -14- |
24. Any counterparty to an Executory Contract or Unexpired Lease that fails to timely file and serve a Cure Costs Objection shall be forever barred from asserting that Cure Costs are owed in an amount in excess of that set forth in the Cure Notice or Supplemental Cure Notice. If no Cure Costs Objection is timely filed and served by the Cure Objection Deadline with respect to a Buyer Assumed Agreement, the Cure Costs identified in the Cure Notice or Supplemental Cure Notice, as applicable, with respect to the Executory Contracts and Unexpired Leases shall be the only amounts necessary to be paid to cure all monetary defaults pursuant to section 365(b) of the Bankruptcy Code under such Buyer Assumed Agreement, to the extent the Stalking Horse Bidder (or other Successful Bidder) ultimately decides to have the applicable Buyer Assumed Agreement assumed and assigned to it. Any party failing to timely file a Cure Costs Objection shall be forever barred from objecting to the Cure Costs and from asserting any additional cure or other amounts against the Debtors, their estates or the Successful Bidder, notwithstanding anything to the contrary in any Executory Contract or Unexpired Lease, or any other document. To the extent a Cure Costs Objection is resolved or determined unfavorably to the applicable Debtor, such Debtor may, with the prior written consent of the Successful Bidder, seek to instead reject the applicable Executory Contract or Unexpired Lease after such determination.
25. If any counterparty to an Executory Contract or Unexpired Lease objects to the assumption and assignment of such Executory Contract or Unexpired Lease for any reason (including with respect to adequate assurance of future performance) other than the amount of the proposed Cure Costs (an “Assignment Objection”), such counterparty must file and serve such Assignment Objection so as to be received by the Notice Parties by no later than ten (10) days after service of the Cure Notice or Supplemental Cure Notice, as applicable (the “Assignment Objection Deadline”). The Court shall make any and all determinations concerning an Assignment Objection, including adequate assurance of future performance under the Buyer Assumed Agreements pursuant to sections 365(b) and (f)(2) of the Bankruptcy Code, at the Sale Hearing (or such later hearing as may be requested by the Debtors).
| -15- |
26. If no Assignment Objection is timely filed and served by the Assignment Objection Deadline, the counterparty to an Executory Contract or Unexpired Lease shall be deemed to have consented to the assumption, assignment and sale of the Executory Contract or Unexpired Lease to the Successful Bidder if such Executory Contract or Unexpired Lease is elected by the Successful Bidder as a Buyer Assumed Agreement and shall be forever barred from asserting any objection with regard to such assumption, assignment and sale; provided, however, in the event that the Successful Bidder is not the Stalking Horse Bidder, the non-debtor parties to the Executory Contracts and Unexpired Leases to be assumed and assigned to such Successful Bidder shall have until 4:00 p.m. on the date that is one (1) business day prior to the Sale Hearing to object to the assumption, assignment and/or sale of their Executory Contracts and Unexpired Leases to such Successful Bidder; provided further, however, any such objection may relate solely to adequate assurance of future performance by such Successful Bidder pursuant to sections 365(b) and (f)(2) of the Bankruptcy Code.
27. The Stalking Horse Bidder may add or remove any Assumed Contract to be assumed by the Debtors and assigned to the Stalking Horse Bidder at any time prior to five (5) days prior to the Sale Hearing in accordance with the terms of the Stalking Horse Agreement.
| -16- |
28. Pursuant to section 365(k) of the Bankruptcy Code, the Debtors and the Debtors’ estates shall be relieved of all liability accruing or arising after the assumption and assignment of the Buyer Assumed Agreements.
| VII. | Miscellaneous |
29. The Debtors are authorized to take such actions as may be necessary or appropriate to implement and effectuate the terms of this Order, including, but not limited to, expending such funds or taking such actions as may be necessary or appropriate to comply with the Bidding Procedures.
30. In the event of any inconsistency between the provisions of this Order and any Exhibit referenced herein or in the Motion, the provisions of this Order shall control.
31. The Court shall retain exclusive jurisdiction to interpret, implement, and enforce the terms and provisions of this Order, the Bidding Procedures, and the Stalking Horse Agreement and decide any issues or disputes concerning this Order, the Bidding Procedures and the Stalking Horse Agreement and the rights and duties of the parties hereunder and/or thereunder, including the interpretation of the terms, conditions, and provisions hereof and/or thereof.
32. All persons and entities that participate in the bidding process or the Auction shall be deemed to have knowingly and voluntarily submitted to the exclusive jurisdiction of this Court with respect to all matters related to the terms and conditions of the transfer of the Purchased Assets, the Auction, and any Sale.
33. Notwithstanding the possible applicability of Bankruptcy Rules 6004(h) or 6006(d), or otherwise, the terms and conditions of this Order shall be immediately effective and enforceable upon entry.
| -17- |
EXHIBIT E
FORM OF BILL OF SALE
BILL OF SALE
[•], 2019
Pursuant to that certain Asset Purchase Agreement, dated as of [•], 2019 (the “Purchase Agreement”), by and among Aceto Corporation, a New York corporation (“Parent”), Aceto Realty, LLC, a New York limited liability company (“Aceto Realty”), and Aceto Agricultural Chemicals Corporation, a New York corporation (“NY Agri” and together with Parent and Aceto Realty, “Sellers” and each, a “Seller”), each a debtor and debtor in possession under Case No. [•] pending in the United States Bankruptcy Court for the District of New Jersey, on the one hand, and NMC Atlas, L.P., a Delaware limited partnership (“Buyer”), on the other hand, and for good and valuable consideration, the receipt and sufficiency of which Sellers hereby expressly acknowledge, each Seller hereby sells, transfers, assigns, conveys and delivers to Buyer and Buyer’s successors and assigns, free and clear of all Liens, sales, transfer or transaction taxes of any kind whatsoever, to have and to hold forever, all of its right, title and interest in and to each of the Purchased Assets.
Except for terms specifically defined in this Bill of Sale, all capitalized terms used herein shall have the meanings ascribed to such terms in the Purchase Agreement.
Each Seller does hereby irrevocably constitute and appoint Buyer and Buyer’s successors and assigns, such Seller’s true and lawful attorney, with full power of substitution, in its name or otherwise, and on behalf of such Seller, or for its own use, to claim, demand, collect and receive at any time and from time to time any and all of the Purchased Assets, and to prosecute the same at law or in equity and, upon discharge thereof, to complete, execute and deliver any and all necessary instruments of satisfaction and release.
Notwithstanding anything to the contrary herein, each Seller is executing and delivering this Bill of Sale in accordance with and subject to all of the terms and provisions of the Purchase Agreement, including, without limitation, the provisions of Section 3.23 thereof, and Buyer accepts this Bill of Sale on such basis. To the extent of any conflict between the terms and conditions of this Bill of Sale and the terms and conditions of the Purchase Agreement, the terms and conditions of the Purchase Agreement shall govern, supersede and prevail. This Bill of Sale shall not be amended, modified or supplemented except by a written instrument signed by an authorized representative of each of the Parties. This Bill of Sale shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State. This Bill of Sale is for the sole benefit of Buyer and nothing herein, express or implied, is intended to or shall confer upon any other person any legal or equitable benefit, claim, cause of action, remedy or right of any kind.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Sellers have caused this Bill of Sale to be executed as of the date first above written.
| SELLERS: | ||
| ACETO CORPORATION | ||
| By: | ||
| Name: | ||
| Title: | ||
| ACETO REALTY, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| ACETO AGRICULTURAL CHEMICALS CORPORATION | ||
| By: | ||
| Name: | ||
| Title: | ||
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EXHIBIT F
FORM OF SALE ORDER
| UNITED STATES BANKRUPTCY COURT | ||
| DISTRICT OF NEW JERSEY | ||
| Caption in Compliance with D.N.J. LBR 9004-1 | ||
| LOWENSTEIN SANDLER LLP | ||
| Kenneth A. Rosen, Esq. (krosen@lowenstein.com) | ||
| Michael S. Etkin, Esq. (metkin@lowenstein.com) | ||
| Paul Kizel, Esq. (pkizel@lowenstein.com) | ||
| Jeffrey Cohen, Esq. (jcohen@lowenstein.com) | ||
| Philip J. Gross, Esq. (pgross@lowenstein.com) | ||
| One Lowenstein Drive | ||
| Roseland, New Jersey 07068 | ||
| (973) 597-2500 (Telephone) | ||
| (973) 597-2400 (Facsimile) | ||
| Counsel to the Debtors and | ||
| Debtors-in-Possession | ||
| In re: | Chapter 11 | |
| ACETO CORPORATION, et al.,10 | Case No. 19-_____ (___) | |
| Debtors. | (Jointly Administered) | |
ORDER (A) AUTHORIZING AND APPROVING THE
SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS,
INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING
AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND
(D) GRANTING RELATED RELIEF
The relief set forth on the following pages, numbered two (2) through ________ (__), is hereby ORDERED.
10 The Debtors in these chapter 11 cases and the last four digits of each Debtor’s taxpayer identification number are as follows: Aceto Corporation (0520); Aceto Agricultural Chemicals Corporation (3948); Aceto Realty LLC (7634); Rising Pharmaceuticals, Inc. (7959); Rising Health, LLC (1562); Acetris Health, LLC (3236); PACK Pharmaceuticals, LLC (2525); Arsynco, Inc. (7392); and Acci Realty Corp. (4433).
| Page: | 2 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
Upon the motion (the “Sale Motion”),11 of the above-captioned debtors and debtors in possession (collectively, the “Debtors”), seeking entry of an order (this “Sale Order”), pursuant to sections 105, 363 and 365 of title 11 of the United States Code (the “Bankruptcy Code”), Rules 2002, 6004 and 6006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rules 6004-1, 6004-2 and 6004-3 of the Local Rules of the United States Bankruptcy Court for the District of New Jersey (the “Local Rules”), (a) authorizing and approving the Debtors’ entry into and performance under the terms and conditions of that certain Asset Purchase Agreement, dated as of [●], 2019 (together with the schedules and/or exhibits thereto and all related documents, and as may be amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”), substantially in the form attached hereto as Exhibit 1, by and among Aceto Corporation, Aceto Agricultural Chemicals Corporation and Aceto Realty LLC (each a “Seller”, and together, the “Sellers”) and [●] (the “Buyer”), and all other Ancillary Documents (as defined in the Purchase Agreement) (together with the Purchase Agreement, the “Transaction Documents”), (b) authorizing and approving the sale (collectively, and including all actions taken or required to be taken in connection with the implementation and consummation of the Purchase Agreement, the “Sale”) of the Purchased Assets (as defined in the Purchase Agreement) free and clear of all Liens, Claims and other Liabilities, except to the extent set forth in the Purchase Agreement, and the assumption of the Assumed Liabilities pursuant to the Purchase Agreement upon the closing of the Sale (the “Closing”), (c) authorizing the assumption and assignment of certain of the Sellers’ (as applicable) executory contracts and unexpired leases related thereto as set forth on the applicable schedules of the Purchase Agreement (each, a “Buyer Assumed Agreement,” and, collectively, the “Buyer Assumed Agreements”), upon the Closing, subject to payment by the Buyer of all costs necessary to cure any defaults arising under any Buyer Assumed Agreement to the extent required by section 365(b) of the Bankruptcy Code (such amounts, the “Cure Costs”), and (d) granting related relief, all as more fully set forth in the Sale Motion; and this Court having entered the Order (A) Approving Bidding Procedures in Connection with the Sale of Certain of the Debtors’ Assets, (B) Establishing Notice Procedures and Approving the Form and Manner of Notice Thereof, (C) Approving Procedures for the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases, (D) Scheduling a Sale Hearing, and (E) Granting Related Relief [Docket No. [l]] (the “Bidding Procedures Order”)[; and the Debtors having conducted an auction (the “Auction”) for the Purchased Assets]; and the Debtors having determined that the Buyer has submitted the highest or otherwise best bid for the Purchased Assets and determined that the Buyer is the Successful Bidder [and that [l] is the Back-Up Bidder] (as defined in the Bidding Procedures), in accordance with the Bidding Procedures; and the Court having conducted a hearing on the Sale Motion (the “Sale Hearing”), at which time all interested parties were offered an opportunity to be heard with respect to the Sale Motion; and the Court having reviewed and considered the Sale Motion, the Purchase Agreement, and any and all objections to the Sale, the Purchase Agreement and the other Transaction Documents filed in accordance with the Bidding Procedures Order; and the Court having heard statements of counsel and the evidence presented in support of the relief requested in the Sale Motion at the Sale Hearing [and in the Declaration(s) of [l]]; and it appearing that due notice of the Sale Motion, the Sale Hearing, the Purchase Agreement, and the Sale has been provided; and it appearing that the relief requested in the Sale Motion is in the best interests of the Debtors, their estates, their stakeholders, and all other parties in interest; and it appearing that the Court has jurisdiction over this matter; and it appearing that the legal and factual bases set forth in the Sale Motion and at the Sale Hearing establish just cause for the relief granted herein; and after due deliberation, it is hereby
11 Capitalized terms used but not otherwise defined herein have the meaning given to such terms in the Sale Motion, the Bidding Procedures Order (defined herein) or the Purchase Agreement (defined herein), as applicable.
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| Page: | 3 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
FOUND, CONCLUDED, AND DETERMINED THAT:
Jurisdiction, Venue, and Final Order
A. This Court has jurisdiction to hear and determine the Sale Motion pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper in this District and in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.
B. This Sale Order constitutes a final and appealable order within the meaning of 28 U.S.C. § 158(a). Notwithstanding Bankruptcy Rules 6004(h) and 6006(d), and to any extent necessary under Bankruptcy Rule 9014 and Federal Rule of Civil Procedure 54(b), as made applicable by Bankruptcy Rule 7054, the Court expressly finds that there is no just reason for delay in the implementation of this Sale Order and the terms and conditions of this Sale Order should be immediately effective and enforceable upon its entry, and expressly directs entry of judgment as set forth herein.
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| Page: | 4 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
C. The findings and conclusions set forth herein constitute the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052 made applicable to this proceeding pursuant to Bankruptcy Rule 9014. To the extent any of the following findings of fact constitute conclusions of law, they are adopted as such. To the extent any of the following conclusions of law constitute findings of fact, they are adopted as such.
Notice of the Sale Motion, Auction, Sale Hearing, Purchase Agreement and Sale and the Cure Costs
D. As evidenced by declarations and/or affidavits of service and publication previously filed with this Court, proper, timely, adequate, and sufficient notice of the Sale Motion, the Auction, the Sale Hearing, the Purchase Agreement, and the Sale has been provided in accordance with sections 102(1), 363, and 365 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, 6006, 9007 and 9014. The Debtors have complied with all obligations to provide notice of the Sale Motion, the Auction, the Sale Hearing, the Purchase Agreement, and the Sale as required by the Bidding Procedures Order. The foregoing notice was good, sufficient, and appropriate under the circumstances, and no other or further notice of the Sale Motion, the Auction, the Sale Hearing, the Purchase Agreement, or the Sale is required. With respect to entities whose identities are not reasonably ascertained by the Debtors, publication of the Sale Notice (as defined in the Sale Motion) in [the New York Times] on [l], 2019 was sufficient and reasonably calculated under the circumstances to reach such entities.
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| Page: | 5 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
E. A reasonable opportunity to object or to be heard regarding the relief requested in the Sale Motion was afforded to all interested persons and entities.
F. In accordance with the Bidding Procedures Order, the Debtors have served a notice of their intent to assume and assign the Buyer Assumed Agreements and of the Cure Costs upon each counterparty to a Buyer Assumed Agreement. The service and provision of such notice was good, sufficient, and appropriate under the circumstances and no further notice need be given in respect of assumption and assignment of the Buyer Assumed Agreements or establishing a Cure Cost for the respective Buyer Assumed Agreements. Counterparties to the Buyer Assumed Agreements have had an adequate opportunity to object to assumption and assignment of the applicable Buyer Assumed Agreements and the Cure Costs set forth in the notice (including objections related to the adequate assurance of future performance and objections based on whether applicable law excuses the counterparty from accepting performance by, or rendering performance to, the Buyer for purposes of section 365(c)(1) of the Bankruptcy Code). All objections, responses, or requests for adequate assurance, if any, have been resolved, overruled, or denied, as applicable.
Highest and Best Offer
G. As demonstrated by the [Declaration(s) of [l], the] evidence proffered or adduced at the Sale Hearing, and the representations of counsel made on the record at the Sale Hearing, the Debtors conducted a sale process in accordance with, and have, along with the Buyer, complied in all material respects with, the Bidding Procedures Order and afforded a full, fair, and reasonable opportunity for any interested party to make a higher or otherwise better offer to purchase the Purchased Assets and assume the Assumed Liabilities.
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| Page: | 6 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
H. (i) The Debtors and their advisors engaged in a robust and extensive marketing and sale process, both prior to the commencement of these Chapter 11 Cases and through the post-petition sale process in accordance with the Bidding Procedures Order and the sound exercise of the Debtors’ business judgment; (ii) the Debtors conducted a fair and open sale process; (iii) the sale process, the Bidding Procedures, and the Auction were non-collusive, duly noticed, and provided a full, fair, reasonable, and adequate opportunity for any entity that either expressed an interest in acquiring the Purchased Assets, or who the Debtors believed may have had an interest in acquiring the Purchased Assets, to make an offer to purchase the Debtors’ assets, including, without limitation the Purchased Assets; (iv) the Debtors and the Buyer have negotiated and undertaken their roles leading to the entry into the Purchase Agreement in a diligent, non-collusive, fair, reasonable, and good faith manner; and (v) the sale process conducted in good faith by the Debtors pursuant to the Bidding Procedures Order and the Bidding Procedures resulting in the highest or otherwise best value for the Purchased Assets for the Debtors and their estates, was in the best interests of the Debtors, their creditors, and all parties in interest. There is no legal or equitable reason to delay consummation of the Purchase Agreement and the transactions contemplated therein.
I. [The Debtors have also determined, in a valid and sound exercise of their business judgment and in consultation with their advisors and the Consultation Parties, that the next highest or otherwise best Qualified Bid (as defined in the Bidding Procedures) (the “Designated Back-Up Bid”) for the Purchased Assets was that of [l] (the “Designated Back-Up Bidder”)].
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| Page: | 7 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
J. Approval of the Sale Motion and the Purchase Agreement, and the consummation of the Sale contemplated thereby, is in the best interests of the Debtors, their respective creditors, estates, and other parties in interest. The Debtors have demonstrated good, sufficient, and sound business reasons and justifications for entering into the Sale and the performance of their obligations under the Purchase Agreement.
K. The consummation of the Sale outside a plan of reorganization pursuant to the Purchase Agreement neither impermissibly restructures the rights of the Debtors’ creditors nor impermissibly dictates the terms of a plan of reorganization or liquidation for the Debtors. The Sale does not constitute a sub rosa chapter 11 plan.
L. Entry of an order approving the Purchase Agreement and all the provisions thereof is a necessary condition precedent to Buyer’s consummation of the Sale, as set forth in the Purchase Agreement.
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| Page: | 8 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
Good Faith of Buyer
M. The consideration to be paid by the Buyer under the Purchase Agreement was negotiated at arm’s-length, in good faith and without collusion pursuant to section 363(m) of the Bankruptcy Code and constitutes reasonably equivalent value and fair and adequate consideration for the Purchased Assets. Specifically: (i) the Buyer recognized that the Debtors were free to deal with any other party interested in purchasing the Purchased Assets; (ii) the Buyer complied in all respects with the applicable provisions of the Bidding Procedures Order in negotiating and entering into the Purchase Agreement and the other Transaction Documents, and the Purchase Agreement, the other Transaction Documents and the transactions described therein comply with the Bidding Procedures Order; (iii) the Buyer agreed to subject its bid to the competitive bid procedures set forth in the Bidding Procedures Order; (iv) all payments made or to be made by the Buyer in connection with the Sale have been disclosed in the Purchase Agreement; (v) no common identity of directors, officers or controlling stockholders exists among the Buyer and the Debtors and Buyer is not an “insider” or “affiliate” of the Debtors, as those terms are defined in the Bankruptcy Code; (vi) the negotiation and execution of the Purchase Agreement and the other Transaction Documents were at arm’s-length and in good faith without collusion or fraud, and at all times each of the Buyer and the Debtors were represented by competent counsel of their choosing; and (vii) the Buyer has not acted in a collusive manner with any person and at all times acted in good faith and reasonably. The Buyer will be acting in good faith within the meaning of section 363(m) of the Bankruptcy Code in closing the transactions contemplated by the Purchase Agreement and the other Transaction Documents. The terms and conditions set forth in the Purchase Agreement are fair and reasonable under the circumstances and were not entered into for the purpose of, nor do they have the effect of, hindering, delaying, or defrauding the Debtors or their present or future creditors under any applicable laws.
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| Page: | 9 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
N. The Debtors and the Buyer, and each of their respective management, boards of directors, members, officers, directors, employees, agents, and representatives, have acted in good faith in connection with negotiations and entry into the Purchase Agreement. The Purchase Agreement and the other Transaction Documents, and each of the transactions contemplated therein, were negotiated, proposed, and entered into by the Debtors and the Buyer in good faith, without collusion or fraud, and from arm’s-length bargaining positions. The Buyer is a “good faith purchaser” within the meaning of section 363(m) of the Bankruptcy Code, and, as such, is entitled to all the protections afforded thereby.
No Fraudulent Transfer
O. The consideration provided by the Buyer pursuant to the Purchase Agreement for its purchase of the Purchased Assets and the assumption of the Assumed Liabilities constitutes reasonably equivalent value and fair consideration under the Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, and under the laws of the United States, any state, territory, possession, or the District of Columbia.
P. Neither the Buyer nor its past, present and future subsidiaries, parents, divisions, affiliates, agents, representatives, insurers, attorneys, successors and assigns, nor any of its nor their respective directors, managers, officers, employees, shareholders, members, agents, representatives, attorneys, contractors, subcontractors, independent contractors, owners, insurance companies or partners (each, a “Buyer Party”) is a continuation of the Debtors or their respective estates and no Buyer Party is holding itself out to the public as a continuation of the Debtors or their respective estates and the Sale does not amount to a consolidation, merger, or de facto merger of the Buyer (or any other Buyer Party) and the Debtors.
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| Page: | 10 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
Validity of Transfer
Q. Each Seller’s board of directors has authorized the execution and delivery of the Purchase Agreement and the Sale of the Purchased Assets to the Buyer. The Debtors (i) have full corporate power and authority to execute and deliver the Purchase Agreement and all other documents contemplated thereby, as applicable, (ii) have all of the power and authority necessary to consummate the Sale, and (iii) have taken all action necessary to authorize and approve the Purchase Agreement and to consummate the Sale, and no further consents or approvals, other than those expressly provided for in the Purchase Agreement, are required for the Debtors to consummate the transactions contemplated by the Purchase Agreement. The Purchased Assets constitute property of the Debtors’ estates within the meaning of section 541(a) of the Bankruptcy Code and title thereto is presently vested in the Debtors’ estates.
Section 363(f) Is Satisfied
R. The Sale of the Purchased Assets to the Buyer and the assumption and assignment to the Buyer of the Buyer Assumed Agreements under the terms of the Purchase Agreement meets the applicable provisions of section 363(f) of the Bankruptcy Code such that the Sale of the Purchased Assets will be free and clear of all Liens, Claims and other Liabilities, and will not subject any Buyer Party to any liability for any Liens, Claims or other Liabilities whatsoever (including, without limitation, under any theory of equitable law, antitrust, or successor or transferee liability), except as expressly provided in the Purchase Agreement with respect to Assumed Liabilities. All holders of Liens, Claims or other Liabilities who did not object, or withdrew their objections to the Sale, are deemed to have consented to the Sale pursuant to section 363(f)(2) of the Bankruptcy Code, and all holders of Liens, Claims or other Liabilities are adequately protected—thus satisfying section 363(e) of the Bankruptcy Code—by having their Liens, Claims or other Liabilities, if any, attach to the proceeds of the Sale ultimately attributable to the property against or in which they assert Liens, Claims or other Liabilities, in the same order of priority and with the same validity, force, and effect that such holder had prior to the Sale, subject to any rights, claims, and defenses of the Debtors or their estates, as applicable. Those holders of Liens, Claims or other Liabilities who did object and that have an interest in the Purchased Assets fall within one or more of the other subsections of section 363(f) of the Bankruptcy Code.
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| Page: | 11 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
S. The transfer of the Purchased Assets to the Buyer under the Purchase Agreement will be a legal, valid, and effective transfer of all of the legal, equitable, and beneficial right, title, and interest in and to the Purchased Assets free and clear of all Liens, Claims and other Liabilities, except as expressly provided in the Purchase Agreement. The Sellers may sell their interests in the Purchased Assets free and clear of all Liens, Claims and other Liabilities, in each case, one or more of the standards set forth in section 363(f) has been satisfied. The Buyer would not have entered into the Transaction Documents and would not consummate the transactions contemplated thereby, including, without limitation, the Sale and the assumption and assignment of the Buyer Assumed Agreements (i) if the transfer of the Purchased Assets were not free and clear of all Liens, Claims and other Liabilities of any kind or nature whatsoever, including, without limitation, rights or claims based on any successor, transferee, derivative or vicarious liability or any similar theory and/or applicable state or federal law or otherwise or (ii) if the Buyer or any of its affiliates or designees would, or in the future could, be liable for any interests, including, without limitation, rights or claims based on any successor, transferee, derivative or vicarious liability or any similar theory and/or applicable state or federal law or otherwise, in each case subject only to the Assumed Liabilities. Not transferring the Purchased Assets free and clear of all Liens, Claims and other Liabilities of any kind or nature whatsoever, including, without limitation, rights or claims based on any successor, transferee, derivative or vicarious liability or any similar theory and/or applicable state or federal law or otherwise (subject only to the Assumed Liabilities), would adversely impact the Debtors’ efforts to maximize the value of their estates.
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| Page: | 12 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
Assumption and Assignment of the Buyer Assumed Agreements
T. The assumption and assignment of the Buyer Assumed Agreements pursuant to the terms of this Sale Order are integral to the Purchase Agreement, are in the best interests of the Debtors and their respective estates, creditors, and other parties in interest, and represent the reasonable exercise of sound and prudent business judgment by the Debtors.
U. The Debtors have met all requirements of section 365(b) of the Bankruptcy Code for each of the Buyer Assumed Agreements. The Buyer and/or the Debtors have (i) cured and/or provided adequate assurance of cure of any default existing prior to the Closing under all of the Buyer Assumed Agreements within the meaning of section 365(b)(1)(A) of the Bankruptcy Code, (ii) provided compensation or adequate assurance of compensation to any counterparty for actual pecuniary loss to such party resulting from a default prior to the Closing under any of the Buyer Assumed Agreements within the meaning of section 365(b)(1)(B) of the Bankruptcy Code, and (iii) provided adequate assurance of future performance within the meaning of section 365(b)(1)(C) of the Bankruptcy Code. The Buyer has provided adequate assurance of future performance within the meaning of sections 365(b)(1)(C) and 365(f)(2)(B) and in accordance with the Bidding Procedures to the extent that any such assurance is required and not waived by the counterparties to such Buyer Assumed Agreements.
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| Page: | 13 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
V. At any time prior to the Closing and prior to the rejection of an executory contract or unexpired lease, the Debtors shall have the right, upon request of the Buyer and in accordance with the Bidding Procedures Order, to serve a Supplemental Cure Notice upon any non-Debtor counterparty thereto indicating the Debtors’ intent to assume and assign such executory contract or unexpired lease. The objection deadline for all Buyer Assumed Agreements, other than those subject to a Supplemental Cure Notice, lapsed on [l], 2019. Objections, if any, to the proposed assumption and assignment or the Cure Cost proposed in any Supplemental Cure Notice with respect thereto, must (i) be in writing, (ii) comply with the applicable provisions of the Bankruptcy Rules and the Local Rules, (iii) state with specificity the nature of the objection and, if the objection pertains to the proposed Cure Cost, the correct Cure Cost alleged by the objecting counterparty, together with any applicable and appropriate documentation in support thereof, and (iv) be filed with the Court and served upon counsel to the Debtors and counsel to the Buyer so as to be actually received on or before the deadline set forth in the applicable Supplemental Cure Notice, which shall be no earlier than seven (7) calendar days after service thereof. If the parties cannot agree on a resolution of any such objection, the Debtors will seek an expedited hearing before the Court to determine the Cure Cost or other matter in dispute and approve the assumption and assignment of such executory contract or unexpired lease to Buyer. If no objection is filed prior to the applicable objection deadline, then the counterparties will be deemed to have consented to the assumption and assignment to Buyer and the Cure Cost, and such assumption and assignment to Buyer and the Cure Cost shall be deemed approved by this Sale Order without further order of this Court.
| -13- |
| Page: | 14 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
W. The (i) transfer of the Purchased Assets to the Buyer and (ii) assignment to the Buyer of the Buyer Assumed Agreements, will not subject the Buyer to any liability whatsoever that arises prior to the Closing or by reason of such transfer under the laws of the United States, any state, territory, or possession thereof, or the District of Columbia, based, in whole or in part, directly or indirectly, on any theory of law or equity, including, without limitation, any theory of equitable law, any theory of antitrust, successor, transferee, derivative, or vicarious liability or any similar theory and/or applicable state or federal law or otherwise.
Prompt Consummation
X. Based on the record of the Sale Hearing, and for the reasons stated on the record at the Sale Hearing, the sale of the Purchased Assets must be approved and consummated promptly to preserve the value of the Purchased Assets. Time, therefore, is of the essence in effectuating the Purchase Agreement. As such, the Debtors and the Buyer intend to close the sale of the Purchased Assets as soon as reasonably practicable. The Debtors have demonstrated compelling circumstances and a good, sufficient, and sound business purpose and justification for the immediate approval and consummation of the Purchase Agreement. Accordingly, there is sufficient cause to waive the stay provided in Bankruptcy Rules 6004(h) and 6006(d).
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| Page: | 15 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
NOW, THEREFORE, IT IS ORDERED, ADJUDGED, AND DECREED THAT:
General Provisions
1. The Sale Motion is GRANTED to the extent set forth herein.
2. All objections to or reservation of rights with respect to the Sale Motion or the relief requested therein that have not been withdrawn or resolved are overruled. All persons and entities who did not object or withdraw their objections to the Sale Motion are deemed to have consented pursuant to section 363(f)(2) of the Bankruptcy Code.
3. The record of these cases, including the Court’s findings of fact and conclusions of law set forth in the Bidding Procedures Order, are incorporated herein by reference and the Court takes judicial notice of the record.
4. The Purchase Agreement and the other Transaction Documents, and all terms and conditions thereof, are hereby approved. The failure to specifically include any particular provision of the Purchase Agreement or any other Transaction Document in this Sale Order shall not diminish or impair the effectiveness of such provision, it being the intent of the Court that the Purchase Agreement and other Transaction Documents be authorized and approved in their entirety.
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| Page: | 16 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
5. [The Designated Back-Up Bidder is hereby approved as the Back-Up Bidder (as defined in the Bidding Procedures), and the Designated Back-Up Bid is hereby approved and authorized as the Back-Up Bid (as defined in the Bidding Procedures) in accordance with the Bidding Procedures. To the extent necessary, the terms and conditions of the Back-Up Bid will be approved pursuant to a separate sale order to be submitted at a later date consistent with the terms of the Back-Up Bid.]12
Transfer of the Purchased Assets as set forth in the Purchase Agreement
6. The Debtors are authorized and directed to (a) take any and all actions necessary or appropriate to perform, consummate, implement, and close the Sale in accordance with the terms and conditions set forth in the Transaction Documents and this Sale Order, (b) assume and assign any and all Buyer Assumed Agreements, and (c) take all further actions and execute and deliver the Transaction Documents and any and all additional instruments and documents that may be necessary or appropriate to implement the Purchase Agreement and the other Transaction Documents and consummate the Sale in accordance with the terms thereof, all without further order of the Court.
7. The Buyer is not acquiring any of the Excluded Assets or assuming any of the Excluded Liabilities (each as defined in the Purchase Agreement).
8. All persons and entities are prohibited and enjoined from taking any action to adversely affect or interfere with, or which would be inconsistent with, the ability of the Debtors to transfer the Purchased Assets to the Buyer in accordance with the Purchase Agreement, the other Transaction Documents and this Sale Order.
12 [In the event the Stalking Horse Bidder (as defined in the Bidding Procedures Order) is selected as the Back-Up Bidder, the Debtors shall return (to the extent not already returned) to the Stalking Horse Bidder its Good Faith Deposit (as defined in the Bidding Procedures Order) together with all interest and income thereon, in accordance with the terms of the Stalking Horse Agreement and the Bidding Procedures Order.]
| -16- |
| Page: | 17 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
9. At Closing, all of the Debtors’ right, title, and interest in and to, and possession of, the Purchased Assets shall be immediately vested in the Buyer pursuant to sections 105(a), 363(b), 363(f), and 365 of the Bankruptcy Code. Such transfer shall constitute a legal, valid, enforceable, and effective transfer of the Purchased Assets. All persons or entities, presently or at or after the Closing, in possession of some or all of the Purchased Assets, are directed to surrender possession of any and all portions of the Purchased Assets to the Buyer on the Closing Date or at such time thereafter as the Buyer may request.
10. This Sale Order (a) shall be effective as a determination that, as of the Closing, (i) the Purchased Assets shall have been transferred to the Buyer free and clear of all Liens, Claims and other Liabilities, except to the extent set forth in the Purchase Agreement, and (ii) the conveyances described herein have been effected, and (b) is and shall be binding upon and govern the acts of all entities, including, without limitation, all filing agents, filing officers, title agents, title companies, recorders of mortgages, recorders of deeds, registrars of deeds, registrars of patents, trademarks, or other intellectual property, administrative agencies, governmental departments, secretaries of state, federal and local officials, and all other persons and entities who may be required by operation of law, the duties of their office, or contract, to accept, file, register, or otherwise record or release any documents or instruments, or who may be required to report or insure any title or state of title; and each of the foregoing persons and entities is hereby directed to accept for filing any and all of the documents and instruments necessary and appropriate to consummate the transactions contemplated by the Purchase Agreement and the other Transaction Documents.
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| Page: | 18 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
11. All Liens, Claims and other Liabilities with respect to the Purchased Assets shall attach to the proceeds of the Sale ultimately attributable to the property against which such Liens, Claims and other Liabilities applied, in the same order of priority and with the same validity, force, and effect that such Liens, Claims and other Liabilities applied prior to the Sale, subject to any rights, claims, and defenses of the Debtors or their estates, as applicable, or as otherwise provided herein.
12. The Buyer shall receive the benefits and burdens of the Assumed Liabilities and if the Buyer disputes any alleged charge, credit or payment under any of the Assumed Liabilities and the parties are unable to come to an agreement regarding the amount owed, the dispute may be adjudicated by the Bankruptcy Court or any other court of competent jurisdiction.
13. Except as otherwise provided in the Purchase Agreement, all persons and entities (and their respective successors and assigns), including, but not limited to, all debt security holders, equity security holders, affiliates, governmental, tax, and regulatory authorities, lenders, customers, vendors, employees, trade creditors, litigation claimants, and other creditors holding claims against the Debtors or in any way relating to the Acquired Business or the Purchased Assets are hereby forever barred, estopped, and permanently enjoined from asserting such claims against any Buyer Party and its property (including, without limitation, the Purchased Assets).
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| Page: | 19 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
14. If any person or entity that has filed financing statements, mortgages, mechanic’s claims, lis pendens, or other documents or agreements evidencing claims against the Debtors or in the Purchased Assets shall not have delivered to the Debtors prior to the Closing of the Sale, in proper form for filing and executed by the appropriate parties, termination statements, instruments of satisfaction, and/or releases of all Liens, Claims and other Liabilities that the person or entity has with respect to the Debtors or the Purchased Assets or otherwise, then only with regard to the Purchased Assets that are purchased by the Buyer pursuant to the Purchase Agreement and this Sale Order, (a) the Debtors are hereby authorized and directed to execute and file such statements, instruments, releases, and other documents on behalf of the person or entity with respect to the Purchased Assets, (b) the Buyer is hereby authorized to file, register, or otherwise record a certified copy of this Sale Order, which, once filed, registered, or otherwise recorded, shall constitute conclusive evidence of the release of all Liens, Claims, and other Liabilities against each Buyer Party and the Purchased Assets, and (c) upon consummation of the Sale, the Buyer may seek in this Court or any other court to compel appropriate parties to execute termination statements, instruments of satisfaction, and releases of all Liens, Claims and other Liabilities that are extinguished or otherwise released pursuant to this Sale Order under section 363 of the Bankruptcy Code, and any other provisions of the Bankruptcy Code, with respect to the Purchased Assets. This Sale Order is deemed to be in recordable form sufficient to be placed in the filing or recording system of each and every federal, state, or local government agency, department, or office. Notwithstanding the foregoing, the provisions of this Sale Order authorizing the Sale and assignment of the Purchased Assets free and clear of Liens, Claims and other Liabilities shall be self-executing and neither the Debtors nor the Buyer shall be required to execute or file releases, termination statements, assignments, consents, or other instruments to effectuate, consummate, and implement the provisions of this Sale Order.
| -19- |
| Page: | 20 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
No Successor or Transferee Liability
15. No Buyer Party shall be deemed, as a result of any action taken in connection with the Purchase Agreement, the consummation of the Sale contemplated by the Purchase Agreement, or the transfer, operation, or use of the Purchased Assets to (a) be a legal successor, or otherwise be deemed a successor to the Debtors (other than, for the Buyer, with respect to any Assumed Liabilities), (b) have, de facto or otherwise, merged with or into the Debtors, or (c) be an alter ego or a mere continuation or substantial continuation of the Debtors or the enterprise of the Debtors including, without limitation, within the meaning of any foreign, federal, state, or local revenue law, pension law, the Employee Retirement Income Security Act of 1974 (“ERISA”), tax law, labor law, products liability law, employment law, environmental law, or other law, rule, or regulation (including, without limitation, filing requirements under any such laws, rules or regulations).
| -20- |
| Page: | 21 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
16. Other than as expressly set forth in the Purchase Agreement, no Buyer Party shall have any responsibility for (a) any liability or other obligation of the Debtors or (b) any claims against the Debtors or any of their predecessors or affiliates. Except as expressly provided in the Purchase Agreement with respect to the Buyer, no Buyer Party shall have any liability whatsoever with respect to the Debtors’ (or their predecessors’ or affiliates’) respective businesses or operations or any of the Debtors’ (or their predecessors’ or affiliates’) obligations (as defined herein, “Successor or Transferee Liability”) based, in whole or part, directly or indirectly, on any theory of successor or vicarious liability of any kind or character, or based upon any theory of antitrust, environmental, successor, or transferee liability, de facto merger or substantial continuity, labor and employment or products liability, whether known or unknown as of the Closing, now existing or hereafter arising, asserted or unasserted, fixed or contingent, liquidated or unliquidated, including, without limitation, liabilities on account of (a) any taxes arising, accruing, or payable under, out of, in connection with, or in any way relating to the Purchased Assets or the Assumed Liabilities prior to the Closing or in respect of pre-Closing periods or (b) any plan, agreement, practice, policy, or program, whether written or unwritten, providing for pension, retirement, health, welfare, compensation or other employee benefits which is or has been sponsored, maintained or contributed to by any Debtor or with respect to which any Debtor has any liability, whether or not contingent, including, without limitation, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or “pension plan” (as defined in Section 3(2) of ERISA) to which any Debtor has at any time contributed, or had any obligation to contribute. Except to the extent expressly included in the Assumed Liabilities with respect to the Buyer or as otherwise expressly set forth in the Purchase Agreement, no Buyer Party shall have any liability or obligation under any applicable law, including, without limitation, (a) the WARN Act (29 U.S.C. §§ 2101 et seq.), (b) the Comprehensive Environmental Response Compensation and Liability Act, (c) the Age Discrimination and Employment Act of 1967 (as amended), (d) the Federal Rehabilitation Act of 1973 (as amended), (e) the National Labor Relations Act, 29 U.S.C. § 151 et seq., (f) the Fair Labor Standards Act, (g) the Americans with Disabilities Act of 1990 (as amended), (h) Title VII of the Civil Rights Act of 1964, (i) the Consolidated Omnibus Budget Reconciliation Act of 1985, or (j) any foreign, federal, state, or local labor, employment or environmental law, by virtue of the Buyer’s purchase of the Purchased Assets, assumption of the Assumed Liabilities, or hiring of certain employees of the Debtors pursuant to the terms of the Purchase Agreement. Without limiting the foregoing, no Buyer Party shall have any liability or obligation with respect to any environmental liabilities of the Debtors or any environmental liabilities associated with the Purchased Assets except to the extent they are Assumed Liabilities set forth in the Purchase Agreement.
| -21- |
| Page: | 22 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
17. Effective upon the Closing, all persons and entities are forever prohibited and enjoined from commencing or continuing in any matter any action or other proceeding, whether in law or equity, in any judicial, administrative, arbitral, or other proceeding against any Buyer Party or their respective assets (including, without limitation, the Purchased Assets), with respect to any Successor or Transferee Liability including, without limitation, the following actions with respect to any such Successor or Transferee Liability: (i) commencing or continuing any action or other proceeding pending or threatened; (ii) enforcing, attaching, collecting, or recovering in any manner any judgment, award, decree, or order; (iii) creating, perfecting, or enforcing any lien, claim, interest, or encumbrance; (iv) asserting any setoff, right of subrogation, or recoupment of any kind; (v) commencing or continuing any action, in any manner or place, that does not comply with, or is inconsistent with, the provisions of this Sale Order or other orders of this Court, or the agreements or actions contemplated or taken in respect hereof; or (vi) revoking, terminating, failing, or refusing to renew any license, permit, or authorization to operate any business in connection with the Purchased Assets or conduct any of the businesses operated with respect to such assets.
| -22- |
| Page: | 23 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
Good Faith of Buyer
18. The Sale contemplated by the Purchase Agreement is undertaken by the Buyer without collusion and in good faith, as that term is defined in section 363(m) of the Bankruptcy Code, and accordingly, the reversal or modification on appeal of the authorization provided herein to consummate the Sale shall not affect the validity of the Sale (including, without limitation, the assumption and assignment of the Buyer Assumed Agreements), unless such authorization and consummation of such Sale are duly and properly stayed pending such appeal.
19. Neither the Debtors nor the Buyer have engaged in any action or inaction that would cause or permit the Sale to be avoided or costs or damages to be imposed under section 363(n) of the Bankruptcy Code. The consideration provided by the Buyer for the Purchased Assets under the Purchase Agreement is fair and reasonable and the Sale may not be avoided, and costs and damages may not be imposed, under section 363(n) of the Bankruptcy Code.
Assumption and Assignment of Buyer Assumed Agreements
20. The Debtors are authorized and directed at the Closing to assume and assign each of the Buyer Assumed Agreements to the Buyer pursuant to sections 105(a) and 365 of the Bankruptcy Code and to execute and deliver to the Buyer such documents or other instruments as may be necessary to assign and transfer the Buyer Assumed Agreements to the Buyer. The payment by the Buyer of the applicable Cure Costs (if any) under a Buyer Assumed Agreement shall (a) effect a cure of all defaults existing thereunder as of the Closing, and (b) compensate for any actual pecuniary loss to such counterparty resulting from such default.
| -23- |
| Page: | 24 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
21. Pursuant to section 365(f) of the Bankruptcy Code, subject to payment by the Buyer of the applicable Cure Costs, the Buyer Assumed Agreements to be assumed and assigned under the Purchase Agreement shall be assigned and transferred to, and remain in full force and effect for the benefit of, the Buyer notwithstanding any provision in the Buyer Assumed Agreements or other restrictions prohibiting their assignment or transfer. Any provisions in any Buyer Assumed Agreement that prohibit or condition the assignment of such Buyer Assumed Agreement to the Buyer or allow the counterparty to such Buyer Assumed Agreement to terminate, recapture, impose any penalty, condition on renewal or extension, or modify any term or condition upon the assignment of such Buyer Assumed Agreement to the Buyer, constitute unenforceable anti-assignment provisions that are null and void and of no force and effect. All other requirements and conditions under sections 363 and 365 of the Bankruptcy Code for the assumption by the Debtors and assignment to the Buyer of the Buyer Assumed Agreements have been satisfied. Upon the Closing, in accordance with sections 363 and 365 of the Bankruptcy Code, the Buyer shall be fully and irrevocably vested with all right, title, and interest of the Debtors under the Buyer Assumed Agreements, and such Buyer Assumed Agreements shall remain in full force and effect for the benefit of the Buyer. Each counterparty to the Buyer Assumed Agreements shall be forever barred, estopped, and permanently enjoined from (a) asserting against the Debtors or any Buyer Party or their respective property any assignment fee, acceleration, default, breach or claim or pecuniary loss, or condition to assignment existing, arising or accruing as of the Closing or arising by reason of the Closing, including, without limitation, any breach related to or arising out of change-in-control provisions in such Buyer Assumed Agreements, or any purported written or oral modification to the Buyer Assumed Agreements and (b) asserting against any Buyer Party (or its respective property, including, without limitation, the Purchased Assets) any claim, counterclaim, defense, breach, condition, or setoff asserted, or assertable against the Debtors existing as of the Closing or arising by reason of the Closing except for the Assumed Liabilities.
| -24- |
| Page: | 25 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
22. Upon the Closing and the payment of the relevant Cure Costs, if any, the Buyer shall be deemed to be substituted for the applicable Debtor(s) as a party to the applicable Buyer Assumed Agreements and the Debtors shall be released, pursuant to section 365(k) of the Bankruptcy Code, from any liability under the Buyer Assumed Agreements. There shall be no rent or payment accelerations, assignment fees, increases, or any other fees charged to the Buyer or the Debtors as a result of the assumption and assignment of the Buyer Assumed Agreements. The failure of the Debtors or the Buyer to enforce at any time one or more terms or conditions of any Buyer Assumed Agreement shall not be a waiver of such terms or conditions or of the right of the Debtors or the Buyer, as the case may be, to enforce every term and condition of such Buyer Assumed Agreement. The validity of the assumption and assignment of any Buyer Assumed Agreement to the Buyer shall not be affected by any existing dispute between the Debtors and any counterparty to such Buyer Assumed Agreement. Any party that may have had the right to consent to the assignment of any Buyer Assumed Agreement is deemed to have consented for the purposes of section 365(e)(2)(A) of the Bankruptcy Code.
| -25- |
| Page: | 26 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
23. Buyer has provided adequate assurance of future performance with respect to each of the Buyer Assumed Agreements within the meaning of sections 365(b)(1)(C) and 365(f)(2)(B) of the Bankruptcy Code.
24. The assignments of each of the Buyer Assumed Agreements are made in good faith under sections 363(b) and (m) of the Bankruptcy Code.
Other Provisions
25. To the extent provided by section 525 of the Bankruptcy Code, no governmental unit may revoke or suspend any permit or License relating to the Purchased Assets sold, transferred, or conveyed to the Buyer on account of the filing or pendency of these Chapter 11 Cases or the consummation of the Sale contemplated by the Purchase Agreement.
26. The Buyer shall not be required to seek or obtain relief from the automatic stay under section 362 of the Bankruptcy Code to enforce any of its remedies or exercise any of its rights under the Purchase Agreement or any other Sale-related document. The automatic stay imposed by section 362 of the Bankruptcy Code is modified solely to the extent necessary to implement the preceding sentence, provided, however, that this Court shall retain exclusive jurisdiction over any and all disputes with respect thereto.
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| Page: | 27 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
27. The terms and provisions of the Purchase Agreement, the other Transaction Documents and this Sale Order shall be binding in all respects upon the Debtors, their affiliates, their estates, all creditors of (whether known or unknown) and holders of equity interests in any Debtor, any holders of claims against or on all or any portion of the Purchased Assets, all counterparties to the Buyer Assumed Agreements, the Buyer, and all of their respective successors and assigns including, but not limited to, any subsequent trustee(s) appointed in any of the Debtors’ Chapter 11 Cases or upon conversion of any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code, as to which trustee(s) such terms and provisions likewise shall be binding. The Purchase Agreement shall not be subject to rejection or avoidance by the Debtors, their estates, their creditors, their shareholders, or any trustee(s).
28. The terms and provisions of this Sale Order and any actions taken pursuant hereto shall survive entry of an order which may be entered: (a) confirming any chapter 11 plan in any of these Chapter 11 Cases; (b) converting any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code; (c) dismissing any of the Chapter 11 Cases; or (d) pursuant to which this Court abstains from hearing any of the Chapter 11 Cases. The terms and provisions of this Sale Order, notwithstanding the entry of any such orders described in (a)-(d) above, shall continue in these Chapter 11 Cases, or following dismissal of these Chapter 11 Cases.
29. Each and every federal, state, and local governmental agency, department, or official is hereby directed to accept any and all documents and instruments necessary and appropriate to consummate the transactions contemplated by the Purchase Agreement.
30. The Purchase Agreement and the Sale contemplated hereunder shall not be subject to any bulk sales laws or any similar law of any state or jurisdiction.
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| Page: | 28 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
31. The Purchase Agreement may be modified, amended, or supplemented by the parties thereto in accordance with the terms thereof, without further order of the Court, provided that any such modification, amendment, or supplement does not, based on the Debtors’ business judgment, and in consultation with the Consultation Parties, have a material adverse effect on the Debtors’ estates or their creditors. The Debtors shall provide the Consultation Parties with prior notice of any material modification, amendment, or supplement of the Purchase Agreement. For the avoidance of doubt, all other modifications, amendments, or supplements to the Purchase Agreement that have a material adverse effect on the Debtors’ estates or their creditors shall require Court approval.
32. All time periods set forth in this Sale Order shall be calculated in accordance with Bankruptcy Rule 9006(a).
33. Notwithstanding the possible applicability of Bankruptcy Rules 6004(h), 6006(d), 7062, and 9014 or otherwise, the terms and conditions of this Sale Order shall be effective immediately upon entry and the Debtors and the Buyer are authorized to close the Sale immediately upon entry of this Sale Order.
34. To the extent there is any conflict between the terms of this Sale Order and the Purchase Agreement, the terms of this Sale Order shall control. Nothing contained in any chapter 11 plan hereinafter confirmed in these Chapter 11 Cases or any order confirming such chapter 11 plan, or any other order of the Court, shall conflict with or derogate from the provisions of the Purchase Agreement or any other Transaction Document or the terms of this Sale Order.
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| Page: | 29 |
| Debtors: | ACETO CORPORATION, et al. |
| Case No.: | 19-_____ (___) |
| Caption: | ORDER (A) AUTHORIZING AND APPROVING THE SALE OF SUBSTANTIALLY ALL ASSETS COMPRISING THE DEBTORS’ CHEMICAL PLUS BUSINESS FREE AND CLEAR OF ALL CLAIMS, LIENS, RIGHTS, INTERESTS, AND ENCUMBRANCES, (B) AUTHORIZING THE DEBTORS TO PERFORM THEIR OBLIGATIONS UNDER THE PURCHASE AGREEMENT, (C) AUTHORIZING AND APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES RELATED THERETO, AND (D) GRANTING RELATED RELIEF |
35. This Court shall retain exclusive jurisdiction to interpret, implement, and enforce the terms and provisions of this Sale Order, the Bidding Procedures Order, and the Purchase Agreement, including all amendments thereto and any waivers and consents thereunder and each of the agreements executed in connection therewith, and decide any issues or disputes concerning this Sale Order and the Purchase Agreement or the rights and duties of the parties hereunder or thereunder, including the interpretation of the terms, conditions, and provisions hereof and thereof, and the status, nature, and extent of the Purchased Assets.
| Dated: __________________, 2019 | |
| UNITED STATES BANKRUPTCY JUDGE |
Exhibit 1
Purchase Agreement
[See Exhibit [●] to Sale Motion]
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EXHIBIT G
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT is made as of the [●], 2019 (this “Agreement”), by and among [ATLAS] Corporation, a New York Corporation (“Parent” or a “Chem Plus Seller”), [TARGET] Pharmaceuticals, Inc., a Delaware Corporation (a “Pharma Seller,” and together with the Chem Plus Seller, the “Sellers” and each, a “Seller”), NMC Atlas, L.P., a Delaware limited partnership (“Chem Plus Buyer”), and [●], a [●] (“Pharma Buyer” and together with Chem Plus Buyer, the “Buyers” and each, a “Buyer”). As used in this Agreement, “Party” or “Parties” means, individually or collectively, each Seller and each Buyer. All capitalized terms not otherwise defined herein will have the meanings given to such terms in a specified Purchase Agreement (defined below) as described herein.
RECITALS:
WHEREAS, Parent, collectively with its direct and indirect wholly-owned subsidiaries (including the other Seller), is an international company engaged in the development, marketing, sales and distribution of finished dosage form generic pharmaceuticals, nutraceutical products, pharmaceutical active ingredients and intermediates, specialty performance chemicals inclusive of agricultural intermediates and agricultural protection products (collectively, the “Business”);
WHEREAS, the Business is organized along product lines into three principal segments: (i) Human Health, (ii) Pharmaceutical Ingredients, and (iii) Performance Chemicals;
WHEREAS, Sellers and certain subsidiaries of such Sellers are debtors and debtors in possession under Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”), and filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on [●], 2019 in the United States Bankruptcy Court for the District of New Jersey, where such bankruptcy cases are administered under Case No. [●];
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of [●], 2019 (the “Chem Plus Purchase Agreement”), by and among Chem Plus Seller, certain other “Sellers” named therein, and Chem Plus Buyer, Chem Plus Buyer is acquiring the Purchased Assets (as defined in the Chem Plus Purchase Agreement) and assuming the Assumed Liabilities (as defined in the Chem Plus Purchase Agreement);
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of [●], 2019 (the “Pharma Purchase Agreement” and together with the Chem Plus Purchase Agreement, the “Purchase Agreements” and each, a “Purchase Agreement”), by and among Pharma Seller, certain other “Sellers” named therein, and Pharma Buyer, Pharma Buyer is acquiring the Purchased Assets (as defined in the Pharma Purchase Agreement) and assuming the Assumed Liabilities (as defined in the Pharma Purchase Agreement);
WHEREAS, Sellers have certain shared services (as set forth on Exhibit A) (collectively, the “Shared Services”) which need to be used by one or both Buyer(s) after the Closing (as defined in the respective Purchase Agreement to which such Buyer is a party) for the period of time set forth on Exhibit A with respect to such Shared Service (each, a “Transition Period”);
WHEREAS, either or both Buyers may have purchased one or more of the Shared Services, while the remaining Shared Services, if any, are being retained by a Seller, for at least the applicable Transition Period;
WHEREAS, the Parties are entering into this Agreement to facilitate the delivery and use of the Shared Services, on the terms and subject to the conditions and limitations set forth herein and on Exhibit A; and
WHEREAS, the Service Providers (as defined below) have agreed to provide the Shared Services on a transitional basis to the Service Recipients (as defined below), all as set forth on Exhibit A, following the Closing (as defined in the Purchase Agreement to which such Service Recipient is a party).
NOW, THEREFORE, in consideration of the mutual promises made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
1. Shared Services.
(a) General.
(i) When a Party is providing, or causing its respective Affiliates or third-party providers to provide, a Shared Service hereunder, it will be so identified on Exhibit A and be referred to herein as a “Service Provider” with respect to the provided Shared Services indicated on Exhibit A. When a Party is receiving a Shared Service hereunder, it will be so identified on Exhibit A and be referred to herein as a “Service Recipient” with respect to the received Shared Services indicated on Exhibit A. A Party may be a Service Provider with respect to a given Shared Service, and may be a Service Recipient with respect to another Shared Service.
(ii) The applicable Service Provider shall, or shall cause their respective Affiliates or third-party providers to, provide the applicable Service Recipient with the Shared Services for the Transition Period, all as set forth on Exhibit A with respect to such Shared Service and on the terms and subject to the conditions and limitations set forth herein and on Exhibit A, in the case of the Seller(s), consistent with such Service Provider’s past practices and in all events, in a commercially reasonable manner; it being understood, however, that the Acquired Business (as defined in the Purchase Agreement to which such Service Recipient is a Buyer) was operated as a division of Parent and as such, enjoyed certain rights, benefits and privileges, which may not all be available to such Buyer as a Buyer of the respective Acquired Business specified in the Purchase Agreement to which it is a party. Nothing in this Agreement shall obligate a Service Provider, or its respective Affiliates or third-party providers, as the case may be, to provide to a Service Recipient any service that is materially different in amount, kind, scope, quality or manner of performance from the services provided to the applicable Acquired Business prior to the date of this Agreement. A Buyer shall receive the Shared Services only for the benefit of the applicable Acquired Business as transferred to such Buyer pursuant to the Purchase Agreement to which it is a party and not for the benefit of such Buyer’s other businesses or facilities.
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(b) Compensation and Invoicing. In consideration for a Service Provider providing the Shared Services, a Service Recipient shall pay to such Service Provider the service fees described on Exhibit A (the “Service Fees”) and such Service Recipient shall also pay to such Service Provider the Additional Third Party Fees (defined below) and the Service Costs (defined below). A Service Provider shall invoice a Service Recipient each month for each Shared Service provided to such Service Recipient during the prior month. Such Service Recipient shall pay the Service Fees, the Service Costs and any Additional Third Party Fees within [ten (10)] calendar days after its receipt of the applicable invoice. Such Service Recipient shall pay all taxes and other fees and charges imposed by any governmental authority arising in connection with the sale, purchase, performance or use of the applicable Shared Services. If any amounts payable to a Service Provider under this Agreement have not been received by the applicable due date, then such overdue amounts, or unpaid portion thereof, shall bear interest from such due date at the rate of 2.0% per month (or portion thereof), until received. On the Closing Date (as defined in the Purchase Agreement to which a Service Recipient is a party), such Service Recipient shall pay to the applicable Service Provider that is to provide a Shared Service to such Service Recipient, by wire transfer of immediately available funds, an amount in cash as set forth on Exhibit A (the “Deposit”), with respect to such Shared Service, as an advance for payment of the Service Fees, the Service Costs and any Additional Third Party Fees. The amount of each monthly invoice shall be credited against the Deposit until such time as the Deposit has been fully earned by a Service Provider, after which time, payment of the Service Fees, the Service Costs and any Additional Third Party Fees shall be made as provided herein. If upon the earlier of the expiration or termination of this Agreement, the Deposit exceeds the aggregate amount of the Service Fees, the Service Costs and any Additional Third Party Fees, in each case, due and payable by a Service Recipient hereunder with respect to a Shared Service (such amount, the “Excess Amount”), such Service Recipient shall pay to the Service Provider providing such Shared Service by wire transfer of immediately available funds an amount in cash equal to the Excess Amount.
(c) Additional Costs to Provide Services. If any Service Provider or its Affiliates’ third-party providers, including information technology vendors, (i) increases the fees payable by the Service Provider under its presently existing contracts with such provider or vendor as a direct consequence of the execution of this Agreement or the performance of the Shared Services hereunder or (ii) charges any fee for the transfer or provision of services provided by it to a Service Recipient, such Service Recipient shall be responsible for any such increases in fees (but only such portion which is allocable to the Shared Services rendered hereunder) and/or transfer fees (collectively, the “Additional Third Party Fees”), and any such amounts shall be included on the invoices described above. In addition, a Service Recipient shall pay to a Service Provider that is providing a Shared Service to such Service Recipient the reasonable costs and expenses incurred by such Service Provider and its Affiliates in connection with the performance of the Shared Services hereunder (the “Service Costs”), which amounts shall also be included on the invoices described above; provided, that any Shared Services that require technical resource time (e.g., data extracts from systems, backups of system data, transformation of data, migration of data, or other technical resources) will be billed on a time and materials basis at hourly rate of $[●]/hr.
| -3- |
ARTICLE I
2. Other Covenants.
(a) Indemnification by Service Recipient. Service Recipient shall indemnify and hold each Service Provider that is providing Shared Services to such Service Recipient and its Affiliates and their respective directors, managers, members, stockholders, officers, employees, controlling persons, and other representatives harmless from and against all claims, losses, damages or expenses of whatever form or nature, including reasonable attorneys’ fees and other costs of legal defense (collectively, “Damages”), whether direct or indirect, that they, or any of them, may suffer, sustain or incur or become subject to, resulting from or arising out of (i) any of the Shared Services rendered or to be rendered by or on behalf of such Service Provider or its Affiliates pursuant to this Agreement, except to the extent such Damages are caused by the willful misconduct, gross negligence or fraud by such Service Provider or its Affiliates, (ii) a breach by such Service Recipient of this Agreement, including, without limitation, any covenant contained herein or on Exhibit A hereto, or (iii) the willful misconduct, gross negligence or fraud of such Service Recipient in connection with the performance of its obligations under this Agreement.
(b) Indemnification by Service Provider. Service Provider shall indemnify and hold Service Recipient and its directors, managers, members, stockholders, officers, employees, controlling persons, and other representatives harmless from and against all Damages whether direct or indirect, that they, or any of them, may suffer, sustain or incur or become subject to, resulting from or arising out of the willful misconduct, gross negligence or fraud in the performance of the Shared Services provided to such Service Recipient by such Service Provider or its Affiliates.
(c) Limitation on Liability. Neither any Service Provider nor any of their respective Affiliates shall bear any liability for the operations of a Service Recipient’s business or for such Service Providers’, their respective Affiliates’ or vendors’ performance of the Shared Services, except to the extent that it results from willful misconduct, gross negligence or fraud on such Service Provider’s or its Affiliates’ part as finally determined by a non-appealable order from a court of competent jurisdiction. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL ANY SERVICE PROVIDER OR ANY OF ITS AFFILIATES BE LIABLE (I) FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS OR BUSINESS OR LOSS OF ANTICIPATED SAVINGS, ARISING FROM OR RELATING TO ANY ACT OR OMISSION UNDER THIS AGREEMENT, (II) FOR THE FAILURE OF THIRD-PARTY PROVIDERS TO PERFORM ANY SERVICES UNDER THIS AGREEMENT OR (III) TO ANY SERVICE RECIPIENT UNDER THIS AGREEMENT FOR ANY AMOUNT IN EXCESS OF THE AGGREGATE SERVICE FEES PAID BY SUCH SERVICE RECIPIENT UNDER THIS AGREEMENT.
| -4- |
(d) No Express or Implied Warranties. Each Service Recipient acknowledges that the Shared Services are being provided as an accommodation to such Service Recipient. Accordingly, each Service Recipient acknowledges and agrees that, notwithstanding anything to the contrary in this Agreement that NEITHER ANY SERVICE PROVIDER NOR ANY OF ITS AFFILIATES ARE MAKING ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE SHARED SERVICES OR ANY OTHER MATTER RELATING TO THIS AGREEMENT, AND EACH SERVICE PROVIDER AND ITS AFFILIATES HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES (INCLUDING, WITHOUT LIMITATION, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) IN CONNECTION THEREWITH.
(e) Confidentiality. Each Party shall, and shall cause each of its Affiliates and each of their respective officers, directors, agents, representatives and employees to, hold all information and documents relating to the business of any other party or its Affiliates disclosed to it by reason of this Agreement confidential, and will not disclose any of such information or documents to any person or entity without the prior written consent of the disclosing party unless legally required or compelled to disclose such information or documents; provided, however, that to the extent that any of them may become so legally required or compelled, they may only disclose such information or documents if they shall first have used reasonable efforts to, and, if practicable, shall have afforded the affected party the opportunity to obtain (at the affected party’s expense), an appropriate protective order or other satisfactory assurance of confidential treatment for the information required or compelled to be so disclosed. This obligation of confidentiality shall not apply to information that is in or hereafter enters the public domain through no fault of the receiving party, is (at the time of disclosure) already in the receiving party’s possession on a non-confidential basis, is obtained by the receiving party from a third party having the legal right to use and disclose the same or is independently developed by the receiving party after the date hereof as evidenced by a written record providing such independent development.
ARTICLE II
3. Term; Termination.
2.1 (a) Term. Except as otherwise expressly set forth herein or on Exhibit A hereto, the term of this Agreement shall commence upon the entry of an order by the Bankruptcy Court approving this Agreement, Sellers’ performance of their obligations hereunder and the Purchase Agreement to which they are a party, and shall continue in full force and effect for a period expiring on the expiration of the latest Transition Period set forth on Exhibit A (the “Expiration Date”), unless the Parties shall extend such Expiration Date by mutual written agreement of the Parties.
2.2 (b) Early Termination. Notwithstanding the provisions of Section 3(a), the term of this Agreement (or the provision of one or more of the Shared Services provided under this Agreement, i.e., any Transition Period referred to in Exhibit A) may be terminated prior to the Expiration Date (or prior to the end of the applicable Transition Period) as follows:
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(i) by the mutual written agreement of the Sellers and the Buyers to the extent so provided in such written agreement;
(ii) by the mutual written agreement of a Service Provider and a Service Recipient of such Shared Service(s), but only with respect to one or more of such Shared Service(s);
(iii) immediately by a Service Provider with respect to one or more of such Shared Service(s), if a Service Recipient of such Shared Service(s) breaches any of its obligations or covenants contained in this Agreement with respect to such Shared Service and does not cure such breach within five (5) days after receipt of written notice of such breach from such Service Provider; or
(iv) by a Service Recipient with respect to one or more of such Shared Service(s), upon [twenty (20)] days’ prior written notice to a Service Provider providing such Shared Service(s).
2.3 (c) Prompt Transition. During the term of this Agreement, each Service Provider and each Service Recipient shall use commercially reasonable efforts (but at no expense to the Service Providers or any of their respective Affiliates) to cooperate with and assist each other in connection with the transition from the performance of each Shared Service by such Service Provider or its Affiliates, as the case may be, to the performance of such Shared Service by a Service Recipient as promptly as reasonably practicable after the Closing Date (as defined in the Purchase Agreement to which such Service Recipient is a party).
(d) Effect of Termination. Upon termination of any Shared Service under this Agreement, neither a Service Provider nor any of its Affiliates shall be required to provide such Shared Service to a Service Recipient that was receiving such Shared Service. Termination of this Agreement or any Shared Service hereunder shall not affect a Service Provider’s rights to receive Service Fees, Service Costs or any Additional Third Party Fees payable under Section 1(b) for the Shared Services provided prior to termination of this Agreement. The termination rights set forth in Section 3(b) shall be in addition, and without prejudice, to all other rights and remedies to which the terminating party may be entitled, including any right to specific performance or injunctive relief. The provisions of Section 2 shall survive any expiration or termination of this Agreement or any Shared Services hereunder. Notwithstanding the foregoing, if a Service Provider terminates any Shared Service pursuant to Section 3(b)(iii), then a Service Recipient of such Shared Service shall nevertheless be responsible for all accrued Services Fees and Service Costs with respect to such Shared Service through the date of termination without reduction, abatement or set-off of any kind.
2.4 4. Miscellaneous.
2.5 (a) Independent Contractor Status. Nothing in this Agreement shall be deemed to make any party the agent of any other party or to create a partnership or joint venture among the parties for any purpose whatsoever. Each Party shall at all times retain exclusive management and control over its officers, employees, policy decisions and business operations. The employees of a Service Provider and its Affiliates shall not be considered employees of any Service Recipient or any of its Affiliates for any purpose.
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2.6 (b) Cooperation of Service Recipients. With respect to any Shared Service, a Service Recipient shall cooperate diligently with a Service Provider and its Affiliates by promptly providing all information reasonably deemed necessary by such Service Provider and its Affiliates, as the case may be, for the performance of such Shared Services and by causing the applicable Acquired Business (as defined in the Purchase Agreement to which such Service Recipient is a party) to accept such Shared Services in a manner consistent with the past practices of such Acquired Business. Should a Service Recipient’s failure to supply such information render performance of any Shared Services unreasonably difficult, a Service Provider or its Affiliates, as the case may be, providing such Shared Services, upon reasonable notice, may provide abridged Shared Services or refuse to perform such Shared Services in each case until such information is provided.
2.7 (c) Nonexclusivity of Services. Nothing in this Agreement shall prevent or prohibit a Service Provider or any of its Affiliates from providing any service similar to the Shared Services to its own businesses or to any other person or entity, including, but not limited to, another Service Recipient, or prohibit a Service Recipient from obtaining any services, including, but not limited to, any Shared Services contemplated hereunder, from third party providers; provided, however, that the provision of such services by a third party shall not relieve a Service Provider of its obligations under this Agreement.
2.8 (d) Amendment; Waiver. This Agreement may not be amended, supplemented or changed except by an instrument in writing signed by the Sellers and the Buyers; provided that, with respect to any Shared Service, the terms, conditions and limitations set forth on Exhibit A may be amended, supplemented or changed by an instrument in writing signed by the Service Provider providing, and the Service Recipient receiving, such Shared Service. Any Party may waive in writing any obligation owed to it by any other Party under this Agreement. No waiver of any Party of any default, misrepresentation, breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent occurrence.
2.9 (e) Successors and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No Party may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other Parties hereto; provided, however, that each Service Provider may assign this Agreement and any or all of its respective rights or obligations hereunder to its respective Affiliates or any successors to such Service Provider or any successor to any business or assets of such Service Provider to which the Shared Services relate without the applicable Service Recipient’s consent. Except as expressly provided in this Section 4(e), any assignment or attempted assignment shall be null and void.
2.10 (f) No Third Party Beneficiaries. Except as set forth in this Section 4(f), this Agreement does not create, and shall not be construed as creating, any rights enforceable by any person or entity not a party to this Agreement, except to the extent that such person or entity is entitled to indemnification provided in Section 2(a) or Section 2(b) hereof.
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2.11 (g) Governing Law. This Agreement (and all matters arising, directly or indirectly, from it) shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the conflicts of law principles thereof. Each of the Parties irrevocably submits to the exclusive jurisdiction of the courts of the Bankruptcy Court and the United States District Court for the Southern District of New York located in New York County (and the appropriate appellate courts therefrom) for the purpose of any proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby, and irrevocably waive the defense of an inconvenient forum to the maintenance of any such proceeding. The Parties consent to service of process by mail (in accordance with Section 8.7 of the Purchase Agreement to which they are a party) or any other manner permitted by law.
(h) Entire Agreement. This Agreement (including Exhibit A hereto) and the Purchase Agreement to which each Party is a party supersedes all prior agreements between the Parties with respect to the Shared Services and constitutes a complete and exclusive statement of the terms of the agreement between the Parties with respect to the Shared Services.
(i) Specific Performance. Each Party acknowledges that a breach of the provisions of this Agreement (including Exhibit A hereto) by such Party will cause irreparable harm to the other Parties to whom such performance was due, for which there may be no adequate remedy at law and for which the ascertainment of damages would be difficult. Therefore, each of the Parties shall be entitled to seek, in addition to, and without having to prove the inadequacy of, other remedies at law, to specific performance of this Agreement (including Exhibit A hereto), as well as injunctive and other equitable relief (without being required to post bond or other security).
(j) Notices. All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing and delivered to the address and in accordance with the procedures set forth in Section 8.7 of the Purchase Agreement to which they are a party.
(k) Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. Delivery of an executed counterpart of a signature page by facsimile or electronic means (including a PDF thereof) shall be as effective as delivery of a manually executed counterpart of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
| [ATLAS] Corporation | ||
| By: | ||
| Name: | ||
| Title: | ||
| [TARGET] Pharmaceuticals, Inc. | ||
| By: | ||
| Name: | ||
| Title: | ||
| NMC ATLAS, L.P. | |
| By: NMC Atlas GP, L.L.C., its general partner | |
| By: | ||
| Name: | ||
| Title: | ||
| [PHARMA BUYER] | ||
| By: | ||
| Name: | ||
| Title: | ||
| -9- |
EXHIBIT A
SHARED SERVICES1
1. IT Services:
Shared Service: The transitional IT services shall consist of the following:
| § | Software Services: Service Provider to provide access to and support with respect to those software system listed forth below, in each case, consistent with those provided to the respective Acquired Businesses prior to the Closing: |
| o | Cognos (IBM) |
| o | [●] |
Service Provider: Chem Plus Buyer
Service Recipient: [Pharma Buyer]/Parent
Service Fee: The amount charged by the Service Provider to each Service Recipient2 for the foregoing Shared Services through the Transition Period shall be: [●]
Service Costs: The costs incurred by such Service Provider and its Affiliates in connection with providing the Shared Services set forth in Section 1 of this Exhibit A, including, without limitation, any additional out-of-pocket costs or expenses incurred by such Service Provider and its Affiliates in connection with the performance thereof plus any Additional Third Party Fees.
Transition Period: [To be provided]
Deposit: [To be provided]
2. Telecommunication Services:
Shared Service: Service Provider to provide access to and support of any and all telecommunication systems consistent with those provided to the Acquired Businesses prior to the Closing.
Service Provider: Chem Plus Buyer
Service Recipient: [Pharma Buyer]/Parent
1 Note to Draft: Specific transition periods and services to be discussed and agreed with the Pharma Buyer.
2 Note to Draft: Service Fee will not be charged by the Service Provider to Parent for general data access for a customary transition period and 1-2 cycles of payroll processing to be provided to Parent free of charge.
Service Fee: The amount charged by the Service Provider to each Service Recipient for the foregoing Shared Services through the Transition Period shall be: [●]
Service Costs: The costs incurred by such Service Provider and its Affiliates in connection with providing the Shared Services set forth in Section 1 of this Exhibit A, including, without limitation, any additional out-of-pocket costs or expenses incurred by such Service Provider and its Affiliates in connection with the performance thereof plus any Additional Third Party Fees.
Transition Period: [To be provided]
Deposit: [To be provided]
3. E-mail Services:
Shared Service: Service Provider to provide email services substantially identical to those currently provided to the Acquired Businesses prior to the Closing. During this period, e-mail accounts for all employees of the Acquired Businesses who will be employed by the Pharma Buyer shall have their current e-mail accounts automatically forwarded to new e-mail addresses under the Pharma Buyer’s e-mail system.
Service Provider: Chem Plus Buyer
Service Recipient: Pharma Buyer/Parent
Service Fee: The amount charged by the Service Provider to each Service Recipient for the foregoing Shared Services through the Transition Period shall be: [●]
Service Costs: The costs incurred by such Service Provider and its Affiliates in connection with providing the Shared Services set forth in Section 1 of this Exhibit A, including, without limitation, any additional out-of-pocket costs or expenses incurred by such Service Provider and its Affiliates in connection with the performance thereof plus any Additional Third Party Fees.
Transition Period: [To be provided]
Deposit: [To be provided]
4. Finance & Accounting Services:
Shared Service: Service Provider to provide the following finance and accounting services on a transitional basis to the Pharma Buyer/Parent with respect to the applicable Acquired Business:
| § | Support, as required, for the administration, maintenance, reporting, analysis, and other activities relating to the tasks of a corporate controller, including external auditing and accounting-related services; |
| § | For a period of [sixty (60)] days, as required, support for business tax filing assistance, including property tax, sales and use tax and other business taxes but specifically excluding Federal and State income tax filings; and |
| § | Payroll – For a period of [sixty (60)] days following Closing, Service Provider will assist in the transferring of payroll duties. |
Service Provider: Chem Plus Buyer
Service Recipient: Pharma Buyer/Parent
Service Fee: The amount charged by the Service Provider for the foregoing Shared Services shall be (1) the Employee Compensation Expense (as defined below) for each employee of the Service Provider or its Affiliates performing the above Shared Service, for the portion of the Transition Period during which the Shared Service is provided to the Service Recipient; (2) the Allocable Benefit Expense (as defined below) for each employee of the Service Provider or its Affiliates performing the above Shared Service, for the portion of the Transition Period during which the Shared Service is provided to the Service Recipient; (3) the Allocable Overhead Expense (as defined below) for each employee of the Service Provider or its performing the above Shared Service, for the portion of the Transition Period during which the Shared Service is provided to the Service Recipient; and (4) the Allocable Payroll Tax Expense (as defined below) for each employee of the Service Provider or its Affiliates performing the above Shared Service, for the portion of the Transition Period during which the Shares Service is provided to the Service Recipient (such fees referenced in numbers (1) through (4) of this section shall be listed by applicable employee on Exhibit B).
Service Costs: The costs incurred by such Service Provider and its Affiliates in connection with providing the Shared Services set forth in Section 2 of this Exhibit A, including, without limitation, any additional out-of-pocket costs or expenses incurred by such Service Provider or its Affiliates, as the case may be, in connection with the performance thereof plus any Additional Third Party Fees.
Transition Period: [To be provided]
Deposit: [To be provided]
5. Payroll and Employee Benefits (exclusive of 401(k)):
Shared Service: Service Provider shall maintain the existing healthcare and other employee benefit programs in effect immediately prior to the Closing through [DATE]. The Buyers have made arrangements for replacement benefit programs to take effect on [DATE].
Service Provider: Parent
Service Recipient: [Pharma Buyer] / [Chem Plus Buyer]
Service Fee: Each of the Service Recipients shall make payment to Service Provider at the conclusion of the transition period for the pro-rata share of the direct costs of the benefits for the month of [MONTH], 2019.
Service Costs: The costs incurred by such Service Provider and its Affiliates in connection with providing the Shared Services set forth in Section 3 of this Exhibit A, including, without limitation, any additional out-of-pocket costs or expenses incurred by such Service Provider or its Affiliates, as the case may be, in connection with the performance thereof plus any Additional Third Party Fees.
Transition Period: [To be provided]
Deposit: [To be provided]
GENERAL TERMS
The Service Provider and its Affiliates are retaining certain employees primarily for the purpose of performing the Shared Services. Each Service Recipient is agreeing to pay the compensation and related expenses of those employees as set forth herein. The Services Fees are a function of that compensation expense, as well as related overhead and employment tax expense. Specifically, the Service Fees will consist of the following, with respect to each employee who performs Shared Services and, in each case, allocable to the portion of the Transition Period the employee provides Shared Services to the applicable Service Recipient: (1) the compensation payable during the applicable Transition Period to such employee for the employee’s performance of Shared Services (with respect to each such employee, the “Employee Compensation Expense”); (2) the benefit expense incurred with respect to each such employee during the Transition Period, which will be based upon an allocation of the overall benefit expense for the benefits received by such employee, as reasonably determined by the Service Provider (with respect to each such employee, the “Allocable Benefit Expense”); (3) a reasonable allocation to such employee of the Service Provider’s corporate headquarters’ overhead expense, including without limitation, rent, utilities, information technology, insurance, and such other general and administrative expenses historically and reasonably incurred in employing all of the retained employees (with respect to each such employee, the “Allocable Overhead Expense”); and (4) all payroll and other taxes payable by the Service Provider or its Affiliates in respect of each such employee (other than any taxes based on the income of the Service Provider or its Affiliates) (with respect to each such employee, the “Allocable Payroll Tax Expense”). Please refer to Exhibit B of this Agreement for the hourly rate per employee, which is inclusive of items (1) – (4) referred to above. Any billing for Shared Services related to the above, shall be in 1/4 (one quarter) of an hour increments. On Monday of each week, the Service Provider will send a listing of billable hours by individual for the previous week to the applicable Service Recipient for their review and approval.
EXHIBIT B
TSA – FINANCE & ACCOUNTING SERVICES EMPLOYEES
| Name | Function | Hourly Rate | ||
Exhibit 10.3
Aceto corporation
As of February 11, 2019
Re: Retention Bonus
Dear Steve:
On behalf of Aceto Corporation (the “Company”), I am pleased to advise you that the Compensation Committee of the Company’s Board of Directors (the “Committee”) has approved an amendment to the Retention Bonus, granted to you under (and as defined in) that certain Retention Bonus Agreement, between you and the Company, dated as of May 21, 2018 (the “Agreement”). Capitalized terms used but not defined in this letter, including Exhibit A hereto (this “Letter”), shall have the meanings given such terms in the Agreement.
Currently, Section 4(a) of the Agreement provides that the remaining unpaid portion of your Retention Bonus (the “Balance”) will be payable on the earlier of (i) the consummation of a Transaction or (ii) the Final Retention Date, in each case, subject to the terms and conditions of the Agreement. The Balance is currently $620,100.
Your Agreement is being amended by this Letter to provide that the Balance will instead be payable, subject to the terms and conditions of the Agreement, upon the earliest of (i) the consummation of a Transaction, (ii) the Final Retention Date, or (iii) the receipt of a Stalking Horse Bid, in each case prior to March 15, 2019. Whether a Stalking Horse Bid has been received will be determined by Committee in its sole discretion. For avoidance of doubt, except as otherwise provided herein, upon your receipt of the Balance as a result of receipt of a Stalking Horse Bid, no further amounts shall be due or owing to you pursuant to the Agreement.
Notwithstanding the foregoing, if payment of your Balance is triggered by receipt of a Stalking Horse Bid and (i) none of the Company or any of its subsidiaries, including, without limitation, Rising, has entered into a Stalking Horse Agreement prior to March 15, 2019, you shall repay one-hundred percent (100%) of the Balance to the Company on March 15, 2019, (ii) your employment with the Company terminates, for any reason other than by the Company without Cause or as result of your death or disability, prior to the earlier of (A) the consummation of a sale or reorganization of both the Pharma Business and the ChemPlus Business, (B) the dismissal or conversion of the Bankruptcy Case, if any, or (C) the Final Retention Date, you shall repay one-hundred percent (100%) of the Balance to the Company as soon as possible (but no later than ten (10) days) following such termination (each of clauses (i) or (ii), a “Sale Clawback”), or (iii) your employment terminates, for any reason, prior to the date the Balance would have been paid absent this Letter, you hereby agree that you shall repay to the Company within thirty (30) days of your receipt of written demand from the Company the difference between (x) the Balance, and (y) the portion of the Balance you would have been paid had your employment not terminated, as determined by the Committee in its good faith discretion. For avoidance of doubt, (i) in no event shall you be required to repay more than one-hundred percent (100%) of the Balance pursuant to the immediately preceding sentence, and (ii) a transfer of your employment to (A) any affiliate of the Company, including, without limitation, Rising, or (B) any successor to the Company or any of its affiliates, shall not be deemed a termination of your employment with the Company for purposes of this Letter.
Except as expressly modified by this Letter, the terms of the Agreement remain in full force and effect, including, without limitation, Section 5 and Section 8 of the Agreement. Notwithstanding anything in this Letter to the contrary, in the event you are required to repay the Balance pursuant to a Sale Clawback, the Balance shall thereafter be payable in accordance with the terms of the Agreement, without regard to this Letter.
If the terms of this Letter are acceptable to you, please countersign a copy of this Letter below and return it to the undersigned no later than February 14, 2019. Please contact the undersigned if you have any questions regarding this Letter.
[Signature Page Follows]
| Sincerely, | ||
| Aceto Corporation | ||
| By: | /s/ Charles J. Alaimo | |
| Name: Charles J. Alaimo | ||
| Title: SVP, Human Resources | ||
| ACKNOWLEDGED AND AGREED: | ||
| /s/ Steve Rogers | ||
| Steve Rogers | ||
Exhibit A
Definitions
“Bankruptcy Case” means the voluntary petitions for relief contemplated to be filed by the Company and certain of its subsidiaries under Chapter 11 of the U.S. Bankruptcy Code.
“ChemPlus Business” means, collectively, the (i) Nutritional Business Sub Segment, (ii) the business segment of the Company and certain of its affiliates historically identified as “Performance Chemicals” and consisting of the sourcing and distribution of specialty chemicals and agricultural protection products, including the supply to various industrial segments of chemicals used in the manufacture of plastics, surface coatings, cosmetics and personal care, textiles, fuels and lubricants and Performance Chemicals, and (iii) the business segment of the Company and certain of its affiliates historically identified as “Pharmaceutical Ingredients” and comprised of the Active Pharmaceutical Ingredients (APIs) and Pharmaceutical Intermediates product groups.
“ChemPlus Stalking Horse” means the initial bidder with whom the Company has negotiated and entered into a ChemPlus Stalking Horse Agreement.
“ChemPlus Stalking Horse Agreement” means a binding agreement for the purchase of the assets of the ChemPlus Business, which agreement will be subject to higher or otherwise better offers under the supervision of the bankruptcy court and subject to the terms of bankruptcy court order.
“ChemPlus Stalking Horse Bid” means a binding offer to become the ChemPlus Stalking Horse.
“Nutritional Business Sub Segment” means the business segment of the Company and certain of its affiliates consisting of the supply of ingredients and raw materials used in the production of food, nutritional and packaged dietary supplements, including vitamins, supplements, botanical extracts, amino acids, minerals, iron compounds and biochemicals used in pharmaceutical and nutritional preparations.
“Pharma Business” means the business segment of certain subsidiaries of the Company consisting of the development, marketing, sales and distribution of prescription and over-the-counter pharmaceutical finished dosage form products, excluding the Nutritional Business Sub Segment.
“Pharma Stalking Horse” means the initial bidder with whom Rising has negotiated and entered into a Pharma Stalking Horse Agreement.
“Pharma Stalking Horse Agreement” means a binding agreement for the purchase of the assets of the Pharma Business, which agreement will be subject to higher or otherwise better offers under the supervision of the bankruptcy court and subject to the terms of bankruptcy court order.
“Pharma Stalking Horse Bid” means a binding offer to become the Pharma Stalking Horse.
“Rising” means Rising Pharmaceuticals, Inc., a New Jersey corporation.
“Stalking Horse Agreement” means a ChemPlus Stalking Horse Agreement or a Pharma Stalking Horse Agreement.
“Stalking Horse Bid” means a ChemPlus Stalking Horse Bid or a Pharma Stalking Horse Bid.
Exhibit 10.4
KEY EXECUTIVE INCENTIVE AGREEMENT
1. Purpose. This Key Executive Incentive Agreement (as may be amended, restated, or otherwise modified from time to time, this “Agreement”) is entered into as of February 11, 2019 by Aceto Corporation, a New York corporation (the “Company”) for the purpose of setting forth the requirements for William Kennally (“Executive”) to receive additional compensation as an incentive to maximize the value of the Company’s assets and to ensure optimum recovery for all stakeholders. Certain capitalized terms used but not defined herein shall have the meanings given such terms on Exhibit A hereto.
2. Eligibility.
(a) Subject to (i) the terms and conditions of this Agreement, and (ii) Executive’s compliance with the terms and conditions hereof, including, without limitation, Executive’s compliance with the terms and conditions of Section 6 below, Executive shall receive a bonus (the “Bonus”) in the event of the receipt of a Stalking Horse Bid prior to March 15, 2019. Whether a Stalking Horse Bid has been received will be determined by the Committee in its sole discretion.
(b) Payment of the Bonus shall be subject to (i) Executive’s continued employment with the Company from the date of this Agreement through the date of payment, or (ii) termination of Executive’s employment with the Company by the Company without Cause (as defined in the Change in Control Agreement) prior to the date of payment.
3. Amount of Bonus. The amount of Executive’s Bonus, if any, shall be eight hundred thousand dollars ($800,000), and such amount shall be paid, less applicable withholdings, as soon as reasonably practical following the receipt of a Stalking Horse Bid, and in all events within ten (10) days following receipt of a Stalking Horse Bid.
4. Deadline for Acceptance of this Offer. In order to accept this Agreement, Executive must sign and return this Agreement to the undersigned no later than February 14, 2019.
5. Clawback. Notwithstanding anything in this Agreement to the contrary, if (i) none of the Company or any of its subsidiaries, including, without limitation, Rising, has entered into a Stalking Horse Agreement prior to March 15, 2019, Executive shall repay one-hundred percent (100%) of the Balance to the Company on March 15, 2019, and (ii) Executive’s employment with the Company terminates, for any reason other than by the Company without Cause (as defined in the Change in Control Agreement) or as result of Executive’s death or disability, prior to the earlier of (A) the consummation of a sale or reorganization of both the Pharma Business and the ChemPlus Business, (B) the dismissal or conversion of the Bankruptcy Case, if any, or (C) September 13, 2019, Executive shall repay one-hundred percent (100%) of the Balance to the Company as soon as possible (but no later than ten (10) days) following such termination. For avoidance of doubt, a transfer of Executive’s employment to (i) any affiliate of the Company, including, without limitation, Rising, or (ii) any successor to the Company or any of its affiliates, shall not be deemed a termination of Executive’s employment with the Company for purposes of this Agreement.
6. Assistance with Transaction. Notwithstanding anything in this Agreement to the contrary, if any transaction is proposed by the Board that could result in the sale or other disposition of all or substantially all of the equity interests or assets of the Company (or any of its subsidiaries or affiliates), Executive shall support such transaction and take all such action as may be reasonably requested by the Board to cause such transaction to be consummated at the time and on the terms proposed by the Board, including, without limitation, to the extent requested: (i) reviewing and commenting on confidential offering memoranda or similar documents; (ii) preparing projections; (iii) meeting with representatives of prospective purchasers; (iv) participating in management meetings; (v) assisting in connection with the negotiation, documentation and consummation of the proposed transaction; (vi) executing and delivering such agreements and documents as are customary for similar transactions; (vii) assisting with any formal or informal inquiry, investigation, disciplinary or other proceeding initiated by any government, regulatory or law enforcement agency in connection with the proposed transaction or any threatened or initiated litigation against the Company whether relating to such transaction or otherwise; and (viii) any other transitional matter reasonably requested by the Company.
7. Cooperation. Executive agrees, at the Company’s request, to reasonably cooperate, by providing truthful information, documents and testimony, in any Company investigation, litigation, arbitration, or regulatory proceeding regarding events that occur during Executive’s employment with the Company. Executive’s requested cooperation may include, without limitation, making himself reasonably available to consult with the Company’s counsel, providing truthful information and documents, and to appear to give truthful testimony. The Company will, to the extent permitted by applicable law and court rules, reimburse Executive for reasonable out-of-pocket expenses that Executive incurs in providing any requested cooperation, so long as Executive provides advance written notice to the Company of Executive’s request for reimbursement and provide satisfactory documentation of the expenses. Nothing in this Section is intended to, and this Section shall not, preclude or limit Executive’s preserved rights described in Section 20 below.
8. Effect of Bonus on Other Benefits. Neither the entrance into this Agreement nor the payment of any amount hereunder will affect Executive’s benefits under any benefit plan, policy, or arrangement of the Company, except to the extent expressly provided in any such benefit plan, policy, or arrangement. Without limiting the preceding sentence, the Bonus:
(a) shall not be considered in the computation of Executive’s performance award for purposes of Section 3 of the Change in Control Agreement;
(b) shall not be considered in the computation of Executive’s base salary and;
(c) shall not be considered in the determination of the payments, if any, that Executive may be entitled to pursuant to any severance plan, policy, or arrangement or the Change in Control Agreement.
9. Restrictive Covenants. Any payment or payments under this Agreement to Executive shall be conditioned upon the Executive’s compliance with any restrictive covenant (including, without limitation, any non-competition, non-solicitation, non-disparagement, or protection of confidential information covenant) that directly or indirectly benefits the Company (collectively, the “Restrictive Covenants”)). If the Executive breaches any such Restrictive Covenant in any material respect, the Executive shall automatically, without further action, notice or deed, forfeit his right to any payment hereunder, without payment of any consideration therefor, and upon demand by the Company, the Executive shall promptly repay to the Company any amounts already received under this Agreement.
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10. Offset of Amounts Owed; Withholding. The Company shall be entitled to deduct or withhold from any Bonus payment made to Executive any amounts Executive owes the Company or any of its affiliates, and any federal, state, local or foreign taxes imposed with respect to Executive’s compensation or other payments from the Company or any of its affiliates.
11. No Change in Legal Employment Status. This Agreement and the Bonus are not a contract or guarantee of employment with the Company and they are not intended to change in any way Executive’s status as an at-will Executive subject to all applicable terms and conditions of Executive’s employment.
12. No Right to Assign. Executive may not sell or assign Executive’s right to receive payments hereunder or pledge such payments as security for a loan or otherwise, and any such sale, assignment, or pledge shall be null and void ab initio.
13. Successors. This Agreement is binding on the Company and any direct corporate successor to the Company or its business, and on Executive’s estate, personal representative, guardian or any other person acting in Executive’s interest.
14. Governing Law. This Agreement will be governed by and interpreted under New York law, without regard to the choice of law provisions thereof. Any and all actions arising out of this Agreement shall be brought and heard in the state and federal courts located in Nassau County, New York and the parties hereto hereby irrevocably submit to the exclusive jurisdiction of any such courts. THE COMPANY AND THE EXECUTIVE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY IN ANY ACTION CONCERNING THIS AGREEMENT OR ANY AND ALL MATTERS ARISING DIRECTLY OR INDIRECTLY HEREFROM AND REPRESENT THAT THEY HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE OR HAVE CHOSEN VOLUNTARILY NOT TO DO SO SPECIFICALLY WITH RESPECT TO THIS WAIVER.
15. Unfunded and Unsecured Status. To the extent that Executive becomes entitled to receive any payments from the Company hereunder, such right shall be unfunded and unsecured and payable out of the general assets of the Company as and when such amounts are payable hereunder.
16. Advice of Counsel. Both parties hereto acknowledge that they have had the advice of counsel before entering into this Agreement, have fully read the Agreement and understand the meaning and import of all the terms hereof.
17. No Rights as a Shareholder. Executive shall not be entitled to any of the rights or privileges of a shareholder of the Company with respect to the Bonus. Without limitation of the foregoing, the Bonus shall not entitle Executive to any dividend or voting rights or any other rights of a shareholder of the Company.
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18. Compliance with Section 409A. The intent of the parties is that payments and benefits under this Agreement comply with or are exempt from Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and this Agreement shall be interpreted and construed in a manner that establishes an exemption from (or compliance with) the requirements of Section 409A. Any terms of this Agreement that are undefined or ambiguous shall be interpreted in a manner that complies with Section 409A to the extent necessary to comply with Section 409A. Notwithstanding anything herein to the contrary, (i) if, on the date of termination, Executive is a “specified employee” as defined in Section 409A, and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is the first business day of the seventh month following the date of termination (or the earliest date as is permitted under Section 409A), and (ii) if any other payments of money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A. In the event that payments under this Agreement are deferred pursuant to this Section in order to prevent any accelerated tax or additional tax under Section 409A, then such payments shall be paid at the time specified under this Section without any interest thereon. Notwithstanding anything to the contrary herein, to the extent required by Section 409A, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean separation from service. Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement is to be treated as a right to a series of separate payments.
19. Severability. If any one or more of the terms, provisions, covenants and restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute for such invalid and unenforceable provision in light of the tenor of this Agreement, and, upon so agreeing, shall incorporate such substitute provision in this Agreement.
20. Protected Activities. Nothing in this Agreement shall be construed as a waiver by Executive of Executive’s protected rights under federal, state or local law to, without notice to the Company: (i) communicate or file a charge with a government regulator; (ii) participate in an investigation or proceeding conducted by a government regulator; or (iii) receive an award paid by a government regulator for providing information.
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21. Entire Agreement. Except as otherwise specifically referenced herein, this Agreement is the entire agreement between Executive and the Company concerning the terms of the Bonus, and it supersedes any other oral or written agreement or statement with respect to the subject matter hereof.
22. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, faxed, or sent by nationally recognized overnight courier service (with next business day delivery requested). Any such notice or communication shall be deemed given and effective, in the case of personal delivery, upon receipt by the other party, in the case of faxed notice, upon transmission of the fax, in the case of a courier service, upon the next business day, after dispatch of the notice or communication. Any such notice or communication shall be addressed as follows:
If to the Company to:
Aceto Corporation
4 Tri Harbor Court
Port Washington, New York 11050
Telephone: 201.961.9000
Facsimile: 201.961.1234
Attn: Chief Legal Officer
With a copy to:
Lowenstein Sandler LLP
1251 Avenue of the Americas
New York, New York 10020
Telephone: 212.204.8688
Facsimile: 973.597.2507
Attn: Steven E. Siesser, Esq.
If to Executive, to him at the offices of the Company with a copy to him at his home address, set forth in the records of the Company.
Any person named above may designate another address or fax number by giving notice in accordance with this paragraph to the other persons named above.
23. Counterparts. This Agreement may be executed in any number of counterparts and each such duplicate counterpart shall constitute an original, any one of which may be introduced in evidence or used for any other purpose without the production of its duplicate counterpart. Moreover, notwithstanding that any of the parties did not execute the same counterpart, each counterpart shall be deemed for all purposes to be an original, and all such counterparts shall constitute one and the same instrument, binding on all of the parties hereto.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
ACETO CORPORATION
| By: | /s/ Charles J. Alaimo | 2/14/2019 | |
| Name: Charles J. Alaimo | Date | ||
| Title: SVP, Human Resources | |||
| EXECUTIVE | |||
| By: | William C. Kennally | 2/14/19 | |
| Executive Name (Print) | Date | ||
| /s/ William C. Kennally | |||
| Signature |
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Exhibit A
Definitions
“Bankruptcy Case” means the voluntary petitions for relief contemplated to be filed by the Company and certain of its subsidiaries under Chapter 11 of the U.S. Bankruptcy Code.
“Change in Control Agreement” means that certain Change in Control Agreement dated as of the 11th day of October, 2017, by and between the Company and Executive, as may be amended, restated, or otherwise modified from time to time.
“ChemPlus Business” means, collectively, the (i) Nutritional Business Sub Segment, (ii) the business segment of the Company and certain of its affiliates historically identified as “Performance Chemicals” and consisting of the sourcing and distribution of specialty chemicals and agricultural protection products, including the supply to various industrial segments of chemicals used in the manufacture of plastics, surface coatings, cosmetics and personal care, textiles, fuels and lubricants and Performance Chemicals, and (iii) the business segment of the Company and certain of its affiliates historically identified as “Pharmaceutical Ingredients” and comprised of the Active Pharmaceutical Ingredients (APIs) and Pharmaceutical Intermediates product groups.
“ChemPlus Stalking Horse” means the initial bidder with whom the Company has negotiated and entered into a ChemPlus Stalking Horse Agreement.
“ChemPlus Stalking Horse Agreement” means a binding agreement for the purchase of the assets of the ChemPlus Business, which agreement will be subject to higher or otherwise better offers under the supervision of the bankruptcy court and subject to the terms of bankruptcy court order.
“ChemPlus Stalking Horse Bid” means a binding offer to become the ChemPlus Stalking Horse.
“Nutritional Business Sub Segment” means the business segment of the Company and certain of its affiliates consisting of the supply of ingredients and raw materials used in the production of food, nutritional and packaged dietary supplements, including vitamins, supplements, botanical extracts, amino acids, minerals, iron compounds and biochemicals used in pharmaceutical and nutritional preparations.
“Pharma Business” means the business segment of certain subsidiaries of the Company consisting of the development, marketing, sales and distribution of prescription and over-the-counter pharmaceutical finished dosage form products, excluding the Nutritional Business Sub Segment.
“Pharma Stalking Horse” means the initial bidder with whom Rising has negotiated and entered into a Pharma Stalking Horse Agreement.
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“Pharma Stalking Horse Agreement” means a binding agreement for the purchase of the assets of the Pharma Business, which agreement will be subject to higher or otherwise better offers under the supervision of the bankruptcy court and subject to the terms of bankruptcy court order.
“Pharma Stalking Horse Bid” means a binding offer to become the Pharma Stalking Horse.
“Rising” means Rising Pharmaceuticals, Inc., a New Jersey corporation.
“Stalking Horse Agreement” means a ChemPlus Stalking Horse Agreement or a Pharma Stalking Horse Agreement.
“Stalking Horse Bid” means a ChemPlus Stalking Horse Bid or a Pharma Stalking Horse Bid.
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Exhibit 15.1
February 20, 2019
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
We are aware that Aceto Corporation and subsidiaries has incorporated by reference in its Registration Statements on Form S-3 (No. 333-227896 and No. 333-207394) and Form S-8 (No. 333-209693, No. 333-187353, No. 333-174834, No. 333-149586, No. 333-90929, and No. 333-110653) our report dated February 20, 2019, relating to the Company’s unaudited interim consolidated financial statements appearing in its quarterly report on Form 10-Q for the quarter ended September 30, 2018. Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern. Pursuant to Regulation C under the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. It should be noted that we have not performed any procedures subsequent to February 20, 2019.
/s/ BDO USA, LLP
Melville, New York
Exhibit 31.1
CERTIFICATION
I, William C. Kennally, III, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Aceto Corporation (the “Registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Dated: February 20, 2019 |
| /s/ William C. Kennally, III | |
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Rebecca Roof, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Aceto Corporation (the “Registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Dated: February 20, 2019 |
| /s/ Rebecca Roof | |
| Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION
In connection with the Quarterly Report of Aceto Corporation, a New York corporation (the “Company”), on Form 10-Q for the period ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William C. Kennally, III, President and Chief Executive Officer, certify, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ William C. Kennally, III |
President and Chief Executive Officer
(Principal Executive Officer)
February 20, 2019
Exhibit 32.2
CERTIFICATION
In connection with the Quarterly Report of Aceto Corporation, a New York corporation (the “Company”), on Form 10-Q for the period ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rebecca Roof, Chief Financial Officer of the Company, certify, pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Rebecca Roof |
Chief Financial Officer
(Principal Financial Officer)
February 20, 2019
Document and Entity Information - shares |
6 Months Ended | |
|---|---|---|
Dec. 31, 2018 |
Feb. 12, 2019 |
|
| Document and Entity Information [Abstract] | ||
| Entity Registrant Name | ACETO CORP | |
| Entity Central Index Key | 0000002034 | |
| Trading Symbol | acet | |
| Current Fiscal Year End Date | --06-30 | |
| Entity Filer Category | Accelerated Filer | |
| Entity Common Stock Shares Outstanding | 30,839,470 | |
| Document Type | 10-Q | |
| Document Period End Date | Dec. 31, 2018 | |
| Amendment Flag | false | |
| Document Fiscal Year Focus | 2019 | |
| Document Fiscal Period Focus | Q2 | |
| Entity Small Business | false | |
| Entity Emerging Growth Company | false |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($) shares in Thousands, $ in Thousands |
Dec. 31, 2018 |
Jun. 30, 2018 |
|---|---|---|
| Statement Of Financial Position [Abstract] | ||
| Allowance for doubtful accounts (in dollars) | $ 965 | $ 987 |
| Preferred stock, shares authorized | 2,000 | 2,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 75,000 | 75,000 |
| Common stock, shares issued | 30,839 | 30,787 |
| Common stock, shares outstanding | 30,839 | 30,787 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Income Statement [Abstract] | ||||
| Net sales | $ 163,649 | $ 171,229 | $ 328,054 | $ 356,484 |
| Cost of sales | 139,603 | 137,259 | 278,528 | 282,531 |
| Gross profit | 24,046 | 33,970 | 49,526 | 73,953 |
| Selling, general and administrative expenses | 37,000 | 28,063 | 73,897 | 59,212 |
| Research and development expenses | 2,114 | 2,122 | 3,995 | 3,737 |
| Operating (loss) income | (15,068) | 3,785 | (28,366) | 11,004 |
| Other (expense) income: | ||||
| Interest expense | (7,569) | (5,048) | (13,707) | (10,403) |
| Interest and other income, net | 827 | 764 | 1,168 | 1,038 |
| Other (expense) income, Total | (6,742) | (4,284) | (12,539) | (9,365) |
| (Loss) income before income taxes | (21,810) | (499) | (40,905) | 1,639 |
| Income tax provision | 540 | 13,365 | 2,537 | 15,049 |
| Net loss | $ (22,350) | $ (13,864) | $ (43,442) | $ (13,410) |
| Basic loss per common share (in dollars per share) | $ (0.63) | $ (0.39) | $ (1.22) | $ (0.38) |
| Diluted loss per common share (in dollars per share) | $ (0.63) | $ (0.39) | $ (1.22) | $ (0.38) |
| Weighted average shares outstanding: | ||||
| Basic (in shares) | 35,592 | 35,210 | 35,540 | 35,093 |
| Diluted (in shares) | 35,592 | 35,210 | 35,540 | 35,093 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Statement of Comprehensive (loss) Income [Abstract] | ||||
| Net loss | $ (22,350) | $ (13,864) | $ (43,442) | $ (13,410) |
| Other comprehensive (loss) income: | ||||
| Foreign currency translation adjustments | (716) | 906 | (1,050) | 3,226 |
| Change in fair value of interest rate swaps | (916) | 876 | (704) | 982 |
| Comprehensive loss | $ (23,982) | $ (12,082) | $ (45,196) | $ (9,202) |
Basis of Presentation and Going Concern |
6 Months Ended |
|---|---|
Dec. 31, 2018 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Basis of Presentation and Going Concern | (1) Basis of Presentation and Going Concern
Basis of Presentation
The condensed consolidated financial statements of Aceto Corporation and subsidiaries (“Aceto” or the “Company”) included herein have been prepared by the Company and reflect all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented. Interim results are not necessarily indicative of results which may be achieved for the full year.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements and the disclosure of contingent assets and liabilities at the date of the financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. The Company’s most critical accounting policies relate to revenue recognition; allowance for doubtful accounts; inventory; goodwill and other indefinite-life intangible assets; long-lived assets; environmental matters and other contingencies; income taxes; stock-based compensation; and purchase price allocation.
These condensed consolidated financial statements do not include all disclosures associated with consolidated financial statements prepared in accordance with GAAP. Accordingly, these statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended June 30, 2018.
Going Concern Consideration
As indicated in the accompanying interim unaudited condensed consolidated financial statements, the Company had working capital at December 31, 2018 of $953 as compared with $200,109 at June 30, 2018. As more fully discussed in Note 6, the maturity date of the bank loans was revised from December 21, 2021 to June 30, 2019, resulting in the classification of the indebtedness outstanding under the Company’s credit facility as a current liability as of December 31, 2018. The Company has accumulated deficit and continued operating losses. The Company also continues to spend heavily on financial and legal professionals retained by the Company to deal with ongoing negative factors in the generic drug market and pending legal proceedings. As a result, the Company’s cash position declined from $100,874 at June 30, 2018 to $41,782 at December 31, 2018 and its working capital declined from $200,109 at June 30, 2018 to $953 at December 31, 2018. While the Company’s operating businesses continue to generate cash, the current demands upon the Company and its liquidity remain significant. These factors, among others, indicate that the Company will need to be reliant upon its previously announced strategic alternatives initiative to supplement its cash, liquid assets and operating cash flows, and to retire debt. Accordingly, because the Company cannot at this time conclude that these actions are probable of occurring, under applicable accounting standards and because of the high degree of uncertainty and dependence upon factors outside of our control associated with the Bankruptcy Filing described below, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern. These Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of certain liabilities and other commitments in the normal course of business. The accompanying Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.
On February 19, 2019, the Company and certain of its U.S. subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al. (the “Chapter 11 Case”).
For the duration of the Chapter 11 Cases, our operations are subject to risks and uncertainties associated with chapter 11 proceedings. As a result of these risks and uncertainties, our assets, liabilities, shareholders’ equity, officers and/or directors could be significantly different following the conclusion of the Chapter 11 Cases, and the description of our operations, properties and capital plans included in this quarterly report on Form 10-Q may not reflect our actual operations, properties and capital plans following the conclusion of the Chapter 11 Cases.
We intend to sell substantially all of our assets pursuant to one or more sales under Section 363 of the Bankruptcy Code. If we are unable to complete one or more sales of the Company’s assets, it may be necessary to explore a plan of reorganization or liquidation or our Chapter 11 Cases may be converted to a chapter 7 liquidation process. |
Revenue Recognition |
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| Revenue Recognition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue Recognition | (2) Revenue Recognition
The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) for all contracts in the first quarter of fiscal 2019 on a modified retrospective basis. The adoption of Topic 606 had no cumulative impact on the Company’s results of operations, cash flows or financial position. The amounts reported in these condensed consolidated financial statements were the same as the amounts would have been if the previous accounting guidance was in effect. As part of the adoption of this ASU, the Company completed its comprehensive evaluation of the amended guidance following the five-step model, including identification of revenue streams and determined that the timing of recognition of revenue is unchanged under the amended guidance.
All revenue recognized in the accompanying unaudited interim condensed consolidated financial statements of operations is considered to be revenue from contracts with customers. The Company recognizes revenue from product sales at the time of shipment and upon the transfer of control of the Company’s product. The Company has no acceptance or other post-shipment obligations and does not offer product warranties or services to its customers. The Company generally does not have incremental costs to obtain contracts that would otherwise not have been incurred. Payment terms can vary by the type and location of the customer. The term between invoicing and when payment is due is typically 30 to 90 days.
The following tables show the Company’s revenues disaggregated by business segment and product lines offered to customers:
Variable Consideration
The Company has arrangements with various third parties, such as drug store chains and managed care organizations, establishing prices for its finished dosage form generics. While these arrangements are made between Aceto and its customers, the customers independently select a wholesaler from which they purchase the products. Alternatively, certain wholesalers may enter into agreements with the customers, with the Company’s concurrence, which establishes the pricing for certain products which the wholesalers provide. Upon each sale of finished dosage form generics, significant estimates of chargebacks, rebates, returns, government reimbursed rebates, sales discounts and other adjustments are made. These estimates are accounted for as variable consideration and are recorded as reductions to gross revenues, with corresponding adjustments either as a reduction of accounts receivable or as a liability for price concessions.
The Company estimates variable consideration after considering applicable information that is reasonably available. These estimates are based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers, and other factors known to management at the time of accrual. The consideration the Company receives in exchange for its goods is only recognized when it is probable that a significant reversal will not occur.
Chargebacks
Under certain arrangements, Rising will issue a credit (referred to as a “chargeback”) to the wholesaler for the difference between the invoice price to the wholesaler and the customer’s contract price. In order to calculate the chargeback allowance, prior period chargebacks claimed by wholesalers are analyzed to determine the average chargeback amount for each product and wholesaler. These amounts are adjusted for any information that will better reflect future average chargeback amounts. Management receives on-hand inventory reports from wholesalers to which the average chargeback amount is applied. The provision for chargebacks varies in relation to changes in sales volume, product and customer mix, terms with customers, pricing, changes in Wholesale Acquisition Cost (“WAC”), the level of inventory at the wholesalers, and changes in the volume of off-contract purchases. As sales to the large wholesale customers increase or decrease, the liability for chargebacks will also generally increase or decrease. The Company continually monitors the liability for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback liability.
Returns
The Company maintains a policy that allows customers to return product within a specified period prior to and subsequent to the product expiration date. Product returns are settled through a credit issued to the customer. The Company estimates its provision for returns of finished dosage generics based on historical experience, product expiration dates, changes to business practices, credit terms, new competition, shortages in the market and any extenuating circumstances known to management. While historical experience has allowed for reasonable estimations in the past, future returns may or may not follow historical trends. Generally, the liability for returns increases as net sales increase. The Company continually monitors the liability for returns and makes adjustments when management believes that actual product returns may differ from the established liability.
Sales of nutraceutical products, pharmaceutical active ingredients and intermediates, specialty performance chemicals, including agricultural intermediates and agricultural protection products are recorded net of estimated returns of damaged goods from customers, which historically have been immaterial.
Government Rebates
Government rebates relate to our reimbursement arrangements with state and federal government agencies. Government rebate accruals are based on estimated payments due to governmental agencies for purchases made by plan participants. The Company provides a provision for government reimbursed rebates at the time of sale based on historical redemption rates. Government rebate amounts per product unit for generic products are established by law, based on the Average Manufacturer Price (“AMP”), which is reported on a monthly and quarterly basis. Aceto regularly reviews the information related to these estimates and adjusts the provision accordingly.
Non-Governmental Rebates & Other
Other rebates are offered to the Company’s key chain drug store, distributor and wholesaler customers to promote customer loyalty and increase product sales. These rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period. Other promotional programs are incentive programs offered to the customers. These rebates and other promotional programs vary by product and by volume purchase by each eligible customer. The Company provides a provision for other rebates at the time of sale based on contracted rates, actual product sales data and historical redemption rates. Aceto regularly reviews the information related to these estimates and adjusts the provision accordingly.
Sales of nutraceutical products, pharmaceutical active ingredients and intermediates, specialty performance chemicals, including agricultural intermediates and agricultural protection products are recorded net of sales incentives which include volume incentive rebates. The Company records volume incentive rebates based on the underlying revenue transactions that result in progress by the customer in earning the rebate.
Sales Discounts
Sales discount accruals are based on payment terms extended to customers purchasing our finished dosage form generic products. The sales discount liability is based on the invoices outstanding at period end and the sales discount rate.
The following table summarizes activity in the consolidated balance sheet for contra assets and liability for price concessions for the six months ended December 31, 2018:
Credits issued during a given period represent cash payments or credit memos issued to the Company’s customers as settlement for the related liability. Management has the experience and access to relevant information that it believes is necessary to reasonably estimate the amounts of such deductions from gross revenues. The Company regularly reviews the information related to these estimates and adjusts its liabilities accordingly, if and when actual experience differs from previous estimates. The Company has not experienced any significant changes in its estimates as it relates to its chargebacks, rebates, sales discounts or product returns for the periods presented. |
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Stock-Based Compensation |
6 Months Ended |
|---|---|
Dec. 31, 2018 | |
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
| Stock-Based Compensation | (3) Stock-Based Compensation
Under the Aceto Corporation 2015 Equity Participation Plan (the “2015 Plan”), grants of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards (“Stock Awards”) may be offered to employees, non-employee directors, consultants and advisors of the Company, including the chief executive officer, chief financial officer and other named executive officers. The maximum number of shares of common stock of the Company that may be issued pursuant to Stock Awards granted under the 2015 Plan will not exceed, in the aggregate, 4,250 shares. Stock Awards that are intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, may be granted. Performance-based awards may be granted, vested and paid based on the attainment of specified performance goals.
Under the Aceto Corporation 2010 Equity Participation Plan (as amended and restated in 2012, the “2010 Plan”), grants of stock options, restricted stock, restricted stock units, stock appreciation rights, and stock bonuses may be made to employees, non-employee directors and consultants of the Company. The maximum number of shares of common stock of the Company that may be issued pursuant to awards granted under the 2010 Plan will not exceed, in the aggregate, 5,250 shares. In addition, restricted stock may be granted to an eligible participant in lieu of a portion of any annual cash bonus earned by such participant. Such award may include additional shares of restricted stock (premium shares) greater than the portion of bonus paid in restricted stock. The restricted stock award is vested at issuance and the restrictions lapse ratably over a period of years as determined by the Board of Directors, generally three years. The premium shares vest when all the restrictions lapse, provided that the participant remains employed by the Company at that time.
During the six months ended December 31, 2018, the Company granted 82 shares of restricted common stock to its employees that vest over three years. During the six months ended December 31, 2017, the Company granted 424 shares of restricted common stock to its employees that vest over three years and 27 shares of restricted stock to its non-employee directors, which vest over approximately one year. In addition, the Company also issued a target grant of 203 performance-vested restricted stock units, which grant could be as much as 355 units if certain performance criteria and market conditions are met. These performance-vested restricted stock units will cliff vest 100% at the end of the third year following grant in accordance with the performance metrics set forth in the applicable employee performance-vested restricted stock unit grant.
For the three and six months ended December 31, 2018, the Company recorded stock-based compensation expense of approximately $462 and $438, respectively, related to restricted common stock and restricted stock units. For the three and six months ended December 31, 2017, the Company recorded stock-based compensation expense of approximately $1,363 and $4,495, respectively, related to restricted common stock and restricted stock units. Included in the $4,495 for the six months ended December 31, 2017 is $2,017 in stock-based compensation expense associated with the separation of the Company’s former Chief Executive Officer in September 2017. As of December 31, 2018, the total unrecognized stock-based compensation cost is approximately $3,044. |
Capital Stock |
6 Months Ended |
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Dec. 31, 2018 | |
| Equity [Abstract] | |
| Capital Stock | (4) Capital Stock
On November 2, 2018, the Board approved the adoption of a Tax Asset Protection Plan and on November 5, 2018, the Company entered into a Tax Asset Protection Rights Agreement (the “Rights Agreement”), between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agent”). The purpose of the Rights Agreement is to help preserve the Company’s ability to utilize its significant tax benefits. On November 5, 2018, in connection with the entry into the Rights Agreement, the Board authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each share of Common Stock outstanding as of the close of business on November 15, 2018 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth (subject to adjustment) of a share of Series A Participating Cumulative Preferred Stock, par value $2.50 per share (each, a “Series A Preferred Share” and collectively, the “Series A Preferred Shares”), of the Company at a price of $10.85 (as the same may be adjusted, the “Purchase Price”), and upon the terms and conditions set forth in the Rights Agreement.
The Rights become exercisable upon (i) a shareholder acquiring beneficial ownership of 4.99% or more of the outstanding shares of the Company’s common stock without prior approval of the Board, or (ii) a shareholder who already beneficially owns 4.99% or more of the outstanding shares of the Company’s common stock increasing its beneficial ownership by more than 0.5%. The Rights Agreement and the related Rights expire on November 5, 2020, or earlier upon the occurrence of certain other circumstances specified in the Rights Agreement. The Company intends to submit the Rights Agreement to a vote of its shareholders at the Company’s next annual meeting. For more information, please see the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2018.
On September 6, 2018, the Company's board of directors declared a regular quarterly dividend of $.01 per share which was distributed on October 9, 2018 to shareholders of record as of September 24, 2018.
On May 4, 2017, the Board of Directors of the Company authorized the continuation of the Company’s stock repurchase program, expiring in May 2020. Under the stock repurchase program, the Company is authorized to purchase up to 5,000 shares of common stock in open market or private transactions, at prices not to exceed the market value of the common stock at the time of such purchase. The Company did not repurchase shares in the three or six months ended December 31, 2018 or in fiscal year 2018.
The Company is authorized to issue 75,000 shares of Common Stock and 2,000 shares of Preferred Stock. The Board of Directors has authority under the Company’s Restated Certificate of Incorporation to issue shares of preferred stock with voting and other relative rights to be determined by the Board of Directors. |
Net Income Per Common Share |
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| Net Income Per Common Share | (5) Net Income Per Common Share
Basic income per common share is based on the weighted average number of common shares outstanding during the period. Diluted income per common share includes the dilutive effect of potential common shares outstanding. The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:
The effect of approximately 6 and 20 common equivalent shares for the three and six months ended December 31, 2018, respectively, was excluded from the diluted weighted average shares outstanding due to a net loss for the periods. The effect of approximately 158 and 221 common equivalent shares for the three and six months ended December 31, 2017, respectively, was excluded from the diluted weighted average shares outstanding due to a net loss for the periods.
There were 2,024 and 1,598 common equivalent shares outstanding for the three and six months ended December 31, 2018, respectively, that were not included in the calculation of diluted net income per common share because their effect would have been anti-dilutive. There were 197 and 129 common equivalent shares outstanding for the three and six months ended December 31, 2017, respectively, that were not included in the calculation of diluted net income per common share because their effect would have been anti-dilutive.
The weighted average shares outstanding for the three and six months ended December 31, 2018 and 2017 includes the effect of 5,122 shares to be issued in connection with the acquisition of certain products and related assets from Citron and Lucid. The Convertible Senior Notes (see Note 6) will only be included in the dilutive net income per share calculations using the treasury stock method during periods in which the average market price of Aceto’s common stock is above the applicable conversion price of the Convertible Senior Notes, or $33.215 per share, and the impact would not be anti-dilutive. |
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Debt |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | (6) Debt
Long-term debt
Convertible Senior Notes
In November 2015, Aceto offered $125,000 aggregate principal amount of Convertible Senior Notes due 2020 (the "Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In addition, Aceto granted the initial purchasers for the offering an option to purchase up to an additional $18,750 aggregate principal amount pursuant to the initial purchasers’ option to purchase additional Notes, which was exercised in November 2015. Therefore, the total offering was $143,750 aggregate principal amount. The Notes are unsecured obligations of Aceto and rank senior in right of payment to any of Aceto’s subordinated indebtedness, equal in right of payment to all of Aceto’s unsecured indebtedness that is not subordinated, effectively junior in right of payment to any of Aceto’s secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally junior in right of payment to all indebtedness and other liabilities (including trade payables) of Aceto’s subsidiaries. The Notes will be convertible into cash, shares of Aceto common stock or a combination thereof, at Aceto’s election, upon the satisfaction of specified conditions and during certain periods. The Notes will mature in November 2020. The Notes pay 2.0% interest semi-annually in arrears on May 1 and November 1 of each year, which commenced on May 1, 2016. The Notes are convertible into 4,328 shares of common stock, based on an initial conversion price of $33.215 per share.
Holders may convert all or any portion of their notes, in multiples of one thousand dollar principal amount, at their option at any time prior to the close of business on the business day immediately preceding May 1, 2020 only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the five consecutive business day period after any five consecutive trading day period (which is referred to as the “measurement period”) in which the trading price per one thousand dollar principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Aceto’s common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion option, the Company separately accounted for the value of the embedded conversion option as a debt discount (with an offset to capital in excess of par value). The debt discount is being amortized as additional non-cash interest expense using the effective interest method over the term of the Notes. Debt issuance costs are being amortized as additional non-cash interest expense. The Company presents debt issuance costs as a direct deduction from the carrying value of the debt liability rather than showing the debt issuance costs as a deferred charge on the balance sheet.
In connection with the offering of the Notes, Aceto entered into privately negotiated convertible note hedge transactions with option counterparties, which are affiliates of certain of the initial purchasers. The convertible note hedge transactions are expected generally to reduce the potential dilution to Aceto’s common stock and/or offset any cash payments Aceto is required to make in excess of the principal amount of converted Notes upon any conversion of Notes. Aceto also entered into privately negotiated warrant transactions with the option counterparties. The warrant transactions could separately have a dilutive effect to the extent that the market price per share of Aceto’s common stock as measured over the applicable valuation period at the maturity of the warrants exceeds the applicable strike price of the warrants. By entering into these transactions with the option counterparties, the Company issued convertible debt and a freestanding “call-spread.”
The carrying value of the Notes is as follows:
The following table sets forth the components of total “interest expense” related to the Notes recognized in the accompanying condensed consolidated statements of operations for the three and six months ended December 31:
Credit Facilities
On December 21, 2016 the Company entered into a Second Amended and Restated Credit Agreement (the “A&R Credit Agreement”), with eleven banks, which amended and restated in its entirety the Amended and Restated Credit Agreement, dated as of October 28, 2015, as amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of November 10, 2015, and Amendment No. 2 to Amended and Restated Credit Agreement, dated as of August 26, 2016 (collectively, the “First Amended Credit Agreement”). The A&R Credit Agreement increased the aggregate available revolving commitment under the First Amended Credit Agreement from $150,000 to an initial aggregate available revolving commitment of $225,000 (the “Initial Revolving Commitment”). Under the A&R Credit Agreement, the Company was permitted to borrow, repay and reborrow from and as of December 21, 2016, to but excluding December 21, 2021 (the “Maturity Date”) provided, that if any of the Notes remain outstanding on the date that is 91 days prior to the maturity date of the Notes (the “2015 Convertible Maturity Date”), then the Maturity Date shall mean the date that is 91 days prior to the 2015 Convertible Maturity Date. The A&R Credit Agreement provides for (i) Eurodollar Loans (as such terms are defined in the A&R Credit Agreement), (ii) ABR Loans (as such terms are defined in the A&R Credit Agreement), or (iii) a combination thereof. As of December 31, 2018, the principal balance on the outstanding Revolving Loans (as defined under the A&R Credit Agreement) aggregated $62,000, which loans are Eurodollar Loans at interest rates ranging from 9.51% to 9.76% at December 31, 2018. The applicable interest rate margin percentage is subject to adjustment quarterly based upon the Company’s senior secured net leverage ratio.
Under the A&R Credit Agreement, the Company also borrowed $150,000 in term loans (the “Initial Term Loan). Subject to certain conditions, including obtaining commitments from existing or prospective lenders, the Company had the right to increase the amount of the Initial Revolving Commitment (each, a “Revolving Facility Increase” and, together with the Initial Revolving Commitment, the “Revolving Commitment”) and/or the Initial Term Loan in an aggregate amount not to exceed $100,000 pursuant to an incremental loan feature in the A&R Credit Agreement. As of December 31, 2018, the remaining principal amount outstanding under the Initial Term Loan was $123,750 and was payable as a Eurodollar Loan at an interest rate of 9.39%. The proceeds of the Initial Revolving Commitment and Initial Term Loan were used to partially finance the acquisition of generic products and related assets of Citron and its affiliate Lucid, and to pay fees and expenses related thereto. The applicable interest rate margin percentage is subject to adjustment quarterly based upon the Company’s senior secured net leverage ratio.
The Initial Term Loan is payable as to principal in nineteen consecutive, equal quarterly installments of $3,750, which commenced on March 31, 2017 and will continue on each March 31, June 30, September 30 and December 31 thereafter. To the extent not previously paid, the final payment on the Term Loan Maturity Date (as defined in the A&R Credit Agreement) shall be in an amount equal to the then outstanding unpaid principal amount of the Initial Term Loan.
The A&R Credit Agreement provides that commercial letters of credit shall be issued to provide the primary payment mechanism in connection with the purchase of any materials, goods or services in the ordinary course of business. The Company had no open letters of credit at December 31, 2018 and June 30, 2018.
In accordance with generally accepted accounting principles, deferred financing costs associated with the Initial Term Loan are presented as a direct deduction from the carrying value of the debt liability rather than showing the deferred financing costs as a deferred charge on the balance sheet. In addition, deferred financing costs associated with the Revolving Commitment have been recorded as a deferred charge on the balance sheet.
The A&R Credit Agreement provides for a security interest in substantially all of the personal property of the Company and certain of its subsidiaries. The A&R Credit Agreement contains several financial covenants including, among other things, maintaining a minimum level of debt service and certain leverage ratios. Under the A&R Credit Agreement, the Company and its subsidiaries are also subject to certain restrictive covenants, including, among other things, covenants governing liens, limitations on indebtedness, limitations on guarantees, limitations on sales of assets and sales of receivables, and limitations on loans and investments.
On December 13, 2017, the Company entered into a First Amendment to the Second Amended and Restated Credit Agreement (the “2017 Amendment”), which amended the A&R Credit Agreement. The 2017 Amendment, among other things, contained several amendments to the financial covenants in the A&R Credit Agreement.
On May 3, 2018, the Company entered into a Second Amendment and Waiver to the Second Amended and Restated Credit Agreement (the “May 2018 Amendment”). The May 2018 Amendment, among other things, contained a waiver of any event of default under the A&R Credit Agreement arising as a result of the non-compliance by the Company with Total Net Leverage Ratio and Debt Service Coverage Ratio financial covenants, in each case, solely for the fiscal quarter ended March 31, 2018. The May 2018 Amendment also contained several amendments to the A&R Credit Agreement including, among other things, reducing the available revolving commitment thereunder to $100,000, fixing the applicable margin on Loans (as defined in the A&R Credit Agreement) to the highest level provided under the A&R Credit Agreement at the time, fixing the commitment fee on the undrawn revolving commitments to the highest level provided under the A&R Credit Agreement at the time, requiring prior written consent of the Required Lenders (as defined in the A&R Credit Agreement) as a condition precedent to the lenders making any additional Revolving Loans or the issuing banks issuing, amending, renewing or extending any Letter of Credit (as defined in the A&R Credit Agreement), restricting dividends or distributions the Company may make to its shareholders to no more than $0.01 per share for the fiscal quarter ending on June 30, 2018 and restricting dividends or distributions thereafter, restricting the incurrence of certain indebtedness, limiting acquisitions and other investments and imposing certain other restrictions.
As of June 30, 2018, the Company was not in compliance with its financial covenants relating to its Total Net Leverage Ratio, Senior Secured Net Leverage Ratio and Debt Service Coverage Ratio. The Company and its lenders agreed upon another amendment and waiver to the A&R Credit Agreement (referred to herein as the “September 2018 Amendment”). The September 2018 Amendment provided for a waiver of any event of default under the A&R Credit Agreement arising as a result of the non-compliance by the Company with the Total Net Leverage Ratio, Senior Secured Net Leverage Ratio and Debt Service Coverage Ratio financial covenants, in each case, solely for the fiscal quarters ended or ending June 30, 2018, September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019. The September 2018 Amendment also contains several amendments to the A&R Credit Agreement including, among other things, (a) a limitation on dividends for the fiscal quarters ending September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019, to an amount not to exceed $325 for any fiscal quarter, (b) increasing the applicable margin with respect to the interest rates on all Loans by 450 basis points and fixing (during the September 2018 Amendment Limitation Period (as hereinafter defined)) the applicable margin with respect to the interest rate on all Loans to the highest level provided under the A&R Credit Agreement which is currently 6.00% in the case of ABR Loans and 7.00% in the case of Eurodollar Loans, (c) during the period commencing on the closing of the September 2018 Amendment and ending on the date the Company demonstrates compliance with each financial covenant set forth in the A&R Credit Agreement for the fiscal quarter ending September 30, 2019 (referred to herein as the “September 2018 Amendment Limitation Period”; provided that if the Company is not in compliance with any of the financial covenants set forth in the A&R Credit Agreement for the fiscal quarter ending September 30, 2019, then the September 2018 Amendment Limitation Period shall continue indefinitely), requiring the Company to maintain the sum of Domestic Liquidity (as defined in the A&R Credit Agreement) plus Foreign Liquidity (as defined in the A&R Credit Agreement) and the undrawn portion of the Revolving Commitment (referred to herein as “Covenant Liquidity”) to an amount of at least $55,000 (the “Covenant Liquidity Amount”) as of the last business day of each week following the effectiveness of the September 2018 Amendment; provided that the Company shall not be in breach of the minimum liquidity covenant unless the Covenant Liquidity is less than the Covenant Liquidity Amount as of the last business day of two consecutive weeks, (d) requiring the prior written consent of the Required Lenders as a condition precedent to the lenders extending any Loans or the issuing banks issuing, amending, renewing or extending any Letter of Credit, (e) permitting the purchase, during fiscal 2019, of assets for an aggregate consideration not to exceed $12,300, consisting of intangible assets relating to strategic product acquisitions and certain capital expenditures, and (f) restricting the incurrence of certain indebtedness, limiting acquisitions and other investments and imposing certain other restrictions.
On January 8, 2019 (the “Fourth Amendment Effective Date”), the Company further amended the A&R Credit Agreement, constituting a Fourth Amendment and Limited Waiver (the “January 2019 Amendment”). The January 2019 Amendment contains certain amendments to the Credit Agreement relating to the revolver access and vendor and business partner payments, under which the Company is permitted (a) to request and borrow up to an additional $23,000 as Revolving Loans; and (b) to purchase, prior to the repayment of these newly borrowed Revolving Loans and during (x) the Company’s fiscal year 2019, assets in an aggregate amount not to exceed $6,500 or (y) the third quarter of the Company’s fiscal year 2019, assets in an aggregate amount not to exceed $3,105, in each case, consisting of intangible assets relating to strategic product acquisitions, certain data compensation expenses and certain capital expenditures.
The January 2019 Amendment also contains modifications to the A&R Credit Agreement relating to cash management and liquidity. In general, further compliance with the minimum liquidity covenant from the September 2018 Amendment has been permanently waived, there is a cash anti-hoarding provision, and there are restrictions on the Company and its Domestic Subsidiaries (as defined in the A&R Credit Agreement) transferring funds to its Foreign Subsidiaries (as defined in the A&R Credit Agreement) and prohibitions on paying dividends and making similar distributions.
The January 2019 Amendment mandates certain milestones with respect to the Company’s strategic process. In general, the milestones require delivery to the Administrative Agent (as defined in the A&R Credit Agreement) and lenders of proposals and commitments from financially credible third parties, the proceeds of which would be sufficient and used to repay both the Revolving Loans borrowed on or after the Fourth Amendment Effective Date and the remaining Obligations (as defined in the A&R Credit Agreement). The Company has been taking steps to meet these milestones, but no assurance may be given that they will be successfully met. The January 2019 Amendment also revises both the Revolving Loan Maturity Date (as defined in the A&R Credit Agreement) and Term Loan Maturity Date to June 30, 2019, the last day of the Company’s current fiscal year. Based on the new maturity dates, the Company has classified the indebtedness outstanding under the Company’s credit facility as a current liability as of December 31, 2018.
The January 2019 Amendment provides for a waiver of any event of default under the A&R Credit Agreement arising as a result of the failure by the Company (x) to make certain principal and interest payments under the A&R Credit Agreement that were due on or about December 31, 2018 (which were instead paid pursuant to the January 2019 Amendment on the Fourth Amendment Effective Date), (y) to pay interest on certain deferred payment amounts to the sellers under the 2016 Citron product purchase agreement, and (z) as described above, the non-compliance by the Company with the liquidity financial covenant. The January 2019 Amendment provides for the payment of a fee equal to 2.0% of each lender’s revolving commitment that is available or borrowed after the Fourth Amendment Effective Date, a 0.25% (of each such lender’s aggregate exposure) consent fee to the lenders who timely consented to the January 2019 Amendment, increases the waiver fees imposed under the September 2018 Amendment from 4.0% to 6.0% but only under certain circumstances, and provides for reimbursement of certain third party expenses incurred by the Administrative Agent and lenders.
On January 31, 2019, the Company entered into a Limited Waiver to the Second Amended and Restated Credit Agreement (the “January 2019 Waiver”). The January 2019 Waiver provides for a waiver of any event of default under the A&R Credit Agreement arising as a result of the failure by the Company to deliver to the Administrative Agent and the lenders a binding commitment letter with respect to subordinated financing by January 31, 2019.
In conjunction with the A&R Credit Agreement, the Company entered into an interest rate swap on March 21, 2017 for an additional interest cost of 2.005% on a notional amount of $100,000, which has been designated as a cash flow hedge. The expiration date of this interest rate swap was December 21, 2021. The remaining notional balance of this derivative as of December 31, 2018 is $80,000. In January 2019, the Company terminated the interest rate swap agreement resulting in a cash receipt of $1,145.
Mortgage
On June 30, 2011, the Company obtained a loan in the principal amount of $3,947, secured by a mortgage on its corporate headquarters in Port Washington, New York. This mortgage loan is being amortized over a period of 20 years. The mortgage loan bears interest at 4.92% per annum as December 31, 2018 and matures on June 30, 2021. |
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Commitments, Contingencies and Other Matters |
6 Months Ended |
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Dec. 31, 2018 | |
| Commitments And Contingencies Disclosure [Abstract] | |
| Commitments, Contingencies and Other Matters | (7) Commitments, Contingencies and Other Matters
The Company and its subsidiaries are subject to various claims which have arisen in the normal course of business. The Company provides for costs related to contingencies when a loss from such claims is probable and the amount is reasonably determinable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, the Company reviews and evaluates its litigation and regulatory matters on a quarterly basis in light of potentially relevant factual and legal developments. If the Company determines an unfavorable outcome is not probable or reasonably estimable, the Company does not accrue for a potential litigation loss. While the Company has determined that there is a reasonable possibility that a loss has been incurred, no amounts have been recognized in the financial statements, other than what has been discussed below, because the amount of the liability cannot be reasonably estimated at this time.
In fiscal years 2011, 2009, 2008 and 2007, the Company received letters from the Pulvair Site Group, a group of potentially responsible parties (PRP Group) who are working with the State of Tennessee (the State) to remediate a contaminated property in Tennessee called the Pulvair site. The PRP Group has alleged that Aceto shipped hazardous substances to the site which were released into the environment. The State had begun administrative proceedings against the members of the PRP Group and Aceto with respect to the cleanup of the Pulvair site and the PRP Group has begun to undertake cleanup. The PRP Group is seeking a settlement of approximately $1,700 from the Company for its share to remediate the site contamination. Although the Company acknowledges that it shipped materials to the site for formulation over twenty years ago, the Company believes that the evidence does not show that the hazardous materials sent by Aceto to the site have significantly contributed to the contamination of the environment and thus believes that, at most, it is a de minimis contributor to the site contamination. Accordingly, the Company believes that the settlement offer is unreasonable. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial condition or liquidity.
The Company has environmental remediation obligations in connection with Arsynco, Inc. (“Arsynco”), a subsidiary formerly involved in manufacturing chemicals located in Carlstadt, New Jersey, which was closed in 1993 and is currently held for sale. Based on continued monitoring of the contamination at the site and the approved plan of remediation, Arsynco received an estimate from an environmental consultant stating that the costs of remediation could be between $22,900 and $24,700. Remediation commenced in fiscal 2010, and as of December 31, 2018 and June 30, 2018, a liability of $4,010 and $5,746, respectively, is included in the accompanying consolidated balance sheets for this matter. There were no environmental charges for the six months ended December 31, 2018. In accordance with GAAP, management believes that the majority of costs incurred to remediate the site will be capitalized in preparing the property which is currently classified as held for sale. In June 2018, the Company entered into an agreement to sell the Arsynco property to an unrelated third party for $6,340. The sale is subject to due diligence by the buyer and the Company is not sure when or if the sale will close. The sale price supports the assumption that the expected fair value after the remediation is in excess of the amount required to be capitalized. However, these matters, if resolved in a manner different from those assumed in current estimates, could have a material adverse effect on the Company’s financial condition, operating results and cash flows when resolved in a future reporting period.
In connection with the environmental remediation obligation for Arsynco, in July 2009, Arsynco entered into a settlement agreement with BASF Corporation (“BASF”), the former owners of the Arsynco property. In accordance with the settlement agreement, BASF paid for a portion of the prior remediation costs and going forward, will co-remediate the property with the Company. The contract requires that BASF pay $550 related to past response costs and pay a proportionate share of the future remediation costs. Accordingly, the Company had recorded a gain of $550 in fiscal 2009. This $550 gain relates to the partial reimbursement of costs of approximately $1,200 that the Company had previously expensed. The Company also recorded an additional receivable from BASF, with an offset against property held for sale, representing its estimated portion of the future remediation costs. The balance of this receivable for future remediation costs as of December 31, 2018 and June 30, 2018 is $1,805 and $2,586, respectively, which is included in the accompanying, consolidated balance sheets.
In March 2006, Arsynco received notice from the EPA of its status as a PRP under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for a site described as the Berry’s Creek Study Area (“BCSA”). Arsynco is one of over 150 PRPs which have potential liability for the required investigation and remediation of the site. The estimate of the potential liability is not quantifiable for a number of reasons, including the difficulty in determining the extent of contamination and the length of time remediation may require. In addition, any estimate of liability must also consider the number of other PRPs and their financial strength. In July 2014, Arsynco received notice from the U.S. Department of Interior (“USDOI”) regarding the USDOI’s intent to perform a Natural Resource Damage (NRD) Assessment at the BCSA. Arsynco has to date declined to participate in the development and performance of the NRD assessment process. Based on prior practice in similar situations, it is possible that the State may assert a claim for natural resource damages with respect to the Arsynco site itself, and either the federal government or the State (or both) may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any such claim with respect to Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has identified in connection with that site. Any claim for natural resource damages with respect to the Arsynco site itself may also be asserted against BASF, the former owners of the Arsynco property. In September 2012, Arsynco entered into an agreement with three of the other PRPs that had previously been impleaded into New Jersey Department of Environmental Protection, et al. v. Occidental Chemical Corporation, et al., Docket No. ESX-L-9868-05 (the "NJDEP Litigation") and were considering impleading Arsynco into the same proceeding. Arsynco entered into an agreement to avoid impleader. Pursuant to the agreement, Arsynco agreed to (1) a tolling period that would not be included when computing the running of any statute of limitations that might provide a defense to the NJDEP Litigation; (2) the waiver of certain issue preclusion defenses in the NJDEP Litigation; and (3) arbitration of certain potential future liability allocation claims if the other parties to the agreement are barred by a court of competent jurisdiction from proceeding against Arsynco. In July 2015, Arsynco was contacted by an allocation consultant retained by a group of the named PRPs, inviting Arsynco to participate in the allocation among the PRPs’ investigation and remediation costs relating to the BCSA. Arsynco declined that invitation. Since an amount of the liability cannot be reasonably estimated at this time, no accrual is recorded for these potential future costs. The impact of the resolution of this matter on the Company’s results of operations in a particular reporting period is not currently known.
A subsidiary of the Company markets certain agricultural protection products which are subject to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA). FIFRA requires that test data be provided to the EPA to register, obtain and maintain approved labels for pesticide products. The EPA requires that follow-on registrants of these products compensate the initial registrant for the cost of producing the necessary test data on a basis prescribed in the FIFRA regulations. Follow-on registrants do not themselves generate or contract for the data. However, when FIFRA requirements mandate that new test data be generated to enable all registrants to continue marketing a pesticide product, often both the initial and follow-on registrants establish a task force to jointly undertake the testing effort. The Company is presently a member of several such task force groups, which requires payments for such memberships. In addition, in connection with its agricultural protection business, the Company plans to acquire product registrations and related data filed with the United States Environmental Protection Agency to support such registrations and other supporting data for several products. The acquisition of these product registrations and related data filed with the United States Environmental Protection Agency as well as payments to various task force groups could approximate $5,644 in fiscal 2019.
In connection with the acquisition of certain products and related assets from Citron and Lucid, Aceto committed to make a $50,000 unsecured deferred payment that bears interest at a rate of 5% per annum to the sellers on December 21, 2021 and to issue 5,122 shares of Aceto common stock beginning on December 21, 2019. The product purchase agreement also provides for a 5-year potential earn-out of up to an additional $50,000 in cash, based on the financial performance of four pre-specified pipeline products that are currently in development. As of December 31, 2018, there was no amount accrued related to this contingent consideration based upon management’s evaluation and assessment of the financial performance of these products.
In February 2018, the Company was notified by the U.S. government that 11 generic drug products it acquired through its Acetris Health subsidiary in a product purchase agreement with Lucid were not in compliance with the federal Trade Agreement Act (“TAA”) country-of-origin provisions of a clause (the “Trade Agreements Clause”) contained in the government supply contracts acquired from Lucid (the “TAA Notification”). The 11 finished dosage form products purchased by the U.S. government are manufactured by Aurolife Pharma LLC which is located in Dayton, New Jersey using APIs sourced from India. In conjunction with this finding, the U.S. Department of Veterans Affairs (“VA”) requested that Acetris supply new TAA-compliant sources for the referenced products by March 9, 2018 and supply new TAA-compliant drugs to the government purchasers under the contracts by March 26, 2018. Acetris knew that it would be unable to meet these short deadlines. To avoid the government’s imposition of penalties for failure to meet these deadlines while Acetris appealed the above-mentioned findings, Acetris requested that the government defer imposition of these deadlines pending resolution of Acetris’ appeal. The Government declined this request and thereafter Acetris and the government entered into agreements that provided for a no-cost termination of each of the 11 supply contracts.
On July 10, 2018, the Company was informed that Acetris received a favorable ruling from the United States Court of Federal Claims (the “Court”), in Acetris Health, LLC v. United States, invalidating the VA interpretation of the Trade Agreements Clause, which had resulted in the termination of 11 Acetris contracts with the VA. Finding in favor of Acetris, the Court granted a declaratory judgment establishing that under the federal Buy America Act the agencies are permitted to buy domestic end products, including commercial off-the-shelf products like generic drugs, that are manufactured in the United States when the Trade Agreements Clause is incorporated in government supply contracts, even if their components are not all manufactured in the United States. Although Department of Defense (the “DoD”) contracts were not at issue in the case, the decision also impacts Acetris’ ability to supply DoD with its products. The government’s appeal of the ruling is pending. Even if the Court’s ruling is affirmed on appeal, the Court’s ruling did not have the effect of reinstating the 11 terminated government supply agreements. Acetris may seek new contracts with these agencies, but no assurance can be given that any such contracts will be awarded.
In March 2018, Sigmapharm Laboratories, LLC (“SigmaPharm”) commenced an action against Rising and the Company in the United States District Court for the Eastern District of Pennsylvania. The complaint arises out of an agreement, effective as of June 22, 2006 (the “SigmaPharm Agreement”), pursuant to which SigmaPharm agreed to supply certain generic pharmaceutical products (the “Products”) to Rising, and Rising in turn agreed to market and distribute the Products in the United States and pay SigmaPharm a share of the profits pursuant to a formula specified in the Agreement. The complaint alleges that Rising and Aceto breached the Agreement by failing to pay or timely make payments due under the Agreement and to disclose certain information to SigmaPharm. The complaint seeks, among other relief, a declaration that the Agreement has been terminated and that SigmaPharm has exclusive marketing and distribution rights to the Products; injunctive relief; and an unspecified amount of damages. In May 2018, Rising and the Company filed a motion to stay the action and compel arbitration, as required by the Agreement. In addition, SigmaPharm filed a “motion to enforce audit rights” in the federal litigation. On October 26, 2018, the district court granted Rising’s and the Company’s Motion to Stay and Compel Arbitration and denied Sigmapharm’s Motion to Enforce and Audit; thus the federal court action has been placed in suspense and the parties must proceed to arbitration.
SigmaPharm has stopped supplying Products to Rising, claiming that it has validly terminated the Sigmapharm Agreement. Accordingly, in June 2018, Rising filed an arbitration claim against SigmaPharm in New Jersey, seeking recovery from SigmaPharm of any failure-to-supply losses Rising may incur as well as lost future profits on sale of the Products, among other relief. The Company intends to vigorously protect its rights in these matters and prosecute its claim for damages against SigmaPharm. The impact of the resolution of this matter on the Company’s results of operations in a particular reporting period is not currently known.
On April 16, 2018, the Company’s Rising subsidiary received a Grand Jury subpoena (the “DOJ Subpoena”) from the Antitrust Division of the DOJ. Rising is cooperating with the DOJ in response to the DOJ Subpoena.
The Company and certain of its current and former officers are named defendants in two putative securities class actions (the “Securities Class Action Lawsuits”) filed in the United States District Court for the Eastern District of New York in April 2018, captioned Mulligan v. Aceto Corporation, et al, No. 2:18-cv-02425, and Yang v. Aceto Corporation, No. 1:18-cv-02437. The complaints arise from the April 19, 2018 drop in the Company’s stock price following the Company’s announcement on April 18, 2018 that it would recognize a substantial impairment charge for the third fiscal quarter. The complaints generally allege that the defendants violated the Securities Exchange Act of 1934 by making false and misleading statements in public filings with the SEC and seek unspecified damages. On June 26, 2018, five motions were filed seeking to appoint lead plaintiff and approve lead plaintiff’s counsel pursuant to the Private Securities Litigation Reform Act of 1995, as well as to consolidate the Mulligan or Yang actions. Three motions were subsequently withdrawn or abandoned, and the remaining two motions are pending before the Court. Following the appointment of a lead plaintiff, the Company expects that the appointed lead plaintiff will file a single consolidated amended class action complaint to supersede the earlier complaints. The Company intends to vigorously defend itself. The impact of the resolution of this matter on the Company’s results of operations in a particular reporting period is not currently known. |
Fair Value Measurements |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | (8) Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. GAAP establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted market prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 – Unobservable inputs that are not corroborated by market data.
On a recurring basis, Aceto measures at fair value certain financial assets and liabilities, which consist of cash equivalents, investments and foreign currency contracts. The Company classifies cash equivalents and investments within Level 1 if quoted prices are available in active markets. Level 1 assets include instruments valued based on quoted market prices in active markets which generally include corporate equity securities publicly traded on major exchanges. Time deposits are very short-term in nature and are accordingly valued at cost plus accrued interest, which approximates fair value, and are classified within Level 2 of the valuation hierarchy. The Company uses foreign currency futures contracts to minimize the risk caused by foreign currency fluctuation on its foreign currency receivables and payables by purchasing futures with one of its financial institutions. Futures are traded on regulated U.S. and international exchanges and represent commitments to purchase or sell a particular foreign currency at a future date and at a specific price. Aceto’s foreign currency derivative contracts are classified within Level 2 as the fair value of these hedges is primarily based on observable futures foreign exchange rates. At December 31, 2018, the Company had foreign currency contracts outstanding that had a notional amount of $61,904. Unrealized losses on hedging activities for the three and six months ended December 31 2018, was $362 and $693, respectively. Unrealized (losses) gains on hedging activities for the three and six months ended December 31, 2017 was ($34) and $261, respectively, and are included in interest and other income, net, in the consolidated statements of operations. The contracts have varying maturities of less than one year.
In conjunction with its existing credit agreement (see Note 6), the Company entered into an interest rate swap on March 21, 2017 for an additional interest cost of 2.005% on a notional amount of $100,000, which has been designated as a cash flow hedge. The remaining notional balance of this derivative as of December 31, 2018 is $80,000. The expiration date of this interest rate swap was December 21, 2021. The unrealized gain to date associated with this derivative, which is recorded in accumulated other comprehensive loss in the consolidated balance sheet at December 31, 2018, is $1,135. Aceto’s interest rate swaps are classified within Level 2 as the fair value of this hedge is primarily based on observable interest rates. In January 2019, the Company terminated the interest rate swap agreement resulting in a cash receipt of $1,145.
At June 30, 2018, the Company had $683 of contingent consideration which related to the acquisition of certain products and related assets of Citron and Lucid, which was completed in December 2016. In the second quarter of fiscal 2019, the Company reversed $724 of contingent consideration due to management’s evaluation and assessment of the financial performance of these products. As a result, there is no remaining balance as of December 31, 2018.
The Company evaluates goodwill for impairment at the reporting unit level using a market participant approach using Level 3 inputs. Additionally, on a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. During the three and six months ended December 31, 2018 and 2017, there were no indicators of impairment. During the fiscal year ended June 30, 2018, the Company recognized a pre-tax non-cash goodwill impairment charge of $235,110 related to the Rising reporting unit.
Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. Measurements based on undiscounted cash flows are Level 3 inputs. During the three and six months ended December 31, 2018 and 2017 there was no loss of any major customers or a discontinuation of any major product and as such, there was no impairment.
In connection with the acquisition of certain products and related assets of Citron and Lucid, the Company will issue 5,122 shares of Aceto common stock beginning on December 21, 2019. The fair value of the future issuance of these shares was determined to be $90,400 at the time of the product acquisition after taking into effect that the shares won’t be issued until the third and fourth anniversary of the closing and the present value calculation of dividends.
In November 2015, the Company issued $143,750 aggregate principal amount of Notes (see Note 6). Since Aceto has the option to settle the potential conversion of the Notes in cash, the Company separated the embedded conversion option feature from the debt feature and accounts for each component separately, based on the fair value of the debt component assuming no conversion option. The calculation of the fair value of the debt component required the use of Level 3 inputs and was determined by calculating the fair value of similar non-convertible debt, using a theoretical borrowing rate of 6.5%. The value of the embedded conversion option was determined using an expected present value technique (income approach) to estimate the fair value of similar non-convertible debt and included utilization of convertible investors’ credit assumptions and high yield bond indices. The Notes approximate a full fair value of $109,000 at December 31, 2018 giving effect to certain factors, including the term of the Notes, current stock price of Aceto stock and effective interest rate.
The carrying values of all financial instruments classified as a current asset or current liability are deemed to approximate fair value because of the short maturity of these instruments. The fair values of the Company’s notes receivable and short-term and long-term bank loans were based upon current rates offered for similar financial instruments to the Company.
The following tables summarize the valuation of the Company’s financial assets and liabilities which were determined by using the following inputs at December 31, 2018 and June 30, 2018:
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Recent Accounting Pronouncements |
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| New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
| Recent Accounting Pronouncements | (9) Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. The Company is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.
In June 2018, the FASB issued ASU 2018-07 Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which gives entities the option to reclassify the disproportionate income tax effects ("stranded tax effects") caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The update also requires new disclosures, some of which are applicable for all entities. The guidance in ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which has the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in ASU 2017-12 make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting. The amendments in ASU 2017-12 and ASU 2018-16 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the provisions of ASU 2017-12 and ASU 2018-16.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-15 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended in July 2018 by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, that replace existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. These ASU’s are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of these ASU’s and anticipates recognition of additional assets and corresponding liabilities relating to these leases on its consolidated balance sheet but does not expect the adjustment to be material assuming no changes in lease activity. |
Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information | (10) Segment Information
The Company's business is organized along product lines into three principal segments: Human Health, Pharmaceutical Ingredients and Performance Chemicals.
Human Health - includes finished dosage form generic drugs and nutraceutical products.
Pharmaceutical Ingredients – includes pharmaceutical intermediates and active pharmaceutical ingredients (“APIs”).
Performance Chemicals - The Performance Chemicals segment is made up of two product groups: Specialty Chemicals and Agricultural Protection Products. Specialty Chemicals include a variety of chemicals used in the manufacture of plastics, surface coatings, cosmetics and personal care, textiles, fuels and lubricants, perform to their designed capabilities. Dye and pigment intermediates are used in the color-producing industries such as textiles, inks, paper, and coatings. Organic intermediates are used in the production of agrochemicals.
Agricultural Protection Products include herbicides, fungicides and insecticides that control weed growth as well as control the spread of insects and other microorganisms that can severely damage plant growth.
The Company's chief operating decision maker evaluates performance of the segments based on net sales, gross profit and income before income taxes. Unallocated corporate amounts are deemed by the Company as administrative, oversight costs, not managed by the segment managers. The Company does not allocate assets by segment because the chief operating decision maker does not review the assets by segment to assess the segments' performance, as the assets are managed on an entity-wide basis. During all periods presented, our chief operating decision maker has been the Chief Executive Officer of the Company. In accordance with GAAP, the Company has aggregated certain operating segments into reportable segments because they have similar economic characteristics, and the operating segments are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) the nature of the regulatory environment.
Six months Ended December 31, 2018 and 2017:
Three months Ended December 31, 2018 and 2017:
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Income Taxes |
6 Months Ended |
|---|---|
Dec. 31, 2018 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | (11) Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“the TCJA”) was signed into law, which enacted various changes to the U.S. corporate tax law. Some of the most significant provisions impacting corporations include a reduced U.S. corporate income tax rate from 35% to 21% effective in 2018, a one-time "deemed repatriation" tax on unremitted earnings accumulated in non-U.S. jurisdictions, limitation on deductibility of interest, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system and other provisions. U.S. GAAP accounting for income taxes requires that Aceto record the impacts of any tax law change on the Company’s deferred income taxes in the quarter that the tax law change is enacted. Due to the complexities involved in accounting for the enactment of the TCJA, SEC Staff Accounting Bulletin (“SAB”) 118 allowed Aceto to provide a provisional estimate of the impacts of the TCJA in its earnings for the fiscal year ended June 30, 2018. Accordingly, based on the then currently available information, the Company recorded additional income tax expense of $13,739 for the year ended June 30, 2018. The charge was comprised of $5,075 related to the remeasurement of Aceto’s deferred tax assets arising from a lower U.S. corporate tax rate, $6,219 related to the deemed repatriation of unremitted earnings of foreign subsidiaries (the “transition tax”) and $2,445 related to deferred tax liabilities for local tax authorities as the Company no longer asserts permanent reinvestment of its undistributed non-U.S. subsidiaries' earnings. The Company finalized the calculations of the transition tax liability in the quarter ended December 31, 2018, with a reduction to the amount previously recorded of $405. |
Subsequent Events |
6 Months Ended |
|---|---|
Dec. 31, 2018 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | (12) Subsequent Events
On February 19, 2019, the Company and certain of its U.S. subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al. (the “Chapter 11 Cases”). Each of the Debtors remains in possession of its respective assets and will continue to operate its respective business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, on February 18, 2019, the Company and certain of its U.S. subsidiaries (collectively, the “Sellers”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with NMC Atlas, L.P., a Delaware limited partnership (the “Buyer”), an affiliate of New Mountain Capital, L.L.C., pursuant to which the Buyer agreed to acquire substantially all of the assets and assume certain liabilities of the Pharmaceutical Ingredients and Performance Chemicals segments and the Nutritionals portion of the Human Health segment of the Company pursuant to Sections 363 and 365 of the Bankruptcy Code for an aggregate purchase price of $338,000 in cash plus the assumption of certain liabilities (as set forth in the Asset Purchase Agreement), subject to adjustments with respect to net current assets at closing. The Asset Purchase Agreement is intended to constitute a “stalking horse” bid that is subject to higher and better bids by third parties in accordance with bidding procedures to be approved by the Bankruptcy Court. The Asset Purchase Agreement requires the Debtors to obtain Bankruptcy Court approval of the bidding procedures by April 1, 2019 and the Sale Order on or before 45 days after the Bankruptcy Court’s entry of the bidding procedures.
In connection with the Chapter 11 Cases, the Company and certain of its U.S. subsidiaries (collectively, the “DIP Borrowers”) will enter into a Senior Secured, Priming and Superprioity Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”) with the lenders party thereto from time to time (the “DIP Lenders”) and Wells Fargo Bank, National Association, as administrative agent for the DIP Lenders (the “DIP Administrative Agent”) |
Accounting Policies (Policies) |
6 Months Ended |
|---|---|
Dec. 31, 2018 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation | Basis of Presentation
The condensed consolidated financial statements of Aceto Corporation and subsidiaries (“Aceto” or the “Company”) included herein have been prepared by the Company and reflect all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented. Interim results are not necessarily indicative of results which may be achieved for the full year.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements and the disclosure of contingent assets and liabilities at the date of the financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. The Company’s most critical accounting policies relate to revenue recognition; allowance for doubtful accounts; inventory; goodwill and other indefinite-life intangible assets; long-lived assets; environmental matters and other contingencies; income taxes; stock-based compensation; and purchase price allocation.
These condensed consolidated financial statements do not include all disclosures associated with consolidated financial statements prepared in accordance with GAAP. Accordingly, these statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended June 30, 2018. |
| Going Concern Consideration | Going Concern Consideration
As indicated in the accompanying interim unaudited condensed consolidated financial statements, the Company had working capital at December 31, 2018 of $953 as compared with $200,109 at June 30, 2018. As more fully discussed in Note 6, the maturity date of the bank loans was revised from December 21, 2021 to June 30, 2019, resulting in the classification of the indebtedness outstanding under the Company’s credit facility as a current liability as of December 31, 2018. The Company has accumulated deficit and continued operating losses. The Company also continues to spend heavily on financial and legal professionals retained by the Company to deal with ongoing negative factors in the generic drug market and pending legal proceedings. As a result, the Company’s cash position declined from $100,874 at June 30, 2018 to $41,782 at December 31, 2018 and its working capital declined from $200,109 at June 30, 2018 to $953 at December 31, 2018. While the Company’s operating businesses continue to generate cash, the current demands upon the Company and its liquidity remain significant. These factors, among others, indicate that the Company will need to be reliant upon its previously announced strategic alternatives initiative to supplement its cash, liquid assets and operating cash flows, and to retire debt. Accordingly, because the Company cannot at this time conclude that these actions are probable of occurring, under applicable accounting standards and because of the high degree of uncertainty and dependence upon factors outside of our control associated with the Bankruptcy Filing described below, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern. These Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of certain liabilities and other commitments in the normal course of business. The accompanying Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.
On February 19, 2019, the Company and certain of its U.S. subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”). The Debtors have proposed to jointly administer their chapter 11 cases under the caption In re Aceto Corporation, et al. (the “Chapter 11 Case”).
For the duration of the Chapter 11 Cases, our operations are subject to risks and uncertainties associated with chapter 11 proceedings. As a result of these risks and uncertainties, our assets, liabilities, shareholders’ equity, officers and/or directors could be significantly different following the conclusion of the Chapter 11 Cases, and the description of our operations, properties and capital plans included in this quarterly report on Form 10-Q may not reflect our actual operations, properties and capital plans following the conclusion of the Chapter 11 Cases.
We intend to sell substantially all of our assets pursuant to one or more sales under Section 363 of the Bankruptcy Code. If we are unable to complete one or more sales of the Company’s assets, it may be necessary to explore a plan of reorganization or liquidation or our Chapter 11 Cases may be converted to a chapter 7 liquidation process. |
| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. The changes affect all companies that are required to include fair value measurement disclosures. In general, the amendments in ASU 2018-13 are effective for all entities for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt the removed or modified disclosures upon the issuance of ASU 2018-13 and may delay adoption of the additional disclosures, which are required for public companies only, until their effective date. The Company is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.
In June 2018, the FASB issued ASU 2018-07 Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which gives entities the option to reclassify the disproportionate income tax effects ("stranded tax effects") caused by the newly-enacted U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The update also requires new disclosures, some of which are applicable for all entities. The guidance in ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company does not believe this new accounting standard update will have a material impact on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which has the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in ASU 2017-12 make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting. The amendments in ASU 2017-12 and ASU 2018-16 are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the provisions of ASU 2017-12 and ASU 2018-16.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company adopted ASU 2017-09 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-15 in the first quarter of fiscal 2019. The adoption did not have any impact on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended in July 2018 by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, that replace existing lease guidance. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new guidance will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. These ASU’s are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of these ASU’s and anticipates recognition of additional assets and corresponding liabilities relating to these leases on its consolidated balance sheet but does not expect the adjustment to be material assuming no changes in lease activity. |
Revenue Recognition (Tables) |
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| Schedule of activity in the consolidated balance sheet for contra assets and liability for price concessions |
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Net Income Per Common Share (Tables) |
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| Schedule of reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding |
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Debt (Tables) |
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| Schedule of long-term debt |
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| Schedule of components of total interest expense related to notes |
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Fair Value Measurements (Tables) |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of financial assets and liabilities valuation |
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of segment performance measures | Six months Ended December 31, 2018 and 2017:
Three months Ended December 31, 2018 and 2017:
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Basis of Presentation and Going Concern (Narrative) (Detail) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
Jun. 30, 2017 |
|---|---|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| Working capital | $ 953 | $ 200,109 | ||
| Cash and cash equivalents | $ 41,782 | $ 100,874 | $ 64,930 | $ 55,680 |
Capital Stock (Narrative) (Detail) - $ / shares shares in Thousands |
Sep. 06, 2018 |
Dec. 31, 2018 |
Jun. 30, 2018 |
May 04, 2017 |
|---|---|---|---|---|
| Dividends Payable [Line Items] | ||||
| Common stock, shares authorized | 75,000 | 75,000 | ||
| Preferred stock, shares authorized | 2,000 | 2,000 | ||
| Dividends declared, per share amount | $ 0.01 | |||
| Dividends declared, date of declaration | Sep. 06, 2018 | |||
| Dividend paid, date | Oct. 09, 2018 | |||
| Dividends declared, date of record | Sep. 24, 2018 | |||
| Stock repurchase program | ||||
| Dividends Payable [Line Items] | ||||
| Number of shares authorized to be repurchased | 5,000 |
Capital Stock (Narrative) (Detail 1) - Rights Agreement shares in Thousands |
Nov. 05, 2018
$ / shares
shares
|
|---|---|
| Capital Stock [Line Items] | |
| Number of preferred stock authorized and declared as dividends | shares | 1 |
| Description of the number of preferred stock issued as dividend for each right issued | one one-thousandth |
| Series A Participating Cumulative Preferred Stock | |
| Capital Stock [Line Items] | |
| Par value of preferred stock (in dollars per share) | $ 2.50 |
| Purchase price of the one one-thousandth of a share of preferred stock (in dollars per share) | $ 10.85 |
| Minimum percentage of beneficial ownership acquired | 4.99% |
| Minimum percentage increase in common stock beneficial ownership | 0.50% |
Net Income Per Common Share (Summary of reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding) (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Earnings Per Share [Abstract] | ||||
| Weighted average shares outstanding | 35,592 | 35,210 | 35,540 | 35,093 |
| Dilutive effect of stock options and restricted stock awards and units | 0 | 0 | 0 | 0 |
| Diluted weighted average shares outstanding | 35,592 | 35,210 | 35,540 | 35,093 |
Net Income Per Common Share (Narrative) (Detail) - $ / shares shares in Thousands |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|---|
Dec. 21, 2016 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Nov. 30, 2015 |
|
| Net Income Per Common Share [Line Items] | ||||||
| Common equivalent shares excluded from computation of earnings per share due to net loss | 6 | 158 | 20 | 221 | ||
| Antidilutive securities excluded from computation of earnings per share | 2,024 | 197 | 1,598 | 129 | ||
| Citron and Lucid | ||||||
| Net Income Per Common Share [Line Items] | ||||||
| Number of shares issued in connection with acquisition included in weighted average shares outstanding | 5,122 | 5,122 | 5,122 | 5,122 | 5,122 | |
| Convertible Senior Notes | ||||||
| Net Income Per Common Share [Line Items] | ||||||
| Senior notes, initial conversion price per share | $ 33.215 | |||||
Debt (Summary of long-term debt) (Details) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Jun. 30, 2018 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Long-term debt including current portion | $ 317,121 | $ 317,398 |
| Less current portion | 183,772 | 14,482 |
| Long-term debt, net | 133,349 | 302,916 |
| Convertible Senior Notes, net | ||
| Debt Instrument [Line Items] | ||
| Long-term debt including current portion | 131,080 | 127,857 |
| Revolving Bank Loans | ||
| Debt Instrument [Line Items] | ||
| Long-term debt including current portion | 62,000 | 62,000 |
| Term Bank Loans | ||
| Debt Instrument [Line Items] | ||
| Long-term debt including current portion | 121,574 | 124,959 |
| Mortgage | ||
| Debt Instrument [Line Items] | ||
| Long-term debt including current portion | $ 2,467 | $ 2,582 |
Debt (Summary of notes carrying value) (Detail 1) - USD ($) $ in Thousands |
Dec. 31, 2018 |
Jun. 30, 2018 |
Nov. 30, 2015 |
|---|---|---|---|
| Debt Instrument [Line Items] | |||
| Principal amount | $ 143,750 | ||
| Net carrying value | $ 317,121 | $ 317,398 | |
| Convertible Senior Notes, net | |||
| Debt Instrument [Line Items] | |||
| Principal amount | 143,750 | 143,750 | |
| Unamortized debt discount | (11,104) | (13,909) | |
| Unamortized debt issuance costs | (1,566) | (1,984) | |
| Net carrying value | $ 131,080 | $ 127,857 |
Debt (Summary interest expense related to notes recognized) (Detail 2) - Interest expense - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2018 |
|
| Debt Instrument [Line Items] | ||
| Contractual coupon | $ 708 | $ 1,378 |
| Amortization of debt discount | 1,414 | 2,805 |
| Amortization of debt issuance costs | 209 | 418 |
| Interest expense | $ 2,331 | $ 4,601 |
Debt (Narrative) (Detail 3) - Mortgage $ in Thousands |
1 Months Ended |
|---|---|
|
Jun. 30, 2011
USD ($)
| |
| Debt Instrument [Line Items] | |
| Mortgage payable | $ 3,947 |
| Mortgage payable, amortization period | 20 years |
| Debt interest rate | 4.92% |
| Debt Instrument, Maturity Date | Jun. 30, 2021 |
Fair Value Measurements (Narrative) (Detail) - USD ($) shares in Thousands, $ in Thousands |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|---|---|
Mar. 21, 2017 |
Dec. 21, 2016 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Jun. 30, 2018 |
Nov. 30, 2015 |
|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Unrealized gain on interest rate swap | $ 1,135 | |||||||
| Principal amount | $ 143,750 | |||||||
| Theoretical borrowing rate used to calculate fair value of debt | 6.50% | |||||||
| Fair value of the notes | $ 109,000 | 109,000 | ||||||
| Fair value of future issuance of shares | 90,400 | 90,400 | ||||||
| Human Health Segment - Rising Reporting Unit | ||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Recognized non-cash goodwill impairment charge, before tax | $ 235,110 | |||||||
| Foreign currency contract | ||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Derivative, notional amount | 61,904 | 61,904 | ||||||
| Unrealized gains (losses) on hedging activities | 362 | $ (34) | 693 | $ 261 | ||||
| Interest rate swap | January 2019 Amendment | ||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Cash receipt from termination | 1,145 | |||||||
| Cash flow hedging | December 21, 2021 | Interest rate swap | ||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Additional interest cost rate of derivative | 2.005% | |||||||
| Derivative, notional amount | $ 100,000 | |||||||
| Derivative, expiration date | Dec. 21, 2021 | |||||||
| Notional balance of derivative | $ 80,000 | $ 80,000 | ||||||
| Citron and Lucid | ||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Accrued contingent consideration | 683 | |||||||
| Number of shares to be issued | 5,122 | 5,122 | 5,122 | 5,122 | 5,122 | |||
| Reversed contingent consideration second quarter of fiscal 2019 | $ 724 | |||||||
Segment Information (Summary of Segment Performance Measures by Segment) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
|
| Segment Reporting Information [Line Items] | ||||
| Net sales | $ 163,649 | $ 171,229 | $ 328,054 | $ 356,484 |
| Gross profit | 24,046 | 33,970 | 49,526 | 73,953 |
| (Loss) income before income taxes | (21,810) | (499) | (40,905) | 1,639 |
| Human Health | ||||
| Segment Reporting Information [Line Items] | ||||
| Net sales | 84,981 | 103,466 | 165,827 | 209,481 |
| Pharmaceutical Ingredients | ||||
| Segment Reporting Information [Line Items] | ||||
| Net sales | 42,042 | 33,629 | 80,890 | 70,205 |
| Performance Chemicals | ||||
| Segment Reporting Information [Line Items] | ||||
| Net sales | 36,626 | 34,134 | 81,337 | 76,798 |
| Operating Segments | Human Health | ||||
| Segment Reporting Information [Line Items] | ||||
| Net sales | 84,981 | 103,466 | 165,827 | 209,481 |
| Gross profit | 10,822 | 22,898 | 19,298 | 47,545 |
| (Loss) income before income taxes | (10,596) | 2,288 | (23,643) | 7,314 |
| Operating Segments | Pharmaceutical Ingredients | ||||
| Segment Reporting Information [Line Items] | ||||
| Net sales | 42,042 | 33,629 | 80,890 | 70,205 |
| Gross profit | 6,353 | 4,381 | 13,247 | 10,221 |
| (Loss) income before income taxes | 2,321 | 577 | 5,719 | 2,808 |
| Operating Segments | Performance Chemicals | ||||
| Segment Reporting Information [Line Items] | ||||
| Net sales | 36,626 | 34,134 | 81,337 | 76,798 |
| Gross profit | 6,871 | 6,691 | 16,981 | 16,187 |
| (Loss) income before income taxes | 3,245 | 2,477 | 9,173 | 7,422 |
| Unallocated Corporate | ||||
| Segment Reporting Information [Line Items] | ||||
| (Loss) income before income taxes | $ (16,780) | $ (5,841) | $ (32,154) | $ (15,905) |
Segment Information (Narrative) (Detail) |
6 Months Ended |
|---|---|
|
Dec. 31, 2018
Segment
| |
| Segment Reporting [Abstract] | |
| Number of operating segments | 3 |
Income Taxes (Narrative) (Detail) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Dec. 31, 2018 |
Jun. 30, 2018 |
|
| Income Tax [Line Items] | ||
| Tax Cuts and Jobs Act, net tax expense (benefit) | $ 13,739 | |
| Income tax expense due to remeasurement of deferred tax assets | $ 5,075 | |
| Tax Cuts and Jobs Act one-time transition tax expense | 6,219 | |
| Tax Cuts and Jobs Act reduction in transition tax expense | $ 405 | |
| Earliest Tax Year | ||
| Income Tax [Line Items] | ||
| US corporate income tax rate | 35.00% | |
| Latest Tax Year | ||
| Income Tax [Line Items] | ||
| US corporate income tax rate | 21.00% | |
| Local tax authorities | ||
| Income Tax [Line Items] | ||
| Deferred tax liabilities, undistributed foreign earnings | $ 2,445 |
Subsequent Events (Narrative) (Detail) - Subsequent event - USD ($) |
Feb. 19, 2019 |
Feb. 17, 2019 |
|---|---|---|
| Revolving credit facility | DIP Credit Agreement | ||
| Subsequent Event [Line Items] | ||
| DIP outstanding facility | $ 60,000,000 | |
| Eurodollar Loan | Revolving credit facility | DIP Credit Agreement | Maximum | ||
| Subsequent Event [Line Items] | ||
| Interest rate | 7.00% | |
| ABR Borrowings | Revolving credit facility | DIP Credit Agreement | Maximum | ||
| Subsequent Event [Line Items] | ||
| Interest rate | 6.00% | |
| NMC Atlas, L.P. | Asset Purchase Agreement | ||
| Subsequent Event [Line Items] | ||
| Aggregate purchase price in cash plus Assumed Liabilities | $ 338,000,000 |