SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
____________________
Commission File Number: 0-13976
____________________
AKORN, INC.
(Name of small business issuer as specified in its charter)
LOUISIANA 72-0717400
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 Akorn Drive, Abita Springs, Louisiana 70420
(Address of principal executive offices and zip code)
Issuer's telephone number: (504) 893-9300
____________________
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, No Par Value
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ____
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-K is not contained in this form, and will not be contained, to the best of
issuer's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The aggregate market value of the voting stock held by nonaffiliates
(affiliates being, for these purposes only, directors, executive officers and
holders of more than 5% of the Issuer's common stock) of the Issuer as of
September 23, 1996 was approximately $27,500,000.
The number of shares of the Issuer's common stock, no par value per share,
outstanding as of September 23, 1996 was 16,573,915.
<PAGE>
PART I
Item 1. Description of Business.
General Development of Business
Akorn, Inc. (Akorn or the Company) manufactures, markets and distributes an
extensive line of therapeutic, diagnostic and surgical pharmaceutical and
over-the-counter ophthalmic products. In addition, through its wholly-owned
subsidiary Taylor Pharmaceuticals, Inc. (Taylor), the Company manufactures and
distributes injectable pharmaceutical products and provides sterile contract
manufacturing services to several large and small pharmaceutical companies.
Akorn, a Louisiana corporation founded in 1971, is headquartered in Abita
Springs, Louisiana, a suburb of New Orleans.
Prior to the fiscal year beginning July 1, 1989, the Company purchased its
entire ophthalmic product line on a contract basis from several suppliers, who
packaged and labeled the products under the Company's name. In September
1989, in order to more vertically integrate its operations, the Company
acquired Walnut Pharmaceuticals, Inc. (Walnut), a manufacturing facility in
Los Angeles, California that was capable of manufacturing sterile ophthalmic
solutions, suspensions, and human injectable products, among other products.
This facility operated until mid 1991, at which time the facility was closed
due to current Good Manufacturing Practices (cGMP) concerns.
In January 1992, the Company acquired Taylor of Decatur, Illinois. Akorn
immediately began the process of transferring to Taylor the operations
formerly conducted at the Los Angeles facility while maintaining the sterile
contract manufacturing business conducted by Taylor. In May 1996, the Company
acquired Pasadena Research Laboratories, Inc. (PRL), a developer and
distributor of injectable products, and merged PRL into Taylor, thereby
creating a fully-integrated injectable pharmaceutical company. The merger
also expanded Taylor's current product pipeline.
For information regarding sales, operating income and identifiable assets
for each of the Company's segments, see Note Q to the financial statements
included in Item 8 of this report.
Ophthalmic Distribution Business
The Company distributes a complete line of therapeutic, diagnostic and
over-the-counter ophthalmic pharmaceutical products as well as other surgical
and office-based non-pharmaceutical products. The Company's therapeutic
ophthalmic pharmaceutical product line is extensive and includes antibiotics,
anti-infectives, steroids, steroid combinations, glaucoma medications,
decongestants/antihistamines, and anti-edema medications. Diagnostic products,
primarily for use in doctors' offices, include a complete line of mydriatics
and cycloplegics, anesthetics, topical stains, gonioscopic solutions and
others. Surgical products available from Akorn include surgical knives and
other surgical instruments, balanced salt solution, post-operative kits,
surgical tapes, eye shields, anti-ultraviolet goggles, facial drape supports,
and other supplies. Ophthalmic over-the-counter products include various
artificial tear solutions, preservative-free lubricating ointments, lid
cleansers, vitamin supplements and contact lens accessories.
Injectable Manufacturing and Distribution Business
Taylor markets a line of over 55 niche injectable pharmaceutical products
through the newly acquired operations of PRL. Founded in 1936, PRL had over
50 years of history in the generic small volume parenteral market. The niche
injectable products sold are used in the treatment of a broad spectrum of
indications, including rheumatoid arthritis and pain management.
Contract Manufacturing Business
Taylor also manufactures sterile products, on a contract basis, for third
parties. The majority of Taylor contracts are short-term in nature and
operate on the basis of signed purchase orders. However, Taylor is in the
process of developing longer-term contracts with minimum quantity requirements
in order to strengthen the commitments from its contract customers. Because
of the present nature of Taylor's contracts, its contract manufacturing is
more volatile than the ophthalmic distribution and injectable distribution
segments. Given that sales to contract customers are large in relation to the
distribution segments, sharp reductions in contract manufacturing sales can
occur should customers discontinue the contract for any reason.
Sales and Marketing
While the Company's distributed ophthalmic and injectable product lines
include some unique products, the majority are non-proprietary. As a result,
the Company relies on its expertise in marketing, distribution, development,
and low cost manufacturing in order to maintain and increase market share.
The Company maintains an efficient three-pronged ophthalmic distribution
sales effort. This effort includes 23 outside sales representatives who,
together with two district managers, make personal calls on customers in the
Northeast, Southeast, Midwest and West regions of the country. In addition,
the Company maintains an in-house telemarketing and a customer service sales
group of 25 persons who operate at the Company's facilities in Abita Springs.
The Company also maintains a direct-mail marketing effort. Ophthalmic
distribution customers consist primarily of ophthalmologists, optometrists,
independent pharmacies, and full-service wholesalers whose customers include
hospitals and other institutions.
The Company's sales and marketing efforts in the injectable distribution
business include seven telemarketing and customer service representatives and
direct-mail activities. Injectable distribution customers consist primarily
of hospitals and specialty physicians. In addition, the Company has
established several strategic alliances to help distribute its injectable
products to Group Purchasing Organizations (GPOs). The GPO market is expected
to become a major component of sales to the injectable distribution segment as
the Company aggressively expands its generic injectable product offering to
include more high volume products. The Company also intends to build a key
account sales force for the injectable segment over the next several years as
new products are introduced.
The Company's sales and marketing efforts in the contract manufacturing
business have been limited to personal contact with major pharmaceutical
companies and limited trade journal advertisements. Attendance at
manufacturing trade shows and an aggressive marketing of the full-service
capabilities of Taylor's contract operations will be implemented in fiscal
1997. The Company's contract customers include several large pharmaceutical
companies. Throughout Taylor's history, it has performed contract
manufacturing services for some of the largest pharmaceutical companies.
The Company stresses its service, quality and cost as means to attract and
keep customers.
Research and Development
The acquisition of Taylor provided the Company with resources to begin its
research and development program, which began in the last quarter of fiscal
1992 and has since expanded. As of June 30, 1996, the Company had 4 new
ophthalmic ANDAs on file with the FDA for products which the Company has not
previously manufactured. See "Government Regulation." These products, along
with a recently approved ANDA product which the Company will market upon
patent expiration of the innovator product, have a current aggregate brand
market of approximately $180 million. In addition, by the third quarter of
calendar 1996, the Company had seven products in various stages of development
leading to ANDA submission. These injectable products have a current
aggregate brand market of approximately $300 million. No assurance can be
given as to whether the Company will develop marketable products based on
these filings or as to the size of the market for any such products.
The Company has targeted its research and development efforts over the next
three years on 25 to 30 additional ophthalmic and injectable products, the
patents on which have expired or will expire in the near future. Production
and marketing of any products developed as a result of these efforts are
expected to take several years.
The Company also maintains an aggressive product licensing effort. This
effort allows the Company to use its strength in marketing ophthalmic and
injectable products. The Company also anticipates manufacturing many of the
licensed products.
At June 30, 1996, 19 full-time employees of the Company were involved in
research and development and product licensing. The Company's research and
development expenditures for 1996, 1995 and 1994 were $1.9 million, $1.7
million and $1.4 million, respectively.
The Company expects its research and development expenditures to increase
in fiscal 1997.
Employee Relations
The Company has 282 full-time employees, of whom 75 are employed in the
Abita Springs facility, 167 are employed in Decatur, Illinois, 15 are employed
in San Clemente, CA, and 25 are in outside sales. The Company enjoys good
relations with its employees, none of whom are represented by a collective
bargaining agent.
Competition
The manufacture and distribution of ophthalmic and injectable
pharmaceutical products is highly competitive, with many established
manufacturers, suppliers and distributors actively engaged in all phases of
the business. Most of the Company's competitors have substantially larger
financial and other resources, including a larger volume of sales, more sales
personnel and larger facilities than the Company.
The competitors which are dominant in the ophthalmic distribution industry
are Alcon Laboratories, Inc., Allergan Pharmaceuticals, Inc., Steris
Pharmaceuticals, Inc. (Steris) and Bausch & Lomb, Inc. (B&L). The Company
competes primarily on the basis of price and service. The Company's principal
suppliers, Steris and B&L are in direct competition with the Company in
several markets. Both generic and name brand companies compete in the
injectable generic distribution industry and include Abbott Labs, Gensia,
Marsam, Steris, Elkin Sin and American Regent.
The manufacturing of sterile products must be performed under the most
rigorous FDA-mandated Good Manufacturing Practices. Therefore the barriers to
entry in the manufacturing of sterile products are very high. The number of
independent contract manufacturers of sterile products continues to decline as
a result of these barriers. Taylor's competitors in this area, generally, are
larger companies with greater financial and other resources.
Product Supply
Since the acquisition of Taylor in 1992, the Company has been steadily
regaining control of the supply of its ophthalmic pharmaceutical products,
which had been impacted by the closure of the Los Angeles facility in 1991.
During the fiscal year ended June 30, 1996, approximately 30% of the Company's
net ophthalmic distribution sales were accounted for by products manufactured
at Taylor and approximately 70% by unaffiliated suppliers, the largest of
which is Sight Pharmaceuticals, Inc. (a division of B&L). This company
supplied products accounting for 13% of the Company's net ophthalmic
distribution sales during fiscal 1996. No other supplier supplied products
accounting for more than 10% of the Company's net ophthalmic distribution
sales during fiscal 1996.
The Company uses several suppliers for its injectable distribution
business. Several of the leading products distributed by this segment are in
the process of being transferred to Taylor's manufacturing facilities. The
Company intends to produce the majority of its high volume injectable
distribution products over the next several years.
Government Regulation
All pharmaceutical manufacturers and distributors are subject to extensive
regulation by the federal government, principally by the FDA and, to a lesser
extent, by state governments. The federal Food, Drug and Cosmetic Act (the
FDA Act), the Controlled Substance Act, and other federal statutes and
regulations govern or influence the development, testing, manufacture, safety,
labeling, storage, recordkeeping, approval, pricing, advertising, and
promotion of products by the Company and its subsidiaries. Included among the
requirements of these statutes is that the manufacturer's methods conform to
cGMPs provided for in FDA regulations. Pursuant to its powers under the FDA
Act, the FDA inspects drug manufacturers and storage facilities to determine
compliance with its Good Manufacturing Practice regulations, non-compliance
with which can result in fines, recall and seizure of products, total or
partial suspension of production, refusal of the government to approve new
drug applications, and criminal prosecution. The FDA also has authority to
revoke approval of drug products.
Except in the case of drugs identified as category B in the FDA Act, FDA
approval is required before any drug can be manufactured and marketed. New
drugs require the filing of a New Drug Application (NDA) with the FDA, which
requires clinical studies demonstrating the safety and efficacy of the drug
and compliance with additional regulatory requirements.
Abbreviated procedures are available for obtaining FDA approval for those
generic drugs which are equivalents of existing brand name drugs, such as
certain drugs that had been manufactured at the Los Angeles facility and are
expected to be manufactured by Taylor. In order to obtain approval of a new
generic drug, the Company files an Abbreviated New Drug Application (ANDA)
with the FDA. An ANDA is similar to a NDA, except that the FDA waives the
requirement of conducting clinical studies of safety and efficacy. Instead,
for drugs which contain the same ingredients as drugs already approved for use
in the United States, the FDA ordinarily requires data showing that the
generic drug formulation is equivalent to the brand name drug and that the
product is stable in its formulation.
Over the past several years, the FDA has increased its scrutiny of the
operations of generic drug manufacturers like the Company and has increased
the time required for its approval of ANDAs and NDAs submitted by such
companies. In addition, the Office of Generic Drugs of the FDA, the division
which monitors and approves ANDAs, has increased its scrutiny regarding
concentrations of inactive ingredients for generic drugs as compared to the
innovator drug. This change has resulted in an increase in the time spent on
formulating ANDA products.
In addition, the Company manufactures and distributes several controlled-
drug substances. The distribution and handling of these products are
regulated by the Drug Enforcement Agency (DEA). Strict compliance with DEA
regulations is necessary to continue distribution of controlled drugs.
Failure to comply with regulations can result in fines or seizure of product.
Item 1A. Executive Officers of the Registrant
The executive officers of the Company are listed below. Each officer serves
as such at the pleasure of the Board of Directors.
John N. Kapoor, Ph.D. Dr. Kapoor, age 53, has served as Chief Executive
Officer of the Company since May 1996. He has also been
a director and member of the Executive Committee of the
Company since December 1991. From May 1995, he has
served as Chairman of the Board of the Company. Dr.
Kapoor had served as acting Chairman of the Board of
Directors from April 1993 to May 1995; he served as
Chairman of the Board of the Company from December 1991
to January 1993. Dr. Kapoor also served as Chairman of
the Board and Chief Executive Officer of Option Care,
Inc., a franchiser of home infusion therapy businesses,
from August 1993 to April 1996. Since 1990, he has
served as President of EJ Financial Enterprises, Inc., a
privately held financial services and consulting
company.
Floyd Benjamin Mr. Benjamin, age 53, was elected President of Taylor
and Executive Vice President of the Company on May 31,
1996, upon the merger of PRL and Taylor. Mr. Benjamin
served as President of PRL since October 1994 and as
a consultant to PRL since becoming a shareholder
in October 1993. Prior to joining PRL, Mr. Benjamin
served as President and Chief Executive Officer of
Neocrin, a biomedical venture company, from February
1992 until October 1993. Prior to then, Mr. Benjamin
served as Chief Operating Officer of Lyphomed, Inc., a
manufacturer and distributor of injectable
pharmaceuticals.
Barry D. LeBlanc Mr. LeBlanc, age 41, was elected President, Chief
Executive Officer of the Company in December 1991. In
May 1996, Mr. LeBlanc relinquished his position of CEO
and became President of the Company's Ophthalmic
Division and Executive Vice President of the Company.
From August 1987 to December 1991, Mr. LeBlanc served as
President and Chief Operating Officer of the Company. He
also was a director and member of the Executive
Committee of the Company since August 1987. Prior to
1987, Mr. LeBlanc was principally employed as a
practicing certified public accountant and served as a
financial consultant to the Company. Effective July 3,
1996, Mr. LeBlanc resigned all of his positions with the
Company, including his postion as a director.
Harold O. Koch Mr. Koch, age 47, has served as Senior Vice
President since January 1995. From January 1993 to
December 1994, he served as Vice President - Business
Development. From July 1991 to December 1992, Mr. Koch
coordinated the reorganization of the Company's
manufacturing operations. From November 1988 to June
1991, he acted as an independent consultant in the area
of biotechnology formulation, ophthalmic manufacturing
processes and ophthalmic marketing. From May 1987 to
October 1988, he served as Vice President - Product
Development for the Cooper Company. Prior to this Mr.
Koch served as Director of Product Development for
Cooper Vision Ophthalmics.
Eric M. Wingerter Mr. Wingerter, age 34, has served as Vice President
- Finance and Administration since July 1993 and as Vice
President - Finance from January 1993 through June 1993.
Since September 1988, Mr. Wingerter has been the
Company's Chief Financial Officer. From January 1984 to
September 1988, he practiced as a certified public
accountant in the audit department at Ernst & Young.
Item 2. Description of Property.
The Company's ophthalmic executive offices, sales and distribution center
are based in two adjacent buildings totalling approximately 30,000 square feet
located on ten acres of land in Abita Springs, Louisiana. These buildings are
believed adequate for Akorn's present ophthalmic executive office, sales and
warehousing and distribution activities. The land owned by the Company in
Abita Springs can accommodate growth in Company executive and ophthalmic sales
and distribution operations for the foreseeable future.
Through Taylor, the Company owns a 76,000 square-foot facility located on
15 acres of land in Decatur, Illinois. This facility is currently used for
packaging, distribution, warehousing and office space. In addition, Taylor
owns a 55,000 square-foot manufacturing facility, also in Decatur, Illinois.
Through Taylor, the Company also leases 7,000 square feet of office and
warehousing space in San Clemente, California for use in the injectable
distribution segment, including sales, distribution and executive offices.
This space, along with available space in Decatur, Illinois, is considered
adequate to accomodate growth in the injectable distribution and contract
manufacturing operations for the foreseeable future.
Item 3. Legal Proceedings.
From time to time the Company becomes involved, in the ordinary course of
its business, in legal actions and claims. The amount, if any, of ultimate
liability with respect to such matters cannot be determined. Management
believes, however, that any such liability will not have a material effect on
the Company's consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
ended June 30, 1996.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol AKRN. On September 15, 1996, the Company estimated that the number
of holders of its Common Stock was approximately 3,000, including record
holders and individual participants in security position listings.
High and low prices for the last two years were:
1996 1995
_____________________________________________________________
Cash Cash
Market Price (1) Dividends Market Price<F1> Dividends
Dividends Low High Declared Low High Declared
______________________________________________________________
1st Quarter $ 2.25 $ 2.81 $ - $ 2.38 $ 3.19 $ -
2nd Quarter 2.06 3.13 - 2.94 4.00 -
3rd Quarter 2.44 3.19 - 2.88 3.63 -
4th Quarter 2.53 3.50 - 2.25 3.31 -
<F1> Per NASDAQ
The Company's Board of Directors decided to suspend the payment of
dividends in the first fiscal quarter of 1992. Any such future payments will
be, in part, contingent upon the level of the Company's research and
development efforts and expansion of operations. The Company's loan agreement
includes restrictions on the payment of dividends. During fiscal 1996,
dividends paid pertain to Subchapter S distributions made to former PRL
shareholders for pre-acquisition earnings.
<PAGE>
Item 6. Selected Consolidated Financial Data.
The following table sets forth selected consolidated financial information
for Akorn, Inc. for the five years ended June 30, 1996.
<TABLE>
<CAPTION>
Years Ended June 30
1996<F1> 1995<F1> 1994<F1> 1993<F3> 1992<F4>
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
PER SHARE
Equity $ 0.97 $ 0.93 $ 0.76 $ 0.47 $ 0.35
Net income (loss) $ 0.05 $ 0.15 $ 0.14 $ 0.12 $ (0.51)
Price: High $ 3.50 $ 4.00 $ 3.88 $ 3.13 $ 4.13
Low $ 2.06 $ 2.25 $ 1.88 $ 1.50 $ 1.25
P/E: High 58x 27x 28x 26x NM
Low 34x 15x 13x 13x NM
INCOME DATA (000)
Net sales 33,925 37,505 31,266 23,612 20,914
Gross profit 11,953 15,177 13,218 9,699 7,942
Operating income (loss) 1,089 3,910 2,654 1,712 (7,237)
Interest expense (441) (25) (181) (288) (305)
Pretax income (loss) 977 3,738 2,573 1,518 (7,370)
Income taxes (benefit) 189 1,232 158 (263) (521)
Net income (loss) 788 2,506 2,415 1,781 (6,849)
Weighted average
shares outstanding 16,788 16,799 16,711 14,799 13,522
BALANCE SHEET (000)
Current assets 17,251 15,474 15,044 9,209 9,989
Net fixed assets 11,524 11,060 6,346 5,325 5,174
Total assets 29,817 27,491 22,190 15,008 15,692
Current liabilities 9,601 7,016 7,106 3,764 7,559
Long-term obligations 3,915 4,890 2,380 4,328 3,396
Shareholders' equity 16,301 15,585 12,704 6,916 4,737
FUNDS FLOW DATA (000)
From operations 10 712 2,212 (479) (414)
Dividends paid<F2> (583) - - - -
From investing (873) (4,943) (3,745) (531) 2,239
From financing 979 3,112 2,313 (26) (1,001)
Change in cash & equivalents 116 (1,119) 780 (1,036) 824
RATIO ANALYSIS
Gross margin 35.2% 40.5% 42.3% 41.1% 38.0 %
Operating margin 3.2% 10.4% 8.5% 7.3% (34.6)%
Pretax margin 2.9% 10.0% 8.2% 6.4% (35.2)%
Effective tax rate 19.3% 33.0% 6.1% (17.3)% NM
Net margin 2.3% 6.7% 7.7% 7.5% (32.7)%
Return on assets 2.8% 10.1% 13.0% 11.6% (39.6)%
Return on equity 4.9% 17.7% 24.6% 30.6% (89.0)%
All of the information shown in the table above has been restated to reflect
the combined operations of Akorn and Pasadena Research Labs, Inc. (PRL). The
information shown in the table for 1992 has been restated to reflect the
combined operations of Akorn and Taylor Pharmaceuticals, Inc. (Taylor).
<FN>
<F1> For information regarding the effects of unusual, infrequently occurring or
year end adjustments on reported results for fiscal 1994 through 1996, see Notes
B, D and O to the financial statements included in Item 8 of this report.
<F2> Dividends paid pertain to Subchapter S distributions made to former PRL
shareholders for pre-acquisition earnings.
<F3> Includes the reversal of the provision for a litigation judgment ($0.7
million), the reduction of estimated costs of reorganizing manufacturing
operations ($0.4 million), and income tax benefits ($0.3 million).
<F4> Includes charges for the reorganization of manufacturing operations ($5.3
million), acquisition costs of Taylor ($1.3 million), and provision for a
litigation judgment ($0.8 million).
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the accompanying financial
statements.
Results of Operations
Net Sales
The Company's consolidated net sales declined 10% to $33.9 million in 1996
compared to the prior year. This follows a 20% increase in the prior year as
compared with 1994. The following table sets forth, for the periods
indicated, net sales by segment, excluding intersegment sales:
Years Ended June 30
(In millions)
1996 1995 1994
__________________________________________
Ophthalmic distribution $ 20.8 $ 23.8 $ 20.7
Injectable distribution 4.2 4.6 2.9
Contract manufacturing 8.9 9.1 7.7
__________________________________________
Total net sales $ 33.9 $ 37.5 $ 31.3
==========================================
Ophthalmic distribution sales include a broad range of therapeutic,
diagnostic, surgical and office-based products. Ophthalmic distribution sales
declined 13% in 1996 as compared to 1995 and increased 15% in 1995 as compared
to 1994. The decline in sales for 1996 is attributable primarily to two
factors. These include the loss of sales for AK-Con-A, the Company's
previously best-selling allergy product, and the discontinuance of certain
discounting practices with wholesalers in the fourth quarter of 1996.
As previously announced, AK-Con-A was converted to over-the-counter status
by the FDA, which required the filing of a NDA. Sales of AK-Con-A were
discontinued in October 1994, pending FDA approval of the NDA. The Company
received approval of the OTC version of the product in January 1996. The OTC
version is being marketed through a joint venture with Pfizer Inc (Pfizer).
Royalties earned under this joint venture totalled $333,000 in fiscal 1996.
Sales of AK-Con-A were approximately $2 million and $1.4 million,
respectively, in 1995 and 1994.
In the fourth quarter of 1996, the Company discontinued the practice
employed by the ophthalmic division of giving discounts to wholesalers at the
end of every quarter. The Company was willing to forego the additional sales
in the quarter to try to maintain margins at an acceptable rate in the future.
Because of the discontinuance of this practice, the Company estimates that
sales for the quarter and fiscal year ended June 30, 1996 were negatively
impacted by approximately $1 million.
Excluding the effects of the loss of AK-Con-A and the discontinuance of the
wholesaler discounting practice, sales for the ophthalmic segment were
relatively flat. Continued erosion of generic pricing along with some product
shortages have offset sales increases in other products during 1996. The
Company continues to experience increases in its sales of surgical products
which includes surgical instruments and surgical packs. The surgical products
area will continue to be a major focus for the ophthalmic segment since
margins are generally higher than for generic pharmaceuticals and sales are
controlled more directly by physicians, a customer base which has been
traditionally a strength for Akorn.
In 1995, ophthalmic distribution sales were enhanced by sales of AK-Con-A,
the introduction of several new surgical products, including new surgical
instruments and surgical packs, and sales of the Company's generic
therapeutic products.
Injectable distribution sales (attributable to PRL, which was acquired by
the Company on May 31, 1996 in a pooling of interests transaction) declined 9%
in 1996 as compared to 1995 and increased 59% in 1995 as compared to 1994.
The current year decline is primarily attributable to delays in new product
introductions and additional competition on a few of the Company's injectable
products. The sales increase in 1995 is primarily attributable to an expanded
offering of certain grandfathered products, including this segment's lead
product for the treatment of rheumatoid arthritis. In addition, in 1995, the
Company established several marketing alliances which gave it an entree into
the Group Purchasing Organization (GPO) market for injectables.
Contract manufacturing sales were relatively flat in 1996 versus 1995 and
increased 18% in 1995 as compared to 1994. Contract sales for 1995 were
enhanced by a new contract from Janssen Pharmaceutica, Inc. (Janssen), which
increased sales significantly beginning in the second half of fiscal 1994.
Sales to Janssen accounted for 12% and 13% of consolidated net sales in 1996
and 1995, respectively. Janssen had recently notified the Company that it
would be transferring the production of certain products during fiscal 1996
and 1997 to its own facilities in Puerto Rico. Such products accounted for
$1.3 million and $1.4 million in contract manufacturing sales for 1996 and
1995, respectively.
Effective July 1, 1996, Janssen agreed to transfer to the Company ownership
of three injectable products in the analgesia/anesthesia area, two of which
previously had been produced for Janssen by Taylor, but which Janssen had
determined to discontinue. These products accounted for approximately $2.6
million and $2.9 million in sales for Taylor in 1996 and 1995, respectively.
The acquisition of these products should help maintain plant volume and
provide the injectable distribution segment with two highly recognized
products.
Income and Expenses
The following table sets forth the relationship to sales of various income
statement items:
Years Ended June 30
1996 1995 1994
___________________________________________
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 64.8 59.5 57.8
___________________________________________
Gross margin 35.2 40.5 42.2
Selling, general and administrative
expenses 26.4 27.7 30.8
Research and development 3.6 2.4 2.9
Acquisition and severance costs 2.0 - -
___________________________________________
Operating income 3.2 10.4 8.5
Interest and other income
(expense), net (.3) (.4) (.3)
___________________________________________
Income before income taxes 2.9 10.0 8.2
Income taxes .6 3.3 .5
___________________________________________
Net income 2.3% 6.7% 7.7%
===========================================
Gross Margins
The consolidated gross margin percentage declined by 5.3 percentage points
from 40.5% in 1995 to 35.2% in 1996. The decline in gross margins is
primarily due to continued price pressure in the ophthalmic generic
pharmaceuticals area due to competition, as well as the loss of the the
Company's high margin sales of AK-Con-A. In addition, lower plant throughput,
primarily in the second half of fiscal 1996, resulted in margin declines for
the contract manufacturing segment. Also, in the second half of fiscal 1996,
the Company increased its estimate for unsaleable inventory by approximately
$500,000. In the quarter ended June 30, 1996, the Company increased its
estimate for wholesaler chargebacks by approximately $250,000. These changes
in estimate are reported as a decrease in gross margin. Excluding these
changes, the gross margin for 1996 was 37.4%, a 3.1 percentage point decline
from 1995.
The gross margin percentage declined 1.7 percentage points from 42.2% in
1994 to 40.5% in 1995. The decline in gross margin percentage in 1995 is
primarily due to the effects of price increases from manufacturers (primarily
in the second half of the fiscal year), which were not fully offset by price
increases to customers. In addition, a shift in the mix of lower margin
catalog products added to the decline in gross margin. The decline in gross
margin was more prevalent in the second half of the fiscal year as a result of
the loss of sales from AK-Con-A discussed earlier.
The Company anticipates that gross margins will continue to be impacted by
price erosion on generic pharmaceuticals. However, with anticipated growth in
certain higher margin niche products, the Company's overall gross margins
should remain relatively stable during 1997. As the injectable segment begins
the marketing of more commodity generic products, overall Company margins are
expected to decline beyond 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales
declined 1.3 percentage points from 27.7% in 1995 to 26.4% in 1996. In the
quarter ended March 31, 1996, the Company decided to no longer pursue ANDAs
for several ophthalmic products which had been produced in previously-owned
facilities. This decision was based on the cost of the ANDAs versus the
future incremental profit to be derived from the sales of these products,
given changed market conditions. This change in estimate was also based on
the Company's recent decision to enter into the injectable distribution
marketplace and the need to redeploy R&D resources for the pursuit of
injectable ANDAs. The total amount of the accrual reversed was approximately
$316,000 and is included as a reduction in S,G&A expenses. During the
quarter ended March 31, 1995, the Company, based on evaluations made by
management, changed the estimated liability related to aged customer credits.
This resulted in a reduction in S,G&A expenses of approximately $330,000.
The decline in S,G&A expenses as a percentage of net sales, in spite of the
decrease in sales from 1995 to 1996, is primarily due to the decision to
eliminate approximately $1 million to $1.5 million of S,G&A expenses and other
manufacturing operating expenses in response to a slowing in sales growth
during the third quarter of fiscal 1995.
Selling, general and administrative expenses as a percentage of net sales
declined 3.1 percentage points from 30.8% in 1994 to 27.7% in 1995 primarily
due to the Company's operating leverage and the increase in net sales from
1994 to 1995.
Research and Development
Research and development expense increased 36% in 1996 as compared to 1995.
This increase was primarily attributable to the increase in R&D associated
with the recently acquired operations of PRL. Prior to fiscal 1996, PRL had
very little R&D expense. Research and development expense was relatively flat
in 1995 as compared to 1994. In 1995, the Company maintained a stable mix of
new ophthalmic ANDAs and site-transfers from its previous manufacturing
facility in Los Angeles.
Throughout 1995 and the first half of 1996, the Company incurred R&D costs
associated with its NDA for the over-the-counter version of AK-Con-A in
connection with the licensing arrangement with Pfizer. This NDA was approved
in January 1996. Costs associated with this NDA have been capitalized in
connection with the long-term contract for manufacturing and royalty rights.
The Company also continued its work on an NDA for the ophthalmic non-steroidal
anti-inflammatory drug Piroxicam licensed from Pfizer. The first $1 million
of costs associated with this NDA are offset by funds obtained from Pfizer.
Total cash expenditures for all research and development activities were
approximately $1.9 million, $1.7 million and $1.4 million in 1996, 1995 and
1994, respectively.
With the acquisition of PRL, the Company expects to increase its mix of
injectable grandfathered and ANDA products. PRL had several ANDA filings in
process through joint venture arrangements. It is anticipated that these
arrangements would continue and that the Company would also continue to
develop other injectable products for manufacture by Taylor. Several of the
products currently marketed and distributed by the injectable distribution
segment do not require FDA approval and production of such products will be
transferred to the Taylor facilities as soon as practicable. In addition to
injectable and ophthalmic ANDAs, the Company will continue its work on the
ophthalmic NDA for Piroxicam.
The remaining number of products in the R&D pipeline which are being
transferred from the Company's previous manufacturing site in Los Angeles is
minimal at June 30, 1996. The costs associated with these products had been
previously accrued. Accordingly, as the mix of transfer products declines,
R&D expense will increase, given a level amount of R&D expenditures. Due to
the factors noted above, it is anticipated that the Company's R&D expenditures
will increase in 1997. However, the level of R&D will continue to be
monitored in light of operating performance.
Acquisition and Severance Costs
In connection with the merger of PRL and Taylor, the Company recorded
certain charges in the fourth quarter of fiscal 1996 for transaction costs
($110,000) and transitional costs ($568,000) associated with the realignment
of the Company into two separate reporting divisions. The transaction costs
include legal, accounting and other directly related acquisition costs.
Transitional costs consist primarily of provisions for severance related
costs.
Operating Income
Operating income in 1996 of $1.1 million or 3.2% of sales was 72% lower than
1995 operating income of $3.9 million. The decline in operating income for
1996 is attributable to several factors noted above. These include
acquisition and severance costs, the loss of high-margin sales of AK-Con-A,
the Company's decision to discontinue wholesaler discounting practices in the
fourth quarter, and the changes in estimate noted above. In addition, the
overall reduction in gross margins for the Company, primarily associated with
increased price sensitivity for ophthalmic generic pharmaceuticals, reduced
operating margins.
Operating income in 1995 was $3.9 million or 10.4% of sales compared to the
1994 amount of $2.7 million or 8.5% of sales. The increase in 1995 operating
income was primarily the result of increased sales and operating leverage,
coupled with stable research and development expenses. The sales increase was
somewhat offset by the decline in gross margin resulting from cost increases
of products distributed but not manufactured and continued price sensitivity
in the generic ophthalmic pharmaceutical market.
Interest and Other Income (Expense)
Net interest and other expense declined $60,000 from 1995 to 1996. During
these periods, interest income remained relatively constant. Interest expense
increased significantly in 1996 to $441,000 as compared to $25,000 in 1995.
Most interest expense in 1995 was capitalized in connection with construction
at Taylor's facilities in Decatur, Illinois. The increase in interest expense
in 1996 was offset by a gain on the sale of marketable equity securities of
$80,000. In 1995, a $308,000 decline in market value of an equity investment
was determined to be other than temporary. This determination was based on
the significant deterioration in the value of the investment and the
evaluation that a price recovery was not imminent.
From 1994 to 1995, net interest and other expense increased $91,000. During
these periods, interest income remained relatively constant. Interest expense
declined in 1995 from $181,000 to $25,000. As noted above, the majority of
interest expense in 1995 was capitalized. The loss of $308,000 related to the
decline in market value of an equity investment more than offset the decline
in interest expense.
The Company anticipates that interest expense will increase significantly in
1997 as a result of the new long-term debt associated with the Janssen product
acquisition and 1997 anticipated capital improvements. A portion of this
interest is expected to be capitalized during 1997 during validation and
construction periods.
Income Taxes
The Company's consolidated effective income tax rate was 19.3%, 33.0% and
6.1% for 1996, 1995 and 1994, respectively. The effective rate for 1996
varies from the statutory rates primarily due to the inclusion of net income
for PRL prior to the acquisition date as a result of the pooling of interests.
PRL was a Subchapter S corporation and therefore was not subject to corporate
income taxes. The effects of pre-acquisition earnings or loss of PRL did not
have a material effect on the 1995 or 1994 effective rate since such income or
loss was immaterial to consolidated pretax income.
The effective rate for 1994 varies from the statutory rates primarily due to
the effects of adoption of Statement of Financial Accounting Standards Board
(SFAS) No. 109, "Accounting for Income Taxes," effective July 1, 1993. Under
SFAS 109, the Company was able to recognize estimated future tax benefits
attributable to expenses recorded for book purposes but not currently
deductible for tax purposes. In July 1993, the Company recorded a net
deferred tax asset in the amount of $896,000 along with a 100% valuation
reserve to reflect the uncertainties surrounding the ultimate realization of
the benefits. In the fourth quarter of fiscal 1994, the Company decided to
reverse the entire remaining balance of the valuation reserve since
uncertainties regarding the ultimate realization of the benefits were reduced
to a relatively low level. This resulted in the recording of a $384,000 ($.03
cents per share) benefit in the fourth quarter.
The Company has been in discussions with the Internal Revenue Service (IRS)
regarding the examination of tax returns for the periods of 1988 through 1993.
The IRS has proposed adjustments to such returns, some of which the Company
has agreed to and some which the Company has appealed. These adjustments
primarily relate to the timing of deductions taken for tax purposes in
connection with the reorganization of its manufacturing operations in 1991 and
1992. The agreed upon adjustments, which resulted in additional interest and
taxes of approximately $700,000, was paid in fiscal 1996 through a bank line
of credit. The Company had previously accrued the financial statement effects
of these agreed upon adjustments; accordingly, no material financial statement
impact of these adjustments was recorded in 1995 or 1996. With respect to the
appealed items, the Company does not anticipate any adverse financial
statement effect as accruals for these assessments have been previously
recorded.
Net Income
Net income declined $1.7 million or $.10 cents per share from $2.5 million
or $.15 cents per share in 1995. The decline in sales along with certain
unusual, infrequently occurring adjustments noted previously, including
acquisition and severance costs, and certain other changes in accounting
estimates, are the primary reasons for the decline in net income.
Net income increased $100,000 or $.01 cent per share from $2.4 million or
$.14 cents per share in 1994 to $2.5 million or $.15 cents per share in 1995.
This marginal increase, in spite of the significant increase in operating
income in 1995, is due to the lower effective tax rate incurred in 1994 as a
result of the adoption of SFAS 109 and full realization of the benefit of
deferred tax assets.
Financial Condition and Liquidity
Management assesses the Company's liquidity by its ability to generate cash
to fund its operations. The significant components in managing liquidity are:
funds generated by operations; levels of working capital items including
accounts receivable, inventories and accounts payable; capital expenditure
and debt repayment requirements; adequacy of available lines of credit; and
availability of long-term capital at competitive prices.
The Company traditionally has generated cash from operations in excess of
working capital requirements. The net cash provided by operating activities
was $10,000 in 1996 compared to $712,000 in 1995 and $2.2 million in 1994.
The decline in cash provided from operating activities in 1996 and 1995 is
primarily related to the increase in inventory associated with new product
additions and a continual increase in the amount of products produced in-house
which require Akorn to inventory related raw materials and components. Also
in 1996, the majority of new contract manufacturing business requires that the
Company inventory raw materials and components. In 1995, cash provided from
operations was also negatively impacted by a decrease in the average days
outstanding for payables. This decline was due to more timely payments to
vendors by the Company resulting from the availability of working capital
credit lines.
In 1997, the Company will continue to fund the payment of certain previously
accrued research and development activities including the site transfer of
ANDAs from the Company's Los Angeles facility and the development of the NDA
for Piroxicam discussed previously. Management believes that cash flows from
operations, funds received from Pfizer and the available working capital line
of credit are sufficient to handle these short-term needs.
In addition to these short-term needs, the Company may be required to make
payments of additional interest and taxes in connection with the ongoing
appeal resulting from the examination by the IRS of tax returns for the
periods of 1988 through 1993. If unsuccessful in its appeal, the Company
could be liable for additional interest and taxes currently due of
approximately $700,000. The tax portion of the appeal items would be offset
by deferred tax assets; the interest portion of the appeal items is
sufficiently reserved for in the financial statements. The Company continues
to challenge the findings of the IRS through the appeals process. Payment of
the remaining unsettled issues will be based on the timing of the appeals
process and the success of the Company in arguing its position.
Net cash utilized for investing activities in 1996 of $873,000 includes $1.4
million of property, plant and equipment additions associated with the
expansion of the Company's Decatur facilities. These additions were partially
funded by net sales of investments of $659,000. In addition, 1996 net cash
utilized for investing activities includes approximately $200,000 related to
product licensing costs. The Company has plans for capital improvements of
$1.5 million to $2 million in 1997. These improvements are for both
requirements to meet current FDA and DEA regulations as well as upgrades to
the Company's managment information systems. These improvements are expected
to be financed through bank financing, of which approximately $1.2 million is
currently available under previously approved construction lines of credit.
On July 1, 1996, the Company acquired certain high-speed inspection
equipment and the rights to two injectable products in the
anesthesia/analgesia area from Janssen. The total acquisition cost includes
$1.6 million, which was funded primarily through a $1.5 million bank credit
facility. In addition, the Company is required to provide other products to
Janssen, at no cost, estimated not to exceed $100,000, should certain
contingent events occur.
Net cash provided by financing activities of approximately $1.0 million in
1996 primarily consists of the net increase in short-term borrowings.
Increases in long-term debt were offset by 1996 debt service requirements.
Also, in 1996, proceeds from the exercise of options provided $599,000 in
cash, while dividends (representing pre-merger Subchapter S earnings)
totalling $583,000 were paid to the former shareholders of PRL.
On September 30, 1994, the Company entered into a $6.3 million credit
facility with First National Bank of Commerce in New Orleans (FNBC). This
facility was amended in May 1996 which increased the total facility to include
the following:
- - $1.3 million Term loan for the payout of existing debt and reimbursement
for the early payout of a capital lease on the Taylor manufacturing
facility.
- - $2.6 million Term construction loan to finance expansion of the Taylor
facilities.
- - $2.5 million Line of Credit for working capital purposes.
- - $1.5 million financing of Janssen product line.
- - $1.6 million Revolver/Term construction financing to finance 1996 and 1997
capital requirements.
- - $600,000 short-term financing of IRS agreed issues.
The entire Term loans have been drawn as of June 30, 1996 and, as of this
date, $400,000 has been drawn on the Revolver/Term construction loan and
$550,000 on the IRS loan. As of June 30, 1996, $227,000 was outstanding under
the Line of Credit. In addition, as of June 30, 1996, $517,000 was outstanding
under a Line of Credit with PRL's former bank. Any amounts outstanding under
this line were transferred to the FNBC Line of Credit facility subsequent to
year end.
Selected Quarterly Data
In Thousands, Except Per Share Amounts
Net Income(Loss)
Net Gross Per
Sales Profit Amount Share
________________________________________________
1996
1st Quarter $ 8,739 $ 3,305 $ 499 $ 0.03
2nd Quarter 8,210 3,172 296 0.02
3rd Quarter 8,817 3,066 550 0.03
4th Quarter 8,159 2,410 (557) (0.03)
________________________________________________
$ 33,925 $ 11,953 $ 788 $ 0.05
================================================
1995
1st Quarter $ 9,929 $ 4,174 $ 1,043 $ 0.06
2nd Quarter 9,707 4,169 364 0.02
3rd Quarter 8,637 3,225 404 0.02
4th Quarter 9,232 3,609 695 0.04
________________________________________________
$ 37,505 $ 15,177 $ 2,506 $ 0.15
================================================
All of the information shown in the table above has been restated to reflect
the combined operations of Akorn and PRL. For information regarding unusual,
infrequently occurring or year end adjustments, see notes B, D and O to the
financial statements included in Item 8 of this report.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The following financial statements are included in Part II, Item 7 of this
Form 10-K.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of June 30, 1996 and 1995 . . . . . . . . . . .
Consolidated Statements of Operations for the years ended June 30, 1996, 1995
and 1994. . . . . . . . . . . . . .
Consolidated Statements of Shareholders' Equity for the years ended June 30,
1996, 1995 and 1994. . . . . . . .
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995
and 1994. . . . . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . .
<PAGE>
Report of Deloitte & Touche LLP
Independent Auditors
To the Board of Directors and Shareholders of
Akorn, Inc.
We have audited the accompanying consolidated balance sheets of Akorn, Inc.
and subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material aspects, the financial position of Akorn, Inc. and subsidiaries at
June 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note N to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994. Also, as discussed
in Note D to the consolidated financial statements, the Company changed its
method of accounting for certain investments in debt and equity securities in
1995.
New Orleans, Louisiana
September 11, 1996
<PAGE>
AKORN, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30
1996 1995
___________________________________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 891 $ 775
Short-term investments 902 1,569
Trade accounts receivable
(less allowances for uncollectibles of
$339 and $291 in 1996 and 1995,
respectively) 4,916 5,464
Inventory 8,860 6,476
Deferred income taxes 1,157 709
Prepaid expenses and other assets 525 481
____________________________________
TOTAL CURRENT ASSETS 17,251 15,474
OTHER ASSETS
Intangibles, net 848 728
Other 194 229
____________________________________
TOTAL OTHER ASSETS 1,042 957
PROPERTY, PLANT AND EQUIPMENT, NET 11,524 11,060
____________________________________
TOTAL ASSETS $ 29,817 $ 27,491
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,294 $ 288
Current installments of long-term debt 707 513
Current portion of capital lease obligations 151 149
Current portion of pre-funded development costs 650 667
Trade accounts payable 2,680 1,878
Income taxes payable 626 782
Accrued compensation 1,106 905
Accrued reorganization costs 306 727
Deferred royalties 667 -
Accrued expenses and other liabilities 1,414 1,107
____________________________________
TOTAL CURRENT LIABILITIES 9,601 7,016
LONG-TERM DEBT 3,117 3,353
CAPITAL LEASE OBLIGATIONS 427 580
PRE-FUNDED DEVELOPMENT COSTS 174 304
DEFERRED INCOME TAXES 197 327
OTHER LONG-TERM LIABILITIES - 326
SHAREHOLDERS' EQUITY
Common stock, no par value--authorized 20,000,000
shares; issued 16,600,927 shares in 1996 and 16,515,673
shares in 1995; outstanding 16,573,915 shares in
1996 and 16,304,653 shares in 1995 14,174 13,959
Treasury stock, at cost--27,012 shares in
1996 and 211,020 shares in 1995 (92) (291)
Retained earnings 2,219 1,830
Unrealized gain on marketable equity securities - 87
____________________________________
TOTAL SHAREHOLDERS' EQUITY 16,301 15,585
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 29,817 $ 27,491
====================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
AKORN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Years Ended June 30
1996 1995 1994
__________________________________________________________
<S> <C> <C> <C>
Net sales $ 33,925 $ 37,505 $ 31,266
Cost of goods sold 21,972 22,328 18,048
__________________________________________________________
GROSS PROFIT 11,953 15,177 13,218
Selling, general and
administrative expenses 8,974 10,376 9,643
Research and development 1,213 891 921
Acquisition and severance costs 677 - -
__________________________________________________________
10,864 11,267 10,564
__________________________________________________________
OPERATING INCOME 1,089 3,910 2,654
Interest and other income (expense):
Interest income 113 106 84
Interest expense (441) (25) (181)
Gain (loss) on marketable equity securities 80 (308) -
Other income, net 136 55 16
__________________________________________________________
(112) (172) (81)
__________________________________________________________
INCOME BEFORE INCOME TAXES 977 3,738 2,573
Income taxes 189 1,232 158
__________________________________________________________
NET INCOME $ 788 $ 2,506 $ 2,415
==========================================================
NET INCOME PER SHARE $ .05 $ .15 $ .14
==========================================================
Weighted average shares outstanding 16,788 16,799 16,711
==========================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
AKORN, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Unrealized
________________________ Retained Gain (Loss)
Share Earnings Treasury on Marketable
Outstanding Amount (Deficit) Stock Equity Securities Total
________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1993 13,715 $ 10,709 $ (3,152) $ (641) $ - $ 6,916
Net income for 1994 2,415 2,415
Exercise of stock options and warrants 2,010 3,000 (1) 20 3,019
Issuance of common stock 467 250 250
Cancellation of shares due to resolution
of manufacturing pre-acquisition
contingencies (52) -
Unrealized loss on marketable equity
securities (32) (32)
Treasury stock reissued 58 19 118 137
________________________________________________________________________________
Balances at June 30, 1994 16,198 13,959 (719) (503) (32) 12,705
Net income for 1995 2,506 2,506
Exercise of stock options 35 8 70 78
Unrealized loss on marketable equity
securities (276) (276)
Reversal of unrealized loss on marketable
equity securities 308 308
Unrealized gain on marketable
equity securities 87 87
Treasury stock reissued 72 35 142 177
_________________________________________________________________________________
Balances at June 30, 1995 16,305 13,959 1,830 (291) 87 15,585
Net income for 1996 788 788
Exercise of stock options 249 215 186 198 599
Treasury stock received in lieu of cash (36) (123) (123)
Dividends paid to Subchapter S shareholders (583) (583)
Reversal of unrealized gain on marketable
equity securities (87) (87)
Treasury stock reissued 56 (2) 124 122
_________________________________________________________________________________
Balances at June 30, 1996 16,574 $ 14,174 $ 2,219 $ (92) $ - $ 16,301
=================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
AKORN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended June 30
1996 1995 1994
______________________________________________________
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 788 $ 2,506 $ 2,415
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 984 980 763
(Gain) loss on marketable equity securities (80) 308 -
Provision for losses on accounts receivable
and inventory 825 160 68
Deferred income taxes (578) 2 (387)
Other - (1) 11
Changes in operating assets and liabilities:
Accounts receivable 424 (350) (2,172)
Inventory, prepaid expenses and other
assets (3,129) (1,420) (1,047)
Refundable income taxes - - 288
Trade accounts payable and accrued
expenses 1,229 (1,514) 1,600
Income taxes payable (155) 70 673
Pre-funded development costs (298) (29) -
_________________________________________________________
NET CASH PROVIDED BY OPERATING
ACTIVITIES 10 712 2,212
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,360) (4,818) (1,671)
Product licensing costs (172) (421) (432)
Purchases of investments (1,173) (2,023) (2,625)
Sales of investments 1,832 2,319 983
_________________________________________________________
NET CASH USED IN INVESTING ACTIVITIES (873) (4,943) (3,745)
FINANCING ACTIVITIES
Proceeds from sale of stock 599 256 1,805
Repayments of long-term debt (442) (944) (118)
Proceeds from issuance of long-term debt 400 3,900 -
Pre-funded development receipts 150 - 1,000
Principal payments under capital lease obligations (151) (58) (464)
Short-term borrowings, net 1,006 128 90
Dividends paid (583) - -
Debt acquisition costs - (170) -
_________________________________________________________
NET CASH PROVIDED BY FINANCING
ACTIVITIES 979 3,112 2,313
_________________________________________________________
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 116 (1,119) 780
Cash and cash equivalents at beginning of year 775 1,894 1,114
_________________________________________________________
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 891 $ 775 $ 1,894
=========================================================
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Akorn, Inc.
Note A - Summary of Significant Accounting Policies
Consolidation: The accompanying consolidated financial statements include
the accounts of Akorn, Inc. (the Company) and its wholly owned subsidiaries,
Spectrum Scientific Pharmaceuticals, Inc. (Spectrum), Walnut Pharmaceuticals,
Inc. (Walnut) and Taylor Pharmaceuticals, Inc. (Taylor, formerly Akorn
Manufacturing, Inc.). Intercompany transactions and balances have been
eliminated in consolidation.
The Company acquired Pasadena Research Laboratories, Inc. (PRL) effective
May 31, 1996 in a business combination accounted for as a pooling of
interests. The acquired operations of PRL were merged into Taylor's
operations subsequent to the acquisition (see Note B). Accordingly, all
financial information presented has been restated to include the operations of
PRL.
Revenue Recognition: The Company recognizes sales upon the shipment of
goods.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less, when purchased, to be cash equivalents.
Investments: Effective July 1, 1994, the Company adopted Statement of
Financial Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities." The Company records short-term and long-term
investments under the provisions of this Statement (see Note D).
Inventory: Inventory is stated at the lower of cost (average cost method)
or market (see Note F). Provision is made for slow-moving, unsalable and
obsolete items.
Intangibles: Intangibles consist primarily of product licensing costs which
are capitalized at cost and amortized on the straight-line method over the
lives of the related license periods. Amortization expense for the three
years ended June 30, 1996 was $53,328, $144,820 and $82,143, respectively.
Accumulated amortization at June 30, 1996 and 1995 amounted to $269,828 and
$216,500, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost, less accumulated depreciation. Depreciation is provided using the
straight-line method in amounts considered sufficient to amortize the cost of
the assets to operations over their estimated service lives. The average
estimated service lives of buildings and leasehold improvements, furniture and
equipment, and automobiles are approximately 30, 8, and 5 years, respectively.
Depreciation expense for the three years ended June 30, 1996 was $896,537,
$800,330 and $559,321, respectively.
Under an agreement with Pfizer, Inc. (see Note H) the Company has received
reimbursement for the purchase of certain equipment. As of June 30, 1996 and
1995, the total amount reimbursed was approximately $593,000. The Company has
accounted for these reimbursements by reducing its carrying value of the
associated equipment.
Interest Capitalization: The Company capitalizes interest during periods
of construction of qualifying assets. For the year ended June 30, 1995, the
Company incurred interest costs of $282,007 relating to construction, all of
which was capitalized. No interest was capitalized during 1996 or 1994.
Stock Options: The Company records as an expense the difference, if any,
between the value of stock options granted with an exercise price below the
market value of the Company's stock and the then market value of the Company's
stock on the date the options are granted.
Income Taxes: Deferred income taxes are provided in the financial
statements, where necessary, to account for the tax effects of temporary
differences resulting from reporting revenues and expenses for income tax
purposes in periods different from those used for financial reporting
purposes. The temporary differences result primarily from the use of
different methods of accounting for depreciation and amortization, provisions
for bad debts, inventory reserves and accrued reorganization and severance
costs, and pre-funded development costs.
Fair Value of Financial Instruments: The carrying value of the Company's
financial instruments, including cash, short-term investments, receivables,
payables, and certain accrued liabilities approximate fair market value due to
their short-term nature. The fair value of the Company's long-term debt at
June 30, 1996 and 1995, based upon available market information, approximated
its carrying value.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Effect of Recent Accounting Pronouncements: During March 1995, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121). SFAS No.
121 establishes accounting standards for recording the impairment of long-
lived assets, certain identifiable intangibles, goodwill, and assets to be
disposed of. The Company is required to adopt SFAS No. 121 effective for
fiscal 1997. Management believes that the implementation of SFAS No. 121 will
not have a material impact on the Company's consolidated financial statements.
During October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
SFAS No. 123, which the Company is required to adopt effective for fiscal
1997, provides guidance relating to the recognition, measurement and
disclosure of stock-based compensation. Management does not expect the new
pronouncement to have an impact on the Company's consolidated financial
statements since the intrinsic value-based method prescribed by APB Opinion
No. 25 and also allowed by SFAS No. 123 will continue to be used for the
measurement and recognition of stock-based compensation plans.
Note B - Acquisition of Pasadena Research Laboratories, Inc.
On May 31, 1996, the Company acquired Pasadena Research Laboratories,
Inc. in a business combination accounted for as a pooling of interests. PRL
is a specialized distributor of injectable pharmaceuticals. Pursuant to
the merger agreement, the Company issued 1.4 million shares of its common
stock in exchange for all of the outstanding shares of PRL. As part of the
acquisition, PRL was merged into the operations of Taylor and the Company was
realigned into two separate reporting divisions, an ophthalmic division and
an injectable division.
The Company's financial statements as contained herein have been restated
to include the results of PRL for all periods presented. Combined and
separate results of operations of the Company and PRL during the periods
preceding the merger are presented below.
Akorn PRL Combined
_____________________________________
(in thousands)
Eleven months ended May 31, 1996 (unaudited):
Net sales $ 27,361 $ 3,684 $ 31,045
Net income 675 409 1,084
Fiscal year ended June 30, 1995:
Net sales 32,863 4,642 37,505
Net income 2,280 226 2,506
Fiscal year ended June 30, 1994:
Sales 28,404 2,862 31,266
Net income (loss) 2,721 (306) 2,415
The combined financial results presented above include no significant
adjustments to conform the accounting policies of the two companies.
In connection with the merger, the Company recorded certain charges in the
fourth quarter of fiscal 1996 for transaction costs ($109,534) and
transitional costs ($567,772) associated with the realignment of the Company
into two separate reporting divisions. The transaction costs include legal,
accounting and other directly related acquisition costs. Transitional costs
consist primarily of provisions for severance related costs.
Note C - Acquisition of Manufacturing Operations
On January 15, 1992, the Company acquired Taylor Pharmaceuticals, Inc., in
a business combination accounted for as a pooling of interests. Taylor is a
contract manufacturer of sterile pharmaceuticals, which it produces and
delivers pursuant to contracts with third parties. Pursuant to the merger
agreement, the Company delivered 926,753 shares of its Common Stock in
exchange for all of the outstanding stock of Taylor.
Of the total shares issued in the merger agreement, 922,500 shares were
held in escrow pending the settlement of a default judgment against Taylor
entered on November 8, 1991. During fiscal 1993, a settlement between
Taylor's insurer and the plaintiffs was reached. As a result, in 1993 the
Company reduced its provision for the judgment to $100,000, the approximate
amount of expenses incurred in defending the judgment. In accordance with the
terms of the Taylor acquisition agreement, 51,917 shares valued at $2 per
share were forfeited and returned as treasury stock by the escrow agent during
fiscal 1994 in order to cover these expenses and finally resolve this pre-
acquisition contingency. The remaining shares held in escrow of 870,583 were
distributed to the former Taylor shareholders thereby terminating the escrow
agreement.
As part of the acquisition, the Company paid a finder's fee to an affiliate
of Dr. John N. Kapoor, Chairman of the Board (the affiliate). This finder's
fee was in the form of 250,000 shares of Company Common Stock valued at $3.50
per share. Of the total shares issued, 125,000 were subject to forfeiture if
the market price of the Company's Common Stock did not reach at least $5.00
per share by January 15, 1996. In August 1995, the Company, the affiliate and
Dr. Kapoor entered into an agreement under which (i) the forfeiture period was
extended to January 15, 1998, (ii) forfeiture would not occur in the event
that persons unaffiliated with Dr. Kapoor acquire beneficial ownership of more
than 50% of the outstanding common stock of the Company and (iii) Dr. Kapoor
waived his right to receive $40,000 otherwise payable to him by the Company
for serving as Chairman of the Board in fiscal 1996.
Note D - Investments
Effective July 1, 1994, the Company adopted Statement of Financial
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities". This Statement requires certain securities to be
classified into one of three reporting categories (held-to-maturity,
available-for-sale or trading). The Company has completed a review of its
securities relative to SFAS 115 and has classified its investments in debt
securities (consisting primarily of U.S. Government securities and municipal
bonds with a carrying value of $902,120 and $0, respectively, at June 30, 1996
and $1,136,010 and $303,092, respectively, at June 30, 1995) as held-to-
maturity. Therefore, in accordance with SFAS 115, these investments, all of
which have contractual maturities within one year, are being reported at
amortized cost, which approximates fair market value. The Company has
classified its investment in equity securities as available-for-sale,
requiring that they be carried at fair value with any unrealized gain or loss
reflected as a component of shareholders' equity. Such investments had a fair
market value of approximately $130,000 at June 30, 1995. The Company held no
equity investments at June 30, 1996.
At June 30, 1994, the cost of the Company's marketable equity securities
exceeded the market value by $32,044. Therefore, a valuation allowance was
established by a charge to shareholders' equity representing the net
unrealized loss. During fiscal 1995, this allowance was increased by $275,661
due to the continuous decline in market value. At March 31, 1995, management
determined the loss to be permanent given the significant decline in market
value since June 30, 1994 and the unlikelihood of a recovery in value.
Therefore, the $307,705 unrealized loss previously charged to shareholders'
equity was accounted for as a realized loss in the 1995 statement of
operations. At June 30, 1995, the market value of the marketable equity
securities exceeded the adjusted cost, subsequent to the write-down noted
above, by $87,397; therefore, an unrealized gain was recorded as a component
of shareholders' equity to reflect this increase in value. During fiscal
1996, the Company sold its investment in marketable equity securities for an
amount in excess of adjusted cost. Accordingly, the unrealized gain
previously charged to shareholders' equity was reversed and a realized gain of
$79,859 was recorded in the 1996 statement of operations.
Note E - Allowance for Uncollectibles
The activity in the allowance for uncollectibles is as follows for the
years ended June 30:
1996 1995 1994
____________________________________
(in thousands)
Balance at beginning of year $ 291 $ 272 $ 240
Provision for bad debts 124 60 61
Accounts written off (76) (41) (29)
____________________________________
Balance at end of year $ 339 $ 291 $ 272
====================================
Note F - Inventory
The components of inventory at June 30 are as follows:
1996 1995
_________________________________
(in thousands)
Finished goods $ 5,376 $ 4,239
Work in process 1,311 1,043
Raw materials and supplies 2,173 1,194
_________________________________
$ 8,860 $ 6,476
Inventory for 1996 and 1995 is reported net of reserves of $681,920 and
$352,143, respectively, for slow-moving, unsalable and obsolete items.
The activity in the inventory reserve is as follows for the years ended
June 30:
1996 1995 1994
_______________________________
(in thousands)
Balance at beginning of year $ 352 $ 290 $ 427
Provision for slow-moving, unsalable
and obsolete items 701 100 7
Inventory written off (371) (38) (144)
____________________________________
Balance at end of year $ 682 $ 352 $ 290
====================================
Note G - Property, Plant and Equipment
Property, plant and equipment at June 30 consists of the following:
1996 1995
_______________________________
(in thousands)
Land $ 479 $ 479
Buildings and leasehold improvements 7,738 5,516
Furniture and equipment 10,139 7,880
Automobiles 166 133
_______________________________
18,522 14,008
Accumulated depreciation (7,771) (6,875)
_______________________________
10,751 7,133
Construction in progress 773 3,927
_______________________________
$ 11,524 $ 11,060
===============================
Note H - Pre-Funded Development Costs
In April 1994, the Company entered into a series of agreements with Pfizer
Inc. (Pfizer) regarding the cross-licensing of several ophthalmic
pharmaceutical products. Under this arrangement Akorn granted a license to
Pfizer on an Akorn product then under development (the licensed product), and
agreed to provide manufacturing services and marketing assistance for the
licensed product. In exchange, Akorn received (1) a royalty stream on sales of
the licensed product, (2) an exclusive, royalty-free license to manufacture
and market a Pfizer prescription ophthalmic non-steroidal anti-inflammatory
drug (NSAID), and (3) non-exclusive rights to market an existing Pfizer
ophthalmic antibiotic.
As part of this agreement, in fiscal 1994 Pfizer paid the Company an
advance of $1 million to be used to fund the costs of developing the NSAID,
which are estimated at $1.8 million. The Company intends to recognize the pre-
funded balance as an offset to development costs as these expenses are
incurred. During fiscal 1996 and 1995, the Company incurred $297,463 and
$29,012, respectively, of development costs which were charged against the
pre-funded balance. The Company's current projections indicate that the
remaining costs of development will be paid over the next 15 - 18 months.
In addition, the agreement stipulated that Pfizer would reimburse Akorn for
one-half of the costs to obtain FDA approval on the licensed product,
including the cost of certain agreed upon equipment acquisitions required for
the manufacturing of the licensed product. A New Drug Application (NDA) was
filed for the licensed product on June 8, 1994. During fiscal 1996, the
Company obtained FDA approval of the NDA for the licensed product. Therefore,
in accordance with the agreement, Pfizer paid the Company an advance royalty
of $1 million for the initial year sales of the licensed product. The Company
is recognizing this deferred revenue balance over a one year period beginning
in March 1996.
Note I - Financing Arrangements
The Company's short-term borrowings at June 30 are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
______________________________
(in thousands)
<S> <C> <C>
Line of Credit with First National Bank of Commerce;
permitting borrowings up to $2.5 million, interest at
the Chase Manhattan prime rate (8.25% at June 30, 1996) $ 227 $ -
Line of credit with Bank of America; permitting borrowings
up to $600,000, interest at the bank's prime rate plus (%
(9.00% and 9.75% at June 30, 1996 and 1995); secured by the
receivables, inventory and equipment of PRL 517 288
Short-term note payable to First National Bank of Commerce;
due 1997, interest at the bank's prime rate (8.75% at
June 30, 1996), payable in monthly principal installments of
of $50,000 commencing July 1996 550 -
________________________________
$ 1,294 $ 288
================================
The $2.5 million Line of Credit and $550,000 short-term note payable are
pursuant to the credit facility amended during fiscal 1996 as further
described below.
Long-term debt at June 30 consists of:
1996 1995
_________________________________
(in thousands)
Note payable to First National Bank of Commerce; due 1999;
interest at 8.03%, payable in monthly principal installments
of $33,521 commencing December 1995 $ 2,308 $ 2,600
Note payable to First National Bank of Commerce; due 1999;
interest at 10.25%, payable in monthly principal installments
of $10,834 with a final installment of $660,794 due in 1999 1,083 1,213
Note payable to First National Bank of Commerce; due 1999;
interest at (% over the Chase Manhattan prime
rate (9% at June 30, 1996), payable in monthly principal
installments of $12,857 commencing July 1996 400 -
Other obligations 33 53
___________________________________
3,824 3,866
Deduct: Current installments payable within one year (707) (513)
___________________________________
Portion payable after one year $ 3,117 $ 3,353
===================================
</TABLE>
Maturities of long-term debt are as follows (in thousands):
Years ending June 30:
1997 $ 707
1998 698
1999 624
2000 1,795
_____________
Total $ 3,824
=============
In September 1992, the Company entered into an agreement to obtain up to
$2.5 million of credit financing from the John N. Kapoor Trust (the Trust), an
affiliate of John N. Kapoor, Chairman of the Board. Under the terms of the
agreement, the Trust, which held warrants to purchase 2 million shares of
stock at prices ranging from $1.50 to $2.00 through November 15, 1995, was
required to exercise 1,666,667 of those warrants at $1.50 per share on or
prior to November 15, 1993. On that date, the Trust exercised the entire two
million warrants for a total of $3 million, of which $1.6 million was used to
repay debt to the Trust and the remaining $1.4 million was received in cash.
Interest expense related to this indebtedness was $61,334 in 1994.
As part of the September 1992 arrangement, the Company granted a new
warrant to the Trust to purchase an additional 1 million shares at $2.00 per
share, exercisable for five years. Upon the issuance of this warrant, Dr.
Kapoor became entitled to designate an additional individual as a director of
the Company.
In 1995 the Company entered into a $6.3 million loan agreement with First
National Bank of Commerce to obtain financing for the expansion of its
manufacturing facilities in Decatur, Illinois and to refinance existing debt.
During fiscal 1996, the loan agreement was amended to provide additional
financing and to adjust the interest rate and principal payment requirements
for certain facilities. The amendments increased the total loan commitment to
$10.1 million including: (1) $2.6 million Term loan, (2) $1.3 million Term
loan, (3) $2.5 million Line of Credit, (4) $1.5 million Term loan for
financing of Janssen acquisition, (see Note U), (5) $1.6 million Revolver/Term
loan, and (6) $600,000 short-term financing for IRS settlements (see Note N).
As of June 30, 1996, all of the Term loans and $400,000 of the Revolver/Term
loan have been drawn. In addition, $550,000 had been borrowed under the
$600,000 IRS facility as of June 30, 1996.
Borrowings under the loan agreements are collateralized by substantially
all of the Company's receivables, inventory and property, plant and equipment.
In addition, the Company is required to comply with positive and negative loan
covenants, including restrictions on the payment of dividends and maintenance
of specified financial covenants, including minimum net worth and cash flow
coverage. The Company failed to meet certain financial covenants specified in
the loan agreement relating to cash flow coverage. Effective August 19, 1996,
the Company obtained the bank's waiver of these events of default which should
enable the Company to comply with the aforementioned provisions of the loan
agreement.
Note J - Leasing Arrangements
The Company leases certain equipment under capital leasing arrangements
which expire through the year 2000.
Property, plant and equipment at June 30 includes the following amounts
relating to such capital leases:
1996 1995
________________________________
(in thousands)
Furniture and equipment $ 806 $ 100
Less accumulated
depreciation (147) (53)
_______________________________
659 47
Construction in progress - 706
_______________________________
$ 659 $ 753
===============================
Depreciation expense provided on these assets was $94,254, $25,822 and
$18,833 during 1996, 1995 and 1994, respectively.
The following is a schedule by years of future minimum lease payments under
these capital leases together with the present value of the net minimum lease
payments (in thousands).
Years ending June 30:
1997 $ 194
1998 177
1999 173
2000 129
____________
Total Minimum Lease Payments 673
Less: Amount Representing Interest (95)
____________
Present Value of Net Minimum Lease Payments $ 578
============
The Company leases real property in the normal course of business under
various operating leases, including non-cancelable and month-to-month
agreements. Payments under these leases were $73,196, $169,825 and $198,072 in
1996, 1995 and 1994, respectively.
The following is a schedule by years of future minimum rental payments
required under these non-cancelable operating leases (in thousands).
Years ended June 30:
1997 $ 74
1998 23
1999 14
2000 6
2001 1
____________
Total Minimum Payments Required $ 118
============
During fiscal 1993, the Company entered into a sublease agreement for one
of its leased facilities. Sublease rentals were $113,326 and $111,164,
respectively, for fiscal years ended June 30, 1995 and 1994. This agreement
expired effective May 1995, in conjunction with the expiration of the primary
lease.
Note K - Stock Option and Stock Purchase Plans
The Company has two stock option plans and one stock purchase plan. The
first stock option plan is the 1988 Incentive Compensation Program (the
Incentive Program). Under the Incentive Program any officer or key employee of
the Company is eligible to receive options when designated by the Company's
Board of Directors. The number of shares of the Company's Common Stock which
may be issued under the Incentive Program upon the exercise of options may not
exceed 2,000,000 shares. The exercise price of the options granted under the
Incentive Program will be determined by the Board of Directors but may not be
less than 50% of the fair market value of the shares subject to the option on
the date of grant. All options granted under the Incentive Program during
fiscal 1996, 1995 and 1994 have exercise prices equivalent to the market value
of the Company's Common Stock on the date of grant.
The second stock option plan is the Akorn, Inc. Stock Option Plan for
Directors (the Directors' Plan). The Directors' Plan provides for the grant of
nonqualified options to persons elected as directors of the Company at the
fair market value of the shares subject to option on the date of grant. The
total number of shares of the Company's Common Stock for which stock options
may be granted under the Directors' Plan may not exceed 500,000 shares.
All employees who have been employed by the Company for twelve continuous
months are eligible to participate in the Akorn, Inc. Employee Stock Purchase
Plan (the Purchase Plan). Participating employees may elect to contribute up
to 15% of their gross compensation towards the purchase of Company's Common
Stock. At the end of each quarter, the amount contributed is applied to
acquire, on behalf of the participating employees, the Company's Common Stock
at a purchase price equal to 85% of the current market price. A maximum of
1,000,000 shares of the Company's Common Stock may be acquired under the terms
of the Purchase Plan. Purchases of shares were issued from treasury stock
under the Purchase Plan and amounted to 56,000, 72,000 and 58,000 shares,
respectively, in fiscal 1996, 1995 and 1994.
Note L - Stock Options and Warrants
The summary of activity in stock options and warrants for each of the three
years ended June 30, 1996 is as follows:
Outstanding at July 1, 1993 (at prices ranging from $1.50 to
to $3.88 per share) 4,241,386
Granted (at prices ranging from $2.00 to $3.50 per share) 228,000
Exercised (at prices ranging from $1.50 to $1.94 per share) (2,010,000)
___________
Outstanding at June 30, 1994 (at prices ranging from $1.50 to
$3.88 per share) 2,459,386
Granted (at prices ranging from $2.81 to $3.50 per share) 238,000
Exercised (at prices ranging from $2.00 to $2.81 per share) (73,000)
___________
Outstanding at June 30, 1995 (at prices ranging from $1.50 to
$3.88 per share) 2,624,386
Granted (at $2.75 per share) 215,000
Exercised (at prices ranging from $2.00 to $2.88 per share) (249,500)
Expired (at prices ranging from $2.00 to $3.88 per share) (346,500)
___________
Outstanding at June 30, 1996 (at prices ranging from $1.50 to
$3.50 per share) 2,243,386
===========
The amount of options and warrants exercisable at year end was 2,133,586,
2,368,843 and 2,236,762 for 1996, 1995 and 1994, respectively. All of these
options were exercisable at prices ranging from $1.50 to $3.50 per share.
Note M - Earnings Per Share
Earnings per share is based upon the weighted average number of common
shares outstanding. The computation of the weighted average number of shares
outstanding includes the effect of dilutive stock options and warrants using
the treasury stock method. The weighted average number of shares outstanding
used in the per share computations was 16,787,635 shares in 1996, 16,799,350
shares in 1995 and 16,710,885 shares in 1994.
Note N - Income Taxes
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This standard
requires recognition of future tax benefits, attributable to deductible
temporary differences between the financial statement and income tax bases of
assets and liabilities, to the extent that realization of such benefits is
more likely than not. Financial statements of prior years were not restated
and the cumulative effect of the accounting change was not material due to the
uncertainties that existed at July 1, 1993 concerning the ultimate realization
of future tax benefits. As indicated at Note O, uncertainties regarding the
ultimate realization of future tax benefits were reduced to a relatively low
level by the fourth quarter of fiscal 1994, thereby justifying removal of the
valuation allowance applicable to the deferred tax asset.
The components of income tax expense (benefit) are as follows:
1996 1995 1994
__________________________________________________
(in thousands)
Current:
Federal $ 756 $ 1,177 $ 481
State 11 53 61
__________________________________________________
767 1,230 542
__________________________________________________
Deferred:
Federal (516) 2 (343)
State (62) - (41)
__________________________________________________
(578) 2 (384)
__________________________________________________
$ 189 $ 1,232 $ 158
==================================================
A reconciliation of income tax expense at the federal statutory rate to
income tax expense at the Company's effective rate is as follows:
1996 1995 1994
(in thousands)
Computed tax expense at
expected statutory rate $ 332 $ 1,271 $ 875
State income tax expense,
net of federal tax benefits 4 32 41
Pre-merger (earnings)/loss of PRL (139) (84) 98
Change in valuation allowance
applicable to deferred tax assets - - (896)
Other (8) 13 40
_______________________________________
Income tax expense $ 189 $ 1,232 $ 158
_______________________________________
Effective tax rate 19.3% 33.0% 6.1%
=======================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of June 30, 1996 and
1995 are as follows:
1996 1995
_______________________________
Deferred Tax Assets: (in thousands)
Reserves for reorganization costs not currently
deductible $ 118 376
Other reserves not currently deductible 658 380
Difference between book and tax bases of
intangible assets 436 43
Pre-funded development costs 305 -
Other 133 103
_______________________________
Total 1,650 902
Deferred Tax Liabilities:
Difference between book and tax bases of property,
plant and equipment $ (478) $ (367)
Other (212) (153)
_______________________________
Total (690) (520)
_______________________________
Net deferred tax asset $ 960 $ 382
===============================
The net deferred tax asset is classified in the accompanying
balance sheet as follows:
Deferred income
tax asset-current $ 1,157 $ 709
Deferred income tax liability
non-current (197) (327)
_______________________________
$ 960 $ 382
===============================
Income taxes refunded during 1996 and 1994 were $178,690 and $282,641,
respectively.
The Company is currently in discussions with the Internal Revenue Service
(IRS) regarding the examination of tax returns for years 1988 through 1993.
The IRS has proposed adjustments to such returns, some of which the Company
has agreed to and some of which the Company has appealed. The agreed upon
adjustments resulted in additional taxes and interest due of approximately
$700,000, all of which was paid in fiscal 1996. The Company does not currently
anticipate any adverse financial statement effect from the appealed assessment
as accruals for the financial statement effects of these proposed adjustments
have been previously recorded.
Note O - Changes in Accounting Estimate
During the fourth quarter of fiscal 1996, the Company revised its estimate
for recording chargeback accruals. As a result, a reduction in net sales of
$250,000 ($.01 per share, net of tax) was recorded during the quarter ended
June 30, 1996.
In addition, during the quarters ended March 31, and June 30 1996, the
Company increased its estimate for unsaleable inventory by approximately
$300,000 ($.01 per share, net of tax) and $200,000 ($.01 per share net of
tax), respectively. These changes in estimate are reported as an increase in
cost of goods sold.
In the quarter ended March 31, 1996, the Company decided to no longer
pursue Abbreviated New Drug Applications (ANDAs) for certain products which
had been produced in previously-owned facilities, and for which estimated
costs of transferring such ANDAs had been accrued. This decision was based on
a reevaluation of the costs of developing such products as compared to their
potential market, given the emergence of alternate suppliers, since the
Company suspended their production. This change in estimate was also based on
the Company's recent decision to enter into the injectable distribution
marketplace and the need to redeploy R&D resources for the pursuit of
injectable ANDAs. The total amount of the accrual reversed was approximately
$316,000 ($.01 per share, net of tax).
During the quarter ended March 31, 1995, an evaluation by the Company
resulted in a change in the estimated liability related to aged customer
credits. This change resulted in a reduction of S,G&A expenses of
approximately $330,000 ($.01 per share net of tax) for the quarter ended March
31, 1995.
As a consequence of sustained growth in sales and profitability, in
particular during the latter part of the year, the Company recorded a
reduction of $384,298 ($.03 per share, net of tax) to its valuation allowance
for deferred tax assets in the fourth quarter of fiscal 1994.
Note P - Supplemental Disclosures of Cash Flow Information
The following is a summary of supplemental cash flow and noncash investing
and financing information for the years ended June 30:
1996 1995 1994
__________________________________________
(in thousands)
Cash paid for:
Interest, net of amount
capitalized $ 442 $ 25 $ 176
Income taxes 867 1,150 91
Noncash investing and financing
activities:
Treasury stock received for exercise
of stock options 123 - -
Conversion of debt to common stock - - 1,600
Issuance of capital lease obligation - 706 49
Note Q - Industry Segment Information
The Company classifies its operations into three core business segments:
(1) ophthalmic distribution, (2) injectable distribution, and (3) contract
manufacturing. The ophthalmic distribution segment includes the marketing and
distribution of an extensive line of ophthalmic products, including diagnostic
and therapeutic pharmaceuticals, over-the-counter products and surgical
instruments and supplies. The injectable distribution segment includes the
market and distribution of specialized injectable products. The contract
manufacturing segment consists of the manufacture of sterile pharmaceuticals,
including human injectable products and ophthalmic solutions pursuant to
contracts with others.
Selected financial information by industry segment for fiscal years ended
June 30 is presented as follows:
1996 1995 1994
____________________________________________________
(in thousands)
NET SALES
Ophthalmic distribution $ 20,833 $ 23,791 $ 20,694
Injectable distribution 4,160 4,642 2,862
Contract manufacturing:
Sales to unaffiliated
customers 8,932 9,072 7,710
Sales to affiliated
customer 2,395 2,521 1,666
____________________________________________________
36,320 40,026 32,932
Eliminations (2,395) (2,521) (1,666)
____________________________________________________
Total net sales $ 33,925 $ 37,505 $ 31,266
====================================================
OPERATING INCOME
Ophthalmic distribution $ 1,037 $ 3,515 $ 2,821
Injectable distribution 670 238 (280)
Contract manufacturing 324 1,228 1,155
General corporate (942) (1,071) (1,042)
____________________________________________________
Total operating income 1,089 3,910 2,654
Interest and other income
(expense), net (112) (172) (81)
____________________________________________________
Income before income taxes $ 977 $ 3,738 $ 2,573
====================================================
IDENTIFIABLE ASSETS
Ophthalmic distribution $ 13,287 $ 13,044 $ 12,817
Injectable distribution 1,525 1,235 968
Contract manufacturing 14,863 13,085 8,296
General corporate 142 127 108
____________________________________________________
Total identifiable
assets $ 29,817 $ 27,491 $ 22,189
====================================================
DEPRECIATION AND
AMORTIZATION
Ophthalmic distribution $ 323 $ 339 $ 286
Injectable distribution 14 33 37
Contract manufacturing 639 552 433
General corporate 8 56 7
____________________________________________________
Total depreciation
and amortization $ 984 $ 980 $ 763
====================================================
CAPITAL ADDITIONS
Ophthalmic distribution $ 340 $ 354 $ 465
Injectable distribution 5 - 35
Contract manufacturing 1,001 5,162 1,216
General corporate 14 8 4
____________________________________________________
Total capital additions $ 1,360 $ 5,524 $ 1,720
====================================================
Fiscal 1996 operating income for the ophthalmic distribution segment was
affected by the changes in accounting estimates related to accrued costs of
transferring ANDAs, chargeback accruals and inventory reserves (see Note O).
In addition, fiscal 1996 operating income for the ophthalmic distribution and
contract manufacturing segments, includes the effects of transaction and
transitional costs associated with the realignment of the Company into two
separate divisions (see Note B) totalling $385,000 and $292,000, respectively.
Fiscal 1995 operating income for the ophthalmic distribution segment
includes a reduction in selling, general and administrative expense of
approximately $330,000 related to a change in accounting estimate for aged
customer credits.
During fiscal 1996 and 1995, the Company reported sales to one customer,
Janssen Pharmaceutica, Inc., (Janssen) which accounted for approximately 12%
and 13%, respectively, of consolidated net sales. The net sales attributable
to Janssen were accounted for in the contract manufacturing segment. In 1995
this customer notified the Company that it will be transferring the production
of certain products to its own facilities in Puerto Rico during 1997. Such
products accounted for $1.3 and $1.4 million, respectively, in contract
manufacturing sales for 1996 and 1995. In addition, this customer notified
the Company that it will be discontinuing the sale of two other products
previously produced by the contract manufacturing segment. These products
accounted for approximately $2.6 and $2.9 million in sales during 1996 and
1995, respectively. Following this notification, the Company entered into
discussions with this customer to assume the licenses to distribute these two
injectable products and another injectable product. Effective July 1, 1996,
an agreement was reached whereby Akorn acquired ownership of these NDA's, as
well as the trade names and trademarks in the United States (see Note U).
During 1994, the Company did not derive ten percent or more of its revenues
from any single customer.
The Company records sales between the segments at fully absorbed cost.
Note R - Concentration of Credit Risk
The Company specializes in the manufacturing, marketing and distribution of
ophthalmic and injectable products to companies and doctors in the healthcare
industry. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables are
generally due within 60 days. Credit losses have consistently been within
management's expectations.
Note S - Defined Contribution Plan
The Company sponsors a qualified defined contribution plan which was
established under the provisions of Internal Revenue Code Section 401(k). The
plan covers all employees with six months of employment and who are 21 years
of age or older. The employees can defer a portion of their compensation up to
the maximum allowed by the Internal Revenue Code regulations. The plan
provides for discretionary contributions by the Company on behalf of the
employees. Beginning January 1994, the Company has made a discretionary
matching contribution on a quarterly basis. During fiscal years 1996, 1995 and
1994, the Company recorded expenses related to the plan of $100,615, $86,296
and $12,274, respectively.
Note T - Reorganization of Manufacturing Operations
Following the Taylor acquisition in January 1992, the Company began the
process of transferring the manufacture of its product line from previously-
owned manufacturing facilities to the Taylor facility. At that time, the
Company estimated the cost of completing the FDA approval process at Taylor
for products previously manufactured elsewhere and recorded a provision for
reorganization costs.
As of June 30, 1996 and 1995, the balances remaining in accrued
reorganization costs associated with the transfer process were $306,000 and
$727,000, respectively. It is anticipated that the filing of all such product
approvals will be completed by fiscal 1997.
Note U - Subsequent Event
Effective July 1, 1996, the Company entered into an agreement with Janssen
Pharmaceutica, Inc. (Janssen) to acquire the rights to distribute an
injectable product line in the anesthesia/analgesia area. As part of this
agreement, the Company also acquired certain high-speed inspection equipment.
Pursuant to the agreement, the acquisition transfers ownership of the NDAs for
the three products, as well as the trade names and trademarks in the United
States. In exchange for these product licenses, the Company paid Janssen $1.6
million on the effective date of the agreement. Of this balance, $1.5 million
in cash was obtained through the issuance of a separate note payable with the
same commercial bank which maintains the Company's existing credit facility
(see Note I). This note payable bears interest at 8.5% and provides for
monthly principal payments of $25,000, commencing August 1996. The balance is
due July 2001. In addition, in accordance with the agreement, Akorn will be
required to provide certain other products to Janssen, at no cost, having a
value expected not to exceed $100,000. The portion of the acquisition costs
allocated to the acquired products will be amortized over 15 years.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There was no change in the principal independent accountant of the Company
or any significant subsidiary of the Company during the Company's fiscal years
ended June 30, 1996, 1995 or 1994.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Information concerning directors is incorporated by reference to the
Company's Definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders. Information concerning the Company's executive officers is
included in Item 1A (Executive Officers of the Registrant) of Part I hereof.
Item 11. Executive Compensation.
The information called for by Item 11 is incorporated by reference to the
Company's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information called for by Item 12 is incorporated by reference to the
Company's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Transactions.
The information called for by Item 13 is incorporated by reference to the
Company's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders.
PART IV
Item 14. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Those exhibits marked with an asterisk (*) refer to exhibits filed herewith
and listed in the Exhibit Index which appears immediately before the first
such exhibit; the other exhibits are incorporated herein by reference, as
indicated in the following list.
( 2.0) Agreement and Plan of Merger dated December 17, 1991, by and
among the Company, Aksub, Inc., Taylor Pharmacal Company
(currently named Taylor Pharmaceuticals, Inc.) and certain
shareholders of Taylor Pharmmacal, Inc., incorporated by
reference to the Company's report on Form 8-K dated January 15,
1992.
( 2.1) *Agreement and Plan of Merger among Akorn, Inc., Akorn
Manufacturing, Inc. (currently named Taylor Pharmaceuticals,
Inc. and referred to hereinafter as "Taylor") and Pasadena
Research Laboratories, Inc. dated May 7, 1996.
( 3.1) Restated Articles of Incorporation of the Company dated
September 6, 1991, incorporated by reference to Exhibit 3.1 to
the Company's report on Form 10-K for the fiscal year ended June
30, 1991.
( 3.2) *Composite of By-laws of the Company, including amendment
approved on May 3, 1996.
( 4.1) Specimen Common Stock Certificate, incorporated by reference to
Exhibit 4.1 to the Company's report on Form 10-K for the fiscal
year ended June 30, 1988.
(10.1) Akorn, Inc. Savings and Retirement Plan effective July 1, 1984,
incorporated by reference to Form 10-K for the fiscal year ended
June 30, 1987.
(10.2) Stock Purchase Agreement dated November 15, 1990 by and between
the John N. Kapoor Trust dated September 20, 1989, and the
Company, incorporated by reference to Exhibit 10.21 to the
Company's report on Form 10-K for the fiscal year ended June 30,
1991.
(10.3) Common Stock Purchase Warrant dated November 15, 1990 between
the John N. Kapoor Trust dated September 20, 1989 and the
Company, incorporated by reference to Exhibit 10.22 to the
Company's report on Form 10-K for the fiscal year ended June 30,
1991.
(10.4) Consulting Agreement dated November 15, 1990 by and between E.
J. Financial Enterprises, Inc., a Delaware corporation, and the
Company, incorporated by reference to Exhibit 10.23 to the
Company's report on Form 10-K for the fiscal year ended June 30,
1991.
(10.5) Stock Registration Rights Agreement dated November 15, 1990 by
and between the John N. Kapoor Trust dated September 20, 1989
and the Company, incorporated by reference to Exhibit 10.24 to
the Company's report on Form 10-K for the fiscal year ended June
30, 1991.
(10.6) Agreement dated February 15, 1991 amending Stock Purchase
Agreement dated November 15, 1990 by and between the John N.
Kapoor Trust dated September 20, 1989, and the Company,
incorporated by reference to Exhibit 10.25 to the Company's
report on Form 10-K for the fiscal year ended June 30, 1991.
(10.7) Akorn, Inc. Stock Option Plan for Directors, incorporated by
reference to Exhibit 4.4 to the Company's registration statement
on Form S-8, registration number 33-24970.
(10.8) Form of Akorn, Inc. Letter Agreement between the Company and its
directors under the Stock Option Plan for Directors,
incorporated by reference to Exhibit 4.5 to the Company's
registration statement on Form S-8, registration number 33-
24970.
(10.9) Akorn, Inc. 1988 Incentive Compensation Program, incorporated by
reference to Exhibit 4.6 to the Company's registration statement
on Form S-8, registration number 33-24970.
(10.10) Form of Akorn, Inc., Letter Agreement between the Company and
its key employees and executives under the 1988 Incentive
Compensation Program, incorporated by reference to Exhibit 4.7
to the Company's registration statement on Form S-8,
registration number 33-24970.
(10.11) Amended and Restated Akorn, Inc. 1988 Incentive Compensation
Program, incorporated by reference to Exhibit 10.32 to the
Company's report on Form 10-K for the fiscal year ended June 30,
1992.
(10.12) Amendment No. 1 to the Amended and Restated Akorn, Inc. 1988
Incentive Compensation Program, incorporated by reference to
Exhibit 10.33 to the Company's report on Form 10-K for the
fiscal year ended June 30, 1992.
(10.13) Form of Stock Option Agreement under Amendment No. 1 to Amended
and Restated Incentive Compensation Program, incorporated herein
by reference to the Company's registration statement on Form S-
8, registration number 33-70686.
(10.14) 1991 Akorn, Inc. Stock Option Plan for Directors, incorporated
by reference to Exhibit 4.3 to the Company's registration
statement on Form S-8, registration number 33-44785.
(10.15) Form of Pledge Agreement between the Company and each
shareholder of Taylor, incorporated by reference to Exhibit 10.1
of the Company's report on Form 8-K dated January 15, 1992.
(10.16) Form of Employment Agreement between Taylor and five key
employees, incorporated by reference to Exhibit 10.2 of the
Company's report on Form 8-K dated January 15, 1992.
(10.17) Agreement dated January 15, 1992 among the Company, the John N.
Kapoor Trust dated September 20, 1989, John N. Kapoor and EJ
Financial Enterprises, Inc., incorporated by reference to
Exhibit 10.37 of the Company's report on Form 10-K for the
fiscal year ended June 30, 1992.
(10.18) Business Promissory Note of Taylor payable to First National
Bank of Decatur and Loan Modification Agreement dated January
15, 1992 by and between Taylor and First National Bank of
Decatur, incorporated by reference to Exhibit 10.4 of the
Company's report on Form 8-K dated January 15, 1992.
(10.19) Amendment and Restated Lease Agreement dated January 15, 1991
between Taylor Building Corporation as Landlord and Taylor as
tenant, incorporated by reference to Exhibit 10.5 of the
Company's report on Form 8-K dated January 15, 1992.
(10.20) Loan Agreement dated September 3, 1992, between the Company and
the John N. Kapoor Trust dated September 20, 1989, incorporated
by reference to Exhibit No. 6 to Amendment No. 3 to Schedule 13D
filed by John N. Kapoor and the John N. Kapoor Trust dated
September 20, 1989, dated September 10, 1992.
(10.21) Common Stock Purchase Warrant dated September 3, 1992, issued by
the Company to the John N. Kapoor Trust dated September 20,
1989, incorporated by reference to Exhibit No. 7 to Amendment
No. 3 to Schedule 13D, dated September 10, 1992, filed by John
N. Kapoor and the John N. Kapoor Trust dated September 20, 1989.
(10.22) Agreement, Waiver and Release, dated September 3, 1992, between
the Company and the John N. Kapoor Trust dated September 20,
1989, incorporated by reference to Exhibit 10.44 of the
Company's report on Form 10-K for the fiscal year ended June 30,
1992.
(10.23) Amendment No. 1 to Agreement dated January 15, 1992 among the
Company, the John N. Kapoor Trust dated September 20, 1989, John
N. Kapoor and EJ Financial Enterprises, Inc., incorporated by
reference to Exhibit 10.23 of the Company's report on Form 10-K
of the fiscal year ended June 30, 1995.
(10.24) *Employment Agreement among Akorn, Inc., Taylor and Floyd
Benjamin dated May 31, 1996
(10.25) *Employment Agreement between Akorn, Inc. and Barry D. LeBlanc
dated as of January 1, 1996.
(10.26) *Separation Agreement between Akorn, Inc. and Barry D. LeBlanc
dated July 3, 1996.
(10.27) *Employment Agreement between Akorn, Inc. and Eric M. Wingerter
dated as of January 1, 1996.
(10.28) *Employment Agreement between Akorn, Inc. and Harold O. Koch
dated January 1, 1996.
(10.29) *Employment Agreement between Taylor and Tim J. Toney dated as
of January 1, 1996.
(11.1) *Computation of Earnings Per Share.
(21.1) *Subsidiaries of the Company.
(23.1) *Consent of Deloitte & Touche LLP.
(24.1) *Power of Attorney of Floyd Benjamin.
(24.2) *Power of Attorney of Daniel E. Bruhl, M.D.
(24.3) *Power of Attorney of J. Ed Campbell, M.D.
(24.4) *Power of Attorney of George S. Ellis, M.D.
(24.5) *Power of Attorney of Doyle S. Gaw.
(24.6) *Power of Attorney of David H. Turner, M.D.
(24.7) *Power of Attorney of Lawrence A. Yannuzzi, M.D.
(27) *Financial Data Schedule
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
AKORN, INC.
By: /s/ John N. Kapoor, Ph.D.
_______________________________
John N. Kapoor, Ph.D.
Chief Executive Officer
Date: September 23, 1996
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant, and in
the capacities and on the dates indicated.
Signature Title Date
/s/ John N. Kapoor, Ph.D. Chief Executive September 23, 1996
John N. Kapoor, Ph.D. Officer and
Director (Principal
Executive Officer)
/s/ Eric M. Wingerter Vice President - September 23, 1996
Eric M. Wingerter Finance and Administration
(Principal Financial
Officer and Principal
Accounting Officer)
* /s/ Floyd Benjamin Director September 23, 1996
Floyd Benjamin
* /s/ Daniel E. Bruhl, M.D. Director September 23, 1996
Daniel E. Bruhl, M.D.
* /s/ J. Ed Campbell, M.D. Director September 23, 1996
J. Ed Campbell, M.D.
* /s/ George S. Ellis, M.D. Director September 23, 1996
George S. Ellis, M.D.
* /s/ Doyle S. Gaw Director September 23, 1996
Doyle S. Gaw
* /s/ David H. Turner, M.D. Director September 23, 1996
David H. Turner, M.D.
* /s/ Lawrence A. Yannuzzi, M.D. Director September 23, 1996
Lawrence A. Yannuzzi, M.D.
*By: /s/ Eric M. Wingerter
Eric M. Wingerter
Attorney-in-fact
AGREEMENT AND PLAN OF MERGER
Among
AKORN, INC.,
AKORN MANUFACTURING, INC.
and
PASADENA RESEARCH LABS, INC.
DATED
May 7, 1996
TABLE OF CONTENTS
SECTION 1
THE MERGER.................................................... 1
1.1 Merger.............................................. 1
1.2 The Closing......................................... 1
1.3 Filing of Certificate of Merger..................... 2
1.4 The Effective Time; Effect of Merger................ 2
1.5 Directors and Officers; Articles of Incorporation... 2
SECTION 2
CONVERSION OF STOCK........................................... 3
2.1 Conversion of Shares of PRL......................... 3
2.2 Delivery and Exchange of Certificates............... 3
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND PRL.... 3
3.1 Ownership........................................... 4
3.2 Pending Actions..................................... 4
3.3 No Other Agreements................................. 4
3.4 Restrictions on Resale; Investment Intent........... 4
3.5 Information......................................... 5
3.6 Organization; Qualification; Subsidiaries........... 5
3.7 Capital Stock....................................... 6
3.8 Corporate Authorization; Enforceability............. 6
3.9 No Conflict......................................... 6
3.10 Consents and Approvals.............................. 7
3.11 Financial Statements................................ 7
3.12 Agreements with Shareholders........................ 7
3.13 Absence of Certain Changes.......................... 7
3.14 Properties; Absence of Encumbrances................. 9
3.15 Permits; Compliance with Laws....................... 10
3.16 Material Contracts.................................. 10
3.17 Litigation.......................................... 10
3.18 Regulatory Matters.................................. 10
3.19 Environmental Matters............................... 11
3.20 ERISA and Related Matters........................... 11
3.21 Taxes............................................... 13
3.22 Transactions with Certain Persons................... 18
3.23 Intellectual Properties............................. 18
3.24 Insurance........................................... 18
3.25 Labor Matters....................................... 18
3.26 Bank Accounts; Powers of Attorney................... 18
3.27 Minute Books and Stock Transfer Books............... 19
3.28 Customers and Suppliers............................. 19
3.29 Compensation Agreements............................. 19
3.30 Conduct of Business................................. 19
3.31 Residence........................................... 19
3.32 Director and Officer Indemnification................ 19
3.33 Documents and Written Materials..................... 19
3.34 Effectiveness of Representations and Warranties... 20
3.35 Effectiveness of Representations and Warranties... 20
SECTION 4
REPRESENTATIONS AND WARRANTIES OF AKORN....................... 20
4.1 Organization........................................ 20
4.2 Capitalization...................................... 20
4.3 Authority; Enforceability........................... 20
4.4 Consents and Approvals; Conflicts................... 21
4.5 Akorn Stock......................................... 21
4.6 Akorn Disclosure.................................... 21
4.7 Litigation.......................................... 21
4.8 Effectiveness of Representations and Warranties... 21
SECTION 5
PRE-CLOSING COVENANTS......................................... 22
5.1 Access to Properties and Records.................... 22
5.2 Conduct of Business................................. 22
5.3 Employment Agreements............................... 22
5.4 Corporate Name...................................... 22
5.5 Public Statements................................... 22
5.7 No stock splits or dividends........................ 23
5.8 Notification as to Representations.................. 23
5.9 Akorn Disclosure Documents.......................... 23
SECTION 6
ADDITIONAL AGREEMENTS......................................... 23
6.1 Legal Requirements to Merger........................ 23
6.2 Further Assurances.................................. 23
6.3 Expenses............................................ 24
6.4 Confidentiality..................................... 24
6.5 Termination of PRL Profit-Sharing and Retirement
Plan................................................ 24
6.6 Piggy-Back Registration Rights...................... 24
6.7 Furnished Documents................................. 25
6.8 Tax Returns......................................... 25
6.9 Personal Guarantees................................. 25
6.10 Accumulated Adjustment Account Distribution......... 25
6.11 Steris Rebate....................................... 26
6.12 Extent of Personal Liability........................ 26
6.13 Shareholder Indemnification......................... 26
6.14 Termination of Shareholder's Agreement.............. 26
SECTION 7
CONDITIONS.................................................... 26
7.1 Conditions to Each Party's Obligation to Effect
the Merger.......................................... 26
7.2 Conditions to Obligations of Akorn and AMI.......... 27
7.3 Conditions to Obligations of PRL and Shareholders... 30
SECTION 8
TERMINATION AND AMENDMENT..................................... 31
8.1 Termination......................................... 31
8.2 Effect of Termination............................... 32
8.3 Amendment........................................... 32
8.4 Extension; Waiver................................... 32
SECTION 9
MISCELLANEOUS................................................. 32
9.1 Survival of Representations, Warranties and
Agreements.......................................... 32
9.2 Notices............................................. 32
9.3 Headings; Gender.................................... 34
9.4 Entire Agreement; No Third Party Beneficiaries... 34
9.5 Governing Law....................................... 34
9.6 Assignment.......................................... 34
9.7 Severability........................................ 34
9.8 Counterparts........................................ 35
9.9 Exhibits and Schedules; Section Numbers............. 35
-iii-
INDEX OF DEFINED TERMS
Defined Term Location in Document
"1996 AAA" 25
"1996 Tax Returns" 25
"Act" ................................................... 5
"Agreement".................................................. 1
"Akorn Disclosure Documents"................................. 5
"Akorn Stock"................................................ 3
"Akorn" ................................................... 1
"AMI" ................................................... 1
"Balance Sheet Date"......................................... 7
"Balance Sheet."............................................. 7
"Benefit Arrangement"........................................ 11
"Benjamin"................................................... 1
"California EPA"............................................. 9
"California Law"............................................. 1
"CBL Expense"................................................ 26
"Certificate of Merger"...................................... 2
"Closing".................................................... 1
"Closing Date"............................................... 1
"Code" ................................................... 1
"Company Personnel".......................................... 8
"Conversion Rate"............................................ 3
"Conversion Shares."......................................... 3
"Current Employment Agreements".............................. 7
"DEA" ................................................... 9
"Disclosure Schedule"........................................ 3
"Effective Time"............................................. 2
"Employee Plan".............................................. 12
"Encumbrance"................................................ 6
"EPA" ................................................... 9
"ERISA" ................................................... 11
"Faulding"................................................... 28
"FDA" ................................................... 9
"Furnished Documents"........................................ 19
"Gencarella"................................................. 1
"Governmental Entity"........................................ 7
"Guaranteed Obligations"..................................... 25
"Illinois Act"............................................... 1
"Intellectual Property Rights"............................... 18
"IRS" ................................................... 12
"Judgments".................................................. 10
"Lease" ................................................... 9
"Material Contract".......................................... 10
"Merger" ................................................... 1
"Multiemployer Plan"......................................... 12
"OSHA" ................................................... 9
"Pasadena Research Labs, Inc."............................... 22
"Permitted Encumbrances"..................................... 9
"Plan" ................................................... 24
"PRL Financial Statements"................................... 7
"PRL Stock".................................................. 3
"PRL" ................................................... 1
"Purchase Rights"............................................ 20
"Registrable Shares"......................................... 24
"Regulator".................................................. 10
"Returns" ................................................... 14
"Rule 144"................................................... 4
"Securities Act"............................................. 4
"Shareholder Agreement"...................................... 4
"Shareholder"................................................ 1
"Shareholders"............................................... 1
"Stock Purchase Plans"....................................... 20
"Suits" ................................................... 10
"Surviving Corporation"...................................... 1
"Taxes" ................................................... 13
"Title IV Plan".............................................. 12
"Yankoff" ................................................... 1
-v-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated May 7, 1996 (the
"Agreement"), is by and between, on the one hand, Akorn, Inc., a
Louisiana corporation ("Akorn"), and its wholly owned subsidiary,
Akorn Manufacturing, Inc., an Illinois corporation ("AMI"), and,
on the other hand, Pasadena Research Labs, Inc., a California
corporation ("PRL") and the following shareholders of PRL: Floyd
Benjamin ("Benjamin"), Tom Yankoff ("Yankoff") and David
Gencarella ("Gencarella"). Benjamin, Yankoff and Gencarella are
referred to collectively herein as the "Shareholders" and, each
is sometimes individually referred to as "Shareholder."
RECITALS
WHEREAS, the Board of Directors of PRL and the Boards of
Directors of Akorn and AMI have determined it to be desirable and
mutually advantageous to enter into a business combination to be
effected by the merger of PRL into AMI on the terms and subject
to the conditions set forth herein; and
WHEREAS, the parties hereto intend that, for federal income
tax purposes, the merger will constitute a reorganization within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Internal Revenue Code of 1986 (the "Code"), as amended.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
SECTION 1
THE MERGER
1.1 Merger. At the Effective Time (as defined in Section
1.4 below), in accordance with the terms and subject to
conditions of this Agreement, the Illinois Business Corporation
Act (the "Illinois Act") and the California General Corporation
Law (the "California Law"), PRL shall merge with and into AMI
(the "Merger"), the separate existence of PRL shall cease, and
AMI shall continue as the surviving corporation (sometimes
referred to herein as the "Surviving Corporation").
1.2 The Closing. Unless this Agreement shall have been
terminated pursuant to the provisions hereof and subject to
satisfaction or waiver of the conditions specified in Section 7
hereof, the closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Jones, Walker,
Waechter, Poitevent, Carrere & Denegre L.L.P. in New Orleans,
Louisiana, commencing at 10:00 a.m. local time on or before June
30, 1996 (the "Closing Date"). If all conditions set forth in
Section 7 hereof are satisfied or duly waived, at the Closing (a)
the certificates, agreements and instruments specified in Section
7 shall be delivered, (b) the appropriate officers of PRL and AMI
shall execute the certifications and acknowledgments attached as
pages S-1 and S-2 to this Agreement and shall execute, deliver
and acknowledge the Certificate of Merger in the form attached
hereto as Exhibit 1.2 and in such other form as may be
appropriate to comply with the California Law (collectively, the
"Certificate of Merger") and (c) the parties shall take such
further action as is required to consummate the transactions
contemplated by this Agreement.
1.3 Filing of Certificate of Merger. Immediately following
its execution and acknowledgment, the Certificate of Merger shall
be delivered, respectively, to the Secretary of State of Illinois
and the Secretary of State of California for filing, and such
certificate shall thereafter be recorded in the manner required
by the Illinois Law and the California Law.
1.4 The Effective Time; Effect of Merger. The Merger shall
be effective upon the filing of the Certificate of Merger with
the Secretaries of State of Illinois and California in accordance
with the Illinois Law and the California Law, or at such other
time and date as is provided in the Certificate of Merger
pursuant to the mutual agreements of AMI and PRL (hereinafter
referred to as the "Effective Time"). Upon the Effective Time
and by virtue of the Merger, the Surviving Corporation shall
possess all the rights, privileges and franchises possessed by
PRL and the Surviving Corporation shall be responsible for all of
the liabilities and obligations of PRL in the same manner as if
the Surviving Corporation had itself incurred such liabilities or
obligations, and the Merger shall have such other effects as may
be specified in the applicable provisions of the Illinois Law and
the California Law.
1.5 Directors and Officers; Articles of Incorporation.
After the Effective Time and until their successors shall have
been duly elected or appointed, the directors and officers of AMI
will be the directors and officers of the Surviving Corporation;
provided, however, that, subject to the execution and delivery of
the employment agreements provided for in Section 5.3, effective
as of the Effective Time (a) Benjamin shall be a director of the
Surviving Corporation and of Akorn, to serve in each such
position until the next annual meeting of shareholders of such
corporation and until his successor shall have been elected, and
(b) Benjamin shall be the President, Yankoff shall be Vice
President of Sales and Marketing and Gencarella shall be Director
of Business Development of the Surviving Corporation. The
Articles of Incorporation and By-laws of AMI, as in effect
immediately prior to the Effective Time, shall be the articles of
incorporation and bylaws of the Surviving Corporation after the
Effective Time until thereafter duly amended.
SECTION 2
CONVERSION OF STOCK
2.1 Conversion of Shares of PRL.
2.1.1 At the Effective Time, by reason of the Merger,
all of the 94.50 shares of common stock, no par value per share,
of PRL (the "PRL Stock") issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger, be
converted into fully-paid and non-assessable shares of the common
stock, no par value per share, of Akorn (the "Akorn Stock"), at a
conversion rate (the "Conversion Rate") of 14,814.815 shares of
Akorn Stock, rounded to the nearest whole share, for each share
of PRL Stock. The shares of Akorn Stock into which the PRL Stock
shall be converted by virtue of the Merger pursuant to this
Section 2.1 are sometimes hereinafter referred to as the
"Conversion Shares."
2.1.2 As of the Effective Time, by virtue of the
Merger, each share of common stock of PRL outstanding immediately
prior to the Merger and any shares of capital stock of PRL held
in treasury at the Effective Time shall be cancelled.
2.2 Delivery and Exchange of Certificates. On the Closing
Date, the Shareholders shall deliver to AMI all certificates
representing shares of PRL Stock then outstanding. Upon such
delivery, Akorn shall deliver to each Shareholder a certificate
representing the shares of Akorn Stock into which such shares
will be converted at the Effective Time, as provided in Section
2.1. Until so delivered, each certificate which, before the
Effective Time, represented shares of PRL Stock, shall be deemed
for all purposes to represent the number of whole shares of Akorn
Stock into which the shares of PRL Stock theretofore represented
thereby shall have been converted. Akorn may, at its option,
refuse to pay any dividend or other distribution, if any, payable
after the Effective Time to the holders of shares of Akorn Stock
to the holders of certificates evidencing undelivered shares of
PRL Stock. Whether or not a stock certificate representing PRL
Stock is delivered as provided herein, from and after the Closing
Date, such certificate shall under no circumstances evidence,
represent or otherwise constitute any stock or interest in PRL or
any person, firm or corporation other than Akorn.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND PRL
Except as set forth in the Disclosure Schedule attached
hereto as Schedule 3 (the "Disclosure Schedule"), (a) each
Shareholder, with respect to matters relating to himself and to
his PRL Stock, represents and warrants to and agrees with Akorn
and AMI as set forth as follows in Sections 3.1 through 3.5 and
(b) each Shareholder and PRL, acting jointly, severally and in
solido (i.e., the Louisiana term for jointly and severally)
represent and warrant to and agree with Akorn and AMI as follows
with respect to the matters set forth in Sections 3.6 through
3.35:
3.1 Ownership. Each Shareholder is, and at the Effective
Time will be, the record and beneficial owner of the number of
shares of PRL Stock, which are represented by the certificates
bearing the numbers, shown opposite his name in the Disclosure
Schedule. Each Shareholder has and at the Effective Time will
have good and marketable title to all such shares and the
absolute right to deliver such shares in accordance with the
terms hereof, free and clear of all liens, pledges and
encumbrances of any kind. Each Shareholder has the power,
authority and capacity necessary to approve the Merger, execute
and deliver this Agreement and perform his obligations under this
Agreement.
3.2 Pending Actions. As of the date hereof there are, and
at the Effective Time there will be, no actions, suits or
proceedings pending or threatened involving the ownership by any
Shareholder of his shares of PRL Stock or his ability to approve
the Merger pursuant to this Agreement.
3.3 No Other Agreements. Except for this Agreement, there
are no contracts, agreements, arrangements or understandings
between any Shareholder and Akorn or AMI relating to PRL or the
transactions contemplated by this Agreement. Except as set forth
in the Disclosure Schedule, no Shareholder is a party to any
agreement with respect to the voting, sale or transfer of any of
the PRL Stock or the issuance of any additional shares of PRL
capital stock or the redemption of any such stock (a "Shareholder
Agreement"). The Shareholders have furnished to Akorn a copy of
each currently effective Shareholder Agreement.
3.4 Restrictions on Resale; Investment Intent.
3.4.1 Each Shareholder is acquiring the Akorn Stock to
be received by him in connection with the Merger for investment
for his own account and has no present intention of reselling or
otherwise distributing or participating in a distribution of such
stock. Each Shareholder understands that the shares of Akorn
Stock to be issued in the Merger will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), that
such shares will be "restricted securities" as that term is
defined in Rule 144 ("Rule 144") promulgated by the Securities
and Exchange Commission under the Securities Act, and that the
Shareholder cannot transfer any of such shares unless they are
subsequently registered under the Securities Act and under any
applicable state securities law or are transferred in a transfer
that, in the opinion of counsel satisfactory to Akorn, is exempt
from such registration. Each Shareholder further understands
that Akorn is not obligated by this Agreement to register such
shares under the Securities Act or under any such state laws and
that Akorn will, as a condition to the transfer of any such
shares, require that the request for transfer be accompanied by
an opinion of counsel, in form and substance satisfactory to
Akorn, to the effect that the proposed transfer does not result
in a violation of the Securities Act or any applicable state
securities law, unless such transfer is covered by an effective
registration statement. Each Shareholder understands that such
shares of Akorn Stock may not be sold publicly in reliance on the
exemption from registration under the Securities Act afforded by
Rule 144 unless and until the minimum holding period (currently
two years) and other requirements of Rule 144 have been
satisfied.
3.4.2 Each Shareholder has been represented by
competent and experienced legal counsel in connection with the
negotiation and execution of this Agreement, has been granted the
opportunity to make a thorough investigation of and to obtain
information with respect to the affairs of Akorn and his
acquisition of Akorn Stock, and has availed himself of such
opportunity either directly or through his legal counsel and
other authorized representatives. Each Shareholder acknowledges
that he has received from Akorn and has reviewed with his
representatives a copy of each of the following documents (the
"Akorn Disclosure Documents"): (a) Akorn's annual report to the
SEC on Form 10-K for the fiscal year ended June 30, 1995, (b)
Akorn's Annual Report to Shareholders for its fiscal year ended
June 30, 1995; (c) Notice of Annual Meeting of Shareholders of
Akorn held October 28, 1995 and the related Proxy Statement dated
September 18, 1995; and (d) Akorn's quarterly report to the SEC
on Form 10-Q for the quarters ended September 30, 1995 and
December 31, 1995.
3.4.3 Each Shareholder has been advised that the shares
of Akorn Stock issued hereunder have not been and are not being
registered under the Securities Act and that Akorn in issuing
such shares is relying upon, among other things, the
representations and warranties of the Shareholders contained in
this Section in concluding that such issuance does not require
compliance with the registration provisions of the Securities
Act.
3.4.4 Each Shareholder understands and agrees that all
certificates evidencing the shares of Akorn Stock issued
hereunder will bear restrictive legends in substantially the
following form:
The securities represented by this
certificate have not been
registered under the Securities Act
of 1933, as amended (the "Act"), or
any applicable state law, and may
not be transferred without
registration under the Act and any
such state law or an opinion of
counsel satisfactory to the
corporation that registration is
not required.
3.5 Information. The Shareholder acknowledges that (a) he
has received and has reviewed to his satisfaction this Agreement,
the Akorn Disclosure Documents, the PRL Financial Statements
referred to in Section 3.11 and such additional material
information with respect to the Merger, if any, as he has
requested and (b) such information is sufficient for him to
determine objectively whether to approve the Merger and enter
into this Agreement.
3.6 Organization; Qualification; Subsidiaries. PRL is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California, having all requisite
corporate power and authority to own its property and to carry on
its business as it is now being conducted. PRL is not qualified
to do business as a foreign corporation in any other
jurisdiction. PRL's non-qualification to do business as a
foreign corporation in any jurisdiction has not had any material
adverse effect with respect to PRL, its assets, business or
financial condition and does not adversely affect PRL's ability
to enforce any right that is material to PRL. PRL has no
subsidiaries or equity interests in any other entity.
3.7 Capital Stock. The authorized capital stock of PRL
consists of 100,000 shares of common capital stock, no par value
per share, of which 94.5 shares are issued and outstanding and
none are held in its treasury. All issued and outstanding shares
of capital stock of PRL have been duly authorized and are validly
issued, fully paid and non-assessable. There are no outstanding
stock options or other rights to acquire any shares of the
capital stock of PRL or any security convertible into such shares
and PRL has no obligation or other commitment to issue, sell or
deliver any of the foregoing or any shares of its capital stock.
All shares of capital stock issued by PRL have been issued in
compliance with all legal requirements and without violation of
any pre-emptive or similar rights. Other than those shares of
capital stock listed in the Disclosure Schedule, there are no
shares of PRL capital stock issued or outstanding.
3.8 Corporate Authorization; Enforceability. Benjamin,
Yankoff and Gencarella constitute the holders of all of the
outstanding shares of capital stock of PRL and all of the
directors of PRL. Their execution of this Agreement constitutes
their written unanimous consent as shareholders and directors of
PRL to the Merger and to the execution, delivery and performance
by PRL of this Agreement. No further vote or consent of
shareholders or directors of PRL and no further corporate acts or
other corporate proceedings are required of PRL for the due and
valid authorization, execution, delivery and performance of this
Agreement and the Certificate of Merger and the consummation of
the Merger. Subject to such filings as are required by law, this
Agreement and the Certificate of Merger are legal, valid and
binding obligations of PRL and are enforceable against PRL in
accordance with their terms, except that enforcement may be
limited by bankruptcy, reorganization, insolvency and other
similar laws and court decisions relating to or affecting the
enforcement of creditors' rights generally and by general
equitable principles.
3.9 No Conflict. Except as set forth in the Disclosure
Schedule, neither the execution and the delivery of this
Agreement by PRL, nor the consummation of the transactions
contemplated hereby do or will (a) violate, conflict with, or
result in a breach of any provisions of, (b) constitute a default
(or an event which, with notice or lapse of time or both, would
constitute a default) under, (c) result in the termination of or
accelerate the performance required by, (d) result in the
creation of any lien, security interest, charge, claim, mortgage
or encumbrance (collectively referred to hereafter as
"Encumbrance") upon any of its properties or assets under any of
the terms, conditions or provisions of its Articles of
Incorporation or By-laws or any material note, bond, mortgage,
indenture, deed of trust, lease, license, loan agreement or other
instrument or obligation to or by which it or any of its assets
is bound, or (e) violate any order, writ, injunction, decree,
statute, rule or regulation of any Governmental Entity applicable
to it or any of its assets, except for any such conflict, breach,
termination, acceleration, default or Encumbrance which would not
have a material adverse effect on (i) the business, assets or
financial condition of PRL or (ii) PRL's ability to consummate
any of the transactions contemplated hereby.
3.10 Consents and Approvals. Except as set forth on the
Disclosure Schedule, no filing with or notice to, and no permit,
authorization, consent or approval of, any federal, state, local
or foreign court or tribunal or administrative, governmental or
regulatory body, agency or authority (a "Governmental Entity") is
necessary for the execution and delivery by PRL of this Agreement
or the consummation by PRL of the transactions contemplated
hereby.
3.11 Financial Statements. The "PRL Financial Statements"
are, collectively, the balance sheet as of December 31, 1995 and
related statements of income, stockholders' equity and cash flows
of PRL for the year then ended. The Disclosure Schedule contains
true and complete copies of the PRL Financial Statements. PRL
knows of no facts the existence of which would require material
modification to the PRL Financial Statements in order for them to
be prepared in accordance with generally accepted accounting
principles. The PRL Financial Statements do not contain any
items of a special, extraordinary or nonrecurring nature, except
as expressly noted in such statements and except as disclosed in
the Disclosure Schedule. The balance sheet of PRL as of December
31, 1995 (the "Balance Sheet Date") is referred to herein as the
"Balance Sheet."
3.12 Agreements with Shareholders. The Disclosure Schedule
discloses and describes all agreements between PRL and any of the
Shareholders, including, without limitation, any agreement
pursuant to which any Shareholder is employed by or performs
services for PRL (the "Current Employment Agreements"). PRL and
each of the Shareholders is in compliance in all material
respects with the provisions of each Current Employment
Agreement. Except as provided in the Current Employment
Agreements or as otherwise disclosed in the Disclosure Schedule,
PRL has no obligations for the payment of money to any
Shareholder and no Shareholder has any obligations for the
payment of money to PRL.
3.13 Absence of Certain Changes. Since the Balance Sheet
Date there has been no event or condition of any character that
has had, or can reasonably be expected to have, a material
adverse effect on the financial condition, results of operations,
cash flow, business or prospects of PRL. Except as specifically
disclosed in the PRL Financial Statements or the Disclosure
Schedule or as contemplated herein, PRL has not since the Balance
Sheet Date:
3.13.1 made any material change in the conduct of
its business and operations or failed to operate its business so
as to preserve its business organization intact and to preserve
the good will of its customers, suppliers and others with whom it
has significant business relations;
3.13.2 entered into any agreement or transaction not
in the ordinary course of business;
3.13.3 experienced any material adverse change in
its financial condition, assets, business, operations or
prospects;
3.13.4 incurred any obligation or liability,
absolute or contingent, except trade or business obligations
incurred in the ordinary course of business or sales, income,
franchise, or ad valorem taxes accruing or becoming payable in
the ordinary course of business;
3.13.5 declared or paid any dividend or other
distribution with respect to any of its capital stock, other than
the distributions described in Section 6.10, or purchased any of
its capital stock;
3.13.6 acquired or disposed of any assets material
to its business or operations;
3.13.7 subjected any of its assets to any
Encumbrance other than Permitted Encumbrances (as defined in
Section 3.14 below);
3.13.8 increased the rate of compensation (including
bonuses, contingent severance payments, retirement, profit
sharing, benefit or similar payments) payable or to become
payable to any of its officers, directors or employees
(collectively "Company Personnel");
3.13.9 adopted any employee welfare, pension,
retirement, profit sharing or similar plan or made any material
addition to or modification of existing plans;
3.13.10 experienced any labor trouble or any
controversy or unsettled grievance involving any Company
Personnel;
3.13.11 terminated or received notice of the
termination of any contract, commitment or transaction that is
material to it, or waived any right of material value to it;
3.13.12 made any material change in any accounting
principle, procedure or practice followed by it;
3.13.13 issued any stock or merged or consolidated
with any other business or agreed to do so;
3.13.14 made any capital expenditure or entered into
any lease involving payments in excess of $25,000;
3.13.15 borrowed any money or guaranteed or assumed
any indebtedness of others;
3.13.16 suffered any extraordinary losses or any
material damage, destruction or casualty with respect to its
assets, or experienced any events, conditions, losses or
casualties which have resulted in or might result in claims under
its insurance policies of an aggregate of $25,000 or more;
3.13.17 loaned any money to any person or entity;
3.13.18 experienced any loss of service of any
Company Personnel, material to the conduct of its business;
3.13.19 defaulted under any note, loan, mortgage,
guarantee or other instrument of indebtedness or any material
contractual obligation.
3.13.20 received any notification, warning or inquiry
from or given any notification to or had any communication with
any Governmental Entity, including without limitation the United
States Food and Drug Administration (the "FDA"), the United
States Drug Enforcement Administration ("DEA"), the United States
Environmental Protection Agency ("EPA"), California Environmental
Protection Agency ("California EPA"), the California Board of
Pharmacy, the California Food and Drug Administration or the
United States Occupational Safety and Health Administration
("OSHA") with respect to any proposed remedial action or any
violation or alleged or possible violation of any law, rule,
regulation or order relating to or affecting its business, nor
are any facts known to PRL that may reasonably be expected to
give rise to any such notification, warning or inquiry;
3.13.21 transferred any asset, right or interest to,
or entered into any transaction with any Shareholder or any
affiliate of any Shareholder;
3.13.22 amended its Articles of Incorporation or
Bylaws;
3.13.23 received notice or had knowledge or reason to
believe that any substantial customer or supplier of PRL has
terminated or intends to terminate its relationship with PRL;
3.13.24 waived any right in connection with any
aspect of its business having a material effect on the business
of PRL as a whole; or
3.13.25 made any agreement or commitment to do any of
the foregoing.
3.14 Properties; Absence of Encumbrances.
(a) PRL has good title to all material properties
and assets reflected on the Balance Sheet, free and clear of any
Encumbrances, except those Encumbrances shown on the Disclosure
Schedule (the "Permitted Encumbrances").
(b) The Disclosure Schedule sets forth a complete
and correct list of all leases of real property to which PRL is a
party (a "Lease"), all of which are valid and enforceable and in
full force and effect. Complete and correct copies of each Lease
have been furnished to Akorn. PRL is in full compliance with and
has not received a notice of default under any Lease and PRL is
not involved in any dispute under any Lease, the effect of which
would have a material adverse effect on the business, assets or
financial condition of PRL.
(c) PRL does not own, and has never owned, any
real property other than as described in the Disclosure Schedule.
3.15 Permits; Compliance with Laws. To the best knowledge
of each of the Shareholders PRL (a) has all necessary permits,
licenses and governmental authorizations required for the lease,
ownership, occupancy or operation of its properties and assets
and the carrying on of its business, and (b) has conducted its
business in substantial compliance with and is in substantial
compliance with all applicable laws, regulations, orders,
permits, judgments, ordinances or decrees of any Governmental
Entity.
3.16 Material Contracts. The Disclosure Schedule lists and
describes each agreement, lease, contract or other document to
which PRL is a party, which (a) requires PRL or the other party
to such contract to keep any information confidential or (b)
involves payment by or to PRL of any amount in excess of or
delivery by PRL of goods or services having a value exceeding
$10,000 per annum (a "Material Contract"). A complete and
correct copy of each Material Contract has been furnished to or
made available to Akorn. Each Material Contract is valid,
binding and enforceable, except to the extent that enforcement
may be limited by bankruptcy, reorganization, insolvency and
other similar laws and court decisions relating to or affecting
the enforcement of creditors' rights generally and by equitable
principles. Except as set forth in the Disclosure Schedule, PRL
and each other party to each Material Contract are in compliance
in all material respects with the provisions of such Material
Contract.
3.17 Litigation. Except as disclosed on the Disclosure
Schedule, (a) there are no outstanding orders, writs, judgments,
injunctions, awards or decrees of any Governmental Entity
("Judgments") against or involving PRL; (b) there are no actions,
suits, investigations, labor disputes or proceedings
(collectively, "Suits"), pending or threatened against PRL which
if decided adversely to PRL, in one case or in the aggregate,
would have a material adverse effect on the business, assets or
financial condition of PRL and; (c) to the best knowledge of each
of the Shareholders there have been no events and there are no
facts or circumstances that could result in any matters of the
types described in the preceding clauses (a) and (b). PRL has
delivered or made available complete copies of all pleadings
related to the Judgments or Suits disclosed on the Disclosure
Schedule.
3.18 Regulatory Matters. PRL has provided Akorn with access
to (a) correct and complete copies of all communications
(including, but not limited to, notes and memoranda of oral
communications, if any) between PRL or any of its representatives
and the FDA, the DEA, the California EPA, the California Board of
Pharmacy, the California Food and Drug Administration, and any
other Governmental Entity that administers laws similar to those
administered by any such agency ("Regulator") that has occurred
during the 36-month period preceding the date of this Agreement
and (b) all of the following information that is related to PRL's
business or to any product distributed by PRL and that is in
PRL's possession or maintained on PRL's behalf by others: all
information relating to inspections of any premises by a
Regulator; all facilities master files; all standard operating
procedures; all plant and equipment validation records; all
formulations, stability data and batch records; all books,
records, information and data related to any products that have
been distributed by PRL during the 36-month period preceding the
date of this Agreement; all other written information, data,
records and materials (including, but not limited to, notes and
memoranda of oral communications, if any) relating to or used or
useful in complying with laws, regulations, orders, procedures,
standards or processes administered, adopted, issued or required
by any Regulator.
3.19 Environmental Matters. To the best knowledge of each
of the Shareholders, (a) PRL is not in violation of any
applicable laws or regulations relating to the environment and
PRL is not a party to any proposed removal, remedy or remedial
action nor has PRL received any material claim for compensation
in connection with the foregoing matters contemplated by this
sentence and (b) no Governmental Entity or third party has
claimed that PRL is in material violation of any environmental
permit, law or regulation. PRL has not received any notice that
any investigation, administrative order, consent order and
agreement, removal or remedial action, litigation or settlement
with respect to any environmental permit, law or regulation is
proposed, threatened, anticipated or in existence with respect to
any of PRL's leased or owned properties. The properties
currently and previously leased or owned by PRL are not and to
the best knowledge of each of the Shareholders, have never been
on or associated with any "national priorities" list or any
equivalent state list or any federal or state "superlien" list.
PRL has not received any notice of any complaint from any person
relating to respiratory or other health problems or property
damage attributable to any property currently or previously
leased or owned by PRL. To the best knowledge of each of the
Shareholders, the execution and delivery of this Agreement and
the effectuation of the Merger and other transactions
contemplated hereby are not subject to the consent, review or
approval of, and do not and will not require any disclosure to or
filings with, any Governmental Entity having power under or with
respect to environmental laws.
3.20 ERISA and Related Matters.
3.20.1 Definitions:
(a) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations
promulgated thereunder.
(b) "Benefit Arrangement" means any employment,
severance or similar contract, or any other contract, plan,
policy or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option or other stock
related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including
any self-insured arrangement), health or medical benefits,
disability benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health,
medical or life insurance benefits) that (A) is subject to any
provision of ERISA, (B) is maintained, administered or
contributed to by the employer and (C) covers any employee or
former employee of the employer.
(c) "Employee Plan" means a plan or arrangement
as defined in Section 3(3) of ERISA, that (A) is subject to any
provision of ERISA, (B) is maintained, administered or
contributed to by the employer and (C) covers any employee or
former employee of the employer.
(d) "Multiemployer Plan" means a plan or
arrangement as defined in Section 4001(a)(3) and 3(37) of ERISA.
(e) "Title IV Plan" means an Employee Plan, other
than any Multiemployer Plan, subject to Title IV of ERISA.
The Disclosure Schedule lists each Employee Plan
that PRL maintains, administers, contributes to, or has any
contingent liability with respect thereto. PRL has provided a
true and complete copy of each such Plan, current summary plan
description, (and, if applicable, related trust documents) and
all amendments thereto and written interpretations thereof
together with (i) all annual reports, if any, that have been
prepared in connection with each such Employee Plan; (ii) all
material communications received from or sent to the Internal
Revenue Service ("IRS") or the Department of Labor within the
last two years (including a written description of any oral
communications); and (iii) the most recent IRS determination
letter with respect to each Employee Plan and the most recent
application for a determination letter.
3.20.2 The Disclosure Schedule identifies each
Benefit Arrangement that PRL maintains, or administers. Except
as set forth in the Disclosure Schedule, PRL has made all
contributions to and has no contingent liability with respect to
any of its Benefit Arrangements. PRL has furnished to Akorn
copies or descriptions of each Benefit Arrangement. To the
knowledge of each of the Shareholders, each Benefit Arrangement
has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such Benefit
Arrangement.
3.20.3 Benefits under any Employee Plan or Benefit
Arrangement are as represented in said documents and have not
been increased or modified (whether written or not written)
subsequent to the dates of such documents. PRL has not
communicated to any employee or former employee any intention or
commitment to modify any Employee Plan or Benefit Arrangement or
to establish or implement any other employee or retiree benefit
or compensation arrangement.
3.20.4 PRL does not maintain, administer, or become
obligated to contribute to or have any contingent liability with
respect to any Multiemployer Plan or any Title IV Plan.
3.20.5 Each Employee Plan which is intended to be
qualified under Section 401(a) of the Code is so qualified and
has been so qualified during the period from its adoption to
date, and, to the best knowledge of each of the Shareholders, no
event has occurred since such adoption that would adversely
affect such qualification and each trust created in connection
with each such Employee Plan forming a part thereof is exempt
from tax pursuant to Section 501(a) of the Code. To the best
knowledge of each of the Shareholders, each Employee Plan has
been maintained and administered in compliance with its terms and
with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including but not
limited to ERISA and the Code.
3.20.6 To the best knowledge of each of the
Shareholders, full payment has been made of all amounts which PRL
is or has been required to have paid as contributions to any
Employee Plan or Benefit Arrangement under applicable law or
under the terms of any such plan or any arrangement.
3.20.7 To the best knowledge of each of the
Shareholders, neither PRL nor any of its shareholders, directors,
officers or employers has engaged in any transaction with respect
to an Employee Plan that could subject PRL to a tax, penalty or
liability for a prohibited transaction, as defined in Section 406
of ERISA or Section 4975 of the Code. None of the assets of any
Employee Plan are invested in employer securities.
3.20.8 To the best knowledge of each of the
Shareholders, PRL has no current or projected liability in
respect of post-retirement or post-employment welfare benefits
for retired, current or former employees. No health, medical,
death or survivor benefits have been provided under any Benefit
Arrangement to any person who is not an employee or former
employee of PRL or a dependent thereof.
3.20.9 Except as disclosed in the Disclosure Schedule,
there is no litigation, administrative or arbitration proceeding
or other dispute pending or threatened that involves any Employee
Plan or Benefit Arrangement which could reasonably be expected to
result in a liability to PRL, any employees or directors of PRL,
or any fiduciary (as defined in ERISA Section 3(21)) of such
Employee Plan or Benefit Arrangement.
3.20.10 No employee or former employee of PRL will
become entitled to any bonus, retirement, severance, job security
or similar benefit or enhanced benefit (including acceleration of
compensation, an award, vesting or exercise of an incentive
award) or any fee or payment of any kind solely as a result of
any of the transactions contemplated hereby.
3.20.11 PRL is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately
or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code (i.e., a
golden parachute).
3.21 Taxes.
3.21.1 (a) For purposes of this Agreement the term
"Taxes" shall mean all taxes, however denominated or described,
including any interest, penalties or other additions to tax that
may become payable in respect thereof, imposed by any federal,
territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all
income or profits taxes, payroll or employee withholding taxes,
unemployment insurance, social security taxes, sales and use
taxes, ad valorem taxes, excise taxes, franchise taxes, gross
receipts taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and
other governmental charges, and other obligations of the same or
of a similar nature to any of the foregoing, which PRL is
required to pay, withhold or collect.
(b) For the purpose of this Agreement, the term
"Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or
required to be filed in connection with, any Taxes, including
information returns or reports with respect to backup withholding
and other payments to third parties.
3.21.2 Except as disclosed in the Disclosure
Schedule:
(a) PRL and the Shareholders have made all
elections necessary for PRL to be treated as a qualified small
business corporation under Code Section 1361(a)(1).
(b) Neither PRL nor the Shareholders have taken,
or will take prior to the Effective Time, any action that will
terminate PRL's treatment as a small business corporation under
the Code.
(c) All Returns required to be filed by or on
behalf of PRL have been duly filed on a timely basis and such
Returns (including all attached statements and schedules) are
true, complete and correct. All Taxes shown to be payable on the
Returns or on subsequent assessments with respect thereto have
been paid in full on a timely basis, and no other Taxes are
payable by PRL with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns)
or with respect to any period prior to the Effective Date.
(d) PRL has withheld and paid over all Taxes
required to have been withheld and paid over (including any
estimated taxes), and has complied with all information reporting
and backup withholding requirements, including maintenance of
required records with respect thereto, in connection with amounts
paid or owing to any employee, creditor, independent contractor,
or other third party.
(e) There are no liens on any of the assets of
PRL with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that are being contested in good faith
through appropriate proceedings and for which appropriate
reserves have been established.
(f) PRL has furnished or made available to Akorn
or AMI true and complete copies of: (i) all federal and state
income and franchise tax returns of PRL for all periods beginning
on or after January 1, 1993, and (ii) all tax audit reports, work
papers statements of deficiencies, closing or other agreements
received by PRL or on its behalf relating to Taxes.
3.21.3 Except as disclosed on the Disclosure
Schedule or in documents provided to or made available to Akorn
or AMI:
(a) The Returns of PRL have never been audited by
a governmental or taxing authority, nor is any such audit in
process, pending or threatened (formally or informally).
(b) No deficiencies exist or have been asserted
(either formally or informally) or are expected to be asserted
with respect to Taxes of PRL, and no notice (either formally or
informally) has been received by PRL that it has not filed a
Return or paid Taxes required to be filed or paid by it.
(c) PRL is not a party to any pending action or
proceeding for assessment or collection of Taxes, nor has such
action or proceeding been asserted or threatened (either formally
or informally) against it or any of its assets.
(d) Except as reflected in the Returns or as
disclosed on the Disclosure Schedule, no waiver or extension of
any statute of limitations is in effect with respect to Taxes or
Returns of PRL.
(e) No action has been taken that would have the
effect of deferring any liability for Taxes for PRL from any
period prior to the Effective Date to any period after the
Effective Date.
(f) There are no requests for rulings, subpoenas
or requests for information pending with respect to PRL.
(g) No power of attorney has been granted by PRL,
with respect to any matter relating to Taxes.
(h) The amount of liability for unpaid Taxes of
PRL for all periods ending on or before the Effective Date will
not, in the aggregate, exceed the amount of the current liability
accruals for Taxes, as such accruals are reflected on the balance
sheet of PRL as of the Closing Date.
3.21.4 Except as disclosed on the Disclosure
Schedule, or as described in documents furnished to or made
available to Akorn or AMI:
(a) PRL has not made an election, and is not
required to treat any asset as owned by another person for
federal income tax purposes or as tax-exempt bond financed
property or tax-exempt use property within the meaning of section
168 of the Code.
(b) PRL has not issued or assumed any
indebtedness that is subject to section 279(b) of the Code.
(c) PRL has not entered into any compensatory
agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to
Section 280G of the Code or an excise tax to the recipient of
such payment pursuant to Section 4999 of the Code.
(d) No election has been made under Section 338
of the Code with respect to PRL and no action has been taken that
would result in any income tax liability to PRL as a result of
deemed election within the meaning of Section 338 of the Code.
(e) No consent under Section 341(f) of the Code
has been filed with respect to PRL.
(f) PRL has not agreed, nor is it required to
make, any adjustment under Code Section 481(a) by reason of
change in accounting method or otherwise.
(g) PRL has not disposed of any property that has
been accounted for under the installment method.
(h) PRL is not a party to any interest rate swap,
currency swap or similar transaction.
(i) PRL is not a United States real property
holding corporation within the meaning of Section 897(c)(2) of
the Code and Akorn is not required to withhold tax on the
acquisition of the stock of PRL.
(j) PRL has not participated in any international
boycott as defined in Code Section 999.
(k) PRL is not subject to any joint venture,
partnership or other arrangement or contract that is treated as a
partnership for federal income tax purposes.
(l) PRL has not made any of the foregoing
elections and is not required to apply any of the foregoing rules
under any comparable state or local income tax provisions.
(m) PRL does not have and has never had a
permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States and
such foreign country.
(n) The transactions contemplated herein are not
subject to the tax withholding provisions of Section 3406 of the
Code, or of Subchapter A of Chapter 3 of the Code, or of any
other provision of law.
3.21.5 Set forth in the Disclosure Schedule or in
documents furnished or made available to Akorn or AMI is accurate
and complete information with respect to each of the following
for all tax periods beginning January 1, 1993:
(a) All material tax elections in effect with
respect to PRL;
(b) The current tax basis of the assets of PRL;
(c) The current and accumulated earnings and
profits of PRL;
(d) The net operating losses of PRL by taxable
year;
(e) The net capital losses of PRL;
(f) The tax credit carry overs of PRL; and
(g) The overall foreign losses of PRL under
section 904(f) of the Code that is subject to
recapture.
3.21.6 (a) The Shareholders and PRL have not taken or
agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of
section 368(a) of the Code.
(b) There is no plan or intention by any
Shareholder to sell, exchange or otherwise dispose of a number of
shares of Akorn Stock to be received in the Merger that would
reduce the Shareholder's ownership of Akorn Stock to a number of
shares having a value, as of the Effective Time, of less than 50
percent of the value of all of the PRL Stock (including shares of
PRL Stock exchanged for cash in lieu of fractional shares of
Akorn Stock) outstanding immediately prior to the Effective Time.
(c) Immediately following the Effective Time, AMI
will hold at least 90 percent of the fair market value of the net
assets of PRL and at least 70 percent of the fair market value of
the gross assets of PRL held immediately prior thereto. For
purposes of this representation, amounts used by PRL to pay
Merger expenses and all redemptions and distributions made by PRL
will be included as assets of PRL immediately prior to the
Merger.
(d) The Shareholders and PRL will each pay their
respective expenses, if any, incurred in connection with the
Merger.
(e) There is no intercorporate indebtedness
existing between PRL and Akorn or between PRL and AMI that was
issued, acquired or will be settled at a discount.
(f) PRL is not an investment company as defined
in Section 368(a)(3)(A) of the Code.
3.22 Transactions with Certain Persons. Except for
employment relationships in the ordinary course of business and
except as set forth in the Disclosure Schedule, no Company
Personnel or any member of any such person's family is presently
a party to any transaction with PRL involving payments in excess
of $10,000 per annum, including without limitation any contract,
agreement or other arrangement providing for the furnishing of
services by or the rental of real or personal property from any
such person or from any corporation, partnership, trust or other
entity in which any such person has more than one percent equity
interest or is an officer, director, trustee or general partner.
3.23 Intellectual Properties. The Disclosure Schedule lists
all patents, trademarks, trade names, service marks, copyrights
or other intellectual property rights, or any pending
applications for any of the foregoing (collectively "Intellectual
Property Rights"), used in PRL's business, identifying those
owned by PRL and those owned by others. In the operation of its
business as presently conducted, PRL is not in conflict with and
does not infringe any Intellectual Property Rights of others.
PRL is not a party to any agreement relating to any Intellectual
Property Rights, whether owned by PRL or others, and no person
has a right to receive any royalty with respect to any
Intellectual Property Rights used by PRL in its business.
3.24 Insurance. Akorn has been provided access to all
insurance policies or binders which relate to PRL's business. To
the best knowledge of each of the Shareholders, all premiums due
under such policies and binders have been paid or accrued for on
the Balance Sheet and all such policies and binders are in full
force and effect. No notice of cancellation or nonrenewal of any
such policy or binder has been received by PRL. No notice of
disallowance of any claim under any insurance policy or binder,
whether or not currently in effect, has been received by PRL. To
the best knowledge of each of the Shareholders, PRL has no
liability for or exposure to any premium expense for expired
policies. To the best knowledge of each of the Shareholders,
there are no current claims by PRL under any such policy or
binder nor are there any insured losses for which claims have not
been made. PRL owns no life insurance policies and does not
maintain products liability insurance.
3.25 Labor Matters. There are no agreements with, or
pending petitions for recognition of, a labor union or
association as the exclusive bargaining agent for any of PRL's
employees. No such petitions have been pending at any time
within two years of the date of this Agreement and to the best
knowledge of each of the Shareholders, there has not been any
organizing effort by any union or other group seeking to
represent any employees of PRL as their exclusive bargaining
agent at any time within two years of the date of this Agreement.
There are no labor strikes, work stoppages or other labor
troubles, other than routine grievance matters, now pending or
threatened against PRL, nor have there been any such labor
strikes, work stoppages or other labor troubles, other than
routine grievance matters, with respect to the business of PRL at
any time within two years of the date of this Agreement.
3.26 Bank Accounts; Powers of Attorney. The Disclosure
Schedule sets forth with respect to each bank account or cash
account maintained at any brokerage or other financial firm, the
name of the institution at which such account is maintained, the
number of the account, and the names of the individuals having
authority to withdraw funds from such account. PRL has no letter
of credit or powers of attorney outstanding.
3.27 Minute Books and Stock Transfer Books. The minute
books and stock transfer books of PRL are correct, complete and
current in all material respects and have been made available to
Akorn.
3.28 Customers and Suppliers. The Disclosure Schedule sets
forth a list of (a) all customers of PRL during the period
commencing January 1, 1995, and ending on the Balance Sheet Date
which accounted for 10% or more of the revenues of PRL during
such period and (b) the ten largest suppliers to PRL in terms of
dollars invoiced. Except as disclosed on the Disclosure
Schedule, none of such customers or suppliers has provided
written notice to PRL of its intention to terminate its
relationship with PRL or to reduce substantially the amount of
business that it provides to PRL. To the best knowledge of each
of the Shareholders, none of such customers or suppliers intends
to terminate or to change significantly its relationship with PRL
on or after the Closing Date.
3.29 Compensation Agreements. The Disclosure Schedule lists
all written employment, commission, bonus or other compensation
and consulting agreements to which PRL is a party. Except as set
forth on the Disclosure Schedule, PRL is not a party to any
written or oral employment, commission, bonus or other
compensation or consulting agreement which PRL may not terminate
without any payment or penalty, at will, with or without cause,
except to the extent that employment at will may be limited by
applicable law. Except as set forth in the Disclosure Section,
PRL is not in breach of any such agreement.
3.30 Conduct of Business. To the best knowledge of each of
the Shareholders, upon consummation of the Merger in accordance
with the terms hereof, the Surviving Corporation will be entitled
to conduct, in all material respects, the business of PRL as it
is now being conducted.
3.31 Residence. Each holder of shares of PRL capital stock
is a resident of the State of California.
3.32 Director and Officer Indemnification. The directors
and officers of PRL are not entitled to indemnification by PRL,
except to the extent that indemnification rights are provided for
generally in the California Law or in the Current Employment
Agreements; there are no pending claims for indemnification by
any director or officer of PRL.
3.33 Documents and Written Materials. Originals or true and
complete copies of all documents or other written materials
underlying items listed in the Schedules have been furnished or
made available to Akorn in the form in which each of such
documents is in effect, and will not be modified in any material
respect prior to the Closing Date without Akorn's prior written
consent. All agreements, contracts, instruments or documents
furnished or made available to Akorn or AMI by PRL or any of the
Shareholders (the "Furnished Documents") are identified on the
Disclosure Schedule.
3.34 Effectiveness of Representations and Warranties. All
of the representations and warranties of PRL in this Agreement
shall be true in all material respects on the Closing Date and
shall be deemed to have been made again by PRL on and as of the
Closing Date.
3.35 Effectiveness of Representations and Warranties. All
of the representations and warranties of the Shareholders in this
Agreement shall be true in all material respects on the Closing
Date and shall be deemed to have been made again by each
Shareholder on and as of the Closing Date.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF AKORN
Akorn represents and warrants to and agrees with PRL and the
Shareholders as follows:
4.1 Organization. Akorn and AMI are corporations duly
organized, validly existing and in good standing under the laws
of Louisiana and Illinois, respectively, and have all requisite
corporate power and authority to own their properties and carry
on their businesses as now being conducted.
4.2 Capitalization. As of the date of this Agreement, the
authorized capital stock of (a) Akorn consists of 20,000,000
shares of common stock, no par value, approximately 15,115,000 of
which are validly issued and outstanding and approximately 36,000
of which are held as treasury shares and (b) AMI consists of
100,000 shares of common stock, no par value per share, 100 of
which are validly issued and outstanding. Akorn holds of record
all of the issued and outstanding shares of AMI capital stock.
True and correct information as to all outstanding options and
other rights to purchase shares of Akorn Stock and as to all
current plans and agreements (the "Stock Purchase Plans")
pursuant to which options and other rights to purchase shares of
Akorn Stock (the "Purchase Rights") have been and may be issued
is set forth in Notes I and J to the financial statements
included in Akorn's Annual Report to Shareholders for its fiscal
year ended June 30, 1995. Excepting the Purchase Rights, Akorn
has no outstanding exchangeable or convertible securities or
options or other rights to purchase shares of Akorn Stock.
4.3 Authority; Enforceability. Each of Akorn and AMI has
the requisite corporate power and authority to execute and
deliver this Agreement and to carry out its obligations
hereunder. The execution, delivery and performance of this
Agreement and the consummation of the Merger and of the other
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Akorn and AMI and no
other corporate proceedings on the part of Akorn or AMI are
necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly
executed and delivered by each of Akorn and AMI and constitutes a
valid and binding obligation of each of Akorn and AMI,
enforceable against them in accordance with its terms, except as
may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally, and subject to
general principals of equity and public policy considerations.
4.4 Consents and Approvals; Conflicts. No filing with or
notice to, and no permit, authorization, consent or approval of,
any Governmental Entity is necessary for the execution and
delivery by Akorn and AMI of this Agreement or the consummation
by Akorn and AMI of the transactions contemplated hereby, except
where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice
would not have a material adverse effect on (a) the business,
assets or financial condition of Akorn or AMI or (b) either
Akorn's or AMI's ability to consummate any of the transactions
contemplated hereby. Neither the execution and delivery of this
Agreement by Akorn and AMI, nor the consummation of the
transactions contemplated hereby, will violate any of the
provisions of the Articles of Incorporation or Bylaws of either
Akorn or AMI; or conflict with or result in a breach of, or give
rise to a right of termination of, or accelerate the performance
required by, any terms of any court order, consent decrees, note,
bond, mortgage, indenture, deed of trust, or any license or
agreement binding on either Akorn or AMI or to which either Akorn
or AMI is subject or a party, or constitute a default thereunder,
or result in the creation of any Encumbrance upon any of the
assets or result in the creation of any Encumbrance upon any of
the assets of Akorn or AMI, except for any such conflict, breach,
termination, acceleration, default or Encumbrance which would not
have a material adverse effect on (a) the business, assets or
financial condition of Akorn or AMI or (b) either Akorn's or
AMI's ability to consummate any of the transactions contemplated
hereby.
4.5 Akorn Stock. All shares of Akorn Stock which are to be
issued pursuant to the Merger will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and free
of any Encumbrances or preemptive rights.
4.6 Akorn Disclosure. The Akorn Disclosure Documents do
not include any misstatement of any fact material to the assets,
business, operations, financial condition and prospects of Akorn,
taken as a whole, or omit to state such a material fact necessary
in order to make the statements, in the light of the
circumstances under which they are made, not misleading. Akorn
is current in the filing of all reports, schedules, forms,
statements and other documents required to be filed by it with
the Securities and Exchange Commission under the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as
amended.
4.7 Litigation. Akorn is not a party to any litigation
excepting various products liability claims in which Akorn's
defense has been undertaken by insurers and in which any
liability of Akorn is not expected by Akorn to exceed insurance
coverage limits.
4.8 Effectiveness of Representations and Warranties. All
of the representations and warranties of Akorn in this Agreement
shall be true in all material respects on the Closing Date and
shall be deemed to have been made again by Akorn on and as of the
Closing Date.
SECTION 5
PRE-CLOSING COVENANTS
5.1 Access to Properties and Records. Until the Effective
Time, PRL and the Shareholders shall allow Akorn and AMI and
their authorized representatives full access, during normal
business hours and on reasonable notice, to all of PRL's plants,
properties, offices, vehicles, equipment, inventory and other
assets, documents, files, books and records, in order to allow
Akorn and AMI a full opportunity to make such investigation and
inspection as they desire of PRL's business and assets. PRL and
the Shareholders shall further use their best efforts to cause
the employees, counsel and regular independent certified public
accountants of PRL to be available upon reasonable notice to
answer questions of Akorn's representatives concerning the
business and affairs of PRL, and shall further use their best
efforts to cause them to make available all relevant books and
records in connection with such inspection and examination,
including without limitation work papers for all audits and
reviews of financial statements of PRL.
5.2 Conduct of Business. From and after the date of this
Agreement and until the Closing Date, PRL, on the one hand, and
Akorn and AMI, on the other hand, shall conduct their respective
businesses in the ordinary course and consistently with past
practice, except as expressly required or otherwise permitted by
this Agreement, and shall not take or permit any action which
would cause any of their representations made in Section 3 and
Section 4, respectively, not to be true and correct on the
Closing Date.
5.3 Employment Agreements. At the Closing, the following
Shareholders will execute and deliver to Akorn an employment
agreement substantially in the form of the employment agreement
drafted in such shareholder's name and attached hereto as Exhibit
5.3: Floyd Benjamin, Tom Yankoff and David Gencarella.
5.4 Corporate Name. After the Effective time, the
Surviving Corporation shall have the right to use the corporate
name "Pasadena Research Labs, Inc." and any derivatives or
combinations thereof and no Shareholder shall use or attempt to
use such name or any derivative or combination thereof as the
corporate name of a corporation, partnership or other entity, an
assumed name, a trade name or in any other manner.
5.5 Public Statements. Prior to the Effective Time, none
of the parties to this Agreement shall, and each party shall use
its best efforts so that none of its advisors, officers,
directors or employees shall, except with the prior written
consent of the other parties, publicize, announce or describe to
any third person, except their respective advisors and employees,
the execution or terms of this Agreement, the parties hereto or
the transactions contemplated hereby, except as required by law
or as required pursuant to this Agreement to obtain the consent
of such third person; provided, in any case, that Akorn may make
such disclosures and announcements as may be necessary or
advisable under applicable securities laws.
5.6 No Solicitation. The Shareholders and PRL will not,
prior to the Effective Time or the termination of this Agreement
pursuant to Section 8.1, (nor will they permit any of their
affiliates or any of PRL's officers, directors or agents to)
directly or indirectly solicit or participate or engage in or
initiate any negotiations or discussions, or enter into or
authorize any agreement or agreements in principle, or announce
any intention to do any of the foregoing, with respect to any
offer or proposal to acquire all or any significant part of PRL's
business and properties or any of its capital stock whether by
merger, purchase of assets, purchase of stock or otherwise. The
Shareholders and PRL will notify Akorn promptly upon receipt of
any inquiry, offer or other communication from any third party
regarding any such activities.
5.7 No stock splits or dividends. Akorn shall not declare
or pay any dividend on or permit any reclassification or
recapitalization with respect to shares of Akorn Stock, or the
establishment of a record date for any of the foregoing, to occur
during the period between the date of this Agreement and the
Effective Time.
5.8 Notification as to Representations. Akorn and AMI, on
the one hand, and PRL and the Shareholders, on the other hand,
will promptly disclose in writing to the other any information
contained in its representations and warranties or on the
Disclosure Schedule that, because of an event occurring after the
date hereof, is incomplete or no longer correct. Such disclosure
will be deemed to modify the representations and warranties of
such party or the Disclosure Schedule, as the case may be.
5.9 Akorn Disclosure Documents. Akorn will furnish to PRL
and the Shareholders a copy of each quarterly report on Form 10-Q
and any other report to or filing with the SEC made by Akorn
containing information that is material to Akorn and that is
filed prior to the Closing Date.
SECTION 6
ADDITIONAL AGREEMENTS
6.1 Legal Requirements to Merger. Subject to the
conditions set forth in Section 7 and to the other terms and
provisions of this Agreement, each of the parties to this
Agreement agrees to take, or cause to be taken, all reasonable
actions necessary to comply promptly with all legal requirements
applicable to it with respect to the Merger and will promptly
cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them in
connection with the Merger. Each of PRL, Akorn, AMI and the
Shareholders will take all reasonable actions necessary to
obtain, and will cooperate with each other in obtaining, any
consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other public or private party,
required to be obtained or made by it in connection with the
Merger or the taking or any action contemplated by this
Agreement.
6.2 Further Assurances. After the Effective Time, the
Shareholders, Akorn and AMI will, at the expense of Akorn or AMI,
take all appropriate action and execute all documents,
instruments or conveyances which may be reasonably necessary to
carry out the provisions of this Agreement.
6.3 Expenses. Except as otherwise provided herein, each
party will pay all costs and expenses incurred by it in
connection with this Agreement and the transactions contemplated
hereby.
6.4 Confidentiality. Until the Effective Time and
subsequent to the termination of this Agreement pursuant to
Section 8.1, each of Akorn and AMI will keep confidential and
will not disclose to any third party any information obtained by
it from PRL or PRL's representatives in connection with this
Agreement except (a) that information may be disclosed by Akorn
and AMI to their advisors in connection with the negotiation of
and the activities conducted pursuant to this Agreement, (b) to
the extent that such information is or becomes generally
available to the public through no act or omission of Akorn or
AMI in violation of this Agreement and (c) to the extent
permitted by Section 5.5.
6.5 Termination of PRL Profit-Sharing and Retirement Plan.
Akorn will cause PRL's Profit-Sharing and Retirement Plan (the
"Plan") to be terminated by the Surviving Corporation in due
course after the Closing Date, but no later than 30 days
thereafter. Akorn will not cause the trustee or any member of
the administrative committee of the Plan to be removed. To the
extent permitted by law, the Surviving Corporation will amend the
Plan to provide that all participants in such Plan as of the
Closing Date will be 100% vested. The Surviving Corporation will
also amend such Plan to comply with law, if necessary, and will
request the Internal Revenue Service to approve the termination
of the Plan. The employees of the Surviving Corporation will be
entitled to participate in Akorn's defined contribution plan in
accordance with and to the extent permitted by such plan's
eligibility requirements and other terms and conditions. PRL
employees who continue employment with the Surviving Corporation
will be given credit in the Akorn defined contribution plan for
hours of service with PRL to the extent PRL provides payroll or
other records to support the stated hours of service.
6.6 Piggy-Back Registration Rights.
6.6.1 If Akorn shall at any time prior to the third
anniversary of the Closing Date propose an underwritten public
offering of any shares of Akorn common stock to be offered and
sold by Akorn exclusively for cash pursuant to a registration
statement under the Securities Act of 1933 on Form S-1, S-2 or S-
3 and not in connection with an acquisition or an employee
benefit plan, Akorn shall give written notice to each of the
Shareholders who is at such time a record holder of Conversion
Shares. Upon the written request of any such Shareholder,
received by Akorn no later than the tenth business day after the
giving of such notice by Akorn, to register, on the same terms
and conditions as the shares of Akorn common stock otherwise
being sold pursuant to such registration, all of the Conversion
Shares held by such Shareholder, Akorn will use its best
reasonable efforts to cause such Conversion Shares (the
"Registrable Shares") to be included in the securities to be
covered by the registration statement proposed to be filed by
Akorn. Notwithstanding the foregoing, Akorn shall not be
obligated to include such Registrable Shares in such offering if
Akorn is advised in writing by its managing underwriter or
underwriters that the inclusion of the Registrable Shares in such
offering would in its or their opinion adversely affect the
marketing of the securities to be sold therein by Akorn or by
John N. Kapoor or his affiliate pursuant to an agreement with
respect to the registration of shares of Akorn Stock; provided,
however, that Akorn shall in any case be obligated to include
such number of amount of Registrable Shares in such offering as
such managing underwriter or underwriters shall determine will
not adversely affect such marketing; provided, further, that such
number of Registrable Shares shall not be reduced unless the
shares to be included in such offering for the account of any
other shareholder (not including Akorn or John N. Kapoor or his
affiliate) are also reduced on a pro rata basis. Akorn may at
any time prior to the effectiveness of any such registration
statement, in its sole discretion and without the consent of any
Shareholder, abandon the offering to be made pursuant to such
registration statement.
6.6.2 Each Shareholder participating in any such public
offering shall (i) pay the underwriting discounts and selling
commissions applicable to the Conversion Shares sold by him in
the offering and shall pay his pro-rata share of all filing fees
and blue sky expenses, and (ii) enter into such agreements with
Akorn and with the underwriters with respect to procedures to be
followed in connection with the registration and the offer and
sale of the securities, indemnification, the providing of
information and other similar matters as Akorn or any underwriter
may reasonably request and which are comparable to similar
agreements, if any, with any other persons (not including Akorn)
whose shares are included in the offering.
6.7 Furnished Documents. Within ten days of the execution
of this Agreement, PRL will furnish to Akorn and AMI the original
or a copy of each of the Furnished Documents, except as otherwise
agreed by Akorn or AMI.
6.8 Tax Returns. AMI shall cause the accounting firm of
Wright, Ford, Browning & Young to prepare tax returns for PRL
with respect to the tax period beginning January 1, 1996 and
ending as of the Effective Time (the "1996 Tax Returns").
6.9 Personal Guarantees. Akorn, AMI and the Shareholders
shall cooperate with each other in seeking to cause the release
of the Shareholders from any guarantees by the Shareholders of
debt and other contractual obligations of PRL (the "Guaranteed
Obligations"), provided that the Guaranteed Obligations are
identified as such, and the amount thereof disclosed, in the
Disclosure Schedule and provided that each Guaranteed Obligation
that is material to PRL is reflected in the Balance Sheet.
6.10 Accumulated Adjustment Account Distribution. It is
acknowledged and agreed that the accumulated adjustment account
of PRL as of December 31, 1995, in the amount of approximately
$27,000.00, will not be paid to the Shareholders. Any increase
in the accumulated adjustment account of PRL during the period
beginning January 1, 1996 and ending at the Effective Time (the
"1996 AAA") shall be paid by AMI on or before the seventy-fifth
day following the Effective Time. The 1996 AAA shall include the
net profit of PRL that is attributable and taxable to the
shareholders with respect to such period and shall reflect,
without limitation, (a) the "CBL Expense" as described in the
Disclosure Schedule, in the amount of $140,000, which was
deducted by PRL for tax purposes in the income tax return filed
by PRL with respect to the year ended December 31, 1995, but
treated as an expense for financial statement purposes during the
year beginning January 1, 1996 and (b) the compensation expense
in the aggregate amount of $100,000 to be paid to Yankoff and
Gencarella prior to the Effective Time, as disclosed in paragraph
12 of the Disclosure Schedule, and be treated as an expense for
both tax and financial statement purposes during the year
beginning January 1, 1996.
6.11 Steris Rebate. It is understood and agreed that the
rebate in the form of inventory received during calendar 1995
from Steris in an amount not exceeding $133,320 will be treated
in the 1996 Tax Returns as a reduction of cost of goods sold and
thereby increase taxable income of PRL by the same amount during
the period beginning January 1, 1996 and ending at the Effective
Time.
6.12 Extent of Personal Liability. In the event that, after
the Effective Time, any Shareholder is personally liable to Akorn
or AMI for or with respect to a claim made by a party other than
Akorn or AMI, which claim constitutes a breach by the Shareholder
of any of his representations, warranties or agreements
hereunder, such liability on the part of the Shareholder shall be
reduced by the amount of any insurance proceeds paid to Akorn or
AMI with respect thereto.
6.13 Shareholder Indemnification. After the Effective Time,
Akorn will indemnify and hold harmless each Shareholder from and
against any claims made against him (other than claims made by
any person who is or was a shareholder of PRL) by reason of the
fact that, prior to the Effective Time, he was a shareholder or
served as an officer or director of PRL; provided, however that
no such indemnity shall be paid with respect to any such claim
arising out of action or inaction by the Shareholder which
constitutes, or the existence of which constitutes, a breach by
any Shareholder of his representations, warranties or agreements
hereunder.
6.14 Termination of Shareholder's Agreement. At the
Effective Time, by reason of the Merger, all rights and
obligations under the Shareholder's Agreement entered between PRL
and the Shareholders as referred to in the Disclosure Schedule
shall automatically terminate.
SECTION 7
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the
Merger shall be subject to the satisfaction or, where
permissible, waiver by such party of the following conditions at
or prior to the Effective Time:
7.1.1 No statute, rule, regulation, executive order,
decree, preliminary or permanent injunction or restraining order
shall have been enacted, entered, promulgated or enforced by any
court of competent jurisdiction or other Governmental Entity
which prohibits or restricts the consummation of the Merger and
no action, suit, claim or proceeding by a state or federal
Governmental Entity before any court or other Governmental Entity
shall have been commenced and be pending which seeks to prohibit
or restrict the consummation of the Merger, other than actions,
suits, claims and proceedings which, in the reasonable opinion of
counsel to the parties hereto, are unlikely to result in an
adverse judgment; provided, however, that before any
determination is made to the effect that this condition has not
been satisfied, PRL and Akorn shall each use all reasonable
efforts and take such actions as may be reasonably necessary, at
its own expense, to have such order, stay, judgment or decree
lifted or dismissed and any such suit, action or proceeding
dismissed or terminated.
7.1.2 All filings with and notices to and all consents
and waivers from all the Governmental Entities and third parties
listed in the Disclosure Schedule under Sections 4.4 shall have
been made, and all waiting periods thereunder with respect to the
transactions contemplated by this Agreement shall have expired or
been terminated.
7.1.3 Akorn and PRL shall have received an opinion of
Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P.
substantially to the effect that the Merger constitutes a
reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code, that the Shareholders will recognize no
gain or loss for federal income tax purposes with respect to the
Conversion Shares received by them in connection with the Merger,
and that no gain or loss for federal income tax purposes will be
recognized by Akorn, AMI or PRL as a result of the Merger.
7.1.4 It shall be a condition to the obligations of
Akorn and AMI and of each Shareholder that Akorn and such
Shareholder shall have entered into an Employment Agreement in
the form attached hereto as Exhibit 5.3.
7.1.5 Akorn's Board of Directors shall have taken such
action as is necessary to appoint Floyd Benjamin as a director of
Akorn with a term expiring at the annual meeting of Akorn
stockholders that next follows the Closing Date.
7.2 Conditions to Obligations of Akorn and AMI. The
obligations of Akorn and AMI to effect the Merger are subject to
the satisfaction of the following conditions unless waived by
Akorn and AMI:
7.2.1 The representations and warranties of PRL and the
Shareholders set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement
and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by this Agreement,
and PRL and the Shareholders shall have performed in all material
respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date.
7.2.2 All consents and approvals of Governmental
Entities or third parties necessary for consummation of the
Merger by the parties shall have been obtained, other than those
which, if not obtained, would not in Akorn's judgment have a
material adverse effect on any party's ability to consummate any
of the transactions contemplated hereby or on the business and
properties of PRL. PRL shall have used its best efforts to
obtain all necessary permits, authorizations, consents and
approvals required by such Governmental Entities prior to the
Closing Date.
7.2.3 PRL shall have obtained the consent of Faulding
Pharmaceutical Company ("Faulding") to assign to AMI all of PRL's
rights under and interests in that certain contract entered
between PRL and Faulding on January 5, 1996 providing for, among
other things, sharing of profits on Faulding's distribution of
certain of PRL's products.
7.2.4 Akorn and AMI shall have received the opinion of
Walsworth, Franklin, Bevins & McCall, counsel to PRL and, with
respect to the matters set forth in such opinion, to the
Shareholders, dated the Effective Time, which will be
substantially to the effect that:
(a) PRL is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California.
(b) PRL has the corporate power to enter into
this Agreement and to consummate the transactions contemplated
hereby, and the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all requisite corporate action taken on the
part of PRL.
(c) This Agreement has been duly executed and
delivered by PRL and the Shareholders, and is a valid and binding
obligation of each enforceable against each in accordance with
its terms, except (i) as enforceability may be limited by any
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights; (ii) such enforceability is
subject to general principles of equity; and (iii) no opinion
need be expressed regarding the enforcement of the choice of law
provision of Section 9.5.
(d) The Merger has been approved by PRL
Shareholders in accordance with the California Law and, assuming
proper corporate action on the part of AMI and compliance with
the Illinois Law, the Merger will be effective under the
California Law upon proper filing of the Certificate of Merger in
the State of California.
(e) To such counsel's knowledge, based upon
review of PRL's Articles of Incorporation, Bylaws, corporate
minute book and certificates representing PRL Stock, PRL's stock
records and certificates of officers of PRL, as of the date
hereof, the authorized capital stock of PRL consists of 100,000
shares of PRL Stock, 94.5 of which are validly issued and
outstanding.
(f) Neither the execution and the delivery of
this Agreement by PRL, nor the consummation of the transactions
contemplated hereby, will (i) violate any of the provisions of
the Articles of Incorporation or Bylaws of PRL; or (ii) to such
counsel's knowledge, except as disclosed in an Exhibit or
Schedule to or set forth in this Agreement, conflict with or
result in a breach of, or give rise to a right of termination of,
or accelerate the performance required by, any terms of any court
order, consent decree, note, bond, mortgage, indenture, deed of
trust, or any license or agreement, or any other instrument or
obligation binding on PRL or constitute a default thereunder, or
result in the creation of any Encumbrance upon any of the assets
of any of PRL.
As to any matter in such opinion which involves matters
of fact or matters relating to laws other than United States
federal, or California law, such counsel may rely, without
independent investigation, upon the certificates of officers and
directors of PRL and of public officials, reasonably acceptable
to Akorn. Such counsel need not render any opinion with respect
to any federal or state securities laws.
7.2.5 Akorn and AMI shall have had a full opportunity
to conduct inspections of the operating assets and books and
records of PRL.
7.2.6 PRL shall have provided Akorn certified copies of
its Articles of Incorporation and Bylaws and certificates of
existence, good standing and qualification to do business as a
foreign corporation, certified by the appropriate state
authorities in PRL's state of incorporation.
7.2.7 Akorn shall have received a certificate of a duly
authorized officer of PRL, dated the Closing Date, certifying as
to the incumbency of any person executing this Agreement or any
certificate or other document delivered in connection with this
Agreement and certifying as to such other matter as Akorn or AMI
shall reasonably request.
7.2.8 Akorn will be reasonably satisfied, and shall
receive a certificate of each of the Shareholders and of the
chief executive officer of PRL that the condition specified in
Section 7.2.1 has been fulfilled.
7.2.9 Akorn will be reasonably satisfied that the
Merger will be treated as a pooling of interests for financial
reporting purposes.
7.2.10 After completing its due diligence review, Akorn
shall be satisfied that (a) the net sales of PRL for the 12-month
period ended March 31, 1996 is not less than the net sales of PRL
for the 12-month period ended December 31, 1995, as shown in the
PRL Financial Statements; and (b) total shareholders' equity of
PRL as of March 31, 1996 is not less than total shareholders'
equity of PRL as of December 31, 1995, as shown in the PRL
Financial Statements.
7.2.11 Any and all changes made to the Disclosure
Schedule or to the representations and warranties of PRL and the
Shareholders as a result of any disclosures made by them under
Section 5.8 shall be satisfactory in all respects to Akorn and
AMI.
7.2.12 The Shareholder Notes of Yankoff and Gencarella
disclosed in paragraph 12 of the Disclosure Schedule shall have
been repaid in full.
7.3 Conditions to Obligations of PRL and Shareholders. The
obligations of PRL and the Shareholders to effect the Merger are
subject to the satisfaction for the following conditions, unless
waived by PRL and all of the Shareholders:
7.3.1 The representations and warranties of Akorn and
AMI set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except
as otherwise contemplated by this Agreement, and Akorn and AMI
shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior
to the Closing Date.
7.3.2 All consents and approvals of Governmental
Entities or third parties necessary for consummation of the
Merger by the parties, shall have been obtained, other than those
which, if not obtained, would not have a material adverse effect
on any party's ability to consummate any of the transactions
contemplated hereby. Akorn shall have used its best efforts to
obtain all necessary permits, authorizations, consents and
approvals required by such Governmental Entities prior to the
Closing Date.
7.3.3 PRL and the Shareholders shall have received the
opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre
L.L.P., counsel to Akorn and AMI, dated the Effective Time, in
form reasonably satisfactory to PRL and the Shareholders,
substantially to the effect that:
(a) Akorn is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Louisiana. AMI is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Illinois.
(b) Akorn and AMI each has the corporate power to
enter into this Agreement and to consummate the transactions
contemplated hereby, and the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite corporate
action taken on the part of Akorn and AMI, respectively.
(c) This Agreement has been duly executed and
delivered by each of Akorn and AMI and is a valid and binding
obligation of Akorn and AMI enforceable against each of Akorn and
AMI in accordance with its terms, except (i) as enforceability
may be limited by any bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights; (ii) as such
enforceability is subject to general principles of equity; and
(iii) no opinion need be expressed regarding the enforcement of
the choice of law provision of 9.5.
(d) The Merger has been approved by Akorn (as
shareholder of AMI) in accordance with the Illinois Law and,
assuming the proper corporate action on the part of PRL and
compliance with the California Law, the Merger will be effective
under the Illinois Law upon proper filing of the Certificate of
Merger in the State of Illinois.
(e) The shares of Akorn Stock to be issued in
connection with the transactions contemplated by this Agreement
are duly authorized and reserved for issuance and, when issued as
contemplated by this Agreement, will be validly issued, fully
paid and nonassessable.
(f) Neither the execution and delivery of this
Agreement by Akorn and by AMI, nor the consummation of the
transactions contemplated hereby, will violate any of the
provisions of the Articles of Incorporation or Bylaws of Akorn or
AMI.
As to any matter in such opinion which involves matters of fact
or matters relating to laws other than United States federal or
Louisiana law, such counsel may rely, without independent
investigation, upon the certificates of officers and directors of
Akorn and AMI and of public officials, reasonably acceptable to
PRL. Such counsel need not render any opinion with respect to
federal or state securities laws.
7.3.4 PRL and the Shareholders shall have received a
certificate of a duly authorized officer of Akorn and AMI, dated
the Closing Date, and certifying as to the incumbency of any
person executing this Agreement or any certificate or other
document delivered in connection with this Agreement and
certifying such other matters as PRL or the Shareholders shall
reasonably request.
7.3.5 PRL and the Shareholders shall be reasonably
satisfied, and shall have received a certificate of the chief
executive officer of Akorn, that the conditions specified in
Section 7.3.1 have been fulfilled.
7.3.6 Any and all changes made to the representations
and warranties of Akorn and AMI as a result of any disclosures
made by them under Section 5.8 shall be satisfactory in all
respects to PRL and the Shareholders.
SECTION 8
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time:
8.1.1 by mutual consent of Akorn and PRL;
8.1.2 by Akorn or PRL, if (a) there shall have been a
material breach of any representation, warranty, covenant or
agreement on the part of PRL or the Shareholders or on the part
of Akorn or AMI, as the case maybe, which breach shall not have
been cured prior to the earlier of (i) 10 days following notice
of such breach and (ii) the Closing Date; or (b) any permanent
injunction or other order of a court or other competent
Governmental Entity preventing the consummation of the Merger
shall have become final and nonappealable; or
8.1.3 by Akorn, PRL or any Shareholder if the Merger
shall not have been consummated on or before June 30, 1996;
provided, that the right to terminate this Agreement under this
Section 8.1.3 shall not be available to any party whose breach of
its representations and warranties in this Agreement or whose
failure to perform any of its covenants and agreements under this
Agreement has resulted in the failure of the Merger to occur on
or before such date.
8.2 Effect of Termination. In the event of a termination
of this Agreement by either PRL or Akorn as provided in Section
8.1, this Agreement shall forthwith become void and there shall
be no liability or obligation under any provisions hereof on the
part of Akorn, AMI or PRL or their respective officers, directors
or stockholders, except (a) pursuant to the covenants and
agreements contained in Section 6.3 and Section 6.4 and this
Section 8.2 and (b) to the extent that such termination results
from the willful material breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in
this Agreement, in which case the non-breaching party shall have
a right to recover its damages caused thereby.
8.3 Amendment. This Agreement may not be amended except by
an instrument in writing signed by each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto may, in their respective sole discretion
and to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other
parties hereto; (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered
pursuant thereto; and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed by or on
behalf of such party.
SECTION 9
MISCELLANEOUS
9.1 Survival of Representations, Warranties and Agreements.
The representations, warranties, covenants and agreements in this
Agreement (or in any Exhibit or Schedule hereto) or in any
instrument delivered pursuant to this Agreement shall survive the
Closing and shall not be limited or affected by any investigation
by or on behalf of any party hereto.
9.2 Notices. All notices hereunder must be in writing and
shall be deemed to have given upon receipt of delivery by: (a)
personal delivery to the designated individual, (b) certified or
registered mail, postage prepaid, return receipt requested, (c) a
nationally recognized overnight courier service (against a
receipt therefor) or (d) facsimile transmission with confirmation
of receipt. All such notices must be addressed as follows or
such other address as to which any party hereto may have notified
the other in writing:
If to Akorn or AMI, to:
100 Akorn Drive
Abita Springs, Louisiana 70420
Attention: Mr. Barry D. LeBlanc, President
Facsimile transmission No. 504-893-1257
with a copy to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P.
201 St. Charles Avenue
New Orleans, Louisiana 70170-5100
Attention: Mr. Carl C. Hanemann
Facsimile transmission No. 504-582-8012
if to PRL, to:
942 Calle Negocio
Suite 150
San Clemente, CA 92673
Attention: Mr. Floyd Benjamin
Facsimile transmission No. 714-498-3613
or if to the Shareholders, to:
Floyd Benjamin
8 Greystone Way
Laguna, Miguel CA 92677
Facsimile transmission No. 714-498-3613
Tom Yankoff
31181 Casa Grande
San Juan Capistrano, CA 92675
Facsimile transmission No. 714-498-3613
David Gencarella
P. O. Box 4308
San Clemente, CA 92674
Facsimile transmission No. 714-498-3613
in each case, with a copy to:
Walsworth, Franklin, Bevins & McCall
1 City Boulevard West
Suite 308
Orange, California 92668-3604
Attention: Mr. Wayne Allen
Facsimile Transmission No. 714-634-0686
9.3 Headings; Gender. When a reference is made in this
Agreement to a section, exhibit or schedule, such reference shall
be to a section, exhibit or schedule of this Agreement unless
otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement. All personal pronouns used in this Agreement shall
include the other genders, whether used in the masculine,
feminine or neuter gender, and the singular shall include the
plural and vice versa, whenever and as often as may be
appropriate.
9.4 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents, exhibits and instruments
referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements, and understandings and
communications, both written and oral, among the parties with
respect to the subject matter hereof, and (b) is not intended to
confer upon any person other than the parties hereto any rights
or remedies hereunder.
9.5 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Louisiana,
without regard to any applicable principles of conflicts of law.
9.6 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other
parties, except that AMI may assign any or all of AMI's rights,
interests and obligations hereunder to Akorn or to any wholly
owned subsidiary of Akorn. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and
assigns.
9.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by
reason of any rule of law or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any
adverse manner to either party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the
extent possible, and in any case such term or provision shall be
deemed amended to the extent necessary to make it no longer
invalid, illegal or unenforceable.
9.8 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original
and all of which taken together shall constitute one and the same
document.
9.9 Exhibits and Schedules; Section Numbers. All exhibits
and schedules to this Agreement are an integral part of this
Agreement. All schedules attached to this Agreement are
initialed by the presidents of Akorn and PRL. Any schedule not
attached to this Agreement upon the execution hereof by the
parties will be initialed by the president of PRL and delivered
by PRL to Akorn promptly after the date hereof. If such schedule
is reasonably satisfactory to Akorn, the president of Akorn will
initial such schedule and deliver it to the other parties for
attachment hereto. If such schedule is not reasonably
satisfactory to Akorn, a material breach of an agreement on the
part of PRL shall be deemed to exist for purposes of Section
8.1.2.
IN WITNESS WHEREOF, Akorn, AMI and PRL and the Shareholders
have caused this Agreement to be signed themselves or by their
respective duly authorized officers as of the date first written
above.
PASADENA RESEARCH LABS, INC. AKORN, INC.
By: /s/ Floyd Benjamin By: /s/ Barry D. LeBlanc
Name: Floyd Benjamin Name: Barry D. LeBlanc
Title: President Title: President
SHAREHOLDERS: AKORN MANUFACTURING, INC.
/s/ Floyd Benjamin By: /s/ Eric M. Wingerter
Floyd Benjamin Name: Eric M. Wingerter
Title: Secretary and Treasurer
/s/ Tom Yankoff
Tom Yankoff
/s/ David Gencarella
David Gencarella
CERTIFICATE OF SECRETARIES
I hereby certify that I am the duly elected Assistant
Secretary of Akorn Manufacturing, Inc., an Illinois corporation,
presently serving in such capacity, and that the foregoing
Agreement was, in the manner required by law, duly approved,
without alteration or amendment, by the holder of all of the
shares of capital stock of such corporation having voting rights
with respect thereto, such number of shares having more than the
minimum number of votes necessary to adopt such Agreement.
Dated: ____________, 1996.
___________________________________
Assistant Secretary
I hereby certify that I am the duly elected Secretary of
Pasadena Research Labs, Inc., a California corporation, presently
serving in such capacity, and that the foregoing Agreement was,
in the manner required by law, duly approved, without alteration
or amendment, by the holders of 100% of the outstanding shares of
capital stock of such corporation having voting rights with
respect thereto, such shares having more than the minimum number
of votes necessary to adopt such Agreement.
Dated: ____________, 1996.
___________________________________
Secretary
EXECUTION BY CORPORATIONS
Pursuant to the Illinois Business Corporation Act and the
California Business Corporation Act, the foregoing Agreement is
hereby executed by the undersigned corporations, each acting
through their respective officers, this _____ day of
____________, 1996.
AKORN MANUFACTURING, INC.
By: /s/ Eric M. Wingerter
Eric M. Wingerter
Secretary and Treasurer
PASADENA RESEARCH LABS, INC.
By: /s/ Floyd Benjamin
Floyd Benjamin, President
ACKNOWLEDGEMENT
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned authority, personally came and
appeared Eric M. Wingerter, who, being duly sworn, declared and
acknowledged before me to be the Secretary and Treasurer of Akorn
Manufacturing, Inc., an Illinois corporation, and that in such
capacity he was duly authorized to and did execute the foregoing
Agreement on behalf of such corporation, for the purposes therein
expressed, and as his and such corporation's free act and deed.
/s/ Eric M. Wingerter
Eric M. Wingerter
Sworn to and subscribed before me
this _____ day of ____________, 1996.
___________________________________
Notary Public
ACKNOWLEDGEMENT
STATE OF CALIFORNIA
COUNTY OF __________
BEFORE ME, the undersigned authority, personally came and
appeared Floyd Benjamin, who, being duly sworn, declared and
acknowledged before me to be the President of Pasadena Research
Labs, Inc., a California corporation, and that in such capacity
he was duly authorized to and did execute the foregoing Agreement
on behalf of such corporation, for the purposes therein
expressed, and as his and such corporation's free act and deed.
/s/ Floyd Benjamin
Floyd Benjamin
Sworn to and subscribed before me
this _____ day of ____________, 1996.
___________________________________
Notary Public
BY-LAWS
of
AKORN, INC.
(COMPOSITE, AS AMENDED THROUGH MAY 3, 1996)
ARTICLE I
SHAREHOLDERS
Section 1 - Place of Holding Meeting. All meetings of the
shareholders shall be held at the principal business office of
the corporation in Metairie, Louisiana, or at such other place as
may be specified in the notice of the meeting.
Section 2 - Annual Meeting of Shareholders. The annual
meeting of shareholders for the election of directors, and the
transaction of other business, shall be held at least once in
each calendar year, on a date fixed by the Board of Directors.
Section 3 - Voting.
(a) On demand of any shareholder, the vote for directors,
or on any question before a meeting, shall be by ballot. All
elections of directors shall be had by plurality, and all other
questions decided by majority, of the votes cast, except as
otherwise provided by the articles or by-laws.
(b) At each meeting of shareholders, a list of the
shareholders entitled to vote, arranged alphabetically and
certified by the secretary (or the transfer agent, if one has
been appointed) showing the number and class of shares held by
each such shareholder on the record date for the meeting, shall
be produced on the request of any shareholder.
Section 4 - Quorum. Except as provided in the next section
hereof, any number of shareholders, together holding at least a
majority of the outstanding shares entitled to vote thereat, who
are present in person or represented by proxy at any meeting,
constitute a quorum for the transaction of business despite the
subsequent withdrawal or refusal to vote of any shareholder.
Section 5 - Adjournment of Meeting. If less than a quorum
is in attendance at any time for which a meeting is called, the
meeting may, after the lapse of at least half an hour, be
adjourned by a majority in interest of the shareholders present
or represented and entitled to vote thereat. If notice of such
adjourned meeting is sent to the shareholders entitled to vote at
the meeting, stating the purpose or purposes of the meeting and
that the previous meeting failed for lack of a quorum, then any
number of shareholders, present in person or represented by
proxy, and together holding at least one-fourth of the
outstanding shares entitled to vote thereat, constitute a quorum
at the adjourned meeting.
Section 6 - Special Meetings: How Called. Special meetings
of the shareholders for any purpose or purposes may be called by
the president or secretary upon a written request therefor,
stating the purpose or purposes thereof, delivered to the
president or secretary and signed either by a majority of the
directors or by one-fifth in interest of the shareholders
entitled to vote.
Section 7 - Notice of Shareholders' Meetings. Written or
printed notice, stating the place and time of any meeting, and,
if a special meeting, the general nature of the business to be
considered, shall be given to each shareholder entitled to vote
thereat, at his last known address, at least ten days before the
meeting in the case of an annual meeting, and fifteen days before
the meeting in the case of a special meeting. Any irregularity
in the notice of an annual meeting held at the corporation's
principal business office at the time prescribed in Section 2 of
this Article I, shall not affect the validity of the meeting or
any action taken thereat.
Section 8 - Waiver. Any requirements of this Article as to
meetings of shareholders and notices thereof may be waived, and
shall be deemed to have been waived when all shareholders shall
have signed a consent to the action taken, or to be taken, at the
meeting. (See Article VII, Section 5.)
ARTICLE II
DIRECTORS
Section 1 - Number of Directors. The number of directors
shall be nine.
The remaining directors, even though not constituting a
quorum, may, by a majority vote, fill any vacancy on the Board
(including any vacancy resulting from an increase in the
authorized number of directors, or from failure of the
shareholders to elect a full number of authorized directors) for
an unexpired term, provided that the shareholders shall have the
right, at any special meeting called for the purpose prior to
such action by the Board, to fill the vacancy.
Section 2 - Place of Holding Meetings. Meetings of the
directors, regular or special, may be held at any place, within
or outside Louisiana, or pursuant to a telephone conference as
permitted in Section 81(10) of the Louisiana Business Corporation
Law (LSA-R.S. 12:81(10)), as the board may determine.
Section 3 - First Meeting. The first meeting of each newly-
elected board of directors shall be held immediately following
the annual meeting of shareholders, and no notice of such meeting
shall be necessary to the newly-elected directors in order
legally to constitute the meeting, provided a quorum is present;
or they may meet at such time and place as fixed by the consent
in writing of all of the directors. At the first meeting, or at
any subsequent meeting called for the purpose, the directors
shall elect the officers of the corporation.
Section 4 - Regular Directors' Meetings. Regular meetings
of the directors may be held without notice, at such time and
place as may be designated by the directors.
Section 5 - Special Directors' Meetings: How Called.
Special meetings of the directors may be called by the Chairman
of the Board or by the President on notice as provided in Section
6. Special meetings shall be called on like notice by the
Chairman of the Board, the President, or the Secretary on the
request of a majority of the directors or a majority of the
members of the Executive Committee and, if any such officer
fails, refuses or is unable to call a special meeting within 24
hours of such request, any director or Executive Committee member
requesting such a meeting may call the meeting on notice as
provided in Section 6.
Section 6 - Notice of Special Directors' Meetings. Special
meetings of the directors (and of the first meeting of the newly
elected board, if held on notice) may be given on notice of no
less than two days or, in the case of meetings called at the
request of a majority of the members of the Executive Committee,
no less than eight hours, given to each director. Notice of two
days or more may be given either personally or by telephone,
mail, or facsimile transmission. Notice of less than two days
may be given either personally or by telephone or facsimile
transmission. Notice given by telephone shall be effective when
given either directly to the director or to a person believed by
the person calling the meeting to be an employee or relative of
the director or a person able to deliver a message to the
director promptly. Notice given by facsimile transmission shall
be effective when transmitted to a facsimile receiver at an
office or a residence of the director. Except as otherwise
required by law or by these by-laws, the notice need not state
the purpose or purposes of the meeting.
Section 7 - Quorum. At all meetings of the board, a
majority of the directors in office and qualified to act in
person or by proxy constitute a quorum for the transaction of
business, and the action of a majority of the directors present
in person or by proxy at any meeting at which a quorum is present
is the action of the board of directors, unless the concurrence
of a greater proportion is required for such action by law, the
articles or these by-laws. If a quorum is not present at any
meeting of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present. If a
quorum be present, the directors present in person or by proxy
may continue to act by vote of a majority of a quorum until
adjournment, notwithstanding the subsequent withdrawal of enough
directors to leave less than a quorum or the refusal of any
directors present to vote.
Section 8 - Waiver. Any requirements of this Article as to
meetings of directors and notices thereof may be waived, and
shall be deemed to have been waived when all directors shall be
present in person or by proxy at the meeting, or when the
directors shall have signed a consent to the action taken, or to
be taken, at the meeting. (See Article VII, Section 5.)
Section 9 - Compensation of Directors. The Board of
Directors may by resolution determine the compensation of
directors for their services as such and the reimbursement of
directors for their actual expenses of attending meetings of the
Board and committees thereof. Directors may serve the
corporation in any other capacity and receive compensation
therefor. Directors, as such, may receive such salary for their
services and such reimbursement of their expenses of attendance
at meetings of directors as may be fixed by resolution of the
board. This Section does not preclude any director from serving
the corporation in any other capacity and receiving compensation
therefor.
Section 10 - Powers of Directors. The board of directors is
charged with the management of the business of the corporation,
and subject to any restrictions imposed by law, the articles or
these by-laws, may exercise all the powers of the corporation.
Without prejudice to such general powers, the directors have the
following specific powers:
a - From time to time, to devolve the powers and duties of
any officer upon any other person for the time being.
b - To confer upon any officer the power to appoint, remove
and suspend, and fix and change the compensation of,
subordinate officers, agents and factors.
c - To determine who shall be entitled to vote, or to
assign and transfer any shares of stock, bonds,
debentures or other securities of other corporations
held by this corporation.
d - To delegate any of the powers of the board to any
standing or special committee or to any officer or
agent (with power to subdelegate) upon such terms as
they deem fit.
Section 11 - Resignations and Removal. The resignation of a
director shall take effect on receipt thereof by the president or
secretary, or on any later date, not more than thirty days after
such receipt, specified therein. The shareholders, by vote of a
majority of the total voting power at any special meeting called
for the purpose, may remove from office any one or more of the
directors with or without cause.
ARTICLE III
COMMITTEES
Section 1 - Executive Committee. If an executive committee
is appointed, the president shall be a member, and the committee
shall have all of the powers of the board when the board is not
in session, except the power to declare dividends, make or alter
by-laws, fill vacancies on the board or the executive committee,
or change the membership of the executive committee.
Section 2 - Minutes of Meetings of Committees. Any
committees designated by the board shall keep regular minutes of
their proceedings, and shall report the same to the board when
required, but no approval by the board of any action properly
taken by a committee shall be required.
Section 3 - Procedure. If the board fails to designate the
chairman of a committee, the president, if a member, shall be
chairman. Each committee shall meet at such times as it shall
determine, and at any time on call of the chairman. A majority
of a committee constitutes a quorum, and the committee may take
action either by vote of a majority of the members present at any
meeting at which there is a quorum or by written concurrence of a
majority of the members. In case of absence of disqualification
of a member of a committee at any meeting thereof, the qualified
members present, whether or not they constitute a quorum, may
unanimously appoint a director to act in place of the absent or
disqualified member. The board has power to change the members
of any committee at any time, to fill vacancies, and to discharge
any committee at any time.
ARTICLE IV
OFFICERS
Section 1 - Titles. The officers of the corporation shall
be a president, one or more vice-presidents, a treasurer, a
secretary, and such other officers as may, from time to time, be
elected or appointed by the board. Any two officers may be
combined in the same person, and none need be a director.
Section 2 - Chairman of the Board. The board of directors
may designate one of its members as chairman of the board. The
chairman of the board or another director designated by the
chairman shall preside at meetings of directors and shareholders.
Section 3 - President. The president is the chief executive
officer and has the power to make contracts in the ordinary
course of business. He shall see that all orders and resolutions
of the board are carried into effect, and direct the other
officers in the performance of their duties. He shall have power
to execute all instruments, and shall generally perform all acts
incident to the office of president, or which are authorized or
required by law, or which are incumbent upon him under the
provisions of the articles and these by-laws. The president
shall preside at meetings of the directors and shareholders in
the absence of the chairman of the board or in the event that the
chairman has not designated another director to do so.
Section 4 - Vice-Presidents. Each vice-president shall have
such powers, and shall perform such duties, as shall be assigned
to him by the directors or by the president, and, in the order
determined by the board, shall, in the absence or disability of
the president, perform his duties and exercise his powers.
Section 5 - Treasurer. The treasurer has custody of all
funds, securities, evidences of indebtedness and other valuable
documents of the corporation. He shall receive and give, or
cause to be given, receipts and acquittances for moneys paid in
on account of the corporation, and shall pay out of the funds on
hand all just debts of the corporation of whatever nature, when
due. He shall enter, or cause to be entered, in books of the
corporation to be kept for that purpose, full and accurate
accounts of all moneys received and paid out on account of the
corporation, and, whenever required by the president or
directors, he shall render a statement of his account. He shall
keep or cause to be kept such books as will show a true record of
the expenses, gains, losses, assets and liabilities of the
corporation; and he shall perform all of the other duties
incident to the office of treasurer. If required by the board,
he shall give the corporation a bond for the faithful discharge
of his duties and for restoration to the corporation, upon
termination of his tenure, of all property of the corporation
under his control.
Section 6 - Secretary. The secretary shall give, or cause
to be given, notice of all meetings of shareholders, directors
and committees, and all other notices required by law or by these
by-laws, and in case of his absence or refusal or neglect so to
do, any such notice may be given by the shareholders or directors
upon whose request the meeting is called as provided in these by-
laws. He shall record all the proceedings of the meetings of the
shareholders, of the directors, and of committees in a book to be
kept for that purpose. Except as otherwise determined by the
directors, he shall have charge of the original stock book,
transfer books and stock ledgers, and shall act as transfer agent
in respect of the stock and other securities issued by the
corporation. He shall have custody of the seal of the
corporation, and shall affix it to all instruments requiring it;
and he shall perform such other duties as may be assigned to him
by the directors of the president.
Section 7 - Assistants. Assistant secretaries or treasurers
shall have such duties as may be delegated to them by the
secretary and treasurer respectively.
ARTICLE V
INDEMNIFICATION
Section 1 - General. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party
to any action, suit or proceeding, whether civil, criminal,
administrative or investigative (including any action by or in
right of the corporation) by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another business, foreign or non-
profit corporation, partnership, joint venture or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest
of the corporation, and, with respect to any criminal action or
proceeding, has no reasonable cause to believe his conduct was
unlawful; provided that, in case of actions by or in the right of
the corporation, the indemnity shall be limited to expenses
(including attorneys' fees and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the
estimated expense of litigating the action to conclusion)
actually and reasonably incurred in connection with the defense
or settlement of such action, and no indemnification shall be
made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation
unless and only to the extent that the court shall determine upon
application that, despite the adjudication of liability, but in
view of all the circumstances of the case, he is fairly and
reasonably entitled to indemnity for such expenses which the
court shall deem proper. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, and reasonable
cause to believe that his conduct was unlawful.
Section 2 - Expenses of Litigation. To the extent that a
director, officer, employee or agent of the corporation has been
successful on the merits or otherwise in defense of any such
action, suit or proceeding, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 3 - Determination by Directors. The indemnification
hereunder (unless ordered by the court) shall be made by the
corporation only as authorized in a specific case upon a
determination that the applicable standard of conduct has been
met. Such determination shall be made (a) by the board of
directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (b)
if such quorum is not obtainable or a quorum of disinterested
directors so directs, by independent legal counsel, or (c) by the
shareholders.
Section 4 - Advance of Expenses. The expenses incurred in
defending such an action, suit or proceeding shall be paid by the
corporation in advance of the final disposition thereof, upon
receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by
the corporation as authorized hereunder. The board of directors
may determine, by special resolution, not to have the corporation
pay in advance the expenses incurred by any persons or person in
the defense of any such action, suit or proceeding.
Section 5 - Other Rights. The indemnification provided
hereunder shall not be deemed exclusive of any other rights to
which one indemnified may be entitled, both as to action in his
official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall
inure to the benefit of his heirs and legal representatives.
Section 6 - Insurance. The corporation may procure
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another business, non-profit or foreign
corporation, partnership, joint venture or other enterprise,
against any liability asserted against or incurred by him in any
such capacity, or arising out of his status as such, whether or
not the corporation would have the power to indemnify him against
such liability under the Business Corporation Law of Louisiana.
ARTICLE VI
CAPITAL STOCK
Section 1 - Certificates of Stock. Certificates of stock,
numbered, and with the seal of the corporation affixed, signed by
the president or a vice-president, and the treasurer or
secretary, or assistant secretary, shall be issued to each
shareholder, certifying the number of shares of the corporation
owned by him. If the stock certificates are countersigned by a
transfer agent and a registrar, the signatures of the corporate
officers may be a facsimile.
Section 2 - Lost Certificates. A new certificate of stock
may be issued in place of any certificate theretofore issued by
the corporation, alleged to have been lost, stolen, mutilated or
destroyed, or mailed and not received, upon receipt of an
affidavit or affirmation of that fact from the person claiming
the loss. The directors may in their discretion require the
owner of the replaced certificate to give the corporation a bond,
unlimited as to stated amount or in any amount set by the
directors, to indemnify the company against any claim which may
be made against it on account of the replacement of the
certificate or any payment made or other action taken in respect
thereof.
Section 3 - Transfer of Shares. Shares of stock of the
corporation are transferable only on its books, by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, and upon such transfer, the old certificates
shall be surrendered to the person in charge of the stock
transfer records, by whom they shall be cancelled, and new
certificates shall thereupon be issued. A record shall be made
of each transfer, and whenever a transfer is made for collateral
security and not absolutely, it shall be so expressed in the
entry of the transfer. The directors may make regulations
concerning the transfer of shares, and may in their discretion
authorize the transfer of shares from the names of deceased
persons whose estates are not administered, upon receipt of such
indemnity as they may require.
Section 4 - Record Dates. The board may fix a record date
for determining shareholders of record for any purpose, such date
to be not more than sixty days and, if fixed for the purpose of
determining shareholders entitled to notice of and to vote at a
meeting, not less than ten days, prior to the date of the action
for which the date is fixed.
Section 5 - Registered Shareholders. Except as otherwise
provided by law, the corporation, and its directors, officers and
agents, may recognize and treat a person registered on its
records as the owner of shares, as the owner in fact thereof for
all purposes, and as the person exclusively entitled to have and
to exercise all rights and privileges incident to the ownership
of such shares, and rights under this Section shall not be
affected by an actual or constructive notice which the
corporation, or any of its directors, officers or agents, may
have to the contrary.
Section 6 - Dividends. Except as otherwise provided by law
or the articles of incorporation, dividends upon the stock of the
corporation may be declared by the board of directors at any
regular or special meeting. Dividends may be paid in cash, in
property, or in shares of stock.
Section 7 - Reserves. The board of directors may create and
abolish reserves out of earned surplus for any proper purposes.
Earned surplus so reserved shall not be available for payment of
dividends, purchase or redemption of shares, or transfer to
capital surplus or stated capital.
Section 8 - Transfer Agent, Registrar. The board may
appoint and remove transfer agents and registrars for any class
of stock. If this action is taken, the transfer agents shall
effect original issuances of stock certificates and transfers of
shares, record and advise the corporation and one another of such
issuances and transfers, countersign and deliver stock
certificates, and keep the stock, transfer and other pertinent
records; and the registrars shall prevent over-issues by
registering and counter-signing any stock certificates issued. A
transfer agent and registrar may be identical. The transfer
agents and registrars, when covered with the company as obligees
by an indemnity bond substantially in a form, and issued by a
surety company, approved by the corporation's general counsel and
providing indemnity unlimited to stated amount, or in form and
amount and signed by a surety approved by the board, and upon
receipt of an appropriate affidavit and indemnity agreement, may
(a) countersign, register and deliver, in place of any stock
certificate alleged to have been lost, stolen, destroyed or
mutilated, or to have been mailed and not received, a replacement
certificate for the same number of shares, and make any payment,
credit, transfer, issuance, conversion or exchange to which the
holder may be entitled in respect to such replaced certificate,
without surrender thereof for cancellation, and (b) effect
transfers of shares from the names of deceased persons whose
estates (not exceeding $20,000 gross asset value and not
containing any immovable property) are not administered.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1 - Corporate Seal. The corporate seal is circular
in form, and contains the name of the corporation and the words,
"SEAL, LOUISIANA." The seal may be used by causing it, or a
facsimile thereof, to be impressed or affixed or otherwise
reproduced.
Section 2 - Checks, Drafts, Notes. All checks, drafts,
other orders for the payment of money, and notes or other
evidences of indebtedness, issued in the name of the corporation,
shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall, from time to time,
be determined by the board.
Section 3 - Fiscal Year. The fiscal year of the corporation
begins on July 1.
Section 4 - Notice. Whenever any notice is required by
these by-laws to be given, personal notice is not meant unless
expressly so stated. Any notice is sufficient if given by
depositing it in the United States mail or by delivering it to a
commercial courier service for next day delivery, with postage or
delivery service charges prepaid and addressed to the person
entitled thereto at his last known address as it appears in the
records of the corporation; and such notice is deemed to have
been given on the day of such deposit in the mail or delivery to
the courier service.
Section 5 - Waiver of Notice. Whenever any notice of the
time, place or purpose of any meeting of shareholders, directors
or committee is required by law, the articles or these by-laws, a
waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting
before or after the holder thereof, or actual attendance at the
meeting of shareholders, directors or committee in person or by
proxy, is equivalent to the giving of such notice except as
otherwise provided by law. (See Article I, Section 8, and
Article II, Section 8.)
Section 6 - Except as otherwise provided herein, all
meetings of shareholders or directors shall be governed by the
last published revised edition of Robert's Rules of Order.
Section 7 - Louisiana Control Share Law Inapplicable. The
provisions of Sections 135 through 140.2 of the Louisiana
Business Corporation Law ("LBCL") shall not apply to control
share acquisitions, as defined in the LBCL, of shares of stock of
the Corporation.
ARTICLE VIII
AMENDMENTS
The shareholders or the directors, by affirmative vote of a
majority of those present or represented, may, at any meeting,
amend or alter any of the by-laws; subject, however, to the right
of the shareholders to change or repeal any by-laws made or
amended by the directors.
EMPLOYMENT AGREEMENT--FLOYD BENJAMIN
This Employment Agreement ("Agreement") by and between, on
the one hand, Akorn, Inc., a Louisiana corporation ("Akorn"), and
its wholly owned subsidiary, Akorn Manufacturing, Inc., a
Louisiana corporation (the "Company"), and, on the other, Floyd
Benjamin (the "Employee") is dated as of May 31 , 1996 (the
"Agreement Date").
WHEREAS, Akorn, the Company and the Employee are parties to
that certain Agreement and Plan of Merger dated May 7, 1996
pursuant to which Pasadena Research Laboratories, Inc. ("PRL")
merged with and into the Company (the "Merger Agreement");
WHEREAS, Employee was a shareholder of PRL and, in
connection with such merger, received consideration for his PRL
shares;
WHEREAS, the Employee was previously employed by PRL under
the terms of an employment agreement entered into between PRL and
Employee (the "PRL Employment Agreement");
WHEREAS, in connection with the Merger Agreement, Employee
and the Company desire to supersede the PRL Employment Agreement,
the Company desires to retain the services of Employee pursuant
to the terms of this Agreement and Employee desires to continue
in the service of the Company on such terms;
NOW, THEREFORE, for and in consideration of the consummation
of the transactions contemplated by the Merger Agreement, the
cancellation of the obligations and rights under the PRL
Employment Agreement, the continued employment of Employee by the
Company and the payment of wages, salary and other compensation
to Employee by the Company, the parties hereto agree as follows:
Section 1.Employment Capacity and Term
1.1 Capacity and Duties of Employee. The Employee is
employed by the Company to render services on behalf of the
Company as President, and is employed by Akorn to render services
to Akorn as Executive Vice President. In such capacity, the
Employee shall perform such duties as are assigned to the
individual holding such title by the Company's Bylaws and such
other duties as may be prescribed from time to time by the Board
of Directors of the Company (the "Board").
1.2 Employment Term. The term of this Agreement (the
"Employment Term") shall commence on the Agreement Date and shall
continue until and terminate upon the third anniversary of such
date; provided, however, that Employee's status as an employee is
subject to earlier termination to the extent provided in this
Agreement; and provided, further, that the Employment Term may be
extended by mutual written agreement of the parties.
1.3 Devotion to Responsibilities. During the Employment
Term, the Employee shall devote all of his business time to the
business of the Company and its subsidiaries and affiliated
companies, shall use his reasonable best efforts to perform
faithfully and efficiently his duties under this Agreement, and
shall not engage in or be employed by any other business;
provided, however, that nothing contained herein shall prohibit
the Employee from (a) serving as a member of the board of
directors, board of trustees or the like of any for-profit or
non-profit entity that does not compete with the Company, or
performing services of any type for any civic or community
entity, whether or not the Employee receives compensation
therefor, (b) investing his assets in such form or manner as
shall require no more than nominal services on the part of the
Employee in the operation of the business of or property in which
such investment is made, or (c) serving in various capacities
with, and attending meetings of, industry or trade groups and
associations, as long as the Employee's engaging in any
activities permitted by virtue of clauses (a), (b) and (c) above
does not materially interfere with the ability of the Employee to
perform the services and discharge the responsibilities required
of him under this Agreement. Notwithstanding clause (b) above,
during the Employment Term, the Employee shall not perform any
services for and shall not beneficially own more than 2% of the
equity interests of a business organization that competes with
the Company or its affiliates. For purposes of this paragraph,
"beneficially own" shall have the meaning given to that term in
Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act").
Section 2.Compensation and Benefits
During the Employment Term, the Company shall provide the
Employee with the compensation and benefits described below:
2.1 Salary. Employee shall receive a salary ("Base
Salary") at the rate of $200,000 per year. Employee's Base
Salary shall be payable to the Employee at such intervals as the
salaries of other salaried employees of the Company are paid.
Any increase in Employee's Base Salary shall take effect for the
payroll period next following the date on which the condition to
such increase is met.
2.2 Bonus. (a) Employee will receive bonuses in the
following amounts: (i) for the fiscal year ending June 30, 1997,
10% of the amount by which the Company's pre-tax earnings during
such fiscal year exceed $1,487,735 and, if Akorn's consolidated
sales and pre-tax earnings during the fiscal year ending June 30,
1997 are at least 90% and 75% of their budgeted amounts,
respectively, 0.5% of Akorn's consolidated pre-tax earnings
during such fiscal year; (ii) for the fiscal year ending June 30,
1998, 7.5% of the increase in the Company's pre-tax earnings for
such fiscal year compared to the pre-tax earnings of the Company
during the fiscal year ended June 30, 1997 and, if Akorn's
consolidated sales and pre-tax earnings for such fiscal year are
at least 90% and 75% of their budgeted amounts, respectively,
0.5% of Akorn's consolidated pre-tax earnings; and (iii) if both
the Company's and Akorn's consolidated sales and pre-tax earnings
for the fiscal year ended June 30, 1999 are at least 75% and 90%
of their budgeted amounts, respectively, 1% of the Company's pre-
tax earnings and 0.5% of Akorn's consolidated pre-tax earnings
during such fiscal year.
(b) Up to 50% of any bonuses paid to Employee under
the terms of this Section may be paid in options to purchase
Akorn common stock, with such options being valued at twenty-five
percent of the market price for such stock at time of issuance of
the option, as determined under Akorn's Incentive Compensation
Plan. Any such option shall be fully exercisable upon issuance;
the other terms of such option will be determined by the
Compensation Committee of Akorn's Board of Directors and
consistent with other options contemporaneously granted to
similarly situated employees of Akorn and the Company.
2.3 Benefits. The Employee will be eligible to participate
in the receipt of options to purchase shares of Akorn common
stock under Akorn's Incentive Compensation Plan in a manner
consistent with similarly situated employees of Akorn and the
Company. The Company shall provide the Employee and, if
applicable, his family members all such (i) incentive, savings
and retirement plans, practices, policies and programs, (ii)
welfare benefit plans, practices, policies and programs and (iii)
paid vacation and other fringe benefits, plans, practices,
policies and programs as are applicable generally to other
employees of the Company and its affiliated companies as each
such plan or benefit listed in (i), (ii) and (iii) of this
Section 2.3 is described in the Company's employee manual. To
the extent not inconsistent with such plans, practices, policies
and programs, Employee will be credited with time served as an
employee of PRL.
Section 3.Termination of Employment
3.1 Death. The Employee's status as an employee shall
terminate immediately and automatically upon the Employee's death
during the Employment Term.
3.2 Disability. The Employee's status as an employee may
be terminated for "Disability" as follows:
(a) The Employee's status as an employee shall
terminate if the Employee has a disability that would entitle him
to receive benefits under the Company's long-term disability
insurance policy in effect at the time of such disability either
because he is Totally Disabled or Partially Disabled, as such
terms are defined in the Company's policy in effect as of the
Agreement Date or as similar terms are defined in any successor
policy. Any such termination shall become effective on the first
day on which the Employee is eligible to receive payments under
such policy (or on the first day that he would be so eligible, if
he had applied timely for such payments).
(b) In the event that the Company has no long-term
disability plan in effect, if (i) the Employee is rendered
incapable because of physical or mental illness of satisfactorily
discharging his duties and responsibilities under this Agreement
for a period of 90 consecutive days and (ii) a duly qualified
physician chosen by the Company so certifies in writing, the
Board shall have the power to determine that the Employee has
become disabled. If the Board makes such a determination, the
Company shall have the continuing right and option, during the
period that such disability continues, and by notice given in the
manner provided in this Agreement, to terminate the status of
Employee as an employee. Any such termination shall become
effective 30 days after such notice of termination is given,
unless within such 30-day period, the Employee becomes capable of
rendering services of the character contemplated hereby (and a
physician chosen by the Company so certifies in writing) and the
Employee in fact resumes such services.
(c) The "Disability Effective Date" shall mean the
date on which termination of employment becomes effective due to
Disability.
3.3 Cause. The Company may terminate the Employee's status
as an employee for Cause. As used herein, termination by the
Company of the Employee's status as an employee for "Cause" shall
mean termination as a result of (a) the Employee's breach of any
of the provisions of this Agreement, or (b) the willful engaging
by the Employee in misconduct injurious to the Company.
3.4 Voluntary Termination by the Parties. Either the
Company or the Employee may terminate the Employee's status as an
employee during the Employment Term for reasons other than death,
Disability or Cause, subject to compliance by the Company with
Section 4.2 and by the Employee with Section 4.3.
3.5 Notice of Termination. Any termination by the Company
for Disability or Cause shall be communicated by notice of
termination to the other party hereto given in accordance with
Section 6.2 ("Notice of Termination").
3.6 Date of Termination. "Date of Termination" means (a)
if Employee's employment is terminated by reason of his death or
Disability, the date of death of Employee or the Disability
Effective Date, as the case may be, (b) if Employee's employment
is terminated by the Company for Cause the date of delivery of
the Notice of Termination or any later date specified therein,
(which date shall not be more than 30 days after the giving of
such notice) as the case may be, (c) if the Employee's employment
is terminated by the Company prior to the end of the Employment
Term for reasons other than death, Disability or Cause, the date
on which the Company notifies the Employee of such termination
and (d) if the Employee's employment is terminated by the
Employee prior to the end of the Employment Term, the date on
which the Employee notifies the Company of such termination or
any later date specified therein, (which date shall not be more
than 30 days after the giving of such notice).
Section 4.Obligations Upon Termination
4.1 Death or Disability. If Employee's status as an
employee is terminated by reason of Employee's death or
Disability, this Agreement shall terminate without further
obligations on the part of the Company to Employee and his legal
representatives under this Agreement, other than the obligation
to make any payments due pursuant to employee benefit plans
maintained by the Company or its subsidiaries.
4.2 Termination for Cause or at End of Employment Term.
This Agreement shall terminate without further obligation to the
Employee other than obligations imposed by law and obligations
imposed pursuant to any employee benefit plan maintained by the
Company or its subsidiaries (a) at the end of the Employment
Term; (b) if the Employee's status as an employee is terminated
by the Company for Cause or (c) if the Employee terminates his
status as an employee; provided, however, that nothing in this
Section 4.2 shall relieve Employee from the obligations,
limitations and restrictions contained in Section 5 hereof.
4.3 Termination by Company for Reasons other than Death,
Disability or Cause. If the Company terminates the Employee's
status as an employee prior to the end of the Employment Term for
reasons other than death, Disability or Cause, then:
(a) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Employment
Term had the Notice of Termination been given as of the Date of
Termination; and
(b) within 90 days of the end of the fiscal year in
which the Date of Termination occurs and within 90 days of the
end of each subsequent fiscal year, the Company shall pay the
Employee any bonus to which Employee would have been entitled
under the provisions of Section 2.2 if his status as an Employee
had not been terminated; and
(c) the Employee shall remain subject to the
obligations, limitations and restrictions contained in Section 5
hereof.
4.4 Accrued Obligations and Other Benefits. Subject to the
provisions of Section 5.3 hereof, upon termination of employment
for any reason the Employee shall be entitled to receive
promptly, and in addition to any other benefits specifically
provided, (a) the Employee's Base Salary through the Date of
Termination to the extent not theretofore paid, (b) any accrued
vacation pay, to the extent not theretofore paid, (c) any other
vested benefits the Employee is entitled to receive under any
plan or agreement of the Company and (d) any bonus not
theretofore paid which is attributable to a full fiscal year
during which Employee was employed by the Company, whether or not
Employee shall be employed as of the date of the scheduled
payment of such bonus.
4.5 Resignation as a Director. If Employee is a director
of the Company or of Akorn and his employment is terminated for
any reason other than death, the Employee shall, if requested by
the Company or Akorn, immediately resign as a director of the
Company and Akorn. If such resignation is not received when so
requested, the Employee shall forfeit any right to receive any
payments pursuant to this Agreement.
Section 5.Confidentiality and Non-Competition Agreement.
5.1 Non-disclosure of Confidential Information. Employee
acknowledges that both prior to and during the term of this
Agreement he may develop, acquire or be furnished by others
confidential proprietary information, ideas, concepts,
discoveries, marketing information or customer information (all
such information referred to hereinafter as "Confidential
Information") relating to the business interests of the Company,
Akorn, their predecessor companies, subsidiaries and affiliates
(collectively referred to hereinafter as the "Akorn Entities").
Employee recognizes that the protection of the Confidential
Information against unauthorized use and disclosure is of
critical importance to the Akorn Entities and, therefore, in
addition to other duties and obligations that may be imposed by
law, agrees:
(a) During the term of this Agreement and thereafter
Employee shall hold in a fiduciary capacity for the benefit of
the Akorn Entities all Confidential Information which shall have
been obtained by Employee during Employee's employment and shall
use such Confidential Information solely within the scope of his
employment with and for the exclusive benefit of the Akorn
Entities.
(b) During the term of this Agreement and thereafter
Employee shall not communicate, divulge or make available to any
person or entity (other than the Akorn Entities and their
authorized representatives) any such Confidential Information,
except upon the prior written authorization of the Akorn Entities
or as may be required by law or legal process, and
(c) Upon termination of this Agreement, Employee shall
deliver promptly to the Company any Confidential Information in
his possession, including any duplicates thereof and any notes or
other records Employee has prepared with respect thereto. In the
event that the provisions of any applicable law or the order of
any court would require Employee to disclose or otherwise make
available any Confidential Information, Employee shall give the
Akorn Entities prompt prior written notice of such required
disclosure and an opportunity to contest the requirement of such
disclosure or apply for a protective order with respect to such
Confidential Information by appropriate proceedings.
5.2. Covenant Not to Compete. (a) During the Employment
Term and until termination of Employee's obligations under this
Section 5.2 as provided in Section 5.5(b), Employee agrees that,
with respect to each State of the United States or other
jurisdiction, or specified portions thereof, in which the
Employee regularly (a) makes contact with customers of the Akorn
Entities (b) conducts the business of the Akorn Entities or (c)
supervises the activities of other employees of the Akorn
Entities, as identified in Appendix A attached hereto and forming
a part of this Agreement, and in which any one of the Akorn
Entities engages in business on the Date of Termination
(collectively, the "Subject Areas"), Employee will not:
(i) Directly or indirectly, for himself or
others, own, manage, operate, control, be employed in an
executive, managerial or supervisory capacity by, or otherwise
engage or participate in or allow his skill, knowledge,
experience or reputation to be used in connection with, the
ownership, management, operation or control of, any company or
other business enterprise which is competitive to the business of
the Akorn Entities; provided, however, that nothing contained
herein shall prohibit Employee from making passive investments as
long as Employee does not beneficially own more than 2% of the
equity interests of a business enterprise which is competitive
with the Akorn Entities within any of the Subject Areas. For
purposes of this paragraph, "beneficially own" shall have the
same meaning given to that term in Rule 13d-3 under the Exchange
Act.
(ii) Call upon any customer of the Akorn
Entities for the purpose of soliciting, diverting or enticing
away the business of such person or entity, or otherwise
disrupting any previously established relationship existing
between such person or entity and the Akorn Entities;
(iii) Solicit, induce, influence or attempt
to influence any supplier, lessor, licensor, potential acquiree
or any other person who has a business relationship with the
Akorn Entities, or who on the day this Agreement terminates is
engaged in discussions or negotiations to enter into a business
relationship with the Akorn Entities, to discontinue or reduce
the extent of such relationship with the Akorn Entities;
(iv) Make contact with any of the employees
of the Akorn Entities with whom he had contact during the course
of his employment with the Akorn Entities for the purpose of
soliciting such employee for hire, whether as an employee or
independent contractor, or otherwise disrupting such employee's
relationship with the Akorn Entities; and
(v) For a period of one year from and after
this Agreement terminates, hire, on behalf of himself or any
company which is competitive with the Akorn Entities any employee
of the Akorn Entities as an employee or independent contractor,
whether or not such engagement is solicited by Employee.
(b) Employee agrees that he will from time to
time upon the request of the Akorn Entities promptly execute any
supplement, amendment, restatement or other modification of
Appendix A as may be necessary or appropriate to correctly
reflect the jurisdictions which, at the time of such
modification, should be covered by Appendix A and this Section 5.
Furthermore, Employee agrees that all references to Appendix A in
this Agreement shall be deemed to refer to Appendix A as so
supplemented, amended, restated or otherwise modified from time
to time.
5.3. Injunctive Relief; Other Remedies.
Employee acknowledges that a breach by Employee of any
provision of this Section 5 would cause immediate and irreparable
harm to the Akorn Entities for which an adequate monetary remedy
does not exist; hence, Employee agrees that, in the event of a
breach or threatened breach by Employee of the provisions of this
Section 5 during or after the term of this Agreement, the Akorn
Entities shall be entitled to injunctive relief restraining
Employee from such violation without the necessity of proof of
actual damage or the posting of any bond, except as required by
non-waivable, applicable law. Nothing herein, however, shall be
construed as prohibiting the Akorn Entities from pursuing any
other remedy at law or in equity to which the Akorn Entities may
be entitled under applicable law in the event of a breach or
threatened breach of this Agreement by Employee, including
without limitation the recovery of damages and/or costs and
expenses, such as reasonable attorneys' fees, incurred by the
Akorn Entities as a result of any such breach. In addition to
the exercise of the foregoing remedies, the Akorn Entities shall
have the right upon the occurrence of any such breach to cancel
any unpaid compensation outstanding at the time of such
termination. In particular, Employee acknowledges that the
payments provided under Section 2 are conditioned upon Employee
fulfilling any noncompetition and nondisclosure agreements
contained in this Section 5. In the event Employee shall at any
time materially breach any noncompetition or nondisclosure
agreements contained in this Agreement, the Akorn Entities may
suspend or eliminate payments under Section 2 during the period
of such breach. Employee acknowledges that any such suspension
or elimination of payments would be an exercise of the Akorn
Entities' right to suspend or terminate its performance hereunder
upon Employee's breach of this Agreement; such suspension or
elimination of payments would not constitute, and should not be
characterized as, the imposition of liquidated damages.
5.4. Governing Law of this Section; Consent to Jurisdiction.
Any dispute regarding the reasonableness of the covenants
and agreements set forth in this Section 5, or the territorial
scope or duration thereof, or the remedies available to the Akorn
Entities upon any breach of such covenants and agreements, shall
be governed by and interpreted in accordance with the laws of the
State of the United States or other jurisdiction in which the
alleged prohibited competing activity or disclosure occurs, and,
with respect to each such dispute, the Akorn Entities and
Employee each hereby irrevocably consent to the exclusive
jurisdiction of the state and federal courts sitting in the
relevant State for resolution of such dispute, and agree to be
irrevocably bound by any judgment rendered thereby in connection
with such dispute, and further agree that service of process may
be made upon him or it in any legal proceeding relating to this
Section and/or Appendix A by any means allowed under the laws of
such jurisdiction. Each party irrevocably waives any objection
he or it may have as to the venue of any such suit, action or
proceeding brought in such a court or that such a court is an
inconvenient forum.
5.5. Term of Confidentiality and Non-Competition Agreements.
(a) Confidentiality Agreement. Employee
acknowledges that the provisions of Section 5.1 hereof shall be
binding upon Employee subsequent to the termination of the Akorn
Entities' obligations under this Agreement and shall remain
effective until such time as the Akorn Entities provide Employee
with written consent to the contrary.
(b) Non-Competition Agreement. Employee
acknowledges that his obligations under Section 5.2 hereof (the
"Obligations") shall be binding upon Employee subsequent to the
termination of the Akorn Entities' obligations under this
Agreement and shall terminate as follows:
(i) If Employee's status as an employee of
the Company is terminated for Cause by the Company or by the
Employee for reasons other than Disability, the Obligations shall
terminate on the later to occur of (A) the first anniversary of
the Date of Termination or (B) the sooner to occur of the end of
the Employment Term or the second anniversary of the Date of
Termination.
(ii) If Employee's status as an employee is
terminated by the Company prior to the third anniversary of this
Agreement for reasons other than by reason of Employee's
Disability or Cause, the Obligations shall terminate on the Date
of Termination.
(iii) If Employee's status as an employee of
PRL is terminated on the third anniversary of this Agreement and
is not renewed, the Obligations of Employee shall continue for a
period of up to one year from the end of his Employment Term if
the Company has within 15 days of the end of the Employment Term
paid to Employee in a lump sum an amount equal to the amount of
salary to which Employee would have been entitled under Section
2.1 if his employment hereunder had continued during the period
that his Obligations are to continue.
Section 6.Miscellaneous
6.1 Binding Effect.
(a) This Agreement shall be binding upon and inure to
the benefit of the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and
shall not be assignable by the Employee without the consent of
the Company (there being no obligation to give such consent)
other than such rights or benefits as are transferred by will or
the laws of descent and distribution.
(c) The Company shall require any successor to or
assignee of (whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the
assets or businesses of the Company (i) to assume unconditionally
and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to
the same extent as would have been required of the Company had no
assignment or succession occurred, such assumption to be set
forth in a writing reasonably satisfactory to the Employee. In
the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such
successor or assign.
(d) The Company shall require all entities that
control, or that after any change of control will control,
directly or indirectly, any such successor or assignee to agree
to cause to be performed all of the obligations under this
Agreement in the same manner and to the same extent as would have
been required of the Company had no assignment or succession
occurred, such agreement to be set forth in writing reasonably
satisfactory to the Employee.
6.2 Notices. All notices hereunder must be in writing and
shall be deemed to have given upon receipt of delivery by: (a)
personal delivery to the designated individual, (b) certified or
registered mail, postage prepaid, return receipt requested, (c) a
nationally recognized overnight courier service with confirmation
of receipt or (d) facsimile transmission with confirmation of
receipt. All such notices must be addressed as follows or such
other address as to which any party hereto may have notified the
other in writing:
If to the Company or Akorn, to:
100 Akorn Drive
Abita Springs, Louisiana 70420
Attention: Barry D. LeBlanc, President
Facsimile transmission No. 504-893-1257
If to the Employee, to:
Floyd Benjamin
8 Greystone Way
Laguna Miguel, CA 92677
Facsimile transmission No. 714-498-3613
6.3 Entire Agreement. This Agreement constitutes the
entire understanding and agreement between the parties hereto
with respect to Employee's employment by the Company and
supersedes all prior agreements, whether or not written
including, without limitation, the PRL Employment Agreement.
6.4 Governing Law. Except as provided in Section 5.4
hereof, this Agreement shall be construed and enforced in
accordance with and governed by the internal laws of the State of
Louisiana.
6.5 Withholding. The Employee agrees that the Company has
the right to withhold, from the amounts payable pursuant to this
Agreement, all amounts required to be withheld under applicable
income and/or employment tax laws, or as otherwise stated in
documents granting rights that are affected by this Agreement.
6.6 Severability. If any term or provision of this Agree-
ment or the application thereof to any person or circumstance,
shall at any time or to any extent be invalid, illegal or
unenforceable in any respect as written, Employee and the Company
intend for any court construing this Agreement to modify or limit
such provision temporally, spatially or otherwise so as to render
it valid and enforceable to the fullest extent allowed by law.
Any such provision that is not susceptible of such reformation
shall be ignored so as to not affect any other term or provision
hereof, and the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable,
shall not be affected thereby and each term and provision of this
Agreement shall be valid and enforced to the fullest extent
permitted by law.
6.7 Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
6.8 Remedies Not Exclusive. No remedy specified herein
shall be deemed to be such party's exclusive remedy, and
accordingly, in addition to all of the rights and remedies
provided for in this Agreement, the parties shall have all other
rights and remedies provided to them by applicable law, rule or
regulation.
6.9 Company's Reservation of Rights. Employee acknowledges
and understands that the Employee serves at the pleasure of the
Board and that the Company has the right at any time to terminate
Employee's status as an employee of the Company, or to change or
diminish his status during the Employment Term, subject to the
rights of the Employee to claim the benefits conferred by this
Agreement.
6.10 Survival. Following the Date of Termination, each
party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing
rights and obligations under this Agreement.
6.11 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
6.12 Arbitration. Any controversy arising under, out of, in
connection with, or relating to, this Agreement, and any
amendment hereof, or the breach hereof or thereof, shall be
determined and settled by arbitration in San Clemente, California
or Chicago, Illinois, by an arbitrator or arbitrators mutually
agreed upon by the Company and Akorn, on the one hand and the
Employee, on the other or, if the Company, Akorn and the Employee
shall fail or be unable to so agree within ten business days
after the written request therefor, by such arbitrator or
arbitrators as may be selected in accordance with the rules of
the American Arbitration Association. Any award rendered therein
shall specify the findings of fact of the arbitrator or
arbitrators and the reasons for such award, with reference to and
reliance on relevant law. In making awards under this Section,
the arbitrator shall have the authority, in his sole discretion,
to cause the reasonable attorney's fees and costs of one party to
be assessed against and paid by the other party. Any awards
under this Section shall be final and binding on each and all of
the parties thereto and their personal representatives, and
judgment may be entered thereon in any court having jurisdiction
thereof.
IN WITNESS WHEREOF, the Company and the Employee have caused
this Agreement to be executed as of the Agreement Date.
AKORN MANUFACTURING, INC.
By: /s/ Eric M. Wingerter
Eric M. Wingerter,
Secretary and Treasurer
AKORN, INC.
By: /s/ Barry D. LeBlanc
Barry D. LeBlanc, President
EMPLOYEE:
/s/ Floyd Benjamin
Floyd Benjamin
EMPLOYMENT AGREEMENT--BARRY D. LEBLANC
This Employment Agreement ("Agreement") between Akorn, Inc.,
a Louisiana corporation (the "Company"), and Barry D. LeBlanc
(the "Employee") is dated as of January 1, 1996 (the "Agreement
Date").
WHEREAS, Employee currently is employed by the Company;
WHEREAS, the Company desires to retain the services of
Employee pursuant to the terms of this Agreement and Employee
desires to continue in the service of the Company on such terms;
NOW, THEREFORE, for and in consideration of the continued
employment of Employee by the Company and the payment of wages,
salary and other compensation to Employee by the Company, the
parties hereto agree as follows:
Section 1.Employment Capacity and Term
1.1 Capacity and Duties of Employee. The Employee is
employed by the Company to render services on behalf of the
Company as President and Chief Executive Officer. As the
President and Chief Executive Officer, the Employee shall perform
such duties as are assigned to the individual holding such title
by the Company's Bylaws and such other duties, consistent with
the Employee's job title, as may be prescribed from time to time
by the Board of Directors of the Company (the "Board").
1.2 Employment Term. The term of this Agreement (the
"Employment Term") shall commence on the Agreement Date and shall
continue until and terminate one year after either the Company or
the Employee has notified the other of such termination of the
Employment Term; and provided, further, that the Employment Term
is subject to extension as provided in Section 5.2 and Employee's
status as an employee is subject to earlier termination to the
extent provided in this Agreement.
1.3 Devotion to Responsibilities. During the Employment
Term, the Employee shall devote all of his business time to the
business of the Company and its subsidiaries and affiliated
companies, shall use his reasonable best efforts to perform
faithfully and efficiently his duties under this Agreement, and
shall not engage in or be employed by any other business;
provided, however, that nothing contained herein shall prohibit
the Employee from (a) serving as a member of the board of
directors, board of trustees or the like of any for-profit or
non-profit entity that does not compete with the Company, or
performing services of any type for any civic or community
entity, whether or not the Employee receives compensation
therefor, (b) investing his assets in such form or manner as
shall require no more than nominal services on the part of the
Employee in the operation of the business of or property in which
such investment is made, or (c) serving in various capacities
with, and attending meetings of, industry or trade groups and
associations, as long as the Employee's engaging in any
activities permitted by virtue of clauses (a), (b) and (c) above
does not materially interfere with the ability of the Employee to
perform the services and discharge the responsibilities required
of him under this Agreement. Notwithstanding clause (b) above,
during the Employment Term, the Employee shall not perform any
services for and shall not beneficially own more than 2% of the
equity interests of a business organization that competes with
the Company or its affiliates. For purposes of this paragraph,
"beneficially own" shall have the meaning given to that term in
Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act").
Section 2.Compensation and Benefits
During the Employment Term, the Company shall provide the
Employee with the compensation and benefits described below:
2.1 Salary. A salary ("Base Salary") at the rate of
$210,000 per year; provided, however, that Employee's Base Salary
shall increase to $225,000 per year if the closing price at which
the Company's common stock is traded on the Nasdaq National
Market or other exchange on which such stock may be designated
for trading, equals or exceeds $4.00 per share for ten or more
consecutive trading days and shall increase to $250,000 if such
price equals or exceeds $5.50 per share for ten consecutive
trading days; and provided, further, that Employee's Base Salary
shall increase as of each anniversary of the Agreement Date by a
factor equal to the increase in the Consumer Price Index
maintained by the United States Department of Labor. Employee's
Base Salary shall be payable to the Employee at such intervals as
the salaries of other salaried employees of the Company are paid.
Any increase in Employee's Base Salary shall take effect for the
payroll period next following the date on which the condition to
such increase is met.
2.2 Bonus. Employee shall be eligible to receive such
bonuses and supplementary compensation as the Board may
determine.
2.3 Benefits. The Company shall provide the Employee and,
if applicable, his family members, with the following benefits
and perquisites:
(a) The Company will continue to provide for
Employee's use a new Oldsmobile Ninety-Eight or other equivalent
new automobile of his choice, such automobile to be replaced
every other year, and to provide or reimburse Employee for all
gasoline, maintenance, repairs and insurance for such automobile.
(b) All such (i) incentive, savings and retirement
plans, practices, policies and programs, (ii) welfare benefit
plans, practices, policies and programs (including, without
limitation, medical, prescription, dental, disability, employee
life, group life, accident health and travel accident insurance
plans and programs) and (iii) paid vacation and other fringe
benefits, plans, practices, policies and programs as are
applicable generally to other peer employees of the Company and
its affiliated companies.
2.4 Office and Support Staff. Employee shall be entitled
to an office or offices of the size and with furnishings and
other appointments, and to personal secretarial and other
assistance, at least equal to the those provided to him on the
Agreement Date.
2.5 Expenses. The Employee shall be reimbursed for
reasonable out-of-pocket expenses incurred from time to time on
behalf of the Company or any subsidiary in the performance of his
duties under this Agreement, upon the presentation of such
supporting invoices, documents and forms as the Company
reasonably requests.
Section 3.Termination of Employment
3.1 Death. The Employee's status as an employee shall
terminate immediately and automatically upon the Employee's death
during the Employment Term.
3.2 Disability. The Employee's status as an employee may
be terminated for "Disability" as follows:
(a) The Employee's status as an employee shall
terminate if the Employee has a disability that would entitle him
to receive benefits under the Company's long-term disability
insurance policy in effect at the time either because he is
Totally Disabled or Partially Disabled, as such terms are defined
in the Company's policy in effect as of the Agreement Date or as
similar terms are defined in any successor policy. Any such
termination shall become effective on the first day on which the
Employee is eligible to receive payments under such policy (or on
the first day that he would be so eligible, if he had applied
timely for such payments).
(b) If the Company has no long-term disability plan in
effect, the Employee's status as an employee shall terminate if
(i) the Employee is rendered incapable because of physical or
mental illness of satisfactorily discharging his duties and
responsibilities under this Agreement for a period of 90
consecutive days and (ii) a duly qualified physician chosen by
the Company and acceptable to the Employee or his legal
representative so certifies in writing, the Board shall have the
power to determine that the Employee has become disabled. If the
Board makes such a determination, the Company shall have the
continuing right and option, during the period that such
disability continues, and by notice given in the manner provided
in this Agreement, to terminate the status of Employee as an
employee. Any such termination shall become effective 30 days
after such notice of termination is given, unless within such 30-
day period, the Employee becomes capable of rendering services of
the character contemplated hereby (and a physician chosen by the
Company and acceptable to the Employee or his legal
representative so certifies in writing) and the Employee in fact
resumes such services.
(c) The "Disability Effective Date" shall mean the
date on which termination of employment becomes effective due to
Disability.
3.3 Cause. The Company may terminate the Employee's status
as an employee for Cause. As used herein, termination by the
Company of the Employee's status as an employee for "Cause" shall
mean termination as a result of (a) the Employee's breach of this
Agreement, or (b) the willful engaging by the Employee in gross
misconduct injurious to the Company, which in either case is not
remedied within 10 days after the Company provides written notice
to the Employee of such breach or willful misconduct.
3.4 Good Reason. The Employee may terminate his status as
an employee for Good Reason. As used herein, the term "Good
Reason" shall mean:
(a) The occurrence of any of the following during the
Employment Term:
(i) the assignment by the Board or by any
authorized person to the Employee of any duties or
responsibilities that are inconsistent with the Employee's
status, title and position as President and Chief Executive
Officer;
(ii) any removal of the Employee from, or any
failure to reappoint or reelect the Employee to, the position of
President and Chief Executive Officer of the Company, except in
connection with a termination of Employee's status as an employee
as permitted by this Agreement;
(iii) the Company's requiring the Employee to be
based anywhere other than at or within 50 miles of the Company's
headquarters in Abita Springs, Louisiana, except for required
travel in the ordinary course of the Company's business;
(b) any breach of this Agreement by the Company that
continues for a period of 10 days after written notice thereof is
given by the Employee to the Company;
(c) the failure by the Company to obtain the
assumption of its obligations under this Agreement by any
successor or assignee as contemplated by Section 6.1(c); or
(d) any purported termination by the Company of the
Employee's status as an employee for Cause that is not effected
pursuant to a Notice of Termination satisfying the requirements
of this Agreement.
3.5 Voluntary Termination by the Company. Subject to the
terms and conditions provided herein, the Company may terminate
the Employee's status as an employee during the Employment Term
for reasons other than death, Disability or Cause.
3.6 Voluntary Termination by the Employee. Subject to the
terms and conditions provided herein, the Employee may terminate
the Employee's status as an employee during the Employment Term
for reasons other than Good Reason.
3.7 Notice of Termination. Any termination by the Company
for Disability or Cause, or by the Employee for Good Reason,
shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 6.2. For purposes of
this Agreement, a "Notice of Termination" means a written notice
that (a) indicates the specific termination provision in this
Agreement relied upon, (b) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment
under the provisions so indicated and (c) if the Date of
Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall
be not more than 30 days after the giving of such notice). The
failure by the Employee or the Company to set forth in the Notice
of Termination any fact or circumstance that contributes to a
showing of Good Reason, Disability or Cause shall not negate the
effect of the notice nor waive any right of the Employee or the
Company, respectively, hereunder or preclude the Employee or the
Company, respectively, from asserting such fact or circumstance
in enforcing the Employee's or the Company's rights hereunder.
3.8 Date of Termination. "Date of Termination" means (a)
if Employee's employment is terminated by reason of his death or
Disability, the Date of Termination shall be the date of death of
Employee or the Disability Effective Date, as the case may be,
(b) if Employee's employment is terminated by the Company for
Cause, or by Employee for Good Reason, the date of delivery of
the Notice of Termination or any later date specified therein,
(which date shall not be more than 30 days after the giving of
such notice) as the case may be, (c) if the Employee's employment
is terminated by the Company prior to the end of the Employment
Term for reasons other than death, Disability or Cause, the Date
of Termination shall be the date on which the Company notifies
the Employee of such termination, (d) if the Employee's
employment is terminated by the Employee prior to the end of the
Employment Term for reasons other than Good Reason, the Date of
Termination shall be the date on which the Employee notifies the
Company of such termination, and (e) if the Employment Term
terminates upon notice by the Company or the Employee as provided
for in Section 1.2 or Section 5.2, the Date of Termination shall
be the date on which the Employment Term ends.
Section 4.Obligations Upon Termination
4.1 Death. If Employee's status as an employee is
terminated by reason of Employee's death, this Agreement shall
terminate without further obligations to Employee's legal
representatives under this Agreement, other than the obligation
to make any payments due pursuant to employee benefit plans
maintained by the Company or its subsidiaries.
4.2 Disability. If Employee's status as an employee is
terminated by reason of Employee's Disability, this Agreement
shall terminate without further obligation to Employee, other
than the obligation to make any payments due pursuant to employee
benefit plans maintained by the Company or its subsidiaries.
4.3 Termination by Company for Reasons other than Death,
Disability or Cause; Termination by Employee for Good Reason. If
the Company terminates the Employee's status as an employee prior
to the end of the Employment Term for reasons other than death,
Disability or Cause, or the Employee terminates his employment
prior to the end of the Employment Term for Good Reason, then
(a) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Employment
Term had the notice contemplated by Section 1.2 been given as of
the Date of Termination; and
(b) the amount of any performance-based bonus or
options granted to the Employee shall be deemed to be the amount
to which the Employee would have been entitled if the budgeted
goals or other performance goals applicable thereto had been met
but not exceeded and, whether or not the performance goals have
been met as of the Date of Termination, such bonus shall be
payable within 30 days of the Date of Termination and such
options (if not already exercisable) shall become exercisable as
of the Date of Termination and shall expire on the date of
expiration of the options as provided in the applicable option
agreement.
4.4 Termination for Cause, Without Good Reason or at End of
Employment Term. This Agreement shall terminate without further
obligation to the Employee other than obligations imposed by law
and obligations imposed pursuant to any employee benefit plan
maintained by the Company or its subsidiaries (a) if the
Employee's status as an Employee is terminated by the Company for
Cause or by the Employee for reasons other than Good Reason or
(b), except as otherwise provided in Section 5.2, at the end of
the Employment Term. If the Company or the Employee gives notice
of termination of the Employment Term as provided for in Section
1.2, the Company may, at its option, terminate Employee's status
as an employee, in which case such termination shall be deemed a
termination by the Company without Cause for purposes of all
provisions of this Agreement.
4.5 Resignation as Director. If Employee is a director of
the Company and his employment is terminated for any reason other
than death, the Employee shall, if requested by the Company,
immediately resign as a director of the Company. If such
resignation is not received when so requested, the Employee shall
forfeit any right to receive any payments pursuant to this
Agreement.
4.6 Accrued Obligations and Other Benefits. Upon
termination of employment for any reason the Employee shall be
entitled to receive promptly, and in addition to any other
benefits specifically provided, (a) the Employee's Base Salary
through the Date of Termination to the extent not theretofore
paid, (b) any accrued vacation pay, to the extent not theretofore
paid, and (c) any other amounts or benefits required to be paid
or provided or which the Employee is entitled to receive under
any plan, program, policy practice or agreement of the Company.
4.7 Stock Options. The foregoing benefits are intended to
be in addition to the value of any options to acquire Common
Stock of the Company the exercisability of which may be
accelerated pursuant to the terms of any stock option, incentive
or other similar plan heretofore or hereafter adopted by the
Company.
Section 5.Change of Control
5.1 Definitions. For purposes of this Section 5, the
following terms shall have the meanings indicated below.
(a) Company. In the event of any assignment or
succession as described in Section 6.1(c), the term "Company" as
used in this Agreement shall refer also to such successor or
assignee.
(b) Change of Control. A Change of Control shall mean
the occurrence of any of the following events:
(i) the acquisition by any individual, entity or
"person" (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership of more than 30% of the
outstanding shares of the Company's common stock, no par value
per share (the "Common Stock"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall
not constitute a Change of Control:
(A) any acquisition of Common Stock directly
from the Company,
(B) any acquisition of Common Stock by the
Company,
(C) any acquisition of Common Stock by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, or
(D) any acquisition of Common Stock by any
corporation pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (b)(iii) of this Section 5.1; or
(ii) individuals who, as of the Agreement Date,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the Agreement Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered a member of the Incumbent Board, unless such
individual's initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Incumbent Board; or
(iii) the consummation of a reorganization, merger
or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in any such case, unless, following such Business
Combination,
(A) all or substantially all of the
individuals and entities who were the direct or indirect
beneficial owners of the Company's outstanding common stock and
the Company's voting securities entitled to vote generally in the
election of directors immediately prior to such Business
Combination have direct or indirect beneficial ownership,
respectively, of more than 50% of the then outstanding shares of
common stock, and more than 50% of the combined voting power of
the then outstanding voting securities entitled to vote generally
in the election of directors, of the corporation resulting from
such Business Combination (which, for purposes of this paragraph
(A) and paragraphs (B) and (C), shall include a corporation which
as a result of such transaction controls the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries), and
(B) except to the extent that such ownership
existed prior to the Business Combination, no person (excluding
any corporation resulting from such Business Combination or any
employee benefit plan or related trust of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of the
then outstanding shares of common stock of the corporation
resulting from such Business Combination or 20% or more of the
combined voting power of the then outstanding voting securities
of such corporation, and
(C) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the board of directors of
the Company at the time of the initial action of the Board
providing for such Business Combination; or
(iv) approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company.
(c) Affiliate. The term "affiliate" or "affiliated
companies" shall mean any company or other entity controlled by,
controlling, or under common control with, the Company.
(d) Cause. After a Change of Control, "Cause," as
used in this Agreement, shall have the following meaning and not
the meaning given in Section 3.3:
(i) the willful and continued failure of the
Employee to perform substantially the Employee's duties hereunder
(other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Employee by the Board
of the Company which specifically identifies the manner in which
the Board believes that the Employee has not substantially
performed the Employee's duties, or
(ii) the willful engaging by the Employee in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company or its affiliates.
For purposes of this provision, no act or failure to act, on the
part of the Employee, shall be considered "willful" unless it is
done, or omitted to be done, by the Employee in bad faith or
without reasonable belief that the Employee's action or omission
was in the best interests of the Company or its affiliates. Any
act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of
a senior officer of the Company or based upon the advice of
counsel for the Company or its affiliates shall be conclusively
presumed to be done, or omitted to be done, by the Employee in
good faith and in the best interests of the Company or its
affiliates. The cessation of employment of the Employee shall
not be deemed to be for Cause unless and until there shall have
been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is
provided to the Employee and the Employee is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Employee has engaged in the conduct described in subparagraph (i)
or (ii) above, and specifying the particulars thereof in detail.
(e) Good Reason. After a Change of Control, "Good
Reason," as used in this Agreement, shall have the following
meaning and not the meaning given in Section 3.4:
(i) Any failure of the Company or its affiliates
to provide the Employee with the position, authority, duties and
responsibilities at least equivalent in all material respects
with the most significant of those held, exercised and assigned
at any time during the 120-day period immediately preceding the
Change of Control;
(ii) The assignment to the Employee of any duties
inconsistent in any respect with Employee's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 1.1, or any
other action that results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in
bad faith that is remedied within 10 days after receipt of
written notice thereof from the Employee to the Company;
(iii) Any failure by the Company or its affiliates
to comply with any of the provisions of this Agreement, other
than an isolated, insubstantial and inadvertent failure not
occurring in bad faith that is remedied within 10 days after
receipt of written notice thereof from the Employee to the
Company;
(iv) The Company or its affiliates requiring the
Employee to be based at any office or location other than as
provided in Section 3.4(a)(iii) hereof or requiring the Employee
to travel on business to a substantially greater extent than
required immediately prior to the Change of Control;
(v) Any purported termination of the Employee's
employment otherwise than as expressly permitted by this
Agreement; or
(vi) Any failure by the Company to comply with and
satisfy Sections 6.1(c) and (d) of this Agreement.
For purposes of this Section 5, any good faith determination of
"Good Reason" made by the Employee shall be conclusive. Anything
in this Agreement to the contrary notwithstanding, a termination
by the Employee for any reason during the 30-day period
immediately following the first anniversary of the Change of
Control shall be deemed to be a termination for Good Reason.
(f) Beneficial Ownership. The terms "beneficial
ownership," "beneficial owner," "beneficially owns," and similar
terms shall have the meanings set forth in Rule 13d-3 under the
Exchange Act.
5.2 Employment Capacity and Term after Change of Control.
(a) If a Change of Control occurs during the Employment Term, the
Employee's Employment Term (the "Modified Employment Term") shall
be extended until and terminate at the close of business on the
later to occur of the second anniversary of the Change of
Control; or the date one year after the date on which either the
Company or the Employee has notified the other of such
termination; and provided, further, that Employee's status as an
employee is subject to earlier termination to the extent provided
in this Agreement.
(b) After a Change of Control and during the Modified
Employment Term, (i) the Employee's position (including status,
offices, titles and reporting requirements), authority, duties
and responsibilities in and with respect to the Company shall be
at least equivalent in all material respects to the most
significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Change of
Control and (ii) the Employee's service shall be performed at the
location where the Employee was employed immediately preceding
the Change of Control or any office or location less than 50
miles from such location.
5.3 Compensation and Benefits. During the Modified
Employment Term, in addition to the compensation and benefits
described in Section 2, the Employee shall be entitled to the
following compensation and benefits:
(a) Salary. During the Modified Employment Term,
Employee's Base Salary shall be as provided for in Section 2.1.
(b) Benefit Plans. During the Modified Employment
Term, the Employee and his family, if any, shall be entitled to
participate in and receive applicable benefits under all such (i)
incentive, savings and retirement plans, practices, policies and
programs, (ii) welfare benefit plans, practices, policies and
programs (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental health
and travel accident insurance plans and programs) and (iii) paid
vacation and other fringe benefits, plans, practices, policies
and programs as are applicable generally to other peer employees
of the Company and its affiliated companies in effect generally
after the Change of Control or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
(c) Expenses. During the Modified Employment Term,
the Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Employee in
accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect
generally after the Change of Control with respect to other peer
employees of the Company and its affiliated companies or, if more
favorable to the Employee, as in effect for the Employee at any
time during the 120-day period immediately preceding the Change
of Control.
(d) Office and Support Staff. During the Modified
Employment Term, the Employee shall be entitled to an office or
offices of a size and with furnishings and other appointments,
and to personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided generally after
the Change of Control with respect to other peer employees of the
Company and its affiliated companies or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
5.4 Termination of Employment after a Change of Control.
After a Change of Control and during the Modified Employment
Term, the Employee's status as an employee shall terminate or may
be terminated as provided in Section 3 of this Agreement;
provided, however, that after a Change of Control and during the
Modified Employment Term the terms "Cause" and "Good Reason," as
used in Section 3 and elsewhere in this Agreement, shall have the
meanings given to them in this Section 5 and not the meanings
given to them in Section 3.
5.5 Obligations of the Company upon Termination after a
Change of Control. (a) If, after a Change of Control and prior
to the end of the Modified Employment Term, the Company
terminates the Employee's employment other than for Cause, death
or Disability, or the Employee terminates employment for Good
Reason, then
(i) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Modified
Employment Term had such termination not occurred; and
(ii) Employee shall be entitled to the benefits
provided in Section 4.3(b) and the amounts, if any, contemplated
by Sections 4.6 and 4.7.
(b) If, after a Change of Control and prior to the end
of the Modified Employment Term, the Employee's employment is
terminated (i) for death, (ii) for Disability or (iii) for Cause
(as defined in this Section 5), by the Employee for reasons other
than Good Reason (as defined in this Section 5) or at the end of
the Modified Employment Term, then the Employee shall be entitled
to the benefits described in Section 4.1, Section 4.2 or Section
4.4, as the case may be, and shall be entitled to the benefits
described in Sections 4.6 and 4.7. If the Company or the
Employee gives notice of termination of the Modified Employment
Term as provided for in Section 5.2, the Company may, at its
option, terminate Employee's status as an Employee, in which case
such termination shall be deemed a termination without Cause for
purposes of all provisions of this Agreement.
(c) The rights and obligations of the Company and
Employee contained in Section 4.5 ("Resignation as Director")
shall continue to apply after a Change of Control.
5.6 Certain Additional Payments. If after a Change of
Control Employee is subjected to an excise tax as a result of the
"excess parachute payment" provisions of section 4999 of the
Internal Revenue Code of 1986, as amended, whether by virtue of
the benefits of this Agreement or by virtue of any other benefits
provided to Employee in connection with a Change of Control
pursuant to Company plans, policies or agreements (including the
value of any options to acquire Common Stock of the Company the
exercisability of which is accelerated pursuant to the terms of
any stock option, incentive or similar plan heretofore or
hereafter adopted by the Company), the Company shall pay to
Employee (whether or not his employment has terminated) such
amounts as are necessary to place Employee in the same position
after payment of federal income and excise taxes and state and
local income taxes as he would have been if such provisions had
not been applicable to him.
Section 6.Miscellaneous
6.1 Binding Effect.
(a) This Agreement shall be binding upon and inure to
the benefit of the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and
shall not be assignable by the Employee without the consent of
the Company (there being no obligation to give such consent)
other than such rights or benefits as are transferred by will or
the laws of descent and distribution.
(c) The Company shall require any successor to or
assignee of (whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the
assets or businesses of the Company (i) to assume unconditionally
and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to
the same extent as would have been required of the Company had no
assignment or succession occurred, such assumption to be set
forth in a writing reasonably satisfactory to the Employee. In
the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such
successor or assign.
(d) The Company shall require all entities that
control, or that after the Change of Control will control,
directly or indirectly, any such successor or assignee to agree
to cause to be performed all of the obligations under this
Agreement in the same manner and to the same extent as would have
been required of the Company had no assignment or succession
occurred, such agreement to be set forth in writing reasonably
satisfactory to the Employee.
6.2 Notices. All notices hereunder must be in writing and
shall be deemed to have given upon receipt of delivery by: (a)
personal delivery to the designated individual, (b) certified or
registered mail, postage prepaid, return receipt requested, (c) a
nationally recognized overnight courier service (against a
receipt therefor) or (d) facsimile transmission with confirmation
of receipt. All such notices must be addressed as follows or
such other address as to which any party hereto may have notified
the other in writing:
If to the Company, to:
Akorn, Inc.
100 Akorn Drive
Abita Springs, Louisiana 70420
Attn: Chairman of the Board
Facsimile transmission No. (504) 893-1257
If to the Employee, to:
Barry D. LeBlanc
15 Neron Place
New Orleans, Louisiana 70118
Facsimile transmission No. (504) 861-9649
6.3 Governing Law. This Agreement shall be construed and
enforced in accordance with and governed by the internal laws of
the State of Louisiana.
6.4 Withholding. The Employee agrees that the Company has
the right to withhold, from the amounts payable pursuant to this
Agreement, all amounts required to be withheld under applicable
income and/or employment tax laws, or as otherwise stated in
documents granting rights that are affected by this Agreement.
6.5 Severability. If any term or provision of this Agree-
ment or the application thereof to any person or circumstance,
shall at any time or to any extent be invalid, illegal or
unenforceable in any respect as written, Employee and the Company
intend for any court construing this Agreement to modify or limit
such provision temporally, spatially or otherwise so as to render
it valid and enforceable to the fullest extent allowed by law.
Any such provision that is not susceptible of such reformation
shall be ignored so as to not affect any other term or provision
hereof, and the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable,
shall not be affected thereby and each term and provision of this
Agreement shall be valid and enforced to the fullest extent
permitted by law.
6.6 Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
6.7 Remedies Not Exclusive. No remedy specified herein
shall be deemed to be such party's exclusive remedy, and
accordingly, in addition to all of the rights and remedies
provided for in this Agreement, the parties shall have all other
rights and remedies provided to them by applicable law, rule or
regulation.
6.8 Company's Reservation of Rights. Employee acknowledges
and understands that the Employee serves at the pleasure of the
Board and that the Company has the right at any time to terminate
Employee's status as an employee of the Company, or to change or
diminish his status during the Employment Term, subject to the
rights of the Employee to claim the benefits conferred by this
Agreement.
6.9 Survival. Following the Date of Termination, each
party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing
rights and obligations under this Agreement.
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company and the Employee have caused
this Agreement to be executed as of the Agreement Date.
AKORN, INC.
By: /s/ George S. Ellis, M.D.
George S. Ellis, M.D.
Compensation Committee Chairman
EMPLOYEE:
/s/ Barry D. LeBlanc
Barry D. LeBlanc
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the "Agreement") is made and
entered into as of July 3, 1996 by and between Akorn
Incorporated, a Louisiana corporation ("Akorn") and Barry D.
LeBlanc, an individual residing at 15 Neron Place, New Orleans,
LA 70118 (referred to herein as "Executive").
W I T N E S S E T H:
WHEREAS, the Executive has served as President and Chief
Executive Officer and a Director of Akorn; and
WHEREAS, Akorn and Executive have determined that it is in
their mutual best interest that Executive discontinue his service
as President, Chief Executive Officer and a Director of Akorn;
and
WHEREAS, Executive has agreed to resign from his positions
as President, Chief Executive Officer and a Director of Akorn
effective July 3, 1996; and
WHEREAS, Executive and Akorn have each agreed to release the
other from any liability, including, but not limited to,
liability arising out of Executive's employment with Akorn and
Executive's resignation from his present positions with Akorn,
NOW, THEREFORE, it is agreed by and between Akorn and
Executive as follows:
1. Resignation. Executive hereby resigns as President,
Chief Executive Officer and a Director of Akorn all effective as
of July 3, 1996.
2. Compensation.
(a) Akorn will, in consideration for Executive's
resignation and execution of the releases contained in this
Agreement, pay to Executive Two Hundred Thirteen Thousand
Forty-Five and 00/100 Dollars ($213,045) (the "Separation
Payment"), payable in four equal installments of Fifty-Three
Thousand Two Hundred Sixty-One and 25/100 Dollars
($53,261.25) with the first such payment being made eight
(8) days after execution of this Agreement, with two
subsequent payments on October 3, 1996 and January 3, 1997
and a final payment on April 3, 1997.
(b) The amount of the Separation Payment which remains
unpaid from time to time shall bear interest until paid at a
rate equal to the "prime rate" as published and/or
announced, from time to time, by the Northern Trust Company
(the "Bank") as its "prime rate" of interest, which is not
necessarily the lowest rate of interest offered by the Bank
to its customers, such rate of interest fluctuating from
time to time concurrently with and in an amount equal to
each change in said prime rate published and/or announced by
the Bank; provided, however, that at the election of the
Executive, the amount of interest that would be payable on
the Separation Payment (which amount, as calculated in
Exhibit A which is attached hereto, equals $6,713.14) may be
applied by Executive as a credit toward the purchase of the
1996 Ford Explorer automobile which the Executive has been
provided with by Akorn and which automobile will be offered
to Executive for purchase eight (8) days after execution of
this Agreement at a price of $23,000.00.
(c) In addition to the Separation Payment, Akorn will
also make a lump sum payment to Executive of Twenty-Three
Thousand Four Hundred Twenty-Two and 72/100 Dollars
($23,422.72) representing accrued but unpaid vacation and
sick pay (the "Accrued Compensation"), such payment to be
made eight (8) days after execution of this Agreement.
3. Confidentiality.
(a) Executive agrees that the "Confidential
Information" (as herein defined) obtained or developed by
him during the course of his employment with Akorn is
confidential and, accordingly, agrees that he will not
disclose to any person or use for his own account, or for
the account of others, directly or indirectly, any of the
Confidential Information without the prior written consent
of Akorn, unless and then only to the extent that, such
matters may be otherwise generally available for use by the
public and not as a result of his acts or omissions to act.
As used herein, "Confidential Information" means any
and all information in the possession of the Executive (i)
that pertains or belongs to Akorn or its customers and is
not generally available to the public, including, but not
limited to, personnel information, customer lists, supplier
lists, product specifications and names, the nature and
scope of research activities, product composition and
formulas, trade secrets, drawings and schematics,
manufacturing processes, know how, computer and any other
processed or collated data, computer programs, pricing,
marketing and advertising data; or (ii) that is related to
product development plans or distribution and marketing
plans.
(b) Executive agrees to keep the terms of this
Agreement confidential except that the source and amount of
his income may be revealed as necessary for tax, loan
purposes and the like.
(c) Executive agrees that money damages cannot
adequately compensate Akorn in case of a breach or
threatened breach of this promise of confidentiality and
that, accordingly, Akorn would be entitled to injunctive
relief upon such breach. Executive understands that it is
Akorn's intent to have this promise of confidentiality
enforced to its fullest extent. Accordingly, Executive and
Akorn agree that, if any portion of this promise of
confidentiality is unenforceable, the court should still
construe and enforce this promise of confidentiality to the
fullest extent permitted by law.
4. Non-Derogation. Executive covenants and agrees with
Akorn to refrain, and to use his good faith efforts to cause
family members and business associates to refrain, from making
any written or oral statements to any third party which are of a
derogatory nature with respect to Akorn, its officers, directors,
shareholders, business, products or services.
5. Mutual Assent and Release.
(a) Akorn agrees that it has entered into this
agreement on a purely voluntary basis and, in consideration
of the benefits provided to Akorn herein, Akorn further
agrees to release and discharge Executive, his heirs,
agents, attorneys and representatives (the "Released
Parties"), from any and all claims, actions, causes of
actions, grievances, charges, lawsuits, damages and/or
liabilities whatsoever that it ever had, or now has, whether
fixed or contingent, liquidated or unliquidated and whether
arising in tort, contract, statute or equity, before any
federal, state, local or private court, agency, arbitrator,
mediator, or other entity, regardless of the relief or
remedy. It is agreed that this paragraph shall survive
termination of this Agreement. Without limitation, Akorn
expressly acknowledges and agrees that, by entering into
this Agreement, Akorn is waiving and releasing any and all
rights or claims that it may have against any of the
Released Parties arising out of the negotiation, execution
and implementation of any employment contracts by and
between Akorn and its executive employees, including, but
not limited to, the Executive.
(b) Executive agrees that he has entered into this
Agreement on a purely voluntary basis and, in consideration
of the benefits provided to Executive herein, Executive
further agrees to release and discharge Akorn, its
shareholders, directors, officers, managers, supervisors,
agents, attorneys, representatives and employees (the
"Released Parties"), from any and all claims, actions,
causes of action, grievances, charges, lawsuits, damages
and/or liabilities whatsoever that he ever had, or now has,
whether fixed or contingent, liquidated or unliquidated and
whether arising in tort, contract, statute or equity, before
any federal, state, local or private court, agency,
arbitrator, mediator, or other entity, regardless of the
relief or remedy. It is agreed that this paragraph shall
survive termination of this Agreement. Without limitation,
Executive expressly acknowledges and agrees that, by
entering into this Agreement, Executive is waiving and
releasing any and all rights or claims that he may have
against any of the Released Parties arising under the Age
Discrimination and Employment Act of 1967, as amended; Title
VII of the Civil Rights Act of 1964, as amended; the
Rehabilitation Act of 1973, as amended; the Employee
Retirement Income Security Act of 1974, as amended; the
Civil Rights Act of 1991; the Americans with Disabilities
Act; the Family and Medical Leave Act; or, any acts or
statutes of Louisiana or the common law providing remedies
for wrongful discharge, defamation or invasion of privacy.
Executive further expressly acknowledges and agrees that:
(i) In return for this Agreement, Executive will
receive consideration beyond that which he was already
entitled to receive before entering into this
Agreement;
(ii) Executive has been advised by Akorn to
consult with an attorney before signing this Agreement;
(iii) Executive was given a copy of this
Agreement on June 28, 1996, and informed that he had up
to twenty-one (21) days within which to review and
consider this Agreement.
(iv) Executive was informed that Executive had
seven (7) days following execution of this Agreement in
which to revoke the Agreement. After seven (7) days
this Agreement will become effective, enforceable and
irrevocable unless written revocation is received by
the undersigned from Executive on or before the close
of business on the seventh day after Executive executed
this Agreement. If Executive attempts to revoke this
Agreement it shall not be effective or enforceable and
Executive will not receive the compensation or benefits
described in this Agreement.
6. Non-Assignability; Assignment in the Event of
Acquisition or Merger. This Agreement, and the benefits
hereunder are not assignable or transferrable by Executive and
the rights and obligations of Akorn under this Agreement will
automatically be deemed to be assigned by Akorn to any
corporation or entity acquiring all or substantially all of the
assets of Akorn or to any corporation or entity into which Akorn
may be merged or consolidated; provided, however, that in the
event of Executive's death, Akorn shall make such payments as may
then be due and owing to the Executive, if any, to the
Executive's estate.
7. Miscellaneous.
(a) Entire Agreement; Amendment. This Agreement, and
all documents delivered herewith, constitute the entire
Agreement and understanding among the parties with respect
to the matters contained herein, shall supersede all prior
oral or written agreements or covenants of the parties, and
shall be binding upon and inure to the benefit of the
parties and their respective heirs, predecessors, personal
representatives, successors and assigns, present or future.
This Agreement shall not be modified or changed except by
instrument in writing signed by or on behalf of each of the
parties hereto.
(b) Counterparts. This Agreement and all documents
delivered pursuant hereto may be executed in one or more
counterparts and each and every fully executed counterpart
may be deemed to be an original hereof.
(c) Headings. The descriptive headings in this
Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the
provisions hereof.
(d) Waiver. The failure of any party hereto to enforce
at any time any of the provisions of this Agreement shall in
no way be construed to be a waiver of any such provision,
nor in any way to effect the validity of this Agreement or
any provision, it being agreed that each provision hereof
is, material, significant and essential to each of the
parties agreements and undertakings hereunder. No waiver of
any breach of this Agreement shall be held to be a waiver of
any other or subsequent breach.
(e) Notice. Any notice, request, instruction or
instrument to be given by any party to the other party shall
be in writing and shall be deemed to have been given if sent
by Federal Express (or similar overnight delivery service)
or by registered or certified mail, return receipt
requested,
(i) if to Executive at: 15 Neron Place
New Orleans, LA 70118
(ii) if to Akorn at: 100 Akorn Drive
Abita Springs, LA 70420
(f) Invalidity. If any provision of this Agreement, or
the application thereof to any person or circumstance, shall
be construed for any reason and to any extent to be invalid
or unenforceable, but the extent of the invalidity or
unenforceability does not destroy the basis of the bargain
between the parties contained herein, the remainder of this
Agreement, and the application of such provision to other
persons or circumstances, shall not be effected thereby, but
shall be enforced to the greatest extent permitted by law.
(g) Expenses. Each of the parties hereto shall pay its
own expenses, including, but not limited to, the fees of its
separate counsel, in connection with this Agreement.
(h) Choice of Law. This Agreement shall be construed
in accordance with the laws of the State of Delaware, and
the rights and obligations of the parties hereunder shall be
construed and enforced in accordance with, and governed by
the laws of the State of Delaware, without regard to
principals of conflict of laws.
Akorn and Executive, having read and understood this
Agreement, and having consulted with advisors as appropriate,
hereby each agree to be bound by its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and date first above written.
AKORN INCORPORATED
By:
Its:
Barry D. LeBlanc
<PAGE>
EXHIBIT A
INTEREST PAYABLE ON QUARTERLY INSTALLMENTS OF SEPARATION PAYMENT
Days from
7/3/96
Installment Payment Interest Until Interest
Number Amount Date Rate Payment
Amount
1 $ 53,261.25 * 8.25% 0 $ -
2 53,261.25 10/3/96 8.25% 92 1,122.92
3 53,261.25 1/3/96 8.25% 184 2,245.85
4 53,261.25 4/3/97 8.25% 274 3,344.36
_____________ ___________
$213,045.00 $6,713.14
* Eight (8) days after execution of the Agreement.
EMPLOYMENT AGREEMENT--ERIC M. WINGERTER
This Employment Agreement ("Agreement") between Akorn, Inc.,
a Louisiana corporation (the "Company"), and Eric M. Wingerter
(the "Employee") is dated as of January 1, 1996 (the "Agreement
Date").
WHEREAS, Employee currently is employed by the Company;
WHEREAS, the Company desires to retain the services of
Employee pursuant to the terms of this Agreement and Employee
desires to continue in the service of the Company on such terms;
NOW, THEREFORE, for and in consideration of the continued
employment of Employee by the Company and the payment of wages,
salary and other compensation to Employee by the Company, the
parties hereto agree as follows:
Section 1.Employment Capacity and Term
1.1 Capacity and Duties of Employee. The Employee is
employed by the Company to render services on behalf of the
Company as Vice President - Finance & Administration and Chief
Financial Officer. In that capacity the Employee shall perform
such duties as are assigned to the individual holding any such
title by the Company's Bylaws and such other duties, consistent
with the Employee's job title, as may be prescribed from time to
time by the Board of Directors of the Company (the "Board").
1.2 Employment Term. The term of this Agreement (the
"Employment Term") shall commence on the Agreement Date and shall
continue until and terminate one year after either the Company or
the Employee has notified the other of such termination of the
Employment Term; and provided, further, that the Employment Term
is subject to extension as provided in Section 5.2 and Employee's
status as an employee is subject to earlier termination to the
extent provided in this Agreement.
1.3 Devotion to Responsibilities. During the Employment
Term, the Employee shall devote all of his business time to the
business of the Company and its subsidiaries and affiliated
companies, shall use his reasonable best efforts to perform
faithfully and efficiently his duties under this Agreement, and
shall not engage in or be employed by any other business;
provided, however, that nothing contained herein shall prohibit
the Employee from (a) serving as a member of the board of
directors, board of trustees or the like of any for-profit or
non-profit entity that does not compete with the Company, or
performing services of any type for any civic or community
entity, whether or not the Employee receives compensation
therefor, (b) investing his assets in such form or manner as
shall require no more than nominal services on the part of the
Employee in the operation of the business of or property in which
such investment is made, or (c) serving in various capacities
with, and attending meetings of, industry or trade groups and
associations, as long as the Employee's engaging in any
activities permitted by virtue of clauses (a), (b) and (c) above
does not materially interfere with the ability of the Employee to
perform the services and discharge the responsibilities required
of him under this Agreement. Notwithstanding clause (b) above,
during the Employment Term, the Employee shall not perform any
services for and shall not beneficially own more than 2% of the
equity interests of a business organization that competes with
the Company or its affiliates. For purposes of this paragraph,
"beneficially own" shall have the meaning given to that term in
Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act").
Section 2. Compensation and Benefits
During the Employment Term, the Company shall provide the
Employee with the compensation and benefits described below:
2.1 Salary. A salary ("Base Salary") at the rate of
$90,000 per year; provided, however, that Employee's Base Salary
shall increase as of each anniversary of the Agreement Date by a
factor equal to the increase in the Consumer Price Index
maintained by the United States Department of Labor. Employee's
Base Salary shall be payable to the Employee at such intervals as
the salaries of other salaried employees of the Company are paid.
Any increase in Employee's Base Salary shall take effect for the
payroll period next following the date on which the condition to
such increase is met.
2.2 Bonus. Employee shall be eligible to receive such
bonuses and supplementary compensation as the Board may
determine.
2.3 Benefits. The Company shall provide the Employee and,
if applicable, his family members, with all such (i) incentive,
savings and retirement plans, practices, policies and programs,
(ii) welfare benefit plans, practices, policies and programs
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accident health and travel
accident insurance plans and programs) and (iii) paid vacation
and other fringe benefits, plans, practices, policies and
programs as are applicable generally to other peer employees of
the Company and its affiliated companies.
2.4 Office and Support Staff. Employee shall be entitled
to an office or offices of the size and with furnishings and
other appointments, and to personal secretarial and other
assistance, at least equal to the those provided to him on the
Agreement Date.
2.5 Expenses. The Employee shall be reimbursed for
reasonable out-of-pocket expenses incurred from time to time on
behalf of the Company or any subsidiary in the performance of his
duties under this Agreement, upon the presentation of such
supporting invoices, documents and forms as the Company
reasonably requests.
Section 3. Termination of Employment
3.1 Death. The Employee's status as an employee shall
terminate immediately and automatically upon the Employee's death
during the Employment Term.
3.2 Disability. The Employee's status as an employee may
be terminated for "Disability" as follows:
(a) The Employee's status as an employee shall
terminate if the Employee has a disability that would entitle him
to receive benefits under the Company's long-term disability
insurance policy in effect at the time either because he is
Totally Disabled or Partially Disabled, as such terms are defined
in the Company's policy in effect as of the Agreement Date or as
similar terms are defined in any successor policy. Any such
termination shall become effective on the first day on which the
Employee is eligible to receive payments under such policy (or on
the first day that he would be so eligible, if he had applied
timely for such payments).
(b) If the Company has no long-term disability plan in
effect, the Employee's status as an employee shall terminate if
(i) the Employee is rendered incapable because of physical or
mental illness of satisfactorily discharging his duties and
responsibilities under this Agreement for a period of 90
consecutive days and (ii) a duly qualified physician chosen by
the Company and acceptable to the Employee or his legal
representative so certifies in writing, the Board shall have the
power to determine that the Employee has become disabled. If the
Board makes such a determination, the Company shall have the
continuing right and option, during the period that such
disability continues, and by notice given in the manner provided
in this Agreement, to terminate the status of Employee as an
employee. Any such termination shall become effective 30 days
after such notice of termination is given, unless within such 30-
day period, the Employee becomes capable of rendering services of
the character contemplated hereby (and a physician chosen by the
Company and acceptable to the Employee or his legal
representative so certifies in writing) and the Employee in fact
resumes such services.
(c) The "Disability Effective Date" shall mean the
date on which termination of employment becomes effective due to
Disability.
3.3 Cause. The Company may terminate the Employee's status
as an employee for Cause. As used herein, termination by the
Company of the Employee's status as an employee for "Cause" shall
mean termination as a result of (a) the Employee's breach of this
Agreement, or (b) the willful engaging by the Employee in gross
misconduct injurious to the Company, which in either case is not
remedied within 10 days after the Company provides written notice
to the Employee of such breach or willful misconduct.
3.4 Good Reason. The Employee may terminate his status as
an employee for Good Reason. As used herein, the term "Good
Reason" shall mean:
(a) The occurrence of any of the following during the
Employment Term:
(i) the assignment by the Board or by any
authorized person to the Employee of any duties or
responsibilities that are inconsistent with the Employee's
status, title and position as Vice President - Finance &
Administration and Chief Financial Officer;
(ii) any removal of the Employee from, or any
failure to reappoint or reelect the Employee to, the position of
Vice President - Finance & Administration and Chief Financial
Officer of the Company, except in connection with a termination
of Employee's status as an employee as permitted by this
Agreement;
(iii) the Company's requiring the Employee to be
based anywhere other than at or within 50 miles of the Company's
headquarters in Abita Springs, Louisiana, except for required
travel in the ordinary course of the Company's business;
(b) any breach of this Agreement by the Company that
continues for a period of 10 days after written notice thereof is
given by the Employee to the Company;
(c) the failure by the Company to obtain the
assumption of its obligations under this Agreement by any
successor or assignee as contemplated by Section 6.1(c); or
(d) any purported termination by the Company of the
Employee's status as an employee for Cause that is not effected
pursuant to a Notice of Termination satisfying the requirements
of this Agreement.
3.5 Voluntary Termination by the Company. Subject to the
terms and conditions provided herein, the Company may terminate
the Employee's status as an employee during the Employment Term
for reasons other than death, Disability or Cause.
3.6 Voluntary Termination by the Employee. Subject to the
terms and conditions provided herein, the Employee may terminate
the Employee's status as an employee during the Employment Term
for reasons other than Good Reason.
3.7 Notice of Termination. Any termination by the Company
for Disability or Cause, or by the Employee for Good Reason,
shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 6.2. For purposes of
this Agreement, a "Notice of Termination" means a written notice
that (a) indicates the specific termination provision in this
Agreement relied upon, (b) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment
under the provisions so indicated and (c) if the Date of
Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall
be not more than 30 days after the giving of such notice). The
failure by the Employee or the Company to set forth in the Notice
of Termination any fact or circumstance that contributes to a
showing of Good Reason, Disability or Cause shall not negate the
effect of the notice nor waive any right of the Employee or the
Company, respectively, hereunder or preclude the Employee or the
Company, respectively, from asserting such fact or circumstance
in enforcing the Employee's or the Company's rights hereunder.
3.8 Date of Termination. "Date of Termination" means (a)
if Employee's employment is terminated by reason of his death or
Disability, the Date of Termination shall be the date of death of
Employee or the Disability Effective Date, as the case may be,
(b) if Employee's employment is terminated by the Company for
Cause, or by Employee for Good Reason, the date of delivery of
the Notice of Termination or any later date specified therein,
(which date shall not be more than 30 days after the giving of
such notice) as the case may be, (c) if the Employee's employment
is terminated by the Company prior to the end of the Employment
Term for reasons other than death, Disability or Cause, the Date
of Termination shall be the date on which the Company notifies
the Employee of such termination, (d) if the Employee's
employment is terminated by the Employee prior to the end of the
Employment Term for reasons other than Good Reason, the Date of
Termination shall be the date on which the Employee notifies the
Company of such termination, and (e) if the Employment Term
terminates upon notice by the Company or the Employee as provided
for in Section 1.2 or Section 5.2, the Date of Termination shall
be the date on which the Employment Term ends.
Section 4. Obligations Upon Termination
4.1 Death. If Employee's status as an employee is
terminated by reason of Employee's death, this Agreement shall
terminate without further obligations to Employee's legal
representatives under this Agreement, other than the obligation
to make any payments due pursuant to employee benefit plans
maintained by the Company or its subsidiaries.
4.2 Disability. If Employee's status as an employee is
terminated by reason of Employee's Disability, this Agreement
shall terminate without further obligation to Employee, other
than the obligation to make any payments due pursuant to employee
benefit plans maintained by the Company or its subsidiaries.
4.3 Termination by Company for Reasons other than Death,
Disability or Cause; Termination by Employee for Good Reason. If
the Company terminates the Employee's status as an employee prior
to the end of the Employment Term for reasons other than death,
Disability or Cause, or the Employee terminates his employment
prior to the end of the Employment Term for Good Reason, then
(a) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Employment
Term had the notice contemplated by Section 1.2 been given as of
the Date of Termination; and
(b) the amount of any performance-based bonus or
options granted to the Employee shall be deemed to be the amount
to which the Employee would have been entitled if the budgeted
goals or other performance goals applicable thereto had been met
but not exceeded and, whether or not the performance goals have
been met as of the Date of Termination, such bonus shall be
payable within 30 days of the Date of Termination and such
options (if not already exercisable) shall become exercisable as
of the Date of Termination and shall expire on the date of
expiration of the options as provided in the applicable option
agreement.
4.4 Termination for Cause, Without Good Reason or at End of
Employment Term. This Agreement shall terminate without further
obligation to the Employee other than obligations imposed by law
and obligations imposed pursuant to any employee benefit plan
maintained by the Company or its subsidiaries (a) if the
Employee's status as an Employee is terminated by the Company for
Cause or by the Employee for reasons other than Good Reason or
(b), except as otherwise provided in Section 5.2, at the end of
the Employment Term. If the Company or the Employee gives notice
of termination of the Employment Term as provided for in Section
1.2, the Company may, at its option, terminate Employee's status
as an employee, in which case such termination shall be deemed a
termination by the Company without Cause for purposes of all
provisions of this Agreement.
4.5 Resignation as Director. If Employee is a director of
the Company and his employment is terminated for any reason other
than death, the Employee shall, if requested by the Company,
immediately resign as a director of the Company. If such
resignation is not received when so requested, the Employee shall
forfeit any right to receive any payments pursuant to this
Agreement.
4.6 Accrued Obligations and Other Benefits. Upon
termination of employment for any reason the Employee shall be
entitled to receive promptly, and in addition to any other
benefits specifically provided, (a) the Employee's Base Salary
through the Date of Termination to the extent not theretofore
paid, (b) any accrued vacation pay, to the extent not theretofore
paid, and (c) any other amounts or benefits required to be paid
or provided or which the Employee is entitled to receive under
any plan, program, policy practice or agreement of the Company.
4.7 Stock Options. The foregoing benefits are intended to
be in addition to the value of any options to acquire Common
Stock of the Company the exercisability of which may be
accelerated pursuant to the terms of any stock option, incentive
or other similar plan heretofore or hereafter adopted by the
Company.
Section 5. Change of Control
5.1 Definitions. For purposes of this Section 5, the
following terms shall have the meanings indicated below.
(a) Company. In the event of any assignment or
succession as described in Section 6.1(c), the term "Company" as
used in this Agreement shall refer also to such successor or
assignee.
(b) Change of Control. A Change of Control shall mean
the occurrence of any of the following events:
(i) the acquisition by any individual, entity or
"person" (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership of more than 30% of the
outstanding shares of the Company's common stock, no par value
per share (the "Common Stock"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall
not constitute a Change of Control:
(A) any acquisition of Common Stock directly
from the Company,
(B) any acquisition of Common Stock by the
Company,
(C) any acquisition of Common Stock by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, or
(D) any acquisition of Common Stock by any
corporation pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (b)(iii) of this Section 5.1; or
(ii) individuals who, as of the Agreement Date,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the Agreement Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered a member of the Incumbent Board, unless such
individual's initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Incumbent Board; or
(iii) the consummation of a reorganization, merger
or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in any such case, unless, following such Business
Combination,
(A) all or substantially all of the
individuals and entities who were the direct or indirect
beneficial owners of the Company's outstanding common stock and
the Company's voting securities entitled to vote generally in the
election of directors immediately prior to such Business
Combination have direct or indirect beneficial ownership,
respectively, of more than 50% of the then outstanding shares of
common stock, and more than 50% of the combined voting power of
the then outstanding voting securities entitled to vote generally
in the election of directors, of the corporation resulting from
such Business Combination (which, for purposes of this paragraph
(A) and paragraphs (B) and (C), shall include a corporation which
as a result of such transaction controls the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries), and
(B) except to the extent that such ownership
existed prior to the Business Combination, no person (excluding
any corporation resulting from such Business Combination or any
employee benefit plan or related trust of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of the
then outstanding shares of common stock of the corporation
resulting from such Business Combination or 20% or more of the
combined voting power of the then outstanding voting securities
of such corporation, and
(C) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the board of directors of
the Company at the time of the initial action of the Board
providing for such Business Combination; or
(iv) approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company.
(c) Affiliate. The term "affiliate" or "affiliated
companies" shall mean any company or other entity controlled by,
controlling, or under common control with, the Company.
(d) Cause. After a Change of Control, "Cause," as
used in this Agreement, shall have the following meaning and not
the meaning given in Section 3.3:
(i) the willful and continued failure of the
Employee to perform substantially the Employee's duties hereunder
(other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Employee by the Board
of the Company which specifically identifies the manner in which
the Board believes that the Employee has not substantially
performed the Employee's duties, or
(ii) the willful engaging by the Employee in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company or its affiliates.
For purposes of this provision, no act or failure to act, on the
part of the Employee, shall be considered "willful" unless it is
done, or omitted to be done, by the Employee in bad faith or
without reasonable belief that the Employee's action or omission
was in the best interests of the Company or its affiliates. Any
act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of
a senior officer of the Company or based upon the advice of
counsel for the Company or its affiliates shall be conclusively
presumed to be done, or omitted to be done, by the Employee in
good faith and in the best interests of the Company or its
affiliates. The cessation of employment of the Employee shall
not be deemed to be for Cause unless and until there shall have
been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is
provided to the Employee and the Employee is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Employee has engaged in the conduct described in subparagraph (i)
or (ii) above, and specifying the particulars thereof in detail.
(e) Good Reason. After a Change of Control, "Good
Reason," as used in this Agreement, shall have the following
meaning and not the meaning given in Section 3.4:
(i) Any failure of the Company or its affiliates
to provide the Employee with the position, authority, duties and
responsibilities at least equivalent in all material respects
with the most significant of those held, exercised and assigned
at any time during the 120-day period immediately preceding the
Change of Control;
(ii) The assignment to the Employee of any duties
inconsistent in any respect with Employee's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 1.1, or any
other action that results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in
bad faith that is remedied within 10 days after receipt of
written notice thereof from the Employee to the Company;
(iii) Any failure by the Company or its affiliates
to comply with any of the provisions of this Agreement, other
than an isolated, insubstantial and inadvertent failure not
occurring in bad faith that is remedied within 10 days after
receipt of written notice thereof from the Employee to the
Company;
(iv) The Company or its affiliates requiring the
Employee to be based at any office or location other than as
provided in Section 3.4(a)(iii) hereof or requiring the Employee
to travel on business to a substantially greater extent than
required immediately prior to the Change of Control;
(v) Any purported termination of the Employee's
employment otherwise than as expressly permitted by this
Agreement; or
(vi) Any failure by the Company to comply with and
satisfy Sections 6.1(c) and (d) of this Agreement.
For purposes of this Section 5, any good faith determination of
"Good Reason" made by the Employee shall be conclusive. Anything
in this Agreement to the contrary notwithstanding, a termination
by the Employee for any reason during the 30-day period
immediately following the first anniversary of the Change of
Control shall be deemed to be a termination for Good Reason.
(f) Beneficial Ownership. The terms "beneficial
ownership," "beneficial owner," "beneficially owns," and similar
terms shall have the meanings set forth in Rule 13d-3 under the
Exchange Act.
5.2 Employment Capacity and Term after Change of Control.
(a) If a Change of Control occurs during the Employment Term, the
Employee's Employment Term (the "Modified Employment Term") shall
be extended until and terminate at the close of business on the
later to occur of the second anniversary of the Change of
Control; or the date one year after the date on which either the
Company or the Employee has notified the other of such
termination; and provided, further, that Employee's status as an
employee is subject to earlier termination to the extent provided
in this Agreement.
(b) After a Change of Control and during the Modified
Employment Term, (i) the Employee's position (including status,
offices, titles and reporting requirements), authority, duties
and responsibilities in and with respect to the Company shall be
at least equivalent in all material respects to the most
significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Change of
Control and (ii) the Employee's service shall be performed at the
location where the Employee was employed immediately preceding
the Change of Control or any office or location less than 50
miles from such location.
5.3 Compensation and Benefits. During the Modified
Employment Term, in addition to the compensation and benefits
described in Section 2, the Employee shall be entitled to the
following compensation and benefits:
(a) Salary. During the Modified Employment Term,
Employee's Base Salary shall be as provided for in Section 2.1.
(b) Benefit Plans. During the Modified Employment
Term, the Employee and his family, if any, shall be entitled to
participate in and receive applicable benefits under all such (i)
incentive, savings and retirement plans, practices, policies and
programs, (ii) welfare benefit plans, practices, policies and
programs (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental health
and travel accident insurance plans and programs) and (iii) paid
vacation and other fringe benefits, plans, practices, policies
and programs as are applicable generally to other peer employees
of the Company and its affiliated companies in effect generally
after the Change of Control or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
(c) Expenses. During the Modified Employment Term,
the Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Employee in
accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect
generally after the Change of Control with respect to other peer
employees of the Company and its affiliated companies or, if more
favorable to the Employee, as in effect for the Employee at any
time during the 120-day period immediately preceding the Change
of Control.
(d) Office and Support Staff. During the Modified
Employment Term, the Employee shall be entitled to an office or
offices of a size and with furnishings and other appointments,
and to personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided generally after
the Change of Control with respect to other peer employees of the
Company and its affiliated companies or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
5.4 Termination of Employment after a Change of Control.
After a Change of Control and during the Modified Employment
Term, the Employee's status as an employee shall terminate or may
be terminated as provided in Section 3 of this Agreement;
provided, however, that after a Change of Control and during the
Modified Employment Term the terms "Cause" and "Good Reason," as
used in Section 3 and elsewhere in this Agreement, shall have the
meanings given to them in this Section 5 and not the meanings
given to them in Section 3.
5.5 Obligations of the Company upon Termination after a
Change of Control. (a) If, after a Change of Control and prior
to the end of the Modified Employment Term, the Company
terminates the Employee's employment other than for Cause, death
or Disability, or the Employee terminates employment for Good
Reason, then
(i) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Modified
Employment Term had such termination not occurred; and
(ii) Employee shall be entitled to the benefits
provided in Section 4.3(b) and the amounts, if any, contemplated
by Sections 4.6 and 4.7.
(b) If, after a Change of Control and prior to the end
of the Modified Employment Term, the Employee's employment is
terminated (i) for death, (ii) for Disability or (iii) for Cause
(as defined in this Section 5), by the Employee for reasons other
than Good Reason (as defined in this Section 5) or at the end of
the Modified Employment Term, then the Employee shall be entitled
to the benefits described in Section 4.1, Section 4.2 or Section
4.4, as the case may be, and shall be entitled to the benefits
described in Sections 4.6 and 4.7. If the Company or the
Employee gives notice of termination of the Modified Employment
Term as provided for in Section 5.2, the Company may, at its
option, terminate Employee's status as an Employee, in which case
such termination shall be deemed a termination without Cause for
purposes of all provisions of this Agreement.
(c) The rights and obligations of the Company and
Employee contained in Section 4.5 ("Resignation as Director")
shall continue to apply after a Change of Control.
5.6 Certain Additional Payments. If after a Change of
Control Employee is subjected to an excise tax as a result of the
"excess parachute payment" provisions of section 4999 of the
Internal Revenue Code of 1986, as amended, whether by virtue of
the benefits of this Agreement or by virtue of any other benefits
provided to Employee in connection with a Change of Control
pursuant to Company plans, policies or agreements (including the
value of any options to acquire Common Stock of the Company the
exercisability of which is accelerated pursuant to the terms of
any stock option, incentive or similar plan heretofore or
hereafter adopted by the Company), the Company shall pay to
Employee (whether or not his employment has terminated) such
amounts as are necessary to place Employee in the same position
after payment of federal income and excise taxes and state and
local income taxes as he would have been if such provisions had
not been applicable to him.
Section 6. Miscellaneous
6.1 Binding Effect.
(a) This Agreement shall be binding upon and inure to
the benefit of the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and
shall not be assignable by the Employee without the consent of
the Company (there being no obligation to give such consent)
other than such rights or benefits as are transferred by will or
the laws of descent and distribution.
(c) The Company shall require any successor to or
assignee of (whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the
assets or businesses of the Company (i) to assume unconditionally
and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to
the same extent as would have been required of the Company had no
assignment or succession occurred, such assumption to be set
forth in a writing reasonably satisfactory to the Employee. In
the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such
successor or assign.
(d) The Company shall require all entities that
control, or that after the Change of Control will control,
directly or indirectly, any such successor or assignee to agree
to cause to be performed all of the obligations under this
Agreement in the same manner and to the same extent as would have
been required of the Company had no assignment or succession
occurred, such agreement to be set forth in writing reasonably
satisfactory to the Employee.
6.2 Notices. All notices hereunder must be in writing and
shall be deemed to have given upon receipt of delivery by: (a)
personal delivery to the designated individual, (b) certified or
registered mail, postage prepaid, return receipt requested, (c) a
nationally recognized overnight courier service (against a
receipt therefor) or (d) facsimile transmission with confirmation
of receipt. All such notices must be addressed as follows or
such other address as to which any party hereto may have notified
the other in writing:
If to the Company, to:
Akorn, Inc.
100 Akorn Drive
Abita Springs, Louisiana 70420
Attn: President
Facsimile transmission No. (504) 893-1257
If to the Employee, to:
Eric M. Wingerter
104 Barnwood Street
Pearl River, Louisiana 70452
Facsimile transmission No. (504) 863-3315
6.3 Governing Law. This Agreement shall be construed and
enforced in accordance with and governed by the internal laws of
the State of Louisiana.
6.4 Withholding. The Employee agrees that the Company has
the right to withhold, from the amounts payable pursuant to this
Agreement, all amounts required to be withheld under applicable
income and/or employment tax laws, or as otherwise stated in
documents granting rights that are affected by this Agreement.
6.5 Severability. If any term or provision of this Agree-
ment or the application thereof to any person or circumstance,
shall at any time or to any extent be invalid, illegal or
unenforceable in any respect as written, Employee and the Company
intend for any court construing this Agreement to modify or limit
such provision temporally, spatially or otherwise so as to render
it valid and enforceable to the fullest extent allowed by law.
Any such provision that is not susceptible of such reformation
shall be ignored so as to not affect any other term or provision
hereof, and the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable,
shall not be affected thereby and each term and provision of this
Agreement shall be valid and enforced to the fullest extent
permitted by law.
6.6 Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
6.7 Remedies Not Exclusive. No remedy specified herein
shall be deemed to be such party's exclusive remedy, and
accordingly, in addition to all of the rights and remedies
provided for in this Agreement, the parties shall have all other
rights and remedies provided to them by applicable law, rule or
regulation.
6.8 Company's Reservation of Rights. Employee acknowledges
and understands that the Employee serves at the pleasure of the
Board and that the Company has the right at any time to terminate
Employee's status as an employee of the Company, or to change or
diminish his status during the Employment Term, subject to the
rights of the Employee to claim the benefits conferred by this
Agreement.
6.9 Survival. Following the Date of Termination, each
party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing
rights and obligations under this Agreement.
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company and the Employee have caused
this Agreement to be executed as of the Agreement Date.
AKORN, INC.
By: /s/ J. Ed Campbell, M.D.
J. Ed Campbell, M.D.
Compensation Committee Chairman
EMPLOYEE:
/s/ Eric M. Wingerter
Eric M. Wingerter
EMPLOYMENT AGREEMENT--HAROLD O. KOCH
This Employment Agreement ("Agreement") between Akorn, Inc.,
a Louisiana corporation (the "Company"), and Harold O. Koch (the
"Employee") is dated as of January 1, 1996 (the "Agreement
Date").
WHEREAS, Employee currently is employed by the Company;
WHEREAS, the Company desires to retain the services of
Employee pursuant to the terms of this Agreement and Employee
desires to continue in the service of the Company on such terms;
NOW, THEREFORE, for and in consideration of the continued
employment of Employee by the Company and the payment of wages,
salary and other compensation to Employee by the Company, the
parties hereto agree as follows:
Section 1.Employment Capacity and Term
1.1 Capacity and Duties of Employee. The Employee is
employed by the Company to render services on behalf of the
Company as Senior Vice President. In that capacity the Employee
shall perform such duties as are assigned to the individual
holding any such title by the Company's Bylaws and such other
duties, consistent with the Employee's job title, as may be
prescribed from time to time by the Board of Directors of the
Company (the "Board").
1.2 Employment Term. The term of this Agreement (the
"Employment Term") shall commence on the Agreement Date and shall
continue until and terminate one year after either the Company or
the Employee has notified the other of such termination of the
Employment Term; and provided, further, that the Employment Term
is subject to extension as provided in Section 5.2 and Employee's
status as an employee is subject to earlier termination to the
extent provided in this Agreement.
1.3 Devotion to Responsibilities. During the Employment
Term, the Employee shall devote all of his business time to the
business of the Company and its subsidiaries and affiliated
companies, shall use his reasonable best efforts to perform
faithfully and efficiently his duties under this Agreement, and
shall not engage in or be employed by any other business;
provided, however, that nothing contained herein shall prohibit
the Employee from (a) serving as a member of the board of
directors, board of trustees or the like of any for-profit or
non-profit entity that does not compete with the Company, or
performing services of any type for any civic or community
entity, whether or not the Employee receives compensation
therefor, (b) investing his assets in such form or manner as
shall require no more than nominal services on the part of the
Employee in the operation of the business of or property in which
such investment is made, or (c) serving in various capacities
with, and attending meetings of, industry or trade groups and
associations, as long as the Employee's engaging in any
activities permitted by virtue of clauses (a), (b) and (c) above
does not materially interfere with the ability of the Employee to
perform the services and discharge the responsibilities required
of him under this Agreement. Notwithstanding clause (b) above,
during the Employment Term, the Employee shall not perform any
services for and shall not beneficially own more than 2% of the
equity interests of a business organization that competes with
the Company or its affiliates. For purposes of this paragraph,
"beneficially own" shall have the meaning given to that term in
Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act").
Section 2.Compensation and Benefits
During the Employment Term, the Company shall provide the
Employee with the compensation and benefits described below:
2.1 Salary. A salary ("Base Salary") at the rate of
$125,000 per year; provided, however, that Employee's Base Salary
shall increase as of each anniversary of the Agreement Date by a
factor equal to the increase in the Consumer Price Index
maintained by the United States Department of Labor. Employee's
Base Salary shall be payable to the Employee at such intervals as
the salaries of other salaried employees of the Company are paid.
Any increase in Employee's Base Salary shall take effect for the
payroll period next following the date on which the condition to
such increase is met.
2.2 Bonus. Employee shall be eligible to receive such
bonuses and supplementary compensation as the Board may
determine.
2.3 Benefits. The Company shall provide the Employee and,
if applicable, his family members, with the following benefits
and perquisites:
(a) The Company will continue to provide for
Employee's use a new Oldsmobile Ninety-Eight or other equivalent
new automobile of his choice, such automobile to be replaced
every third year, and to provide or reimburse Employee for all
gasoline, maintenance, repairs and insurance for such automobile.
(b) All such (i) incentive, savings and retirement
plans, practices, policies and programs, (ii) welfare benefit
plans, practices, policies and programs (including, without
limitation, medical, prescription, dental, disability, employee
life, group life, accident health and travel accident insurance
plans and programs) and (iii) paid vacation and other fringe
benefits, plans, practices, policies and programs as are
applicable generally to other peer employees of the Company and
its affiliated companies.
2.4 Office and Support Staff. Employee shall be entitled
to an office or offices of the size and with furnishings and
other appointments, and to personal secretarial and other
assistance, at least equal to the those provided to him on the
Agreement Date.
2.5 Expenses. The Employee shall be reimbursed for
reasonable out-of-pocket expenses incurred from time to time on
behalf of the Company or any subsidiary in the performance of his
duties under this Agreement, upon the presentation of such
supporting invoices, documents and forms as the Company
reasonably requests.
Section 3.Termination of Employment
3.1 Death. The Employee's status as an employee shall
terminate immediately and automatically upon the Employee's death
during the Employment Term.
3.2 Disability. The Employee's status as an employee may
be terminated for "Disability" as follows:
(a) The Employee's status as an employee shall
terminate if the Employee has a disability that would entitle him
to receive benefits under the Company's long-term disability
insurance policy in effect at the time either because he is
Totally Disabled or Partially Disabled, as such terms are defined
in the Company's policy in effect as of the Agreement Date or as
similar terms are defined in any successor policy. Any such
termination shall become effective on the first day on which the
Employee is eligible to receive payments under such policy (or on
the first day that he would be so eligible, if he had applied
timely for such payments).
(b) If the Company has no long-term disability plan in
effect, the Employee's status as an employee shall terminate if
(i) the Employee is rendered incapable because of physical or
mental illness of satisfactorily discharging his duties and
responsibilities under this Agreement for a period of 90
consecutive days and (ii) a duly qualified physician chosen by
the Company and acceptable to the Employee or his legal
representative so certifies in writing, the Board shall have the
power to determine that the Employee has become disabled. If the
Board makes such a determination, the Company shall have the
continuing right and option, during the period that such
disability continues, and by notice given in the manner provided
in this Agreement, to terminate the status of Employee as an
employee. Any such termination shall become effective 30 days
after such notice of termination is given, unless within such 30-
day period, the Employee becomes capable of rendering services of
the character contemplated hereby (and a physician chosen by the
Company and acceptable to the Employee or his legal
representative so certifies in writing) and the Employee in fact
resumes such services.
(c) The "Disability Effective Date" shall mean the
date on which termination of employment becomes effective due to
Disability.
3.3 Cause. The Company may terminate the Employee's status
as an employee for Cause. As used herein, termination by the
Company of the Employee's status as an employee for "Cause" shall
mean termination as a result of (a) the Employee's breach of this
Agreement, or (b) the willful engaging by the Employee in gross
misconduct injurious to the Company, which in either case is not
remedied within 10 days after the Company provides written notice
to the Employee of such breach or willful misconduct.
3.4 Good Reason. The Employee may terminate his status as
an employee for Good Reason. As used herein, the term "Good
Reason" shall mean:
(a) The occurrence of any of the following during the
Employment Term:
(i) the assignment by the Board or by any
authorized person to the Employee of any duties or
responsibilities that are inconsistent with the Employee's
status, title and position as Senior Vice President;
(ii) any removal of the Employee from, or any
failure to reappoint or reelect the Employee to, the position of
Senior Vice President of the Company, except in connection with a
termination of Employee's status as an employee as permitted by
this Agreement;
(iii) the Company's requiring the Employee to be
based anywhere other than at or within 50 miles of the Company's
headquarters in Abita Springs, Louisiana, except for required
travel in the ordinary course of the Company's business;
(b) any breach of this Agreement by the Company that
continues for a period of 10 days after written notice thereof is
given by the Employee to the Company;
(c) the failure by the Company to obtain the
assumption of its obligations under this Agreement by any
successor or assignee as contemplated by Section 6.1(c); or
(d) any purported termination by the Company of the
Employee's status as an employee for Cause that is not effected
pursuant to a Notice of Termination satisfying the requirements
of this Agreement.
3.5 Voluntary Termination by the Company. Subject to the
terms and conditions provided herein, the Company may terminate
the Employee's status as an employee during the Employment Term
for reasons other than death, Disability or Cause.
3.6 Voluntary Termination by the Employee. Subject to the
terms and conditions provided herein, the Employee may terminate
the Employee's status as an employee during the Employment Term
for reasons other than Good Reason.
3.7 Notice of Termination. Any termination by the Company
for Disability or Cause, or by the Employee for Good Reason,
shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 6.2. For purposes of
this Agreement, a "Notice of Termination" means a written notice
that (a) indicates the specific termination provision in this
Agreement relied upon, (b) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment
under the provisions so indicated and (c) if the Date of
Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall
be not more than 30 days after the giving of such notice). The
failure by the Employee or the Company to set forth in the Notice
of Termination any fact or circumstance that contributes to a
showing of Good Reason, Disability or Cause shall not negate the
effect of the notice nor waive any right of the Employee or the
Company, respectively, hereunder or preclude the Employee or the
Company, respectively, from asserting such fact or circumstance
in enforcing the Employee's or the Company's rights hereunder.
3.8 Date of Termination. "Date of Termination" means (a)
if Employee's employment is terminated by reason of his death or
Disability, the Date of Termination shall be the date of death of
Employee or the Disability Effective Date, as the case may be,
(b) if Employee's employment is terminated by the Company for
Cause, or by Employee for Good Reason, the date of delivery of
the Notice of Termination or any later date specified therein,
(which date shall not be more than 30 days after the giving of
such notice) as the case may be, (c) if the Employee's employment
is terminated by the Company prior to the end of the Employment
Term for reasons other than death, Disability or Cause, the Date
of Termination shall be the date on which the Company notifies
the Employee of such termination, (d) if the Employee's
employment is terminated by the Employee prior to the end of the
Employment Term for reasons other than Good Reason, the Date of
Termination shall be the date on which the Employee notifies the
Company of such termination, and (e) if the Employment Term
terminates upon notice by the Company or the Employee as provided
for in Section 1.2 or Section 5.2, the Date of Termination shall
be the date on which the Employment Term ends.
Section 4.Obligations Upon Termination
4.1 Death. If Employee's status as an employee is
terminated by reason of Employee's death, this Agreement shall
terminate without further obligations to Employee's legal
representatives under this Agreement, other than the obligation
to make any payments due pursuant to employee benefit plans
maintained by the Company or its subsidiaries.
4.2 Disability. If Employee's status as an employee is
terminated by reason of Employee's Disability, this Agreement
shall terminate without further obligation to Employee, other
than the obligation to make any payments due pursuant to employee
benefit plans maintained by the Company or its subsidiaries.
4.3 Termination by Company for Reasons other than Death,
Disability or Cause; Termination by Employee for Good Reason. If
the Company terminates the Employee's status as an employee prior
to the end of the Employment Term for reasons other than death,
Disability or Cause, or the Employee terminates his employment
prior to the end of the Employment Term for Good Reason, then
(a) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Employment
Term had the notice contemplated by Section 1.2 been given as of
the Date of Termination; and
(b) the amount of any performance-based bonus or
options granted to the Employee shall be deemed to be the amount
to which the Employee would have been entitled if the budgeted
goals or other performance goals applicable thereto had been met
but not exceeded and, whether or not the performance goals have
been met as of the Date of Termination, such bonus shall be
payable within 30 days of the Date of Termination and such
options (if not already exercisable) shall become exercisable as
of the Date of Termination and shall expire on the date of
expiration of the options as provided in the applicable option
agreement.
4.4 Termination for Cause, Without Good Reason or at End of
Employment Term. This Agreement shall terminate without further
obligation to the Employee other than obligations imposed by law
and obligations imposed pursuant to any employee benefit plan
maintained by the Company or its subsidiaries (a) if the
Employee's status as an Employee is terminated by the Company for
Cause or by the Employee for reasons other than Good Reason or
(b), except as otherwise provided in Section 5.2, at the end of
the Employment Term. If the Company or the Employee gives notice
of termination of the Employment Term as provided for in Section
1.2, the Company may, at its option, terminate Employee's status
as an employee, in which case such termination shall be deemed a
termination by the Company without Cause for purposes of all
provisions of this Agreement.
4.5 Resignation as Director. If Employee is a director of
the Company and his employment is terminated for any reason other
than death, the Employee shall, if requested by the Company,
immediately resign as a director of the Company. If such
resignation is not received when so requested, the Employee shall
forfeit any right to receive any payments pursuant to this
Agreement.
4.6 Accrued Obligations and Other Benefits. Upon
termination of employment for any reason the Employee shall be
entitled to receive promptly, and in addition to any other
benefits specifically provided, (a) the Employee's Base Salary
through the Date of Termination to the extent not theretofore
paid, (b) any accrued vacation pay, to the extent not theretofore
paid, and (c) any other amounts or benefits required to be paid
or provided or which the Employee is entitled to receive under
any plan, program, policy practice or agreement of the Company.
4.7 Stock Options. The foregoing benefits are intended to
be in addition to the value of any options to acquire Common
Stock of the Company the exercisability of which may be
accelerated pursuant to the terms of any stock option, incentive
or other similar plan heretofore or hereafter adopted by the
Company.
Section 5.Change of Control
5.1 Definitions. For purposes of this Section 5, the
following terms shall have the meanings indicated below.
(a) Company. In the event of any assignment or
succession as described in Section 6.1(c), the term "Company" as
used in this Agreement shall refer also to such successor or
assignee.
(b) Change of Control. A Change of Control shall mean
the occurrence of any of the following events:
(i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) of beneficial ownership of more than 30% of the
outstanding shares of the Company's common stock, no par value
per share (the "Common Stock"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall
not constitute a Change of Control:
(A) any acquisition of Common Stock directly
from the Company,
(B) any acquisition of Common Stock by the
Company,
(C) any acquisition of Common Stock by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, or
(D) any acquisition of Common Stock by any
corporation pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (b)(iii) of this Section 5.1; or
(ii) individuals who, as of the Agreement Date,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the Agreement Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered a member of the Incumbent Board, unless such
individual's initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Incumbent Board; or
(iii) the consummation of a reorganization, merger
or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in any such case, unless, following such Business
Combination,
(A) all or substantially all of the
individuals and entities who were the direct or indirect
beneficial owners of the Company's outstanding common stock and
voting securities entitled to vote generally in the election of
directors immediately prior to such Business Combination have
direct or indirect beneficial ownership, respectively, of more
than 50% of the then outstanding shares of common stock, and more
than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, of the corporation resulting from such Business
Combination (which, for purposes of this paragraph (A) and
paragraphs (B) and (C), shall include a corporation which as a
result of such transaction controls the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries), and
(B) except to the extent that such ownership
existed prior to the Business Combination, no person (excluding
any corporation resulting from such Business Combination or any
employee benefit plan or related trust of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of the
then outstanding shares of common stock of the corporation
resulting from such Business Combination or 20% or more of the
combined voting power of the then outstanding voting securities
of such corporation, and
(C) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the board of directors of
the Company at the time of the initial action of the Board
providing for such Business Combination; or
(iv) approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company.
(c) Affiliate. The term "affiliate" or "affiliated
companies" shall mean any company or other entity controlled by,
controlling, or under common control with, the Company.
(d) Cause. After a Change of Control, "Cause," as
used in this Agreement, shall have the following meaning and not
the meaning given in Section 3.3:
(i) the willful and continued failure of the
Employee to perform substantially the Employee's duties hereunder
(other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Employee by the Board
of the Company which specifically identifies the manner in which
the Board believes that the Employee has not substantially
performed the Employee's duties, or
(ii) the willful engaging by the Employee in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company or its affiliates.
For purposes of this provision, no act or failure to act, on the
part of the Employee, shall be considered "willful" unless it is
done, or omitted to be done, by the Employee in bad faith or
without reasonable belief that the Employee's action or omission
was in the best interests of the Company or its affiliates. Any
act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of
a senior officer of the Company or based upon the advice of
counsel for the Company or its affiliates shall be conclusively
presumed to be done, or omitted to be done, by the Employee in
good faith and in the best interests of the Company or its
affiliates. The cessation of employment of the Employee shall
not be deemed to be for Cause unless and until there shall have
been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is
provided to the Employee and the Employee is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Employee has engaged in the conduct described in subparagraph (i)
or (ii) above, and specifying the particulars thereof in detail.
(e) Good Reason. After a Change of Control, "Good
Reason," as used in this Agreement, shall have the following
meaning and not the meaning given in Section 3.4:
(i) Any failure of the Company or its affiliates
to provide the Employee with the position, authority, duties and
responsibilities at least equivalent in all material respects
with the most significant of those held, exercised and assigned
at any time during the 120-day period immediately preceding the
Change of Control;
(ii) The assignment to the Employee of any duties
inconsistent in any respect with Employee's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 1.1, or any
other action that results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in
bad faith that is remedied within 10 days after receipt of
written notice thereof from the Employee to the Company;
(iii) Any failure by the Company or its affiliates
to comply with any of the provisions of this Agreement, other
than an isolated, insubstantial and inadvertent failure not
occurring in bad faith that is remedied within 10 days after
receipt of written notice thereof from the Employee to the
Company;
(iv) The Company or its affiliates requiring the
Employee to be based at any office or location other than as
provided in Section 3.4(a)(iii) hereof or requiring the Employee
to travel on business to a substantially greater extent than
required immediately prior to the Change of Control;
(v) Any purported termination of the Employee's
employment otherwise than as expressly permitted by this
Agreement; or
(vi) Any failure by the Company to comply with and
satisfy Sections 6.1(c) and (d) of this Agreement.
For purposes of this Section 5, any good faith determination of
"Good Reason" made by the Employee shall be conclusive. Anything
in this Agreement to the contrary notwithstanding, a termination
by the Employee for any reason during the 30-day period
immediately following the first anniversary of the Change of
Control shall be deemed to be a termination for Good Reason.
(f) Beneficial Ownership. The terms "beneficial
ownership," "beneficial owner," "beneficially owns," and similar
terms shall have the meanings set forth in Rule 13d-3 under the
Exchange Act.
5.2 Employment Capacity and Term after Change of Control.
(a) If a Change of Control occurs during the Employment Term, the
Employee's Employment Term (the "Modified Employment Term") shall
be extended until and terminate at the close of business on the
later to occur of the second anniversary of the Change of
Control; or the date one year after the date on which either the
Company or the Employee has notified the other of such
termination; and provided, further, that Employee's status as an
employee is subject to earlier termination to the extent provided
in this Agreement.
(b) After a Change of Control and during the Modified
Employment Term, (i) the Employee's position (including status,
offices, titles and reporting requirements), authority, duties
and responsibilities in and with respect to the Company shall be
at least equivalent in all material respects to the most
significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Change of
Control and (ii) the Employee's service shall be performed at the
location where the Employee was employed immediately preceding
the Change of Control or any office or location less than 50
miles from such location.
5.3 Compensation and Benefits. During the Modified
Employment Term, in addition to the compensation and benefits
described in Section 2, the Employee shall be entitled to the
following compensation and benefits:
(a) Salary. During the Modified Employment Term,
Employee's Base Salary shall be as provided for in Section 2.1.
(b) Benefit Plans. During the Modified Employment
Term, the Employee and his family, if any, shall be entitled to
participate in and receive applicable benefits under all such (i)
incentive, savings and retirement plans, practices, policies and
programs, (ii) welfare benefit plans, practices, policies and
programs (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental health
and travel accident insurance plans and programs) and (iii) paid
vacation and other fringe benefits, plans, practices, policies
and programs as are applicable generally to other peer employees
of the Company and its affiliated companies in effect generally
after the Change of Control or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
(c) Expenses. During the Modified Employment Term,
the Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Employee in
accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect
generally after the Change of Control with respect to other peer
employees of the Company and its affiliated companies or, if more
favorable to the Employee, as in effect for the Employee at any
time during the 120-day period immediately preceding the Change
of Control.
(d) Office and Support Staff. During the Modified
Employment Term, the Employee shall be entitled to an office or
offices of a size and with furnishings and other appointments,
and to personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided generally after
the Change of Control with respect to other peer employees of the
Company and its affiliated companies or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
5.4 Termination of Employment after a Change of Control.
After a Change of Control and during the Modified Employment
Term, the Employee's status as an employee shall terminate or may
be terminated as provided in Section 3 of this Agreement;
provided, however, that after a Change of Control and during the
Modified Employment Term the terms "Cause" and "Good Reason," as
used in Section 3 and elsewhere in this Agreement, shall have the
meanings given to them in this Section 5 and not the meanings
given to them in Section 3.
5.5 Obligations of the Company upon Termination after a
Change of Control. (a) If, after a Change of Control and prior
to the end of the Modified Employment Term, the Company
terminates the Employee's employment other than for Cause, death
or Disability, or the Employee terminates employment for Good
Reason, then
(i) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Modified
Employment Term had such termination not occurred; and
(ii) Employee shall be entitled to the benefits
provided in Section 4.3(b) and the amounts, if any, contemplated
by Sections 4.6 and 4.7.
(b) If, after a Change of Control and prior to the end
of the Modified Employment Term, the Employee's employment is
terminated (i) for death, (ii) for Disability or (iii) for Cause
(as defined in this Section 5), by the Employee for reasons other
than Good Reason (as defined in this Section 5) or at the end of
the Modified Employment Term, then the Employee shall be entitled
to the benefits described in Section 4.1, Section 4.2 or Section
4.4, as the case may be, and shall be entitled to the benefits
described in Sections 4.6 and 4.7. If the Company or the
Employee gives notice of termination of the Modified Employment
Term as provided for in Section 5.2, the Company may, at its
option, terminate Employee's status as an Employee, in which case
such termination shall be deemed a termination without Cause for
purposes of all provisions of this Agreement.
(c) The rights and obligations of the Company and
Employee contained in Section 4.5 ("Resignation as Director")
shall continue to apply after a Change of Control.
5.6 Certain Additional Payments. If after a Change of
Control Employee is subjected to an excise tax as a result of the
"excess parachute payment" provisions of section 4999 of the
Internal Revenue Code of 1986, as amended, whether by virtue of
the benefits of this Agreement or by virtue of any other benefits
provided to Employee in connection with a Change of Control
pursuant to Company plans, policies or agreements (including the
value of any options to acquire Common Stock of the Company the
exercisability of which is accelerated pursuant to the terms of
any stock option, incentive or similar plan heretofore or
hereafter adopted by the Company), the Company shall pay to
Employee (whether or not his employment has terminated) such
amounts as are necessary to place Employee in the same position
after payment of federal income and excise taxes and state and
local income taxes as he would have been if such provisions had
not been applicable to him.
Section 6.Miscellaneous
6.1 Binding Effect.
(a) This Agreement shall be binding upon and inure to
the benefit of the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and
shall not be assignable by the Employee without the consent of
the Company (there being no obligation to give such consent)
other than such rights or benefits as are transferred by will or
the laws of descent and distribution.
(c) The Company shall require any successor to or
assignee of (whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the
assets or businesses of the Company (i) to assume unconditionally
and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to
the same extent as would have been required of the Company had no
assignment or succession occurred, such assumption to be set
forth in a writing reasonably satisfactory to the Employee. In
the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such
successor or assign.
(d) The Company shall require all entities that
control, or that after the Change of Control will control,
directly or indirectly, any such successor or assignee to agree
to cause to be performed all of the obligations under this
Agreement in the same manner and to the same extent as would have
been required of the Company had no assignment or succession
occurred, such agreement to be set forth in writing reasonably
satisfactory to the Employee.
6.2 Notices. All notices hereunder must be in writing and
shall be deemed to have given upon receipt of delivery by: (a)
personal delivery to the designated individual, (b) certified or
registered mail, postage prepaid, return receipt requested, (c) a
nationally recognized overnight courier service (against a
receipt therefor) or (d) facsimile transmission with confirmation
of receipt. All such notices must be addressed as follows or
such other address as to which any party hereto may have notified
the other in writing:
If to the Company, to:
Akorn, Inc.
100 Akorn Drive
Abita Springs, Louisiana 70420
Attn: President
Facsimile: (504) 893-1257
If to the Employee, to:
Harold O. Koch
106 Riverdale
Covington, Louisiana 70433
Facsimile: (504) __________
6.3 Governing Law. This Agreement shall be construed and
enforced in accordance with and governed by the internal laws of
the State of Louisiana.
6.4 Withholding. The Employee agrees that the Company has
the right to withhold, from the amounts payable pursuant to this
Agreement, all amounts required to be withheld under applicable
income and/or employment tax laws, or as otherwise stated in
documents granting rights that are affected by this Agreement.
6.5 Severability. If any term or provision of this Agree-
ment or the application thereof to any person or circumstance,
shall at any time or to any extent be invalid, illegal or
unenforceable in any respect as written, Employee and the Company
intend for any court construing this Agreement to modify or limit
such provision temporally, spatially or otherwise so as to render
it valid and enforceable to the fullest extent allowed by law.
Any such provision that is not susceptible of such reformation
shall be ignored so as to not affect any other term or provision
hereof, and the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable,
shall not be affected thereby and each term and provision of this
Agreement shall be valid and enforced to the fullest extent
permitted by law.
6.6 Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
6.7 Remedies Not Exclusive. No remedy specified herein
shall be deemed to be such party's exclusive remedy, and
accordingly, in addition to all of the rights and remedies
provided for in this Agreement, the parties shall have all other
rights and remedies provided to them by applicable law, rule or
regulation.
6.8 Company's Reservation of Rights. Employee acknowledges
and understands that the Employee serves at the pleasure of the
Board and that the Company has the right at any time to terminate
Employee's status as an employee of the Company, or to change or
diminish his status during the Employment Term, subject to the
rights of the Employee to claim the benefits conferred by this
Agreement.
6.9 Survival. Following the Date of Termination, each
party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing
rights and obligations under this Agreement.
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company and the Employee have caused
this Agreement to be executed as of the Agreement Date.
AKORN, INC.
By: /s/ George S. Ellis, M.D.
George S. Ellis, M.D.
Compensation Committee Chairman
EMPLOYEE:
/s/ Harold O. Koch
Harold O. Koch
EMPLOYMENT AGREEMENT--TIM J. TONEY
This Employment Agreement ("Agreement") between Akorn
Manufacturing, Inc., an Illinois corporation (the "Company"), and
Tim J. Toney (the "Employee") is dated as of January 1, 1996 (the
"Agreement Date").
WHEREAS, Employee currently is employed by the Company;
WHEREAS, the Company desires to retain the services of
Employee pursuant to the terms of this Agreement and Employee
desires to continue in the service of the Company on such terms;
NOW, THEREFORE, for and in consideration of the continued
employment of Employee by the Company and the payment of wages,
salary and other compensation to Employee by the Company, the
parties hereto agree as follows:
Section 1. Employment Capacity and Term
1.1 Capacity and Duties of Employee. The Employee is
employed by the Company to render services on behalf of the
Company as Vice President Manufacturing Operations. In that
capacity the Employee shall perform such duties as are assigned
to the individual holding any such title by the Company's Bylaws
and such other duties, consistent with the Employee's job title,
as may be prescribed from time to time by the Board of Directors
of the Company (the "Board").
1.2 Employment Term. The term of this Agreement (the
"Employment Term") shall commence on the Agreement Date and shall
continue until and terminate one year after either the Company or
the Employee has notified the other of such termination of the
Employment Term; and provided, further, that the Employment Term
is subject to extension as provided in Section 5.2 and Employee's
status as an employee is subject to earlier termination to the
extent provided in this Agreement.
1.3 Devotion to Responsibilities. During the Employment
Term, the Employee shall devote all of his business time to the
business of the Company and its subsidiaries and affiliated
companies, shall use his reasonable best efforts to perform
faithfully and efficiently his duties under this Agreement, and
shall not engage in or be employed by any other business;
provided, however, that nothing contained herein shall prohibit
the Employee from (a) serving as a member of the board of
directors, board of trustees or the like of any for-profit or
non-profit entity that does not compete with the Company, or
performing services of any type for any civic or community
entity, whether or not the Employee receives compensation
therefor, (b) investing his assets in such form or manner as
shall require no more than nominal services on the part of the
Employee in the operation of the business of or property in which
such investment is made, or (c) serving in various capacities
with, and attending meetings of, industry or trade groups and
associations, as long as the Employee's engaging in any
activities permitted by virtue of clauses (a), (b) and (c) above
does not materially interfere with the ability of the Employee to
perform the services and discharge the responsibilities required
of him under this Agreement. Notwithstanding clause (b) above,
during the Employment Term, the Employee shall not perform any
services for and shall not beneficially own more than 2% of the
equity interests of a business organization that competes with
the Company or its affiliates. For purposes of this paragraph,
"beneficially own" shall have the meaning given to that term in
Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act").
Section 2. Compensation and Benefits
During the Employment Term, the Company shall provide the
Employee with the compensation and benefits described below:
2.1 Salary. A salary ("Base Salary") at the rate of
$120,000 per year; provided, however, that Employee's Base Salary
shall increase as of each anniversary of the Agreement Date by a
factor equal to the increase in the Consumer Price Index
maintained by the United States Department of Labor. Employee's
Base Salary shall be payable to the Employee at such intervals as
the salaries of other salaried employees of the Company are paid.
Any increase in Employee's Base Salary shall take effect for the
payroll period next following the date on which the condition to
such increase is met.
2.2 Bonus. Employee shall be eligible to receive such
bonuses and supplementary compensation as the Board may
determine.
2.3 Benefits. The Company shall provide the Employee
and, if applicable, his family members, with all such (i)
incentive, savings and retirement plans, practices, policies and
programs, (ii) welfare benefit plans, practices, policies and
programs (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accident health
and travel accident insurance plans and programs) and (iii) paid
vacation and other fringe benefits, plans, practices, policies
and programs as are applicable generally to other peer employees
of the Company.
2.4 Office and Support Staff. Employee shall be
entitled to an office or offices of the size and with furnishings
and other appointments, and to personal secretarial and other
assistance, at least equal to the those provided to him on the
Agreement Date.
2.5 Expenses. The Employee shall be reimbursed for
reasonable out-of-pocket expenses incurred from time to time on
behalf of the Company or any affiliate in the performance of his
duties under this Agreement, upon the presentation of such
supporting invoices, documents and forms as the Company
reasonably requests.
Section 3. Termination of Employment
3.1 Death. The Employee's status as an employee shall
terminate immediately and automatically upon the Employee's death
during the Employment Term.
3.2 Disability. The Employee's status as an employee
may be terminated for "Disability" as follows:
(a) The Employee's status as an employee shall
terminate if the Employee has a disability that would entitle him
to receive benefits under the Company's long-term disability
insurance policy in effect at the time either because he is
Totally Disabled or Partially Disabled, as such terms are defined
in the Company's policy in effect as of the Agreement Date or as
similar terms are defined in any successor policy. Any such
termination shall become effective on the first day on which the
Employee is eligible to receive payments under such policy (or on
the first day that he would be so eligible, if he had applied
timely for such payments).
(b) If the Company has no long-term disability plan in
effect, the Employee's status as an employee shall terminate if
(i) the Employee is rendered incapable because of physical or
mental illness of satisfactorily discharging his duties and
responsibilities under this Agreement for a period of 90
consecutive days and (ii) a duly qualified physician chosen by
the Company and acceptable to the Employee or his legal
representative so certifies in writing, the Board shall have the
power to determine that the Employee has become disabled. If the
Board makes such a determination, the Company shall have the
continuing right and option, during the period that such
disability continues, and by notice given in the manner provided
in this Agreement, to terminate the status of Employee as an
employee. Any such termination shall become effective 30 days
after such notice of termination is given, unless within such 30-
day period, the Employee becomes capable of rendering services of
the character contemplated hereby (and a physician chosen by the
Company and acceptable to the Employee or his legal
representative so certifies in writing) and the Employee in fact
resumes such services.
(c) The "Disability Effective Date" shall mean the
date on which termination of employment becomes effective due to
Disability.
3.3 Cause. The Company may terminate the Employee's
status as an employee for Cause. As used herein, termination by
the Company of the Employee's status as an employee for "Cause"
shall mean termination as a result of (a) the Employee's breach
of this Agreement, or (b) the willful engaging by the Employee in
gross misconduct injurious to the Company, which in either case
is not remedied within 10 days after the Company provides written
notice to the Employee of such breach or willful misconduct.
3.4 Good Reason. The Employee may terminate his status
as an employee for Good Reason. As used herein, the term "Good
Reason" shall mean:
(a) The occurrence of any of the following during the
Employment Term:
(i) the assignment by the Board or by any
authorized person to the Employee of any duties or
responsibilities that are inconsistent with the Employee's
status, title and position as Vice President Manufacturing
Operations;
(ii) any removal of the Employee from, or any
failure to reappoint or reelect the Employee to, the position of
Vice President Manufacturing Operations of the Company, except in
connection with a termination of Employee's status as an employee
as permitted by this Agreement;
(iii) the Company's requiring the Employee to be
based anywhere other than at or within 50 miles of the Company's
principal offices in Decatur, Illinois except for required travel
in the ordinary course of the Company's business;
(b) any breach of this Agreement by the Company that
continues for a period of 10 days after written notice thereof is
given by the Employee to the Company;
(c) the failure by the Company to obtain the
assumption of its obligations under this Agreement by any
successor or assignee as contemplated by Section 6.1(c); or
(d) any purported termination by the Company of the
Employee's status as an employee for Cause that is not effected
pursuant to a Notice of Termination satisfying the requirements
of this Agreement.
3.5 Voluntary Termination by the Company. Subject to
the terms and conditions provided herein, the Company may
terminate the Employee's status as an employee during the
Employment Term for reasons other than death, Disability or
Cause.
3.6 Voluntary Termination by the Employee. Subject to
the terms and conditions provided herein, the Employee may
terminate the Employee's status as an employee during the
Employment Term for reasons other than Good Reason.
3.7 Notice of Termination. Any termination by the
Company for Disability or Cause, or by the Employee for Good
Reason, shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 6.2. For
purposes of this Agreement, a "Notice of Termination" means a
written notice that (a) indicates the specific termination
provision in this Agreement relied upon, (b) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Employee's employment under the provisions so indicated and (c)
if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of
such notice). The failure by the Employee or the Company to set
forth in the Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason, Disability or Cause
shall not negate the effect of the notice nor waive any right of
the Employee or the Company, respectively, hereunder or preclude
the Employee or the Company, respectively, from asserting such
fact or circumstance in enforcing the Employee's or the Company's
rights hereunder.
3.8 Date of Termination. "Date of Termination" means
(a) if Employee's employment is terminated by reason of his death
or Disability, the Date of Termination shall be the date of death
of Employee or the Disability Effective Date, as the case may be,
(b) if Employee's employment is terminated by the Company for
Cause, or by Employee for Good Reason, the date of delivery of
the Notice of Termination or any later date specified therein,
(which date shall not be more than 30 days after the giving of
such notice) as the case may be, (c) if the Employee's employment
is terminated by the Company prior to the end of the Employment
Term for reasons other than death, Disability or Cause, the Date
of Termination shall be the date on which the Company notifies
the Employee of such termination, (d) if the Employee's
employment is terminated by the Employee prior to the end of the
Employment Term for reasons other than Good Reason, the Date of
Termination shall be the date on which the Employee notifies the
Company of such termination, and (e) if the Employment Term
terminates upon notice by the Company or the Employee as provided
for in Section 1.2 or Section 5.2, the Date of Termination shall
be the date on which the Employment Term ends.
Section 4. Obligations Upon Termination
4.1 Death. If Employee's status as an employee is
terminated by reason of Employee's death, this Agreement shall
terminate without further obligations to Employee's legal
representatives under this Agreement, other than the obligation
to make any payments due pursuant to employee benefit plans
maintained by the Company or its affiliates.
4.2 Disability. If Employee's status as an employee is
terminated by reason of Employee's Disability, this Agreement
shall terminate without further obligation to Employee, other
than the obligation to make any payments due pursuant to employee
benefit plans maintained by the Company or its affiliates.
4.3 Termination by Company for Reasons other than Death,
Disability or Cause; Termination by Employee for Good Reason. If
the Company terminates the Employee's status as an employee prior
to the end of the Employment Term for reasons other than death,
Disability or Cause, or the Employee terminates his employment
prior to the end of the Employment Term for Good Reason, then
(a) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Employment
Term had the notice contemplated by Section 1.2 been given as of
the Date of Termination; and
(b) the amount of any performance-based bonus or
options granted to the Employee shall be deemed to be the amount
to which the Employee would have been entitled if the budgeted
goals or other performance goals applicable thereto had been met
but not exceeded and, whether or not the performance goals have
been met as of the Date of Termination, such bonus shall be
payable within 30 days of the Date of Termination and such
options (if not already exercisable) shall become exercisable as
of the Date of Termination and shall expire on the date of
expiration of the options as provided in the applicable option
agreement.
4.4 Termination for Cause, Without Good Reason or at End
of Employment Term. This Agreement shall terminate without
further obligation to the Employee other than obligations imposed
by law and obligations imposed pursuant to any employee benefit
plan maintained by the Company or its affiliates (a) if the
Employee's status as an Employee is terminated by the Company for
Cause or by the Employee for reasons other than Good Reason or
(b), except as otherwise provided in Section 5.2, at the end of
the Employment Term. If the Company or the Employee gives notice
of termination of the Employment Term as provided for in Section
1.2, the Company may, at its option, terminate Employee's status
as an employee, in which case such termination shall be deemed a
termination by the Company without Cause for purposes of all
provisions of this Agreement.
4.5 Resignation as Director. If Employee is a director
of the Company and his employment is terminated for any reason
other than death, the Employee shall, if requested by the
Company, immediately resign as a director of the Company. If
such resignation is not received when so requested, the Employee
shall forfeit any right to receive any payments pursuant to this
Agreement.
4.6 Accrued Obligations and Other Benefits. Upon
termination of employment for any reason the Employee shall be
entitled to receive promptly, and in addition to any other
benefits specifically provided, (a) the Employee's Base Salary
through the Date of Termination to the extent not theretofore
paid, (b) any accrued vacation pay, to the extent not theretofore
paid, and (c) any other amounts or benefits required to be paid
or provided or which the Employee is entitled to receive under
any plan, program, policy practice or agreement of the Company.
4.7 Stock Options. The foregoing benefits are intended
to be in addition to the value of any options to acquire common
stock of Akorn the exercisability of which may be accelerated
pursuant to the terms of any stock option, incentive or other
similar plan heretofore or hereafter adopted by Akorn.
Section 5. Change of Control
5.1 Definitions. For purposes of this Section 5, the
following terms shall have the meanings indicated below.
(a) Company. In the event of any assignment or
succession as described in Section 6.1(c), the term "Company" as
used in this Agreement shall refer also to such successor or
assignee. As used in Section 5.1(b) the term "Company" shall
refer to Akorn and shall not refer to Akorn Manufacturing, Inc.,
except as otherwise indicated.
(b) Change of Control. A "Change of Control" shall
mean the occurrence of any of the following events:
(i) the acquisition by any individual, entity or
"person" (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership of more than 30% of the
outstanding shares of the Company's common stock, no par value
per share (the "Common Stock"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall
not constitute a Change of Control:
(A) any acquisition of Common Stock directly
from the Company,
(B) any acquisition of Common Stock by the
Company,
(C) any acquisition of Common Stock by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, or
(D) any acquisition of Common Stock by any
corporation pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (b)(iii) of this Section 5.1; or
(ii) individuals who, as of the Agreement Date,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the Agreement Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered a member of the Incumbent Board, unless such
individual's initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Incumbent Board; or
(iii) the consummation of a reorganization,
merger or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in any such case, unless, following such Business
Combination,
(A) all or substantially all of the
individuals and entities who were the direct or indirect
beneficial owners of the Company's outstanding common stock and
voting securities entitled to vote generally in the election of
directors immediately prior to such Business Combination have
direct or indirect beneficial ownership, respectively, of more
than 50% of the then outstanding shares of common stock, and more
than 50% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, of the corporation resulting from such Business
Combination (which, for purposes of this paragraph (A) and
paragraphs (B) and (C), shall include a corporation which as a
result of such transaction controls the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries), and
(B) except to the extent that such ownership
existed prior to the Business Combination, no person (excluding
any corporation resulting from such Business Combination or any
employee benefit plan or related trust of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of the
then outstanding shares of common stock of the corporation
resulting from such Business Combination or 20% or more of the
combined voting power of the then outstanding voting securities
of such corporation, and
(C) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the board of directors of
the Company at the time of the initial action of the Board
providing for such Business Combination;
(iv) approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company or;
(v) the consummation of a reorganization, merger
or consolidation, sale or other disposition of all or
substantially all of the assets, or sale, transfer or other
distribution of more than 50% of the shares of common stock of
Akorn Manufacturing, Inc. or of the voting securities entitled to
vote in the election of directors thereof, in any such case,
unless, following such transaction, at least a majority of the
members of the Board of Directors of Akorn Manufacturing, Inc. or
other corporation resulting from such transaction were members of
the Board of Directors of Akorn Manufacturing, Inc. or of the
Company at the time of the initial action of the Board of
Directors of Akorn Manufacturing, Inc. or of the Company
providing for such transaction.
(c) Affiliate. The term "affiliate" or "affiliated
companies" shall mean any company or other entity controlled by,
controlling, or under common control with, the Company.
(d) Cause. After a Change of Control, "Cause," as
used in this Agreement, shall have the following meaning and not
the meaning given in Section 3.3:
(i) the willful and continued failure of the
Employee to perform substantially the Employee's duties hereunder
(other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Employee by the Board
of the Company which specifically identifies the manner in which
the Board believes that the Employee has not substantially
performed the Employee's duties, or
(ii) the willful engaging by the Employee in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company or its affiliates.
For purposes of this provision, no act or failure to act, on the
part of the Employee, shall be considered "willful" unless it is
done, or omitted to be done, by the Employee in bad faith or
without reasonable belief that the Employee's action or omission
was in the best interests of the Company or its affiliates. Any
act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of
a senior officer of the Company or based upon the advice of
counsel for the Company or its affiliates shall be conclusively
presumed to be done, or omitted to be done, by the Employee in
good faith and in the best interests of the Company or its
affiliates. The cessation of employment of the Employee shall
not be deemed to be for Cause unless and until there shall have
been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is
provided to the Employee and the Employee is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Employee has engaged in the conduct described in subparagraph (i)
or (ii) above, and specifying the particulars thereof in detail.
(e) Good Reason. After a Change of Control, "Good
Reason," as used in this Agreement, shall have the following
meaning and not the meaning given in Section 3.4:
(i) Any failure of the Company or its affiliates
to provide the Employee with the position, authority, duties and
responsibilities at least equivalent in all material respects
with the most significant of those held, exercised and assigned
at any time during the 120-day period immediately preceding the
Change of Control;
(ii) The assignment to the Employee of any duties
inconsistent in any respect with Employee's position (including
status, offices, titles and reporting requirements), authority,
duties or responsibilities as contemplated by Section 1.1, or any
other action that results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in
bad faith that is remedied within 10 days after receipt of
written notice thereof from the Employee to the Company;
(iii) Any failure by the Company or its
affiliates to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith that is remedied within 10
days after receipt of written notice thereof from the Employee to
the Company;
(iv) The Company or its affiliates requiring the
Employee to be based at any office or location other than as
provided in Section 3.4(a)(iii) hereof or requiring the Employee
to travel on business to a substantially greater extent than
required immediately prior to the Change of Control;
(v) Any purported termination of the Employee's
employment otherwise than as expressly permitted by this
Agreement; or
(vi) Any failure by the Company to comply with and
satisfy Sections 6.1(c) and (d) of this Agreement.
For purposes of this Section 5, any good faith determination of
"Good Reason" made by the Employee shall be conclusive. Anything
in this Agreement to the contrary notwithstanding, a termination
by the Employee for any reason during the 30-day period
immediately following the first anniversary of the Change of
Control shall be deemed to be a termination for Good Reason.
(f) Beneficial Ownership. The terms "beneficial
ownership," "beneficial owner," "beneficially owns," and similar
terms shall have the meanings set forth in Rule 13d-3 under the
Exchange Act.
5.2 Employment Capacity and Term after Change of
Control. (a) If a Change of Control occurs during the Employment
Term, the Employee's Employment Term (the "Modified Employment
Term") shall be extended until and terminate at the close of
business on the later to occur of the second anniversary of the
Change of Control or the date one year after the date on which
either the Company or the Employee has notified the other of such
termination; and provided, further, that Employee's status as an
employee is subject to earlier termination to the extent provided
in this Agreement.
(b) After a Change of Control and during the Modified
Employment Term, (i) the Employee's position (including status,
offices, titles and reporting requirements), authority, duties
and responsibilities in and with respect to the Company shall be
at least equivalent in all material respects to the most
significant of those held, exercised and assigned at any time
during the 120-day period immediately preceding the Change of
Control and (ii) the Employee's service shall be performed at the
location where the Employee was employed immediately preceding
the Change of Control or any office or location less than 50
miles from such location.
5.3 Compensation and Benefits. During the Modified
Employment Term, in addition to the compensation and benefits
described in Section 2, the Employee shall be entitled to the
following compensation and benefits:
(a) Salary. During the Modified Employment Term,
Employee's Base Salary shall be as provided for in Section 2.1.
(b) Benefit Plans. During the Modified Employment
Term, the Employee and his family, if any, shall be entitled to
participate in and receive applicable benefits under all such (i)
incentive, savings and retirement plans, practices, policies and
programs, (ii) welfare benefit plans, practices, policies and
programs (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental health
and travel accident insurance plans and programs) and (iii) paid
vacation and other fringe benefits, plans, practices, policies
and programs as are applicable generally to other peer employees
of the Company and its affiliated companies in effect generally
after the Change of Control or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
(c) Expenses. During the Modified Employment Term,
the Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Employee in
accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect
generally after the Change of Control with respect to other peer
employees of the Company and its affiliated companies or, if more
favorable to the Employee, as in effect for the Employee at any
time during the 120-day period immediately preceding the Change
of Control.
(d) Office and Support Staff. During the Modified
Employment Term, the Employee shall be entitled to an office or
offices of a size and with furnishings and other appointments,
and to personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided generally after
the Change of Control with respect to other peer employees of the
Company and its affiliated companies or, if more favorable to the
Employee, as in effect for the Employee at any time during the
120-day period immediately preceding the Change of Control.
5.4 Termination of Employment after a Change of Control.
After a Change of Control and during the Modified Employment
Term, the Employee's status as an employee shall terminate or may
be terminated as provided in Section 3 of this Agreement;
provided, however, that after a Change of Control and during the
Modified Employment Term the terms "Cause" and "Good Reason," as
used in Section 3 and elsewhere in this Agreement, shall have the
meanings given to them in this Section 5 and not the meanings
given to them in Section 3.
5.5 Obligations of the Company upon Termination after a
Change of Control. (a) If, after a Change of Control and prior
to the end of the Modified Employment Term, the Company
terminates the Employee's employment other than for Cause, death
or Disability, or the Employee terminates employment for Good
Reason, then
(i) within 30 days of the Date of Termination the
Company shall pay to the Employee in a lump sum an amount equal
to the Employee's Base Salary through the end of the Modified
Employment Term had such termination not occurred; and
(ii) Employee shall be entitled to the benefits
provided in Section 4.3(b) and the amounts, if any, contemplated
by Sections 4.6 and 4.7.
(b) If, after a Change of Control and prior to the end
of the Modified Employment Term, the Employee's employment is
terminated (i) for death, (ii) for Disability or (iii) for Cause
(as defined in this Section 5), by the Employee for reasons other
than Good Reason (as defined in this Section 5) or at the end of
the Modified Employment Term, then the Employee shall be entitled
to the benefits described in Section 4.1, Section 4.2 or Section
4.4, as the case may be, and shall be entitled to the benefits
described in Sections 4.6 and 4.7. If the Company or the
Employee gives notice of termination of the Modified Employment
Term as provided for in Section 5.2, the Company may, at its
option, terminate Employee's status as an Employee, in which case
such termination shall be deemed a termination without Cause for
purposes of all provisions of this Agreement.
(c) The rights and obligations of the Company and
Employee contained in Section 4.5 ("Resignation as Director")
shall continue to apply after a Change of Control.
5.6 Certain Additional Payments. If after a Change of
Control Employee is subjected to an excise tax as a result of the
"excess parachute payment" provisions of section 4999 of the
Internal Revenue Code of 1986, as amended, whether by virtue of
the benefits of this Agreement or by virtue of any other benefits
provided to Employee in connection with a Change of Control
pursuant to Company plans, policies or agreements (including the
value of any options to acquire Common Stock of the Company the
exercisability of which is accelerated pursuant to the terms of
any stock option, incentive or similar plan heretofore or
hereafter adopted by the Company), the Company shall pay to
Employee (whether or not his employment has terminated) such
amounts as are necessary to place Employee in the same position
after payment of federal income and excise taxes and state and
local income taxes as he would have been if such provisions had
not been applicable to him.
Section 6. Miscellaneous
6.1 Binding Effect.
(a) This Agreement shall be binding upon and inure to
the benefit of the Company and any of its successors or assigns.
(b) This Agreement is personal to the Employee and
shall not be assignable by the Employee without the consent of
the Company (there being no obligation to give such consent)
other than such rights or benefits as are transferred by will or
the laws of descent and distribution.
(c) The Company shall require any successor to or
assignee of (whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the
assets or businesses of the Company (i) to assume unconditionally
and expressly this Agreement and (ii) to agree to perform all of
the obligations under this Agreement in the same manner and to
the same extent as would have been required of the Company had no
assignment or succession occurred, such assumption to be set
forth in a writing reasonably satisfactory to the Employee. In
the event of any such assignment or succession, the term
"Company" as used in this Agreement shall refer also to such
successor or assign.
(d) The Company shall require all entities that
control, or that after the Change of Control will control,
directly or indirectly, any such successor or assignee to agree
to cause to be performed all of the obligations under this
Agreement in the same manner and to the same extent as would have
been required of the Company had no assignment or succession
occurred, such agreement to be set forth in writing reasonably
satisfactory to the Employee.
6.2 Notices. All notices hereunder must be in writing
and shall be deemed to have given upon receipt of delivery by:
(a) personal delivery to the designated individual, (b) certified
or registered mail, postage prepaid, return receipt requested,
(c) a nationally recognized overnight courier service (against a
receipt therefor) or (d) facsimile transmission with confirmation
of receipt. All such notices must be addressed as follows or
such other address as to which any party hereto may have notified
the other in writing:
If to the Company, to:
Akorn Manufacturing, Inc.
100 Akorn Drive
Abita Springs, Louisiana 70420
Attn: President
Facsimile transmission No. (504) 893-1257
If to the Employee, to:
Tim J. Toney
2850 Virt Road
Decatur, Illinois 62521
Facsimile transmission No. __________
6.3 Governing Law. This Agreement shall be construed
and enforced in accordance with and governed by the internal laws
of the State of Louisiana.
6.4 Withholding. The Employee agrees that the Company
has the right to withhold, from the amounts payable pursuant to
this Agreement, all amounts required to be withheld under
applicable income and/or employment tax laws, or as otherwise
stated in documents granting rights that are affected by this
Agreement.
6.5 Severability. If any term or provision of this
Agreement or the application thereof to any person or
circumstance, shall at any time or to any extent be invalid,
illegal or unenforceable in any respect as written, Employee and
the Company intend for any court construing this Agreement to
modify or limit such provision temporally, spatially or otherwise
so as to render it valid and enforceable to the fullest extent
allowed by law. Any such provision that is not susceptible of
such reformation shall be ignored so as to not affect any other
term or provision hereof, and the remainder of this Agreement, or
the application of such term or provision to persons or
circumstances other than those as to which it is held invalid,
illegal or unenforceable, shall not be affected thereby and each
term and provision of this Agreement shall be valid and enforced
to the fullest extent permitted by law.
6.6 Waiver of Breach. The waiver by either party of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach thereof.
6.7 Remedies Not Exclusive. No remedy specified herein
shall be deemed to be such party's exclusive remedy, and
accordingly, in addition to all of the rights and remedies
provided for in this Agreement, the parties shall have all other
rights and remedies provided to them by applicable law, rule or
regulation.
6.8 Company's Reservation of Rights. Employee
acknowledges and understands that the Employee serves at the
pleasure of the Board and that the Company has the right at any
time to terminate Employee's status as an employee of the
Company, or to change or diminish his status during the
Employment Term, subject to the rights of the Employee to claim
the benefits conferred by this Agreement.
6.9 Survival. Following the Date of Termination, each
party shall have the right to enforce all rights, and shall be
bound by all obligations, of such party that are continuing
rights and obligations under this Agreement.
6.10 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the Company and the Employee have caused
this Agreement to be executed as of the Agreement Date.
AKORN MANUFACTURING, INC.
By: /s/ Eric M. Wingerter
Eric M. Wingerter
Secretary
EMPLOYEE: /s/ Tim J. Toney
Tim J. Toney
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(In Thousands, Except Per Share Data)
Year Ended June 30,
1996 1995 1994
____________________________________
Earnings
Income applicable to common stock $ 788 $ 2,506 $ 2,415
====================================
Shares
Weighted average number of shares
outstanding 16,383 16,236 16,185
Additional shares assuming conversion
of options and warrants up to 20%
of shares outstanding 405 563 526
____________________________________
Pro forma shares 16,788 16,799 16,711
====================================
Net income per share $ .05 $ .15 $ .14
====================================
Exhibit 21.1
SUBSIDIARIES OF AKORN, INC.
Name State of Incorporation
1. Taylor Pharmaceuticals, Inc. Illinois
2. Spectrum Scientific Pharmaceuticals, Inc. Louisiana
3. Walnut Pharmaceuticals, Inc. Louisiana
4. Compass Vision, Inc. Louisiana
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-44785, 33-24970 and 33-70686 of Akorn, Inc. on Form S-8 of our report dated
September 11, 1996 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the Company's change in its method of
accounting for income taxes in 1994 and the Company's change in its method of
accounting for certain investments in debt and equity securities in 1995),
appearing in this Annual Report on Form 10-K of Akorn, Inc. for the year ended
June 30, 1996.
Deloitte & Touche llp
New Orleans, Louisiana
September 11, 1996
EXHIBIT 24.1
POWER OF ATTORNEY
(Form 10-K, FYE 6/30/96)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of Akorn, Inc. (the "Company") does hereby constitute
and appoint John N. Kapoor, Ph.D. and Eric M. Wingerter, and
anyone of them acting in the absence of the others, his true and
lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996, to sign any and all
amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent or his substitutes may lawfully do or cause to
be done by virtue hereof.
This instrument is executed by the undersigned on the date
indicated below.
/s/ Floyd Benjamin
Floyd Benjamin
September 19, 1996
(DATE)
EXHIBIT 24.2
POWER OF ATTORNEY
(Form 10-K, FYE 6/30/96)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of Akorn, Inc. (the "Company") does hereby constitute
and appoint John N. Kapoor, Ph.D. and Eric M. Wingerter, and
anyone of them acting in the absence of the others, his true and
lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996, to sign any and all
amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent or his substitutes may lawfully do or cause to
be done by virtue hereof.
This instrument is executed by the undersigned on the date
indicated below.
/s/ Daniel E. Bruhl, M.D.
Daniel E. Bruhl, M.D.
September 25, 1996
(DATE)
EXHIBIT 24.3
POWER OF ATTORNEY
(Form 10-K, FYE 6/30/96)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of Akorn, Inc. (the "Company") does hereby constitute
and appoint John N. Kapoor, Ph.D. and Eric M. Wingerter, and
anyone of them acting in the absence of the others, his true and
lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996, to sign any and all
amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent or his substitutes may lawfully do or cause to
be done by virtue hereof.
This instrument is executed by the undersigned on the date
indicated below.
/s/ J. Ed Campbell, M.D.
J. Ed Campbell, M.D.
September 19, 1996
(DATE)
EXHIBIT 24.4
POWER OF ATTORNEY
(Form 10-K, FYE 6/30/96)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of Akorn, Inc. (the "Company") does hereby constitute
and appoint John N. Kapoor, Ph.D. and Eric M. Wingerter, and
anyone of them acting in the absence of the others, his true and
lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996, to sign any and all
amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent or his substitutes may lawfully do or cause to
be done by virtue hereof.
This instrument is executed by the undersigned on the date
indicated below.
/s/ George S. Ellis, M.D.
George S. Ellis, M.D.
September 19, 1996
(DATE)
EXHIBIT 24.5
POWER OF ATTORNEY
(Form 10-K, FYE 6/30/96)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of Akorn, Inc. (the "Company") does hereby constitute
and appoint John N. Kapoor, Ph.D. and Eric M. Wingerter, and
anyone of them acting in the absence of the others, his true and
lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996, to sign any and all
amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent or his substitutes may lawfully do or cause to
be done by virtue hereof.
This instrument is executed by the undersigned on the date
indicated below.
/s/ Doyle S. Gaw
Doyle S. Gaw
September 19, 1996
(DATE)
EXHIBIT 24.6
POWER OF ATTORNEY
(Form 10-K, FYE 6/30/96)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of Akorn, Inc. (the "Company") does hereby constitute
and appoint John N. Kapoor, Ph.D. and Eric M. Wingerter, and
anyone of them acting in the absence of the others, his true and
lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996, to sign any and all
amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent or his substitutes may lawfully do or cause to
be done by virtue hereof.
This instrument is executed by the undersigned on the date
indicated below.
/s/ David H. Turner, M.D.
David H. Turner, MD
September 19, 1996
(DATE)
EXHIBIT 24.7
POWER OF ATTORNEY
(Form 10-K, FYE 6/30/96)
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
director of Akorn, Inc. (the "Company") does hereby constitute
and appoint John N. Kapoor, Ph.D. and Eric M. Wingerter, and
anyone of them acting in the absence of the others, his true and
lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996, to sign any and all
amendments thereto, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent or his substitutes may lawfully do or cause to
be done by virtue hereof.
This instrument is executed by the undersigned on the date
indicated below.
/s/ Lawrence A. Yannuzzi, M.D.
Lawrence A. Yannuzzi, M.D.
September 23, 1996
(DATE)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 891,149
<SECURITIES> 902,120
<RECEIVABLES> 5,255,545
<ALLOWANCES> (339,429)
<INVENTORY> 8,859,573
<CURRENT-ASSETS> 17,251,421
<PP&E> 19,295,103
<DEPRECIATION> (7,771,402)
<TOTAL-ASSETS> 29,816,794
<CURRENT-LIABILITIES> 9,600,948
<BONDS> 3,543,982
0
0
<COMMON> 14,174,475
<OTHER-SE> 2,126,534
<TOTAL-LIABILITY-AND-EQUITY> 29,816,794
<SALES> 33,924,792
<TOTAL-REVENUES> 33,924,792
<CGS> 21,972,301
<TOTAL-COSTS> 21,972,301
<OTHER-EXPENSES> 10,739,710
<LOSS-PROVISION> 124,000
<INTEREST-EXPENSE> 440,935
<INCOME-PRETAX> 976,582
<INCOME-TAX> 188,504
<INCOME-CONTINUING> 788,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 788,078
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
