SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. - )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Akorn, Inc.
(Name of Registrant as Specified In Its Charter)
Board of Directors of Akorn, Inc.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
AKORN
100 Akorn Drive
Abita Springs, Louisiana 70420
______________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held February 28, 1997
______________________________
TO THE SHAREHOLDERS OF AKORN, INC.:
The annual meeting of shareholders of Akorn, Inc. (the "Company)
will be held at ____ p.m., local time, on Friday, February 28, 1997 on
the 52nd Floor of Place St. Charles, 201 St. Charles Avenue, New
Orleans, Louisiana for the following purposes, more fully described in
the accompanying proxy statement:
1. To elect a board of five directors.
2. To consider a vote upon a proposal to amend the Company's Articles of
Incorporation to increase the number of authorized shares of capital
stock from 20 million shares of common stock, no par value per share, to
45 million shares, of which 40 million would be common shares, no par
value per share, and 5 million would be shares of preferred stock
issuable at the discretion of the Board of Directors.
3. To consider and vote upon an amendment to the Amended and Restated
Akorn, Inc. 1988 Incentive Compensation Program.
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on January
6, 1997 as the record date for the determination of shareholders
entitled to notice of and to vote at the annual meeting and all
adjournments thereof.
Your vote is important regardless of the number of shares you own.
Whether or not you plan to attend the annual meeting, please mark, date
and sign the enclosed proxy card and return it promptly in the enclosed
stamped envelope. Furnishing the enclosed proxy will not prevent you
from voting in person at the meeting should you wish to do so.
By Order of the Board of Directors
George S. Ellis, M.D.
Secretary
Abita Springs, Louisiana
January ___, 1997
<PAGE>
AKORN, INC.
100 Akorn Drive
Abita Springs, Louisiana 70420
PROXY STATEMENT
Annual Meeting of Shareholders
To be Held February 28, 1997
This proxy statement is furnished to shareholders of Akorn, Inc.
(the "Company") in connection with the solicitation of proxies on behalf
of the Company's Board of Directors for use at its annual meeting of
shareholders to be held at the date, time and place set forth in the
accompanying notice and at any adjournments thereof (the "Meeting").
The date of this Proxy Statement is January ___, 1997.
On January 6, 1997, the record date for determining shareholders
entitled to notice of and to vote at the Meeting, the Company had
outstanding __________ shares of common stock (the Company's only class
of authorized capital stock), each of which is entitled to one vote on
all matters to be considered at the Meeting.
Shares represented by all properly executed proxies on the
enclosed form received in time for the Meeting will be voted at the
Meeting. A proxy may be revoked at any time before it is exercised by
filing with the Secretary of the Company an instrument revoking it or a
duly executed proxy bearing a later date, or by attending the Meeting
and voting in person. Unless revoked, the proxy will be voted as
specified and, if no specifications are made, will be voted in favor of
the proposed nominees as described herein.
The cost of soliciting proxies in the enclosed form will be borne
by the Company. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone, telefax and telegraph.
Banks, brokerage houses and other institutions, nominees and fiduciaries
will be requested to forward solicitation materials to the beneficial
owners of the shares of common stock of the Company; upon request, the
Company will reimburse such persons for reasonable out-of-pocket
expenses incurred in connection therewith.
ELECTION OF DIRECTORS
Effective at the time of the Meeting the Company's by-laws will
provide for a Board of five directors and only five directors can be
elected at the Meeting. The Board of Directors has nominated five
candidates for election at the Meeting and recommends that shareholders
vote FOR the election of all five nominees.
Proxies cannot be voted for more than five candidates. In the
absence of contrary instructions, the proxy holders will vote for the
election of the five nominees listed below. In the unanticipated event
that one or more of such persons is unavailable as a candidate for
director, the persons named in the accompanying proxy will vote for
another candidate nominated by the Board of Directors.
The following table sets forth as of June 30, 1996 the age,
principal occupation and employment, position with the Company,
directorships in other public corporations, year first elected a
director of the Company, and beneficial ownership of shares of Company
common stock of each nominee for election as director at the coming
meeting. Unless otherwise indicated, each nominee has been engaged in
the principal occupation or occupations shown for more than the past
five years.
Principal Occupation
and Directorships in
Name and Age Other Public Corporations Director Since
_______________________ _______________________________ ______________
Floyd Benjamin, 53 Executive Vice President of 1996
the Company and President of
Taylor Pharmaceuticals, Inc.
(a subsidiary of the Company)
since May 1996; president of
Pasadena Research
Laboratories, Inc. ("PRL")
from October 1994 to May 1996
and consultant to PRL from
October 1993 to October 1994;
president and chief executive
officer of Neocrin, Inc.
(biomedical venture capital
company) from February 1992
to October 1993; prior to
October 1993, chief operating
officer of Lyphomed, Inc.
(injectable pharmaceuticals)
Daniel E. Bruhl, M.D., 54 Ophthalmologist; director of 1983
Surgical Care Affiliates,
Inc. (physicians' group
practice management)
Doyle S. Gaw, 65 Private investor 1975
John N. Kapoor, Ph.D., 53 Chief Executive Officer of 1991
the Company since May, 1996;
Chairman of the Board of the
Company since May 1995 and
from December 1991 to January
1993, and acting Chairman of
the Board of the Company from
April 1993 to May 1995;
chairman of the board of
Option Care, Inc. (infusion
services and supplies); chief
executive officer of Option
Care, Inc. from August 1993
to April 1996; president of E
J Financial Enterprises, Inc.
since April 1990; director of
Unimed, Inc. and NeoPharm,
Inc. (specialty
pharmaceutical companies)
[Name of fifth nominee] [Biographical information to
come.]
_____________________________
During the fiscal year ended June 30, 1996, the Board of Directors
of the Company held four meetings. The Board of Directors has an Audit
Committee, of which Mr. Gaw, Dr. Ellis and Dr. Turner are members, and a
Compensation Committee, of which Drs. Bruhl, Cunningham and Yannuzzi are
members. The Board of Directors does not have a Nominating Committee.
The Audit Committee, which met during fiscal 1996, is responsible for
consulting with the independent auditors with regard to the plan of
audit, reviewing the plan and the results of audits of the Company by
its independent auditors and discussing audit recommendations with
management and reporting the results of its reviews to the Board of
Directors. The Compensation Committee met twice during fiscal 1996 to
review various compensation matters with respect to executive officers
and directors. The Composition of Board committees is reviewed and
redetermined each year at the initial meeting of the Board after the
annual meeting of shareholders.
For services as Chairman of the Board and as a consultant to the
Company, Dr. Kapoor receives a fee of $50,000 per year. Each other
director who is not a salaried officer or consultant of the Company
receives a fee for his services as a director of $1,000 per regular
meeting of the Board of Directors, $250 per telephone meeting and $500
per committee meeting, plus reimbursement of his expenses related to
those services. In addition, the chairman of each committee (other than
Dr. Kapoor) receives an annual fee of $2,500.
All directors of the Company participate in the Company's Stock
Option Plan for Directors, pursuant to which each director of the
Company is granted an option to acquire 5,000 shares of Company common
stock on the day after each annual meeting of shareholders at which he
is elected to serve as a director. Any director appointed between
annual meetings is entitled to receive a pro rata portion of an option
to acquire 5,000 shares. The Committee may, in its sole discretion,
grant an option to purchase up to 100,000 shares to a person who is not
already a director and who becomes a director at any time; no member of
the Committee is eligible to be granted such an option and any director
who has been granted such an option is not permitted to serve on the
Committee for one year after such grant. Options granted under the plan
expire five years from the date of grant. The option exercise price is
the fair market value of the shares covered by the option at the time of
the grant.
Pursuant to the agreement under which Pasadena Research
Laboratories, Inc. was acquired by the Company in May 1996, Mr. Benjamin
was appointed a director of the Company for a term expiring at the
Meeting.
Under agreements between the Company and the John N. Kapoor Trust
dated September 20, 1989, the Trust is entitled to designate two
individuals to be nominated and recommended by the Company's Board of
Directors for election as a director. The individuals designated for
this purpose by Dr. Kapoor are himself and ____________.
During 1996, Dr. Campbell, a director of the Company, failed to
file timely with the Securities and Exchange Commission two Forms 4 to
report three transactions, as required by Section 16(a) of the
Securities Exchange Act of 1934, and Mr. Gaw, also a director, failed to
file timely two Forms 4 to report four such transactions. All such
transactions have been reported on amended annual statements on Form 5.
BENEFICIAL OWNERS
As of [June 30, 1996], the following persons were directors or
named executive officers with beneficial ownership. Dr. Kapoor is the
only person known to the Company to be the beneficial owner of five
percent or more of the Company's common stock. His address is 225 East
Deerpath, Suite 250, Lake Forest, Illinois, 60045. The information set
forth below has been determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934 based upon information furnished by the
persons listed.
<TABLE>
<CAPTION>
Beneficial Owner Shares Beneficially Owned(1) Percent of Class
___________________________ _______________________________ ____________________
<S> <C> <C>
Directors and Nominees
Floyd Benjamin 466,667(2) 2.82%
Daniel E. Bruhl, M.D. 290,517(3) 1.75%
J. Ed Campbell, M.D. 193,691(3) 1.17%
George S. Ellis, M.D. 284,260(3) 1.71%
Doyle S. Gaw 175,824(3) 1.06%
John N. Kapoor, Ph.D. 4,259,000(4) 24.20%
David H. Turner, M.D. 249,650(3) 1.50%
Lawrence A. Yannuzzi, M.D. 200,883(3) 1.21%
Fifth Nominee ----- -----
Named Executive Officers(5)
Harold O. Koch 127,107 0.76%
Tim J. Toney 179,967 1.08%
Directors and officers
as a group (11 persons) 6,485,291(6) 35.98%
____________________
(1) Beneficial ownership is determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934.
(2) Mr. Benjamin's shares are held by a trust of which Mr. Benjamin and
his wife are trustees and their child is beneficiary.
(3) These numbers contain options to purchase shares. The following
directors and officers have options to purchase 35,000 shares: Dr.
Bruhl, Dr. Campbell, Dr. Ellis, Mr. Gaw, Dr. Turner, and Dr. Yannuzzi.
Furthermore, several directors' shares are owned partially by family
members and pensions. The following shows the family members and
pensions of each such director and their amounts: Dr. Bruhl's pension -
64,266; and Dr. Ellis' wife - 101,500.
(4) Of such 4,259,000 shares, (i) 3,204,000 are owned directly by the
John N. Kapoor Trust dated September 20, 1989 (the "Trust") of which Dr.
Kapoor is the sole trustee and beneficiary, (ii) 1,000,000 are issuable
pursuant to a warrant issued to the Trust in 1992, (iii) 30,000 are
owned by a trust, the trustee of which is Dr. Kapoor's wife and the
beneficiaries of which are their children, and (iv) 25,000 are issuable
pursuant to options granted by the Company directly to Dr. Kapoor.
(5) Mr. Benjamin and Dr. Kapoor are named executive officers of the
Company, and information regarding their beneficial ownership is
included in this table under the section, "Directors and Nominees."
(6) Of such 6,485,291 shares, 1,448,950 are not presently outstanding,
but are issuable pursuant to option and warrant rights described in the
preceding footnotes and 213,950 are issuable pursuant to options held by
three officers of the Company who are not also directors.
</TABLE>
______________________________
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the
Company for services rendered during the fiscal years ended June 30,
1994, 1995 and 1996 to each person who, during fiscal 1996, served as
the chief executive officer of the Company and to each other executive
officer of the Company whose total annual salary and bonus for fiscal
1996 exceeded $100,000:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
____________________________ _________________
Year ended Number of All Other(1)
Name and Principal Position June 30 Salary Bonus Options Awarded Compensation
____________________________ ________ _________ ________ __________________ ______________
<S> <C> <C> <C> <C>
John N. Kapoor, Ph.D.(2) 1996 $10,000(3) --- --- $40,000(3)
Chief Executive Officer
Barry D. LeBlanc(4) 1996 $210,000 --- --- $2,100
President and Chief 1995 207,731 --- 34,000 2,310
Executive Officer 1994 184,362 $24,667 50,000 2,310
Harold O. Koch(5) 1996 $125,000 --- --- $ 938
Senior Vice President 1995 122,247 --- 58,000 1,530
1994 105,602 $16,444 25,000 791
Tim J. Toney (6) 1996 $120,000 --- --- $1,800
Vice President- 1995 117,292 --- 10,000 2,018
Manufacturing, 1994 115,000 $17,250 --- 359
Taylor Pharmaceuticals, Inc.
____________________
(1) Represents contributions to the Company's Savings and Retirement
Plan, except as indicated in note (3).
(2) Dr. Kapoor became Chief Executive Officer effective May 3, 1996.
(3) During fiscal 1996, Dr. Kapoor received $50,000 for his services as
Chairman of the Board of the Company, $40,000 of which was waived in
exchange for other consideration, as described under, "Transactions with
Shareholders and Directors."
(4) Mr. LeBlanc ceased being Chief Executive Officer of the Company
effective May 3, 1996.
(5) Mr. Koch became an executive officer of the Company in February 1993
and became Senior Vice President in January 1995.
(6) Mr. Toney ceased being an executive officer of the Company in May
1996.
</TABLE>
______________________________
Stock Option Exercises
Aggregate Option Exercises in Fiscal 1996 and
Option Values as of June 30, 1996
<TABLE>
<CAPTION>
No. of Unexercised Value of Unexercised
Options at In-the Money Options
No. of Shares June 30, 1996 at June 30, 1996
Acquired Value __________________________ _____________________________
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
____________ __________________________________________________________ ____________ ______________
<S> <C> <C> <C> <C> <C> <C>
John N. Kapoor 0 $ 0 0 0 $ 0 $ 0
Barry D. LeBlanc 143,500 121,075 328,469 0 399,462 0
Harold O. Koch 0 0 118,700 29,300 86,654 15,091
Tim J. Toney 0 0 45,000 5,000 27,500 0
______________________________
</TABLE>
Employment Agreements
In January 1996 the Company entered into employment agreements
with Messrs. LeBlanc, Koch and Toney calling for annual salaries of,
respectively, $210,000, $125,000 and $120,000, increased annually by the
percentage increase in the consumer price index (and, in the case of Mr.
LeBlanc, by specified increments conditioned on certain increases in the
trading price of the Company's common stock) plus bonuses determined by
the Board of Directors in its discretion. Messrs. LeBlanc and Koch were
provided with the use of an automobile.
The agreements terminate one year after notice of termination is
given by the Company or the employee. If the employee's employment is
otherwise terminated by the Company without "cause" (as defined in the
agreement) or by the employee for "good reason" (as defined in the
agreement), the employee is entitled to a lump sum payment equal to his
annual salary plus any performance-based bonus and options to which the
employee would have been entitled had the performance goals been met.
In the event of a change of control of the Company, the employee is
entitled upon termination of his employment by the Company for "cause"
(as defined in the agreement) or by the employee for "good reason" (as
defined in the agreement), to a lump sum payment equal to his annual
salary until the later of the second anniversary of the change of
control or one year after the notice of termination, plus any
performance-based bonus and options to which the employee would have
been entitled had the performance goals been met. If any such payments
are considered "excess parachute payments" under Section 4999 of the
Internal Revenue Code of 1996, the employee is entitled to such
additional amounts as would be necessary to place him in the same
position after payment of federal, state and local taxes as he would
have been in if such provisions had not been applicable to him.
The Company and Mr. LeBlanc entered into a separation agreement
effective as of July 3, 1996 under which Mr. LeBlanc's employment by the
Company and all of his rights under his employment agreement were
terminated in consideration of payment to him of $213,045 in four equal
installments of principal, plus interest, in July and October of 1996
and January and April of 1997, plus accrued but unpaid vacation and sick
leave of $23,423.
Compensation Committee Interlocks and Insider Participation
Drs. Campbell, Bruhl and Yannuzzi, who comprise the Compensation
Committee, are all independent, non-employee directors of the Company.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors reviews,
analyzes and makes recommendations related to compensation packages for
the Company's executive officers, evaluates the performance of the Chief
Executive Officer and administers the grant of stock options under the
Company's Incentive Compensation Plan. The committee awards all stock
options. As to other matters the committee makes recommendations that
are presented to the full Board for final approval.
The Company's executive compensation policies are designed to (a)
provide competitive levels of compensation to attract and retain
qualified executives, (b) reward achievements in corporate performance,
(c) integrate pay with annual and long-term performance goals, and (d)
align the interests of executives with the goals of shareholders.
Compensation paid to Company executives consists of salaries,
annual cash incentive bonuses and long-term incentive opportunities in
the form of stock options.
Salary
Dr. John N. Kapoor, the Chairman of the Company's Board of
Directors, has served as chief executive officer of the Company since
May 3, 1996. During fiscal 1996 Dr. Kapoor received no additional
compensation for serving as the Company's chief executive officer. The
salaries of Mr. Barry D. LeBlanc, who served as president and chief
executive officer of the Company until May 3, 1996, and the other
executive officers named in the table under Summary of Executive
Compensation, were fixed in their employment agreements, which are
described above under "Employment Agreements." Such amounts were
determined after considering the executive compensation policies noted
above, the impact the executive has on the Company, the skills and
experience the executive brings to the job, competition in the
marketplace for those skills and the potential of the executive in the
job.
Incentive Bonus
Annual incentive compensation for executive officers during fiscal
1996 was based on corporate net earnings as compared to pre-established
objectives set at the beginning of the fiscal year. Based on the
Company performance in relation to such objectives, no incentive bonus
was granted to any of the executive officers or any other officer of the
Company for fiscal 1996.
Mr. Floyd Benjamin, was hired as Executive Vice President of the
Company and president of the Company's injectable subsidiary effective
May 31, 1996. Pursuant to the three year contract with Mr. Benjamin, he
is eligible for bonuses each fiscal year beginning June 30, 1997 based
on certain performance criteria.
Stock Options
The Committee's practice with respect to stock options has been to
grant options based upon the attainment of Company performance goals and
that vest based on the passage of time. Based on the Company
performance in relation to pre-established objectives, no stock option
awards were made to executive officers in fiscal 1996.
It is the responsibility of the Committee to address the issues
raised by tax laws under which certain non-performance based
compensation paid to executives of public companies in excess of $1
million per year is non-deductible to the Company and to determine
whether any actions with respect to this limit should be taken by the
Company. It is not currently anticipated that any executive officer of
the Company will receive any such compensation in excess of this limit
in the near future. The Committee will continue to monitor this
situation and will take appropriate action if it is warranted in the
future.
The Compensation Committee is currently evaluating its policies
with respect to executive compensation in light of the recent
realignment of the Company into two distinct operating divisions.
Submitted by the Compensation Committee of the Board of Directors
J. Ed Campbell, M.D. Daniel E. Bruhl, M.D.
Lawrence A. Yannuzzi, M.D.
Performance Graph
The graph below compares the cumulative shareholder return on the
Company's Common Stock for the last five fiscal years with the S&P Small
Cap 600 Index and an index composed of a group of peer issuers. The
members of the peer group were selected by the Company based upon size
and type of business. The peer group consists of the following
companies: Chesapeake Biological, Inc.; Faulding, Inc.; Hi Tech
Pharmacal Co. Inc.; Insite Vision, Inc.; Nutramax Products, Inc.;
Pharmos Corp.; and Unimed Pharmaceuticals, Inc. The graph assumes $100
was invested in June 1991 in the Company Common Stock and the two
indices presented. The cumulative total return on the Company's Common
Stock for the period presented was 50%. The cumulative returns for the
S&P Small Cap 600 and the Company's peer group were 132% and 26%,
respectively.
[Insert - Performance Graph]
TRANSACTIONS WITH SHAREHOLDERS AND DIRECTORS
For services performed by Dr. Kapoor in connection with the
Company's acquisition of Taylor Pharmaceuticals, Inc., the John N.
Kapoor Trust dated September 20, 1989 received, among other things,
125,000 shares of Company common stock which were subject to forfeiture
if the market price of the Company common stock were not to reach $5.00
by January 15, 1996. At the time of this issuance, the market price of
Company common stock was $3.50 per share. In August 1995, the Company,
the Trust 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.
In connection with the acquisition of Pasadena Research
Laboratories, Inc. ("PRL") on May 31, 1996, the Company issued to Mr.
Floyd Benjamin, as a shareholder of PRL, 466,667 shares of Company
common stock. This amount was determined by arm's length negotiation
between the Company and the PRL shareholders.
PROPOSAL TO APPROVE AMENDMENT
TO ARTICLES OF INCORPORATION
Amendment to Increase Authorized Shares of Common Stock and to Authorize
Shares of Preferred Stock
The Company is currently authorized to issue an aggregate of 20
million shares of capital stock, consisting of 20 million shares of
common stock, no par value per share ("Common Stock"). As of November
6, 1996, there were 16,582,073 shares of Common Stock outstanding and
2,639,324 shares of Common Stock were reserved for issuance pursuant to
outstanding warrants and options. Accordingly, there are only 778,603
shares of Common Stock authorized under the Company's articles of
incorporation and available for issuance in the future pursuant to stock
incentive plans and for other purposes. For the reasons given below the
Board believes that this number of unreserved shares of Common Stock
available for issuance in the future is inadequate. The Board also
believes that in order to provide the flexibility it needs to properly
manage the Company and to raise additional capital, a class of preferred
stock should be authorized. Accordingly, the Board proposes to amend
the Company's articles of incorporation to increase the authorized
number of shares of capital stock to 45 million shares of which 40
million shares will be Common Stock and five million shares will be
preferred stock (the "Preferred Stock"). The Preferred Stock may be
issued from time to time in one or more series. Authority would be
vested in the Board to amend the articles of incorporation from time to
time to fix the preferences, limitations and relative rights as between
the Preferred Stock and the Common Stock, and to fix the variations in
the preferences, limitations and relative rights as between different
series of Preferred Stock. The affirmative vote of the holders of two-
thirds of the voting power present or represented at the Meeting is
required to approve the proposal. See "Other Matters -- Quorum and
Voting." The text of the amendment is attached as Exhibit A and this
discussion of the amendment is qualified in its entirety by this
reference to Exhibit A.
Purposes and Effects of the Proposed Amendment
The purpose of the proposed amendment is to allow the Company to
make full use of its stock-based benefit plans and to increase the
Company's flexibility to take advantage, without the need for further
shareholder approval, of transactions that require the issuance of
shares of Common Stock or Preferred Stock.
The three current benefit plans under which shares of Common Stock
may be issued are the 1991 Stock Option Plan for Directors, the Amended
and Restated Employee Stock Purchase Plan and the Amended and Restated
Akorn, Inc. 1988 Incentive Compensation Program (the "Plans"). On
November 6, 1996 1,639,324 shares were authorized for issuance, but not
yet issued, pursuant to the Plans or under options not yet granted
pursuant to the Plans. Because the number of shares of Common Stock
that are authorized by the articles of incorporation and available for
issuance in the future is less than the number of shares that are
currently authorized for issuance under the Plans, the Board will not be
able to make full and appropriate use of the Plans unless the number of
authorized shares of Common Stock is increased, as contemplated by the
proposed amendment. Moreover, as described below, the Board believes
that the number of shares issuable under the Company's Amended and
Restated Incentive Compensation Program should be increased. See
"Proposal to Approve the Amendment to the Company's Amended and Restated
Incentive Compensation Program."
The Board further believes that adoption of the proposed amendment
will enable the Company promptly and appropriately to respond to
business opportunities, such as opportunities to raise additional equity
capital or to finance acquisitions with Common Stock or Preferred Stock,
or to declare stock splits and stock dividends, although no such
transactions are currently planned by the Company. Given the number of
shares currently available for issuance, the Company would not be able
to accomplish any of these transactions without obtaining shareholder
approval of an increase in the authorized number of shares of Common
Stock and the authorization of the Preferred Stock. The cost, prior
notice requirements and delay involved in obtaining shareholder approval
at the time that corporate action may become desirable could prevent the
accomplishment of the action or reduce the expected benefits.
The additional shares of Common Stock proposed to be authorized,
and the Preferred Stock proposed to be created, together with existing
authorized and unissued shares, generally will be available for issuance
without any requirement for further shareholder approval, unless
shareholder action is required by applicable law or by the rules of the
Nasdaq National Market or of any stock exchange on which the Company's
securities may be listed. Although the Board will authorize the
issuance of additional shares only when it considers doing so to be in
the best interest of shareholders, the issuance of additional shares of
Common Stock and the issuance of Preferred Stock may, among other
things, have a dilutive effect on earnings per share of the Common Stock
and on the voting rights of holders of shares of Common Stock. The
Company's shareholders do not have any preemptive rights to subscribe
for additional shares of Common Stock that may be issued. Although the
Board has not made a determination as to whether it will adopt a
shareholder rights plan, it may do so in the future, in which case a
portion of the additional shares of Common Stock could facilitate the
operation of such a plan. The Board will be able to adopt such a plan,
however, whether or not the proposed amendment is approved by the
shareholders. In addition, although the Board has no current plans to
do so, shares of Common Stock could be issued in various other
transactions that would make a change in control of the Company more
difficult or costly and, therefore, less likely. For example, shares of
Common Stock could be sold privately to purchasers who might support the
Board in a control contest or to dilute the voting or other rights of a
person seeking to obtain control. The proposed amendment is not the
result of any specific effort to obtain control of the Company by a
tender offer, proxy contest, or otherwise, and the Company has no
present intention to use the increased shares of authorized Common Stock
or the newly authorized shares of Preferred Stock for anti-takeover
purposes.
The Board of Directors unanimously recommends that shareholders
vote FOR the proposal to amend the Company's Articles of Incorporation.
PROPOSAL TO APPROVE AN AMENDMENT TO THE
AMENDED AND RESTATED AKORN, INC.
1988 INCENTIVE COMPENSATION PROGRAM
General
The Company's 1988 Incentive Compensation Program (the "Program")
was originally adopted by the Board of Directors and approved by the
shareholders in 1988. In 1993 the Board adopted and the shareholders
approved an amendment to the Program to increase the number of shares
issuable thereunder. The Board of Directors has subsequently adopted
additional amendments to the Program. The terms of the Program are
summarized below.
At the Meeting, the shareholders will be requested to approve an
amendment to the Amended and Restated Akorn, Inc. 1988 Incentive
Compensation Program for the purpose of increasing the number of shares
issuable under the Program from two million shares to three million
shares.
Purpose of the Proposal and Prior Amendment of the Program
The Board of Directors continues to believe that the growth of the
Company depends significantly upon the efforts of its key employees.
The Board of Directors also believes that providing key employees with a
proprietary interest in the growth and performance of the Company is
crucial to stimulating individual performance while at the same time
enhancing shareholder value. The Board of Directors is proposing a one
million share increase in the number of shares issuable through the
Program in order that the Company may continue to provide an effective
means to secure, motivate and retain key personnel. The amendment is
being submitted to the shareholders for approval in order to satisfy the
requirements of the Nasdaq National Market.
Awards to be Granted
The grant of options under the Program is entirely in the
discretion of the Compensation Committee. The Committee has not yet
made a determination as to the awards to be granted under the amendment
to the Program, if it is approved by the shareholders.
Terms of the Program
Eligibility
The Program provides that key employees of the Company, including
directors who are also officers of the Company, will be eligible to
receive options under the Program when designated by the Compensation
Committee. Currently, there are approximately ___ key employees
eligible to receive options under the Program.
Shares Issuable through the Program
If the amendment is approved, a total of 1,000,000 additional
shares of Common Stock will be authorized to be issued under the
Program. As of ___________, 1996, a total of _______ shares were
available for issuance under the Program, and ________ shares were
subject to outstanding options. On December ___, 1996, the closing sale
price of a share of Common Stock, as reported on the Nasdaq National
Market, was $_______.
Adjustments under the Program
Proportionate adjustments will be made to the number of shares of
Common Stock subject to the Plan, including shares subject to
outstanding options, in the event of any recapitalization, stock
dividend, stock split, combination of shares or other change in the
Common Stock.
In the event of a dissolution or liquidation of the Company, or a
reorganization, merger or consolidation of the Company with any other
corporation, or a transfer of substantially all the property or more
than two-thirds of the then outstanding shares to another corporation,
notice must be given to every participant in the Program not less than
40 days prior to the anticipated effective date of the proposed
transaction, and every option granted under the Program shall be
accelerated and become immeditately exercisable in full prior to a date
specified in such notice, not more than 10 days prior to the anticipated
effective date of the proposed transaction. If the transaction is
consummated, each previously unexercised option shall terminate. If the
transaction does not occur, the options will remain unexercised.
Terms of Stock Options
The Compensation Committee determines the number and purchase
price of the shares subject to options, the term of the options and the
time or times that the options become exercisable, provided that the
purchase price may not be less than 50% of the fair market value of the
Common Stock on the date of grant. The Compensation Committee may
accelerate the exercisability of any option or may determine to cancel
any option in order to make a participant eligible for the grant of an
option at a lower price. The Compensation Committee may approve the
purchase by the Company of an unexercised stock option for the
difference between the exercise price and the fair market value of the
shares covered by such option.
The option exercise price may be paid in cash, in shares of Common
Stock which must have been held for at least six months, in a
combination of cash and shares of Common Stock or through a broker
assisted exercise arrangement approved in advance by the Compensation
Committee. The Compensation Committee determines at what time or times
during its term a stock option shall be exercisable; provided, however,
that no stock option granted to an officer, director or beneficial owner
of more than 10% of the Common Stock who is subject to Section 16 of the
1934 Act may be exercised within the six-month period immediately
following the date of grant.
The Committee shall determine the term of each Option granted
under the Program, but such term shall not exceed ten years and one day
from the date of grant.
Amendments to the Program
The Board of Directors may amend or discontinue the Program at any
time. No amendment or discontinuance, however, may change or impair,
without the consent of the optionee, an option previously granted.
Under the terms of the Program, shareholder approval is required for an
amendment if it is necessary to comply with Rule 16b-3 under the
Securities Exchange Act of 1934. Pursuant to recent amendments to Rule
16b-3, shareholder approval of amendments is no longer required. The
Board seeks approval of this amendment for purposes of Nasdaq National
Market rules, which require approval by shareholders of an amendment to
a compensation plan for officers or directors that materially increases
the number of shares issuable under the plan. Shareholder approval of
subsequent amendments to the Program will be sought if required by
Nasdaq National Market or other applicable rules.
Federal Income Tax Consequences
Under existing federal income tax provisions, a participant who
receives non-qualified stock options will not normally realize any
income, nor will the Company normally be entitled to any deduction for
federal income tax purposes, in the year of grant.
When a non-qualified stock option is exercised, the participant
will realize ordinary income measured by the difference between the
aggregate fair market value of the shares of Common Stock on the
exercise date and the aggregate purchase price of the shares of Common
Stock as to which the option is exercised, and, subject to compliance
with Section 162(m) of the Code, the Company will be entitled to a
deduction in the year the option is exercised equal to the amount the
employee is required to treat as ordinary income.
If the exercise price of an option is paid by the surrender of
previously-owned shares, the basis and the holding period of the
previously-owned shares carries over to some of the shares received in
exchange therefor. The income recognized on exercise is added to the
basis of the remaining shares received.
When the exercisability of a stock option granted under the
Program is accelerated upon a change of control, any excess on the date
of the change of control of the fair market value of the shares subject
to the option over the exercise price may be characterized as "parachute
payments" (within the meaning of Section 280G of the Code) if the sum of
such amounts and any other such contingent payments received by the
employee in connection with the change of control exceeds an amount
equal to three times the "base amount" for such employee. The base
amount generally is the average of the annual compensation of such
employee for the five years preceding such change in ownership or
control. An "excess parachute payment" with respect to any employee is
the excess of the present value of the parachute payments to such
person, in the aggregate, over and above such person's base amount. If
the amounts received by an employee upon a change of control are
characterized as parachute payments, such employee will be subject to a
20% excise tax on the excess parachute payments pursuant to Section 4999
of the Code, and the Company will be denied any deduction with respect
to such excess parachute payments.
This summary of federal income tax consequences of non-qualified
stock options does not purport to be complete. Reference should be made
to the applicable provisions of Code.
Vote Required
The affirmative vote of the holders of a majority of the voting
power present or represented at the Meeting is required for the approval
of the amendment to the Program.
The Board of Directors unanimously recommends that shareholders
vote FOR the proposal to approve the amendment to the Company's Amended
and Restated 1988 Incentive Compensation Program.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
A representative of Deloitte & Touche, the Company's independent
accountant for the fiscal year ended June 30, 1996, is expected to
attend the Meeting, will have an opportunity to make a statement if he
wishes to do so, and will be available to respond to appropriate
questions.
OTHER MATTERS
Quorum and Voting
The presence, in person or by proxy, of a majority of the
outstanding shares of common stock of the Company is necessary to
constitute a quorum. Shareholders voting, or abstaining from voting, by
proxy on any issue will be counted as present for purposes of
constituting a quorum. If a quorum is present, (i) the election of the
five directors to be elected at the Meeting will be determined by
plurality vote (that is, the five nominees receiving the largest number
of votes will be elected), (ii) the affirmative vote of the holders of
two-thirds of the voting power present or represented at the Meeting is
required to approve the proposal to approve the amendment to the
Company's articles of incorporation to increase the number of authorized
shares and to authorize shares of preferred stock, (iii) a majority of
votes actually cast at the Meeting is required to approve the proposal
to amend the Company's Amended and Restated Incentive Compensation
Program and (iv) a majority of votes actually cast will decide any other
matter properly brought before the Meeting for a vote of shareholders.
Shares for which proxy authority to vote for any nominee for election as
a director is withheld by the shareholder and shares that have not been
voted by brokers who may hold shares on behalf of the beneficial owners
("broker non-votes") will not be counted as voted for the affected
nominee. With respect to the proposal to approve the amendment to the
Company's articles of incorporaiton, shares abstained from voting will
be considered present or represented at the Meeting for purposes of
determining whether or not two-thirds of such shares were voted for such
proposal, but shares not voted as a result of broker non-votes will not
be so considered. With respect to all other matters, shares not voted
as a result of abstentions and broker non-votes will not be considered
as voted for purposes of determining whether or not a majority of votes
were cast for such matters.
Other Business
Management is unaware of any matter for action by shareholders at
the Meeting other than those described in the accompanying notice. The
enclosed proxy, however, will confer discretionary authority with
respect to any other matter that may properly come before the Meeting or
any adjournment thereof. It is the intention of the persons named in
the enclosed proxy to vote in accordance with their best judgment on any
such matter.
Shareholder Proposals
Any shareholder who desires to present a proposal qualified for
inclusion in the Company's proxy materials for the annual meeting of
shareholders to be held in 1998 must forward the proposal in writing to
the President of the Company at the address shown on the first page of
this proxy statement in time to arrive at the Company no later than
September ___, 1997.
By Order of the Board of Directors
George S. Ellis, M.D.
Secretary
Abita Springs, Louisiana
January ___, 1997
<PAGE>
EXHIBIT A
Set Forth Below is the Text of the Amendment to the Articles of
Incorporation
Increasing the Number of Authorized Shares of Common Stock
and authorizing shares of Preferred Stock. Material to be Added as a
Result of the Amendment is Shown in Boldface Type, and Material to be
Deleted is Shown in Brackets.
ARTICLE V
CAPITAL
A. The Corporation shall have authority to issue an aggregate
of [20 million] 45 million shares of capital stock, of which 40 million
shares shall be Common Stock, no par value per share, and 5 million
shares shall be Preferred Stock, $1.00 par value per share.
B. Shares of Preferred Stock may be issued from time to time in
one or more series. Authority is hereby vested in the Board of
Directors of the Corporation to amend these Articles of Incorporation
from time to time to fix the preferences, limitations and relative
rights as between the Preferred Stock and the Common Stock, and to fix
the variations in the preferences, limitations and relative rights as
between different classes and series of Preferred Stock.
<PAGE>
[FRONT]
PROXY This Proxy is Solicited on Behalf of the Board of Directors of
AKORN, INC.
The undersigned hereby constitutes and appoints _______________ and
_______________ or either of them proxy for the undersigned, with full
power of substitution, to represent the undersigned and to vote, as
designated below, all of the shares of Common Stock of Akorn, Inc. (the
"Company") that the undersigned is entitled to vote held of record by the
undersigned on January 6, 1997, at the annual meeting of shareholders of
the Company to be held on February 28, 1997 (the "Annual Meeting"), and at
all adjournments thereof.
The Board of Directors recommends a vote FOR the nominees listed below.
1. Election of Directors.
FOR [ ] all nominees listed below (except as WITHHOLD AUTHORITY [ ] to vote
marked to the contrary below) for all nominees listed
below
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name
in the list below:
Daniel E. Bruhl, M.D. Doyle S. Gaw [Name of Fifth Nominee]
Floyd Benjamin John N. Kapoor, Ph.D.
2. Proposal to amend the Company's Articles of Incorporation to increase
the number of authorized shares of capital stock to 45 million
shares of capital stock of which 40 million would be shares of
common stock and 5 million would be shares of preferred stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to amend the Amended and Restated Akorn, Inc. 1988 Incentive
Compensation Program.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion to vote upon such other business as may properly
come before the Annual Meeting and any adjournments thereof.
(Please See Reverse Side)
[REVERSE SIDE]
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this
proxy will be voted FOR the nominees and FOR the proposals listed over.
The individuals designated above will vote in their discretion on any other
matter that may properly come before the meeting.
Date:
, 1997
Signature of Shareholder
Signature if held jointly
Please sign exactly as name
appears on the certificate or
certificates representing
shares to be voted by this
proxy, as shown on the label
to the left. When signing as
executor, administrator,
attorney, trustee, or guar-
dian please give full title
as such. If a corporation,
please sign full corporation
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by author-
ized persons.
Please mark, sign, date and return this proxy promptly using
the enclosed envelope.
