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PROPOSAL 3
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APPROVAL OF THE AKORN, INC. 2017 OMNIBUS INCENTIVE COMPENSATION PLAN
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In February 2017, the Board of Directors (the “Board”) approved the adoption of the Akorn, Inc. 2017 Omnibus
Incentive Compensation Plan (the “Plan”), subject to approval by our shareholders. The Board adopted the Plan as a flexible omnibus incentive compensation plan that would allow the Company to use different forms of compensation awards to
attract new employees, executives and directors, to further the goal of retaining and motivating existing personnel and directors and to further align such individuals’ interests with those of our shareholders. Accordingly, the Board is seeking
shareholder approval of the Plan.
The following information regarding the Plan is being provided to you in connection with the solicitation of proxies for the
approval of the adoption of the Plan. The following description of the Plan is a summary only and does not purport to be complete. The summary is qualified in its entirety by reference to the Plan. The text of the Plan is attached as
Appendix
A
to this proxy statement. You are urged to read the Plan.
General Plan Information
The Plan is intended to replace the Amended and Restated Akorn, Inc. 2014 Stock Option Plan (the “2014 Plan”), under which no new awards will be allowed to be
granted as of the date the Plan is approved by the shareholders of the Company (the “Approval Date”). The 2014 Plan previously replaced and superseded the Akorn, Inc. 2014 Stock Option Plan (the “Old 2014 Plan”), which previously
replaced the expired Akorn, Inc, 2003 Stock Option Plan (the “2003 Plan” and, collectively with the 2014 Plan and the Old 2014 Plan, the “Prior Plans”). If the Plan is
approved, 8,000,000 shares of the Company’s common stock (“Shares”) will be available for issuance under the Plan pursuant to any form of equity awards permitted under the Plan.
Outstanding awards under the Prior Plans would continue to be governed by the terms of the applicable plan until exercised, settled, expired or otherwise terminated or canceled. However, no future awards would be granted under the Prior Plans
following approval of the Plan.
The Committee’s independent compensation consultant, Willis Towers Watson, provided analysis to management regarding the
number of Shares to reserve for issuance pursuant to the Plan, and conducted a general review of the Plan with respect to current market practices.
Burn Rate
The following table sets forth information regarding awards granted and the burn rate for each of the last three years and the average burn rate over the last
three years. For each year, the burn rate has been calculated as the quotient of (1) the sum of all options and service-based RSUs granted in such year, divided by (2) the weighted average number of Shares outstanding at the end of such
year. If the Plan is not approved, the Company will no longer be able to grant equity awards after the date the Shares currently available under the Prior Plans are exhausted, which we expect would occur prior to our 2018 Annual Meeting. This could
have a detrimental effect on the Company’s ability to attract, retain and motivate directors, officers and employees. As of March 2, 2017, there were 2,686,657 Shares available for grants under the Prior Plans.
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AKORN, INC.
- 2017 Proxy Statement
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BURN RATE
(Shares in thousands)
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Year Ended December 31
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3-Year
Average
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2016
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2015
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2014
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Options granted
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2,089
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1,016
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1,475
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1,527
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RSUs granted
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302
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0
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337
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213
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Weighted average Shares outstanding
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122,869
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116,980
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103,480
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114,443
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Burn rate
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1.9
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%
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0.9
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%
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1.8
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%
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1.5
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%
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Dilution
Our capital structure consists of 150,000,000 authorized shares of common stock and 5,000,000 authorized shares of preferred stock. The table below represents our
potential overhang levels based on our Shares outstanding and our request of 8,000,000 additional Shares to be available for awards pursuant to the Plan. Our Board believes that the increase in Shares under the Plan represents a reasonable amount of
potential equity dilution, which will allow us to continue awarding equity
incentives, an important component of our overall compensation program. This conclusion is based, in part, on advice received by our independent compensation consultant, and an analysis of the
equity grant practices of companies within our industry classification with a market capitalization that is similar to ours. Although the use of equity is an important part of our compensation program, we are mindful of our responsibility to our
shareholders in granting equity awards.
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Potential Overhang with Additional Shares from Plan:
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Equity awards outstanding as of March 2, 2017
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5,167,776
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Shares available for grant under the Prior Plans following the Approval Date
(1)
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0
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Additional requested Shares under the Plan
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8,000,000
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Total Potential Dilution, or Overhang
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13,167,776
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Potential Dilution as a Percentage of Shares Outstanding
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10.6
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%
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(1)
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Shares available for issuance under the Prior Plans that are not subject to outstanding awards as of the Approval Date will not be utilized under the new Plan.
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Material Features of the Plan
Below is a summary of some of the material features of the Plan:
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No liberal share recycling
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Shares withheld or tendered to satisfy applicable tax withholding obligations or in payment of the exercise price of an award would not be available again for delivery under the Plan.
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Each Share with respect to which a stock-settled stock appreciation right is exercised would be counted as one Share against the maximum number of
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Shares available for delivery under the Plan, regardless of the number of Shares actually delivered upon settlement of such stock-settled stock appreciation right.
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No automatic “single-trigger” vesting of awards upon a Change of Control
. Awards would not accelerate upon a Change of Control (as defined below), unless the awards are not assumed by the acquiror.
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No liberal Change of Control definition
. The definition of Change of Control would require consummation, not only shareholder approval, of a merger or similar corporate transaction.
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- 2017 Proxy Statement
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Dividend and dividend equivalents
. No dividends or dividend equivalents would be paid on any award until the underlying award becomes payable.
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No repricing of options or stock appreciation rights
. The Committee would not have the power to reprice options or stock appreciation rights with an exercise price that is less than the original exercise price,
unless such action is approved by our shareholders.
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No evergreen funding feature
. The Plan does not contain a provision for automatic increases in Shares available under the Plan.
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Ten-year
expiration
. No stock option or stock appreciation right would be permitted to be exercisable after the
ten-year
anniversary
of the date of grant.
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Summary of the Plan
Types of
Awards
The Plan would provide for the grant of incentive stock options (“ISOs),
non-qualified
stock options
(“NSOs”), stock appreciation rights (“SARs”), restricted share awards, restricted stock units (“RSUs”), performance compensation awards, performance units, cash incentive awards, deferred share units and other
equity-based and equity-related awards and cash-based awards.
Plan Administration
The Plan would be administered by the Compensation Committee of the Board (the “Committee”) or such other committee the Board designates to administer the
Plan. Subject to the terms of the Plan and applicable law, the Committee would have sole authority to administer the Plan, including, but not limited to, the authority to (1) designate plan participants, (2) determine the type or types of
awards to be granted to a participant, (3) determine the number of Shares or dollar value to be covered by awards, (4) determine the terms and conditions of awards, (5) determine the vesting schedules of awards and, if certain
performance criteria were required to be attained in order for an award to vest or be settled or paid, establish such performance criteria and certify whether, and to what extent, such performance criteria have been attained, (6) determine
whether, to
what extent and under what circumstances awards may be settled or exercised in cash, shares, other securities, other awards or other property, or canceled, forfeited or suspended and the method
or methods by which awards may be settled, exercised, canceled, forfeited or suspended, (7) interpret, administer, reconcile any inconsistency in, correct any default in or supply any omission in, the Plan, (8) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it should deem appropriate for the proper administration of the Plan, (9) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, awards, and
(10) make any other determination and take any other action that the Committee deemed necessary or desirable for the administration of the Plan.
Shares
Available For Awards
Subject to adjustment for changes in capitalization, the maximum aggregate number of Shares that would be available to be delivered
pursuant to awards granted under the Plan would be 8,000,000. Awards that are settled in cash would not reduce the maximum aggregate number of Shares available for delivery under the Plan. If, after the effective date of the Plan, any award granted
under the Plan were forfeited (including due to the failure to satisfy any applicable performance goals), or otherwise expired, terminated or were canceled without the delivery of all Shares subject thereto, or were settled other than by the
delivery of Shares (including cash settlement), then the number of Shares subject to such award that were not issued would not be treated as issued for purposes of reducing the maximum aggregate number of Shares that may be delivered pursuant to the
Plan (other than in the case of the maximum aggregate number of Shares that may be delivered pursuant to ISOs). However, Shares that were surrendered or tendered to us in payment of the exercise price of an award or any taxes required to be withheld
in respect of an award would not become available again to be delivered pursuant to awards under the Plan.
Subject to adjustment for changes in capitalization, the
maximum aggregate number of Shares that may be delivered pursuant to ISOs granted under the Plan would be 1,500,000.
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Subject to adjustment for changes in capitalization, with respect to awards that are intended to qualify as
“qualified performance-based compensation” under Section 162(m) of the Code (including options and SARs), the maximum aggregate number of Shares that would be available to be granted pursuant to awards in any fiscal year would be 2,000,000
for any participant in the Plan. In the case of such awards settled in cash based on the fair market value of a Share, the maximum aggregate amount of cash that would be permitted to be paid pursuant to awards granted to any participant in the Plan
in any fiscal year would be equal to the
per-Share
fair market value as of the relevant vesting, payment or settlement date multiplied by 2,000,000. In the case of all other such awards, the maximum aggregate
amount of cash and other property (valued at fair market value) that would be permitted to be paid or delivered pursuant to awards under the Plan (other than as described in the two immediately preceding sentences) to any participant in any fiscal
year would be $3,000,000.
Subject to adjustment for changes in capitalization, with respect to awards granted to independent directors, the maximum aggregate
number of Shares that would be available to be granted pursuant to awards in any fiscal year would be 200,000. In the case of all other awards, the maximum aggregate amount of cash and other property (valued at fair market value) that would be
permitted to be paid or delivered pursuant to awards under the Plan (other than as described in the immediately preceding sentences) to any independent director in any fiscal year, together with any other fees or compensation paid to an
independent director outside of the Plan for services as an independent director, would be $250,000.
Changes in Capitalization
In the event of any extraordinary dividend or other extraordinary distribution, recapitalization, rights offering, stock split, reverse stock split,
split-up
or
spin-off
affecting the Shares, the Committee would make equitable adjustments and other substitutions to the Plan and awards under the Plan in the manner it
determined to be appropriate or desirable. In the event of any reorganization, merger, consolidation,
combination, repurchase or exchange of Shares or other similar corporate transactions, the Committee in its discretion would be permitted to make such adjustments and other substitutions to the
Plan and awards under the Plan as it deemed appropriate or desirable.
Substitute Awards
The Committee would be permitted to grant awards in assumption of, or in substitution for, outstanding awards previously granted by us or any of our affiliates or a
company that we acquired or with which we combined. Any Shares issued by us through the assumption of or substitution for outstanding awards granted by a company that we acquired would not reduce the aggregate number of Shares available for awards
under the Plan, except that awards issued in substitution for ISOs would reduce the number of Shares available for ISOs under the Plan.
Source of Shares
Any Shares issued under the Plan would consist, in whole or in part, of authorized and unissued Shares or of reacquired Shares.
Eligible Participants
Any director, officer, employee or consultant
(including any prospective director, officer, employee or consultant) of the Company or our affiliates would be eligible to participate in the Plan. We currently expect that awards generally will be limited to approximately 1,655 employees and
non-employee
directors (of whom there are currently eight (8) eligible directors).
Stock Options and Stock
Appreciation Rights
The Committee would be permitted to grant ISOs, NSOs and SARs under the Plan. The exercise price for options or SARs would not be less
than the fair market value of our common stock on the grant date. The Committee would not be permitted to reprice any option granted or SAR granted under the Plan without shareholder approval. All options granted under the Plan would be NSOs unless
the applicable award agreement expressly stated that the option was intended to be an ISO. All options and SARs would be intended to qualify as “performance-based compensation” under Section 162(m) of the Code. Subject to the
provisions of the Plan and the applicable award agreement, the
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Committee would determine the vesting criteria, term, methods of exercise and any other terms and conditions of any option or SAR.
Unless otherwise set forth in the applicable award agreement, each option or SAR then outstanding would expire upon the earlier of (i) the tenth anniversary of the
date the option was granted and (ii) three months after the participant who was holding the option ceased to be a director, officer, employee or consultant for us or one of our affiliates for any reason.
In the case of options, the exercise price would be permitted to be paid with cash (or its equivalent) or, in the sole discretion of the Committee, with previously
acquired Shares or through delivery of irrevocable instructions to a broker to sell our common stock otherwise deliverable upon the exercise of the option (provided that there was a public market for our common stock at such time), by having us
withhold Shares from those otherwise issuable pursuant to the exercise of the option, or, in the sole discretion of the Committee, a combination of any of the foregoing, provided that the combined value of all cash and cash equivalents and the fair
market value of any such Shares so tendered to us as of the date of such tender, together with any Shares withheld by us in respect of taxes relating to an option, was at least equal to such aggregate exercise price.
The Committee would be permitted to substitute, without the consent of the affected holder, SARs settled in shares (including SARs settled in Shares or cash in the
Committee’s discretion) for outstanding NSOs, provided that the substitution shall not otherwise result in a modification of the terms of, or change the number of Shares and exercise price of, any substituted option. If, in the opinion of the
Company’s auditors, this provision creates adverse accounting consequences for the Company, it would be considered null and void.
Restricted Shares and
Restricted Stock Units
Subject to the provisions of the Plan, the Committee would be permitted to grant restricted shares and RSUs. Restricted shares and
RSUs would not be permitted to be sold, assigned, transferred, pledged or otherwise encumbered except as provided in the Plan or the applicable
award agreement, except that the Committee could determine that restricted shares and RSUs would be permitted to be transferred by the participant for no consideration. Restricted shares could be
evidenced in such manner as the Committee would determine.
An RSU would be granted with respect to one Share or have a value equal to the fair market value of one
such Share. Upon the lapse of restrictions applicable to an RSU, the RSU could be paid in cash, Shares, other securities, other awards or other property, as determined by the Committee, or in accordance with the applicable award agreement. In
connection with each grant of restricted shares, except as provided in the applicable award agreement, the holder would be entitled to the rights of a shareholder (including the right to vote and receive dividends) in respect of such restricted
shares.
Performance Units
Subject to the provisions of the Plan,
the Committee would be permitted to grant performance units to participants. Performance units would be awards with an initial value established by the Committee (or that was determined by reference to a valuation formula specified by the Committee)
at the time of the grant. In its discretion, the Committee would set performance goals that, depending on the extent to which they were met during a specified performance period, would determine the number or value of performance units that would be
paid out to the participant. The Committee, in its sole discretion, would be permitted to pay earned performance units in the form of cash, Shares or any combination thereof that would have an aggregate fair market value equal to the value of the
earned performance units at the close of the applicable performance period. The determination of the Committee with respect to the form and timing of payout of performance units would be set forth in the applicable award agreement. The Committee
would be permitted to, on such terms and conditions as it might determine, provide a participant who holds performance units with dividend equivalents, payable in cash, Shares, other securities, other awards or other property. If a performance unit
were intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the requirements below described in
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“Performance Compensation Awards” would be required to be satisfied.
Cash Incentive Awards
Subject to the provisions of the Plan, the Committee would be permitted to grant cash incentive awards to participants. In its discretion, the Committee
would determine the number of cash incentive awards to be awarded, the duration of the period in which, and any condition under which, the cash incentive awards would vest or be forfeited, and any other terms and conditions applicable to the cash
incentive awards. Subject to the provisions of the Plan, the holder of a cash incentive award would receive payment based on the amount of the cash incentive award earned, which would be determined by the Committee, in its discretion, based on the
extent to which performance goals or other conditions applicable to the cash incentive award have been achieved. If a cash incentive award were intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the
requirements described below in “Performance Compensation Awards” would be required to be satisfied.
Other Stock-Based Awards
Subject to the provisions of the Plan, the Committee would be permitted to grant to participants other equity-based or equity-related compensation awards, including
vested Shares. The Committee would be permitted to determine the amounts and terms and conditions of any such awards. If such an award were intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the
requirements described below in “Performance Compensation Awards” would be required to be satisfied.
Performance Compensation Awards
The Committee would be permitted to designate any award granted under the Plan (other than options and SARs) as a performance compensation award in order to qualify such
award as “performance-based compensation” under Section 162(m) of the Code. Awards designated as performance compensation awards would be subject to the following additional requirements:
Recipients of Performance Compensation Awards
. The Committee would, in its sole
discretion, designate within the first 90 days of a performance period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the participants who would be
eligible to receive performance compensation awards in respect of such performance period. The Committee would also determine the length of performance periods, the types of awards to be issued, the performance criteria that would be used to
establish the performance goals, the kinds and levels of performance goals and any performance formula used to determine whether a performance compensation award had been earned for the performance period.
Performance Criteria Applicable to Performance Compensation Awards
. The performance criteria would be limited to the following: (A) gross or net earnings,
earnings per share or other earnings ratios, earnings before interest and taxes, or before interest, tax, depreciation and amortization (EBITDA), or adjusted EBITDA; (B) operating, gross or net income (before or after interest, tax,
depreciation, amortization, net loss on early extinguishment of debt and/or the impact of share-based compensation, other operating income or expense and/or other identified costs associated with nonrecurring projects); (C) cash flow (including free
cash flow, operating cash flow, or cash flow return on investment); (D) gross or operating profit (before or after taxes); (E) gross profit return on investment, gross margin return on investment, return on equity, return on capital, return on
invested capital, return on assets, return on net assets or other financial return ratios; (F) gross or operating margin; (G) working capital; (H) net or gross revenue, license revenues, revenue growth, product revenue growth, or
annual or other recurring revenues; (I) sales, net sales, or market share; (J) costs or reduction in costs; (K) share price or other shareholder return measures; (L) economic value added; (M) customers or customer growth;
(N) inventory or receivable turnover; (O) customer satisfaction surveys; (P) productivity; (Q) specified objectives with regard to bank debt or other long-term or short-term public or private debt or other similar financial
obligations (which may be calculated net of cash balances and/or other offsets and adjustments); (R) operating and other expense levels; (S) product unit and pricing targets; (T) identification and/or consummation of
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investment opportunities or completion of specified projects, including strategic mergers, acquisitions or divestitures; (U) enterprise, book, economic book or intrinsic book value
(including book value per Share); (V) leverage ratios; (W) credit rating; (X) days sales outstanding; (Y) operational, safety and/or quality metrics; and (Z) product innovation. These performance criteria would be permitted to be
applied on an absolute basis or be relative to one or more peer companies or indices or any combination thereof or, if applicable, be computed on an accrual or cash accounting basis. The performance goals and periods could vary from participant to
participant and from time to time. To the extent required under Section 162(m) of the Code, the Committee would, within the first 90 days of the applicable performance period (or, if shorter, within the maximum period allowed under Section 162(m) of
the Code), define in an objective manner the method of calculating the performance criteria it selected to use for the performance period.
Modification of
Performance Goals
. The Committee would be permitted to adjust or modify the calculation of performance goals for a performance period in the event of, in anticipation of, or in recognition of, any unusual or extraordinary corporate item,
transaction, event or development or any other unusual or nonrecurring events affecting us, any of our affiliates, subsidiaries, divisions or operating units (to the extent applicable to such performance goal) or our financial statements or the
financial statements of any of our affiliates, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles, law or business conditions, so long as that adjustment
or modification did not cause the performance compensation award to fail to qualify as “performance-based compensation” under Section 162(m) of the Code.
Requirements to Receive Payment for 162(m) Awards
. Except as otherwise permitted by
Section 162(m) of the Code, in order to be eligible for payment in respect of a performance compensation award for a particular performance period, participants would be required to be employed
by us on the applicable payment day (or other date as may be determined by the Committee or specified in the applicable award agreement), the performance goals for such period would be required to be satisfied and certified by the Committee and the
performance formula would be required to determine that all or some portion of the performance compensation award had been earned for such period.
Negative
Discretion
. The Committee would be permitted to, in its sole discretion, reduce or eliminate the amount of a performance compensation award earned in a particular performance period, even if applicable performance goals had been attained and
without regard to any employment agreement between us and a participant.
Limitations on Committee Discretion
. Except as otherwise permitted by Section 162(m)
of the Code, in no event could any discretionary authority granted to the Committee under the Plan be used to grant or provide payment in respect of performance compensation awards for which performance goals had not been attained, increase a
performance compensation award for any participant at any time after the first 90 days of the performance period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) or increase a performance compensation award above
the maximum amount payable under the underlying award.
Dividends and Dividend Equivalents
The Committee would be permitted to provide a participant who holds an award (other than an option, SAR or cash incentive award) with dividends or dividend equivalents
that would be accumulated and become payable only to the extent that the underlying award becomes payable.
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Amendment and Termination of the Plan
Subject to any applicable law or government regulation, to any requirement that must be satisfied if the Plan were intended to be a shareholder-approved plan for
purposes of Section 162(m) of the Code and to the rules of the applicable national stock exchange or quotation system on which the Shares may be listed or quoted, the Plan would be permitted to be amended, modified or terminated by our Board without
the approval of our shareholders, except that shareholder approval would be required for any amendment that would (i) increase the maximum aggregate number of Shares that may be delivered pursuant to awards under the Plan or increase the
maximum number of Shares that could be delivered pursuant to ISOs granted under the Plan, (ii) change the class of employees or other individuals eligible to participate in the Plan, (iii) decrease the exercise price of any option or SAR,
(iv) cancel or exchange any option or SAR at a time when its exercise price exceeds the fair market value of the underlying Shares or (v) allow repricing of any option or SAR without shareholder approval. Under these provisions,
shareholder approval would not be required for all possible amendments that might increase the cost of the Plan. No modification, amendment or termination of the Plan that would materially and adversely impair the rights of any participant would be
effective without the consent of the affected participant, unless otherwise provided by the Committee in the applicable award agreement.
The Committee would be
permitted to waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any award previously granted under the Plan or the Prior Plans prospectively or retroactively. However, unless otherwise
provided by the Committee in the applicable award agreement or in the Plan, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely impair the rights of any participant to
any award previously granted would not to that extent be effective without the consent of the affected participant.
Subject to the Plan’s provisions regarding the repricing of options and SARs, the Committee would be authorized to
make adjustments in the terms and conditions of awards in the event of any unusual or nonrecurring corporate event (including the occurrence of a change of control of the Company) affecting us, any of our affiliates or our financial statements or
the financial statements of any of our affiliates, or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles or law whenever the Committee, in its discretion,
determined that those adjustments were appropriate or desirable, including providing for the substitution or assumption of awards, accelerating the exercisability of, lapse of restrictions on, or termination of, awards or providing for a period of
time for exercise prior to the occurrence of such event and, in its discretion, the Committee would be permitted to provide for a cash payment to the holder of an award in consideration for the cancellation of such award, or cancel any option or SAR
having a
per-Share
exercise price equal to or in excess of the fair market value of a Share subject to such option or SAR without any payment.
Change of Control
The Plan would provide that in the event of a
change of control of the Company, unless provision was made in connection with the change of control for assumption of, or substitution for, awards previously granted:
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Any options and SARs outstanding as of the date the change of control was determined to have occurred would become fully exercisable and vested, as of immediately prior to the change of control.
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All other outstanding awards would automatically be deemed exercisable or vested and all restrictions and forfeiture provisions related thereto would lapse as of immediately prior to such change of control, with any
applicable performance goal deemed satisfied as determined by the Committee in its sole discretion, and will be paid out as soon as practicable following such change of control.
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Unless otherwise provided pursuant to an award agreement, a change of control would be defined to mean any of the
following events, generally:
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during any period of 24 consecutive calendar months, a change in the composition of a majority of the board of directors, as constituted on the first day of such period, that was not supported by
two-thirds
of the incumbent board of directors;
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consummation of a merger, consolidation or similar form of corporate transaction, or a sale or other disposition of all or substantially all of the Company’s assets, in each case, if such transaction requires the
approval of the Company’s shareholders, unless, immediately following such transaction, (i) all or substantially all the persons who beneficially owned the securities eligible to vote for the election of the board of directors continue to
own more than 50% of the combined voting power of the corporation or entity resulting from such transaction substantially in the same proportion, (ii) no person beneficially owns 50% or more of the outstanding voting securities of the
corporation or entity resulting from such transaction and (iii) at least 50% of the members of the board of directors of the corporation or entity resulting from such transaction are incumbent directors;
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the shareholders approve a plan of complete liquidation or dissolution, unless such liquidation or dissolution is part of a transaction or series of transactions described in the bullet above that does not otherwise
constitute a change of control; or
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an acquisition by any person of beneficial ownership of a percentage of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors that was equal to 50%
or more.
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Although award agreements may provide for a different definition of change of control than is provided for in the Plan, except in the case
of a transaction described in the third bullet above, any definition of change of control set forth in any award agreement would provide that a change of control would not occur until consummation or effectiveness of a change of control of the
Company, rather than upon the announcement,
commencement, shareholder approval or other potential occurrence of any event or transaction that, if completed, would result in a change of control of the Company.
Recoupment of Awards
Amounts paid or payable pursuant to the Plan may
be subject to recoupment or clawback pursuant to the Company’s Clawback Policy (as described under “Clawback Policy” section of the Compensation Discussion and Analysis) or any applicable policy of the Company or its subsidiaries
generally applicable to senior-level employees of the Company and its Subsidiaries, including as may be adopted in the future, or to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law.
Term of the Plan
No award would be permitted to be granted under the
Plan after the tenth anniversary of the Approval Date.
Certain Federal Tax Aspects of the Plan
The following summary describes the federal income tax treatment that would apply to awards under the Plan. This summary is based on current law as of the date of this
proxy statement and is provided only as general information and not as tax advice. It is not intended or written to be used, and cannot be used, (i) by any taxpayer for the purpose of avoiding tax penalties under the Code or (ii) for
promoting, marketing or recommending to another party any transaction or matter addressed herein. It does not address all of the tax considerations that may be relevant to a particular holder and does not discuss state, local and foreign tax
consequences.
Incentive Stock Options
Neither the grant nor the
exercise of an ISO would result in taxable income to the optionee for regular federal income tax purposes. However, an amount equal to (i) the
per-share
fair market value of a Share on the exercise date
minus the exercise price at the time of grant multiplied by (ii) the number of shares with respect to which the ISO is being exercised would count as “alternative minimum taxable income” which, depending on the particular
circumstances of the optionee, could result in liability for the “alternative minimum tax” or “AMT”. If the
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optionee did not dispose of the shares issued pursuant to the exercise of an ISO until the later of the
two-year
anniversary of the date of grant of the
ISO and the
one-year
anniversary of the date of the acquisition of those shares, then (i) upon a later sale or taxable exchange of the shares, any recognized gain or loss would be treated for tax purposes
as a long-term capital gain or loss and (ii) the Company would not be permitted to take a deduction with respect to that ISO for federal income tax purposes.
If shares acquired upon the exercise of an ISO were disposed of prior to the expiration of the
two-year
and
one-year
holding periods described above (a “disqualifying disposition”), generally the optionee would recognize ordinary income in the year of disposition in an amount equal to the lesser of (i) any
excess of the fair market value of a Share at the time of exercise of the ISO over the amount paid for the shares or (ii) the excess of the amount recognized on the disposition of the shares over the participant’s aggregate tax basis in
the shares (generally, the exercise price). A deduction would be available to the Company equal to the amount of ordinary income recognized by the optionee. Any further gain recognized by the optionee would be taxed as short-term or long-term
capital gain and would not result in any deduction by the Company. A disqualifying disposition occurring in the same calendar year as the year of exercise would eliminate the alternative minimum tax effect of the ISO exercise.
Special rules could apply where all or a portion of the exercise price of an ISO is paid by tendering shares, or if the shares acquired upon exercise of an ISO were
subject to substantial forfeiture restrictions. The foregoing summary of tax consequences associated with the exercise of an ISO and the disposition of shares acquired upon exercise of an ISO assumes that the ISO would be exercised during employment
with us or within three months following termination of employment. The exercise of an ISO more than three months following termination of employment would result in the tax consequences described below for NSOs, except that special rules would
apply in the case of disability or death. An individual’s stock options otherwise qualifying as ISOs would be treated for tax purposes as NSOs (not as ISOs) to the
extent that, in the aggregate, they first become exercisable in any calendar year for stock having a fair market value (determined as of the date of grant) in excess of $100,000.
Nonqualified Stock Options
An NSO (that is, a stock option that does
not qualify as an ISO) would result in no taxable income to the optionee or deduction to the Company at the time it is granted. An optionee exercising an NSO would, at the time of exercise, recognize ordinary income equal to (i) the
per-share
fair market value of a Share on the exercise date minus the exercise price at the time of grant multiplied by (ii) the number of shares with respect to which the option is being exercised. A
corresponding deduction would be available to the Company. If the NSO were granted in connection with employment, this taxable income would also constitute “wages” subject to withholding and employment taxes. The foregoing summary assumes
that any shares acquired upon exercise of an NSO are not subject to a substantial risk of forfeiture.
Stock Appreciation Rights
The grant of an SAR would result in no taxable income to the holder or a deduction to the Company. A holder of an SAR would, upon exercise, recognize taxable income
equal to (i) the
per-share
fair market value of a Share on the exercise date minus the exercise price at the time of grant multiplied by (ii) the number of shares with respect to which the SAR is
being exercised. If the SAR were granted in connection with employment, this taxable income would also constitute “wages” subject to withholding and employment taxes. A corresponding deduction would be available to the Company. To the
extent the SAR is settled in Shares or property, any additional gain or loss recognized upon any later disposition of the shares or property would be capital gain or loss.
Restricted Share Awards
A participant acquiring restricted shares
generally would recognize ordinary income equal to the fair market value of the shares on the date the shares are no longer subject to a substantial risk of forfeiture (and are freely transferable) unless the participant had elected to make a timely
election pursuant to Section 83(b) of the Code, in which case, the participant would recognize
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ordinary income on the date the shares were acquired. If the participant is an employee, such ordinary income generally would be subject to withholding and employment taxes. Upon the sale of
shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value upon which the participant recognized ordinary income, would be taxed as a capital gain or loss. The
Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date.
Restricted Stock Units, Performance Units, Cash Incentive Awards or Other Stock-Based Awards
The grant of RSUs, performance units, cash incentive awards or other stock-based awards would result in no taxable income to the participant or deduction to the Company.
A participant awarded one of these awards would recognize ordinary income in an amount equal to the fair market value of the compensation issued to the participant on the settlement date. If the participant were an employee, such ordinary income
generally would be subject to withholding and employment taxes. Where an award is settled in the Shares or other property, any additional gain or loss recognized upon the disposition of such shares or property would be capital gain or loss.
Section 162(m)
Section 162(m) of the Code currently provides that if,
in any year, the compensation that is paid to our Chief Executive Officer or to any of our three other most highly compensated executive officers (excluding our Chief Financial Officer) exceeds $1,000,000 per person, any amounts that exceed the
$1,000,000 threshold will not be deductible by us for federal income tax purposes, unless the compensation qualifies for an exception to Section 162(m) of the Code. Certain performance-based awards under plans approved by shareholders are not
subject to the
deduction limit, and the Company intends that specified performance compensation awards granted under the Plan may be eligible for this favorable qualification under Section 162(m) of the Code.
The Company may also elect to provide for
non-deductible
awards under the Plan. In addition, stock options and SARs that would be awarded under the Plan, although not performance compensation awards under the
Plan, may be eligible for this performance-based exception.
Section 409A
Section 409A of the Code imposes restrictions on nonqualified deferred compensation. Failure to satisfy these rules results in accelerated taxation, an additional tax to
the holder of the amount equal to 20% of the deferred amount and a possible interest charge. Stock options and SARs granted on Shares with an exercise price that is not less than the fair market value of the underlying shares on the date of grant
will not give rise to “deferred compensation” for this purpose unless they involve additional deferral features. Stock options and SARs that would be awarded under the Plan are intended to be eligible for this exception.
New Plan Benefits Table
A new plan benefits table for the Plan and the
benefits or amounts that would have been received by or allocated to certain participants for the last completed fiscal year under the Plan if the Plan was then in effect, as described in the federal proxy rules, is not provided because all awards
made under the Plan will be made at the Board’s or Committee’s discretion, as applicable. Therefore, the benefits and amounts that would be received or allocated under the Plan are not determinable at this time. However, please refer to
the “2016 Summary Compensation Table,” which includes certain information regarding awards granted to our named executive officers during the fiscal year ended December 31, 2016. Equity grants to our
non-employee
directors are described under “Director Compensation”.
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Equity Compensation Plans not Subject to Shareholder Action
Set forth below
is the number of Shares available for issuance pursuant to outstanding equity awards under the 2003 Plan and the 2014 Plan as of March 2, 2017:
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Number of
Shares
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As a
Percentage
of Shares
Outstanding
(1)
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Shares reserved for issuance pursuant to outstanding stock options
(2)
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4,753,489
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3.8
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%
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Shares reserved for issuance pursuant to unvested restricted stock unit awards
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414,287
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0.3
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%
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Shares available for issuance pursuant to future equity awards
(3)
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2,686,657
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2.2
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%
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Total shares reserved for issuance pursuant to outstanding equity awards under the 2003 Plan and the 2014 Plan
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7,854,433
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6.3
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%
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(1)
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The percentages are based on total outstanding Shares as of March 2, 2017.
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(2)
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As of March 2, 2017, 630,936 options remained outstanding under the 2003 Plan and had a weighted average exercise price of $13.83 per Share and a weighted average term remaining term of 0.7 years. As of March 2,
2017, 4,122,553 options remained outstanding under the 2014 Plan and had a weighted average exercise price of $29.43 per Share and a weighted average term remaining term of 5.6 years. As of March 2, 2017, the aggregate 4,753,489 options
outstanding under the 2003 Plan and the 2014 Plan had a weighted average exercise price of $27.36 per Share and a weighted average term remaining term of 5.0 years.
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(3)
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The 2003 Plan expired November 6, 2013 and no further awards may be granted under that plan.
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Vote Required
Under the NASDAQ
rules, approval of the Plan requires the affirmative vote of the majority of the votes cast on the proposal. Brokers do not have discretion to vote on this proposal without your
instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a
non-vote
on this proposal. Broker
non-votes
will have no effect on the outcome of the vote on this proposal.
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✓
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The Board of Directors unanimously recommends that you vote “FOR” the approval of the Akorn, Inc. 2017 Omnibus Incentive Compensation Plan.
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PROPOSAL 4
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APPROVAL BY
NON-BINDING
ADVISORY VOTE OF THE FREQUENCY OF FUTURE
NON-BINDING
ADVISORY VOTES REGARDING THE
COMPANY’S EXECUTIVE COMPENSATION PROGRAMS
|
You are being asked to vote, on a
non-binding
advisory basis, on the frequency
with which we should conduct an advisory shareholder vote on our executive compensation plans and programs
(say-on-pay).
You are given the option on the proxy card of selecting a frequency of every One Year, Two Years or Three Years, or abstaining. For the reasons set forth below, our
Board recommends that you select a frequency of every One Year.
Our Board values the opinions of the Company’s shareholder. The Board has determined that an
advisory vote on executive compensation held every year would offer shareholders the best opportunity to timely express their views on the
Company’s executive compensation plans and program and enable the Board and the Compensation Committee to determine current shareholder sentiment. Because your vote is advisory, it will not
be binding upon the Board of Directors. The Board will take into account the outcome of the vote when determining how often the Company should conduct an advisory vote on the compensation of our Named Executive Officers as it deems appropriate.
You are being asked to select from one of the four choices set forth in the resolution. The alternative (other than abstention) that receives the most votes will be
deemed the advice of the shareholders.
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✓
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The Board of Directors unanimously recommends that you vote on a
non-binding
advisory basis for every “One Year” as the frequency of future
non-binding
advisory votes regarding the Company’s executive compensation programs.
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You are being asked to vote on a proposal commonly known as a
“say-on-pay”
proposal, which gives you the opportunity to express your approval or disapproval, on a
non-binding
advisory basis, of our executive officer
compensation program, policies and practices through the following resolution:
“RESOLVED, that the shareholders of Akorn,
Inc. approve, on an advisory basis, the Company’s executive compensation program, as described in the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative disclosure set forth, pursuant to Item 402 of
Regulation
S-K,
in the Company’s proxy statement for the 2017 annual meeting of shareholders.”
We urge you to
consider the various factors regarding our executive compensation program, policies and practices as detailed in the Compensation Discussion and Analysis. As discussed in the Compensation Discussion and Analysis, we believe that our executive
compensation program is competitive and governed by
pay-for-performance
principles which emphasize compensation opportunities that reward results. Our use of stock-based
incentives reinforces the alignment of the interests of our executives with those of our long-term shareholders, thereby supporting the Company’s strategic objectives and mission.
This advisory vote is in accordance with requirements of the Dodd-Frank. The Dodd-Frank Act required that public companies give their shareholders the opportunity to
cast advisory votes relating to executive
compensation at the first annual meeting of shareholders held after January 21, 2011. Further, companies were required to hold an initial advisory vote on the frequency with which future
advisory votes should be held – whether every one, two or three years – and must hold subsequent votes on the frequency of such advisory votes at least every six years. The SEC adopted rules to implement the provisions of the Dodd-Frank
Act relating to this requirement.
In advance of the Company’s 2011 annual meeting of shareholders, the Board of Directors had recommended that future advisory
votes on the Company’s executive officer compensation program should occur every year. At the 2011 annual meeting of shareholders, the majority of the Company’s shareholders voted in favor of holding future advisory votes every year, and
the Company’s Board of Directors subsequently adopted this as its official position. Accordingly, this Proposal 5 is being submitted to you to obtain the advisory vote of the shareholders in accordance with the Dodd-Frank Act, Section 14A
of the Exchange Act and the rules of the Securities and Exchange Commission. Depending in part, on the voting results of Proposal 4, we expect that the next shareholder advisory vote on the Company’s executive compensation program will take
place at the 2018 annual meeting of shareholders.
Because your vote is advisory, it will not be binding upon the Board of Directors. However, our Board of
Directors (including our Compensation Committee) will take into account the outcome of the vote when considering future decisions affecting executive compensation as it deems appropriate.
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✓
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The Board of Directors unanimously recommends that you vote “FOR” approval, on a
non-binding
advisory basis, of the Company’s executive
compensation program.
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III. EXECUTIVE COMPENSATION AND OTHER INFORMATION
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III. Executive
Compensation and Other Information
EXECUTIVE SUMMARY
2016 Performance Highlights
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•
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Generated revenues of $1,117 million
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•
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Generated operating income of $327.6 million
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•
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Expanded R&D footprint with opening of new R&D center in Cranbury, NJ
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•
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Received 3 ANDA approvals
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•
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Submitted 12 ANDAs to the FDA for approval
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•
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Received favorable ruling from the Patent Trial Board (PTAB) in the inter partes review (IPR) proceeding
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2016 Named Executive Officers (“NEOs”)
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•
Raj Rai —
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Chief Executive Officer
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•
Duane A. Portwood —
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Executive Vice President and Chief Financial Officer
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•
Joseph Bonaccorsi —
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Executive Vice President, General Counsel and Secretary
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•
Bruce Kutinsky —
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Chief Operating Officer
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•
Steven Lichter —
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Executive Vice President, Pharmaceutical Operations
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•
Jonathan Kafer —
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Executive Vice President, Sales and Marketing
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Compensation Discussion and Analysis
Table of Contents
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COMPENSATION DISCUSSION AND ANALYSIS
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HOW WE DETERMINE PAY
Compensation Philosophy and Objectives and Role of the Compensation
Committee
The Compensation Committee leads the development of our compensation philosophies and practices to assure that the total compensation paid to our
executive officers is fair and reasonable relative to the extremely competitive nature of the specialty pharmaceutical industry of which we are a part. For several years, our Company experienced major business and financial challenges, and has more
recently experienced a significant turn-around that is largely attributable to the success of our current management team. During the challenging downturn years, the Compensation Committee focused intently on attracting and rewarding executives with
the unique intersection of industry and turnaround skills and made compensation decisions based on our objective of aligning the Company’s key executives’ goals and incentive pay with the goals of our shareholders in order to enable and
encourage the turn-around effort. Consistent with our ongoing goal to keep the Company’s key executives’ objectives and incentive pay aligned with the goals of our shareholders, we continue to pursue a compensation philosophy that is
intended to provide total compensation opportunities, which include base salary, performance-based cash bonus, long term equity compensation, and a health and welfare benefits package. These are intended to incentivize the uniquely skilled employees
who will continue to carry out our strategic plan, mission and goals, while maintaining our required high quality standards and growth.
In 2012, we refined our
compensation philosophy to reflect the Company’s current posture in the industry in order to align it with the achievement of the Company’s business strategies. Accordingly, we developed and adopted a philosophy that is intended to serve
the foundation upon which the executive
compensation program is structured and administered and to serve as a basis for guiding the continued development and evolution of the program.
Our compensation philosophy is based on the following goals and principles:
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•
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Attract and retain results-oriented executives with proven track records of success to ensure the Company has the caliber of executives needed to perform at the highest levels of the industry,
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•
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Support Company growth, alignment with shareholder interests and the achievement of other key corporate goals and objectives,
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•
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Design packages to achieve external competitiveness, internal equity, and be cost-effective,
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•
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Focus attention on and appropriately balance current priorities and the longer-term strategy of the Company through short- and long-term incentives,
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•
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Encourage teamwork and cooperation while recognizing individual contributions by linking variable compensation to Company and individual performance based on position responsibilities and ability to influence financial
and organizational results,
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•
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Promote ownership of Company stock by executives to enhance the alignment of interests with shareholders,
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•
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Motivate and reward a prudent level of risk and decision making in an effort to drive reasonable performance,
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•
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Provide flexibility and some discretion in applying the compensation principles to appropriately reflect individual circumstances as well as changing healthcare and pharmaceutical industry conditions and priorities, and
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•
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Involve a limited use of perquisites and supplemental benefits which will only be provided if a compelling business rationale exists.
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COMPENSATION DISCUSSION AND ANALYSIS
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Our Compensation Committee is composed exclusively of independent directors and meets regularly both with and without
management. The Compensation Committee annually approves Named Executive Officer base salaries, establishes annual incentive compensation pay for performance objectives based on both goals for
the Company and individual employees, makes actual awards of annual incentive compensation based on attainment of these goals and other factors the Compensation Committee deems appropriate and
considers awards of long-term equity compensation.
Role of the CEO
The Compensation Committee also seeks input from the CEO, particularly related to the establishment and measurement of corporate and individual objectives and
recommendations related to overall employee compensation matters. The CEO provides the Board with a self-evaluation of his performance, but the CEO does not participate in discussions or make recommendations with respect to his own compensation.
Our CEO reviews the performance of, and proposes salary increases for, all managers who report to him, including the other Named Executive Officers. Any increases
are generally based upon the individual’s performance during the previous year and any changes in
responsibilities for the upcoming year. The Compensation Committee reviews the reasonableness of any proposed compensation for the Named Executive Officers. In conducting its review and making
its determinations, the Compensation Committee reviews a history of base salary, cash incentive bonus targets and payouts, and equity awards, prepared by the Company’s Human Resources Department. During the year, our CEO may change the base
salary of the managers who report to him, with the exception of our Chief Financial Officer (“CFO”), Chief Operating Officer (“COO”) and General Counsel, without approval of our Compensation Committee. He may do so in order to
address significant changes in the individual’s responsibilities, to be competitive in the market or for other business reasons.
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COMPENSATION DISCUSSION AND ANALYSIS
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Proposed compensation changes for the CFO, COO and General Counsel are submitted by our CEO to the Compensation Committee for review and approval.
Our Human Resources Department (“HR”) evaluates total compensation levels and elements of compensation and fashions competitive pay packages on a company-wide
basis. HR also works with the Compensation Committee and the CEO in planning for recruitment and retention of employees. Based on HR’s research and the CEO’s recommendations, we fix these salaries at rates that we believe are generally
competitive, but we do not attempt to pay at the high end of our competition.
Role of the Compensation Consultants
The Compensation Committee has maintained a structured approach to compensation for our Named Executive Officers, and, since 2012, has retained Willis Towers
Watson as its independent compensation consultant to provide the Compensation Committee with support, advice and recommendations on our compensation program for our executive officers.
The Compensation Committee has analyzed whether the work of our compensation consultant Willis Towers Watson has raised any conflict of interest, taking into
consideration the following factors: (i) the provision of other services to the Company by Willis Towers Watson; (ii) the amount of fees from the Company paid to Willis Towers Watson as a percentage of Willis Towers
Watson’s total revenue; (iii) the policies and procedures of Willis Towers Watson that are designed to prevent conflicts of interest; (iv) any business or personal relationship of
Willis Towers Watson or the individual compensation advisors employed by Willis Towers Watson with our CEO; (v) any business or personal relationship of the individual compensation advisors with any member of the Compensation Committee; and
(vi) any stock of the Company owned by Willis Towers Watson or the individual compensation advisors employed by Willis Towers Watson. The Compensation Committee has determined, based on its analysis of the above factors, that the work of Willis
Towers Watson and the individual compensation advisors employed by Willis Towers Watson as compensation consultants to the company has not created any conflict of interest.
In addition, in 2016 in connection with our restatement process, the Compensation Committee engaged legal counsel to provide advice regarding the recovery of bonuses
paid to our executive officers for 2014.
Role of Peer Group
Since 2013, our compensation consultant has worked with the Compensation Committee in comparing our executive compensation with pertinent market data. The data was taken
from filings made with the SEC by a selected peer group, which peer group we updated and refined in 2016. The following companies comprised our selected peer group in 2016:
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2016 Peer Group
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Alkermes Plc.
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|
Jazz Pharmaceuticals plc
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Biomarin Pharmaceutical Inc.
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Lannett Company, Inc.
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Catalent, Inc.
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Mallinckrodt Plc.
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Endo International Plc.
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Prestige Brands Holdings, Inc.
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Horizon Pharma plc
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Quintiles Transnational Inc.
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Impax Laboratories, Inc.
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United Therapeutics Corporation
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Incyte Corporation
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Specifically, the Compensation Committee requested the consultant to report base and annual salary incentive percentages
for executives in similar sized companies based on revenue and market capitalization and/or similar
industries. The Compensation Committee reviewed the data in order to obtain a general understanding of current compensation practices and trends for specific positions held rather than focusing
on the Named Executive Officers. This
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COMPENSATION DISCUSSION AND ANALYSIS
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analysis was reviewed and updated in each year since 2013, including 2016, in order to confirm the appropriate data, measures and comparisons.
With respect to establishing the CEO and CFO compensation, we gather, analyze and evaluate the compensation mix provided by our peer group, as well as consider the
other factors set forth in the Compensation Committee’s charter. We do not target or benchmark our Named Executive Officers’ compensation at a certain
level or percentage based on other companies’ compensation arrangements.
Role of the Shareholders
The Compensation Committee considers shareholder input when setting compensation for the Company’s Named Executive
Officers.
At the last annual shareholder meeting, the Company’s advisory vote on executive compensation was approved by the following vote:
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For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
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99,743,230
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2,535,684
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176,333
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|
8,643,705
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This represents more than a 97% level of approval. Although the effect of the advisory vote on executive compensation is
non-binding,
the Board and the Compensation Committee considered these results and determined that, based upon their review of the compensation program, input from the compensation consultant and given the
significant level of shareholder support, no major restructuring of our executive compensation program was necessary at this time. The Compensation Committee will continue
to consider the outcome of the future advisory votes, as well as shareholder feedback that we receive from our shareholder outreach program, and other analysis and data when making compensation
decisions for our Named Executive Officers and our compensation programs generally. Akorn values the opinions of its shareholders and is committed to considering their opinions in making compensation decisions. See “Shareholder Outreach
Program.”
ELEMENTS OF OUR COMPENSATION PROGRAM
For 2016, the principal components of compensation for our Named Executive Officers were base salary, performance based annual cash incentive and long-term equity
incentive. In addition, we offer health and welfare benefits and certain limited perquisites and separation benefits.
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Element
|
|
Type
|
|
At Risk
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Base salary
|
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Cash
|
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No, fixed
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Performance-based annual incentive
(1)
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|
Cash
|
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Yes, at risk based on Company and individual performance
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Long-term
incentives
(2)
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Equity
|
|
Yes, at risk because time-based vesting occurs over a period of years
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(1)
|
We occasionally also provide
non-recurring
discretionary cash bonuses to reflect superior individual performance, new responsibilities or to compensate new hires for amounts
forfeited from their previous employer.
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(2)
|
Historically, we have awarded options and/or RSUs.
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Base Salary
The salaries for our Named Executive Officers are established to be competitive with market practices in order to allow us to attract and retain senior executive talent.
Salary decisions are also
influenced by internal equity taking into consideration the relationship between salaries among the executives and each executive’s role and responsibilities and the impact on Company
performance. Other factors considered by the
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AKORN, INC.
- 2017 Proxy Statement
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37
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|
COMPENSATION DISCUSSION AND ANALYSIS
|
Compensation Committee include an executive’s experience, specific skills, tenure and individual performance. In setting base salaries for the CEO, CFO, COO and General Counsel, we also
consider external equity based on analysis of peer group data. The Compensation Committee typically reviews the base salaries of our Named Executive Officers annually in the first quarter with any increases effective as of January 1 of that
year.
Performance-Based Annual Incentive Plan
Each year, the Compensation Committee adopts guidelines pursuant to which it calculates the annual performance-based cash incentive awards available to our Named
Executive Officers. We have instituted
management-by-objectives
(MBO) to assess performance as a basis for determining awards for all of our Named Executive Officers
paid out under our 2014 Plan. Our MBO based incentive program has continued to be a major component of our compensation strategy. It affords us the opportunity and framework for establishing both corporate and individual performance objectives.
Individual MBOs extend beyond financial performance and include actions required for the continued future growth of the company. Each Named Executive Officer’s MBOs align with each of the corporate MBOs. The Compensation Committee believes that
our annual incentive program provides our Named Executive Officers with a team incentive to both enhance our financial performance and perform at the highest level. No payments are made under the incentive plan unless a threshold Company objective,
such as Adjusted EBITDA, is attained. See “2016 Performance-Based Annual Incentive Awards.”
In addition to cash bonus payments made under our annual cash
incentive plan, the Compensation Committee may provide discretionary bonuses to reward an executive’s superior performance in overcoming unforeseen circumstances and exceptional achievements.
Long-Term Equity Incentive Plan
Under our 2014 Plan, the Compensation Committee has the flexibility to make equity awards of the common stock of the Company, including time- and performance-based
awards of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance units, performance shares, and other equity based awards. Our Board developed a long-term equity incentive plan as part of our goal to
structure our compensation in a manner where the largest increase in total direct compensation for our Named Executive Officers comes from appreciation in a long-term equity incentive award made under our 2014 Plan (“Long-Term Incentive
Award”). Under the plan, the Long-Term Incentive Awards to executive officers would be awarded such that 75% of the grant-date fair value of each executive’s equity grant would be provided in the form of options and 25% in RSUs. We believe
that Long-Term Incentive Awards should provide a large majority of compensation opportunity for our Named Executive Officers. The Company does not have any long-term cash incentives nor does it maintain a pension plan or a supplemental executive
retirement plan. Our current Form of
Non-Qualified
Stock Option Award Agreement, Form of Incentive Stock Option Award Agreement and Form of Restricted Stock Unit Award Agreement were filed as exhibits to the
Company’s
Form 10-K
filed with the SEC on March 1, 2017. The Company may from time to time grant other types of equity awards using other forms of award agreements.
Stock Options
Historically
we have primarily awarded stock options as the long-term incentive awards. We grant
non-qualified
stock options (“NSOs”) to our Named Executive Officers as a means of rewarding past performance and
encouraging continued efforts to achieve personal and Company objectives in the current and future years. Our options are awarded at the closing price of our stock on the date of grant. Options awarded to our executive officers vest at 25% of the
award per year on each of the first four anniversaries of the date of grant and expire five or seven years from the date of grant, as determined by the Compensation Committee and set forth in the applicable award agreement.
Restricted Stock Units
Beginning in 2014, based in part upon the recommendation of the compensation consultant, the Compensation Committee determined that the long-term incentive awards to
executive officers would be awarded such that 75% of the
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COMPENSATION DISCUSSION AND ANALYSIS
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grant-date fair value of each executive’s equity grant would be provided in the form of options and 25% in RSUs. Each RSU represents the right to receive one share of our common stock on a
stated date (the “vesting date”) unless the award is terminated earlier in accordance with terms and conditions established by the administrator of our 2014 Plan. The RSUs generally vest in equal installments, 25% of the award per year on
each of the first four anniversaries of the date of grant. Unless the Compensation Committee determines otherwise, RSUs that do not vest will be forfeited. Holders of RSUs have no voting, dividend or other rights as a shareholder until such units
are vested.
Timing of Equity Grants and Equity Grant Practices
At the Board meeting held immediately after our annual meeting of shareholders, the Compensation Committee typically will recommend equity compensation, if any, to be
awarded to our Named Executive Officers and all
other Company employees. All awards are made based on the closing price of our stock on the date of grant. In addition, throughout the year, awards may be made to new employees upon their joining
the Company, and to employees who are promoted. The timing of such awards depends on those specific circumstances and is not tied to any other particular company event, anticipated events or announcements. Under our long-term equity incentive plan,
in 2016 each executive officer was eligible to receive an award with a value up to a certain percentage of the executive’s annual salary as follows: Mr. Rai 400%; Mr. Portwood 250%, Mr. Bonaccorsi 250%, Mr. Kutinsky 300%,
Mr. Lichter 100%, and Mr. Kafer 100%.
In addition to awards made under our incentive plans, the Compensation Committee may provide discretionary bonuses
to reward an executive’s superior performance in overcoming unforeseen circumstances and exceptional achievements.
ANALYSIS OF WHAT WE PAID
2016 Base Salaries
In 2016, the Compensation Committee reviewed the base salaries of our Named Executive Officers
and increases to base salaries were implemented with the weighted average base salary of our Named Executive Officers increasing approximately only 2% in comparison to 2015.
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2016 Base
Salary
($)
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2015 Base
Salary
($)
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What We Took Into Consideration in
Setting 2016 Salaries
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Raj Rai
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824,000
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800,000
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Mr. Rai’s performance in 2015 in leading the company and recruiting leadership talent to further strengthen the organization
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Duane A. Portwood
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450,000
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450,000
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It was decided that Mr. Portwood’s salary was competitive with the market
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Joseph Bonaccorsi
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437,750
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425,000
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Mr. Bonaccorsi’s performance in 2015 in handling special legal matters and the increased legal and regulatory work we encountered through our restatement process
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Bruce Kutinsky
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484,100
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470,000
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Mr. Kutinsky’s performance in 2015 in new product launches, product approvals and strengthening the organization
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Steven Lichter
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309,000
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300,000
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Mr. Lichter’s performance in 2015 in building the Operations organization
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Jonathan Kafer
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309,000
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300,000
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Mr. Kafer’s performance in 2015 in building the Commercial organization with regard to people and processes
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AKORN, INC.
- 2017 Proxy Statement
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COMPENSATION DISCUSSION AND ANALYSIS
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2016 Performance-Based Annual Incentive Awards
We structured specific annual incentive awards for 2016 based upon MBOs for our CEO, CFO, COO and General Counsel, as well as the Company’s achievement of its
overall goals. After the Board reviewed the strategic plan and budget for the year, the Compensation Committee set annual incentive compensation targets designed to induce achievement of that plan and budget.
For 2016, we set the CEO’s bonus target at 100% of base salary, the CFO’s bonus at 50% of base salary, the COO’s bonuses at 50% of base salary and the
General Counsel’s bonus at 50% of base salary. These were the same bonus targets set for the CEO, CFO and COO for 2015.
Messrs. Lichter and Kafer had 2016 target bonus opportunities of 40% of base salary. In 2016, the Named Executive Officers each had additional opportunity for “stretch” bonus of between
20% to up to 60% of their base salary (as set forth below) if certain additional objectives were achieved.
In general, the Compensation Committee considered the
experience, responsibilities, title and historical performance of each particular Named Executive Officer when determining the target and stretch bonus opportunities and approved specific performance objectives based on the CEO’s recommendation
and the Compensation Committee’s review.
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2016 Target
Base
Incentive
Bonus
Opportunity
as % of
Base
Salary*
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2016 Target
Base
Incentive
Bonus
Opportunity
as $
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2016
Stretch
Incentive
Bonus
Opportunity
as % of
Base Salary
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2016
Stretch
Incentive
Bonus
Opportunity
as $
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2016 Total
Incentive
Bonus
Opportunity*
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Total
Incentive
Bonus
Earned for
2016*
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Raj Rai
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100
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%
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$
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823,539
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50
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%
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$
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411,769
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$
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1,235,308
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$
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1,235,308
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Duane A. Portwood
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50
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%
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225,000
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25
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%
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112,500
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337,500
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337,500
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Joseph Bonaccorsi
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50
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%
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218,753
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25
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%
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109,376
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328,129
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328,129
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Bruce Kutinsky
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50
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%
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241,915
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25
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%
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120,957
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362,872
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344,728
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Steven Lichter
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40
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%
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123,531
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20
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%
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61,765
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185,296
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176,031
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Jonathan
Kafer
(1)
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40
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%
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123,531
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(1)
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60
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%
(1)
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185,296
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(1)
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308,827
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(1)
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154,414
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(*)
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For purposes of our performance-based incentive plan, bonus eligible Base Salary is defined as the officer’s base pay earnings as shown on the officer’s
W-2
for the
applicable year, except for Mr. Kafer, whose bonus is based on his stated annual base salary for the year. All Bonus Opportunity amounts in the table above were calculated based on each officer’s base pay earnings as shown in the
officer’s
W-2
for 2016, except for Mr. Kafer whose amounts were based on his stated annual base salary for 2016, in accordance with each officer’s applicable employment agreement.
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(1)
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Pursuant to his offer letter, Mr. Kafer was entitled to receive a bonus payment in the amount of 40%, 50%, 75% or 100% of his base salary if certain objectives were achieved, if the objectives were exceeded by 5%
or if specified additional objectives were achieved.
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For the year 2016, the Compensation Committee determined the above bonus amounts were earned by each Named Executive
Officer based on the Company’s achievement of its performance targets and each Named Executive Officer’s achievement of personal MBOs. For purposes of determining the target bonus amount earned by each Named Executive Officer, the Company
objectives were weighted 50% as a group, and the individual MBOs were weighted 50% as a group. In addition, the Compensation Committee reviewed the Company’s
performance and each individual executive’s performance against their respective objectives that were set in 2016 and then assigned the Company and each Named Executive Officer a performance
rating from
0-100.
An executive officer must have achieved at least 50% of his MBOs in order to receive a bonus under the incentive bonus plan. The Named Executive Officers were also eligible to receive a
“stretch” bonus if certain objectives were achieved under the “stretch” portion of the incentive bonus plan.
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AKORN, INC.
- 2017 Proxy Statement
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COMPENSATION DISCUSSION AND ANALYSIS
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Under the 2016 incentive bonus plan, if the Company did not achieve its Adjusted EBITDA target for the year, no bonuses
would be paid even if other objectives were achieved.
2016 Performance-Based Annual Incentive Award for our Chief
Executive Officer
For 2016, the Company achieved the following financial metrics: Sales of $1,117 million, Adjusted EBITDA of $509 million and
Adjusted EPS of $2.25. The Company calculates Adjusted EBITDA by taking income before net interest expense, income tax expense, depreciation, and amortization and adding back non-cash or non-recurring operating expenses that have no impact on
continuing cash flows as well as other items that are not expected to recur and therefore are not reflective of continuing operating performance. The Company calculates Adjusted diluted earnings per share by excluding amortization, non-cash stock
compensation, and other non-cash expenses that have no impact on current or future cash flows, as well as other income and expense items that are not expected to recur, and then, dividing that adjusted net income by the actual or anticipated diluted
share count for the applicable period.
In addition to reviewing the Company’s financial metrics, the Compensation Committee evaluated the Company’s
performance against key strategic initiatives designed to promote the Company’s long-term success, as well as significant events during 2016. The Company was successful in working through the financial restatement process culminating with the
filing of 2014 and 2015 Forms
10-K
in May, 2016. The Company also remediated the material weaknesses that were identified in the audit of the 2015 financials. The Company has made significant progress on its
plans for Akorn India Private Limited (AIPL) and its FDA certification there. In addition, the Company submitted 12 ANDAs, 3 ANADAs and 1 NDA to the FDA for
approval and expanded the Company’s R&D capacity with the opening of a new R&D center in New Jersey. The Company also invested in its organizational talent and enhanced our
organizational culture.
The Compensation Committee determined that Mr. Rai should be awarded incentive bonus based on the following achievements in 2016. He
led the Company in achieving record revenues, surpassing a billion dollars. Under his leadership the Company exceeded all of its financial targets. The restatement of the 2014 financial statements and remediation of all of the earlier identified
material weaknesses were significant accomplishments. Mr. Rai ensured that all of the Company’s operations maintained regulatory compliance and we had significant progress in our plans to obtain FDA certification of our AIPL facilities.
Additionally he continued to lead the building of our organizational talent and embedding of our culture.
2016
Performance-Based Annual Incentive Award for our Other Named Executive Officers
Similar to prior years, for fiscal year 2016, Mr. Rai recommended to the
Compensation Committee corporate goals and personal MBOs required for incentive payout to other Named Executive Officers. The goals for the other Named Executive Officers were significantly aligned with the Company’s overall stated goals and
objectives, and were tailored to each Named Executive Officer’s role and responsibilities within the Company. As an initial threshold for any payment, the plan required achievement of the Adjusted EBITDA target as well as achievement of at
least 50% of the executive’s individual MBOs. The amounts of actual individual payouts to the other Named Executives Officers varied based on achievement of their personal MBOs, which were in the range of 0% to 100% of individual goal
achievement.
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- 2017 Proxy Statement
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41
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COMPENSATION DISCUSSION AND ANALYSIS
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The Compensation Committee determined that Mr. Portwood should be awarded an incentive bonus based on the following
achievements. Mr. Portwood led the Company’s finance organization in restating the Company’s 2014 financial statements and filing of the Company’s 2014 and 2015 financial reports in a timely manner and to the satisfaction of the
regulatory authorities and the Company’s auditor. Additionally, the Company remediated all of the previously identified material weaknesses. Mr. Portwood led the continued development and growth of the Company’s finance organization
which has improved business processes. Mr. Portwood also led the development and execution of a share repurchase program that repurchased approximately 1.8 million shares and the Company’s early payments on its debt.
The Compensation Committee determined that Mr. Bonaccorsi should be awarded an incentive bonus based on the following accomplishments. In 2016, Mr. Bonaccorsi
managed a diverse litigation and regulatory docket with a small internal team and a broad spectrum of outside counsel that were retained by the Company and board committees. The Company successfully resolved a number of matters and
Mr. Bonaccorsi personally engaged with regulatory agencies on behalf of the Company. He also provided oversight to the legal team as it achieved a successful patent challenge.
The Compensation Committee determined that Dr. Kutinsky should be awarded an incentive bonus based on the following achievements. Dr. Kutinsky provided
leadership across a broad range of functions to include Pharmaceutical Operations, Sales & Marketing, Regulatory
Affairs and Information Technology. He led focused efforts on improving the Company’s efficiency as an organization and collaboration across all departments. Nine (9) products with
fifteen (15) SKUs were launched during the year with more than 75% of these launches achieving their forecasted targets. There were 130 responses to regulatory inquiries and 130 other governmental submissions handled by the Company during 2016
to support the review of the Company’s product filings with the FDA. Additionally, he led the evaluation of the Company’s technology landscape and strategy and has overseen the plans that have been put in place to address the
Company’s growth.
The Compensation Committee determined that Mr. Lichter should be awarded an incentive bonus based on the following achievements in
2016. Mr. Lichter ensured that all manufacturing facilities maintained their regulatory compliance to operate. He led cost savings initiatives across the operations organization that delivered almost double the original commitments. The
organization also implemented process discipline to increase efficiency.
Mr. Kafer’s bonus for 2016 was directly linked to the sales performance of the
Company and targets established by the Compensation Committee and the Board of Directors. In 2016, the Company achieved $1,117 million in sales. While not a factor in the determination of Mr. Kafer’s bonus amount, the Compensation
Committee noted his strategic and tactical leadership in addressing the market dynamics that the Company faced in 2016, along with the process focus on new product launches.
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AKORN, INC.
- 2017 Proxy Statement
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42
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COMPENSATION DISCUSSION AND ANALYSIS
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2016 Long-Term Incentive Grants
Due to the restatement process, no equity awards were granted in 2015 under the Company’s long-term incentive plan. The long-term incentive awards that were
intended to be granted in 2015 were granted on March 24, 2016 and were granted 100% in options. As such, the table below includes two long-term incentive grants for certain officers. During 2016, the Board made the following grants of stock
options and restricted stock units (RSUs) to the Company’s Named Executive Officers:
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Number of
Options
Granted
in 2016
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Grant Date
Fair Value
2016 Options $
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Number of
RSUs
Granted
in 2016
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Grant Date
Fair Value
2016 RSUs $
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Raj Rai
(1)
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383,217
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|
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$
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4,290,525
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27,119
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|
|
$
|
800,010
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|
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Duane A. Portwood
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75,000
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|
|
$
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976,245
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|
|
|
—
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|
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|
—
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Joseph Bonaccorsi
(1)
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|
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129,146
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|
|
$
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1,443,415
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|
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9,004
|
|
|
$
|
265,618
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|
|
Bruce Kutinsky
(1)
|
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110,583
|
|
|
$
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1,314,861
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|
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11,949
|
|
|
$
|
352,496
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|
|
Steven Lichter
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101,984
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|
|
$
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1,066,255
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|
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2,542
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|
|
$
|
74,989
|
|
|
Jonathan Kafer
|
|
|
61,384
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|
|
$
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659,642
|
|
|
|
2,542
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|
|
$
|
74,989
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TOTAL
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861,314
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|
|
$
|
9,750,943
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53,156
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|
|
$
|
1,568,102
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(1)
|
The amounts shown for Messrs. Rai, Bonaccorsi and Kutinsky include two grants of long-term incentive awards made in 2016. Due to the restatement process, no equity awards were granted in 2015 under our long-term
incentive plan. The long-term incentive awards that were intended to be granted in 2015 were granted on March 24, 2016 and were granted 100% in options. These options are included in the amounts shown (along with the annual 2016 awards that
were granted after the 2016 annual meeting) and are as follows: on March 24, 2016, Mr. Rai was awarded 191,387 options; Mr. Kutinsky was awarded 26,058 options and Mr. Bonaccorsi was awarded 65,453 options. Mr. Portwood was
not eligible under the long-term incentive award program in 2016. The option grant in 2016 to Mr. Portwood was a discretionary grant.
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In addition to the incentive awards described above, the Compensation Committee made discretionary cash bonuses to Named
Executive
Officers for extraordinary contributions in 2016. See the “Summary Compensation Table” for the amounts of those awards.
OTHER ELEMENTS OF COMPENSATION
Below are additional elements of compensation that we provide to our executive officers. For information regarding
employment agreements and our executive severance plan, see “Potential Payments Upon Termination.”
Company-Wide Benefits
The
Company does not have a pension plan and does not have a supplemental executive retirement plan. Executive officers and all full-time employees are eligible to participate in the Company’s benefit programs, which include health insurance (which
is partially funded by the employee), 401(k), disability and life insurance (separate programs for executives and all other employees), flexible spending accounts, an employee stock purchase plan, an employee
assistance program, an education assistance program, travel assistance, paid time off and holidays. Part-time employees are eligible to participate in a limited benefits program which includes a
401(k) plan, an employee stock purchase plan, and limited holiday and paid time off. Since January 1, 2011, the Company has been matching employee 401(k) contributions at a rate of 50% up to the first 6% of the employee’s eligible wages
contributed to the plan.
Perquisites
In 2009, the Company largely eliminated perquisites for its executive officers. In 2015, the Company made several additions to its team of executive officers, and in
doing so paid moving, temporary housing and related relocation costs to
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- 2017 Proxy Statement
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COMPENSATION DISCUSSION AND ANALYSIS
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some of its Named Executive Officers, however the Company did not provide such perquisites to any of its Named Executive Officers in 2016.
ESPP
In December 2016, the
Company’s shareholders approved the 2016 Akorn Inc., Employee Stock Purchase Plan (ESPP). Starting in January 2017, the ESPP permitted eligible employees to acquire shares of our common stock at a 15% discount from market price, through payroll
deductions not exceeding 15% of base wages. Purchases under the ESPP are subject to an annual maximum purchase of the lesser of
$25,000 in market value of our common stock or 15,000 shares.
Executive Share Retention and Ownership Guidelines
In order to promote equity ownership and further align the interests of management with the Company’s shareholders, the Company adopted stock ownership guidelines
for the Company’s executive officers. The executive officers are expected to achieve the ownership level associated with their position within five years of their respective appointments.
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Role
|
|
Guideline
|
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Chief Executive Officer
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5 times base salary
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All Other Executive Officers
|
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3 times base salary
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Until the specified ownership levels are met, an executive officer will be required to retain 50% of all shares acquired
upon option exercises and the vesting of RSUs (in both cases, less shares withheld to pay taxes or cost of exercise). The value of a share shall be measured as the greater of the then current market price or the closing price of a share of the
Company’s common stock on the acquisition date. For purposes of the stock ownership guidelines, stock ownership includes:
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•
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|
shares purchased on the open market,
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•
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shares owned jointly with, or separately, by the officer’s spouse and dependent children,
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•
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shares held in trust for the officer or immediate family member,
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•
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shares held through any Company-sponsored plan, including specifically the Employee Stock Purchase Plan,
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•
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|
shares obtained through the exercise of stock options, and
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•
|
|
50% of unvested restricted shares of stock.
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As of December 31, 2016, Messrs. Rai, Bonaccorsi, and Kutinsky had all
met the minimum ownership guidelines, and Messrs. Portwood, Lichter, and Kafer have until five years from their respective appointments to attain the required ownership levels.
Hedging Policy
Under the Company’s hedging policy, executive officers are discouraged from engaging in the purchase of puts, calls or other hedging transactions involving Company
stock.
Clawback Policy
In February 2016, the Company adopted a compensation clawback policy (“Clawback Policy”) that applies to all executive officers and incentive-based
compensation (including discretionary bonuses) awarded to such officers. Under the policy, the Company may require the forfeiture and repayment of incentive-based compensation if (1) the Company is required to prepare an accounting restatement
due to material noncompliance with financial reporting requirements under the federal securities laws, (2) an executive officer received incentive-based compensation based on materially inaccurate financial statements or materially inaccurately
determined performance metrics, (3) an action or omission by an executive officer results in material financial or reputational harm to the Company, or (4) an executive officer violated a
non-compete
or
non-solicit
provision or engaged in a felony or professional conduct injurious to the Company, its customers, employees, suppliers, or shareholders. In any such event, the Compensation Committee may require
that an executive officer forfeit or repay all or any portion of any outstanding unpaid incentive-based compensation that was awarded to the officers
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AKORN, INC.
- 2017 Proxy Statement
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44
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COMPENSATION DISCUSSION AND ANALYSIS
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and any incentive-based compensation that was paid to the officers during the 36 months prior. If a restatement occurs or an award is based on materially inaccurate financial statements or
performance metrics, the Compensation Committee will consider all facts and circumstances that it determines relevant, including whether anyone responsible engaged in misconduct and issues of accountability. Any amount repaid by an executive officer
shall not exceed the amount of incentive-based compensation awarded by the Company in excess of what would have been awarded to such employee under the circumstances reflected by the accounting restatement since the effective date of the policy.
Pursuant to the provisions of the Clawback Policy, the Company shall amend the policy as necessary to satisfy the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the NASDAQ. In order to ensure the enforceability of
the Clawback Policy, the Company is inserting appropriate language regarding the policy into applicable award agreements and other documents.
In addition to the
Clawback Policy, the Company’s CEO and CFO are subject to statutory clawback requirements under the Sarbanes Oxley Act of 2002, which generally requires public company chief executive officers and chief financial officers to disgorge bonuses,
other incentive- or equity-based compensation and profits on sales of company stock that they receive within the
12-month
period following the public release of financial information if there is a restatement
because of material noncompliance, due to misconduct, with financial reporting requirements under the federal securities laws.
Tax Considerations
Section 162(m) of the Internal Revenue Code generally prohibits publicly held companies from
deducting more than $1.0 million per year in compensation paid to each of certain of the Company’s highest paid executive officers, unless, in general, the compensation is paid pursuant
to a plan which is performance-related,
non-discretionary
and has been approved by our shareholders, such as our 2014 Plan. It has been and continues to be our intent that all
non-equity
incentive payments be deductible unless maintaining such deductibility would undermine our ability to meet our primary compensation objectives or is otherwise not in our best interest. In general,
historically the Compensation Committee has structured awards to the executive officers under the Company’s
non-equity
incentive program to qualify for this exemption. We continue to strive to structure
compensation (excluding certain equity incentives) paid to the Named Executive Officers so that it is deductible under Section 162(m) of the Internal Revenue Code to the extent practical, but we may award
non-deductible
compensation in certain circumstances as we deem appropriate.
We also regularly analyze the tax effects of
various forms of compensation and the potential for excise taxes to be imposed on the executive officers which might have the effect of frustrating the purposes of such compensation.
Accounting Treatment Considerations
We are especially attuned to the impact of ASC 718 -
Stock Compensation
, with respect to the granting and vesting of equity compensation awards. Prior to the
granting of such awards, we analyze the short and longer-term effects of any particular award on our budget for the year of grant and anticipated financial impact in future years. This information is taken into account in determining the type and
vesting parameters for equity-based compensation awards.
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III. EXECUTIVE COMPENSATION AND OTHER INFORMATION
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IV. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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otherwise specified in the footnotes that follow, the indicated person or entity has sole voting power and sole investment power with respect to the shares.
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(2)
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The stock ownership of BlackRock, Inc. is as of December 31, 2016 as reflected in the Schedule 13G/A filed with the SEC on January 19, 2017. The address of BlackRock, Inc. is 55 East 52
nd
Street, New York, New York 10055.
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(3)
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The stock ownership of Paulson & Co. Inc. is as of December 31, 2016 as reflected in the Schedule 13G/A filed with the SEC on February 14, 2017. The address of Paulson & Co. Inc. is 1251 Avenue of the Americas,
New York, New York 10020.
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(4)
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The stock ownership of The Vanguard Group is as of December 31, 2016 as reflected in the Schedule 13G filed with the SEC on February 8, 2017. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern,
Pennsylvania 19355.
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(5)
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Includes (i) 4,907,524 shares of common stock owned by the Kapoor Trust, of which Dr. Kapoor is the sole trustee and beneficiary, (ii) 501,896 shares of common stock owned directly by Dr. Kapoor, and (iii)
13,654 shares of common stock issuable upon exercise of options. The total also includes (iv) 15,050,000 shares of common stock owned by Akorn Holdings, L.P., a Delaware limited partnership, of which Dr. Kapoor is the indirect managing general
partner, (v) 2,970,644 shares of common stock owned by EJ Financial / Akorn Management L.P., of which Dr. Kapoor is the indirect managing general partner, (vi) 3,590,445 shares of common stock owned by EJ Funds LP., of which Dr. Kapoor is
the indirect managing general partner, and (vii) 4,427,462 shares of common stock held through several trusts, the trustee of which is employed by a company controlled by Dr. Kapoor and the beneficiaries of which include Dr. Kapoor’s
children and various other family members, all of which shares in (iv) – (vii) Dr. Kapoor disclaims beneficial ownership of to the extent of his actual pecuniary interest therein. Dr. Kapoor’s ownership excludes 3,495 unvested
RSUs and 8,701 shares subject to unvested stock options. Dr. Kapoor holds sole voting and dispositive power over 31,457,558 beneficially-owned shares and holds shared voting and dispositive power over 55,000 beneficially owned shares.
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(6)
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Beneficial ownership for Mr. Abramowitz includes 13,654 shares of common stock issuable upon exercise of options, and excludes: (i) 3,495 unvested RSUs, and (ii) 8,701 shares subject to unvested stock options.
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(7)
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Beneficial ownership for Dr. Graves includes 13,654 shares of common stock issuable upon exercise of options, and excludes: (i) 3,495 unvested RSUs, and (ii) 8,701 shares subject to unvested stock options.
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(8)
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Beneficial ownership for Mr. Johnson includes 13,654 shares of common stock issuable upon exercise of options, and excludes: (i) 3,495 unvested RSUs, and (ii) 8,701 shares subject to unvested stock options.
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(9)
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Beneficial ownership for Mr. Meyer includes 13,654 shares of common stock issuable upon exercise of options, and excludes: (i) 3,495 unvested RSUs, and (ii) 8,701 shares subject to unvested stock options.
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(10)
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Beneficial ownership for Ms. Rappuhn includes 22,901 shares of common stock issuable upon exercise of options, and excludes: (i) 3,495 unvested RSUs, and (ii) 8,701 shares subject to unvested stock options.
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(11)
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Beneficial ownership for Mr. Tambi includes 13,654 shares of common stock issuable upon exercise of options, and excludes: (i) 7,511 unvested RSUs, and (ii) 8,701 shares subject to unvested stock options.
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(12)
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Beneficial ownership for Mr. Weinstein includes 13,654 shares of common stock issuable upon exercise of options, and excludes: (i) 3,495 unvested RSUs, and (ii) 8,701 shares subject to unvested stock options.
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(13)
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Beneficial ownership for Mr. Rai includes 2,000,000 shares owned by the Rajat Rai 2016 GRAT. The total also includes 202,593 shares of common stock issuable upon the exercise of options and excludes: (i) 89,550
unvested RSUs, and (ii) 457,514 shares subject to unvested stock options.
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(14)
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Beneficial ownership for Mr. Portwood includes 75,000 shares of common stock issuable upon exercise of options and excludes 300,000 shares subject to unvested stock options.
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IV. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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(15)
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Beneficial ownership for Mr. Bonaccorsi includes 46,605 shares of common stock issuable upon the exercise of options and excludes: (i) 61,210 unvested RSUs, and (ii) 136,971 shares subject to unvested stock
options.
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(16)
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Beneficial ownership for Dr. Kutinsky includes 152,401 shares of common stock issuable upon the exercise of stock options and excludes: (i) 15,670 unvested RSUs, and (ii) 139,352 shares subject to unvested
stock options.
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(17)
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Beneficial ownership for Mr. Lichter includes 121,000 shares of common stock issuable upon the exercise of stock options, and excludes: (i) 2,542 unvested RSUs, and (ii) 180,984 shares subject to unvested stock
options.
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(18)
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Beneficial ownership for Mr. Kafer includes 73,350 shares of common stock issuable upon the exercise of stock options and excludes: (i) 2,542 unvested RSUs, and (ii) 113,034 shares subject to unvested stock
options.
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V. Questions and Answers
Why have I received these materials? What is included in the proxy materials?
This proxy statement was provided to you because our Board is soliciting your proxy to vote at the annual meeting of shareholders to be held on April 27, 2017. The
proxy materials for our 2017 annual meeting of shareholders include the Notice of Annual Meeting, this proxy statement and our Form
10-K
filed for fiscal year 2016. If you received a paper copy of these
materials, the proxy materials also include a proxy card or voting instruction form.
Who may attend the 2017 Annual Meeting? Are there
procedures for attending?
Only shareholders as of March 13, 2017 or their legal proxy holders may attend the 2017 annual meeting. Due to space
constraints and other security considerations, we will not be able to accommodate the guests of either shareholders or their legal proxy holders.
To be admitted to
the 2017 annual meeting, you must present valid proof of ownership of the Company’s common stock as of March 13, 2017 or a valid legal proxy. All attendees must also provide a form of government-issued photo identification. If you arrive
at the 2017 annual meeting without the required items, we will admit you only if we are able to verify that you are a shareholder of the Company as of March 13, 2017.
Shareholders of record may gain admittance to the 2017 annual meeting by providing proof of ownership of the Company’s common stock as of March 13, 2017. If
your shares are held in the name of a bank, broker, trustee or other nominee and you plan to attend the 2017 annual meeting, you will need to bring proof of ownership as of March 13, 2017, such as a recent bank or brokerage account statement,
and if you wish to vote in person, you must obtain a legal proxy issued in your name from your broker or other nominee. If you are not a shareholder but attending as proxy for a shareholder, you may attend the 2017 annual meeting by presenting a
valid legal proxy. Shareholders may appoint only one proxy holder to attend on their behalf.
If you are representing an entity that is a shareholder, you must provide evidence of your authority to represent that
entity at the 2017 annual meeting. Shareholders holding shares in a joint account will be admitted to the 2017 annual meeting if they provide proof of joint ownership.
Who is entitled to vote at the 2017 Annual Meeting?
Shareholders of record as of the close of business on March 13, 2017 will be entitled to vote at the annual meeting. On March 13, 2017, there were
[ ] shares of common stock outstanding and entitled to vote.
If on
March
13, 2017 you were a “record” shareholder of common stock
(that is, if you held common stock in your own name in the stock records maintained by our transfer agent, Computershare), you may vote in person at the
annual meeting or by proxy. Whether or not you intend to attend the annual meeting, we encourage you to vote now, online, by phone, or proxy card to ensure that your vote is counted.
If on March
13, 2017, you were the beneficial owner of shares of common stock held in “street name”
(that is, a shareholder who held
common stock through a broker or other nominee) then these materials are being forwarded to you by the broker or other nominee. You may direct your broker or other nominee how to vote your shares of common stock. However, you will have to obtain a
proxy form from the institution that holds your shares and follow the voting instructions on the form. If you wish to attend the annual meeting and vote in person, you may attend the meeting but may not be able to vote in person unless you first
obtain a legal proxy issued in your name from your broker or other nominee.
A list of shareholders entitled to vote at the meeting will be open to the examination
of any shareholder, for any purpose germane to the meeting, on and during ordinary business hours for 10 days prior to the date of the meeting at our principal offices located at 1925 West Field Court, Suite 300, Lake Forest, Illinois 60045.
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What am I voting on?
There are five matters scheduled for a vote:
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Election of eight directors;
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Ratification of the appointment by our Audit Committee of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017;
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Approval of the 2017 Omnibus Incentive Compensation Plan;
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Approval by
non-binding
advisory vote of the frequency of future
non-binding
advisory votes regarding the Company’s executive
compensation programs; and
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Approval by
non-binding
advisory vote of the Company’s executive compensation program.
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How do I cast my vote?
You may either vote “FOR
ALL” or “WITHHOLD ALL” or “FOR ALL EXCEPT” for any or all of the Company’s nominees for Director. There is no cumulative voting with respect to the election of directors.
You may either vote every “ONE YEAR” or “TWO YEARS” or “THREE YEARS” or “ABSTAIN” for the
non-binding
advisory vote on the frequency of future
non-binding
advisory votes regarding the Company’s executive compensation programs.
You may vote “FOR” or “AGAINST” or “ABSTAIN” on all other proposals, including the vote to ratify the Company’s appointment of BDO
USA, LLP as its independent registered public accounting firm, the vote to approve the 2017 Omnibus Incentive Compensation Plan, and the
non-binding
advisory vote on the Company’s executive compensation
program.
If you are a shareholder of record,
vote over the Internet at www.proxyvote.com or vote by telephone at 1 (800)
690-6903.
You may also vote by proxy card, voter instruction form or in person at the annual meeting.
Whether or not you
plan to attend the annual meeting, we urge you to vote now to ensure your vote is counted. You may still attend the annual meeting and vote in person if you have already voted by proxy.
If you hold your shares in street name,
the name of your broker, bank, or other agent, you
should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Akorn. In order to vote, complete and mail the proxy card received
from your broker or bank to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by your broker, bank or such other applicable agent. To vote in person at the annual meeting, you must obtain a
valid proxy from your broker, bank, or other agent. Follow the instructions from your broker, bank, or other agent included with these proxy materials, or contact your broker, bank, or such other agent to request a proxy form.
Each share of common stock is entitled to one vote with respect to each matter to be voted on at the annual meeting.
What constitutes a quorum for purposes of the annual meeting?
A quorum of shareholders is necessary to hold a valid meeting. The presence at the annual meeting in person or by proxy of the holders of a majority of the voting power
of all outstanding shares of common stock entitled to vote, or [ ] votes, shall constitute a quorum for the transaction of business at the meeting. Proxies marked as abstaining
(including proxies containing broker
non-votes)
on any matter to be acted upon by shareholders will be treated as present at the meeting for purposes of determining a quorum but will not be counted as votes
cast on such matters. If there is no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date.
How does
the Board recommend that I vote my shares?
The Board’s recommendation is set forth together with the description of each item in this proxy statement.
In summary, the Board recommends a vote:
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FOR ALL
for the election of the eight nominees for director (Proposal 1).
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FOR
the ratification of the appointment by our Audit Committee of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017 (Proposal 2).
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FOR
the approval of the 2017 Omnibus Incentive Compensation Plan (Proposal 3).
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Every One Year
for the
non-binding
advisory vote on the frequency of future
non-binding
advisory votes regarding the Company’s
executive compensation programs (Proposal 4).
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FOR
the approval, by
non-binding
advisory vote, of the Company’s executive compensation program (Proposal 5).
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With respect to any other matter that properly comes before the annual meeting, the proxies will vote as recommended by the Board or, if no recommendation is given, in
their own discretion. As of the date of this proxy statement, the Board had no knowledge of any business other than that described herein that would be presented for consideration at the 2017 annual meeting.
What if I return a proxy card but do not make specific choices?
If you are the shareholder of record
and return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR ALL”
for the election of all eight nominees for director, “FOR” the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017; “FOR” the
approval of the 2017 Omnibus Incentive Compensation Plan; every “ONE YEAR” for the frequency of future
non-binding
advisory votes regarding the Company’s executive compensation programs; and
“FOR” the approval of our executive compensation program. If any other matter is properly presented at the annual meeting, your proxy (the individual named on your proxy card) will vote your shares using his best judgment.
If you hold your shares in street name,
and do not provide your nominee instruction with respect to any voting selections, your shares may be voted by your
nominee for the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. However, your shares cannot be voted by your nominee for any of the other
proposals, including the election of any of the eight nominees for director, nor for the approval of the 2017 Omnibus Incentive Compensation Plan; nor on
the frequency of future
non-binding
advisory votes regarding the Company’s executive compensation programs; nor for the approval of our executive
compensation program. In such cases, your vote will be considered a “broker
non-vote.”
How
many votes are needed to approve each proposal?
Proposal 1.
The election of directors will be determined by a plurality of the votes cast at the
annual meeting by shares represented in person or by proxy and entitled to vote for the election of directors. A plurality means the highest number of “FOR” votes. Therefore, the eight nominees receiving the most proper “FOR”
votes will be elected. Abstentions and broker
non-votes
will have no effect on the outcome.
Proposal 2.
The
ratification of the appointment by our Audit Committee of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017 requires a “FOR” vote from a majority of the votes cast.
Abstention and broker
non-votes
will have no effect on the outcome.
Proposal 3.
The approval of the 2017 Omnibus
Incentive Compensation Plan requires a “FOR” vote from a majority of the votes cast. Abstention and broker
non-votes
will have no effect on the outcome.
Proposal 4.
The option of one year, two years, or three years that receives the greatest number of votes by shareholders will be considered the frequency for
future
non-binding
advisory votes regarding the Company’s executive compensation programs that has been selected by the shareholders. This vote is
non-binding
to
the Company. Abstentions and broker
non-votes
will have no effect on the outcome. Since this vote is
non-binding,
the Company maintains the right to adopt a different
frequency of future votes on its executive compensation programs. However, our Board of Directors (including the Compensation Committee) will take into account the outcome of this vote in its considerations.
Proposal 5.
The approval by advisory vote of the Company’s executive compensation program is
non-binding
to the
Company. Abstentions and broker
non-votes
will have no effect on the
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outcome. Since this vote is
non-binding,
the Company maintains the right to adopt
or maintain an executive compensation plan that has not been ratified by affirmative vote of its shareholders. However, our Board of Directors (including our Compensation Committee) will take into account the outcome of the vote when considering
future decisions affecting executive compensation as it deems appropriate.
Can I revoke or change my vote after I return my proxy card?
Yes.
For shareholders of record,
any time after you have submitted a proxy card and before the proxy card is exercised, you may revoke or change your
vote in one of three ways:
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You may submit a written notice of revocation to Akorn’s Corporate Secretary at 1925 West Field Court, Suite 300, Lake Forest, Illinois 60045.
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You may submit a proxy bearing a later date.
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You may attend the annual meeting and vote in person. Attendance at the meeting will not, by itself, revoke a proxy.
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If you hold your shares in street name,
you will need to revoke or resubmit your proxy through your nominee and in accordance with its procedures. In order to
attend the annual meeting and vote in person, you will need to obtain a proxy from your nominee, the shareholder of record.
Who will bear the
expense of soliciting proxies in connection with this proxy statement?
Akorn will bear the cost of soliciting proxies in the form enclosed. In addition to
the solicitation by mail, proxies may be solicited personally or by telephone, facsimile, online posting or electronic transmission by our employees. Our employees will not receive any additional compensation for participating in proxy solicitation.
We may reimburse brokers holding common stock in their names or in the names of their nominees for their expenses in sending proxy materials to the beneficial owners of such common stock.
What does it mean if I receive more than one proxy?
If
you receive more than one proxy, it means you have multiple accounts with brokers and/or our
transfer agent. Please vote all of these shares. We recommend that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and address.
Our transfer agent is Computershare – Essential Registry Team. Their mailing address is P.O. Box 30170, College Station, TX 77842 and they can be reached at 800-962-4284.
What is householding of proxy materials?
The SEC has
adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy
statement addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.
Brokers with account holders who are Akorn shareholders may be “householding” our proxy materials. A single proxy statement will be delivered to multiple
shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be “householding” communications to your address,
“householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and
annual report, please notify your broker and direct your written request to Akorn, Inc., Attention: Investor Relations, 1925 West Field Court, Suite 300, Lake Forest, Illinois 60045, or call (847)
279-6156.
Shareholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.
How can I get a copy of the 2016 annual report or other proxy materials?
The Notice of Annual Meeting, proxy statement and our Form
10-K
for 2016 are available at proxyvote.com and at the
Company’s website akorn.com.
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We will provide, without charge, a copy of our Form
10-K,
including financial
statements and financial statement schedules, as filed with the SEC, upon request in writing from any person who was a holder of record or who represents in good faith that such person was a beneficial owner of common stock as of March 13,
2017. Requests should be made to Akorn, Inc., Attention: Investor Relations, 1925 West Field Court, Suite 300, Lake Forest, Illinois 60045.
What are the deadlines for submitting shareholder proposals for the 2018 annual meeting?
Any proposal that a shareholder of our common stock
wishes to submit for inclusion in the Akorn Proxy Statement for the 2018 annual meeting (“2018 Proxy Statement”) pursuant to Rule
14a-8
must be received by Akorn’s Corporate Secretary at 1925
West Field Court, Suite 300, Lake Forest, Illinois 60045 not later than November 24, 2017, or if such year’s annual meeting does not take place within 30 days from April 27, 2018, then the deadline is a reasonable time before Akorn begins
to print and send its proxy materials. Such proposals must comply with SEC regulations under Rule
14a-8
regarding the inclusion of shareholder proposals in
company-
sponsored proxy materials. In addition, notice of any proposal that a holder of our common stock wishes to propose for consideration at the 2018 annual meeting, but does not seek to include in
the 2018 Proxy Statement pursuant to
Rule 14a-8,
must be delivered to the Company no later than November 24, 2017 if the proposing shareholder of our common stock wishes for Akorn to describe the nature
of the proposal in its 2018 Proxy Statement. Any shareholder proposals or notices submitted to Akorn in connection with our 2018 annual meeting should be addressed to: Akorn’s Corporate Secretary at 1925 West Field Court, Suite 300, Lake
Forest, Illinois 60045. Any notice of a shareholder proposal submitted after November 24, 2017, or if such year’s annual meeting does not take place within 30 days from April 27, 2018, a reasonable time before Akorn begins to print and
send its proxy materials, will be considered untimely.
By Order of the Board of Directors
/S/
Joseph Bonaccorsi
Joseph Bonaccorsi
Secretary
Lake Forest, Illinois
March [ ], 2017
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Appendix A
AKORN, INC.
2017 OMNIBUS INCENTIVE COMPENSATION PLAN
SECTION 1.
Purpose.
The purpose of this Akorn, Inc. 2017 Omnibus Incentive Compensation Plan (the “
Plan
”) is to promote
the interests of Akorn, Inc. and its stockholders by (a) attracting and retaining exceptional directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of the Company (as defined
below) and its Affiliates (as defined below) and (b) enabling such individuals to participate in the long-term growth and financial success of the Company. This Plan is intended to replace the Amended and Restated Akorn, Inc. 2014 Stock Option
Plan (the “
Amended 2014 Plan
”) which, as of the date on which this Plan is approved by the Company’s stockholders (such date, the “
Approval Date
”), shall be automatically terminated and replaced and superseded
by this Plan, except that any awards granted under the Amended 2014 Plan or any other Prior Plan (as defined below) shall continue to be subject to the terms of the applicable Prior Plan and applicable Award Agreement (as defined below), including
any such terms that are intended to survive the termination of such Prior Plan or the settlement of such award, and shall remain in effect pursuant to their terms.
SECTION 2.
Definitions.
As used herein, the following terms shall have the meanings set forth below:
“
Affiliate
” means (a) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the
Company and/or (b) any entity in which the Company has a significant equity interest, in either case as determined by the Committee.
“
Applicable Exchange
” means the NASDAQ or any other national stock exchange or quotation system on which the Shares may be listed or
quoted.
“
Award
” means any award that is permitted under Section 6 and granted under the Plan or any award that is permitted
and was granted under any Prior Plan.
“
Award Agreement
” means any written or electronic agreement, contract or other instrument
or document evidencing any Award, which may (but need not) require execution or acknowledgment by a Participant.
“
Board
” means
the Board of Directors of the Company.
“
Cash Incentive Award
” means an Award granted pursuant to Section 6(g) that is
settled in cash and the value of which is set by the Committee and is not calculated by reference to the Fair Market Value of a Share.
“
Change of Control
” shall (a) have the meaning set forth in an Award Agreement;
provided
,
however
, that except
in the case of a transaction similar to a transaction described in subparagraph (b)(iii) below, any definition of Change of Control set forth in an Award Agreement shall provide that a Change of Control shall not occur until consummation or
effectiveness of a change of control of the Company, rather than upon the announcement, commencement, stockholder approval or other potential occurrence of any event or transaction that, if completed, would result in a change of control of the
Company, or (b) if there is no definition set forth in an Award Agreement, mean the occurrence of any of the following events:
(i) during any period of 24 consecutive calendar months, individuals who were directors of the Company on the first day of such period
(the “
Incumbent Directors
”) cease for any reason to constitute a majority of the Board;
provided
,
however
, that any individual becoming a
A-1
director subsequent to the first day of such period whose election, or nomination for election, by the Company’s stockholders was approved by a vote of at least
two-thirds
of the Incumbent Directors shall be considered as though such individual were an Incumbent Director, but excluding, for purposes of this proviso, any such individual whose initial assumption of office
occurs as a result of an actual or threatened proxy contest with respect to election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” (as used in Section 13(d) of the
Exchange Act) (a “
Person
”), in each case other than the Board;
(ii) the consummation of (A) a merger,
consolidation, statutory share exchange or similar form of corporate transaction involving (x) the Company or (y) any of its Subsidiaries, but in the case of this clause (y) only if Company Voting Securities (as defined below) are
issued or issuable (each of the events referred to in this clause (A) being hereinafter referred to as a “
Reorganization
”) or (B) the sale or other disposition of all or substantially all the assets of the Company to an
entity that is not an Affiliate (a “
Sale
”), in each case, if such Reorganization or Sale requires the approval of the Company’s stockholders under the law of the Company’s jurisdiction of organization (whether such
approval is required for such Reorganization or Sale or for the issuance of securities of the Company in such Reorganization or Sale), unless, immediately following such Reorganization or Sale, (1) all or substantially all the Persons who were
the “beneficial owners” (as used in Rule
13d-3
under the Exchange Act (or a successor rule thereto)) of the securities eligible to vote for the election of the Board (“
Company Voting
Securities
”) outstanding immediately prior to the consummation of such Reorganization or Sale continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the
corporation or other entity resulting from such Reorganization or Sale (including a corporation or other entity that, as a result of such transaction, owns the Company or all or substantially all the Company’s assets either directly or through
one or more subsidiaries) (the “
Continuing Company
”) in substantially the same proportions as their ownership, immediately prior to the consummation of such Reorganization or Sale, of the outstanding Company Voting Securities
(excluding, for such purposes, any outstanding voting securities of the Continuing Company that such beneficial owners hold immediately following the consummation of the Reorganization or Sale as a result of their ownership prior to such
consummation of voting securities of any corporation or other entity involved in or forming part of such Reorganization or Sale other than the Company), (2) no Person (excluding any employee benefit plan (or related trust) sponsored or
maintained by the Continuing Company or any entity controlled by the Continuing Company) beneficially owns, directly or indirectly, 50% or more of the combined voting power of the then outstanding voting securities of the Continuing Company and
(3) at least 50% of the members of the board of directors of the Continuing Company were Incumbent Directors at the time of the execution of the definitive agreement providing for such Reorganization or Sale or, in the absence of such an
agreement, at the time at which approval of the Board was obtained for such Reorganization or Sale;
(iii) the stockholders of the
Company approve a plan of complete liquidation or dissolution of the Company unless such liquidation or dissolution is part of a transaction or series of transactions described in paragraph (ii) above that does not otherwise constitute a Change
of Control; or
(iv) any Person, corporation or other entity or “group” (as used in Section 13(d) of the Exchange
Act), other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate or (C) any entity owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of the voting power of the Company Voting Securities, becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power
of the Company Voting Securities;
provided
,
however
, that for purposes of this subparagraph (iv), the following acquisitions shall not constitute a Change of Control: (w) any
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acquisition directly from the Company, (x) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or an Affiliate, (y) any acquisition by
an underwriter temporarily holding such Company Voting Securities pursuant to an offering of such securities or any acquisition by a pledgee of Company Voting Securities holding such securities as collateral or temporarily holding such securities
upon foreclosure of the underlying obligation or (z) any acquisition pursuant to a Reorganization or Sale that does not constitute a Change of Control for purposes of subparagraph (ii) above.
“
Code
” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto, and the regulations
promulgated thereunder.
“
Committee
” means the Compensation Committee of the Board or a subcommittee thereof, or such other
committee of the Board as may be designated by the Board to administer the Plan.
“
Company
” means Akorn, Inc., a corporation
organized under the laws of Louisiana, together with any successor thereto.
“
Deferred Share Unit
” means a deferred share unit
Award that represents an unfunded and unsecured promise to deliver Shares in accordance with the terms of the applicable Award Agreement.
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute thereto, and the
regulations promulgated thereunder.
“
Exercise Price
” means (a) in the case of each Option, the price specified in the
applicable Award Agreement as the
price-per-Share
at which Shares may be purchased pursuant to such Option or (b) in the case of each SAR, the price specified in
the applicable Award Agreement as the reference
price-per-Share
used to calculate the amount payable to the Participant pursuant to such SAR.
“
Fair Market Value
” means, except as otherwise provided in the applicable Award Agreement, (a) with respect to any property other
than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee and (b) with respect to Shares, as of any date, (i) the closing
per-share
sales price of Shares as reported by the Applicable Exchange for such stock exchange for such date or if there were no sales on such date, on the closest preceding date on which there were sales of Shares
or (ii) in the event there shall be no public market for the Shares on such date, the fair market value of the Shares as determined in good faith by the Committee.
“
Incentive Stock Option
” means an option to purchase Shares from the Company that is granted under Section 6(b) of the Plan and
is intended to qualify for special Federal income tax treatment pursuant to Sections 421 and 422 of the Code, as now constituted or subsequently amended, or pursuant to a successor provision of the Code, and which is so designated in the
applicable Award Agreement.
“
Independent Director
” means a member of the Board (a) who is neither an employee of the Company
nor an employee of any Affiliate, and (b) who, at the time of acting, is a
“Non-Employee
Director” under Rule
16b-3.
“
NASDAQ
” means the National Association of Securities Dealers Automated Quotations.
“
Nonqualified Stock Option
” means an option to purchase Shares from the Company that is granted under Section 6(b) of the Plan
and that is not an Incentive Stock Option.
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“
Option
” means an Incentive Stock Option or a Nonqualified Stock Option or both, as the context requires.
“
Participant
” means any director, officer, employee or consultant (including any prospective director, officer, employee or
consultant) of the Company or its Affiliates who is eligible for an Award under Section 5 and who is selected by the Committee to receive an Award under the Plan or who receives a Substitute Award pursuant to Section 4(c).
“
Performance Compensation Award
” means any Award designated by the Committee as a Performance Compensation Award pursuant to
Section 6(e) of the Plan.
“
Performance Criteria
” means the criterion or criteria that the Committee shall select for
purposes of establishing the Performance Goal(s) for a Performance Period with respect to any Performance Compensation Award or Performance Unit or, if applicable, any Restricted Share, RSU or Cash Incentive Award.
“
Performance Formula
” means, for a Performance Period, the one or more formulas applied against the relevant Performance Goal to
determine, with regard to the Performance Compensation Award or Performance Unit or, if applicable, the Restricted Share, RSU or Cash Incentive Award of a particular Participant, whether all, some portion but less than all, or none of such Award has
been earned for the Performance Period.
“
Performance Goal
” means, for a Performance Period, the one or more goals established by
the Committee for the Performance Period based upon the Performance Criteria.
“
Performance Period
” means the one or more periods
of time as the Committee may select over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Performance Compensation Award or Performance Unit or,
if applicable, a Restricted Share, RSU or Cash Incentive Award.
“
Performance Unit
” means an Award under Section 6(f) of the Plan
that has a value set by the Committee (or that is determined by reference to a valuation formula specified by the Committee or the Fair Market Value of Shares), which value may be paid to the Participant by delivery of such property as the Committee
shall determine, including without limitation, cash or Shares, or any combination thereof, upon achievement of such Performance Goals during the relevant Performance Period as the Committee shall establish at the time of such Award or thereafter.
“
Prior Plan
” means the Amended 2014 Plan, the Akorn, Inc. 2014 Stock Option Plan, or the Amended and Restated Akorn, Inc, 2003
Stock Option Plan.
“
Restricted Share
” means a Share that is granted under Section 6(d) of the Plan that is subject to
certain transfer restrictions, forfeiture provisions and/or other terms and conditions specified herein and in the applicable Award Agreement.
“
RSU
” means a restricted stock unit Award that is granted under Section 6(d) of the Plan and is designated as such in the
applicable Award Agreement and that represents an unfunded and unsecured promise to deliver Shares, cash, other securities, other Awards or other property in accordance with the terms of the applicable Award Agreement.
“
Rule
16b-3
” means
Rule 16b-3
as promulgated and interpreted by the SEC under the Exchange Act or any successor rule or regulation thereto as in effect from time to time.
“
SAR
” means a stock appreciation right Award that is granted under Section 6(c) of the Plan or the applicable article of any
Prior Plan and that represents an unfunded and unsecured promise to deliver Shares, cash, other securities, other Awards or other property equal in value to the excess, if any, of the Fair Market Value per Share over the Exercise Price per Share of
the SAR, subject to the terms of the applicable Award Agreement.
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“
SEC
” means the Securities and Exchange Commission or any successor thereto and shall include the staff thereof.
“
Shares
” means shares of common stock of the Company, no par value, or such other securities of the Company (a) into which such
shares shall be changed by reason of a recapitalization, merger, consolidation,
split-up,
combination, exchange of shares or other similar transaction or (b) as may be determined by the Committee pursuant
to Section 4(b).
“
Subsidiary
” means any entity in which the Company, directly or indirectly, possesses fifty percent (50%)
or more of the total combined voting power of all classes of its stock.
“
Treasury Regulations
” means all proposed, temporary and
final regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
SECTION 3.
Administration.
(a)
Composition of the Committee.
The Plan shall be administered by the Committee, which shall be composed of
one or more directors, as determined by the Board;
provided
that, to the extent necessary to comply with the rules of the Applicable Exchange and Rule
16b-3
and to satisfy any applicable requirements of
Section 162(m) of the Code and any other applicable laws or rules, the Committee shall be composed of two or more directors, all of whom shall be Independent Directors and all of whom shall (i) qualify as “outside directors” under
Section 162(m) of the Code and (ii) meet the independence requirements of the Applicable Exchange.
(b)
Authority of the Committee.
Subject to the terms of the Plan and applicable law, and in addition to the other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have sole and plenary authority to administer the Plan, including the
authority to (i) designate Participants, (ii) determine the type or types of Awards to be granted to a Participant, (iii) determine the number of Shares or dollar value to be covered by, or with respect to which payments, rights or
other matters are to be calculated in connection with, Awards, (iv) determine the terms and conditions of any Awards, (v) determine the vesting schedules of Awards and, if certain performance criteria must be attained in order for an Award
to vest or be settled or paid, establish such performance criteria and certify whether, and to what extent, such performance criteria have been attained, (vi) determine whether, to what extent and under what circumstances Awards may be settled
or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended, (vii) determine whether,
to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the
Committee, (viii) interpret, administer, reconcile any inconsistency in, correct any default in and/or supply any omission in, the Plan and any instrument or agreement relating to, or Award made under, the Plan or any Prior Plan,
(ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan, (x) accelerate the vesting or exercisability of, the payment for, or the
lapse of restrictions on, Awards, (xi) amend an outstanding Award or grant a replacement Award for an Award previously granted under the Plan or any Prior Plan if, in its sole discretion, the Committee determines that (A) the tax
consequences of such Award to the Company or the Participant differ from those consequences that were expected to occur on the date the Award was granted or (B) clarifications or interpretations of, or changes to, tax law or regulations permit
Awards to be granted that have more favorable tax consequences than initially anticipated and (xii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c)
Committee Decisions.
Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions
under or with respect to the Plan or
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any Award shall be within the sole and plenary discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Award and any stockholder.
(d)
Indemnification.
No member of the Board, the
Committee or any employee of the Company (each such person, a “
Covered Person
”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award. Each Covered
Person shall be indemnified and held harmless by the Company from and against (i) any loss, cost, liability or expense (including attorneys’ fees) that may be imposed upon or incurred by such Covered Person in connection with or resulting
from any action, suit or proceeding to which such Covered Person may be a party or in which such Covered Person may be involved by reason of any action taken or omitted to be taken under the Plan or any Award Agreement and (ii) any and all
amounts paid by such Covered Person, with the Company’s approval, in settlement thereof, or paid by such Covered Person in satisfaction of any judgment in any such action, suit or proceeding against such Covered Person;
provided
that the
Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding, and, once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of
the Company’s choice. The foregoing right of indemnification shall not be available to a Covered Person to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case not subject to further
appeal, determines that the acts or omissions of such Covered Person giving rise to the indemnification claim resulted from such Covered Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is
otherwise prohibited by law or by the Company’s Articles of Incorporation or Bylaws, in each case, as may be amended from time to time. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to
which Covered Persons may be entitled under the Company’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such persons or hold them harmless.
(e)
Delegation of Authority to Senior Officers.
The Committee may delegate, on such terms and conditions as it determines in its sole and
plenary discretion, to one or more senior officers of the Company the authority to make grants of Awards to officers (other than any officer subject to Section 16 of the Exchange Act), employees and consultants of the Company and its Affiliates
(including any prospective officer (other than any such officer who is expected to be subject to Section 16 of the Exchange Act), employee or consultant) and all necessary and appropriate decisions and determinations with respect thereto.
(f)
Awards to Independent Directors.
Notwithstanding anything to the contrary contained herein, the Board may, in its sole and plenary
discretion, at any time and from time to time, grant Awards to Independent Directors or administer the Plan with respect to such Awards. In any such case, the Board shall have all the authority and responsibility granted to the Committee herein.
SECTION 4.
Shares Available for Awards; Cash Payable Pursuant to Awards.
(a)
Shares and Cash Available.
(i) Subject to
adjustment as provided in Section 4(b), the maximum aggregate number of Shares that may be delivered pursuant to Awards granted under the Plan shall be equal to the sum of 8,000,000 (such amount, the “
Plan Share Limit
”).
(ii) Subject to adjustment as provided in Section 4(b), each Share with respect to which an Option or stock-settled SAR or any other Award
denominated in Shares is granted under the Plan shall reduce the aggregate number of Shares that may be delivered under the Plan by one Share (assuming achievement of maximum performance levels in the case of any Award subject to Performance
Criteria). Upon exercise of a stock-settled SAR, each Share with respect to which such stock-settled SAR is exercised shall be counted as one Share against the maximum aggregate number of Shares that may be delivered pursuant to Awards granted under
the Plan as provided above, regardless of the number of Shares actually delivered upon settlement of such stock-settled SAR.
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Awards that are required to be settled in cash will not reduce the Plan Share Limit. Subject to adjustment as provided in Section 4(b), the maximum aggregate number of Shares that may be
delivered pursuant to Incentive Stock Options granted under the Plan shall be equal to 1,500,000 (such amount, the “
Plan ISO Limit
”).
(iii) If, after the effective date of the Plan, any Award is (A) forfeited (including due to failure to satisfy any applicable Performance Goals),
or otherwise expires, terminates or is canceled without the delivery of all Shares subject thereto, or (B) settled other than wholly by delivery of Shares (including cash settlement), then, in the case of clauses (A) and (B), the number of
Shares subject to such Award that were not issued with respect to such Award will not be treated as issued for purposes of reducing the Plan Share Limit;
provided
,
however
, that such Shares shall be treated as issued for purposes of
reducing the Plan ISO Limit. However, if Shares issued upon vesting or settlement of an Award are, or Shares owned by a Participant are, surrendered or tendered to the Company in payment of the exercise price or any taxes required to be withheld in
respect of such Award, in each case, in accordance with the terms and conditions of the Plan and any applicable Award Agreement, such surrendered or tendered Shares shall not again become available to be delivered pursuant to Awards under the Plan.
(iv) With respect to (x) Options or SARs and (y) Awards (other than Options or SARs) that are intended to qualify as “qualified
performance-based compensation” under Section 162(m) of the Code, subject to adjustment as provided in Section 4(b), (A) in the case of Awards that are settled in Shares, the maximum aggregate number of Shares with respect to which Awards
may be granted in any fiscal year of the Company under the Plan to any Participant (other than an Independent Director) shall be equal to 2,000,000 (the “
Annual Individual Plan Share Limit
”), (B) in the case of Awards that are
settled in cash based on the Fair Market Value of a Share, the maximum aggregate amount of cash that may be paid pursuant to Awards granted to any Participant in any fiscal year of the Company under the Plan shall be equal to the
per-Share
Fair Market Value as of the relevant vesting, payment or settlement date multiplied by the Annual Individual Plan Share Limit, and (C) in the case of all Awards to Participants (other than Independent
Directors) other than those described in clauses (A) and (B), the maximum aggregate amount of cash and other property (valued at its Fair Market Value) other than Shares that may be paid or delivered pursuant to Awards under the Plan to any
Participant (other than an Independent Director) in any fiscal year of the Company shall be equal to $3,000,000.
(v) Subject to adjustment as
provided in Section 4(b), (A) in the case of Awards that are settled in Shares, the maximum aggregate number of Shares with respect to which Awards may be granted in any fiscal year of the Company under the Plan to any Independent Director
shall be 200,000 and (B) in the case of all Awards to Independent Directors other than those described in clause (A), the maximum aggregate amount of cash and other property (valued at its Fair Market Value) other than Shares that may be paid
or delivered pursuant to Awards under the Plan to any Independent Director in any fiscal year of the Company, together with any other fees or compensation paid to an Independent Director outside of the Plan for services as an Independent
Director during such fiscal year of the Company, shall be equal to $250,000.
(b)
Adjustments for Changes in Capitalization and Similar
Events.
(i) In the event of any extraordinary dividend or other extraordinary distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, rights offering, stock split, reverse stock split,
split-up
or
spin-off,
the Committee shall equitably adjust any or all of (A) the number of Shares or other securities of the Company (or number and kind of other
securities or property) with respect to which Awards may be granted, including (1) the Plan Share Limit, (2) the Plan ISO Limit, (3) the Annual Individual Plan Share Limit and (4) the Annual Independent Director Plan Share Limit,
and (B) the terms of any outstanding Award, including (1) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards or to which outstanding Awards relate and
(2) the Exercise Price, if applicable, with respect to any Award;
provided
,
however
, that the Committee shall determine the method and manner in which to effect such equitable adjustment.
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(ii) In the event that the Committee determines that any reorganization, merger, consolidation, combination, repurchase or exchange of Shares or other
securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares (including any Change of Control) such that an adjustment is
determined by the Committee in its discretion to be appropriate or desirable, then the Committee may, in such manner as it may deem appropriate or desirable in its sole and plenary discretion, (A) equitably adjust any or all of (1) the
number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, including (W) the Plan Share Limit, (X) the Plan ISO Limit, (Y) the Annual
Individual Plan Share Limit and (Z) the Annual Independent Director Plan Share Limit, and (2) the terms of any outstanding Award, including (X) the number of Shares or other securities of the Company (or number and kind of other
securities or property) subject to outstanding Awards or to which outstanding Awards relate, (Y) the Exercise Price, if applicable, with respect to any Award and (Z) any applicable Performance Criteria, Performance Formula, Performance
Goal or Performance Period, (B) make provision for a cash payment to the holder of an outstanding Award (but, solely with respect to unvested Awards in the case of a Change of Control, only if provision is not made in connection with such
Change of Control for (1) assumption of such Awards or (2) substitution for such Awards of new awards covering stock of a successor corporation or its “parent corporation” (as defined in Section 424(e) of the Code), with
appropriate adjustments as to the number and kinds of shares and the Exercise Prices, if applicable) in consideration for the cancelation of such Award, including, in the case of an outstanding Option or SAR, a cash payment to the holder of such
Option or SAR in consideration for the cancelation of such Option or SAR in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Shares subject to such Option or SAR over the aggregate
Exercise Price of such Option or SAR and (C) cancel and terminate any Option or SAR having a
per-Share
Exercise Price equal to, or in excess of, the Fair Market Value of a Share subject to such Option or
SAR without any payment or consideration therefor.
(c)
Substitute Awards.
Awards may, in the discretion of the Committee, be granted under
the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or any of its Affiliates or a company acquired by the Company or any of its Affiliates or with which the Company or any of its Affiliates
combines (“
Substitute Awards
”);
provided
,
however
, that in no event may any Substitute Award be granted in a manner that would violate the prohibitions on repricing of Options and SARs, as set forth in clauses (i),
(ii) or (iii) of Section 7(b). The number of Shares underlying any Substitute Awards shall be counted against the Plan Share Limit;
provided
,
however
, that Substitute Awards issued in connection with the assumption of, or in
substitution for, outstanding awards previously granted by an entity that is acquired by the Company or any of its Affiliates or with which the Company or any of its Affiliates combines shall not be counted against the Plan Share Limit;
provided
further
,
however
, that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding stock options intended to qualify for special tax treatment under Sections 421 and 422 of the
Code that were previously granted by an entity that is acquired by the Company or any of its Affiliates or with which the Company or any of its Affiliates combines shall be counted against the Plan ISO Limit.
(d)
Sources of Shares Deliverable Under Awards.
Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of reacquired Shares.
SECTION 5.
Eligibility.
Any director, officer, employee or consultant (including any prospective
director, officer, employee or consultant) of the Company or any of its Affiliates shall be eligible to be designated a Participant.
SECTION 6.
Awards.
(a)
Types of Awards.
Awards may be made under the Plan in the form of (i) Options, (ii) SARs, (iii) Restricted Shares, (iv) RSUs, (v) Performance Compensation Awards, (vi) Performance Units,
(vii) Cash Incentive Awards, (viii) Deferred Share Units and (ix) other equity-based or equity-related Awards that the Committee determines are consistent with the purpose
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of the Plan and the interests of the Company. Awards may be granted in tandem with other Awards. No Incentive Stock Option (other than an Incentive Stock Option that may be assumed or issued by
the Company in connection with a transaction to which Section 424(a) of the Code applies) may be granted to a person who is ineligible to receive an Incentive Stock Option under the Code.
(b)
Options.
(i)
Grant.
Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine
(A) the Participants to whom Options shall be granted, (B) subject to Section 4(a), the number of Shares subject to each Option to be granted to each Participant, (C) whether each Option shall be an Incentive Stock Option or a
Nonqualified Stock Option and (D) the terms and conditions of each Option, including the vesting criteria, term, methods of exercise and methods and form of settlement. In the case of Incentive Stock Options, the terms and conditions of such
grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code and any regulations related thereto, as may be amended from time to time. Each Option granted under the Plan shall be a Nonqualified Stock
Option unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. If an Option is intended to be an Incentive Stock Option, and if, for any reason, such Option (or any portion thereof) shall
not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan;
provided
that such Option (or
portion thereof) otherwise complies with the Plan’s requirements relating to Nonqualified Stock Options.
(ii)
Exercise Price.
The
Exercise Price of each Share covered by each Option shall be not less than 100% of the Fair Market Value of such Share (determined as of the date the Option is granted);
provided
,
however
, that in the case of each Incentive Stock
Option granted to an employee who, at the time of the grant of such Option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate, the
per-Share
Exercise Price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. Unless otherwise specified by the Committee, each Option is intended to qualify as “qualified performance-based compensation” under
Section 162(m) of the Code.
(iii)
Exercise.
Each Option shall be exercisable at such times, in such manner and subject to such terms
and conditions as the Committee may, in its sole and plenary discretion, specify in the applicable Award Agreement or thereafter. Except as otherwise specified by the Committee in the applicable Award Agreement, each Option may only be exercised to
the extent that it has already vested at the time of exercise. Each Option shall be deemed to be exercised when written or electronic notice of such exercise has been given to the Company in accordance with the terms of the Award by the person
entitled to exercise the Award and full payment pursuant to Section 6(b)(iv) for the Shares with respect to which the Award is exercised has been received by the Company. Exercise of each Option in any manner shall result in a decrease in the number
of Shares that thereafter may be available for sale under the Option and, except as expressly set forth in Sections 4(a) and 4(c), in the number of Shares that may be available for purposes of the Plan, by the number of Shares as to which the Option
is exercised. The Committee may impose such conditions with respect to the exercise of each Option, including any conditions relating to the application of Federal, state or foreign securities laws, as it may deem necessary or advisable.
(iv)
Payment.
(A) No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate Exercise Price
therefor is received by the Company, and the Participant has paid to the Company (or the Company has withheld in accordance with Section 9(d)) an amount equal to any Federal, state, local and foreign income and employment taxes required to be
withheld. Such payments may be made in cash (or its equivalent) or, in the Committee’s sole and plenary discretion, (1) by exchanging Shares owned by the Participant (which are not the subject of any pledge or other security interest),
(2) if there shall be a public market for the Shares at such time, subject to such rules as may be established by the Committee, through delivery of irrevocable instructions to a broker to sell the Shares otherwise deliverable upon the exercise
of the Option and to
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deliver cash promptly to the Company, (3) by having the Company withhold Shares from the Shares otherwise issuable pursuant to the exercise of the Option (for the avoidance of doubt, the
Shares withheld shall be counted against the maximum number of Shares that may be delivered pursuant to the Awards granted under the Plan as provided in Section 4(a)) or (4) through any other method (or combination of methods) as approved
by the Committee;
provided
that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company, together with any Shares withheld by the Company in accordance with this Section
6(b)(iv) or Section 9(d), as of the date of such tender, is at least equal to such aggregate Exercise Price and the amount of any Federal, state, local or foreign income or employment taxes required to be withheld, if applicable.
(B) Wherever in the Plan or any Award Agreement a Participant is permitted to pay the Exercise Price of an Option or taxes relating to the exercise of
an Option by delivering Shares, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirement by presenting proof of beneficial ownership of such Shares, in which case the Company shall treat the Option
as exercised, or such taxes as paid, without further payment and shall withhold such number of Shares from the Shares acquired by the exercise of the Option.
(v)
Expiration.
Except as otherwise set forth in the applicable Award Agreement, each then outstanding Option shall expire immediately, without
any payment, upon the earlier of (A) the tenth anniversary of the date the Option is granted and (B) three months after the date the Participant who is holding the Option ceases to be a director, officer, employee or consultant of the
Company or one of its Affiliates for any reason. In no event may an Option be exercisable after the tenth anniversary of the date the Option is granted.
(c)
SARs.
(i)
Grant.
Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine
(A) the Participants to whom SARs shall be granted, (B) subject to Section 4(a), the number of SARs to be granted to each Participant, (C) the Exercise Price thereof and (D) the terms and conditions of each SAR, including the
vesting criteria, term, methods of exercise and methods and form of settlement.
(ii)
Exercise Price.
The Exercise Price of each Share
covered by a SAR shall be not less than 100% of the Fair Market Value of such Share (determined as of the date the SAR is granted). Unless otherwise specified by the Committee, each SAR is intended to qualify as “qualified performance-based
compensation” under Section 162(m) of the Code.
(iii)
Vesting and Exercise.
Each SAR shall entitle the Participant to receive an
amount upon exercise equal to the excess, if any, of the Fair Market Value of a Share on the date of exercise of the SAR over the Exercise Price thereof. The Committee shall determine, in its sole and plenary discretion, whether a SAR shall be
settled in cash, Shares, other securities, other Awards, other property or a combination of any of the foregoing. Each SAR shall be exercisable at such time, in such manner and subject to such terms and conditions as the Committee may, in its
discretion, specify in the applicable Award Agreement or thereafter. Except as otherwise specified by the Committee in the applicable Award Agreement, each SAR may only be exercised to the extent that it has already vested at the time of exercise.
(iv)
Substitution SARs.
The Committee shall have the ability to substitute, without the consent of the affected Participant or any holder
or beneficiary of SARs, SARs settled in Shares (or SARs settled in Shares or cash in the Committee’s discretion) (“
Substitution SARs
”) for outstanding Nonqualified Stock Options (“
Substituted Options
”);
provided
that (A) the substitution shall not otherwise result in a modification of the terms of any Substituted Option, (B) the number of Shares underlying the Substitution SARs shall be the same as the number of Shares underlying
the Substituted Options and (C) the Exercise Price of the Substitution SARs shall be equal to the Exercise Price of the Substituted Options. If, in the opinion of the Company’s auditors, this provision creates adverse accounting
consequences for the Company, it shall be considered null and void.
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(v)
Expiration.
Except as otherwise set forth in the applicable Award Agreement, each then outstanding SAR shall expire immediately, without any
payment, upon the earlier of (A) the tenth anniversary of the date the SAR is granted and (B) three months after the date the Participant who is holding the Option ceases to be a director, officer, employee or consultant of the Company or
one of its Affiliates for any reason. In no event may SAR be exercisable after the tenth anniversary of the date the SAR is granted.
(d)
Restricted Shares and RSUs.
(i)
Grant.
Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine (A) the Participants to whom Restricted Shares and RSUs shall be granted,
(B) subject to Section 4(a), the number of Restricted Shares and RSUs to be granted to each Participant, (C) the duration of the period during which, and the conditions (including Performance Goals), if any, under which, the Restricted
Shares and RSUs may vest or may be forfeited to the Company and (D) the other terms and conditions of each such Award, including the term and methods and form of settlement.
(ii)
Transfer Restrictions.
Restricted Shares and RSUs may not be sold, assigned, transferred, pledged or otherwise encumbered except as
provided in the Plan or as may be provided in the applicable Award Agreement;
provided
,
however
, that the Committee may, in its discretion, determine that Restricted Shares and RSUs may be transferred by the Participant for no
consideration. Each Restricted Share may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Shares are registered in the name of the applicable Participant, such certificates must bear an
appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Shares, and the Company may, at its discretion, retain physical possession of such certificates until such time as all applicable restrictions
lapse.
(iii)
Payment/Lapse of Restrictions.
Each RSU shall be granted with respect to a specified number of Shares (or a number of Shares
determined pursuant to a specified formula) or shall have a value equal to the Fair Market Value of a specified number of Shares (or a number of Shares determined pursuant to a specified formula). RSUs shall be paid in cash, Shares, other
securities, other Awards or other property, as determined in the sole and plenary discretion of the Committee, upon the lapse of restrictions applicable thereto, or otherwise in accordance with the applicable Award Agreement. If a Restricted Share
or an RSU is intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code, all requirements set forth in Section 6(e) must be satisfied in order for the restrictions applicable thereto to lapse.
(e)
Performance Compensation Awards.
(i)
General.
The Committee shall have the authority, at the time of grant of any Award, to
designate such Award (other than an Option or SAR) as a Performance Compensation Award in order for such Award to qualify as “qualified performance-based compensation” under Section 162(m) of the Code. Options and SARs granted under
the Plan shall not be included among Awards that are designated as Performance Compensation Awards under this Section 6(e).
(ii)
Eligibility.
The Committee shall, in its sole discretion, designate within the first 90 days of a Performance Period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) which Participants shall be
eligible to receive Performance Compensation Awards in respect of such Performance Period. However, designation of a Participant as eligible to receive an Award hereunder for a Performance Period shall not in any manner entitle such Participant to
receive payment in respect of any Performance Compensation Award for such Performance Period. The determination as to whether or not such Participant becomes entitled to payment in respect of any Performance Compensation Award shall be decided
solely in accordance with the provisions of this Section 6(e). Moreover, designation of a Participant as eligible to receive an Award hereunder for a particular Performance Period shall not require designation of such Participant as eligible to
receive an Award hereunder in any subsequent Performance Period and designation of one person as a Participant eligible to receive an Award hereunder shall not require designation of any other person as a Participant eligible to receive an Award
hereunder in such period or in any other period.
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(iii)
Discretion of the Committee with Respect to Performance Compensation Awards.
With regard to a particular Performance Period, the Committee
shall have full discretion to select (A) the length of such Performance Period, (B) the type(s) of Performance Compensation Awards to be issued, (C) the Performance Criteria that will be used to establish the Performance Goal(s), (D)
the kind(s) and/or level(s) of the Performance Goals(s) that is (are) to apply to the Company or any of its Subsidiaries, Affiliates, divisions or operational units, or any combination of the foregoing, and (E) the Performance Formula;
provided
that any such Performance Formula shall be objective and
non-discretionary.
Within the first 90 days of a Performance Period (or, if shorter, within the maximum period allowed under Section
162(m) of the Code), the Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence and
record the same in writing.
(iv)
Performance Criteria.
Notwithstanding the foregoing, the Performance Criteria that shall be used to
establish the Performance Goal(s) with respect to Performance Compensation Awards shall be based on the attainment of specific levels of performance of the Company or any of its Subsidiaries, Affiliates, divisions or operational units, or any
combination of the foregoing, and shall be limited to the following: (A) gross or net earnings, earnings per share or other earnings ratios, earnings before interest and taxes, or before interest, tax, depreciation and amortization (EBITDA),
or adjusted EBITDA; (B) operating, gross or net income (before or after interest, tax, depreciation, amortization, net loss on early extinguishment of debt and/or the impact of share-based compensation, other operating income or expense
and/or other identified costs associated with nonrecurring projects); (C) cash flow (including free flow, operating cash flow, or cash flow return on investment); (D) gross or operating profit (before or after taxes); (E) gross profit
return on investment, gross margin return on investment, return on equity, return on capital, return on invested capital, return on assets, return on net assets or other financial return ratios; (F) gross or operating margin; (G) working
capital; (H) net or gross revenue, license revenues, revenue growth, product revenue growth, or annual or other recurring revenues; (I) sales, net sales, or market share; (J) costs or reduction in costs; (K) share price or
other shareholder return measures; (L) economic value added; (M) customers or customer growth; (N) inventory or receivable turnover; (O) customer satisfaction surveys; (P) productivity; (Q) specified objectives
with regard to bank debt or other long-term or short-term public or private debt or other similar financial obligations (which may be calculated net of cash balances and/or other offsets and adjustments); (R) operating and other expense levels;
(S) product unit and pricing targets; (T) identification and/or consummation of investment opportunities or completion of specified projects, including strategic mergers, acquisitions or divestitures; (U) enterprise, book, economic
book or intrinsic book value (including book value per Share); (V) leverage ratios; (W) credit rating; (X) days sales outstanding; (Y) operational, safety and/or quality metrics; and (Z) product innovation. Such Performance
Criteria may be applied on an absolute basis, be relative to one or more peer companies of the Company or indices or any combination thereof or, if applicable, be computed on an accrual or cash accounting basis. To the extent required under
Section 162(m) of the Code, the Committee shall, within the first 90 days of the applicable Performance Period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code), define in an objective manner the method of
calculating the Performance Criteria it selects to use for such Performance Period.
(v)
Modification of Performance Goals.
The Committee is
authorized at any time during the first 90 days of a Performance Period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code), or any time thereafter (but only to the extent the exercise of such authority
after such
90-day
period (or such shorter period, if applicable) would not cause the Performance Compensation Awards granted to any Participant for the Performance Period to fail to qualify as “qualified
performance-based compensation” under Section 162(m) of the Code), in its sole and plenary discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period to the extent permitted under Section 162(m) of
the Code (A) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development affecting the
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Company, or any of its Affiliates, Subsidiaries, divisions or operating units (to the extent applicable to such Performance Goal) or (B) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company or any of its Affiliates, Subsidiaries, divisions or operating units (to the extent applicable to such Performance Goal), or the financial statements of the Company or any of its Affiliates,
Subsidiaries, divisions or operating units (to the extent applicable to such Performance Goal), or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles, law
or business conditions.
(vi)
Payment of Performance Compensation Awards.
(A)
Condition to Receipt of Payment.
A Participant must be
employed by the Company or one of its Subsidiaries on the applicable payment day (or such other date as may be determined by the Committee or specified in the applicable Award Agreement) to be eligible for payment in respect of a Performance
Compensation Award for such Performance Period. Notwithstanding the foregoing and to the extent permitted by Section 162(m) of the Code, in the discretion of the Committee, Performance Compensation Awards may be paid to Participants who have retired
or whose employment has terminated prior to the last day of the Performance Period for which a Performance Compensation Award is made, or to the designee or estate of a Participant who died prior to the last day of a Performance Period.
(B)
Limitation.
Except as otherwise permitted by Section 162(m) of the Code, a Participant shall be eligible to receive a payment in respect of
a Performance Compensation Award only to the extent that (1) the Performance Goal(s) for the relevant Performance Period are achieved and certified by the Committee in accordance with Section 6(e)(vi)(C) and (2) the Performance
Formula as applied against such Performance Goal(s) determines that all or some portion of such Participant’s Performance Compensation Award has been earned for such Performance Period.
(C)
Certification.
Following the completion of a Performance Period, the Committee shall certify in writing whether, and to what extent, the
Performance Goals for the Performance Period have been achieved and, if so, to calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the objective Performance Formula. The Committee
shall then determine the actual amount of each Participant’s Performance Compensation Award for the Performance Period and, in so doing, may apply negative discretion as authorized by Section 6(e)(vi)(D).
(D)
Negative Discretion.
In determining the actual amount of an individual Performance Compensation Award for a Performance Period, the
Committee may, in its sole and plenary discretion, reduce or eliminate the amount of the Award earned in the Performance Period, even if applicable Performance Goals have been attained and without regard to any employment agreement between the
Company and a Participant.
(E)
Discretion.
Except as otherwise permitted by Section 162(m) of the Code, in no event shall any discretionary
authority granted to the Committee by the Plan be used to (1) grant or provide payment in respect of Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained,
(2) increase a Performance Compensation Award for any Participant at any time after the first 90 days of the Performance Period (or, if shorter, the maximum period allowed under Section 162(m) of the Code) or (3) increase the amount
of a Performance Compensation Award above the maximum amount payable under Section 4(a) of the Plan.
(F)
Form of Payment.
In the case of
any Performance Compensation Award other than a Restricted Share, RSU or other
equity-based
Award that is subject to performance-based vesting conditions, such Performance Compensation Award shall be payable,
in the discretion of the Committee, in cash or in Restricted Shares, RSUs or fully vested Shares of equivalent value and shall be paid on such terms as determined by the Committee in its discretion. Any Restricted Shares and RSUs shall be subject to
the terms of this Plan (or any successor equity-compensation plan) and any
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applicable Award Agreement. The number of Restricted Shares, RSUs or Shares that is equivalent in value to a dollar amount shall be determined in accordance with a methodology specified by the
Committee within the first 90 days of the relevant Performance Period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code).
(f)
Performance Units.
(i)
Grant.
Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine
the Participants to whom Performance Units shall be granted.
(ii)
Value of Performance Units.
Each Performance Unit shall have an initial
value that is established by the Committee at the time of grant. The Committee shall set Performance Goals in its discretion which, depending on the extent to which they are met during a Performance Period, will determine in accordance with Section
4(a) the number and/or value of Performance Units that will be paid out to the Participant.
(iii)
Earning of Performance Units.
Subject to
the provisions of the Plan, after the applicable Performance Period has ended, the holder of Performance Units shall be entitled to receive a payout of the number and value of Performance Units earned by the Participant over the Performance Period,
to be determined by the Committee, in its sole and plenary discretion, as a function of the extent to which the corresponding Performance Goals have been achieved.
(iv)
Form and Timing of Payment of Performance Units.
Subject to the provisions of the Plan, the Committee, in its sole and plenary discretion,
may pay earned Performance Units in the form of cash or in Shares (or in a combination thereof) that have an aggregate Fair Market Value equal to the value of the earned Performance Units at the close of the applicable Performance Period. Such
Shares may be granted subject to any restrictions in the applicable Award Agreement deemed appropriate by the Committee. The determination of the Committee with respect to the form and timing of payout of such Awards shall be set forth in the
applicable Award Agreement. If a Performance Unit is intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code, all requirements set forth in Section 6(e) must be satisfied in order for a
Participant to be entitled to payment.
(g)
Cash Incentive Awards.
(i)
Grant.
Subject to the provisions of the Plan, the Committee,
in its sole and plenary discretion, shall have the authority to determine (A) the Participants to whom Cash Incentive Awards shall be granted, (B) subject to Section 4(a), the amount of Cash Incentive Awards to be granted to each Participant,
(C) the duration of the period during which, and the conditions, if any, under which, the Cash Incentive Awards may vest or may be forfeited to the Company and (D) the other terms and conditions of each such Award, including the term. Each
Cash Incentive Award shall have an initial value that is established by the Committee at the time of grant. The Committee shall set performance goals or other payment conditions in its discretion, which, depending on the extent to which they are met
during a specified performance period, shall determine the amount and/or value of the Cash Incentive Award that shall be paid to the Participant.
(ii)
Earning of Cash Incentive Awards.
Subject to the provisions of the Plan, after the applicable vesting period has ended, the holder of a
Cash Incentive Award shall be entitled to receive a payout of the amount of the Cash Incentive Award earned by the Participant over the specified performance period, to be determined by the Committee, in its sole and plenary discretion, as a
function of the extent to which the corresponding performance goals or other conditions to payment have been achieved.
(iii)
Payment.
If a
Cash Incentive Award is intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Code, all requirements set forth in Section 6(e) must be satisfied in order for a Participant to be entitled to payment.
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(h)
Other Stock-Based Awards.
Subject to the provisions of the Plan, the Committee shall have the sole and plenary authority to grant to
Participants other equity-based or equity-related Awards (including Deferred Share Units and fully vested Shares) (whether payable in cash, equity or otherwise) in such amounts and subject to such terms and conditions as the Committee shall
determine;
provided
that any such Awards must comply, to the extent deemed desirable by the Committee, with
Rule 16b-3
and applicable law.
(i)
Dividends and Dividend Equivalents.
In the sole and plenary discretion of the Committee, an Award, other than an Option, SAR or Cash
Incentive Award, may provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other securities, other Awards or other property, on a deferred basis, on such terms and conditions as may be determined by the Committee
in its sole and plenary discretion, including (i) withholding of such amounts by the Company subject to vesting or settlement of the underlying Award or (ii) reinvestment in additional Awards that shall vest and become payable only to the
extent the vesting criteria applicable to the underlying Award are achieved.
SECTION 7.
Amendment and Termination.
(a)
Amendments
to the Plan.
Subject to any applicable law or government regulation, to any requirement that must be satisfied if the Plan is intended to be a stockholder-approved plan for purposes of Section 162(m) of the Code and to the rules of the
Applicable Exchange, the Plan may be amended, modified or terminated by the Board without the approval of the stockholders of the Company, except that stockholder approval shall be required for any amendment that would (i) increase either the
Plan Share Limit or the Plan ISO Limit, (ii) change the class of employees or other individuals eligible to participate in the Plan or (iii) result in any amendment, cancellation or action described in clause (i), (ii) or (iii) of the
second sentence of Section 7(b) being permitted without the approval by the Company’s stockholders;
provided
,
however
, that any adjustment under Section 4(b) shall not constitute an increase for purposes of this
Section 7(a)(i).No amendment, modification or termination of the Plan may, without the consent of the Participant to whom any Award shall theretofor have been granted, materially and adversely affect the rights of such Participant (or his or
her transferee) under such Award, unless otherwise provided by the Committee in the applicable Award Agreement.
(b)
Amendments to Awards.
The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any Award theretofore granted, prospectively or retroactively;
provided
,
however
, that, except as set forth
in the Plan, unless otherwise provided by the Committee in the applicable Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancelation or termination that would materially and adversely impair the rights of any
Participant or any holder or beneficiary of any Award theretofor granted shall not to that extent be effective without the consent of the applicable Participant, holder or beneficiary. Notwithstanding the preceding sentence, in no event may any
Option or SAR (i) be amended to decrease the Exercise Price thereof, (ii) be canceled at a time when its Exercise Price exceeds the Fair Market Value of the underlying Shares in exchange for another Option or SAR or any Restricted Share,
RSU, other equity-based Award, award under any other equity-compensation plan or any cash payment or (iii) be subject to any action that would be treated, for accounting purposes, as a “repricing” of such Option or SAR, unless such
amendment, cancelation or action is approved by the Company’s stockholders. For the avoidance of doubt, an adjustment to the Exercise Price of an Option or SAR that is made in accordance with Section 4(b) or Section 8 shall not be
considered a reduction in Exercise Price or “repricing” of such Option or SAR.
(c)
Adjustment of Awards
Upon
the
Occurrence of Certain Unusual or Nonrecurring Events.
Subject to Section 6(e)(v) and Section 7(a), the Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including the events described in Section 4(b) or the occurrence of a Change of Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in
applicable rules, rulings, regulations or other requirements of any
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governmental body or securities exchange, accounting principles or law, in such manner as the Committee may deem appropriate or desirable in its sole and plenary discretion, including by
(i) providing for a substitution or assumption of Awards, acceleration of the exercisability of Awards, lapse of restrictions on Awards, or termination of Awards, or providing for a period of time for exercise prior to the occurrence of any
such event, (ii) providing for a cash payment to the holder of an Award (but, solely in the case of unvested Awards in connection with a Change of Control, only if provision is not made in connection with such Change of Control for
(A) assumption of such Awards or (B) substitution for such Awards of new awards covering stock of a successor corporation or its “parent corporation” (as defined in Section 424(e) of the Code), with appropriate adjustments as to
the number and kinds of shares and the Exercise Prices, if applicable) in consideration for the cancelation of such Award, including, in the case of an outstanding Option or SAR, a cash payment to the holder of such Option or SAR in consideration
for the cancelation of such Option or SAR in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Shares subject to such Option or SAR over the aggregate Exercise Price of such Option or
SAR and (iii) canceling and terminating any Option or SAR having a
per-Share
Exercise Price equal to, or in excess of, the Fair Market Value of a Share subject to such Option or SAR without any payment or
consideration therefor.
SECTION 8.
Change of Control.
In the event of a Change of Control after the date of the adoption of the Plan,
unless provision is made in connection with the Change of Control for (a) assumption of Awards previously granted or (b) substitution for such Awards of new awards covering stock of a successor corporation or its “parent
corporation” (as defined in Section 424(e) of the Code) or “subsidiary corporation” (as defined in Section 424(f) of the Code) with appropriate adjustments as to the number and kinds of shares and the Exercise Prices, if
applicable, (i) any outstanding Options or SARs then held by Participants that are unexercisable or otherwise unvested shall automatically be deemed exercisable or otherwise vested, as the case may be, as of immediately prior to such Change of
Control and (ii) all other outstanding Awards (
i.e.
, other than Options or SARs) then held by Participants that are unexercisable, unvested or still subject to restrictions or forfeiture, shall automatically be deemed exercisable
and vested and all restrictions and forfeiture provisions related thereto shall lapse as of immediately prior to such Change of Control, with any applicable Performance Goal deemed satisfied as determined by the Committee in its sole discretion, and
shall be paid at the earliest time permitted under the terms of the applicable agreement, plan or arrangement that will not trigger a tax or penalty under Section 409A of the Code, as determined by the Committee.
SECTION 9.
General Provisions.
(a)
Nontransferability.
Except as otherwise specified in the applicable Award Agreement, during the
Participant’s lifetime, each Award (and any rights and obligations thereunder) shall be exercisable only by the Participant, or, if permissible under applicable law, by the Participant’s legal guardian or representative, and no Award (or
any rights and obligations thereunder) may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate;
provided
that, (i) the designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance and (ii) the Board or the Committee may permit further transferability, on a general or specific basis, and may impose conditions and limitations on any permitted transferability;
provided
,
however
, that Incentive Stock Options shall not be transferable in any way that would violate
Section 1.422-2(a)(2)
of the Treasury Regulations and in no event may any Award (or
any rights and obligations thereunder) be transferred in any way in exchange for value. Notwithstanding the foregoing, in no event shall any Award (or any rights or obligations thereunder) be transferred to a third party for value unless such
transfer is specifically approved by the Company’s stockholders. All terms and conditions of the Plan and all Award Agreements shall be binding upon any permitted successors and assigns.
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(b)
No Rights to Awards.
No Participant or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity
of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be
made selectively among Participants, whether or not such Participants are similarly situated.
(c)
Share Certificates.
All certificates for
Shares or other securities of the Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the
Plan, the applicable Award Agreement or the rules, regulations and other requirements of the SEC, the Applicable Exchange and any applicable Federal, foreign or state laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, the Company shall not deliver to any Participant
certificates evidencing Shares issues in connection with any Award and instead such Shares shall be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).
(d)
Withholding.
(i)
Authority to Withhold.
A Participant may be required to pay to the Company or any Affiliate, and the Company or any
Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant, the amount (in cash, Shares,
other securities, other Awards or other property) of any applicable withholding taxes in respect of an Award, its exercise or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion
of the Committee or the Company to satisfy all obligations for the payment of such taxes.
(ii)
Alternative Ways to Satisfy Withholding
Liability.
Without limiting the generality of Section 9(d)(i), subject to the Committee’s discretion, a Participant may satisfy, in whole or in part, the foregoing withholding liability by delivery of Shares owned by the Participant
(which are not subject to any pledge or other security interest) having a Fair Market Value equal to such withholding liability or by having the Company withhold from the number of Shares otherwise issuable pursuant to the exercise of the Option or
SAR, or the lapse of the restrictions on any other Award (in the case of SARs and other Awards, if such SARs and other Awards are settled in Shares), a number of Shares having a Fair Market Value equal to such withholding liability.
(e)
Section 409A
. (i) It is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall
be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code.
(ii) No
Participant or the creditors or beneficiaries of a Participant shall have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under the Plan to any anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to any Participant or for the benefit of any
Participant under the Plan may not be reduced by, or offset against, any amount owing by any such Participant to the Company or any of its Affiliates.
(iii) If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (A) such Participant shall be a
specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (B) the Company shall make a good faith determination that an amount payable pursuant to
an Award constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the
six-month
delay rule set forth in Section 409A of the
Code in order to avoid taxes or penalties under Section 409A of the Code, then the
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Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it on the first business day after such
six-month
period.
Such amount shall be paid without interest, unless otherwise determined by the Committee, in its sole discretion, or as otherwise provided in any applicable employment agreement between the Company and the relevant Participant.
(iv) Notwithstanding any provision of the Plan to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of
the Code, the Company reserves the right to make amendments to any Award as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall be solely
responsible and liable for the satisfaction of all taxes and penalties that may be imposed on such Participant or for such Participant’s account in connection with an Award (including any taxes and penalties under Section 409A of the Code), and
neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold such Participant harmless from any or all of such taxes or penalties.
(f)
Award Agreements.
Each Award hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall
specify the terms and conditions of the Award and any rules applicable thereto, including the effect on such Award of the death, disability or termination of employment or service of a Participant and the effect, if any, of such other events as may
be determined by the Committee.
(g)
No Limit on Other Compensation Arrangements.
Nothing contained in the Plan shall prevent the Company or
any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options, restricted stock, shares, other types of equity-based awards (subject to stockholder approval if such
approval is required) and cash incentive awards, and such arrangements may be either generally applicable or applicable only in specific cases.
(h)
No Right to Employment.
The grant of an Award shall not be construed as giving a Participant the right to be retained as a director,
officer, employee or consultant of or to the Company or any Affiliate, nor shall it be construed as giving a Participant any rights to continued service on the Board. Further, the Company or an Affiliate may at any time dismiss a Participant from
employment or discontinue any directorship or consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(i)
No Rights as Stockholder.
No Participant or holder or beneficiary of any Award shall have any rights as a stockholder with respect to any
Shares to be distributed under the Plan until he or she has become the holder of such Shares. In connection with each grant of Restricted Shares, except as provided in the applicable Award Agreement, the Participant shall be entitled to the rights
of a stockholder (including the right to vote) in respect of such Restricted Shares. Except as otherwise provided in Section 4(b), Section 7(c) or the applicable Award Agreement, no adjustments shall be made for dividends or distributions on
(whether ordinary or extraordinary, and whether in cash, Shares, other securities or other property), or other events relating to, Shares subject to an Award for which the record date is prior to the date such Shares are delivered.
(j)
Governing Law.
The validity, construction and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement
shall be determined in accordance with the laws of the State of Illinois, without giving effect to the conflict of laws provisions thereof.
(k)
Severability.
If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the
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Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and
effect.
(l)
Other Laws; Restrictions on Transfer of Shares.
The Committee may refuse to issue or transfer any Shares or other consideration
under an Award if, acting in its sole and plenary discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation or entitle the Company to recover the same under
Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder or
beneficiary. Without limiting the generality of the foregoing, no Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole and
plenary discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. Federal and any other applicable securities laws.
(m)
No Trust or Fund Created.
Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate, on one hand, and a Participant or any other Person, on the other. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award,
such right shall be no greater than the right of any unsecured general creditor of the Company or such Affiliate.
(n)
Recoupment of Awards.
Amounts paid or payable pursuant to the Plan may be subject to recoupment or clawback pursuant to the Company Clawback Policy or any other applicable policy of the Company or its Subsidiaries, including as may be adopted following the date hereof,
or to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. This Section 9(n) shall not be the Company’s exclusive remedy with respect to such matters.
(o)
No Fractional Shares.
No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
(p)
Requirement of Consent and Notification of Election Under Section
83(b) of the Code or Similar Provision.
No election
under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Section 83(b) of the Code) or under a similar provision of law may be made unless expressly permitted by the terms of the applicable
Award Agreement or by action of the Committee in writing prior to the making of such election. If an Award recipient, in connection with the acquisition of Shares under the Plan or otherwise, is expressly permitted under the terms of the applicable
Award Agreement or by such Committee action to make such an election and the Participant makes the election, the Participant shall notify the Committee of such election within ten days of filing notice of the election with the Internal Revenue
Service (or any successor thereto) or other governmental authority, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code or any other applicable provision.
(q)
Requirement of Notification Upon Disqualifying Disposition Under Section
421(b) of the Code.
If any Participant shall
make any disposition of Shares delivered pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions) or any successor provision of the
Code, such Participant shall notify the Company of such disposition within ten days of such disposition.
(r)
Headings and Construction.
Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way
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material or relevant to the construction or interpretation of the Plan or any provision thereof. Whenever the words “include”, “includes” or “including” are used in
the Plan, they shall be deemed to be followed by the words “but not limited to”, and the word “or” shall not be deemed to be exclusive.
SECTION 10.
Term of the Plan.
(a)
Effective Date.
The Plan shall be effective as of the Approval Date.
(b)
Expiration Date.
No Award shall be granted under the Plan after the tenth anniversary of the Approval Date under Section 10(a). Unless
otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted hereunder, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or to waive any
conditions or rights under any such Award, shall nevertheless continue thereafter.
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AKORN, INC.
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