The Board of Directors (the “Board”) of Akorn, Inc. (the “Company”) is furnishing you this proxy statement to solicit proxies on its behalf to be voted at the 2016 special2017 annual meeting of shareholders of Akorn, Inc. The special meeting will be held at the Company’s headquarters, at 1925 West Field Court, Suite 300, Lake Forest, Illinois 60045, on December 16, 2016,April 27, 2017, at 10:00 a.m., local time.

This proxy statement contains information on matters to be voted upon at the 2016 specialannual meeting or any adjournments of that meeting. As of the date of this proxy statement, management is unaware of any other matter for action by shareholders at the meeting other than those described in the accompanying Notice of the 2016 Special2017 Annual Meeting. All properly executed written proxies and all properly completed proxies submitted by telephone or Internet that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked prior to completion of voting at the meeting.

The proxy materials for our 2016 special2017 annual meeting include: (1) theThe Notice of 2016 Special2017 Annual Meeting of Shareholders; (2) thisThis Proxy Statement for the SpecialAnnual Meeting including the formsform of the Akorn, Inc. 2016 Employee Stock Purchase Plan and Amended and Restated Akorn Inc., 2014 Stock Option2017 Omnibus Incentive Compensation Plan; (3) Akorn’s Annual Report for the year ended December 31, 2015;2016; and (4) the proxy card or voting instruction form for the 2016 special meeting that you received with your paper copy of the proxy materials.

form.

Please see the section “Questions and Answers” at the back of this proxy statement for more information regarding the proxy materials, the special2017 annual meeting, voting, submitting proposals for next year’s annual meeting and other related matters.

This proxy statement is dated November 14, 2016March 20, 2017 and we are first furnishingmailing the proxy materials to shareholders on or about November 14, 2016.March 20, 2017.

Board of Directors

The age, principal occupation and employment, position with us, directorships in other public corporations, qualifications for directorship and year first elected or appointed as one of our directors, of each of our nominees and current directors, as applicable, are included in this proxy statement under the heading “PROPOSAL 1. ELECTION OF DIRECTORS.”

Independence of the Board of Directors

Our common stock is traded on The NASDAQ Global Select Market (“NASDAQ”). The Board has determined that a majority of the members of, and nominees to, the Board qualify as “independent,” as defined by the listing standards of NASDAQ. Consistent with these considerations, after review of all relevant transactions and relationships between each director and nominee, or any of his family members, and the Company, its senior management and its independent auditors, the Board has further determined that all of our directors and nominees to serve as directors are “independent” under the listing standards of NASDAQ, except for Dr. Kapoor and Mr. Tambi. In making this determination, the Board considered that there were no new transactions or relationships between its current directors and the Company, its senior management and its independent auditors since last making this determination.

Leadership Roles

Our bylaws do not require that the positions of Chairman of the Board of Directors and Chief Executive Officer (“CEO”) be separate. Our bylaws allow us the flexibility to decide how the two positions should be filled based on the circumstances existing at any given time. Further, the Board does not have a formal policy relating to the separation of the offices of Chairman of the Board and CEO. Our offices of Chairman of the Board and CEO have been separate since 2002, when our Chairman, John Kapoor last served as both Chairman of the

Board and CEO. Currently, with the separation of the positions, the Chairman of the Board oversees strategic planning for the Company, and the CEO oversees theday-to-day planning, execution and operational matters. The Board believes that the separation of the two roles provides a balance of these important responsibilities and best suits the skills of Dr. Kapoor and Mr. Rai. However, the Board believes that retaining the flexibility to unify the two roles is beneficial to the Company, and as such, the Board intends to continue to exercise its discretion in combining or separating these positions depending on the particular circumstances and needs of the Company at any time.

Risk Management

We accept the premise that with innovation and progress we must also confront various risks. We also recognize that risk can be predicted, evaluated, avoided and/or managed. Further, the Board acknowledges that inappropriate risk avoidance and management could damage Company assets as well as shareholder value. Given these principles, senior management is responsible for assessing and managing the Company’s various exposures to risk on aday-to-day basis, including the creation of appropriate risk management and compliance programs and policies. We have developed a consistent, systemic and integrated approach to risk management to help determine how best to identify, manage and mitigate significant risks throughout the Company. The Board is responsible for overseeing management in the execution of its responsibilities and for assessing the Company’s approach to risk management. The Board’s role in risk oversight of the Company is consistent with the Company’s leadership structure, with the CEO and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board providing guidance in these areas.

Executive Sessions of Independent Directors and Shareholder Communications

Our independent directors meet periodically in executive sessions when only independent directors are present. Persons interested in communicating with the independent directors may address correspondence to a particular director or to the independent directors generally, in care of Corporate Secretary, Akorn, Inc., 1925 West Field Court, Suite 300, Lake Forest, Illinois 60045.

Board Meetings and Annual Meeting Attendance

Our Board held fourteen (14) meetings in 2016. Each of our directors attended 75% or more of the aggregate number of meetings of our Board held during the period in which he or she was a director and the number of meetings held by all Board committees on which he or she served during 2016 except Mr. Tambi who attended just under that percentage. Directors are strongly

encouraged to attend the annual meeting of shareholders unless extenuating circumstances prevent them from attending, although we do not have a formal, written policy requiring such attendance. All members of the Board attended the 2016 annual meeting except Mr. Weinstein who was out of the country.

Committees of the Board

The Board has three standing committees: an audit committee (the “Audit Committee”), a compensation committee (the “Compensation Committee”), and a nominating and corporate governance committee (the “Nominating and Corporate Governance Committee”). From time to time, the Board may create special committees. The below chart shows the current members and chairpersons of our three standing committees, though the Board has and may create other special committees from time to time, which committees may not necessarily be listed below or described herein.

The composition of Board committees is reviewed and determined each year at the initial meeting of the Board after the annual meeting of shareholders.

Audit Committee

The Audit Committee of the Board oversees our corporate accounting and financial reporting process and audits of our financial statements. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance and assesses the qualifications of the Company’s independent

registered public accounting firm (the “independent auditors”); determines and approves the engagement of the independent auditors; determines whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissiblenon-audit services; monitors the rotation of partners of the independent auditors on our audit engagement team as required by law; confers with management and the independent auditors regarding the effectiveness

of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviews and approves related person transactions; reviews the financial statements to be included in our Annual Report on Form10-K and quarterly reports on Form10-Q; and discusses with management and the independent auditors the results of the annual audit and the results of the reviews of our quarterly financial statements. The Audit Committee met sixteen (16) times during the 2016 fiscal year. A current copy of the Audit Committee Charter, which has been adopted and approved by the Board, is available on our website at http://www.akorn.com (the contents of such website are not incorporated into this proxy statement).

The Board has reviewed NASDAQ’s definition of independence for Audit Committee members and has determined that all members of our Audit Committee are “independent” under the listing standards of NASDAQ. Further, the Board determined that each of the members of the Audit Committee is “independent” in accordance with Rule10A-3 of the Exchange Act. The Board has determined that Mr. Abramowitz, Mr. Meyer and Ms. Rappuhn each qualify as an “audit committee financial expert,” as defined in applicable SEC rules. The Board has made a qualitative assessment of Mr. Abramowitz’s level of knowledge and experience based on a number of factors, including his formal education and his experience as a Managing Director for the Carlyle Group, as an analyst for more than 20 years at Sanford C. Bernstein & Company as well as his experience as Managing General Partner of a venture capital firm. The Board made a qualitative assessment of Mr. Meyer’s level of knowledge and experience based on a number of factors, including his formal education, and his experience as the Chief Financial Officer of JVM Realty, a private firm specializing in the acquisition,re-positioning and management of multi-family housing for qualified investors, as well as his experience as Corporate Treasurer and International Controller and Vice President of

Global Operations at Baxter International, Inc. The Board also made a qualitative assessment of Ms. Rappuhn’s level of knowledge and experience based on a number of factors, including her formal education and her experience as a Chief Financial Officer of Quorum Health Group, Inc., a previously public company that owned and operated acute care hospitals, as well as her experience as VP, Controller and Assistant Treasurer and VP, Internal Audit at Quorum, her 15 years of experience with Ernst & Young, LLP and her prior service as audit committee chairperson for other public companies. Shareholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Meyer’s and Ms. Rappuhn’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon Mr. Meyer or Ms. Rappuhn any duties, obligations or liabilities that are greater than are generally imposed on them as members of the Audit Committee and the Board, and their designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liabilities of any other member of our Audit Committee or the Board.

Compensation Committee

The Compensation Committee, which met twelve (12) times during 2016, reviews and approves the overall compensation strategy and policies for the Company. The Compensation Committee reviews and approves corporate performance goals and objectives relevant to the compensation of our executive officers and other senior management; reviews and approves the compensation and other terms of employment of our executive officers; and administers equity awards and stock purchase plans. Each member of the Compensation Committee has been determined by the Board to be “independent” under the listing standards of NASDAQ. A current copy of the Compensation Committee Charter, which has been adopted and approved by the Board, is available on our website at http://www.akorn.com (the contents of such website are not incorporated into this proxy statement). The Compensation Committee has authority to obtain advice and seek assistance from internal and external accounting and other advisors and to determine the extent of funding

necessary for the payment of any consultant retained to advise it.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is responsible for developing and implementing policies and processes regarding corporate governance matters, assessing Board membership needs and making recommendations regarding potential director candidates to the Board. A current copy of the Nominating and Corporate Governance Committee Charter, which has been adopted and approved by the Board, is available on our website at http://www.akorn.com (the contents of such website are not incorporated into this proxy statement). Each member of the Nominating and Corporate Governance Committee has been determined by the Board to be “independent” under the listing standards of NASDAQ. The Nominating and Corporate Governance Committee met four (4) times during 2016.

The Board believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Board also considers such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of our shareholders. However, the Board retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of shareholders. In conducting this assessment, the Board considers skills, diversity, age, and such other factors as it deems appropriate given the current needs of the Board and the Company, to maintain a balance of knowledge, experience and capability. The Board strives to achieve diversity in the broadest sense, including persons diverse in geography, age, gender, ethnicity, knowledge and experiences. Although the Board does not have a

stand-alone diversity policy, the Board’s overall diversity is a significant consideration in the director selection and nomination process. The Board and Nominating and Corporate Governance Committee assess the effectiveness of board diversity efforts in connection with the annual nomination process as well as in new director searches. Currently, almost half of the Directors are women or minorities. In the case of incumbent directors whose terms of office are set to expire, the Board and the Nominating and Corporate Governance Committee review such directors’ overall service to the Company during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such director’s independence. In the case of new director candidates, the Board also determines whether the nominee must be independent, which determination is based upon applicable SEC and NASDAQ rules.

Board members should possess such attributes and experience as are necessary to provide a broad range of personal characteristics, including diversity, management skills, and pharmaceutical industry, financial, technological, business and international experience. Directors selected should be able to commit the requisite time for preparation and attendance at regularly scheduled Board and committee meetings, as well as be able to participate in other matters necessary for good corporate governance.

In order to identify a potential Board candidate, the Board uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Board conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board. The Board meets to discuss and consider such candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote. To date, the Board has not paid a fee to any third party to assist in the process of identifying or evaluating director candidates, nor has the Board rejected a director nominee from a shareholder or shareholders. Upon the election of nominees at our annual meeting of shareholders on April 27, 2017, the Board will

have one vacancy, which is reserved for a nominee to be named by our Chairman, Dr. John Kapoor, in accordance with terms of a Modification, Warrant and Investor Rights Agreement entered into on April 13, 2009 between the Company and EJ Funds, LP, a company controlled by our Chairman.

Although there is no formal procedure for shareholders to recommend nominees for the Board, the Nominating and Corporate Governance Committee will consider such recommendations for the 2018 annual meeting if received by November 24, 2017, and if subsequent to the 2018 annual meeting, recommendations will be considered if received 120 days in advance of the date on which the Company released its definitive proxy statement in the previous year, addressed to the Nominating and Corporate Governance Committee, in care of Corporate Secretary, Akorn, Inc., 1925 West Field Court, Suite 300, Lake Forest, Illinois 60045. Such recommendations should be addressed to the Nominating and Corporate Governance Committee at our address and provide all information relating to such person that the shareholder desires to nominate that is required to be disclosed in solicitation of proxies pursuant to Regulation 14A under the Exchange Act. The Board does not believe that a formal procedure for shareholders to recommend nominees for the Board is necessary because every effort has been made to ensure that nominees recommended by shareholders are

given appropriate consideration by the Nominating and Corporate Governance Committee. See “What are the deadlines for submitting shareholder proposals for the 2018 annual meeting?” in part V. Questions and Answers of this proxy statement.

Shareholder Outreach Program

We have a robust shareholder outreach program, facilitated by our Investor Relations department and supported by senior leaders from our organization, including our CEO and CFO. Through our outreach program, we speak with our shareholders on a regular basis throughout the year. Our Investor Relations team and senior managers also speak with analysts and others about general matters related to Akorn.

Communications with the Board

Shareholders and other interested parties who wish to communicate with the Board of Directors, or a particular director or group of directors, may do so by sending a letter to Akorn, Inc., Attention: Corporate Secretary, 1925 W. Field Court, Suite 300, Lake Forest, Illinois 60045. The mailing envelope should contain a clear notation indicating that the enclosed letter is a “Board Communication” or “Director Communication”, and the letter should indicate whether the intended recipients are the entire Board, a specific group or committee of the Board, or an individual director. All such communications received by the Company will be promptly copied and distributed to the appropriate director or directors.

The Audit Committee oversees Akorn’s financial reporting process on behalf of the Board. As part of this oversight function, the Audit Committee oversees Akorn’s compliance with legal and regulatory compliance and monitors Akorn’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002, which includes receiving regular reports and representations by management and the Chief Audit Executive of Akorn and its independent auditors, each of whom is given full and unlimited access to the Audit Committee to discuss any matters which they believe should be brought to our attention.

In carrying out its responsibilities, the Audit Committee acts in an oversight capacity. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls.

In this context, the Audit Committee has met and discussed the audited financial statements with management. Management represented to the Audit Committee that Akorn’s consolidated financial statements were prepared in accordance with generally accepted accounting principles.

The independent auditors reviewed with the Audit Committee the planning and scope of the audit of Akorn’s consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting. The independent auditors regularly updated the Audit Committee regarding the audit status, as well as observations from their review of Akorn’s quarterly consolidated financial statements. Members of the Audit Committee met privately with the independent auditors throughout the year regarding internal control over financial reporting matters and the status of remediation of material weaknesses.

The Audit Committee discussed with the independent auditors matters required to be discussed by Public Company Oversight Board Auditing Standard No.1301. In addition, the Audit Committee has discussed with the independent auditors the auditors’ independence from Akorn and its management, including the matters in the written disclosures and the applicable letter received by the Audit Committee from the independent auditors as required by PCAOB Ethics and Independence Rule 3526,Communication with Audit Committees Concerning Independence. The Audit Committee has also reviewed the certifications of the executive officers of Akorn attached as exhibits to Akorn’s Annual Report onForm 10-K for the 2016 fiscal year as well as all reports issued by Akorn’s independent auditor related to its audit of Akorn’s financial statements for the 2016 fiscal year and the effectiveness of Akorn’s internal control over financial reporting.

The Audit Committee has also considered whether the independent auditors’ provision ofnon-audit services to Akorn is compatible with the auditors’ independence.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited comprehensive consolidated financial statements in Akorn’s Annual Report on Form10-K for the year ended December 31, 2016, for filing with the SEC.

This report is submitted by the Audit Committee, consisting of:

Steven J. Meyer, Chair

Kenneth S. Abramowitz

Ronald M. Johnson

Terry Allison Rappuhn

Review and Approval of Transactions with Related Persons

Under the Company’s Code of Ethics, all employees and directors must report any activity that would cause or appear to cause a conflict of interest on his or her part, including any potential related party transactions. Akorn’s Board recognizes that certain transactions present a heightened risk of conflicts of interest or the perception of a conflict of interest. As a result, in 2016, the Company adopted a written Policy on Related-Party Transactions (“Related-Party Transactions Policy”) to help ensure that all related-party transactions will be subject to review, approval or ratification in accordance with certain procedures.

The Related-Party Transactions Policy applies to any transaction where the Company is a participant and a related person has or will have a direct or indirect material interest. Under the policy, a “related person” is defined as our directors, director nominees, executive officers and any other employees, beneficial owners of more than 5% of the outstanding shares of our common stock and the respective immediate family members of all such persons. Under the policy, a “related-party transaction” is defined as any transaction or relationship in which the Company is or will be a participant and any related party has or will have a direct or indirect material interest.

Pursuant to our Related-Party Transactions Policy, prior to entering into a related-party transaction, a related party is required to notify the General Counsel of any material interest that such person (or his or her immediate family member) has or may have in the proposed transaction. The notice should include a description of the material terms of the transaction, including the related person and his or her relationship to the Company, the related person’s interest and role in the proposed transaction, and the aggregate cost to or benefit to be derived by the related person and the Company if known. From time to time, the Company also takes measures to identify potential related-party transactions that might not have been self-reported. For example, at least once a year, the internal audit department

requires all employees at the associate director level and above to answer a survey regarding their knowledge of any related-party transactions involving themselves, their direct reports or any other employees of the Company. The internal audit department also cross-checks names of related parties of the Company’s officers and directors against the names in the Company’s accounts payable and accounts receivable databases to identify any potential related-party transactions that may have occurred in the prior fiscal year. Any transactions that are identified during such processes (self-reporting, survey, cross-checking names in databases) are presented to the General Counsel for review.

Under our policy, the General Counsel notifies the Audit Committee of any pending or proposed related-party transaction (or existing transaction that was not previously reported). Pursuant to the policy, our General Counsel is responsible for the review and approval of related-party transactions in which the aggregate amount involved is expected to be $50,000 or less in any fiscal year. Pursuant to the policy, the General Counsel will consult with one or more officers when making such determination. The Audit Committee is responsible for the review and approval of related-party transactions in which the aggregate amount involved may be expected to exceed $50,000 in any fiscal year. No related party is allowed to participate in any deliberation or approval of a related-party transaction for which he or she or any member of his or her immediate family is a related party.

Pursuant to the policy, in the event the Company, a director, any member of senior management or other employee becomes aware of a related-party transaction which has not been approved under the policy, he or she is required to report the transaction to the General Counsel, who will refer the matter to the Audit Committee as appropriate.

In determining whether to approve or ratify a transaction, the Audit Committee or General Counsel, as the case may be, considers all of the relevant facts and circumstances they deem appropriate, including, but not limited to, the terms and circumstances of the transaction, the

extent of the related party’s interest in the transaction, the nature of the Company’s participation in the transaction, the availability to the Company of alternative means or transactions to obtain like benefits, the results of an appraisal, whether the transaction was entered into on terms no less favorable to the Company than the terms generally available to an unaffiliated third-party under the same or similar circumstances, and whether the transaction is fair to the Company and in the interest of the Company and its stockholders. In addition, pursuant to the Audit Committee Charter, the Audit Committee discusses with the independent auditor the Company’s identification, accounting for and disclosures of related-party transactions and any concerns members of the Audit Committee have regarding any related-party transactions.

The Related-Party Transaction Policy classifies certain transactions aspre-approved, including: (a) employment of executive officers and director compensation, if the compensation is required to be reported under Item 402 of RegulationS-K and the officer is not an immediate family member of another officer or director; (b) transactions with another company or charitable contributions if the related person’s only relationship is as an employee (other than executive officer), director or beneficial owner of less than 10% of that company’s outstanding equity if the aggregate amount involved does not exceed the greater of (or in the case of a charity, the lesser of) $200,000 or 2% of that company’s total annual revenues or charitable organization’s total annual receipts; (c) transactions where the related person’s interest arises solely from the ownership of the Company’s stock and all stockholders benefit on a pro rata basis; (d) regulated transactions involving services as a common or contract carrier or public utility at rates fixed in conformity with law or governmental authority; and (e) transactions where the rates or charges involved are determined by competitive bids.

Certain Transactions and Relationships

In accordance with Item 404(a) ofRegulation S-K, below are descriptions of

related-party transactions that existed or that we have entered into since the beginning of 2016 and the amount involved was more than $120,000 and certain other relationships.

John N. Kapoor, Ph.D., the Chairman of our Board of Directors, is a principal shareholder. As of December 31, 2016, Dr. Kapoor beneficially controls approximately 25% of our common stock. In addition, through the Kapoor Trust and EJ Financial, Dr. Kapoor is entitled to nominate up to three persons to serve on our Board. Dr. Kapoor and Mr. Brian Tambi were nominated for these purposes. The other seat for nomination has remained vacant. See “Director Compensation” for more information.

The Company obtained legal services totaling $1.3 million for the year ended December 31, 2016 from Polsinelli PC, a firm for which the spouse of the Company’s Executive Vice President, General Counsel and Secretary is a shareholder.

The Company obtained legal services totaling $0.1 million for the year ended December 31, 2016 from Segal McCambridge Singer and Mahoney, a firm for which thebrother-in-law of the Company’s Executive Vice President, General Counsel and Secretary is a shareholder.

The Company has entered into employment agreements and offer letters with its Named Executive Officers. The terms of such agreements are described under“Compensation Discussion and Analysis” and“Potential Payments Upon Termination.”

Our executive officers and directors have equity ownership in our Company. See“Outstanding Equity Awards at 2016 Year-End Table” and “Security Ownership of Certain Beneficial Owners and Management.”

Board Independence

Our Board has determined that all of our directors, other than Dr. Kapoor and Mr. Tambi, are “independent” as defined in the federal securities laws and applicable NASDAQ rules for service on our Board. In recommending to the

Board that each of the independent directors be classified as independent, the Nominating and Governance Committee also considered whether there were any facts or circumstances that might

impair the independence of each of those directors. In making this determination, the Board considered all transactions and relationships discussed above.

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than 10% of our common stock to file reports of security ownership and changes in such ownership with the SEC. Based solely on our review of the reports that have been filed by or on behalf of such persons in this regard and written representations from them, we

believe that all such persons have timely filed all reports required by Section 16(a) of the Exchange Act during 2016, except for one transaction by each of Raj Rai, Joseph Bonaccorsi and Bruce Kutinsky involving the forfeiture of shares upon the vesting of restricted stock units.

Our Board has adopted a Code of Ethics that is applicable to all employees, including our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions, as well as members of the Board. We intend to satisfy any disclosure requirements under Item 5.05 of Form8-K regarding an amendment to, or waiver from, any provision of the Code of Ethics with respect to our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions by disclosing the nature of such amendment or waiver on our website or in a report on Form8-K. A copy of the Code of Ethics can be obtained at our website.

Our website address is http://www.akorn.com (the contents of such website are not incorporated into this proxy statement).

Our Audit Committee has adopted a whistleblower policy in compliance with Section 806 of the Sarbanes-Oxley Act and Section 21F of the Exchange Act. The whistleblower policy allows employees to confidentially submit a good faith complaint regarding accounting or audit matters to the Audit Committee and management without fear of dismissal or retaliation. This policy, as well as a copy of our Code of Ethics, is distributed to all our employees for signature and signed copies are on file in our Human Resources Department.

The Company’s Board of Directors (“Board”) has nominated eight candidates for election at the 2017 annual meeting. All of the nominees listed below are currently directors. The table below sets forth the age, position with the Company, and year first elected or appointed as a director of the Company, of each of the eight nominees. The narrative descriptions below set forth the

principal occupation, employment, position with the Company (if any), and directorships in other public corporations, of each of the eight nominees. Unless otherwise indicated, each nominee has been engaged in the principal occupation or occupations described below for more than the past five years.

None of our directors or executive officers has a family relationship that is required to be disclosed under Item 401(d) of RegulationS-K of the Exchange Act. During the past ten years none of the persons currently serving as an executive officer and/or director of the Company has been the subject matter of any legal proceedings that are required to be disclosed pursuant to Item 401(f) of RegulationS-K, which include: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) any criminal convictions or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (d) any finding by a court, the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or (e) any sanction or order of any self-regulatory organization or registered

entity or equivalent exchange, association or entity. Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer.

The Company’s Board of Directors consists of nine seats, one of which is vacant and is expected to remain vacant beyond the date of the Company’s 2017 annual meeting. The vacant seat is reserved for a nominee to be named by EJ Funds, LP, a company controlled by our Chairman, in accordance with terms of a Modification, Warrant and Investor Rights Agreement entered into on April 13, 2009. Proxies cannot be voted for a greater number of persons than the number of nominees.

Information Regarding Our Audit Committee

During fiscal year 2016, with the oversight and guidance of the Audit Committee, the Company successfully remediated all aspects of the material weaknesses identified in the Company’s Form 10-K for the year ended December 31, 2015. This was a major accomplishment which has significantly strengthened the Company’s internal controls over financial reporting. Under the current members of the Audit Committee, the

Company implemented actions to improve its internal control over financial reporting and disclosure controls and procedures including hiring financial leadership and personnel for the finance organization with appropriate experience and certification. Also, the Company supplemented and enhanced resources and training for the organization. In addition, the Company effected proper tone at the top through these personnel changes and changes in policies. The Company established a SOX compliance function and a dedicated revenue accounting team. The personnel in these new functions established a structure that allows the Company to validate the completeness and accuracy of the underlying data used in the determination of significant estimates and accounting transactions. Also, management completed a financial close improvement project, redesigned processes, implemented more robust accounting policies, enhanced communications between accounting and tax, and introduced new management review controls. As a result, the Company has improved the timeliness and the level of precision of its control activities.

In addition, under the current Audit Committee, the Company has strengthened its risk assessment process by establishing mechanisms to identify, evaluate and monitor risks to financial reporting. Further, the Company has updated its global risk assessment process, evaluation, and mitigation strategies, and strengthened its internal audit plan to include internal audit monitoring of these activities. The Company has also implemented new procedures and enhanced controls governing its internalmanagement-led Disclosure Committee,sub-certification and external reporting processes associated with the review and approval of the content of its SEC filings and other public disclosures. Further, the Company has implemented controls to prevent or detect material errors in the financial statements of acquired subsidiaries. These controls consist of a comprehensive merger and acquisition integration approach, timely assessment of the target’s control environment, and a process to facilitate improvements in the subsidiary’s control

environment within the year of acquisition. The controls are specifically designed to evaluate the acquired subsidiaries’ application of accounting policies and procedures and identify material errors within subsidiary financial statements.

Although each of the prior year material weaknesses have been fully remediated, during the course of the Company’s 2016year-end close, the Company identified a material weakness in the internal controls surrounding the process in which the Company evaluates intangible asset impairment. It is important to note that this control deficiency did not result in a material misstatement to the Company’s consolidated financial statements for the year ended December 31, 2016, however given the significance and size of intangible assets on the Company’s balance sheet, the existing control over the accounting for IPR&D (in process research & development) indefinite-lived intangible assets required attention. With oversight from the Audit Committee, the Company’s management has begun to design and implement remediation measures, including designing, documenting, and implementing additional control procedures related to the review of the assumptions and data inputs used in the impairment assessment. The Company expects to fully complete its remediation plan before the end of 2017.

Vote Required

If elected at the 2017 annual meeting, each of the nominees would serve until the 2018 annual meeting and until his or her successor is elected and has qualified, or, if earlier, until the director’s death, resignation or removal. Directors are elected by a plurality of the votes properly cast in person or by proxy. The eight nominees receiving the highest number of affirmative votes will be elected. In the unanticipated event that one or more of such nominees becomes unavailable as a candidate for director, the persons named in the accompanying proxy will vote for another candidate nominated by the Board. Each person nominated for election has agreed to serve if elected. We have no reason to believe that any nominee will be unable to serve.

The Board is seeking shareholder ratification of the Audit Committee’s selection of BDO USA, LLP (“BDO”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2017. The Audit Committee initially engaged BDO on January 14, 2016 to perform independent audit services. BDO has served as our independent registered public accounting firm for the years ended December 31, 2013, 2014, 2015 and 2016.

We expect representatives of BDO will be in attendance at the 2017 annual meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions from shareholders regarding their engagement.

Although the Company is not required to submit the selection of independent registered public accountants for shareholder approval, if the shareholders do not ratify this selection, the Board may reconsider the selection of BDO. The Board considers BDO to be well qualified to serve as the independent auditors for the Company, and fully intends to retain BDO’s services throughout 2017. However, even if the selection is ratified, our Board reserves the right to direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee and Board determine that the change would be in our best interests.

During our fiscal year ended December 31, 2016, neither we, nor anyone on our behalf, consulted

BDO regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to our consolidated financial statements, and no written report or oral advice was provided us by BDO that BDO concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement” or a “reportable event”.

Independent Registered Public Accounting Firm Fees

In 2016, the Company engaged BDO as its independent registered public accounting firm to audit its annual consolidated financial statements for fiscal year 2016, as included in the Company’s Annual Report on Form10-K, review interim condensed consolidated financial statements and audit the Company’s internal controls over financial reporting. The following table and footnotes present fees for professional audit services of BDO for the audit of Akorn’s annual financial statements for the year ended December 31, 2016. However, it is not possible to break out the Audit Fees related to 2015 and therefore the following table and footnotes present fees for professional audit services of BDO for the audit of Akorn’s annual financial statements for the years ended December 31, 2013, 2014 and 2015. The table sets for fees billed for other services rendered by BDO during 2015 and 2016:

Audit CommitteePre-Approval Policies and Procedures

The Audit Committee has considered whether the provision of services covered in the preceding paragraphs is compatible with maintaining independence of our registered public accounting firm. At their regularly

scheduled and special meetings, the Audit Committee considers andpre-approves any audit andnon-audit services to be performed for us by our independent registered public accounting firm. In 2016, there were no audit services, audit-related services or tax services that were performed by BDO.

On October 26, 2016, ourIn February 2017, the Board adopted, subject to shareholder approval,of Directors (the “Board”) approved the adoption of the Akorn, Inc. 2016 Employee Stock Purchase2017 Omnibus Incentive Compensation Plan (the “2016 ESPP”“Plan”)., subject to approval by our shareholders. The 2016 ESPPBoard 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 intendedseeking shareholder approval of the Plan.

The following information regarding the Plan is being provided to replace the Amended and Restated Akorn, Inc. Employee Stock Purchase Plan (the “Prior ESPP”), which was terminated in 2015you in connection with our restatement process. The purposesthe solicitation of proxies for the approval of the 2016 ESPP are to provide eligible employees with a convenient means of acquiring an equity interest in the Company through payroll deductions with no brokerage fees at a discounted rate, and to provide an incentive for continued employment. Under the 2016 ESPP, during a six-month or one-year offering period, eligible employees will be able to acquire shares of our common stock at a 15% discount from the loweradoption of the market price on the date the offering period begins or on the purchase date, contributing funds through payroll deductions not exceeding 15% of base wages.

If the 2016 ESPP is approved, 2,000,000 shares of common stock will be available for issuance thereunder, which represents approximately 1.6% of our shares of common stock outstanding on October 28, 2016.Plan. The 2016 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

The following is a brief description of the 2016 ESPP. ThisPlan is a summary only and does not purport to be complete. The summary is qualified in its entirety by reference to the fullPlan. The text of the 2016 ESPP, a copy of whichPlan is attached asAppendix A. to this proxy statement. You are urged to read the actual text of the 2016 ESPP in its entirety.Plan.

If approved by our shareholders, the 2016 ESPP will allow eligible employees to acquire shares of our common stock at a 15% discount. The 2016 ESPP will be effective upon approval by our shareholders, and will continue until terminated by the Board or all shares authorized to be purchased under the 2016 ESPP have been purchased.

Authorized Shares, Administration and Offering Period

If approved, the total amount of shares of our common stock acquired by participants in the 2016 ESPP will not exceed 2,000,000 shares. In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in our common stock, the number of shares of common stock permitted to be purchased under the 2016 ESPP will be adjusted in proportion to the change in outstanding shares of common stock. This 2016 ESPP will be administered under the direction of the Board or a committee designated by the Board in accordance with applicable laws and regulations (the “Committee”). The Company will pay all expenses incurred in connection with the administration of the plan.

There will be two offering periods (the “Offering Periods”) each calendar year during the 2016 Plan: (i) the period from January 1 through December 31; and (ii) the period from July 1 through December 31, provided, however, for the initial year of the plan only, 2017, the first Offering Period will begin January 9 and run through December 31. The Committee may also designate other offering periods from time to time. A participant may participate in only one Offering Period at a time.

Eligible Participants and Payroll Deductions

Employees eligible to participate in the 2016 ESPP are those employed by the Company or a designated subsidiary on the day before the first day of the Offering Period, and customarily employed for more than 20 hours per week and 5 months in a calendar year. However, no employee will be eligible to participate in the 2016 ESPP who owns stock or holds options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or a subsidiary, or as a result of being granted an option under the 2016 ESPP with respect to such Offering Period, would own stock or hold options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any subsidiary. As of October 26, 2016, approximately 1,600 permanent employees, including seven executive officers, would be eligible to participate in the 2016 ESPP.

To participate in the 2016 ESPP, an eligible employee must authorize payroll deductions from his or her current compensation in whole percentages from 1% to 15%, or such lower limit as may be set by the Company from time to time.

Purchase of Shares

At the end of each Offering Period, the Company will automatically apply the funds then in the participant’s payroll deduction account to purchase the applicable number of whole shares of common stock. The purchase price of such shares will be the lower of (i) 85% of the fair market value of a share of common stock on the first day of the Offering Period or (ii) 85% of the fair market value of a share of common stock on the date of purchase, which would be the last trading day of the Offering Period.

As promptly as practicable after the end of each Offering Period, the Company will electronically issue shares of common stock purchased for a participant into the participant’s brokerage account. No fractional shares will be issued to a participant. Any cash remaining in a participant’s payroll deduction account following the purchase of such shares of our common stock will be returned to the participant as soon as administratively feasible without interest. A participant will have no interest in any shares of common stock, including any voting rights, until the Company has purchased shares of common stock for such participant.

Limitations on Purchase and Transfer of Shares

No participant will be entitled to purchase shares of common stock under the 2016 ESPP with a fair market value that exceeds $25,000, as determined as of the first day of the Offering Period, in any calendar year in which such participant participates in the 2016 ESPP (or such other limit as may be imposed by the Code). The Company will automatically suspend the payroll deductions of any participant as necessary to enforce this limit. Except as otherwise determined by the Company prior to the first day of an Offering Period, the aggregate number of shares that may be purchased by an individual participant in an Offering Period will not exceed 15,000 shares.

If the number of shares of common stock to be purchased by all participants for an Offering Period exceeds the number of shares then available for issuance under the 2016 ESPP, then the Company will make apro rata allocation of the remaining shares of common stock in as uniform manner as will be reasonably practicable and equitable. In such event, the Company will give written notice of such reduction of the number of shares of our common stock to be purchased to each participant affected.

Any funds in a participant’s payroll deduction account which are not used to purchase shares of common stock due to the above limitations will be returned to the participant as soon as practicable after the Offering Period without interest.

General Plan Information

The right to receive shares of our common stock is non-transferable (except in the case of a participant’s death following the purchase, but prior to delivery, of shares of our common stock) and no shares of our common stock acquired under the 2016 ESPP may be transferred or sold (other than by gift or inheritance) until 90 days following the date shares are issued to a participant, without prior written approval from the Company.

Changes to Deductions, Withdrawal from Plan Termination of Employment

A participant may elect to increase or decrease his or her rate of payroll deductions for a subsequent Offering Period by delivering written notice prior to the commencement of the Offering Period. A participant may not effect an increase or decrease in the rate of payroll deductions during an Offering Period, but may elect to withdraw from the plan.

A participant may at any time cease making any further payroll deductions by delivering a timely written notice of withdrawal from the 2016 ESPP. Upon withdrawal, the balance of the participant’s payroll deduction account will be returned as soon as practicable, without interest, and participation in the 2016 ESPP will automatically and immediately terminate. In the event of a withdrawal, the participant may not resume participation in the 2016 ESPP during the calendar year of withdrawal but may elect to participate in any subsequent calendar year.

A participant will be immediately and automatically terminated from the plan upon the occurrence of any of the following events: (i) termination of the participant’s employment for any reason (including retirement or death), (ii) the placement of the participant on a leave of absence exceeding 3 calendar months with no right to reemployment by the Company provided by statute or contract or (iii) the failure of a participant to remain an eligible employee. In such event, the payroll deductions credited to such participant’s payroll deduction account will be returned to the participant or, in the case of death, to the participant’s designated beneficiary, in either case, without interest.

If a participant is enrolled in an Offering Period in one year and takes no further action regarding his or her election related to the following year, the Company will assume that the participant desires to continue making purchases and will automatically enroll the participant in the next annual Offering Period (January 1 to December 31) with the same level of payroll deduction as in the preceding year.

Amendment, Termination or Suspension of the Plan by the Company

The 2016 ESPP may be amended by the Board, but any amendment which (a) materially increases the number of shares of our common stock which may be acquired through the 2016 ESPP, (b) changes the definition of “common stock” as defined in the 2016 ESPP, (c) materially increases the benefits accruing to participants in the 2016 ESPP or (d) materially modifies the requirements for eligibility for participation in the 2016 ESPP must be approved by the shareholders.

The 2016 ESPP will be effective upon approval by the shareholders of the Company. Unless terminated earlier by the Company, the plan will terminate on the date all of the shares of common stock authorized for issuance under the 2016 ESPP are purchased. The Company reserves the right to terminate or suspend the 2016 ESPP at any time. If the 2016 ESPP is terminated or suspended, the Company may elect in its sole discretion to either (i) complete the purchase of shares of common stock at the end of the current Offering Period or (ii) deliver to each participant the then balance of such participant’s payroll deduction account, if any, as soon as reasonably practicable following the date of termination or suspension of the 2016 ESPP. In either case, no participant will have any right to acquire shares of common stock (other than the as described under clause (i) of the immediately preceding sentence) under the 2016 ESPP. In the event the 2016 ESPP is terminated, the participation of all participants will terminate immediately.

In the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new purchase date, and the 2016 ESPP will terminate immediately prior to the consummation of the proposed dissolution or liquidation, unless provided otherwise by the Committee.

If the Board or the Company’s shareholders approve a sale of all or substantially all of the assets of the Company, or the merger, consolidation or similar transaction involving the Company with or into another corporation in which the Company is not the surviving, controlling corporation, the 2016 ESPP provides that each outstanding right to purchase shares of our common stock under the 2016 ESPP will be assumed, or an equivalent right to purchase shares of our common stock will be substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation chooses not to assume or substitute for the right to purchase shares of our common stock, the Offering Period then in progress shall be shortened by setting a new purchase date, which will be at least 15 days prior to the date of the transaction.

Federal Income Tax Consequences

The following is a brief description of the Company’s understanding of the U.S. federal income tax consequences to the Company and participants subject to U.S. taxation with respect to participation in the 2016 ESPP. This description may be inapplicable if such laws and regulations are changed. This summary is not intended to be exhaustive or constitute tax advice and does not address any state, local or foreign tax consequences.

The 2016 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Under such an arrangement, no taxable income would be recognized by a participant, and no deductions would be allowable to the Company, upon either the grant or the exercise of the options. Taxable income would not be recognized until either there is a sale or other disposition of the shares of our common stock acquired under the 2016 ESPP or in the event the participant dies while still owning the purchased shares of our common stock. The amounts withheld from a participant’s pay under the 2016 ESPP will be taxable income to that participant and must be included in gross income for federal income tax purposes in the year in which the amounts otherwise would have been received.

The federal income tax consequences of a sale or disposition of shares of our common stock acquired under the 2016 ESPP depend in part on the length of time the shares are held by a participant before any sale or disposition. If a participant sells or otherwise disposes of shares of our common stock acquired under the 2016 ESPP (other than any transfer resulting from the participant’s death) within two years after the date on which the option is granted to such participant or within one year after the date on which the option is exercised and the shares purchased (such period, the “Holding Period”), the participant will recognize ordinary income in the year of such sale or disposition in an amount equal to the excess of (1) the fair market value of the shares on the date such shares were acquired by him or her over (2) his or her purchase price. The tax law requires a participant to recognize this amount of ordinary income even if the fair market value of the shares of our common stock has decreased since the date the shares were purchased, and the ordinary income recognized is added to his or her basis in such shares. Any gain realized on the sale or disposition in excess of the purchase price will be taxed as short-term capital gains and any loss realized will be a short-term capital loss.

If a participant sells or otherwise disposes of shares of our common stock acquired under the 2016 ESPP after the Holding Period, or the participant dies, he or she must recognize as ordinary income in the year of sale (or his or her taxable year ending with his or her death) an amount equal to the lesser of (1) the excess of the fair market value of the shares of our common stock on the date of grant over the purchase price (determined as of the date of grant), or (2) the excess of the fair market value of the shares on the date he or she sells or otherwise disposes of the shares or on the date of his or her death over the purchase price. Except in the case of a transfer as a result of death, this amount of ordinary income recognized by the participant is added to his or her basis in the shares. The basis of shares transferred as a result of the death of a participant will not be increased as a result of the ordinary income recognized by the deceased participant. Any gain realized on the sale or disposition in excess of the participant’s basis (after increasing the basis in such shares of our common stock by the ordinary income recognized) will be taxed as a long-term capital gain. Any loss realized will be treated as long-term capital loss.

The Company will not receive any income tax deduction as a result of issuing shares of our common stock pursuant to the 2016 ESPP, except upon sale or disposition of shares by a participant prior to the end of the Holding Period. In that event, the Company ordinarily will be entitled to a deduction equal to the amount included as ordinary income to the participant with respect to the sale or disposition of the shares.

New Plan Benefits

Our executive officers, including our named executive officers who are current employees of the Company, will be eligible to participate in the 2016 ESPP, provided they meet the detailed eligibility requirements. Non-employee directors are not eligible to participate in the 2016 ESPP. Because benefits under the 2016 ESPP will depend upon employees’ elections to participate, the restrictions of Section 423 of the Code and the fair market value of the common stock at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees if the 2016 ESPP is approved by the shareholders. No options have been granted and no shares of our common stock have been issued under the 2016 ESPP prior to, or pending, shareholder approval of the 2016 ESPP.

The Board of Directors unanimously recommends that you vote “FOR” the approval of the Akorn, Inc. 2016 Employee Stock Purchase Plan.

Summary of proposed amendments

On October 26, 2016, the Board adopted, subject to shareholder approval,replace the Amended and Restated Akorn, Inc. 2014 Stock Option Plan (the “Amended 2014 Option“2014 Plan”), under which contains certain material changesno 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 “2014“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”). As described more fully below,If the changesPlan 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 based upon current best practices, and include (i) adding sub-limitsexhausted, 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.

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.

Material Features of the Plan

Below is a summary of some of the material features of the Plan:

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 providevest 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.

Subject to adjustment for changes in capitalization, with added flexibilityrespect to grant performance-based awards that are tax deductibleintended to the Companyqualify 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 theper-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 orspin-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 andnon-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

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) addingthree months after the participant who was holding the option ceased to be a sub-limitdirector, 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 directorcommon 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

“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

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.

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) clarifyingdecrease 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 generally applythose 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 restricted stock units granted under our plan.We are not requesting approvalthe occurrence of additional shares undersuch event and, in its discretion, the Amended 2014 OptionCommittee 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 aper-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:

If approved,

Unless otherwise provided pursuant to an award agreement, a change of control would be defined to mean any of the following events, generally:

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) theper-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

optionee did not dispose of the shares issued pursuant to the exercise of an ISO until the later of thetwo-year anniversary of the date of grant of the ISO and theone-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 thetwo-year andone-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) theper-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) theper-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

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 fornon-deductible awards under the Plan. In addition, stock options and SARs that would be awarded under the Amended 2014 Option Plan, clarifiesalthough not performance compensation awards under the termsPlan, 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 conditionsa possible interest charge. Stock options and SARs granted on Shares with an exercise price that generally applyis not less than the fair market value of the underlying shares on the date of grant will not give rise to grants of restricted stock units (or “RSUs”)“deferred compensation” for this purpose unless they involve additional deferral features. Stock options and SARs that would be awarded under ourthe 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 more fully below.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 ournon-employee directors are described under “Director Compensation”.

Vote Required

Following is a summary of the Amended 2014 Option Plan. This summary is qualified in its entirety by reference to the complete text of the Amended 2014 Option Plan, a copy of which is attached asAppendix B. You are urged to read the actual text of the Amended 2014 Option Plan in its entirety.

Eligible Participants

Any director, employee, consultant or advisor (including any prospective director, employee, consultant or advisor) of Akorn or any affiliate of Akorn shall be eligible to be designated a participant in the Amended 2014 Option Plan for purposes of receiving awards. As of October 26, 2016, approximately 1,620 employees and non-employee directors would be eligible to participate in the Amended 2014 Option Plan, plus consultants. However, only employees are eligible to receive incentive stock options (“ISOs”).

Plan Administration

Our Board, or one or more committees appointed by our Board, will administer the Amended 2014 Option Plan (in either case, the “administrator”). In the case of awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the administrator will consist of two or more “outside directors” within the meaning of Section 162(m). The administrator will have the authority to construe and interpret the terms of the Amended 2014 Option Plan and awards, to prescribe, amend and rescind rules and regulations relating to the Amended 2014 Option Plan, and to modify or amend an award (subject to limitations). In addition, the administrator will have the authority to determine the terms of the awards, including the exercise price (which may be changed by the administrator after the date of grant), the number of shares subject to each award, the exercisability of the awards, any vesting acceleration or waiver or repurchase restrictions, and the form of consideration payable upon exercise. Subject to shareholder approval, the administrator also will have the authority to reduce the exercise price of an award to the then current fair market value or implement an award exchange program (whereby awards may be exchanged or cancelled for awards with lower exercise prices or different terms), or a program through which participants may reduce cash compensation payable in exchange for awards. The administrator may also create other stock based awards that are valued in whole or in part by reference to (or are otherwise based on) shares of our common stock.

Shares Available For Awards

Subject to adjustment as provided below, the aggregate number of shares of our common stock that may be issued pursuant to awards granted under the Amended 2014 Option Plan is 7,500,000. The maximum number of shares of our common stock that may be delivered pursuant to ISOs granted under the Amended 2014 Option Plan will be 1,500,000. The maximum aggregate number of shares of our common stock that may be issuable or deliverable under options or stock appreciation rights granted in any calendar year to any one participant will be 2,000,000 shares. With respect to awards intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code (other than options or stock appreciation rights), the maximum aggregate number of shares of our common stock that may be issuable or deliverable under such awards granted in any calendar year to any one participant will be 2,000,000 shares or, with respect to awards denominated in cash, $3,000,000 (measured as of the date of grant).

In addition, the maximum aggregate number of shares of our common stock that may be issuable or deliverable under awards granted in any calendar year to any one director will be 200,000 shares of our common stock plus cash in an amount not to exceed $250,000.

If an award expires or is terminated or canceled without having been exercised or settled in full, it is forfeited back to us and the terminated portion of the award (or forfeited or repurchased shares subject to the award) will become available for future grant or sale under the Amended 2014 Option Plan (unless it has terminated). Shares are not deemed to be issued under the Amended 2014 Option Plan with respect to any portion of an award that is settled in cash. If the exercise or purchase price of an award is paid for through the tender of shares, or tax withholding obligations are met through the tender or withholding of shares, those shares tendered or withheld will again be available for issuance under the Amended 2014 Option Plan.

In the event a change, such as a stock split, is made in our capitalization which results in an exchange or other adjustment of each share of common stock for or into a greater or lesser number of shares, appropriate adjustments will be made to unvested awards in the number of shares subject to each outstanding option or other awards in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the Amended 2014 Option Plan. Under such circumstances, the administrator also may deem it appropriate to cancel awards in consideration for a cash payment. The administrator also may make provisions for adjusting the number of awards in the event we effect one or more reorganizations, recapitalizations, rights offerings, or other increases or reductions of shares of our outstanding common stock. Awards may provide that in the event of the dissolution or liquidation of the Company, a corporate separation or division or the merger or consolidation of the Company, the holder may exercise the award on such terms as it may have been exercised immediately prior to such dissolution, corporate separation or division or merger or consolidation; or in the alternative, the administrator may provide that each award granted under the Amended 2014 Option Plan shall terminate as of a date fixed by the administrator.

Awards

The Amended 2014 Option Plan provides for the grant of options intended to qualify as ISOs under Section 422 of the Code to our and our affiliates’ employees and non-qualified stock options (“NQSOs”), stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, performance unit awards, performance share awards and other stock based award (each, an “Award”) to our and our affiliates’ directors, employees, consultants and advisors.

Stock Options

An option is the right to purchase shares of our common stock at a fixed exercise price for a fixed period of time. The administrator may grant both ISOs and NQSOs under the Amended 2014 Option Plan. Except as otherwise determined by the administrator in an award agreement, the exercise price for options cannot be less than the fair market value (as defined in the Amended 2014 Option Plan) of our common stock on the date of grant. The term of each option will be determined by the administrator; provided that no ISO will be exercisable after the tenth anniversary of the date the option is granted. In the case of ISOs granted to an employee who, at the time of the grant of an option, owns stock representing more than 10% of the voting power of all classes of our stock or the stock of any of our affiliates, the exercise price cannot be less than 110% of the fair market value of a share of our common stock on the date of grant and its term will be five years or less from the date of grant. As of October 26, 2016, the fair market value of our common stock was $24.61 per share, which represents the closing market price of our stock that day as reported on the NASDAQ Global Select Market. All options granted under the Amended 2014 Option Plan will be NQSOs unless the applicable award agreement expressly states that the option is intended to be an ISO.

Options shall vest and become exercisable as determined by the administrator. The exercise price will be payable with cash (or its equivalent) or by other methods as permitted by the administrator to the extent permitted by applicable law.

If a participant’s employment or relationship with the Company is terminated, the participant (or his or her designated beneficiary or estate representative in the case of death) may exercise his or her option within such period of time as is specified in the award agreement to the extent that the option is vested on the date of termination. In the absence of a specified time in the award agreement, the option will remain exercisable for 3 months following the date of termination, except in the case where termination is as a result of disability or death, in which case the option will remain exercisable for 12 months following the date of termination.

The administrator may at any time offer to buy out an option previously granted for a payment in cash or shares of our common stock based on such terms and conditions as the administrator shall establish in compliance with Section 409A of the Code and communicate to the participant at the time that such offer is made.

Restricted Stock

Restricted stock awards are awards of shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator may impose whatever conditions to vesting it determines to be appropriate. The administrator will determine the number of shares of restricted stock granted to any participant, and if applicable, any purchase price. Unless the administrator determines otherwise, restricted shares that fail to vest will revert to the company and again will be available for grant under the plan. Holders of restricted stock will not have voting rights with respect to such stock until the restrictions lapse, unless the administrator determines otherwise. During the period of restriction, holders of restricted stock will be entitled to receive all dividends and other distributions paid with respect to such stock while unvested, unless otherwise provided in the applicable award agreement. If any such dividends or distributions are paid in shares of our common stock, such shares will be subject to the same restrictions on transferability and forfeitability as the restricted stock with respect to which they were paid.

Restricted Stock Units

The Amended 2014 Option Plan clarifies the terms and conditions that generally apply to grants of RSUs under our plan. RSUs are awards of an unfunded and unsecured promise to deliver shares, cash, other securities or other property, subject to certain specified restrictions. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the administrator. RSUs are forfeitable until they vest or are no longer subject to restrictions. Upon vesting, RSUs may be settled as a lump sum, in installments or on a deferred basis, as determined by the administrator (subject to applicable tax laws). RSUs generally cannot be transferred. In addition, RSUs do not provide voting rights unless and until the shares covered by such units are issued and delivered without restriction. RSUs do not entitle the holder to dividend equivalents unless otherwise specified in the award agreement or as determined by the administrator. If provided for in the award agreement, RSUs may be credited with dividend equivalent payments either in cash or shares of common stock, and any accumulated dividend equivalents (and any interest thereon) will be payable at the time the underlying RSU is settled.

Unrestricted Stock

Subject to the terms of an award agreement, a participant may be awarded (or sold at a discount) shares of our common stock that are not subject to restrictions on transfer, in consideration for past services rendered to us, our affiliates or for other valid consideration.

Stock Appreciation Rights

A stock appreciation right is the right to receive an amount equal to the appreciation in the fair market value of our common stock between the exercise date and the date of grant, for that number of shares of our common stock with respect to which the stock appreciation right is exercised. We may either pay the appreciation in cash, in shares of our common stock with equivalent value, or in some combination of cash and shares, as determined by the administrator and in conformance with Section 409A of the Code. The administrator determines the exercise price of stock appreciation rights, the vesting schedule and other terms and conditions of stock appreciation rights; however, stock appreciation rights expire under the same rules, that apply to stock options. The administrator may at any time offer to buy out for a payment in cash or shares of our common stock a stock appreciation right previously granted based on such terms and conditions as the administrator shall establish and communicate to the participant at the time that such offer is made.

Performance Units and Performance Shares

Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or value of performance units and performance shares to be paid to the participant. The performance goals may be based upon the achievement of company-wide, divisional or individual goals or objectives, or any other basis that the administrator determines. Payment for performance units and performance shares may be made in cash or in shares of our common stock with equivalent value, or in some combination, as determined by the administrator. Performance units will have an initial dollar value established by the administrator prior to the grant date. Performance shares will have an initial value equal to the fair market value of our common stock on the grant date.

Other Stock Based Awards

The administrator has the authority to create awards under the Amended 2014 Option Plan in addition to those specifically described in the Amended 2014 Option Plan. These awards must be valued in whole or in part by reference to, or must otherwise be based on, the shares of our common stock. As described above, other stock-based awards may include, without limitation, awards that represent an unfunded and unsecured promise to deliver shares, cash, other securities or other property following a specified passage of time or period of service, the satisfaction of predetermined individual or Company performance goals or objectives, or otherwise in accordance with the terms of the applicable award agreement.

Performance Goals

The administrator may designate any award as a qualified performance-based award for the purpose of allowing the award to be deductible without regard to the $1,000,000 deduction limit imposed by Section 162(m) of the Code. If an award is so designated, the administrator must establish objectively determinable performance goals for the award. Performance periods for such awards must be at least 12 months and may be any longer period. Performance goals for such awards shall be based on one or more of the following criteria, which may be expressed in terms of company-wide objectives or in terms of objectives that relate to the performance of a subsidiary or a division, region, department or function within the Company or a subsidiary: earnings (e.g., earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; or earnings per share); financial return ratios (e.g., return on investment; return on invested capital; return on equity; or return on assets); increase in revenue, operating or net cash flows; cash flow return on investment; total shareholder return; market share; net operating income, operating income or net income; debt load reduction; expense management; economic value added; stock price; and strategic business objectives, consisting of one or more objectives based on meeting specific cost targets, business expansion goals and goals relating to acquisitions or divestitures.

Transferability of Awards

Generally, unless the administrator determines otherwise, the Amended 2014 Option Plan does not allow for the transfer of awards other than by will or by the laws of descent and distribution, and only the participant may exercise an award during his or her lifetime.

Amendment and Termination of the Amended 2014 Option Plan

The Board may at any time amend, alter, suspend or terminate the Amended 2014 Option Plan, subject to applicable shareholder approval requirements under federal or state law or NASDAQ rules. Unless sooner terminated, the Amended 2014 Option Plan shall terminate on December 30, 2023, the date that is 10 years from the date the Amended 2014 Option Plan was adopted by the Board.

Amendment Effectiveness

The Amended 2014 Option Plan was approved by the Board on October 26, 2016. The Board’s approval of the Amended 2014 Option Plan is contingent uponrequires the shareholders’ approvalaffirmative vote of the amendments.

Liquidation or Dissolution of Akorn

In the event of the proposed dissolution or liquidation of Akorn, the administrator will notify each participant as soon as practicable prior to the effective date of such proposed transaction. The administrator in its discretion may provide for a participant to have the right to exercise his or her award, to the extent applicable, until 10 days prior to such transaction as to all of the stock covered thereby, including shares of our common stock as to which such award would not otherwise be exercisable. In addition, the administrator may provide that any Akorn repurchase option or forfeiture rights applicable to any award shall lapse 100%, and that any award vesting shall accelerate 100%, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised or vested, an award will terminate immediately prior to the consummation of such proposed action.

Change in Control

Generally, in the event Akorn experiences a “change in control” (as described below), awards may be assumed by the successor corporation, or the successor corporation may substitute an equivalent award in its place. However, if the successor corporation cannot or will not assume or substitute the outstanding award, then the administrator may provide that the vesting of any award shall accelerate 100%. Upon, or in anticipation of, a change in control, the administrator may cause any outstanding awards to terminate at a specific time in the future, including the date of such change in control, and will give each participant the right to exercise such awards during a period of time as the administrator, in its sole and absolute discretion, shall determine, but in no event shorter than 10 trading days.

Under the Amended 2014 Option Plan, a “change in control” is generally defined as (i) a merger or consolidation of the Company with another entity which thereby becomes the beneficial owner of more than 50% of the outstanding voting securities of the surviving entity, (ii) a meeting involving a contest for election of at least one directorship, if Directors who were members of the Board immediately prior to the meeting do not constitute at least a majority of the Directors followingvotes cast on the meeting or election, (iii) an acquisition, directly or indirectly, of more than 50%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 anon-vote on this proposal. Brokernon-votes will have no effect on the outcome of the outstanding shares of any class of voting securities or (iv) a sale of all or substantially all of the Company’s assets. A change in control also occurs if, during any period of 2 consecutive years or less, a majority of the Board is replaced by directors not approved by 2/3 of the Board. A change in control is not deemed to have occurred if the Company forms a holding company and holders of voting securities continue to hold approximately the same relative proportions.

Federal Income Tax Consequences

The following is a brief description of the Company’s understanding of the U.S. federal income tax consequences to the Company and participants subject to U.S. taxation with respect to participation in the Amended 2014 Option Plan. This description may be inapplicable if such laws and regulations are changed. This summary is not intended to be exhaustive or constitute tax advice and does not address any state, local or foreign tax consequences.

NQSOs. A non-qualified stock option results in no taxable income to the participant or deduction to the Company at the time it is granted. A participant exercising a non-qualified stock option will, at that time, realize taxable income (subject to withholding and employment taxes) in the amount equal to the excess, if any, of the then fair market value of the shares over the option exercise price. Subject to the applicable provisions of the Code, the Company will be entitled to a deduction for federal income tax purposes in the year of exercise in an amount equal to the taxable income realized by the participant. The participant’s tax basis in shares received upon exercise is equal to the sum of the option exercise price plus the taxable income recognized by him or her upon exercise.

Any gain (or loss) upon subsequent disposition of the shares will be a long- or short-term capital gain (or loss) to the participant, depending upon the holding period of the shares. If a non-qualified option is exercised by tendering previously owned shares in payment of the option price, then, instead of the treatment described above, the following will apply: a number of new shares equal to the number of previously owned shares tendered will be considered to have been received in a tax-free exchange; the participant’s basis and holding period for such number of new shares will be equal to the basis and holding period of the previously owned shares exchanged. The participant will have taxable income equal to the fair market valuevote on the date of exercise of the number of new shares received in excess of such number of exchanged shares; the participant’s basis in such excess shares will be equal to the amount of such taxable income, and the holding period in such shares will begin on the date of exercise.

ISOs. An incentive stock option results in no taxable income to the participant or a deduction to the Company at the time it is granted or exercised. However, upon exercise, the excess of the fair market value of the shares acquired over the option exercise price is an item of adjustment in computing the alternative minimum taxable income of the participant, if applicable. If the participant holds the stock received as a result of an exercise of an incentive stock option until the later of two years from the date of the grant and one year from the date of exercise, then the gain realized on disposition of the shares is treated as a long-term capital gain. If the shares are disposed of during this period, however (i.e., a “disqualifying disposition”), then the participant will realize taxable income for the year of the disposition in an amount equal to the excess, if any, of the fair market value of the shares upon exercise of the option over the option exercise price (or, if less, the excess of the amount realized upon disposition of the shares over the option exercise price). Any additional gain or loss recognized upon the disposition will be recognized as a capital gain or loss by the participant. In the event of a disqualifying disposition, the Company will generally be entitled to a deduction, in the year of such a disposition, in an amount equal to the taxable income realized by the participant. The participant’s tax basis in the shares acquired upon exercise of an incentive stock option is equal to the option exercise price paid, plus any amount includible in his or her income as a result of a disqualifying disposition.

Stock Awards.Generally, if a participant receives a stock award under the Amended 2014 Option Plan, the participant will recognize ordinary compensation income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount the participant paid in exchange for the stock. If, however, the stock is not vested when it is received under the Amended 2014 Option Plan (for example, if the participant is required to work for a period of time in order to have the right to sell the stock), the participant generally will not recognize income until the stock becomes vested, at which time the participant will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount the participant paid in exchange for the stock. The participant may, however, file an election with the Internal Revenue Service, within 30 days of the participant’s receipt of the stock award, to recognize ordinary compensation income, as of the date the participant received the stock award, equal to the excess, if any, of the fair market value of the stock on the date the other stock award is granted over any amount the participant paid in exchange for the stock. If the participant is an employee of the Company, the ordinary compensation income the participant recognizes will be subject to federal and state income and employment tax withholding.

RSUs. A participant who is granted restricted stock units does not recognize income at the time of grant. When the award vests or is paid, participants generally recognize ordinary income in an amount equal to the fair market value of the units at such time, and the Company will receive a corresponding deduction.

Stock Appreciation Rights.Generally, a participant who is granted a stand-alone SAR will not recognize taxable income at the time the stand-alone SAR is granted. The value received by a participant (in cash or stock) from the exercise or settlement of a SAR will be taxed as ordinary income to the participant in the year of exercise or settlement. In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of SARs. However, upon the exercise or settlement of a SAR, the Company will be entitled to a deduction equal to the amount of ordinary income the participant is required to recognize as a result of the exercise or settlement.

Performance Units and Performance Shares. A participant who is granted a performance unit or performance share generally recognizes no income until the performance objectives are satisfied and the award is vested. When the award vests or is paid, participants generally recognize ordinary income in an amount equal to the fair market value of the unit or share at such time, and the Company will receive a corresponding deduction.

Deductions Generally. The Company will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income taxable to the participant, provided (i) the amount constitutes an ordinary and necessary business expense for the Company, (ii) it is reasonable in amount, (iii) either the participant includes that amount in income or the Company timely satisfies its reporting requirements with respect to that amount and (iv) the deduction is not otherwise disallowed under the Code.

Section 162(m) Limitations.Section 162(m) of the Code generally disallows a public company’s tax deduction for compensation to covered employees in excess of $1 million. Compensation that qualifies as “performance-based compensation” is excluded from the $1 million deductibility cap, and therefore remains fully deductible by the company that pays it. Awards granted to employees under the Amended 2014 Option Plan whom the Committee expects to be covered employees at the time a deduction arises, may, if and to the extent that the Committee determines to do so, be granted in a manner that will qualify as such “performance-based compensation,” so that such awards will not be subject to the Section 162(m) deductibility cap of $1 million. Future changes in Section 162(m) or the regulations thereunder may adversely affect the Company’s ability to ensure that options under the Amended 2014 Option Plan will qualify as “performance-based compensation” that are fully deductible by us under Section 162(m).

New Plan Benefits

The number of awards that an employee, director, consultant or advisor may receive under the Amended 2014 Option Plan is in the discretion of the administrator. Upon approval of the Amended 2014 Option Plan, the following benefits or amounts will be allocated to the following individuals: Raj Rai, Chief Executive Officer, dollar target value of $824,000 (maximum value of $1,648,000).

The Board of Directors unanimously recommends that you vote “FOR” the approval of an amendment and restatement of the 2014 Stock Option Plan

Executive Summary

2015 Performance Highlights

Despite facing challenges, our financial performance in 2015 was solid and included the following highlights:

AKORN, INC. - 2017 Proxy Statement		Changes in Our Executive Team in 2015    30

III.     Executive Vice President, SalesCompensation and Marketing, and ourOther Information

EXECUTIVE SUMMARY

2016 Named Executive Vice President, Pharmaceutical Operations.Officers (“NEOs”)

 

2015 Named Executive Officers

We refer to the following individuals as our 2015 “Named Executive Officers” or “NEOs”:

•    Raj Rai

 

NEO	Principal Position
Raj Rai	Chief Executive Officer
•Duane A. Portwood		Executive Vice President and Chief Financial Officer effective October 30, 2015
Randall E. Pollard	Senior Vice President, Corporate Controller and Chief Accounting Officer, also served as Interim Chief Financial Officer from August 3, 2015 to October 30, 2015
Timothy A. Dick	Former Chief Financial Officer, resigned August 3, 2015
•Joseph Bonaccorsi	Senior	Executive Vice President, General Counsel and Secretary
•Bruce Kutinsky		Chief Operating Officer
•Steven Lichter		Executive Vice President, Pharmaceutical Operations
•Jonathan Kafer		Executive Vice President, Sales and Marketing

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Compensation Discussion and Analysis

In this Compensation Discussion and Analysis section we present an overview of our compensation program, focusing on the elements of compensation awarded or paid to our Named Executive Officers. Below is a roadmap of the discussion that follows.

Table of Contents

 

How We Determine Pay	17
HOW WE DETERMINE PAY			34
Compensation Philosophy and Objectives and Role of the Compensation Committee	17		34
Role of the CEO	18		35
Role of the Compensation Consultants	19		36
Role of Peer Group	19		36
Role of the Shareholders	19		37
Elements of our Compensation Program	20
Base SalaryELEMENTS OF OUR COMPENSATION PROGRAM	20		37
Base Salary			37
Performance-Based Annual Incentive Plan	20		38
Long-Term Equity Incentive Plan	20		38
Stock Options	20		38
Restricted Stock Units	21		38
Timing of Equity Grants and Equity Grant Practices	21		39
Analysis of What We Paid	21
2015ANALYSIS OF WHAT WE PAID			39
2016 Base Salaries	21		39
20152016 Performance-Based Annual Incentive Awards	22		40
20152016 Performance-Based Annual Incentive Award for our Chief Executive Officer	23		41
20152016 Performance-Based Annual Incentive Award for our Other Named Executive Officers	23		41
20152016 Long-Term Incentive Grants	24		43
2016 Performance Objectives	24
Other Elements of CompensationOTHER ELEMENTS OF COMPENSATION	24		43
Company-Wide Benefits	24		43
Perquisites	24		43
ESPP	25		44
Executive Share Retention and Ownership Guidelines	25		44
Hedging Policy	25		44
Clawback Policy	25		44
Recovery of Bonuses in Connection with the RestatementTax Considerations	25		45
Tax Considerations	26
Accounting Treatment Considerations	26
	45

 

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COMPENSATION DISCUSSION AND ANALYSIS

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:

 

·

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,

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,

Support Company growth, alignment with shareholder interests and the achievement of other key corporate goals and objectives,

Design packages to achieve external competitiveness, internal equity, and be cost-effective,

Focus attention on and appropriately balance current priorities and the longer-term strategy of the Company through short- and long-term incentives,

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,

Promote ownership of Company stock by executives to enhance the alignment of interests with shareholders,

Motivate and reward a prudent level of risk and decision making in an effort to drive reasonable performance,

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

Involve a limited use of perquisites and supplemental benefits which will only be provided if a compelling business rationale exists.

·

Support Company growth, alignment with shareholder interests and the achievement of other key corporate goals and objectives,

·

Design packages to achieve external competitiveness, internal equity, and be cost-effective,

·

Focus attention on and appropriately balance current priorities and the longer-term strategy of the Company through short- and long-term incentives,

·

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,

·

Promote ownership of Company stock by executives to enhance the alignment of interests with shareholders,

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17    34

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	·	Motivate and reward a prudent level of risk and decision making in an effort to drive reasonable performance,
	COMPENSATION DISCUSSION AND ANALYSIS

	·	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

	·	Involve a limited use of perquisites and supplemental benefits which will only be provided if a compelling business rationale exists.

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 companyCompany 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

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.

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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

In 2015, 2014 andSince 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 2015.2016. The following companies comprised our selected peer group in 2015:2016:

 

2015
2016 Peer Group
Alkermes Plc.	Pharmacyclics	Jazz Pharmaceuticals plc
Biomarin Pharmaceutical Inc.		Lannett Company, Inc.
Biomarin Pharmaceutical Catalent, Inc.		Mallinckrodt Plc.
Endo International Plc.		Prestige Brands Holdings, Inc.
Endo International Plc. Horizon Pharma plc		Quintiles Transnational Inc.
Impax Laboratories, Inc.	Salix Pharmaceuticals Ltd.
Incyte Corporation	The Medicines Company
Jazz Pharmaceuticals Company	United Therapeutics Corporation
Mallinckrodt Plc. Incyte Corporation

 

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

analysis was reviewed and updated in 2015, 2014 andeach 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, held in 2014, the Company’s advisory vote on executive compensation was approved by the following vote:

 

For	Against	Abstain	Broker Non-Votes		Against		Abstain		Broker Non-Votes
85,598,356	204,544	359,134	6,673,489
99,743,230					2,535,684		176,333		8,643,705

 

This represents more than a 99%97% level of approval. Although the effect of the advisory vote on executive compensation isnon-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 re-examinationrestructuring 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.”

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Elements of our Compensation ProgramELEMENTS OF OUR COMPENSATION PROGRAM

For 2015,2016, 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.

 

Element	Type	At Risk
Element		Type		At Risk
Base salary		Cash		No, fixed
Performance-based annual incentive(1)		Cash		Yes, at risk based on Company and individual performance
Long-term incentives(2)		Equity		Yes, at risk because time-based vesting occurs over a period of years

(1)

We occasionally also providenon-recurring discretionary cash bonuses to reflect superior individual performance, new responsibilities or to compensate new hires for amounts forfeited from their previous employer.

(2)

Historically, we have awarded options and/or RSUs.

 

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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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 institutedmanagement-by-objectives (MBO) to assess performance as a basis for determining awards for all of our Named Executive Officers paid out under our 2014 Option 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 “2015“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 Option Plan, the Compensation Committee has the flexibility to make equity awards based onof 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 Option 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 ofNon-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’sForm 10-K filed with the SEC on May 10, 2016.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 NQSOsnon-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.

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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

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 Option 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 during the year.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 20152016 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%, Mr. Pollard 100%,and Mr. Kafer 100% and Mr. Dick 250%.

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

 

2015ANALYSIS OF WHAT WE PAID

2016 Base Salaries

In 2015,2016, 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 11% in comparison to 2014. The Compensation Committee again reviewed the base salaries of our Named Executive Officers in 2016 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.

 

	2016 Base Salary ($)	2015 Base Salary ($)(1)	2014 Base Salary ($)		What We Took Into Consideration in Setting 2015 Salaries		2016 Base Salary ($)				2015 Base Salary ($)				What We Took Into Consideration in Setting 2016 Salaries
Raj Rai	824,000	800,000	750,000		Mr. Rai’s performance in 2014 in completing the acquisitions of Hi-Tech Pharmacal and VersaPharm, as well as veterinary products from Lloyd, Inc.			824,000				800,000			Mr. Rai’s performance in 2015 in leading the company and recruiting leadership talent to further strengthen the organization
Duane A. Portwood	450,000	450,000(1)	N/A		Offering a competitive salary in connection with Mr. Portwood’s appointment as Chief Financial Officer of our Company in October 2015			450,000				450,000			At the time the committee established 2016 salaries, Mr. Portwood had been with the Company only 4 months and did not receive an increase
Joseph Bonaccorsi	437,750	425,000	350,000		Mr. Bonaccorsi’s performance in 2014 in handling special legal projects, managing increased growth in our legal department and outside counsels and contributing to increased compliance measures			437,750				425,000			Mr. Bonaccorsi’s performance in 2015 in handling special legal matters and the increased legal and regulatory work we encountered through our restatement process
Bruce Kutinsky	484,100	470,000	425,000		Mr. Kutinsky’s performance in 2014 in obtaining 14 unique product approvals, launching 5 products, and integrating more than 62 products acquired through acquisitions			484,100				470,000			Mr. Kutinsky’s performance in 2015 in new product launches, product approvals and strengthening the organization
Steven Lichter	309,000	300,000(1)	N/A		Offering a competitive salary in connection with Mr. Lichter’s appointment as Executive Vice President, Pharmaceutical Operations in April 2015			309,000				300,000			Mr. Lichter’s performance in 2015 in building the Operations organization
Randall E. Pollard	275,000	275,000(1)(2)	N/A		Offering a competitive salary in connection with Mr. Pollard’s appointment as Vice President and Corporate Controller in April 2015
Jonathan Kafer	309,000	300,000(1)	N/A		Offering a competitive salary in connection with Mr. Kafer’s appointment as Executive Vice President, Sales and Marketing in April 2015			309,000				300,000			Mr. Kafer’s performance in 2015 in building the Commercial organization with regard to people and processes
Timothy Dick	(3)	385,000			It was decided that Mr. Dick’s salary was competitive with the market.

 

(1)

The base salaries actually paid to Messrs. Portwood, Lichter, Pollard and Kafer were pro-rated to their respective start dates of October 30, February 16, April 20, and April 20, 2015.

(2)

In connection with his promotion to Interim Chief Financial Officer, Mr. Pollard’s salary was increased to $275,000 as of August 3, 2015 from $235,000.

(3)

Mr. Dick resigned as Chief Financial Officer as of August 3, 2015.

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COMPENSATION DISCUSSION AND ANALYSIS

 

20152016 Performance-Based Annual Incentive Awards

We structured specific annual incentive awards for 20152016 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 2015,2016, 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 2014, and an increase for the General Counsel who had a bonus target of 40% of base salary for 2014. 2015.

Messrs. Lichter Pollard and Kafer had 20152016 target bonus opportunities of 40% of base salary. In 2015,2016, 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.

 

		2016 Target Base Incentive Bonus Opportunity as % of Base Salary*				2016 Target Base Incentive Bonus Opportunity as $				2016 Stretch Incentive Bonus Opportunity as % of Base Salary				2016 Stretch Incentive Bonus Opportunity as $				2016 Total Incentive Bonus Opportunity*				Total Incentive Bonus Earned for 2016*
Raj Rai			100	%		$	823,539				50	%		$	411,769			$	1,235,308			$	1,235,308
Duane A. Portwood			50	%			225,000				25	%			112,500				337,500				337,500
Joseph Bonaccorsi			50	%			218,753				25	%			109,376				328,129				328,129
Bruce Kutinsky			50	%			241,915				25	%			120,957				362,872				344,728
Steven Lichter			40	%			123,531				20	%			61,765				185,296				176,031
Jonathan Kafer(1)			40	%			123,531	(1)			60	%(1)			185,296	(1)			308,827	(1)			154,414

	2015 Target Base Incentive Bonus Opportunity as % of Base Salary*			2015 Target Base Incentive Bonus Opportunity as $			2015 Stretch Incentive Bonus Opportunity as % of Base Salary			2015 Stretch Incentive Bonus Opportunity as $			2015 Total Incentive Bonus Opportunity			Total Incentive Bonus Earned for 2015(1)
Raj Rai	100%		$	800,000			50%		$	400,000		$	1,200,000		$	724,399
Duane A. Portwood	(2)			(2)			(2)			(2)			(2)			(2)
Joseph Bonaccorsi	50%			212,500			25%			106,250			318,750			218,510
Bruce Kutinsky	50%			235,000			25%			117,500			352,500			122,200
Steven Lichter	40%			103,846(3)			20%			51,923(3)			155,769(3)			90,865
Randall E. Pollard	40%			110,000(3)			20%			55,000(3)			165,000(3)			110,000
Jonathan Kafer(4)	40%			83,077(3)			60%			124,616(3)			207,693(3)			83,077
Timothy Dick	50%			192,500			25%			96,250			288,750			(5)

(*)

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’sW-2 for the applicable year.

(1)

Upon the recommendation of management, the Compensation Committee unanimously decided to delay the payment of all bonuses earned by our Named Executive Officersyear, except for 2015 until the Company filed the audited financial statements for 2014 and 2015, which the Company filed in its Form 10-K that it filed with the SECMr. Kafer, whose bonus is based on May 10, 2016.

(2)

Mr. Portwood joined Akorn on October 30, 2015, and so did not receive bonus targets for 2015, however, the Company agreed to pay a bonus of $56,250 to partially compensatehis stated annual base salary for the bonus opportunity he gave up atyear. All Bonus Opportunity amounts in the table above were calculated based on each officer’s base pay earnings as shown in the officer’sW-2 for 2016, except for Mr. Kafer whose amounts were based on his prior employer when joining Akorn. See “Summary Compensation Table.”stated annual base salary for 2016, in accordance with each officer’s applicable employment agreement.

(3)

The bonus opportunities for Messrs. Lichter and Kafer are pro-rated to each executive’s start date of February 16 and April 20, 2015, respectively. Pursuant to his offer letter, Mr. Pollard was entitled to the bonus opportunity for the full year.

(4)(1)

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. Mr. Kafer’s maximum bonus opportunity for 2015 was $207,693.

(5)

Mr. Dick resigned from the Company as of August 3, 2015 and so did not receive a bonus for 2015.

 

For the year 2015,2016, 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. However, upon the recommendation of management, the Compensation Committee unanimously decided to delay the payment of all bonuses earned by our Named Executive Officers for 2015 until the Company filed its audited financial statements for 2014 and 2015, which the Company filed in its Form 10-K that it filed with the SEC on May 10, 2016. 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 20152016 and then assigned the Company and each Named Executive Officer a performance rating from0-100. 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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COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

Under the 20152016 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.

20152016 Performance-Based Annual Incentive Award for our Chief Executive Officer

For 2015,2016, the Company achieved the following financial metrics: Sales of $985$1,117 million, Adjusted EBITDA of $460$509 million and Adjusted EPS of $2.02.

$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 2015. We continue to make2016. The Company was successful in working through the financial restatement process culminating with the filing of 2014 and 2015 Forms10-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 our plan to prepareits plans for Akorn India Private Limited (AIPL) forand its FDA certification. Wecertification there. In addition, the Company submitted 1812 ANDAs, 3 ANADAs and 1 NDA to the FDA for

approval and we launched 12expanded the Company’s R&D capacity with the opening of a new products. WeR&D center in New Jersey. The Company also have concentratedinvested in its organizational talent and enhanced our efforts to enhance our culture and develop organizational talent.

culture.

The Compensation Committee determined that Mr. Rai should be awarded an incentive bonus based on the following achievements in 2015. Mr. Rai2016. He led the Company to deliver $985 million in sales and $151 million (GAAP) net earnings. Additionally, Mr. Rai providedachieving record revenues, surpassing a billion dollars. Under his leadership the leadership and direction during the unstableCompany exceeded all of its financial targets. The restatement environment that enabled the company to have these business successes. He significantly strengthened the talent of the organization through2014 financial statements and remediation of all of the hiring of key executives across all functions. He personally negotiated with lenders and regulatory agencies to ensure the Company maintained its ability to operate effectively.earlier identified material weaknesses were significant accomplishments. Mr. Rai ensured that all of the Company’s operations maintained regulatory compliance so thatand we could continuehad significant progress in our plans to manufacture, distributeobtain FDA certification of our AIPL facilities. Additionally he continued to lead the building of our organizational talent and sellembedding of our products.culture.

20152016 Performance-Based Annual Incentive Award for our Other Named Executive Officers

Similar to prior years, for fiscal year 2015,2016, Mr. Rai recommended andto the Compensation Committee approved 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. TheAs an initial threshold for any payment, the plan required achievement of the Adjusted EBITDA target before any individual payouts could be earned 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.

 

AKORN, INC. - 2017 Proxy Statement		41

Mr. Dick resigned from the Company as of August 3, 2015 and so did not receive a bonus for 2015.

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COMPENSATION DISCUSSION AND ANALYSIS

The Compensation Committee determined that Mr. KutinskyPortwood should be awarded an incentive bonus based on the following achievements. Mr. Kutinsky provided leadership across our Pharmaceutical OperationsPortwood led the Company’s finance organization in restating the Company’s 2014 financial statements and Salesfiling of the Company’s 2014 and Marketing organizations during 2015. He greatly increased2015 financial reports in a timely manner and to the effectivenesssatisfaction of our Sales, Marketing and Operations organizations through the addition new talent, especially at the senior levels,regulatory authorities and the establishmentCompany’s auditor. Additionally, the Company remediated all of newthe previously identified material weaknesses. Mr. Portwood led the continued development and growth of the Company’s finance organization which has improved business processes. The teams launched new productsMr. Portwood also led the development and execution of a share repurchase program that contributed $36.0repurchased approximately 1.8 million of revenue (growth of $31.0 million overshares and the year ended December 31, 2014) to the company, negotiated contracts with major customers to increase our revenue opportunity, and responded to over 150 inquiries from regulatory agencies to ensure they had the information to review our ANDA, ANADA and NDA filings.

Company’s early payments on its debt.

The Compensation Committee determined that Mr. Bonaccorsi should be awarded an incentive bonus based on the following achievements.accomplishments. In 2015,2016, Mr. Bonaccorsi managed a diverse litigation and regulatory challenges that not only required the deployment of the Company’s legaldocket with a small internal team but more so the breadthand a broad spectrum of outside counsel required to meetthat were retained by the demandsCompany and board committees. The Company successfully resolved a number of regulators, board committeesmatters and litigation. In addition, he and his teamMr. Bonaccorsi personally engaged with regulatory agencies on behalf of the Company. He also provided outstanding legal servicesoversight to the Company onlegal team as it achieved a wide range of legal and regulatory matters.

successful patent challenge.

The Compensation Committee determined that Mr. PollardDr. Kutinsky should be awarded an incentive bonus based on the following achievements. Mr. Pollard joinedDr. 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 on April 20, 2015 and much of his year was focused on addressingduring 2016 to support the issuereview of the financial restatement and establishing processes, fixing weaknesses, partneringCompany’s product filings with our auditors and investigators while at the same time dramatically increasingFDA. Additionally, he led the size and caliberevaluation of our Finance organization. Mr. Pollard also served as the interim CFO for three months following the resignation of Mr. Dick. Mr. Pollard’s leadership in managing the Company’s debt was importanttechnology landscape and strategy and has overseen the plans that have been put in place to maintaining efficiency in our operations.

address the Company’s growth.

The Compensation Committee determined that Mr. Lichter should be awarded an incentive bonus based on the following achievements in 2015.2016. Mr. Lichter ensured that all manufacturing facilities maintained their regulatory compliance to operate. Additionally, heHe led cost savings initiatives across the reduction of our weekly backorders byoperations organization that delivered almost 60% from Q1double the original commitments. The organization also implemented process discipline to year-end. Much of his effort and his success was focused on the creation of the Pharmaceutical Operations function within the Company and the associated organizational structure and the recruiting of talent and implementation of business processes such as S&OP, technical transfers and cost management programs.

AKORN, INC. - 2016 Special Meeting Proxy Statement

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increase efficiency.

Mr. Kafer’s bonus for 20152016 was directly linked to the sales performance of the Company and targets established by the Compensation Committee and the Board of Directors. In 2015,2016, the Company achieved $985$1,117 million in sales, and whilesales. While not a factor in the determination of Mr. Kafer’s bonus amount, the Compensation Committee noted Mr. Kafer’s successful implementation of business processes forhis strategic and tactical leadership in addressing the market dynamics that the Company faced in 2016, along with the process focus on new product launches and the evaluation of commercial viability of products, and the streamlining of the commercial organization.launches.

AKORN, INC. - 2017 Proxy Statement		42

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COMPENSATION DISCUSSION AND ANALYSIS

 

20152016 Long-Term Incentive Grants

Due to the restatement process, no equity awards were granted in 2015 under ourthe Company’s long-term incentive plan. However, the following grants were made to our Named Executive Officers in connection with their joining the Company in 2015: Mr. Lichter was awarded 200,000 options on February 23, 2015, Mr. Pollard was awarded 50,000 options May 1, 2015, Mr. Kafer was awarded 125,000 options on May 1, 2015 and Mr. Portwood was awarded 300,000 options on October 30, 2015. In addition, Mr. Pollard was awarded 10,000 options on October 30, 2015 in recognition for his service as Interim Chief Financial Officer. The stock options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date.

The long-term incentive awards that were intended to be madegranted in 2015 were delayed untilgranted 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 2015,2016, the Board made the following grants of stock options and restricted stock units (RSUs) to ourthe Company’s Named Executive Officers:

 

	Number of Options Granted in 2015(1)		Grant Date Fair Value $
Raj Rai	—		—
Duane A. Portwood	300,000		$3,186,270
Joseph Bonaccorsi	—		—
Bruce Kutinsky	—		—
Steven Lichter	200,000		$3,641,160
Randall E. Pollard	60,000		$941,269
Jonathan Kafer	125,000		$2,087,650
Timothy A. Dick	—		—
Total	685,000		$9,856,349

		Number of Options Granted in 2016				Grant Date Fair Value 2016 Options $				Number of RSUs Granted in 2016				Grant Date Fair Value 2016 RSUs $
Raj Rai(1)			383,217			$	4,290,525				27,119			$	800,010
Duane A. Portwood			75,000			$	976,245				—				—
Joseph Bonaccorsi(1)			129,146			$	1,443,415				9,004			$	265,618
Bruce Kutinsky(1)			110,583			$	1,314,861				11,949			$	352,496
Steven Lichter			101,984			$	1,066,255				2,542			$	74,989
Jonathan Kafer			61,384			$	659,642				2,542			$	74,989
TOTAL			861,314			$	9,750,943				53,156			$	1,568,102

(1)

Long-termThe 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 scheduledgranted in 2015 under our long-term incentive plan. The long-term incentive awards that were intended to be granted in May 2015 to our executive officers with 75% of the grant-date fair value of each executive’s equity grant to be providedwere granted on March 24, 2016 and were granted 100% in options. These options are included in the form of optionsamounts shown (along with the annual 2016 awards that were granted after the 2016 annual meeting) and 25% in RSUs. However, due to the restatement process, the grants were delayed until early this year and were awarded 100% in optionsare 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.

 

In addition to the incentive awards described above, the Compensation Committee made discretionary cash bonuses to Named Executive

Officers for their extraordinary contributions in 2015.2016. See the “Summary Compensation Table” for the amounts of those awards.

2016 Performance Objectives

 

For the 2016 performance-based annual incentive plan, the following Company financial goals were set at Sales of $1.08 billion, Adjusted EBITDA of $499 million and Adjusted EPS of $2.15, as well as individual MBOs for each executive officer.OTHER ELEMENTS OF COMPENSATION

 

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% ofup to the first 6% of the employee’s eligible wages contributed byto the employee.plan.

Perquisites

In 2009, the Company largely eliminated perquisites for its executive officers. However, inIn 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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COMPENSATION DISCUSSION AND ANALYSIS

some of its Named Executive Officers. See “Summary Compensation Table” and “All Other Compensation Table.”

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ESPP

Historically,Officers, however the Company has had an employee stock purchase plan that hasdid 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 plan wereESPP are subject to an annual maximum purchase of $25,000the lesser of

$25,000 in market value of our common stock. Due to our restatement process, however, we were required to suspend purchases under and terminate our prior employee stock purchase plan. The Company has called the 2016 special meeting of shareholders to approve the Akorn, Inc. 2016 Employee Stock Purchase Plan.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.

 

Role		Guideline
Chief Executive Officer		5 times base salary
All Other Executive Officers		3 times base salary

 

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:

 

·

shares purchased on the open market,

·

shares owned jointly with, or separately, by the officer’s spouse and dependent children,

·

shares held in trust for the officer or immediate family member,

·

shares held through any Company-sponsored plan, including specifically the Employee Stock Purchase Plan,

·

shares obtained through the exercise of stock options, and

·

50% of unvested restricted shares of stock.

shares purchased on the open market,

shares owned jointly with, or separately, by the officer’s spouse and dependent children,

shares held in trust for the officer or immediate family member,

shares held through any Company-sponsored plan, including specifically the Employee Stock Purchase Plan,

shares obtained through the exercise of stock options, and

50% of unvested restricted shares of stock.

As of December 31, 2015,2016, Messrs. Rai, Bonaccorsi, Kutinsky and DickKutinsky had all met the minimum ownership guidelines, and Messrs. Portwood, Lichter, Pollard 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 anon-compete ornon-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

AKORN, INC. - 2017 Proxy Statement		44

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COMPENSATION DISCUSSION AND ANALYSIS

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 FrankDodd-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 the12-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.

Recovery of Bonuses in Connection with the Restatement

In light of our restatement, and as referenced in the Form 10-K/A filed in April 2015, in May 2016 the Compensation Committee re-evaluated the base, “stretch” and discretionary bonuses paid to the individuals listed as “named executive officers” for fiscal year 2014 (the “2014 NEOs”). Under our performance-based annual incentive plan in which the 2014 NEOs participated, if we do not achieve our Adjusted EBITDA target for a year, no awards are to be paid under the plan, even if other objectives were achieved. As a result of our restatement, it was determined that the Adjusted EBITDA that we actually achieved for 2014 did not meet the target threshold for that year. As a result, the Compensation Committee determined, and the Board approved, that the Company would seek repayment of 100%

AKORN, INC. - 2016 Special Meeting Proxy Statement

25

of the after-tax bonuses (base, “stretch” and discretionary) that were paid to each of the 2014 NEOs who are still employed by the Company for their service in 2014. Although the Company’s Clawback Policy generally applies to incentive payments prospectively since its adoption in February 2016, the steps taken by the Compensation Committee with respect to the 2014 bonuses are consistent with such policy. The Compensation Committee indicated that the recovery of bonuses is not tied to any determination of fault on the part of the 2014 NEOs and results solely from the financial restatement. The 2014 NEOs are cooperating with the Company, and the Company and the 2014 NEOs will be implementing repayment terms.

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 Option Plan. It has been and continues to be our intent that allnon-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’snon-equity incentive program to qualify for this exemption. However, in 2015, due to the restatement process and hiring of new executive officers, the Company set its performance objects later in the year than is typical and thus was unable to structure its non-equity incentive program to meet the strict compliance requirements of Section 162(m) for the 2015 performance period. As a result, the CEO’s total compensation exceeded the Section 162(m) deductibility limit by approximately $1,400,000, which represented a cost to the Company of approximately $526,000 as a result of the lost tax deduction. The Compensation Committee believes that this amount, including the cost of the lost tax deduction was justifiable in order to be able to hire and retain key strategic executives through the restatement process and set meaningful objectives. However, going forward, it is our intent that we willWe 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 awardnon-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

 

Executive Compensation TablesCOMPENSATION COMMITTEE REPORT

 

Management of the Company has prepared the Compensation Discussion and Analysis describing the Company’s compensation program for senior executives, including the named executive officers. The Compensation Committee of Akorn has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal year 2016 and, based on such review and discussions, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

This report is submitted by the Compensation Committee, consisting of:

Adrienne L. Graves, Ph.D., Chair

Ronald Johnson

Alan Weinstein

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III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

EXECUTIVE COMPENSATION TABLES

2016 Summary Compensation Table

The following table sets forth information concerning compensation paid to or earned by our Named Executive Officers for the years ended December 31, 2016, 2015 2014 and 2013.2014.

 

Name and principal position		Year				Salary ($)				Bonus ($)				Stock Awards ($)(1)				Option Awards ($)(2)				Non-Equity Incentive Plan Compensation* ($)(3)				All Other Compensation ($)(4)				Total* ($)
Raj Rai			2016				824,000				—				800,010				4,290,525	(10)			1,235,308				4,923				7,154,766	(10)
Chief Executive Officer			2015				800,000				391,400				—				—				724,399				3,211				1,919,010
			2014				750,000				375,000	(5)			4,412,253				1,948,882				1,125,000	(5)			3,721				8,614,856
Duane A. Portwood			2016				450,000				200,145	(8)			—				976,245				337,500				8,259				1,972,149
Executive Vice President and			2015				70,962	(6)			37,500	(7)			—				3,186,270				—				104				3,294,836
Chief Financial Officer			2014				—				—				—				—				—				—				—
Joseph Bonaccorsi			2016				437,750				145				265,618				1,443,415	(10)			328,129				11,735				2,486,792	(10)
Executive Vice President,			2015				425,000				100,000				—				—				218,510				8,810				752,320
General Counsel and Secretary			2014				350,000				—				3,913,930				389,703				168,000	(5)			10,769				4,832,402
Bruce Kutinsky			2016				484,100				—				352,495				1,314,861	(10)			344,728				12,528				2,508,712	(10)
Chief Operating Officer			2015				470,000				—				—				—				122,200				8,511				600,711
			2014				425,000				—				184,140				552,102				255,000	(5)			4,668				1,420,910
Steven Lichter			2016				309,000				—				74,949				1,066,255				176,031				11,493				1,637,768
Executive Vice President,			2015				259,616	(6)			94,854	(9)			—				3,641,160				90,866				8,925				4,095,421
Pharmaceutical Operations			2014				—				—				—				—				—				—				—
Jonathan Kafer			2016				309,000				—				74,949				659,642				154,414				10,773				1,208,818
Executive Vice President,			2015				207,692	(6)			39,100				—				2,087,650				83,077				20,786				2,438,305
Sales and Marketing			2014				—				—				—				—				—				—				—

Name and principal position		Year		Salary ($)		Bonus* ($)		Stock Awards ($)(1)		Option Awards ($)(2)		Non-Equity Incentive Plan Compensation* ($)(3)		All Other Compensation ($)(4)		Total* ($)
Raj Rai Chief Executive Officer		2015		800,000		391,400		—		—		724,399		3,211		1,919,010
		2014		750,000		375,000(*)		4,412,253		1,948,882		1,125,000(*)		3,721		8,614,856
		2013		—		250,000		—		443,725		500,000		500,000		1,693,725
Duane A. Portwood Executive Vice President and Chief Financial Officer		2015		70,962(5)		56,250(6)		—		3,186,270		—		104		3,313,586
		2014		—		—		—		—		—		—		—
		2013		—		—		—		—		—		—		—
Joseph Bonaccorsi Senior Vice President, General Counsel and Secretary		2015		425,000		100,000		—		—		218,510		8,810		752,320
		2014		350,000		—		3,913,930		389,703		168,000(*)		10,769		4,832,402
		2013		286,340		—		—		82,348		114,400		9,290		492,378
Bruce Kutinsky Chief Operating Officer		2015		470,000		—		—		—		122,200		8,511		600,711
		2014		425,000		—		184,140		552,102		255,000(*)		4,668		1,420,910
		2013		313,685		—		—		144,279		122,070		6,453		586,487
Steven Lichter Executive Vice President, Pharmaceutical Operations		2015		259,616(5)		94,854(7)		—		3,641,160		90,866		8,925		4,095,421
		2014		—		—		—		—		—		—		—
		2013		—		—		—		—		—		—		—
Randall E. Pollard Former Interim CFO. Current Executive Vice President, Corporate Controller and Chief Accounting Officer		2015		178,846(8)		127,000(7)		—		941,269		132,000		30,284		1,409,399
		2014		—		—		—		—		—		—		—
		2013		—		—		—		—		—		—		—
Jonathan Kafer Executive Vice President, Sales and Marketing		2015		207,692(5)		39,100		—		2,087,650		83,077		20,786		2,438,305
		2014		—		—		—		—		—		—		—
		2013		—		—		—		—		—		—		—
Timothy A. Dick Former Chief Financial Officer		2015		232,480(9)		—		—		—		—		175,050		407,530
		2014		385,000		—		1,669,754		428,737		—		9,007		2,492,498
		2013		309,000		—		—		133,390		77,250		9,110		528,750

(*)

In light of our restatement, the Compensation Committee re-evaluated the base, “stretch” and discretionary bonuses paid to our 2014 NEOs. Consistent with the terms of the Company’s new Clawback Policy, the Compensation Committee determined, and the Board approved, that the Company would seek repayment of 100% of the after-tax bonuses (base, “stretch” and discretionary) in respect of 2014 service that were paid to each of the 2014 NEOs who are still employed by the Company. See “Recovery of Bonuses in Connection with the Restatement.”

(1)

This column shows the grant date fair value of RSUs granted during the applicable year. Due to the restatement process, no RSUs were awarded under our long-term incentive plan in 2015. Such long-term incentive awards were delayed until 2016 and were granted 100% in options. See “Long-Term Incentive Plan” and “2015 Long-Term Incentive Grants.”

(2)

This column shows the grant-date fair value of stock options granted during the applicable year. These amounts were determined as of the options’option’s grant dates in accordance withASC 718 using the Black Scholes-Merton valuation model. The assumptions used were the same as those reflected in Note 1110 – “StockOptions,Employee Stock Purchase Plan and Restricted Stock” in ourPurchasePlanandRestrictedStockof the Company’s 2016 Form 10-K1O-K filed with the SEC on May 10, 2016.March 1, 2017. Due to the restatement process, no stock options were awarded under our long-term incentive plan in 2015. However, in connection with joining the Company, Mr. Lichter was awarded 200,000 options on February 23, 2015, Mr. Pollard was awarded 50,000 options May 1, 2015, Mr. Kafer was awarded 125,000 options on May 1, 2015 and Mr. Portwood was awarded 300,000 options on October 30, 2015. In addition, Mr. Pollard was awarded 10,000 options on October 30, 2015 in recognition for his service as Interim Chief Financial Officer. The stock options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date. TheDue to the restatement process, no equity awards were granted in 2015 under our long-term incentive plan. Such long-term incentive awards intended to be granted in 2015 were delayed until 2016 and were granted 100% in options. See “Long-Term Incentive Plan,” “2015 Long-Term Incentive Grants”As a result, the amounts shown for Messrs. Rai and the notes to the “Grants of Plan-Based Awards”Bonaccorsi and “Outstanding Equity Awards” tables.Dr. Kutinsky include both their 2015 awards that were delayed until 2016 as well as their regular 2016 awards.

AKORN, INC. - 2016 Special Meeting Proxy Statement

27

(3)

The amounts shown in this column are performance-based annual incentive awards earned in the applicable year. Annual performance-based incentive awards are typically paid to the Named Executive Officers in the first quarter of the subsequent year in which they were earned. However, upon the recommendation of management, the Compensation Committee unanimously decided to delay payment of all bonuses earned by the Named Executive Officers for 2015 until the Company filed its Annual Report on Form 10-K for 2015. See “Performance-Based Annual Incentive” for additional information.

(4)

The amounts reported in this column represent the dollar amount for each Named Executive Officer as set forth in more detail in the “All Other Compensation Table” below.

(5)

(5)In light of the Company’s restatement of its financial statements for 2014, the Compensation Committeere-evaluated the base, “stretch” and discretionary bonuses paid to officers listed as the Company’s “named executive officers” for fiscal year 2014. Consistent with the terms of the Company’s Clawback Policy, the Company determined to seek repayment of 100% of theafter-tax bonuses (base, “stretch” and discretionary) related to 2014 service that were paid to each of the 2014 Named Executive Officers who were still employed by the Company.

(6)	The amounts shown represent the base salaries of Messrs. Portwood, Lichter and Kafer - $450,000, $300,000 and $300,000, respectively,pro-rated to their respective start dates of October 30, February 16 and April 20, 2015.

(6)(7)

Mr. Portwood joined Akorn on October 30, 2015, and so did not receive bonus targets for 2015; however, he received a guaranteed payment of $56,250$37,500 to partially compensate for the bonus opportunity he gave up at his prior employer when joining Akorn.

(8)	(7)Mr. Portwood was awarded a discretionary bonus of $200,000 for his work on the restatement.

(9)

Messrs.Mr. Lichter and Pollard werewas granted a signing bonusesbonus of $46,154 and $50,000, respectively. Messrs.$46,154. Mr. Lichter and Pollard werewas also awarded a discretionary bonuses in the amounts of $48,700 and $55,000, respectively. In addition, for his service as Interim Chief Financial Officer, Mr. Pollard was awarded a bonus in the amount of $22,000.$48,700.

(8)

In connection with his promotion to Interim Chief Financial Officer, Mr. Pollard’s salary was increased from his starting salary of $235,000 to $275,000 as of August 3, 2015.

(9)

This amount represents Mr. Dick’s base salary of $385,000 pro-rated through his resignation date of August 3, 2015.

All Other Compensation Table

Name	Year		Fees for Consulting Services ($)		401(k) Match ($)		Group Term Life Insurance Premium ($)		All Other ($)		Total ($)
Raj Rai	2015		—		2,650		561		—		3,211
Duane A. Portwood	2015		—		—		104		—		104
Joseph Bonaccorsi	2015		—		7,950		860		—		8,810
Bruce Kutinsky	2015		—		7,950		561		—		8,511
Steven Lichter	2015		—		7,615		1,310		—		8,925
Randall E. Pollard	2015		—		—		249		30,035(b)		30,284
Jonathan Kafer	2015		—		4,846		573		15,367(b)		20,786
Timothy A. Dick	2015		160,417(a)		7,950		395		6,288(c)		175,050

(a)

These consulting fees were paid pursuant to a consulting arrangement entered into between the Company and Mr. Dick upon his resignation from the Company. See “Potential Payments Upon Termination.”

(b)(10)

The amount shown reflects moving, temporary housingfor Messrs. Rai and related relocation costs reimbursed to the executive.

(c)

The amount shownBonaccorsi and Dr. Kutinsky each represents the cost paid for continued health coverage after Mr. Dick’s resignation in 2015.two equity awards, of which one was out of cycle. See “Potential Payments Upon Termination.“2016 Long-Term Incentive Grants.”

 

AKORN, INC.- 2016 Special Meeting2017 Proxy Statement		28    47

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III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

All Other Compensation Table

Name		Year				401(k) Match ($)				Group Term Life Insurance Premium ($)				All Other ($)(a)				Total ($)
Raj Rai			2016				345				828				3,750				4,923
Duane A. Portwood			2016				7,431				828				—				8,259
Joseph Bonaccorsi			2016				7,157				828				3,750				11,735
Bruce Kutinsky			2016				7,950				828				3,750				12,528
Steven Lichter			2016				7,950				1,548				1,995				11,493
Jonathan Kafer			2016				7,950				828				1,995				10,773

(a)

For Messrs. Rai, Bonaccorsi, Lichter, and Kafer, as well as Dr. Kutinsky, the amounts in this column are related to the termination of the prior employee stock purchase plan in early 2016. When the prior employee stock purchase plan was terminated in early 2016, the Company returned to the employees the total amount they had contributed to the plan in 2015, as well as an amount equal to the purchase price discount that each individual would have enjoyed had stock been purchased. The amounts shown in this column represent the purchase price discount that each individual would have enjoyed had stock been purchased.

 

AKORN, INC. - 2017 Proxy Statement		48

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III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

20152016 Grants of Plan-Based Awards

The following table provides additional information aboutnon-equity incentive compensation, and stock option awards, and restricted stock unit awards granted to our Named Executive Officers in 20152016 under our 2014 Option Plan.

 

Name	Grant Date	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)							Estimated Future Payouts Under Equity Incentive Plan Awards						All Other Stock Awards: Number of Shares of Stocks	All Other Option Awards: Number of Securities Underlying Options(2)		Exercise or Base Price of Option Awards(3) ($/Sh)		Grant Date  Fair Value of Stock and Option Awards($)(4)
																											Estimated Possible Payouts UnderNon-Equity Incentive Plan Awards(1)												All Other				All Other Option				Exercise
Name	Grant Date	Thres- hold ($)		Target ($)		Maximum ($)			Thres- hold ($)	Target ($)		Maximum ($)			All Other Stock Awards: Number of Shares of Stocks	All Other Option Awards: Number of Securities Underlying Options(2)		Exercise or Base Price of Option Awards(3) ($/Sh)		Grant Date  Fair Value of Stock and Option Awards($)(4)			Grant Date				Thres - hold ($)				Target ($)				Maximum ($)				Stock Awards: Number of Shares of Stocks				Awards: Number of Securities Underlying Options(2)				or Base Price of Option Awards(3) ($/Sh)				Grant Date Fair Value of Stock and Option Awards($)(4)
Non-Equity Incentive Compensation	07/30/2015				800,000		1,200,000																	03/30/2016								823,539				1,235,308
Stock Options(5)																								03/28/2016																				191,387				23.26				1,890,655
Stock Options																								07/01/2016																				191,830				29.50				2,399,870
RSUs																								07/01/2016																27,119								29.50				800,010
Duane A. Portwood
Non-Equity Incentive Compensation																								03/30/2016								225,000				337,500
Stock Option	10/30/2015																300,000		26.74		3,186,270			08/09/2016																				75,000				30.89				976,245
Joseph Bonaccorsi
Non-Equity Incentive Compensation	07/30/2015				212,500		318,750																	03/30/2016								218,752				328,129
Stock Options(5)																								03/28/2016																				65,453				23.26				646,591
Stock Options																								07/01/2016																				63,693				29.50				796,825
RSUs																								07/01/2016																9,004								29.50				265,618
Bruce Kutinsky
Non-Equity Incentive Compensation	07/30/2015				235,000		352,500																	03/30/2016								241,915				362,872
Stock Options(5)																								03/28/2016																				26,058				23.26				257,419
Stock Options																								07/01/2016																				84,525				29.50				1,057,442
RSUs																								07/01/2016																11,949								29.50				352,495
Steven Lichter
Non-Equity Incentive Compensation	07/30/2015			103,846(5)			155,769(5)										200,000		48.05		3,641,160			03/30/2016								123,531				185,296
Stock Option	02/23/2015
Randall E. Pollard
Non-Equity Incentive Compensation	07/30/2015			110,000(5)			165,000(5)
Stock Option	05/01/2015																50,000		43.00		835,060
Stock Option	10/30/2015																10,000		26.74		106,209
Stock Options																								02/19/2016																				84,000				24.95				841,268
Stock Options																								07/01/2016																				17,984				29.50				224,987
RSUs																								07/01/2016																2,542								29.50				74,989
Jonathan Kafer
Non-Equity Incentive Compensation	07/30/2015				83,077(5)		207,693(5)																	03/30/2016								154,414				308,827
Stock Option	05/01/2015																125,000		43.00		2,087,650
Timothy A. Dick
Non-Equity Incentive Compensation(6)	07/30/2015				192,500		288,750
Stock Options																								02/19/2016																				43,400				24.95				434,665
Stock Options																								07/01/2016																				17,984				29.50				224,987
RSUs																								07/01/2016																2,542								29.50				74,989

(1)

For information on performance-based annual incentive awards granted in 2015,2016, see “Performance-Based Annual Incentive” and “Summary Compensation Table -Non-Equity Incentive Plan Compensation.”

(2)

The stock options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date. Due to the restatement process, no equity awards were granted in 2015 under our long-term incentive plan. However, the following grants were made to Named Executive Officers in connection with their joining the Company in 2015: Mr. Lichter was awarded 200,000 options on February 23, 2015, Mr. Pollard was awarded 50,000 options May 1, 2015, Mr. Kafer was awarded 125,000 options on May 1, 2015 and Mr. Portwood was awarded 300,000 options on October 30, 2015. In addition, Mr. Pollard was awarded 10,000 options on October 30, 2015 in recognition for his service as Interim Chief Financial Officer. The long-term incentive awards that were intended to be granted in 2015 were granted earlier this year on March 24, 2016, as follows: Mr. Rai was awarded 191,387 options; Mr. Kutinsky was awarded 26,058 options and Mr. Bonaccorsi was awarded 65,453 options.

(3)

Theper-share exercise or base price of the options and RSUs granted in the fiscal year is based on the closing price of our common stock on the grant date of each respective option.option or RSU.

(4)

The grant date fair value of theeach option award granted during 20152016 was based on the closing pricesprice of our common stock on the grant date, and was calculated in accordance with ASC 718. The assumptions used for this grant were the same as those reflected in Note 1110 – “Stock StockOptions,EmployeeStockPurchasePlanandRestricted Stock” in ourStockof the Company’s 2016 Form 10-K1O-K filed with the SEC on May 10, 2016.March 1, 2017.

 

(5)

The amounts shown for Messrs. Lichter and Kafer are pro-rated to their respective start dates of February 16 and April 20, 2015. Pursuant to his offer letter, Mr. Pollard was entitled to the bonus opportunity for the full year.

(6)

Mr. Dick resigned from the Company as of August 3, 2015 and so did not receive a bonus for 2015.

AKORN, INC.- 2016 Special Meeting2017 Proxy Statement

29    49

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III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

(5)	Outstanding Equity Awards atDue to the restatement process, no equity awards were granted in 2015 Year-Endunder our long-term incentive plan. The long-term incentive awards that were intended to be granted in 2015 were granted on March 24, 2016.

Outstanding Equity Awards at 2016Year-End

The following table sets forth information with respect to outstanding equity awards held by our Named Executive Officers as of December 31, 2015.2016. Market values have been determined based on the closing price of our common stock on December 31, 20152016 of $37.31.$21.83.

 

Name	OPTION AWARDS(1)													STOCK AWARDS
																				OPTION AWARDS(1)																				RESTRICTED STOCK UNIT AWARDS
Name	Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Unexercised Options Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options		Option Exercise Price ($)			Option Expiration Date				Number of Shares or Units of Stock That Have Not Vested	Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested		Number of Securities Underlying Unexercised Options Exercisable				Number of Securities Underlying Unexercised Options Unexercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options				Option Exercise Price ($)				Option Expiration Date				Number of Shares or Units of Stock That Have Not Vested				Market Value of Shares or Units of Stock That Have Not Vested ($)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
Option(1)	32,600		32,600						15.36			5/3/2018									48,900				16,300								15.36				5/3/2018
Option(2)	52,923		158,767						24.74			5/2/2019									105,846				105,844								24.74				5/2/2019
RSU(3)														19,703		735,128
RSU(4)														73,944		2,758,879
Option(3)																					—				191,387								23.26				3/28/2023
Option(4)																					—				191,830								29.50				7/1/2023
RSU(5)																																									13,135				286,737
RSU(6)																																									49,296				1,076,132
RSU(7)																																									27,119				592,008
Duane A. Portwood
Option(5)	—		300,000						26.74			10/30/2022
Option(8)																					75,000				225,000								26.74				10/30/2022
Option(9)																					—				75,000								30.89				8/09/2023
Joseph Bonaccorsi
Option(6)	100,000		—						2.61			(6)
Option	75,000		—						6.62			(6)
Option(1)	6,050		6,050						15.36			5/3/2018									9,075				3,025								15.36				5/3/2018
Option(2)	10,583		31,747						24.74			5/2/2019									21,166				21,164								24.74				5/2/2019
RSU(3)														3,940		147,020
RSU(4)														74,370		2,774,775
Option(3)																					—				65,453								23.26				3/28/2023
Option(4)																					—				63,693								29.50				7/1/2023
RSU(5)																																									2,626				57,326
RSU(6)																																									49,580				1,082,331
RSU(7)																																									9,004				196,557
Bruce Kutinsky
Option(6)	250,000		—						5.43			(6)
Option	125,000		—						6.62			(6)
Option(7)	75,000		25,000						13.35			8/3/2017
Option(10)																					100,000				—								13.35				8/3/2017
Option(1)	10,600		10,600						15.36			5/3/2018									15,900				5,300								15.36				5/3/2018
Option(2)	14,493		44,977						24.74			5/2/2019									29,986				29,984								24.74				5/2/2019
RSU(3)														5,582		208,274
Option(3)																					—				26,058								23.26				3/28/2023
Option(4)																					—				84,525								29.50				7/1/2023
RSU(5)																																									3,721				81,229
RSU(7)																																									11,949				260,847
Steven Lichter
Option(8)	—		200,000						48.05			2/23/2022
Randall E. Pollard
Option(9)	—		50,000						43.00			5/1/2022
Option(5)	—		10,000						26.74			10/30/2022
Option(11)																					50,000				150,000								48.05				2/23/2022
Option(12)																					—				84,000								24.95				2/19/2023
Option(4)																					—				17,984								29.50				7/1/2023
RSU(7)																																									2,542				55,492
Jonathan Kafer
Option(9)	—		125,000						43.00			5/1/2022
Timothy A. Dick
Option	125,000		—						6.62			(6)
Option(1)	9,800		—						15.36			5/3/2018
Option(2)	11,643		—						24.74			5/2/2019
RSU(3)														4,334		161,711
RSU(4)														30,008		1,119,543
Option(13)																					31,250				93,750								43.00				5/1/2022
Option(12)																					—				43,400								24.95				2/19/2023
Option(4)																					—				17,984								29.50				7/1/2023
RSU(7)																																									2,542				55,492

See footnotes on next page

AKORN, INC.- 2016 Special Meeting2017 Proxy Statement		30    50

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NOTES:

III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

NOTES:

(1)

The amounts shown represent the number of options granted to each executive officer May 3, 2013 that had vested but not vestedbeen exercised as of December 31, 2015.2016. These options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date. Mr. Dick’s remaining 9,800 options were forfeited as of his resignation August 3, 2015. Subsequent to December 31, 2015, the following options vested: Mr. Rai 3,025, Mr. Bonaccorsi 16,300 and Mr. Kutinsky 5,300.

(2)

The amounts shown represent the number of options granted to each executive officer May 2, 2014 that had vested but had not vestedbeen exercised as of December 31, 2015.2016. These options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date. Mr. Dick’s remaining 34,927

(3)	The amounts shown represent the number of options were forfeited asgranted to each executive officer March 28, 2016. These options vest in four equal installments of his resignation August 3, 2015. Subsequent25% of the award per year beginning on the first anniversary of the grant date.

(4)

The amounts shown represent the number of options granted to December 31, 2015,each executive officer July 1, 2016. These options vest in four equal installments of 25% of the following options vested: Mr. Rai 52,923, Mr. Bonaccorsi 10,583 and Mr. Kutinsky 14,993.award per year beginning on the first anniversary of the grant date.

(3)(5)

The amounts shown represent the number of RSUs granted to each executive officer May 2, 2014 that had not vested as of December 31, 2015. These RSUs vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date. RSUs that were scheduled to vest in 2015 are treated as vested for accounting purposes and purposes of determining diluted earnings per share. However, due to the Company’s restatement process, no shares could be issued with respect to any RSUs that vested in 2015 and the Company intends to issue such shares as soon as it is allowed. Subsequent to December 31, 2015, the following RSUs vested: Mr. Rai 6,568, Mr. Bonaccorsi 1,314 and Mr. Kutinsky 1,861. In accordance with his letter agreement, Mr. Dick’s remaining 4,334 RSUs vested on February 3, 2016.

(4)(6)

The amounts shown represent the number of RSUs granted to each executive officer September 5, 2014 that had not vested as of December 31, 2015.2016. These RSUs vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date.

(7)

The amounts shown represent the number of RSUs granted to each executive officer July 1, 2016 that were scheduled tohad not vested as of December 31, 2016. These RSUs vest in 2015 are treated as vested for accounting purposes and purposesfour equal installments of determining diluted earnings25% of the award per share. However, due toyear beginning on the Company’s restatement process, no shares could be issued with respect to any RSUs that vested in 2015 andfirst anniversary of the Company intends to issue such shares as soon as it is allowed. In accordance with his letter agreement, Mr. Dick’s remaining 30,008 RSUs vested on February 3, 2016.grant date.

(5)(8)

The amounts shown represent the number of options granted on October 30, 2015 to Mr. Pollard in connection with his service as our Interim Chief Financial Officer and to Mr. Portwood in connection with his hire as our new Chief Financial Officer that had not vestedbeen exercised as of December 31, 2015.2016. These options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date.

(6)

These options are fully vested and were scheduled to expire if not exercised. However, due to legal restrictions under the securities laws, during the restatement process the options could not be exercised before the end of 2015. Once the restrictions were lifted in 2016, the executives had 30 days to exercise such options before they expired.

(7)(9)

The amounts shown represent the number of options granted to each executive officerMr. Portwood on August 3, 2012 that had not vested as of December 31, 2015.9, 2016. These options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date.

(10)	The remainingamount shown represents the number of options granted to Dr. Kutinsky on August 3, 2012 that had not been exercised as of December 31, 2016. These options vest August 3, 2016.in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date.

(8)(11)

The amounts shown represent the number of options granted on February 23, 2015 to Mr. Lichter in connection with his hire that had not vestedbeen exercised as of December 31, 2015.2016. These options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date. Subsequent

(12)

The amounts shown represent the number of options granted to each executive officer on February 19, 2016 that had not been exercised as of December 31, 2015 50,0002016. These options vest in four equal installments of Mr. Lichter’s options vested.25% of the award per year beginning on the first anniversary of the grant date.

(9)(13)

The amounts shown represent the number of options granted on May 1, 2015 to Mr. Pollard and Mr. Kafer in connection with their hires.his hire that had not been exercised as of December 31, 2016. The options vest in four equal installments of 25% of the award per year beginning on the first anniversary of the grant date. Subsequent to December 31, 2015, the following options vested: Mr. Pollard 12,500 and Mr. Kafer 31,250.

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2015 Option Exercises and Stock Vested Table

The following table provides a summary of the value realized by our Named Executive Officers from the exercise of option awards or the vesting of restricted stock unit awards during the year ended December 31, 2015.2016.

 

		OPTION AWARDS								RESTRICTED STOCK UNIT AWARDS
Name		Number of Shares Acquired on Exercise (#)				Value Realized on Exercise ($)(1)				Number of Shares Acquired on Vesting (#)(2)				Number of Shares Withheld to Cover Tax Liability(2)				Value Realized on Vesting ($)(2)
Raj Rai			—				—				31,216				14,265				855,712
Duane A. Portwood			—				—				—				—				—
Joe Bonaccorsi(3)			175,000				5,368,998				26,104				11,737				696,860
Bruce Kutinsky(4)			375,000				11,595,176				1,861				578				57,598
Steven Lichter			—				—				—				—				—
Jonathan Kafer			—				—				—				—				—

	OPTION AWARDS						STOCK AWARDS
Name	Number of Shares Acquired on Exercise (#)			Value Realized on Exercise ($)(1)			Number of Shares Acquired on Vesting (#)(2)			Number of Shares Withheld to Cover Tax Liability(2)			Value Realized on Vesting ($)(2)
Raj Rai(3)	1,700,000			64,090,976			31,216			—			1,261,183
Duane A. Portwood	—			—			—			—			—
Joe Bonaccorsi(4)	100,000			4,661,094			26,104			—			1,045,060
Bruce Kutinsky(5)	—			—			1,861			—			78,542
Steven Lichter	—			—			—			—			—
Randall E. Pollard	—			—			—			—			—
Jonathan Kafer	—			—			—			—			—
Timothy A. Dick(6)	122,222			4,526,517			11,447			—			460,283

(1)

The stock option exercises included above were eithersame-day sales or were sales to cover the exercise price and taxes due upon exercise of the options. The value realized on exercise of these options equaled the difference between the average sales prices and the exercise prices for the underlying shares.

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III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

(2)

AsDuring 2016, in addition to the shares acquired on vesting above, the following Named Executive Officers acquired the following shares that vested in 2015, but could not be released until 2016 as a result of the Company’s restatement process, nofinancial restatement: Mr. Rai – 24,649 shares, associatedless 11,264 shares withheld to cover taxes, with a total value realized on vesting of $762,887; and Mr. Bonaccorsi – 24,790 shares, less 8,260 shares withheld to cover taxes, with a total value realized on vesting of $767,251. These shares acquired on vesting of RSUs were issued in 2015 and accordingly, no shares could be withheld. For disclosure purposes,disclosed on the Company has still reportedprior year’s proxy statement with pro forma values realized on vesting based on the number of shares andshares’ market value realized associated with theon vesting of the RSUs.date.

(3)

Of the 1,700,000175,000 options exercised by Mr. RaiBonaccorsi during the year ended December 31, 2015, 873,9852016, 90,250 shares were sold to cover the exercise price and taxes due upon exercise of options and the remaining 826,01584,750 shares were held by Mr. Rai. Bonaccorsi.

(4)

Of the $1.3 million of value realized on vesting of RSUs375,000 options exercised by Dr. Kutinsky during the year ended December 31, 2015, $0.3 million2016, 86,436 were traded to the Company in payment of value was basedtaxes due, 142,000 were sold on the vestingdate of 6,568 shares at the closing price of our common stock on the first trading day following the annual vesting on May 4, 2015 of $42.21 per shareexercise, and $1.0 million of value was based on the vesting of 24,648 shares at the closing price of our common stock on the first trading day following the annual vesting on September 8, 2015 of $39.92 per share.

(4)

Of the 100,000 options exercised by Mr. Bonaccorsi during the year ended December 31, 2015, 40,827 shares were sold to cover the exercise price and taxes due upon exercise of options and the remaining 59,173 shares146,564 were held by Mr. Bonaccorsi. Of the $1.0 million of value realized on vesting of RSUs during the year ended December 31, 2015, $0.1 million of value was based on the vesting of 1,314 shares at the closing price of our common stock on the first trading day following the annual vesting on May 4, 2015 of $42.21 per share and $1.0 million of value was based on the vesting of 24,790 shares at the closing price of our common stock on the first trading day following the annual vesting on September 8, 2015 of $39.92 per share.Dr. Kutinsky.

(5)

The value for Mr. Kutinsky was based on the closing price of our common stock on the first trading day following the annual vesting on May 4, 2015 of $42.21 per share.

(6)

Of the 122,222 options exercised by Mr. Dick during the year ended December 31, 2015, 60,300 shares were sold to cover the exercise price and taxes due upon exercise of options and the remaining 61,922 shares were held by Mr. Dick. Of the $0.5 million of value realized on vesting of RSUs during the year ended December 31, 2015, $0.1 million of value was based on the vesting of 1,445 shares at the closing price of our common stock on the first trading day following the annual vesting on May 4, 2015 of $42.21 per share and $0.4 million of value was based on the vesting of 10,003 RSUs at the closing price of our common stock on the first trading day following the annual vesting on September 8, 2015 of $39.92 per share and $0.9 million of value was based on the accelerated vesting of the remaining 34,342 outstanding RSUs in connection with his resignation as discussed above, based on the price of our common stock on the first trading day following the vesting date of February 3, 2016 of $25.41 per share.

Potential Payments Upon Termination

Employment Agreements and Offer Letters

We have entered into employment agreements with our CEO, CFO, COO and General CounselGC that, in addition to providing bonus opportunity, provide the officers with compensation if they are terminated without cause, they leave the Company with good reason or their employment terminates in certain circumstances in connection with a change of control. The agreements renew automatically for aone-year period unless written notice of termination is provided. We believe the terms of the employment agreements promote stability and continuity of senior management. Specifically, these common protections promote our ability to attract and retain management and assure us that our executive officers will continue to be dedicated and available to provide objective advice and counsel notwithstanding the possibility, threat or occurrence of a change in their circumstances or in the control of the Company. All of the employment agreements are listed in the Exhibit Index to our 20152016 Annual Report on Form10-K.

Each of our CEO, CFO, COO and General CounselGC is entitled to receive benefits under the employment agreements if (1) we terminate the executive’s employment without cause, (2) the

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executive resigns for good reason or (3) if there is a change of control during the term of the agreement and within the 90 days prior to and 12 months following the change of control we terminate the executive’s employment without cause or he resigns for good reason. Under these scenarios, each of the executives is entitled to receive (1) any accrued but unpaid salary andpro-rata bonus, (2) reimbursement for any outstanding reasonable business expense, (3) vacation pay, (4) continued life and health insurance as described below and (5) a severance payment calculated as described below.

The term “cause” includes termination due to willful and continued failure to substantially perform assigned duties, the conviction of any felony or crime involving fraud, and breach of any material term of the employment agreement. The term “good reason” includes termination due to a material adverse change in status or responsibilities, relocation beyond fifty (50) miles from the executive’s job location or residence, a substantial reduction in base salary that is not comparable to that of other executives and is not part of a comprehensive reduction, and the failure of the Company to obtain an agreement satisfactory to the executive from any successor entities to assume the employment agreement.

If we terminate the executive without cause or the executive resigns for good reason, the severance payment will be equal to one times his then current base salary plus his total bonus opportunity most recently approved under the Company’s annual bonus incentive plan. In addition, the executive is eligible to receive payment of life and health insurance coverage for a period of 12 months following such executive’s termination of employment.

If there is a change of control during the term of the agreement and within the period from 90 days prior to and 12 months following the change in control we terminate the executive without cause or the executive resigns for good reason, the severance payment will be equal to three times in the case of the CEO and two times in the case of the CFO, COO or General Counsel,GC, the sum of the greater of (a) the executive’s then current base salary and (b) his base salary immediately prior to the change of control, plus his total bonus opportunity most recently approved under the Company’s annual bonus incentive plan. In addition, the executive will be eligible to receive payment of life and health insurance coverage for a period of 36 months for the CEO and 24

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III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

months for each of the CFO, COO and General Counsel,GC, following such executive’s termination of employment as well as vesting (as of the executive’s last day of employment) of any unvested options or RSUs previously granted to the executive.

Severance payments will be made in one lump sum within 30 days, or as soon as administratively practicable, following the termination date, subject to all applicable tax and other withholdings.

If the executive’s employment is terminated by the Company for cause, or by the executive without good reason, or due to the executive’s death or disability or retirement pursuant to the Company’s policies applicable to executive officers, the executive is not entitled to severance pay or continuation of payment of life and health insurance but will receive accrued, but unpaid salary, reimbursement for any outstanding reasonable business expense andpro-rata pay for unused vacation time.

The employment agreements containnon-competition andnon-solicitation covenants that apply during the term and until the sooner to occur of 12 months following the executive’s termination date and 12 months following the change of control.

In the event that any payment or benefit received or to be received by the CEO, CFO, COO or General CounselGC in connection with termination of his employment agreement would constitute a parachute payment within the meaning of Section 280G of the Internal Revenue Code or any similar or successor provision to 280G would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such amounts would be reduced to the largest amount which would result in no portion of the amounts being subject to the excise tax. The agreements do not provide for any taxgross-up of severance pay.

In connection with his promotion to Chief Accounting Officer and Interim Chief Financial Officer, Mr. Pollard entered into a letter agreement dated August 25, 2015, which entitles Mr. Pollard to severance in an amount equal to twelve months of his then current base salary if his employment is terminated prior to August 3, 2016 without cause or due to a change in control that occurs within 60 days of August 3, 2016. Eligibility for this severance benefit is dependent upon execution of a termination and severance agreement at the time of termination of his employment.

A copy of each of the employment agreements and letter agreements we have with our Named Executive Officers has been filed with the SEC. Please see the exhibit list at Item 15.Exhibits, Financial Statement Schedules.to our Form 10-K filed with the SEC on March 1, 2017.

Executive and Key Management Change in Control Severance Plan

The severance and change in control arrangements for our CEO, CFO, COO and GC are set forth in their individual employment agreements, as set forth above. Severance and change in control arrangements for our other Named Executive Officers and key executives is set forth in the Executive Change in Control Severance Plan (the “Executive CIC Plan”) that has been instituted by our Compensation Committee. Participants in the Executive CIC Plan are selected by the Company’s Compensation Committee or Board of Directors. Under the Executive CIC Plan, if a Named Executive Officer, within the 90 days prior to and 12 months following a change of control of the Company, experiences an involuntary termination without cause or voluntarily terminates his employment for good reason, then he will be entitled to receive (i) alump-sum cash severance payment equal to one year of his then current base salary, (ii) continued payment of health insurance coverage for a period of one year following termination of employment and (iii) vesting as of the executive’s last day of employment of any unvested options or RSUs previously granted to the executive. See “Payments in Connection with Various Termination Scenarios.”

The Executive CIC Plan provides the Company with assurance that it will have the continued dedication of, and the availability of objective advice and counsel from, key executives of the Company and its affiliates and to promote certainty and minimize potential disruption for key executives of the Company in the event the Company is faced with or undergoes a change in control. The Company updated its equity award agreements for its Named Executive Officers. Each of the Company’s equity award agreements for Named Executive Officers now provides for this “double trigger” vesting of equity awards in the event the

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Company undergoes a change in control transaction in which the awards are continued or assumed – that is, the award will vest if the recipient experiences an involuntary termination without cause or voluntarily terminates his employment for good reason within the 90 days prior to and 12 months

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III.    EXECUTIVE COMPENSATION AND OTHER INFORMATION

following a change in control of the Company. Our current Form ofNon-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 our Form10-K that we filed with the SEC on May 10, 2016. Other equity awards may be granted under our 2014 Stock Option Plan using other forms of award agreements as may be determined from time to time in the form approved by the Compensation Committee.

The Executive CIC Plan does not provide for any taxgross-up of severance pay. In addition, payment of any cash severance under the Executive CIC Plan is contingent upon the participant’s execution of a separation agreement containing a release of claims in favor of the Company and its affiliates and covenants restricting the executive officer’s competition, solicitation of employees, disparagement of the Company and its affiliates and disclosure of confidential information.

 

Payments in Connection with Various Termination Scenarios

The following table indicates the cash amounts, accelerated vesting and other payments and benefits that each Named Executive Officer would have been entitled to receive upon termination under various circumstances pursuant to the terms of their respective employment agreements, the 2003 Plan and 2014 Option Plan, the award agreements made under the 2003 Plan and the 2014 Option Plan and the Company’s Executive CIC Plan. The table assumes that the executive’s termination of employment with the Company under the scenario shown occurred on December 31, 2015.2016.

 

Executive / Termination Event(1)(2)	Cash Severance Payment			Acceleration of Equity Awards(3)			Life/Health Insurance Benefits			Total Termination Benefits				Cash Severance Payment				Acceleration of Equity Awards(3)				Life/Health Insurance Benefits				Total Termination Benefits
Raj Rai
without cause or with good reason,	$	2,000,000			—		$	11,250(4)		$	2,011,250			$	2,060,000				—			$	13,233	(4)		$	2,073,233
without cause or with good reason within 90 days prior to or 12 months following a change of control	$	6,000,000		$	6,205,284		$	33,750(5)		$	12,239,034			$	6,180,000			$	2,376,721			$	39,699	(5)		$	8,596,420
Duane A. Portwood
without cause or with good reason,	$	787,500			—		$	11,250(4)		$	798,750			$	787,500				—			$	13,233	(4)		$	800,733
without cause or with good reason within 90 days prior to or 12 months following a change of control	$	1,575,000		$	3,171,000		$	22,500(5)		$	4,768,500			$	1,575,000				(6	)		$	26,466	(5)		$	1,601,466
Joseph Bonaccorsi
without cause or with good reason	$	680,000			—		$	11,250(4)		$	691,250			$	766,063				—			$	13,233	(4)		$	779,296
without cause or with good reason within 90 days prior to or 12 months following a change of control	$	1,360,000		$	3,453,628		$	22,500(5)		$	4,836,128			$	1,532,125			$	1,414,501			$	26,466	(5)		$	2,973,093
Bruce Kutinsky
without cause or with good reason,	$	822,500			—		$	11,250(4)		$	833,750			$	829,675				—			$	13,233	(4)		$	842,908
without cause or with good reason within 90 days prior to or 12 months following a change of control	$	1,645,000		$	1,605,311		$	22,500(5)		$	3,272,811			$	1,659,350			$	1,327,240			$	26,466	(5)		$	3,013,056
Steven Lichter
without cause or with good reason		—			—			—			—				—				—				—				—
without cause or with good reason within 90 days prior to or 12 months following a change of control	$	300,000			(6)		$	11,250(4)		$	311,250			$	309,000			$	55,492	(6)		$	13,233	(4)		$	377,725
Randall E. Pollard
without cause(7)	$	275,000			—			—		$	275,000
without cause or with good reason within 90 days prior to or 12 months following a change of control	$	275,000		$	105,700(6)		$	11,250(4)		$	391,950
Jonathan Kafer
without cause or with good reason		—			—			—			—				—				—				—				—
without cause or with good reason within 90 days prior to or 12 months following a change of control	$	300,000			(6)		$	11,250(4)		$	311,250			$	309,000			$	55,492	(6)		$	13,233	(4)		$	377,725

(1)

The table does not give effect to any reduction in payments to any executive that might occur under his employment agreement in the event that the payment would become subject to additional taxes under Section 4999 of the Internal Revenue Code for receipt of excess parachute payments in the event of a termination or resignation following a change in control. In addition, the amounts shown in this table do not include accrued but unpaid salary, reimbursement for any outstanding reasonable business expense or vacation pay.

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(2)

If the executive’s employment is terminated by the Company for cause, or by the executive without good reason, or due to the executive’s death or disability or retirement pursuant to the Company’s policies, the executive will receive all accrued but unpaid salary, reimbursement for any outstanding reasonable business expense and vacation pay. In accordance with each officer’s employment agreement, all bonus amounts included in severance in this table are based on the officer’s base pay earnings in the officer’sW-2 for 2016, except for Mr. Kafer, whose bonus amount is based on his stated base salary.

(3)

The amount represents the intrinsic value of “in-the-money”“in-the-money” unvested stock options and unvested RSUs based on $37.31$21.83 per share, which was the closing stock price of Akorn, Inc. common stock on December 31, 2015.2016.

(4)

The amount represents the estimated cost to continue health and life insurance coverage for 1 year.

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(5)

The amount represents the estimated cost to continue health and life insurance coverage for Mr. Rai for 3 years, for Messrs. Portwood, Bonaccorsi and Kutinsky for 2 years.

(6)

All of Messrs. Lichter’s and Kafer’sthe stock options held by Messrs. Lichter, Kafer and Portwood were out of the money as of December 31, 2015. The amount shown for Mr. Pollard does not include 50,000 of his stock options which were out of the money as of December 31, 2015.

(7)

Pursuant to his letter agreement dated August 25, 2015, Mr. Pollard is entitled to severance in an amount equal to twelve months of base salary if his employment is terminated prior to August 3, 2016 without cause.

Mr. Dick’s Resignation

On August 3, 2015, Mr. Dick tendered his resignation to pursue other opportunities. In connection with his departure, the Company entered into a letter agreement with Mr. Dick. Pursuant to the letter agreement, Mr. Dick agreed to serve as a consultant to the Company until February 3, 2016, all of Mr. Dick’s unvested stock options were immediately forfeited, his RSUs continued to vest through the consulting period, and the Company agreed to continue paying health coverage for one year. The table below shows the total amounts paid or to be paid to Mr. Dick in connection his resignation.

		Cash Severance Payment			Acceleration of Equity Awards(1)			Life/Health Insurance Benefits(2)			Consulting Payments(3)			Total Termination Benefits
Timothy A. Dick		$	—		$	872,624		$	19,589		$	256,667		$	1,148,880

(1)

Represents the intrinsic value as of December 31, 2015 of unvested RSUs based on the closing stock price of Akorn, Inc. common stock on February 4, 2016 or $25.41.

(2)

The amount represents the cost to continue health coverage for one year following Mr. Dick’s resignation - $6,288 in 2015 and $13,202 in 2016.

(3)

The Company paid Mr. Dick $160,417 for consulting services he provided in 2015, and an additional $96,250 for consulting services provided in 2016.

Director Compensation

DIRECTOR COMPENSATION

Director compensation is set by the Compensation Committee in coordination with management and submitted to the Board for approval. Each year, the Compensation Committee works with its independent compensation consultant to review current director compensation using published survey data of companies of similar size based on revenue and market capitalization and in the pharmaceutical industry, as well as director compensation of companies in our self-selected peer group, in order to guide the Compensation Committee towards establishing director compensation that falls in an appropriate range. In 2015,2016, based upon the recommendations of the compensation consultant, the Compensation Committee revised our director compensation program to better align the program with median peer group practices to compensate for additional time commitment and risk associated with participation on Board committees.

 

Annual Compensation Element		Amount							Amount
		Chair				Member			Chair				Member
Annual Cash Retainer		$	125,000			$	75,000		$	125,000			$	75,000
Annual Equity Award Grant Value		$	230,000			$	230,000		$	275,000			$	275,000
Audit Committee - Cash Compensation		$	25,000			$	12,500		$	25,000			$	15,000
Compensation Committee - Cash Compensation		$	20,000			$	10,000		$	20,000			$	10,000
Nominating and Governance Committee - Cash Compensation		$	15,000			$	7,500		$	15,000			$	7,500
Special Litigation Committee - Cash Compensation		$	20,000			$	12,500
Special Committee - Cash Compensation(1)		$	15,000			$	7,500		$	15,000			$	7,500
Stock Ownership Guidelines		5x annual equity and cash retainer				5x annual equity and cash retainer				5x annual equity and cash retainer				5x annual equity and cash retainer

(1)

From time to time, the Board may create one or more special committees. Generally, a chair of a special committee is paid $15,000 and a member $7,500 for his or her services, however, the compensation paid may vary and is approved on acase-by-case basis by the Compensation Committee.

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All retainers are paid quarterly in arrears. Annual equity awards are generally made immediately following the annual meeting of shareholders. In addition to the above fees, we reimburse our directors for reasonable and necessary expenses they incur in performing their duties as directors.

Annual equity awards are typically madegranted to our directors at the Board meeting held immediately after our annual meeting of shareholders. In 2014, the annual equity awarded to our directors was 100% in options, vesting one year from the date of grant and expiring five years from the date of grant if not exercised. Beginning in 2015, the Compensation Committee determined that the annual equity awarded to our directors would be awarded 50% in options and 50% in RSUs. However, due to the Company’s restatement process, the Company paid each director cash in lieu of their annual equity award for 2015.

In connection with her appointment to the Board on May 1, 2015, Ms. Rappuhn was granted the option to purchase 20,000 shares of our common stock at the market price in effect on the date of grant. The option vested 100% upon the anniversary of the date of grant and expires five years from grant date if not exercised.