Leasing Arrangements

12 Months Ended

Dec. 31, 2013

Leasing Arrangements [Abstract]

Leasing Arrangements

Note 8 — Leasing Arrangements

The Company leases real and personal property in the normal course of business under various operating leases, including non-cancelable and month-to-month agreements. Rental expense under these leases was $2.9 million, $2.3 million and $2.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Landlord incentives are recorded as deferred rent and amortized on a straight-line basis over the lease term.  Rent escalations are recorded on a straight-line basis over the lease term.  The Company’s main operating leases for its Lake Forest and Gurnee facilities have original terms of ten years.  The Lake Forest facility lease allows for a five-year renewal at the option of the Company.

The following is a schedule, by year, of future minimum rental payments required under non-cancelable operating and capital leases in place as of December 31, 2013 (in thousands):

Year ending December 31,
2014	$	1,973
2015		1,970
2016		2,000
2017		1,791
2018		529
2019 and thereafter		340
Total	$	8,603

On December 1, 2012, the Company entered into a lease for a new R&D center in Vernon Hills, Illinois.  This lease extends through April 30, 2020, and obligates the Company to pay total base rent of $1,324,000, plus proportionate real estate taxes and common area maintenance, over the life of the agreement.  Prior to moving its R&D activities to Vernon Hills, Illinois, the Company had leased space for its R&D activities within the Illinois Science & Technology Park in Skokie, Illinois.  This lease commenced on February 1, 2010, and extended through its early termination date of February 1, 2014.  Upon vacating the Skokie space shortly after moving R&D operations to Vernon Hills, Illinois, the Company accrued to expense its remaining obligations under the Skokie lease.

On July 27, 2010, the Company, through its wholly-owned subsidiary, Akorn (New Jersey), Inc., an Illinois corporation, entered into a seven-year building lease agreement (the “Somerset Lease”) with Veronica Development Associates, a New Jersey general partnership, extending the Company’s occupancy of its 50,000 square foot manufacturing facility located at 72-6 Veronica Avenue, Somerset, New Jersey. This lease commenced on August 1, 2010 and continues through July 31, 2017. Under terms of the new lease, base rent was initially set at $38,801 per month, subject to periodic cost of living adjustments. In addition to base rent, the Company is obligated to pay its proportionate share of estimated property taxes, assessments and maintenance costs. The lease agreement contains a renewal provision allowing the Company the option to renew for up to four additional five-year periods upon providing written notice of its intention to renew at least six months prior to termination of the original lease or any renewal period.

     On March 3, 2010, the Company entered into an eight-year sub-lease agreement with a related party, EJ Financial, for their sub-lease of a portion of the Company’s corporate offices in Lake Forest, Illinois.  John N. Kapoor, Ph.D., Chairman of the Company’s Board of Directors, is the President of EJ Financial.  This sub-lease commenced on April 1, 2010.  Per the terms of the sub-lease agreement, EJ Financial will pay monthly base rent plus a proportionate share of common area maintenance costs.   The Company and EJ Financial agreed to early terminate this agreement, and the sub-lease was terminated in July 2012 at which time the space was retrofitted for corporate purposes.  EJ Financial paid the Company approximately $240,000 in rent and common area maintenance fees during the shortened term of this sub-lease.