SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
ELITE PHARMACEUTICALS, INC.
---------------------------
(Name of Registrant as Specified In Its Charter)
N/A
---
(Name of Person(s) Filing Proxy Statement if other than Registrant)
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[ELITE PHARMACEUTICALS LETTERHEAD]
May 29, 2007
Dear Stockholder:
You are cordially invited to attend our Annual Meeting of to be held at
10:00 a.m., June 26, 2007 at the offices of Reitler Brown & Rosenblatt LLC, 800
Third Avenue, 21st Floor, New York, NY 10022.
At this meeting you are being asked to (i) elect five directors for a
one year term, (ii) approve and ratify the Series C Preferred Stock Financing
involving the sale of our Series C Preferred Stock convertible into shares of
our common stock and related warrants to purchase additional shares of our
common stock and (iii) ratify the appointment of Miller, Ellin & Co., LLP as our
independent auditor. Your Board of Directors recommends that you vote FOR each
of these proposals. You should read with care the attached Proxy Statement,
which contains detailed information about each of these proposals.
Your vote is important regardless of the number of shares you own.
Accordingly, we urge you to complete, sign, date and return your proxy card
promptly in the enclosed postage-paid envelope. This will not limit your right
to vote in person or attend the meeting.
Thank you for your continued interest in us. We hope that you will be
able to join us on June 26th.
Very truly yours,
Bernard Berk
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
In order to assure representation of your shares at the meeting, please
complete, sign, date and return the enclosed proxy card.
ELITE PHARMACEUTICALS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 26, 2007
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Elite
Pharmaceuticals, Inc. ("WE" or "US") will be held at the offices of Reitler
Brown & Rosenblatt LLC, 800 Third Avenue, 21st Floor, New York, New York 10022,
on June 26, 2007 at 10:00 a.m., to consider and act upon the following:
1. The election of five directors to serve for a period of one year and
thereafter until their successors shall have been duly elected and shall have
qualified.
2. A proposal to approve and ratify the Series C Preferred Stock Financing
involving the sale of our Series C Preferred Stock convertible into shares of
our common stock and related warrants to purchase additional shares of our
common stock.
3. A proposal to ratify the appointment by Miller Ellin & Co. LLP as our auditor
of the financial statements for the year ending March 31, 2007.
4. The transaction of such other business as may properly come before the
meeting or any adjournment thereof that was not known a reasonable time before
the solicitation.
All stockholders of record at the close of business on May 15, 2007 are
entitled to notice of and to vote at this meeting and any adjournments thereof.
You are requested to sign and date the enclosed proxy card and return
it in the enclosed envelope.
Our Annual Report on Form 10-K for the fiscal year ended March 31, 2006
is enclosed.
By Order of the Board of Directors
Mark I. Gittelman
CHIEF FINANCIAL OFFICER AND SECRETARY
May 29, 2007
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements within the
meaning of the Federal securities laws. Any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "plans,"
"intends," "expects," "goals" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these words. Actual results may differ materially from those projected in the
forward-looking statements due to various uncertainties and risks, including
without limitation risks associated with the effects of general economic and
market conditions, lessening demand in the information technology market,
successful integration of acquisitions, difficulty managing operations and
difficulty in keeping pace with rapid industry, technological and market
changes, as well as those described in Item 1A of Part I (Risk Factors) of our
Annual Report on Form 10-K. We disclaim any obligation to update any
forward-looking statements contained herein after the date of this Proxy
Statement.
ELITE PHARMACEUTICALS, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Elite Pharmaceuticals, Inc., a Delaware
corporation ("ELITE", the "COMPANY", "WE" or "US"), for our Annual Meeting of
Stockholders to be held on June 26, 2007, and any adjournments thereof, for the
purposes set forth in the attached Notice of the Annual Meeting of Stockholders
(the "NOTICE OF ANNUAL MEETING"). We were incorporated in 1997, and our
principal executive offices are located at 165 Ludlow Avenue, Northvale, New
Jersey 07647. This Proxy Statement, our Annual Report on Form 10-K for the
fiscal year ended March 31, 2006 and the accompanying proxy card are first being
distributed to shareholders on or about June 1, 2007.
RECORD DATE AND VOTING RIGHTS
Our common stock, par value $0.01 per share (the "COMMON STOCK") is the
security entitled to vote at the Annual Meeting. Each share of Common Stock
entitles the holder of record thereof at the close of business on May 15, 2007
to one vote on each of the matters to be voted upon at the Annual Meeting. The
shares of our Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock have no voting rights as to the matters to be considered at the
Annual Meeting. As of May 15, 2007, we had outstanding 20,920,048 shares of
Common Stock.
Stockholders vote at the Annual Meeting by casting ballots (in person
or by proxy) which will be tabulated by a person who is appointed by the Board
of Directors before the Annual Meeting to serve as inspector of election at the
Annual Meeting and who has executed and verified an oath of office.
QUORUM; BROKER NON-VOTES AND ABSTENTIONS
In order to conduct any business at the Annual Meeting, a quorum must
be present in person or represented by valid proxies. A majority of the shares
of Common Stock outstanding on the record date will constitute a quorum for
purposes of the Annual Meeting. Abstentions and broker non-votes are considered
present for purposes of determining the presence of a quorum.
Abstentions are counted as a vote against for purposes of determining
whether a proposal is approved. Broker non-votes are not counted for purposes of
determining whether a proposal has been approved and thus have no effect on the
outcome.
Broker non-votes are proxies received from brokers or nominees when the
broker or nominee has neither received instructions from the beneficial owner or
other persons entitled to vote nor has discretionary power to vote on a
particular matter. Brokers only possess discretionary power over matters that
are considered routine, such as the election of directors described in Proposal
1 or the approval of auditors described in Proposal 3. In contrast, brokers do
not have discretionary authority to vote shares held in "street name" on
non-routine matters, such as the approval and ratification of the Series C
Preferred Financing described under Proposal 2, without your instructions.
Stockholders are advised to forward their voting instructions promptly so as to
afford brokers sufficient time to process such instructions.
SOLICITATION
Solicitation of proxies may be made by our directors, officers and
regular employees by mail, telephone, facsimile transmission or other electronic
media and in person for which they will receive no additional compensation. The
expenses of preparing, printing and assembling the materials used in the
solicitation of proxies on behalf of the Board of Directors will be borne by us.
Upon request, we will reimburse the reasonable fees and expenses of banks,
brokers, custodians, nominees and fiduciaries for forwarding proxy materials to,
and obtaining authority to execute proxies from, beneficial owners for whose
accounts they hold shares of Common Stock.
VOTING OF PROXIES
If the enclosed form of proxy is properly signed and returned, the
shares represented thereby will be voted as specified in the proxy. If you do
not specify in the proxy how your shares are to be voted, the shares will be
voted as recommended by the Board of Directors: FOR Proposals 1, 2 and 3.
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REVOCATION
You have the right to revoke your proxy at any time before it is voted
by attending the meeting and voting in person or filing with our Secretary
either a written instrument revoking the proxy or another executed proxy bearing
a later date. Stockholders entitled to vote will not have any dissenters' rights
of appraisal in connection with any of the matters to be voted on at the
meeting.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote:
o FOR the five nominees listed under "Election of Directors", to
serve until their successors are elected and qualified (Proposal
1);
o FOR the approval and ratification of the Series C Preferred
Stock Financing involving the sale of our Series C Preferred
Stock convertible into shares of Common Stock and related
warrants to purchase additional shares of our Common Stock
(Proposal 2);
o FOR ratification of the appointment by the Board of Directors of
Miller Ellin & Co. LLP as our independent auditors for the
fiscal year ending March 31, 2007 (Proposal 3);
Should any nominee named in Proposal 1 be unable to serve or for good
cause will not serve as director, the persons named in the enclosed form of
proxy will vote for such other person as the Board of Directors may recommend.
OTHER BUSINESS
As of the date of this Proxy Statement, we have no knowledge of any
business other than that described in the Notice of Annual Meeting that will be
presented for consideration at the Annual Meeting. If any other business should
properly come before the Annual Meeting, the persons appointed by the enclosed
form of proxy shall have discretionary authority to vote all such proxies as
they shall decide.
BOARD INDEPENDENCE AND COMMITTEES
BOARD INDEPENDENCE
The Board of Directors has a substantial majority of directors who are
"independent" as defined by Section 121A of the American Stock Exchange Listing
Standards, as amended effective December 1, 2003. The Board of Directors
considers all relevant facts and circumstances in its determination of
independence of all members of
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the Board of Directors (including any relationships set forth in this Proxy
Statement under the heading "Certain Related Person Transactions"). Our Board of
Directors has affirmatively determined that none of the following Directors has
a material relationship with us that would interfere with the exercise of his
independent judgment (either directly or as a partner, shareholder or officer of
an organization that has a relationship with us): Dr. Barry Dash, Dr. Melvin Van
Woert and Mr. Robert J. Levenson (director nominee) and therefore are deemed
independent.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Stockholders and other interested parties may contact the Board of
Directors or the non-management directors as a group at the following address:
Board of Directors
or
Outside Directors
Elite Pharmaceuticals, Inc.
165 Ludlow Avenue
Northvale, NJ 07647
All communications received at the above address will be relayed to the
Board of Directors or the non-management directors, respectively. Communications
regarding accounting, internal accounting controls or auditing matters may also
be reported to the Board of Directors using the above address
BOARD MEETINGS
During the fiscal year ended March 31, 2007, our Board of Directors
held 7 meetings. No incumbent director attended fewer than 75% of the meetings
of the Board of Directors during that year other than Veerappan Subramanian who
joined the Board in December 2006.
COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee and a Nominating
Committee; its only standing committees. The current members of the Nominating
Committee are Bernard Berk, Barry Dash and Melvin Van Woert and of the Audit
Committee are Edward Neugeboren, Barry Dash and Melvin Van Woert. Robert
Levenson, director nominee will become a member of the audit committee in place
of Edward Neugeboren who is not standing for reelection.
Audit Committee
---------------
The Audit Committee held one meeting in 2006. A copy of its written
charter (adopted by the Board of Directors) was included as an appendix to our
proxy statement sent to stockholders in connection with the annual meeting of
stockholders held October 11, 2001. This committee reviews with management and
our auditors our financial statements, the accounting principles applied in
their preparation, the scope of the audit,
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any comments made by the auditors on our financial statements and our accounting
controls and procedures, the independence of our auditors, our internal
controls, the other matters as set forth in its charter, as adopted by the Board
of Directors, and such other matters as the committee deems appropriate. The
Audit Committee is directly responsible for the appointment, compensation,
retention and oversight of the work of our independent auditors for the purpose
of preparing or issuing an audit report or performing other audit, review or
attest services for us.
We deem the members of our Audit Committee to be independent and that
Mr. Neugeboren qualifies as an audit committee financial expert. Mr. Levenson, a
director nominee, will replace Mr. Neugeboren on the audit committee. Mr.
Levenson qualifies as an audit committee financial expert.
Nominating Committee
--------------------
The Nominating Committee held one meeting in 2006. This committee does
not have a charter. This committee assists the Board of Directors in identifying
and recommending qualified Board candidates. The committee identifies Board
candidates through numerous sources, including recommendations from Directors,
executive officers and our stockholders. The committee seeks to have available
to it qualified candidates from a broad pool of individuals with a range of
talents, experience, backgrounds and perspectives. The committee seeks to
identify those individuals most qualified to serve as Board members and
considers many factors with regard to each candidate, including judgment,
integrity, diversity, prior experience, the interplay of the candidate's
experience with the experience of other Board members, the extent to which the
candidate would be desirable as a member of any committees of the Board of
Directors, and the candidate's willingness to devote substantial time and effort
to Board responsibilities. The Nominating Committee makes recommendations to the
Board of Directors with respect to Director nominees.
Compensation Matters
--------------------
We do not have a compensation committee due to the limited number of
persons employed by us, however we intend to establish a compensation committee
during the fiscal year ending March 31, 2008. Rather, the full Board of
Directors, which includes two Directors employed by us participates in
deliberations concerning executive compensation and establishes the compensation
and benefit plans and programs of Elite. The Board of Directors does not utilize
a compensation committee charter when performing the functions of such
committee. For more information on the compensation of directors and officers of
the Company, see the "Compensation Discussion and Analysis" and "Compensation"
sections below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Board of Directors as a whole performs the
functions normally associated with the compensation committee. However, while
Bernard Berk, our President and Chief Executive Officer, serves as a member of
the Board of Directors,
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at no time did Mr. Berk participate in deliberations of the Board of Directors
concerning his own compensation.
PROPOSAL 1
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE NOMINEES LISTED BELOW.
Our by-laws provide that the Board of Directors will consist of not
less than three nor more than ten members, the actual number of directors to be
determined by the Board of Directors from time to time. The Board of Directors
has set the number of directors of the Board of Directors as of the Annual
Meeting at five.
The holders of Common Stock will elect five directors at the Annual
Meeting, each of whom will be elected to serve until the next annual meeting of
stockholders and thereafter until their successors shall have been duly elected
and shall have qualified. Unless a stockholder either indicates "withhold
authority" on his proxy card or indicates on his proxy that his shares should
not be voted for certain nominees, it is intended that the persons named in the
proxy will vote for the election of the persons named in the table below.
INFORMATION WITH RESPECT TO NOMINEES.
The table below sets forth the name and age as of the Record Date of
each nominee, and the period during which he has served on our Board of
Directors. Each of the nominees for director has agreed to serve if elected and
has consented to being named in this Proxy Statement.
NAME AGE DIRECTOR SINCE
---- --- --------------
Bernard Berk 58 2004
Barry Dash, Ph. D 75 2005
Melvin M. Van Woert, M.D. 76 2005
Veerappan Subramanian, Ph. D. 56 2006
Robert J. Levenson 65 *
*Director Nominee
The principal occupations and employment of each such person during the
past five years is set forth below. In each instance in which dates are not
provided in connection with a nominee's business experience, such nominee has
held the position indicated for at least the past five years.
MR. BERNARD BERK, President and Chief Executive Officer since June
2003, Director since February 2004 and Member of the Nominating Committee since
June, 2004. Prior to joining Elite, Mr. Berk was the President and Chief
Executive Officer of
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Michael Andrews Corporation, a pharmaceutical management consultant firm, from
1996 to 2003. Mr. Berk was from 1994 until 1996, President and Chief Executive
Officer of Nale Pharmaceutical Corporation. From 1989 until 1994, he was Senior
Vice President of Sales, Marketing and Business Development of Par
Pharmaceuticals, Inc. Mr. Berk holds a B.S. from New York University.
DR. BARRY DASH, Director since April 2005, Member of Audit Committee
since April 2005 and Member of Nominating Committee since April 2005, has been
since 1995 President and Managing Member of Dash Associates, L.L.C., an
independent consultant to the pharmaceutical and health industries. From 1983 to
1996 he was employed by American Home Products Corporation, its Whitehall-Robins
Healthcare Division, initially as Vice President of Scientific Affairs, then
Senior Vice President of Scientific Affairs and then Senior Vice President of
Advanced Technologies during which time he personally supervised six separate
departments: Medical and Clinical Affairs, Regulatory Affairs, Technical
Affairs, Research and Development, Analytical R&D and Quality Management/Q.C. He
had previously been employed by the Whitehall Robins Healthcare Division from
1960 to 1976, during which time he served as Director of Product Development
Research, Assistant Vice President of Product Development and Vice President of
Scientific Affairs. Dr. Dash had been employed by J.B. Williams Company (Nabisco
Brands, Inc.) from 1978 to 1982. From 1976 to 1978 he was Vice President,
Director of Laboratories of the Consumer Products Division of American Can
Company (now known as Wyeth). He currently serves on the board of GeoPharma,
Inc. (NASDQ: GORX) Dr. Dash holds a Ph.D. from the University of Florida and
M.S. and B.S. degrees from Columbia University at which he was Assistant
Professor at the College of Pharmaceutical Sciences from 1956 to 1960. He is a
member of the American Pharmaceutical Association, The American Association for
the Advancement of Science and the Society of Cosmetic Chemist, American
Association of Pharmaceutical Scientists, Drug Information Association, American
Foundation for Pharmaceutical Education, and Diplomate American Board of
Forensic Examiners. He is the author of scientific publications and patents in
the pharmaceutical field.
DR. MELVIN VAN WOERT, Director since April 2005, Member of Audit
Committee since April 2005 and Member of Nominating Committee since April 2005,
has been since 1974, a member of the staff of Mount Sinai Medical Center where
since 1978 he has also been a Professor in the Department of Neurology and
Pharmacology at Mount Sinai School of Medicine. Dr. Van Woert had been a
consultant for Neuropharmacological Drug Products to the United States Food and
Drug Administration from 1974 to 1980; Associate Editor for Journal of the
Neurological Sciences; Member of the Editorial Board of Journal of Clinical
Neurphamacology; and Medical Director of National Organization for Rare
Disorders for which he received in 1993 the Humanitarian Award. His other awards
include the U.S. Public Health Service Award for Exceptional Achievement in
Orphan Products Development and the National Myoclonus Foundation Award. He has
authored and co-authored more than 150 articles appearing in pharmacological,
medical and other professional journals or publications.
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DR. VEERAPPAN SUBRAMANIAN, Chief Scientific Officer since February 2007
and Director since December 2006. Since December 2006, Dr. Subramanian serves as
Chief Executive Officer and Chairman of the Board of Novel Laboratories, Inc.
Dr. Subramanian has been a pharmaceutical executive since 1981 and a
pharmaceutical entrepreneur since 1997, when he formed Kali Laboratories, Inc.
("KALI LABS"). Kali Labs was acquired by Par Pharmaceuticals, Inc. in 2004 and
Dr. Subramanian continued to work as an executive vice president at Par
Pharmaceuticals after the acquisition. Dr. Subramanian ended his relationship
with Par Pharmaceuticals in January 2006. Prior to organizing Kali Labs, Dr.
Subramanian served for 6 years as vice president of scientific affairs for
Zenith Laboratories, Inc. Prior to working with Zenith Laboratories, he was (i)
the Director of New Product Development and Technical Services for Kali Pharma,
Inc., (ii) a Senior Scientist, Commercial Products with Vicks Research Center,
(iii) a Research Pharmacist, Dermatological with Johnson & Johnson and (iv) a
Research Pharmacist in Product Development with E.R. Squibb & Sons. Between 2001
and 2005, Dr. Subramanian served on the board of Generic Pharmaceutical Industry
Association. Dr. Subramanian has a Ph.D. in Pharmacy (1981) from Rutgers
University, a M.S. in Phamaceutics (1973) from Birla Institute of Technology &
Science, and a B.S. in Pharmacy (1971) from Madurai Medical College.
ROBERT J. LEVENSON, Director Nominee, recommended to us by Mark
Gittelman, our Chief Financial Officer, is currently Managing Member of the
Lenox Capital Group, L.L.C. since 2000. Mr. Levenson was previously an Executive
Vice President of First Data Corporation from 1993 to 2000 and a member of its
Board of Directors from 1992 to 2003. He was Senior Executive Vice President,
Chief Operating Officer, and Member of the Office of the President and Director
of Medco Containment Services, Inc., a provider of managed care prescription
benefits, from October 1990 to December 1992. From 1985 until October 1990, he
was a Group President and Director of Automatic Data Processing, Inc.
(ADP-NYSE). Mr. Levenson was a Director of Emisphere Technologies, Inc., a
biopharmaceutical company, from 1998 to 2005, as well as having been a Director
of several other companies, public and private. Mr. Levenson is currently
nominated to be a director of Ceridian Corporation (NYSE: CEN). Mr. Levenson is
a trustee of the Washington Institute, the Jewish Community Federation, and the
Jewish Community Foundation of Metrowest New Jersey.
There is no family relationship between the nominees.
8
PROPOSAL 2
APPROVAL AND RATIFICATION OF SERIES C PREFERRED FINANCING
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2
The American Stock Exchange (the "AMEX") requires stockholder approval
of the sale, issuance, or potential issuance in a transaction or related
transactions by a listed company of shares of common stock and shares issuable
upon conversion or exercise of other securities which amount to at least 20% of
the then presently outstanding shares of common stock for a consideration which
is less than the greater of book or market value of a share of common stock (the
"20% RULE"). AMEX interprets the 20% Rule to include issuances of common stock
as dividends and issuances of common stock upon conversion or exercise of other
securities issued in connection with a transaction.
On April 24, 2007, the Company filed with the Secretary of State of the
State of Delaware a Certificate of Designations, Preferences and Rights of
Series C Preferred Stock (the "SERIES C PREFERRED CERTIFICATE") under which
20,000 shares of our Series C 8% Convertible Preferred Stock, par value $0.01
per share (the "SERIES C PREFERRED STOCK") were authorized and created. The
Company sold, on April 24, 2007, 15,000 shares of such Series C Preferred Stock,
together with warrants to purchase shares of our Common Stock and the Company
intends to sell up to the remaining 5,000 shares of such Series C Preferred
Stock, together with warrants to purchase shares of our Common Stock.
The number of shares of our Common Stock issuable upon conversion of the
shares of Series C Preferred Stock and exercise of warrants issued to the
investors and placement agent and its designees in connection with the April 24,
2007 closing represent in the aggregate 8,599,137 shares or 41% of the
20,863,592 shares of our Common Stock, outstanding on April 24, 2007, on an as
converted basis, and such number of shares will increase upon the closing of any
additional sales of Series C Preferred Stock and warrants. The shares of Series
C Preferred Stock and the warrants have antidilution rights which could in the
future, result in the adjustment of the applicable conversion price or exercise
price being less than the closing sales price of a share of our Common Stock on
AMEX as of April 24, 2007, representing the initial closing of the sale of
Series C Preferred Stock (the "CLOSING PRICE"). Additionally, the Series C
Preferred Stock accrue mandatory dividends which may be paid in shares of Common
Stock, the applicable market price of which could be less than the Closing
Price. The occurrence of either type of issuance could result in AMEX deeming
the Series C Preferred Financing in violation of the 20% Rule. Accordingly, we
are proposing that the stockholders approve and, in the case of the April 24,
2007 closing, ratify the sale of up to 20,000 shares of Series C Preferred Stock
and warrants to purchase Common Stock representing in the aggregate, up to
11,465,517 shares of our Common Stock (the "Series C Preferred Financing").
9
The Board of Directors believed and believes that the Series C
Financing is beneficial to us and our stockholders and was effected on
reasonable terms.
APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE PURCHASE AGREEMENT (AS
DEFINED BELOW) AND DOCUMENTS RELATED THERETO, INCLUDING THE ISSUANCE OF THE
SHARES OF COMMON STOCK UNDERLYING THE SHARES OF SERIES C PREFERRED STOCK,
WARRANTS AND PLACEMENT AGENT WARRANTS IN AN AMOUNT AGGREGATING MORE THAN 19.99%
OF THE SHARES ISSUED AND OUTSTANDING ON APRIL 24, 2007 WILL REQUIRE THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF OUR SHARES OF COMMON STOCK THAT
ARE PRESENT, IN PERSON OR BY PROXY, AT THE ANNUAL MEETING. ABSTENTIONS WILL BE
INCLUDED IN DETERMINING THE NUMBER OF SHARES OF COMMON STOCK PRESENT OR
REPRESENTED AND ENTITLED TO VOTE FOR PURPOSES OF APPROVAL AND WILL HAVE THE
EFFECT OF VOTES "AGAINST" THE PROPOSAL.
FOR YOUR CONSIDERATION OF PROPOSAL 2, A DESCRIPTION OF THE MATERIAL
TERMS OF THE SERIES C PREFERRED FINANCING IS SET FORTH BELOW TO PROVIDE YOU WITH
BASIC INFORMATION CONCERNING THE TRANSACTION. HOWEVER, THE DESCRIPTION BELOW IS
NOT A SUBSTITUTE FOR REVIEWING THE FULL TEXT OF THE REFERENCED DOCUMENTS, WHICH
WERE ATTACHED AS EXHIBITS TO THE COMPANY'S CURRENT REPORT ON FORM 8-K AS FILED
WITH THE SEC ON APRIL 25, 2007, AND ARE AVAILABLE UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY AT ITS HEADQUARTERS.
Overview
--------
On April 24, 2007, we sold in a private placement through Oppenheimer &
Company, Inc., the placement agent (the "PLACEMENT AGENT"), 15,000 shares of our
Series C Preferred Stock, at a price of $1,000 per share, each share convertible
(at $2.32 per share) into 431.0345 shares of Common Stock, or an aggregate of
6,465,517 shares of Common Stock. Purchasers of the Series C Preferred Stock
(the "INVESTORS") also acquired warrants to purchase shares of Common Stock (the
"WARRANTs"), exercisable on or prior to April 24, 2012. The Warrants represent
the right to purchase an aggregate of 1,939,655 shares of Common Stock at an
exercise price of $3.00 per share. If at any time after one year from the date
of issuance of the warrants there is no effective registration statement
registering, or no current prospectus available for, the resale of the shares of
Common Stock underlying the Warrants by the holder of such Warrants, then the
Warrants may also be exercised at such time by means of a "cashless exercise".
The gross proceeds of the sale were $15,000,000 before payment of
$1,050,000 in commissions to the Placement Agent and selected dealers. We also
paid certain legal fees and expenses of counsel to the Placement Agent. We
issued to the Placement Agent and its designees five year warrants to purchase
193,965 shares of Common Stock with similar terms to the warrants issued to the
Investors with an exercise price of $3.00 per share. The net proceeds of the
sale are to be used for working capital purposes.
The private placement of the Series C Preferred Stock and the Warrants
was made pursuant to a Securities Purchase Agreement, dated as of April 24, 2007
(the "PURCHASE AGREEMENT"), between Elite and the Investors. Each purchaser of
the Series C Preferred Stock represented that such purchaser is an "accredited
investor" and agreed that the
10
securities issued in the private placement bear a restrictive legend against
resale without registration under the Act. The Series C Preferred Stock and
warrants were sold by us pursuant to the exemption from registration afforded by
Section 4(2) of the Act and Regulation D thereunder.
After giving effect to the April 24, 2007 sale of Series C Preferred
Stock and warrants, 5,000 shares of Series C Preferred Stock remain authorized
and unissued.
Preemptive Rights
-----------------
For so long as the Series C Preferred Stock is outstanding, if at any
time we issue Common Stock or securities convertible or exercisable for Common
Stock, the holders of the Series C Preferred Stock will have preemptive rights
to purchase their PRO RATA share of the Common Stock or securities convertible
or exercisable for Common Stock on the same terms, conditions and price provided
for in such issuance; provided, that this right is subject to exceptions as set
forth in the Purchase Agreement.
Registration Rights
-------------------
Pursuant to the Registration Rights Agreement dated as of April 24,
2007 (the "REGISTRATION RIGHTS AGREEMENT") holders of the Series C Preferred
Stock purchased in the April 24, 2007 closing are provided demand and piggy-back
registration rights at our expense. We agreed to file a registration statement
under the Securities Act of 1933, as amended (the "ACT") for resale of the
shares of Common Stock issuable upon conversion of the Series C Preferred Stock,
upon exercise of the Warrants, as payment of dividends on the Series C Preferred
Stock and the non-cash redemption triggering event (collectively the
"REGISTRABLE SECURITIES") within 30 days of the closing of the private placement
(the "FILING DATE") as set forth in the Registration Rights Agreement.
If (i) the Initial Registration Statement (as defined in the
Registration Rights Agreement) is not filed on or prior to its Filing Date; (ii)
as to, in the aggregate among all holders of Registrable Securities on a
pro-rata basis based on their purchase of the shares of Series C Preferred Stock
pursuant to the Purchase Agreement, 7,000,000 of the Registrable Securities,
subject to certain adjustments (collectively, the "INITIAL SHARES"), a
registration statement registering for resale all of the Initial Shares is not
declared effective by the SEC by August 21, 2007 (or September 20, 2007 in the
case of a "full review" by the SEC of the Initial Registration Statement); or
(iii) all of the Registrable Securities, other than the Initial Shares, are not
registered for resale pursuant to one or more effective Registration Statements
on or before December 31, 2007, (any such failure or breach being referred to as
an "EVENT", and the date on which such Event occurs, the "EVENT DATE"), then, in
addition to any other rights the holders of Registrable Securities may have
under the Registration Statement or under applicable law, on each such Event
Date and on each monthly anniversary of each such Event Date (if the applicable
Event shall not have been cured by such date) until the applicable Event is
cured, we agreed to pay to each holder of Registrable Securities an amount in
cash, as partial liquidated damages and not as a penalty, equal to 1.5% of the
aggregate purchase
11
price paid by such holder pursuant to the Purchase Agreement for any
unregistered Registrable Securities then held by such holder (calculated as if
all convertible securities had been fully converted). In no event will we be
liable for liquidated damages under the Registration Rights Agreement (1) with
respect to any Warrants or shares of Common Stock issuable upon exercise of the
Warrants; and (2) in excess of 1.5% of the Subscription Amount (as defined in
the Purchase Agreement) in any 30-day period. In addition, the maximum aggregate
liquidated damages payable to a holder of Registrable Securities under the
Registration Rights Agreement shall be 15% of the aggregate Subscription Amount
paid by such holder.
Dividend Rights
---------------
The Series C Preferred Stock are to accrue dividends at the rate of 8%
per annum on their purchase price of $1,000 per share (increasing to 15% per
annum after April 24, 2009) payable quarterly on January 1, April 1, July 1 and
October 1, payable in cash or shares of Common Stock, which will be valued
solely for such purpose at 95% of the average of the volume weighted average
price (the "VWAP") for the 20 consecutive trading days ending on the trading day
that is immediately prior to the dividend payment date, in accordance with the
terms of the Series C Preferred Certificate. Any dividends, whether paid in cash
or shares of Common Stock, that are not paid within 5 trading days, following a
dividend payment date, shall continue to accrue and shall entail a late fee,
which must be paid in cash, at the rate of 18% per annum or the lesser rate
permitted by applicable law (such fees to accrue daily, from the dividend
payment date through and including the date of payment). No payment or dividends
may be payable on Common Stock or any other capital stock ranked junior to the
Series C Preferred Stock prior to the satisfaction of the dividend obligation on
the Series C Preferred Stock.
Liquidation Rights
------------------
Each share of Series C Preferred Stock will be entitled to a preference
equal to the per share purchase price ($1,000 subject to adjustment) plus any
accrued but unpaid dividends thereon and any other fees or liquidated damages
owing thereon upon our liquidation, dissolution or winding-up, whether voluntary
or involuntary ("LIQUIDATION"), which preference ranks PARI PASSU with the
Series B Preferred Stock (as defined below) and senior to any other capital
stock ranked junior to the Series C Preferred Stock.
Voting Rights
-------------
The holders of our Series C Preferred Stock will not have any voting
rights except as specifically provided in the Series C Preferred Certificate or
as required by law. However, as long as any shares of Series C Preferred Stock
are outstanding, we will not without the prior affirmative vote of holders of at
least 70% of the then outstanding shares of the Series C Preferred Stock and our
Series B 8% Convertible Preferred Stock, par value $0.01 per share (the "SERIES
B PREFERRED STOCK" and together with the Series C Preferred Stock, the
"PREFERRED STOCK") collectively,
12
(i) alter or change adversely the powers, preferences or rights given
to the Preferred Stock or alter or amend the Series C Preferred Certificate;
(ii) authorize or create any class of stock ranking as to dividends,
redemption or distribution of assets upon a Liquidation senior to or otherwise
PARI PASSU with the Preferred Stock;
(iii) amend our certificate of incorporation, bylaws or other charter
documents in any manner that adversely affects any rights of the holders of the
Preferred Stock;
(iv) increase the authorized number of shares of Preferred Stock;
(v) other than Permitted Indebtedness (as defined in the Series C
Preferred Certificate) until April 24, 2010 incur any indebtedness for borrowed
money of any kind;
(vi) other than Permitted Liens (as defined in the Series C Preferred
Certificate) until April 24, 2010, incur any liens of any kind;
(vii) repay or repurchase other than more than a DE MINIMIS number of
shares of Common Stock or securities convertible or exchangeable into Common
Stock, other than as permitted by the Series C Preferred Certificate;
(viii) pay cash dividends or distributions on any of our securities
junior to the Preferred Stock; or
(ix) enter into any agreement or understanding with respect to the
foregoing. Notwithstanding the above, we may issue any security issued in
connection with a Strategic Transaction (as defined in the Series C Preferred
Certificate) that ranks as to dividends, redemption or distribution of assets
upon a Liquidation PARI PASSU with or junior to the Preferred Stock without the
prior affirmative vote of holders of at least 70% of the then outstanding shares
of Preferred Stock.
Conversion
----------
Each share of Series C Preferred Stock is initially convertible into
431.0345 shares of Common Stock. The conversion price for the Series C Preferred
Stock is equal to $2.32, subject to adjustment for certain events, including
dividends, stock splits, combinations and the sale of Common Stock or securities
convertible into or exercisable for Common Stock at a price less than the then
applicable conversion price. If we do not meet our share delivery requirements
set forth in the Series C Preferred Certificate, the holders of Preferred Stock
shall be entitled to (i) liquidated damages, payable in cash; and (ii) cash
equal to the amount by which the cost of the shares of Common Stock such holder
is required by its brokerage firm to purchase (in an open market transaction or
otherwise) for delivery in satisfaction of a sale by such holder of the shares
of Common Stock issuable upon conversion of such holder's Series C Preferred
Stock which such holder was entitled to receive upon the conversion at issue
exceeds the product of (1) the
13
aggregate number of shares of Common Stock that such holder was entitled to
receive from the conversion at issue multiplied by (2) the actual sale price at
which the sell order giving rise to such purchase obligation was executed.
We may force conversion of the Series C Preferred Stock in the event we
provide written notice to the holders of the Series C Preferred Stock that the
VWAP for each 20 consecutive trading day period during a Threshold Period (as
defined in the Series C Preferred Certificate) of Common Stock exceeded $5.38
(subject to adjustment) and the average volume the trading days during such
Threshold Period exceed 50,000 shares of Common Stock (subject to adjustment for
forward and reverse stock splits, recapitalizations, stock dividends and the
like).
Redemption Rights
-----------------
Upon the occurrence of certain Triggering Events (as defined in the
Series C Preferred Certificate), each holder of Series C Preferred Stock shall
have the right, exercisable at the sole option of such holder, to require us to
redeem each share of such holder's Series C Preferred Stock for cash in an
amount equal to 130% of the stated value, all accrued but unpaid dividends
thereon and all liquidated damages and other costs, expenses or amounts due in
respect of the Series C Preferred Stock (the "TRIGGERING REDEMPTION AMOUNT").
Upon certain Triggering Events, each holder of Series C Preferred Stock shall
have the right, exercisable at the sole option of such holder, to require us to
redeem each share of Series C Preferred Stock for shares of Common Stock equal
to the number of shares of Common Stock equal to the Triggering Redemption
Amount divided by 85% of the average of the VWAP for the 10 consecutive trading
days immediately prior to the date of the redemption. If at any time the SEC,
our auditors, American Stock Exchange (or similar trading exchange) or any other
governmental or regulatory authority having jurisdiction over us determine that
a Triggering Event for which a holder shall be entitled to a cash redemption
constitutes a condition for redemption which is not solely within our control
(as set forth in Item 28 of Rule 5-02 of Regulation S-X of the Securities
Exchange Act of 1934, as amended), or that as a result of any such Triggering
Event, the Series C Preferred Stock shall not be included in our balance sheet
under the heading "stockholder equity", then the holders of Series C Preferred
Stock shall not be entitled to receive a cash payment, but instead shall be
entitled to receive shares of Common Stock.
We may redeem all of the Series C Preferred Stock outstanding, at any
time after April 24, 2009 for a redemption price, payable in cash, for each
share of Series C Preferred Stock equal to (i) 150% of the stated value; (ii)
accrued but unpaid dividends thereon; and (iii) all liquidated damages and other
amounts due in respect of the Series C Preferred Stock.
14
Consequences if Stockholder Approval is Not Obtained.
----------------------------------------------------
The Purchase Agreement provides that if the Series C Preferred
Financing is not approved at this Annual Meeting, we are to resubmit the
proposal for approval to the stockholders at a meeting to be held thereafter
quarterly until the approval is obtained or there are no longer outstanding any
Series C Preferred Shares. Pending such approval, we will not issue shares of
our Common Stock upon conversion of the Series C Preferred Shares and exercise
of the Warrants and placement agent warrants, which exceed for all conversion
and exercises the greater of 4,172,510 shares or 19.99% of the then outstanding
number of our Common Stock in the aggregate.
Pursuant to the Purchase Agreement, unless the stockholders approve the
Series C Financing, we may not issue our Common Stock or securities which would
entitle the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock at an effective price per share less than $2.29 (other than certain exempt
issuances) subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common
Stock. Furthermore, until the stockholders approve the Series C Preferred
Financing, we are not permitted to pay dividends in shares of Common Stock if
the price at which such shares are valued is less than $2.29. In addition,
holders of Series C Preferred Stock will not be able to convert their shares to
the extent such conversion would exceed the greater of 4,172,510 shares or
19.99% of the then outstanding number of our Common Stock and, therefore, the
mandatory dividends payable upon such shares shall continue to accrue and be
payable. Unless the stockholders approve the Series C Preferred Financing, we
cannot fully exercise our right to compel the conversion of the Series C
Preferred Stock regardless of whether the requisite share price has been
obtained and we would, therefore, be required to pay such dividends. Finally,
potential purchasers of the remaining 5,000 shares of Series C Preferred Stock
may not agree to purchase such shares until stockholder approval is obtained,
thereby inhibiting our ability to raise additional funds from the sale of the
remaining shares.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3
The Board of Directors, subject to stockholder approval, appointed
Miller, Ellin & Co., LLP ("MILLER ELLIN") as our independent auditors for our
financial statements for the fiscal year ending March 31, 2007. THE AFFIRMATIVE
VOTE OF A MAJORITY OF VOTES PROPERLY CAST ON THIS PROPOSAL AT THE ANNUAL MEETING
IS REQUIRED TO RATIFY SUCH SELECTION.
Stockholder ratification of the appointment is not required by our
Certificate of Incorporation or By-laws or otherwise. If our stockholders fail
to ratify the appointment, the Board of Directors will reconsider whether to
retain that firm. Even if the appointment is ratified, the Board of Directors in
its discretion may direct the appointment of a different independent accounting
firm if the Board of Directors determines that such a change would be in our
best interests and our stockholders.
Miller Ellin has audited our consolidated financial statements since
1997. A representative of that firm is expected to be present at the Annual
Meeting, and will have an opportunity to make a statement to the stockholders
and will be available to respond to appropriate questions.
The following table presents fees for professional audit services
rendered by Miller Ellin for the audits of our annual financial statements for
the years ended March 31, 2007 and 2006.
2007 2006
---- ----
Audit Fees(1) 58,360 69,923
Audit-Related Fees --- ---
Tax Fees --- ---
All Other Fees --- ---
(1) Audit Fees relate to the audit of our financial statements and reviews of
financial statements included in our quarterly reports on Form 10-Q.
15
AUDIT COMMITTEE REPORT
The audit committee's primary responsibilities are to monitor the
integrity of our financial statements and reporting process and systems of
internal controls regarding finance and accounting and to monitor our compliance
with legal and regulatory requirements, including disclosures and procedures.
The committee also has the responsibility to evaluate our independent auditor's
qualifications, independence and performance as well as to evaluate the
performance of the internal audit function.
Management has the primary responsibility for the financial statements
and the reporting process, including our systems of internal controls. The
independent auditors are responsible for auditing the annual financial
statements prepared by management and expressing an opinion as to whether those
financial statements conform with accounting principles generally accepted in
the United States of America. The audit committee reviewed and discussed the
audited financial statements with management and our independent auditors. The
audit committee has discussed with the independent auditors the matters required
to be discussed by the statement on Auditing Standards No. 61, as amended. In
addition, the audit committee has received the written disclosures and the
letter from the independent accountants required by Independence Standards Board
Standard No. 1, and has discussed with the independent accountant the
independent accountant's independence.
Based upon the review and discussions described in this report, a
majority of the audit committee recommended to the Board of Directors that the
audited financial statements be included in our Annual Report on Form 10-K for
the fiscal year ended March 31, 2006 that has been filed with the Securities and
Exchange Commission.
AUDIT COMMITTEE
Barry Dash
Melvin Van Woert
THE AUDIT COMMITTEE REPORT DOES NOT CONSTITUTE SOLICITING MATERIAL, AND SHALL
NOT BE DEEMED TO BE FILED OR INCORPORATED BY REFERENCE INTO ANY OTHER
COMPANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT
THAT THE COMPANY SPECIFICALLY INCORPORATES THE AUDIT COMMITTEE
REPORT BY REFERENCE THEREIN.
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of May 15, 2007 by (i) by each person who is
known by us to own beneficially more than 5% of the Common Stock, (ii) by each
of our directors and nominees for director, (iii) by each of the Named Executive
Officers (as defined below) and (iv) by all our directors and executive officers
as a group. On such date, we had 20,920,048 shares of Common Stock outstanding.
(The 9,550 shares of Series B Preferred Stock outstanding and 15,000 shares of
Series C Preferred Stock are nonvoting and none of the individuals listed below
beneficially owns any shares of Series B Preferred Stock or Series C Preferred
Stock other than Barry Dash who owns 20 shares of Series C Preferred Stock.
There are currently no shares of Series A Preferred Stock outstanding).
As used in the table below and elsewhere in this proxy statement, the
term beneficial ownership with respect to a security consists of sole or shared
voting power, including the power to vote or direct the vote, and/or sole or
shared investment power, including the power to dispose or direct the
disposition, with respect to the security through any contract, arrangement,
understanding, relationship, or otherwise, including a right to acquire such
power(s) during the 60 days immediately following the Record Date. Except as
otherwise indicated, the stockholders listed in the table have sole voting and
investment powers with respect to the shares indicated.
NAME AND ADDRESS COMMON STOCK
---------------- ------------
AMOUNT %
------ ---
Bernard Berk, Director, President and Chief Executive Officer* 1,532,300(1) 6.9
Edward Neugeboren, Director* 201,063(2) **
Barry Dash, Director* 28,207(3) **
Melvin Van Woert, Director* 10,000(4) **
Veerappan Subramanian, Director and Chief Scientific Officer* 2,962,894(5) 12.9
Dr. Charan Behl(6)* 1,296,000(7) 5.9
Chris Dick, Executive Vice President of Corporate Development* 885,287(8) 4.1
Mark I. Gittelman, Chief Financial Officer* 39,999(9) **
Trellus Management Company, LLC 1,164,137(10) 5.6
Adam Usdan
350 Madison Avenue, 9th Floor
New York, New York 10017
Mark Fain 1,204,570(11) 5.8
237 Park Avenue, Suite 900
New York, NY 10017
Chad Comiteau 1,152,712(12) 5.5
237 Park Avenue, Suite 900
New York, NY 10017
All Directors and Officers as a group (13) 6,955,750(13) 26.5
------------------------
* The address is c/o Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale,
NJ 07647.
** Less than 1%
17
(1) Includes options to purchase 1,365,000 shares of Common Stock. See "Named
Executive Officers."
(2) Includes options and warrants to purchase an aggregate of 170,571 shares of
Common Stock.
(3) Represents options to purchase 10,000 shares of Common Stock, 20 shares of
Series C Preferred Stock convertible into 8,621 shares of Common Stock and
warrants to purchase 2,586 shares of Common Stock.
(4) Represents options to purchase shares of Common Stock.
(5) Includes options to purchase 1,500,000 shares of Common Stock which are
owned by Dr. Subramanian and 957,396 shares of Common Stock and warrants to
purchase 478,698 shares of Common Stock which are owned by VGS Pharma, LLC
("VGS"), a wholly-owned subsidiary of Kali Capital, L.P., which is controlled by
Kali Management, LLC ("KALI"), its general partner, and Kali is controlled by
the daughter of Dr. Subramanian, its managing member. Dr. Subramanian disclaims
beneficial ownership of these shares of Common Stock, except to the extent of
his pecuniary interest therein, if any.
(6) Dr. Behl was Executive Vice President and Chief Scientific Officer from
March 9, 2006 to February 9, 2007 and has been Head of Technical Affairs since
February 9, 2007. See "Named Executive Officers."
(7) Includes warrants to purchase 130,000 shares of Common Stock and options to
purchase 750,000 shares of Common Stock. See "Named Executive Officers."
(8) Includes options to purchase 850,000 shares of Common Stock and warrants
held by Mr. Dick and Hedy Rogers as joint tenants to purchase 10,479 shares of
Common Stock.
(9) Represents options to purchase shares of Common Stock.
(10) Based on information provided by Trellus Management Company, LLC and Adam
Usdan in the Schedule 13G filed February 13, 2007. Adam Usdan is the President
of Trellus Management Company, LLC. Trellus Management Company, LLC and Adam
Usdan have shared voting and dispositve power.
(11) Based on information provided by Mark Fain and Chad Comiteau in their
Schedule 13G/A filed February 6, 2007. Mark Fain beneficially owned 1,204,570
shares of Common Stock, which amount includes (i) 179,967 shares beneficially
owned by Mr. Fain over which he has sole voting power and sole dispositive
power; (ii) 33,333 convertible shares beneficially owned by Mr. Fain over which
he has sole voting power and sole dispositive power; (iii) 33,000 shares
beneficially owned by Stratford Management Money Purchase Pension Plan over
which Mr. Fain has shared voting power and shared dispositive power; (iv)
808,270 shares beneficially owed by Stratford Partners, L.P. of which Mr. Fain
is a Managing Member, and over which Mr. Fain has shared voting power and shared
dispositive power; and (v) 150,000 convertible shares beneficially owed by
Stratford Partners, L.P. over which Mr. Fain has shared voting power and shared
dispositive power.
(12) Based on information provided by Mark Fain and Chad Comiteau in their
Schedule 13G/A filed February 6, 2007. Chad Comiteau beneficially owned
1,152,712 shares of Common Stock which amount includes (i) 187,047 shares
beneficially owned by Mr. Comiteau over which he has sole voting power and sole
dispositive power; (ii) 32,665 convertible shares beneficially owned by Mr.
Comiteau over which he has sole voting power and sole dispositive power; (iii)
33,000 shares beneficially owned by Stratford Management Money Purchase Pension
Plan over which he has shared voting power and shared dispositive power; (iv)
808,270 shares beneficially owed by Stratford Partners, L.P. of which Mr.
Comiteau is a Managing Member, and over which Mr. Comiteau has shared voting
power and shared dispositive power; and (v) 150,000 convertible shares
beneficially owed by Stratford Partners, L.P. over which Mr. Comiteau has shared
voting power and shared dispositive power.
(13) Includes options and warrants to purchase an aggregate of 5,325,954 shares
of Common Stock.
18
COMPENSATION DISCUSSION AND ANALYSIS
SUMMARY
Our approach to executive compensation, one of the most important and
also most complex aspects of corporate governance, is influenced by our belief
in rewarding people for consistently strong execution and performance. We
believe that the ability to attract and retain qualified executive officers and
other key employees is essential to our long term success.
COMPENSATION LINKED TO ATTAINMENT OF PERFORMANCE GOALS
Our plan to obtain and retain highly skilled employees is to provide
significant incentive compensation opportunities and market competitive
salaries. The plan was intended to link individual employee objectives with
overall company strategies and results, and to reward executive officers and
significant employees for their individual contributions to those strategies and
results. We use compensation and performance data from comparable companies in
the pharmaceutical industry to establish market competitive compensation and
performance standards for our employees. Furthermore, we believe that equity
awards serve to align the interests of our executives with those of our
stockholders. As such, equity is a key component of our compensation program.
NAMED EXECUTIVE OFFICERS
The named executive officers for fiscal year ended March 31, 2007 are
Bernard Berk, President and Chief Executive Officer; Mark I. Gittelman, Chief
Financial Officer; Christopher Dick, Executive Vice President of Corporate
Development; Charan Behl, Chief Scientific Officer until February 9, 2007, Head
of Technical Affairs since February 9, 2007; and Veerappan Subramanian, Chief
Scientific Officer since February 9, 2007. These individuals are referred to
collectively in this Proxy Statement as the "Named Executive Officers."
MR. BERK, age 58, was appointed President and Chief Executive Officer
in June 2003 and a Director in February 2004. See "Election of Directors - Board
of Directors' Nominees" for his business background.
DR. SUBRAMANIAN, age 56, was appointed Chief Scientific Officer in
February 2007 and a Director in December 2006. See "Election of Directors -
Board of Directors' Nominees" for his business background.
MARK I. GITTELMAN, age 47, Chief Financial Officer, Secretary and
Treasurer of the Company, is the President of Gittelman & Co., P.C., an
accounting firm in Clifton, New Jersey. Prior to forming Gittelman & Co., P.C.
in 1984, he worked as a certified public accountant with the international
accounting firm of KPMG Peat Marwick, LLP. Mr. Gittelman holds a B.S. in
accounting from New York University and a Masters of
19
Science in Taxation from Fairleigh Dickinson University. He is a Certified
Public Accountant licensed in New Jersey and New York, and is a member of the
American Institute of Certified Public Accountants ("AICPA"), and the New Jersey
State and New York State Societies of CPAs. Other than Elite Labs, no company
with which Mr. Gittelman was affiliated in the past was a parent, subsidiary or
other affiliate of the Company.
CHRIS DICK, age 52, was appointed Executive Vice President of Corporate
Development in March, 2006. Since November 2002, the Company has engaged Mr.
Dick to direct its licensing and business development activities. From 1999 to
2002, Mr. Dick served as Director of Business Development for Elan Drug
Delivery, Inc. responsible for licensing and business development of Elan's
portfolio of drug delivery technologies. From 1997 to 1999, he was Manager of
Business Development and Marketing for EnTec, a drug delivery business unit
within FMC Corporation's Pharmaceutical Division. Prior thereto he held various
other business and technical positions at FMC Corporation, including Manager of
Marketing for its pharmaceutical functional coatings product line. Mr. Dick
holds an M.B.A. from the Stern School of Business, New York University, and a
B.S. and M.S. in Chemical Engineering from Cornell University.
DR. CHARAN BEHL, age 55, was appointed Head of Technical Affairs in
February 2007 and was previously Executive Vice President and Chief Scientific
Officer of the Company from March 2006 to February 2007. Dr. Behl has provided
the Company since June 2003 consulting technological services as an independent
contractor. He was from January 1995 to July 1998 Vice President of R&D and from
July 1988 to January 2001 Executive Vice President of R&D of Nastech
Pharmaceutical Corporation, Inc. From April 1981 to November 1994, Dr. Behl was
employed by Hoffman La Roche, where he held a number of positions, including
research leader of its Pharmaceutical R&D Department. During his tenure at Roche
and Nastech, Dr. Behl created intellectual property in the area of drug
delivery. His patent portfolio includes over 40 patents issued, pending and in
preparation. Dr. Behl holds a B.S. in Pharmaceutical Sciences from BITS, Pilani,
India, an M.S. in Pharmaceutics from Duquesne University, under the mentorship
of Dr. Alvin M. Galinsky, and a Ph.D. in Pharmaceutical Sciences from the
University of Michigan, under the mentorship of Dr. William I. Higuchi. Dr. Behl
was an Assistant Research Scientist from 1978 to 1981 at the University of
Michigan. Dr. Behl is internationally known for his scientific and professional
activities. He has coauthored over 200 publications, including research
articles, book chapters, and abstracts, and has made numerous presentations at
national and international conferences and workshops. In conjunction with
associates from academia and industry and representatives of the FDA, Dr. Behl
has co-organized several workshops and symposia. He was the founding chair of
Nasal Drug Delivery Focus Group formed in 1995 under the auspices of the
American Association of Pharmaceutical Scientists ("AAPS"), and served as its
Chairman from 1995 to 2001. Dr. Behl is a fellow of the AAPS.
20
OUR EXECUTIVE COMPENSATION PROGRAM
OVERVIEW
The primary elements of our executive compensation program are base
salary, incentive cash and stock bonus opportunities and equity incentives
typically in the form of stock option grants. Although we provide other types of
compensation, these three elements are the principal means by which we provide
the Named Executive Officers with compensation opportunities.
The emphasis on the annual bonus opportunity and equity compensation
components of the executive compensation program reflect our belief that a large
portion of an executive's compensation should be performance-based. This
compensation is performance-based because payment is tied to the achievement of
corporate performance goals. To the extent that performance goals are not
achieved, executives will receive a lesser amount of total compensation. We have
entered into employment agreements with three of our Named Executive Officers.
Such employment agreements set forth base salaries, bonuses and stock option
grants. Such stock option grants are predicated on our achievement of corporate
performance goals as set forth in such agreements.
ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM
BASE SALARY
We pay a base salary to certain of the Named Executive Officers. In
general, base salaries for the Named Executive Officers are determined by
evaluating the responsibilities of the executive's position, the executive's
experience and the competitive marketplace. Base salary adjustments are
considered and take into account changes in the executive's responsibilities,
the executive's performance and changes in the competitive marketplace. We
believe that the base salaries of the Named Executive Officers are appropriate
within the context of the compensation elements provided to the executives and
because they are at a level which remains competitive in the marketplace.
BONUSES
The Board of Directors may authorize us to give discretionary bonuses,
payable in cash or shares of common stock, to the Named Executive Officers and
other key employees. Such bonuses are designed to motivate the Named Executive
Officers and other employees to achieve specified corporate, business unit
and/or individual, strategic, operational and other performance objectives.
During the fiscal year ended March 31, 2007, the Company awarded bonuses of
$25,000 each to Charan Behl and Chris Dick in accordance with the terms of their
employment agreements.
STOCK OPTIONS
Stock options constitute performance-based compensation because they
have value to the recipient only if the price of our common stock increases.
Stock options for
21
each of the Named Executive Officers generally vest over time, obtainment of a
corporate goal or a combination.
The grant of stock options at Elite is the centerpiece of our
compensation program and is designed to motivate our Named Executive Officers to
achieve our short term and long term corporate goals.
As the pharmaceutical industry is characterized by a long product
development cycle, including a lengthy research and product-testing period and a
rigorous approval phase involving human testing and governmental regulatory
approval, many of the traditional benchmarking metrics for vesting, such as
product sales, revenues and profits are inappropriate for an early-stage
pharmaceutical company such as Elite. We consider when determining vesting
benchmarks the following which are aligned with our short term and long term
corporate goals:
o clinical trial progress;
o achievement of regulatory milestones;
o establishment of key strategic relationships.
RETIREMENT AND DEFERRED COMPENSATION BENEFITS
We do not presently provide the Named Executive Officers with a defined
benefit pension plan or any supplemental executive retirement plans, nor do we
provide the Named Executive Officers with retiree health benefits. We have
adopted a deferred compensation plan under Code Section 401(k) of the Internal
Revenue Service Code. The Plan provides for employees to defer compensation on a
pretax basis subject to certain limits, however, Elite does not provide a
matching contribution to its participants.
The retirement and deferred compensation benefits provided to the Named
Executive Officers are not material factors considered in making other
compensation determinations with respect to Named Executive Officers.
PERQUISITES
As described in more detail below, the perquisites provided to certain
of the Named Executive Officers consists of car and parking allowances and in
the case of the Chief Executive Officer, life insurance premiums. These
perquisites represent a small fraction of the total compensation of each such
Named Executive Officer. The value of the perquisites we provide are taxable to
the Named Executive Officers and the incremental cost to us of providing these
perquisites is reflected in the Summary Compensation Table. The Board of
Directors believes that the perquisites provided are reasonable and appropriate.
For more information on perquisites provided to the Named Executive Officers,
please see the All Other Compensation column of the Summary Compensation Table
on page 23 of this Proxy Statement and "Agreements with Named Executive
Officers" below.
22
POST-TERMINATION/ CHANGE OF CONTROL COMPENSATION
In addition to retirement and deferred compensation benefits described
above, we have arrangements with certain of the Named Executive Officers that
may provide them with compensation following termination of employment. These
arrangements are discussed below under "Agreements with Named Executive
Officers".
TAX IMPLICATIONS OF EXECUTIVE COMPENSATION
Our aggregate deductions for each Named Executive Officer compensation
are potentially limited by Section 162(m) of the Internal Revenue Code to the
extent the aggregate amount paid to an executive officer exceeds $1.0 million,
unless it is paid under a predetermined objective performance plan meeting
certain requirements, or satisfies one of various other exceptions specified in
the Internal Revenue Code. At our 2006 Named Executive Officer compensation
levels, we did not believe that Section 162(m) of the Internal Revenue Code
would be applicable, and accordingly, we did not consider its impact in
determining compensation levels for our Named Executive Officers in 2006.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Messrs Berk, Dick and Dr. Behl
------------------------------
On November 13, 2006, we entered into (i) the Second Amended and
Restated Employment Agreement with Mr. Berk, our President, Chief Executive
Officer and Chairman of the Board of Directors (the "BERK AGREEMENT"); (ii) an
employment agreement with Dr. Behl as Executive Vice President and Chief
Scientific Officer (the "BEHL AGREEMENT"); and (iii) an employment agreement
with Mr. Dick as Executive Vice President of Corporate Development (the "DICK
AGREEMENT"). The employment agreement with Dr. Behl was subsequently amended and
restated on February 9, 2007,
23
under which Dr. Behl's position was changed from Chief Scientific Officer to
Head of Technical Affairs and he is to report to our Chief Executive Officer,
Chief Scientific Officer and any additional executive officer designated by the
Board of Directors.
The Berk Agreement provides for a base annual salary of $330,140 (his
current salary) which may at the discretion of the Board of Directors be
increased in light of factors including our existing financial condition and Mr.
Berk's success in implementing our business plan and achieving our strategic
alternatives. Mr. Berk is to continue to receive an automobile allowance of $800
per month. The Behl and Dick Agreements provide for an initial base annual
salary of $250,000 and $200,000, respectively, a guaranteed bonus of $25,000
payable on January 1, 2007 and within 30 calendar days of the end of each fiscal
year during the term and a $700 per month automobile allowance.
Each of the three agreements provides for payment of a discretionary
bonus following the end of each fiscal year of up to 50% of the executive's then
annual base salary. The amount, if any, of the discretionary bonus will be
determined by the Compensation Committee as to Mr. Berk and by the Board of
Directors or a Compensation Committee as to Dr. Behl and Mr. Dick. Mr. Berk's
bonus is to be based on any commercialization of products, merger or
acquisition, business combination or collaborations, growth in revenues and
earnings, additional financings or other strategic business transaction that
inure to the benefit of our stockholders. The bonus, if any, may be paid in cash
or shares of common stock, valued at the closing price of the common stock on
the immediately preceding trading day. The discretionary bonus which may be paid
to Dr. Behl or Mr. Dick is to be based on the achievement of goals discussed
with the executive in good faith and within a reasonable time following the
commencement of each fiscal year and may be paid in cash or shares of our common
stock valued at the average of the closing price per share during the five
trading days immediately preceding the date of issuance of the shares.
Each of Dr. Behl's and Mr. Dick's agreement provides for the grant
under the 2004 Stock Option Plan (the "2004 PLAN") to the executive at an
exercise price of $2.25 of options to purchase 250,000 shares. The Berk, Behl
and Dick Agreements each provide for the grant to the executive of options at
the foregoing exercise price to purchase up to 300,000 additional shares (the
"OPIOID PRODUCT OPTIONS") which are to vest in two 150,000 share tranches upon
the closing of an exclusive product license for the United States national
market, the entire European Union Market or the Japan market or a product sale
transaction of all our ownership rights in the United States (only once for each
product) for our first drug developed by us for which the United States Food and
Drug Administration (the "FDA") approval will be sought under a NDA (including a
505(b) (2) application) for oxycodone, hydrocone, hydromorphone, oxymorphone, or
morphine ("NON-GENERIC OPIOID PRODUCT") as to the first tranche and as to our
second Non-Generic Opioid Drug for the second tranche.
The Berk Agreement provides for the amendment of the vesting of options
as to 400,000 shares which had been granted on September 2, 2005 to Mr. Berk at
an exercise price of $2.69 per share ("BERK'S PREVIOUS MILESTONE OPTIONS") and
the Behl and Dick
24
Agreements provides for the grant of options at the exercise price of $2.25 per
share for each of Behl and Dick as to 200,000 shares (collectively along with
Mr. Berk's Previous Milestone Options, the "MILESTONE OPTIONS") with the
Milestone Options of each of the three executives to vest (A) as to not more
than 125,000 shares and 75,000 shares, respectively, upon the commencement of
the first Phase III clinical trial relating to the first and then the second
Non-Generic Opioid Drug developed by us; (B) 50,000 shares upon the closing of
each product license or product sale transaction (on a product by product basis
and only once for each product) other than Non-Generic Opioid Drugs for which
options were granted above; (C) 10,000 shares upon the filing by us (in our
name) with the FDA of either an ANDA or an NDA (including an application filed
with the FDA under Section 505(b)(2) of the Federal, Food, Drug, and Cosmetic
Act, 21 U.S.C. Section 301 et seq.) (collectively, a "NDA"), for a product not
covered by a previous FDA application; (D) 40,000 shares upon the approval by
the FDA of any ANDA or NDA (filed in our name) for a product not previously
approved by the FDA; (E) 25,000 shares upon the filing of an application for a
U.S. patent by us (in our name); and (F) 25,000 shares upon the granting by the
U.S. Patent and Trademark Office (the "PTO") of a patent to us filed in our name
or an approval of an ANDA or NDA; provided, however the foregoing options
terminate upon the executive's termination of employment except that options
under (D) and (F) nevertheless vest if the filing was made during the initial
term but prior to termination of the executive's employment by us without cause
and the approval was made within 540 days of the filing of the ANDA, NDA or
patent application.
We also agreed that in the event that, as to Mr. Berk, all of the
options to purchase the full 400,000 Mr. Berk's Previous Milestone Options have
fully vested during the initial term of the agreement and as to each of Dr. Behl
and Mr. Dick all 200,000 Milestone Options have fully vested during the initial
term of his agreement, we will grant under the Plan to the executive at the end
of the first current fiscal year in which the following event occurs fully
vested additional options to purchase the following shares at the fair market
value on the date of grant (the "ADDITIONAL MILESTONE OPTIONS"): (a) to the
extent not previously vested with respect to his comparable Milestone Options:
(i) up to 125,000 shares upon the commencement of the first Phase III clinical
trial relating to the first Non-Generic Opioid Drug developed by us and (ii) up
to an additional 125,000 shares as to such trial relating to the second
Non-Generic Opioid Drug developed by us, (b) 50,000 shares upon the closing of
each product license for the United States national market or product sale
transaction of all ownership rights (on a product by product basis and only once
for each product); (c) 10,000 shares upon the filing by us (in our name) with
the FDA of either an ANDA or NDA for a product not covered by a previous FDA
application for each drug product of us, other than the Non-Generic Opioid Drugs
for which any Opioid Option was granted under the Agreement; (d) 40,000 shares
upon the approval by the FDA of any ANDA, NDA or 505(b)(2) application filed in
our name for a product not previously approved by the FDA; (e) 25,000 shares in
the event of the filing of an application of an additional U.S. patent by us
(filed in our name); and (f) 25,000 shares in the event of the granting by the
PTO of the foregoing additional patent applications to us (filed in our name).
25
The Berk Agreement acknowledges that Mr. Berk holds previously granted
incentive stock options to purchase 725,000 shares, of which 300,000 vested
options are exercisable at $2.01 per share, 225,000 vested options are
exercisable at $2.15 per share and 100,000 vested options are exercisable at
$2.69 per share, and the remaining 100,000 options, which vest on September 2,
2007, are exercisable at $2.69 per share.
Each employment agreement allows us at our discretion to grant to the
executive additional options under the 2004 Plan and provides each executive the
right to register at our expense for reoffering shares issued upon exercise of
the options under the Securities Act of 1933, as amended, in certain
registration statements filed by us with respect to offerings of securities by
us.
Berk's Agreement provides that if we terminate his employment due to
his permanent disability, without cause or he terminates his employment for good
reason, Mr. Berk shall be entitled to the following severance: (i) any earned
but unpaid base salary plus any unpaid reimbursable expenses as of the effective
date of termination of his employment, (ii) the then-current base salary and
reimbursement of the cost to replace the life and disability insurance coverages
afforded to Mr. Berk under our benefit plans with substantially similar
coverages, following the effective date of termination of his employment, for a
period equal to the greater of (x) the remainder of the then-current term, or
(y) two years following the effective date of termination and (iii) payment by
us of premiums for health insurance for the period during which Mr. Berk is
entitled to continued health insurance coverage as specified in the
Comprehensive Omnibus Budget Reconciliation Act. In the event that we terminate
Mr. Berk's employment because of his permanent disability, Mr. Berk is to be
entitled to the severance specified above, less any amounts actually received by
him under any disability insurance coverage provided for and paid by us. In the
event that we terminate Mr. Berk's employment for cause or Mr. Berk terminates
his employment with us without good reason, Mr. Berk shall be entitled to any
earned but unpaid base salary plus any unpaid reimbursable expenses as of the
effective date of termination of his employment.
Berk's Agreement provides that in the event of a change of control in
lieu of any severance that may otherwise be payable to him if Mr. Berk elects to
terminate his employment for any reason within 90 days thereof, or we elect to
terminate his employment within 180 days thereof, other than for cause, he is to
be entitled to the following: (i) any earned but unpaid base salary plus any
unpaid reimbursable expenses as of the effective date of termination of his
employment, (ii) $1,000,000, (iii) the then-current base salary for a period of
12 months following the effective date of termination, (iv) reimbursement of the
cost, for a period of 12 months following the effective date of termination, of
replacing the life and disability insurance coverage afforded to Mr. Berk under
our benefit plans with substantially similar coverage and (v) payment by us of
premiums for health insurance for the period during which Mr. Berk is entitled
to continued health insurance coverage as specified in the Comprehensive Omnibus
Budget Reconciliation Act.
26
Each of Behl's and Dick's Agreements provide that in the event we
terminate his employment for "Cause" as defined in the agreement or the
executive terminates employment without good reason, he is to receive salary
through date of termination, reimbursement for expenses incurred prior to
termination, all unvested options will terminate as of the date of termination
and vested options will be governed by the terms of the 2004 Plan and the
related option agreement. In the event of a termination due to death, disability
or by us without cause or by Dr. Behl or Mr. Dick for good reason, we are to pay
him or his estate subject to his compliance with certain covenants, including
non-competition, non-solicitation, confidentiality and assignment of
intellectual property, his base salary for the longer of the balance of the
initial term or one year from date of termination, continue health insurance
coverage for 12 months from termination and his vested options are to be
exercisable for 90 days from date of termination. Dr. Behl's amended agreement
provides that the definition of "cause" has been amended to include a
determination by the Board of Directors, in its sole discretion, that the
employment of Dr. Behl should terminate, provided that such termination will be
effective on the 30th day after the written notice to Dr. Behl of such
determination.
In the event the employment of Dr. Behl or Mr. Dick is terminated by us
following a "Change of Control" of Elite, each will be entitled to the amounts
payable as a result of termination by us without cause plus a lump sum payment
of $500,000 and all unvested options shall immediately vest and along with
unexercised vested options be exercisable within 90 days from the date of
termination. "Change of control" is defined in each of their agreements as the
acquisition of Elite pursuant to a merger or consolidation which results in the
reduction to less than 50% of the shares outstanding upon consummation of the
holders of its outstanding shares immediately prior thereto or sale of
substantially all our assets or capital stock to another person, or the
acquisition by a person or a related group in a single transaction or a series
of related transaction of more than 50% of the combined voting power of Elite's
outstanding voting securities.
Berk's Agreement contains his non-solicitation covenant for a period of
one year from termination. Each of Dr. Behl and Mr. Dick has agreed to a
one-year following termination non-competition covenant and a two year following
termination non-solicitation covenant.
The executives are to be reimbursed for expenses (including business,
travel and entertainment) reasonably incurred in the performance of their
duties, with Dr. Behl's and Mr. Dick's agreements providing that reimbursement
of expenses in excess of $2,000 per month are subject to the approval of our
Chief Executive Officer. Each of the executives is entitled to participate in
such employee benefit and welfare plans and programs, which may be offered to
our senior executives including life insurance, health and accident, medical
plans and programs and profit sharing and retirement plans.
Each employment agreement is for an initial term ending November 13,
2009, subject to automatic one-year renewals unless terminated by the executive
or us upon at least 60 days notice prior to the end of the then scheduled
expiration date. We have the right to terminate Mr. Berk's employment in the
event of his inability to perform work
27
due to physical or mental illness or injury for nine full calendar months during
any eight consecutive calendar months. We have the right to terminate Dr. Behl's
or Mr. Dick's employment due to disability as defined in a long-term disability
insurance policy reasonably satisfactory to him or, in the absence of such
policy, due to Dr. Behl's or Mr. Dick's, as the case may be, inability for 120
days in any 12 month period to substantially perform his duties as a result of a
physical or mental illness.
Mr. Gittelman
-------------
On February 26, 1998, we entered into an agreement with Gittelman &
Co., P.C., whereby fees are paid to Gittelman & Co., P.C., a firm wholly-owned
by Mark I. Gittelman, our Chief Financial Officer, Secretary and Treasurer, in
consideration for services rendered by the firm as internal accountant and
financial and management consultant. The firm's services include the services
rendered by Mr. Gittelman in his capacity as Chief Financial Officer, Secretary
and Treasurer. For the fiscal years ended March 31, 2007, 2006 and 2005, the
fees paid by us under the agreement were $151,214, $154,704, and $111,312. The
services rendered by the firm to us averaged 98, 103 and 84 hours per month,
respectively, of which an average of 25 hours per month were services rendered
by him in his capacity as an officer of Elite.
Dr. Subramanian
---------------
Dr. Subramanian entered into an Advisory Services Agreement with us on
December 6, 2006, the terms of which are summarized under the caption "Certain
Related Person Transactions" on page 35 below.
HEDGING POLICY
We do not permit the Named Executive Officers, to "hedge" ownership by
engaging in short sales or trading in any options contracts involving our
securities.
28
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The table below summarizes the compensation information in respect of
the Named Executive Officers for the fiscal years ended March 31, 2007, 2006 and
2005.
CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
NON-EQUITY DEFERRED
STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION
YEAR SALARY (2) (3) (4) (5) (6) TOTAL
NAME AND (1)
PRINCIPAL POSITION ($) ($) ($) ($) ($) ($) ($) (3)
-------------------- ------- ------- ------- ------ ------- -------------- -------------- ------------ ----------
Bernard Berk 2006-07 393,203 -- -- 574,422 -- -- 21,260(9) 988,885
President and
Chief Executive 2005-06 344,295 150,000 -- 379,439 -- -- -- 873,734
Officer 2004-05 200,000 50,000 -- 488,782 -- -- -- 738,782
Mark Gittelman 2006-07 -- -- -- 83,293 -- -- -- 83,293
Chief Financial
Officer 2005-06 -- -- -- 23,100 -- -- -- 23,100
2004-05 -- -- -- 19,109 -- -- -- 19,109
Christopher Dick 2006-07 168,750 25,000 -- 482,037 -- -- 678,937
Executive Vice
President of 2005-06 150,000 25,000 -- -- -- -- 3,150(10) 175,000
Corporate
Development 2004-05 140,250 25,000 -- 76,687 -- -- -- 241,937
--
Charan Behl(7) 2006-07 344,135 25,000 -- 482,037 -- -- 851,172
Head of Technical
Affairs 2005-06 450,000 -- -- -- -- -- -- 450,000
2004-05 392,455(8) -- -- -- -- -- -- 392,455
--
Veerappan Subramanian 2006-07 -- -- -- 1,114,445 -- -- -- 1,114,445
Chief Scientific 2005-06 -- -- -- -- -- -- -- --
Officer
2004-05 -- -- -- -- -- -- -- --
29
-----------
(1) The information is provided for each fiscal year which begins on April 1
and ends on March 31.
(2) Bonuses paid to Mr. Berk represent discretionary bonuses and bonuses paid
to Mr. Dick and Mr. Behl represent guaranteed bonuses.
(3) No stock awards were granted to the Named Executive Officers in the fiscal
years ended March 31, 2007, 2006 and 2005.
(4) The amounts reflect the compensation expense in accordance with FAS 123(R)
of these option awards. The assumptions used to determine the fair value of
the option awards for fiscal year ended March 31, 2007 are set forth in
Note 3 of our quarterly financial statements included in our Form 10-Q for
the quarterly ended December 31, 2006. The assumptions used to determine
the fair value of the option awards for fiscal years ended March 31, 2004
and 2005 are set forth in note 9 of our audited consolidated financial
statements included in our Form 10-K for fiscal year ended March 31, 2006.
Our Named Executive Officers will not realize the value of these awards in
cash unless and until these awards are exercised and the underlying shares
subsequently sold.
(5) The Company does not have a non-equity incentive compensation plan.
(6) The Company does not have pension and deferred non-qualified compensation
plans.
(7) Dr. Behl was Executive Vice President and Chief Scientific Officer from
March 9, 2006 to February 9, 2007 and has been Head of Technical Affairs
since February 9, 2007.
(8) Includes $229,325 of fees paid by the issuance to Dr. Behl of units, each
consisting of (i) a share of Series A Preferred Stock convertible into ten
shares of Common Stock and (ii) ten common stock purchase warrants, at the
rate of $12.30 per unit.
(9) Represents $16,345 for auto and parking allowance and $4,915 for life
insurance premiums.
(10) Represents $3,150 for auto and parking allowance.
GRANTS OF PLAN-BASED AWARDS
The following table sets forth information regarding grants of plan
based awards to the Named Executive Officers during the fiscal year ended March
31, 2007.
GRANTS OF PLAN-BASED AWARDS
The following table sets forth information regarding grants of plan
based awards to the Named Executive Officers during the fiscal year ended March
31, 2007.
ESTIMATED FUTURE PAYOUTS ALL OTHER ALL OTHER GRANT
ESTIMATED POSSIBLE PAYOUTS UNDER STOCK OPTION DATE FAIR
UNDER NON-EQUITY INCENTIVE EQUITY INCENTIVE PLAN AWARDS: AWARDS: EXERCISE OR VALUE OF
PLAN AWARDS AWARDS NUMBER OF NUMBER OF BASE PRICE STOCK AND
-------------------------- ------------------------ SHARES OF SECURITIES OF OPTION OPTION
GRANT THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM STOCK OR UNDERLYING AWARDS AWARDS
NAME DATE ($) ($) ($) (#) (#) (#) UNITS (#) OPTIONS (#) ($/SH) (1)
---- ------- --------- -------- ------- --------- ------ ------- ----------- ------------------- ---------- ----------
Bernard Berk 11.13.06 -- -- -- -- -- -- -- 300,000(3)(4) $2.25 $411,000
President
and Chief
Executive
Officer
Mark Gittelman
Chief
Financial
Officer 05.3.06 -- -- -- -- -- -- -- 70,000(2) $2.26 $116,200
Christopher Dick 11.13.06 -- -- -- -- -- -- -- 750,000(3)(4)(5)(6) $2.25 $1,027,500
Executive
Vice
President of
Corporate
Development
Charan Behl 11.13.06 -- -- -- -- -- -- -- 750,000(3)(4)(5)(6) $2.25 $1,027,500
Head of
Technical
Affairs
Veerappan
Subramanian 12.06.06 -- -- -- -- -- -- -- 1,750,000(7) $2.13 $2,380,000
Chief
Scientific
Officer
----------
(1) The amounts reflect the compensation expense in accordance with FAS 123(R)
of these option awards. The assumptions used to determine the fair value
of the option awards for fiscal year ended March 31, 2007 are set forth in
note 3 of our quarterly financial statements included in our Form 10-Q for
the quarter ended December 31, 2006. Our Named Executive Officers will not
realize the value of these awards in cash unless and until these awards
are exercised and the underlying shares subsequently sold.
(2) Represents options that vest in annual increments over a three year period
on May 3, 2007, May 3, 2008 and May 3, 2009, respectively.
(3) The options were granted under our 2004 Stock Option Plan.
(4) Represents (i) 150,000 options that vest upon the closing of an exclusive
product license for the first of the United States national market, the
entire European Union market or the Japan market or product sale
transaction of all of our ownership rights in the United States (only once
for each individual product) for our first Non-Generic Opioid Drug; and
(ii) 150,000 options that vest upon the closing of an exclusive product
license for the United States national market, the entire European Union
market or the Japan market or product sale transaction of all of our
ownership rights in the United States (only once for each individual
product) for our second Non-Generic Opioid Drug.
(5) Represents 250,000 options that vested on November 13, 2006.
(6) Represents 200,000 options that vest as follows: (i) upon the commencement
of the first Phase III clinical trial relating to the first "Non-Generic
Opioid Drug" developed by us as to 125,000 options and relating to the
second "Non-Generic Opioid Drug" developed by the company as to 75,000
options; (ii) 50,000 shares of Common Stock shall vest and become
immediately exercisable in full only upon the closing of an exclusive
product license for the United States national market or product sale
transaction of all of our ownership rights (on a product by product basis
and only once for each individual product) for each Company drug product,
other than the "Non-Generic Opioid Drugs" for which the "Non-Generic
Opioid Drug" options were granted; (iii) 10,000 options upon the filing by
us (in our name) with the United States Food and Drug Administration (the
"FDA") of either an abbreviated new drug application (an "ANDA") or a new
drug application (a "NDA") (including a NDA filed with the FDA, for a
product not covered by a previous FDA application; (iv) 40,000 options
upon the approval by the FDA of any ANDA or NDA (filed in our name) for a
product not previously approved by the FDA; (v) 25,000 options upon filing
of an application for U.S. patent by us (filed in our name); and (vi)
25,000 options upon the granting by U.S. Patent and Trademark Office of a
patent to us (filed in our name).
(7) Represents options that vest as follows: (i) 250,000 on December 6, 2006,
(ii) 250,000 on May 6, 2007, (iii) 250,000 on December 6, 2007, (iv)
250,000 on our acceptance of the initial business plan of Novel
Laboratories, Inc. ("Novel"), (v) 250,000 on the earliest to occur of the
(x) dosing of a human patient in the first clinical trial, (y) dosing of a
human subject in the first bioequivalence study, or (z) in the event that
neither a clinical trial nor a bioequivalence study is required under
applicable law as a condition of marketing a Product Candidate (as defined
below), the completion of stability testing of an exhibit batch of such
Product Candidate, in each case, with respect to any drug product by us
(excluding any drug products of Novel), developed under the advisory
services to be provided by Dr. Subramanian to us under the Strategic
Advisory Agreement (the "Advisory Services") that occurs on or after the
sixtieth (60th) day after December 6, 2006 (such drug product, a "Product
Candidate"), (vi) 250,000 on earliest to occur of (x) the completion of
the first successful clinical trial for such Product Candidate as
determined by the clinical research organization (the "CRO") performing
such trial, (y) the completion of the first successful bioequivalence
study for such Product Candidate as determined by the CRO performing such
study that occurs on or after the sixtieth (60th) day after the date
hereof, or (z) in the event that neither a clinical trial nor a
bioequivalence study is required under applicable law as a condition of
marketing such Product Candidate, the submission of an ANDA with the FDA,
and (vii) 250,000 on earliest to occur of the (x) dosing of a human
patient in the first clinical trial, (y) dosing of a human subject in the
first bioequivalence study, (z) in the event that neither a clinical trial
nor a bioequivalence study is required under applicable law as a condition
of marketing a Product Candidate, the completion of stability testing of
an exhibit batch of such Product Candidate, in each case, with respect to
a second Product Candidate developed under the Advisory Services that
occurs on or after the sixtieth (60th) day after the date hereof.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information concerning stock options and
stock awards held by the Named Executive Officers as of March 31, 2007.
30
OPTION AWARDS
--------------------------------------------------------------------
EQUITY
INCENTIVE PLAN
AWARDS
NUMBER OF NUMBER OF NUMBER OF
SECURITIES SECURITIES SECURITIES
UNDERLYING UNDERLYING UNDERLYING
UNEXERCISED UNEXERCISED UNEXERCISED OPTION
OPTIONS OPTIONS UNEARNED EXERCISE OPTION
(#) (#) OPTIONS PRICE EXPIRATION
NAME EXERCISABLE UNEXERCISABLE (#) ($) DATE
------------------ ----------- ------------- ----------- -------- ----------
Bernard Berk 300,000(1) -- $2.01 06/03/13
President and 225,000(2) -- $2.15 07/22/13
Chief Executive 30,000(3) -- $2.34 06/22/14
Officer 10,000(4) -- $2.75 08/30/15
10,000(4) -- $2.75 08/30/15
10,000(4) -- $2.75 08/30/15
100,000(5) -- $2.69 09/02/15
100,000(5) -- $2.69 09/02/15
-- 400,000(6) $2.69 09/02/15
-- 150,000(7) $2.25 11/13/16
-- 150,000(8) $2.25 11/13/16
Mark.
Gittelman
Chief
Financial
Officer 10,000(9) -- $2.34 03/08/14
6,666(1)(0) -- $2.80 07/14/15
6,667(1)(0) -- $2.80 07/14/15
6,667(1)(0) -- $2.80 07/14/15
23,333(1)(1) -- $2.26 05/03/16
23,333(1)(1) -- $2.26 05/03/16
23,334(1)(1) -- $2.26 05/03/16
Christopher Dick
Executive
Vice
President of
Corporate
Development 10,000(1)(2) -- $2.34 10/31/12
10,000(12) -- $2.34 10/31/12
10,000(12) -- $2.34 10/31/12
10,000(13) -- $2.21 06/13/13
10,000(13) -- $2.21 06/13/13
10,000(13) -- $2.21 06/13/13
40,000(14) -- $2.80 07/14/15
250,000(15) -- $2.25 11/13/16
-- 150,000(7) $2.25 11/13/16
-- 150,000(8) $2.25 11/13/16
-- 200,000(6) $2.25 11/13/16
Charan Behl
Head of
Technical Affairs 250,000(15) -- $2.25 11/13/16
-- 150,000(7) $2.25 11/13/16
-- 150,000(8) $2.25 11/13/16
-- 200,000(6) $2.25 11/13/16
Veerappan
Subramanian
Chief
Scientific
Officer 250,000(16) -- $2.13 12/16/16
250,000(16) -- $2.13 12/16/16
250,000(16) -- $2.13 12/16/16
250,000(16) -- $2.13 12/16/16
250,000(16) -- $2.13 12/16/16
250,000(16) -- $2.13 12/16/16
250,000(16) -- $2.13 12/16/16
STOCK AWARDS
--------------------------------------------------------------------
EQUITY
INCENTIVE PLAN EQUITY INCENTIVE
AWARDS: PLAN AWARDS:
NUMBER OF MARKET OR
NUMBER OF MARKET VALUE UNEARNED PAYOUT VALUE OF
SHARES OR OF SHARES OR SHARES, UNITS UNEARNED
UNITS OF UNITS OF OR OTHER SHARES, UNITS OR
STOCK HELD STOCK HELD RIGHTS THAT OTHER RIGHTS
THAT HAVE THAT HAVE HAVE NOT THAT HAVE NOT
NOT VESTED NOT VESTED VESTED VESTED
(#) ($) (#) ($)
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31
-----------
(1) These options vested as of June 3, 2003.
(2) These options vested as of September 2, 2005
(3) These options vested on June 22, 2004.
(4) These options vest in annual increments over a three year period on August
30, 2006, August 30, 2007 and August 30, 2008, respectively.
(5) These options vest in annual increments over a two year period on September
2, 2006 and September 2, 2007, respectively.
(6) These options vest as follows: (i) upon the commencement of the first Phase
III clinical trial relating to the first "Non-Generic Opioid Drug"
developed by us as to 125,000 options and relating to the second
"Non-Generic Opioid Drug" developed by the company as to 75,000 options;
(ii) 50,000 shares of Common Stock shall vest and become immediately
exercisable in full only upon the closing of an exclusive product license
for the United States national market or product sale transaction of all of
our ownership rights (on a product by product basis and only once for each
individual product) for each Company drug product, other than the
"Non-Generic Opioid Drugs" for which the "Non-Generic Opioid Drug" options
were granted; (iii) 10,000 options upon the filing by us (in our name) with
the United States Food and Drug Administration (the "FDA") of either an
abbreviated new drug application (an "ANDA") or a new drug application (a
"NDA") (including a NDA filed with the FDA, for a product not covered by a
previous FDA application; (iv) 40,000 options upon the approval by the FDA
of any ANDA or NDA (filed in our name) for a product not previously
approved by the FDA; (v) 25,000 options upon filing of an application for
U.S. patent by us (filed in our name); and (vi) 25,000 options upon the
granting by U.S. Patent and Trademark Office of a patent to us (filed in
our name).
(7) These options vest upon the closing of an exclusive product license for the
first of the United States national market, the entire European Union
market or the Japan market or product sale transaction of all of our
ownership rights in the United States (only once for each individual
product) for our first Non-Generic Opioid Drug.
(8) These options vest upon the closing of an exclusive product license for the
United States national market, the entire European Union market or the
Japan market or product sale transaction of all of our ownership rights in
the United States (only once for each individual product) for our second
Non-Generic Opioid Drug.
(9) These options vested on June 22, 2004.
(10) These options vest in annual increments over a three year period on July
14, 2006, July 14, 2007 and July 14, 2008, respectively.
(11) These options vest in annual increments over a three year period on May 3,
2007, May 3, 2008 and May 3, 2009, respectively.
(12) These options vested on November 1, 2003, 2004 and 2005, respectively.
(13) These options vested on June 13, 2004, 2005 and 2006, respectively.
(14) These options vested on July 14, 2005.
(15) These options vested on November 13, 2006.
(16) These options vest as follows: (i) 250,000 on December 6, 2006, (ii)
250,000 on May 6, 2007, (iii) 250,000 on December 6, 2007, (iv) 250,000 on
our acceptance of the initial business plan of Novel Laboratories, Inc.
("Novel"), (v) 250,000 on the earliest to occur of the (x) dosing of a
human patient in the first clinical trial, (y) dosing of a human subject in
the first bioequivalence study, or (z) in the event that neither a clinical
trial nor a bioequivalence study is required under applicable law as a
condition of marketing a Product Candidate (as defined below), the
completion of stability testing of an exhibit batch of such Product
Candidate, in each case, with respect to any drug product by us (excluding
any drug products of Novel), developed under the advisory services to be
provided by Dr. Subramanian to us under the Strategic Advisory Agreement
(the "Advisory Services") that occurs on or after the sixtieth (60th) day
after December 6, 2006
32
(such drug product, a "Product Candidate"), (vi) 250,000 on earliest to
occur of (x) the completion of the first successful clinical trial for such
Product Candidate as determined by the clinical research organization (the
"CRO") performing such trial, (y) the completion of the first successful
bioequivalence study for such Product Candidate as determined by the CRO
performing such study that occurs on or after the sixtieth (60th) day after
the date hereof, or (z) in the event that neither a clinical trial nor a
bioequivalence study is required under applicable law as a condition of
marketing such Product Candidate, the submission of an ANDA with the FDA,
and (vii) 250,000 on earliest to occur of the (x) dosing of a human patient
in the first clinical trial, (y) dosing of a human subject in the first
bioequivalence study, (z) in the event that neither a clinical trial nor a
bioequivalence study is required under applicable law as a condition of
marketing a Product Candidate, the completion of stability testing of an
exhibit batch of such Product Candidate, in each case, with respect to a
second Product Candidate developed under the Advisory Services that occurs
on or after the sixtieth (60th) day after the date hereof.
OPTION EXERCISES AND STOCK VESTED
No options have been exercised by our Named Executive Officers during
fiscal year ended March 31, 2007.
PENSION BENEFITS
We do not provide pension benefits to the Named Executive Officers.
NONQUALIFIED DEFERRED COMPENSATION
We do not have any defined contribution or other plan that provides for
the deferral of compensation on a basis that is not tax-qualified.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Please see the discussion under "Compensation Discussion and Analysis -
Agreements with Named Executive Officers."
COMPENSATION COMMITTEE REPORT
The majority of our Board of Directors has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
with management and, based on such review and discussions, the Board of
Directors recommends that the Compensation Discussion and Analysis be included
in this Proxy Statement.
BOARD OF DIRECTORS
Bernard Berk
Barry Dash
Melvin Van Woert
Veerappan Subramanian
33
DIRECTOR COMPENSATION
The following table sets forth director compensation for the year ended
March 31, 2007:
FEES OPTION
PAID AWARDS TOTAL
($) ($) ($)
NAME (1)
---- ----- ------- ------
Bernard Berk $6,000 --- $6,000
Edward Neugeboren $6,000 --- $6,000
Barry Dash $4,000 --- $4,000
Melvin Van Woert $4,000 --- $4,000
Veerappan Subramanian --- --- ---
-----------
(1) Consists of a fee of $2000 for each meeting attended by a Director.
Equity Compensation
-------------------
Members of the Board of Directors during the fiscal year ended March
31, 2006 received 30,000 options each in August 2005 and no members of the Board
of Directors received any options or other equity compensation during the fiscal
year ended March 31, 2007 for serving as a director.
Other Compensation
------------------
We do not pay or reimburse non-employee Directors for travel expenses
incurred in connection with attending Board, committee and shareholder meetings.
Each Director receives $2,000 per each meeting such Director attends. Except as
described in this section, non-employee Directors do not receive any additional
compensation for their services on the Board of Directors.
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS
All related person transactions are reviewed and, as appropriate, may
be approved or ratified by the Board of Directors. If a director is involved in
the transaction, he or she may not participate in any review, approval or
ratification of such transaction. Related person transactions are approved by
the Board of Directors only if, based on all of the facts and circumstances,
they are in, or not inconsistent with, our best interests and our stockholders,
as the Board of Directors determines in good faith. The Board of Directors takes
into account, among other factors it deems appropriate, whether the transaction
is on terms generally available to an unaffiliated third-party under the same or
similar circumstances and the extent of the related person's interest in the
transaction. The Board
34
of Directors may also impose such conditions as it deems necessary and
appropriate on us or the related person in connection with the transaction.
In the case of a transaction presented to the Board of Directors for
ratification, the Board of Directors may ratify the transaction or determine
whether rescission of the transaction is appropriate.
CERTAIN RELATED PERSON TRANSACTIONS
Transactions with Dr. Subramanian and VGS Pharma LLC
----------------------------------------------------
On December 6, 2006, we entered into a Strategic Alliance Agreement
with Dr. Subramanian and VGS Pharma, LLC, a Delaware limited liability company
("VGS"), under which (i) Dr. Subramanian was appointed to our Board of
Directors, (ii) VGS made a $2,000,000 equity investment in Elite, (iii) we
engaged Dr. Subramanian to serve as our strategic advisor on the research,
development and commercialization of our existing pipeline and (iv) we, together
with VGS formed Novel Laboratories Inc., a Delaware corporation ("NOVEL"), as a
separate specialty pharmaceutical company for the research, development,
manufacturing, licensing and acquisition of specialty generic pharmaceuticals.
VGS is wholly-owned subsidiary of Kali Capital, L.P., which is controlled by
Kali Management, LLC ("KALI"), its general partner, and Kali is controlled by
Anu Subramanian, its managing member and daughter of Dr. Subramanian.
The specialty pharmaceutical product initiative of the strategic
alliance between Elite and Dr. Subramanian is to be conducted by Novel, of which
we acquired 49% and VGS acquired 51% of its Class A Voting Common Stock for
$9,800 and $10,200 respectively. Pursuant to the Alliance Agreement, VGS
acquired for $2,000,000: (i) 957,396 shares of our Common Stock (the "ACQUIRED
COMPANY SHARES") at approximately $2.089 per share and (ii) a five year Warrant
to purchase 478,698 shares of our Common Stock (the "WARRANT SHARES"), for cash,
at an exercise price of $3.00 per share, subject to adjustment upon the
occurrence of certain events.
We contributed $2,000,000 to Novel and have agreed to provide
additional contributions within 30 days of the achievement of certain
performance milestones (e.g., the initiation of development programs for
prospective products, commencement and/or completion of clinical and/or
bio-equivalence studies for prospective products, filings with the FDA of new
drug or abbreviated new drug applications related to prospective products) to be
mutually agreed to by us and Dr. Subramanian, who is employed as Chief Executive
Officer of Novel, in Novel's Initial Business Plan (as defined in the Alliance
Agreement), which may be modified in a subsequent Annual Business Plan (as
defined in the Alliance Agreement), to occur during the initial 30 months
following December 6, 2006 (collectively, the "PERFORMANCE MILESTONES"), with
remaining contributions being subject to acceleration with unanimous approval of
the Board of Directors of Novel. Such additional contributions shall be in
amounts mutually agreed to by us and Dr. Subramanian as provided in the Initial
Business Plan and each subsequent Annual Business Plan during the initial 30
month period and the aggregate amount of such
35
additional contributions shall not exceed $25,000,000, without our prior
consent. We have agreed to provide Novel personnel staff, facility, supplies and
equipment pending Novel's becoming fully operational with its own staff,
facility, equipment and supplies.
In the event that (i) we defer for more than 90 days the payment of a
contribution installment due to Novel's failure to achieve a Performance
Milestone, (ii) we fail to make a requisite contribution following Novel's
achieving a Performance Milestone or (iii) Novel requires additional financing
beyond amounts provided in the Business Plan or our agreed upon additional
contributions, Novel may seek such financing through a subscription offering to
its Class A Stockholders and, to the extent not fully subscribed, from third
parties.
We agreed to use our best efforts to elect Dr. Subramanian a member of
our Board of Directors as long as we and our "permitted transferees" own at
least 40% of Novel's outstanding capital stock and Dr. Subramanian is Chairman
of the Board and Chief Executive Officer of Novel.
Pursuant to an advisory agreement, Dr. Subramanian has agreed to provide
advisory services to us, including but not limited to, assisting in the
implementation of current and new drug product development projects of Elite and
assisting in the our recruitment of additional R&D staff members. As an
inducement to enter into the agreement, we granted Dr. Subramanian a
non-qualified stock option to purchase up to 1,750,000 shares of Common Stock
(the "OPTION SHARES") at a price of $2.13 per share. The option vests as to
250,000 shares immediately and in subsequent 250,000 share installments, with
one vesting on May 6, 2007, another on December 6, 2007, a third upon our
acceptance of the Initial Business Plan of Novel, and the other installments
vesting on the accomplishment of certain milestones with respect to the first or
second drug product developed by us (excluding drug products of Novel) on or
after the 60th day after December 6, 2006, under the advisory services provided
to us. The option terminates on December 6, 2016, or 90 days following a
termination of his advisory services to us or his employment by Novel other than
a termination without Cause or by Dr. Subramanian for Good Reason or 48 months
after the termination of his advisory services under the advisory agreement or
his employment under the employment agreement as a result of: (i) a termination
by us of the advisory agreement or by Novel of the employment agreement without
Cause or by Dr. Subramanian without Good Reason or (ii) post-December 6, 2007,
termination of the term of the advisory agreement or of the Novel employment
agreement. All unvested options terminate upon the termination of the advisory
agreement (other than a termination by the Company without cause or by Dr.
Subramanian for Good Reason) or at such time as we and our permitted transferees
own in the aggregate less than 20% of the outstanding capital stock of Novel,
except to the extent we in our sole discretion have determined that Dr.
Subramanian has provided substantial contribution to the development of any drug
product which would otherwise trigger the vesting of options notwithstanding the
failure to satisfy the foregoing 20% threshold.
36
The parties also entered into a stockholders agreement which provides
that as long as each of Company and VGS owns at least 10% of the shares of Class
A Voting Common Stock of Novel, each shall designate one of the two Directors to
constitute the Novel Board of Directors, with the VGS designee to be Dr.
Subramanian, unless otherwise approved by Company. It prohibits the taking of
certain actions without approval of the two designees, including, but not
limited to, amendments of charter, by-laws and other governance agreements,
spin-offs or public offerings of equity securities, a liquidation or
dissolution, dividends, authorization or issuance of additional securities or
options, bankruptcy, a material change of the business or a Business Plan,
approval of a Business Plan and the yearly operating budget, creation of a
security interest, capital expenditures in excess of 110% of the amount provided
in the Business Plan, investments in excess of the amounts approved in the
Business Plan, an increase or decrease of the Board; and any investments by Dr.
Subramanian in any "Competitive Company" or its affiliate. The stockholders
agreement further provides that determination of "Cause" or the "Disability" of
Dr. Subramanian under his employment agreement shall be made solely in the
reasonable discretion of the Company designee. Except for certain enumerated
permitted transfers, the Stockholders Agreement provides that no transfer of
Novel stock may be made without the consent of the other stockholders. In the
event Company fails to make required additional contributions, VGS has the right
to purchase at the original purchase price from Company that proportion of its
original shares of Novel Class A Common Stock equal to the proportion of the
required additional contributions not made by Company.
In the event of Dr. Subramanian's resignation from Novel for other than
Good Reason or his termination by Novel for Cause or his death or disability as
defined in the Employment Agreement, Company has the corresponding right to
acquire up to 75% of VGS's original shares of Class A Common Stock of Novel at
the original purchase price; such percentage to be reduced to 50% and 25% and 0%
upon the first, second and third anniversary of the Stockholders' Agreement,
with a pro rata portion of such reduction to be effected upon the death or
disability of Dr. Subramanian during the applicable period. Each of Company and
VGS has a right to acquire at the then fair value, Company's or VGS's shares of
Novel upon the bankruptcy, dissolution or liquidation, a change of control of
the other or, if as a result of the purchases at the original purchase price,
the percentage of Novel owned by such party is less than 10% of Novel.
Novel agreed to employ Dr. Subramanian as its Chief Executive Officer
at a salary of $220,000 per annum, with bonuses and options to purchase Novel's
Common Stock to be granted at the discretion of Novel's Board of Directors. Dr.
Subramanian is to perform his duties three full business days a week. Dr.
Subramanian's employment may be terminated for "Cause" as defined therein or by
Dr. Subramanian for "Good Reason" as defined. Either party may terminate the
employment upon 30-business days prior written notice to the other.
Dr. Subramanian has agreed to a confidentiality covenant and also
agreed to a non-solicitation covenant and not to directly or indirectly, manage,
control, consult with, or engage (as either an employee or consultant) in any
business or activity anywhere in
37
the world involving a drug product that is competitive as defined with any drug
products being developed or marketed by Novel, or proposed in a Business plan to
be developed by Novel or its affiliate, or any related inventions or other
intellectual property of Novel or any of its respective subsidiaries or
affiliates (collectively, a "COMPETITIVE ACTIVITY"); and without the prior
unanimous approval of the Novel Board to make any investment (whether equity or
debt) not exceeding an aggregate of 5% of the equity, in any person engaging, or
providing services or financing for, a Competitive Activity (a "COMPETITIVE
COMPANY"), including any follow-on investments in any entity that, subsequent to
the time of the initial investment, has become a Competitive Company, except a
financing provided to a subsidiary or affiliate of a Competitive Company which
is not itself engaged in a Competitive Activity during his employment and,
unless his termination was by Novel without "Cause" or by Dr. Subramanian for
"Good Reason", for one year subsequent as to non-competition and two years
subsequent as to non-solicitation.
Transactions with Mark Gittelman and Gittelman & Co. P.C.
---------------------------------------------------------
For a description of the agreement between Elite and Gittelman & Co.,
P.C., please see "Compensation Discussion Analysis - Agreements with Named
Officers". Mark Gittelman, our chief financial officer is the principal of
Gittelman & Co., P.C.
Series C Preferred Stock Financing
----------------------------------
The following related persons participated in the Series C Preferred
Stock Financing (described above under the caption Proposal 2 Approval and
Ratification of Series C Preferred Financing):
o Barry Dash, one of our directors, purchased 20 shares of Series C
Preferred Stock and warrants to purchase 2,586 shares of Common
Stock for a purchase price of $20,000.
o Affiliates of Trellus Management Company, one of our stockholders
which beneficially owns more than 5% of our outstanding Common
Stock, purchased an aggregate of 2,000 shares of Series C
Preferred Stock and warrants to purchase 258,619 shares of Common
Stock for an aggregate purchase price of $2,000,000.
o Indigo Securities LLC of whom Edward Neugeboren, one of our
current directors, is an employee, acted as a selected dealer in
the placement of the Series C Preferred Financing and received a
$194,547 cash commission and warrants to purchase 36,045 shares
of Common Stock for its services.
Indigo Ventures LLC
-------------------
On July 12, 2006, we entered into a Financial Advisory Agreement with
Indigo Ventures LLC ("INDIGO") whereby, Indigo, on a non-exclusive basis, agreed
to advise, consult with, and assist us in various matters as requested (and only
to the extent requested) by us which may include, without limitation (i) a
review of our business, operations and financial condition, including advising
on capitalization structures; (ii)
38
advice relating to general capital raising matters; (iii) recommendations
relating to specific business operations, strategic transactions and joint
ventures; (v) advice regarding our future financings involving debt or equity
securities or any affiliate of ours; and (v) assistance with interaction between
us and our current and future investors. We paid Indigo $45,000 initially and
then $15,000 per month in connection with Indigo providing the consulting
services. Additionally, Indigo acquired a warrant to purchase up to 600,000
shares of Common Stock at an exercise price of $3.00 per share, which may be
payable in the form of a promissory note. On February 13, 2007, the Financial
Advisory Agreement was amended. As a result of the amendment, the warrant was
reduced from 600,000 to 300,000 shares, the warrant remains exercisable as to
the remaining 300,000 shares of common stock (200,000 of which remain subject to
vesting), the monthly cash fees payable to Indigo terminated as of February 13,
2007 and the outstanding amount of the promissory note was reduced to $75,000.
Edward Neugeboren, one of our current directors is an employee of Indigo.
Previously, in March 2006, Indigo received $800,000 cash compensation
and placement agent warrants to purchase 355,555 shares of Common Stock in
connection with acting as placement agent for the offering of our Series B
Preferred Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To our knowledge, there was no person who, at any time during the
fiscal year ended March 31, 2007, was a director, officer or beneficial owner of
more than 10% of any class of our equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, who failed to file on a
timely basis the reports required by Section 16(a) of the Securities Exchange
Act of 1934. Dr. Barry Dash filed one late Form 4 since the fiscal year ended
March 31, 2007.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal under Rule 14a-8 of
the Securities Exchange Act ("Rule 14a-8) for inclusion in our proxy statement
and form of proxy for the next annual meeting of stockholders is October 26,
2007. Stockholders wishing to submit proposals outside of Rule 14a-8 must do so
no later than December 13, 2007 to be eligible for presentation at the next
annual meeting of stockholders.
Any proposal should be addressed to Mark I. Gittelman, Secretary, Elite
Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647 and should
be sent by certified mail, return receipt requested.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries
(e.g., brokers) to satisfy the delivery requirements for proxy statements and
annual reports with respect to two or more stockholders sharing the same address
by delivering a single proxy
39
statement addressed to those stockholders. This process, which is commonly
referred to as "householding," potentially means extra convenience for
stockholders and cost savings for companies.
Some brokers and other nominee record holders may be participating in
the practice of "householding" proxy statements and annual reports. A single
proxy statement will be delivered to multiple stockholders sharing an address
unless contrary instructions have been received from the affected stockholders.
Once you have received notice from your broker that they will be "householding"
communications to your address, "householding" will continue until you are
notified otherwise or until you revoke your consent. If, at any time, you no
longer wish to participate in "householding" and would prefer to receive a
separate proxy statement and annual report, please notify your broker or direct
your written request to Elite Pharmaceuticals, Inc., Attn: Mark Gittelman,
Secretary, 165 Ludlow Avenue, Northvale, New Jersey 07647. Stockholders who
currently receive multiple copies of the proxy statement at their address and
would like to request "householding" of their communications should contact
their broker.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC
under the Securities Exchange Act of 1934, as amended. The SEC maintains an
Internet world wide web site that provides access, without charge, to reports,
proxy statements and other information about issuers, like Elite, who file
electronically with the SEC. The address of that site is http://www.sec.gov.
You also may obtain copies of these materials by mail from the Public
Reference Section of the Securities and Exchange Commission, 100 F Street, N.E.,
Room 1580 Washington, D.C, 20549, at prescribed rates. These materials are also
available from the SEC in person at any one of its public reference rooms.
Please call the SEC at l-800-SEC-0330 for further information on its public
reference rooms. You may read and copy this information at the following
location of the SEC:
Public Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
You can also obtain, without charge, reports, proxy statements and
other information, including without limitation, any information we may
incorporate by reference herein, about the Company, by contacting: Elite
Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647, Attn:
Corporate Secretary, telephone: (201) 750-2646, facsimile: (201) 750-2755.
40
OTHER MATTERS
A copy of our Annual Report on Form 10K for the fiscal year ended March
31, 2006, including financial statements, accompanies this proxy statement. We
are incorporating by reference from this Annual Report the financial statements
and supplementary data, the management discussion and analysis of financial
condition and results of operation and quantitative and qualitative disclosures
about market risk.
May 29, 2007 By Order of the Board of Directors
Mark I. Gittelman, Secretary
41
ELITE PHARMACEUTICALS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 2007
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Bernard Berk and Mark I. Gittelman, and
each of them, with full power of substitution, to vote, as a holder of the
Common Stock, par value $0.01 per share ("Common Stock"), of Elite
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), all the shares of
Common Stock which the undersigned is entitled to vote, through the execution of
a proxy with respect to the Annual Meeting of Stockholders of the Company (the
"Annual Meeting"), to be held at the offices of Reitler Brown & Rosenblatt LLC,
800 Third Avenue, 21st Floor, New York, New York 10022, on June 26, 2007 at
10:00 a.m. EDT, and any and all adjournments or postponements thereof, and
authorizes and instructs said proxies to vote in the manner directed below.
THE BOARD OF DIRECTORS RECOMMENDS THE VOTE FOR THE ELECTION OF THE NOMINEES FOR
DIRECTORS NAMED BELOW AND PROPOSALS 2, 3 AND 4.
1. Election of Directors: Bernard Berk, Barry Dash, Melvin Van Woert, Veerappan
S. Subramanian and Robert J. Levenson
FOR all Nominees [ ] WITHHOLD for all Nominees [ ]
If you do not wish your shares voted FOR a nominee, draw a line through that
person's name above.
2. Proposal to approve and ratify the Series C Financing described in the Proxy
Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to ratify the appointment of the independent auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before such meeting or adjournment or postponement
thereof.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE, PLEASE VOTE, SIGN AND DATE
ON REVERSE SIDE AND RETURN PROMPTLY.
BACK OF CARD
PROPERLY EXECUTED AND RETURNED PROXY CARDS WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO INSTRUCTIONS TO THE
CONTRARY ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF EACH OF THE
NAMED NOMINEES AS DIRECTORS AND PROPOSALS 2 AND 3 AS DESCRIBED ON THE REVERSE
SIDE OF THIS CARD.
You may revoke this proxy at any time before it is voted by (i) filing
a revocation with the Secretary of the Company, (ii) submitting a duly executed
proxy bearing a later date or time than the date or time of the proxy being
revoked; or (iii) attending the Annual Meeting and voting in person. A
stockholder's attendance at the Annual Meeting will not by itself revoke a proxy
given by the stockholder.
(Please sign exactly as the name appears below. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign with full corporate name
by president or other authorized officer. If a partnership, please sign in the
partnership name by authorized person.)
Dated:
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Signature
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PLEASE COMPLETE,
SIGN, DATE AND
RETURN THE PROXY
CARD PROMPTLY USING
THE ENCLOSED
ENVELOPE.
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Signature, if held by joint owners