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
Filed by the Registrant [X]
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)
Payment Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed pursuant to
Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing:
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
[ELITE PHARMACEUTICALS LETTERHEAD]
May [__], 2006
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Elite Pharmaceuticals, Inc. (the "COMPANY") to be held at 10:00 a.m., June
15, 2006 at the offices of Reitler Brown & Rosenblatt LLC, 800 Third Avenue,
21st Floor, New York, NY 10022.
This year you will be asked to consider the election of directors and
proposals to: (i) approve an amendment of the Company's Stock Option Plan, (ii)
approve and ratify the Company's Series B Preferred Stock Financing which
involved the sale of the Company's Series B Preferred Stock and common stock
purchase warrants pursuant to a Securities Purchase Agreement, dated as of March
15, 2006, and (iii) ratify the appointment of Miller, Ellin & Co., LLP as the
Company's independent auditor. The matters are explained more fully in the
attached proxy statement, which you are encouraged to read.
The Board of Directors recommends that you elect its nominees for
directors and approve the proposals. It urges you to return in the accompanying
business reply envelope your signed proxy card, or cards, at your earliest
convenience, whether or not you plan to attend the annual meeting so that your
shares will be represented at the annual meeting. This will not limit your right
to vote in person or attend the meeting.
Thank you for your continued interest in the Company.
Very truly yours,
Bernard Berk
President and Chief Executive Officer
2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
ELITE PHARMACEUTICALS, INC.
June 15, 2006
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Elite
Pharmaceuticals, Inc. (the "COMPANY", "ELITE", "US" or "WE") will be held at the
offices of Reitler Brown & Rosenblatt LLC, 800 Third Avenue, 21st Floor, New
York, New York 10022, on June 15, 2006 at 10:00 a.m., to consider and act upon
the following:
1. The election of four 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 an amendment of the Company's Stock Option Plan.
3. A proposal to approve and ratify the sale of shares of our Series B
Preferred Stock convertible into shares of our Common Stock and related
warrants to purchase additional shares of our Common Stock pursuant to the
related Securities Purchase Agreement.
4. A proposal to ratify the appointment by Miller Ellin & Co. LLP as auditor
of the Company's financial statements for the year ending March 31, 2006.
5. The transaction of such other business as may properly come before the
meeting or any adjournment thereof that were not known a reasonable time
before the solicitation.
The Board of Directors has fixed the close of business on May 15, 2006 as the
date for determining the stockholders of record entitled to receive notice of,
and to vote at, the Annual Meeting.
By Order of the Board of Directors
/s/ Mark I. Gittelman
Mark I. Gittelman
Secretary
Northvale, New Jersey
May 15, 2006
3
ELITE PHARMACEUTICALS, INC.
165 LUDLOW AVENUE
NORTHVALE, NEW JERSEY 07647
PROXY STATEMENT
---------------
Annual Meeting of Stockholders
To Be Held June 15, 2006
INTRODUCTION
This proxy statement iS being furnished to stockholders of Elite
Pharmaceuticals, Inc. (the "COMPANY", "ELITE", "US" or "WE") in connection with
a solicitation by the Board of Directors of the Company of proxies to be voted
at the Annual Meeting of Stockholders to be held at the offices of Reitler Brown
& Rosenblatt LLC, 800 Third Avenue, 21st Floor, New York, New York 10022 on June
15, 2006, at 10:00 a.m. and any adjournments or postponements thereof. At the
meeting, the Company's stockholders will be asked to elect four Directors to
serve until the next annual meeting of stockholders to be held and until their
successors are elected and qualified, and to consider the following proposals:
(i) approve an amendment to the Company's Stock Option Plan to increase the
shares subject to the Plan from 4,000,000 to 7,000,000, (ii) approve and ratify
the Series B Preferred Stock Financing involving the sale of the Company's
Series B Preferred Stock convertible into shares of the Company's common stock
and related warrants to purchase additional shares of the Company's common
stock, and (iii) ratify the appointment by the Board of Directors of Miller
Ellin & Co. LLP as the Company's independent auditors for the year ending March
31, 2006, and vote on such other matters as may lawfully come before the Annual
Meeting.
STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of the Company's common stock, par value $.01 per share
(the "COMMON STOCK"), at the close of business on May 15, 2006 (the "RECORD
DATE") will be entitled to receive notice of, and to vote at, the Annual Meeting
and at any adjournments or postponements thereof. At the close of business on
the Record Date, there were 19,190,159 shares of Common Stock outstanding and
entitled to vote at the Annual Meeting. Each share of Common Stock is entitled
to one vote.
VOTING; REVOCATION OF PROXY; QUORUM AND VOTE REQUIRED
A form of proxy is enclosed for use at the Annual Meeting. Each proxy may be
revoked at any time before it is exercised by giving written notice to the
Secretary of the Annual Meeting, by submitting a duly executed, later-dated
proxy, or by attending the Annual Meeting and voting at the Annual Meeting.
Attendance at the Annual Meeting is not by itself sufficient to revoke your
proxy. All shares represented by valid proxies pursuant to this solicitation
(and not revoked before they are exercised) will be voted as specified in the
form of proxy. If the proxy is signed but no specification is given otherwise
the shares will be voted FOR the Board if Directors' nominees for election to
the Board of Directors and FOR each of the proposals referred to above.
A majority of the shares outstanding on the record date will constitute a quorum
for purposes of the Annual Meeting. For purposes of determining the votes cast
with respect to any matter presented for consideration at the Annual Meeting,
only those votes cast "for" or "against" are included. Abstentions and broker
non-votes are counted for the purpose of determining whether a quorum is
4
present at the Annual Meeting. A broker "non-vote" occurs when a nominee holding
shares of Common Stock for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. Accordingly, since the election of directors will be effected by a
plurality vote, abstentions and broker non-votes will not affect the outcome of
the election of directors. Since approval of the proposal with respect to the
amendment of the Company's Stock Option Plan, approval and ratification of the
Series B Preferred Stock Financing, and ratification of the appointment of the
independent auditors, requires the affirmative vote of a majority of the shares
cast in person or by proxy on the proposal, abstentions will have the same
effect as negative votes but broker non-votes will not affect the outcome.
Any stockholder who executes and delivers a proxy may revoke it at any time
before it is voted by delivering a written notice of such revocation to the
Secretary of the Company at the address of the Company set forth in this proxy
statement, by submitting a properly executed proxy bearing a later date, or by
appearing at the Annual Meeting and requesting the return of the proxy or by
voting in person. In accordance with applicable rules, boxes and designated
spaces are provided on the proxy card for stockholders to mark if they wish
either to vote for or withhold authority on the election of any of the Directors
and to vote for, against or abstain on each of the other proposals.
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.
It is anticipated that this proxy statement, the enclosed proxy card and the
Annual Report to Stockholders for the year ended March 31, 2005 will be mailed
to the Company's stockholders on or about May 26, 2006.
COSTS AND METHOD OF SOLICITATION
Solicitation of proxies may be made by directors and officers of the Company by
mail, telephone, facsimile transmission or other electronic media and in person
for which they will receive no additional compensation. We will not solicit
proxies via the Internet, such as Internet chat rooms and/or posting on
websites. Solicitation of proxies may be made by directors, officers and regular
employees of Elite. The entire cost of soliciting proxies will be borne by the
Company. Upon request, the Company 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.
PRINCIPAL OFFICE
The Company's principal office is located at 165 Ludlow Avenue, Northvale, New
Jersey 07647, and its telephone number is (201) 750-2646.
5
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership, as of May 15, 2006, of the shares of Common Stock of each
stockholder of the Company known to the Company, based upon such person's
representations or publicly available filings, to own beneficially more than 5%
of the voting securities as of that date. The shares of Series B 8% Convertible
Preferred Stock, par value $0.01 per share (the "SERIES B PREFERRED SHARES"),
all of which were issued in a private placement effected by the Company in March
2006, have no voting rights as to the matters to be considered at the Annual
Meeting.
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 AMOUNT* PERCENT
Trellus Management Company, LLC 996,400(1) 5.5%
Adam Usdan
350 Madison Avenue, 9th Floor
New York, New York 10017
Jerome Belson 969,000 (2) 5.4%
495 Broadway
New York, New York 10012
-----------------
(1) Based on information provided by Trellus Management Company and Adam Usdan
in the Schedule 13G filed February 15, 2006. Trellus Management Company and
Adam Usdan have shared voting and dispositve power.
(2) Based on information provided by Mr. Belson for inclusion in the Company's
Prospectus dated December 28, 2004. Includes (i) 281,000 shares issuable
upon exercise of warrants, (ii) 53,900 shares held by his wife, (iii)
63,300 shares held by other members of his family, and (iv) 50,000 shares
held by the Jerome Belson Foundation.
ITEM 1. ELECTION OF DIRECTORS
BOARD OF DIRECTORS' NOMINEES
The Company's 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 four.
The holders of Common Stock will elect four directors at the Annual Meeting,
each of whom will be elected to serve until the next annual meeting of
stockholders and thereafter until their
6
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.
The nominees of the Board of Directors, all of whom are currently Directors,
were selected by a Nominating Committee consisting of Mr. Edward Neugeboren, Dr.
Barry Dash and Dr. Melvin Van Woert. At the time of their selection they
qualified as independent directors, as defined by Section 121A of the American
Stock Exchange Listing Standards, as amended effective December 1, 2003, because
none of them is an officer or employee of the Company or its subsidiary or is a
person who the Board of Directors determines has a material relationship with
the Company that would interfere with the exercise of his independent judgment.
In selecting each of the nominees for the Annual Meeting, the Committee
identified and evaluated the current Directors and their commitment to the
policy of the Company and his qualifications and availability. The Committee
believes that a nominee for director of the Company should have an appropriate
level of sophistication, knowledge and understanding of the Company and the
industry, stockholder relations and finance and accounting for publicly held
companies. The Committee also considered the need to select a nominee who had
the appropriate experience and financial background who could qualify as an
"audit committee financial expert" within the meaning of the rules under the
Securities Exchange Act of 1934 and of the American Stock Exchange. Mr.
Neugeboren qualifies as an audit committee finance expert. The Company did not
engage any third party to assist in the process of identifying or evaluating
candidates. The Company currently does not have a process for considering
candidates put forward by stockholders other than those who are directors of the
Company.
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 the Board of Directors of
the Company. Each of the nominees for director has agreed to serve if elected
and has consented to being named in this Proxy Statement.
NAME AND ADDRESS AGE DIRECTOR SINCE
Bernard Berk 57 2004
c/o Elite Pharmaceuticals Inc.,
165 Ludlow Avenue,
Northvale, NJ 07647
Edward Neugeboren 37 2005
282 New Norwalk Road,
New Canaan, CT 06840
Barry Dash, Ph. D 74 2005
168 Wood Road
Englewood Cliffs, NJ 07632
Melvin M. Van Woert, M.D. 75 2005
Mount Sinai Medical Center
P.O. Box 1137
One Gustave L. Levy Place
New York, NY 10029-6576
7
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 was appointed the Chief Executive Officer of the Company in
June 2003 and a Director in February 2004. Mr. Berk has been the President and
Chief Executive Officer of Michael Andrews Corporation, a pharmaceutical
management consultant firm, since 1996. Mr. Berk was from 1994 until 1996,
President and Chief Executive Officer of Nale Pharmaceutical Corporation. From
1989 until 1994, the Senior Vice President of Sales, Marketing and Business
Development of Par Pharmaceuticals, Inc. Mr. Berk holds a B.S. from New York
University.
Mr. Edward Neugeboren has been a Managing Partner of IndiGo Ventures LLC, an
investment-banking firm based in New York, since January 2003. From May 2001 to
January 2004, Mr. Neugeboren was a managing partner of Third Ridge Capital
Management, LLC, a U.S. equity hedge fund. He was from October 2000 to April
2001 the Chief Administrative Officer of Soceron, a then emerging Silicon Alley
based media software company, and from 1988 to 2000 the Chief Administrative
Officer and director of Equity Research Operations at Lehman Brothers. He was
from 1996 to 1998 deputy director of Equity Research at UBS Warburg, formerly
Warburg, Dillon Read, and director of Equity Research Operations from 1995 to
1996. Mr. Neugeboren began his career in 1992 as an equity research analyst
covering the specialty pharmaceuticals industry, constituting generic drugs and
drug delivery, at Dillon Read & Co., Kidder, Peabody & Co. and Furman Selz, Inc.
Mr. Neugeboren is a Director of KineMed, Inc. a platform based drug development
and advanced medical diagnostics company based in San Francisco, California.
Dr. Barry Dash has been since 1995 President and Managing Member of Dash
Associates, L.L.C., an independent consultant to the pharmaceutical and health
and beauty aid 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,
during which time he helped introduce more than 14 national and test market
brands. From 1976 to 1978 he was Vice President, Director of Laboratories of the
Consumer Products Division of American Can Company. He is a director of
GeoPharma, Inc. 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.
Dr. Melvin Van Woert, an internist, 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 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
8
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.
There is no family relationship between the nominees.
BOARD OF DIRECTORS MEETINGS
The Board of Directors of the Company had four meetings and acted by unanimous
written consent on other occasions during the fiscal year ended March 31, 2005.
No incumbent director attended fewer than 75% of the meetings of the Board of
Directors during that year.
COMMITTEES
The Board of Directors has an Audit Committee and a Nominating Committee; its
only standing committees. The members of the Nominating Committee and of the
Audit Committee are Edward Neugeboren, Barry Dash and Melvin Van Woert.
The Audit Committee had one meeting during the fiscal year ended March 31, 2005.
A copy of its written charter (adopted by the Board of Directors) was included
as an appendix to the Company's proxy statement sent to stockholders in
connection with the annual meeting of stockholders held October 11, 2001.
The Company deems the members of its Audit Committee to be independent and that
Mr. Neugeboren qualifies as an audit committee financial expert.
Audit Committee Report: The following is the Audit Committee Report for the year
ended March 31, 2005 made by all its members.
The Audit Committee reviewed and discussed the audited financial statements with
management. The Audit Committee discussed with the independent auditors of the
Company the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU 380), as modified or supplemented. The
Audit Committee received the written disclosures and the letter from the
independent accountants required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees), as modified or supplemented. The Audit Committee discussed
with the independent accountant the independent accountant's independence. Based
upon the foregoing review and discussions, the Audit Committee recommended to
the Board of Directors of the Company that the Company's financial statements
for the fiscal year ended March 31, 2005, as audited, be included in the
Company's Annual Report on Form 10-K for the year, as filed with the Commission.
The Nominating Committee is authorized to select the nominees of the Board of
Directors for election as directors. The nominees selected by the Committee have
been approved by the Board of Directors.
COMPENSATION OF DIRECTORS
Each independent director receives $2,000 as compensation for each meeting of
the Board of Directors attended.
Mr. John A. Moore who served as Chairman of the Board of Directors from January
1, 2004 through May 12, 2004, the date of his resignation, was paid $46,875 by
the Company, for his
9
services as Chairman of the Board of Directors based on the substantial duties
the Board of Directors assigned to him, principally to assist the Chief
Executive Officer in the management of the Company's operations, and the time
required to perform such duties.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE FOUR
NOMINEES OF THE BOARD OF DIRECTORS DESCRIBED ABOVE.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the knowledge of the Company, there was no person who, at any time during the
fiscal year ended March 31, 2005, was a director, officer or beneficial owner of
more than 10% of any class of equity securities of the Company 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 during the fiscal year ended March 31, 2005, other than Mr.
Neugeboren who was late in the filing of a Form 4.
EXECUTIVE OFFICERS
Our executive officers are Bernard J. Berk, Mark I. Gittelman, Chris Dick and
Dr. Charan Behl.
Mr. Berk, age 57, was appointed Chief Executive Officer in June 2003
and a Director in February 2004. See "Election of Directors - Board of
Directors' Nominees" for his business background.
Mr. Berk is employed pursuant to an employment agreement, dated as of
June 23, 2003, as amended and restated on September 2, 2005 (the "RESTATED
EMPLOYMENT AGREEMENT"), providing for him to serve as the Company's Chief
Executive Officer through August 31, 2009. Mr. Berk's salary was increased to
$330,140 as a result of the occurrence of a Strategic Transaction pursuant to
the terms of the Restated Employment Agreement, the increase from $200,000 was
effective May 1, 2005 but not payable until November 1, 2005. Additionally, Mr.
Berk is entitled to an annual bonus as determined by the Compensation Committee.
Pursuant to the Restated Employment Agreement, Mr. Berk (i) waived his
rights to 75,000 of the 300,000 options granted to him under the agreement on
June 23, 2003 and the Company determined that the remaining 225,000 options
fully vested as a result of the occurrence of a Strategic Transaction and (ii)
was granted on September 2, 2005 under its 2004 Stock Option Plan (the "PLAN")
ten year options to purchase 600,000 shares of common stock at $2.69, the fair
market value of the Common Stock as of the time of the grant, of which 100,000
vest on September 2, 2006, 100,000 vest on September 2, 2007 and the remaining
400,000 vest as follows: (a) 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) in which the Company receives an aggregate of at least
$5,000,000 in net cash proceeds (including royalties and signing, license and
milestone payments) in connection with such product transaction; (b) 10,000
shares upon the filing by the Company (in the Company's 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 (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; and (c) 40,000 shares upon
the approval by the FDA of any ANDA or NDA (filed in the Company's name) for a
product not previously approved by the FDA.
10
The Company also agreed that in the event that options to purchase the
above 400,000 shares have fully vested, it will grant him under the Plan fully
vested additional options to purchase shares at the fair market value on the
date of grant as follows: (a) 50,000 options upon the closing of each product
license or product sale transaction (on a product by product basis and only once
for each product) in which the Company receives an aggregate of at least
$5,000,000 in net cash proceeds (including royalties and signing, license and
milestone payments) in connection with such product transaction; (b) 10,000
options upon the filing by the Company (in the Company's name) with the FDA of
either an ANDA or NDA for a product not covered by a previous FDA application;
and (c) 40,000 options upon the approval by the FDA of any ANDA, NDA or
505(b)(2) application filed in the Company's name for a product not previously
approved by the FDA.
The Restated Employment Agreement provides that if the Company
terminates Mr. Berk's employment without cause or Mr. Berk 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 the Company's 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 the Company 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 the Company terminates 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 the Company. In the
event that the Company terminates Mr. Berk's employment for cause or Mr. Berk
terminates his employment with the Company 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.
The Restated Employment Agreement provides that in the event of a
change of control in lieu of any severance that may otherwise be payable to Mr.
Berk if Mr. Berk elects to terminate his employment for any reason within 90
days thereof, or the Company elects 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 equal to the 12
months following the effective date of termination, of replacing the life and
disability insurance coverage afforded to Mr. Berk under the Company's benefit
plans with substantially similar coverage and (v) payment by the Company 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.
The Restated Employment Agreement contains Mr. Berk's non-competition
covenant for a period of one year from termination.
Mark I. Gittelman, age 46, 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
11
accounting from New York University and a Masters of Science in Taxation from
Farleigh 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 51, who is employed on an "at-will" basis, 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 in March, 2006 Executive Vice
President and Chief Scientific Officer of the Company. 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.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company for each of the years in the three
year period ended March 31, 2005, awarded or paid to, or earned by our President
and Chief Executive Officer and those executive officers who earned at least
$100,000 during the year, including Mr. Chris Dick and Dr. Charan Behl who were
elected officers in March 2006. Dr. Behl's compensation for the years ended
March 2004 and 2005 consisted of consulting fees at the rate of $200 per hour.
12
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Fiscal Salary Bonus Other Annual Restricted Securities LTIP All Other
Principal Year(1) Compensation Stock Underlying Payouts Compensation
Position Awards Options
--------------------------------------------------------------------------------------------------------------------------------
Bernard Berk, 2004-05 $200,000 $50,000 -- -- 30,000 -- --
President and 2003-04 $166,667 -- -- -- 525,000 -- --
Chief Executive
Officer
--------------------------------------------------------------------------------------------------------------------------------
Atul M. Mehta, 2004-05 -- -- -- -- -- -- --
Ph.D. former 2003-04 $53,684 -- $3,040(3) -- -- -- --
President and 2002-03 $330,140 -- $3,040(3) -- -- -- --
Chief Executive
Officer (2)
--------------------------------------------------------------------------------------------------------------------------------
Chris Dick, 2004-05 $140,250 $25,000 -- -- -- -- --
Executive Vice 2003-04 $137,000 -- -- -- 30,000 -- --
President of 2002-03 $34,250 -- -- -- 30,000 -- --
Corporate
Development
--------------------------------------------------------------------------------------------------------------------------------
Charan Behl, 2004-05 $392,455(4) -- -- -- -- --
Executive Vice 2003-04 $151,114 -- -- -- -- --
President and 2002-03 -- -- -- -- -- --
Chief Scientific
Officer
--------------------------------------------------------------------------------------------------------------------------------
-------------------------
(1) The information is provided for each fiscal year which begins on April 1
and ends on March 31.
(2) Dr. Mehta resigned as an employee and as a director of the Company as of
June 3, 2003.
(3) Represents the value of the use of a company car and premiums paid by the
Company for life insurance on Dr. Mehta's life for the benefit of his wife.
(4) Includes $229,325 of fees paid by the issuance to him 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.
OPTION GRANTS TO AND EXERCISED BY EXECUTIVE OFFICERS IN LAST FISCAL YEAR
Options granted during the fiscal year ended March 31, 2005 to the executive
officers named in the Summary Compensation Table were as follows:
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 2005
NUMBER OF % OF TOTAL POTENTIAL REALIZED VALUE AT
NAME SHARES OPTIONS GRANTED EXERCISE EXPIRATION ASSUMED ANNUAL RATES OF
UNDERLYING TO EMPLOYEES IN PRICE DATE STOCK PRICE APPRECIATION
OPTIONS FISCAL YEAR FOR OPTION TERM
GRANTED
5% 10%
-- ---
Bernard Berk 30,000 30% $2.34 8/30/2015 $36,000 $103,500
Atul M. Mehta -- -- -- -- -- --
Chris Dick 30,000(1) 30% $2.34 6/22/2014 $36,000 $80,400
30,000 30% $2.21 6/13/2014 $31,800 $75,900
Charan Behl -- -- -- -- -- --
Mark Gittelman 10,000(1) 10% $2.34 6/22/2014 $11,200 $26,800
(1) Granted on June 22, 2004 in replacement of options with a higher exercise
price.
No options were exercised by executive officers during the fiscal years
ended March 31, 2005 and 2006.
13
NUMBER OF SHARES UNDERLYING
SHARES VALUE UNEXERCISED OPTIONS AT MARCH 31, VALUE OF UNEXERCISED IN-THE-MONEY
NAME EXERCISED REALIZED 2006 OPTIONS AT MARCH 31, 2006 (1)
---- --------- -------- ------------------------------- ---------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Atul M. Mehta(2) -0- -0- 170,000 -0- $25,500 -0-
-0- -0- 100,000 -0- -0- -0-
-0- -0- 100,000 -0- -0- -0-
-0- -0- 100,000 -0- $49,000 -0-
-0- -0- 100,000 -0- $99,000 -0-
Bernard Berk (3) -0- -0- 300,000 -0- $144,000 -0-
-0- -0- 225,000 -0- $76,500 -0-
-0- -0- 30,000 -0- $45,000 -0-
-0- -0- -0- 30,000 -0- -0-
-0- -0- -0- 600,000 -0- -0-
Chris Dick -0- -0- 30,000 -0- $4,500 -0-
-0- -0- 30,000 10,000 $5,600 $2,800
-0- -0- 30,000 -0- -0- -0-
Mark Gittelman -0- -0- 10,000 20,000 -0- -0-
(1) The dollar values are calculated by determining the difference between
$2.49 per share, the fair market value of the Common Stock at March 31,
2006, and the exercise price of the respective options.
(2) Dr. Mehta resigned as an officer/employee and director as of June 3, 2003.
(3) Mr. Berk entered the employ of the Company in June 2003.
SECURITY OWNERSHIP OF OUR DIRECTORS, NOMINEES
AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of the Record Date by (i) each director,
nominee for director, and executive officer named under the Executive Officer
Compensation Table, (ii) each other executive officer and (iii) all executive
officers and directors as a group. On such date, we had 19,190,159 shares of
Common Stock outstanding. (The 10,000 shares of Series B Preferred Stock
outstanding are nonvoting and none of the individuals listed below beneficially
owns any shares of Series B Preferred Stock). Shares not outstanding but deemed
beneficially owned by virtue of the right of any individual to acquire shares
within 60 days of the foregoing date are treated as outstanding only in
determining the amount and percentage of Common Stock owned by such individual.
Each person has sole voting and investment power with respect to the shares
shown, except as noted.
14
NAME AND ADDRESS COMMON STOCK
AMOUNT %
------ ----
Bernard Berk, Director and Chief Executive
Officer* 1,352,300(1) 7.04
Edward Neugeboren, Director* 221,063(2) 1.15
Barry Dash, Director* 30,000(3) **
Melvin Van Woert, Director* 30,000(4) **
Dr. Charan Behl, Executive Vice President and 546,000(5) 2.77
Chief Scientific Officer
c/o Elite Pharmaceuticals Inc.
165 Ludlow Avenue
Northvale, NJ 07647
Chris Dick, Executive Vice President of 135,377(6) **
Corporate Development
c/o Elite Pharmaceuticals Inc.
165 Ludlow Avenue
Northvale, NJ 07647
Mark I. Gittelman, Chief Financial Officer 100,000(7) **
c/o Elite Pharmaceuticals Inc.
165 Ludlow Avenue
Northvale, NJ 07647
Dr. Atul Mehta 570,000(8) 2.89
c/o Katten Muchin Zavis Rosenman
575 Madison Avenue
New York, NY 10022
All Directors and Officers as a group(9) 2,984,740(9) 13.07
* See "Election of Directors - Board of Directors Nominees" for his address.
** Less than 1%
(1) Includes options to purchase 1,185,000 shares. See "Executive Officers".
(2) Includes options and warrants to purchase an aggregate of 190,571 shares.
(3) Represents options.
(4) Represents options.
(5) Includes warrants to purchase 130,000 shares.
(6) Includes options to purchase 100,000 shares of Common Stock and warrants
held by Mr. Dick and Hedy Rogers as joint tenants to purchase 10,569 shares
of Common Stock.
(7) Represents options.
(8) Represents options.
(9) Includes options and warrants to purchase an aggregate of 2,246,140 shares.
15
Except as otherwise set forth, information on the stock ownership of
each person was provided to the Company by such person.
The Company does not have any compensation plans or outstanding
arrangements benefiting employees or non-employees under which equity securities
of the Company are authorized for issuance in exchange for consideration in the
form of goods or services other than pursuant to the Stock Option Plan and
agreements with independent consultants pursuant to which warrants to purchase
an aggregate of 467,500 shares of Common Stock were granted. See "Item 2.
Proposal to Amend Stock Option Plan".
The Company is informed and believes that as of May 15, 2006, Cede &
Co. held 17,479,536 shares of the Company's Common Stock as nominee for
Depository Trust Company, 55 Water Street, New York, New York 10004. It is our
understanding that Cede & Co. and Depository Trust Company both disclaim any
beneficial ownership therein and that such shares are held for the account of
numerous other persons, no one of whom is believed to beneficially own five
percent or more of the Common Stock of the Company.
COMPARATIVE STOCKHOLDER RETURN
The graph which follows compares the yearly percentage change in the
Company's cumulative total stockholder return on its Common Stock with the
cumulative total stockholder return of (1) all United States companies traded on
the American Stock Exchange (where the Company's Common Stock is now traded) and
(2) 51 companies traded on the American Stock Exchange which carry the Standard
Industrial Classification (SIC) code 283 (Pharmaceuticals). The graph was
prepared by the Center for Research in Security Prices at the University of
Chicago Graduate School of Business, Chicago, IL.
The Common Stock of the Company was traded on the NASDAQ
over-the-counter bulletin board from July 23, 1998 until February 24, 2000. The
Common Stock of the Company began trading on the American Stock Exchange on
February 24, 2000. The Company's fiscal year ends on March 31.
[INSERT GRAPH]
ITEM 2. PROPOSAL TO AMEND STOCK OPTION PLAN
Stockholders approved the 2004 Stock Option Plan on June 22, 2004 and
an amendment on April 15, 2005. The Board of Directors in April 2006 approved,
subject to stockholders approval, an amendment to the Company's 2004 Stock
Option Plan as amended (the "Plan") to increase the number of shares subject to
the Plan from 4,000,000 to 7,000,000 shares. The Plan authorizes the grant of
options to employees and directors of, and consultants, to the Company or its
subsidiaries.
As of May 15, 2006, there were outstanding options to purchase
2,967,500 shares, of which options to purchase 2,397,500 shares of Common Stock
were granted under the Plan. No options granted under the Plan have been
exercised.
The Company's Board of Directors on June 22, 2004 granted options under
the Plan to purchase 220,900 shares of Common Stock at $2.34 per share to
current employees who held
16
options with exercise prices higher than the options granted and surrendered the
options containing the higher exercise price. No options were granted prior to
the stockholder approval in substitution of previously granted options to any
officer or director of the Company.
To the extent any of the options granted or to be granted under the
Plan expire or terminate without being exercised they may be subject to future
grants under the Plan.
The following table sets forth information as of May 15, 2006 regarding
options previously granted by the Company (exclusive of warrants previously sold
along with shares of Common Stock in private placements by the Company) and
options granted under the Plan to each of the Company's executive officers named
under the Executive Officer Compensation Table under "Executive Compensation",
all current executive officers as a group, all current directors who are not
executive officers as a group and all employees other than executive officers as
a group:
NUMBER OF NUMBER OF OPTIONS
STOCK OPTIONS GRANTED UNDER THE
NAME AND POSITION PREVIOUSLY GRANTED* PLAN*
Atul Mehta, former President and Chief Executive
Officer (1)................................................ 670,000(1) --
Bernard J. Berk ........................................... -- 1,185,000
Mark I. Gittelman.......................................... -- 100,000
Chris Dick................................................. -- 100,000
Charan Behl................................................ -- --
Executive Officer Group (5 persons)........................ 1,385,000
Non-Executive Directors Group (3 persons) (2).............. -- 90,000
Non-Executive Officer Employee Group (17persons)........... -- 197,500
------------------------
* Includes repriced options.
(1) As part of a settlement of litigation between the Company and Dr. Mehta,
the expiration dates of options granted prior to April 1, 2001 to Dr. Mehta
to purchase 670,000 shares of Common Stock were extended to December 31,
2007 and the exercise prices of certain of the options were reduced. Dr.
Mehta exercised 100,000 of the options on March 2, 2004.
(2) Does not include an aggregate of 720,000 options granted during their terms
as directors to six former directors.
The Plan may not be amended to increase the maximum number of shares
which may be granted under the Plan (except under the anti-dilution provisions
contained therein) or to change the class of persons to whom options may be
granted without the affirmative vote of holders of the Company's Common Stock.
The Company believes the increase in the number of shares of Common
Stock subject to the Plan will enhance its efforts to attract and retain
individuals with good ability to service the Company, motivate their efforts and
serve the business interests of the Company, while reducing the cash payments
which the Company would otherwise be required to make to accomplish such
purposes.
The last reported sale price of the Company's Common Stock (symbol ELI)
on the American Stock Exchange on May 15, 2006, was $2.31 per share. The
proceeds received by us upon the exercise of the stock options granted under the
Plan will be used for general corporate purposes.
FINANCIAL STATEMENT TREATMENT OF OPTIONS
The Company since April 2002, has expensed the fair value of
equity-based awards, such as stock options and warrants, granted or modified in
accordance with accounting principles
17
generally accepted in the United States of America. Modifications such as
lowering the exercise prices or extending the expiration dates could result in
material additions to the Company's non-cash expenses.
OPTIONS AUTHORIZED
The Plan permits the Company to grant both incentive stock options
("INCENTIVE STOCK OPTIONS" or "ISOS") within the meaning of Section 422 of the
Code, and other options which do not qualify as Incentive Stock Options (the
"NON-QUALIFIED OPTIONS").
Unless earlier terminated by the Board of Directors, the Plan (but not
outstanding options) terminates on March 1, 2014, after which no further awards
may be granted under the Plan. The Plan is administered by the full Board of
Directors or, at the Board of Directors' discretion, by a committee of the Board
of Directors consisting of at least two persons who are "disinterested persons"
defined under Rule 16b-2(c)(ii) under the Securities Exchange Act of 1934, as
amended (the "COMMITTEE"). As of March 31, 2006, the Board of Directors had not
appointed a Committee.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief discussion of
the Federal income tax consequences of transactions under the Plan. This
discussion is not intended to be exhaustive and does not describe state or local
tax consequences.
INCENTIVE OPTIONS
No taxable income is realized by the Optionee upon the grant or
exercise of an Incentive Option, except as noted below with respect to the
alternative minimum tax. If Common Stock is issued to an Optionee pursuant to
the exercise of an Incentive Option, and if no disqualifying disposition of such
shares is made by such Optionee within two years after the date of grant or
within one year after the transfer of such shares to such Optionee, then (1)
upon sale of such shares, any amount realized in excess of the option price will
be taxed to such Optionee as a long-term capital gain and any loss sustained
will be a long-term capital loss, and (2) no deduction will be allowed to the
Optionee's employer for Federal income tax purposes.
Except as noted below for corporate "insiders," if the Common Stock
acquired upon the exercise of an Incentive Stock Option is disposed of prior to
the expiration of either holding period described above, generally (1) the
Optionee will realize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of such shares at exercise
(or, if less, the amount realized on the disposition of such shares) over the
option price paid for such shares and (2) the Optionee's employer will be
entitled to deduct such amount for Federal income tax purposes if the amount
represents an ordinary and necessary business expense. Any further gain (or
loss) realized by the Optionee will be taxed as short-term or long-term capital
gain (or loss), as the case may be, and will not result in any deduction by the
employer.
Subject to certain exceptions for disability or death, if an Incentive
Stock Option is exercised more than three months following termination of
employment, the exercise of the Option will generally be taxed as the exercise
of a Non-qualified Option.
For purposes of determining whether an Optionee is subject to any
alternative minimum tax liability, an Optionee who exercises an Incentive Stock
Option generally would be required to increase his or her alternative minimum
taxable income, and compute the tax basis in the stock so acquired, in the same
manner as if the Optionee had exercised a Non-qualified Option. Each Optionee is
potentially subject to the alternative minimum tax. In substance, a taxpayer is
required
18
to pay the higher of his/her alternative minimum tax liability or his/her
"regular" income tax liability. As a result, a taxpayer has to determine his
potential liability under the alternative minimum tax.
NON-QUALIFIED OPTIONS
Except as noted below for corporate "insiders," with respect to
Non-qualified Options: (1) no income is realized by the Optionee at the time the
Option is granted, except for options which vest immediately if granted at an
exercise price less than fair market value; (2) generally, at exercise, ordinary
income is realized by the Optionee in an amount equal to the difference between
the option price paid for the shares and the fair market value of the shares, if
unrestricted, on the date of exercise, and the Optionee's employer is generally
entitled to a tax deduction in the same amount subject to applicable tax
withholding requirements; and (3) at sale, appreciation (or depreciation) after
the date of exercise is treated as either short-term or long-term capital gain
(or loss) depending on how long the shares have been held.
As a result of a recent ruling by the IRS, if a granted Non-qualified
Option contains an exercise price below fair market value on the date of grant,
the Optionee will realize on the first date the option is exercisable ordinary
income in an amount equal to the difference between the exercise price and the
fair market value on the date of grant.
SPECIAL RULES APPLICABLE TO CORPORATE INSIDERS
As a result of the rules under Section 16(b) of the Exchange Act,
"insiders" (as defined in the Securities Exchange Act of 1934), depending upon
the particular exemption from the provisions of Section 16(b) utilized, may not
receive the same tax treatment as set forth above with respect to the grant
and/or exercise of options. Generally, insiders will not be subject to taxation
until the expiration of any period during which they are subject to the
liability provisions of Section 16(b) with respect to any particular option.
Insiders should check with their own tax advisers to ascertain the appropriate
tax treatment for any particular option.
BENEFITS. Inasmuch as awards to all participants under the Plan will be
granted at the sole discretion of the Board of Directors or Committee, such
benefits under the Plan are not determinable.
VOTE REQUIRED; RECOMMENDATION. Approval of the amendment of the Plan
will require the affirmative vote of the holders of a majority of the shares of
the Common Stock of the Company present, in person or by proxy, at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE THEIR SHARES
FOR THE PROPOSAL TO AMEND THE STOCK OPTION PLAN.
ITEM 3. PROPOSAL TO APPROVE AND RATIFY SERIES B
PREFERRED FINANCING
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
19
of common stock upon conversion or exercise of other securities issued in
connection with a transaction.
In the Series B Preferred Financing described below the number of
shares of common stock issuable upon conversion of the Series B Preferred Shares
and exercise of Warrants issued to the investors and the Placement Agent and its
designees represent in the aggregate 7,022,221 shares, or 26.72% of the shares
of our Common Stock, outstanding on March 15, 2006, the date of the closing of
the sale, on an as converted basis. The Series B Preferred Shares 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 common stock on AMEX. Additionally, the
Series B Preferred Shares accrue mandatory dividends which may be paid in shares
of Common Stock, the applicable market price of which could be less than the
closing sales price of a share of Common Stock on AMEX. The occurrence of either
type of issuance could result in AMEX deeming the Series B Financing in
violation of the 20% Rule. Accordingly, the Company is proposing that the
stockholders approve and ratify the Series B Preferred Financing.
On March 15, 2006, the Company sold pursuant to a Securities Purchase
Agreement (the "PURCHASE AGREEMENT") in a private placement through Indigo
Securities LLC, the placement agent ("PLACEMENT AGENT"), 10,000 shares of its
Series B 8% Convertible Preferred Stock, par value $0.01 per share (the "SERIES
B PREFERRED SHARES"), at a price of $1,000 per share (the "STATED VALUE"), each
share convertible, at $2.25 of the Stated Value, into 444.4444 shares of Common
Stock, or an aggregate of 4,444,444 shares of Common Stock for all 10,000 Series
B Preferred Shares. Purchasers of the Series B Preferred Shares (the
"INVESTORS") were issued two classes of five year warrants to purchase Common
Stock (collectively, the "WARRANTS"), exercisable on or prior to March 15, 2011.
Each class represents the right to purchase an aggregate of 1,111,111 shares
with $2.75 per share as the exercise price for one class and $3.25 per share the
exercise price for the other class. The Warrants provide a right of cashless
exercise at any time after one year from the date of issuance of the Warrants if
at the time of exercise there is no effective registration statement
registering, or no current prospectus available for, the resale of the shares
underlying the Warrants. The conversion rate of each share of Series B Preferred
Stock and the exercise price of the Warrants are 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 or exercise price. Subject to
certain exceptions set forth in the Purchase Agreement, the Series B Preferred
Stockholders have preemptive rights with respect to issuance of the Common Stock
or securities convertible or exercisable for Common Stock, on the same terms,
conditions and price provided for in such issuance. The Company has also agreed
that it will not issue shares of Common Stock or securities convertible or
exercisable for Common Stock, subject to specific exceptions, until 180 days
after the date the initial registration statement filed by the Company pursuant
to the related Registration Rights Agreement, dated as of March 15, 2006 (the
"REGISTRATION RIGHTS AGREEMENT"), between the Company and the Investors, is
first declared effective by the Securities and Exchange Commission (the
"COMMISSION").
The Registration Rights Agreement grants the holders of Series B
Preferred Shares demand and piggy-back registration rights at the Company's
expense with respect to a resale of the shares of Common Stock ("REGISTRABLE
SECURITIES") issuable upon conversion of the Series B Preferred Shares, upon
exercise of the Warrants (including the Placement Agent's warrants) and in
satisfaction of dividend obligations. A registration statement was filed by the
Company on April 13, 2006 and declared effective by the Commission on April 25,
2006. If the registration statement ceases for any reason to remain continuously
effective as to all Registrable Securities for which it
20
is required to be effective, or the investors are otherwise not permitted to
utilize the prospectus therein to resell such Registrable Securities for more
than 30 consecutive calendar days or more than an aggregate of 45 calendar days
during any 12-month period, the Company has agreed to pay as partial liquidated
damages an amount equal to 2% of the aggregate purchase price paid by such
investor for any Registrable Securities then held by such investor and which may
not then be sold by the registration statement or under Rule 144, but such
payments may not exceed 18% per Investor of the aggregate purchase price paid by
such investor pursuant to the Purchase Agreement. Liquidated damages unpaid for
seven days or more accrue interest at 18% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law), daily from the due date
the obligation is incurred.
Each purchaser of the Series B Preferred Shares represented that such
purchaser is an "accredited investor" and agreed that the securities issued in
the private placement bear a restrictive legend against resale without
registration under the Act. The Series B Preferred Shares and warrants were sold
by Company pursuant to the exemption from registration afforded by Section 4(2)
of the Act and Regulation D thereunder.
The gross proceeds of the sale were $10,000,000 before payment of
$800,000 in commissions to the Placement Agent and selected dealers. The Company
also paid the legal fees and expenses of counsel to the Placement Agent and
$200,000 of additional expenses. The Company issued to the Placement Agent and
its designees five year warrants to purchase 355,555 shares of Common Stock with
similar terms to the warrants issued to the investors except that the exercise
price is $2.25 per share.
The Series B Preferred Shares accrue dividends at the rate of 8% per
annum on their $1,000 Stated Value (increasing to 15% per annum after March 15,
2008), payable quarterly on January 1, April 1, July 1 and October 1, in cash or
shares of Common Stock with each share valued at 95% of the average of the
volume weighted average price ("VWAP") for the 20 consecutive trading days
ending on the trading day that is immediately prior to the dividend payment
date. Any dividends that are not paid within 5 trading days following a dividend
payment date, shall continue to accrue and the Company is to pay a late fee 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). The Company paid an aggregate of $33,333.33 in cash in
satisfaction of the first payment on April 1, 2006 of the dividend. The Company
is prohibited from paying dividends on Common Stock or any other capital stock
ranked junior to the Series B Preferred Shares prior to the satisfaction of the
Series B Preferred Shares dividend obligation.
Upon the liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary ("LIQUIDATION"), each share of Series B Preferred Stock
is entitled to a preference equal to the Stated Value, plus any accrued but
unpaid dividends thereon and any other fees or liquidated damages owing thereon
which preference is prior to the liquidation rights of any other capital stock
ranked junior to the Series B Preferred Shares.
The holders of Series B Preferred Shares do not have any voting rights
except (A) as required by law; and (B) the Company may not without the prior
affirmative vote of holders of at least 70% of the then outstanding Series B
Preferred Shares: (i) alter or change adversely the powers, preferences or
rights given to the Series B Preferred Shares or alter or amend the Series B
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 Series B Preferred Shares, (iii) amend the
certificate of incorporation, bylaws or other charter documents in
21
any manner that adversely affects any rights of the holders of the Series B
Preferred Shares, (iv) increase the authorized number of Series B Preferred
Shares, (v) enter into any agreement with respect to any of the foregoing, (vi)
other than Permitted Indebtedness (as defined) incur prior to March 16, 2009 any
indebtedness for borrowed money of any kind, (vii) other than Permitted Liens
(as defined), incur prior to March 16, 2009, any liens of any kind, (viii) other
than as permitted by the Series B Preferred Certificate, repay or repurchase
more than a DE MINIMIS number of shares of Common Stock or securities
convertible or exchangeable into Common Stock, (ix) pay cash dividends or
distributions on any of our securities junior to the Series B Preferred Shares
or (x) enter into any agreement or understanding with respect to clauses (iii),
(vi), (vii), or (viii). Notwithstanding the above, the Company may issue any
security issued in connection with a Strategic Transaction (as defined) that
ranks as to dividends, redemption or distribution of assets upon a liquidation
PARI PASSU with or junior to the Series B Preferred Shares without the approval
of holders of the then outstanding shares of Series B Preferred Shares.
The Series B Preferred Shares are to be automatically converted into
Common Stock upon written notice to the holders of the Series B Preferred Shares
that (i) the VWAP Common Stock for each day in a period of 20-consecutive
trading days during a Threshold Period (as defined) exceeded $5.38 (subject to
adjustment), and (ii) the volume for each such day exceeded 50,000 shares
(subject to adjustment for forward and reverse stock splits, recapitalizations,
stock dividends and the like).
Upon the occurrence of certain Triggering Events (as defined), each
Series B Preferred Share is to be redeemed for cash in an amount equal to the
sum of (i) 130% of its Stated Value, (ii) all accrued but unpaid dividends
thereon and (iii) all liquidated damages and other costs, expenses or amounts
due in respect of the shares (the "TRIGGERING REDEMPTION AMOUNT"). If at any
time the Commission, the Company's auditors, Amex (or similar trading exchange)
or any other governmental or regulatory authority having jurisdiction over the
Company determines 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 the control of the Company (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 B Preferred Shares shall not be
included in the Company's balance sheet under the heading "stockholder equity",
then in lieu of a cash payment of the Triggering Redemption Amount, the Company
is to satisfy its obligation by the issuance of such 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.
At its option, the Company may redeem for cash not less than all of the
Series B Preferred Shares outstanding, at any time after March 15, 2008 for a
redemption price per share 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 B Preferred Shares.
The Purchase Agreement provides that if the Series B Financing is not
approved at this Annual Meeting, the Company is 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 B
Preferred Shares. Pending such approval, the Company will not issue shares of
its Common Stock upon conversion of the Series B Preferred Shares and exercise
of the Warrants and Placement Agent Warrants, which exceed for all conversion
and exercises 7,022,221 shares of Common Stock in the aggregate.
22
Pursuant to the Purchase Agreement, unless the stockholders approve the
Series B Financing, the Company may not issue common stock or securities of the
Company 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 $2.15 (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 B
Financing, the Company is not permitted to pay dividends in shares of Common
Stock if the price at which such shares are valued is less than $2.15.
VOTE REQUIRED. Approval of the transactions contemplated by the
Purchase Agreement and documents related thereto, including the issuance of the
shares of Common Stock underlying the Series B Preferred Shares, Warrants and
Placement Agent Warrants in an amount aggregating more than 19.99% of the
19,190,159 shares issued and outstanding on March 15, 2006 will require the
affirmative vote of the holders of a majority of the shares of the Common Stock
of the Company 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.
RECOMMENDATION. The Board of Directors believed and believes that the
Series B Financing is beneficial to the Company and its stockholders and was
effected on reasonable terms. The net cash proceeds of $9,000,000 after
deducting the Placement Agent's commission, expense reimbursement and allowance
are being applied for general corporate purposes, principally the further
development of the Company's controlled release drug technology and products.
The Board of Directors also believes that the Series B Financing will assist the
Company in achieving compliance by July 3, 2007, the date the Amex has set for
the Company to comply with the continued listing standards of its Common Stock
as to the amount of shareholders equity - at least $4,000,000 if it has losses
from continuing operation and/or net losses in three of its four most recent
fiscal years or $6,000,000 if it has losses from continuing operations and/or
net losses in its five most recent fiscal years.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE SERIES B PREFERRED FINANCING TRANSACTIONS, INCLUDING THE
ISSUANCE OF MORE THAN 7,022,221 SHARES OF COMMON STOCK UPON CONVERSION AND
EXERCISE OF THE SERIES B PREFERRED STOCK AND WARRANTS.
ITEM 4. PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors, subject to stockholder approval, appointed
Miller, Ellin & Co., LLP ("MILLER ELLIN") as independent auditors of the Company
for its financial statements for the fiscal year ending March 31, 2006. Miller
Ellin has audited the consolidated financial statements of the Company 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 ratification of
the appointment will require the affirmative vote of the holders of a majority
of the shares of Common Stock present, voting in person or by proxy.
23
Stockholder ratification of the appointment is not required by the
Company's Certificate of Incorporation or By-laws or otherwise. If the
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 the best interests of the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF MILLER, ELLIN & CO., LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31, 2006.
AUDITOR FEES
The following is a description of the fees paid by the Company to
Miller Ellin during the fiscal year ended March 31, 2005:
Audit Fees: The Company paid fees of approximately $123,000 to Miller
Ellin in connection with its audit of the Company's financial statements for the
fiscal year ended March 31, 2005, and its review of the Company's interim
financial statements included in the Company's Quarterly Reports on Form 10-Q
during the fiscal year ended March 31, 2005, and preparation of the corporate
tax returns.
Financial Information Systems Design and Implementation Fees: The
Company did not engage Miller Ellin during the year to provide advice to the
Company regarding financial information systems design and implementation.
Other fees: The Company did not pay any fee to Miller Ellin to perform
non-audit services during the year.
OTHER MATTERS
We are not aware of any matters to be presented at the Annual Meeting
other than those described in this proxy statement. However, if other matters
which are not known a reasonable time before the solicitation should come before
the Annual Meeting, it is intended that the holders of proxies solicited hereby
will vote on such matters in their discretion.
A COPY OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED
MARCH 31, 2005, INCLUDING FINANCIAL STATEMENTS, ACCOMPANIES THIS PROXY
STATEMENT. THE ANNUAL REPORT IS NOT TO BE REGARDED AS PROXY SOLICITING MATERIAL
OR AS A COMMUNICATION BY MEANS OF WHICH ANY SOLICITATION IS TO BE MADE.
STOCKHOLDER PROPOSALS
Any proposal intended to be presented by a stockholder at the next
Annual Meeting of Stockholders must be received by the Company at the address
specified below no later than the close of business on January 26, 2007 in order
for such proposal to be eligible for inclusion in the Company's proxy statement
and form of proxy for the Annual Meeting. 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.
24
WHERE YOU CAN FIND MORE INFORMATION
The Company files 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.
May 15, 2006 By Order of the Board of Directors
Mark I. Gittelman, Secretary
25
ELITE PHARMACEUTICALS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 15, 2006
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 2005 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 15, 2006 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, Edward Neugeboren, Barry Dash and
Melvin Van Woert
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 the amendment of the Company's Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to approve and ratify the Series B Financing described in the Proxy
Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to ratify the appointment of the independent auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. 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, 3 AND 4 AS DESCRIBED ON THE REVERSE
SIDE OF THIS CARD.
Your 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:
--------------------- --------------------------------------------
Signature
----------------------------
PLEASE COMPLETE, SIGN, DATE
AND RETURN THE PROXY CARD
PROMPTLY USING THE
ENCLOSED ENVELOPE.
----------------------------
--------------------------------------------
Signature, if held by joint owners