-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eet+IGUF/gSDqr7F2WU8OzZG80e4FuIzRCTMTpEbYwb/bW9ehWUHP14hZ1Jw0QiM T8avjGcIajL2CQOtYDoG3g== 0001053369-00-000016.txt : 20000307 0001053369-00-000016.hdr.sgml : 20000307 ACCESSION NUMBER: 0001053369-00-000016 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20000303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELITE PHARMACEUTICALS INC /DE/ CENTRAL INDEX KEY: 0001053369 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223542636 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-90633 FILM NUMBER: 561139 BUSINESS ADDRESS: STREET 1: 165 LUDLOW AVENUE CITY: NORTHVALE STATE: NJ ZIP: 07647 BUSINESS PHONE: 2018456611 MAIL ADDRESS: STREET 1: 165 LUDLOW AVENUE CITY: NORTHVALE STATE: NJ ZIP: 07647 SB-2/A 1 REGISTRATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ELITE PHARMACEUTICALS, INC. (Name of small business issuer in its charter) DELAWARE 2834 22-3542636 (State or jurisdiction of(Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) No.) 165 LUDLOW AVENUE, NORTHVALE, NJ 07647 / (201)750-2646 (Address and telephone number of principal executive offices and principal place of business) ATUL M. MEHTA, PRESIDENT, ELITE PHARMACEUTICALS,INC. 165 LUDLOW AVENUE, NORTHVALE, NJ 07647 / (201)750-2646 (Name, address and telephone number of agent for service) Copies to: PENDER R. MCELROY, JAMES, MCELROY & DIEHL, P.A. 600 SOUTH COLLEGE STREET, CHARLOTTE, NC 28202 / (704)372-9870 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ]____________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ]------------ If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ]____________
CALCULATION OF REGISTRATION FEE Proposed Proposed Maximum Maximum Amount of Title of Each Class of Amount to be Offering Price Aggregate Registration Securities to be Registered(1) Registered per Security(2) Offer Price Fee Common Stock, $.01 par value(3) 3,297,539 $14.75 $48,638,700 $8,320.43(4) Class A Common Stock Purchase Warrants 317,250 $7.50 $2,379,275 $499.20(5) Total Registration Fee: -- -- -- $8,819.63(6) (1) All Securities registered herein are held by Selling Security Holders; the Registrant is registering none of its own securities. (2) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. Based upon the market price for the Common Stock as of February 28, 2000. (3) Includes 2,022,537 underlying warrants and options (4) The registration fee is calculated as follows: On the initial Form SB-2 filed in November 1999, there were 3,115,289 shares included, which were to be offered by the selling shareholders at market price, then $8.062, for an aggregate price of $25,115,460, giving rise to a registration fee of $7,610.75. An additional 182,250 shares are being registered in this First Amendment, the current market price for which is $14.75, for an additional aggregate of $2,688,188, giving rise to a registration fee of $709.68; thus the total registration fee is $8,320.43. (5) The registration fee is calculated as follows: On the initial Form SB-2 filed in November 1999, there were 200,000 warrantsincluded, which were to be offered by the selling shareholders at market price, then $4.062, for an aggregate price of $881,240, giving rise to a registration fee of $267.04. An additional 117,250 warrants are being registered in this First Amendment, the current market price for which is $7.50, for an additional aggregate of $879,375, giving rise to a registration fee of $232.16; thus the total registration fee is $499.20. (6) Of this sum, $7,877.79 was tendered to the SEC with the initial filing of the SB-2. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTON 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
ELITE PHARMACEUTICALS, INC. CROSS REFERENCE PAGE Registration Statement Item Number and Heading Location in Prospectus 1.Front of Registration Statement and Outside Front Cover Page of Prospectus...........................Cover Page 2.Inside Front and Outside Back Cover Pages of Prospectus....................................................Inside Front and Outside Cover 3.Summary Information and Risk Factors.............................Summary; Risk Factors 4.Use of Proceeds..................................................Use of Proceeds 5.Determination of Offering Price..................................Cover Page; Risk Factors 6.Dilution.........................................................Dilution 7.Selling Security Holders.........................................Selling Security Holders 8.Plan of Distribution.............................................Risk Factors, Selling Security Holders 9.Legal Proceedings................................................Business - Legal Proceedings 10.Directors, Executive Officers, Promotors and Control Persons.............................................Management 11.Security Ownership of Certain Beneficial Owners and Management...........................................Principal Stockholders 12.Description of Securities.......................................Description of Securities 13.Interests of Named Experts and Counsel..........................Experts and Counsel 14.Disclosure of Commission Position on Indemnification for Securities Act Liabilities..................Management 15.Organization Within Last Five Years.............................Business - Organization 16.Description of Business.........................................Business - Description 17.Management's Discussion and Analysis or Plan of Operation............................................Management's Discussion and Analysis 18.Description of Property.........................................Business - Property 19.Certain Relationships and Related Transactions..................Certain Transactions 20.Market for Common Equity and Related Stockholder Matters.............................................Cover Page; Principal Stockholders; Description of Securities; Risk Factors 21.Executive Compensation..........................................Management 22.Financial Statements............................................Financial Statements 23.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..........................Not applicable
FEBRUARY 28, 2000 PROSPECTUS ELITE PHARMACEUTICALS, INC. 3,297,539 VOTING COMMON SHARES (includes 2,022,537 shares underling options and warrants) AND 317,250 CLASS A COMMON STOCK PURCHASE WARRANTS This Prospectus covers (i) an aggregate of 3,297,539 shares of the common stock of ("Common Stock"), $.01 par value, of Elite Pharmaceuticals, Inc. ("Elite Pharmaceuticals" or the "Company"), a Delaware corporation, on behalf of certain selling security holders of the Company ("Selling Security Holders"), and (ii) 317,250 of the Company's Class A Common Stock Purchase Warrants. Of the securities offered hereunder (i) 1,275,002 shares of Common Stock were heretofore issued in a private offering beginning on May 17, 1999, and ending on June 26, 1999 "1999 Private Placement"); (ii) 637,501 shares of Common Stock are issuable pursuant to Class B Common Stock Purchase Warrants ("Class B Warrants") issued in the 1999 Private Placement; (iii) 260,000 shares of Common Stock are issuable pursuant to Class B Warrants issued under the terms of the Company's contract with its shareholder relations consultant; (iv) 250,000 shares of Common Stock are issuable pursuant to Class A Common Stock Purchase Warrants issued to the financial consultant to the Company ("Class A Warrants"); (v) 142,286 shares of Common Stock are issuable under warrants granted prior to June 1997 to investors in the company under various private placements; (vi) 467,500 shares of Common Stock are issuable pursuant to options granted to various advisors, officers and directors of the company; (vii) 148,000 shares of Common Stock are issuable under options issued under the Company's Incentive Stock Offering Plan; (viii) 117,250 share of Common Stock are issuable under warrants granted to certain investors in the company; and (ix) 250,000 Class A Warrants were issued to the financial consultant to the Company; and (x) 117,250 Class A Warrants were issued to certain investors in the company. See "Selling Security Holders." Each Class A Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $6.00 commencing November 30, 1997 and continuing until November 29, 2002. See "Description of Securities." The offering price will be determined by the Selling Security Holders. See "Selling Security Holders" "Plan of Distribution" and "Underwriting." The Company will receive proceeds only upon the exercise of the Warrants. If each option and warrant registered herein (or the shares of which are registered herein) were exercised, the Company would receive $9,290,577. See "Use of Proceeds". Elite Pharmaceuticals' Common Stock and Class A Warrants are currently listed for quotation on the Nasdaq Bulletin Board ("Bulletin Board"). There is a limited trading market in its Common Stock and Class A Warrants; however, there can be no assurance that an active trading market will develop in these securities. See "Risk Factors." AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The securities are being offered for cash as follows:
Underwriting discounts Proceeds to issuer Price to public(1) and commissions(1) or other persons(1) Per Share of Common Stock unknown unknown unknown Per Class A Warrant unknown unknown unknown Total unknown unknown unknown
(1) The securities offered hereunder will be offered by the Selling Security Holders at market price; Elite Pharmaceuticals is unaware of any arrangements entered into between such Selling Security Holders and any broker or dealer, or underwriter. It is anticipated that the securities will be offered through the over the counter market. Elite Pharmaceuticals intends to furnish its shareholders with annual reports containing audited financial statements, examined by an independent accounting firm, and such interim reports as it may determine to furnish or as may be required by law. Where any document is incorporated by reference in the Prospectus but not delivered therewith, Elite Pharmaceuticals will undertake to provide without charge to each person, including any beneficial owner, to whom a prospectus is delivered, upon oral or written request of such person, a copy of any and all of the information incorporated by reference in the Prospectus (not including exhibits to the information incorporated by reference unless the exhibits are specifically incorporated by reference into the information that the Prospectus contains). Requests should be addressed to Pender R McElroy at (704) 372-9870. Elite Pharmaceuticals is currently a reporting company under the Securities Exchange Act of 1934, and files reports electronically pursuant thereto, and such reports will be available upon the Securities and Exchange Commission's web site, at http://www.sec.gov. UNTIL 90 DAYS AFTER THE LATER TO OCCUR OF (I) THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OR (II) THE DATE ON WHICH THE SECURITIES REGISTERED HEREUNDER ARE BONA FIDE OFFERED TO THE PUBLIC, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2 PROSPECTUS SUMMARY -------------------- The following summary is qualified in its entirety by the detailed information financial statements appearing elsewhere in this Memorandum. Each prospective investor is urged to read this Memorandum in its entirety. All statements other than statements of historical fact contained in this Memorandum are forward-looking statements. Forward-looking statements in this Memorandum generally are accompanied by words such as "intend," "anticipate," "believe," "estimate," "project," or "expect" or similar statements. Although Elite Pharmaceuticals believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements include the risks described under "Risk Factors." All forward-looking statements in this Memorandum are expressly qualified in their entirety by the cautionary statements in this paragraph. ON MARCH 30, 1998, ELITE PHARMACEUTICALS, INC. UNDERWENT A ONE-FOR-TWO REVERSE SPLIT OF ITS COMMON STOCK. ON NOVEMBER 17, 1998, ELITE PHARMACEUTICALS, INC. UNDERWENT A ONE-FOR-TWO REVERSE SPLIT OF ITS CLASS A WARRANTS. ALL NUMBERS USED THROUGHOUT THIS PROSPECTUS, INCLUDING THOSE DESCRIBING EVENTS THAT OCCURRED PRIOR TO MARCH 30, 1998, REFLECT THESE ONE-FOR-TWO REVERSE SPLITS. THE COMPANY The business of Elite Pharmaceuticals, Inc. ("Elite Pharmaceuticals")is to own one hundred percent of the shares of Elite Laboratories, Inc. ("Elite Labs").Therefore,before discussing the history of Elite Pharmaceuticals, this Prospectus will first describe the history and nature of this wholly owned subsidiary. ELITE LABORATORIES, INC. Elite Labs was incorporated in the State of Delaware on August 23, 1990. It engages in the research, development, licensing, manufacturing and marketing of both new and generic, controlled-release pharmaceutical products. Controlled drug delivery involves releasing a drug into the bloodstream or delivering it to a target site in the body over an extended period of time, or at predetermined times. Since its inception in 1990, Elite Labs has established a research and development laboratory and has developed six oral controlled release pharmaceutical products to varying stages of the development process. There is no assurance that any of Elite Labs's products will be approved by the United States Food and Drug Administration ("FDA"), be marketed, or be commercially viable products. Furthermore, there are no agreements in effect requiring the payment of royalties to Elite Labs, except under certain conditions, which may not be fulfilled. Elite Labs has also conducted several research and development projects on behalf of large pharmaceutical companies. These activities have generated only limited revenues to date. 3 ELITE PHARMACEUTICALS, INC. Elite Pharmaceuticals is the successor to Prologica International, Inc. Prologica was incorporated in the State of Pennsylvania on April 20, 1984. Following its incorporation and completion of its initial public offering in August 1988, Prologica did not possess any significant assets or engage in any business other than searching for suitable acquisitions. Until it began discussions with Elite Labs in the spring of 1997 it had not identified any such acquisitions. In order to facilitate the acquisition of Elite Labs, Prologica undertook the following steps: (i) on October 9, 1997, it underwent a three-for-one reverse split of its issued and outstanding stock; (ii) on October 1, 1997, it caused the incorporation of a subsidiary, Elite Pharmaceuticals, Inc., a Delaware corporation ("Elite Pharmaceuticals"), into which it merged on October 28, 1997 in order to change its name and its state of incorporation; and (iii) on August 1, 1997, it caused the incorporation of a subsidiary, HMF Enterprises, Inc. ("HMF") with the intent that HMF would merge into Elite Labs, and thus effect the acquisition. The merger of Prologica with Elite Pharmaceuticals and the merger of Elite Labs with HMF were made in conjunction with a private offering of the common stock and Class A warrants to purchase common stock of Prologica beginning on September 15, 1997 and continuing through November 30, 1997 (the "1997 Private Placement"). Through the 1997 Private Placement new investors purchased 2,000,000 shares and 1,000,000 warrants of Elite Pharmaceuticals. Under the terms of the offering and merger agreements, Elite Labs and HMF merged on October 30, 1997, with Elite Labs surviving the merger. In the merger, each shareholder of Elite Labs received one share of Elite Pharmaceuticals for each share of Elite Labs that he or she owned. As of the date of the merger of Elite Labs and HMF (which was the date that Elite Pharmaceuticals acquired Elite Labs), Prologica had assets equal to $1,134 and a shareholder deficiency equal to $12,588; Elite Labs had assets equal to $114,521 and shareholder deficit equal to $135,479. As a result of the merger between Prologica and Elite Pharmaceuticals, Prologica changed its name to Elite Pharmaceuticals, Inc. and its state of incorporation to Delaware. As a result of the merger between Elite Labs and HMF, Elite Labs became the wholly owned subsidiary of Elite Pharmaceuticals. The Company undertook a second private offering of the common stock and Class B Warrants to purchase common stock of Prologica beginning on May 17, 1999 and continuing through June 24, 1999 (the "1999 Private Placement"). As a result of the 1999 Private Placement new investors purchased 1,275,002 shares (14.9%) of the common stock plus Class B warrants to purchase an additional 637,501 shares of the common stock of Elite Pharmaceuticals. In the 1999 Private Placement, the new investors invested a total of $4,462,500 in Elite Pharmaceuticals. A portion of these funds were used to pay the legal fees and filing fees associated with the 1999 Private Placement and the present registration, and the balance have been and will be used to fund certain capital improvements, research and development, consulting fees and general operating expenses of Elite Labs. 4 For purposes of convenience, Elite Pharmaceuticals and Elite Labs may be referred to collectively hereinafter as the "Company", however any references to the "Registrant" shall refer exclusively to Elite Pharmaceuticals. Elite Pharmaceuticals' and Elite Labs' principal offices are located at 165 Ludlow Avenue, Northvale, NJ 07647 and its telephone number is (201)750-2646. THE OFFERING Although this is a public offering of the stock of Elite Pharmaceuticals, the Company itself is issuing no securities. All of the securities registered in connection with this offering are currently held by, and will be offered by, current Selling Security Holders, or are subject to execution of Warrants currently held by Selling Security Holders. (See "Terms of the Offering", and "Description of Securities"). SECURITIES OUTSTANDING There are 8,561,539 shares of common stock of Elite Pharmaceuticals, Inc. ("Common Stock") issued and outstanding as of February 22, 2000. In addition, there are warrants and options outstanding to purchase an additional 4,643,827 shares of Common Stock as of February 22, 2000. USE OF PROCEEDS The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Shareholders. See "Selling Shareholders". The Company will receive proceeds only upon the exercise of the Warrants registered herein (or upon the exercise of the warrants or options the shares underlying which are registered herein) by the holders thereof. See "Use of Proceeds". RISK FACTORS The Securities offered hereby are highly speculative and involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. Prospective investors should carefully review and consider the factors set forth under "Risk Factors" as well as all other information contained herein, before subscribing for any of the Securities. NASDAQ LISTING Elite Pharmaceuticals' Common Stock is currently listed on the American Stock Exchange under the ticker symbol "ELI", and the Class A Warrants are currently listed on the NASD OTC Bulletin Board under the ticker symbol "ELIPZ". There can be no assurance that the Company will continue to meet the requirements for continued quotation or that a public trading factor will develop or be sustained. See "Risk Factors". 5 RISK FACTORS -------------- The securities offered hereby are highly speculative in nature and investment therein involves a high degree of risk. Therefore each prospective investor should consider very carefully the risks and speculative factors inherent in and affecting the business of, and investment in, Elite Pharmaceuticals prior to the purchase of any of the securities offered hereby, as well as all of the other matters set forth elsewhere in this Memorandum. Investors should be prepared to suffer a loss of their entire investment. Hereinafter Elite Pharmaceuticals and Elite Labs shall sometimes collectively be referred to as the "Company." The material risks and speculative factors involved are as follows: 1. Limited Operating History - Anticipated Future Losses. Since the inception in 1984, of Elite Pharmaceutical's predecessor, Prologica, neither Prologica nor Elite Pharmaceuticals has carried on any business or generated any revenues. Its sole source of income is income received through its ownership of Elite Labs. The Company expects to realize significant losses in the next year of operation. Since Elite Labs' inception in 1990, it has not generated any significant revenues. As of its fiscal year ended March 31, 1999, the Company had consolidated assets of $3,076,582, stockholders' equity of $2,829,098, an accumulated earnings deficit of ($4,058,640) and working capital of $1,364,564. As of the end of its third fiscal quarter, ending December 31, 1999, the Company had consolidated net assets of $8,284,942, stockholders' equity of $5,238,287, an accumulated earnings deficit of ($6,225,937) and working capital of $4,890,941. The Company's operations are subject to all of the risks inherent in the establishment of a new commercial enterprise and the likelihood of the success of the Company must be considered in light of various factors, including working capital deficits, competition with established and well financed entities, anticipated negative cash flow in the period following completion of this offering, the absence of substantial written commitments for purchase of Elite Labs' services and the need for further development of the its products. The Company expects to continue to incur losses until it is able to generate sufficient revenues to support its operations and offset operating costs. There can be no assurance of revenues or of the Company's eventual profitability. 2. Significant Capital Requirements; Need for Additional Financing. The Company anticipates, based on its currently proposed plans and assumptions relating to its operations, that it currently has sufficient operating capital to satisfy its contemplated cash requirements for its normal operating cycle. After such time, the completion of the Company's development activities will require significant funding other than that which is otherwise currently available to the Company. The Company has no current arrangements with respect to sources of additional financing other than with respect to the potential exercise of the options and warrants currently outstanding. There can be no assurance that any of the warrants will be exercised or that other additional financing will be available to the Company on commercially reasonable terms, or at all. The inability of the Company to obtain additional financing, when needed, would have a material adverse effect on the Company, including possibly requiring the Company to curtail or cease its operations. To the extent that any future financing involves the sale of the Company's equity securities, the Company's then- 6 existing stockholders' equity, including investors in this Offering, could be substantially diluted. On the other hand, to the extent the Company recurs indebtedness or otherwise issues debt securities, the Company will be subject to risks associated with indebtedness, including the risk that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on such indebtedness. 3. Possible Earlier Need for Additional Financing. In the event the Company's plans change, its assumptions change or prove to be inaccurate, or its cash flow proves to be insufficient to fund the Company's operations (due to unanticipated expenses, delays, problems, difficulties or otherwise), the Company would be required to seek additional financing sooner than anticipated. There can be no assurance that any of such warrants will be exercised or that the Company would be able to secure additional financing to fund its operations. 4. No Assurance of Successful Product Development. Elite Labs has not yet developed a product to the stage of generating commercial sales. While Elite Labs' President has successfully developed controlled release products for his prior employers, Elite Labs' research activities are characterized by the inherent risk that the research will not yield results which will receive FDA approval or otherwise be suitable for commercial exploitation. 5. No Assurance of Successful Licensing and Marketing. Initially, the Company plans to market its products, once developed, either directly or through agreements with third parties and by way of licensing agreements with other pharmaceutical companies. There can be no assurance that such third-party arrangements can be successfully negotiated or that any such arrangements, if available, will be on commercially reasonable terms. Even if acceptable and timely marketing arrangements are entered into, there can be no assurance that products developed by the Company will be competitive and profitable in the marketplace. Because the Company's clients will in many cases make all or many material marketing and other commercialization decisions regarding such products, a significant number of the variables that affect the Company's royalties and fees, and, in turn, profitability, are not exclusively within the Company's control. Achieving market acceptance for the Company's products and services requires additional funding for which a portion of the proceeds of this Offering have been allocated. The Company's business strategy is to expand its client relations for various new pharmaceutical products. However, to date, the Company has had only a limited number of clients. Implementation of the Company's growth will depend upon, among other things, the Company's ability to hire and retain skilled marketing personnel. 6. Government Regulation. The design, development and marketing of pharmaceutical products are reviewed, and manufacturing facilities are inspected, by government regulatory agencies, including the United States Food and Drug Administration and comparable agencies in other countries (collectively "Agency"). The Company is unable to predict the effect that reviews by 7 any Agency will have on the development, clinical testing, manufacturing, marketing or sale of its pharmaceutical products. Failure to obtain Agency approvals in a timely fashion or on the terms and with the scope or breadth contemplated by the Company could adversely affect the Company. In addition, in certain cases, the Company's license agreements for new formulations of pharmaceutical products may provide that the licensees, rather than the Company, are responsible for obtaining the Agency approval of new formulations. In such cases, the timing of the submission of applications for Agency approval and of any supplementary data requested by an Agency is not within the Company's control. Any delays in the submission of such applications and supplementary data requested could adversely affect the business of the Company. Continued growth in the Company's revenues and profits will depend, in large part if not exclusively, on successful introduction and marketing of products subject to Agency approval. There can be no assurance as to when or whether such approvals from such regulatory authorities will be received. See "Business-Governmental Regulation." 7. Competition. In recent years, an increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating advanced or novel drug delivery systems. The Company expects that competition in the field of drug delivery will significantly increase in the future since smaller specialized research and development companies are beginning to concentrate on this aspect of the business. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in the development of their own drug delivery systems and technologies and some have invested funds in such specialized drug delivery companies. Many of these companies have greater financial and other resources as well as more experience than the Company in commercializing pharmaceutical products. Such companies may develop new drug formulations and products or may improve existing drug formulations and products more efficiently than the Company. While the Company's product development capabilities and patent protection may help the Company to maintain its market position in the field of advanced drug delivery, there can be no assurance that others will not be able to develop such capabilities or alternative technologies outside the scope of the Company's patents if any, or that even if patent protection is obtained, such patents will not be successfully challenged in the future. 8. Proprietary Technology: Unpredictability of Patent Protection. The Company's success, competitive position and amount of royalty income will depend in part on its ability to obtain patent protection in various jurisdictions related to the technologies, processes and products it develops. The Company may file patent applications seeking such protection. There can be no assurance that these applications will result in the issuance of patents(s), or if any patent(s) are issued, that litigation will not be commenced seeking to challenge such patent protection or that such challenges will fail. In addition, there can be no assurance that the scope and validity of the Company's patents will prevent third parties from developing similar or competing products. The expenses involved in litigation regarding patent protection or a challenge thereto can be significant and cannot be estimated by the Company. 8 Furthermore, there can be no assurance that the Company's activities will not infringe on patents owned by others. The Company could incur substantial costs in defending itself in suits brought against it, or in suits in which the Company may assert, against others, claiming infringement of the Company's patents. There can be no assurance that the Company would possess sufficient funds to protect its patents from infringement. Should the products be found to infringe upon patents issued to third parties, the manufacture, use and sale of such products could be enjoined and the Company could be required to pay substantial damages. In addition, the Company may be required to obtain licenses to patents, or other proprietary rights of third parties, in connection with the development and use of the Company's products and technologies as they relate to other persons' technologies. No assurance can be given that any licenses required under any such patents or proprietary rights would be available on acceptable terms, if at all. The Company also relies, and will continue to rely, upon trade secrets and proprietary know-how, which it seeks to protect in part, by confidentiality agreements. The Company consistently requires its employees and potential business partners to execute confidentiality agreements prior to doing business with the Company, and it is currently a party to well over one hundred such agreements. Representative samples of such agreements are attached hereto. However, there can be no assurance that such employees or others, will maintain the confidentiality of such trade secrets or proprietary information or that trade secrets or proprietary know-how of the Company will not otherwise become known or be independently developed in such manner that the Company will have no practical recourse. See "Business-Patents." 9. Key Research Personnel. The Company is heavily dependent upon the scientific expertise of Dr. Atul M. Mehta, President and CEO of Elite Pharmaceuticals and Elite Labs. Although Elite Labs now employs and will in the future continue to employ other qualified scientists, as of the date of this Prospectus, only Dr. Mehta has the advanced knowledge, knowhow and track record of having successfully developed controlled-release products for other companies. The loss of Dr. Mehta's services would have a material adverse effect on the Company's business. Therefore, Elite Labs entered into a five-year employment contract with Dr. Mehta which ends on December 31, 2000. The key terms of the agreement are a salary currently set at $242,000 with provisions for annual increases, incentive commissions, a discretionary bonus, health insurance, and term life insurance for the benefit of Dr. Mehta's family. Additionally, Elite Labs has obtained insurance coverage with respect to Dr. Mehta's life in an amount of $1,000,000, payable to the Company. The details of these arrangements are described in detail in "Management." 10. Lack of Trading Market. Purchasers of the securities offered hereby must be aware of the long-term nature of their investment and be able to bear the economic risks of their investment for an indefinite period of time. Currently no trading market exists for the Warrants. A very limited trading market exists in the over-the-counter market for the Common Stock and Class A Warrants 9 which are listed for quotation on the American Stock Exchange ("Amex") and the NASD OTC Bulletin Board ("Bulletin Board"), respectively. A somewhat broader market in the Common Stock may develop, although there can be no assurance of such an occurrence. Even if such a market developed, it would still be more difficult for an investor to dispose of, or to obtain quotations as to, the price of the Common Stock than a security traded on a national securities exchange. 11. Penny Stock Regulation. The trading of the Company's Common Stock, if any, will be subject to Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and non-exchange listed securities. Under such rule, brokers-dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if the market price is at least $5.00 per share. The Commission has adopted regulations that generally define a "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share subject to certain exceptions. Such exceptions include equity securities listed on Nasdaq and equity securities issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for more than three years, or (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average revenue of at least $6,000,000 for the preceding three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a risk of disclosure schedule explaining the penny stock market and the risks associated therewith. Although Elite Pharmaceuticals' Common Stock is currently trading at over $5.00, there can be no assurance that it will continue to trade at such price, and if it falls below such price, it will be considered a penny stock as defined in the Exchange Act and as such, the market liquidity for the Common Stock will be limited to the ability of broker-dealers to sell the Common Stock in compliance with the above-mentioned disclosure requirements. 12. Outstanding Warrants and Options. There are outstanding warrants and options to purchase an aggregate of 4,643,827 shares of Common Stock for prices ranging from $2.00 to $9.00, for an average exercise price of $4.96. Of these options and warrants, 1,480,000 are held by officers, directors and/or five-percent shareholders. To the extent that outstanding warrants or options are exercised, dilution of the interests of Elite Pharmaceuticals' stockholders will occur. Moreover, the terms upon which the Company will be able to obtain additional equity may be adversely affected since the holders of the outstanding warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain capital on terms more favorable to the Company than those provided by such securities. 13. No Dividends. Elite Pharmaceuticals has not paid any cash dividends to date and does not expect to pay cash dividends in the foreseeable future. 10 14. Potential Anti-Takeover Effects of Delaware Law. Certain provisions of Delaware law could make more difficult a merger, tender offer or proxy contest involving the Company, even if such events could be beneficial to the interests of the shareholders. These provisions include Section 2.03 of the Delaware General Corporation law. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. 15. Arbitrary Offering Price. The Securities offered hereunder will be offered by the Selling Security Holders at a price or prices to be determined by such Selling Security Holders. The Company does not know that the offering price of the Common Stock and Warrants will be; the offering price will be arbitrarily determined by the Selling Security Holders and will bear no relation to Elite Pharmaceuticals' book value, assets, or any other objective criteria of value. There can be no assurance that the Securities offered hereby can be resold at or near the offering price. In addition, the exercise price of the Warrants bears no relation to Elite Pharmaceuticals' book value, assets, or any other objective criteria of value. The Company does not know whether all, or even any, of the Selling Security Holders will sell their securities, or when they will do so. See "Selling Security Holders" and "Plan of Distribution". 16. Limitation on Personal Liability of Directors. The Articles of Incorporation and Bylaws of the Company contain provisions reducing the potential personal liability of the directors of the Company for certain monetary damages and providing for indemnity of directors. The Company is unaware of any present, pending or threatened litigation which would result in any liability for which a director would seek such indemnification or protection. The provisions affecting personal liability provide that the Company will indemnify its directors to the fullest extent permitted by Section145 of the Delaware Corporation Law against (a) expenses (including attorney's fees) reasonably incurred in connection with any threatened, pending or completed civil, criminal, administrative, investigative or arbitrative action, suit or proceeding (and appeal therefrom) against any director, whether or not brought by or on behalf of the Company seeking to hold the director liable by reason of the fact that he was acting in such capacity; and (b) any reasonable payments made by him in satisfaction of any judgment, money decree, fine, penalty or settlement in such action, suit or proceeding. In that respect, the provisions diminish the potential right of action which might otherwise be available to shareholders by affording indemnification by the Company against most damages and settlement amounts paid by a director. 17 . Product Liability. The design, development and manufacture of the Company's Products involve an inherent risk of product liability claims. The Company has procured product liability insurance; however, a successful claim against the Company in excess of the policy limits 11 could have a material adverse effect upon the Company's results of operations and financial position. To the best of the Company's knowledge, no claim has been made against the Company as of February 22, 2000. 18. Forward Looking Statements. All statements other than statements of historical fact contained in this Memorandum are forward-looking statements. Forward-looking statements in this Memorandum generally are accompanied by words such as "intend," "anticipate," "believe," "estimate," "project," or "expect" or similar statements. Although Elite Pharmaceuticals believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements include the risks described hereinabove. All forward-looking statements in this Memorandum are expressly qualified in their entirety by the cautionary statements in this paragraph. 19. Control by Directors. There are currently 8,561,539 shares of Company stock issued and outstanding, as well as options and warrants to purchase an additional 4,643,827 shares. Of the shares issued and outstanding, officers and/or directors of the Company hold 1,712,455 shares (20%), and options or warrants to purchase an additional 1,033,964 shares. If every holder of an option or warrant exercised his or her rights under such option or warrant, there would be 13,205,366 shares issued and outstanding, of which the officers and directors of the Company would own 2,746,419 (21%). However, if only the officers and directors exercised such rights, there would be 9,595,503 shares issued and outstanding, of which the officers' and directors' 2,746,419 shares would equal 29 percent. 12 SELLING SECURITY HOLDERS --------------------------- Any securities offered and sold pursuant hereto will be offered and sold from time to time by existing security holders of the Company ("Selling Security Holders") for their own accounts. The securities offered may be sold directly by the Selling Security Holders; alternatively, the Selling Security Holders may offer such securities through dealers or agents. The distribution of securities by Selling Security Holders may be effected in one or more transactions that may take place on the over-the-counter market, including broker's transactions, privately-negotiated transactions or through sales to one or more broker-dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Security Holders in connection with such sales of securities. The Selling Security Holders and intermediaries through whom such securities are sold may be deemed "underwriters" within the meaning of the Securities Act with respect to the securities offered, and any profits realized or commissions received may be deemed underwriting compensation. At the time a particular offer of securities is made by a Selling Security Holder, the Selling Security Holder must, to the extent required by law, deliver a prospectus setting forth the number of shares being offered, and the terms of the offering, including the name or names of any dealers or agents employed by the Selling Security Holder, if any, the purchase price paid by any such person employed by the Selling Security Holder for shares purchased from the Selling Security Holder, and any discounts, commissions, or concessions allowed or reallowed or paid to dealers, and the proposed selling price to the public. The Selling Security Holders will be subject to the applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the time of purchases and sales by the Selling Security Holders. The following table shows the names of Selling Security Holders, along with any material relationships such security holders have or have had with the Company and the amount of securities held by such security holder and available to be offered. Column A shows the name of the Selling Security Holder; Column B describes any positions or offices held by the Selling Security Holder within the last three years with the Company, its predecessor or its affiliates; Column C shows number of Shares being offered that are owned by the Security Holder prior to the offering; Column E shows the number of Warrants being offered that are owned by the Selling Security Holder. As used in the preceding sentence "Shares" means shares of Common Stock of Elite Pharmaceuticals, Inc., and "Warrants" mean Class A Common Stock Purchase Warrants, each warrant entitling the holder to purchase one share of Common Stock at an exercise price of $6.00 exercisable for five years from November 30, 1997. As stated above, the Company does not know which, if any, Security Holders will be offering their securities for sale, when they intend to do so, or what percentage of their securities will be offered. 13 (See Note 1 for method used in calculating securities held.) Asterisks represent "less than one percent".
SECURITIES ISSUED IN 1999 PRIVATE PLACEMENT. - -------------------------------------------- All entries into Column E represent Class B Warrants (which are not being registered hereby). A. B. C. D. E. F. G. # of # of Percent Warrants Total Percent Positions Shares of or Options # of Of Name of Security Holder Held Owned Owned Owned Securities Total Abadi, Henry None 25,000 * 12,500 37,500 * Abadi, Maurice None 25,000 * 12,500 37,500 * Ali, Asid None 25,000 * 12,500 37,500 * Ballas, Mayer MD PSP None 25,000 * 12,500 37,500 * Barilits, Paul None 28,572 * 14,286 42,858 * Bauer-Wolf, Beate None 18,572 * 9,286 27,858 * Beck, Martin S. None 25,000 * 12,500 37,500 * Belson, Jerome None 200,000 See Note 2 100,000 300,000 See Note 2 Benun, Morris None 12,500 * 6,250 18,750 * Bridge Ventures, Inc. See Note 3 50,000 * 25,000 75,000 * Brown, Alexander Trust None 50,000 * 25,000 75,000 * Brown, Richard None 250,000 3.0% 125,000 375,000 4.5% Brown, Ronald R. None 12,500 * 6,250 18,750 * Burton, Alan None 16,000 * 8,000 24,000 * Carr, Frank B. None 25,000 * 12,500 37,500 * Giamanco, Joseph None 50,000 * 25,000 75,000 * Harvic Int'l Pens Plan None 25,000 * 12,500 37,500 * Karsten, Robert None 25,000 * 12,500 37,500 * Keys Foundation None 100,000 See Note 4 50,000 150,000 See Note 4 Lagano, Frances None 25,000 * 12,500 37,500 * Lexer, Bernhard None 22,572 * 11,286 33,858 * Orenstein, Daniel None 12,500 * 6,250 18,750 * Prager, Tis None 25,000 * 12,500 37,500 * Roselle, Joseph C. None 50,000 See Note 5 25,000 75,000 See Note 5 Ross, Harvey L. None 25,000 * 12,500 37,500 * Schaffer, Ronald None 12,500 * 6,250 18,750 * Sheeber, Marvin None 25,000 * 12,500 37,500 * Teboul, Georgette None 75,000 * 37,500 112,500 1.5% Wurditch, Josef None 14,286 * 7,143 21,429 *
14 OTHER ISSUANCES OF AND WARRANTS. - -------------------------------- 1) Issuances under the Company's Incentive Stock Option Plan in 1998 and 1999. Entries in Column E represent options granted (exercisable at $6.00 per share).
A. B. C. D. E. F. G. BROOKS, GLENROY NONE 0 * 1,000 1,000 * GUY, ELLA CECILA NONE 0 * 1,000 1,000 * HAMET, SUSAN NONE 0 * 30,000 30,000 * SHAH, MANESH NONE 0 * 75,000 75,000 * WANG, MIN FA NONE 0 * 1,000 1,000 * XHELO, MELINDA NONE 0 * 1,000 1,000 * DiFalco, Raymond None 0 * 24,000 24,000 *
2) Options granted to advisors, officers and directors of the Company prior to the Company's merger in 1997. Numbers in Column E represent options granted (exercisable at $2.00 per share) A. B. C. D. E. F. G. Barrie Blauvelt None 0 * 125,000 125,000 1.45% Donald Pearson Director 0 * 18,750 18,750 * John deNeufville None 0 * 25,000 25,000 * John Jackson None 0 * 125,000 125,000 1.45% John Robinson None 0 * 25,000 25,000 * Vijay Patel None 0 18,750 18,750 *
3) Options granted to advisors, officers and directors of the Company following to the Company's merger in 1997. Numbers in Column E represent options granted (exercisable at $6.00 per share) A. B. C. D. E. F. G. Barri Blauvelt None 0 * * 15,000 15,000 Donald Pearson Director 0 * * 30,000 30,000 Harmon Aronson Director 0 * * 30,000 30,000 Jerome Skelly None 0 * * 15,000 15,000 Mark Gittelman Secretary / 0 * * Treasurer 10,000 10,000 Michael Freedman None 0 * 5,000 5,000 *
4) Warrants granted to investors in the Company prior to the Company's merger in 1997. Numbers in Column E represent warrants granted (exercisable at $2.00 per share).
A. B. C. D. E. F. G. Vijay Patel None 0 * 149,572 149,572 1.73% Dashrath Patel None 0 * 40,000 40,000 *
15 A. B. C. D. E. F. G. Paul M. Michaels None 0 * 60,000 60,000 * Lawrence S. Zaslow None 0 * 60,000 60,000 * Peter W. Adolph None 0 * 60,000 60,000 * Mark E. Komorsky None 0 * 60,000 60,000 * Andreas Ebner None 0 * 5,000 5,000 * Simon Goldman None 0 * 5,000 5,000 * 6) Warrants granted pursuant to a Consulting Agreement between the Company and Saggi Capital Corporation dated August 1, 1997. Numbers in Column E represent Class B Warrants.
Smyth, Meadows & Harrange, Inc. None 0 * 30,000 30,000 Note 6 Dutchess Foundation Vaduz None 0 * 200,000 200,000 Note 6 Mayer Ballas, M.D. None 0 * 30,000 30,000 * 7) Warrants granted pursuant to certain investors in the Company in 1999. Numbers in Column E represent Class A Warrants.
Rickel Securities, Inc. None 0 * 1,250 1,250 * Stanely Ast None 0 * 1,000 1,000 * Myron Teitelbaum None 0 * 10,000 10,000 * Frank B. Carr None 0 * 100,000 100,000 Note 7 Alan R. Cohen None 0 * 5,000 5,000 *
Note 1. For purposes of computing the percentage of securities held by each person, any security which such person or persons has the right to acquire within sixty days of September 24, 1999 is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Percentages are rounded up to the nearest one-half percent. Note 2. When the shareholder's holdings under the 1999 Private Placement are added to other shares and warrants already owned, he holds 7% of the total issued and outstanding securities. Note 3. When the shareholder's holdings under the 1999 Private Placement are added to securities already owned, it holds 7.5% of the total issued and outstanding securities. Bridge Ventures is a consultant under terms of Consulting Agreement entered into between Elite Laboratories, Inc. and Bridge Ventures, Inc., dated as of August 1, 1997, and assumed by Elite Pharmaceuticals, Inc. as of November 7, 1997. Note 4: When the shareholder's holdings under the 1999 Private Placement are added to securities already owned, it holds 3.5% of the total issued and outstanding securities. Note 5. When the shareholder's holdings under the 1999 Private Placement are added to securities already owned, he holds 2.0% of the total issued and outstanding securities. Note 6: Shareholder is an affiliate of Saggi. When the shareholder's holdings are added to securities already owned by Saggi or acquired as described in Note 7 below, it owns 4.5% of the total issued and outstanding securities. Note 7: When the shareholder's holdings under the 1999 Private Placement are added to these securities, he holds 1.6% of the total issued and outstanding securities. 16 USE OF PROCEEDS --------------- The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Shareholders. See "Selling Shareholders". The Company will receive proceeds only upon the exercise of the Warrants or the Placement Agent Warrants by the holders thereof. If all of the warrants and options, the shares underlying which are registered hereunder, were exercised, there would be proceeds of $9,290,577. There can be no assurance as to when, if ever, any or all of such warrants and options will be exercised. Proceeds, if any, received from the exercise of the warrants and options will be used for working capital requirements and other general corporate purposes. DILUTION ---------- There will be no dilution of the book value of the Common Stock since no additional shares are being issued as a result of this offering. There are outstanding options and warrants not offered hereunder which entitle the holders thereof to purchase shares of Common Stock at exercise prices ranging from $2.00 to $9.00; exercise of such options or warrants by the holders thereof may dilute the book value of the Common Stock if such warrants or options are exercised at a time when the book value of the Common Stock exceeds the exercise price. PLAN OF DISTRIBUTION ---------------------- Any securities offered and sold pursuant hereto will be offered and sold from time to time by Selling Security Holders for their own accounts. The securities offered may be sold directly by the Selling Security Holders, or the Selling Security Holders may offer such securities through dealers or agents employed by them. The distribution of securities by Selling Security Holders may be effected in one or more transactions that may take place on the over-the-counter market, including broker's transactions, privately-negotiated transactions or through sales to one or more broker-dealers for resale of such securities as principals, at market prices prevailing at the time, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated fees or commissions may be paid by the Selling Security Holders in connection with such sales of securities. The Selling Security Holders and intermediaries through whom such securities are sold may be deemed "underwriters" within the meaning of the Securities Act with respect to the securities offered, and any profits realized or commissions received may be deemed underwriting compensation. 17 At the time a particular offer of securities is made by a Selling Security Holder, the Selling Security Holder must, to the extent required by law, deliver a prospectus setting forth the number of shares being offered, and the terms of the offering, including the name or names of any dealers or agents, if any, the purchase price paid by any person for shares purchased from the Selling Security Holder, and any discounts, commissions, or concessions allowed or reallowed or paid to dealers, and the proposed selling price to the public. The Selling Security Holders will be subject to the applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the time of purchases and sales by the Selling Security Holders. The Company is unaware of securities being offered other than for cash. No Selling Security Holder has the right to designate any of the Company's Board of Directors. No persons are or have been indemnified against liability arising under the Securities Act with respect to this offering of the Common Stock and Warrants, except to the extent that the Articles of Incorporation and Bylaws of the Company indemnify the members of its Board of Directors generally against civil, criminal and administrative actions against any director by reason of action taken by such person in his or her capacity as director. (See "Risk Factors - Limitation on Personal Liability of Directors"). The Company is unaware any contracts that any Selling Security Holder may have entered into with any dealer, underwriter or finder, or of any passive market making activity being contemplated or undertaken by any Selling Security Holder. Pursuant to the provisions under the Exchange Act and the rules and regulations thereunder, any persons engaged in a distribution of the Common Stock offered by this Prospectus may not simultaneously engage in market making activities with regard to the Common Stock of the Company during applicable "cooling off" periods prior to the commencement of such distribution. In addition, and without limiting the foregoing, the Selling Security Holders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder including, without limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of Common Stock by the Selling Security Holders. 18
MANAGEMENT ------------ IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS. - --------------------------------------------------- The directors and executive officers of the Elite Pharmaceuticals and Elite Labs are identical, and are: NAME AGE POSITION Atul M. Mehta 50 President, Chief Executive Officer and Director Donald Pearson 64 Director Harmon Aronson 56 Director Mark Gittelman 39 Treasurer and Secretary
Atul M. Mehta has been a director of Elite Labs since its inception in 1990, and a director of Elite Pharmaceuticals since 1997. There are no arrangements between any director or executive officer and any other person, pursuant to which the director or officer is to be selected as such. There is no family relationship between the directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers. Dr. Mehta, the founder of Elite Labs, has been employed as the President of Elite Labs since 1990, and President of Elite Pharmaceuticals since 1997. Prior to that, he was Vice President at Nortec Development Associates, a company specializing in the development of food, pharmaceutical and chemical specialty products, from 1984 to 1989. From 1981 to 1984, he was associated with Ayerst Laboratories, a division of American Home Products Corporation in the solids formulation section as Group Leader. His responsibilities included development of formulations of ethical drugs for conventional and controlled-release dosage forms for both USA and international markets. He received his B.S. degree in Pharmacy with honors from Shivaii University, KoIhapur, India, and a BS, MS, and a Doctorate of Philosophy in Pharmaceutics from the University of Maryland in 1981. Other than Elite Labs, no company with which Mr. Mehta was affiliated in the past was a parent, subsidiary or other affiliate of the Company. Mr. Pearson, Director, has been employed since 1997 as the President of Pearson & Associates, Inc., a company that provides consulting services to the pharmaceutical industry. Prior to starting Pearson & Associates, Mr. Pearson served for five years as the Director of Licensing at Elan Pharmaceuticals, and prior to that he was employed by Warner-Lambert for thirty years in various marketing, business development and licensing capacities. Mr. Pearson holds a B.S. in Chemistry from the University of Arkansas, and studied steroid chemistry at St. John's Univeristy. He has served on the informal advisory board of Elite Labs for several years; other than Elite Labs, no company with which Dr. Pearson was affiliated in the past was a parent, subsidiary or other affiliate of the Company. Dr. Aronson, Director has been employed since 1997 as the President of Aronson Kaufman Associates, Inc. a New Jersey-based consulting firm that provides manufacturing, FDA regulatory and compliance services to the pharmaceutical and biotechnology companies. Its clients include US and international firms manufacturing bulk drugs and finished pharmaceutical dosage products who are seeking FDA approval for their products for the US 19 Market. Prior to that, Dr. Aronson was employed by Biocraft Laboratories, a leading generic drug manufacturer, most recently in the position of Vice President of Quality Management; prior to that he held the position of Vice President of Non-Antibiotic Operations, where he was responsible for the manufacturing of all the firm's non-antibiotic products. Dr. Aronson holds a Ph.D. in Physics from the University of Chicago. Other than Elite Labs, no company with which Dr. Aronson was affiliated in the past was a parent, subsidiary or other affiliate of the Company. Mark Gittelman, CPA, Treasurer of Elite, is the President of Gittelman & Co., P.C., an accounting firm. Prior to forming the company 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 his 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"), the Securities and Exchange Practice Section of the AICPA, and the New Jersey State and New York States 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. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. - ----------------------------------------- No director, executive officer, or person nominated to become an executive officer or director, or control person has been the subject of any of the following actions taken during the past ten years and not subsequently reversed, suspended, vacated, annulled or otherwise rendered of no effect: (a) bankruptcy or insolvency proceedings as described in Reg. Section 228.401(d)(1)(i); (b) criminal proceedings as described in Reg. Section 228.401(d)(1)(ii); (c) civil or administrative proceedings as described in Reg. Section 228.401(d)(1)(iii); or (d) self-regulatory organization proceedings as described in Reg. Section 228.401(d)(1)(i). DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT - ----------------------------------------------------------------------- LIABILITIES. - ------------ The Articles of Incorporation and Bylaws of the Company contain provisions reducing the potential personal liability of the directors of the Company for certain monetary damages and providing for indemnity of directors. The Company is unaware of any present, pending or threatened litigation which would result in any liability for which a director would seek such indemnification or protection. In addition, the Company has a $5,000,000 liability insurance policy for directors and officers. The provisions affecting personal liability provide that the Company will indemnify its directors to the fullest extent permitted by Section 145 of the Delaware Corporation Law against (a) expenses (including attorney's fees) reasonably incurred in connection with any threatened, pending or completed civil, criminal, administrative, investigative or arbitrative action, suit or proceeding (and appeal therefrom) against any director, whether or not brought by or on behalf of the Company seeking to hold the director liable by reason of the fact that he was acting in such capacity; and (b) any reasonable payments made by him in satisfaction of 20 any judgment, money decree, fine, penalty or settlement in such action, suit or proceeding. In that respect, the provisions diminish the potential right of action which might otherwise be available to shareholders by affording indemnification by the Company against most damages and settlement amounts paid by a director. D&O LIABILITY INS - ----------------- Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. COMPENSATION. - ------------- SUMMARY EXECUTIVE COMPENSATION TABLE FOR YEARS 1997, 1998 AND 1999. - -------------------------------------------------------------------
a b c d e f g h i Name and Calendar Base Bonus Other Restricted Securities LTIP All other principal Year(1) Salary(2) Annual stock Underlying payouts compen- position Compen- awards options sation sation Atul M. Mehta 1999 $220,000 $0 $3,040(3) -- -- -- -- President 1998 $200,000 $20,000 $3,220(3) -- 300,000 -- -- 1997 $180,000 $0 $1,795(3) -- 545,214(4) -- --
(1) Dr. Mehta's compensation is paid on a calendar year basis. The Company's fiscal year is from April 1 through March 31. (2) In fiscal years 1999, 1998 and 1997, Dr. Mehta's salary was allocated 75% to research and development and 25% to general administrative. (3) Represents use of a company car and premiums on life insurance on Dr. Mehta's life for the benefit of his wife paid by the Company. (4) 400,000 of the above options were initially to vest at the rate of 100,000 per year each year from 1996 through 2001; however, upon completion of the Private Placement, they became 100% vested; the remaining 125,000 options were initially to vest at the rate of 41,667 per year for each year from 1997 through 1999; however upon completion of the Private Placement, they became 100% vested.
EXECUTIVE OPTION GRANTS TABLE FOR FISCAL YEAR ENDED MARCH 31, 1999. - ------------------------------------------------------------------- a b c d e Number of Securities % Grant Represents Per-Share Exercise Name Underlying Options of Options to Employees or Base Price Expiration date Atul M. Mehta 300,000(1) 100% $7.00 12/31/03
(1) The number of securities underlying the options vest at the following rate: Options to purchase 100,000 shares vest December 31, 1998; options to purchase 100,000 shares vest December 31, 1999; and options to purchase 100,000 shares vest December 31, 2000; 21
Aggregated Executive Option Exercises and Fiscal Year End OPTION/SAR VALUE TABLE FOR FISCAL YEAR ENDED MARCH 31, 1999. - ----------------------------------------------------------- a b c d e # of Securities Underlying Value of Unexercised Unexercised Options In-the-Money Options/ at FY-End at FY-End Name Shares Acquired Value Exercisable/ Exercisable/ on Exercise Realized Unexercisable(1) Unexercisable Atul M. Mehta None $0 845,214/100,000 $7,249,747/550,000(2)
(1) The number of securities underlying 520,000 options were initially shares of Elite Labs, but under the terms of the 1997 Private Placement, they were replaced with shares of Elite Pharmaceuticals. (2) The shares are unregistered, and their market value is unknown and uncalculable. However, the registered common stock of the Company is trading for $12.50 per share as of February 24, 2000. Based on that price, the maximum amount the shares of Common Stock could be worth is $10,565,175 (vested) and $1,250,000 (unvested). It is on this hypothetical value, less the exercise price per share, that the figure in column (e) is calculated. This figure may have no relation to the actual value of the unexercised options.
DIRECTOR COMPENSATION FOR FISCAL YEAR ENDING MARCH 31, 1999 - ------------------------------------------------------------ a b c d e f Cash Compensation Security Grants ----------------- ----------------- Annual Consulting or Number Number of Securities Name Retainer Fee Meeting Fees Other Fees of Shares Underlying Options Barri M. Blauvelt(1) $0 $1,000(2) $0 0 0 John W. Jackson(1) $0 $1,000(2) $0 0 0
(1) Director of Elite until its most recent annual meeting on September 2, 1999. (2) Pursuant to a resolution of the Board of Directors of the company as of February 11, 1998, under the terms of which all non-affiliated directors will receive $1,000 as compensation for each meeting personally attended. EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS - ---------------------------------------------------------------- The Company entered into an employment contract with Atul M. Mehta, effective January 1, 1996. Pursuant to the employment agreement, as amended, Dr. Mehta is employed full time as President and CEO of the company. The agreement will remain in effect until December 31, 2000, and will then be renewed for an additional five years unless notice is given by either party, in which case it will be renewed for successive one year terms. Under the terms of the agreement, Dr. Mehta agrees to devote a sufficient amount of his business time to diligently perform his obligations. His base salary under the agreement is $165,000 in calendar year 1996, $180,000 in calendar year 1997, 22 $200,000 in calendar year 1998, with a raise in 1999 and 2000 to be determined by the Board of Directors, but not to be less than 5% of the preceding year's salary. Dr. Mehta's salary in 1999, as established by the Board, was $220,000, and in 2000, it will be $242,000. (In fiscal years 1998 and 1997, Dr. Mehta's salary was allocated 75% to research and development and 25% to general administrative.) Under the agreement, Dr. Mehta is entitled to a bonus equal to five percent of the net profits of the company; to health insurance for him and his dependents; term life insurance in a minimum amount of $300,000 for the benefit of his spouse or estate; and any benefits provided to employees generally, including any incentive stock option plans. He also became entitled to receive options on January 1 of each year beginning with January 1, 1996 through January 1, 2001, to purchase 100,000 shares of Common Stock at $2.00 per share; upon completion of the Private Placement, these options immediately vested. The agreement provides that, in the event that Dr. Mehta loses his job as a result of a change of control in the Company, he will be entitled to the present value of all salary, bonuses and deferred compensation through the earlier of May 22, 2001 or three years following his termination. Dr. Mehta is required to refrain from competing with the Company during the term of the Agreement. PRINCIPAL SHAREHOLDERS ------------------------ THE FOLLOWING TABLE SETS FORTH THE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(1) and management as of the date of this prospectus with respect to the beneficial ownership of the Companies Common Stock by (i) each person known by the Company to be the beneficial owner of more than 5% of the Company's Common Stock; (ii) each director of the Company; (iii) each executive officer of the Company; and (iv) the officers and directors of the Company as a group.
a b c d Title of Class Name and Address of Amount and Nature of Percent of Class Beneficial Owner Beneficial Ownership VOTING COMMON ATUL M. MEHTA, DIRECTOR/OFFICER 2,332,814(2) 25.2% 165 Ludlow Avenue Northvale, New Jersey 07647 VOTING COMMON JOHN DE NEUFVILLE, TRUSTEE 925,000(3) 10.8% Margaret deNeufville Revocable Trust 197 Meister Avenue North Branch, NJ 08876 Voting Common Bakul and Dilip Mehta 630,000 7.4% P.O. Box 438 Muscat, Sultanate of Oman VOTING COMMON BRIDGE VENTURES, INC. 535,918(4) 6.0% 575 Lexington Avenue, Ste. 410 New York, NY 10022 VOTING COMMON VIJAY PATEL 441,036(5) 5.1% 19139 Pebble Court Woodbridge, CA 95258 23 VOTING COMMON MARK GITTELMAN 10,000(6) <1% 300 Colfax Ave Clifton, NJ 07013 VOTING COMMON DONALD PEARSON 18,750(7) <1% 530 Forest Pkwy # A Forest Park, GA 30297 VOTING COMMON OFFICERS AND DIRECTORS AS A GROUP 2,361,564(8) 25.4%
(1) For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock which such person has the right to acquire within 60 days of September 24, 1999. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any security which such person or persons has or have the right to acquire within such date is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the Company believes based on information supplied by such persons, that the persons named in this table have sole voting and investment power with respect to all shares of Common Stock which they beneficially own. (2) Includes (i) 6,300 shares held by Dr. Mehta C/F Amar Mehta; (ii) 6,300 shares held by Dr. Mehta C/F Anand Mehta; and (iii) options to purchase 745,214 shares of Common Stock. (3) Represents (i) 900,000 shares of Common Stock held by the Margaret de Neufville Revocable Trust, of which Mr. de Neufville is Trustee, and (ii) options held by Mr. de Neufville to purchase 25,000 shares of Common Stock. (4) Includes (i) 20,823 shares owned by SMACs Holding Company, an Affiliate of Bridge Ventures, Inc., (ii) 55,000 shares owned by the Bridge Ventures, Inc. defined benefit plan and (iii) warrants to purchase 380,750 shares of Common Stock held by Bridge Ventures, Inc. (5) Includes options to purchase 18,750 shares of Common Stock and warrants to purchase 117,286 shares of Common Stock. (6) Represents options to purchase 10,000 shares of Common Stock. (7) Represents options to purchase 18,750 shares of Common Stock. (8) Includes options to purchase 773,964 shares of Common Stock. DESCRIPTION OF SECURITIES ---------------------------- Elite Pharmaceuticals has 25,000,000 shares of common stock authorized. There are 8,561,539 shares of Common Stock outstanding, and an additional 4,643,827 shares of Common Stock are subject to outstanding options or warrants to purchase said shares. Of such outstanding shares, 4,787,600 shares of such Common Stock could be sold pursuant to Rule 144 under the Securities Act, subject to the volume and time limitations contained therein; 2,200,000 have been registered under the Company's 1998 Registration Statement on form SB-2; and 448,791 shares of Common Stock were previously registered under the name of Prologica International, Inc. The shares, options and warrants are held by approximately 650 security holders. 24 DESCRIPTION OF COMMON STOCK. - ---------------------------- The Common Stock registered is the sole class of stock in the Company. The holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders and do not have cumulative voting rights for the election of directors. The Common Stock has no conversion rights and includes no preemptive subscription, conversion, redemption or other rights to subscribe for additional securities. The holders of the Common Stock will be entitled to receive dividends, if any, as may be declared by the Board of Directors out of legally available funds and to share pro rata in any distribution to the stockholders, including any distribution upon liquidation, dissolution or winding up of the Company subject to the rights of any holders of Preferred Stock, if any Preferred Stock is ever issued. All outstanding Common Stock and the Shares issuable upon exercise of the Warrants, upon issuance and when paid for, will be duly authorized, validly issued, fully paid and nonassessable. The Company has not, to date, paid any cash dividends upon its Common Stock and does not expect to declare or pay any dividends. WARRANTS. - --------- The Company is also registering 250,000 Class A Warrants, each of which entitles the holder to purchase one share of Common Stock at an exercise price of $6.00 during the five-year period commencing June 26, 1998. There are currently warrants and options issued and outstanding exercisable for 4,643,827 shares of Common Stock, including the Warrants being Registered, although not all warrants or options outstanding have the same exercise rights, exercise period or exercise price as those being registered. No fractional shares will be issued upon exercise of the Warrants. However, if a Warrant Holder exercises all Warrants then owned of record by him or her, the Company will pay to such holder, in lieu of the issuance of any fractional share which is otherwise issuable, an amount in cash based on the market value of the Common Stock on the last trading day prior to the exercise date The Company also has outstanding certain Class B Warrants, none of which are being registered hereunder. Each Class B Warrant entitles the holder to purchase one share of Common Stock at $5.00 during the five year period commencing June 1999. TRANSFER AGENT. - --------------- The transfer agent and registrar for the Company's Common Stock and Warrants registered hereunder is Jersey Transfer and Trust Company, 201 Bloomfield Avenue, Verona, New Jersey, 07044. TRADING MARKET. - --------------- There is currently a limited trading market for Common Stock on the American Stock Exchange and the Warrants on the NASD OTC Bulletin Board. EXPERTS AND COUNSEL ---------------------- COUNSEL. - -------- The legality of the securities offered hereby and certain other legal matters will be passed upon for the Company by James, McElroy & Diehl, P.A, 600 South College Street, Charlotte, North Carolina 28202. 25 EXPERTS. - -------- The consolidated financial statements of Elite Pharmaceuticals, Inc. and Subsidiary included in the Company's Prospectus for the years ended March 31, 1999 and 1998, have been audited by Miller, Ellin & Company, LLP, independent auditors, to the extent and for the periods set forth in their report dated May 24, 1999, and June 14, 1999, as to Note 2, appearing elsewhere herein, and is included in reliance upon the report of said firm given upon their authority as experts in accounting and auditing. INTERESTS OF EXPERTS AND COUNSEL - -------------------------------- Neither (a) any expert named in the Registration Statement as having prepared or certified any part of the Registration Statement or a report, or valuation to be used in connection with the Registration Statement, nor (b) any counsel for the Company named in the Prospectus as having given an opinion on the validity of the securities being registered or on other legal matters in connection with the Registration or the Offering, (i) was employed for that purpose on a contingency basis; (ii) had at any time prior hereto, or is to receive in connection with the offering; a substantial interest, direct or indirect, in the Company, its parents or subsidiaries; or (iii) was connected with the Company or any of its parents or subsidiaries as a promoter, managing underwriter, or principal underwriter, voting trustee, director, officer or employee. 26 DESCRIPTION OF BUSINESS ------------------------- ELITE PHARMACEUTICALS, INC.'S BUSINESS. - --------------------------------------- Elite Pharmaceuticals' predecessor, Prologica International, Inc., was incorporated in the State of Pennsylvania on April 20, 1984. From the time of its incorporation, and the completion of its initial public offering in August 1988, until the date of its merger with Elite Pharmaceuticals, Prologica engaged in no business other than searching for suitable acquisitions. Except for Elite Pharmaceuticals, it located no such acquisitions. Elite Pharmaceuticals was incorporated in the State of Delaware on October 1, 1997, for the purpose of merging with Prologica in order to change the name and state of incorporation of Prologica. (Prior to the merger, Prologica underwent a three-for-one reverse split on October 9, 1997.) Elite Pharmaceuticals survived the merger with Prologica; Prologica ceased to exist at the time of the merger on October 24, 1997. Contemporaneous with the merger of Elite Pharmaceuticals and Prologica, Elite Labs (the business of which is described below) merged with a wholly owned subsidiary of Prologica, HMF. HMF was incorporated on August 1, 1997 for the purpose of providing a vehicle into which Elite Labs could merge. Elite Labs and HMF merged on October 30, 1997. (Prior to the merger, Elite Labs underwent a two-for-one forward split on August 21, 1997.) Elite Labs survived the merger with HMF and HMF ceased to exist subsequent to the merger. The net result of the two mergers is that Prologica and HMF have ceased to exist, and Elite Pharmaceuticals owns one hundred percent of the stock of Elite Labs. Such stock ownership is Elite Pharmaceuticals' sole business. There were no promotors of Elite Pharmaceuticals prior to its incorporation. Neither Elite Pharmaceuticals nor Prologica had had any operating revenue for the three years preceding the merger. At the present time, Elite Pharmaceuticals has no plans to conduct any other business apart from the ownership of Elite Labs. None of the proceeds of the current offering will inure to the benefit of Elite Pharmaceuticals or Elite Labs. ELITE LABORATORIES, INC.'S BUSINESS. - ------------------------------------- Elite Laboratories, Inc. was incorporated in the State of Delaware on August 23, 1990. As described above, on October 30, 1997, one hundred percent of the stock of Elite Labs was acquired by Elite Pharmaceuticals, Inc. via the merger between Elite Labs and HMF. With that exception, no acquisition or disposition of any material assets, nor any material changes in the method of conducting business have incurred since its incorporation. PRODUCTS AND MARKETS - --------------------- Elite Labs primarily engages in researching, developing, licensing, manufacturing, and marketing proprietary drug delivery systems and products. Elite Labs' drug delivery technology involves releasing a drug into the bloodstream or delivering it to a target site in the body over an extended period of time or at predetermined times. Such products are designed to allow drugs to be administered less frequently, with reduced side effects and, in certain circumstances, in reduced dosages. Elite Labs has concentrated on developing orally administered controlled release products. Elite Labs primarily targets existing controlled release drugs that are reaching the end of their exclusivity period, and works to develop 27 cheaper generic controlled-release version of those drugs. Six controlled release products developed by Elite Labs are at various stages of testing. The products include drugs which provide therapeutic benefits for angina and hypertension, a nonsteroidal analgesic drug, and one which appears to lower blood glucose by stimulating insulin from the pancreas. None of these products have yet been approved by the FDA, and Elite therefore does not yet market any products. Elite Labs also engages in contract research and development activities sponsored by several other pharmaceutical companies. Controlled drug delivery of a pharmaceutical compound is a relatively new concept which offers a safer and more effective means of administering drugs through releasing a drug into the bloodstream or delivering it to a certain site in the body at predetermined rates or predetermined times. Its goal is to provide more effective drug therapy while reducing or eliminating many of the side effects associated with conventional drug therapy. In the United States and European health care communities, a great deal of interest has been evident in the area of new drug delivery systems. Several pharmaceutical products have been introduced as oral controlled-release dosage forms, both as tablets and as capsules. RESEARCH AND DEVELOPMENT COSTS. - ------------------------------- Elite Labs spent approximately $1,273,445 in fiscal year ending March 31, 1999, and $541,164 in fiscal year ending March 31, 1998 on research and development activities. As Elite Labs does not yet sell any of its products, no part of the cost of such research was passed on to consumers of Elite Labs' products. DISTRIBUTION METHODS OF PRODUCTS OR SERVICES. - -------------------------------------------------- As yet, Elite Labs has not developed nor needed an elaborate method of distribution of products or services. COMPETITIVE BUSINESS CONDITIONS AND ISSUER'S COMPETITIVE POSITION. - ------------------------------------------------------------------- Elite Labs competes in two related but distinct markets: It performs contract research and development work regarding controlled-release drug technology for large pharmaceutical companies, and it seeks to develop and market (either on its own or by licensure to other companies) proprietary controlled-release pharmaceutical products. In both arenas, Elite's competition consists of those companies which are able (or are perceived as able) to develop controlled-release drugs. In recent years, an increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating advanced or novel drug delivery systems. The Company expects that competition in the field of drug delivery will significantly increase in the future since smaller, specialized research and development companies are beginning to concentrate on this aspect of the business. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in the development of their own drug delivery systems and technologies and some have invested funds in such specialized drug delivery companies. Many of these companies have greater financial and other resources as well as more experience than the Company in commercializing 28 pharmaceutical products. A comparatively small number of companies have a track record of success in developing controlled-release drugs. Significant among these are Alza Corporation, Andrx, Elan Corporation, Biovail Corporation, Faulding, Schering, KV Pharmaceutical, Forest Laboratories, etc. Each of these companies have developed expertise in certain types of drug delivery systems, although such expertise does not carry over to developing a controlled-release version of all drugs. Such companies may develop new drug formulations and products or may improve existing drug formulations and products more efficiently than the Company. While the Company's product development capabilities and patent protection may help the Company to maintain its market position in the field of advanced drug delivery, there can be no assurance that others will not be able to develop such capabilities or alternative technologies outside the scope of the Company's patents if any, or that even if patent protection is obtained, such patents will not be successfully challenged in the future. In addition, it must be noted that almost all of the Company's competitors have vastly greater resources than the Company. SOURCES AND AVAILABILITY OF RAW MATERIAL. - ----------------------------------------- The Company is not yet in the manufacturing phase of any product and therefore does not have a requirement for significant amounts of raw materials. It currently obtains what limited raw materials it needs from over twenty suppliers. DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS. - ------------------------------------------- Each year, the Company has had some customers that have accounted for a large percentage of its sales. It is the intention of the Company to expand its business to service a greater number of customers at one time. PATENTS, TRADEMARKS, ROYALTY AGREEMENTS ETC.. - ---------------------------------------------- Elite Labs has received Notices of Allowance from the U.S. Patent and Trademark Office for the following trademarks: Albulite CR, Nifelite CR, Diltilite CD, Ketolite CR, Verelite CR and Glucolite CR. On February 16, 1999, Elite was awarded a patent on its controlled-release formulation of nifedipine (U.S. Patent No.5,871,776). The United States market for controlled-release nifedipine is approximately one billion dollars. On May 11, 1999,Dr. Mehta was awarded a patent for method of preparation of controlled release nefedipine formulations (U.S. Patent No.5,902,632), and on November 18, 1998, he was awarded a patent for the pulsed-release delivery system for methyphenidate (U.S.Patent No. 5,837,284). This latter patent was assigned to Celgne Corporation; however, Elite retained certain manufacturing rights for methylphenidate, as well as rights for the pulsed-release technology with regard to all non-methylphenidate drugs. The Company intends to apply for patents for other products in the future; however, there can be no assurance that these or any future patents will be granted. The Company believes that future patent protection of its technologies and processes and of its products may be important to its operations. The success of the Company's products may depend, in part, upon the Company's ability to obtain strong patent protection. There can be no assurance, however, 29 that these patents, if issued, or any additional patents will prevent other companies from developing similar or functionally equivalent dosage forms of products. Furthermore, there can be no assurance that (i) any additional patents will be issued to the Company in any or all appropriate jurisdictions, (ii) the Company's patents will not be successfully challenged in the future, (iii) the Company's processes or products do not infringe upon the patents of third parties or (iv) the scope and validity of the Company's patents will prevent third parties from developing similar products. Although a patent has a statutory presumption of validity in the United States, there can be no assurance that patents issued covering the Company's technologies will not be infringed upon or successfully avoided through design innovation or by the challenge of that presumption of validity. Finally, there can be no assurance that products utilizing the Company's technologies, if and when issued, will not infringe patents or other rights of third parties. It is also possible that third parties will obtain patents or other proprietary rights that might be necessary or useful to the Company. In cases where third parties are first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent the Company from using such technology or from marketing such products. In addition, the Company consistently enters into confidentiality agreements with its employees and business partners; it is currently a party to well over one hundred such agreements. A representative copy of such an agreement is attached hereto. GOVERNMENT REGULATION AND APPROVAL - ----------------------------------- The design, development and marketing of pharmaceutical compounds, those activities on which the Company's success depends, are intensely regulated by governmental regulatory agencies, including the Food and Drug Administration. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions, including product seizures, injunction actions and criminal prosecution based on products or manufacturing practices that violate statutory requirements. In addition, administrative remedies can involve voluntary withdrawal of products, as well as the refusal of the Government to enter into supply contracts or to approve abbreviated new drug applications ("ANDAs") and new drug applications ("NDAs"). The FDA also has the authority to withdraw approval of drugs in accordance with statutory due process procedures. Before a drug may be marketed, it must be approved by the FDA. Because Elite Labs has concentrated, during the first few years of its business operations, on developing products which are intended to be bio-equivalent to existing controlled-release formulations, the Company expects that most of its drug products will require ANDA filings: FDA approval procedure for an ANDA relies on bio-equivalency tests which compare the applicant's drug with an already approved reference drug, rather than with clinical studies. There can be no marketing in the United States of a product for which ANDA is required until it has been approved by the FDA. 30 The FDA approval procedure for an NDA is a two-step process. During the Initial Product Development stage, an investigational new drug ("IND") for each product is filed with the FDA. A 30-day waiting period after the filing of each IND is required by the FDA prior to the commencement of initial (Phase I) clinical testing in healthy subjects. If the FDA does not comment on or question the IND within such 30-day period, initial clinical studies may begin. If, however, the FDA has comments or questions, the questions must be answered to the satisfaction of the FDA before initial clinical testing can begin. In some instances this process could result in substantial delay and expense. Phase I studies are intended to demonstrate the functional characteristics and safety of a product. After Phase I testing, extensive efficacy and safety studies in patients must be conducted. After completion of the required clinical testing, an NDA is filed, and its approval, which is required for marketing in the United States, involves an extensive review process by the FDA. The NDA itself is a complicated and detailed document and must include the results of extensive clinical and other testing, the cost of which is substantial. While the FDA is required to review applications within 180 days of their filing, in the process of reviewing applications, the FDA frequently requests that additional information be submitted and starts the 180-day regulatory review period anew when the requested additional information is submitted. The effect of such request and subsequent submission can significantly extend the time for the NDA review process. Until an NDA is actually approved, there can be no assurance that the information requested and submitted will be considered adequate by the FDA to justify approval. The packaging and labeling of all Company developed products are also subject to FDA regulation. It is impossible to anticipate the amount of time that will be required to obtain approval from the FDA to market any product. The time period to obtain FDA approval of the ANDA may range from approximately 12 to 36 months while that for an NDA may range from 12 to 24 months. Whether or not FDA approval has been obtained, approval of the product by comparable regulatory authorities in any foreign country must be obtained prior to the commencement of marketing of the product in that country. All marketing in territories other than the United States shall be conducted through other pharmaceutical companies based in those countries. The approval procedure varies from country to country, can involve additional testing, and the time required may differ from that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general each country has its own procedures and requirements, many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from both the FDA and foreign regulatory authorities after the relevant applications are filed. After such approvals are obtained, further delays may be encountered before the products become commercially available. All facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must be operated in conformity with Good Manufacturing Practice ("GMP") regulations. In the event the Company shall engage in manufacturing, it will be required to operate its facilities in accordance with GMP regulations. If the Company shall hire another company to perform contract manufacturing for it, it must take steps to ensure that its contractor's facilities conform to GMP regulations. 31 Under the Generic Drug Enforcement Act, ANDA applicants (including officers, directors and employees) who are convicted of a crime involving dishonest or fraudulent activity (even outside the FDA regulatory context) are subject to debarment. Debarment is disqualification from submitting or participating in the submission of future ANDAs for a period of years or permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse to accept ANDAs from any company which employs or uses the services of a debarred individual. The Company does not believe that it receives any services from any debarred person. The Company is governed by federal, state, and local laws of general applicability, such as laws relating to working conditions and environmental protection. The Company estimates that it spends approximately $3,000.00 per year in order to comply with applicable environmental laws. The Company is also licensed by, registered with, and subject to periodic inspection and regulation by the DEA and New Jersey state agencies, pursuant to federal and state legislation relating to drugs and narcotics. Certain drugs that the Company may develop in the future may be subject to regulation under the Controlled Substances Act and related Statutes. At such time as the Company begins manufacturing products, it may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors of prescription drugs. EMPLOYEES. - ---------- Elite has eight full-time employees and three part-time employees. Its full-time employees are engaged in administrative, research and development; its part-time employees are engaged in research and development. The Company believes its employee relations to be satisfactory; it is not a party to any labor agreements and none of its employees are represented by a labor union. Elite Pharmaceuticals does not have any employees except its President/CEO. Elite Labs believes its employee relations to be satisfactory; it is not a party to any labor agreements and none of its employees are represented by a labor union. Atul M. Mehta is the sole significant employee of the Company at this time. In fiscal years 1999 and 1998, his salary was allocated 75% to research and development and 25% to general administrative. EMPLOYEE INCENTIVE STOCK OPTION PLAN. - ------------------------------------- On August 7, 1997, the shareholders of the Elite Labs approved the Company's Incentive Stock Option Plan ("Plan"). The purpose of the Plan is to promote the success of the Company by providing a method wherein eligible employees may be awarded additional remuneration for services rendered.The Plan provides that the maximum number of shares of Common Stock reserved for awards thereunder shall be 625,000. The purpose of this stock option plan (this "Plan") is to secure for the company and its stockholders the benefits which flow from providing key employees and officers with the incentive inherent in common stock ownership. The stock options granted under the Plan are intended to qualify as incentive stock options within the meaning of Internal Revenue Code Section 422. The total number of shares of common stock to be subject to the options granted pursuant to the Plan shall not exceed 625,000 shares. The plan is administered by the Board of Directors. The purchase price per share of Stock purchasable under options granted pursuant to the Plan shall not be less than 100% of the fair market value at the time the options are granted. The purchase price per share of Stock purchasable under options granted pursuant to the Plan to a person who owns more than 10 percent of the voting power of the company's 32 voting stock shall not be less than 110% of the fair market value at the time the options are granted. No option granted pursuant to this Plan shall be exercisable after the expiration of ten years from the date it is first granted. No option granted pursuant to this Plan to a person who owns more than 10 percent of the voting power of the company's voting stock will be exercisable after the expiration of five years from the date it is first granted. In December 1998, Atul M. Mehta was awarded options to purchase 300,000 shares of Common Stock under the Incentive Stock Option Plan. The options are to vest over three years beginning December 1998. The exercise price for the options is $7.00 per share. In December 1998, Robert Deline was awarded options to purchase 75,000 shares; however, his employment was terminated prior to any such shares vesting. In July 1999, Susan Hamet was awarded options to purchase 30,000 shares, such options vesting over three years beginning March 2000. Also in July 1999, the following employees were each awarded options to purchase 1,000 shares, exercisable at $6.00 and vesting July 1, 2000: GlenRoy Brooks, Melinsa Xhelo, Min Fa Wang, and Ella Cecilia Guy. In December, 1999, Raymond DiFalco was awarded options to purchase 24,000 shares at $6.00 per share; and in January 2000, Paul Jones was awarded options to purchase 15,000 shares at $9.00 per share. LEGAL PROCEEDINGS - ------------------ Neither Elite Pharmaceuticals nor Elite Labs is involved in or the subject of any current or aware of any pending legal proceedings, nor is any of the property of either company the subject of any such legal proceedings. PROPERTY - --------- Both Elite Pharmaceuticals and Elite Labs are located at 165 Ludlow Avenue, Northvale, New Jersey, where the Company owns a piece of real property and improvements for use as a laboratory and offices. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF THE COMPANY AND ITS SUBSIDIARY INTRODUCTION Elite Pharmaceuticals' predecessor , Prologica International, Inc., was incorporated in the State of Pennsylvania on April 20, 1984. From the time of its incorporation, and the completion of its initial public offering in August 1988, until the date of its merger with Elite Pharmaceuticals, Prologica engaged in no business other than searching for suitable acquisitions. Except for Elite Pharmaceuticals, it located no such acquisitions. Elite Pharmaceuticals was incorporated in the State of Delaware on October 1, 1997, for the purpose of merging with Prologica in order to change the name and state of incorporation of Prologica. (Prior to the merger with Elite Pharmaceuticals, Prologica underwent a three-for-one reverse split of its stock.) Elite Pharmaceuticals survived the merger with Prologica; Prologica ceased to exist at the time of the merger on October 24, 1997. Contemporaneous with the merger of Elite Pharmaceuticals and Prologica, Elite Labs (described below) merged with a wholly owned subsidiary of Prologica, HMF. HMF was incorporated on August 1, 33 1997 for the purpose of providing a vehicle into which Elite Labs could merge. Elite Labs and HMF merged on October 30, 1997. (Prior to the merger with HMF, Elite Labs underwent a two-for-one forward split of its stock.) Elite Labs survived the merger with HMF and HMF ceased to exist subsequent to the merger. The net result of the two mergers is that Prologica and HMF have ceased to exist, and Elite Pharmaceuticals owns one hundred percent of the stock of Elite Labs. Such stock ownership is Elite Pharmaceuticals' sole business. Elite Labs was incorporated in the State of Delaware on August 23, 1990. As described above, on October 30, 1997, one hundred percent of the stock of Elite Labs was acquired by Elite Pharmaceuticals, Inc. With that exception, no acquisition or disposition of any material assets, nor any material changes in the method of conducting business have incurred since its incorporation. Elite Labs, now a wholly owned subsidiary of Elite Pharmaceuticals, engages in the research, development, licensing, manufacturing and marketing of both new and generic controlled-release pharmaceuticals products. Elite Labs is a 100% owned subsidiary of Elite Pharmaceuticals, Inc. The Company has developed six oral controlled release pharmaceutical products to varying stages of the development process, and three other products are in the testing phase. The rights under an option previously granted to a multinational company have reverted back to the Company. To date, the Company owns rights to all products developed by it other than d-methylphenidate or methylphenidate pulsed release formulation which has been assigned to Celgene Corporation, but over which Elite retains certain manufacturing rights. Elite Labs has also conducted several research and development projects on behalf of several large pharmaceuticals companies. These activities have generated only limited revenue for Elite Labs to date. The Company plans to focus its efforts on the following areas: (i) to receive FDA approval for one or all nine of the oral controlled release pharmaceutical products already developed, either directly or through other companies; (ii) to commercially exploit these drugs either by licensure and the collection of royalties, or through the manufacturing of tablets and capsules using the formulations developed by the Company, and (iii) to continue the development of new products and the expansion of its licensing agreements with other large multinational pharmaceutical companies including contract research and development projects. To effectively achieve its goals, the Company has recently purchased an office and laboratory facility in Northvale, New Jersey, and has moved its operations to this facility. This facility is larger and better suited to Elite's needs than its prior, leased, space, and will increase the space available to conduct further research and development and scale-up, and possibly for the eventual manufacturing of its products. 34 RESULTS OF CONSOLIDATED OPERATIONS YEAR ENDED MARCH 31, 1999 VS. YEAR ENDED MARCH 31, 1998. Elite's revenues for the year ended March 31, 1999 were $150,412, an increase of $98,454, or approximately 189%, over the comparable period of the prior year. Net revenues primarily consisted of license fees of $150,000 (compared with $20,000 for the comparable period of the prior year), and consulting and test fees of $412 (compared with $ 31,968 for the comparable period of the prior year). General and administrative expenses for the year ended March 31, 1999 were $621,712, an increase of $285,649, or approximately 85% from the comparable period of the prior year. The increase in general and administrative expenses was substantially due to legal fees, consulting fees, salaries and interest paid on a capital lease. General and administrative expenses expressed as a percentage of revenues was approximately 413% for the year ended March 31, 1999 as compared to 647% for the comparable period of the prior year. Research and development costs for the year ended March 31, 1999, were $1,273,445, an increase of $732,281, or approximately 135%, from the comparable period of the prior year. The increase in research and development costs can be attributed to increases in salaries, laboratory raw materials and supplies and payments for biostudies on drug technologies developed by the Company. These increases have been made possible principally because of the Company raising equity in its recent private placement offering, and reflects increased efforts to develop drug release products and technology in accordance with management's plan of operations. Elite's net loss for year ended March 31, 1999 was $1,661,881, as compared to $788,591 for the comparable period of the prior year. The increase in the net loss was primarily due to increased internal research and development costs and general and administrative expenses. NINE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 (UNAUDITED) Elite's revenues for the period ended December 31, 1999 were $6,908, a decrease of $147,314 or approximately 96% over the comparable period of the prior year. Net revenues primarily consisted of consulting and tests fees of $6,293 and contract research and development fees of $615 (compared with $150,000 of licensing fees and $4,222 of consulting and test fees for the comparable period of the prior year). General and administrative expenses for the period ended December 31, 1999 were $721,057, an increase of $246,950, or approximately 52% from the comparable period of the prior year. The increase in general and administrative expenses was substantially due to 35 legal and consulting fees. General and administrative expenses expressed as a percentage of revenues was approximately 10,438% for the period ended December 31, 1999 as compared to 307% for the comparable period of the prior year. Research and development costs for the period ended December 31, 1999, were $1,532,925, an increase of $769,725 or approximately 101% from the comparable period of the prior year. The increase in research and development costs can be attributed to increases in laboratory raw materials, supplies, payments to clinical organizations for conducting biostudies on drug products developed by the Company, and new hires. These increases have been made possible principally because of the Company raising equity in its recent private placement offering and incurring debt in connection with the issuance of New Jersey Economic Development Authority (NJ EDA) Bonds, and reflects increased efforts to develop drug release products and technology in accordance with management's plan of operations. Elite's net loss for period ended December 31, 1999 was $2,167,297 as compared to $988,843 for the comparable period of the prior year. The increase in the net loss was primarily due to increased internal research and development costs, and general and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES From inception through March 31, 1998, cash flow from financing activities principally came from the issuance of common stock, initially from a private placement on August 15, 1991. Subsequently, the Company raised additional funds from common stock issuance and received a loan from a related party in the amount of $100,000. This loan was subsequently repaid during the eight months ended November 30, 1997. During the fiscal year ended March 31, 1998, the Company raised an additional $5,232,061 (net of offering costs of $767,939) in cash flows from financing activities through the issuance of common stock and warrants in a private placement offering beginning on September 15, 1997 and concluding on November 30, 1997. The Company estimates that the net proceeds from the private placement offering will be sufficient to meet its cash requirements for a period of between 18 and 24 months following the date of the closing of the private placement offering. However, there can be no assurance that unexpected future developments may result in the Company requiring additional financing or, that if required, additional financing will be available to the Company. For the year ended March 31, 1999, net cash of $1,455,607 was used in operating activities due to the Company's net loss of $1,661,881; decreased by decreases in the Company's contract revenues receivable and by increases in accrued expenses and other liabilities. For the year ended March 31, 1998, net cash of $739,199 was used in operating activities as a result of the Company's net loss of $788,591. 36 Material Changes in Financial Condition The Company's working capital (total current assets less total current liabilities), which was $1,364,564 as of March 31, 1999, increased to $4,890,941 as of December 31, 1999. The increase in working capital was primarily due to the Company raising equity in its May 1999 private placement offering and incurring debt in connection with the issuance of NJ EDA Bonds. The Company experienced negative cash flow from operations of $2,238,950 for the period ended December 31, 1999 due to the Company's net loss of $2,167,297. YEAR 2000 COMPUTER SYSTEMS COMPLIANCE Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 (Y2K) to mean the year 1900 instead. If not corrected, those programs could cause date-related transaction failures. The Company, in conjunction with outside vendors is in the process of evaluating its Y2K readiness, and remediating or replacing the Company's systems. The Company's computer systems are comprised principally of microcomputers and laboratory equipment utilizing microprocessors and/or software or firmware. The Company believes that an assessment as to the date-sensitive nature of the laboratory computers will be complete with a plan to replace those machines if necessary by the end of 1999. The Company anticipates spending less than $100,000 on the systems upgrades. Because the Company's Y2K compliance is dependent upon key third parties also being Year 2000 compliant on a timely basis, there can be no guarantee that the Company's efforts will prevent a material adverse impact on its results of operations, financial condition or cash flows. If the Company's systems or those of key third parties are not fully Y2K functional, disruptions in operations could occur. Such disruptions could result in delays in the distribution of product, errors in customer order taking, disruption of clinical activities or delays in product development. These consequences could have a material adverse impact on the Company's results of operations, financial condition and cash flows. The Company is in the process of developing contingency plans aimed at ameliorating such disruptions, to the extent practicable. The statements contained in the foregoing Year 2000 readiness disclosure are subject to protection under the Year 2000 Information and Readiness Disclosure Act. 37 EVENTS OCCURRING AFTER FISCAL YEAR END 3/31/99 - ---------------------------------------------- BOND FINANCING OFFERING. On September 3, 1999, the Company completed the issuance of $3,000,000 in tax-exempt bonds by the New Jersey Economic Development Authority (NJEDA). The net proceeds of the bonds (approximately $2,700,000) will be used by the Company to defray the cost of purchasing the land and building it currently occupies in Northvale, New Jersey and for the purchase of certain manufacturing equipment and related building improvements. PRIVATE PLACEMENT OF SECURITIES Subject to a confidential private offering memorandum dated May 17, 1999, the Company sold 12.75 units ("units") of its securities at $350,000 per unit. Each unit consists of 100,000 shares of common stock, $.01 par value and 50,000 Class B Redeemable Callable Common Stock Purchase Warrants. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $5.00 during the five-year period commencing on the closing date of the offering. The offering was conducted without registration under SEC exemption afforded by Section 4(6) of the Securities Act and Rule 506 of regulations promulgated thereunder. The Company received net proceeds of $4,452,500, after legal and filing fees, of which $4,202,500 will be used to fund the working capital of the Company and the remaining $250,000 funded fees to advisors and consultants of the Company. RECENTLY ISSUED PRONOUNCEMENTS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Accounts," requires an entity to measure all derivative at fair value and to recognize them in the balance sheet as an asset or liability, depending on the entity's rights or obligations under the applicable derivative contract. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows. SFAS No. 132, "Employer's Disclosures about Pensions and Other Post Retirement Benefits," revises disclosures about pensions and other post retirement benefit plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 132 did not have a material impact on the Company's consolidated financial condition, results of operations or cash flows. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report information about operating segments in interim financial reports issued to 38 shareholders. SFAS No. 131 is effective for financial statements for fiscal years beginning December 15, 1997. The adoption of SFAS No. 131 did not have a material impact on the Company's consolidated financial condition, results of operations or cash flows. SFAS No. 130, "Reporting Comprehensive Income," requires an entity to report comprehensive income and its components in a full set of financial statements, and is effective for fiscal years beginning after December 15, 1997. Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances form non-owner sources. The adoption of SFAS No. 130 did not have a material impact on the Company's consolidated financial condition, results of operations or cash flows. American Institute of Certified Public Accountants Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), identifies the characteristics of internal use software and provides guidelines on new cost recognition principles. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 is not expected to have a material impact on the Company's consolidated financial condition, results of operations or cash flows. American Institute of Certified Public Accountants Statement of Position No. 97-2, "Software Revenue Recognition" (SOP 97-2), provides guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing or otherwise marketing computer software. SOP 97-2 is effective for financial statements for fiscal years beginning after December 15, 1997. The adoption of SOP 97-2 did not have a material impact on the Company's consolidated financial condition, results of operations or cash flows. American Institute of Certified Public Accountants Statement of Position No. 96-1, "Environmental Remediation Liabilities," establishes specific criteria for the recognition and measurement of environmental remediation liabilities. The adoption of the statement in 1998 did not have a material impact on the Company's consolidated financial condition, results of operations or cash flows. CERTAIN TRANSACTIONS TRANSACTIONS WITH MANAGEMENT AND OTHERS. - ----------------------------------------- Elite Laboratories, Inc. is a party to a three-year Consulting Agreement entered into with Bridge Ventures, Inc. ("Bridge") on August 1, 1997, under which Bridge provides the company with marketing and management consulting services. Under the terms of the Consulting Agreement, Elite pays Bridge the sum of $10,000 per month and reimburses Bridge for all out-of-pocket expenses incurred on behalf of Elite Labs. Bridge is an owner of at least five percent of the Elite Pharmaceuticals' Common Stock, as described in more detail in the section entitled Security Ownership of Certain Beneficial Owners and Management. 39 Elite Pharmaceuticals, Inc. is a party to an agreement whereby fees are paid to a company wholly owned by Mark Gittelman, the Company's Treasurer, in consideration for services rendered by Mr. Gittelman in his capacity as Treasurer. For the years ended March 31, 1999 and 1998, the fees paid to that company were $50,414 and $18,338, respectively. Elite Pharmaceuticals, Inc. is a party to a consulting contract with Harmon Aronson, whereby the company compensates Dr. Aronson on a per diem basis for consulting services rendered in connection with compliance with FDA rules and regulations. For the year ended March 31, 1999 and 1998, the fees to Dr. Aronson under such agreement were $36,092 and $2,000, respectively. Elite Pharmaceuticals, Inc. is a party to a referral agreement with Donald Pearson, similar to the agreement the company has with several other persons in the pharmaceutical industry, whereby the company would compensate Mr. Pearson for a referral of a manufacturing client. No fees have been generated to date under this agreement. Other than as described above, the Company is not (and has not been in the last two years) a party to any transaction in which any of the persons described in Reg. Sec. 228.404(a) has or had a direct or indirect material interest. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ---------------------------------------------- Not Applicable. 40 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY REPORT ON CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 CONTENTS PAGE ----- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2 CONSOLIDATED BALANCE SHEET (AS OF MARCH 31, 1999) F-3 CONSOLIDATED STATEMENTS OF OPERATIONS F-4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 - F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-23 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS THE BOARD OF DIRECTORS ELITE PHARMACEUTICALS, INC. NORTHVALE, NEW JERSEY We have audited the accompanying consolidated balance sheet of Elite Pharmaceuticals, Inc. and Subsidiary as of March 31, 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended March 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements of the Company referred to above present fairly, in all material respects, the financial position as of March 31, 1999 and the results of their operations and their cash flows for the periods presented in conformity with generally accepted accounting principles. MILLER, ELLIN & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS New York, New York May 24, 1999 June 14, 1999 as to Note 12 F-2
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET ASSETS ------ DECEMBER 31, MARCH 31, 1999 1999 ------------ ------------ (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $4,132,331 $1,559,443 Restricted cash 901,353 - PREPAID EXPENSES AND OTHER CURRENT ASSETS 18,912 52,605 ---------- ---------- Total current assets 5,052,596 1,612,048 PROPERTY AND EQUIPMENT- net of accumulated depreciation and amortization 2,385,843 1,250,237 INTANGIBLE ASSETS - net of accumulated amortization 16,706 17,759 OTHER ASSETS: Security deposits 340,538 196,538 Restricted cash 300,000 - EDA BOND OFFERING COSTS, NET OF ACCUMULATED AMORTIZATION 189,259 - ---------- ---------- $8,284,942 $3,076,582 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY -------------------------------------- CURRENT LIABILITIES: Current portion of capitalized lease obligation $ 8,184 $ 47,021 Accounts payable 34,395 100,420 Accrued expenses and other current liabilities 4,076 100,043 CURRENT PORTION OF EDA BONDS 115,000 - ------- --------- Total current liabilities 161,655 247,484 EDA BOND-NET OF CURRENT PORTION 2,885,000 - --------- --------- TOTAL LIABILITIES 3,046,655 247,484 --------- --------- Authorized - 25,000,000 shares, Issued and outstanding - 8,560,355 and 7,237,613 shares, respectively 85,603 72,376 Additional paid-in capital 11,378,621 6,815,362 ACCUMULATED DEFICIT (6,225,937) (4,058,640) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 5,238,287 2,829,098 ---------- ----------- $8,284,942 $3,076,582 ========== ========== The accompanying notes are an integral part of the consolidated financial statements
F-3
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ----------------------------------------------------------------------------- 1999 1998 1999 1998 ----------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) Licensing fees $ - $ 150,000 $150,000 $20,000 Contract research and development 615 - - - CONSULTING AND TEST FEES 6,293 4,222 412 31,958 ----- ------------ -------- ------ TOTAL REVENUES 6,908 154,222 150,412 51,958 ------- ------------- -------- ------ OPERATING EXPENSES: Research and development 1,532,925 763,200 1,273,445 541,164 General and administrative 721,057 474,107 621,712 336,063 DEPRECIATION AND AMORTIZATION 56,646 18,972 52,943 25,160 ------ --------- -------------- ------- 2,310,628 1,256,279 1,948,100 902,387 --------- --------- -------------- ------- LOSS FROM OPERATIONS (2,303,720) (1,102,057) (1,797,688) (850,429) ----------- ----------- ----------- -------- Interest income 139,046 119,527 142,872 86,794 INTEREST EXPENSE (2,623) (6,313) (6,965) (9,956) ----------- ----------- ----------- ------- 136,423 113,214 135,907 76,838 ------------ ----------- ----------- ------- LOSS BEFORE PROVISION FOR INCOME TAXES (2,167,297) (988,843) (1,661,781) (773,591) PROVISION FOR INCOME TAXES - - 100 15,000 ----------- ----------- ------------- ---------- NET LOSS $(2,167,297) $ (988,843) $(1,661,881) $ (788,591) ============ =========== ============ =========== BASIC LOSS PER COMMON SHARE $ (0.27) $ (0.14) $ (0.23) $ (0.13) ======== ========= ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,177,515 7,237,613 7,237,613 5,858,238 ========= ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements F-4
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ADDITIONAL *COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ------- ------- ----------- ----------- ----------- BALANCE AT MARCH 31, 1997 4,767,613 $ 47,676 $1,632,972 $ (1,608,168) $ 72,480 Sale of securities 20,000 200 27,800 - 28,000 Sale of warrants - - 150 - 150 Sale of securities through private placement 2,000,000 20,000 5,980,000 - 6,000,000 Offering costs in connection with sale of securities - - (767,939) - (767,939) Offering costs in connection with registration of securities - - (32,078) - (32,078) Common stock exchanged in connection with merger 450,000 4,500 (4,500) - - NET LOSS FOR THE YEAR ENDED MARCH 31, 1998 - - - (788,591) (788,591) ---------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 1998 7,237,613 72,376 6,836,405 (2,396,759) 4,512,022 Offering costs in connection with sale of securities - prior year - - (18,000) - (18,000) Offering costs in connection with registration of securities - prior year - - (3,043) - (3,043) NET LOSS FOR THE YEAR ENDED MARCH 31, 1999 - - - (1,661,881) (1,661,881) ----------- --------- ------------ ------------ ----------- BALANCE AT MARCH 31, 1999 7,237,613 72,376 6,815,362 (4,058,640) 2,829,098 Sale of securities through private placement 1,275,002 12,750 4,449,750 - 4,462,500 Issuance of shares through exercise of options 25,000 250 49,750 - 50,000 Issuance of shares and warrants through exercise of placement agent warrants 22,740 227 81,637 - 81,864 Offering costs in connection with sale of securities - - (10,000) - (10,000) Offering costs in connection with registration of securities - - (7,878) - (7,878) NET LOSS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED) - - - (2,167,297) (2,167,297) ---------- ---------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1999 (UNAUDITED) 8,560,355 $ 85,603 $11,378,621 $(6,225,937) $5,238,287 ========= ======== =========== =========== ========== * All references to shares and per share data have been restated for 1997 to reflect a two for one stock split on August 21, 1997 and a reverse stock split on March 30, 1998. The accompanying notes are an integral part of the consolidated financial statements F-5
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ----------------------------------------------------------------- 1999 1998 1999 1998 ----------------------------------------------------------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,167,297) $(988,843) $ (1,661,881) $(788,591) Adjustments to reconcile net loss to cash Depreciation 51,292 18,000 51,536 23,883 Amortization of intangibles 5,354 972 1,407 1,277 Deferred income taxes - - - 14,800 Changes in assets and liabilities: Consulting and test fees receivable - 25,000 25,000 (12,792) Prepaid expenses and other current assets 33,693 (9,969) (40,638) (9,812) Other assets - security deposit - 9,000 9,000 - Accounts payable (66,025) (13,670) 86,750 10,957 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (95,967) 73,219 21,079 -------- --------- ---------- -------- (21,034) NET CASH USED IN OPERATING ACTIVITIES (2,238,950) (980,544) (1,455,607) (739,199) ----------- ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for patent and trademark filings - (8,286) (950) (2,100) Payment of building deposit and related acquisition costs - - - (123,057) Payment of deposit for manufacturing equipment (144,000) - (196,538) - Purchases of property and equipment (1,186,898) (1,219,495) - - RESTRICTED CASH (1,201,353) (1,071,235) (7,392) ----------- ------------ ----------- --------- NET CASH USED IN INVESTING ACTIVITIES (2,532,251) (1,227,781) (1,268,723) (132,549) ----------- ----------- ----------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: - ---------------------------------------- Proceeds from issuance of NJ Economic Development Authority (EDA) Bonds 3,000,000 - - - Payments of offering costs in connection with issuance of EDA Bonds (193,560) - - - Repayments of notes payable - related parties - - - (100,000) Principal payments on capital lease (38,837) (31,328) (42,331) - Proceeds from issuance of common stock and warrants 131,864 - - 28,150 Proceeds from issuance of common stock and warrants in connection with private placement 4,462,500 - - 6,000,000 Payments of offering costs in connection with private placement (10,000) (18,000) (18,000) (767,939) Payments of offering costs in connection WITH REGISTRATION FILING (7,878) (3,043) (32,078) ------- ------- ----------- --------- (1,203) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,344,089 (50,531) (63,374) 5,128,133 --------- --------- --------- --------- The accompanying notes are an integral part of the consolidated financial statements F-6
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, 1999 1998 1999 1998 (UNAUDITED) (UNAUDITED) NET CHANGE IN CASH AND CASH EQUIVALENTS 2,572,888 (2,258,856) (2,787,704) 4,256,385 CASH AND CASH EQUIVALENTS - BEGINNING 1,559,443 4,347,147 4,347,147 90,762 --------- --------- --------- --------- CASH AND CASH EQUIVALENTS - ENDING $4,132,331 $2,088,291 $1,559,443 $4,347,147 ========== ========== ========== ========== SCHEDULES OF NON-CASH ACTIVITIES: Utilization of building deposit and related acquisition costs towards purchase of building $ - $ - $ 123,057 $ - Purchase of property equipment by capital leases - - - 89,352 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 2,623 $ 6,313 $ 7,420 $ 11,240 Cash paid for income taxes 200 200 200 200 The accompanying notes are an integral part of the consolidated financial statements F-7
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION --------------------------- The consolidated financial statements include the accounts of Elite Pharmaceuticals, Inc. and its Subsidiary, ("Company"), which is wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation. NATURE OF BUSINESS ------------------ Elite Pharmaceuticals, Inc. was incorporated on October 1, 1997 under the Laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. was incorporated on August 23, 1990 under the Laws of the State of Delaware, in order to engage in research and development activities for the purpose of obtaining Food and Drug Administration approval, and, thereafter, commercially exploiting generic and new controlled-release pharmaceutical products. The Company also engages in contract research and development on behalf of other pharmaceutical companies. INTERIM CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ The consolidated balance sheet of the Company at December 31, 1999 and the consolidated statements of operations, changes in stockholders' equity and cash flows for the nine months ended December 31, 1999 and 1998 are unaudited but include all adjustments which in the opinion of management are necessary for the fair presentation of the Company's financial position and results of operations for the periods then ended. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations for a full fiscal year. MERGER ACTIVITIES ----------------- In October 1997, concurrent with its private placement offering, Elite Pharmaceuticals, Inc. merged with Prologica International, Inc. ("Prologica") a Pennsylvania Corporation (see Note 7), a publicly traded inactive corporation, with Elite Pharmaceuticals, Inc. surviving the merger. In addition, in October 1997, Elite Laboratories, Inc. merged with a wholly-owned subsidiary of Prologica, with the Company's subsidiary surviving this merger. The former shareholders of the Company's subsidiary exchanged all of their shares of Class A voting common stock for shares of the Company's voting common stock in a tax free reorganization under Internal Revenue Code Section 368. The result of the merger activity qualifies as a reverse acquisition. In connection with the reverse acquisition, options exercisable for shares of Class A voting and Class B nonvoting common stock of the Company's subsidiary were exchanged for options exercisable for shares of the Company's voting common stock. F-8 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS -------------------------- The Company considers highly liquid short-term investments purchased with initial maturities of nine months or less to be cash equivalents. Cash and cash equivalents consist principally of money market accounts at various financial institutions. PROPERTY AND EQUIPMENT ---------------------- Property and equipment are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from five to thirty-nine years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are charged to expense as incurred. Upon retirement or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recorded. RESEARCH AND DEVELOPMENT ------------------------ Research and development expenditures are charged to expense as incurred. For the nine months ended December 31, 1999 and 1998 (unaudited) and for the years ended March 31, 1999 and 1998, research and development costs amounted to $1,532,925, $763,200, $1,273,445 and $541,164, respectively. PATENTS AND TRADEMARKS ---------------------- Costs incurred for the application of patents and trademarks are capitalized and amortized on the straight-line method, based on an estimated useful life of fifteen years, upon approval of the patent and trademarks. These costs are charged to expense if the patent or trademark is unsuccessful. CONCENTRATION OF CREDIT RISK ----------------------------- The Company derives substantially all of its revenues from contracts with other pharmaceutical companies, subject to licensing and research and development agreements. The Company maintains cash balances in its bank which, at times, may exceed the limits of the Federal Deposit Insurance Corp. F-9 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INCOME TAXES ------------ The Company adopted SFAS No. 109, "Accounting for Income Taxes," which requires the use of the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The resulting deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. LOSS PER COMMON SHARE --------------------- The Company adopted SFAS No. 128, "Earnings Per Share," which establishes new standards for computing and presenting earnings per share. The statement also requires restatement of all prior period earnings per share data presented. Basic loss per common share is based on the weighted average number of shares outstanding during the period. The weighted average number of shares outstanding has been adjusted to reflect the recapitalization in connection with the private placement as if it had occurred as of the beginning of the period for which loss per share is presented as well as the effect of stock splits and reverse stock splits issued during the periods. Common stock equivalents have not been included as their effect would be antidilutive. REVENUE RECOGNITION ------------------- Revenues are earned primarily by licensing certain pharmaceutical products developed by the Company as well as performing research and development services under fixed price contracts. Such revenues are recorded as certain projected goals are attained, as defined in the individual contract. F-10 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENTLY ISSUED PRONOUNCEMENTS ------------------------------- SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires an entity to measure all derivatives at fair value and to recognize them in the balance sheet as an asset or liability, depending on the entity's rights or obligations under the applicable derivative contract. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. SFAS No. 132 "Employers Disclosures about Pensions and Other Post Retirement Benefits," revises disclosures about pensions and other post retirement benefit plans. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 132 did not have significant impact on the Company's consolidated financial position, results of operations or cash flows. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131 did not have a significant impact on the Company's consolidated financial position, results of operations or cashflows. SFAS No. 130, "Reporting Comprehensive Income," requires an entity to report comprehensive income and its components in a full set of financial statements and is effective for fiscal years beginning after December 15, 1997. Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The adoption of SFAS No. 130 did not have a significant impact on the Company's consolidated financial position, results of operations or cash flows. American Institute of Certified Public Accountants Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), identifies the characteristics of internal use software and provides guidance on new cost recognition principles. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. F-11 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENTLY ISSUED PRONOUNCEMENTS (Continued) ------------------------------ American Institute of Certified Public Accountants Statement of Position No. 97-2, "Software Revenue Recognition" (SOP 97-2), provide guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing or otherwise marketing computer software. SOP 97-2 is effective for financial statements for fiscal years beginning after December15, 1997. The adoption of SOP 97-2 did not have a significant impact on the Company's consolidated financial position, results of operations or cash flows. American Institute of Certified Public Accountants Statement of Position No. 96-1, "Environmental Remediation Liabilities," establishes specific criteria for the recognition and measurement of environmental remediation liabilities. The adoption of the statement in 1998 did not have a significant effect on the Company's financial condition or results of operations or cash flows. YEAR 2000 COMPUTER SYSTEMS COMPLIANCE ------------------------------------- The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 Issue and is developing an implementation plan to resolve the issue. The Year 2000 is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs, as well as outside vendor=s programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that, with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for the Company's computer systems as so modified and converted. However, if such modifications and conversions are not completed in a timely manner, the Year 2000 Issue may have a material impact on the operations of the Company. STOCK-BASED COMPENSATION ------------------------ Under various qualified and non-qualified plans, the Company may grant stock options to officers, selected employees, as well as members of the board of directors and advisory board members. The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, the Company is recognizing compensation cost pursuant to the provisions of APB No. 25. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 1999 and 1998, consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced in the proforma amount. No proforma calculation was prepared as the impact of SFAS No. 123 would have no effect on the per share calculation. F-12 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The carrying amounts of cash, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short term maturity of these items. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, MARCH 31, 1999 1999 -------------------------------------- (Unaudited) Laboratory and manufacturing equipment $ 1,081,394 $232,708 Furniture and fixtures 49,804 58,325 Office equipment 17,099 - Land, building and improvements 1,438,833 1,109,199 EQUIPMENT UNDER CAPITAL LEASE 168,179 168,179 ------- ---------- 2,755,309 1,568,411 LESS: ACCUMULATED DEPRECIATION AND AMORTIZATION 369,466 318,174 ------- ---------- $2,385,843 $1,250,237 ========== ==========
Depreciation and amortization expense amounted to $51,292, $18,000, $51,536 and $23,883 for the nine months ended December 31, 1999 and 1998 (unaudited) and for the years ended March 31, 1999 and 1998, respectively. F-13 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 3 - INTANGIBLE ASSETS Intangible assets consists of the following:
DECEMBER 31, MARCH 31, 1999 1999 --------------------------------- (Unaudited) Patents $ 13,384 $ 13,384 TRADEMARKS 8,120 8,120 ----- --------- 21,504 21,504 LESS: ACCUMULATED AMORTIZATION 4,798 3,745 ----- --------- $ 16,706 $ 17,759 ========= =========
Amortization amounted to $5,354, $972, $1,407 and $1,277 for the nine months ended December 31, 1999 and 1998 (unaudited) and for the years ended March 31, 1999 and 1998, respectively. NOTE 4 - PURCHASE OF BUILDING On May 28, 1998, the Company purchased a 15,000 square foot building to house its new office, laboratory and manufacturing facility in Northvale, New Jersey. The purchase price was $1,050,000 plus certain closing and related acquisition costs in the amount of $22,123. NOTE 5 - OBLIGATIONS UNDER CAPITAL LEASE In March 1998, the Company acquired laboratory equipment under a capital lease that expires on March 18, 2000. Lease obligations are due in monthly installments of $4,146 including interest at approximately 10.5%. This lease is collateralized by laboratory equipment with a net carrying value of $52,092 and $67,100 at December 31, 1999 (unaudited) and March 31, 1999, respectively. Minimum future lease payments under this capitalized lease are as follows:
DECEMBER 31, MARCH 31, YEAR ENDING MARCH 31, 1999 1999 --------------------- -------------------------------------- (Unaudited) 2000 $ 8,292 $ 49,750 LESS: INTEREST (108) (2,729) ----- ------- PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS $ 8,184 $ 47,021 ========= =========
The Company incurred interest expense of $2,623 and $7,420 for the nine months ended December 31, 1999 (unaudited) and for the year ended March 31, 1999. F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 6 - INCOME TAXES The components of provision for income taxes by taxing jurisdiction are as follows: MARCH 31, 1999 1998 ---------------------- Federal: Current $ - $ - DEFERRED - 11,200 ----------------- ------ - 11,200 ----------------- ------ State: Current 100 200 DEFERRED - 3,600 ------------- ----- 100 3,800 ------------- ----- $ 100 $ 15,000 ========= ========
No provisions for income taxes were made for the nine months ended December 31, 1999 and 1998 (unaudited). The major components of deferred tax assets at December 31, 1999 (unaudited) and March 31, 1999 are as follows:
DECEMBER 31, MARCH 31, 1999 1999 ----------------------------------- (Unaudited) Net operating loss carryforwards $2,283,000 $ 1,476,000 VALUATION ALLOWANCE (2,283,000) (1,476,000) ----------- ----------- $ - $ - ========= =======
At December 31, 1999 (unaudited) and at March 31, 1999, a 100% valuation allowance is provided as it is uncertain if the deferred tax assets will be utilized. At December 31, 1999 (unaudited) and at March 31, 1999, for income tax purposes, the Company has unused net operating loss carryforwards of approximately $6,215,000 (unaudited) and $4,036,000, respectively expiring in 2007 through 2014. F-15 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 7 - STOCKHOLDERS' EQUITY ISSUANCE OF COMMON STOCK ------------------------ For the years ended March 31, 1998 and 1997, before its private placement offering, the Company issued 102,000 shares of its common stock for a total of $142,800. The shares were sold on various dates as follows:
DATE ISSUED SHARES ISSUED AMOUNT ----------- ------------- ------ March 20, 1997 82,000 $114,800 MAY 20, 1997 20,000 28,000 ------ ------ 102,000 $142,800 ======= ========
During October 1997, in connection with the aforementioned Prologica merger, 450,000 shares of the Company's common stock were issued to the former shareholders of Prologica. PRIVATE PLACEMENT OFFERINGS --------------------------- In a private placement concluding on November 30, 1997, the Company raised $6,000,000 consisting of 100 units, each unit consisting of 40,000 shares of common stock of the Company and 20,000 warrants, each warrant entitling the holder to purchase one share of common stock at an exercise price of $3.00 per share during the five year period commencing with the date of closing of the private placement memorandum (November 30, 1997). The price per unit was $60,000. This resulted in the issuance of 2,000,000 shares of common stock and 1,000,000 warrants to purchase common stock, at an exercise price of $6.00 per share, after giving effect to the one for two reverse split on March 30, 1998. The Company received net proceeds of $5,232,061 from the private placement after underwriting costs, legal fees and sales commissions. In a private placement offering dated May 17, 1999, the Company raised $4,462,500 consisting of 12.75 units; each unit consisting of 100,000 shares of common stock of the Company and 50,000 warrants, each warrant entitling the holder to purchase one share of common stock at an exercise price of $5.00 per share during the five year period commencing with the date of closing of the private placement memorandum (June 16, 1999). The price per unit was $350,000. This resulted in the issuance of 1,275,000 shares of common stock and 637,500 warrants to purchase common stock, at an exercise price of $5.00 per share. The Company received net proceeds of $4,452,500 from the private placement after legal fees of $10,000. F-16 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED) PLACEMENT AGENT AGREEMENT ------------------------- On August 8, 1997, in connection with its private placement offering, the Company entered into a placement agent agreement with its underwriter. Terms of this one year agreement include the following: Placement fees equal to ten percent (10%) of the gross proceeds. Consulting fees in the amount of $3,000 per month. The issuance of ten placement agent warrants, each made up of 20,000 shares of common stock and 10,000 warrants to purchase common stock, at an exercise price of $6.00 per share, for a price of $72,000 per unit. Such warrants are exercisable for a period of five years from the date of issuance. For the nine months ended December 31, 1999 and 1998 (unaudited) and for the years ended March 31, 1999 and 1998, placement agent fees in the amount of $0, $18,000, $18,000 and $618,000, respectively, have been charged to additional paid-in capital. WARRANTS --------- The Company authorized the issuance of common stock purchase warrants, with terms of five to six years, to various corporations and individuals, in connection with the sale of securities, loan agreements and consulting agreements. Exercise prices range from $4.00 to $6.00 per warrant. The warrants expire at various times from August 1, 2002 to September 30, 2009. A summary of warrant activity for the periods indicated were as follows:
Nine Months Ended Years Ended DECEMBER 31, MARCH 31, 1999 1998 1999 1998 ---------------------------------------------------------------------- (unaudited) (unaudited) Beginning balance 1,917,286 1,867,286 1,867,286 122,286 Warrants issued 1,047,501 50,000 50,000 1,745,000 Warrants issued pursuant to Placement Agent Agreement 11,370 - - - WARRANTS EXERCISED OR EXPIRED - - - - --- --- - ENDING BALANCE 2,976,157 1,917,286 1,917,286 1,867,286 ========= ========= ========= =========
There were no warrants exercised as of December 31, 1999 (unaudited) and March 31, 1999. F-17 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED) STOCK SPLIT AND REVERSE SPLIT ----------------------------- On August 21, 1997, Elite Laboratories, Inc. authorized a two for one stock split, increasing its authorized common stock to 20,000,000 shares, and increasing the number of outstanding shares of common stock from 4,787,613 to 9,575,226 shares. On March 30, 1998, Elite Pharmaceuticals, Inc. authorized a one for two reverse stock split, decreasing its authorized common stock to 10,000,000 shares, and decreasing the number of outstanding shares of common stock from 14,475,226 to 7,237,613 shares. CHANGE IN AUTHORIZED COMMON SHARES ----------------------------------- In May 1998, the Company increased the authorized common shares, par value $.01, to 25,000,000. NOTE 8 - COMMITMENTS AND CONTINGENCIES LEASE ----- The Company leased its laboratory and office space in Maywood, New Jersey under an operating lease, which expired on October 30, 1998, at $5,300 per month. The lease provided for the landlord to pay all utility costs and for increases in rent based on cost of living formulas. Rent expense amounted to $0, $37,198, $37,198 and $63,240 for the nine months ending December 31, 1999 and 1998 (unaudited) and for the years ended March 31, 1999 and 1998, respectively. EMPLOYMENT AGREEMENT -------------------- On February 11, 1998, the Company amended an employment agreement with its President/CEO, originally entered into on May 23, 1991, and extended on December 28, 1995. The amended agreement runs for a term of five years through December 31, 2000. Minimum annual salary as of March 31, 1999 is as follows:
YEAR ENDING MARCH 31, --------------------- 2000 $ 222,750 2001 (THROUGH DECEMBER 31) 173,250 ------- $ 396,000
F-18 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) EMPLOYMENT AGREEMENT (CONTINUED) -------------------- Effective January 1, 2000, the Company increased the base salary of the President/CEO for calendar 2000 from $220,000 to $242,000 plus a discretionary bonus of $25,000. On December 31, 2000, this agreement will be automatically renewed for an additional five years, unless written notice is given by December 31, 1999. Annual compensation under the renewed agreement shall be equal to no less than one hundred and five percent (105%) of the previous year's base salary. Among other certain standard employee benefits, the agreement also provides for the following: 1. Incentive commissions equal to five percent (5%) of net profit, as defined, for each fiscal year. 2. Options to purchase 520,214 shares of common stock at a price of $2.00 per share. The options were initially to vest at the rate of $100,000 per year each year from 1996 through 2001; however,upon completion of the private placement undertaken by the Company in 1997, they became 100% vested. Such options are exercisable from the date that they are granted through either one year after termination of employment or ten years from the date of grant. 3. Incentive stock options to purchase 125,000 shares of common stock, at a price of $7.00 per share. 4. Certain additional compensation on termination as a result of a change in control of the Company through the earlier of May 22, 2001 or three years following termination. Compensation expense under this agreement amounted to $166,530, $138,333, $193,333 and $205,000 for the nine months ending December 31, 1999 and 1998 (unaudited) for the years ended March 31, 1999 and 1998, respectively. TECHNOLOGY AGREEMENTS --------------------- On November 26, 1996, The Company entered into a formulation development agreement with a multinational pharmaceutical company, which was subsequently amended on May 23, 1997. The terms of the agreement provide for the right to acquire the license of the developed product for sale, manufacture and distribution worldwide, subject to licensing fees, royalties, and development funds as defined, and annual royalty payments of net sales, as defined, subject to minimum annual payments based on certain economic conditions. This agreement was subsequently terminated on February 5, 1999, whereas the Company has retained all rights to the "Intellectual Property," as defined in the agreement, including the rights to use, develop, and market such property. F-19 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) CONSULTING AGREEMENTS --------------------- On August 1, 1997, the Company entered into two agreements with corporations which provide various consulting services for a period of three years. Terms of the agreements included the following: 1. Combined monthly fees of $15,000. 2. The issuance of 350,000 warrants to purchase common stock of an exercise price of $6.00 per share for a period of five(5) years (see Note 7). Consulting expenses under these agreements amounted to $135,000, $135,000, $180,000 and $120,000 for the nine months ended December 31, 1999 and 1998 (unaudited) and for the years ended March 31, 1999 and 1998, respectively. On August 1, 1998, the Company entered into a consulting agreement with a company for the purpose of providing management, marketing and financial consulting services for an unspecified term. Terms of the agreement provide for a nonrefundable monthly fee of $2,000. This compensation will be applied against amounts due pursuant to a business referral agreement entered into on April 8, 1997. On or around June 1, 1999, this agreement was terminated by mutual consent of all parties. Terms of the business referral agreement provide for payments by the Company based upon a formula, as defined, for an unspecified term. Consulting expense under this agreement amounted to $4,000, $10,000 and $16,000 for the nine months ended December 31, 1999 and 1998 (unaudited) and for the year ended March 31, 1999. On October 1, 1998, the Company entered into an investment bank consulting agreement with a corporation for a period of two years. Under the terms of the agreement, on October 1, 1998 the Company issued 50,000 warrants to purchase common stock. Another 50,000 warrants were issued in April 1999 and an additional 200,000 warrants may be issued by the Company under the remaining term of the agreement, which may be terminated by the Company at any time upon thirty (30) days written notice. All warrants issued under the agreement will be at an exercise price of $6.00 per share for a period of five (5) years. F-20 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED) CONSULTING AGREEMENTS (Continued) --------------------- On June 30, 1999 this consulting agreement was amended to provide for payment of a monthly consulting fee of $5,000, commencing on July 1, 1999 and terminating on December 1, 2000. Consulting fees under this agreement amounted to $30,000 for the nine months ended December 31, 1999 (unaudited). NOTE 9 - STOCK OPTION PLANS ------------------ Under various qualified and non-qualified plans, the Company may grant stock options to officers, selected employees, as well as members of the board of directors and advisory board members. The options must be granted at exercise prices of not less than fair market value and expire within ten years from the date of grant. All of these options are considered to be fully vested. Transactions under the various stock option and incentive plans for the periods indicated were as follows:
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, 1999 1998 1999 1998 ------------------------------------------------------------------ (Unaudited) (Unaudited) Outstanding at beginning of the period 1,472,714 1,007,714 1,007,714 750,000 Granted 148,000 465,000 465,000 257,714 EXERCISED (25,000) - - - --- --- - OUTSTANDING AT END OF PERIOD 1,595,714 1,472,714 1,472,714 1,007,714 ========= ========= ========= =========
Options outstanding at December 31, 1999 and 1998 (unaudited) and at March 31, 1999 and 1998 ranged in price from $2.00 to $7.00. 25,000 options were exercised as of December 31, 1999 (unaudited), and no options were exercised as of March 31, 1999. F-21 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 10 - PUBLIC OFFERING --------------- In July 1998 the Company successfully filed a registration statement on Form SB-2 under the Securities Act of 1933, as amended, for the purpose of registering securities previously sold to and held by various corporations and individuals. Accordingly, the Company did not receive any proceeds upon filing of Form SB-2. The securities registered consist of 3,725,000 shares of the Company's $.01 par value common stock, including 1,525,000 redeemable common stock purchase warrants. For the years ended March 31, 1999 and 1998, the Company incurred legal fees and other costs amounting to $3,043 and $32,078, respectively, in connection with its public filing, which has been charged to additional paid-in capital. No such amounts were incurred for the nine months ending December 31, 1999 and 1998 (unaudited). NOTE 11 - BOND FINANCING OFFERING ----------------------- On September 2, 1999, the Company completed the issuance of tax exempt bonds by the New Jersey Economic Development Authority. The aggregate principal proceeds of the fifteen year term bonds were $3,000,000. The proceeds, net of offering costs of $60,000, are being used by the Company to refinance the land and building it currently owns, and for the purchase of certain manufacturing equipment and related building improvements. Offering costs in connection with the bond issuance totaled $193,560, including the $60,000 mentioned above which were paid from bond proceeds. Offering costs included underwriter fees equal to $90,000 (three percent (3%) of the par amount of the bonds). The bonds are collateralized by a first lien on the building which includes property and equipment. Several restricted cash accounts are maintained in connection with the issuance of these bonds. These include amounts restricted for payments of bond principal and interest, for the refinancing of the land and building the Company currently owns, for the purchase of certain manufacturing equipment and related building improvements as well as for the maintenance of a $300,000 Debt Service Reserve. All restricted amounts other than the $300,000 Debt Service Reserve are expected to be expended within twelve months and are therefore categorized as current assets. F-22 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 NOTE 12 - MAJOR CUSTOMERS Revenues from major customers are as follows:
DECEMBER 31, MARCH 31, 1999 1998 1999 1998 ---- ---- ----- ----- (Unaudited) (Unaudited) Customer A 86.86% 99.73% 99.73% 53.90% Customer B 6.22% - - 38.50%
NOTE 13 - SUBSEQUENT EVENTS PROPOSED PUBLIC OFFERING ------------------------ In March 2000, the Company plans to file a registration statement on Form SB-2 under the Securities Act of 1933, as amended, for the purpose of registering securities previously sold to and held by various corporations and individuals. Accordingly, the Company will not receive any proceeds upon filing of Form SB-2. The securities to be registered consist of 3,297,539 shares of the Company's $.01 par value common stock, including 2,022,537 underlying Class A and Class B common stock purchase warrants, and 317,250 Class A common stock purchase warrants. F-23 DATED FEBRUARY 28, 2000 PROSPECTUS ELITE PHARMACEUTICALS, INC. 3,297,539 VOTING COMMON SHARES (includes 2,022,537 shares underling options and warrants) AND 317,250 CLASS A COMMON STOCK PURCHASE WARRANTS ELITE PHARMACEUTICALS, INC. ---------------------------- PROSPECTUS ---------------------------- February 28, 2000 PART II INFORMATION NOT REQUIRED IN PROSPECTUS CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------- On May 13, 1998, the registrant engaged the firm of Miller, Ellin & Company as its principal accountant to audit its financial statements. INDEMNIFICATION OF DIRECTORS AND OFFICERS ------------------------------------------ The Bylaws of the Company contain provisions reducing the potential personal liability of the directors of the Company for certain monetary damages and providing for indemnity of directors. The Company is unaware of any present, pending or threatened litigation which would result in any liability for which a director would seek such indemnification or protection. The provisions affecting personal liability provide that the Company will indemnify its directors to the fullest extent permitted by Section145 of the Delaware Corporation Law against (a) expenses (including attorney's fees) reasonably incurred in connection with any threatened, pending or completed civil, criminal, administrative, investigative or arbitrative action, suit or proceeding (and appeal therefrom) against any director, whether or not brought by or on behalf of the Company seeking to hold the director liable by reason of the fact that he was acting in such capacity; and (b) any reasonable payments made by him in satisfaction of any judgment, money decree, fine, penalty or settlement in such action, suit or proceeding. In addition, the Company has obtained directors and officers liability insurance with a coverage amount of $5,000,000. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. RECENT SALES OF UNREGISTERED SECURITIES --------------------------------------- The following represents all shares of unregistered securities sold by the Company within the last three years. The first group represents shares of Common Stock and Warrants sold in the 1999 Private Placement. The second group represents shares of Common Stock and Warrants sold in the 1997 Private Placement. The third group represents all other securities sold by the Company within the last three years. II-1 1999 PRIVATE PLACEMENT. The 1999 Private Placement commenced May 17, 1999, and ended on June 24, 1999. The 1999 Private Placement consisted of 12.75 units, each unit consisting of 100,000 shares of common stock of the Company and 50,000 Class B warrants (for an aggregate of 1,275,000 shares and 637,500 warrants), each warrant entitling the holder to purchase one share of common stock at an exercise price of $5.00 per share for the five year period commencing with the date of closing of the 1999 Private Placement. The price per unit was $300,000. The aggregate offering price in the 1999 Private Placement was $3,825,000. There were no sales commissions paid. The 1999 Private Placement was made under the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. After reasonable inquiry, the Company believes that each purchaser under the 1999 Private Placement was a "sophisticated" investor as defined in Rule 506(b)(2)(ii) of Regulation D. NUMBER OF NUMBER OF NAME OF PURCHASER SHARES WARRANTS Abadi, Henry 25,000 12,500 Abadi, Maurice 25,000 12,500 Ali, Asid 25,000 12,500 Ballas, Mayer MD PSP 25,000 12,500 Barilits, Paul 28,572 14,286 Bauer-Wolf, Beate 18,572 9,286 Beck, Martin S. 25,000 12,500 Belson, Jerome 200,000 100,000 Benun, Morris 12,500 6,250 Bridge Ventures, Inc. 50,000 25,000 Brown, Alexander Trust 50,000 25,000 Brown, Richard 250,000 125,000 Brown, Ronald R. 12,500 6,250 Burton, Alan 16,000 8,000 Carr, Frank B. 25,000 12,500 Giamanco, Joseph 50,000 25,000 Harvic Int'l Pens Plan 25,000 12,500 Karsten, Robert 25,000 12,500 Keys Foundation 100,000 50,000 Lagano, Frances 25,000 12,500 Lexer, Bernhard 22,572 11,286 Orenstein, Daniel 12,500 6,250 Prager, Tis 25,000 12,500 Roselle, Joseph C. 50,000 25,000 Ross, Harvey L. 25,000 12,500 Schaffer, Ronald 12,500 6,250 Sheeber, Marvin 25,000 12,500 Teboul, Georgette 75,000 37,500 Wurditch, Josef 14,286 7,143 II-2 1997 PRIVATE PLACEMENT. The 1997 Private Placement commenced September 15, 1997 and ended on November 30, 1997. The 1997 Private Placement consisted of 100 units, each unit consisting of 20,000 shares of common stock of the Company and 10,000 warrants (for an aggregate of 2,000,000 shares and 1,000,000 warrants), each warrant entitling the holder to purchase one share of common stock at an exercise price of $6.00 per share for the five year period commencing with the date of closing of the 1997 Private Placement (November 30, 1997). The price per unit was $60,000. The aggregate offering price in the 1997 Private Placement was $6,000,000. There were sales commissions of 8% and a placement agent fee of 2% paid, for an aggregate paid of $600,000. The 1997 Private Placement was made under the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. After reasonable inquiry, the Company believes that each purchaser under the 1997 Private Placement was a "sophisticated" investor as defined in Rule 506(b)(2)(ii) of Regulation D. NUMBER OF NUMBER OF NAME OF PURCHASER SHARES WARRANTS Abadi, Maurice 10,000 5,000 Ackerly, Robert 10,000 5,000 Akst, Hymie 10,000 5,000 Albrecht, Joan 10,000 5,000 All American Funding 20,000 10,000 Altschuler, David 10,000 5,000 Aquidneck Trust, Reilly/Plunket 20,000 10,000 Aronheim, Marcel 20,000 10,000 B&B Management, Ltd. 52,000 26,000 Baer, Joan R. Inc. Pension Plan 20,000 10,000 Ballas, Mayer, M.D. 10,000 5,000 Barrie, Norman and Laurel 10,000 5,000 Belson, Jerome 140,000 70,000 Bender, Susan J. 20,000 10,000 Birchcrest Industries, Inc. PSP 10,000 5,000 Blitz, Harvey 20,000 10,000 Brandwein, Daniel Scott 10,000 5,000 Brauser, Susan 10,000 5,000 Bridge Ventures, Inc. 50,000 25,000 Bushey, Michael E. DDS PSP 10,000 5,000 Byrd, C. Ames and Donna 10,000 5,000 Cafiero, Joseph and Veronica 5,000 2,500 Carr, Frank IRA, McDonald & Co 30,000 15,000 Chillington Corporation N.V. 70,000 35,000 Cohen, Alan 10,000 5,000 Cohen, Israel 10,000 5,000 Cohen, Phyllis 5,000 2,500 II-3 NUMBER OF NUMBER OF NAME OF PURCHASER SHARES WARRANTS Davies, Irving 5,000 2,500 Doran, Ronnie Lee 5,000 2,500 Dussich, Joseph A 20,000 10,000 Dworkin, Sidney 20,000 10,000 Elias, Anita Living Trust 10,000 5,000 F&N Associates, Inc. 6,667 3,334 Falkner, Edward R. PSP 10,000 5,000 Feldman, Alan 10,000 5,000 Fields, Cary 40,000 20,000 Flaum, Stuart 10,000 5,000 Funk, Gary W. 20,000 10,000 Giamanco, Joseph 80,000 40,000 Gorelick, Lawrence and Diane 20,000 10,000 Harycki, Edward 10,000 5,000 Hasenfield-Stein, Inc. Pension 6,667 3,334 Heller, Ronald IRA, Del.Charter 15,000 7,500 Horstmann, Richard 40,000 20,000 Intergalactic Growth Fund, Inc. 40,000 20,000 Kantor, Barbara 10,000 5,000 Karsten, Robert 20,000 10,000 Katz, Richard 10,000 5,000 Kay, Gerald 20,000 10,000 Kentucky National Ins. Co. 10,000 5,000 Keys Foundation 80,000 40,000 Khin, Ali H. and Mariam Ohn 20,000 10,000 King, Edward Howard 10,000 5,000 Kogod, Marvin and Muriel 10,000 5,000 Licari, Andrew 20,000 10,000 Lieberman, Jay 20,000 10,000 Lynch, James 10,000 5,000 Makowka, Leonard 40,000 20,000 Meade, Virginia 5,000 2,500 Michel, Beno MD Trust 10,000 5,000 Miller, Harold 10,000 5,000 Moore, Ferrell and Ann 10,000 5,000 Morgan Steel Limited 40,000 20,000 Morgan, Gee Gee 5,000 2,500 Nagelberg, David, Del. Charter 15,000 7,500 Orenstein, Daniel 28,000 14,000 Orenstein, Donald 10,000 5,000 Orenstein, Seymour 16,000 8,000 II-4 NUMBER OF NUMBER OF NAME OF PURCHASER SHARES WARRANTS Patel, Chandrakat Family Trust 20,000 10,000 Patel, Sanjay 20,000 10,000 Patel, Vijay 30,000 15,000 Perskey, James 5,000 2,500 Posner, Stephen 20,000 10,000 Prager, Paul IRA, Del. Charter 30,000 15,000 Prager, Tis 20,000 10,000 R&J Trust, Roger & Joan Siegel 20,000 10,000 R. Capital II, Ltd. 40,000 20,000 Reichle, Kenneth Jr. 10,000 5,000 Richter, Gerald, Fahnestock 10,000 5,000 Robbins, Wayne 20,000 10,000 Robins, Kenneth M. 10,000 5,000 Roselle, Joseph 40,000 20,000 Rosen, Carl 20,000 10,000 Rosin, Robert 10,000 5,000 Ross, Harvey L. 20,000 10,000 Russo, Irving 10,000 5,000 Rutgers Casualty Ins. Co. 10,000 5,000 Saphier, Albert IRA, Rob Baird tee 20,000 10,000 Schaffer, Ronald 24,000 12,000 Schwartz Harry 10,000 5,000 Schwartz Mark 10,000 5,000 Segal, Merton 20,000 10,000 Seiden, Norman 40,000 20,000 Shiff, Robert 10,000 5,000 Snyder, Barbara 20,000 10,000 Stein, Nachum 6,667 3,333 Teitelbaum, Myron 5,000 2,500 Tennenhsus, Edmund 20,000 10,000 Tissera Overseas Fund N.V. 20,000 10,000 Wax, Robert and Sarah 20,000 10,000 OTHER SALES OF SECURITIES WITHIN LAST THREE YEARS - ------------------------------------------------- On or about March 5, 1997, the Company sold 42,000 shares of its Common Stock at $1.40 per share, for an aggregate of $58,800 to Vijay Patel. The sale was made in reliance upon Section 4(2) of the Securities Act of 1993. After reasonable inquiry, the Company believes that the above purchaser was a "sophisticated" investor as defined in Rule 506(b)(2)(ii) of Regulation D. The numbers in this paragraph do not reflect the reverse one-for-two reverse split the Company undertook in March 1998. II-5 On or about March 5, 1997, the Company sold 40,000 shares of its Common Stock at $1.40 per share, for an aggregate of $56,000 to Dashrath Patel. The sale was made in reliance upon Section 4(2) of the Securities Act of 1993. After reasonable inquiry, the Company believes that the above purchaser was a "sophisticated" investor as defined in Rule 506(b)(2)(ii) of Regulation D. The numbers in this paragraph do not reflect the reverse one-for-two reverse split the Company undertook in March 1998. On or about May 15, 1997, the Company sold 10,000 shares of its Common Stock at $1.40 per share, for an aggregate of $14,000 to Vijay Patel; (ii) 5,000 shares of its Common Stock at $1.40 per share, for an aggregate of $7,000 to Vijay Patel, C/F Amisha Patel; and (iii) 5,000 shares of its Common Stock at $1.40 per share, for an aggregate of $7,000 to Vijay Patel, C/F Sagar Patel. The sales were made in reliance upon Section 4(2) of the Securities Act of 1993. After reasonable inquiry, the Company believes that the above purchaser was a "sophisticated" investor as defined in Rule 506(b)(2)(ii) of Regulation D. The numbers in this paragraph do not reflect the reverse one-for-two reverse split the Company undertook in March 1998. On or about June 5, 1997 the Company issued to Jerome Belson warrants to purchase 150,000 shares of Common Stock at $3.00 per share, exercisable for five years. The purchase price for the warrants was $150.00 in the aggregate. After reasonable inquiry, the Company believes that the above purchaser was a "sophisticated" investor as defined in Rule 506(b)(2)(ii) of Regulation D. The numbers in this paragraph do not reflect the reverse one-for-two reverse split the Company undertook in March 1998.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION ------------------------------------------- Registration Fees: $______ Federal Taxes: $0.00 State Taxes and Fees: $0.00 Trustee's Fees $0.00 Transfer Agents' Fees: $______ Costs of Printing and Engraving: $0.00 Stock Exchange or NASD Fees: $0.00 Legal, Accounting and Engineering Fees: $______ Premiums Paid by Registrant or Selling Security Holder on any Policy that Insures or Indemnifies Directors and Officers Against any Liabilities They May Incur in Connection with the Registration, Offering or Sale of Securities: $_______ Total: $_______ =========
The above numbers represent estimated costs incurred or to be incurred by Registrant, and do not take into account any unforeseen future contingencies. II-6 UNDERTAKINGS ------------ RULE 415 OFFERING. The Registrant hereby undertakes to file during any period in which it offers or sells securities, a post -effective amendment to this Registration Statement to: (i) include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information contained in the Registration Statement; and notwithstanding the foregoing, (if the total value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b), if, in the aggregate the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) include any additional or changed material information on the plan of distribution. The Registrant further undertakes that, for the purpose of determining any liability under the Securities Act, each post-effective amendment will be treated as a new registration statement relating to the securities offered therein, and the offering of the securities at the time of the post-effective amendment will be treated as the initial bona fide offering of the securities. The Registrant further undertakes to file a post-effective amendment remove from registration by a post-effective amendment any securities remaining unsold at the termination of the offering. FOR PURPOSES OF DETERMINING SECURITIES ACT LIABILITY, EACH FILING OF AN ANNUAL REPORT UNDER SECTION 13(a) OR 15(d) OF THE EXCHANGE ACT, AND, WHERE APPLICABLE, EACH FILING OF AN EMPLOYEE BENEFIT PLAN'S ANNUAL REPORT UNDER SECTION 15(d) OF THE EXCHANGE ACT, IS INCORPORATED HEREIN BY REFERENCE, AND WILL BE DEEMED TO BE A NEW REGISTRATION STATEMENT RELATING TO THE SECURITIES OFFERED IN THIS STATEMENT, AND THE OFFERING OF THE SECURITIES AT THAT TIME WILL BE DEEMED THE INITIAL BONA FIDE OFFERING OF THE SECURITIES. 512(E) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, void. II-7 EXHIBITS -------- 3.1 Certificate of Incorporation of Registrant 3.2 Bylaws of Registrant 4.1 Specimen Common Stock Certificate 4.2 Specimen Common Stock Purchase Warrant Certificate 5.1 Form of Opinion and Consent of James, McElroy & Diehl, P.A. regarding the legality of the securities being registered 10.1 Employment Agreement dated December 28, 1995 between the Registrant and Atul M. Mehta 10.2 Consulting Agreement dated August 1, 1997 between the Registrant and Bridge Ventures, Inc. 10.3 Consulting Agreement dated August 1, 1997 between the Registrant and Saggi Capital Corporation 10.4 1997 Incentive Stock Option Plan 10.5 Form of Confidentiality Agreement (corporate) 10.6 Form of Confidentiality Agreement (employee) 23.1 Consent of James, McElroy & Diehl, P.A. (included in Exhibit 5.1) 23.2 Consent of Miller, Ellin & Company 27.1 Financial Data Schedule II-8 SIGNATURES ---------- In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorizes this First Amendment to Registration Statement to be signed on its behalf by the undersigned in the City of Northvale, State of New Jersey, on February __, 2000. ELITE PHARMACEUTICALS, INC. BY: __________________________ Atul M. Mehta, President In accordance with the requirements of the Securities Act of 1933, this amendment to the registration statement of the registrant was signed by the following persons in the capacities and on the dates dated. Atul M. Mehta, President and Director DATE: MARCH 1, 2000 Donald Pearson, Director DATE: MARCH 1, 2000 EX-3.1 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF ELITE PHARMACEUTICALS, INC. - -------------------------- The undersigned, for the purposes of forming a corporation under the laws of the State of Delaware, do make, file, and record this Certificate, and do certify that: FIRST: The name of the corporation is ELITE PHARMACEUTICALS, INC. SECOND: Its Registered office in the State of Delaware is to be located at 9 East Lockerman Street, in the City of Dover, County of Kent, 19901. The Registered Agent in charge thereof is National Registered Agents, inc. THIRD: The purpose of the corporation is to engage in lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware, FOURTH: The amount of the total authorized capital stock of the corporation is 20 million, all of which are of a par value of $.01 dollars each and classified as Common Stock. FIFTH: The name and mailing address of the incorporator are as follows: NAME MAILING ADDRESS Thresa Lennon Intercounty Clearance Corporation 111 Washington Avenue Albany, New York 12210 SIXTH: The duration of the corporation shall be perpetual. SEVENTH: When a compromise or arrangement is proposed between the corporation and its creditors or any class of them or between the corporation and its shareholders or any class of them, a court of equity jurisdiction within the state, on application of the corporation or a creditor or shareholder thereof, or on application of a receiver appointed for the corporation pursuant to the provisions of Section 291 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as the court directs. If a majority in number representing 3/4 in value of the creditors or class of creditors, or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, agree to a compromise or arrangement or a reorganization of the corporation as a consequence of the compromise or arrangement, the compromise or arrangement and the reorganization, if sanctioned by the court to which the application has been made, shall be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders and also on the corporation. EIGHTH: The personal liability of the directors of the corporation is hereby eliminated to the fullest extent allowed as provided by the Delaware General Corporation Law, as the same may be supplemented and amended. NINTH: The corporation shall, to the fullest extent permissible under the provisions of the Delaware General Corporation Law, as the same may be amended and supplemented, shall indemnify and hold harmless any and all persons whom it shall have the power to indemnify under said provisions from and against any and all liabilities (including expenses) imposed upon or reasonably incurred by him in connection with any action, suit or other proceeding in which he may be involved or with which he may be threatened, or other matters referred to in or covered by said provisions both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer of the corporation. Such indemnification provided shall not be exclusive of any other rights to which those indemnified may be entitled under any Bylaw, Agreement or Resolution adopted by the shareholders entitled to vote thereon after notice. Dated on this 1st day of October, 1997. /S/ Theresa Lennon, Incorporator EX-3.(II)BY-LAWS 3 BYLAWS EXHIBIT 3.2 BYLAWS OF ELITE PHARMACEUTICALS, INC. ARTICLE I. OFFICES Section 1.1. Principal office. The principal office of the corporation shall be located at such place as the Board of Directors may fix from time to time. Section 1.2. Registered office. The registered office of the corporation required by law to be maintained in the State of Delaware may be, but need not be, identical with the principal office. Section 1.3. Other offices. The corporation may have offices at such other places, either within or without the State of Delaware, as the Board of Directors may designate or as the affairs of the corporation may require from time to time. ARTICLE II. MEETINGS OF THE SHAREHOLDERS Section 2.1. Place of meetings. All meetings of the shareholders shall be held at the principal office of the corporation, or at such other place, either within or without the State of Delaware, as shall in each case be (i) fixed by the President, the Secretary, or the Board of Directors and designated in the notice of meeting or (ii) agreed upon by a majority of the shareholders entitled to vote at the meeting. Section 2.2. Annual meetings. The annual meeting of the shareholders shall be held at a date and time fixed, from time to time, by the Board of Directors or the President, provided that the annual meeting shall be held on a date no later than thirteen months after the previous annual meeting, for the purpose of electing directors of the corporation and for the transaction of such other business as may be properly brought before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. Section 2.3. Substitute annual meeting. If the annual meeting shall not be held on the day designated by these bylaws, a substitute annual meeting may be called in accordance with the provisions of Section 4 of this Article II. A meeting so called shall be designated and treated for all purposes as the annual meeting. Section 2.4. Special meetings. Special meetings of the shareholders may be called at any time by the President, the Secretary, or the Board of Directors, and shall be called pursuant to the written request of the holders of not less than forty percent of all the votes entitled to be cast on any issue proposed to be considered at the meeting. Section 2.5. Notice of meetings. Written notice stating the time, and place of the meeting shall be given not less than ten nor more than sixty days before the date of any shareholders' meeting, either by personal delivery, or by telegraph, teletype, or other form of wire or wireless communication, or by facsimile transmission or by mail or private carrier, by or at the direction of the Board of Directors, the President, the Secretary, or other person calling the meeting, to each shareholder entitled to vote at such meeting; provided that such notice must be given to all shareholders with respect to any meeting at which a merger or share exchange is to be considered and in such other instances as required by law. If mailed, such notice shall be deemed to be effective when deposited in the United States mail, correctly addressed to the shareholder at the shareholder's address as it appears on the current record of shareholders of the corporation, with postage thereon prepaid. In the case of a special meeting, the notice of meeting shall include a description of the purpose or purposes for which the meeting is called; but, in the case of an annual or substitute annual meeting, the notice of meeting need not include a description of the purpose or purposes for which the meeting is called unless such a description is required by the provisions of the Delaware General Corporation Law. When a meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting; but if a new record date is fixed for the adjourned meeting (which must be done if the new date is more than 120 days after the date of the original meeting), notice of the adjourned meeting must be given as provided in this section to persons who are shareholders as of the new record date. Section 2.6. Waiver of notice. Any shareholder may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed by the shareholder, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. A shareholder's attendance, in person or by proxy, at a meeting (a) waives objection to lack of notice or defective notice of the meeting, unless the shareholder or his proxy at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder or his proxy objects to considering the matter before it is voted upon. Section 2.7. Shareholders' list. Before each meeting of shareholders, the corporation shall prepare an alphabetical list of the shareholders entitled to notice of such meeting. The list shall be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder. The list shall be kept on file at the principal office of the corporation, or at a place identified in the meeting notice in the city where the meeting is held, for the period beginning two business days after notice of the meeting is given and continuing through the meeting, and shall be available for inspection by any shareholder, his agent or attorney, at any time during regular business hours. The list shall also be available at the meeting and shall be subject to inspection by any shareholder, his agent or attorney, at any time during the meeting or any adjournment thereof. Section 2.8. Voting Group. All shares of one or more classes or series that under the Articles of Incorporation or the Delaware General Corporation Law are entitled to vote and be counted together collectively on a matter at a meeting of shareholders constitute a voting group. All shares entitled by the Articles of Incorporation or the Delaware General Corporation Law to vote generally on a matter are for that purpose a single voting group. Classes or series of shares shall not be entitled to vote separately by voting group unless expressly authorized by the Articles of Incorporation or specifically required by law. Section 2.9. Quorum. Shares entitled to vote as a separate voting group may take action on a matter at the meeting only if a quorum of those shares exists. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. If the absence of a quorum at the opening of any meeting of the shareholders, such meeting may be adjourned from time to time by the vote of a majority of the votes cast on the motion to adjourn; and, subject to the provisions of Section 2.5 of this Article II, at any adjourned meeting any business may be transacted that might have been transacted at the original meeting if a quorum exists with respect to the matter proposed. Section 2.10. Proxies. Shares may be voted either in person or by one or more proxies authorized by a written appointment of proxy signed by the shareholder or by his duly authorized attorney in fact. An appointment of proxy is valid for eleven months from the date of its execution, unless a different period is expressly provided in the appointment form. Section 2.11. Voting of shares. Subject to the provisions of the Articles of Incorporation, each outstanding share shall be entitled to one vote on each matter voted on at a meeting of the shareholders. Except in the election of directors as governed by the provisions of Section 3.3 of Article III, if a quorum exists, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater vote is required by law or the Articles of Incorporation or these bylaws. Absent special circumstances, shares of the corporation are not entitled to vote if they are owned, directly or indirectly, by another corporation in which the corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided that this provision does not limit the power of the corporation to vote its own shares held by it in a fiduciary capacity. Section 2.12. Informal action by shareholders. Any action that is required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if one or more written consents, describing the action so taken, shall be signed by a majority of the shareholders who would be entitled to vote upon such action at a meeting, and delivered to the corporation for inclusion in the minutes or filing with the corporation records. If the corporation is required by law to give notice to nonvoting shareholders of action to be taken by written consent of the voting shareholders, then the corporation shall give the nonvoting shareholders, if any, written notice of the proposed action at least ten days before the action is taken. ARTICLE III. BOARD OF DIRECTORS Section 3.1. General powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board of Directors. Section 3.2. Number and qualifications. The number of directors constituting the Board of Directors shall be set by the Board of Directors, but shall be no less than three (3) nor more than ten (10). Directors need not be residents of the State of Delaware or shareholders of the corporation. Should the number of directors decrease due to the resignation, removal, death or other event in which a person ceases to serve as a director, the remaining directors shall be entitled to act as if this provisions required no more directors than the number which remains. Section 3.3. Election. Except as provided in Section 3.6 of this Article III, the directors shall be elected at the annual meeting of shareholders. Those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. Section 3.4. Term of directors. Each initial director shall hold office until the first shareholders' meeting at which directors are elected, or until such director's death, resignation, or removal. The term of every other director shall expire at the next annual shareholders' meeting following the director's election or upon such director's death, resignation, or removal. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. A decrease in the number of directors does not shorten an incumbent director's term. Despite the expiration of a director's term, such director shall continue to serve until a successor shall be elected and qualifies or until there is a decrease in the number of directors. Section 3.5. Removal. Any director may be removed at any time with or without cause by a vote of the shareholders if the number of votes cast to remove such director exceeds the number of votes cast not to remove him. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. A director may not be removed by the shareholders at a meeting unless the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the director. If any directors are so removed, new directors may be elected at the same meeting. Section 3.6. Vacancies. Any vacancy occurring in the Board of Directors, including without limitation a vacancy resulting from an increase in the number of directors or from the failure by the shareholders to elect the full authorized number of directors, may be filled by the shareholders or by the Board of Directors, whichever group shall act first. If the directors remaining in office do not constitute a quorum, the directors may fill the vacancy by the affirmative vote of a majority of the remaining directors. If the vacant office was held by a director elected by a voting group, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. Section 3.7. Chairman of Board. There may be a Chairman of the Board of Directors elected by the directors from their number at any meeting of the Board. The Chairman shall preside at all meetings of the Board of Directors and perform such other duties as may be directed by the Board. Section 3.8. Compensation. The Board of Directors may provide for the compensation of directors for their services as such and for the payment or reimbursement of any or all expenses incurred by them in connection with such services. ARTICLE IV. MEETINGS OF DIRECTORS Section 4.1. Regular meetings. A regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings. Section 4.2. Special meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, if any, by the President or by a majority of directors. Such a meeting may be held either within or without the State of Delaware, as fixed by the person or persons calling the meeting. Section 4.3. Notice of meetings. Regular meetings of the Board of Directors may be held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least two days before the meeting, give or cause to be given notice thereof by any usual means of communication. Such notice need not specify the purpose for which the meeting is called. Any duly convened regular or special meeting may be adjourned by the directors to a later time without further notice. Section 4.4. Waiver of notice. Any director may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed by the director entitled to the notice, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. A director's attendance at or participation in a meeting waives any required notice of such meeting unless the director at the beginning of the meeting, or promptly upon arrival, objects to holding the meeting or to transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Section 4.5. Quorum. Unless the Articles of Incorporation or these bylaws provide otherwise, a majority of the number of directors fixed by or pursuant to these bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, or if no number is so fixed, the number of directors in office immediately before the meeting begins shall constitute a quorum. Section 4.6. Manner of acting. Except as otherwise provided in the Articles of Incorporation or these bylaws, including Section 4.9 of this Article IV, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Unless impracticable, a director may, upon request, participate in a meeting by telephone. Section 4.7. Presumption of assent. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (a) he objects at the beginning of the meeting, or promptly upon his arrival, to holding it or to transacting business at the meeting, or (b) his dissent or abstention from the action taken is entered in the minutes of the meeting, or (c) he files written notice of his dissent or abstention with the presiding officer of the meeting before its adjournment or with the corporation immediately after the adjournment of the meeting. Such right of dissent or abstention is not available to a director who votes in favor of the action taken. Section 4.8. Action without meeting. Action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents signed by each director before or after such action, describing the action taken, and included in the minutes or filed with the corporate records. Section 4.9. Committees of the Board. The Board of Directors may create an Executive Committee and other committees of the board and appoint members of the Board of Directors to serve on them. The creation of a committee of the board and appointment of members to it must be approved by the greater of (a) a majority of the number of directors in office when the action is taken or (b) the number of directors required to take action pursuant to Section 6 of this Article IV. Each committee of the board must have two or more members and, to the extent authorized by law and specified by the Board of Directors, shall have and may exercise all of the authority of the Board of Directors in the management of the corporation. Each committee member serves at the pleasure of the Board of Directors. The provisions in these bylaws governing meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors apply to committees of the board established under this section. ARTICLE V. OFFICERS Section 5.1. Officers of the corporation. The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and such Vice-Presidents, Assistant Secretaries, Assistant Treasurers, and other officers as may from time to time be appointed by or under the authority of the Board of Directors. Any two or more offices may be held by the same person, but no officer may act in more than one capacity where action of two or more officers is required. The President shall report and be directly responsible to the Board of Directors. Except as otherwise directed by the Board of Directors, the other officers shall report and be directly responsible to the President. Section 5.2. Appointment and term. The officers of the corporation shall be appointed by the Board of Directors or by a duly appointed officer authorized by the Board of Directors to appoint one or more officers or assistant officers. Each officer shall hold office until his death, resignation, retirement, removal, disqualification, or his successor shall have been appointed. Section 5.3. Compensation of officers. The compensation of the President of the corporation shall be fixed by the Board of Directors, and the compensation of other officers shall be fixed by the President or the Board of Directors. No officer shall serve the corporation in any other capacity and receive compensation therefor unless such additional compensation shall be duly authorized. The appointment of an officer does not itself create contract rights. Section 5.4. Removal. Any officer may be removed by the Board at any time with or without cause; provided that this provision for removal shall not be invoked to impair or contravene the officer's contract rights, if any, with the corporation. Section 5.5. Resignation. An officer may resign at any time by communicating his resignation to the corporation, orally or in writing. A resignation is effective when communicated unless it specifies in writing a later effective date. If a resignation is made effective at a later date that is accepted by the corporation, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor does not take office until the effective date. An officer's resignation does not affect the corporation's contract rights, if any, with the officer. Section 5.6. Bonds. The Board of Directors may by resolution require any officer, agent, or employee of the corporation to give bond to the corporation, with sufficient sureties, conditioned on the faithful performance of these duties of his respective office or position, and to comply with such other conditions as may from time to time be required by the Board of Directors. Section 5.7. President. The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the shareholders. He shall sign, with the Secretary, an Assistant Secretary, or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 5.8. Vice-Presidents. In the absence of the President or in the event of his death, inability or refusal to act, the Vice-Presidents in the order of their length of service as such, unless otherwise determined by the Board of Directors, shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Any Vice-President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties as from time to time may be prescribed by the President or Board of Directors. Section 5.9. Secretary. The Secretary shall: (a) keep the minutes of the meetings of shareholders, of the Board of Directors, and of all committees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) maintain and authenticate the records of the corporation and be custodian of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) sign with the President, or a Vice-President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (e) maintain and have general charge of the stock transfer books of the corporation; (f) prepare or cause to be prepared shareholder lists prior to each meeting of the shareholders as required by law; (g) attest the signature or certify the incumbency or signature of any officer of the corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be prescribed by the President or by the Board of Directors. Section 5.10. Assistant Secretaries. In the absence of the Secretary or in the event of his death, inability or refusal to act, the Assistant Secretaries in the order of their length of service as Assistant Secretary, unless otherwise determined by the Board of Directors, shall perform the duties of the Secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the Secretary. They shall perform such other duties as may be prescribed by the Secretary, by the President, or by the Board of Directors. Any Assistant Secretary may sign, with the President or a Vice-President, certificates for shares of the corporation. Section 5.11. Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such depositories as shall be selected in accordance with the provisions of Section 4.4 of Article VI of these bylaws; (b) maintain appropriate accounting records as required by law; (c) prepare, or cause to be prepared, annual financial statements of the corporation that include a balance sheet as of the end of the fiscal year and an income and cash flow statement for that year, which statements, or a written notice of their availability, shall be mailed to each shareholder within 120 days after the end of such fiscal year; and (d) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be prescribed by the President or by the Board of Directors. Section 5.12. Assistant Treasurers. In the absence of the Treasurer or in the event of his death, inability or refusal to act, the Assistant Treasurers in the order of their length of service as such, unless otherwise determined by the Board of Directors, shall perform the duties of the Treasurer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Treasurer. They shall perform such other duties as may be prescribed by the Treasurer, by the President, or by the Board of Directors. ARTICLE VI. CONTRACTS, LOANS, CHECKS, AND DEPOSITS Section 6.1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.2. Loans. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances. Section 6.3. Checks and drafts. All checks, drafts, or other orders for the payment of money, issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by the Board of Directors. Section 6.4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such depositories as may be selected by or under the authority of the Board of Directors. ARTICLE VII. SHARES AND THEIR TRANSFER Section 7.1. Certificates for shares. The Board of Directors may authorize the issuance of some or all of the shares of the corporation's classes or series without issuing certificates to represent such shares. If shares are represented by certificates, the certificates shall be in such form as required by law and as determined by the Board of Directors. Certificates shall be signed, either manually or in facsimile, by the President or a Vice-President and by the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer. All certificates for shares shall be consecutively numbered or otherwise identified and entered into the stock transfer books of the corporation. When shares are represented by certificates, the corporation shall issue and deliver, to each shareholder to whom such shares have been issued or transferred, certificates representing the shares owned by him. When shares are not represented by certificates, then within a reasonable time after the issuance or transfer of such shares, the corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by law to be on certificates. Section 7.2. Stock transfer books. The corporation shall keep a book or set of books, to be known as the stock transfer books of the corporation, containing the name of each shareholder of record, together with such shareholder's address and the number and class or series of shares held by him. Transfers of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney authorized to effect such transfer by power of attorney duly executed and filed with the Secretary, and on surrender for cancellation of the certificate for such shares (if the shares are represented by certificates). Section 7.3. Lost certificate. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the certificate to have been lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors shall require that the owner of such lost or destroyed certificate, or his legal representative, give the corporation a bond in such sum and with such surety or other security as the Board may direct as indemnity against any claim that may be made against the corporation with respect to the certificate claimed to have been lost or destroyed, except where the Board of Directors by resolution finds that in the judgment of the directors the circumstances justify omission of a bond. Section 7.4. Fixing record date. The Board of Directors may fix a future date as the record date for one or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action. Such record date may not be more than seventy days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the first notice of the meeting is delivered to shareholders shall be the record date for such determination of shareholders. The Board of Directors may fix a date as the record date for determining shareholders entitled to a distribution or share dividend. If no record date is fixed by the Board of Directors for such determination, it is the date the Board of Directors authorizes the distribution or share dividend. Section 7.5. Holder of record. Except as otherwise required by law, the corporation may treat the person in whose name the shares stand of record on its books as the absolute owner of the shares and the person exclusively entitled to receive notification and distributions, to vote, and to otherwise exercise the rights, powers, and privileges of ownership of such shares. Section 7.6. Shares held by nominees. The corporation shall recognize the beneficial owner of shares registered in the name of a nominee as the owner and shareholder of such shares for certain purposes if the nominee in whose name such shares are registered files with the Secretary a written certificate in a form prescribed by the corporation, signed by the nominee, indicating the following: (i) the name, address, and taxpayer identification number of the nominee; (ii) the name, address, and taxpayer identification number of the beneficial owner; (iii) the number and class or series of shares registered in the name of the nominee as to which the beneficial owner shall be recognized as the shareholder; and (iv) the purposes for which the beneficial owner shall be recognized as the shareholder. The purposes for which the corporation shall recognize the beneficial owner as the shareholder may include the following: (i) receiving notice of, voting at, and otherwise participating in shareholders' meetings; (ii) executing consents with respect to the shares; (iii) exercising dissenters' rights under Article 13 of the Business Corporation Act; (iv) receiving distributions and share dividends with respect to the shares; (v) exercising inspection rights; (vi) receiving reports, financial statements, proxy statements, and other communications from the corporation; (vii) making any demand upon the corporation required or permitted by law; and (viii) exercising any other rights or receiving any other benefits of a shareholder with respect to the shares. The certificate shall be effective ten (10) business days after its receipt by the corporation and until it is changed by the nominee, unless the certificate specifies a later effective time or an earlier termination date. If the certificate affects less than all of the shares registered in the name of the nominee, the corporation may require the shares affected by the certificate to be registered separately on the books of the corporation and be represented by a share certificate in effect with respect to the shares represented by the share certificate. ARTICLE VIII. INDEMNIFICATION Any person who at any time serves or has served as a director of the corporation, or who, while serving as a director of the corporation, serves or has served, at the request of the corporation, as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, or as a trustee or administrator under an employee benefit plan, shall have a right to be indemnified by the corporation to the fullest extent permitted by law against (a) reasonable expenses, including attorneys' fees, incurred by him in connection with any threatened, pending, or completed civil, criminal, administrative, investigative, or arbitrative action, suit, or proceeding (and any appeal therein), whether or not brought by or on behalf of the corporation, seeking to hold him liable by reason of the fact that he is or was acting in such capacity, and (b) reasonable payments made by him in satisfaction of any judgment, money decree, fine (including an excise tax assessed with respect to an employee benefit plan), penalty, or settlement for which he may have become liable in any such action, suit, or proceeding. The Board of Directors of the corporation shall take all such action as may be necessary and appropriate to authorize the corporation to pay the indemnification required by this bylaw, including, without limitation, making a determination that indemnification is permissible in the circumstances and a good faith evaluation of the manner in which the claimant for indemnity acted and of the reasonable amount of indemnity due him. The Board of Directors may appoint a committee or special counsel to make such determination and evaluation. To the extent needed, the Board shall give notice to, and obtain approval by, the shareholders of the corporation for any decision to indemnify. Any person who at any time after the adoption of this bylaw serves or has served in the aforesaid capacity for or on behalf of the corporation shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Such right shall inure to the benefit of the legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from the provision of this bylaw. The purpose of this bylaw is to provide indemnification (and reimbursement upon indemnified expenses) to officers and directors to the broadest and greatest extent permitted under '145 of the Delaware General Corporation Law and any other applicable laws permitting indemnification, and this bylaw shall be construed accordingly. Nothing in this provision shall limit the authority of the directors to provide indemnification to other employees and agents of the corporation. ARTICLE IX. GENERAL PROVISIONS Section 9.1. Distributions. The Board of Directors may from time to time authorize, and the corporation may grant, distributions and share dividends to its shareholders pursuant to law and subject to the provisions of its Article of Incorporation. Section 9.2. Seal. The corporate seal of the corporation shall consist of two concentric circles between which is the name of the corporation and in the center of which is inscribed SEAL; and such seal, as impressed or affixed on the margin hereof, is hereby adopted as the corporate seal of the corporation. Section 9.3. Fiscal year. The fiscal year of the corporation shall be fixed by the Board of Directors. Section 9.4. Amendments. Except as otherwise provided in the Articles of Incorporation or by law, these bylaws may be amended or repealed and new bylaws may be adopted by the Board of Directors or by the shareholders. No bylaw adopted, amended, or repealed by the shareholders shall be readopted, amended, or repealed by the Board of Directors, unless the Articles of Incorporation or by a bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend, or repeal that particular bylaw or the bylaws generally. Section 9.5. Facsimiles. Any document transmitted by facsimile telecommunication may be substituted or used in lieu of the original writing or document for all purposes for which the original document could be used under these bylaws; provided that the facsimile is legible and that there is no evidence that it is not a complete reproduction of the original document. Section 9.6. Definitions. Unless the context otherwise requires, terms used in these bylaws shall have the meanings assigned to them in the Delaware General Corporation Law to the extent defined therein. EX-4.1 4 COMMON STOCK CERTIFICATE EXHIBIT 4.1 COMMON STOCK CERTIFICATE PAR VALUE $0.01 NUMBER ______ SHARES _____ ELITE PHARMACEUTICALS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE THIS CERTIFIES THAT ___________ IS THE REGISTERED HOLDER OF ________ SHARES FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF ELITE PHARMACEUTICALS , INC. TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE HEREUNTO AFFIXED THIS ____ DAY OF ______, 19____. ELITE PHARMACEUTICALS, INC. CORPORATE SEAL 1997 DELAWARE SECRETARY PRESIDENT EX-4.2 5 WARRANT AGREEMENT EXHIBIT 4.2 FORM OF WARRANT AGREEMENT NUMBER WARRANTS ELITE PHARMACEUTICALS, INC. COMMON STOCK PURCHASE WARRANTS CUSIP 28659T 127 THIS CERTIFIES THAT _______________ IS THE OWNER OF ___________ OR REGISTERED ASSIGNS, IS ENTITLED TO PURCHASE ONE FULLY PAID AND NONASSESSABLE SHARE OF ELITE PHARMACEUTICALS, INC., A DELAWARE CORPORATION (HEREIN CALLED THE COMPANY) FOR EACH WARRANT EVIDENCED BY THIS CERTIFICATE FOR $6.00 PER SHARE DURING THE PERIOD COMMENCING UPON THE FIRST DAY THAT THE COMMON STOCK TRADES AND EXPIRING NOVEMBER 30, 2002, UPON ITS SURRENDER, AND PAYMENT OF THE PURCHASE PRICE AT THE AGENTS OFFICE, 201 BLOOMFIELD AVE., VERONA, NEW JERSEY 07044 SUBJECT TO THE FOLLOWING CONDITIONS: 1. THE EXERCISE PRICE IS PAYABLE IN CASH, CERTIFIED CHECK OR BANK DRAFT; 2. ADJUSTMENTS IN THE EXERCISE PRICE OR NUMBER OF SHARES ISSUABLE WILL BE MADE FOR STOCK SPLITS, RECAPITALIZATION, MERGER, CONSOLIDATION OR OTHER EVENT AFFECTING WARRANT HOLDERS INTEREST, ADJUSTMENTS FOR THE STATED EVENT WILL MAINTAIN THE WARRANT HOLDER'S SAME RELATIVE POSITION TO THE COMPANY AS EXISTED PRIOR TO EXERCISE. 3. WARRANT EXERCISE REQUIRES APPROPRIATE COMPLETION OF THE "ELECTION TO PURCHASE" PRINTED ON THE BACK OF THIS CERTIFICATE, IF THE EXERCISED SHARES ARE LESS THAN THE TOTAL NUMBER OF WARRANTS ON THE BACK OF THIS CERTIFICATE, IF THE EXERCISED SHARES ARE LESS THAN THE TOTAL NUMBER OF WARRANTS CONTAINED IN THIS CERTIFICATES, THE HOLDER WILL BE ISSUED A NEW CERTIFICATE GIVING CREDIT FOR THE UNEXERCISED WARRANTS. 4. NO FRACTIONAL SHARS WILL BE ISSUED UPON EXERCISE. THE COMPANY WILL PAY HOLDERS THE PROPORATIONATE PURCHASE PRICE FOR ANY FRACTIONAL SHARES ARISING THROUGH ADDJUSTMENTS. 5. THIS CERTIFICATE CONTAINS ALL THE WARRANT AND RIGHTS OF THE WARRANT HOLDERS. 6. THE HOLDER OR HIS AUTHORIZED AGENT IS ENTITLED OT EXCHANGE THIS CERTIFICATE FOR NEW. 7. HOLDERS CAN REGISTER OR TRANSFER CERTIFICATES AT THE WARRANT AGENT'S PRINCIPAL OFFICE AFTER PAYMENT OF FEES AND APPLICABLE TAXES. NEW CERTIFICATES WILL BE EQUIVALENT TO THE OLD AND TOTALING THE WARRANTS ISSUED TO THE HOLDER OR HIS TRANSFEREE IN EXCHANGE FOR THE OLD, AND CONTAINING THE SAME TERMS AND WARRANT AMOUNTS. 8. PRIOR TO PRESENTMENT FOR REGISTRATION OR TRANSFER, THE COMPANY AND WARRANT AGENT MAY TREAT THE REGISTERED WARRANT HOLDER AS THE ABSOLUTE OWNER OF THIS CERTIFICATE FOR EXERCISE, TRANSFER OR ANY OTHER PURPOSE AND NEITHER THE COMPANY NOR THE WARRANT AGENT SHALL BE AFFECTED BY ANY NOTICE IN WRITING TO THE CONTRARY. 9. IF THIS CERTIFICATE IS SURRENDERED FOR WARRANT EXERCISE WHILE THE COMPANY'S TRANSFER BOOKS ARE CLOSED, SHARE CERTIFICATES WILL NOT BE ISSUED UNTIL THE BOOKS ARE REOPENED FOR TRANSFER. 10. THIS WARRANT IS NOT EXERCISABLE BEYOND THE EXPIRATION DATE SHOWN ABOVE UNLESS EXTENDED IN WRITING BY THE COMPANY. FAILURE TO EXERCISE SOME OR ALL WARRANTS WITHIN THE TIME PERIOD VOIDS THEM. DATED:________ ELITE PHARMACEUTICALS, INC. SECRETARY PRESIDENT COUNTERSIGNED JERSEY TRANSFER AND TRUST CO. 201 BLOOMFIELD AVE. (P.O. BOX 36) VERONA, NJ 07044 TRANSFER AGENT AUTHORIZED SIGNATURE EX-5.1 6 OPINION AND CONSENT EXHIBIT 5.1 FORM OF OPINION AND CONSENT OF JAMES, McELROY & DIEHL November 4, 1999 Elite Pharmaceuticals, Inc. Re: Elite Pharmaceuticals, Inc. (the "Company") Registration Statement on Form SB-2 Ladies and Gentlemen: You have requested our opinion with respect to the shares of the Company's common stock, $.01 par value (the "Shares") included in the Company's registration statement on Form SB-2 (the "Registration Statement"). The Registration Statement has been filed with the United States Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"). As counsel to the Company, we have examined the original or certified copies of such records of the Company, and such arrangements, certificates of public officials, certificates of officers or representatives of the Company and others, and such other documents as we deem relevant and necessary for the opinion expressed in this letter. In such examination, we have assumed the genuineness of all signatures on original documents, and the conformity to original documents of all copies submitted to us as conformed or photostatic copies. As to various questions of fact material to such opinion, we have relied upon statements or certificates of officials and representatives of the Company and others. Based on, and subject to the foregoing, we are of the opinion that the shares of Common Stock included in the Registration Statement either (i) in the case of outstanding shares, are duly and validly issued, fully paid and non-assessable or (ii) in the case of Shares issuable upon exercise of the Warrants or Placement Agent's Warrants, when issued and paid for pursuant to the terms thereof, will be duly and validly issued, fully paid and non-assessable. In rendering this opinion, we advise you that members of this Firm are members of the Bar of the State of North Carolina, and we express no opinion herein concerning the applicability or effect of any laws of any other jurisdiction, except the securities laws of the United States of America referred to herein. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also consent to the use of our name in the Registration Statement. In giving such consent, we do not thereby admit that we are included within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations promulgated thereunder. Very truly yours, JAMES McELROY & DIEHL, P.A. J. Mitchell Aberman Attorney at Law EX-10.1 7 EMPLOYMENT AGREEMENT EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into this 28th day of December 1995, by and between Elite Laboratories, Inc., a Delaware corporation (hereinafter "ELITE") and Atul M. Mehta of Ramsey, New Jersey (hereinafter "MEHTA"). STATEMENT OF PURPOSE MEHTA is currently employed by ELITE under a contract dated May 23, 1991 presently terminable at will at any time. ELITE desires to continue to employ MEHTA for a period of five (5) years commencing January 1, 1996 in order to be more certain of his continued services and in order to have access to his research and development skills and experience relating to pharmaceutical and similar products. MEHTA desires to accept continued employment upon the terms herein. Therefore, the parties have agreed, and do hereby agree, that ELITE will employ MEHTA and MEHTA will accept such continued employment, upon the terms and conditions subsequently set out in this Agreement. AGREEMENT OF THE PARTIES 1. Term. ELITE hereby agrees to employ MEHTA and MEHTA agrees to continue being employed by ELITE for a period of five (5) years ending December 31, 2000, provided that this Agreement is not sooner terminated pursuant to the provisions contained herein. The current employment agreement shall be superseded by this Agreement, effective January 1, 1996. 2. Duties. MEHTA agrees to devote a sufficient amount of his business time to diligently and faithfully perform his duties and responsibilities on behalf of ELITE. MEHTA, however, shall not be precluded from (a) delivering lectures, fulfilling speaking engagements, and writing or publishing any material related to his area of expertise, (b) participating in professional organizations and program activities, (c) serving as a consultant in his area of expertise to government, industrial, and academic entities where it does not conflict with the interests of ELITE, (d) serving as a director or member of a committee of any organization or corporation or engaging in any other business activities; provided that such activities do not materially interfere with the regular performance of his duties hereunder and except to the extent limited by paragraphs 11 and 12 of this Agreement. 3. Responsibilities. ELITE agrees that during the term of this Agreement, MEHTA shall serve as and retain the title of both President and Chief Executive Officer of ELITE. His responsibilities shall include the overall management and direction of ELITE'S affairs, the hiring, direction and dismissal of all subordinate employees, and the development of ELITE'S products. In addition, MEHTA shall be entitled to continue to serve as a director of ELITE for the entire term of this Agreement. 4. Compensation. As compensation for the services rendered hereunder, including any services provided as President, Chief Executive Officer, and Director, MEHTA shall receive the following: a. An annual salary in the following amounts: (1) From January 1, 1996 until December 31, 1996, $165,000.00, payable in installments of $6,875.00 semi monthly; (2) From January 1, 1997 until December 31, 1997, $180,000.00, payable in installments of $7,500.00 semi monthly; (3) From January 1, 1998 until December 31,1998, $200,000.00, payable in installments of $8,333.33 semi monthly; (4) From January 1, 1999 until December 31, 2000, at a salary not less than $200,000.00 plus an additional amount (i.e. a raise) to be determined by the Board of Directors, in its discretion, for each of the two years. b. Additional incentive commissions equal to five percent (5 %) of net profit of each fiscal year as determined in accordance with generally accepted accounting principles, payable no later than the 15th day of the fourth month following the completion of each such fiscal year. c. Health insurance, purchased and maintained by ELITE, which shall cover all medical expenses incurred by MEHTA and his family. d. Term life insurance on MEHTA'S life, for the benefit of MEHTA'S surviving spouse or his estate, in an amount of at least $300,000 for each year the policy is in effect. e. Such discretionary bonus as the Board may (with MEHTA abstaining) from time to time determine to be appropriate. f. Options to purchase Class A Common voting stock of ELITE to be granted on January 1, 1996 and each of the four succeeding anniversaries thereafter in increments of 100,000 such options each year. The options shall be exercisable from the date that they are granted until earlier of (a) one year after MEHTA ceases to be employed by ELITE or to serve as an officer or director of ELITE; or (b) the expiration of ten years from the date the options are granted. The options shall provide for MEHTA to purchase shares at a price of: $1.00 for options issued January 1, 1996; $1,50 for options issued January 1, 1997; $2.00 for options issued January 1, 1998; $2.50 for options issued January 1, 1999; $3.00 for options issued January 1, 2000; The Options shall be issued upon such additional terms and conditions as ELITE deems appropriate, provided that such terms and conditions are not materially different from terms and conditions of options issued to members of the Board of Directors of ELITE. 5. Expenses. ELITE shall reimburse MEHTA for all reasonable expenses incurred by him in connection with his employment pursuant to this Agreement. ELITE will reimburse MEHTA for such expenses upon the presentation of an itemized account together with such receipts, invoices, or other evidence of the expenditure that would constitute satisfactory documentation for tax purposes. Additionally, during the term of this Agreement, ELITE shall provide MEHTA with the use of an automobile to be selected by MEHTA, provided that the automobile selected has a fair market value at the time of acquisition not exceeding $50,000. MEHTA shall be responsible for accounting for the use of the automobile in compliance with all applicable regulations imposed by federal and state taxing authorities. 6. Incentive and Benefit Plans. MEHTA shall be entitled to (a) participate in any Management Incentive Compensation Plans adopted by ELITE'S Board of Directors (provided any such plan is adopted upon a vote in which MEHTA abstains or does not cast a deciding vote) on a basis to be determined by the Board of Directors at such time; (b) participate in any stock option plan established by the Board of Directors; and (c) participate in, and benefit from, any and all pension, profit-sharing, life, dental, medical, and other group benefit plans provided to management and/or other employees of ELITE. 7. Key Man Life Insurance. MEHTA shall do anything that is reasonably necessary to enable ELITE to maintain key man insurance upon his life should the Board of Directors so determine, with all benefits payable to ELITE. Upon termination of employment for reasons other than MEHTA's death, MEHTA shall have the right to (a) cancel such insurance policy or (b) rename the beneficiary provided he assumes all subsequent payment of premiums. 8. Termination. MEHTA'S employment hereunder shall terminate upon the occurrence of any of the following: a. the death of MEHTA; b. by election of either party upon the inability of MEHTA to perform his duties on account of disability for a total of one hundred twenty (120) days or more during any consecutive twelve (12) month period; c. by election of ELITE upon "Severe cause", defined as (i) MEHTA'S commission of an act involving dishonesty, embezzlement or fraud causing material damage to ELITE, (ii) MEHTA'S conviction for the commission of a felony involving an act of dishonesty or (iii) willful misconduct by MEHTA which is materially and demonstrably injurious to ELITE (and which MEHTA cannot or does not cease or correct upon request). For purposes of this provision, no act or failure to act by MEHTA shall be considered "willful", unless done, or omitted to be done, by him in bad faith and with knowledge that it was contrary to the interests of ELITE; d. by election of MEHTA upon (i) failure of ELITE to meet its obligations under paragraph 4, (ii) substantial interference with the discharge of his responsibilities under paragraph 3, (iii) purported change by ELITE without MEHTA's consent, of the duties and responsibilities of MEHTA from those duties and responsibilities described in this Agreement, (iv) a change in ownership of more than fifty percent (50%) of ELITE's shares in any one twelve (12) month period, or if any person or entity (or commonly owned or controlled group of entities) acquires shares which cause such person or entity's shares to total more than fifty percent (50 %) of the shares of ELITE; provided that shares acquired from MEHTA shall not be counted in calculating the fifty percent (50%) of shares, and provided that "ownership" shall mean ownership or de facto control, (v) requirement by ELITE that MEHTA be based anywhere more than 40 miles from Ramsey, New Jersey unless mutually agreed, (vi) any purported termination of MEHTA'S employment which is not effected pursuant to the terms of this Agreement or which does not constitute grounds for termination under this Agreement, or (vii) the occurrence of a vote by a majority of shares voting upon an issue contrary to the vote of MEHTA, if MEHTA in his sole discretion deems the vote "likely to result in an interference in management" and requests at the meeting that the shareholders reconsider and the shareholders fail to reverse the vote. The parties recognize that there may arise disputes and controversies over alleged conditions or conduct that is wrongful or that constitutes a breach of this Agreement. However, the parties agree that such conditions or conduct (which may give rise to a claim for damages) shall not constitute grounds for termination of employment or excuse performance under this Agreement unless, and to the extent, provided above. 9. Payments upon Termination. a. In the event of termination due to MEHTA's death, his surviving spouse (or if she predeceases MEHTA, his estate), shall be entitled to receive MEHTA's salary, incentive commissions, benefits and any deferred compensation accrued through the last day of the third calendar month following the month in which the termination of employment occurs and additional salary payable monthly for the following three years at the rate of one-half the aggregate annual amounts shown in paragraph 4a above; provided that ELITE may purchase life insurance (other than the life insurance provided under paragraph 4d) payable to a designated beneficiary of MEHTA to cover all or a portion of the obligation under this paragraph 9a. b. In the event of MEHTA's termination in accordance with paragraphs 8b or c, MEHTA's salary, incentive commissions, benefits and any deferred compensation accrued through the last day of the calendar month in which the termination of employment occurs shall be paid promptly. No other unaccrued salary or benefits shall be paid. c. In the event of termination pursuant to paragraph 8d, MEHTA shall receive all accrued salary, incentive commissions, benefits, and any deferred compensation and all salary and commissions payable under paragraph 4b through a period ending upon the later of (i) May 22, 2001 or (ii) the third anniversary of such termination, provided that the salary portion of such amounts shall be aggregated and discounted to Present Value, using as the discount factor the prime Rate published on the date of termination (or nearest date thereafter) in the Wall Street Journal; and provided that salary for the period after May 22, 2001 shall be imputed at the same rate as provided for under paragraph da(4). 10. Procedure for Termination. Termination of employment by ELITE or MEHTA shall not be effective until notice is received by the other party. The notice shall not be effective unless it indicates the specific termination provision(s) in paragraph 8 of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provisions indicated. Additionally, no purported termination by ELITE shall be effective unless and until there has been delivered to MEHTA a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board held for the purpose (after opportunity for MEHTA, together with his counsel, to be heard before said Board), finding that in the good faith opinion of the Board, the facts and circumstances claimed to provide a basis for termination under paragraph 8b or c of this Agreement exist and specifying the particulars thereof. 11. Covenant Not To Compete. MEHTA covenants and agrees that during the term of this Agreement, he will not directly or indirectly engage in, conduct, solicit, be involved in, aid or assist, either personally or as an employee, partner, director or consultant any business which is competitive with the business of ELITE. MEHTA, however, shall be free to conduct any business he desires outside of the United States, so long as such business does not sell any product sold or licensed by ELITE in any market in which ELITE competes, and provided that MEHTA does not use confidential information that he could not disclose under paragraph 12. 12. Confidentiality. MEHTA acknowledges and recognizes that the disclosure of confidential information to ELITE'S competitors will be highly detrimental to ELITE'S business. Therefore, MEHTA agrees that he will not disclose, reveal, or disseminate to any person, firm, or organization, any information concerning ELITE'S business which is of a confidential nature. This shall not preclude MEHTA from disclosing confidential information (i) to the extent that such information is generally available and known in the industry or is available from a source other than ELITE, through no action of MEHTA, or (ii) as required by law, or (iii) information respecting the business of ELITE after the Expiration Date of this Agreement; or (iv) if such disclosure is in the Company's best interest or is made in order to promote and enhance the Company's business. This provision shall also not preclude MEHTA from using or disclosing any information and experience he possesses in his memory and knowledge. 13. Entire Agreement. Each party acknowledges that he has read this Agreement, understands it, and agrees to be bound by its terms, and further agrees that this Agreement supersedes and merges all prior proposals, understandings and all other agreements, oral or written, between the parties relating to its subject matter. The parties further agree that this Agreement may not be modified or altered except by a written instrument duly executed by both parties. 14. Nonwaiver. No failure of a party to exercise any right or waiver of any remedy shall operate or be construed to constitute a waiver or bar affecting such party's assertion of the right or obtaining the remedy at any future time. No failure of a party to insist upon compliance with any provision of this Agreement at any time or for any period of time shall impair the party's right to insist upon compliance with such provision at any future time. 15. Legality. In the event any provision of this Agreement shall be held to be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby and said Agreement shall remain in full force and effect as if such cause or provision had not been inserted therein. 16. Binding Effect. This Agreement shall be binding upon the parties, their respective successors and permitted assigns. Neither party may assign this Agreement or any of its rights or obligations hereunder without the prior written consent of the other party, and any such attempt at assignment shall be void. 17. Notices. Any notice to be given under this Agreement shall be sufficient if it is in writing and is sent by Certified or Registered Mail, or hand-delivered by a person who is not affiliated with the sender. Notices to MEHTA shall be sent to 252 East Crescent Avenue, Ramsey, New Jersey 07446 or such other address as he designates in writing. Notice to ELITE shall be sent to its Secretary or to any member of its Board of Directors (other than MEHTA). IN WITNESS WHEREOF, the parties have here unto executed this document the day and year first above written. ELITE LABORATORIES, INC. [Corporate Seal] by: _____________________________ Director, acting with authority of the ______________________ Board of Directors Assistant Secretary ------------------------------ Atul M. Mehta EX-10.2 8 CONSULTING AGREEMENT EXHIBIT 10.2 BRIDGE VENTURES, INC. 1241 Gulf of Mexico Dr. Longboat Key, Florida 34228 CONSULTING AGREEMENT THE CONSULTING AGREEMENT ("Agreement") is made this 1st day of August 1997, by and between Bridge Ventures, Inc.] (the "Consultant") whose principal place of business is 1241 Gulf of Mexico Dr., Longboat Key, Florida, and Elite Laboratories, Inc. (Elite), a Delaware corporation (the "Client") whose principal place of business is 230 W. Passaic Street, Maywood, New Jersey 07607. W I T N E S S E T H WHEREAS, the Consultant is willing and capable of providing various marketing and management consultant services for and on behalf of the Client in connection with the marketing and manufacturing of time release pharmaceuticals. WHEREAS, THE Client wishes to retain the services of the Consultant to consult on strategic alliances for the Client pursuant to the terms hereof. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: 1. Engagement. The client hereby retains the Consultant subject to the provisions of paragraph 4, and Consultant hereby accepts the engagement, to provided Management and Marketing and Advisory services the Client. Such services shall include assisting management in their strategic planning, building a management team, and such other managerial assistance as Bridge and Elite shall deem necessary or appropriate for Clients business. The Consultant hereby agrees to devote such time as is necessary to the Client to fulfill the obligations set forth in this Paragraph 1. It is expressly agreed between the parties that the Consultant shall have no fixed or minimum number of hours within which to perform its obligations under this Agreement, however, the Consultant will be diligent and use its best efforts to perform the services hereunder. The Consultant shall strictly observe all securities regulations and laws, and all other laws. It is understood that the services rendered under this Agreement will be provided by either Harris Freedman or Stanley Zaslow, or by a person directly under their supervision. 2. Proprietary Information. In connection with their services pursuant to this Agreement, Consultant will obtain certain information from the Client concerning the Client's business, operations and certain inventions, know-how and technology, which the Client considers proprietary. The Consultant agrees to treat any such information (herein collectively referred to as the "Confidential Information") in accordance with the provisions of this paragraph 2. Confidential Information does not include information which (I) is independently obtained from members of the public to whom the information was made available other than as a result of a disclosure by the Consultant or its directors, officers, employees, agents or advisors, or (ii) was or becomes available to the Consultant on a non-confidential basis from a source other than the Client or its directors, officers, employees, agent or advisors provided that such source is not known to the Consultant to be bound by a confidentiality agreement with the Client. The Consultant hereby agrees that the Confidential Information will be kept confidential by the Consultant, provided, however, that any disclosure of such Confidential Information may be made to which the Client consents in writing. Upon expiration or termination of this Agreement, the Consultant shall promptly redeliver to the Client any and all written material containing or reflecting any of the Confidential Information and will not retain any copies, extracts or other reproductions in whole or in part of such written material. All documents, memoranda, notes and other writings whatsoever prepared by the Consultant or its advisor based on the information contained in the Confidential Information shall be destroyed, and such destruction shall, upon demand, be certified in writing to the Client by an authorized officer supervising such destruction. It is agreed that all information and materials produced by the Client shall be the sole and exclusive property of the Client. All copyright and title of said work shall be the property of the Client, free and clear of all claims thereto by the Consultant, and the consultant shall retain no claim of authorship therein. The provisions of this paragraph 2 shall survive expiration and termination of this Agreement. The Consultant agrees to perform the work hereunder diligently and in the highest professional manner and shall provide all necessary personnel to complete the work in the time and manner reasonably set forth by the Client. The Consultant shall strictly observe all securities regulations and laws, and all other laws. 3. Remuneration. In consideration for the services to be provide to the Client by the Consultant under this Agreement, the Client hereby agrees to the payment of remuneration to the Consultant as follows: (a) The Client hereby agrees to pay the Consultant an annual consulting fee in the amount between $84,000 and $120,000, payable in equal monthly installments of between $7,000 and $10,000 per month for a period of thirty six (36) months from the date of this Agreement. Such payment shall be due on the first (1st) day of each and every month hereafter. (b) Upon execution of this Agreement, or as soon thereafter as possible, the Client shall cause to be issued to the Consultant pursuant to the authority granted from the Client's Board of Directors 400,000 to 500,000 Warrants exercisable for a period of 5 years at $3.00 per share of its common stock, which will be identical to the Warrants purchased by investors in any subsequent offering. The share certificate to be issued shall be issued in the name which the Consultant provides to the Client in the Consultant's sole discretion. The shares underlying the warrants shall be free and clear of all liens and encumbrances except it shall bear a legend containing the restrictive language of Rule 144 of the Securities Act of 1933, as amended. (c) The Client agrees to reimburse the consultant for all travel, entertainment, mailing, printing, postage and all other out-of-pocket expenses directly related to the services to be provided. Expenses in excess of $100 per occasion shall be preapproved by the Client. Upon termination of this Agreement, any continuing obligation under this paragraph shall cease; however any accrued but unpaid expenses due to the Consultant under this subparagraph shall be due and payable within ten (10) days from such date. 4. Term. It is agreed between the parties that this Agreement shall expire on the last day of the Thirty Six (36) full month from the date here unless terminated as provided for in paragraph 3(a). The Consultant's obligation to provide services hereunder shall commence on the date on which the Consultant receives from the Client the first payment compensation under paragraph 3(a) and the Client has caused to be issued the option certificate referred to in paragraph 3(b) hereof. Notwithstanding the foregoing, this Agreement may be terminated by Client upon a material breach by Consultant, or if Consultant or any of its directors, officers, employees or consultants become the subject of any criminal prosecution or any enforcement proceeding by the Securities and Exchange Commission or any other state or federal agency. 5. Miscellaneous Provisions. (a) This Agreement and the duties and responsibilities creased hereby may not be assigned, transferred or delegated by the Consultant without the prior written consent of the Client. (b) This Agreement shall be interpreted and governed by the laws of the State of New York; all clauses of this Agreement are distinct and severable and if any clause shall be held illegal or void, it shall not affect the validity or legality of the remaining provisions of this Agreement. (c) No waiver of any breach of any condition herein will constitute a waiver of any subsequent reach of the same or any other condition. (d) The parties hereto agree to execute such other documents as are necessary to carry out the intent and the spirit of this Agreement. (e) Subject to the other provisions hereof, the terms and conditions of this Agreement shall extend to and be binding upon and shall inure to the benefit of the successors and assigns of the Parties hereto. (f) This Agreement may not be assigned without the prior written consent of all parties, and that any attempted assignment in violation of this provision will be null and void. 6. Notices. All notices, demands or requests required or authorized hereunder shall be deemed sufficiently given if in writing and sent by registered or certified mail, return receipt requested and postage prepaid, or by telex, telegram or cable to: Client: ELITE LABORATORIES, INC. 230 Passaic Street Maywood, New Jersey 07607 and if to Consultant: BRIDGE VENTURES, INC. 1241 Gulf of Mexico Dr. Longboat Key, Fl. 34228 Attn: Harris Freedman 7. Status of Parties. For the purpose of this Agreement, and the services, duties and responsibilities created hereunder, nothing other than exercise of warrants provided for in paragraph 3, nothing contained herein shall create an equity or ownership interest of one party in the other. It is understood and agreed between the parties that the Consultant is an independent contractor of the Client for the purposes set forth herein. 8. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof. The parties have made no agreements, representations or warranties relating to the subject matter hereof which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 9. Notwithstanding the foregoing, this Agreement may be terminated by client upon a material breach by consultant, or if consultant or any of its directors or officers become the subject of any criminal prosecution or any enforcement proceeding by the Securities and Exchange Commission or any other state or federal agency. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. CONSULTANT: BRIDGE VENTURES, INC. By: /s/Harris Freedman CLIENT: ELITE LABORATORIES, INC. By: /s/ EX-10.3 9 CONSULTING AGREEMENT EXHIBIT 10.3 SAGGI CAPITAL CORP. 545 Madison Avenue New York New York 10022 CONSULTING AGREEMENT THE CONSULTING AGREEMENT ("Agreement") is made this 1st day of August 1997, by and between Saggi Capital Corp. (the "Consultant") whose principal place of business is 545 Madison Avenue, New York, New York, and Elite Laboratories, Inc. (Elite), a Delaware corporation (the "Client") whose principal place of business is 230 W. Passaic Street, Maywood, New Jersey 07607. W I T N E S S E T H WHEREAS, the Consultant is willing and capable of providing various consulting and investor relation services for and on behalf of the Client in connection with the Client's interaction with broker dealers, shareholders and members of the general public. WHEREAS, THE Client wishes to retain the services of the Consultant to consult on strategic alliances for the Client pursuant to the terms hereof. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: 1. Engagement. The client hereby retains the Consultant subject to the provisions of paragraph 4, and Consultant hereby accepts the engagement, act as an investor relations and consultant to the Client. It is the intention of the parties to this Agreement that the Consultant will gather all publicly available information on the Client and confer with officers and directors of the Client in an effort to consolidate the information obtained into summary for telephonc dissemination to interested parties. The Consultant will then disseminate such information about the Client to individuals and registered representatives of broker-dealers who the Consultant in its reaosnable discretion, believes can most effectively disseminate such infomration to the general pubic. The Conulstant will nto provide any investment advice or recommmendations to any of its contacts bout the client; rather the Consultant will focus on telephonic and person-to-person meetings with individuals targeted by the Client for contact and familiarization with information which the Consultant has collected and is otherwise available to the general public about the Client. However, the Consultant will be diligent and use its best efforts to perform its obligations under this Agreement. It is agreed that the consultant will strictly deserve [sic] all securities regulations and laws, and all other laws. The Consultant hereby agrees to devote such time as is necessary to the Client to fulfill the obligations set forth in this Paragraph 1. It is expressly agreed between the parties that the Consultant shall have no fixed or minimum number of hours within which to perform its obligations under this Agreement. It is understood that the services rendered under this Agreement will be provided by Sharon Will or a person directly under her supervision. 2. Proprietary Information. In connection with their services pursuant to this Agreement, Consultant will obtain certain information from the Client concerning the Client's business, operations and certain inventions, know-how and technology, which the Client considers proprietary. The Consultant agrees to treat any such information (herein collectively referred to as the "Confidential Information") in accordance with the provisions of this paragraph 2. Confidential Information does not include information which (i) is independently obtained from members of the public to whom the information was made available other than as a result of a disclosure by the Consultant or its directors, officers, employees, agents or advisors, or (ii) was or becomes available to the Consultant on a non-confidential basis from a source other than the Client or its directors, officers, employees, agent or advisors provided that such source is not known to the Consultant to be bound by a confidentiality agreement with the Client. The Consultant hereby agrees that the Confidential Information will be kept confidential by the Consultant, provided, however, that any disclosure of such Confidential Information may be made to which the Client consents in writing. Upon expiration or termination of this Agreement, the Consultant shall promptly redeliver to the Client any and all written material containing or reflecting any of the Confidential Information and will not retain any copies, extracts or other reproductions in whole or in part of such written material. All documents, memoranda, notes and other writings whatsoever prepared by the Consultant or its advisor based on the information contained in the Confidential Information shall be destroyed, and such destruction shall, upon demand, be certified in writing to the Client by an authorized officer supervising such destruction. It is agreed that all information and materials produced by the Client shall be the sole and exclusive property of the Client. All copyright and title of said work shall be the property of the Client, free and clear of all claims thereto by the Consultant, and the consultant shall retain no claim of authorship therein. The provisions of this paragraph 2 shall survive expiration and termination of this Agreement. The Consultant agrees to perform the work hereunder diligently and in the highest professional manner and shall provide all necessary personnel to complete the work in the time and manner reasonably set forth by the Client. 3. Remuneration. In consideration for the services to be provide to the Client by the Consultant under this Agreement, the Client hereby agrees to the payment of remuneration to the Consultant as follows: (a) The Client hereby agrees to pay the Consultant an annual consulting fee in the amount between $42,000 and $60,000, payable in equal monthly installments of between $3,600 and $5,000 per month for a period of thirty six (36) months from the date of this Agreement. Such payment shall be due on the first (1st) day of each and every month hereafter. (b) Upon execution of this Agreement, or as soon thereafter as possible, the Client shall cause to be issued to the Consultant pursuant to the authority granted from the Client's Board of Directors 150,000 to 200,000 Warrants exercisable for a period of 5 years at $3.00 per share of its common stock, which will be identical to the Warrants purchased by investors in any subsequent offering. The share certificate to be issued shall be issued in the name which the Consultant provides to the Client in the Consultant's sole discretion. The shares underlying the warrants shall be free and clear of all liens and encumbrances except it shall bear a legend containing the restrictive language of Rule 144 of the Securities Act of 1933, as amended. (c) The Client agrees to reimburse the consultant for all travel, entertainment, mailing, printing, postage and all other out-of-pocket expenses directly related to the services to be provided. Expenses in excess of $100 per occasion shall be preapproved by the Client. Upon termination of this Agreement, any continuing obligation under this paragraph shall cease; however any accrued but unpaid expenses due to the Consultant under this subparagraph shall be due and payable within ten (10) days from such date. 4. Term. It is agreed between the parties that this Agreement shall expire on the last day of the Thirty Six (36) full month from the date here unless terminated as provided for in paragraph 3(a). The Consultant's obligation to provide services hereunder shall commence on the date on which the Consultant receives from the Client the first payment compensation under paragraph 3(a) and the Client has caused to be issued the option certificate referred to in paragraph 3(b) hereof. Notwithstanding the foregoing, this Agreement may be terminated by Client upon a material breach by Consultant, or if Consultant or any of its directors, officers, employees or consultants become the subject of any criminal prosecution or any enforcement proceeding by the Securities and Exchange Commission or any other state or federal agency. 5. Miscellaneous Provisions. (a) This Agreement and the duties and responsibilities creased hereby may not be assigned, transferred or delegated by the Consultant without the prior written consent of the Client. (b) This Agreement shall be interpreted and governed by the laws of the State of New York; all clauses of this Agreement are distinct and severable and if any clause shall be held illegal or void, it shall not affect the validity or legality of the remaining provisions of this Agreement. (c) No waiver of any breach of any condition herein will constitute a waiver of any subsequent reach of the same or any other condition. (d) The parties hereto agree to execute such other documents as are necessary to carry out the intent and the spirit of this Agreement. (e) Subject to the other provisions hereof, the terms and conditions of this Agreement shall extend to and be binding upon and shall inure to the benefit of the successors and assigns of the Parties hereto. 6. Notices. All notices, demands or requests required or authorized hereunder shall be deemed sufficiently given if in writing and sent by registered or certified mail, return receipt requested and postage prepaid, or by telex, telegram or cable to: Client: ELITE LABORATORIES, INC. 230 Passaic Street Maywood, New Jersey 07607 and if to Consultant: SAGGI CAPITAL CORP. 545 Madison Avenue New York, NY 10022 Attn: Sharon Will 7. Status of Parties. For the purpose of this Agreement, and the services, duties and responsibilities created hereunder, nothing other than the exercise of warrants provided for in Paragraph 3 contained herein shall create an equity or ownership interest of one party in the other. It is understood and agreed between the parties that the Consultant is an independent contractor of the Client for the purposes set forth herein. 8. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof. The parties have made no agreements, representations or warranties relating to the subject matter hereof which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 9. Notwithstanding the foregoing, this Agreement may be terminated by client upon a material breach by consultant, or if consultant or any of its directors or officers become the subject of any criminal prosecution or any enforcement proceeding by the Securities and Exchange Commission or any other state or federal agency. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. CONSULTANT: SAGGI CAPITAL CORP. By: /s/ Sharon Will CLIENT: ELITE LABORATORIES, INC. By: /s/ EX-10.4 10 INCENTIVE STOCK OPTION PLAN EXHIBIT 10.4 1997 INCENTIVE STOCK OPTION PLAN ELITE LABORATORIES, INC. INCENTIVE STOCK OPTION PLAN Purpose. The purpose of this stock option plan (this "Plan") is to secure for the Corporation and its stockholders the benefits which flow from providing key employees and officers with the incentive inherent in common stock ownership. The stock options granted under the Plan are intended to qualify as incentive stock options within the meaning of Internal Revenue Code Section 422. Amount of Stock. The total number of shares of Class A common stock to be subject to the options granted on and after __________________, 1997 pursuant to the Plan shall not exceed 1,250,000 shares of the Corporation's Class A common stock ("Stock"), par value $.01 per share. This total number of shares takes into account the proposed increase in the authorized number of Class A common shares to 20,000,000; however this number shall be subject to appropriate increase or decrease in the event of a subsequent dividend or subdivision, split up, combination or reclassification of the shares purchasable under such options. In the event that options granted under this Plan shall lapse without being exercised, in whole or in part, other options may be granted covering the shares not purchased under such lapsed options. Method of Granting. The Board of Directors of the Corporation ("Board") shall designate from time to time a person for receipt of an option, at which time the Secretary of the Corporation shall send notice thereof to the designee. The notice may be accompanied by an Incentive Option Agreement to be signed by the Company and by the Optionee if the Board shall so direct, which shall be an a form that the Board deems advisable. Eligibility. Options may be granted pursuant to the plan to employees and officers of the Corporation, its parent or any subsidiary. From time to time the Board shall select the employees and officers to whom options may be granted and shall determine the number of shares to be covered by each option so granted. Directors of the Board who are not officers or employees of the Corporation are not eligible to participate under the Plan. Incentive Option Agreement. The terms and provisions of options granted pursuant to this Plan shall be set forth in an incentive option agreement ("Incentive Option Agreement") between the Corporation and the employee receiving the same. The option may be in such form, not inconsistent with the terms of this Plan, as shall be approved by the Board of Directors. Price. The purchase price per share of Stock purchasable under options granted pursuant to the Plan shall not be less than 100 percent of the fair market value at the time the options are granted. The purchase price per share of Stock purchasable under options granted pursuant to the Plan to a person who owns more than 10 percent of the voting power of the Corporation's voting stock shall not be less than 110 percent of the fair market value at the time the options are granted. For purposes of this section, (a) an employee shall be considered to own stock (i) owned directly or indirectly by or for himself, his brothers and sisters, spouse, ancestors and lineal descendants and (ii) the stock which the employee may purchase under outstanding options and (b) stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries. For purposes of this Plan, the fair market value of the Stock shall be determined in good faith at the time of the grant of any option by decision of the Board. The Board shall not take into account the effect of any restrictions on the Stock, except restrictions that will never lapse. Payment. The full purchase price of any Stock purchased under the options shall be paid upon exercise. Option Period. No option granted pursuant to this Plan shall be exercisable after the expiration of ten years from the date it is first granted. No option granted pursuant to this Plan to a person who owns more than 10 percent of the voting power of the Corporation's voting stock shall be exercisable after the expiration of five years from the date it is first granted. For purposes of this section (a) an employee shall be considered to own stock (i) owned directly or indirectly by or for himself, his brothers and sisters, spouse, ancestors and lineal descendants and (ii) the stock which the employee may purchase under outstanding options and (b) stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries. The expiration date stated in the Incentive Option Agreement is hereinafter called the Expiration Date. Termination of Employment. The Incentive Option Agreement shall provide that: If prior to the Expiration Date the employee shall for any reason whatever other than his death or his authorized retirement as defined in (b) below, cease to be employed by the Corporation, its parent or a subsidiary of it, any unexercised portion of the option granted shall automatically terminate; If prior to the Expiration Date the employee shall (1) retire upon or after reaching the normal retirement age for employees of the Corporation or (2) with the written consent of the Corporation retire prior to the normal retirement age on account of physical or mental disability (retirement pursuant to (1) or (2) hereinafter referred to as "Authorized Retirement"), any unexercised portion of the option shall expire at the end of three months after such Authorized Retirement, and during the three months' period, the employee may exercise all or any part of the unexercised portion of the option; and If prior to the Expiration Date the employee shall die (either while employed or within three months after his Authorized Retirement), the legal representatives of his estate shall have the privilege for a period of six months after his death, of exercise any or all of the unexercised portion of the option. Nothing in this section shall extend the exercise period beyond the Expiration Date. Assignability. The Incentive Option Agreement shall provide that the option granted shall not be transferable or assignable except by will or the laws of descent and distribution, and during the employee's lifetime shall be exercisable only by him. Adjustment. The Incentive Option Agreement may contain provisions, as approved by the Board of Directors, concerning the effect upon the option and upon the option price of (a) stock dividends, subdivisions, split-ups, combinations, etc. of the Common Stock; or (b) proposals to merge or consolidate the Corporation, to sell substantially all of its assets, or to liquidate and dissolve the Corporation. Stock for Investment. The Incentive Option Agreement shall provide that the employee shall upon each exercise of a part or all of the option granted represent and warrant that his purchase of stock pursuant to such option is for investment only and not with a view to distribution involving a public offering. At any time the Board of Directors of the Corporation may waive the foregoing requirement. Amendment of Plan. The Board of Directors may from time to time alter, amend, suspend or discontinue the Plan and make rules for its administration, except that the Board of Directors shall not amend the Plan in any manner which would have the effect of preventing options issued under the Plan from being "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986. Furthermore, if Section 422 of the Internal Revenue Code of 1986 requires any additional or different provisions in order for this Plan to be considered "qualified" such changes or provisions are deemed to be incorporated herein by reference. Options Discretionary. The granting of options under the Plan shall be entirely discretionary with the Committee. Limitation as to Amount. No person to whom options are granted hereunder shall receive options first exercisable during any single calendar year for shares, the fair market value of which (determined at the time of the grant of the options) exceeds $100,000. Accordingly, no optionee shall be entitled to exercise options in any single calendar year, except to the extent first exercisable in previous calendar years, for shares of Common Stock the value of which (determined at the time of the grant of options) exceeds $100,000. Stockholder Approval. The Plan will be submitted to the common stockholders of the Corporation for approval by the holders of a majority of the oustanding shares of common stock of the Corporation. Dated: ____________________, 1997. EX-10.5 11 CONFIDENTIALITY NON-DISCLOSURE AGREEMENT EXHIBIT 10.5 CONFIDENTIALITY AGREEMENT - CORPORATION CONFIDENTIALITY AGREEMENT NON-DISCLOSURE AGREEMENT Elite Laboratories, Inc. of 230 W. Passaic Street, Maywood, New Jersey 07607, a Delaware corporation (hereinafter referred to as "ELITE") have in their possession certain samples and confidential and proprietary information (hereinafter referred to as "CONFIDENTIAL INFORMATION") related to products developed by Elite. It is understood that _________ hereafter referred to as "DISCLOSEE") desires to obtain such samples and certain of this CONFIDENTIAL INFORMATION to enable it to evaluate a possible business relationship with ELITE. It is understood that the term DISCLOSEE includes, without limitation, all personnel, subsidiaries and affiliate companies of DISCLOSEE. It is understood and agreed that any information Elite discloses to DISCLOSEE relating to in-vitro and in-vivo data, processes, marketing, formulae, plans, know-how, patent applications and business information including the present and future plans of ELITE shall be maintained in the confidence normally accorded DISCLOSEE's own internal materials and shall not be used, except for the purpose of evaluation in the furtherance of entering into an arrangement between ELITE and DISCLOSEE for a period of ten (10) years from the date of disclosure by ELITE. ELITE is prepared to make certain of such CONFIDENTIAL INFORMATION available to DISCLOSEE through its representatives, to the extent ELITE deems it necessary, for the sole purpose stated above, provided that: 1 . DISCLOSEE agrees to hold such CONFIDENTIAL INFORMATION and any further information developed in the course of its services in trust and confidence and not to disclose to others, nor to use for any purpose other than that stated above, any and all CONFIDENTIAL INFORMATION disclosed directly or indirectly to DISCLOSEE by ELITE, except: a) Information which, at the time of disclosure, is generally available to the public and was separately obtained from such a source by DISCLOSEE; b) Information which, after disclosure, becomes generally available to the public, by publication or otherwise, through no fault of DISCLOSEE; c) Information which DISCLOSEE can show was in its possession prior to disclosure hereunder and which was not acquired directly or indirectly from ELITE; d) Information which DISCLOSEE can show was received by it after the time of disclosure hereunder from a third party imposing no obligation of confidentiality and who did not acquire any such information directly or indirectly from ELITE; and e) Information which DISCLOSEE is required by law to disclose. For the purpose of the provisions of this paragraph, disclosures made to DISCLOSEE which are specific, e.g. as to compositions, processes, operating conditions, etc., shall not be deemed to be within the foregoing exceptions merely because they are embraced by general disclosures which are generally available to the public or in DISCLOSEE's possession. In addition, any combination of features shall not be deemed to be within the foregoing exceptions merely because individual features thereof are generally available to the public or in DISCLOSEE's possession, but only if the combination itself and its principle of operation are generally available or in DISCLOSEE's possession. 2. No right or license is granted by ELITE to DISCLOSEE in relation to such CONFIDENTIAL INFORMATION except as expressly set forth in this Agreement. 3. DISCLOSEE shall return to ELITE, upon demand, any and all written documents entrusted to it by ELITE hereunder and shall not copy or reproduce, in whole or in part, any such documents without ELITE's written permission. One copy, however, may be retained if desired by DISCLOSEE for legal purposes to show what information had been provided to it. ELITE LABORATORIES, INC. Atul M. Mehta, Ph.D. President Date: Date: EX-10.6 12 EMPLOYEE CONFIDENTIALITY AGREEMENT EXHIBIT 10.6 CONFIDENTIALITY AGREEMENT - EMPLOYEE CONFIDENTIALITY AGREEMENT THIS AGREEMENT is entered into by ("Employee") and Elite Laboratories, Inc. ("Elite") this _____ day of ________________, 199____. RECITALS A. Employee is an employee of Elite. As such, he may obtain confidential information pertaining to the business of Elite and companies or other entities with which it does business. B. Disclosure of confidential information could be highly detrimental to Elite. In addition to providing possible benefits to the competitors of Elite and entities with which it conducts business, such disclosure could adversely affect the relationship of Elite with such other entities. Elite is frequently required, in conducting its business, to assure other entities that all personnel of Elite who obtain confidential information will have executed an agreement not to disclose it. C. The purpose of this Agreement is to document the assurance of the Employee that he will not disclose any confidential information of Elite and thereby permit information pertaining to its business to be disclosed to Employee, to the extent such Employee needs to know certain confidential information to make more informed decisions. AGREEMENT 1. Confidential Information. For purposes of this Agreement, confidential information constitutes any and all information concerning Elite's business, including but not limited to, the qualifications and capabilities of its technical employees, the scope and nature of technical work being performed by Elite, the terms of any and all agreements between Elite and other entities related to research, development, licensing, or testing of products and potential products, the data or results generated by any testing or evaluation, the decisions to develop or forgo development of any product, and any other fact or matter pertaining to the business of Elite that is not generally available and known in the pharmaceutical industry. 2. Nondisclosure. Employee covenants that he will not disclose any confidential information at any time, under any circumstances, to any person other than an officer or director of Elite, unless pursuant to a valid subpoena or order of a court of competent jurisdiction. Employee further warrants and represents that he has not, during his tenure as a director, disclosed any confidential information to any person or entity. 3. Conflicts of Interest. Employee covenants that he will reveal to the board of directors any potential conflicts of interest which he may have at any time with respect to Elite. Such potential conflicts shall be defined to include any legal or beneficial interest in a business operating in the pharmaceutical industry, and any relationship, formal or informal, as an officer, director, partner, employee, consultant, agent or otherwise, with a company in the pharmaceutical industry. The potential conflict so disclosed shall be fully described. Disclosure of the potential conflict shall not, in and of itself, constitute an indication of any wrongdoing on the part of Employee, nor shall Employee be required to eliminate the potential conflict of interest (although disclosure of information to the Employee may be redacted as appears in the best interest of Elite). 4. Governing Law. This Agreement shall be governed by the laws of the state of New Jersey, provided that nothing in this Agreement shall diminish the obligations of Employee under the laws of Delaware governing corporations created thereunder. Employee Print Name ELITE LABORATORIES, INC. By: Atul M. Mehta, President EX-23.2 13 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement of Elite Pharmaceuticals, Inc. (the "Company") on Form SB-2 (as amended) of our report dated May 24, 1999, and June 14, 1999 as to note 12, appearing in the Company's Form SB-2 for the years ended March 31, 1999 and March 31, 1998. We also consent to the reference to us under the heading Experts. Miller, Ellin & Company, LLP CERTIFIED PUBLIC ACCOUNTANTS March 3, 2000 EX-27.1 14 ART. 5 FDS FOR SB-2/A
5 0001053369 ELITE PHARMACEUTICALS,INC. 1 US DOLLARS 9-MOS MAR-31-2000 APR-01-1999 DEC-31-1999 1 4,132,331 0 0 0 0 4,151,242 2,755,309 369,466 8,284,942 161,655 2,885,000 0 0 85,603 5,152,684 8,284,942 6,908 6,908 0 2,310,628 0 0 2,623 (2,167,297) 0 (2,167,297) 0 0 0 (2,167,297) (.27) (.27)
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