SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
|X| Filed by Registrant
|_| Filed by a Party other than the Registrant
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for use by Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant toss.240.14a-12
NOVADEL PHARMA INC.
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(Name of Registrant As Specified in its Charter)
N/A
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(Name of Persons Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: Set forth the amount on which the filing fee is
calculated and state how it was determined.
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4) Proposed maximum aggregate value of transaction:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and date of
its filing.
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NOVADEL PHARMA INC.
25 Minneakoning Road
Flemington, New Jersey 08822
908-782-3431
February __, 2004
Dear Fellow Stockholder:
The 2004 Annual Meeting of Stockholders (the "Annual Meeting") of Novadel
Pharma Inc. (the "Company" or "Novadel") will be held at 10:00 a.m. on [Friday],
March [19], 2004 at 25 Minneakoning Road, Flemington, New Jersey 08822. Enclosed
you will find a formal Notice of Annual Meeting, Proxy Card and Proxy Statement,
detailing the matters which will be acted upon. Directors and Officers of the
Company will be present to help host the meeting and to respond to any questions
from our stockholders. I hope you will be able to attend.
Please sign, date and return the enclosed Proxy without delay in the
enclosed envelope. If you attend the Annual Meeting, you may vote in person,
even if you have previously mailed a Proxy, by withdrawing your Proxy and voting
at the meeting. Any stockholder giving a Proxy may revoke the same at any time
prior to the voting of such Proxy by giving written notice of revocation to the
Secretary, by submitting a later dated Proxy or by attending the Annual Meeting
and voting in person. The Company's Annual Report on Form 10-KSB (including
audited financial statements) for the fiscal year ended July 31, 2003 and the
Company Quarterly Report on Form 10-QSB for the three month period ended October
31, 2003 accompanies the Proxy Statement. All shares represented by Proxies will
be voted at the Annual Meeting in accordance with the specifications marked
thereon, or if no specifications are made, (a) as to Proposal 1, the Proxy
confers authority to vote "FOR" all of the six persons listed as candidates for
a position on the Board of Directors, (b) as to Proposal 2, the Proxy confers
authority to vote "FOR" the ratification of J.H. Cohn LLP, as the Company's
independent auditors for the fiscal year ending July 31, 2004, (c) as to
Proposal 3, the Proxy confers authority to vote "FOR" the amendment of the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock of the Company from 50,000,000 to 100,000,000 (d) as to
Proposal 4, the Proxy confers authority to vote "FOR" the amendment of the
Company's 1998 Stock Plan to increase the maximum number of shares of the
Company's common stock subject to the plan from 1,800,000 shares to 3,400,000
shares, and (e) as to any other business which comes before the Annual Meeting,
the Proxy confers authority to vote in the Proxy holder's discretion.
The Company's Board of Directors believes that a favorable vote for each
candidate for a position on the Board of Directors and for all other matters
described in the attached Notice of Annual Meeting and Proxy Statement is in the
best interest of the Company and its stockholders and recommends a vote "FOR"
all candidates and all other matters. Accordingly, we urge you to review the
accompanying material carefully and to return the enclosed Proxy promptly.
Thank you for your investment and continued interest in Novadel Pharma
Inc.
Sincerely,
Gary A. Shangold, M.D.
President and Chief Executive Officer
NOVADEL PHARMA INC.
25 Minneakoning Road
Flemington, New Jersey 08822
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY MARCH [19], 2004
---------------------
To our Stockholders:
Notice is hereby given that the 2004 Annual Meeting of Stockholders (the
"Annual Meeting") of Novadel Pharma Inc., a Delaware corporation (the "Company"
or "Novadel"), will be held at the Company's principal office at 25 Minneakoning
Road, Flemington, New Jersey, on [Friday], March [19], 2004 at 10:00 a.m.,
Eastern Standard Time, for the following purposes:
1. To elect six Directors to the Board of Directors to serve until the
2005 Annual Meeting of Stockholders or until their successors have
been duly elected or appointed and qualified;
2. To ratify the appointment of J.H.Cohn LLP, as the Company's
independent auditors for the fiscal year ending July 31, 2004;
3. To amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock of the Company from
50,000,000 to 100,000,000.
4. To approve an amendment of the Company's 1998 Stock Plan to increase
the maximum number of shares of the Company's common stock subject
to the plan from 1,800,000 shares to 3,400,000 shares; and
5. To consider and take action upon such other business as may properly
come before the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on February 12,
2004, as the record date for determining the stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournments thereof.
For a period of 10 days prior to the Annual Meeting, a stockholders list
will be kept at the Company's office and shall be available for inspection by
stockholders during usual business hours. A stockholders list will also be
available for inspection at the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.
STOCKHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON ARE URGED TO COMPLETE,
DATE AND SIGN THE ACCOMPANYING PROXY AND MAIL IT IN THE ENCLOSED STAMPED,
SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU SIGN AND RETURN YOUR
PROXY WITHOUT SPECIFYING YOUR CHOICES IT WILL BE UNDERSTOOD THAT YOU WISH TO
HAVE YOUR SHARES VOTED IN ACCORDANCE WITH THE DIRECTORS' RECOMMENDATIONS. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY, IF YOU DESIRE, REVOKE YOUR PROXY AND VOTE IN
PERSON IF YOU WISH.
By Order of the Board of Directors
Robert F. Schaul, Secretary
February ___, 2004
NOVADEL PHARMA INC.
25 Minneakoning Road
Flemington, New Jersey 08822
PROXY STATEMENT
2004 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors (the "Board of Directors") of Novadel
Pharma Inc. (the "Company" or "Novadel") of proxies to be voted at the 2004
Annual Meeting of Stockholders to be held at 10:00 a.m., Eastern Standard Time,
on [Friday] March [19], 2004 at the principal office of the Company at 25
Minneakoning Road, Flemington, New Jersey 08822 and at any adjournments thereof
(the "Annual Meeting"). The approximate date on which this Proxy Statement and
the accompanying form of proxy are first being sent or given to stockholders is
[February __, 2004.]. The Annual Meeting has been called to consider and take
action on the following proposals: (i) To elect six Directors to the Board of
Directors to serve until the 2005 Annual Meeting of Stockholders or until their
successors have been duly elected or appointed and qualified; (ii) To ratify the
appointment of J.H.Cohn LLP, as the Company's independent auditors for the
fiscal year ending July 31, 2004; (iii) To amend the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock of the
Company from 50,000,000 to 100,000,000; (iv) To approve an amendment of the
Company's 1998 Stock Plan to increase the maximum number of shares of the
Company's common stock subject to the plan from 1,800,000 shares to 3,400,000
shares; and (v) To consider and take action upon such other business as may
properly come before the Annual Meeting or any adjournments thereof.
The Board of Directors knows of no other matters to be presented for
action at the Annual Meeting. However, if any other matters properly come before
the Annual Meeting, the persons named in the proxy will vote on such other
matters and/or for other nominees in accordance with their best judgment. The
Company's Board of Directors recommends that the stockholders vote in favor of
each of the proposals. Only holders of record of common stock, $.001 par value
(the "Common Stock"), of the Company at the close of business on February 12,
2004 (the "Record Date") will be entitled to vote at the Annual Meeting.
The principal executive offices of the Company are located at 25
Minneakoning Road, Flemington, New Jersey 08822 and its telephone number is
(908) 782-3431. The approximate date on which this Proxy Statement, the proxy
card and other accompanying materials are first being sent or given to
stockholders is [February __, 2004.] A copy of the Company's Annual Report on
Form 10-KSB for the fiscal year ended July 31, 2003 and a copy of the Company's
Quarterly Report on Form 10-QSB for the three month period ended October 31,
2003 are enclosed with these materials, but should not be considered proxy
solicitation material.
INFORMATION CONCERNING SOLICITATION AND VOTING
As of the Record Date, there were 32,677,642 outstanding shares of Common
Stock, each share entitled to one vote on each matter to be voted on at the
Annual Meeting. As of the Record Date, the Company had approximately [74]
holders of record of Common Stock. Only holders of shares of Common Stock on the
Record Date will be entitled to vote at the Annual Meeting. The holders of
Common Stock are entitled to one vote on all matters presented at the meeting
for each share held of record. The presence in person or by proxy of holders of
record of a majority of the shares outstanding and entitled to vote as of the
Record Date shall be required for a quorum to transact business at the Annual
Meeting. If a quorum should not be present, the Annual Meeting may be adjourned
until a quorum is obtained.
Each nominee to be elected as a director named in Proposal 1 must receive
the vote of a plurality of the votes of the shares of Common Stock present in
person or represented by proxy at the meeting. For the purposes of election of
directors, although abstentions will count toward the presence of a quorum, they
will not be counted as votes cast and will have no effect on the result of the
vote.
Amendment of the Company's Certificate of Incorporation to increase the
number authorized shares of Common Stock, as described in Proposal 3, requires
the affirmative vote of the holders of a majority of the Company's outstanding
stock entitled to vote.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy at the meeting is required for
approval of the ratification of the selection of J.H.Cohn LLP, as independent
auditors of the Company for the fiscal year 2004 described in Proposal 2 and the
amendment to the Company's 1998 Stock Plan described in Proposal 4. For purposes
of the vote on the ratification of the selection of J.H.Cohn LLP, as independent
auditors of the Company for the fiscal year 2004 described in Proposal 2 and the
amendment to the Company's 1998 Stock Plan described in Proposal 4, abstentions
will not be counted as votes entitled to be cast on these matters and will have
no effect on the result of the vote. "Broker non-votes," which occur when
brokers are prohibited from exercising discretionary voting authority for
beneficial owners who have not provided voting instructions, will not be counted
for the purpose of determining the number of shares present in person or by
proxy on a voting matter and will have no effect on the outcome of the vote.
Brokers who hold shares in street name may vote on behalf of beneficial owners
with respect to Proposals 1 and 2. The approval of all other matters to be
considered at the Annual Meeting requires the affirmative vote of a majority of
the eligible votes cast at the Annual Meeting on such matters.
The expense of preparing, printing and mailing this Proxy Statement,
exhibits and the proxies solicited hereby will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by officers and
directors and regular employees of the Company, without additional remuneration,
by personal interviews, telephone or facsimile transmission. The Company will
also request brokerage firms, nominees, custodians and fiduciaries to forward
proxy materials to the beneficial owners of shares of Common Stock held of
record and will provide reimbursements for the cost of forwarding the material
in accordance with customary charges.
Proxies given by stockholders of record for use at the Annual Meeting may
be revoked at any time prior to the exercise of the powers conferred. In
addition to revocation in any other manner permitted by law, stockholders of
record giving a proxy may revoke the proxy by an instrument in writing, executed
by the stockholder or his attorney authorized in writing or, if the stockholder
is a corporation, under its corporate seal, by an officer or attorney thereof
duly authorized, and deposited either at the corporate headquarters of the
Company at any time up to and including the last business day preceding the day
of the Annual Meeting, or any adjournments thereof, at which the proxy is to be
used, or with the chairman of such Annual Meeting on the day of the Annual
Meeting or adjournments thereof, and upon either of such deposits the proxy is
revoked.
2
ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES
SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO
CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE
DISCRETION OF THE PERSONS NAMED IN THE PROXY WITH RESPECT TO ANY OTHER BUSINESS
THAT MAY COME BEFORE THE ANNUAL MEETING.
Proposals 1, 2, 3 and 4 do not give rise to any statutory right of a
stockholder to dissent and obtain the appraisal of or payment for such
stockholder's shares.
3
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, six individuals will be elected to serve as
directors until the next annual meeting or until their successors are duly
elected, appointed and qualified. The Company's Board of Directors currently
consists of seven persons. All of the individuals who are nominated for election
to the Board of Directors are existing directors of the Company. Unless a
stockholder WITHHOLDS AUTHORITY, a properly signed and dated proxy will be voted
"FOR" the election of the persons named below, unless the proxy contains
contrary instructions. Management has no reason to believe that any of the
nominees will not be a candidate or will be unable to serve as a Director.
However, in the event any nominee is not a candidate or is unable or unwilling
to serve as a Director at the time of the election, unless the stockholder
withholds authority from voting, the proxies will be voted "FOR" any nominee who
shall be designated by the present Board of Directors to fill such vacancy.
The name and age of each of the six nominees, his position with the
Company, his principal occupation, and the period during which such person has
served as a Director are set out below.
Biographical Summaries of Nominees for the Board of Directors
Director
Name of Nominee Age Position with the Company Principal Occupation Since
--------------- --- ------------------------- -------------------- --------
Gary A. Shangold, M.D., FACOG 50 President and Chief President and CEO of the 2003
Executive Officer Company
Robert F. Schaul, Esq. 64 Secretary and Director Attorney 1991
64 None University Professor 2003
William F. Hamilton, Ph.D
Lawrence J. Kessel, M.D., FACP 50 None Physician 2003
Mark H. Rachesky, M.D. 44 None Investment Broker 2003
Charles Nemeroff, M.D., Ph.D. 54 None University Professor 2003
Gary Shangold, M.D., President, Chief Executive Officer and Director. Dr.
Shangold joined Novadel in December 2002 and was elected as a director in March
2003. Previously he had been Vice President and Regulatory Head of Drug
Development at Johnson & Johnson Pharmaceutical Research and Development, LLC.
Before joining the Johnson & Johnson family of companies in 1992, he had been
Medical Director of Obstetrics, Gynecology & Infertility at Serono Laboratories,
Inc. and had been a member of the faculty of Obstetrics and Gynecology at the
University of Chicago's Pritzker School of Medicine from 1983 to 1991. Dr.
Shangold also was an Associate Clinical Professor at the Harvard University
School of Medicine and a Clinical Associate at Massachusetts General Hospital.
Dr. Shangold is a graduate of the University of Pennsylvania and received his
M.D. from Columbia University's College of Physicians and Surgeons.
Robert F. Schaul, Esq., Secretary and Director. Mr. Schaul has been a Director
of Novadel since November 1991 and was Vice President, Secretary and General
Counsel of Novadel from November 1991 to February 1995. He has advised Novadel
since its formation. Mr. Schaul is also a part-time Municipal Court Judge for a
number of New Jersey municipalities. From 1995 to 1998, Mr. Schaul was Vice
President and General Counsel of Landmark Financial Corp. From 1989 to 1991, Mr.
Schaul was a partner with the law firm of Glynn, Byrnes and Schaul, and for
twenty years prior thereto was an attorney and partner with the law firm Kerby,
Cooper, English, Schaul & Garvin, specializing in business law and business
related litigation. Mr. Schaul received a BA from New York University in 1961
and a JD from Harvard University in 1964.
4
William F. Hamilton, Ph.D., Director. Dr. Hamilton was elected to the Board in
March 2003. Dr. Hamilton has served on the University of Pennsylvania faculty
since 1967, and is the Landau Professor of Management and Technology, and
Director of the Jerome Fisher Program in Management and Technology at The
Wharton School and the School of Engineering and Applied Science. He serves as a
director of Neose Technologies, Inc., a company developing a drug manufacturing
process and proprietary drugs. Dr. Hamilton received his B.S. and M.S. in
chemical engineering and his M.B.A. from the University of Pennsylvania, and his
Ph.D. in applied economics from the London School of Economics. Dr. Hamilton is
a member of the Board's Audit Committee and Compensation Committee.
Lawrence Jay Kessel, MD, FACP , Director. Dr. Kessel was elected to the Board in
March 2003. He is President of Lawrence J. Kessel, MD & Associates, PC, Dr
Kessel is president of a five physician practice specializing in Internal
Medicine and Geriatrics since 1984. He graduated Magna Cum Laude with a B.S.
degree from the University of Pittsburgh as an honors major in Biology and
subsequently graduated with an MD degree from Temple Medical School. He
completed a formal residency in Internal Medicine at Abington Memorial Hospital,
and is Board Certified in Internal Medicine with added qualification as a
diplomat in Geriatric Medicine. He is an active staff attending and Clinical
Instructor at Chestnut Hill Hospital (University of Pennsylvania affiliate) and
Roxborough Memorial Hospital in Philadelphia, Pennsylvania. Dr. Kessel is a
Board Reviewer for the American Board of Internal Medicine, as well as a Fellow
of the American College of Physicians. He also serves on the advisory board of
Independence Blue Cross and is a Clinical Assistant Professor in the Department
of Medicine at Temple University Medical School. Dr. Kessel presently serves as
a director to Cypress Biosciences, Inc. of San Diego, California, Keryx
Biopharmaceuticals, of New York, New York, and Dor BioPharma, Inc. of Lake
Forest, Illinois. Dr. Kessel is a member of the Board's Audit Committee and
Compensation Committee.
Mark H. Rachesky, M.D., Director. Dr. Rachesky joined the Board in June 2003.
Dr. Rachesky is the founder and President of MHR Fund Management LLC and
affiliates, investment managers of various private investment funds that invest
in inefficient market sectors, including special situation equities and
distressed investments. Dr. Rachesky is currently on the board of directors of
Neose Technologies, Inc. a company developing a drug manufacturing process and
proprietary drugs. Dr. Rachesky is a graduate of Stanford University School of
Medicine, and Stanford University School of Business. Dr. Rachesky graduated
from the University of Pennsylvania with a major in Molecular Aspects of Cancer.
Dr. Rachesky is a member of the Board's Audit Committee.
Charles Nemeroff, M.D., Ph.D. Dr. Nemeroff joined the Board in September 2003.
Dr. Nemeroff has been the Reunette W. Harris Professor and Chairman of the
Department of Psychiatry and Behavioral Sciences at the Emory University School
of Medicine in Atlanta, Georgia, since 1991. He has served on the Mental Health
Advisory Council of the National Institute of Mental Health and the Biomedical
Research Council for NASA. Dr. Nemeroff is a past President of the American
College of Psychiatrists and a past President of the American College of
Neuropsychopharmacology and is Editor-in-Chief of Neuropsychopharacology. He has
served as Editor-in-Chief of the Psychopharmacology Bulletin, Associate Editor
of Biological Psychiatry and as the Co-Editor-in-Chief of both critical reviews
in Neurobiology and Depression and Anxiety. Dr. Nemeroff serves on the
Scientific Advisory Board of numerous pharmaceutical companies, including Acadia
Pharmaceuticals, Astra Pharmaceuticals, Forest Laboratories, Janssen, Organon,
Glaxo-SmithKline Beecham and Wyeth-Ayerst. Dr. Nemeroff has received numerous
awards for his research, including the Bowis Award from the American College of
Psychiatrists and the Menninger Prize from the American College of Physicians.
In 2002 he was elected to the Institute of Medicine.
5
Board members are elected annually by the stockholders and the officers
are appointed annually by the Board of Directors.
Vote Required
Provided that a quorum of stockholders is present at the meeting in
person, or is represented by proxy, and is entitled to vote thereon, Directors
will be elected by a plurality of the votes cast at the meeting.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR Messrs. Shangold, Schaul,
Hamilton, Kessel, Rachesky and Nemeroff. Unless otherwise instructed or unless
authority to vote is withheld, the enclosed proxy will be voted FOR the election
of the above listed nominees and AGAINST any other nominees.
6
Compensation of Directors
The Directors of the Company are elected annually and serve until the next
annual meeting of stockholders or until a successor shall have been duly elected
and qualified. Effective September 2003, Directors of the Company who are not
employees or consultants receive fees of $2,000 for each meeting of the Board of
Directors attended in person or $1,000 if participated in by telephone.
Directors are also annually compensated $3,000 for serving or $5,000 for
chairing a committee of the Board. Since 2003, such Directors also are awarded
100,000 Non-Plan Options upon their election to the Board, to vest in three
equal annual installments beginning on the first anniversary of their
appointment. In addition, such Directors are to be awarded an additional 50,000
Non-Plan Options for each year of service on the Board thereafter, beginning on
the first anniversary of their election; such annually awarded options also vest
over a three year period. Such Directors are also reimbursed for expenses
incurred in connection with their attendance at meetings of the Board of
Directors or committees. Directors may be removed with or without cause by a
vote of the majority of the stockholders then entitled to vote.
In March 2003, we issued 100,000 Non-Plan Options to each of Mr. William
Hamilton and Dr. Lawrence Kessel upon their being elected to the Board of
Directors. In March 2003, we also issued 10,000 options to each of Messrs.
Schaul and Kornreich (a former director) under the 1998 Plan. All of these
options have an exercise price of $1.51; the options issued to Messrs. Schaul
and Kornreich vested immediately, those issued to Drs. Hamilton and Kessel vest
in three equal annual installments beginning in March 2004 and expire in March
2008.
In June, 2003 we issued 100,000 Non-Plan Options to Dr. Mark H. Rachesky
upon his being appointed to the Board of Directors. These options have an
exercise price of $2.15 and vest in three equal annual installments beginning in
June 2004 and expire in June 2008.
In September 2003, we issued 100,000 Non-Plan Options to Dr. Charles
Nemeroff upon his being appointed to the Board of Directors. These options have
an exercise price of $1.85 and vest in three equal annual installments beginning
in September 2004 and expire in September 2008.
Other than as described in "Executive Compensation" below, there were no
other arrangements pursuant to which any Director was compensated during fiscal
2003 for any services provided as a Director.
Meetings and Committees of the Board of Directors
During the fiscal year ended July 31, 2003 ("fiscal 2003"), the Board of
Directors held 4 meetings, three regular meetings (not including the 2003 annual
meeting) and one special meeting, all of which were attended by all of the
Company's Directors during the period that such person was a member of the
Board. Directors are expected to attend all meetings. Although the Company is
not currently required to have any board committees under applicable securities
laws and exchange listing guidelines, the Company has established compensation
and audit committees. The Company does not have a standing nominating committee
at this time. Currently the entire Board of Directors is active in the
nominating process. Nominations for election to the Board of Directors may be
made by the Board of Directors or by any stockholder entitled to vote for the
election of directors. Nominations made by stockholders must be made by written
notice received by the Secretary of the Company within 10 days of the date on
which notice of a meeting for the election of directors is first given to
stockholders. The Board of Directors carefully considers nominees regardless of
whether they are nominated by stockholders or existing board-members.
Special meetings are held from time to time to consider matters for which
approval of the Board of Directors is desirable or required by law.
7
The Compensation Committee
Messrs. Kessel and Hamilton serve on the Compensation Committee, which
determines the cash (and with respect to the 1997 Plan as defined hereinafter,
the non-cash) compensation amounts to be paid to directors, officers and
employees of the Company. The Compensation Committee met one time in fiscal
2003. Both members of the Compensation Committee attended such meeting.
The Audit Committee
The Audit Committee of the Board of Directors currently consists of three
directors, Messrs. Hamilton, Kessel and (as of September 2003) Mark H. Rachesky.
The Audit Committee met three times during the fiscal year ending July 31, 2003.
Both members of the Audit Committee (as then constituted) attended each such
meeting. The Audit Committee is primarily responsible for reviewing the services
performed by the Company's independent auditors, evaluating the Company's
accounting policies and its system of internal controls, and reviewing
significant finance transactions.
The audit functions of the Audit Committee are focused on three areas:
|X| the adequacy of the Company's internal controls and financial
reporting process and the reliability of the Company's financial
statements.
|X| the independence and performance of the Company's independent
auditors.
|X| the Company's compliance with legal and regulatory requirements.
The Audit Committee meets with management periodically to consider the
adequacy of the Company's internal controls and the objectivity of its financial
reporting. The Audit Committee discusses these matters with the Company's
independent auditors and with appropriate Company financial personnel. Meetings
are held with the independent auditors. The independent auditors are given
unrestricted access to the Audit Committee. The Audit Committee also recommends
to the Board the appointment of the independent auditors and reviews
periodically their performance and independence from management. In addition,
the Audit Committee reviews the Company's financing plans and reports its
recommendations to the full Board of Directors for approval and to authorize
action.
The Audit Committee was established in 2002. Its current members, Messrs.
Hamilton, Kessel and Rachesky are all non-employee directors each of whom meets
the independence and other requirements to serve on our Audit Committee under
applicable securities laws and the rules of the SEC and listing standards of the
American Stock Exchange ("AMEX") (although we are not currently listed on AMEX,
we have elected to follow the AMEX listing guidelines for independence pursuant
to the SEC directive that the standard for audit committee independence be based
upon the listing guidelines of a national securities exchange or national
securities association). The Board of Directors believes that Mr. Rachesky is an
"audit committee financial expert" as defined under the rules of the SEC and the
listing standards of AMEX. The report of the Audit Committee is provided below.
Audit Committee Report
In September, 2003, the Board of Directors adopted an Audit Committee
Charter, which conforms to the requirements of the Sarbanes-Oxley Act of 2002
and the listing standards of AMEX. The Audit Committee Charter is attached
hereto as Exhibit A.
Management has primary responsibility for the Company's financial
statements and the overall reporting process, including the Company's system of
internal controls. The independent auditors audit the annual financial
statements prepared by management, express an opinion as to whether those
financial statements present fairly the financial position, results of
operations and cash flows of the Company in conformity with generally accepted
accounting principles and discuss with the Audit Committee any issues they
believe should be raised with the Audit Committee.
8
The Audit Committee reviews the Company's audited financial statements and
meets with both management and the Company's independent auditors, to discuss
such audited financial statements. Management has represented to the Audit
Committee that the financial statements have been prepared in accordance with
generally accepted accounting principles. The Audit Committee has received from
and discussed with Wiss & Company, LLP, the Company's former independent
auditors, the written disclosure and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
These items relate to that firm's independence from the Company. The Audit
Committee also discusses with the Company's independent auditors, any matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). Based on these reviews and discussions,
the Audit Committee recommended to the Board that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-KSB
for the fiscal year ending July 31, 2003.
Audit Fees
For the year ended July 31, 2003, the Company incurred professional fees
to its independent auditors in the amount of $23,000 related to auditing
services.
All Other Fees
For the year ended July 31, 2003, the Company incurred professional fees
to its independent auditors in the amount of $10,000 related to all other
services. For the year ended July 31, 2003, there were no fees billed by the
Company's independent auditors for professional services rendered for
information technology services relating to financial information systems design
and implementation.
The Auit Committee has the sole authority to pre-approve all audit and
non-audit services provided by the independent auditors to the Company.
Audit Committee
William F.
Hamilton
Lawrence Jay Kessel
Mark H. Rachesky
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires officers, directors and persons
who own more than ten (10) percent of a class of equity securities registered
pursuant to Section 12 of the Exchange Act to file reports of ownership and
changes in ownership with both the SEC and the principal exchange upon which
such securities are traded or quoted. Officers, directors and persons holding
greater than ten (10) percent of the outstanding shares of a class of Section
12-registered equity securities ("Reporting Persons") are also required to
furnish copies of any such reports filed pursuant to Section 16(a) of the
Exchange Act with the Company. Based solely on a review of the copies of such
forms furnished to the Company, the Company believes that from August 1, 2002 to
July 31, 2003 all Section 16(a) filing requirements applicable to its Reporting
Persons were complied with.
Directors and Executive Officers
The names and ages of the current directors, executive officers and
significant employees of the Company are set forth below. All directors are
elected annually by the stockholders to serve until the next annual meeting of
the stockholders or until their successors are duly elected and qualified.
Officers are elected annually by the Board of Directors to serve at the pleasure
of the Board.
9
Name Age Position with the Company
---- --- -------------------------
Gary A. Shangold, M.D. 50 President Chief Executive Officer and Director
Harry A. Dugger, III, Ph.D. 67 Chief Scientific Officer
John H. Klein* 57 Chairman
Robert F. Schaul, Esq. 64 Secretary and Director
Donald J. Deitman 61 Chief Financial Officer
Mohammed Abd El-Shafy 50 Vice President-Formulation Development
William F. Hamilton, Ph.D.** 64 Director
Lawrence J. Kessel, M.D., FACP** 50 Director
Mark H. Rachesky, M.D. *** 44 Director
Charles Nemeroff, M.D., Ph.D. 54 Director
Barry Cohen 41 Vice-President-New Business and Product Development
----------
* Mr. Klein is not standing for re-election to the Board of Directors.
** Member of Audit Committee and Compensation Committee.
*** Member of Audit Committee.
See "Biographical Summaries for Nominees for the Board of Directors" above for
biographical summaries of Messrs. Shangold, Schaul, Hamilton, Kessel, Rachesky
and Nemeroff.
Harry A. Dugger, III, Ph.D., Chief Scientific Officer. Dr. Dugger is the founder
of Novadel and served as its President and a Director from its inception in May
1982 until December 2002. Prior to founding Novadel, from June 1980 to November
1982, Dr. Dugger was employed as Vice President of Research and Development by
Bauers-Kray Associates, a company engaged in the development of pharmaceutical
products. From 1964 to 1980, Dr. Dugger was Associate Section Head for Research
and Development at Sandoz Pharmaceuticals Corporation. Dr. Dugger received an MS
in Chemistry from the University of Michigan in 1960 and received a Ph.D. in
Chemistry from the University of Michigan in 1962.
Donald J. Deitman, Chief Financial Officer. Mr. Deitman joined Novadel in 1998.
From 1988 until joining Novadel, Mr. Deitman was employed as a business
consultant implementing multi-module MRP II software systems. From 1982 to 1988,
Mr. Deitman was corporate controller for FCS Industries, Inc. of Flemington, New
Jersey. From 1975 to 1982, he was manager of materials and systems for the
Walworth Company operations located in Linden and Elizabeth, NJ and from 1966 to
1975, he was employed by Ortho Pharmaceuticals, Inc. and Ortho Diagnostics, Inc.
Mr. Deitman received a BS in Accounting from Rutgers University in 1972.
Mohammed Abd El-Shafy, Ph.D., Vice President-Formulation Development. Dr.
El-Shafy has been an employee of Novadel since May of 2002. From 1999 to 2002 he
was employed as a Team Leader and Senior Scientist with Nastech Pharmaceutical
Inc., Hauppauge, New York. From 1998 to 1999 Dr. El-Shafy was a Post-Doctoral
Fellow at the University of Wisconsin's School of Pharmacy. He received his
doctorate in 1997 from the School of Pharmacy, University of Wales, Cardiff,
Wales, UK. From 1983 to 1993 he was an Assistant Lecturer of Pharmaceutical
Sciences on the Faculty of Pharmacy, Al-Azhar University, Cairo, Egypt.
Barry Cohen, Vice President of New Business and Product Development. Mr. Cohen
joined Novadel in May 2003. Before joining Novadel, he was Vice
President-Business Development at Keryx, and before that held several executive
marketing and business development positions at Novartis Consumer Health. Mr.
Cohen holds a BBA in Marketing from Hofstra University and an MBA in Marketing
from Pace University.
10
John H. Klein, Chairman of the Board. Mr. Klein joined Novadel in February 2002
as a consultant and as Chairman of its Board of Directors. From April 1996 to
the present Mr. Klein has been affiliated with a number of enterprises,
including True North Capital (Chairman/ Managing Director), Kindred Healthcare
(Director), US Interactive, Inc. (Director), America's Plan (Director and
Chairman), Coleman Co., Inc. (Director), Sunbeam Corp. (Director), Bi- Logix,
Inc. (Director), Strategic Business and Technology Solutions, LLC (Chairman),
Cybear (Director and Chairman) and Image Vision (Director and Vice Chairman).
From 1996 to 1998, Mr. Klein was Chairman and CEO of Mim Corp. From 1989 to
1996, he was President, CEO and Director of Zenith Laboratories, Inc., which in
1995 merged into IVAX, Inc., of which Mr. Klein was an Executive Officer and
President of its IVAX North American Multi-Source Pharmaceutical Group. Mr.
Klein holds BS and MBA degrees from Roosevelt University, Chicago, Illinois.
11
EXECUTIVE COMPENSATION
The following table sets forth a summary for the fiscal years ended July 31,
2003, 2002 and 2001, respectively, of the cash and non-cash compensation
awarded, paid or accrued by the Company to the Company's Chief Executive Officer
("CEO") and its four most highly compensated officers other than the CEO, who
served in such capacities at the end of fiscal 2003 (collectively, the "Named
Executive Officers"). No other executive officer of the Company earned in excess
of $100,000 in total annual salary and bonus for 2003, 2002 and 2001 in all
capacities in which such person served the Company. There were no restricted
stock awards, long-term incentive plan payouts or other compensation paid during
fiscal 2003, 2002 and 2001 to the Named Executive Officers, except as set forth
below:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------- --------------------------------
Awards Payouts
--------------------- --------
Securities
Under
Other Restricted lying
Annual Stock Options/ LTIP All Other
Fiscal Salary Bonus Compensation Award SAR (1) Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
--------------------------- ------ ------ ----- ------------ ---------- ---------- ------- ------------
Gary A. Shangold, M.D. President and CEO 2003 210,900 200,000 0 0 1,000,000 0 0
Harry A. Dugger, III, Ph.D 2003 246,900 0 0 0 275,000 0 12,000
Chief Scientific Officer, formerly 2002 347,000 0 0 0 0 0 10,000
President and CEO 2001 182,974 0 0 0 0 0 0
John H. Klein 2003 300,000 0 0 0 0 0 72,000
Chairman 2002 150,000 0 0 0 1,000,000 0 36,000
Donald Deitman 2003 124,200 0 0 0 0 0 7,200
Chief Financial Officer 2002 104,400 0 0 0 0 0 4,200
2001 70,800 0 0 0 0 0 0
Robert C. Galler 2003 186,900 0 0 0 350,000 0 0
Former Vice President 2002 143,600 0 0 0 700,000 0 6,600
Corporate Development
Mohammed abd Al-Shafy, Ph.D., Vice 2003 144,000 0 0 0 50,000 0 5,400
President - Formulation Development 2002 24,000 0 0 0 150,000 0
----------
(1) No Stock Appreciation Rights have been issued.
12
Option Grants In Last Fiscal Year
(individual grants)
The following table sets forth information with respect to the Named
Executive Officers concerning grants of options during fiscal 2003:
----------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
----------------------------------------------------------------------------------------------------------------------
Individual Grants
----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
----------------------------------------------------------------------------------------------------------------------
Number of Securities % of Total Options/SARs
Underlying Options/SARs Granted to Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
----------------------------------------------------------------------------------------------------------------------
Gary A. Shangold, M.D 1,000,000 54% $1.93 2 Dec 2007
Harry A Dugger III, Ph.D 275,000 15% $0.70 14 Nov. 2011
John H. Klein 0 N/A $2.40 31 Jan. 2012
Donald J. Deitman 0 N/A N/A N/A
Robert Galler 350,000 19% $0.75 11 Dec. 2011
Mohammed Abd El-Shafy, Ph.D 50,000 3% $1.51 27 Mar 2008
Barry Cohen 75,000 4% $2.04 13 May 2013
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning the exercises of options during fiscal 2003 and
the number and value of unexercised options held as of the end of fiscal 2003.
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Number of Shares at Fiscal Year End; at Fiscal Year End
Name of Executive Acquired on (Exercisable/ ($); (Exercisable/
Officer Exercise Value Realized ($) Unexercisable) Unexercisable)
------- -------- ------------------ -------------- --------------
Harry A. Dugger, III, Ph.D. 0 -- 920,000/0 716,600 / 0
John H. Klein 0 -- 333,333 / 666,667 0 / 0
Gary A. Shangold, M.D. 0 -- 0 / 1,000,000 0 / 0
Donald Deitman 0 -- -- --
Mohammed Abd El-Shafy, Ph.D. 0 -- 150,000/50,000 26,000/0
Robert Galler 0 -- 1,050,000/0 1,344,000/0
Barry Cohen 0 -- 0/75,000 0/0
Shareholder Approval of Equity Compensation Plans
The following table sets forth information as of the end of fiscal 2003
with respect to the number of shares of the Company's common stock issuable
pursuant to equity compensation plans which have and have not been approved of
by stockholders.
Equity Compensation Plan Information
-------------------------------------------------------------------------------------------------------------------
Number of securities to be Weighted average exercise
issued upon exercise of price of outstanding Number of securities
outstanding options, options, warrants and remaining available for
Plan Category warrants and rights rights future issuance
-------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans 0 N/A N/A
approved by security holders
Equity compensation plans not 3,717,472 $1.658 N/A
approved by security holders
-------------------------------------------------------------------------------------------------------------------
TOTAL 3,717,472 $1.658 N/A
-------------------------------------------------------------------------------------------------------------------
13
Stock Option Plans
Novadel has three stock option plans, adopted in 1992, 1997 and 1998,
respectively (collectively referred to as the "Plans"). The 1992 and 1997 Plans
provide for the issuance of options to purchase 500,000 shares of common stock,
and the 1998 Plan provides for the issuance of options to purchase 1,800,000
shares of common stock, for a total of 2,800,000 shares. The 1997 Stock Option
Plan is administered by William Hamilton and Lawrence Kessel who constitute the
Compensation Committee of the Board of Directors ("Committee"), and the 1992
Stock Option Plan and 1998 Stock Option Plan are administered by the entire
Board of Directors. For purposes of the following discussion, the term
"Committee" will be used to reference the Committee with respect to the 1997
Stock Option Plan and the entire Board of Directors with respect to the 1992
Stock Option Plan and 1998 Stock Option Plan, as applicable. The Committee has
sole discretion and authority, consistent with the provisions of the Plans, to
select the Eligible Participants to whom options will be granted under the
Plans, the number of shares which will be covered by each option and the form
and terms of the agreement to be used. All employees and officers of the Company
are eligible to participate in the Plans.
At December 31, 2003, 300,000, 450,000 and 1,033,500 shares of our common
stock were reserved for issuance pursuant to the 1992, 1997 and 1998 Plans,
respectively. The exercise prices for the outstanding options reserved under the
1992 and 1997 Plans range between $.63 and $2.00 per share; and the exercise
prices for the outstanding options reserved under the 1998 Plan range between
$.63 and $2.69 per share.
The Committee is empowered to determine the exercise price of options
granted under the Plans, but the exercise price of ISOs must be equal to or
greater than the fair market value of a share of common stock on the date the
option is granted (110% with respect to optionees who own at least 10% of the
outstanding common stock). The Committee has the authority to determine the time
or times at which options granted under the Plans become exercisable, but
options expire no later than ten years from the date of grant (five years with
respect to Optionees who own at least 10% of the outstanding common stock of
Novadel). Options are nontransferable, other than by will and the laws of
descent, and generally may be exercised only by an employee while employed by
Novadel or within 90 days after termination of employment (one year from
termination resulting from death or disability).
No ISO may be granted to an employee if, as the result of such grant, the
aggregate fair market value (determined at the time each option was granted) of
the shares with respect to which ISOs are exercisable for the first time by such
employee during any calendar year (under all such plans of Novadel and any
parent and subsidiary) exceeds $100,000. The Plans do not confer upon any
employee any right with respect to the continuation of employment by Novadel,
nor do the Plans interfere in any way with the employee's right or Novadel's
right to terminate the employee's employment at any time.
Non-Plan Options
As of December 31, 2003, we had 4,650,000 non-plan options outstanding as
follows: 600,000 options exercisable at $1.84 per share; 1,050,000 options
exercisable at $.75 per share; 1,000,000 options exercisable at $2.40 per share;
1,000,000 options exercisable at $1.93 per share; 200,000 options exercisable at
$1.30 per share; 200,000 options exercisable at $151 per share; 100,000 options
exercisable at $2.15 per share; 250,000 options exercisable at $3.18 per share;
150,000 options exercisable at $3.02 per share: and 100,000 options exercisable
at $1.85 per share.
Compensation Committee Interlocks and Insider Participation
William Hamilton and Lawrence Kessel serve as the members of the Company's
Compensation Committee, which reviews and makes recommendations with respect to
compensation of officers, employees and consultants, including the granting of
options under the Company's 1997 Stock Option Plan. The 1992 and 1998 Stock
Option Plans are administered by the entire Board. In the case of a conflict,
Dr. Nemeroff replaces the conflicted Compensation Committee member.
14
Compensation Committee Report on Executive Compensation
Compensation of the Company's executives is intended to attract, retain
and award persons who are essential to the enterprise. The fundamental policy of
the Company's executive compensation program is to offer competitive
compensation to executives that appropriately reward the individual executive's
contribution to corporate performance. The Board of Directors utilizes
subjective criteria for evaluation of individual performance. The Board focuses
on two primary components of the Company's executive compensation program, each
of which is intended to reflect individual and corporate performance: base
salary compensation and long-term incentive compensation. The Company has not
paid cash incentive bonuses during fiscal 2003.
Except as set forth herein, the Company does not have any annuity,
retirement, pension, deferred or incentive compensation plan or arrangement
under which any executive officer is entitled to benefits, nor does the Company
have any long-term incentive plan pursuant to which performance units or other
forms of compensation are paid. Executive officers who qualify will be permitted
to participate in the Company's 1992, 1997 and 1998 Stock Option Plans which
were adopted in May 1992, February 1997 and June 1998, respectively. In
September 1998 the Board of Directors adopted an investment retirement account
plan, and in December 2003 a 401(k) Plan, in which all employees of the Company
are eligible to participate. Executive officers may participate in group life,
health and hospitalization plans, if and when such plans are available generally
to all employees. The Compensation Committee is satisfied that the compensation
and stock option plans provided to the officers of the Company are structured
and operated to create strong alignment with the long-term best interests of the
Company and its stockholders.
The compensation of the Company's Chief Executive Officer, Dr. Shangold,
consists of a base annual salary of $350,000 and a guaranteed bonus of $150,000.
In addition, Dr. Shangold's employment agreement provides for: (i) an annual
discretionary bonus of up to $262,500, which shall be determined at the sole
discretion of the Board; and (ii) an investment and fee bonus equal to 5% of all
amounts up to an aggregate of $7,500,000 (i.e., $375,000) invested in, or earned
by, Novadel during his term. We paid Dr. Shangold a portion of the investment
and fee bonus ($200,000) during the fourth quarter of fiscal 2003; the remainder
of the investment and fee bonus ($50,000) and the guaranteed bonus ($150,000)
was paid during December 2003. The investment and fee bonus was reduced by
certain proceeds received by Dr. Shangold from his former employer. Upon
execution of his employment agreement, Dr. Shangold was also granted non-plan
options to purchase 1,000,000 shares of our common stock (at an exercise price
of $1.93 per share) which vest over a three year period beginning in December
2003.
The compensation of the Company's Chief Scientific Officer, Dr. Dugger
(who served as the Company's President and Chief Executive Officer for fiscal
2002 and part of fiscal 2003), for fiscal 2002 consisted of base salary of
$248,500. Because of an inadequacy of cash flow during the first and second
quarters of fiscal 2001, Dr. Dugger agreed to accrue all of his salary until the
cash flow situation resolved itself. In May 2001, Dr. Dugger's salary was
resumed and one-half of his accrued salary was paid out. The remaining half was
paid out in January 2002. In October 2003, Dr. Dugger was granted 275,000
options to purchase common stock at an exercise price of $1.30 per share.
The determination by the Compensation Committee of Dr. Shangold's and Dr.
Dugger's remuneration is based upon methods consistent with those used for other
senior executives. The committee considers certain quantitative factors,
including the Company's financial, strategic and operating performance for the
year. The qualitative criteria include such person's leadership qualities and
management skills, as exhibited by their innovations, time and effort devoted to
the Company, and other general considerations. The Compensation Committee also
takes note of comparable remuneration of other similarly situated executives at
comparable companies. Based on the performance of the Company, the Compensation
Committee believes that such compensation was appropriate.
Compensation Committee
----------------------
William F. Hamilton
Lawrence Jay Kessel
15
Employment Agreements and Change in Control Arrangements
Gary A. Shangold, M.D.. In December 2002, Dr. Shangold entered into a three-year
employment agreement with Novadel pursuant to which he agreed to serve as its
President and Chief Executive Officer. We agreed to pay Dr. Shangold an annual
base salary of $350,000 and a guaranteed bonus of $150,000. In addition, Dr.
Shangold is eligible to receive: (i) an annual discretionary bonus of up to
$262,500, which shall be determined at the sole discretion of the Board; and
(ii) an investment and fee bonus equal to 5% of all amounts up to an aggregate
of $7,500,000 (i.e., $375,000) invested in, or earned by, Novadel during his
term. The investment bonus was reduced by certain proceeds received by Dr.
Shangold from his former employer. Pursuant to the agreement, Dr. Shangold was
also granted non-plan options to purchase 1,000,000 shares of our common stock
(at an exercise price of $1.93 per share) which vest over a three year period.
Harry A. Dugger, III, Ph.D. In February 2002, effective January 1, 2002, Dr.
Dugger entered into a new three-year employment agreement at a base salary, for
the first year, of $248,500 per year (which increases each year by the greater
of the CPI index or 5%). Except for the increase in base salary, there was no
material difference between the new employment agreement and that previously in
effect.
John Klein. In February 2002, Mr. Klein entered into a one-year consulting
agreement (which was renewed in February 2003 for an additional one year) at a
base compensation of $300,000, plus certain fringe benefits of approximately
$72,000 per year. Pursuant to the agreement, he was granted 1,000,000 non-plan
options at $2.40 per share. Mr. Klein is also entitled to certain bonuses, in
the form of stock, stock options or other rights or property, as determined by
the Board. In addition, Mr. Klein is entitled to receive certain success fees
(based upon a percentage of net revenues) upon completion of certain types of
corporate transactions (i.e., strategic partnerships, licensing arrangements and
the like) which are introduced to Novadel by Mr. Klein. The percentage of net
revenue (which is between 4% - 10%) depends upon the share of profits that
Novadel is entitled to in such transactions. The agreement was not renewed and
expired on January 31, 2004
Donald Deitman. In February 2002, effective January 1, 2002, Mr. Deitman entered
into a three year employment agreement as our Chief Financial Officer. The
agreement provided for a base salary, for the first year, of $125,000 per year
(which increases each year by the greater of the CPI index or 5%). All other
provisions of the agreement are the same as those in effect for our other
executives.
Mohammed Abd El-Shafy, Ph.D. In May 2002, we entered into a three year
employment agreement with Dr. El-Shafy, who was appointed Vice
President-Formulation Development. Pursuant to the agreement, he received a base
salary, for the first year, of $110,000, which increased in April 2003 to
$180,000. In addition, he was granted 150,000 non-plan options at $3.02 per
share. Subsequently, in March 2003, Dr. El-Shafy was granted 50,000 options
under the 1998 Option Plan at an exercise price of $1.51.
Barry Cohen. In May 2003, we entered into a three year employment agreement with
Barry Cohen, who was appointed Vice President-New Business and Product
Development. Pursuant to the agreement, he receives a base salary of $185,000,
plus incentive bonuses. Pursuant to the agreement, he was issued 75,000 options
(exercisable at $2.04 per share) under the 1998 Plan. 60,000 of such options
vest in three equal installments commencing May 2004. These options expire in
May 2008. The balance of such options vest upon the achievement of certain
objectives.
Robert C. Galler. In August 2003, Mr. Galler agreed to change from an employee
of the Company as our Vice President - Corporate Development to a consulting
arrangement. At that time, his additional options to purchase 350,000 shares of
our common stock at an exercise price of $.75 per share vested. In August 2003,
he entered into a consulting agreement with the Company at a base compensation
of $180,000 per year and the vesting of additional options. The consulting
agreement terminates in February 2005.
16
The foregoing agreements also provide for certain non-competition and
non-disclosure covenants on the part of such executive. However, with respect to
the non-competition covenants, a court may determine not to enforce such
provisions or only partially enforce such provisions. Additionally, each of the
foregoing agreements provides for certain fringe benefits, such as inclusion in
pension, profit sharing, stock option, savings, hospitalization and other
benefit plans at such times as Novadel shall adopt them.
17
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
As of the Record Date, there were 32,677,642 shares of Common Stock
outstanding and entitled to vote at the Annual Meeting. Each share is entitled
to one vote on each of the matters to be voted on at the Annual Meeting. The
following table sets forth, as of the Record Date, certain information regarding
the ownership of the Common Stock by (i) each person known by the Company to be
the beneficial owner of more than 5% of the Common Stock, (ii) each of the
Company's Directors, nominees for director and Named Executive Officers, as such
term is defined under Item 402(a)(2) of Securities and Exchange Commission
("SEC") Regulation S-B, and (iii) all of the Company's Executive Officers and
Directors as a group. Beneficial ownership has been determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under Rule 13d-3 certain shares may be deemed to be
beneficially owned by more than one person (such as where persons share voting
power or investment power). In addition, shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares (for
example, upon the exercise of an option) within sixty (60) days of the date as
of which the information is provided. In computing the ownership percentage of
any person, the amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the following table does not necessarily reflect the
person's actual ownership or voting power at any particular date.
Title of Name and Address or Amount and Nature of Percentage of
Class Number in Group(1) Beneficial Ownership Class
-------- ------------------- -------------------- -------------
Common Stock Harry A. Dugger, III, Ph.D. 2,104,003(2) 6.44%
Common Stock Gary A. Shangold, M.D. 333,333(3) 1.01%
Common Stock John Klein 333,333(4) 1.01%
Common Stock Donald Deitman 0 --
Common Stock Robert F. Schaul, Esq. 274,286(5) .83%
Common Stock Mohammed Abd El-Shafy 150,000(6) .46%
Common Stock William F. Hamilton, Ph.D. 33,333(7) .10%
Common Stock Lawrence J. Kessel, M.D., FACP 59,598(8) .18%
Common Stock Barry Cohen 0(9) --
Common Stock Mark H. Rachesky 1,119,047(10) 3.41%
Common Stock Charles Nemeroff, M.D., Ph.D. 0(11) --
Common Stock Lindsay Rosenwald 13,971,908(12) 34.90%
Common Stock Biomedical Investment Group, LLC 5,333,332(12)(13) 15.09%
Common Stock All Executive Officers and Directors as 4,406,933(2)(3)(4) 12.63%
a group (11 persons) (5)(6)(7)(8)(9)
(10)(11)
----------
(1) The address of all holders listed herein is c/o Novadel Pharma Inc., 25
Minneakoning Road, Flemington, New Jersey 08822.
(2) Includes options to purchase 200,000 shares of common stock (exercisable
at $.70 per share) issued under the 1992 Stock Option Plan which expire in
July 2006; options to purchase 50,000 shares of common stock (exercisable
at $.70 per share) under the 1997 Stock Option Plan which expire in
December 2006; options to purchase 95,000 shares of common stock
(exercisable at $.70 per share) issued under the 1998 Stock Option Plan
which expire in January 2005; options to purchase 300,000 shares of common
stock issued outside of the Plans (exercisable at $1.84 per share) which
expire November 2007; options to purchase 200,000 shares of common stock
issued outside of the Plans (exercisable at $1.30 per share) which expire
October 2007; options to purchase 75,000 shares of common stock
(exercisable at $1.30 per share) issued under the 1998 Stock Option Plan,
which expire in October 2007; 166,000 shares owned by his daughter
Christina Dugger; and 166,000 shares owned by his son Andrew Dugger.
(3) Represents 333,333 Non-Plan options, issued in December 2002, exercisable
at $1.93 per share. Does not include additional Non-Plan options to
purchase 666,667 shares of common stock at an exercise price of $1.93 per
share. These additional options vest in two equal annual installments,
beginning in December 2004. All of such options expire in December 2007.
(4) Represents 333,333 Non-Plan Options exercisable at $2.40 per share. All of
the options expire in 2004.
(5) Includes: 20,000 options, issued under the 1992 Option Plan, to purchase
common stock at an exercise price of $.63 per share, expiring in July,
2006; 25,000 options issued under the 1997 Option Plan, to purchase common
stock at an exercise price of $.63 per share, expiring in March 2008;
10,000 options issued under the 1998 Option Plan, to purchase common stock
at an exercise price of $.63 per share, expiring in September 2009: 95,000
options issued under the 1998 Option Plan, to purchase common stock at an
exercise price of $.63 per share, expiring in January 2010; 75,000 options
issued under the 1998 Option Plan, to purchase common stock at an exercise
price of $2.69 per share, expiring in February 2012; and, 10,000 options
issued under the 1998 Option Plan to purchase common stock at an exercise
price of $1.51 per share, expiring in March 2008.
(6) Includes Non-Plan Options exercisable at $3.02 per share. Does not include
additional Non-Plan Options to purchase 50,000 shares of common stock at
an exercise price of $3.02 per share, which additional options vest in May
2004. All of such options expire in May 2012. Also includes 50,000 options
issued under the 1998 Option Plan to purchase common stock at an exercise
price of $1.51 per share, expiring in March 2008.
(7) Represents 33,333 Non-Plan Options exercisable at $1.51 per share which
vest in March 2004. Does not include additional Non-Plan options to
purchase 66,667 shares of common stock at an exercise price of $1.51 per
share, which shall vest in two annual installments beginning in March of
2004. All of such options expire in 2008.
(8) Represents 20,204 shares of common stock, warrants to purchase 6,061
shares of common stock at an exercise price of $1.40 per share which
expire in January 2009 and 33,333 Non-Plan options exercisable at $1.51
per share which vest in March 2004. Does not include additional Non-Plan
options to purchase 66,667 shares of common stock at an exercise price of
$1.51 per share, which shall vest in two annual installments beginning in
March of 2004. All of such options expire in 2008.
(9) Does not include 75,000 options issued under the 1998 Plan, to purchase
common stock at an exercise price of $2.01 per share. The options expire
in May 2008 and vest subject to certain conditions.
(10) Does not include options to purchase 100,000 shares of common stock at an
exercise price of $2.15 per share, which shall vest in three annual
installments beginning June, 2004. Includes 952,380 shares of common stock
and warrants to purchase 166,667 shares of common stock at an exercise
price of $2.00 per share which expire in April, 2008. Such shares and
warrants are held by MHR Capital Partnership, LP, which is controlled by
Dr. Rachesky.
(11) Does not include Non-Plan options to purchase 100,000 shares of common
stock at an exercise price of $1.85 per share, which shall vest in three
annual installments beginning September 2004.
(12) Includes 3,950,000 shares of common stock and warrants to purchase
3,950,000 shares of common stock at an exercise price of $.75 per share
which expire in December 2008. Also includes 2,666,666 shares of common
stock and 2,666,666 warrants to purchase 2,666,666 shares of common stock,
which expire in March 2009, owned by Biomedical Investment Group, LLC,
which is an affiliate of Lindsay A. Rosenwald. Also includes unit purchase
options entitling Dr. Rosenwald to purchase 568,136 shares of common stock
and warrants to purchase an additional 170,441 shares of common stock,
each at a purchase price equal to $1.40 per share. Such options and
warrants expire on December 30, 2008.
(13) Includes warrants to purchase 2,666,666 shares of common stock at an
exercise price of $.75 per share which expire in March 2009.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the best of management's knowledge, other than (i) compensation for
services as officers and directors, or (ii) as set forth below, there were no
material transactions, or series of similar transactions, or any currently
proposed transactions, or series of similar transactions, to which Novadel was
or is to be a party, in which the amount involved exceeds $60,000, and in which
any director or executive officer, or any security holder who is known by us to
own of record or beneficially more than 5% of any class of our common stock, or
any member of the immediate family of any of the foregoing persons, has an
interest.
During December 2001, we received net proceeds of approximately $3,000,000
from a private placement of 4,000,000 units, which were purchased by Dr. Lindsay
Rosenwald. Each unit consisted of one share of common stock, and a warrant
(which expires December 2008) to purchase an additional share of our common
stock at an exercise price of $.75. As part of the purchase agreement, we agreed
to elect to the Board a Director to be nominated by Dr. Rosenwald (as of the
date hereof, no such nominee had been selected) and to permit Dr. Rosenwald or a
representative of his to attend Board meetings. Appropriate confidentiality
agreements are in place to protect confidential company information. In March
2002, we received net proceeds of approximately $2,000,000 from a private
placement of 2,666,667 additional units at a sale price of $.75 per unit. These
units were purchased by Biomedical Investment Group LLC, which is affiliated
with Dr. Rosenwald. These warrants expire in March 2009.
In April 2003, we entered into a license and development agreement with
Manhattan Pharmaceuticals, Inc. ("Manhattan") for the worldwide, exclusive
rights to our lingual spray technology to deliver Propofol for pre-procedural
sedation. The terms of the agreement call for certain milestones and other
payments, the first of which was received during June 2003. One of the Company's
affiliates, Dr. Lindsay Rosenwald, is also an affiliate of Manhattan. Manhattan
is a development stage company and has no revenues to date.
In April and May of 2003, we sold units (consisting of common stock and
warrants) to accredited investors in a private placement. The securities were
sold through Paramount Capital, Inc., a NASD broker-dealer ("Paramount"). The
gross proceeds of the private offering were approximately $4.8 million. For its
services as placement agent, we paid Paramount a 7.5% commission fee of the
aggregate amount raised and also issued to Paramount (and its designees)
warrants to purchase 160,017 shares of common stock at an exercise price of
$1.65 and warrants to purchase 40,004 shares of common stock at an exercise
price of $2.00. Dr. Lindsay Rosenwald, a principal stockholder of the Company,
is a controlling principal of Paramount.
In January of 2004 we sold units (consisting of common stock and warrants)
to accredited investors in a private placement basis. These securities were also
sold through Paramount. The gross proceeds of the private offering were
approximately $14 million. For its services as placement agent, we paid
Paramount a 7% commission fee of the aggregate amount raised and also issued to
Paramount (and its designees)unit purchase options to purchase 1,330,303 shares
of common stock at an exercise price of $1.40 and warrants to purchase an
additional 399,091 shares of common stock at an exercise price of $1.40.
During fiscal 2003 the Company paid Mr. Schaul, a director and the
Company's secretary, approximately $160,000 for legal services rendered to the
Company.
19
PROPOSAL 2
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Also submitted for consideration and voting at the Annual Meeting is the
ratification of the appointment by the Company's Board of Directors upon the
recommendation of the Audit Committee, of J.H.Cohn LLP ("JHC") as independent
auditors for the purpose of auditing and reporting upon the financial statements
of the Company for the fiscal year ending July 31, 2004. The Board of Directors
of the Company upon the recommendation of the Audit Committee, has selected and
approved JHC as independent auditors to audit and report upon the Company's
financial statements. JHC has no direct or indirect financial interest in the
Company.
Representatives of JHC are expected to be present at the Annual Meeting,
and they will be afforded an opportunity to make a statement at the Annual
Meeting if they desire to do so. It is also expected that such representatives
will be available at the Annual Meeting to respond to appropriate questions by
stockholders. Representatives of Wiss & Company, LLP("WC"), the Company's former
auditors, are not expected to be present at the Annual Meeting.
On November 26, 2003, the Board, upon the recommendation of the Audit
Committee, engaged JHC as the Company's independent auditors. WC's reports on
the Company's financial statements for the two most recent fiscal years or any
subsequent interim period did not, other than as stated below, contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles. The report was modified
as to uncertainty relative to going concern for the years ended July 31, 2003
and July 31, 2002. During the Company's two most recent fiscal years and through
the date of WC's resignation, there were no disagreements with WC on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to WC's satisfaction, would
have caused WC to make reference to the subject matter in connection with its
report of the financial statements for such periods and there were no reportable
events as defined in item 304(a)(1)(v) of Regulation S-K during such period
preceding WC's resignation.
Vote Required
The affirmative vote of holders of a majority of the votes cast at the
Annual Meeting is required for the ratification of the selection of JHC as the
Company's independent auditors for the fiscal year ending July 31, 2004.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF J.H.COHN LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING JULY 31, 2004. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM
STOCKHOLDERS WILL BE VOTED IN FAVOR OF THE RATIFICATION OF THE SELECTION OF
J.H.COHN LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR 2004.
20
PROPOSAL 3
APPROVAL OF AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM 50,000,000
TO 100,000,000.
The Board has adopted, subject to stockholder approval, an amendment to
the Company's Certificate of Incorporation, in the form attached hereto as
Exhibit B (the "Certificate of Amendment"), to increase the Company's authorized
number of shares of Common Stock from 50,000,000 shares to 100,000,000 shares.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding, such as dilution of the earnings per
share and voting rights of current holders of Common Stock. If the amendment is
adopted, it will become effective upon filing of the Certificate of Amendment
with the Secretary of State of the State of Delaware.
In January of 2004 the Company completed the sale of securities in a
private placement to accredited investors for gross proceeds of approximately
$14 million. As a result of the offering the Company now had, as of the Record
Date, (i) 32,677,642 shares of Common Stock outstanding and (ii) options,
warrants and other derivative securities exercisable for 21,014,195 shares of
Common Stock. Accordingly, the Company must increase the number of authorized
shares of Common Stock to allow for the exercise of the currently issued
derivative securities.
In addition, the Board desires to have additional shares of authorized
Common Stock available to provide additional flexibility to use its capital
stock for business and financial purposes in the future. The additional shares
may be used, without further stockholder approval, for various purposes
including, without limitation, raising additional capital, establishing
strategic relationships with other companies and expanding the Company's
business or product lines through the acquisition of other businesses or
products. The Company does not presently have any plan to acquire other
businesses or products or to enter into a business combination.
The Company's audited consolidated financial statements, management's
discussion and analysis of financial condition and results of operations, and
certain supplementary financial information are incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 2003
and the Company's Quarterly Report on Form 10-QSB for the three month period
ended October 31, 2003, which are attached to this proxy, but which should not
be considered proxy solicitation material.
Vote Required
The affirmative vote of the holders of a majority of the outstanding
shares of the Common Stock, will be required to approve the amendment to the
Company's Certificate of Incorporation. As a result, abstentions and broker
non-votes will have the same effect as "Against" votes.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM 50,000,000 TO
100,000,000. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS
WILL BE VOTED IN FAVOR OF THE AMENDMENT.
PROPOSAL 4
AMENDMENT OF THE 1998 STOCK PLAN
At the 1998 Annual Meeting of Stockholders, the Company's stockholders
approved the adoption of the Company's 1998 Stock Plan (as amended, the "1998
Plan"). The 1998 Plan authorizes up to 1,800,000 shares of Company common stock
for grants of non-qualified and incentive stock options. The Board of Directors
has amended the 1998 Plan, subject to stockholder approval, to authorize
1,600,000 additional shares for future awards (the "Plan Proposal"). The
affirmative vote of the holders of a majority of the total votes cast on the
Plan Proposal is needed to approve the Plan Proposal.
Because of the limited number of remaining shares that may be granted
under the 1998 Plan, the Board of Directors believes it is appropriate and
necessary at this time to authorize additional shares for future awards.
Authorization of these additional shares will allow grants to employees,
consultants and directors in furtherance of the Company's goal of continuing to
achieve significant gains in stockholder value and operating results.
The Company intends to continue awarding options in order to attract and
retain the services or advice of such directors, employees, officers, agents,
consultants, and independent contractors and to provide additional incentive for
such persons to exert maximum efforts for the success of the Company and its
affiliates. The following is a summary of the principal features of the 1998
Plan. The summary is qualified in its entirety by reference to the complete text
of the 1998 Plan, as proposed to be amended. The proposed amendment to the 1998
Plan is set forth as Exhibit C to this Proxy Statement.
Description of the 1998 Plan
The maximum number of shares of Common Stock with respect to which awards
may be presently granted pursuant to the 1998 Plan is 1,800,000 shares. The Plan
Proposal would authorize the use of up to an additional 1,600,000 shares of the
Company's common stock for a total of 3,400,000 shares being subject of the 1998
Plan. Shares issuable under the 1998 Plan may be either treasury shares or
authorized but unissued shares. The number of shares available for issuance will
be subject to adjustment to prevent dilution in the event of stock splits, stock
dividends or other changes in the capitalization of the Company.
Subject to compliance with Rule 16b-3 of the Securities Exchange Act of
1934 (the "Exchange Act"), the Plan shall be administered by the Board of
Directors of the Company (the "Board") or, a committee (the "Committee"). Except
for the terms and conditions explicitly set forth in the Plan, the Committee
shall have the authority, in its discretion, to determine all matters relating
to the options to be granted under the Plan, including, without limitation,
selection of whether an option will be an incentive stock option or a
nonqualified stock option, selection of the individuals to be granted options,
the number of shares to be subject to each option, the exercise price per share,
the timing of grants and all other terms and conditions of the options.
Options granted under the 1998 Plan may be "incentive stock options"
("Incentive Options") within the meaning of Section 422 of the Internal Revenue
Code (the "Code") or stock options which are not incentive stock options
("Non-Incentive Options" and, collectively with Incentive Options, hereinafter
referred to as "Options"). Each Option may be exercised in whole or in part;
provided, that only whole shares may be issued pursuant to the exercise of any
Option. Subject to any other terms and conditions herein, the Committee may
provide that an Option may not be exercised in whole or in part for a stated
period or periods of time during which such Option is outstanding; provided,
that the Committee may rescind, modify, or waive any such limitation (including
by the acceleration of the vesting schedule upon a change in control of the
Company) at any time and from time to time after the grant date thereof. During
an optionee's lifetime, any incentive stock options granted under the Plan are
personal to such optionee and are exercisable solely by such optionee.
21
The Committee can determine at the time the Option is granted in the case
of Incentive Options, or at any time before exercise in the case of
Non-Incentive Options, that additional forms of payment will be permitted. To
the extent permitted by the Committee and applicable laws and regulations
(including, without limitation, federal tax and securities laws and regulations
and state corporate law), an Option may be exercised by:
(a) delivery of shares of Common Stock of the Company held by an
optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Committee;
(b) delivery of a properly executed notice of exercise, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price and
any federal, state, or local withholding tax obligations that may arise in
connection with the exercise; or
(c) delivery of a properly executed notice of exercise, together
with instructions to the Company to withhold from the shares of Common
Stock that would otherwise be issued upon exercise that number of shares
of Common Stock having a fair market value equal to the Option exercise
price.
Upon a Change in Control of the Company, any award carrying a right to
exercise that was not previously exercisable shall become fully exercisable, the
restrictions, deferral limitations and forfeiture conditions applicable to any
other award granted shall lapse and any performance conditions imposed with
respect to awards shall be deemed to be fully achieved.
Options granted under the 1998 Plan may not be transferred, pledged,
mortgaged, hypothecated or otherwise encumbered other than by will or under the
laws of descent and distribution, except that the Committee may permit transfers
of awards for estate planning purposes if, and to the extent, such transfers do
not cause a participant who is then subject to Section 16 of the Exchange Act to
lose the benefit of the exemption under Rule 16b-3 for such transactions.
For federal income tax purposes, the grant to an optionee of a
Non-Incentive Option will not constitute a taxable event to the optionee or to
the Company. Upon exercise of a Non-Incentive Option (or, in certain cases, a
later tax recognition date), the optionee will recognize compensation income
taxable as ordinary income, measured by the excess of the fair market value of
the Common Stock purchased on the exercise date (or later tax recognition date)
over the amount paid by the optionee for such Common Stock, and will be subject
to tax withholding. The Company may claim a deduction for the amount of such
compensation. The optionee will have a tax basis in the Common Stock purchased
equal to the amount paid plus the amount of ordinary income recognized upon
exercise of the Non-Incentive Option. Upon the subsequent sale of the Common
Stock received upon exercise of the Non-Incentive Option, an optionee will
recognize capital gain or loss equal to the difference between the amount
realized on such sale and his or her tax basis in the Common Stock, which may be
long-term capital gain or loss if the optionee holds the Common Stock for more
than one year from the exercise date.
For federal income tax purposes, neither the grant nor the exercise of an
Incentive Option will constitute a taxable event to the optionee or to the
Company, assuming the Incentive Option qualifies as an "incentive stock option"
under Code ss.422. If an optionee does not dispose of the Common Stock acquired
upon exercise of an Incentive Option during the statutory holding period, any
gain or loss upon subsequent sale of the Common Stock will be long-term capital
gain or loss, assuming the shares represent a capital asset in the optionee's
hands. The statutory holding period is the later of two years from the date the
Incentive Option is granted or one year from the date the Common Stock is
transferred to the optionee pursuant to the exercise of the Incentive Option. If
the statutory holding period requirements are satisfied, the Company may not
claim any federal income tax deduction upon either the exercise of the Incentive
Option or the subsequent sale of the Common Stock received upon exercise
thereof. If the statutory holding period requirement is not satisfied, the
optionee will recognize compensation income taxable as ordinary income on the
date the Common Stock is sold (or later tax recognition date) in an amount equal
to the lesser of (i) the fair market value of the Common Stock on that date less
the amount paid by the optionee for such Common Stock, or (ii) the amount
realized on the disposition of the Common Stock less the amount paid by the
optionee for such Common Stock; the Company may then claim a deduction for the
amount of such compensation income.
22
The federal income tax consequences summarized hereinabove are based upon
current law and are subject to change.
The Board may amend, alter, suspend, discontinue or terminate the 1998
Plan at any time, except that any such action shall be subject to stockholder
approval at the annual meeting next following such Board action if such
stockholder approval is required by federal or state law or regulation or the
rules of any exchange or automated quotation system on which the Common Stock
may then be listed or quoted, or if the Board of Directors otherwise determines
to submit such action for stockholder approval. In addition, no amendment,
alteration, suspension, discontinuation or termination to the 1998 Plan may
materially impair the rights of any participant with respect to any Option
granted before amendment without such participant's consent. Unless terminated
earlier by action of the Board of Directors, the 1998 Plan shall continue to
remain effective until such time no further awards may be granted and all awards
under the 1998 are no longer outstanding.
Vote Required
The affirmative vote of holders of a majority of the votes cast at the
Annual Meeting is required for approval of the Amendment of the 1998 Stock Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT
OF THE 1998 STOCK PLAN. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM
STOCKHOLDERS WILL BE VOTED IN FAVOR OF THE PLAN PROPOSAL.
23
GENERAL
The Management of the Company does not know of any matters, other than
those stated in this Proxy Statement, that are to be presented for action at the
Annual Meeting. If any other matters should properly come before the Annual
Meeting, proxies will be voted on those other matters in accordance with the
judgment of the persons voting the proxies. Discretionary authority to vote on
such matters is conferred by such proxies upon the persons voting them.
The Company will bear the cost of preparing, printing, assembling and
mailing all proxy materials that may be sent to stockholders in connection with
this solicitation. Arrangements will also be made with brokerage houses, other
custodians, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of the Common Stock of the Company held by such persons. The
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred by them. In addition to the solicitation of proxies by use of the
mails, officers and regular employees of the Company may solicit proxies without
additional compensation, by telephone or facsimile transmission. The Company
does not expect to pay any compensation for the solicitation of proxies.
A copy of the Company's Form 10-KSB for the fiscal year ended July 31,
2003 and the Company Quarterly Report on Form 10-QSB for the three month period
ended October 31, 2003 as filed with the Securities and Exchange Commission,
accompanies this Proxy Statement. Upon written request, the Company will provide
each stockholder being solicited by this Proxy Statement with a free copy of any
exhibits and schedules thereto. All such requests should be directed to Novadel
Pharma Inc., 25 Minneakoning Road, Flemington, New Jersey 08822, Attn: Robert F.
Schaul, Secretary.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. In voting by proxy in regard to items to be voted upon,
stockholders may (i) vote in favor of, or FOR, the item, (ii) vote AGAINST the
item or, (iii) ABSTAIN from voting on one or more items. Stockholders should
specify their choices on the enclosed proxy. If no specific instructions are
given with respect to the matters to be acted upon, the shares represented by
the proxy will be voted FOR the election of all Directors, FOR the ratification
the appointment of J.H.Cohn LLP as the Company's independent auditors for the
fiscal year ending July 31, 2004, FOR the amendment of the Company's Certificate
of Incorporation and FOR the amendment of the Company's 1998 Stock Plan.
Shareholder Proposals For 2005 Annual Meeting and General Communications
Any stockholder proposals intended to be presented at the Company's 2005
Annual Meeting of Stockholders must be received by the Company at its office in
Flemington, New Jersey on or before September 30, 2004 in order to be considered
for inclusion in the Company's proxy statement and proxy relating to such
meeting. The Company has received no stockholders nominations or proposals for
the 2004 Annual Meeting.
Shareholders may communicate their comments or concerns about any other
matter to the Board of Directors by mailing a letter to the attention of the
Board of Directors c/o the Company at its office in Flemington, New Jersey.
Voting of Proxies
Proxies may be revoked by stockholders at any time prior to the voting
thereof by giving notice of revocation in writing to the Secretary of the
Company or by voting in person at the Annual Meeting. If the enclosed proxy is
properly signed, dated and returned, the Common Stock represented thereby will
be voted in accordance with the instructions thereon. If no instructions are
indicated, the Common Stock represented thereby will be voted FOR the election
of all the Directors, FOR the ratification of the appointment of J.H.Cohn LLP as
the Company's independent auditors for the fiscal year ending July 31, 2004, FOR
the amendment of the Company's Certificate of Incorporation and FOR the
amendment of the Company's 1998 Stock Plan.
24
Revocability of Proxy
Shares represented by valid proxies will be voted in accordance with
instructions contained therein, or, in the absence of such instructions, in
accordance with the Board of Directors' recommendations. Any person signing and
mailing the enclosed proxy may, nevertheless, revoke the proxy at any time prior
to the actual voting thereof by attending the Annual Meeting and voting in
person, by providing written notice of revocation of the proxy or by submitting
a signed proxy bearing a later date. Any written notice of revocation should be
sent to the attention of the Secretary of the Company at the address above. Any
stockholder of the Company has the unconditional right to revoke his or her
proxy at any time prior to the voting thereof by any action inconsistent with
the proxy, including notifying the Secretary of the Company in writing,
executing a subsequent proxy, or personally appearing at the Annual Meeting and
casting a contrary vote. However, no such revocation will be effective unless
and until such notice of revocation has been received by the Company at or prior
to the Annual Meeting.
Method of Counting Votes
Unless a contrary choice is indicated, all duly executed proxies will be
voted in accordance with the instructions set forth on the proxy card. A broker
non-vote occurs when a broker holding shares registered in street name is
permitted to vote, in the broker's discretion, on routine matters without
receiving instructions from the client, but is not permitted to vote without
instructions on non-routine matters, and the broker returns a proxy card with no
vote (the "non-vote") on the non-routine matter. Under the rules and regulations
of the primary trading markets applicable to most brokers, both the election of
directors and the ratification of the appointment of auditors are routine
matters on which a broker has the discretion to vote if instructions are not
received from the client in a timely manner. Abstentions will be counted as
present for purposes of determining a quorum but will not be counted for or
against the election of directors or the ratification of independent auditors.
As to Item 1, the Proxy confers authority to vote for all of the six persons
listed as candidates for a position on the Board of Directors even though the
block in Item 1 is not marked unless the names of one or more candidates are
lined out. The Proxy will be voted "For" Items 2, 3 and 4 unless "Against" or
"Abstain" is indicated. If any other business is presented at the meeting, the
Proxy shall be voted in accordance with the recommendations of the Board of
Directors.
By order of the Board of Directors
Gary A. Shangold, M.D.
President and Chief Executive
Officer
February __, 2004
25
NOVADEL PHARMA INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Gary A. Shangold and Robert F. Schaul
with the power of substitution and resubstitution to vote any and all shares of
capital stock of Novadel Pharma Inc. (the "Company") which the undersigned would
be entitled to vote as fully as the undersigned could do if personally present
at the Annual Meeting of the Company, to be held on ______, 2004, at 10:00 A.M.
local time, and at any adjournments thereof, hereby revoking any prior proxies
to vote said stock, upon the following items more fully described in the notice
of any proxy statement for the Annual Meeting (receipt of which is hereby
acknowledged):
1. ELECTION OF DIRECTORS
VOTE
|_| FOR ALL nominees list below EXCEPT as marked to the contrary below
|_| WITHHOLD AUTHORITY to vote for ALL nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee
strike a line through the nominee's name below.)
Gary A. Shangold, Robert F. Schaul, William F. Hamilton, Lawrence J. Kessel,
Mark H. Rachesky and Charles Nemeroff
2. RATIFICATION OF THE APPOINTMENT OF J.H.COHN LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR FISCAL YEAR 2004.
|_| FOR the ratification of the appointment of J.H.Cohn LLP
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
3. AMENDMENT OF THE CERTIFICATE OF INCORPORATION
|_| FOR the Amendment of the Certificate of Incorporation
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
4. AMENDMENT OF THE 1998 STOCK PLAN
|_| FOR the Amendment of the 1998 Stock Plan
|_| WITHHOLD AUTHORITY
|_| ABSTAIN
26
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED,
THIS PROXY WILL BE VOTED FOR ELECTION OF THE SIX (6) NOMINEES NAMED IN ITEM 1,
THE RATIFICATION OF THE APPOINTMENT OF J.H.COHN LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR THE FISCAL YEAR 2004 IN ITEM 2, THE AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION IN ITEM 3 AND THE AMENDMENT OF THE 1998 STOCK PLAN
IN ITEM 4.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please mark, sign date and return this Proxy promptly using the
accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF NOVADEL PHARMA INC.
Dated:
----------------------------------
----------------------------------------
Signature
----------------------------------------
Signature if jointly owned:
----------------------------------------
Print name:
Please sign exactly as the name appears on your stock certificate. When
shares of capital stock are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee, guardian, or corporate
officer, please include full title as such. If the shares of capital stock are
owned by a corporation, sign in the full corporate name by an authorized
officer. If the shares of capital stock are owned by a partnership, sign in the
name of the partnership by an authorized officer.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE
27
[EXHIBIT A - FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION]
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
NOVADEL PHARMA INC.
NOVADEL PHARMA INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. The name of the corporation is Novadel Pharma Inc.
2. This Certificate of Amendment amends certain provisions of the
Certificate of Incorporation of the Corporation and has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware by the directors and stockholders of the Corporation.
3. Section 4.1 of Article Four shall be amended to read in its entirety as
follows:
4.1 Authorized Stock. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is one hundred and one
million (101,000,000) shares, which are to be divided into two classes as
follows:
100,000,000 shares of Common Stock, par value $.001 per share; and
1,000,000 shares of Preferred Stock, par value $.001 per share.
IN WITNESS WHEREOF, Novadel Pharma Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive Officer this [ ] day
of March 2004.
NOVADEL PHARMA INC.
By: /s/
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[EXHIBIT B - FORM OF AMENDMENT TO 1998 STOCK PLAN]
NOVADEL PHARMA INC.
1998 STOCK PLAN
This Novadel Pharma Inc. 1998 Stock Plan (the "1998 Plan") is hereby
amended as follows:
1. Section 3 of the 1998 Plan is amended by deleting the first sentence of
Section 3 in its entirety and replacing the following sentence in lieu thereof:
SECTION 3. STOCK SUBJECT TO THE PLAN. Number of Shares. The total number
of shares of Common Stock reserved and available for distribution under the Plan
shall be 3,400,000 shares.
2. Except as expressly amended hereby, the provisions of the Plan are and
shall remain in full force and effect.
3. This Amendment shall be effective immediately upon approval by the
Company's Board of Directors and the stockholders of the Company.
Adopted by the Board of Directors
this _____ day of _____, 2004
Approved by the Stockholders
this _____ day of _____, 2004
[EXHIBIT C - AUDIT COMMITTEE CHARTER]
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
NOVADEL PHARMA INC.
The Board of Directors (the "Board") of NovaDel Pharma Inc. (the "Company")
hereby adopts this Charter to establish the new governing principles of the
Audit Committee.
1. Role of the Audit Committee. The role of the Audit Committee is:
1.1. To act, directly, to fulfill the responsibilities that are required
of audit committees under the regulations of the Securities and
Exchange Commission ("SEC") and the American Stock Exchange ("AMEX")
or other stock exchange or stock market on which the Company's
securities are traded or quoted ("other exchange");
1.2. To oversee all material aspects of the Company's reporting, control
and audit functions;
1.3. To oversee the independence and performance of the registered public
accounting firm which acts as the Company's independent auditors;
and
1.4. To provide a means for open communication between and among the
Company's independent auditors, financial and senior management, the
Audit Committee and the Board.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits, or
to determine that the Company's financial statements are complete and accurate,
or that they are in accordance with generally accepted accounting principles.
The responsibility to plan and conduct audits is that of the Company's
independent auditors. The Company's management has the responsibility to
determine that the Company's financial statements are complete and accurate and
in accordance with generally accepted accounting principles. It is also not the
duty of the Audit Committee to ensure the Company's compliance with laws and
regulations. The primary responsibility for these matters also rests with the
Company's management.
2. Composition of the Audit Committee
2.1. The Board shall designate the members of the Audit Committee at each
annual organizational meeting of the Board, and the members shall
serve until the next such meeting or until their successors are
designated by the Board.
2.2. All members of the Audit Committee shall satisfy the requirements
for "independence" of a member of an audit committee under the
regulations of the SEC and AMEX or other exchange. Each member of
the Audit Committee shall be free of any relationship that, in the
opinion of the Board, would interfere with his or her exercise of
independent judgment as an Audit Committee member. All Audit
Committee members shall have a basic understanding of finance and
accounting, and shall be able to read and understand financial
statements at the time of their appointment. One member of the
Committee shall have accounting or related financial management
experience, and the Board shall use best efforts to assure that one
member of the Audit Committee is an "audit committee financial
expert" as that term is defined by SEC rules. In addition, the
members of the Audit Committee shall meet any other requirements of
the applicable regulations of the SEC and AMEX or other exchange.
3. Meetings of the Audit Committee. The Audit Committee shall meet at least
four times annually, and more frequently as circumstances require. The
Audit Committee, or the Chair of the Audit Committee, shall be responsible
for meeting with the independent auditors to discuss the interim financial
statements.
4. Responsibilities of the Audit Committee. The Audit Committee shall have
the responsibilities set forth below with respect to:
4.1. The Company's Independent Auditors
4.1.1. To appoint, oversee, and authorize the compensation of the
registered public accounting firm which serves as the
Company's independent auditors (referred to herein as the
"independent auditors");
4.1.2. To have sole authority to hire and fire the Company's
independent auditors;
4.1.3. To approve in advance any audit or non-audit services
provided by the Company's independent auditors;
4.1.4. To actively engage in a dialogue with the independent
auditors about any matter that may impact upon that firm's
objectivity and independence, and to take any appropriate
action to oversee the independence of the independent
auditors;
4.1.5. On an annual basis, review and discuss all relationships the
registered public accounting firm serving as independent
auditors has with the Company in order to consider and
evaluate the firm's continued independence. In connection with
its review and discussions, the Committee shall: (i) ensure
that the registered public accounting firm submits to the
Committee a formal written statement (consistent with the
PCAOB independence standards as then in effect) delineating
all relationships and services that may impact the objectivity
and independence of the firm; (ii) discuss with the registered
public accounting firm any disclosed relationship, services or
fees (audit and non-audit related) that may impact its
objectivity and independence; and (iii) satisfy itself as to
the registered public accounting firm's independence.
4.1.6. To maintain a constructive and positive working relationship
with the Company's independent auditors because of the
ultimate responsibility of the independent auditors to the
Audit Committee, as representatives of the shareholders;
4.1.7. To make itself reasonably available to the independent
auditors for discussion, and to provide sufficient opportunity
for the independent auditors to meet with members of the Audit
Committee without members of management present, to discuss,
among other things, the independent auditors' evaluation of
the Company's financial and accounting personnel, and the
cooperation that the independent auditors received during the
course of each audit;
4.1.8. To ensure that the Audit Committee receives annually from the
registered public accounting firm which serves as the
Company's independent auditors the information about all of
the relationships between firm and the Company that
independent auditors are required to provide to the Audit
Committee;
4.1.9. To obtain and review all reports required under the Exchange
Act to be provided to the Audit Committee by the independent
auditor, including, without limitation, reports on (i) all
critical accounting policies and practices used by the
Company, (ii) all alternative treatments of financial
information within generally accepted accounting principles
that have been discussed with management, ramifications of the
use of such alternative disclosures and treatments, and the
treatment preferred by the independent auditor, and (iii) all
other material written communications between the independent
auditor and management, such as any management letter or
schedule of unadjusted differences
4.1.10. To discuss with the independent auditors their qualitative
judgments about the appropriateness, not just the
acceptability, of the accounting principles and financial
disclosure practices used or proposed to be adopted by the
Company, particularly about the degree of aggressiveness or
conservatism of the Company's accounting principles and
underlying estimates;
4.1.11. To evaluate annually the effectiveness and objectivity of
the Company's independent auditors.
4.2. The Company's Risk and Control Environment
4.2.1. To discuss with the Company's management, independent
auditors and financial management the integrity of the
Company's financial reporting processes and controls,
particularly the controls in areas representing significant
financial and business risks;
4.2.2. In consultation with management and the independent auditors,
to review and assess the adequacy of the Company's internal
control over financial reporting and the procedures designed
to ensure compliance with applicable laws;
4.2.3. To review management's report on internal control over
financial reporting that is required to be included in the
Company's Annual Report of Form 10-K (or Form 10-KSB).
4.2.4. To review the independent auditor's attestation to
management's report on internal control over financial
reporting included in the Annual Report on Form 10-K (or Form
10-KSB) evaluating the Company's internal control over
financial reporting.
4.2.5. Review and discuss any disclosures made by the Company's CEO
and CFO to the Committee, as a result of their evaluation as
of the end of each fiscal quarter of the effectiveness of the
Company's disclosure controls and procedures and its internal
control over financial reporting, indicating (i) any
significant deficiencies in the design or operation of
internal control and any material weaknesses in the Company's
internal control, and (ii) any fraud, whether or not material,
involving management or other employees who have a significant
role in the Company's internal control over financial
reporting.
4.2.6. To investigate any matter brought to its attention within the
scope of its role and responsibilities
4.3. The Company's Financial Reporting Process
4.3.1. To oversee the Company's selection of and changes to its
accounting policies;
4.3.2. To establish the Company's policies with respect to the use
of non-GAAP financial measures in financial reporting or
public dissemination of financial information;
4.3.3. To establish the company's policies with respect to engaging
in and disclosure of off-balance sheet transactions;
4.3.4. To meet with the Company's independent auditors and financial
management, both to discuss the proposed scope of the audit
and to discuss the conclusions of the audit, including any
items that the independent auditors are required by generally
accepted auditing standards to discuss with the Audit
Committee, such as any significant changes to the Company's
accounting policies, the integrity of the Company's financial
reporting processes, and any proposed changes or improvements
in financial, accounting or auditing practices;
4.3.5. To review with the independent auditors and the Company's
financial management the adequacy and effectiveness of the
accounting and financial controls of the Company, and to
elicit any recommendations for the improvement of such
internal control procedures or particular areas where new or
more detailed controls or procedures may be desirable;
4.3.6. To discuss with the Company's financial management and
independent auditors the Company's annual results and interim
results before they are made public;
4.3.7. To review and discuss with the Company's financial management
and independent auditors the Company's audited financial
statements and interim financial statements before they are
made public; and
4.3.8. To issue for public disclosure by the Company the report
required by the rules of the SEC.
4.4. Other Matters
4.4.1. To establish and review adherence to the Company's cash
management and investment policies;
4.4.2. To review and approve all of the Company's related-party
transactions;
4.4.3. To establish and maintain in place a mechanism for the
confidential and anonymous submission by Company employees of
complaints or concerns regarding the Company's accounting
practices, and procedures for the receipt and treatment of
such complaints or concerns;
4.4.4. To adopt clear guidelines for the Company's hiring of any
employees of the independent auditors who were previously
engaged on the Company's account;
4.4.5. To establish and review procedures within the time period
required by applicable law for (i) the receipt, retention and
treatment of complaints received by the Company regarding
accounting, internal accounting control or auditing matters,
and (ii) the confidential, anonymous submission by employees
of the Company of concerns regarding questionable accounting
or auditing matters;
4.4.6. To review and reassess the adequacy of this Charter on an
annual basis;
4.4.7. To report to the Board the matters discussed at each meeting
of the Audit Committee; and
4.4.8. To retain, at the Company's expense, special legal,
accounting or other consultants or experts that the Audit
Committee deems necessary in the performance of its duties.
5. Compensation of Audit Committee
5.1. Each member of the Audit Committee shall be compensated by the
Company for his or her Board and Committee service, in the manner
and at the rates established from time to time by the Board.
5.2. The Company shall not provide any direct compensation for Audit
Committee members except for their Board and Committee service, as
authorized in Section 5.1.