U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.__)
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14a-6(e) (2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 167;240.14a-12
LANNETT COMPANY, INC.
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(Name of Registrant as Specified In Its Charter)
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LANNETT COMPANY, INC.
9000 STATE ROAD
PHILADELPHIA, PA 19136
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 13, 2003
TO THE STOCKHOLDERS OF LANNETT COMPANY, INC.
The annual meeting (the "Annual Meeting") of the Stockholders of Lannett
Company, Inc., a Delaware Corporation, (the "Company") will be held on Thursday,
February 13, 2003 at 10:00 a.m., local time, at the Radisson Hotel Philadelphia
Northeast, Oak Room, U.S. Route 1 at Old Lincoln Highway, Trevose, PA 19053, for
the following purposes:
1. To elect three (3) members of the Board of Directors to serve until the
next Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified;
2. To approve the 2003 Stock Option Plan, which will replace the 1993
Incentive Stock Option, which expires on February 15, 2003;
3. To approve the 2003 Employee Stock Purchase Plan;
4. To approve the appointment of Grant Thornton LLP as independent auditors;
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
THESE MATTERS ARE MORE FULLY DESCRIBED IN THE PROXY STATEMENT ACCOMPANYING
THIS NOTICE.
Shareholder of record at the close of business on December 27, 2002 may vote at
this Annual Meeting.
It is important that you be represented at the Annual Meeting. You are cordially
invited to attend the Annual Meeting in person and we encourage you to attend
and take the opportunity to ask questions.
By Order of the Board of Directors
/s/ William Farber
January 10, 2003 William Farber
Philadelphia, Pennsylvania Chairman and Chief Executive Office
LANNETT COMPANY, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 13, 2003
TABLE OF CONTENTS
Notice of Annual Meeting Cover
Attendance and Voting Matters 4-5
Proposal No. 1 -- The Lannett Board of Directors 6-12
Proposal No. 2 - Approve the Lannett Company, Inc. 2003
Stock Option Plan 13-17
Proposal No. 3 - Approve the Lannett Company, Inc. 2003 Employee
Stock Purchase Plan 18-20
Proposal No. 4 - Approve the Appointment of Grant Thornton LLP
As Independent Auditors 21
3
ATTENDANCE AND VOTING MATTERS
DATE, TIME, AND PLACE OF MEETING
This Proxy Statement is provided to you by the Board of Directors of
Lannett Company, Inc. (the "Company" or "Lannett") in connection with the Annual
Meeting. The Annual Meeting will be held at 10:00 a.m. on Thursday, February 13,
2003 at the Radisson Hotel Philadelphia Northeast, Oak Room, U.S. Route 1 at Old
Lincoln Highway, Trevose, PA 19053, or at any adjournments or postponements of
the Annual Meeting for the purposes set forth in the accompanying Notice of
Annual Meeting. We intend to mail this Proxy Statement and the accompanying
Notice of Annual Meeting on or about January 10, 2003 to all stockholders
entitled to vote at the Annual Meeting.
VOTING METHODS
You may vote on matters to come before the meeting in two ways:
- You may come to the Annual Meeting and cast your vote in person;
- You may vote by signing and returning the enclosed proxy card by mail.
If you do so, the individuals named on the card will vote your shares
in the manner you indicate.
- You may revoke your proxy at any time prior to the Annual Meeting
If you come to the Annual Meeting to cast your vote in person and you
are holding your stock in a brokerage account ("street name") you will need
to bring a legal proxy obtained from your broker.
You are entitled to cast one vote for each share of Lannett common
stock owned on the record date, December 27, 2002. As of the record date,
there were 13,307,010 shares of Lannett common stock outstanding.
Shareholders are not entitled to cumulative voting in the election of
directors.
4
QUORUM
A quorum of shareholders is necessary to hold a valid meeting for the
transaction of business. If the holders of a majority of Lannett common stock
are present at the meeting, in person or by proxy, a quorum will exist.
Abstentions and "broker non-votes" are counted as present for purposes of
establishing a quorum.
VOTE NECESSARY FOR ACTION
Directors are elected by a plurality vote of shares present at the
Annual Meeting. Except as noted below, each other action to be considered by the
shareholders will be approved by the affirmative vote of at least a majority of
the shares present in person or by proxy at the meeting and entitled to vote on
the matter. For each of these proposals, an abstention will have the same effect
as a vote against the proposal. Broker non-votes will not be voted for or
against any of these proposals and will have no effect on any of these
proposals. A majority of the outstanding votes of stockholders entitled to vote
is required for the approval of the 2003 Incentive Stock Option Plan and the
approval of the 2003 Employee Stock Purchase Plan.
5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide that the number of directors of the
Company may be determined by the stockholders, or in the absence of such
determination, by the Board of Directors. The Board of Directors nominates the
three persons named below for election to the Board of Directors. As of the date
of this Proxy Statement, the Board of Directors is not aware that any nominee is
unable or will decline to serve as a director. The three nominees receiving the
highest number of affirmative votes of the shares entitled to vote at the Annual
Meeting will be elected directors of the Company until the next Annual Meeting
and until their successors have been elected and qualified or until their
earlier resignation or removal.
The following list identifies the nominees for election to the Board
of Directors and sets forth-certain information regarding each nominee. All
nominees are currently serving as directors of the Company.
WILLIAM FARBER, 71, was elected as Chairman of the Board of Directors
in August 1991. From April 1993 to the end of 1993, Mr. Farber was the President
and a director of Auburn Pharmaceutical Company. From 1990 through March 1993,
Mr. Farber served as Director of Purchasing for Major Pharmaceutical
Corporation. From 1965 through 1990, Mr. Farber was the Chief Executive Officer
of Michigan Pharmacal Corporation. Mr. Farber is a registered pharmacist in the
State of Michigan.
MARVIN NOVICK, 71,was elected a Director of the Company in February
2000. Mr. Novick has been an advisor, consultant and financial planner for
multiple companies in the past thirty-five years. He is currently President of
R&M Resources, Inc., an investment and consulting services company. From 1990 to
1992, he served as Chief Financial Officer and Director of Meadowbrook Insurance
Group. From 1984 to 1987, he served as Vice Chairman of Dura Corporation, a
major automotive supplier. Prior to these positions, he served as Partner of
international accounting firms, J.K. Lasser & Co., and Touche Ross & Co, and
Senior Vice President of Michigan Blue Shield, a major healthcare organization.
Mr. Novick holds Bachelor's and Master's Degrees, and is a member of the
American Institute of Certified Public Accountants.
RONALD A. WEST, 68, was elected a Director of the Company in January
2002. Mr. West is currently a Director of Beecher Associates, an industrial real
estate investment company, R&M Resources, an investment and consulting services
company and North East Staffing, Inc., an employee services company. From 1969
to 1987, Mr. West served as Chairman and Chief Executive Officer of Dura
Corporation, an original equipment manufacturer of automotive products,
including convertible tops, electrical and manual window regulators, truck
utility step bumpers and other engineered equipment
6
components. Prior to his service at Dura Corporation, Mr. West served in various
financial management positions with TRW, Inc., Marlin Rockwell Corporation and
National Machine Products Group. Mr. West studied Business Administration at
Michigan State University and the University of Detroit. Mr. West replaced
Arthur Bedrosian as the third Board Director in January 2002, when Mr. Bedrosian
joined the Lannett management team as Vice President of Business Development.
To the best of the Company's knowledge, there are no material
proceedings to which any nominee is a party, or has a material interest adverse
to the Company. To the best of the Company's knowledge, there have been no
events under any bankruptcy act, no criminal proceedings and no judgments or
injunctions that are material to the evaluation of the ability or integrity of
any nominee during the past five years.
BOARD MEETINGS AND COMMITTEES
The Board met three times during the fiscal year ended June 30, 2002
("Fiscal 2002"). All three Board members attended the Board meetings in Fiscal
2002. The Audit Committee was formed in March 2002, and met for the first time
in October 2002.
The Audit Committee has responsibility for recommending the retention
of independent auditors; conferring with the independent auditors regarding
their audit of the Company's consolidated financial statements; reviewing the
independent auditors' fees and considering whether non-audit services are
compatible with maintaining their independence; and considering the adequacy of
internal financial controls. All members of the Audit Committee are independent
directors as defined by the rules of the American Stock Exchange. The Audit
Committee is comprised of Mr. West (Chairman) and Mr. Novick. See "Report of the
Audit Committee."
COMPENSATION OF DIRECTORS
Directors received compensation of $1,000 per meeting attended, for
services provided as directors of the Company during Fiscal 2002. Directors are
reimbursed for expenses incurred in attending Board meetings.
EMPLOYMENT CONTRACTS
There were no employment contracts in existence at the end of Fiscal
2002.
7
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 2002, information
regarding the security ownership of the directors and certain executive officers
of the Company and persons known to the Company to be beneficial owners of more
than five (5%) percent of the Company's common stock:
================================================================================================================================
Excluding Options Including Options
and Debentures and Debentures (4)
-------------- ------------------
Name and Address Number Percent Number Percent
of Beneficial Owner Office of Shares of Class of Shares of Class
------ --------- -------- --------- --------
Directors/Executive Officers:
----------------------------
William Farber Chairman 9,134,486(1) 68.64% 9,134,486(1) 68.39%
9000 State Road of the
Philadelphia, PA Board
19136
Arthur P. Bedrosian President(1) 302,750(2) 2.28% 302,750(2) 2.27%
9000 State Road
Philadelphia, PA
19136
Marvin Novick Director 52,200 * 82,200(3) *
9000 State Road
Philadelphia, PA
19136
Eugene Livshits Vice 12,000 * 12,000 *
9000 State Road President
Philadelphia, PA Technical
19136 Affairs
Larry Dalesandro Chief 5,000 * 5,000 *
9000 State Road Operating
Philadelphia, PA Officer
19136
Ronald A. West Director 150 * 150 *
9000 State Road
Philadelphia, PA
19136
All directors and 9,506,586 71.44% 9,536,586 71.40%
executive officers
as a group (6 persons)
(1) Includes 300,000 shares owned jointly by William Farber and Audrey
Farber, the Secretary of the Company and William's Farber's spouse.
(2) Includes 34,750 shares owned by Shari Bedrosian, Arthur Bedrosian's
spouse, and 8,000 shares owned by Talin Bedrosian, Arthur Bedrosian's
daughter. Mr. Bedrosian disclaims beneficial ownership in the shares
owned by Shari and Talin Bedrosian. Mr. Bedrosian was previously a
Director until January 2002, at which time he was hired as Vice
President of Business Development. In May 2002, Mr. Bedrosian was
elected as the President of the Company.
(3) Includes 30,000 vested options to purchase common stock at an exercise
price of $1.38 per share.
(4) Assumes that all options and debentures exercisable within sixty days
have been exercised, which results in 13,357,411 shares outstanding.
* Less than one percent (1%).
8
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments
thereto and certain written representations furnished to the Company during
Fiscal 2002, the Company believes that the following directors, officers or
beneficial owners of more than ten percent of the Company's common stock failed
to file on a timely basis the following reports required by Section 16(a) of the
Securities Exchange Act of 1934: None.
MANAGEMENT AND COMPENSATION
The directors and executive officers of the Company are set forth
below:
--------------------------------------------------------------------------------
Age Position
--- --------
--------------------------------------------------------------------------------
Directors:
---------
William Farber 71 Chairman of the Board
Marvin Novick 71 Director
Ronald A. West 68 Director
Executive Officers:
------------------
Arthur P. Bedrosian 56 President
Larry Dalesandro 30 Chief Operating Officer
Eugene Livshits 50 Vice President - Technical Affairs
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WILLIAM FARBER - See "Proposal #1-Election of Directors" for matters
pertaining to Mr. Farber.
MARVIN NOVICK - See "Proposal #1-Election of Directors" for matters
pertaining to Mr. Novick.
RONALD A. WEST - See "Proposal #1-Election of Directors" for matters
pertaining to Mr. West.
ARTHUR P. BEDROSIAN, JD was elected President of the Company in May
2002. Previously he served as the Company's Vice President of Business
Development from January 2002 to April 2002, and as a Director from February
2000 to January 2002. Mr. Bedrosian has operated generic drug manufacturing,
sales, and marketing businesses in the healthcare industry for over 34 years.
Prior to joining the Company, Mr. Bedrosian served as President and Chief
Executive Officer of Trinity Laboratories, Inc., a medical device and drug
manufacturer. Mr. Bedrosian also operated Pharmaceutical Ventures Ltd., a
healthcare consultancy, and Interal Corporation, a computer consultancy to
Fortune 100 companies. Mr. Bedrosian holds a Bachelor of Arts Degree in
Political Science from Queens College of the City University of New York and a
Juris Doctorate from Newport University in California.
LARRY DALESANDRO was elected Chief Operating Officer of the Company in
November 1999. Mr. Dalesandro joined the Company in January 1999 to manage the
Company's financial operations. Previously, he was the Chief Financial Officer
of Criterion Communications, Inc., a technology and new media services firm,
Controller of Crown Contractors, Inc., a contract construction company, and
Senior Auditor of Grant Thornton LLP, an international professional services
firm. Mr. Dalesandro graduated Magna Cum Laude with a Bachelor's of Science
Degree in Accountancy from Villanova University, and is a Certified Public
Accountant.
EUGENE LIVSHITS was elected Vice President Technical Affairs in
November 1999. Dr. Livshits joined the Company in February 1997 as Director of
Analytical Services. Dr Livshits has 27 years of experience in Analytical
Services and Technical Affairs in the pharmaceutical industry. Dr. Livshits has
previously been employed at Mutual Pharmaceutical Inc., PharmaKinetics Labs,
Pal-Pak Inc., and Glenwood-Palisades Inc., where he held management and Director
position in Analytical Services. Dr. Livshits holds a Ph.D. from Moscow
University.
To the best of the Company's knowledge, there have been no events under
any bankruptcy act, no criminal proceedings and no judgments or injunctions that
are material to the evaluation of the ability or integrity of any director or
executive officer during the past five years.
10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation paid to or earned by
the executive officers of the Company for Fiscal 2002, Fiscal 2001 and Fiscal
2000. There are no other executive officers whose total salary and bonus for
services rendered to the Company or any subsidiary exceeded $100,000 during
Fiscal 2002.
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------- -------------------- --------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Name and Restricted LTIP All Other
Principal Fiscal Other Annual Stock Options/ Payouts Compensation
Position Year Salary Bonus Compensation Award(s) SARs Amount Amount
-------- ---- ------ ----- ------------ -------- ---- ------ ------
William Farber 2002 0 0 0 0 0 0 0
Chairman of the 2001 0 0 0 0 0 0 0
Board of
Directors and 2000 0 0 0 0 0 0 0
Chief Executive
Officer
Arthur P. 2002 64,385 0 3,000(1) 0 0 0 0
Bedrosian(2)
2001 0 0 0 0 0 0 0
President
2000 0 0 0 0 0 0 0
Larry 2002 113,299 25,000 10,599(1) 0 0 0 0
Dalesandro(2)
Chief Operating 2001 98,860 5,000 6,789(1) 0 10,000(3) 0 0
Officer
2000 78,951 5,000 3,600(1) 0 0 0 0
Eugene Livshits(2) 2002 123,025 25,000 10,890(1) 0 0 0 0
Vice 2001 106,229 5,000 7,040(1) 0 12,000(3) 0 0
President/
Technical
Affairs 2000 93,187 2,000 5,487(1) 0 0 0 0
(1) Represents auto allowance, and payments to the Company's 401(k)
Plan (3% of eligible compensation).
(2) Mr. Bedrosian was elected as an officer of the Company on January
24, 2002. Mr. Dalesandro and Mr. Livshits were elected as officers of
the Company on November 1, 1999.
(3) The options represent 10,000 and 12,000 incentive stock options, at
an exercise price of $0.80 per share, which were granted to Mr.
Dalesandro and Mr. Livshits, respectively on November 1, 2000 pursuant
to the Company's 1993 Long Term Incentive Stock Plan. The options are
exercisable as follows: one-third on or after November 1, 2000,
one-third on or after November 1, 2001 and one-third on or after
November 1, 2002.
11
AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth information concerning the aggregate number
and value of options exercised during Fiscal 2002, and held or unexercised
as of June 30, 2002 by the Named Executive Officers. Lannett does not
currently offer stock appreciation rights to its employees.
(a) (b) (c) (d) (e)
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT
ACQUIRED OPTIONS AT FY-END FY-END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
-------------------------- ----------------- ------------------ --------------------------- ------------------------
Larry Dalesandro 6,666 $69,993 0(1)/ 0(1)/
Chief Operating Officer 3,334(1) $31,340(1)
Eugene Livshits 0(1)/ 0(1)/
Vice President - of 8,000 $68,800 4,000(1) $37,600(1)
Technical Affairs
(1) The options represent an aggregate of 10,000 and 12,000 incentive stock
options, at an exercise price of $0.80 per share, which were granted to
Mr. Dalesandro and Mr. Livshits, respectively on November 1, 2000
pursuant to the Company's 1993 Long Term Incentive Stock Plan. The
options are exercisable as follows: one-third on or after November 1,
2000, one-third on or after November 1, 2001 and one-third on or after
November 1, 2002. At June 30, 2002, the closing price of the stock was
$9.40 per share.
12
PROPOSAL NO. 2
APPROVAL OF THE LANNETT COMPANY, INC. 2003 STOCK OPTION PLAN (THE "PLAN")
The Board of Directors believes the stock option program is an
effective means of attracting, motivating and retaining key personnel of the
Company and that the authorization of additional shares for the grant of options
under the Plan will facilitate the achievement of the Plan's purpose. The
current aggregate maximum number of shares of common stock for which options may
be granted pursuant to the Plan is seven hundred fifty thousand (750,000)
shares.
1. SUMMARY OF THE PLAN
The key features of the Plan are as follows:
(a) Eligibility. All employees, directors and consultants are eligible
to receive options under the Plan.
(b) Grant. The Plan allows the Board of Directors or Committee (as
defined below) to grant options as the Board of Directors or the Committee, in
their sole discretion, may determine. Options may be in the form of Incentive
Stock Options or Non-qualified Stock Options.
(c) Shares Covered by the Plan. The maximum number of shares of common
stock reserved for issuance under the Plan (the "Plan Shares") is seven hundred
fifty thousand (750,000) shares, subject to adjustment upon the occurrence of a
stock dividend, stock split, recapitalization or certain other capital
adjustments. If an option granted under the Plan expires or terminates without
having been fully exercised for any reason, the Plan Shares underlying the
unexercised portion of such option forfeited may again be the subject of one or
more awards granted pursuant to the Plan.
(d) Administration. The Plan shall be administered by the Board of
Directors or by a committee composed of two or more of the Company's Directors
(the "Committee"). Each member of the Committee is a "disinterested person", as
such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934, as
amended and an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). Subject to the
provisions of the Plan, the Board of Directors or the Committee is authorized to
determine the participants to whom, and the times at which, awards under the
Plan shall be granted. Furthermore, the Board of Directors or the Committee
shall determine the type of award to be granted and the number of shares
underlying options comprising such award. The Board of Directors or the
Committee is authorized to determine other terms and conditions of awards which
are not inconsistent with the Plan. Any awards granted pursuant to the Plan will
be evidenced by an award document setting forth the terms of the award.
Interpretation and construction by the Board of Directors or the Committee of
any provision of the Option Plan or of any award document is final, binding and
conclusive.
13
(e) Term of the Plan. No award may be granted under the Plan after
February 13, 2013.
(f) Option Provisions.
(i) Exercise Price of Options under the Plan. The Board
Committee determines for each option grant, the exercise price for the shares
covered thereby (the "Option Shares"). The exercise price for an Incentive Stock
Option cannot be less than the fair market value of the Option Shares at the
time of grant. In addition, if an Incentive Stock Option is granted to an
optionee who then owns, directly or by attribution under Section 424(d) of the
Code, shares of the Company's stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the exercise price
must be at least 110% of the fair market value of such shares on the date the
option is granted.
(ii) Payment. Payment for shares of common stock purchased
upon exercise of options may be made in cash or by such other mode of payment as
the Board of Directors or the Committee may approve.
(iii) Term of Options. The right of an optionee to exercise
any part of an option granted pursuant to the Plan terminates on the first to
occur of the following:
(A) Ten years after the date of grant or expiration
of the option terms specified in the option document;
(B) If an Incentive Stock Option, five years from the
date of grant if the optionee possesses more than 10% of the combined voting
power of all classes of stock of the Company;
(C) Expiration of one year from the date the
optionee's employment or service terminates with the Company as a result of
death or disability;
(D) Expiration of three months from the date the
optionee's employment or service with the Company terminates for any reason
other than death, disability or those reasons specified in subsection (F) of
this paragraph;
(E) The date set by the Board of Directors or the
Committee as an accelerated expiration of termination date (which can be no
earlier than 30 days after notice of such date) in the event of a "Corporate
Transaction" (as defined in the Plan);
(F) The date of termination of employment or
engagement if the Company terminates such employment or engagement for cause.
In the event an optionee is found to have done anything described in
clause (F), in addition to immediate termination of the option, the optionee
will automatically forfeit all Option Shares for which the Company has not yet
delivered stock certificates, upon refund by the Company of the amounts paid for
such Option Shares.
14
(iv) Transferability of Options. Options granted under the
Plan are not transferable by the optionee except by will or laws of descent and
distribution. However, a Non-qualified Stock Option may be transferred pursuant
to the terms of a "qualified domestic relations order" within the meaning of
Sections 401(a)(13) and 414(p) of the Code or within the meaning of the Employee
Retirement Income Security Act of 1974, as amended.
(v) Amendment of the Option Documents. The Committee may amend
the provisions of option documents issued to an optionee, subject to the
optionee's consent if the amendment is not favorable to the optionee. Consent of
the optionee is not required for acceleration of the expiration date of an
option granted under the Plan in the event of the dissolution or liquidation of
the Company or by the occurrence of certain other corporate transactions.
(g) Amendments of the Plan. The Board of Directors or its executive
committee in its discretion, may amend the Plan from time to time but may not,
without obtaining shareholder approval within twelve months before or after such
action, change the class of the individuals eligible to receive an Incentive
Stock Option or increase the maximum number of Plan Shares (other than as a
result of an adjustment in the event of a stock dividend, stock split,
recapitalization or certain other capital adjustments), or make any other change
or amendment as to which shareholder approval is required in order to satisfy
the conditions set forth in Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended. No amendment to the Plan shall adversely affect any
outstanding option, without the consent of the optionee. Subject to the
provisions of the Plan, the Board of Directors may authorize adjustments to
options granted under the Plan with respect to the number of shares subject to
the options, option price, term and any restrictions. Such adjustments may be
accomplished by cancellation of outstanding options and subsequent granting of
options. The Board of Directors may not reduce the exercise price of outstanding
options other than for adjustments in the Company's capitalization without first
obtaining shareholder approval.
(h) Corporate Transaction. In the event of a Corporate Transaction
involving the Company (as defined in the Plan), all options previously granted
become immediately exercisable, and the Board of Directors or the Committee may
take whatever other action with respect to the outstanding options and
restricted stock it deems necessary or desirable.
2. FEDERAL INCOME TAX MATTERS
The following discussion is intended to point out the general
principles of current federal income tax law applicable to the options and
restricted stock.
(a) Incentive Stock Options.
Incentive Stock Options granted under the Plan are intended to qualify
for the favorable federal income tax treatment currently afforded "Incentive
Stock Options" as defined under Section 422 of the Code.
15
Under the Code, generally no federal income tax is imposed at the time
an Incentive Stock Option is granted or exercised. While ordinarily no income is
required to be recognized at the time an Incentive Stock Option is exercised it
should be noted that, for purposes of the alternative minimum tax, an Incentive
Stock Option is treated as a Non-qualified Stock Option. Accordingly, the excess
of the fair market value of the shares of stock subject to the Incentive Stock
Option, determined at the time of exercise, over the exercise price constitutes
ordinary income for purposes of the alternative minimum tax. If an optionee
disposes of stock acquired pursuant to the exercise of an Incentive Stock Option
within the same taxable year as the exercise of such option, then the amount of
ordinary income recognized for alternative minimum tax purposes is the lesser of
(i) the excess of the fair market value of the shares over the exercise price at
the time the option is exercised, and (ii) the excess of the amount realized on
the sale of such stock by the optionee over the exercise price. Accordingly, the
exercise of an Incentive Stock Option by an optionee may cause the optionee to
incur some alternative minimum tax. For purposes of the alternative minimum tax,
the basis of stock acquired through the exercise of any Incentive Stock Option
is equal to the fair market value taken into account in determining the amount
of ordinary income recognized for alternative minimum tax purposes.
If the shares of stock acquired upon the exercise of an Incentive Stock
Option are not disposed of (i) within two years after the date of the grant of
the Incentive Stock Option, or (ii) within one year after the exercise of the
Incentive Stock Option, then, generally, any gain realized upon the sale or
other disposition of such shares will be treated as long-term capital gain.
These holding periods are not applicable to Incentive Stock Options exercised
after the death of an optionee by his estate or a person who acquired the right
to exercise such Incentive Stock Option by reason of the death of the optionee.
The optionee's tax basis, in shares of stock acquired upon the exercise
of an Incentive Stock Option, in the event that the entire exercise price is
paid in cash, is equal to the exercise price paid. In a case where the optionee
pays all or a portion of the exercise price in the form of shares of stock of
the Company already owned by him or her, in general, (i) the optionee will not
recognize any gain (or loss) with respect to the already-owned shares, but the
amount of the gain, if any, which is not so recognized will be excluded from the
optionee's bases in the new shares received, and (ii) the new shares received
will have a holding period that includes the holding period of the already-owned
shares. In the event the already-owned shares used to acquire new shares were
acquired pursuant to the exercise of an Incentive Stock Option, the optionee
will be treated as having made a Disqualifying Disposition (as defined below) of
the already-owned shares if the holding period requirements have not been
satisfied.
In the event an optionee sells or otherwise disposes of shares of stock
acquired upon the exercise of an Incentive Stock Option before the expiration of
two years after the grant of the Incentive Stock Option or before the expiration
of one year after the exercise of the Incentive Stock Option (a "Disqualifying
Disposition"), the lesser of (i) the excess of the fair market value of the
shares of stock at the time the Incentive Stock Option was exercised over the
exercise price of such shares, and (ii) the excess of the
16
amount realized upon such Disqualifying Disposition over the exercise price, is
treated as ordinary income at the time of the sale or other disposition. Any
gain upon a Disqualifying Disposition which is not treated as ordinary income
will be treated as long-term capital gain if the shares of stock have been held
for a period of more than one year prior to such disposition. The Company
generally is entitled to a tax deduction equal to the amount of ordinary income,
if any, recognized by the optionee upon a Disqualifying Disposition.
(b) Non-Qualified Stock Options.
Non-qualified Stock Options granted under the Plan will not qualify for
the favorable federal income tax treatment accorded Incentive Stock Options.
Generally, an optionee should not recognize any income for federal income tax
purposes at the time of the grant of a Non-qualified Stock Option under the
Plan. Upon the exercise of a Non-qualified Stock Option, the excess of the fair
market value of the shares of stock acquired pursuant to such exercise,
determined at the time of the exercise, over the exercise price, constitutes
ordinary income to the optionee. The Company generally is entitled to a
corresponding income tax deduction for the taxable year in which the optionee is
required to recognize such ordinary income.
Optionees who are subject to the short-swing profits rules of Section
16(b) of the Securities Exchange Act of 1934, as amended ("Section 16(b)"),
unless they elect within 30 days of exercising a Non-qualified Stock Option to
be taxed as of the time of such exercise (on the basis of the fair market value
of the stock at the time of such exercise), are permitted to defer the
recognition of gain from the exercise until the earlier of (i) the expiration of
the six-month period described in such sales, and (ii) the first day on which
the sale of such stock at a profit will not subject such optionee to suit under
Section 16(b).
(c) Relevance of Distinction Between Capital Gains and Ordinary Income.
Currently, the maximum rate of tax imposed on ordinary income is 38.6% and the
maximum marginal rate of tax imposed on long-term capital gains is 20%. In
addition to this difference in tax rates, the distinction between capital gains
and ordinary income is relevant for a number of reasons, including the fact that
capital losses only are deductible against capital gains and a limited amount
($3,000) of ordinary income.
The above description is a partial summary of material provisions of
the Plan and is qualified in its entirety by reference to Plan, a copy of which
is attached as Exhibit "A".
On December 31, 2002, the Company's Common Stock closed at $16.38 per
share on the American Stock Exchange.
The affirmative vote of the holders of a majority of the Company's
common stock present at the meeting in person or by proxy is required to approve
the Plan adopted by the Board as described above. THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE ADOPTION OF THE 2003
STOCK OPTION PLAN.
17
PROPOSAL NO. 3
ADOPTION OF THE LANNETT COMPANY, INC. 2003 EMPLOYEE STOCK
PURCHASE PLAN
The Board of Directors believes that an employee stock purchase plan
(as contemplated by Section 423 of the Internal Revenue Code of 1986, as
amended) will give employees a greater stake in the Company through increased
stock holdings and is therefore in the Company's best interest. Accordingly, the
Board of Directors recommends adoption of the Lannett Company Inc. 2003 Employee
Stock Purchase Plan (the "ESPP").
The following summary describes features of the ESPP and is qualified
in its entirety by reference to the specific provisions of the ESPP, the full
text of which is set forth as Exhibit B.
If approved by shareholders, seven hundred fifty thousand (750,000)
shares of authorized common stock will be reserved for issuance under the ESPP.
The ESPP will have a duration of ten years, subject to earlier termination by
the Board of Directors.
The ESPP permits employees to purchase Company common stock through
payroll deductions, beginning January 1, 2003. Eligible employees on each
offering date may purchase full shares through payroll deductions of between 2%
and 10% of compensation, but in no event can more than $25,000 worth of common
stock be purchased in a calendar year. The price an employee pays will be 85% of
the lower of the market price on the first day of the applicable
calendar-quarterly period or the market price on the last day of the applicable
calendar-quarterly period. Shares for the ESPP may be either shares purchased in
the open market, or authorized and unissued shares. Eligibility will be extended
to all regular and certain other employees of the Company and of its
subsidiaries, as defined in the ESPP.
For federal income tax purposes, an employee does not recognize income
at the time of entry into the ESPP or purchase of a share. If no disposition of
the stock is made within two years from the offering date, and one year from the
date the share is transferred to the employee, upon subsequent disposition of
the stock or the death of a participating employee, ordinary income will be
realized to the extent of the lesser of (1) 15% of the market value on the
offering date, or (2) the amount by which the net proceeds of the sale exceed
the price paid. Any further gain upon such a disposition of the stock is treated
as capital gain. No income tax deduction will be allowed by the Company for
shares transferred to an employee, provided such shares are held for the periods
described above. If the shares are disposed of within the periods described
above, the employee will recognize ordinary income for the taxable year of the
disposition equal to the excess of the fair market value of the shares on the
date of purchase over the price paid. Under such circumstances, the
participating employee will be deemed to have a tax basis in the shares equal to
their fair market value as of the date of purchase and any gain or loss
resulting from such disposition will be treated
18
as long or short-term capital gain or loss depending on how long the shares were
held. Generally, the Company will be entitled to a deduction equal to the amount
of ordinary income recognized by the employee.
The ESPP will be administered by a committee composed of one or more
directors, who are not eligible to participate, and/or non-Officer employees of
the Company. The ESPP may be amended by the Board of Directors but may not be
amended, without prior stockholder approval, to increase the number of shares,
to reduce the purchase price per share, to remove the ESPP's administration from
a committee whose members are not eligible to participate, or to change the
designation of subsidiaries eligible to participate in the ESPP. The proceeds of
the sale of stock under the ESPP will constitute general funds of the Company
and may be used by it for any purpose. The ESPP provides for proportionate
adjustments to reflect stock splits, stock dividends, or other changes in the
capital stock.
On December 31, 2002, the Company's Common Stock closed at $16.38 per
share on the American Stock Exchange.
The affirmative vote of the holders of a majority of the Company's
common stock present at the meeting in person or by proxy is required to approve
the ESPP adopted by the Board as described above. THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE ADOPTION OF THE ESPP.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is currently comprised of two independent directors
(as defined in section 121(A) of the American Stock Exchange listing standard)
and operates under a written charter adopted by the Board of Directors in
accordance with rules of the American Stock Exchange. The Committee recommends
to the Board of Directors, subject to shareholder ratification, the selection of
Lannett's independent auditors. The Audit Committee has recommended that
shareholders ratify Proposal No. 4 to approve the appointment of Grant Thornton
LLP as independent auditors.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with auditing standards generally accepted in the
United States of America, and to issue a report thereon. The Audit Committee's
responsibility is to monitor and oversee these processes.
Management represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States, and the Audit Committee has
reviewed and discussed the consolidated financial statements with management and
the independent auditors. The Audit Committee discussed with the independent
auditor
19
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
The Company's independent auditors also provided to the Audit Committee
the written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent auditors that firm's independence. Grant Thornton
LLP, Lannett's independent auditors, stated in the written disclosures that in
their judgment they are, in fact, independent. The Audit Committee concurred in
that judgment of independence.
Based upon the Audit Committee's discussion with management and the
independent auditors and the Audit Committee's review of the representations of
management and the report of the independent auditors to the Audit Committee,
the Audit Committee recommended that the Board of Directors include the audited
consolidated financial statements in Lannett's Annual Report on Form 10-K for
the fiscal year ended June 30, 2002, to be filed with the Securities and
Exchange Commission.
Audit Committee: Ronald West
Marvin Novick
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William Farber, the principal shareholder and Chairman of the Board of
the Company, had provided the Company with a revolving line of credit due
December 1, 2002 of $4,250,000, which the Company has used to renovate its
manufacturing facility, to acquire new equipment, to retain new management and
to provide working capital. Mr. Farber is currently the holder of 9,134,486
shares of common stock of the Company, or approximately 69% of the Company's
issued and outstanding shares.
The Company had sales of approximately $174,000 and $111,000 during the
years ended June 30, 2002 and 2001, respectively, to a distributor (the "related
party") in which the owner is the son of William Farber, the Chairman of the
Board of Directors and principal shareholder of the Company. The Company also
incurred sales commissions payable to the related party of approximately
$221,000 and $369,000 during the years ended June 30, 2002 and 2001,
respectively. Accounts receivable includes amounts due from the related party of
approximately $59,000 and $34,000 at June 30, 2002 and June 30, 2001,
respectively. Accrued expenses include amounts due to the related party of
approximately $8,000 and $29,000 at June 30, 2002 and June 30, 2001,
respectively. In the Company's opinion, the terms of these transactions were not
more favorable than would have been from a non-related party.
20
PROPOSAL NO. 4
APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT AUDITORS
The Board of Directors requests from the shareholders an indication of their
approval or disapproval of the Board's appointment of Grant Thornton LLP as
independent auditors for fiscal 2003. Grant Thornton LLP served as the
independent auditors of Lannett during Fiscal 2002, and no relationship exists
other than the usual relationship between independent public accountant and
client. If the appointment of Grant Thornton LLP as independent auditors for
Fiscal 2003 is not approved by the shareholders, the adverse vote will be
considered a direction to the Board of Directors to consider other auditors for
next year. However, because of the difficulty in making any substitution of
auditors so long after the beginning of the current year, the appointment for
Fiscal 2003 will stand unless the Board finds other good reason for making a
change. Grant Thornton LLP will not be present at the meeting. The following
table identifies the fees paid to Grant Thornton LLP in Fiscal 2002.
----------------- ---------------------- ---------------------- --------------
Audit Fees Financial Information All Other Fees Total Fees
Systems Design and
Implementation Fees
----------------- ---------------------- ---------------------- --------------
$60,073 $0 $100,225 $160,298
----------------- ---------------------- ---------------------- --------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL TO APPROVE THE
APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
21
2002 ANNUAL REPORT TO STOCKHOLDERS
The Company's 2002 Annual Report to Stockholders has been delivered
with this Proxy Statement or previously delivered to Stockholders.
SIGNATURE
Pursuant to the requirement of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto authorized.
Date: January 10, 2003 LANNETT COMPANY, INC.
By: /s/ Audrey Farber
--------------------------
Audrey Farber, Secretary
22
EXHIBIT A
LANNETT COMPANY, INC.
2003 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business. This Plan is further intended to replace the Company's
existing stock option plan, which will expire on February 15, 2003.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock option plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Options granted to residents therein.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means, with respect to the termination by the
Company or a Related Entity of the Grantee's Continuous Service, that such
termination is for "Cause" as such term is expressly defined in a then-effective
written agreement between the Grantee and the Company or such Related Entity, or
in the absence of such then-effective written agreement or definition, is based
on, in the determination of the Administrator, any act or omission of the
Grantee that would constitute cause for the purposes of the applicable common
law, including without limitation the Grantee's: (i) refusal or failure to act
in accordance with any specific, lawful direction or order of the Company or a
Related Entity; (ii) unfitness or unavailability for service or unsatisfactory
performance (other than as a result of Disability); (iii) performance of any act
or failure to perform any act in bad faith and to the detriment of the Company
or a Related Entity; (iv) dishonesty, intentional misconduct or material breach
of any agreement with the Company or a Related Entity; or (v) commission of a
crime involving dishonesty, breach of trust, or physical or emotional harm to
any person. No Option issued to the Grantee under the Plan may be exercised or
purchased subsequent to the Grantee's receipt of notice from the Company or a
Related Entity of the Company's or Related Entity's intention to terminate the
Grantees Continuous service pursuant to (i) or (ii) above.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means any committee appointed by the Board to
administer the Plan.
23
(g) "Common Stock" means the common stock of the Company,
$.001 a value per share.
(h) "Company" means Lannett Company, Inc., a Delaware
corporation.
(i) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity, including
such a person with whom the Company has entered into an agreement designating
such person as an "independent contractor".
(j) "Continuous Service" means that the provision of services
to the Company or a Related Entity in any capacity of Employee, Director or
Consultant, is not interrupted or terminated. Continuous Service shall not be
considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers among the Company, any Related Entity, or any successor, in any
capacity of Employee, Director or Consultant, or (iii) any change in status as
long as the individual remains in the service of the Company or a Related Entity
in any capacity of Employee, Director or Consultant (except as otherwise
provided in the Option Agreement). An approved leave of absence shall include
sick leave, maternity leave, military leave, or any other authorized personal
leave. For purposes of Incentive Stock Options, no such leave may exceed ninety
(90) days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract.
(k) "Corporate Transaction" means any of the following
transactions:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state, territory, province or country in which the
Company is incorporated;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company (including the capital stock
of the Company's subsidiary corporations);
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger; or
(iv) acquisition by any person or related group of
persons (other than the Company or by a Company-sponsored employee benefit plan)
of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities, but excluding any such
transaction that the Administrator determines shall not be a Corporate
Transaction.
24
(l) "Director" means a member of the Board or the board of
directors of any Related Entity.
(m) "Disability" means that a Grantee is permanently unable to
carry out the responsibilities and functions of the position held by the Grantee
by reason of any medically determinable physical or mental impairment, or
determined by an independent physician selected with the approval of the
Administrator and Grantee.
(n) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company or a Related Entity shall not be sufficient
to constitute "employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(p) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock, or (B) if the
Common Stock is not traded on any such exchange or national market system, the
average of the closing bid and asked prices of a Share on the NASDAQ Small Cap
Market for the day prior to the time of the determination (or, if no such prices
were reported on that date, on the last date on which such prices were
reported), in each case, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable; or
(ii) If the Common Stock is traded on the over-the
counter market, the average of the closing bid and asked prices of a Share of
Common Stock on the day prior to the time of the determination (or if no such
quotations shall have been made on such date, on the last date on which there
were such quotations, provided that such quotations shall have been made within
the ten (10) business days preceding the date of determination), in each case,
as reported in such source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock of the type described in (i) or (ii), above, the Fair Market Value
thereof shall be determined by the Administrator in good faith.
(q) "Grantee" means an Employee, Director or Consultant who
receives an Option pursuant to an Option Agreement under the Plan.
(r) "Immediate Family" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law,
25
father-in-law, son-in law, daughter-in-law, brother-in-law, or sister-in-law,
including adoptive relationships, any person sharing the Grantee's household
(other than a tenant or employee), a trust in which these persons have more than
fifty percent (50%) of the beneficial interest, a foundation in which these
persons (or the Grantee) control the management of assets, and any other entity
in which these persons (or the Grantee) own more than fifty percent (50%) of the
voting interests.
(s) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(t) "Non-Qualified Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(u) "Officer" means a person who is an officer of the Company
or a Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(v) "Option" means an option to purchase Shares pursuant to an
Option Agreement granted under the Plan.
(w) "Option Agreement" means the written agreement evidencing
the grant of an Option executed by the Company and the Grantee, including any
amendments thereto.
(x) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 2003 Stock Option Plan.
(z) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(aa) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor thereto.
(bb) "Share" means a share of the Common Stock.
(cc) "Subsidiary" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the
maximum aggregate number of Shares which may be issued pursuant to all Options
(including Incentive Stock Options) is Seven Hundred Fifty Thousand (750,000)
Shares. The Shares to be issued pursuant to Options may be authorized, but
unissued, or reacquired Common stock.
26
(b) Any Shares covered by an Option (or portion of an Option)
which is forfeited or canceled, expires or is settled in cash, shall be deemed
not to have been issued for purposes of determining the maximum aggregate number
of Shares which may be issued under the Plan. Shares that actually have been
issued under the Plan pursuant to an Option shall not be returned to the Plan
and shall not become available for future issuance under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and
Officers. With respect to grants of Options to Directors or Employees who are
also Officers or Directors of the Company, if Section 16(b) of the Exchange Act
is applicable, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall be constituted in such
a manner as to satisfy the Applicable Laws and to permit such grants and related
transactions under the Plan to be exempt from Section 16(b) of the Exchange Act
in accordance with Rule 16b-3. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.
(ii) Administration With Respect to Consultants and
Other Employees. With respect to grants of Options to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. The Board may authorize one or
more Officers to grant such Options and may limit such authority as the Board
determines from time to time.
(iii) Administration Errors. In the event an Option
is granted in a manner inconsistent with the provisions of this subsection (a),
such Option shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws
and the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and
Consultants to whom Options may be granted from time to time hereunder;
(ii) to determine whether and to what extent Options
are granted hereunder;
(iii) to determine the number of Shares or the amount
of other consideration to be covered by each Option granted hereunder;
27
(iv) to approve forms of Option Agreements for use
under the Plan;
(v) to determine the terms and conditions of any
Option granted hereunder;
(vi) to amend the terms of any outstanding Option
granted under the Plan, provided that any amendment that would adversely affect
the Grantee's rights under an outstanding Option shall not be made without the
Grantee's written consent;
(vii) to construe and interpret the terms of the Plan
and Options granted pursuant to the Plan, including without limitation, any
notice of Option or Option Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions,
rules or procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford Grantees favorable treatment under such laws;
provided, however, that no Option shall be granted under any such additional
terms, conditions, rules or procedures with terms or conditions which are
inconsistent with the provisions of the Plan; and
(ix) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.
5. Eligibility. Options other than Incentive Stock Options may be
granted to Employees, Directors and Consultants. Incentive Stock Options may be
granted only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options. Options may be granted to such
Employees, Directors or Consultants who are residing in foreign jurisdictions as
the Administrator may determine from time to time.
6. Terms and Conditions of Options.
(a) Type of Options. The Administrator is authorized under the
Plan to issue Incentive Stock Options and Non-Qualified Stock Options.
(b) Designation of Option. Each Option shall be designated in
the Option Agreement as either an Incentive Stock Option or a Non-Qualified
Stock Option. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by a Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is granted.
28
(c) Conditions of Option. Subject to the terms of the Plan,
the Administrator shall determine the provisions, terms, and conditions of each
Option including, but not limited to, the Option vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, and form of payment
(cash, Shares, or other consideration) upon settlement of the Option.
(d) Acquisitions and Other Transactions. The Administrator may
issue Options under the Plan in settlement, assumption or substitution for,
outstanding Options or obligations to grant future Options in connection with
the Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
(e) Deferral of Option Payment. To the extent permissible by
law, the Administrator may establish one or more programs under the Plan to
permit selected Grantees the opportunity to elect to defer receipt or payment of
consideration upon exercise of an Option. The Administrator may establish the
election procedures, the timing of such elections, the mechanisms for payments
of, and accrual of interest or other earnings, if any, on amounts, Shares or
other consideration so deferred, and such other terms, conditions, rules and
procedures that the Administrator deems advisable for the administration of any
such deferral program.
(f) Early Exercise. The Option Agreement may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Option prior to full
vesting of the Option. Any unvested Shares received pursuant to such exercise
may be subject to a repurchase right in favor of the Company or a Related Entity
or to any other restriction the Administrator determines to be appropriate.
(g) Term of Option. The term of each Option shall be the term
stated in the Option Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a Grantee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
(h) Transferability of Options. Incentive Stock Options may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Options may be transferred by will or
by the laws of descent or distribution and may be transferred by gift or through
a domestic relations order to members of the Grantee's Immediate Family, and the
Grantee may designate a beneficiary of the Grantee's
29
Option in the event of the Grantee's death on a beneficiary designation form
provided by the Administrator, to the extent provided in the Option Agreement or
in the manner and to the extent determined by the Administrator. Notwithstanding
the foregoing, no Option may be transferred in any manner, nor may the Grantee
designate a beneficiary, to the extent that such transfer or designation of
beneficiary is not permitted by Applicable Law.
(i) Time of Granting Options. The date of grant of an Option
shall for all purposes be the date on which the Administrator makes the
determination to grant such Option, or such other date as is determined by the
Administrator. Notice of the grant determination shall be given to each
Employee, Director or Consultant to whom an Option is so granted within a
reasonable time after the date of such grant.
7. Option Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The exercise or purchase
price, if any, for an Option shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be not less than
one hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant; or
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the
per Share exercise price shall be determined by the Administrator.
(iii) Notwithstanding the foregoing provisions of
this Section 7(a), in the case of an Option issued pursuant to Section 6(d),
above, the exercise or purchase price for the Option shall be determined in
accordance with the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the
consideration to be paid for the Shares to be issued upon exercise or purchase
of an Option including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). In addition to any other types of
consideration the Administrator may determine, the Administrator is authorized
to accept as consideration for Shares issued under the Plan the following:
(i) cash (payable in U.S. dollars, unless otherwise
specified in the Option Agreement);
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(ii) check (payable in U.S. dollars, unless otherwise
specified in the Option Agreement);
(iii) surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require (including withholding of Shares otherwise deliverable upon exercise of
the Option) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(iv) Subject to Applicable Laws, with respect to
Options payment through a broker-dealer sale and remittance procedure, if
available, pursuant to which the Grantee (A) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (B) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction; or
(v) any combination of the foregoing methods of
payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Option, the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Option granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Option Agreement.
(ii) An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised, including,
to the extent selected, use of the broker-dealer sale and remittance procedure
to pay the purchase price as provided in Section 7(b)(iv). Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Option,
notwithstanding the exercise of an Option or other Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No
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adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in the
Option Agreement or Section 10, below.
(b) Exercise of Option Following Termination of Continuous
Service.
(i) An Option may not be exercised after the
termination date of such Option set forth in the Option Agreement and may be
exercised following the termination of a Grantee's Continuous Service only to
the extent provided in the Option Agreement.
(ii) Where the Option Agreement permits a Grantee to
exercise an Option following the termination of the Grantee's Continuous Service
for a specified period, the Option shall terminate to the extent not exercised
on the last day of the specified period or the last day of the original term of
the Option, whichever occurs first.
(iii) Any Option designated as an Incentive Stock
Option to the extent not exercised within the time permitted by law for the
exercise of Incentive Stock Options following the termination of a Grantee's
Continuous Service shall convert automatically to a Non-Qualified Stock Option
and thereafter shall be exercisable as such to the extent exercisable by its
terms for the period specified in the Option Agreement.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by any Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, the exercise or purchase price of each
such outstanding Option, the maximum number of Shares with respect to which
Options may be granted to any Employee in any fiscal year of the Company, as
well as any other terms that the Administrator determines require adjustment
shall be proportionately adjusted for (i) any increase or decrease in the number
of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, or similar event
affecting the Shares, (ii) any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company, or (iii)
as the
32
Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or any
similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator
and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Option.
11. Corporate Transactions. Except as may be provided in an Option
Agreement effective upon the consummation of a Corporate Transaction all
unvested Options shall vest and all outstanding Options under the Plan which are
not exercised shall terminate. However, all such Options shall not terminate if
they are, in connection with the Corporate Transaction, assumed by the successor
corporation or Parent thereof.
12. Effective Date and Term of Plan. The Plan shall become effective
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated, provided that the Plan shall continue in effect
after the expiration of the ten-year term solely for the purpose of governing
Options granted prior to such termination. Subject to Section 17, below, and
Applicable Laws, Options may be granted under the Plan upon its becoming
effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Option may be granted during any suspension of the Plan
or after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Options already granted, and such Options shall remain in full force and effect
as if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
33
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Options shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or amount of benefits is related to level of compensation. The Plan
is not a "Retirement Plan" or "Welfare Plan" under the Employee Retirement
Income Security Act of 1974, as amended.
17. Stockholder Approval. The grant of Incentive Stock Options under
the Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
EXHIBIT B
LANNETT COMPANY, INC.
2003 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
Establishment and Purpose of Plan. The Lannett Company, Inc. 2003 Employee Stock
Purchase Plan ("Plan") is established to provide eligible employees of Lannett
34
Company, Inc. (the "Corporation"), and its subsidiaries whose employees are
permitted to participate in the Plan, with an opportunity through payroll
deductions to purchase common stock of the Corporation and, thereby, acquire a
proprietary interest in the Corporation. It is believed that the Plan will
stimulate employee participation in ownership, which will be to the mutual
benefit of both the Corporation and its employees.
Internal Revenue Code Considerations. The Plan is intended to constitute an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended ("Code"). The provisions of the Plan shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
ARTICLE II
Definitions
Whenever used herein, the following words and phrases shall have the meaning
stated below unless a different meaning is plainly required by the context.
"Administrative Committee" means the committee appointed by the Board of
Directors to administer the Plan, as provided in Section 8.03 hereof.
"Board of Directors" means the Board of Directors of the Corporation.
"Code" means the Internal Revenue Code of 1986, as amended, and any successor
statute of similar nature. References to specific sections of the Code shall be
taken to be references to corresponding sections of any successor statute.
"Compensation" with respect to any Employee means the total regular salary or
wages paid, during the period of reference, to an Employee by the Employer. For
purpose of this Section, the determination of Compensation shall be made by:
Excluding reimbursements or other expense allowances, fringe benefits (cash
or non-cash), moving expenses, deferred compensation and welfare benefits;
Excluding bonuses, commissions and amounts which are contributed by the
Employer pursuant to a salary reduction agreement under any Code Section 125
or 401(k) plan sponsored by the Employer; and
Including overtime.
"Continuous Service" means the designated period of time immediately preceding
the Offering Date during which the Employee has been employed by the Employer
and during which there has been no interruption of the Employee's employment
with the
35
Employer. For this purpose, periods of Excused Absence shall not be
considered to be interruptions of Continuous Service.
"Corporation" means Lannett Company, Inc., a Delaware corporation.
"Custodian" means the Trust Department of Salomon Smith Barney Bank or such
other entity appointed by the Board of Directors.
"Eligible Employee" means each individual who, on an offering Date is:
An Employee of the Employer; and
Has completed with the Employer at least one (1) year of Continuous Service
or has been employed for at least two (2) years.
Notwithstanding the foregoing to the contrary, any individual who is deemed
for purposes of Section 423 (b) (3) of the Code to own stock possessing five
percent (5%) or more of the total combined voting power or value of all
classes of stock of the Employer or of its parent or subsidiary corporation
shall not be eligible to participate in the Plan.
"Employee" means each individual employed by the Employer.
36
"Employer" means the Corporation and any current or future parent and/or
subsidiary corporation as defined in Sections 424(e) and 424(f) of the Code
that, with the consent of the Board of Directors, is permitted to have its
employees become participants herein.
"Enrollment Form" means the instrument prescribed by the Administrative
Committee pursuant to which an Eligible Employee enrolls to be a Participant in
the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excused Absence" means absence pursuant to a leave of absence granted by the
Employer, absence due to disability or illness, absence by reason of a layoff,
or absence by reason of active duty in the armed forces of the United States. In
no event may an Excused Absence exceed twelve (12) weeks in length (or, if
longer and if applicable, the period of the individual's active duty in the
armed forces of the United States and such period thereafter as such
individual's right to reemployment by the Employer is protected by law), and any
absence shall cease to be an Excused Absence upon the earlier of (i) the last
day of the calendar month in which the duration of the absence reaches twelve
(12) weeks or (ii) the last day of the calendar month in which the leave expires
by its terms, the layoff ends by recall or permanent separation from service, or
recovery from illness or disability occurs.
"Exercise Date" means the first business day of each calendar quarter during
which the Plan is in effect.
"Market Value" means, as of any date, the value of the Stock determined as
follows:
Where there exists a public market for the Stock, the Market Value shall be
(A) the closing price for a share for the last market trading day prior to
the time of the determination (or, if no closing price was reported on that
date, on the last trading date on which a closing price was reported) on the
stock exchange determined by the Administrative Committee to be the primary
market for the Stock, or (B) if the Stock is not traded on any such exchange
or national market system, the average of the closing bid and asked prices
of a Share on the NASDAQ Small Cap Market for the day prior to the time of
the determination (or, if no such prices were reported on that date, on the
last date on which such prices were reported), in each case, as reported in
The Wall Street Journal or such other source as the Administrative Committee
deems reliable; or
If the Stock is traded on the over-the counter market, the average of the
closing bid and asked prices of a share of Stock on the day prior to the
time of the determination (or if no such quotations shall have been made on
such date, on the last date on which there were such quotations, provided
that such quotations shall have been made within the ten (10) business days
preceding the date of determination), in each case, as reported in such
source as the Administrative Committee deems reliable; or
37
In the absence of an established market for the Stock of the type described
in (i) or (ii), above, the Market Value thereof shall be determined by the
Administrative Committee in good faith.
"Offering" means the offering of shares of Stock under the Plan.
"Offering Date" means January 1, 2003 and the first business day of each
calendar quarter thereafter during which the Plan is in effect.
"Offering Period" means the period beginning on the Offering Date and ending on
the Exercise Date.
"Participant" means each Eligible Employee who elects to participate in the Plan
through the execution of an Enrollment Form.
"Plan" means the Lannett Company, Inc. 2003 Employee Stock Purchase Plan, as the
same is set forth herein and may hereafter be amended.
"Stock" means the common stock, $.001 per value per share, of the Corporation.
"Stock Purchase Account" means a non-interest bearing account consisting of all
amounts withheld from a Participant's Compensation for the purpose of purchasing
shares of Stock for such Participant under the Plan reduced by all amounts
applied to the purchase of Stock for such Participant under the Plan. The
amounts withheld shall be deposited with the general funds of the Corporation
and may be used by the Corporation for any corporate purpose. No interest shall
be paid or payable with respect to any amount held in a Participant's Stock
Purchase Account.
ARTICLE III
Participation
Initial Participation. Any Employee who is an Eligible Employee on an Offering
Date shall become a Participant in the Offering Period that begins on that
Offering Date by executing and delivering to the Administrative Committee an
Enrollment Form on or no more than thirty (30) days prior to that Offering Date.
An Eligible employee who does not execute and deliver an Enrollment Form for an
Offering Period at least ten (10) days prior to such Offering Period shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such Eligible Employee executes and delivers a timely Enrollment
Form for a subsequent Offering Period at least ten (10) days prior to such
Offering Period.
Continues Participation. A Participant shall automatically participate in each
successive Offering Period until such time as such Participant's participation
is ended as provided herein. A Participant is not required to file any
additional Enrollment Forms for
38
subsequent Offering Periods in order to continue to participate in the Plan.
Voluntary Discontinuance of Participation. Any Participant may voluntarily
withdraw from the Plan by executing and delivering a notice of withdrawal with
the Administrative Committee. The withdrawal shall be effective upon receipt,
except that any withdrawal received on an Exercise Date will be effective on the
next day. The amount, if any, standing to the Participant's credit in his Stock
Purchase Account shall be refunded to the Participant within thirty (30) days of
the date of withdrawal.
Automatic Discontinuance of Participation. If a Participant ceases to be an
Eligible Employee, the Participant's participation in the Plan shall immediately
end, except that if such date is the Exercise Date, the withdrawal shall be
effective on the next day. The amount, if any, standing to the Participant's
credit in his Stock Purchase Account shall be refunded to the Participant within
thirty (30) days of the date of withdrawal.
Readmission to Participation. Any Employee who has previously been a
Participant, whose participation has been discontinued, and who desires to be
reinstated as a Participant, may again become a Participant by executing and
delivering to the Administrative Committee an Enrollment Form on or no more than
thirty (30) days prior to any Offering Date, and in such event, the Employee
shall again become a Participant on that Offering Date. The Employee may not
resume participation in the Plan during the Offering Period in which his
participation ended.
ARTICLE IV
Stock Purchase
Reservation of Shares. There shall be Seven Hundred Fifty Thousand (750,000)
shares of Stock reserved for the Plan. Subject to adjustment in accordance with
the anti-dilution provisions hereinafter set forth in Section 5.02, the
aggregate number of shares that may be purchased under the Plan shall not exceed
the number of shares reserved for the Plan. The shares of Stock may be (i)
treasury or newly issued shares of the Corporation or (ii) purchased by the
Corporation on the open market.
Grant of Purchase Right. On each Offering Date, a right shall be given to each
Participant to purchase that number of shares of Stock arrived at by dividing
the total amount of the Participant's expected payroll deductions during the
Offering Period (determined by multiplying the payroll deductions withheld
during the first pay period of the Offering Period by the number of pay periods
during the Offering Period) by the Market Value of the shares of Stock on that
date as determined by the Administrative Committee.
Limitation on Shares Available. The maximum number of shares of Stock that may
be
39
purchased for each Participant on an Exercise Date is the lesser of (i) the
maximum number of shares which the Participant may purchase under Section 4.02,
(ii) the number of shares of Stock that can be purchased by applying the full
balance of the Participant's Stock Purchase Account to such purchase of shares
at the Purchase Price (as hereinafter determined) or (iii) the Participant's
proportionate part of the maximum number of shares of Stock available within the
limitation established by the maximum aggregate number of such shares reserved
for the Plan, as stated in Section 4.01 hereof. Notwithstanding the foregoing,
if any person entitled to purchase shares pursuant to any Offering hereunder
would be deemed for the purposes of section 423(b) (3) of the Code to own stock
(including any number of shares that such person would be entitled to purchase
hereunder) possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Employer, the maximum number of
shares that such person shall be entitled to purchase pursuant to the Plan shall
be reduced to that number which, when added to the number of shares of Stock
that such person is so deemed to own (excluding any number of shares that such
person would be entitled to purchase hereunder), is one less than such five
percent (5%). Any portion of a Participant's Stock Purchase Account that cannot
be applied by reason of the foregoing limitation shall remain in the
Participant's Stock Purchase Account for application to the purchase of Stock in
the next Offering (unless properly withdrawn).
Purchase Price of Shares. The Purchase Price at which shares of Stock shall be
sold in any Offering under the Plan shall be set by the Administrative
Committee; provided, however, that the purchase price shall not be less than
eighty-five percent (85%) of the lesser of (i) the Market Value of the shares of
Stock on the first business day in the Offering Period or (ii) Market Value of
the shares of Stock on the last business day of such Offering Period. Unless
otherwise provided by the Administrative Committee, prior to the commencement of
an Offering Period, the Purchase Price for the Offering Period shall be eighty
five percent (85%) of the lesser of (i) the Market Value of the shares of Stock,
as determined by the Administrative Committee on the first business day in the
Offering Period or (ii) the Market Value of the shares of Stock, as determined
by the Administrative Committee, on the last business day of such Offering
Period, plus any transfer or other fees imposed on the transaction pursuant to
which such share of Stock is purchased. In no event shall the Purchase Price be
less than the par value of the Stock.
Exercise of Purchase Privilege.
Subject to the provisions of Section 4.03 and of paragraph (b) of this
Section 4.05, if on any Exercise Date there is an amount standing to the
credit of the Participant in the Participant's Stock Purchase Account, there
shall be purchased for the Participant at such Purchase Price the shares of
Stock as can be purchased with the amount then standing to the Participant's
credit in the Stock Purchase Account. Each such purchase shall be deemed to
have occurred on the Exercise Date occurring at the close of the Offering
Period for which the purchase was made.
As determined in accordance with Section 423(b)(8) of the Code, no
Participant shall
40
be granted an option which permits his or her rights to purchase shares of
Stock under this Plan and any similar plans of the Employer to accrue at a
rate which exceeds Twenty-Five Thousand Dollars ($25,000) of Market Value of
such shares (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
Establishment of Stock Purchase-Account.
Payroll Deduction. Each Participant shall authorize payroll deductions from
Compensation for the purpose of funding his Stock Purchase Account. In the
Enrollment Form, each Participant shall authorize a deduction from each
payment of his Compensation, which deduction shall not be less than two
percent (2%) nor more than ten percent (10%) of the gross amount of such
payment. Payroll deductions shall commence on the first payday during the
Offering Period and shall continue to the end of the Offering Period unless
sooner altered or terminated as provided in the Plan.
Change in Payroll Deduction Rate. A Participant may decrease (but not
increase) the rate of payroll deductions during an Offering Period by filing
with the Corporation a new authorization for payroll deductions, in which
case the new rate shall become effective within fifteen (15) business days
after the Corporation's receipt of the authorization. Such change in the
rate of payroll deductions may be made at any time during an Offering
Period, but not more than one change may be made in any Offering Period. A
Participant may increase or decrease the rate of payroll deductions for any
subsequent Offering Period by filing with the Corporation a new Enrollment
Form on or prior to the Offering Date with respect to such subsequent
Offering Period.
Payment for Stock. The Purchase Price for all shares of Stock purchased by a
Participant under the Plan shall be paid out of the Participant's Stock Purchase
Account. As of each Exercise Date, the amount standing to the credit of each
Participant in the Stock Purchase Account on the Exercise Date for the Offering
that expires on such Exercise Date shall be charged with the aggregate Purchase
Price of the shares of Stock purchased by such Participant on the Exercise Date.
The remaining balance standing to the Participant's credit in the Stock Purchase
Account shall remain credited to such Stock Purchase Account for the next
succeeding offering under the Plan, if any, and, if none shall be refunded to
the Participant within thirty (30) days of the Exercise Date. No interest shall
be paid or payable with respect to any amount held in the Participant's Stock
Purchase Account.
Share Ownership. The shares of Stock purchased by a Participant on an Exercise
Date shall, for all purposes, be deemed to have been issued and/or sold at the
close of business on such Exercise Date. Prior to that time, none of the rights
or privileges of a shareholder of the Corporation shall inure to the Participant
with respect to such shares. Shares of Stock purchased under the Plan shall be
registered in the name of the Custodian or its nominee as agent for
Participants, credited to an account established for each Participant as
appropriate, and held by the Custodian. Each Participant's
41
account will be credited with that number of shares, rounded down to a whole
number, exclusive of fractional shares. If declared and paid, dividends will be
paid on all shares of Stock held in each Participant's account. Unless otherwise
directed by the Participant, all dividends paid with respect to shares of Stock
held in the Participant's account will automatically be invested pursuant to the
Corporation's dividend reinvestment plan, if any.
Issuance of Certificates to a Participant. Upon a Participant ceasing to be a
Participant in the Plan, the Corporation shall issue certificates for shares
held by the Custodian for the Participant and deliver such certificates to the
Participant within thirty (30) days of the Participant's withdrawal from the
Plan.
ARTICLE V
Special Adjustments
Shares Unavailable. If, on any Exercise Date, the aggregate funds available for
the purchase of Stock would purchase a number of shares in excess of the number
of shares then available for purchase under the Plan, the following events shall
occur:
The number of shares that would otherwise be purchased by each Participant
shall be proportionately reduced on the Exercise Date in order to eliminate
such excess;
The Plan shall automatically terminate immediately after the Exercise Date
as of which the supply of available shares is exhausted; and
Any amount remaining in the Stock Purchase Account of each of the
Participants shall be repaid within thirty (30) days.
Anti-Dilution Provisions. The aggregate number of shares of Stock reserved for
purchase under the Plan, as hereinabove provided, and the calculation of the
Purchase Price per share may be appropriately adjusted to reflect any increase
or decrease in the number of issued shares of Stock resulting from a subdivision
or consolidation of shares or other capital adjustment, or the payment of a
stock dividend, or other increase or decrease in such shares, if effected
without receipt of consideration by the Corporation. Any such adjustment shall
be made by the Administrative Committee acting with the consent of, and subject
to the approval of, the Board of Directors,
Effect of Certain Transactions. Subject to any required action by the
shareholders, if the Corporation shall be the surviving or resulting corporation
in any merger or consolidation, any Offering hereunder shall pertain to and
apply to the shares of Stock of the corporation. However, in the event of a
dissolution or liquidation of the Corporation, or of a merger or consolidation
in which the Corporation is not the surviving or resulting corporation, the Plan
and any offering hereunder shall terminate upon the effective date of such
dissolution, liquidation, merger or consolidation, and the balance
42
then standing to the credit of each Participant in the Stock Purchase Account
shall be repaid to the Participant.
ARTICLE VI
Restrictions on Participants
Subject to Short-Swing Profit Rules
Notwithstanding any provision of this Plan to the contrary, with respect to
Participants subject to Section 16 of the Exchange Act, all transactions in
shares of Stock must be transacted in accordance with Section 16 of the Exchange
Act and the rules promulgated thereunder. To the extent any provision of the
Plan or action by the Administrative Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Administrative Committee. Moreover, in the event the Plan does not include a
provision required by Rule 16b-3 to be stated therein, such provision shall be
deemed automatically to he incorporated by reference into the Plan.
ARTICLE VII
Approval of Stockholders
This Plan shall be subject to approval by the holders of the common stock of the
corporation at a duly called meeting of the stockholders, which approval must
occur within the period ending twelve (12) months after the date on which this
Plan was adopted by the Board of Directors.
ARTICLE VIII
Miscellaneous
Non-Alienation. The right to purchase shares of Stock under the Plan is personal
to the Participant, is exercisable only by the Participant during the
Participant's lifetime while employed, except as hereinafter set forth, and may
not be assigned or otherwise transferred by the Participant. Notwithstanding the
foregoing, there shall be delivered to the executor, administrator or other
personal representative of a deceased Participant such shares of Stock and such
residual balance as may remain in the Participant's Stock Purchase Account as of
the time the Corporation becomes aware of the Participant's death, including
shares of Stock purchased as of that date or prior thereto with moneys withheld
from the Participant's Compensation.
Administrative Costs. The Corporation shall pay all administrative expenses
associated
43
with the operation of the Plan. No administrative charges shall be levied
against the Stock Purchase Accounts of the Participants.
Administrative Committee. The Board of Directors shall appoint an Administrative
Committee, which shall have the authority and power to administer the Plan and
to make, adopt, construe, and enforce rules and regulations not inconsistent
with the provisions of the Plan. Each member of the Administrative Committee
shall be a "disinterested person" as such term is defined in Rule 16b-3 under
the Exchange Act. The Administrative Committee shall adopt and prescribe the
contents of all forms required in connection with the administration of the
Plan, including, but not limited to, the Enrollment Form, payroll withholding
authorizations, withdrawal documents, and all other notices required hereunder.
The Administrative Committee shall have the fullest discretion permissible under
law in the discharge of its duties. The Administrative Committee's
interpretations and decisions in respect of the Plan, the rules and regulations
pursuant to which it is operated, and the rights of Participants hereunder shall
be final and conclusive.
Amendment of the Plan. The Board of Directors may, at any time and from time to
time, amend the Plan in any respect, except that no amendment may accomplish any
of the following without the approval of the Corporation's stockholders:
Increase the number of shares reserved for purposes of the Plan; or
Allow any person who is not an Eligible Employee to become a Participant.
Repurchase of Stock. The Corporation shall not be required to purchase or
repurchase from any Participant any of the shares of Stock that the Participant
acquired under the Plan.
Notice. An Enrollment Form and any notice that a Participant files pursuant to
the Plan shall be on the form prescribed by the Administrative Committee and
shall be effective only when received by the Administrative Committee. Delivery
of such forms may be made by hand or by certified mail, sent postage prepaid, to
Lannett Company, Inc., Attention: Chairman of the Administrative Committee of
the Lannett Company, Inc. 2003 Employee Stock Purchase Plan. Delivery by any
other mechanism shall be deemed effective at the option and discretion of the
Administrative Committee.
Government Regulation. The Corporation's obligation to sell and to deliver the
Stock under the Plan is at all times subject to all approvals of any
governmental authority required in connection with the authorization, issuance,
sale or delivery of such Stock.
Headings, Captions, Gender. The headings and captions herein are for convenience
of reference only and shall not be considered as part of the text. The masculine
shall include the feminine, and vice versa.
Severability of Provisions; Prevailing Law. The provisions of the Plan shall be
deemed severable. In the event any such provision is determined to be unlawful
or unenforceable by a court of competent jurisdiction or by reason of a change
in an
44
applicable statute, the Plan shall continue to exist as though such provision
had never been included therein (or, in the case of a change in an applicable
statute, had been deleted as of the date of such change). The Plan shall be
governed by the laws of the State of Delaware, to the extent such laws are not
in conflict with, or superseded by, federal law.
Right to Terminate Employment. Nothing in the Plan or any agreement entered into
pursuant to the Plan shall confer upon any Employee the right to continue in the
employment of the Corporation or any subsidiary or affect any right which the
Corporation or any subsidiary may have to terminate the employment of such
Employee.
45
/X/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE LANNETT COMPANY, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS FOR WITH- FOR ALL
FEBRUARY 13, 2003 HOLD EXCEPT
This proxy is solicited on behalf of the Board 1. Proposal to elect directors of Lannett, / / / / / /
of Directors. The undersigned shareholder of Lannett each to serve until Lannett's next
Company, Inc. ("Lannett") hereby appoints William Farber annual meeting of stockholders or until
and Arthur Bedrosian and either of them, as proxies with their respective successors have been duly
full power of substitution, for the undersigned to vote elected and qualified.
the number of shares of common stock of Lannett that the
undersigned would be entitled to vote if personally WILLIAM FARBER, MARVIN NOVICK AND RONALD A. WEST, TO HOLD OFFICE
present at the Annual Meeting of Stockholders of Lannett UNTIL THE NEXT ANNUAL MEETING OR UNTIL THEIR RESPECTIVE
to be held on February 13, 2003, 10:00 a.m. local time, SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED.
at the Radisson Hotel Philadelphia Northeast, Oak Room,
U.S. Route 1 at Old Lincoln Highway, Trevose, PA 19053 INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
and at any adjournment or postponement thereof, on the NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN
following matters that are more particularly described THE SPACE PROVIDED BELOW.
in the Proxy Statement dated January 10, 2003.
This proxy, when properly executed will be voted in
the manner, directed herein by the undersigned
stockholder. If no direction is made, this proxy will be --------------------------------------------------------------------
voted "FOR" Proposals 1 through 4. Receipt of the Proxy
Statement, dated January 10, 2003, is hereby
acknowledged. FOR AGAINST ABSTAIN
2. Proposal to approve the 2003 Stock / / / / / /
Option Plan.
3. Proposal to approve the 2003 Employee / / / / / /
Stock Purchase Plan
4. Proposal to approve the appointment of / / / / / /
Grant Thornton LLP as independent
auditors.
5. To consider and take action upon any / / / / / /
other matter which may properly come
before the meeting or any adjournment
or postponement thereof.
Please be sure to sign and date Date
this Proxy in the box below. You are encouraged to specify your choices by marking the
appropriate boxes, but you need not mark any boxes if you wish to
vote in accordance with the Board of Directors' recommendation.
The proxies cannot vote your shares unless you sign and return
this card.
Stockholder sign above Co-holder (if any) sign above
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DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
LANNETT COMPANY, INC.
Please sign exactly as your name appears hereon. Joint owners must each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as it appears thereon.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED BELOW AND RETURN THIS PORTION WITH THE PROXY IN
THE ENVELOPE PROVIDED.
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