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UNITED STATES
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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
LANNETT COMPANY, INC.
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(Name of Registrant as Specified In Its Charter)
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SEC 1913 (02-02)
LANNETT COMPANY, INC.
9000 STATE ROAD
PHILADELPHIA, PA 19136
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 4, 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,
December 4, 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 four (4) 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 appointment of Grant Thornton LLP as independent auditors;
3. 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.
Shareholders of record at the close of business on October 20, 2003 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
November 4, 2003 William Farber
Philadelphia, Pennsylvania Chairman and Chief Executive Officer
LANNETT COMPANY, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 4, 2003
TABLE OF CONTENTS
Notice of Annual Meeting
Attendance and Voting Matters 1
Proposal No. 1 -- Elect the Board of Directors 2-3
Board Meetings and Committees 3
Compensation of Directors 4
Principal Stockholders 5-6
Directors and Officers 7-8
Executive Compensation 9-12
Report of the Audit Committee 13
Certain Relationships and Related Transactions 14
Proposal No. 2 -- Approve the Appointment of Grant Thornton LLP
As Independent Auditors 15-16
Annual Report to Stockholders 17
Audit Committee Charter A-1-A-2
i
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, December 4,
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 November 4, 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, October 20, 2003. As of the record date,
there were 20,050,144 shares of Lannett common stock outstanding.
Shareholders are not entitled to cumulative voting in the election of
directors.
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.
1
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
four 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
and Chief Executive Officer in August 1991. From April 1993 through 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, 72, 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 1984 to
1987, he served as Vice Chairman of Dura Corporation, a major automotive
supplier. From 1969 to 1971, he served as Chief Financial Officer of Meadowbrook
Insurance Company. In addition 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, 69, 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 1983
to 1987, Mr. West served as Chairman and Chief Executive Officer of Dura
Corporation, an original equipment manufacturer of automotive products and other
engineered equipment components. Prior
2
to his service at Dura Corporation which began in 1969, Mr. West served in
various financial management positions with TRW, Inc., Marlin Rockwell
Corporation and National Machine Products Group, a division of Standard Pressed
Steel Company. Mr. West studied Business Administration at Michigan State
University and the University of Detroit.
MYRON WINKELMAN, R. PH., 65, was elected a Director of the Company in
June 2003. Mr. Winkelman has significant career experience in various aspects of
pharmacy and health care. He is currently President of Winkelman Management
Consulting (WMC), which provides consulting services to both commercial and
governmental clients. Mr. Winkelman has recently managed multi-state drug
purchasing initiatives for both Medicaid and state entities. Prior to creating
WMC, he was a senior executive with ValueRx, a large pharmacy benefits manager,
and served for many years as a senior executive for the Revco, Rite Aid and
Perry Drug chains. While at ValueRx, Mr. Winkelman served on the Board of
Directors of the Pharmaceutical Care Management Association. He belongs to a
number of pharmacy organizations, including the Academy of Managed Care Pharmacy
and the Michigan Pharmacy Association. Mr. Winkelman is a registered pharmacist
and holds a Bachelor of Science Degree in Pharmacy from Wayne State University.
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT LANNETT SHAREHOLDERS VOTE
"FOR" THESE NOMINEES. UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM
SHAREHOLDERS WILL BE VOTED IN FAVOR OF THESE NOMINEES.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met three times during the fiscal year ended
June 30, 2003 ("Fiscal 2003"). All of the Board members attended the Board
meetings in Fiscal 2003, with the exception of Myron Winkelman. Myron Winkelman
was elected to the Board of Directors in June 2003. There were four Audit
Committee meetings during Fiscal 2003. All of the Audit Committee members
attended the Audit Committee meetings in Fiscal 2003, with the exception of
Myron Winkelman. Myron Winkelman was elected to the Audit Committee in June
2003.
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), Mr. Novick and Mr. Winkelman. See
"Report of the Audit Committee," and the "Charter of the Audit Committee."
3
COMPENSATION OF DIRECTORS
Directors received compensation of $1,000 per Board meeting attended
during Fiscal 2003. There were three Board meetings held in Fiscal 2003. Audit
Committee members received compensation of $1,000 per Audit Committee meeting
attended during Fiscal 2003. There were four Audit Committee meetings held in
Fiscal 2003. Directors are reimbursed for expenses incurred in attending Board
meetings. Directors also receive a monthly allowance of $1,350 to cover the cost
of medical benefits insurance, and automobile expenses. Directors also received
stock options during Fiscal 2003 as compensation for their services. The
following table identifies the stock options granted to directors in Fiscal
2003.
========================== ================= ================== =============================== ====================
(a) (b) (c) (d) (e)
NAME NUMBER OF % OF TOTAL EXERCISE OR BASE PRICE EXPIRATION DATE
SECURITIES OPTIONS/SARS ($/SHARE)
UNDERLYING GRANTED TO
OPTIONS/SARS RECIPIENTS IN
GRANTED (#) FISCAL YEAR
-------------------------- ----------------- ------------------ ------------------------------- --------------------
William Farber $7.97 10/28/2012
Chairman of the Board of 37,500 10%
Directors and Chief
Executive Officer
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Marvin Novick $7.97 10/28/2012
Director 22,500 6%
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Ronald West $7.97 10/28/2012
Director 22,500 6%
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Myron Winkelman
Director - - - -
-------------------------- ----------------- ------------------ ------------------------------- --------------------
4
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 26, 2003, 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
and Debentures Including Options (*)
------------------------------ ------------------------------
Name and Address of Number Percent Number Percent
Beneficial Owner Office of Shares of Class of Shares of Class
---------------- ------ --------- -------- --------- --------
Directors/Executive Officers:
----------------------------
Arthur Bedrosian President 496,860(1) 2.48% 502,860(2) 2.50%
9000 State Road
Philadelphia, PA 19136
Larry Dalesandro Chief Financial 0 0.00% 0 0.00%
9000 State Road Officer
Philadelphia, PA 19136
William Farber Chairman of the 13,676,679(3) 68.23% 13,714,179(4) 68.10%
9000 State Road Board
Philadelphia, PA 19136
Marvin Novick Director 100,000 0.50% 122,500(5) 0.61%
9000 State Road
Philadelphia, PA 19136
Ronald A. West Director 12,810 0.06% 22,758(6) 0.11%
9000 State Road
Philadelphia, PA 19136
Myron Winkelman Director 1,000 0.00% 1,000 0.00%
9000 State Road
Philadelphia, PA 19136
All directors and 14,287,349 71.27% 14,363,297 71.32%
executive officers as a group
(6 persons)
(1) Includes 52,125 shares owned jointly by Arthur Bedrosian and Shari
Bedrosian, Arthur Bedrosian's spouse, and 12,000 shares owned by Talin
Bedrosian, Arthur Bedrosian's daughter.
(2) Includes 6,000 vested options to purchase common stock at an exercise
price of $4.63 per share.
(3) Includes 300,000 shares owned jointly by William Farber and Audrey
Farber, the Secretary of the Company and William's Farber's spouse.
5
(4) Includes 37,500 vested options to purchase common stock at an exercise
price of $7.97 per share.
(5) Includes 22,500 vested options to purchase common stock at an exercise
price of $7.97 per share.
(6) Includes 9,948 vested options to purchase common stock at an exercise
price of $7.97 per share.
* Assumes that all options exercisable within sixty days have been exercised,
which results in 20,139,113 shares outstanding.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, officers, and persons who own more than 10% of a registered
class of the Company's equity securities to file with the SEC reports of
ownership and changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater-than-10% stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that during Fiscal 2003, all filing requirements applicable to
its officers, directors and greater-than-10% beneficial owners were complied
with, except for the following:
- On August 15, 2003, Ronald West reported a purchase of shares in May
2002, a purchase of shares in July 2002, a sale of shares in November
2002, and a purchase of shares in January 2003.
- On August 15, 2003, Marvin Novick reported a sale of shares in November
2002, a bona-fide gift of shares in December 2002, a sale of shares in
January 2003, and a sale of shares in May 2003. The shares transacted
on the above dates were owned by Margaret Novick, spouse of Marvin
Novick.
6
DIRECTORS AND OFFICERS
The directors and executive officers of the Company are set forth
below:
Age Position
-------- -----------------------------------------
Directors:
---------
William Farber 71 Chairman of the Board and Chief Executive
Officer
Marvin Novick 72 Director
Ronald A. West 69 Director
Myron Winkelman 65 Director
Executive Officers:
------------------
Arthur P. Bedrosian 57 President
Larry Dalesandro 31 Chief Financial Officer
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.
MYRON WINKELMAN -- See "Proposal #1-Election of Directors" for matters
pertaining to Mr. Winkelman.
ARTHUR P. BEDROSIAN, J.D. was elected President of the Company in May
2002. Prior to this, 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 many 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
7
Queens College of the City University of New York and a Juris Doctorate from
Newport University in California.
LARRY DALESANDRO was elected Chief Financial Officer of the Company in
June 2003. Prior to this, he served as the Company's Chief Operating Officer
from November 1999 to June 2003. Mr. Dalesandro joined the Company in January
1999 to manage the Company's financial operations. Previously, he was the
Controller and Director of Financial Reporting 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.
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.
8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation paid to or earned by
the named executive officers of the Company for Fiscal 2003, Fiscal 2002 and
Fiscal 2001.
===============================================================================================================================
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------- ------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Name and Restricted Underlying LTIP All Other
Principal Fiscal Other Annual Stock Options/ Payouts Compensation
Position Year Salary Bonus Compensation Award(s) SARs Amount Amounts
--------- ---- ------ ----- ------------ ---------- ---------- ------- ------------
William Farber 2003 0 0 0 0 37,500 0 3,000(7}
Chairman of the 2002 0 0 0 0 0 0 3,000(7)
Board of
Directors and 2001 0 0 0 0 0 0 0
Chief Executive
Officer
Arthur P. 2003 179,175(1) 77,500 0 0 114,600 0 0
Bedrosian(2)
2002 64,385 0 0 0 0 0 0
President
2001 0 0 0 0 0 0 0
Larry Dalesandro(3) 2003 134,984(1) 59,675 0 0 74,595 0 0
Chief Financial 2002 116,698(1) 25,000 0 0 0 0 0
Officer
2001 102,049(1) 5,000 0 0 15,000 0 0
Eugene Livshits(4) 2003 67,706(1) 38,874 0 0 7,500 0 141,020(5)
Vice President of 2002 126,715(1) 25,000 0 0 0 0 0
Technical Affairs
2001 109,669(1) 5,000 0 0 18,000 0 0
Kevin Smith(6) 2003 167,187(1) 46,500 0 0 38,760 0 0
Vice President of 2002 66,769 0 0 0 15,000 0 0
Sales & Marketing
2001 0 0 0 0 0 0 0
(1) Includes matching contribution payments made to the
Company's 401(k) Plan (3% of eligible compensation) for the
benefit of the employee noted.
(2) Mr. Bedrosian joined the Company on January 24, 2002 as
Vice President of Business Development. On May 5, 2002, he was
elected President of the Company.
(3) Mr. Dalesandro joined the Company on January 11, 1999 as
Controller. He was elected Chief Operating Officer on November
1, 1999. On June 18, 2003, he was elected Chief Financial
Officer, and voluntarily resigned the position of Chief
Operating Officer.
(4) Mr. Livshits joined the Company on February 20, 1997 as
Director of Analytical Services. He was elected Vice President
of Technical Affairs on November 1, 1999. On January 6, 2003,
his employment with the Company was terminated. The Company
agreed to pay him severance pay at his current rate through
December 31, 2003. See footnote(5).
(5) This amount represents $76,230 in severance compensation
paid from January 1, 2003 through June 30, 2003, plus $64,790
in severance compensation accrued at June 30, 2003.
(6) Mr. Smith joined the Company on January 21, 2002 as Vice
President of Sales and Marketing.
(7) These amounts represent payments to Mr. Farber for
participation and attendance at Board of Director Meetings.
9
OPTION/SAR GRANTS IN FISCAL 2003
The following table sets forth information concerning the stock options granted
to certain executive employees of the Company during Fiscal 2003.
========================== ================= ================== =============================== ====================
(a) (b) (c) (d) (e)
NAME NUMBER OF % OF TOTAL EXERCISE OR BASE PRICE EXPIRATION DATE
SECURITIES OPTIONS/SARS ($/SHARE)
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN
GRANTED (#) FISCAL YEAR
-------------------------- ----------------- ------------------ ------------------------------- --------------------
William Farber
Chairman of the Board of 37,500 10% $7.97 10/28/2012
Directors and Chief
Executive Officer
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Arthur Bedrosian
President 18,000 3% $4.63 7/23/2012
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Arthur Bedrosian
President 96,900 25% $7.97 10/28/2012
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Larry Dalesandro
Chief Financial Officer 74,595 19% $7.97 10/28/2012
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Eugene Livshits
Vice President of 7,500 2% $7.97 10/28/2012
Technical Affairs
-------------------------- ----------------- ------------------ ------------------------------- --------------------
Kevin Smith
Vice President of Sales 38,760 10% $7.97 10/28/2012
and Marketing
-------------------------- ----------------- ------------------ ------------------------------- --------------------
10
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 2003, and held or unexercised
as of June 30, 2003 by the Named Executive Officers. Lannett does not
currently offer stock appreciation rights to its employees.
========================== ================= ================== =========================== ========================
(a) (b) (c) (d) (e)
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
SHARES SECURITIES OPTIONS AT
ACQUIRED UNDERLYING FY-END
ON VALUE UNEXERCISED EXERCISABLE/
NAME EXERCISE REALIZED OPTIONS AT FY-END UNEXERCISABLE
EXERCISABLE/
UNEXERCISABLE
-------------------------- ----------------- ------------------ --------------------------- ------------------------
William Farber 37,500/ $580,249/
Chairman of the Board of 0 $0 0 $0
Directors and Chief
Executive Officer
-------------------------- ----------------- ------------------ --------------------------- ------------------------
Arthur Bedrosian 0/ $0/
President 0 $0 114,900 $1,833,241
-------------------------- ----------------- ------------------ --------------------------- ------------------------
Larry Dalesandro 0/ $0/
Chief Financial Officer 5,001 $48,860 74,595 $1,154,231
-------------------------- ----------------- ------------------ --------------------------- ------------------------
Eugene Livshits 0/ 0/
Vice President -- of 13,500 $108,520 0 0
Technical Affairs
-------------------------- ----------------- ------------------ --------------------------- ------------------------
Kevin Smith 0/ $0/
Vice President of Sales 5,000 $46,495 48,761 $811,166
and Marketing
-------------------------- ----------------- ------------------ --------------------------- ------------------------
11
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Arthur
Bedrosian, Larry Dalesandro and Kevin Smith (the "Named Executives"). Each of
the agreements provide for an annual base salary and eligibility to receive a
bonus. The salary and bonus amounts of the Named Executives are determined by
the Board of Directors. Additionally, the Named Executives are eligible to
receive stock options, which are granted at the discretion of the Board of
Directors, and in accordance with the Company's policies regarding stock option
grants.
The Named Executives' employment may be terminated at any time with or
without cause, or by reason of death or disability; and the Named Executives may
voluntarily resign at any time with or without good reason. In the event of
termination of employment without cause, the Company will provide the Named
Executive with: (a) severance compensation, subject to the Company's standard
payroll withholdings or deductions, for a period of no less than one year, in
the amount of the then current base salary rate, subject to certain limitations;
and (b) continued group health insurance benefits (i.e. medical, dental,
prescription insurance, etc) for the Named Executive and his eligible dependents
for a period of up to six months at no cost to the Named Executive.
In the event of a change in the control of the Company, or if
the Company sells a majority of the ANDAs it owns, the Company will provide the
Named Executives with: (a) a lump sum payment in the amount equal to six months
of the Named Executive's current salary, subject to minimum limitations. In this
scenario, if the Named Executive's employment is terminated without cause, the
Company will provide the Named Executive with severance compensation and
benefits consisting of: (a) severance compensation, subject to the Company's
standard payroll withholdings or deductions, for a period of no less than one
year, in the amount of the then current base salary rate, subject to certain
limitations; (b) continued group health insurance benefits (i.e. medical,
dental, prescription insurance, etc) for the Named Executive and his eligible
dependents for a period of up to one year at no cost to the Named Executive; and
(c) all unvested stock options held by the Named Executive will become one
hundred percent (100%) vested and immediately exercisable as of the date of
termination.
12
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is currently comprised of three 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. A copy of the Audit
Committee Charter is attached as Exhibit A. 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. 2 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 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, 2003, to be filed with the Securities and
Exchange Commission.
Audit Committee: Ronald West
Marvin Novick
Myron Winkelman
13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William Farber, the Chairman of the Board of Directors and Chief
Executive Officer, had provided the Company with a revolving line of credit due
December 1, 2002 of $4,250,000, which the Company used to renovate its
manufacturing facility, acquire new equipment, retain new management and provide
working capital. Mr. Farber is currently the holder of 13,676,679 shares of
common stock of the Company, or approximately 68% of the Company's issued and
outstanding shares. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
The Company had sales of approximately $348,000 and $174,000 during the
years ended June 30, 2003 and 2002, respectively, to a distributor (the "related
party") in which the owner is a relative of 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 $68,000 and
$221,000 during the years ended June 30, 2003 and 2002, respectively. Accounts
receivable includes amounts due from the related party of approximately $95,000
and $59,000 at June 30, 2003 and June 30, 2002, respectively. Accrued expenses
include amounts due to the related party of approximately $0 and $8,000 at June
30, 2003 and June 30, 2002, respectively.
14
PROPOSAL NO. 2
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 2004. Grant Thornton LLP served as the
independent auditors of Lannett during Fiscal 2003, 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 2004 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 2004 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 2003.
AUDIT FEES AUDIT-RELATED FEES (1) TAX FEES ALL OTHER FEES TOTAL FEES
(2) (3)
Fiscal 2003:
$72,561 $7,700 $17,816 $45,343 $143,420
Fiscal 2002:
$63,833 $0 $56,087 $40,378 $160,298
(1) Audit-related fees include fees paid for preparation and participation in
Board of Director meetings, and Audit Committee meetings.
(2) Tax fees include fees paid for preparation of annual federal, state and
local income tax returns, quarterly estimated income tax payments, and various
tax planning services. Included in the Fiscal 2002 fees for this category is
$46,670 paid in connection with services rendered by Grant Thornton LLP in the
Company's application and receipt of a tax refund due to an amended state income
tax return.
(3) Other fees include:
Fiscal 2003 -- Fees paid for services rendered in connection with the
Company's application to various local and state entities for benefits
related to the Company's potential facility expansion; and services
rendered in connection with an engagement for interest expense
arbitrage calculations on certain tax exempt bond issues.
15
Fiscal 2002 -- Fees paid for valuation services related to the
Company's creation of its wholly-owned subsidiary, Lannett Holdings,
Inc.
The non-audit services provided to the Company by Grant Thornton LLP in Fiscal
2003 were pre-approved by the Company's audit committee. Prior to engaging its
auditor to perform non-audit services, the Company's audit committee reviews the
particular service to be provided and the fee to be paid by the Company for such
service and assesses the impact of the service on the auditor's independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL TO APPROVE THE
APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
16
2003 ANNUAL REPORT TO STOCKHOLDERS
The Company's 2003 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: November 4, 2003 LANNETT COMPANY, INC.
By: /s/ Larry Dalesandro
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Larry Dalesandro, Assistant Secretary
17
EXHIBIT A
LANNETT COMPANY, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee is to assist the Board of Directors
("Board") of Lannett Company, Inc. ("Corporation") in fulfilling its
responsibility to oversee Management's conduct of the Corporation's financial
reporting process and to provide a channel of communication between the Board
and the Corporation's outside auditor.
COMPOSITION AND OPERATIONS
The Audit Committee shall be comprised of not less than two members of the
Board, who shall meet the independence and experience requirements of the
American Stock Exchange. Accordingly, all of the members of the Audit Committee
will be directors who have no relationship to the Corporation that may interfere
with the exercise of their independence from Management and the Corporation and
who are financially literate or become financially literate within a reasonable
period of time after their appointment to the Audit Committee. In addition, at
least one member of the Audit Committee shall have accounting or related
financial management expertise.
The members of the Audit Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve until their respective
successors shall have been duly elected and qualified. Unless a Chair is
designated by the Board, the members of the Audit Committee may elect a Chair by
majority vote.
The Audit Committee shall meet at least three times annually or more frequently
as circumstances dictate. The Audit Committee may invite Management, the outside
auditor, and others to attend meetings.
The Audit Committee shall review and assess the adequacy of this Charter on an
annual basis and recommend proposed changes to the Board for approval.
RESPONSIBILITIES AND DUTIES
The Audit Committee's job is one of oversight, and it recognizes that the
Corporation's Management is responsible for preparing the Corporation's
financial statements and that the outside auditor is responsible for auditing
those financial statements. The Audit Committee recognizes that the
Corporation's financial management (including the internal auditing staff) and
the outside auditor have more time, knowledge, and detailed information on the
Corporation than do the Audit Committee members. Consequently, in carrying out
its oversight responsibilities, the Audit Committee is not providing any
A-1
expert or special assurance as to the Corporation's financial statements or any
professional certification as to the outside auditor's work.
The Audit Committee further recognizes that the outside auditor is accountable
to the Board and to the Audit Committee.
The following functions shall be the common recurring activities of the Audit
Committee in carrying out its oversight responsibilities. These functions are
set forth as a guide with the understanding that the Audit Committee may diverge
from this guide as appropriate given the circumstances and that the Audit
Committee may be directed from time to time by the Board to undertake additional
functions:
o The Audit Committee shall review and discuss with Management and the outside
auditor the audited financial statements to be included in the Corporation's
Annual Report on Form 10-K (or the Annual Report to Shareholders if distributed
prior to the filing of Form 10-K) and review and consider with the outside
auditor the matters required to be discussed by Statement of Auditing Standards
("SAS") No. 61, as amended.
o As a whole, or through the Audit Committee Chair, the Audit Committee shall
review and discuss with Management and the outside auditor the Corporation's
interim financial results to be included in the Corporation's quarterly reports
to be filed with the Securities and Exchange Commission; this review will occur
prior to the Corporation's filing of the Form 10-Q.
o The Audit Committee shall:
- request from the outside auditor annually a formal written statement
delineating all relationships between the outside auditor and the Corporation
consistent with Independence Standards Board Standard No. 1;
- discuss with the outside auditor any such disclosed relationships and their
impact on the outside auditor's independence; and
- recommend that the Board take appropriate action in response to the outside
auditor's report to satisfy itself of the outside auditor's independence.
o The Audit Committee, subject to any action that may be taken by the Board,
shall have the ultimate authority and responsibility to select (or nominate for
shareholder approval), evaluate, and, where appropriate, replace the outside
auditor.
o The Audit Committee shall report to the Board on the results of the Audit
Committee's activities. The Audit Committee shall annually prepare a report to
shareholders as required by the Securities and Exchange Commission.
A-2
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[X] PLEASE MARK VOTES REVOCABLE PROXY |
AS IN THIS EXAMPLE LANNETT COMPANY, INC. WITH- FOR ALL
FOR HOLD EXCEPT
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS 1. Proposal to elect directors of
DECEMBER 4, 2003 Lannett, each to serve until [ ] [ ] [ ]
Lannett's next annual meeting of
This proxy is solicited on behalf of the Board of Directors. stockholders or until their
The undersigned shareholder of Lannett Company, Inc. ("Lannett") respective successors have been
hereby appoints William Farber and Arthur Bedrosian and either of duly elected and qualified.
them, as proxies with full power of substitution, for the
undersigned to vote the number of shares of common stock of Lannett WILLIAM FARBER, MARVIN NOVICK, RONALD A. WEST AND MYRON
that the undersigned would be entitled to vote if personally present WINKELMAN TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OR
at the Annual Meeting of Stockholders of Lannett to be held on UNTIL THEIR RESPECTIVE SUCCESSORS HAVE BEEN DULY ELECTED
December 4, 2003, 10:00 a.m. local time, at the Radisson Hotel AND QUALIFIED.
Philadelphia Northeast, Oak Room, U.S. Route 1 at Old Lincoln
Highway, Trevose, PA 19053 and at any adjournment or postponement INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
thereof, on the following matters that are more particularly NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN
described in the Proxy Statement dated November 4, 2003. THE SPACE PROVIDED BELOW.
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 2.
Receipt of the Proxy Statement, dated November 4, 2003, is hereby FOR AGAINST ABSTAIN
acknowledged. 2. Proposal to approve the
appointment of Grant Thornton [ ] [ ] [ ]
LLP as independent auditors.
3. To consider and take action upon
any other matter which may [ ] [ ] [ ]
properly come before the meeting
or any adjournment or
postponement thereof.
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.
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Please be sure to sign and date |Date |
this Proxy in the box below. | |
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| |
| |
-Stockholder sign above----Co-holder (if any) sign above-----
+ +
/\ DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED. /\
LANNETT COMPANY, INC.
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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
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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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