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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LANNETT COMPANY, INC.
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LANNETT COMPANY, INC.
9000 STATE ROAD
PHILADELPHIA, PA 19136
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 13, 2005
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,
January 13, 2005 at 10:00 a.m., local time, at the Company's facility at 9001
Torresdale Avenue, Philadelphia, PA 19136, 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 December 2, 2004 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
December 16, 2004 William Farber
Philadelphia, Pennsylvania Chairman and Chief Executive Officer
LANNETT COMPANY, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 13, 2005
TABLE OF CONTENTS
Attendance and Voting Matters 1
Proposal No. 1 - Elect the Board of Directors 2-3
Board Meetings and Committees 4
Compensation of Directors 5
Principal Stockholders 6-8
Section 16(a) Beneficial Ownership Reporting Compliance 9
Directors and Officers 10-12
Executive Compensation 13-16
Report of the Audit Committee 17
Certain Relationships and Related Transactions 18
Proposal No. 2 - Approve the Appointment of Grant Thornton LLP
As Independent Auditors 19-20
Annual Report to Stockholders 20
Audit Committee Charter A-1
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 on Thursday, January 13, 2005 at 10:00
a.m., local time, at the Company's facility at 9001 Torresdale Avenue,
Philadelphia, PA 19136, 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 December 16, 2004 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 2, 2004. As of the record date,
there were 24,095,437 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.
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. Currently, there are five members of
the Board of Directors. The Board of Directors nominates the four persons named
below, each of whom is currently serving on the Board of Directors, for election
to the Board of Directors. As a result, there will be one vacancy on 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
four 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, 73, was elected as Chairman of the Board of Directors
and Chief Executive Officer 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.
RONALD A. WEST, 70, was elected a Director of the Company in January
2002. In September of 2004, Mr West was elected Vice Chairman of the Board of
Directors. 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. In 1987, Mr. West sold his ownership
position in Dura Corporation, at which time he retired from active management
positions. Mr. West was employed at Dura Corporation since 1969. Previously, he
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., 67, 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. He has served in this position since 1994. Mr. Winkelman
has recently managed multi-state drug purchasing initiatives for
2
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.
ALBERT I. WERTHEIMER, PHD, MBA, 60, was elected a Director of the
Company in September 2004. Dr. Wertheimer has a long and distinguished career in
various aspects of pharmacy, health care, education and pharmaceutical research.
Since 2000, Dr. Wertheimer has been a professor at the School of Pharmacy at
Temple University, and director of its Center for Pharmaceutical Health Services
Research. From 1997 to 2000, Dr. Wertheimer was Director of Outcomes Research
and Management at Merck & Co., Inc. In addition to his academic
responsibilities, he is the author of 20 books and more than 350 journal
articles. Dr. Wertheimer also provides consulting services to institutions in
the pharmaceutical industry. Dr. Wertheimer's academic experience includes
professorships and other faculty and administrative positions at several
educational institutions, including the Medical College of Virginia, St.
Joseph's University, Philadelphia College of Pharmacy and Science and the
University of Minnesota. Dr. Wertheimer's previous professional experience
includes pharmacy services in commercial and non-profit environments. Professor
Wertheimer is a licensed pharmacist in five states, and is a member of several
health associations, including the American Pharmacists Association and the
American Public Health Association. Dr. Wertheimer is the editor of the JOURNAL
OF PHARMACEUTICAL FINANCE AND ECONOMIC POLICY; and he has been on the editorial
board of the Journal of Managed Pharmaceutical Care, Medical Care, and other
healthcare journals. Dr. Wertheimer has a B.S. Degree in Pharmacy from the
University of Buffalo, an M.B.A. from the State University of New York at
Buffalo, a Ph.D. from Purdue University and a Post Doctoral Fellowship from the
University of London, St. Thomas' Medical School.
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.
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BOARD MEETINGS AND COMMITTEES
The Board of Directors met eleven times during the fiscal year ended
June 30, 2004 ("Fiscal 2004"). In addition to meetings of the Board, directors
attended meetings of individual Board committees. In Fiscal 2004, all of the
directors attended at least 75% of the Board meetings and meetings of Board
committees of which they were a member, with the exception of Albert Wertheimer,
who was elected to the Board of Directors in September 2004. There were four
Audit Committee meetings, two Compensation Committee meetings and one Strategic
Planning Committee meeting during Fiscal 2004. In addition to the Committees
noted, in February 2004, the Board of Directors created a Special Committee,
consisting of the three independent Board Directors, to look after the best
interests of the shareholders of the Company. The Committee was created after
William Farber entered into an option agreement with Perrigo Company, Inc. to
potentially acquire all of the shares owned by William Farber and his wife. The
Special Committee met fifteen times during Fiscal 2004.
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."
The Compensation Committee establishes and regularly reviews the
Company's compensation philosophy, strategy, objectives and ethics and
determines the compensation payable to the officers of the Company. The
Committee also administers the Company's equity compensation plans. All members
of the Compensation Committee are independent directors as defined by the rules
of the American Stock Exchange. The Compensation Committee is comprised of Mr.
West (Chairman) and Mr. Novick.
The Strategic Planning Committee oversees the Company's medium and
long-term business strategies, including the decisions regarding new product
initiatives, joint ventures and alliances, new markets and other matters related
to the Company's long-term planning process. The Strategic Planning Committee is
comprised of Mr. Winkelman (Chairman) and Mr. William Farber.
4
COMPENSATION OF DIRECTORS
Directors received compensation of $1,000 per Board meeting or
committee meeting attended during Fiscal 2004. Directors received compensation
of $3,000 for Special Committee meetings attended during Fiscal 2004. Effective
on January 1, 2004, the Board of Directors approved a new compensation
arrangement for its Directors, whereby each Director receives $2,500 per month
for services rendered to the Company as Director. From July 1, 2003 through
December 31, 2003, directors received a monthly allowance of $1,350 to cover the
cost of medical benefits insurance, and automobile expenses. This allowance was
discontinued after the initiation of the $2,500 monthly compensation program.
Directors are also reimbursed for expenses incurred in attending Board or
committee meetings. Directors also received stock options during Fiscal 2004 as
compensation for their services. The following table identifies the stock
options granted to directors in Fiscal 2004.
(a) (b) (c) (d) (e)
NAME NUMBER OF % OF TOTAL EXERCISE OR BASE PRICE EXPIRATION DATE
SECURITIES OPTIONS/SARS ($/SHARE)
UNDERLYING GRANTED TO
OPTIONS/SARS RECIPIENTS IN
GRANTED (#) FISCAL YEAR
----------------------------------------------------------------------------------------------------------------------
William Farber 25,000@$17.36 10/23/2013
Chairman of the Board of 50,000 12% 25,000@$16.04 5/10/2014
Directors and Chief
Executive Officer
----------------------------------------------------------------------------------------------------------------------
Marvin Novick 15,000@$17.36 10/23/2013
Director 35,000 8% 20,000@$16.04 5/10/2014
----------------------------------------------------------------------------------------------------------------------
Ronald West 15,000@$17.36 10/23/2013
Vice Chairman of the 40,000 9% 25,000@$16.04 5/10/2014
Board of Directors
----------------------------------------------------------------------------------------------------------------------
Myron Winkelman 15,000@$17.36 10/23/2013
Director 35,000 8% 20,000@$16.04 5/10/2014
----------------------------------------------------------------------------------------------------------------------
5
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 2, 2004, 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 of
Beneficial Owner Office of Shares of Class of Shares Class
---------------- ------ --------- -------- ---------- ----------
Directors/Executive Officers:
Arthur Bedrosian President 406,697(1) 1.69% 494,297(2) 2.03%
9000 State Road
Philadelphia, PA 19136
William Farber Chairman of the 13,519,129(3) 56.11% 13,564,962(4) 55.58%
9000 State Road Board
Philadelphia, PA 19136
Interim Chief
Michael Tuterice Financial Officer - - - -
9000 State Road
Philadelphia, PA 19136
Vice President of
Kevin Smith Sales and 538 0.003% 34,044(5) 0.13%
9000 State Road Marketing
Philadelphia, PA 19136
Vice President of
Bernard Sandiford Operations 7,690 0.03% 16,149(6) 0.06%
9000 State Road
Philadelphia, PA 19136
Vice President of
William Schreck Logistics - - 5,915(7) 0.02%
9000 State Road
Philadelphia, PA 19136
6
Excluding Options
and Debentures Including Options (*)
--------------------------- ----------------------------
Name and Address of Number Percent Number Percent of
Beneficial Owner Office of Shares of Class of Shares Class
---------------- ------ --------- -------- ---------- ----------
Marvin Novick Director 75,000 0.31% 102,500(8) 0.42%
9000 State Road
Philadelphia, PA 19136
Albert I. Wertheimer Director - - - -
9000 State Road
Philadelphia, PA
19136
Ronald A. West Vice Chairman of 7,310 0.03% 22,258(9) 0.09%
9000 State Road the Board
Philadelphia, PA 19136
Myron Winkelman Director 1,000 0.00% 6,000(10) 0.02%
9000 State Road
Philadelphia, PA 19136
David Farber Vice President of 136,633(11) 0.56% 139,966(12) 0.57%
9000 State Road Special Projects
Philadelphia, PA 19136
Jeffrey Farber Secretary 132,870(13) 0.55% 136,203(1)2 0.56%
9000 State Road
Philadelphia, PA 19136
All directors and 14,286,867 59.28% 14,522,294 59.48%
executive officers as a group
(12 persons)
1. Includes 31,450 shares owned by Arthur Bedrosian's wife, Shari
Bedrosian and 6,000 shares owned by Arthur Bedrosian's daughter, Talin
Bedrosian. Mr. Bedrosian disclaims beneficial ownership of these shares.
2. Includes 12,000 vested options to purchase common stock at an
exercise price of $4.63 per share, 64,600 vested options to purchase common
stock at an exercise price of $7.97 per share and 11,000 vested options to
purchase common stock at an exercise price of $17.36.
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3. Includes 300,000 shares owned jointly by William Farber and his
spouse Audrey Farber.
4. Includes 37,500 vested options to purchase common stock at an
exercise price of $7.97 per share and 8,333 vested options to purchase common
stock at an exercise price of $17.36.
5. Includes 3,333 vested options to purchase common stock at an
exercise price of $2.30 per share, 25,840 vested options to purchase common
stock at an exercise price of $7.97 and 4,333 vested options to purchase common
stock at an exercise price of $17.36.
6. Includes 5,126 vested options to purchase common stock at an
exercise price of $11.27 per share and 3,333 vested options to purchase common
stock at an exercise price of $17.36 per share.
7. Includes 5,915 vested options to purchase common stock at an
exercise price of $11.27 per share.
8. Includes 22,500 vested options to purchase common stock at an
exercise price of $7.97 per share and 5,000 vested options to purchase common
stock at an exercise price of $17.36.
9. Includes 9,948 vested options to purchase common stock at an
exercise price of $7.97 per share and 5,000 vested options to purchase common
stock at an exercise price of $17.36.
10. Includes 5,000 vested options to purchase common stock at an
exercise price of $17.36.
11. Includes 105,025 owned jointly by David Faber and his wife, 15,870
owned by David Faber alone, 7,488 owned for the benefit of David Faber's three
children and 8,250 (25% of the total shares) owned by UBS Farber Investment LLC,
of which David Faber owns 25%.
12. Includes 3,333 vested options to purchase common stock at an
exercise price of $17.36.
13. Includes 124,470 owned jointly by Jeffrey Faber and his wife, 150
owned for the benefit of Jeffrey Faber's son and 8,250 (25% of the total shares)
owned by UBS Farber Investment LLC, of which Jeffrey Faber owns 25%.
* Assumes that all options exercisable within sixty days have been
exercised, which results in 24,408,575 shares outstanding.
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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 2004, all filing requirements applicable to
its officers, directors and greater-than-10% beneficial owners were complied
with, except for the following:
On June 22, 2004, David Farber reported a purchase of shares on June
14, 2004.
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DIRECTORS AND OFFICERS
The directors and executive officers of the Company are set forth
below:
Age Position
--- -------------------------------------
Directors:
William Farber 73 Chairman of the Board and Chief
Executive Officer
Marvin Novick 73 Director
Ronald A. West 70 Vice Chairman of the Board
Myron Winkelman 67 Director
Albert I. Wertheimer 60 Director
Executive Officers:
Arthur P. Bedrosian 58 President
Michael Tuterice 34 Interim Chief Financial Officer
Kevin Smith 44 Vice President of Sales & Marketing
Bernard Sandiford 75 Vice President of Operations
William Schreck 55 Vice President of Logistics
David Farber 45 Vice President of Special Projects
Jeffrey Farber 44 Secretary
WILLIAM FARBER - See "Proposal #1-Election of Directors" for matters
pertaining to Mr. Farber.
MARVIN NOVICK 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. He has served in
this position of this private company since 1988. 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.
10
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.
ALBERT I. WERTHEIMER - See "Proposal #1-Election of Directors" for
matters pertaining to Dr. Wertheimer.
ARTHUR P. BEDROSIAN, J.D. was elected President of the Company in May
2002. 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. From 1999 to
2001, 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.
MICHAEL TUTERICE was appointed interim Chief Financial Officer of the
Company in December 2004 after the previous Chief Financial Officer, Larry
Dalesandro, resigned. Mr. Tuterice served as the Company's Financial Reporting
Manager from January 2004 to November 2004. From November 2000 to January 2004,
he was the Assistant Controller of Teknion LLC, an international manufacturer of
office furniture. From 1996 to 2000, he was employed by W. Atlee Burpee Company,
a wholesaler of flower and vegetable seeds, where he served as Controller from
May 1999 to November 2000. Prior to joining the Burpee Company, Mr. Tuterice was
an Audit Supervisor for Grant Thornton LLP, an international professional
services firm. Mr. Tuterice graduated Cum Laude with a Bachelor's of Science
Degree in Accountancy from Saint Joseph's University, and is a Certified Public
Accountant.
KEVIN SMITH joined the Company in January 2002 as Vice President of
Sales and Marketing. From 2000 to 2001, he served as Director of National
Accounts for Bi-Coastal Pharmaceutical, Inc., a pharmaceutical sales
representation company. From 1999 to 2000, he served as National Accounts
Manager for Mova Laboratories Inc., a pharmaceutical manufacturer. From 1991 to
1999, Mr. Smith served as National Sales Manager at Sidmak Laboratories, a
pharmaceutical manufacturer. Mr. Smith has extensive experience in the generic
sales market, and brings to the Company a vast network of customers, including
retail chain pharmacies, wholesale distributors, mail-order wholesalers and
generic distributors. Mr. Smith has a Bachelors' Degree in Business
Administration from Gettysburg College.
BERNARD SANDIFORD joined the Company in November 2002 as Vice President
of Operations. From 1998 to 2002, he was the President of Sandiford Consultants,
a firm specializing in providing consulting services to drug manufacturers for
Good Manufacturing Practices and process validations. His previous employment
included senior operating positions with Halsey Drug Company, Barr Laboratories,
Inc., Duramed Pharmaceuticals, Inc., and Revlon Health Care
11
Group. In addition to these positions, Mr. Sandiford performed various
consulting assignments regarding Good Manufacturing Practices for several
companies in the pharmaceutical industry. Mr. Sandiford has a Bachelors of
Science Degree in Chemistry from Long Island University.
WILLIAM SCHRECK joined the Company in January 2003 as Materials
Manager. In May 2004, he was promoted to Vice President of Logistics. From 1999
to 2001, he served as Vice President of Operations at Nature's Products, Inc.,
an international nutritional and over-the-counter drug product manufacturing and
distribution company. Mr. Schreck's prior experience also includes executive
management positions at Ivax Pharmaceuticals, Inc., a division of Ivax
Corporation, Zenith-Goldline Laboratories and Rugby-Darby Group Companies, Inc.
Mr. Schreck has a Bachelor of Arts Degree from Hofstra University.
DAVID FARBER was elected Treasurer of the Company in August 2003. In
December 2003, Mr. Farber's position was changed to Vice President of Special
Projects. From 1996 to 2002, Mr. Farber was the principal and president of The
Vitamin Outlet, Inc. and from 1990 to 1994, he was and is the principal and
president of Vital Foods, Inc. (from 1990 to 1994), both successful multi-store
vitamin and health food distribution companies in the Detroit, Michigan area.
Previously, Mr. Farber was employed by Michigan Pharmacal Corporation for 13
years, where he served in various management positions, including Executive Vice
President and Production Manager.
JEFFREY FARBER was elected Secretary of the Company in August 2003. For
the past five years, Mr. Farber has served as the President and owner of Auburn
Pharmaceutical, a national generic pharmaceutical distributor. Prior to 1999, he
served as a President of Major Pharmaceutical Corporation. Mr. Farber graduated
from Western Michigan University with a Bachelor of Science Degree in Business,
and participated in the Pharmacy Management Graduate Program at Long Island
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.
12
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 2004, Fiscal 2003 and
Fiscal 2002.
Long Term Compensation
---------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Securities All Other
Principal Fiscal Other Annual Restricted Stock Underlying LTIP Payouts Compensation
Position Year Salary Bonus Compensation Award(s) Options/SARs Amount Amounts
---------------------- ------ -------- ------- ------------- ---------------- ------------ ------------ ------------
William Farber 2004 0 0 0 0 87,500 0 26,000(4)
Chairman of the 2003 0 0 0 0 37,500 0 3,000(4)
Board of
Directors and 2002 0 0 0 0 0 0 3,000(4)
Chief Executive
Officer
Arthur P. Bedrosian(2) 2004 212,548(1) 240,000 0 0 177,900 0 0
President 2003 179,175(1) 77,500 0 0 114,600 0 0
2002 64,385 0 0 0 0 0 0
Larry Dalesandro(3) 2004 135,842(1) 156,000 0 0 129,595 0 0
Chief Financial 2003 134,984(1) 59,675 0 0 74,595 0 0
Officer, Treasurer 2002 116,698(1) 25,000 0 0 0 0 0
Kevin Smith(5) 2004 165,844(1) 158,410 0 0 81,761 0 0
Vice President of 2003 162,785(1) 46,500 0 0 48,761 0 0
Sales and Marketing 2002 65,577(1) 0 0 0 10,001 0 0
Bernard Sandiford(6) 2004 159,440(1) 78,000 0 0 37,880 0 0
Vice President of 2003 106,293(1) 0 0 0 23,070 0 0
Operations 2002 0 0 0 0 0 0 0
13
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. On December 1, 2004, Mr. Dalesandro voluntarily
resigned the position of Chief Financial Officer.
4. These amounts represent payments to Mr. Farber for participation and
attendance at Board of Director Meetings.
5. Mr. Smith joined the Company in January 2002 as Vice President of
Sales and Marketing.
6. Mr. Sandiford joined the Company in November 2002 as Vice President
of Operations.
14
OPTION/SAR GRANTS IN FISCAL 2004
The following table sets forth information concerning the stock options granted
to certain executive employees of the Company during Fiscal 2004.
(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 25,000@$17.36 10/23/2013
Chairman of the Board of 50,000 12% 25,000@$16.04 5/10/2014
Directors and Chief
Executive Officer
--------------------------------------------------------------------------------------------------------------------
Arthur Bedrosian 33,000@$17.36 10/23/2013
President 63,000 15% 30,000@$16.04 5/10/2014
--------------------------------------------------------------------------------------------------------------------
Larry Dalesandro 25,000@$17.36 10/23/2013
Chief Financial Officer 55,000 13% 30,000@$16.04 5/10/2014
--------------------------------------------------------------------------------------------------------------------
Kevin Smith 13,000@$17.36 10/23/2013
Vice President of Sales 33,000 8% 20,000@$16.04 5/10/2014
and Marketing
--------------------------------------------------------------------------------------------------------------------
Bernard Sandiford 10,000@$17.36 10/23/2013
Vice President of 22,500 5% 12,500@$16.04 5/10/2014
Operations
--------------------------------------------------------------------------------------------------------------------
15
AGGREGATED OPTION EXERCISES IN FISCAL 2004 AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth information concerning the aggregate number and
value of options exercised during Fiscal 2004, and held or unexercised as of
June 30, 2004 by the Named Executive Officers. Lannett does not currently offer
stock appreciation rights to its employees.
(a) (b) (c) (d) (e)
Value of
Number 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
--------------------------------------------------------------------------------------------------------------------
William Farber 37,500/ $264,500/
Chairman of the Board of 0 $0 50,000 $0
Directors and Chief
Executive Officer
--------------------------------------------------------------------------------------------------------------------
Arthur Bedrosian 38,300/ $290,143/
President 0 $0 139,600 $580,285
--------------------------------------------------------------------------------------------------------------------
Larry Dalesandro 24,865/ $175,381/
Chief Financial Officer 0 $0 104,730 $350,762
--------------------------------------------------------------------------------------------------------------------
Kevin Smith 17,920/ $154,686/
Vice President of Sales 0 $0 63,841 $245,785
and Marketing
--------------------------------------------------------------------------------------------------------------------
Bernard Sandiford 5,126/ $0/
Vice President of 0 $0 32,754 $0
Operations
--------------------------------------------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Arthur
Bedrosian, Kevin Smith, Bernard Sandiford and William Schreck (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. Under the agreements, the Named
Executive employees may be terminated at any time with or without cause, or by
reason of death or disability. In certain termination situations, the Company is
liable to pay severance compensation to the Named Executive of between one year
and three years.
16
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, 2004, to be filed with the Securities and
Exchange Commission.
Audit Committee: Ronald West
Marvin Novick
Myron Winkelman
17
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. The line of credit had a stated interest rate equal to the
prime interest rate plus 1%. In the Company's opinion, the terms of these
transactions were not more favorable to the related party than would have been
to a non-related party. Mr. Farber is currently the holder of 13,519,129 shares
of common stock of the Company, or approximately 56% of the Company's issued and
outstanding shares. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
The Company had sales of approximately $590,000, $348,000 and $174,000
during the years ended June 30, 2004, 2003 and 2002, respectively, to a generic
distributor, Auburn Pharmaceutical Company (the "related party") in which the
owner, Jeffrey Farber, is the son of the Chairman of the Board of Directors and
principal shareholder of the Company, William Farber. The Company also incurred
sales commissions payable to the related party of approximately $0, and $68,000
during the years ended June 30, 2004 and 2003, respectively. Accounts receivable
includes amounts due from the related party of approximately $117,000, and
$95,000 at June 30, 2004 and 2003, respectively. In the Company's opinion, the
terms of these transactions were not more favorable to the related party than
would have been to a non-related party.
Stuart Novick, the son of Marvin Novick, a Director on the Company's Board
of Directors, was employed by two insurance brokerage companies (the "Insurance
Companies") that provide insurance agency services to the Company. The Company
paid approximately $499,000, $28,000 and $224,000 during Fiscal 2004, 2003 and
2002, respectively, to the Insurance Companies for various insurance coverage
policies. There was approximately $9,400 and $0 due to the Insurance Companies
as of June 30, 2004 and 2003, respectively. In the Company's opinion, the terms
of these transactions were not more favorable to the related party than would
have been to a non-related party.
18
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 2005. Grant Thornton LLP served as the
independent auditors of Lannett during Fiscal 2004, 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 2005 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 2005 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 2004, 2003 and
2002.
Audit Fees Audit-Related Tax Fees All Other Fees Total Fees
Fees (1) (2) (3)
----------------------------------------------------------------------------------------------------------------------
Fiscal 2004:
----------------------------------------------------------------------------------------------------------------------
$92,124 $5,000 $29,621 $38,325 $165,070
----------------------------------------------------------------------------------------------------------------------
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 2004 - Fees paid for services rendered in connection with
arbitrage calculations on certain tax exempt bond issues, review of
stock option documentation, review of S-3 registration statement filing
for the four million shares granted to Jerome Stevens Pharmaceuticals,
review of various SEC correspondence and fees for services rendered in
connection with the Company's application to various local and state
entities for benefits related to the Company's facility expansion.
19
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 facility expansion; and services rendered in
connection with an engagement for interest expense arbitrage
calculations on certain tax exempt bond issues.
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 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 UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL TO
APPROVE THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT
AUDITORS.
2004 ANNUAL REPORT TO STOCKHOLDERS
The Company's 2004 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: December 16, 2004 LANNETT COMPANY, INC.
By: /s/ William Farber
---------------------------------------
William Farber, Chairman of the Board
20
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 expert
or special assurance as to the Corporation's financial statements or any
professional certification as to the outside auditor's work.
A-1
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
LANNETT COMPANY, INC.
PROXY FOR
ANNUAL MEETING OF STOCKHOLDERS
January 13, 2005
This proxy is solicited on behalf of the Board of Directors. The
undersigned shareholder of Lannett Company, Inc., a Delaware corporation
("Lannett"), hereby appoints William Farber and Michael Tuterice and either of
them, as proxies with full power of substitution, for the undersigned to vote
the number of shares of common stock of Lannett that the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders of
Lannett to be held on January 13, 2005, at 10:00 a.m. local time, at the
Company's facility at 9001 Torresdale Avenue, Philadelphia, PA 19136 and at any
adjournment or postponement thereof, on the following matters that are more
particularly described in the Proxy Statement dated December 16, 2004.
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 and 2. Receipt of the Proxy Statement,
dated December 16, 2004, is hereby acknowledged.
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.
1. Proposal to elect directors of Lannett, each to serve until
Lannett's next annual meeting of stockholders or until their
respective successors have been duly elected and qualified.
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
FOR ALL NOMINEES LISTED
BELOW
William Farber, Ronald West, Myron Winkelman and Albert I. Wertheimer,
to hold office until the next annual meeting or until their respective
successors have been duly elected and qualified.
[ ] FOR, EXCEPT VOTE WITHHELD FOR THE FOLLOWING NOMINEES
------------------------------------------------------------
2. Proposal to approve the appointment of Grant Thornton LLP as
independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
--------------------------------------------
--------------------------------------------
Name of Stockholder(s)
--------------------------------------------
Signature of Stockholder(s)
Please sign your name exactly as it appears
hereon. Joint owners must each sign. When
signing as attorney, executor,
administrator, trustee or guardian, please
give your full title as it appears thereon.
Date: , 2004
------------------------------
PLEASE MARK, SIGN, DATE AND RETURN USING THE ENCLOSED ENVELOPE