UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
December 6, 2006
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Date of Report (Date of earliest event reported)
ELITE PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 333-45241 22-3542636
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
165 Ludlow Avenue, Northvale, New Jersey 07647
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(Address of principal executive offices)
(201) 750-2646
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITION AGREEMENT
On December 6, 2006, Elite Pharmaceuticals Inc., a Delaware corporation
("ELITE"), entered into a Strategic Alliance Agreement (the "ALLIANCE
AGREEMENT") with Dr. Veerappan S. Subramanian ("VS") and VGS Pharma, LLC, a
Delaware limited liability company ("VGS"), under which (i) Dr. Subramanian was
appointed to Elite's Board of Directors, (ii) VGS made a $2,000,000 equity
investment in Elite, (iii) Elite engaged Dr. Subramanian to serve as strategic
advisor to Elite on the research, development and commercialization of Elite's
existing pipeline and (iv) Elite and VGS formed Novel Laboratories Inc., a
Delaware corporation ("NOVEL"), as a separate specialty pharmaceutical company
for the research, development, manufacturing, licensing and acquisition of
specialty generic pharmaceuticals.
VS is a highly accomplished formulator and experienced business
executive in the generic pharmaceutical industry. VS has been responsible for
the development and United States Food and Drug Administration (the "FDA")
approval of over 150 specialty and generic drug products. VGS is wholly-owned
subsidiary of Kali Capital, L.P., which is controlled by Kali Management, LLC
("KALI"), its general partner, and Kali is controlled by Anu Subramanian, its
managing member and daughter of VS.
Pursuant to the Alliance Agreement, Elite entered into (i) an Advisory
Agreement with VS, (ii) a Registration Rights Agreement with VGS and VS, and
(iii) a Stockholders Agreement with VS, VGS and Novel and Novel entered into an
employment agreement with VS.
THE ALLIANCE AGREEMENT. The specialty pharmaceutical product initiative
of the strategic alliance between Elite and VS is to be conducted by a recently
organized corporation, Novel, of which Elite acquired 49% and VGS acquired 51%
of its Class A Voting Common Stock for $9,800 and $10,200 respectively. Pursuant
to the Alliance Agreement, VGS acquired for $2,000,000: (i) 957,396 shares of
Elite's Common Stock (the "ACQUIRED ELITE SHARES") at approximately $2.089 per
share (the trading average closing price of the Common Stock during the ten
trading days on the American Stock Exchange immediately preceding December 6,
2006) and (ii) a five year Warrant to purchase 478,698 shares of Elite's Common
Stock (the "WARRANT SHARES"), for cash, at a price of $3.00 per share, subject
to adjustment upon the occurrence of certain events.
Elite contributed $2,000,000 to Novel and has agreed to provide
additional contributions within 30 days of the achievement of certain
performance milestones (e.g., the initiation of development programs for
prospective products, commencement and/or completion of clinical and/or
bio-equivalence studies for prospective products, filings with the FDA of new
drug or abbreviated new drug applications related to prospective products) to be
mutually agreed to by Elite and VS, who is employed as Chief Executive Officer
of Novel, in the Novel's Initial Business Plan (as defined in the Alliance
Agreement), which may be modified in a subsequent Annual Business Plan (as
defined in the Alliance Agreement), to occur during the initial 30 months
following December 6, 2006 (collectively, the "PERFORMANCE MILESTONES"), with
remaining contributions being subject to acceleration with unanimous approval of
the Board of Directors of Novel. Such additional contributions shall be in
amounts mutually agreed to by Elite and VS as provided in the Initial Business
Plan and each subsequent Annual Business Plan during the initial 30 month period
and the aggregate amount of such additional contributions shall not exceed
$25,000,000, without the prior consent of Elite. Elite has agreed to provide
Novel personnel staff, facility, supplies and equipment pending Novel's becoming
fully operational with its own staff, facility, equipment and supplies.
In the event that (i) Elite defers for more than 90 days the payment of
a contribution installment due to Novel's failure to achieve a Performance
Milestone, (ii) Elite fails to make a requisite contribution following Novel's
achieving a Performance Milestone or (iii) NOVEL requires additional financing
beyond amounts provided in the Business Plan or Elite's agreed upon additional
contributions, Novel may seek such financing through a subscription offering to
its Class A Stockholders and, to the extent not fully subscribed, from third
parties.
Elite agreed to use its best efforts to elect VS a member of its Board
of Directors as long as Elite and its "permitted transferees" own at least 40%
of Novel's outstanding capital stock and VS is Chairman of the Board and Chief
Executive Officer of Novel.
THE ADVISORY AGREEMENT. VS has agreed to provide advisory services to
Elite, including but not limited to, assisting in the implementation of current
and new drug product development projects of Elite and assisting in Elite's
recruitment of additional R&D staff members. As an inducement to enter into the
agreement, Elite granted VS a non-qualified stock option to purchase up to
1,750,000 shares of Common Stock (the "OPTION SHARES") at a price of $2.13 per
share. The option vests as to 250,000 shares immediately and in subsequent
250,000 share installments, with one vesting on May 6, 2007, another on December
6, 2007, a third upon Elite's acceptance of the Initial Business Plan of Novel,
and the other installments vesting on the accomplishment of certain milestones
with respect to the first or second drug product developed by Elite (excluding
drug products of Novel) on or after the 60th day after December 6, 2006, under
the advisory services provided to Elite.
The option terminates on December 6, 2016, or 90 days following a
termination of his advisory services to Elite or his employment by Novel other
than a termination without Cause or by VS for Good Reason or 48 months after the
termination of his advisory services under the Advisory Agreement or his
employment under the employment agreement as a result of: (i) a termination by
Elite of the Advisory Agreement or by Novel of the employment agreement without
Cause or by VS without Good Reason or (ii) the post-December 6, 2007,
termination of the term of the Advisory Agreement or of the Novel employment
agreement.
All unvested options terminate upon the termination of the Advisory
Agreement (other than a termination by Elite without cause or by VS for Good
Reason) or at such time as Elite and its permitted transferees own in the
aggregate less than 20% of the outstanding capital stock of Novel, except to the
extent Elite at its sole discretion has determined that VS has provided
substantial contribution to the development of any drug product which would
otherwise trigger the vesting of options notwithstanding the failure to satisfy
the foregoing 20% threshold.
THE REGISTRATION RIGHTS AGREEMENT. Elite has granted grant certain
rights to have the Acquired Elite Shares, the Option Shares and Warrant Shares
registered for reoffering under the Securities Act of 1933, as amended (the
"ACT"), including the provision of one Registration Statement upon the demand of
holders of 75% of the Acquired Elite Shares, Warrant Shares (as defined in Item
3.02 below) and Option Shares (as defined in Item 3.02 below) and the rights to
have registered as part of a registration statement related to an offering of
Common Stock by Elite or other security holders. Elite is to bear all reasonable
expenses other than underwriting discounts and commissions in connection with
the registration and qualification under applicable state securities law.
THE STOCKHOLDERS' AGREEMENT. The Stockholders' Agreement provides that
as long as each of Elite and VGS owns at least 10% of the shares of Class A
Voting Common Stock of Novel, each shall designate one of the two Directors to
constitute the Novel Board of Directors, with the VGS designee to be VS, unless
otherwise approved by Elite. It prohibits the taking of certain actions without
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approval of the two designees, including, but not limited to, amendments of
charter, by-laws and other governance agreements, spin-offs or public offerings
of equity securities, a liquidation or dissolution, dividends, authorization or
issuance of additional securities or options, bankruptcy, a material change of
the business or a Business Plan, approval of a Business Plan and the yearly
operating budget, creation of a security interest, capital expenditures in
excess of 110% of the amount provided in the Business Plan, investments in
excess of the amounts approved in the Business Plan, an increase or decrease of
the Board; and any investments by VS in any "Competitive Company" or its
affiliate.
It further provides that determination of "Cause" or the "Disability"
of VS under his employment agreement shall be made solely in the reasonable
discretion of the Elite designee.
Except for certain enumerated permitted transfers, the Stockholders
Agreement provides that no transfer of Novel stock may be made without the
consent of the other stockholders.
In the event Elite fails to make required additional contributions, VGS
has the right to purchase at the original purchase price from Elite that
proportion of its original shares of Novel Class A Common Stock equal to the
proportion of the required additional contributions not made by Elite.
In the event of VS's resignation from Novel for other than Good Reason
or his termination by Novel for Cause or his death or disability as defined in
the Employment Agreement, Elite has the corresponding right to acquire up to 75%
of VGS's original shares of Class A Common Stock of Novel at the original
purchase price; such percentage to be reduced to 50% and 25% and 0% upon the
first, second and third anniversary of the Stockholders' Agreement, with a pro
rata portion of such reduction to be effected upon the death or disability of VS
during the applicable period. Each of Elite and VGS has a right to acquire at
the then fair value, Elite's or VGS's shares of Novel upon the bankruptcy,
dissolution or liquidation, a change of control of the other or, if as a result
of the purchases at the original purchase price, the percentage of Novel owned
by such party is less than 10% of Novel.
THE EMPLOYMENT AGREEMENT. Novel has agreed to employ VS as its Chief
Executive Officer at a salary of $220,000 per annum, with bonuses and options to
purchase Novel's Common Stock to be granted at the discretion of Novel's Board
of Directors. VS is to perform his duties three full business days a week.
VS's employment may be terminated for "Cause" as defined therein or by
VS for "Good Reason" as defined. Either party may terminate the employment upon
30-business days prior written notice to the other.
VS has agreed to a confidentiality covenant. VS also has agreed to a
non-solicitation covenant and not to directly or indirectly, manage, control,
consult with, or engage (as either an employee or consultant) in any business or
activity anywhere in the world involving a drug product that is competitive as
defined with any drug products being developed or marketed by Novel, or proposed
in a Business plan to be developed by Novel or its affiliate, or any related
inventions or other intellectual property of Novel or any of its respective
subsidiaries or affiliates (collectively, a "COMPETITIVE ACTIVITY"); and without
the prior unanimous approval of the Novel Board to make any investment (whether
equity or debt) not exceeding an aggregate of 5% of the equity, in any person
engaging, or providing services or financing for, a Competitive Activity (a
"COMPETITIVE COMPANY"), including any follow-on investments in any entity that,
subsequent to the time of the initial investment, has become a Competitive
Company, except a financing provided to a subsidiary or affiliate of a
Competitive Company which is not itself engaged in a Competitive Activity during
his employment and, unless his termination was by Novel without "Cause" or by VS
for "Good Reason", for one year subsequent as to non-competition and two years
subsequent as to non-solicitation.
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ITEM 3.02 UNREGISTERED SALE OF EQUITY SECURITIES
See information under Item 1.01 with respect to the sale of 957,396
shares of Common Stock (the "SHARES") by Elite to VGS Pharma LLC ("VGS") and
Warrants issued to VGS to purchase 478,698 shares of Elite Common Stock (the
"WARRANT SHARES") and the grant to Veerappan Subramanian ("VS") by Elite of
non-qualified stock options to purchase up to 1,750,000 shares of Elite's Common
Stock (the "OPTION SHARES").
The issuance of the 957,396 Shares increased the shares of Elite's
Common stock outstanding to 20,456,721. The $2 million proceeds were contributed
by Elite to Novel Laboratories Inc.
The certificates for the Shares and the Warrants contain legends that
no disposition of the securities including the Warrant Shares may be made
without registration under the Securities Act of 1933, as amended (the "ACT")
unless pursuant to an exemption therefrom. Similarly, any Option Shares issued
are to contain the foregoing restriction on resales.
Pursuant to the Registration Rights Agreement, Elite has provided
certain registration rights to VGS and VS with respect to the Shares, the
Warrant Shares and the Option Shares.
The issuances of the Shares, Warrants and Options were exempt from
registration under the Act pursuant to the exemption provided by Section 4(2) of
the Act.
ITEM 5.01 ELECTION OF DIRECTORS
Pursuant to the Strategic Alliance Agreement, among Elite, VGS Pharma
and Veerappan Subramanian ("VS"), Elite's Board of Directors increased the
number of Directors to 5 and elected VS on December 6, 2006 as the additional
Director.
VS, age 56, has been a pharmaceutical executive since 1981 and a
pharmaceutical entrepreneur since 1997, when he formed Kali Laboratories, Inc.
("KALI LABS"). Kali Labs was acquired by Par Pharmaceuticals, Inc. in 2004 and
VS continued to work as an executive vice president at Par Pharmaceuticals after
the acquisition. VS ended his relationship with Par Pharmaceuticals in January
2006. Prior to organizing Kali Labs, VS served for 6 years as vice president of
scientific affairs for Zenith Laboratories, Inc. Prior to working with Zenith
Laboratories, VS was (i) the Director of New Product Development and Technical
Services for Kali Pharma, Inc., (ii) a Senior Scientist, Commercial Products
with Vicks Research Center, (iii) a Research Pharmacist, Dermatological with
Johnson & Johnson and (iv) a Research Pharmacist in Product Development with
E.R. Squibb & Sons. VS has a Ph.D. in Pharmacy (1981) from Rutgers University, a
M.S. in Phamaceutics (1973) from Birla Institute of Technology & Science, and a
B.S. in Pharmacy (1971) from Madurai Medical College.
See Item 1.01 for information concerning his employment agreement with
Novel Pharmaceuticals Inc., a joint venture owned by Elite and VGS and the
Advisory Agreement between Elite and VS.
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ITEM 8.01 OTHER EVENTS
On December 12, 2006, the Registrant issued a press release announcing
the commencement of a strategic alliance with Dr. Veerappan Subramanian, the
formation of Novel Laboratories Inc. and the related transactions. A copy of the
press release is attached hereto as exhibit 99.1.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
a) Not applicable.
b) Not applicable.
c) Exhibits
Exhibit No. Exhibit
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3(a) Copy of Warrant issued to VGS
3(b) Copy of Nonqualified Stock Option granted to VS
10(a) Copy of Strategic Alliance Agreement among Registrant, VGS
Pharma ("VGS") and Veerappan S. Subramanian ("VS") dated as
of December 6, 2006
10(b) Copy of Advisory Agreement between Registrant and VS
10(c) Copy of Registration Rights Agreement between Registrant,
VGS and VS
10(d) Copy of Employment Agreement between Novel Laboratories Inc.
("Novel") and VS
10(e) Copy of Stockholders' Agreement between Registrant, VGS, VS
and Novel
99.1 Press Release, dated December 12, 2006.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 12, 2006
ELITE PHARMACEUTICALS, INC.
By: /s/ BERNARD BERK
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Name: Bernard Berk
Title: Chief Executive Officer
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