SUMMARY COMPENSATION TABLE

Employment Agreements and Change in Control Arrangements

Gary A. Shangold, M.D. In December 2002, the Company entered into a three-year employment agreement with Dr. Shangold pursuant to which he agreed to serve as the Company’s President and Chief Executive Officer. The Company agreed to pay Dr. Shangold an annual base salary of $350,000 and a guaranteed bonus of $150,000. In addition, Dr. Shangold is eligible to receive an annual discretionary bonus of up to $262,500, which shall be determined at the sole discretion of the Board of Directors. Dr. Shangold’s employment agreement also entitled him to receive an investment and fee bonus of up to $375,000 based on investments in or fees earned by NovaDel during fiscal year 2003. In fiscal year 2003, the Company paid Dr. Shangold such investment and fee bonus in the amount of $249,780. Pursuant to the employment agreement, Dr. Shangold was also granted non-plan options to purchase 1,000,000 shares of Common Stock (at an exercise price of $1.93 per share) which vest over a three-year period. He was also granted an option to purchase 125,000 shares of Common Stock at $1.82 per share, which vested on February 23, 2004. In the event that Dr. Shangold’s employment is terminated upon a change-in-control of the Company, the agreement provides for the following benefits: (i) continuation of the payment of Dr. Shangold’s base salary for a period of one year following such termination (which shall be reduced by any amounts actually earned by Dr. Shangold during the one-year period following such termination); (ii) payment of any bonus that would have otherwise been due to Dr. Shangold by the end of the calendar year in which such termination occurs; and (iii) payment of any expense reimbursement amounts owed to Dr. Shangold through the date of termination. In addition, all stock options that have not vested as of such termination date shall be accelerated and deemed to have vested as of the date of termination.

Harry A. Dugger, III, Ph.D. Effective January 1, 2002, the Company entered into a new three-year employment agreement with Dr. Dugger at a base salary, for the first year, of $248,500 per year (which increases each year by the greater of the CPI index or 5%). Dr. Dugger retired from the Company on January 1, 2005.

Mohammed Abd El-Shafy, Ph.D. In May 2002, the Company entered into a three-year employment agreement with Dr. El-Shafy, who was appointed Vice President-Formulations. Pursuant to the agreement, he received a base salary, for the first year, of $110,000, which increased in January 2003 to $140,000 and again in April 2003 to $180,000. In April 2004, he entered into an amended employment agreement for an additional three-year term at a base salary of $200,000 per year. Since his employment, he has been granted non-plan options to purchase 150,000 shares of Common Stock at $3.02 per share. In addition, Dr. El-Shafy was granted options to purchase 50,000 shares of Common Stock at $1.51 per share and options to purchase 50,000 shares of Common Stock at $1.65 per share under the 1998 Plan.

Barry C. Cohen. In May 2003, the Company entered into a three-year employment agreement with Mr. Cohen, who was appointed Vice President-New Business and Product Development. Pursuant to the agreement, he receives a base salary of $185,000, plus incentive bonuses. In addition, Mr. Cohen was issued options to purchase 75,000 shares of Common Stock at $2.04 per share under the 1998 Plan. Of such options, 35,000 have vested and 20,000 vest on each of May 13, 2005 and May 13, 2006. These options expire in May 2008. In January 2004, Mr. Cohen was given an increase of salary to $200,000 per year. He was also granted an option to purchase 75,000 shares of Common Stock at $1.65 per share, which vested on February 23, 2004. In the event that Mr. Cohen’s employment is terminated upon a change-in-control of the Company, the agreement provides for the following benefits: (i) continuation of the payment of Mr. Cohen’s base salary for a period of six months following such termination (which shall be reduced by any amounts actually earned by Mr. Cohen during the six-month period following such termination); (ii) payment of any accrued and unpaid bonus through the date of termination; and (iii) payment of any accrued and unpaid expense reimbursement amounts owed to Mr. Cohen through the date of termination. In addition, all stock options that have not vested as of such termination date shall be accelerated and deemed to have vested as of the date of termination. Lastly, for the shorter of six months following such termination and the balance of the term of Mr. Cohen’s agreement, the Company shall provide Mr. Cohen continued coverage under all major medical and other health, accident, life or other disability plans or programs in which Mr. Cohen participated immediately prior to such termination.

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Donald J. Deitman. Effective January 1, 2002, the Company entered into a three-year employment agreement with Mr. Deitman pursuant to which he agreed to serve as the Company’s Chief Financial Officer. The agreement provided for a base salary, for the first year, of $125,000 per year (which increases each year by the greater of the CPI index or 5%). At the end of fiscal year 2004 his salary was 138,000 per year. Mr. Deitman retired from the Company in September 2004.

 

Jean W. Frydman, Esq. In May 2004, the Company entered into a three-year employment agreement with Jean W. Frydman, Esq., pursuant to which she agreed to serve as the Company’s Vice President, General Counsel and Corporate Secretary. The Company agreed to pay Ms. Frydman an annual base salary of $200,000, and certain incentive bonuses. In addition, Ms. Frydman was also granted non-plan options to purchase 100,000 shares of Common Stock at an exercise price of $1.98 per share (110% of the fair market value on the grant date) which vest, subject to certain conditions, over a three-year period. Such options have a term of 10 years. In the event that Ms. Frydman’s employment is terminated upon a change-in-control of the Company, the agreement provides for the following benefits: (i) continuation of the payment of Ms. Frydman’s base salary for a period of one year following such termination (which shall be reduced by any amounts actually earned by Ms. Frydman during the one-year period following termination); (ii) payment of any accrued and unpaid bonus through the date of termination; and (iii) payment of any accrued and unpaid expense reimbursement amounts owed to Ms. Frydman through the date of termination. In addition, all stock options that have not vested as of such termination date shall be accelerated and deemed to have vested as of the date of termination.

 

Henry Kwan, Ph.D. Effective December 21, 2004, the Company entered into a three-year employment agreement with Dr. Henry Kwan pursuant to which he agreed to serve as the Company’s Head of Pharmaceutical Sciences. The Company agreed to pay Dr. Kwan an annual base salary of $235,000, plus incentive bonuses. In addition, Dr. Kwan was also granted non-qualified options to purchase 150,000 shares of the Company’s Common Stock at an exercise price of $1.69 per share (110% of the fair market value on the grant date) which vest, subject to certain conditions, over a three-year period. Such options have a term of 10 years. In the event that Dr. Kwan’s employment is terminated upon a change-in-control of the Company, the agreement provides for the following benefits: (i) continuation of the payment of Dr. Kwan’s base salary for a period of six months following such termination (which shall be reduced by any amounts actually earned by Dr. Kwan during the six-month period following termination); (ii) payment of any accrued and unpaid bonus through the date of termination; and (iii) payment of any accrued and unpaid expense reimbursement amounts owed to Dr. Kwan through the date of termination. In addition, all stock options that have not vested as of such termination date shall be accelerated and deemed to have vested as of the date of termination.

 

Michael E.B. Spicer. Effective December 20, 2004, the Company entered into a three-year employment agreement with Michael E.B. Spicer pursuant to which he agreed to serve as the Company’s Chief Financial Officer. The Company agreed to pay Mr. Spicer an annual base salary of $235,000, plus incentive bonuses. In addition, Mr. Spicer was also granted non-qualified options to purchase 100,000 shares of the Company’s Common Stock at an exercise price of $1.57 per share (110% of the fair market value on the grant date) which vest, subject to certain conditions, over a three-year period. Such options have a term of 10 years. In the event that Mr. Spicer’s employment is terminated upon a change-in-control of the Company, the agreement provides for the following benefits: (i) continuation of the payment of Mr. Spicer’s base salary for a period of one year following such termination (which shall be reduced by any amounts actually earned by Mr. Spicer during the one-year period following such termination); (ii) payment of any accrued and unpaid bonus through the date of termination; and (iii) payment of any accrued and unpaid expense reimbursement amounts owed to Mr. Spicer through the date of termination. In addition, all stock options that have not vested as of such termination date shall be accelerated and deemed to have vested as of the date of termination.

 

The foregoing agreements also provide for certain non-competition and non-disclosure covenants on the part of such executive. However, with respect to the non-competition covenants, a court may

 

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determine not to enforce such provisions or only partially enforce such provisions. Additionally, each of the foregoing agreements provides for certain fringe benefits, such as inclusion in pension, profit sharing, stock option, savings, hospitalization and other benefit plans at such times as the Company may adopt them.

 

Report of the Compensation Committee on Executive Compensation

 

The Compensation Committee is responsible for the establishment and review of the Company’s compensation policies and programs.

 

Compensation Philosophy

 

Compensation of the Company’s executives is intended to attract, retain and reward persons who are essential to the enterprise. The fundamental policy of the Company’s executive compensation program is to offer competitive compensation to executives that appropriately reward the individual executive’s contribution to corporate performance. The Board of Directors utilizes subjective criteria for evaluation of individual performance. The Board of Directors focuses on three primary components of the Company’s executive compensation program, each of which is intended to reflect individual and corporate performance: base salary compensation, cash bonuses and long-term incentive compensation.

 

Except as set forth herein, the Company does not have any annuity, retirement, pension, deferred or incentive compensation plan or arrangement under which any Executive Officer is entitled to benefits, nor does the Company have any long-term incentive plan pursuant to which performance units or other forms of compensation are paid. Executive Officers who qualify will be permitted to participate in the Company’s Plans which were adopted in May 1992, February 1997 and June 1998, respectively. In September 1998, the Board of Directors adopted an investment retirement account plan, and in December 2003, a 401(K) Plan, in which all employees of the Company are eligible to participate. Executive Officers may participate in group life, health and hospitalization plans, if and when such plans are available generally to all employees. The Compensation Committee is satisfied that the compensation and Plans provided to the Executive Officers of the Company are structured and operated to create strong alignment with the long-term best interests of the Company and its stockholders.

 

Chief Executive Officer Compensation

 

The compensation of the Company’s Chief Executive Officer is determined by his employment agreement with the Company dated December 3, 2002 which entitles him to an annual base salary of $350,000. See “Employment Agreements and Change in Control Arrangements” on page 16. Dr. Shangold was paid an annual salary of $350,000 through July 31, 2004. In addition, Dr. Shangold’s employment agreement provides for a guaranteed bonus of $150,000 and an annual discretionary bonus of up to $262,500, which shall be determined at the sole discretion of the Board. Dr. Shangold received his guaranteed bonus of $150,000 for the fiscal year ending July 31, 2004. Upon execution of his employment agreement, Dr. Shangold was also granted non-plan options to purchase 1,000,000 shares of Common Stock (at an exercise price of $1.93 per share) which vest over a three year period beginning in December 2003. On February 24, 2004, Dr. Shangold was granted an option to purchase 125,000 shares of Common Stock (at an exercise price of $1.82 per share) which vested immediately.

 

The determination by the Compensation Committee of Dr. Shangold’s remuneration is based upon methods consistent with those used for other senior executives. The Compensation Committee considers certain quantitative factors, including the Company’s financial, strategic and operating performance for the year. The qualitative criteria include such person’s leadership qualities and management skills, as exhibited by their innovations, time and effort devoted to the Company and other general considerations. The Compensation Committee also takes note of comparable remuneration of other similarly situated executives at comparable companies. Based on the performance of the Company, the Compensation Committee believes that such compensation was appropriate.

 

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Policy on Deductibility of Compensation. Section 162(m) of the Internal Revenue Code limits the tax deduction to $1 million for compensation paid to any one executive officer, unless certain requirements are met. The Compensation Committee may award compensation that is not deductible under Section 162(m) if it believes that such awards would be in the best interest of the Company and its stockholders.

 

Compensation Committee
Lawrence Jay Kessel, M.D., FACP, Chair
William F. Hamilton, Ph.D.
Charles Nemeroff, M.D., Ph.D.

 

In accordance with the rules of the SEC, the information contained in the Report of the Compensation Committee set forth above shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to the SEC’s Regulation 14A, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Directors, Executive Officers and beneficial owners of more than 10% of our Common Stock are required by Section 16(a) of the Exchange Act and related regulations to file ownership reports on Forms 3, 4 and 5 with the Securities and Exchange Commission and the principal exchange upon which such securities are traded or quoted and to furnish us with copies of the reports. Based solely on a review of the copies of such forms furnished to us, we believe that from August 1, 2003, to July 31, 2004, Dr. Shangold, Dr. Hamilton, Dr. Kessel, Dr. Nemeroff, Dr. Rachesky, Mr. Savage, Mr. Cohen and Dr. El-Shafy were not in compliance with their respective Section 16(a) filing requirements. The Company has revised its administrative procedures to enhance the ability of the Company’s Executive Officers and Directors to comply with such requirements. All others required to file reports have done so.

 

Certain Relationships and Related Transactions

 

To the best of management’s knowledge, other than (i) compensation for services as Executive Officers and Directors or (ii) as set forth below, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which the Company was or was to be a party, in which the amount involved exceeds $60,000, and in which any Director or Executive Officer, or any security holder who is known by the Company to own of record or beneficially more than 5% of any class of the Common Stock, or any member of the immediate family of any of the foregoing persons, has an interest.

 

During December 2001, the Company received net proceeds of approximately $3,000,000 in connection with a private placement of 4,000,000 units, which were purchased by Dr. Lindsay Rosenwald. Each unit consisted of one share of Common Stock, and a warrant (which expires December 2008) to purchase an additional share of our Common Stock at an exercise price of $.75. As part of the purchase agreement, NovaDel agreed to elect to the Board of Directors, a Director to be nominated by Dr. Rosenwald (as of the date hereof, no such nominee had been selected) and to permit Dr. Rosenwald, or his representative, to attend meetings of the Board of Directors. Appropriate confidentiality and non-disclosure agreements are in place to protect the Company’s confidential information. Dr. Rosenwald is a significant stockholder of the Company and is the Managing Member of Biomedical Investment Group.

 

In March 2002, the Company received net proceeds of approximately $2,000,000 in connection with a private placement of 2,666,667 additional units at a sale price of $.75 per unit. These units were purchased by Biomedical Investment Group of which Dr. Rosenwald is the Managing Member. The units

 

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include warrants to purchase 2,666,667 shares of Common Stock for an exercise price equal to $.75 per share. Such warrants expire in March 2009.

 

In April and May 2003, the Company engaged Paramount Capital, Inc. (“Paramount”), to assist the Company in the placement of units on a “best efforts” basis in connection with a private placement. Dr. Rosenwald is the Chairman, Chief Executive Officer and sole stockholder of Paramount. In connection with such offering, the Company entered into a non-exclusive Placement Agent Agreement dated as of January 15, 2003, with Paramount, pursuant to which the Company paid to Paramount for its services, a cash payment equal to approximately $360,000 and issued to Paramount (or its designees) warrants to purchase 160,017 shares of Common Stock with an exercise price equal to $1.65 per share and warrants to purchase 40,004 shares of Common Stock at an exercise price equal to $2.00 per share. The Company also agreed to pay to Paramount a non-accountable expense allowance equal to $25,000 to reimburse Paramount for its out-of-pocket expenses. Lastly, the Company agreed to indemnify Paramount against certain liabilities, including liabilities under the Securities Act.

 

In November 2003, the Company engaged Paramount to assist it in the placement of units on a “best efforts” basis in connection with a private placement. In connection with such offering, the Company entered into a non-exclusive Placement Agent Agreement dated as of January 15, 2003, with Paramount, pursuant to which the Company made a cash payment equal to approximately $850,000 and issued to Paramount (and its designees) unit purchase options to purchase 1,330,303 shares of Common Stock at an exercise price equal to $1.40 per share and warrants to purchase an additional 399,091 shares of Common Stock at an exercise price of $1.40 per share. The Company also paid Paramount a non-accountable expense allowance of $25,000 to reimburse Paramount for its out-of-pocket expenses. Lastly, the Company agreed to indemnify Paramount against certain liabilities, including liabilities under the Securities Act.

 

In April 2003, the Company entered into a license and development agreement with Manhattan Pharmaceuticals, Inc., for the worldwide, exclusive rights to its lingual spray technology to deliver propofol for pre-procedural sedation. In September 2004, the Company entered into a license and development agreement with Velcera Pharmaceuticals Inc. in connection with veterinary applications for currently marketed veterinary drugs. In October 2004, the Company entered into a license agreement with Hana Biosciences Inc., for the marketing rights in the United States and Canada for the Company’s ondansetron lingual spray technology. Dr. Rosenwald may be deemed to be an affiliate of Manhattan, Velcera and Hana.

 

During fiscal year 2004, the Company paid Robert F. Schaul, a former director, approximately $195,000, and approximately $160,000 for fiscal year 2003, for legal services rendered.

 

During fiscal year 2004, the Company paid John H. Klein, the Company’s former Chairman of the Board of Directors, approximately $186,000 and approximately $300,000 for fiscal year 2003, pursuant to a consulting agreement between Mr. Klein and the Company, as well as additional finder fees relating to the Company’s licensing agreements. The amount of the additional fees will be determined by the net revenue received by the Company in connection with a license and supply agreement the Company entered into with Par Pharmaceutical, Inc. The amount of fees paid to Mr. Klein will fluctuate over the term of the agreement, primarily dependent on the amount of milestone payments received by the Company from Par Pharmaceutical. At no time will the fees be more than four percent (4%) of the net revenue received by the Company in connection with the Par Pharmaceutical agreement.

 

 

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General

 

Stockholder Proposals for 2006 Annual Meeting of Stockholders and General Communications

 

Any stockholder proposals intended to be presented at the Company’s 2006 Annual Meeting of Stockholders must be received by the Company at its office in Flemington, New Jersey on or before October 10, 2005 in order to be considered for inclusion in the Company’s proxy statement and proxy relating to such meeting.

 

Pursuant to Rule 14a-4 promulgated under the Exchange Act, if a stockholder notifies NovaDel after December 24, 2005 of an intent to present a proposal at NovaDel’s 2006 Annual Meeting of Stockholders (and for any reason the proposal is voted upon at such annual meeting), NovaDel’s proxy holders will have the right to exercise discretionary voting authority with respect to the proposal, if presented at the meeting, without including information regarding the proposal in its proxy material.

 

Director Nomination Procedures

 

Nominations for election to the Board of Directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of Directors. Nominations made by stockholders must be made by written notice received by the Corporate Secretary of the Company within 10 days of the date on which notice of a meeting for the election of Directors is first given to stockholders. The Board of Directors carefully considers nominees regardless of whether they are nominated by stockholders or existing Directors.

 

Stockholders may communicate their comments or concerns about any other matter to the Board of Directors by mailing a letter to the attention of the Board of Directors, c/o the Company at its office in Flemington, New Jersey.

 

Management of the Company does not know of any matters, other than those stated in this Proxy Statement, that are to be presented for action at the Annual Meeting. If any other matters should properly come before the Annual Meeting, proxies will be voted on those other matters in accordance with the judgment of the persons voting the proxies. Discretionary authority to vote on such matters is conferred by such proxies upon the persons voting them.

 

Solicitation of Proxies

 

The Company will bear the cost of preparing, printing, assembling and mailing all proxy materials that may be sent to the Company’s stockholders in connection with this solicitation. Arrangements will also be made with brokerage houses, other custodians, nominees and fiduciaries, to forward soliciting material to the beneficial owners of the Common Stock of the Company held by such persons. The Company will reimburse such persons for reasonable out-of-pocket expenses incurred by them. In addition to the solicitation of proxies by use of the mails, officers and regular employees of the Company may solicit proxies without additional compensation, by telephone or facsimile transmission. The Company does not expect to pay any compensation for the solicitation of proxies.

 

By order of the Board of Directors

 

 

Gary A. Shangold, M.D.
President and Chief Executive Officer

 

February 7, 2005

 

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EXHIBIT A

 

 

CHARTER OF THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS OF

NOVADEL PHARMA INC.

 

The Board of Directors (the “Board”) of NovaDel Pharma Inc. (the “Company”) hereby adopts this Charter to establish the new governing principles of the Audit Committee.

 

1.	Role of the Audit Committee. The role of the Audit Committee is:

 

1.1       To act, directly, to fulfill the responsibilities that are required of audit committees under the regulations of the Securities and Exchange Commission (“SEC”) and the American Stock Exchange (“AMEX”) or other stock exchange or stock market on which the Company’s securities are traded or quoted (“other exchange”).

 

1.2	To oversee all material aspects of the Company’s reporting, control and audit functions.

 

1.3.      To oversee the independence and performance of the registered public accounting firm which acts as the Company’s independent registered public accounting firm.

 

1.4.      To provide a means for open communication between and among the Company’s independent registered public accounting firm, financial and senior management, the Audit Committee and the Board.

 

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits, or to determine that the Company’s financial statements are complete and accurate, or that they are in accordance with generally accepted accounting principles. The responsibility to plan and conduct audits is that of the Company’s independent registered public accounting firm. The Company’s management has the responsibility to determine that the Company’s financial statements are complete and accurate and in accordance with generally accepted accounting principles. It is also not the duty of the Audit Committee to ensure the Company’s compliance with laws and regulations. The primary responsibility for these matters also rests with the Company’s management.

 

2.	Composition of the Audit Committee.

 

2.1.      The Board shall designate the members of the Audit Committee at each annual organizational meeting of the Board, and the members shall serve until the next such meeting or until their successors are designated by the Board.

 

2.2.      All members of the Audit Committee shall satisfy the requirements for “independence” of a member of an audit committee under the regulations of the SEC and AMEX or other exchange. Each member of the Audit Committee shall be free of any relationship that, in the opinion of the Board, would interfere with his or her exercise of independent judgment as an Audit Committee member. All Audit Committee members shall have a basic understanding of finance and accounting, and shall be able to read and understand financial statements at the time of their appointment. One member of the Committee shall have accounting or related financial management experience, and the Board shall use best efforts to assure that one member of the Audit Committee is an “audit committee financial expert” as that term is defined by SEC rules. In addition, the members of the Audit Committee shall meet any other requirements of the applicable regulations of the SEC and AMEX or other exchange.

 

 

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3.          Meetings of the Audit Committee. The Audit Committee shall meet at least four times annually, and more frequently as circumstances require. The Audit Committee, or the Chair of the Audit Committee, shall be responsible for meeting with the independent registered public accounting firm to discuss the interim financial statements.

 

4.          Responsibilities of the Audit Committee. The Audit Committee shall have the responsibilities set forth below with respect to:

 

4.1.	The Company’s Independent Registered Public Accounting Firm.

 

4.1.1.   To appoint, oversee, and authorize the compensation of the registered public accounting firm which serves as the Company’s independent registered public accounting firm (referred to herein as the “independent registered public accounting firm”).

 

4.1.2.   To have sole authority to hire and fire the Company’s independent registered public accounting firm, subject to ratification by the Company’s stockholders.

 

4.1.3.   To approve in advance any audit or non-audit services provided by the Company’s independent registered public accounting firm.

 

4.1.4.   To actively engage in a dialogue with the independent registered public accounting firm about any matter that may impact upon that firm’s objectivity and independence, and to take any appropriate action to oversee the independence of the independent registered public accounting firm.

 

4.1.5.   On an annual basis, review and discuss all relationships the independent registered public accounting firm serving as the independent registered public accounting firm has with the Company in order to consider and evaluate the firm’s continued independence. In connection with its review and discussions, the Committee shall: (i) ensure that the registered public accounting firm submits to the Committee a formal written statement (consistent with the PCAOB independence standards as then in effect) delineating all relationships and services that may impact the objectivity and independence of the firm; (ii) discuss with the registered public accounting firm any disclosed relationship, services or fees (audit and non-audit related) that may impact its objectivity and independence; and (iii) satisfy itself as to the registered public accounting firm’s independence.

 

4.1.6.   To maintain a constructive and positive working relationship with the Company’s independent registered public accounting firm because of the ultimate responsibility of the independent registered public accounting firm to the Audit Committee, as representatives of the stockholders.

 

4.1.7.   To make itself reasonably available to the independent registered public accounting firm for discussion, and to provide sufficient opportunity for the independent registered public accounting firm to meet with members of the Audit Committee without members of management present, to discuss, among other things, the independent registered public accounting firm’s evaluation of the Company’s financial and accounting personnel, and the cooperation that the independent registered public accounting firm received during the course of each audit.

 

4.1.8.   To ensure that the Audit Committee receives annually from the registered public accounting firm which serves as the Company’s independent registered public accounting firm the information about all of the relationships between the firm and the Company that independent registered public accounting firms are required to provide to the Audit Committee.

 

4.1.9.   To obtain and review all reports required under the Exchange Act to be provided to the Audit Committee by the independent registered public accounting firm, including, without limitation, reports on (i) all critical accounting policies and practices used by the Company, (ii) all alternative

 

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treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent registered public accounting firm, and (iii) all other material written communications between the independent registered public accounting firm and management, such as any management letter or schedule of unadjusted differences.

 

4.1.10.  To discuss with the independent registered public accounting firm their qualitative judgments about the appropriateness, not just the acceptability, of the accounting principles and financial disclosure practices used or proposed to be adopted by the Company, particularly about the degree of aggressiveness or conservatism of the Company’s accounting principles and underlying estimates.

 

4.1.11.  To evaluate annually the effectiveness and objectivity of the Company’s independent registered public accounting firm.

 

4.2	The Company’s Risk and Control Environment.

 

4.2.1.   To discuss with the Company’s management, independent registered public accounting firm and financial management the integrity of the Company’s financial reporting processes and controls, particularly the controls in areas representing significant financial and business risks.

 

4.2.2.   In consultation with management and the independent registered public accounting firm, to review and assess the adequacy of the Company’s internal control over financial reporting and the procedures designed to ensure compliance with applicable laws.

 

4.2.3.   To review management’s report on internal control over financial reporting that is required to be included in the Company’s Annual Report on Form 10-K (or Form 10-KSB).

 

4.2.4.   To review the independent registered public accounting firm’s attestation to management’s report on internal control over financial reporting included in the Annual Report on Form 10-K (or Form 10-KSB) evaluating the Company’s internal control over financial reporting.

 

4.2.5.   Review and discuss any disclosures made by the Company’s CEO and CFO to the Committee, as a result of their evaluation as of the end of each fiscal quarter of the effectiveness of the Company’s disclosure controls and procedures and its internal control over financial reporting, indicating (i) any significant deficiencies in the design or operation of internal control and any material weaknesses in the Company’s internal control, and (ii) any fraud, whether or not material, involving management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

4.2.6.   To investigate any matter brought to its attention within the scope of its role and responsibilities.

 

4.3.	The Company’s Financial Reporting Process.

 

4.3.1.

To oversee the Company’s selection of and changes to its accounting policies.

 

4.3.2.   To establish the Company’s policies with respect to the use of non-GAAP financial measures in financial reporting or public dissemination of financial information.

 

4.3.3.   To establish the Company’s policies with respect to engaging in and disclosure of off-balance sheet transactions.

 

4.3.4    To meet with the Company’s independent registered public accounting firm and financial management, both to discuss the proposed scope of the audit and to discuss the conclusions of the audit, including any items that the independent registered public accounting firm are required by generally

 

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accepted auditing standards to discuss with the Audit Committee, such as any significant changes to the Company’s accounting policies, the integrity of the Company’s financial reporting processes, and any proposed changes or improvements in financial, accounting or auditing practices.

 

4.3.5.   To review with the independent registered public accounting firm and the Company’s financial management the adequacy and effectiveness of the accounting and financial controls of the Company, and to elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures may be desirable.

 

4.3.6.   To discuss with the Company’s financial management and independent registered public accounting firm the Company’s annual results and interim results before they are made public.

 

4.3.7.   To review and discuss with the Company’s financial management and independent registered public accounting firm the Company’s audited financial statements and interim financial statements before they are made public.

 

4.3.8.

To issue for public disclosure by the Company the report required by the rules of the SEC.

 

4.4.	Other Matters.

 

4.4.1.   To establish and review adherence to the Company’s cash management and investment policies.

 

4.4.2.

To review and approve all of the Company’s related-party transactions.

 

4.4.3.   To establish and maintain in place a mechanism for the confidential and anonymous submission by Company employees of complaints or concerns regarding the Company’s accounting practices, and procedures for the receipt and treatment of such complaints or concerns.

 

4.4.4.   To adopt clear guidelines for the Company’s hiring of any employees of the independent registered public accounting firm who were previously engaged on the Company’s account.

 

4.4.5.   To establish and review procedures within the time period required by applicable law for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting control or auditing matters, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

 

4.4.6.

To review and reassess the adequacy of this Charter on an annual basis.

 

4.4.7.

To report to the Board the matters discussed at each meeting of the Audit Committee.

 

4.4.8.   To retain, at the Company’s expense, special legal, accounting or other consultants or experts that the Audit Committee deems necessary in the performance of its duties.

 

5.	Compensation of Audit Committee.

 

5.1.      Each member of the Audit Committee shall be compensated by the Company for his or her Board and Committee service, in the manner and at the rates established from time to time by the Board.

 

5.2.      The Company shall not provide any direct compensation for Audit Committee members except for their Board and Committee service, as authorized in Section 5.1.

 

 

A-4

 

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EXHIBIT B

 

 

CHARTER OF THE COMPENSATION COMMITTEE

OF THE BOARD OF DIRECTORS OF

NOVADEL PHARMA INC.

 

A. Purpose

The purpose of the Compensation Committee is to assist the Board of Directors in the discharge of its responsibilities relating to compensation of the Company’s executive officers.

B. Structure and Membership

1. Number. The Compensation Committee shall consist of at least three members of the Board of Directors.

2. Independence. Except as otherwise permitted by the applicable rules of The American Stock Exchange, each member of the Compensation Committee shall be an independent director as defined by such rules.

3. Chair. Unless the Board of Directors elects a Chair of the Compensation Committee, the Compensation Committee shall elect a Chair by majority vote.

4. Compensation. The compensation of Compensation Committee members shall be as determined by the Board of Directors and to be reviewed annually.

5. Selection and Removal. Members of the Compensation Committee shall be appointed by the Board of Directors, upon the recommendation of the Corporate Governance and Nominating Committee. The Board of Directors may remove members of the Compensation Committee from such committee, with or without cause.

 

C. Authority and Responsibilities

General - The Compensation Committee shall discharge its responsibilities, and shall assess the information provided by the Company’s management, in accordance with its business judgment.

Compensation

1. Executive Officer Compensation. The Compensation Committee shall review and approve, or recommend for approval by a majority of the independent directors of the Board of Directors, the compensation of the Company’s Chief Executive Officer (the CEO) and the Company’s other executive officers, including salary, bonus and incentive compensation levels; deferred compensation; executive perquisites; equity compensation (including awards to induce employment); severance arrangements; change-in-control benefits and other forms of executive officer compensation. The Compensation Committee or the independent directors of the Board of Directors, as the case may be, shall meet without the presence of executive officers when approving or deliberating on CEO compensation but may, in its or their discretion, invite the CEO to be present during the approval of, or deliberations with respect to, other executive officer compensation.

2. Plan Recommendations and Approvals. The Compensation Committee shall periodically review and make recommendations to the Board of Directors with respect to incentive compensation plans and

 

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equity-based plans. In addition, in the case of any tax-qualified, non-discriminatory employee benefit plans (and any parallel nonqualified plans) for which stockholder approval is not sought and pursuant to which options or stock may be acquired by officers, directors, employees or consultants of the Company, the Compensation Committee, or a majority of the independent directors of the Board of Directors, shall approve such plans.

3. Administration of Plans. The Compensation Committee shall exercise all rights, authority and functions of the Board of Directors under all of the Company’s stock option, stock incentive, employee stock purchase and other equity-based plans, including without limitation, the authority to interpret the terms thereof, to grant options there under and to make stock awards there under; provided, however, that, except as otherwise expressly authorized to do so by this charter or a plan or resolution of the Board of Directors, the Compensation Committee shall not be authorized to amend any such plan. To the extent permitted by applicable law and the provisions of a given equity-based plan, and consistent with the requirements of applicable law and such equity-based plan, the Compensation Committee may delegate to one or more executive officers of the Company the power to grant options or other stock awards pursuant to such equity-based plan to employees of the Company or any subsidiary of the Company who are not directors or executive officers of the Company. The Compensation Committee shall also exercise all rights, authority and functions of the Board of Directors in connection with any compensatory stock options previously granted by the Company outside of the Company’s 1998 Stock Plan.

4. Director Compensation. The Compensation Committee shall periodically review and make recommendations to the Board of Directors with respect to director compensation.

5. Compensation Committee Report on Executive Compensation. The Compensation Committee shall prepare for inclusion where necessary in a proxy or information statement of the Company relating to an annual meeting of security holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting), the report described in Item 402(k) of Regulation S-K.

6. Compensation Committee Report on Repricing of Options/SARs. If during the last fiscal year of the Company (while the Company was a reporting company pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations there under (the Exchange Act)) any adjustment or amendment was made to the exercise price of any stock option or stock appreciation right previously awarded to a named executive office (as such term is defined from time to time in Item 402(a)(3) of Regulation S-K), the Compensation Committee shall furnish the report required by Item 402(i) of Regulation S-K.

7. Additional Powers. The Compensation Committee shall have such other duties as may be delegated from time to time by the Board of Directors.

D. Procedures and Administration

1. Meetings. The Compensation Committee shall meet as often as it deems necessary in order to perform its responsibilities. The Compensation Committee may also act by unanimous consent in lieu of a meeting. The Compensation Committee shall keep such records of its meetings.

2. Subcommittees. The Compensation Committee may form and delegate authority to one or more subcommittees as it deems appropriate from time to time under the circumstances (including (a) a subcommittee consisting of a single member and (b) a subcommittee consisting of at least two members, each of whom qualifies as a non-employee director, as such term is defined from time to time in Rule 16b-3 promulgated under the Exchange Act, and an outside director, as such term is defined from time to time in Section 162(m) of the Internal Revenue Code of 1986, as amended, and the rules and regulations there under).

 

B-2

 

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3. Reports to Board. The Compensation Committee shall report regularly to the Board of Directors.

4. Charter. The Compensation Committee shall periodically review and reassess the adequacy of this Charter and recommend any proposed changes to the Board of Directors for approval.

5. Consulting Arrangements. The Compensation Committee shall have the authority to retain and terminate any compensation consultant to be used to assist in the evaluation of executive officer compensation and shall have authority to approve the consultant’s fees and other retention terms. The Compensation Committee shall also have authority to commission compensation surveys or studies as the need arises. The Compensation Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of such consultants as established by the Compensation Committee.

6. Independent Advisors. The Compensation Committee shall have the authority, without further action by the Board of Directors, to engage such independent legal, accounting and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Compensation Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of such advisors as established by the Compensation Committee.

7. Investigations. The Compensation Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Compensation Committee or any advisors engaged by the Compensation Committee.

8. Annual Self-Evaluation. At least annually, the Compensation Committee shall evaluate its own performance and report on such evaluation to the full Board.

 

B-3

 

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EXHIBIT C

 

 

CHARTER OF THE CORPORATE GOVERNANCE

AND NOMINATING COMMITTEE

OF THE BOARD OF DIRECTORS OF

NOVADEL PHARMA INC.

 

Purpose

 

The purpose of the Corporate Governance and Nominating Committee is to:

 

•	recommend to the Board the persons to be nominated for election as directors at any meeting of stockholders;
•	develop and recommend to the Board a set of corporate governance principles applicable to the Company; and
•	oversee the evaluation of the Board.

 

Structure and Membership

 

Number - The Corporate Governance and Nominating Committee shall consist of such number of directors as the Board shall from time to time determine.

 

Independence - Each member of the Corporate Governance and Nominating Committee shall be an “independent director” as defined by the applicable rules of AMEX.

 

Chair - Unless the Board elects a Chair of the Corporate Governance and Nominating Committee, the Committee shall elect a Chair by majority vote.

 

Compensation - The compensation of Corporate Governance and Nominating Committee members shall be as determined by the Board.

 

Selection and Removal - Members of the Corporate Governance and Nominating Committee shall be appointed by the Board, upon the recommendation of the Committee. The Board may remove members of the Corporate Governance and Nominating Committee from such Committee, with or without cause.

 

Authority and Responsibilities

 

General - The Corporate Governance and Nominating Committee shall discharge its responsibilities, and shall assess the information provided by the Company’s management, in accordance with its business judgment.

 

Board and Committee Membership

 

Selection of Director Nominees - Except where the Company is legally required by contract, by-law or otherwise to provide third parties with the right to nominate directors, the Corporate Governance and Nominating Committee shall be responsible for recommending to the Board the nominees for election as directors at any meeting of stockholders and the persons to be elected by the Board to fill any vacancies on the Board. In making such recommendations, the Committee shall consider candidates proposed by stockholders. The Committee shall review and evaluate information available to it regarding candidates proposed by stockholders and shall apply the same criteria, and shall follow substantially the same process in considering them, as it does in considering other candidates.

 

 

C-1

 

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Criteria for Review - The set of criteria as applied to an individual candidate is based upon the current composition of the Board where certain skill sets may be more desirable at that time (i.e., financial expertise).

 

•	reputation for integrity, honesty and high ethical standards;

•	demonstrated business acumen, experience and ability to exercise sound judgments in matters that relate to our current and long-term objectives and willingness and ability to contribute positively to our decision-making process;

•	commitment to understanding our business and our industry;

•	adequate time to attend and participate in meetings of the board of directors and its committees;
•	ability to understand the sometimes conflicting interests of the various constituencies of our company, which include stockholders, employees, customers, governmental units, creditors and the general public and to act in the interest of all stockholders; and
•	such other attributes, including independence, that satisfy requirements imposed by the Securities and Exchange Commission.

 

Criteria for Selecting Directors - The Board’s criteria for selecting directors are as set forth in the Company’s Corporate Governance Guidelines. The Corporate Governance and Nominating Committee shall use such criteria and the principles set forth in such Guidelines to guide its director selection process. The Committee shall be responsible for reviewing with the Board, on an annual basis, the requisite skills and criteria for new Board members as well as the composition of the Board as a whole. The Committee may adopt, and periodically review and revise as it deems appropriate, procedures regarding director candidates proposed by stockholders.

 

Search Firms - The Corporate Governance and Nominating Committee shall have the sole authority to retain and terminate any search firm to be used to identify director nominees, including sole authority to approve the search firm’s fees and other retention terms. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of any search firm engaged by the Committee.

 

Selection of Committee Members - The Corporate Governance and Nominating Committee shall be responsible for recommending to the Board the directors to be appointed to each committee of the Board.

 

Corporate Governance

 

Corporate Governance Guidelines - The Corporate Governance and Nominating Committee shall develop and recommend to the Board a set of Corporate Governance Guidelines applicable to the Company. The Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of such Corporate Governance Guidelines and recommend any proposed changes to the Board for approval.

 

Evaluation of the Board - The Corporate Governance and Nominating Committee shall be responsible for overseeing an annual self-evaluation of the Board to determine whether it and its committees are functioning effectively. The Committee shall determine the nature of the evaluation, supervise the conduct of the evaluation and prepare an assessment of the Board’s performance, to be discussed with the Board.

 

Additional Powers - The Corporate Governance and Nominating Committee shall have such other duties as may be delegated from time to time by the Board of Directors.

 

 

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Procedures and Administration

 

Meetings - The Corporate Governance and Nominating Committee shall meet as often as it deems necessary in order to perform its responsibilities. The Committee shall keep such records of its meetings as it shall deem appropriate.

 

Subcommittees - The Corporate Governance and Nominating Committee may form and delegate authority to one or more subcommittees (including a subcommittee consisting of a single member), as it deems appropriate from time to time under the circumstances.

 

Reports to the Board - The Corporate Governance and Nominating Committee shall report regularly to the Board.

 

Charter - The Corporate Governance and Nominating Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.

 

Independent Advisors - The Corporate Governance and Nominating Committee shall have the authority to engage such independent legal and other advisors as it deems necessary or appropriate to carry out its responsibilities. Such independent advisors may be the regular advisors to the Company. The Committee is empowered, without further action by the Board, to cause the Company to pay the compensation of such advisors as established by the Committee.

 

Investigations - The Corporate Governance and Nominating Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Committee or any advisors engaged by the Committee.

 

Annual Self-Evaluation - At least annually, the Corporate Governance and Nominating Committee shall evaluate its own performance.

 

C-3

 

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Appendix 1

 

NOVADEL PHARMA INC.

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoint(s) Gary A. Shangold, Jean W. Frydman and Michael E.B. Spicer with full power of substitution and resubstitution, as proxy to represent to vote any and all shares of common stock, par value $.001 per share, of NovaDel Pharma Inc. (the "Company") which the undersigned would be entitled to vote if personally present at the Annual Meeting of the Company, to be held on February 28, 2005, at 9:30 A.M. local time, at the offices of the Company located at 25 Minneakoning Road, Flemington, New Jersey 08822, and at any adjournments or postponements thereof, hereby revoking any prior proxies to vote said stock, upon the following items more fully described in the Notice of Annual Meeting and Proxy Statement for the Annual Meeting dated as of February 7, 2005, a copy of which has been received by the undersigned. The proxies are further authorized to vote, in their discretion, upon such other business as may properly come before the meeting or any adjournments or postponements thereof. Each of Proposals 1 and 2 are proposed by the Company.

(Continued and to be signed on the reverse side)

14475

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ANNUAL MEETING OF STOCKHOLDERS OF

NOVADEL PHARMA INC.

February 28, 2005

PROXY VOTING INSTRUCTIONS

  

  

  

MAIL - Date, sign and mail your proxy card in the envelope provided as soon as possible. - OR - TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) from any touch-tone telephone and follow the instructions. Have your proxy card available when you call.	COMPANY NUMBER
	ACCOUNT NUMBER

  

  

You may enter your voting instructions at 1-800-PROXIES up until 11:59 PM Eastern Time the day before the cut-off or meeting date.

  

Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone.

  

  

    

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x

1.  Election of Directors:

FOR

AGAINST

ABSTAIN

NOMINEES:

2.           RATIFY THE SELECTION OF J.H. COHN LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR FISCAL YEAR ENDING JULY 31, 2005.

FOR ALL NOMINEES

Gary A. Shangold, M.D. William F. Hamilton, Ph.D. Lawrence J. Kessel, M.D., FACP Mark H. Rachesky, M.D. Charles Nemeroff, M.D., Ph.D. Robert G. Savage

WITHHOLD AUTHORITY FOR ALL NOMINEES

THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; UNLESS OTHERWISE INDICATED, THIS PROXY WILL BE VOTED FOR ELECTION OF THE SIX (6) NOMINEES NAMED IN PROPOSAL 1 AND THE RATIFICATION OF THE SELECTION OF J.H. COHN LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR THE FISCAL YEAR ENDING JULY 31, 2005 IN PROPOSAL 2. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. Please mark, sign, date and return this Proxy promptly using the accompanying postage pre-paid envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NOVADEL PHARMA INC.

FOR ALL EXCEPT (See instructions below)

INSTRUCTION:

To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here:

To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.

   

Signature of Stockholder

Date:

Signature of Stockholder

Date:

Note:

Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

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