SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14c-5(d)(2)
[ x ] Definitive Information Statement
PHARMACUETICAL FORMULATIONS, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ x ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14C-
5(g) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which
transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
PHARMACEUTICAL FORMULATIONS, INC.
460 PLAINFIELD AVENUE
EDISON, NEW JERSEY 08818
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 6, 1996
To the Stockholders of Pharmaceutical Formulations, Inc.:
You are hereby notified that the Annual Meeting of Stockholders of
Pharmaceutical Formulations, Inc., a Delaware corporation (the "Company") will
be held at Hamilton Park Conference Center, 175 Park Avenue, Florham Park, New
Jersey, on Wednesday, November 6, 1996, at 4:00 p.m. local time, for the
following purposes:
1. To elect six members to the Board of Directors of the Company for a
term of one year, to serve until their respective successors are
elected and qualified;
2. To ratify the selection by the Company of BDO Seidman, LLP as
independent auditors of the Company for the year ending June 30, 1997;
and
3. To transact such other matters as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on October 7, 1996
(the "Record Date"), are entitled to notice of and to vote at the meeting or any
adjournments thereof.
An information statement and the Company's Annual Report for Fiscal 1996
are enclosed herewith. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
By Order of the Board
of Directors
Frank Marchese, Secretary
Edison, New Jersey
October 15, 1996
<PAGE>
INFORMATION STATEMENT
PHARMACEUTICAL FORMULATIONS, INC.
460 PLAINFIELD AVENUE
EDISON, NEW JERSEY 08818
INTRODUCTION
This information statement is furnished in connection with the Annual
Meeting of Stockholders (the "Annual Meeting") of Pharmaceutical Formulations,
Inc. (the "Company") to be held on Wednesday, November 6, 1996, and at any
adjournments thereof. This information statement will be distributed to
stockholders of the Company beginning on or about October 16, 1996. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The principal executive offices of the Company are located at 460
Plainfield Avenue, Edison, New Jersey 08818, telephone (908) 985-7100.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record of the Company at the close of business on
October 7, 1996, are entitled to receive notice of, and vote at, the Annual
Meeting. As of that date, the number and class of stock outstanding and entitled
to vote at the meeting was 29,508,814 shares of common stock, par value $.08 per
share (the "Common Stock"). Each share of Common Stock is entitled to one vote
on all matters. No other class of securities will be entitled to vote at the
meeting. There are no cumulative voting rights.
The director nominees who receive the highest number of votes for the
number of positions to be filled will be elected. Except as otherwise required
by law or the Company's Certificate of Incorporation, an affirmative vote of the
holders of the majority of the shares present or represented by proxy at the
Annual Meeting is required for the approval of each of the other matters to be
voted upon. Abstentions will be treated as votes cast on a particular matter as
well as shares present and represented for purposes of establishing a quorum,
with the result that an abstention has the same effect as a negative vote. Where
nominee record holders do not vote on specific issues because they did not
receive specific instructions on such issues from the beneficial owners, such
broker nonvotes will not be treated as votes cast on a particular matter, and
will therefore have no effect on the vote, but will be treated as shares present
or represented for purposes of establishing a quorum. A quorum is representation
in person or by proxy at the Annual Meeting of at least one-third of the
outstanding shares of the Company. ICC Industries Inc. ("ICC"), an affiliate of
the Company with an address of 460 Park Avenue, New York, NY, owns 19,635,894
shares (approximately 66.5% of the total number of shares outstanding).
Accordingly, ICC may elect all of the directors, ratify the selection of BDO
Seidman, LLP to audit the financial statements of the Company, and generally
take any action upon which the stockholders are requested to vote. ICC has
indicated that it intends to nominate six directors to fill the six positions on
the Board of Directors and to vote to approve all proposals set forth in this
Information Statement. Therefore, approval of Proposal No. 2 and the election of
all directors who have been nominated by ICC is assured.
A list of stockholders of the Company satisfying the requirements of
Section 219 of the Delaware General Corporation Law shall be available for
inspection for any purpose germane to the meeting during normal business hours
at the offices of the Company at least ten days prior to the Annual Meeting.
PROPOSAL NO.1
ELECTION OF DIRECTORS
Each nominee to the Board of Directors will serve until the next Annual
Meeting of Stockholders, or until his earlier resignation, removal from office,
death or incapacity. The Board of Directors of the Company currently is set at
six members. According to the By-Laws and the Certificate of Incorporation of
the Company, the size of the Board is set by action of a majority of the whole
board of directors. The Board of Directors of the Company has not been able to
agree upon the nominees for election as directors at the Annual Meeting.
Accordingly, the Board will not nominate any directors. Instead, any stockholder
who desires to do so may make nominations for the six positions as director at
the Annual Meeting.
The Company understands that ICC intends to nominate six individuals to
such positions, including current directors Ray W. Cheesman, Charles E. LaRosa
and John L. Oram, and that it is currently the intention of Mr. Oram, after the
new Board has been elected, to propose that the new Board act pursuant to the
By-Laws and Certificate of Incorporation to reduce the size of the Board to
three and that the directors other than Messrs. Cheesman, LaRosa and Oram would
be asked to resign.
Information is furnished below with respect to each of the current
directors of the Company.
Each of the individuals named below has served as a director during the
fiscal year ended June 30, 1996 ("Fiscal 1996"). Information with respect to the
principal occupation or employment of the nominees, the name and principal
business of the corporation or other organization in which such occupation or
employment is carried on and other affiliations and business experience during
the past five years has been furnished to the Company by the respective
nominees.
o BEN A. BLACKSHIRE, age 59, has been a director of the Company since
December 1989. Since 1987, Mr. Blackshire has been President and Chief
Executive Officer of Strategem, Inc., a company which licenses
pharmaceutical products to United States companies from international
pharmaceutical companies. From 1983 to 1987, Mr. Blackshire was
Chairman and Chief Executive Officer of B.C. Christopher & Co., of
Kansas City, Missouri, a securities and commodities broker-dealer.
o MICHAEL P. CALLAHAN, age 48, has been a director of the Company since
July 1993. Since January 1996, Mr. Callahan has been President and
Chief Executive Officer of Intersport Limited, a company engaged in
the design, marketing and distribution of athletic equipment. From
December 1994 until January 1996, Mr. Callahan was Chief Financial and
Operating Officer of Intersport. From March 1989 until January 1994,
Mr. Callahan was employed as Chief Financial Officer and a director of
Candie's, Inc. ("Candie's"), a publicly traded company engaged in the
design, marketing and distribution of footwear. From February 1992
through February 1993, Mr. Callahan was also President of Candie's.
From February 1987 through March 1989, Mr. Callahan was Vice President
- Finance of Coherent Communications, a company engaged in the
manufacture of telecommunications equipment. Mr. Callahan is a
licensed Certified Public Accountant.
o RAY W. CHEESMAN, age 65, has been a director of the Company since July
1993, and was a consultant to KPMG Peat Marwick, an international
accounting firm from 1987 through June 1996. Prior thereto, Mr.
Cheesman was a partner in such firm. Mr. Cheesman is a licensed
Certified Public Accountant.
o CHARLES E. LAROSA, age 54, has been a director of the Company and
President and Chief Executive Officer since December 1995. For the
five years prior thereto he was President of American Home Food
Products, a subsidiary of American Home Products Corporation.
o JOHN L. ORAM, age 52, has been a director of the Company since July
1993. He was appointed Chairman of the Board in December 1995. Mr.
Oram has been President and Chief Operating Officer of ICC since 1987.
ICC, an affiliate of the Company, is a major international
manufacturer and marketer of chemical, plastic and pharmaceutical
products. Since 1980, Mr. Oram has been a director of Electrochemical
Industries (Frutarom) Ltd. ("EIF"), an Israeli subsidiary of ICC
listed on the Tel-Aviv and American Stock Exchanges engaged in the
manufacture and distribution of chemical products. From May 1996, Mr.
Oram has been a director of Frutarom Industries (1995) Limited, a
company spun-off from EIF and listed on the Tel-Aviv Stock Exchange
engaged in the flavor and fragrance industry.
o DR. MAX A. TESLER, age 65, was Chairman of the Company's Board of
Directors from the Company's formation in June 1981 until December
1995 and Chief Executive Officer from July 1983 until December 1995.
Dr. Tesler has been President of the Company from 1983 until August
1990, and from April 1991 until December 1995. He is currently a
director. From 1962 to 1982, and from 1991 to the present, Dr. Tesler
has been an attending physician in charge of gastroenterology at St.
Clare's Hospital in New York City and an Assistant in Medicine at New
York University Hospital. Dr. Tesler was a director of MTG Capital
Corp., a publicly-held company, from November 1988 until or about
December 1991. Dr. Tesler received a degree from New York University
in 1951, and his Doctor of Medicine degree from New York
University-Bellevue Medical School in 1955. Dr. Tesler maintains a
very limited private practice of medicine.
COMPENSATION OF DIRECTORS; BOARD MEETINGS
Members of the Board of Directors who are not employees of the Company or
representatives of ICC are compensated at the rate of $2,500 per year, plus $500
for each meeting attended. Members are also paid for special projects undertaken
on behalf of the Company and for actual expenses incurred in connection with
their attendance at Board meetings. In Fiscal 1996, the three directors who were
not officers of the Company or ICC also each received a stock grant of 15,000
shares (the compensation component of which was $.375 per share) plus a payment
of $10,000 as additional compensation.
Seven meetings of the Company's Board of Directors were held during Fiscal
1996. All of the incumbent directors attended at least 75% of the meetings of
the Board and committees of which they are members in Fiscal 1996.
BOARD COMMITTEES
The Board of Directors has Audit and Compensation Committees but does not
have any Nominating Committee. The Board also appoints the members of the Stock
Option Committee constituted under the Company's 1994 Stock Option Plan. The
members of the Audit Committee and the Stock Options Committee are Ray W.
Cheesman, Ben A. Blackshire and Michael P. Callahan. The members of the
Compensation Committee are John L. Oram, Ray W. Cheesman, Ben A. Blackshire and
Michael P. Callahan. The Audit Committee met once in Fiscal 1996. It reviews the
findings and reports of the independent certified public accountants and makes
recommendations, relating to the accounting controls, audit and financial
statements of the Company. The Compensation Committee met three times in Fiscal
1996. Its function is to review compensation issues; approve salaries and review
benefit programs for the executive officers; review and recommend incentive
compensation (including stock compensation) plans; and approve any employment
contracts with, or other contractual benefits for, executive officers. The Stock
Option Committee makes awards under, prescribes rules for and interprets the
provisions of the Company's 1994 Stock Option Plan. It met once during Fiscal
1996.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON COMPENSATION
OF EXECUTIVE OFFICERS OF THE COMPANY*
COMPENSATION PHILOSOPHY. The philosophy of the Company's compensation for
executive officers has been to provide reasonably competitive levels of
compensation, reward corporate performance and recognize individual initiative
and performance in achieving corporate goals. The Company does not determine
compensation based on any specific formulas, targets or weighed criteria.
BASE SALARIES. The base salaries for the Company's prior and current
President and its Vice President, Mergers & Acquisitions in Fiscal 1996 were
determined by employment contracts which were first entered into in February
1984 for the prior President and for the Vice President, Mergers & Acquisitions
and December 1995 for the current President. Base compensation for other
executive officers is determined by recommendations of the Chief Executive
Officer and approval by the Compensation Committee.
INCENTIVE COMPENSATION. Annual incentive compensation is based primarily on
corporate operating performance and includes an informal overall assessment by
the Committee of each executive officer's role in helping the Company to achieve
its goals. Incentive compensation in Fiscal 1996 took the form of cash bonuses
and, for the current President of the Company, a stock grant.
STOCK OPTIONS. In Fiscal 1996, the Stock Option Committee granted stock
options to certain key employees to reward them for their contribution to the
Company's long-term share performance and to provide incentives to encourage
future efforts.
CHIEF EXECUTIVE OFFICERS' COMPENSATION. Dr. Tesler, the Company's former
President and Chief Executive Officer, was, and Mr. LaRosa, the Company's
current President and Chief Executive Officer is, being compensated pursuant to
an employment agreement, which sets forth all of the elements of his
compensation. See "Employment Contracts and Change-in-Control Arrangements". The
initial salary levels were based on negotiation between the Company and the
executive and does not vary based on the Company's performance. Dr. Tesler also
received stock grants when holders of certain outstanding convertible securities
exercise their rights thereunder, such grants being made pursuant to the terms
of an agreement between the Company and ICC. See "Related Transactions"
regarding grants in Fiscal 1996.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction
beginning in 1994 to public companies for compensation over $1 million received
by a corporation's Chief Executive Officer and four other most highly
compensated executive officers if not pursuant to qualifying performance-based
plans. No executive officer's cash compensation was in excess of $1,000,000 in
Fiscal 1996 and, at this time, it is not anticipated that any executive officer
of the Company will receive any such cash compensation in excess of this limit
during the current fiscal year. Therefore, during Fiscal 1996 the Committee did
not take any action to comply with the new limit.
CONCLUSION. The Committee believes the current compensation structure
appropriately compensates its officers in a manner that relates to performance
and to the shareholders' long-term interests. The Committee will continue to
review compensation practices, with respect to both overall arrangements and the
compensation of specific officers.
Respectfully submitted,
For the Compensation Committee:
Ben A. Blackshire
Michael P. Callahan
Ray W. Cheesman
John L. Oram
For the Stock Option Committee:
Ben A. Blackshire
Michael P. Callahan
Ray W. Cheesman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No members of the Company's Compensation Committee or Stock Option
Committees are employed by the Company. No director of the Company served during
the last completed fiscal year as an executive officer of any entity whose
compensation committee (or other comparable committee, or the Board, as
appropriate) included an executive officer of the Company. There are no
"interlocks" as defined by the Securities and Exchange Commission ("SEC").
- -------------
* This section shall not be deemed incorporated by reference by any general
statement incorporating by reference this Information Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed
under such Acts.
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation by the Company for the most
recent three fiscal years as well as certain other compensation paid to or
accrued for the account of the two persons who were Chief Executive Officer in
Fiscal 1996 and each of the four other executive officers of the Company who
were most highly compensated for Fiscal 1996 (such six individuals are sometimes
referred to as the "Named Executives") to the extent that salaries and bonuses
exceeded $100,000 for Fiscal 1996.
<TABLE>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
Restricted Securities
Other Annual Stock Underlying LTIP
Name and Salary Bonus Compensation Awards Options Payouts All Other
PRINCIPAL POSITION YEAR $ $ $ $ # $ COMPENSATION
- ------------------ ---- ------- ----- ------------- ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa 1996 $110,000 --- --- $19,000 105,000 --- ---
President and 1995 --- --- --- --- --- --- ---
Chief Executive 1994 --- --- --- --- --- --- ---
Officer1
Max A. Tesler 1996 242,000 --- --- 2,000(3) --- --- 50,000(2)
President and 1995 242,000 30,000 --- 7,000(3) 162,500 --- 50,000(2)
Chief Executive 1994 223,000 --- --- 22,000(3) --- --- 50,000(2)
Officer(1)
Anthony Cantaffa 1996 145,000 --- --- --- --- --- ---
Vice President, 1995 145,000 15,000 --- 5,000(3) 85,000 --- ---
Mergers and 1994 132,000 --- --- 5,000(3) --- --- ---
Acquisitions
George Chin 1996 140,000 30,000 --- --- --- --- ---
Vice President, 1995 --- --- --- --- --- --- ---
Sales(4) 1994 --- --- --- --- --- --- ---
Frank Marchese 1996 106,000 --- --- --- --- --- ---
Vice President; 1995 --- --- --- --- --- --- ---
Chief Financial 1994 --- --- --- --- --- --- ---
Officer;
Secretary
and Treasurer(4)
Brian Barbee 1996 102,000 --- --- --- --- --- ---
Vice President, 1995 --- --- --- --- --- --- ---
Scientific 1994 --- --- --- --- --- --- ---
Affairs(4)
- ---------------------
(1) Dr. Tesler was President until December 1995, when Mr. LaRosa was elected to that position.
(2) Consists of payments in connection with the waiver of certain provisions of Dr. Tesler's employment
agreement in connection with the change of control provisions of such agreement. See "Employment
Agreements.
(3) In connection with the ICC Option Agreement, as amended, management was issued shares and warrants to
purchase shares of the Company's Common Stock. See "Certain Relationships and Related Transactions."
(4) The positions occupied by such individuals were not considered executive
offices until Fiscal 1996.
</TABLE>
OPTION GRANTS IN FISCAL 1996
The following table contains information concerning the grant of stock
options to the Named Executives during Fiscal 1996 (the Company has no
outstanding stock appreciation rights - "SARs" and granted no SARs during Fiscal
1996):
<TABLE>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Number of -----------------------------
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration TERM1
NAME GRANTED (#)2 FISCAL YEAR ($/SHARE)2 DATE 5%($) 10%($)
- -------- ------------ ------------ ---------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa 30,000 23% $.66 4/2001 $9,000 $16,000
Charles E. LaRosa 75,000 58% $.56 6/2001 $30,000 $49,000
_______________________
1 Executives may not sell or assign any stock grants, which have value only to the extent of stock price
appreciation, which will benefit all shareholders commensurately. The amounts set forth are based on
assumed appreciation rates of 5% and 10% as prescribed by the Securities and Exchange Commission rules and
are not intended to forecast future appreciation, if any, of the stock price. The Company did not use an
alternate formula for a grant date valuation as it is not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown or volatile factors. Actual gains, if any, on
stock option exercises and Common Stock holdings are dependent on the future performance of the Common Stock
and overall stock market conditions. There can be no assurance that the amounts reflected in this table
will be achieved.
2 The exercise price is equal to or higher than the fair market value of the Company's Common Stock on the
date of the grant.
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES IN FISCAL 1996
No options or SARs were exercised by any executive officer of the
Company during Fiscal 1996. The following table sets forth information with
respect to the Named Executive concerning unexercised options held at fiscal
year-end (as noted above, the Company has no outstanding SARs, and no SARs were
exercised in the current fiscal year):
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Securities Underlying In-the-Money Options
OPTIONS AT 6/30/96 AT 6/30/96 ($)1
Shares Realized --------------------- ---------------------
Acquired on Value Exer- Unexer- Exer- Unexer-
NAME EXERCISE(#) ($) CISABLE CISABLE CISABLE CISABLE
---- ----------- --------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa --- --- 30,000 75,000 $ 3,000 14,000
Max Tesler --- --- 395,700 --- 83,000 ---
George Chin --- --- 70,550 --- 7,000 ---
Anthony Cantaffa --- --- 111,800 --- 7,000 ---
Frank Marchese --- --- 40,000 --- --- ---
Brian Barbee --- --- 41,250 --- --- ---
- --------------------
1 Market value of underlying securities at year end, as applicable, minus the
exercise price. The high "bid" and low "asked" prices on the OTC Bulletin
Board on June 28, 1996, were $25/32 and $29/32 respectively.
Certain options are excluded since they are "out of the money."
</TABLE>
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
LAROSA EMPLOYMENT AGREEMENT
Mr. LaRosa entered into an employment agreement with the Company dated
April 4, 1996, pursuant to which he agreed to be retained as President and Chief
Executive Officer at a salary of $250,000 per year beginning June 7, 1996. Mr.
LaRosa was paid $200,000 per annum for the period from December 7, 1995 to June
7, 1996. Mr. LaRosa is entitled to a bonus at the end of each fiscal year based
upon Company results and performance, which bonus is at the sole discretion of
the Board of Directors with no guaranteed minimum or maximum bonus. Pursuant to
such agreement, effective June 7, 1996 he was awarded a grant of 25,000 shares
of stock pursuant to the employment agreement and stock options for 75,000
shares of common stock, at $.56 per share, such options being exercisable in
full on October 4, 1996 and expiring April 4, 2001. Mr. LaRosa had previously
received 30,000 options at $.66 per share, such options were exercisable on June
7, 1996 and expire June 7, 2001. He is also entitled to certain insurance and
similar benefits of a customary nature, plus reimbursement of financial planning
services up to a maximum of $5,200 per year. Mr. LaRosa's employment may be
terminated at any time by the Company upon three months notice, but in such
instance he will continue to receive compensation for 12 months from the date on
which the Company chooses to cease his employment activities. Mr. LaRosa may
terminate his employment upon two weeks notice.
TESLER EMPLOYMENT AGREEMENT
Dr. Tesler entered into an employment agreement with the Company in 1984,
which was amended at various subsequent times. His employment with the Company
was ended in December 1995. The employment agreement provided that in the event
of termination by the Company other than for cause, Dr. Tesler is entitled to
receive his full base salary and all benefits for the balance of the remaining
term of the employment agreement plus one year, but in no event for more than
three years. The agreement also provides that in the event of his death during
this period, his surviving ex-spouse or estate will receive $50,000 per year for
ten years.
In connection with the execution of the ICC Option Agreement, as amended,
Dr. Tesler executed an amendment to his employment agreement, pursuant to which
the term of the employment agreement was extended and modified and Dr. Tesler
further waived his rights to receive 5% of pre- tax profits and specified
warrants to receive Common Stock. Also, in connection with the ICC Option
Agreement, as well as the amendment to Dr. Tesler's employment agreement, Dr.
Tesler has received 250,000 shares of Common Stock and 272,533 additional shares
of Common Stock as a result of rights granted to Dr. Tesler in the event that
Common Stock was issued by the Company to third parties pursuant to agreements
in effect at that date. Dr. Tesler's employment agreement also provided that, in
the event of a "Change of Control" of the Company, as defined in his agreement,
he was entitled to receive cash compensation equal to two times his last annual
salary and 10% of the total number of shares outstanding on the date of such
Change of Control on a fully diluted basis (i.e., giving effect to the exercise
of all outstanding warrants, options and other rights to shares of the Company's
Common Stock). Dr. Tesler received the shares as noted above, and $50,000 per
year for four years and 400,000 warrants to purchase Common Stock at $.50 per
share, in lieu of this provision. In September, 1992 Dr. Tesler, on behalf of
the Company, agreed in an amendment to the ICC Option Agreement, to the
Company's distribution of 66,800 of these warrants to other key management
personnel.
Upon review of such warrants by the Board of Directors, certain directors
felt that the provisions of such warrants as issued were not in accordance with
the terms agreed and authorized. Specifically, some directors believe that the
warrants should have been in the same format as other warrants issued in the
same time period, and specifically were to include antidilution provisions
consistent with traditional warrants that are customary both for the Company and
for such warrants, and that the warrants should proportionately adjust in the
case of a reverse stock split or similar recapitalization of the Company. The
Company understands that Dr. Tesler takes a position with respect to the terms
of such warrants which is contrary to the position taken by such directors.
CANTAFFA EMPLOYMENT AGREEMENT
Mr. Cantaffa has an employment agreement with the Company which provides
for an annual base salary, subject to approved increases, and expires on
December 31, 1996.
OPTIONS
Options granted under the Company's 1994 Stock Option Plan include
provisions accelerating the vesting schedule in the case of defined changes in
control.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION*
Set forth below is a chart and line graph comparing the yearly percentage
change in the cumulative total shareholder return (change in year-end stock
price plus reinvested dividends) on the Company's Common Stock with the
cumulative total return of the Nasdaq Stock Market Index and a peer group for
the period of five fiscal years commencing on July 1, 1991 and ending on June
30, 1996. The graph and chart assumes that the value of the investment in the
Company's Common Stock and for each index was $100 on July 1, 1991 and reflects
reinvestment of dividends and market capitalization weighing. The dollar amounts
indicated in the graph and chart are as of June 30th in each year indicated.
Cumulative Total Return ($)
Registrant/Index 6/91 6/92 6/93 6/94 6/95 6/96
Pharmaceutical Formulations $100 $522 $833 $1250 $938 $1302
Peer Group $100 $134 $168 $167 $164 $186
Nasdaq Stock Market Index $100 $120 $151 $153 $204 $261
- --------
* This section shall not be deemed incorporated by reference by any general
statement incorporating by reference this Information Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed
under such Acts.
* $100 invested on 06/30/91 in stock or index including reinvestment of
dividends. Fiscal year ended June 30.
The common stocks of the following companies have been included in the peer
group index: Lawrence Savings Bank, Ryan Beck & Co., Polk Audio Inc., Nycor
Inc., Harleysville Savings Bank, Dataram Corp., MC Shipping Inc., Savannah
Bancorp Inc., United Foods Inc. and Trimark Holdings Inc. The members of the
peer group are companies with a market capitalization similar to that of the
Company (five companies in the group have a market capitalization immediately
higher than the Company and five have a market capitalization immediately below
that of the Company). Because of the Company's exclusive involvement in the
store-brand solid-dosage over-the-counter pharmaceutical business and the fact
that no other public companies are engaged in this business on an exclusive
basis, no grouping could exactly mirror the Company's business. All of the
companies included in the Company's peer group index are engaged in certain
other businesses in which the Company is not engaged. Historical stock price
performance shown on the graph is not necessarily indicative of the future price
performance.
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information, as of September 1, 1996, with
respect to the beneficial ownership of Common Stock by (i) each director, (ii)
each Named Executive, (iii) each person or group known to the Company to own
beneficially more than 5% of the outstanding Common Stock, and (iv) all
executive officers and directors as a group:
NAME AND ADDRESS OF MOUNT AND NATURE OF PERCENTAGE
BENEFICIAL OWNER ENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------- ------------------- ----------
Dr. Max A. Tesler 988,326(2) 3.3%
30 Central Park South
New York, NY 10019
ICC Industries Inc. 19,635,894(3) 66.5%
460 Park Avenue
New York, NY 10022
Dr. John Farber 19,635,894(3) 66.5%
c/o ICC Industries Inc.
460 Park Avenue
New York, NY 10022
John L. Oram 20,000 *
c/o ICC Industries Inc.
460 Park Avenue
New York, NY 10022
Charles E. LaRosa 140,000(4) *
c/o Pharmaceutical Formulations, Inc.
460 Plainfield Avenue
Edison, NJ 08818
Anthony Cantaffa 176,871(4) *
c/o Pharmaceutical Formulations, Inc.
460 Plainfield Avenue
Edison, NJ 08818
Ben A. Blackshire 105,000(4) *
c/o Stratagem, Inc.
8012 State Line Road
Leawood, KS 66208
Michael P. Callahan 105,000(4) *
21048 Starflower Way
Ashburn, VA 22011
Ray W. Cheesman 135,000(4) *
c/o Pharmaceutical Formulations, Inc.
460 Plainfield Avenue
Edison, NJ 08818
George Chin 135,621(4) *
c/o Pharmaceutical Formulations, Inc.
460 Plainfield Avenue
Edison, NJ 08818
Brian W. Barbee 41,250(4) *
c/o Pharmaceutical Formulations, Inc.
460 Plainfield Avenue
Edison, NJ 08818
Frank Marchese 40,000(4) *
c/o Pharmaceutical Formulations, Inc.
460 Plainfield Avenue
Edison, NJ 08818
David Belaga 25,000(4) *
c/o Pharmaceutical Formulations, Inc.
460 Plainfield Ave.
Edison, NJ 08818
Officers and Directors 1,912,068(4) 6.3%
as a Group (11 persons)
- ------------------------------
* Less than 1%.
1 Except as described in the following notes, beneficial ownership assumes
each person or group owns the shares directly and has sole voting and
investment power with respect to such shares. A person is deemed to be
the beneficial owner of securities that can be acquired by such person
within 60 days upon the exercise of outstanding options.
2 Includes (i) 340,442 shares of Common Stock owned by NuMatco, Inc.
("NuMatco"), a company of which Dr. Tesler is sole officer, director and
stockholder; (ii) currently exercisable warrants to purchase 333,200
shares of Common Stock, exercisable at a price of $.50 per share until
October 1, 1998 (see the discussion above under "Tesler Employment
Agreement" with respect to such warrants); (iii) 20 shares issuable upon
conversion of each of 327 8% Convertible Debentures for a total of 6,813
shares, which debentures are owned by the pension plan for BTS
Therapeutics Corp., a company wholly-owned by Dr. Tesler; and (iv) 30,652
shares owned by HTA Co., Inc. which shares represent Dr. Tesler's 50%
ownership interest in the total 61,304 shares owned by HTA.
3 Does not include approximately 3,777,000 shares includable in connection
with ICC's limited preemptive rights. Dr. Farber is the majority
stockholder of ICC. See "Certain Relationships and Related Transactions."
4 Includes shares of Common Stock subject to stock options exercisable as
of September 1, 1996 or within 60 days thereof as follows: Mr. Barbee:
41,250; Mr. Belaga: 25,000; Mr. Blackshire: 75,000; Mr. Callahan: 75,000;
Mr. Cantaffa: 111,800; Mr. Cheesman: 75,000; Mr. Chin: 70,550; Mr.
LaRosa: 105,000; Mr. Marchese: 40,000; Dr. Tesler: 340,013; and all
officers and directors as a group: 958,613.
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") and any
exchange on which the Company's securities may be traded. Officers, directors
and greater than ten-percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that all such filing
requirements for the year ended June 30, 1996 were complied with except as
follows: one form was filed late by ICC Industries Inc. (and Dr. John Farber as
the beneficial owner of shares owned of record by ICC) with respect to the
purchase in January of certain convertible subordinated debentures and one form
was filed late by Mr. LaRosa with respect to a stock and option grant in June.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH ICC
OPTION AGREEMENT
In September 1991, the Company entered into the ICC Option Agreement
pursuant to which ICC was granted a series of options to acquire a total of
66.67% of the number of shares of the Company's Common Stock outstanding after
the exercise of all options owned by ICC and certain other outstanding options,
warrants, rights and convertible securities. All of the options under such
agreement have been exercised. As a result of the exercise of certain options,
ICC acquired voting control of the Company as of October 1992. The last option
was fully exercised in May 1994.
Under the ICC Option Agreement, ICC was also granted certain preemptive
rights (the "Limited Preemptive Rights") at a price equal to the lesser of the
exercise price (or conversion price, as the case may be), of certain additional
outstanding options, warrants and other rights to purchase shares of Common
Stock (the "Convertible Securities") or $.25 (except with respect to certain
warrants to purchase 400,000 shares of the Company's Common Stock granted to
management in September 1992, to the extent enforceable, in which case the price
is $.50). The Limited Preemptive Rights are exercisable for a period of 45 days
after the Company sends notice to ICC that shares have been issued in connection
with any outstanding Convertible Securities. The Company cannot predict whether
any shares will be issued pursuant to the exercise of outstanding Convertible
Securities or whether ICC will exercise any resulting preemptive rights.
On September 20, 1995, ICC exercised its right to purchase 76,926
shares of Common Stock at a per share price of $.25, which right arose as a
result of the conversion in August 1995 of 8.25% Convertible Debentures into
34,272 shares of Common Stock and the issuance of 3,691 shares to key
management, payment for which was made in cash.
Accordingly, as of September 1, 1996, ICC owned a total of 19,635,894
shares of the Company's Common Stock, representing approximately 66.5% of the
total number of shares outstanding on that date, and it held rights to acquire
additional shares under the Limited Preemptive Rights.
PURCHASE OF PREFERRED STOCK
Effective April 4, 1996, the Company filed a Certificate of
Designations, Preferences and Rights creating 3,000,000 shares of Series A
Cumulative Redeemable Convertible Preferred Stock, par value $1.00 per share
(the "Series A Preferred Stock"). The holders of Series A Preferred Stock are
entitled to a dividend at the lower of $.08 per share or $1.00 times the prime
rate of interest at the time of the sale of the Series A Preferred Stock,
payable semiannually. Dividends cumulate if not paid and the Company can not
declare or pay dividends on any other class of stock until dividends on the
Series A Preferred Stock are paid. The holders of Series A Preferred Stock are
entitled to a liquidation preference of $1.00 per share. The Company may redeem
shares of Series A Preferred Stock at any time at a price equal to the
liquidation preference plus accrued and unpaid dividends. Shares of Series A
Preferred Stock may be converted at the option of the holder into shares of
Common Stock, par value $.08 per share, at any time after 36 months from
issuance upon three months prior notice at a rate such that each share of Series
A Preferred Stock shall be converted into such number of shares of Common Stock
as equals the liquidation preference plus accrued and unpaid dividends, divided
by the lower of the current market price (as defined) at the conversion date or
$2.00 per share (subject to certain antidilution adjustments). The shares of
Series A Preferred Stock are accorded only such voting rights as required by
applicable law. The Company, however, may not take certain enumerated action
prejudicial to the interest of the holders of Series A Preferred Stock without
the approval of the holders of a majority of the Series A Preferred Stock.
The Company sold 2,500,000 shares of Series A Preferred Stock to ICC
pursuant to a Stock Purchase Agreement between the Company and ICC dated April
8, 1996 for a payment of $2,500,000. Pursuant to the Stock Purchase Agreement,
the Company agreed to (a) redeem some or all of the Series A Preferred Stock
owned by ICC if the Company has made a registered public offering of its common
stock and the proceeds thereof shall have been sufficient to pay the redemption
price and (b) allow ICC to surrender shares of Series A Preferred Stock, valued
at the liquidation preference therefor plus accrued and unpaid dividends, in
exercise of any warrants, options or other rights to purchase Common Stock which
ICC may have or in payment of any shares of Common Stock purchased in any public
offering. The foregoing covenants are conditioned upon the Company's ability to
undertake the required actions under applicable law and that the redemption or
surrender of shares would not thereby cause the Company to fail to meet all
requirements for listing or continued listing of the Company's Common Stock on
the Nasdaq Stock Market or such other exchange on which the Common Stock may be
listed.
PURCHASING OF FINISHED PRODUCT
During Fiscal 1996, the Company purchased $795,000 of raw materials
from ICC.
LEASE FINANCING
ICC has also assisted the Company in obtaining certain machinery and
equipment for the expansion of the Company's production capacity. In such cases,
ICC, or its affiliates, typically acted as lessor of the equipment for which a
fee is paid by the Company. As a result of the general financial condition of
the Company, the Company would not otherwise have been able to secure such
leases and credit facilities in the amounts required for the Company's
continuing and planned operations.
There are currently several leases entered into pursuant to the Master
Equipment Lease Agreements with ICC. Monthly rent is currently approximately
$148,000. The terms of the rentals are scheduled to expire at various times in
the years 1997 through 2001. The Company has options to purchase the leased
equipment for $1.00 at the expiration of the lease terms.
The Company has entered into the following lease obligations with ICC
within the past three fiscal years:
<TABLE>
<CAPTION>
ORIGINAL FISCAL YEAR LEASE INTEREST
DESCRIPTION LEASE AMOUNT ENTERED INTO TERM RATE
<S> <C> <C> <C> <C>
Equipment $1,732,000 6/94 48 to 60 months 9.8% to 10.1%
Equipment $1,162,502 6/95 48 to 60 months 11% to 12%
Equipment $ 450,0001 6/95 48 months Prime plus 1%
(currently 9.25%)
Equipment $1,312,5002 6/96 60 months 10.6%
FDA update $1,342,000 6/96 60 months 9.5%
of plant
facility
- ---------------------------
1 This reflects a refinancing, effective June 1995, of a previous lease
with ICC commencing July 1993 previously bearing interest at 19.3%.
2 This includes a refinancing, effective September 1995, of
previous leases with ICC in order to generate funds to finance
FDA upgrades (a $425,000 lease entered into in April 1992 bore
interest at 23% and a $455,000 lease entered into in October
1992 bore interest at 18.2%).
</TABLE>
CIMETIDINE AGREEMENT
In August 1993, the Company and ICC Chemical Corporation, an affiliate
of ICC, entered into a cooperative joint venture regarding the manufacture of
cimetidine, an anti-ulcer drug (the "Cimetidine Agreement"), such agreement was
amended in September 1996. Pursuant to the agreement, as amended, ICC will be
the sole source of raw materials. It will also provide at its expense the raw
materials (estimated to cost $32,000) and the outside expenses (estimated at
$185,000), relating to the preparation of OTC ANDA's. The Company will prepare
and file ANDA's for OTC cimetidine and will manufacture FDA-approved products.
ICC shall be entitled to a royalty of 10% of net sales of OTC cimetidine up to a
return of 8.75% compounded annually on its investment. ICC, if the Company
agrees, may buy cimetidine for resale to export customers, for which ICC will
pay 10% less than the price to ICC's customers. The term of the agreement is ten
years from the date of FDA approval of the sale and distribution of the product.
At the expiration of the term of the cimetidine agreement, if not renewed, the
assets of the venture shall be distributed to the two co-venturers as shall be
agreed. As of June 30, 1996, the Company has expended approximately $40,000 on
this project.
PURCHASE OF CONVERTIBLE BONDS
In January 1996, ICC purchased 29 $1,000 8% convertible bonds of the
Company due 2002 at a price of $17,643. ICC offered those bonds to the Company
at ICC's cost and the Company accepted such offer in March 1996.
RELATED TRANSACTIONS
STOCK ISSUANCE
Pursuant to the ICC Option Agreement and the waiver of certain
provisions of Dr. Tesler's employment agreement, as amended, certain Named
Executives were issued shares of the Company's Common Stock which in the last
three fiscal years were as follows:
NUMBER OF
NAME SHARES DATE OF ISSUE
- ---- --------- -------------
Max A. Tesler 5,235 shares October 19, 1993
16,122 shares December 3, 1993
156 shares September 1, 1994
13,108 shares June 30, 1995
3,691 shares September 20, 1995
Anthony Cantaffa 1,043 shares October 19, 1993
3,212 shares December 3, 1993
31 shares September 1, 1994
George Chin 1,043 shares October 19, 1993
3,212 shares December 3, 1993
31 shares September 1, 1994
The Company is also obligated to issue to certain of such individuals
an aggregate of up to approximately 145,000 additional shares if convertible
securities existing at September 24, 1992 are converted into Common Stock.
HEALTH PLAN ADMINISTRATION
At the end of 1991, the Company's third party administrator and insurer
for health coverage (The Travelers) proposed a substantial increase in the
administrative and stop loss coverage mainly as a result of the risk associated
with a company with large on-going losses.
Dr. Max Tesler, former President and CEO of the Company, set up a
third-party administrator named International Therapeutics Corp. ("ITC") which
was located in his medical office at 30 Central Park South in New York City, a
property owned by Park South Realty Corp. The monthly fees paid by PFI to ITC
were $6,000 per month in 1992, $7,000 per month in 1993 and $8,000 per month in
1994 and 1995. This fee covered rental of approximately $3,000 per month for a
portion of the 1,600 square foot office owned by Park South Realty, the salary
of the employee (Dr. Tesler's former nurse/secretary) and the medical
consultants who evaluated the claims. The Company provided a computer and claim
management software to ITC.
The monthly fee to ITC was lower than the proposed fee, but did not
include any stop loss insurance. In 1994 the Company purchased stop loss
insurance.
The agreement with ITC was terminated in December 1995. A new
third-party administrator was selected by PFI in January 1996. ICC helped to
reduce the cost of the new third party administrator by introducing the Company
to the third-party administrator which currently serves ICC and certain of its
subsidiaries. The fee for the new third-party administrator is currently $1,250
per month.
Park South Realty is a corporation formed in 1988 and is owned 25% by
Dr. Tesler, 25% by Dr. Lawrence Meyers, 25% by Sidney Hofing, 16-2/3% by Leonard
Golub and 8-1/3 by Felice Mischel.
LEGAL SERVICES
In Fiscal 1996, Dr. Tesler married Felice Mischel, a partner of the law
firm of Schneck Weltman Hashmall & Mischel ("Schneck Weltman") which performed
legal services for the Company in Fiscal 1996 and prior fiscal years. Its bills
for services rendered in Fiscal 1996 and in the prior fiscal year were $40,000
and $85,025, respectively. Schneck Weltman no longer represents the company with
the exception of three on-going litigation matters.
In Fiscal 1996 the Company appointed the law firm of Whitman Breed
Abbott & Morgan ("Whitman") as its general counsel and the law firm of Stroock &
Stroock & Lavan ("Stroock") as its securities counsel. Both Whitman and Stroock
have performed and continue to perform legal services for ICC in matters
unrelated to the Company.
The law firm of Battle Fowler LLP ("Battle") was consulted on various
matters by non-management directors of PFI. Subsequently, this law firm was
engaged to represent the Company on a legal matter.
UNIT PURCHASE OPTIONS
In the fiscal years ended June 30, 1994 and 1993, 1,940 of the 2,000
Unit Purchase Options ("UPO") issued in 1987 were exercised by the respective
holders, 60 of such options having expired on December 31, 1994. Upon exercise
of the UPO's, the Company received cash proceeds of $459,780. The UPO holders
received an aggregate of $1,940,000 principal amount of 8% Convertible
Debentures and 448,140 shares of common stock. A discount on the bonds of
$1,664,000 was recorded on the transaction which is being amortized over the
life of the bonds through the "effective- yield" method.
In the fiscal year ended June 30, 1993, a total of 655 of such UPO's
were purchased and exercised by HTA Co., Inc. , a corporation owned one-half by
Max Tesler, the Company's then President and Chief Executive Officer. Upon such
exercise, 151,305 shares of common stock were issued to HTA and $327,000
principal amount of 8% convertible debentures were issued to the profit sharing
plan of BTS Therapeutics Corp., a company wholly-owned by Dr. Tesler.
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF AUDITORS
The firm of BDO Seidman, LLP audited the financial statements of the
Company for the fiscal years ended June 30, 1990 through 1996. On August 29,
1996, pursuant to a vote of the Board of Directors, the firm of BDO Seidman, LLP
was selected to audit the financial statements of the Company for the year
ending June 30, 1997. Accordingly, the Board of Directors will offer the
following resolution at the Annual Meeting:
RESOLVED, that the appointment by the Board of Directors of BDO
Seidman, LLP, independent public accountants, to audit the financial
statements of the Company for the year ending June 30, 1997 is hereby
ratified and approved.
It is anticipated that a member of BDO Seidman, LLP will be present at
the Annual Meeting to respond to appropriate questions and will have the
opportunity, if he desires, to make a statement.
The affirmative vote of at least a majority of the shares present in
person or by proxy and entitled to vote at the Annual Meeting is necessary for
approval of Proposal No. 2. Under Delaware law, there are no rights of appraisal
or dissenter's rights which arise as a result of a vote to ratify the selection
of auditors.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE
"FOR" APPROVAL THEREOF.
STOCKHOLDERS' PROPOSALS
It is anticipated that the Company's 1997 Annual Meeting of
Stockholders will be held in October 1997. Stockholders who seek to present
proposals at the Company's Annual Meeting of Stockholders must submit their
proposals to the Secretary of the Company on or before June 15, 1997.
GENERAL
The Company will not solicit proxies. The Company expects to reimburse
banks, brokers and other persons for their reasonable out-of-pocket expenses in
handling information statements for beneficial owners of the Company's Common
Stock.
The Board of Directors knows of no business other than that set forth
above to be transacted at the meeting.
THE COMPANY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON WHO
HAS BEEN SENT A COPY OF THIS INFORMATION STATEMENT, ON WRITTEN REQUEST OF SUCH
PERSON, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
JUNE 30, 1996. Such a written request is to be directed to Frank Marchese,
Secretary, Pharmaceutical Formulations, Inc., 460 Plainfield Avenue, Edison, New
Jersey 08818.
By Order of the Board of Directors,
Frank Marchese, Secretary
Edison, New Jersey
October 15, 1996
