SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to '240.14a-11(c) or '240.14a-12
PHARMACEUTICAL FORMULATIONS, INC.
(Name of Registrant as Specified in Its Charter)
_________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 previously paid 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:_______________________________________________
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(4) Date Filed:___________________________________________________________
<PAGE>
PHARMACEUTICAL FORMULATIONS, INC.
460 PLAINFIELD AVENUE
EDISON, NEW JERSEY 08818
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1997
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 The Marriott Financial Center Hotel, 85 West Street, New York, New
York, on Wednesday, October 15, 1997, at 4:30 p.m. local time, for the following
purposes:
1. To elect three 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 consider and vote on an amendment of the Company's 1994 Stock Option
Plan to increase the number of shares authorized for grant by 500,000 to
1,500,000.
3. To consider and vote on a proposal to adopt the 1997 Stock Compensation
Plan.
4. To ratify the selection by the Company of BDO Seidman, LLP as
independent auditors of the Company for the year ending June 30, 1998; and
5. 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 September 9, 1997
(the "Record Date"), are entitled to notice of and to vote at the meeting or any
adjournments thereof.
A proxy statement and proxy are enclosed herewith. If you are unable to
attend the meeting in person you are urged to sign, date and return the enclosed
proxy promptly in the enclosed addressed envelope which requires no postage if
mailed within the United States. If you attend the meeting in person, you may
withdraw your proxy and vote your shares. Also enclosed herewith is the
Company's Annual Report for Fiscal 1997.
By Order of the Board
of Directors
Frank Marchese, Secretary
Edison, New Jersey
September 22, 1997
<PAGE>
PROXY STATEMENT
PHARMACEUTICAL FORMULATIONS, INC.
460 PLAINFIELD AVENUE
EDISON, NEW JERSEY 08818
INTRODUCTION
This proxy 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, October 15, 1997 and at any adjournments
thereof. The accompanying proxy is solicited by the Board of Directors of the
Company and is revocable by the stockholder by notifying the Company's Secretary
at any time before it is voted, by giving a valid proxy bearing a later date or
by voting in person at the Annual Meeting. This proxy statement and accompanying
proxy will be distributed to stockholders of the Company beginning on or about
September 24, 1997.
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
September 9, 1997 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 29,880,350 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, approve the amendment to the
Company's stock option plan, approve the adoption of the stock compensation
plan, 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 approve all proposals
set forth in this Proxy Statement and vote in favor of the election of all
nominated directors. Therefore, approval of Proposals No. 2, 3 and 4 and the
election of all directors who have been nominated 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
three 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.
ICC has advised the Company that it plans to nominate members to the
Company's Board of Directors from time to time, in accordance with the laws of
the State of Delaware and the By-Laws of the Company. Messrs. Oram and Cheesman
have been nominated pursuant to the request of ICC. Additional nominees to the
Board of Directors can be appointed to the Board by ICC, as majority
stockholder. Upon any such appointments, the Company will issue a press release
to identify the appointee.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the election of Ray W. Cheesman, Charles E. LaRosa and John L. Oram (or for
substitute nominees in the event of contingencies not known at present).
Information is furnished below with respect to all nominees.
Each of the nominees named below has served as a director during the fiscal
year ended June 30, 1997 ("Fiscal 1997"). 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.
The Board of Directors unanimously recommends that the stockholders vote
FOR the election as directors of the nominees listed below for terms expiring in
1998. If one or more of the nominees should become unavailable or unable to
serve at the time of the Annual Meeting, the shares to be voted for such nominee
or nominees which are represented by proxies will be voted for any substitute
nominee or nominees designated by the Board or, if none, the size of the Board
will be reduced within legal limits. The Board knows of no reason why any of the
nominees will be unavailable or unable to serve at the time of the Annual
Meeting.
* RAY W. CHEESMAN, age 66, has been a director of the Company since
July 1993, and was a consultant to KPMG Peat Marwick LLP, 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.
* CHARLES E. LAROSA, age 55, 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.
* JOHN L. ORAM, age 53, 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 (1952) Ltd. ("EIL") (formerly known as
Electrochemical Industries (Frutarom) Ltd.), 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 Limited, a
company spun-off from EIL and listed on the Tel-Aviv Stock Exchange
engaged in the flavor and fragrance industry.
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 and committee meetings.
Four meetings of the Company's Board of Directors were held during Fiscal
1997. All of the incumbent directors attended at least 75% of the meetings of
the Board and committees of which they are members in Fiscal 1997.
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
sole member of the Audit Committee is Ray W. Cheesman. The members of the
Compensation Committee are Ray W. Cheesman, Charles LaRosa and John L. Oram. The
members of the Stock Option Committee are Ray W. Cheesman and John L. Oram. The
Audit Committee 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; it met two times in
Fiscal 1997. The Compensation Committee reviews compensation issues; approves
salaries and reviews benefit programs for the executive officers; reviews and
recommends incentive compensation (including stock compensation) plans; and
approves any employment agreements with, or other contractual benefits for,
executive officers; it met two times in Fiscal 1997. The Stock Option Committee
makes awards under, prescribes rules for and interprets the provisions of the
Company's 1994 Stock Option Plan; it met two times during Fiscal 1997.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON COMPENSATION
OF EXECUTIVE OFFICERS OF THE COMPANY1
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 salary for the Company's President is set by an
employment agreement entered into December 1995 but is subject to increases as
authorized by the Board of Directors. 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 1997 took the form of cash bonuses
and, for the President of the Company, a cash bonus and a stock grant.
STOCK OPTIONS. In Fiscal 1997, 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. Mr. LaRosa, the Company's 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
level was based on negotiation between the Company and the executive and does
not vary based on the Company's performance. Increases are determined by the
Board of Directors in its discretion. Effective January 1, 1997, the Board
increased Mr. LaRosa's salary to $275,000, from $250,000, in recognition of his
valued services to the Company. At that time, the Board also authorized the
grant of stock equal in value to $25,000 if Mr. LaRosa remained in the employ of
the Company on July 1, 1997 and the non-executive directors of the Company
agreed to recommend a stock option grant to Mr. LaRosa after the issuance of
results for Fiscal 1997 of 250,000 shares and agreed to recommend at an
appropriate future time a further grant in anticipation of the listing of the
Company's stock on a stock exchange or quotation system. The primary factors and
criteria on which the Chief Executive Officer's compensation is based are the
Company's financial results and Mr. LaRosa's role in helping to achieve such
results. The Chief Executive Officer is a member of the Company's Compensation
Committee but he excused himself from any consideration by the Committee of his
compensation.
1 This section shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy 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.
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 1997 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 1997 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 stockholders' 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:
RAY W. CHEESMAN
CHARLES E. LAROSA
JOHN L. ORAM
For the Stock Option Committee:
RAY W. CHEESMAN
JOHN L. ORAM
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No members of the Company's Compensation Committee (other than Charles
LaRosa, the Company's President and Chief Executive Officer) 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").
COMPENSATION TABLES
This section of the Proxy Statement discloses Fiscal 1997 plan and non-plan
compensation awarded or paid to, or earned by, the (i) Company's Chief Executive
Officer ("CEO") and (ii) the Company's four most highly compensated executive
officers other than the CEO who were serving as executive officers at June 30,
1997, to the extent that salary and bonuses exceeded $100,000 (together, these
six persons are sometimes referred to as the "Named Executives"). --------
<PAGE>
SUMMARY COMPENSATION TABLE
The following table contains compensation data for the Named Executives for
the most recent three fiscal years:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Awards Options Payouts Compen-
Principal Position Year $ $ $ $ $ $ sation
- ---------- ---- ------ ------- ------------ -------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa 1997 $262,000 $100,000 -- --- 75,000 --- ---
President and 1996 110,000 --- --- $19,000 105,000 --- ---
Chief Executive 1995 --- --- --- --- --- --- ---
Officer1
David Belaga 1997 127,000 19,000 --- --- 7,000 --- ---
Vice President, 1996 21,000 --- --- --- --- --- ---
Marketing 1995 --- --- --- --- --- --- ---
---
Anthony Cantaffa, 1997 135,000 5,000 --- --- 5,000 --- ---
Vice President of 1996 145,000 --- --- --- --- --- ---
New Business 1995 145,000 --- --- --- --- ---
Development
George Chin 1997 160,000 40,000 --- --- 12,000 --- ---
Vice President, 1996 140,000 30,000 --- --- --- --- ---
Sales2 1995 --- --- --- --- --- --- ---
Frank Marchese 1997 111,000 22,000 --- --- 20,000 --- ---
Vice President; 1996 106,000 --- --- --- --- --- ---
Chief Financial 1995 --- --- --- --- --- --- ---
Officer; Secretary
and Treasurer<F2>
- -------------------------
<FN>
1 Mr. LaRosa was elected President in December 1995
2 The positions occupied by such individuals were not considered executive
offices until Fiscal 1996.
</FN>
</TABLE>
OPTION GRANTS IN FISCAL 1997
The following table contains information concerning the grant of stock
options to the Named Executives during Fiscal 1997 (the Company has no
outstanding stock appreciation rights - "SARs" - and granted no SARs during
Fiscal 1997):
<TABLE>
<CAPTION>
Individual Grants
Number Percent of Total Potential
of Options Realizable Value
Securities Granted to at Assumed Annual
Underlying Employes Rates of Stock
Underlying in Exercise Expira- Price Appreciation
Options Fiscal Price tion for
Name Granted Year ($/SHARE)<F2> Date Option Term1
- ----- ----------- ------------- --------- -------- -------------------
5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa 75,000 25% $.84 11/01 $6,000 $24,000
David Belaga 7,000 2% $.84 11/01 560 2,240
Anthony Cantafa 5,000 2% $.84 11/01 400 1,600
George Chin 12,000 4% $.84 11/01 960 3,840
Frank Marchese 20,000 7% $.84 11/01 1,600 6,400
- --------------------
<FN>
1 Executives may not sell or assign any option grants, which
have value only to the extent of stock price appreciation,
which will benefit all stockholders commensurately. The
amounts set forth are based on assumed appreciation rates of
5% and 10% as prescribed by the Securities and Exchange
Commission rules and are not intended to forecast future
appreciation, if any, of the stock price. The Company did
not use an alternate formula for a grant date valuation as
it is not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown
or volatile factors. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the
future performance of the Common Stock and overall stock
market conditions. There can be no assurance that the
amounts reflected in this table will be achieved.
2 The exercise price is equal to or higher than the fair market
value of the Company's Common Stock on the date of the grant.
</FN>
</TABLE>
AGGREGATED OPTION EXERCISES AND
FISCAL YEAR-END OPTION VALUES IN FISCAL 1997
No options were exercised by any executive officer of the Company during
Fiscal 1997. The following table sets forth information with respect to the
Named Executive concerning unexercised options held at fiscal year-end (the
Company has no outstanding SARs, and no SARs were exercised in the current
fiscal year):
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Securities In-the-Money
Underlying Options
Shares Options at
Acquired Realized at 6/30/97 6/30/97($)1
on Value
Name Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa --- --- 105,000 75,000 $13,800 $0
David Belaga --- --- 25,000 7,000 6,000 0
Anthony Cantaffa --- --- 111,800 7,000 5,896 0
George Chin --- --- 70,550 12,000 0 0
Frank Marchese --- --- 40,000 20,000 0 0
- --------------------
<FN>
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 30, 1997, were $13/16 and $5/8 respectively. Certain options are
excluded since they are out of the money.
</FN>
</TABLE>
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. Pursuant to such
agreement, effective June 7, 1996 he was awarded a grant of 25,000 shares of
stock 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 options for 30,000 shares of Common
Stock exerciseable at $.66 per share, such options were exercisable on June 7,
1996 and expire June 7, 2001. Effective January 1, 1997, Mr. LaRosa's salary was
increased to $275,000 per annum and he was awarded a grant of 37,202 shares on
July 1, 1997. 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.
OPTIONS
Options granted under the Company's 1994 Stock Option Plan include
provisions accelerating the vesting schedule in the case of a defined "Change of
Control." A "Change of Control" shall be deemed to have occurred if (i) any
person or group of persons acquires (or has acquired during the twelve- month
period ending on the date of the most recent acquisition by such person) the
beneficial ownership, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the then outstanding
securities of the Company; (ii) during any period of twelve months, individuals
who at the beginning of such period constitute the Board of Directors, and any
new director whose election or nomination was approved by the directors in
office who either were directors at the beginning of the period or whose
election or nomination was previously so approved, cease for any reason to
constitute at least a majority thereof; (iii) a person acquires beneficial
ownership of stock of the Company that, together with stock held immediately
prior to such acquisition by such person, possesses more than 50% of the total
fair market value of total voting power of the stock of the Company, unless the
additional stock is acquired by a person possessing, immediately prior to such
acquisition, beneficial ownership of 40% or more of the Common Stock; or (iv) a
person acquires (or has acquired during the twelve-month period ending on the
date of the most recent acquisition by such person) assets from the Company that
have a total fair market value equal to or more than one-third of the total fair
market value of all of the assets of the Company immediately prior to such
acquisition. Notwithstanding the foregoing, for purposes of clauses (i) and
(ii), a Change in Control will not be deemed to have occurred if the power to
control (directly or indirectly) the management and policies of the Company is
not transferred from a person to another person; and for purposes of clause
(iv), a Change in Control will not be deemed to occur if the assets of the
Company are transferred: (A) to a stockholder in exchange for his stock, (B) to
an entity in which the Company has (directly or indirectly) 50% ownership, or
(C) to a person that has (directly or indirectly) at least 50% ownership of the
Company with respect to its stock outstanding, or to any entity in which such
person possesses (directly or indirectly) 50% ownership.
STOCKHOLDER RETURN PERFORMANCE PRESENTATION*
Set forth below is a chart and line graph comparing the yearly
percentage change in the cumulative total stockholder 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, the Nasdaq
Pharmaceutical index (which comparison is being made this year for the first
time) and a peer group based on market capitalization (which comparison is being
made this year for the last time) for the period of five fiscal years ending on
June 30, 1997. The graph and chart assumes that the value of the investment in
the Company's Common Stock and for each index was $100 on June 30, 1992 and
reflects reinvestment of dividends and market capitalization weighing. The
dollar amounts indicated in the graph and chart are as of june 30th in each year
indicated.
- -------------------------------------------------------------------------------
Cumulative Total Return ($)
===============================================================================
Registrant/Index 6/92 6/93 6/94 6/95 6/96 6/97
===============================================================================
Pharmaceutical Fomulations $100 $160 $240 $180 $250 $200
- -------------------------------------------------------------------------------
Market Cap Peer Group $100 $129 $125 $130 $142 $180
- -------------------------------------------------------------------------------
Nasdaq Stock Market (US) $100 $126 $127 $169 $218 $265
- -------------------------------------------------------------------------------
Nasdaq Pharmaceuticals $100 $ 87 $ 73 $ 97 $142 $145
- -------------------------------------------------------------------------------
* This section shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy 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.
The common stocks of the following companies were included in the market
cap 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, it was previously felt by the Company that no preestablished index could
appropriately 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. Notwithstanding the fact that the companies in the
Nasdaq Pharmaceutical Index are primarily major pharmaceutical companies
involved primarily in the prescription ethical pharmaceutical business, it is
nevertheless now felt that such Nasdaq index provides a more appropriate
comparison for the Company. Historical stock price performance shown on the
graph is not necessarily indicative of the future price performance.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table shows information, as of September 14, 1997, 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 (the addresses of all the persons
named below is c/o Pharmaceutical Formulations, Inc. 460 Plainfield Avenue,
Edison, NJ 08818, except for ICC Industries Inc., Dr. John Farber and John L.
Oram, whose address is 460 Park Avenue, New York, NY 10022):
Amount and
Name and Nature of
Address of Beneficial Percentage
Beneficial Owner Ownership1 of Class
ICC Industries Inc. 19,635,8942 66.5%
Dr. John Farber 19,635,8942 66.5%
John L. Oram 161,536 *
Charles E. LaRosa 184,0773 *
Ray W. Cheesman 135,0003 *
David Belaga 27,5003 *
Anthony Cantaffa 182,2553 *
George Chin 144,6953 *
Frank Marchese 44,0003 *
Officers and 950,313 3%
Directors
as a Group (9 persons)
- ---------------------------
* Less than 1%.
1 Unless it is stated otherwise in any of the following notes,
each holder owns the reported shares directly and has sole
voting and investment power with respect to such shares. The
number of shares beneficially owned by a person also
includes all shares which can be acquired by such person
within 60 days, including by way of exercise of outstanding
options or the conversion of convertible securities which
are, or during such 60-day period, become exercisable or
convertible.
2 Does not include approximately 3,556,000 shares includable in
connection with ICC's limited preemptive rights since such
rights are not currently exercisable nor can there be any
assumption that they will become exercisable within 60 days
after September 14, 1997. Such shares are issuable only upon
the issuance by the Company of certain shares to other
persons; the issuance of shares to ICC pursuant to the
limited preemptive rights is intended to maintain the
preexisting equity ownership of ICC of approximately
two-thirds of the outstanding shares (excluding shares which
ICC may acquire upon conversion of convertible preferred
shares). It also does not include any shares which may be
issuable upon conversion of outstanding convertible preferred
stock since such conversion can not occur until April 8,
1999. Dr. Farber is the majority stockholder of ICC. See
"Certain Relationships and Related Transactions."
3 Includes shares of Common Stock subject to stock options
exercisable as of September 14, 1997 or within 60 days
thereof as follows: Mr. Belaga: 25,000; Mr. Cantaffa:
111,800; Mr. Cheesman: 75,000; Mr. Chin: 70,550; Mr.
LaRosa: 105,000; Mr. Marchese: 40,000; and all officers and
directors as a group: 468,600.
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 stockholders 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, 1997 were complied with except as
follows: Messrs. Belaga, Cantaffa and LaRosa each filed two forms late; Messrs.
Barbee, Chin, Marchese and Oram each filed one form late; and ICC Industries
Inc. filed three forms (for fiscal 1996) late.
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.
In Fiscal 1997, ICC exercised preemptive rights for 221,536 shares at $.25
per share, which shares it then sold privately to certain employees of ICC. As
of August 20, 1997, 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 when declared. 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.
PURCHASE OF RAW MATERIALS
During Fiscal 1997, 1996 and 1995 the Company purchased $1,226,000,
$795,000 and $1,219,000, respectively 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
fixed monthly fees are 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
$130,000. 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>
Lease Original Fiscal Year
Description Lease Amount Entered Into Term Interest Rate
------------ ------------- ------------- ---- -------------
<S> <C> <C> <C> <C>
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, a product used for the relief from heartburn, acid indigestion and
sour stomach (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 to cost
$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, 1997, the Company has expended approximately $219,000 on
this project, of which $213,000 is due from ICC.
LEGAL SERVICES
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 LLP ("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.
OTHER RELATED TRANSACTIONS
STOCK ISSUANCE
Pursuant to the ICC Option Agreement and the waiver of certain provisions
of former President Dr. Max Tesler's employment agreement, as amended, certain
employees (as defined) were issued shares of the Company's Common Stock in the
last three fiscal years. A total of 24,094 shares were issued in the last three
fiscal years. The Company is also obligated to issue to such individuals an
aggregate of up to approximately 134,000 additional shares if convertible
securities existing at September 24, 1992 are converted into Common Stock.
PROPOSAL NO. 2
AMENDMENT TO THE 1994 STOCK OPTION PLAN
The Company's Board of Directors has unanimously approved a proposal to
amend the Pharmaceutical Formulations 1994 Stock Option Plan (the "1994 Plan")
to increase the number of shares authorized for grant under the 1994 Plan by
500,000 shares. The amendment proposed to the 1994 Plan will be effective upon
stockholder approval. The purpose of the 1994 Plan is to provide additional
incentive to the employees of the Company. Each option granted pursuant to the
1994 Plan is required to be designated at the time of grant as either an
incentive stock option ("ISO") or as a non-qualified stock option ("NQSO").
ADMINISTRATION OF THE PLAN. The 1994 Plan is administered by the Stock
Option Committee, which determines who among those eligible will be granted
options, the time or times at which options will be granted, the number of
shares to be subject to options, the durations of options, any conditions to the
exercise of options and the manner in and price at which options may be
exercised. The Committee is authorized to amend, suspend or terminate the 1994
Plan, except that it is not authorized without stockholder approval (except with
regard to adjustments resulting from changes in capitalization) to (i) increase
the maximum number of shares that may be issued pursuant to the exercise of
options granted under the 1994 Plan; (ii) change the eligibility requirements
for participation in the 1994 Plan; and (iii) decrease an option exercise price
(although an option may be canceled and a new option granted at a lower exercise
price).
SHARES SUBJECT TO THE PLAN. The 1994 Plan currently provides that options
may be granted with respect to a total of 1,000,000 shares of Common Stock,
subject to adjustment upon certain changes in capitalization without receipt of
consideration by the Company. Upon approval of the amendment, options on a total
of 1,500,000 shares of Common Stock may be granted. In addition, if the Company
is involved in a merger, consolidation, dissolution or liquidation, the options
granted under the 1994 Plan will be adjusted or, under certain conditions, will
terminate, subject to the right of the option holder to exercise his option or a
comparable option substituted at the discretion of the Company prior to such
event. If any option expires or terminates for any reason, without having been
exercised in full, the unpurchased shares subject to such option will be
available again for the purposes of the 1994 Plan.
PARTICIPATION. Any employee of the Company is eligible to receive incentive
stock options or non-qualified stock options granted under the 1994 Plan. As of
the date hereof, approximately 350 persons are eligible to participate in the
1994 Plan. No employee may receive in any calendar year options on more than
300,000 shares.
OPTION PRICE. The exercise price of each option will be determined by the
Stock Option Committee, but incentive stock options may not be priced less than
100% of the fair market value of the shares of Common Stock covered by the
option on the date the option is granted. If an incentive stock option is to be
granted to an employee who owns over 10% of the total combined voting power of
all classes of the Company's stock, then the exercise price may not be less than
110% of the fair market value of the Common Stock covered by the option on the
date the option is granted.
TERMS OF OPTIONS. The Stock Option Committee, in its discretion,
establishes the term of each option, provided that the maximum term of each
option is 10 years from the date of grant. Incentive options granted to an
employee who owns over 10% of the total combined voting power of all classes of
stock of the Company must expire not more than five years after the date of
grant. The 1994 Plan provides for the earlier expiration of options of a
participant in the event of certain terminations of employment.
OPTIONS GRANTS. As of the date hereof, 794,000 options have been granted
pursuant to the 1994 Plan, of which 303,500 were granted to persons who were not
executive officers of the Company. The number of shares subject to options
granted to date to the Named Executives is as follows: Mr. LaRosa: 180,000; Mr.
Belaga: 32,000; Mr. Cantaffa: 92,000; Mr. Chin: 53,250; and Mr. Marchese:
60,000. All current executive officers as a group have been granted options
under the 1994 Plan for a total of 465,500 shares. No directors who are not
executive officers and no associates of any executive officers or directors have
received any options under the 1994 Plan. The only persons who received more
than five percent of such options were the Named Executives noted above. While
the Company intends to make similar grants in future years, as well as grants to
new employees or certain specific employees in recognition of services or
anticipated services, the Company has no plans at this time to issue options to
any specific employees or classes of employees other than as described above
with respect to the compensation of the Chief Executive Officer and 54,000
options expected to be granted to the executive officers of the Company.
TAX CONSEQUENCES OF OPTIONS. There are no federal income tax consequences
to the optionee or the Company upon the grant of an option. Generally, there are
no federal income tax consequences to the optionee or the Company upon the
exercise of an ISO (except that the alternative minimum tax may apply). Upon
exercise of an NQSO, the optionee normally will recognize taxable ordinary
income equal to the excess of the fair market value of the stock on the date of
exercise over the option exercise price. Generally, with respect to employees,
the Company is required to withhold from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness and the provisions of Section 162(m) of the Code,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the optionee.
If an optionee holds the stock acquired upon exercise of an ISO for at
least two years from the date on which the option is granted and at least one
year from the date of exercise of the option, any gain or loss on a disposition
of such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(ii) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss, which will be long-term or short- term depending on
whether the stock was held for more than one year. To the extent the optionee
recognizes ordinary income by reason of a disqualifying disposition, the Company
will generally be entitled (subject to the requirement of reasonableness and the
provisions of Section 162(m) of the Code) to a corresponding business expense
deduction in the tax year in which the disqualifying disposition occurs.
Upon disposition of the stock acquired upon exercise of an NQSO, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long-term or short-term, depending on whether the stock was held for
more than one year.
PROVISIONS RELATING TO SECTION 162(M) OF THE CODE. As part of the Omnibus
Budget Reconciliation Act of 1993, the U.S. Congress amended the Code to add
Section 162(m) which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the 1994 Plan, when combined with all
other types of compensation received by a covered employee from the Company, may
cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. The
1994 Plan includes certain provisions that are applicable to Named Executives to
enable compensation attributable to awards under the 1994 Plan to be
"performance-based" in accordance with applicable Treasury regulations issued
under Section 162(m) of the Code. Compensation attributable to stock options
with an exercise price not less than the fair market value of the Company's
Common Stock on the grant date will qualify as performance-based compensation if
the composition of the Stock Option Committee satisfies the Internal Revenue
Service's requirement for outside directors.
STOCK PRICE. On September 15, 1997, the closing bid and asked price of the
Common Stock, as reported in the Pink Sheets, was $.75 and $.81.
APPROVAL AND TERMINATION. The 1994 Stock Option Plan was approved by the
Board of Directors of the Company on August 30, 1994 and the stockholders of the
Company on November 17, 1994 and, unless sooner terminated by the Board of
Directors or the Stock Option Committee, will terminate as to new grants on
August 29, 2004. The amendment to increase the number of shares eligible for
grant under the 1994 Plan will become effective upon approval by the
stockholders at the Annual Meeting.
The Board of Directors will offer the following resolution at the Annual
Meeting:
RESOLVED, THAT THE AMENDMENT TO THE 1994 STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES ELIGIBLE FOR GRANT TO 1,500,000 IS HEREBY
APPROVED.
The affirmative vote of at least a majority of the shares represented and
voting at the Annual Meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
necessary for approval of Proposal No. 2.
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.
PROPOSAL NO. 3
APPROVAL OF THE 1997 STOCK INCENTIVE PLAN
The Company's Board of Directors has unanimously approved a proposal to
adopt the Pharmaceutical Formulations 1997 Stock Incentive Plan (the "1997
Plan") to enable the Company to make grants of stock to key employees,
consultants and advisors for up to an aggregate of 200,000 shares of Common
Stock. The 1997 Plan would only be effective upon stockholder approval.
The purpose of the 1997 Plan is to provide additional incentive to the
employees of and consultants and advisors to the Company. The following
description of the 1997 Plan is qualified in its entirety by reference to the
1997 Plan itself, a copy of which is attached to this proxy statement as Annex
A.
ADMINISTRATION OF THE PLAN. The 1997 Plan is to be administered by the
Stock Incentive Committee, composed of not less than two members of the Board of
Directors. To the extent that such persons are available, the members of the
committee shall be directors who satisfy requirements promulgated by the
Securities Exchange Commission pursuant to Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and requirements established by the Internal
Revenue Service for outside directors acting under plans intended to qualify for
exemption under Section 162(m) of the Code. The Stock Incentive Committee
determines who among those eligible will receive stock grants, the time or times
at which grants will be made, the number of shares to be granted and any
conditions to the grants. The Committee is authorized to amend, suspend or
terminate the 1997 Plan subject to stockholder approval only to the extent
required by applicable law, regulations or rules or as otherwise decided by the
Board of Directors.
SHARES SUBJECT TO THE PLAN. The 1997 Plan provides that grants may be made
with respect to a total of 200,000 shares of Common Stock, subject to adjustment
upon certain changes in capitalization by the Company. In addition, if the
Company is involved in a merger, consolidation, dissolution or liquidation, the
shares which may be granted under the 1997 Plan will be adjusted or, under
certain conditions, will terminate.
PARTICIPATION. Any employee of the Company, or any individual consultant or
advisor to the Company who has provided BONA FIDE services which are not in
connection with the offer or sale of securities in capital-raising transactions,
is eligible to receive stock incentives under the 1997 Plan. Consultants and
advisors who are not individuals are not eligible to receive grants under the
1997 Plan. As of the date hereof, approximately 350 employees are eligible to
receive grants under the 1997 Plan.
GRANTS. While the Company intends to make grants in the future, it has no
plans at this time to make grants to any specific employees, consultants or
advisors or classes of employees, consultants or advisors other than as
described above with respect to the compensation of the Chief Executive Officer.
The number of shares to be granted under the 1997 Plan and the terms thereof
shall be determined by the Stock Incentive Committee in its sole discretion
(based upon the Committee's determination as to the contribution or anticipated
contribution of the employee or consultant to the success of the Company). Each
grant under the Stock Incentive Plan shall be evidenced by an agreement, in form
approved by the Stock Incentive Committee, which shall specify the terms and
provisions as the Committee may determine to be necessary or desirable. Such
conditions may include (i) holding period requirements, (ii) length of service
("vesting") requirements and/or (iii) surrender or sale ("forfeiture")
requirements upon leaving the employ of the Company or a subsidiary or
otherwise. If any stock grant under the Stock Incentive Plan shall be forfeited,
such shares may again be made subject to grants under the plan within legal
limits.
STOCK PRICE. On September 15, 1997, the closing bid and asked price of the
Common Stock, as reported in the Pink Sheets , was $.75 and $.81.
EFFECT OF SECTION 162(M) OF THE CODE. Section 162(m) of the Code denies a
deduction to the Company in any taxable year to the extent that compensation
exceeds $1 million for a covered employee. It is possible that compensation
attributable to awards under the 1997 Plan, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year. Certain kinds of compensation,
including qualified "performance-based compensation," are disregarded for
purposes of the deduction limitation. Grants of stock will be performance-based
if the vesting of such grants is contingent upon the attainment of specified
objective goals relating to financial, operational and marketing measures (as
described in the 1997 Plan) and any other applicable requirements are satisfied.
The number of shares granted to any person in any calendar year which are
subject to performance-based vesting requirements shall not exceed 1% of the
stock outstanding on the date of approval of the 1997 Plan by the stockholders.
APPROVAL. The 1997 Stock Incentive Plan was approved by the Board of
Directors of the Company on September 19, 1997 and is being submitted for
approval by the stockholders of the Company at the meeting being held on October
15 , 1997. The Board of Directors will offer the following resolution at the
Annual Meeting:
RESOLVED, THAT THE 1997 STOCK INCENTIVE PLAN IS
HEREBY APPROVED.
The affirmative vote of at least a majority of the shares represented and
voting at the Annual Meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) is
necessary for approval of Proposal No. 3.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL NO. 4
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 1997. On July 29, 1997,
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, 1998. 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, 1998
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. 4. 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. 4 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 1998 Annual Meeting of Stockholders
will be held in October 1998. 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, 1998.
GENERAL
The Company does not intend to hire a proxy solicitor. In addition to the
use of mails, proxies may be solicited by personal interview, telephone and
telegraph, by directors, officers and regular employees of the Company, without
special compensation therefor. The Company expects to reimburse banks, brokers
and other persons for their reasonable out-of-pocket expenses in handling proxy
materials for beneficial owners of the Company's Common Stock.
Unless contrary instructions are indicated on the proxy, all shares of
Common Stock represented by valid proxies received pursuant to this solicitation
(and not revoked before they are voted) will be voted FOR Proposals No. 2, 3 and
4 and FOR the election of all directors nominated.
The Board of Directors knows of no business other than that set forth above
to be transacted at the meeting, but if other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the shares of
Common Stock represented by the proxies in accordance with their judgment on
such matters. If a stockholder specifies a different choice on the proxy, his or
her shares of Common Stock will be voted in accordance with the specification so
made.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL IN,
SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE PREPAID ENVELOPE PROVIDED,
NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
THE COMPANY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON WHO HAS
BEEN SENT A COPY OF THIS PROXY 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,
1997. 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
September 22, 1997
<PAGE>
ANNEX A
PHARMACEUTICAL FORMULATIONS, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of this plan (the "Plan") is to provide a means
whereby Pharmaceutical Formulations, Inc. (the "Company") may, through the grant
to employees of and certain consultants and advisors to the Company shares of
the Company's Common Stock (as defined below) as compensation ("Stock Grants"),
attract and retain persons of ability (including officers and directors who are
also employees) of the Company and of any Subsidiary (as defined below), as key
employees, consultants and advisors and motivate such employees, consultants and
advisors to exert their best efforts on behalf of the Company and any
Subsidiary.
As used herein, the term "Subsidiary" shall mean any corporation which at
the time of the making of a Stock Grant qualifies as a subsidiary of the Company
under the definition of "subsidiary corporation" in Section 425(f) of the
Internal Revenue Code of 1986 (the "Code"), or any similar provision hereinafter
enacted.
2. NUMBER OF SHARES AVAILABLE UNDER PLAN; Recipients. Stock Grants may be
made by the Company under the Plan from time to time to key employees of the
Company or any Subsidiary, and to individual consultants and advisors to the
Company or any Subsidiary who have provided BONA FIDE services which are not in
connection with the offer or sale of securities in capital-raising transactions
(such persons receiving Stock Grants being hereafter referred to as
"recipients") with respect to up to and including an aggregate of 200,000 shares
of Common Stock ($.08 par value) of the Company (the "Common Stock") for all
recipients and 200,000 such shares shall be reserved for grant under the Plan
(subject to adjustment as provided in paragraph 7). Shares, if any, which have
been forfeited under any conditions imposed pursuant to the Plan may be
re-granted only if the recipient received no benefits of ownership (including
dividends but excluding voting rights) prior to forfeiture.
3. ADMINISTRATION. The Plan shall be administered by a Stock Incentive
Committee (the "Committee") consisting of not less than two directors of the
Company appointed by the Board of Directors of the Company (the "Board"), which
members shall, to the extent that such persons are available, be "non-employee
directors" (as defined below). A member of the Board shall be deemed to be a
non-employee director only if he or she satisfies (a) such requirements as the
Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Securities Exchange Act of 1934, as amended, and (b) such
requirements as the Internal Revenue Service may establish for outside directors
acting under plans intended to qualify for exemption under Section 162(m) (4)(C)
of the Code. The Board may also appoint one or more separate committees of the
Board, each composed of one or more directors of the Company who need not be
non-employee directors, who may administer the Plan with respect to recipients
who are not considered officers or directors of the Company under Section 16 of
the Exchange Act, may make grants under the Plan to such recipients and may
determine all terms of such grants. If the Company does not have at least two
directors who satisfy the non-employee director standard, as defined above,
awards granted under the Plan may not qualify under Rule 16b-3 or be deemed to
be performance-based compensation under regulations issued pursuant to Section
162(m) of the Code. The Board may at any time remove any member of the Committee
with or without cause. Any vacancy occurring in the membership of the Committee
shall be filled by appointment by the Board.
The Committee may interpret the Plan, prescribe, amend, and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, and make such other determinations and take such other action as it deems
necessary or advisable, except as such action may be otherwise expressly
reserved in the Plan to the Board. Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding and conclusive.
Any decision or determination reduced to writing and signed by all members of
the Committee shall be fully as effective as if made by unanimous vote at a
meeting duly called and held.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent.
No member or former member of the Committee or of the Board shall be liable
for any action or determination made in good faith with respect to the Plan or
any Stock Incentive awarded under it. To the maximum extent permitted by
applicable law, each member or former member of the Committee or of the Board
shall be indemnified and held harmless by the Company against any cost or
expense (including counsel fees, which fees may be advanced by the Company), or
liability (including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection with the
Plan unless arising out of such member's or former member's own fraud or bad
faith. Such indemnification shall be in addition to any rights of
indemnification the members or former members may have as directors or under the
Certificate of Incorporation or By-Laws of the Company.
4. ELIGIBILITY AND AWARDS. Subject to the provisions of the Plan, the
Committee shall have the power to (a) authorize the Stock Grants; (b) determine
and designate from time to time those employees of or consultants or advisors to
the Company or of any Subsidiary to whom Stock Grants are to be made; (c)
determine the number of shares to be granted or the basis, if any, on which such
number shall be calculated; (d) determine whether any grant shall be subject to
any conditions, including any (i) holding period requirement, (ii) length of
service ("vesting") requirement or (iii) surrender or sale ("forfeiture")
requirement upon leaving the employ or retainer of the Company or a Subsidiary
or under other conditions (and if any such conditions are imposed, what
restrictions on transfer and requirements for legending certificates shall be
required or whether any escrow of such shares shall be required during any
vesting or forfeiture period). All recipients shall be given the opportunity to
decline any Stock Grant awarded to them. The Committee may include among the
conditions for a stock grant the requirement that the performance of the Company
or a business unit of the Company (as determined by the Company's independent
auditors) for a specified period of one or more years equal or exceed a target
determined in advance by the Committee. Such target shall be based on one or
more of the financial, operational and marketing criteria set forth in Schedule
A. The Committee shall determine whether any such target has been met not later
than the 90th day of such period. In no event shall the number of shares of
stock granted which are subject to performance-based vesting conditions and
which are granted to any recipient in a single calendar year exceed 1% of the
Common Stock of the Company outstanding on the date of approval of the Plan by
the stockholders of the Company, subject to adjustment in accordance with
Section 7. To the extent that a Stock Grant is made in the form of newly issued
shares of Common Stock, the recipient, as a condition to such grant, shall be
required to provide consideration to the Company in the form of cash or services
previously rendered in an amount equal to the par value of such shares; to the
extent that a grant is made from the Company's treasury, no consideration shall
be required of the recipient.
5. FORM OF AGREEMENT. Each Stock Grant under the Plan shall be evidenced by
an agreement, in form approved by the Committee, which shall include such terms
and conditions as the Committee may deem appropriate.
6. NO RIGHTS AS A STOCKHOLDER. No recipient shall have any rights as a
stockholder with respect to any shares of Common Stock subject to a Stock Grant
prior to the date of issuance of a certificate or certificates for such shares.
7. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK. In the event of any
change in the Common Stock of the Company by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination,
or exchange of shares, or rights offering to purchase Common Stock at a price
substantially below fair market value, or of any similar change affecting the
Common Stock, the number and kind of shares which thereafter may be issued upon
the issuance of Stock Grants shall be appropriately adjusted consistent with
such change in such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available for,
recipients under the Plan.
8. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, and the Stock
Grants thereunder and the obligation of the Company to deliver shares of Common
Stock pursuant to such Stock Grants, shall be subject to all applicable federal
and state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required. No Stock Grant may be made pursuant to the
Plan when such Stock Grant, or the granting thereof, would result in the
violation of any law or governmental order or regulation. The Plan is intended
to enable the Plan to comply with the requirements of Rule 16b-3 under the
Exchange Act (or any successor provision thereto), and any provision
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan. If at any time the Committee shall determine in its
discretion that the listing, registration or qualification of the shares covered
by the Plan upon any national securities exchange or under any state or federal
law, or the consent or approval of any government regulatory body, is necessary
or desirable as a condition of, or in connection with, the issuance of shares
under the Plan, no shares will be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Committee. If shares are not required to be or have not been registered, the
Company may require each recipient, as a condition of Recipient's acceptance, to
represent that the shares are being acquired for investment only and not with a
view to their sale or distribution, and make such other representations and
furnish such information deemed appropriate by counsel to the Company and stock
certificates evidencing unregistered shares acquired pursuant to the Plan may be
subject to stop orders and shall bear any legend required by or appropriate
under applicable securities laws.
9. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any Stock Grant under
the Plan shall not confer upon any recipient or other employee any right with
respect to continuance of employment by the Company or any Subsidiary, nor shall
they affect in any way the right of the Company or any Subsidiary by which a
recipient is employed to terminate such person's employment at any time.
10. WITHHOLDING. The Committee in its discretion may cause to be made as a
condition precedent to the issuance of any Stock Grant appropriate arrangements
for the withholding of any federal, state, local or foreign taxes.
11. AMENDMENT, SUSPENSION AND DISCONTINUANCE. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Stock Grant not theretofore made, and the Board of Directors or the
Committee, with the consent of the affected recipient of a Stock Grant, may at
any time withdraw or from time to time amend the Plan as it relates to, and the
terms and conditions of, any outstanding Stock Grant. An amendment of the Plan
shall be subject to the approval of the Company's stockholders only to the
extent required by applicable law, regulations or rules or as otherwise decided
by the Board of Directors.
12. EFFECTIVE DATE AND TERM. The effective date of the Plan shall be date
on which it is approved by the stockholders of the Company. The Plan shall
terminate on and no Stock Grant shall be made after the expiration of ten years
from the effective date of the Plan.
13. NAME. The Plan shall be known as the "Pharmaceutical Formulations,
Inc. 1997 Stock Incentive Plan."
<PAGE>
SCHEDULE A
Financial Operating Cash Flow
Net Income
Earnings Per Share
Return on Assets
Return on Equity
Revenue Growth
Economic Value Added
Operational New Products
Marketing Market Share
Margins
Customer Satisfaction
<PAGE>
APPENDIX 1
FRONT:
PHARMACEUTICAL FORMULATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 15, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint Frank Marchese and Debra Mueller, as
Proxies, each with full power to appoint his or her substitute, and hereby
authorizes them to appear and vote as designated below, all shares of Common
Stock of Pharmaceutical Formulations, Inc. held of record by the undersigned on
September 9, 1997, at the Annual Meeting of Stockholders to be held on October
15, 1997, and any adjournments thereof.
<TABLE>
<CAPTION>
The undersigned hereby directors this Proxy to be voted:
<S> <C>
1. Election of directors;
// FOR the election of directors of all nominees listed or / / WITHHOLD AUTHORITY
below (except as marked to the contrary below) to vote for all nominees listed below
RAY W. CHESSMAN CHARLES E. LAROSA JOHN L. ORAM
(INSTRUCTION: To withhold authority to vote for any of the above-listed nominees, strike a line through that nominee's name)
2. Proposal to approve an amendment to the Company's 1994 Stock Option Plan to increase the number of shares authorized for
grant by 500,000
/__/ FOR /__/ AGAINST /__/ ABSTAIN
3. Proposal to approve the adoption of the 1997 Stock Compensation Plan
/__/ FOR /__/ AGAINST /__/ ABSTAIN
4. Proposal to approve the appointment of BDO Seidman, LLP as independent auditors for the Company for the year ending June
30, 1997
/__/ FOR /__/ AGAINST /__/ ABSTAIN
5. In their discretion, the named proxies may vote on such other business as may properly come before the Annual Meeting, or
any adjournments or postponements thereof
</TABLE>
BACK:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE STOCKHOLDER'S SPECIFICATIONS ABOVE. THE PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS TO THE UNDERSIGNED.
Date: -------------------------------
-------------------------------
Signature of stockholder
-------------------------------
Signature if held jointly
NOTE: PLEASE MARK, DATE, SIGN AND
RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE. When shares are
held by joint tenants, both should
sign. If signing as attorney, executor,
administrator, trustee or guardian,
please give full title. If a
corporation or partnership, please sign
in corporate or partnership name by an
authorized person
APPENDIX 2
EXHIBIT 10.12 (a)
PHARMACEUTICAL FORMULATIONS, INC.
AND SUBSIDIARIES
1994 STOCK OPTION PLAN
ADOPTED AUGUST 30, 1994
AMENDED SEPTEMBER 19, 1997
I. GENERAL PROVISIONS
1. PURPOSE OF THE PLAN. This stock option plan (the "Plan") of
Pharmaceutical Formulations, Inc. and its subsidiaries (the "Company"), is
intended to provide incentives to employees and officers of the Company. The
Plan is also intended to encourage such persons to accept or continue
employment, and to attract to the Company individuals of experience and ability.
This Plan provides opportunities for such persons to purchase shares of common
stock of the Company pursuant to (i) Incentive Stock Options of the Company; and
(ii) Nonqualified Stock Options of the Company.
2. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of
the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor tax law.
(c) "Change of Control" shall be deemed to have occurred if (i)
any "person" or group of "persons" (as the term "person" is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) ("Person"), acquires (or has acquired during the twelve-month
period ending on the date of the most recent acquisition by such Person) the
beneficial ownership, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the then outstanding
securities of the Company; (ii) during any period of twelve months, individuals
who at the beginning of such period constitute the Board of Directors, and any
new director whose election or nomination was approved by the directors in
office who either were directors at the beginning of the period or whose
election or nomination was previously so approved, cease for any reason to
constitute at least a majority thereof; (iii) a Person acquires beneficial
ownership of stock of the Company that, together with stock held immediately
prior to such acquisition by such Person. possesses more than 50% of the total
fair market value of total voting power of the stock ("50% Ownership") of the
Company, unless the additional stock is acquired by a Person possessing,
immediately prior to such acquisition, beneficial ownership of 40% or more of
the Common Stock; or (iv) a Person acquires (or has acquired during the
twelve-month period ending on the date of the most recent acquisition by such
Person) assets from the Company that have a total fair market value equal to or
more than one-third of the total fair market value of all of the assets of the
Company immediately prior to such acquisition. Notwithstanding the foregoing for
purposes of clauses (i) and (ii), a Change in Control will not be deemed to have
occurred if the power to control (directly or indirectly) the management and
policies of the Company is not transferred from a person to another person; and
for purposes of clause (iv), a Change in Control will not be deemed to occur if
the assets of the Company are transferred: (A) to a shareholder in exchange for
his stock, (B) to an entity in which the Company has (directly or indirectly)
50% ownership, or (C) to a Person that has (directly or indirectly) at least 50%
ownership of the Company with respect to its stock outstanding, or to any entity
in which such Person possesses (directly or indirectly) 50% Ownership.
(d) "Committee" shall mean the Stock Option Plan Committee of
the Board of Directors of the Company, or any other committee appointed by the
Board.
(e) "Common Stock" shall mean shares of the common stock of the
Company.
(f) "Date of Grant" has the meaning set forth in SECTION 7(A).
(g) "Disability" shall mean the condition of an employee who is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months.
(h) "Employee" shall mean an individual (who may be an officer
or a director) employed by the Company (within the meaning of Section 3401 of
the Code and the regulations promulgated thereunder).
(i) "Exercise Price" shall mean the price per Share of Common
Stock, determined by the Committee, at which an Option may be exercised.
(j) "Fair Market Value" of a Share as of a specified date shall
mean the closing price of a Share on the principal securities exchange or NASDAQ
on which such Shares are traded on the day immediately preceding the date as of
which Fair Market Value is being determined, or on the next preceding date on
which such Shares are traded if no Shares were traded on such immediately
preceding day, or if the Shares are not traded on a securities exchange or on
NASDAQ, Fair Market Value snail be deemed to be the average of the high bid and
low asked prices of the Shares in the over-the-counter market on the date
Immediately preceding the date as of which Fair Market Value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the Shares are not publicly traded, Fair Market Value shall be
determined by the Committee or the Board.
(k) "Incentive Stock Option" shall mean an option to purchase
Common Stock of the Company within the meaning of Section 422A(b) of the Code.
(l) "Key Employee" shall mean employees of the Company who are
not officers of the Company or members of the Board of Directors of the Company.
(m) "Nonqualified Stock Option" shall mean an option to
purchase Common Stock of the Company not in conformity with Section 422A(b),
Section 422(b), Section 423(b) or Section 424(b) of the Code.
(n) "Option" shall mean a stock option granted pursuant to the
Plan.
(o) "Option Agreement" shall mean any agreement to provide
Options under the Plan.
(p) "Optionee" shall mean an Employee to whom an Option has
been granted.
(q) "Plan" shall mean this 1994 Stock Option Plan
(r) "Purchase Price" shall mean the Exercise Price times the
number of whole Shares with respect to which an Option is exercised.
(s) "Share" shall mean a share of Common Stock.
(t) "Subsidiary" shall mean any corporation which at the time
of the granting of an Option qualifies as a subsidiary of the Company under the
definition of "subsidiary corporation" in Section 425(n of the Code, or any
similar provision hereinafter enacted.
(u) "Ten Percent Shareholder" shall mean an individual who owns
stock possessing ten percent (10%) or more of the total combined voting power of
all classes of stock of the Company.
3. EFFECTIVE DATE. This Plan shall become effective on the date of its
adoption by the Board; provided, however, that the Plan shall automatically
terminate and all Options granted under the Plan shall be deemed null and void
for all purposes in the event that, within one year from the date of the
adoption of the Plan by the Board, the Plan shall not have been approved by the
holders of a majority of outstanding Common Stock.
4. STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustments in accordance with SECTION 9
hereof, one million (1,000,000)1 Shares are reserved for issuance upon the
exercise of the Options granted under this Plan. Upon the exercise of Options,
the Company may either issue authorized but unissued Shares of Common Stock or
transfer Shares of Common Stock held in its treasury.
(b) In the event that any outstanding Option under the Plan
for any reason expires or is terminated prior to the end of the period during
which the Option may be exercised, the Shares allocable to the unexercised
portion of such Option may again be subjected to Options under the Plan.
5. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The
Committee shall consisting of not less than two directors of the Company
appointed by the Board of Directors, which members shall, to the extent that
such persons are available, be "nonemployee directors" (as defined below). A
member of the Board shall be deemed to be a non-employee director only if he or
she satisfies (a) such requirements as the Securities and Exchange Commission
may establish for non-employee directors administering plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the Securities
Exchange Act of 1934, as amended, and (b) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m) (4)(C) of the Code. The Board may
also appoint one or more separate committees of the Board, each composed of one
or more directors of the Company who need not be non-employee directors, who may
administer the Plan with respect to recipients who are not considered officers
or directors of the Company under Section 16 of the Exchange Act, may make
grants under the Plan to such recipients and may determine all terms of such
grants. If the Company does not have at least two directors who satisfy the
non-employee director standard, as defined above, awards granted under the Plan
may not qualify under Rule 16b-3 or be deemed to be performance-based
compensation under regulations issued pursuant to Section 162(m) of the Code.
The Board may at any time remove any member of the Committee with or without
cause. Any vacancy occurring in the membership of the Committee shall be filled
by appointment by the Board.
(b) Subject to the provisions of the Plan, the Committee shall
have the power to (a) authorize the granting of Options; (b) determine and
designate from time to time those employees of the Company to whom Options are
to be granted; provided, however, that no employee who is at the time of grant a
Ten Percent Shareholder, shall be eligible to receive any Incentive Option under
the Plan except as may be permitted by Section 422A of the Code; (c) determine
the number of shares subject to each Option: (d) determine whether said Option
is to be considered an Incentive Option or a Nonqualified Option; and (e)
determine the time or times and the manner when each Option shall be exercisable
and the duration of the exercise period. No director of the Company who is not
also an employee of the Company shall be entitled to receive any Option under
the Plan. The Committee may Condition the grant of any Option on the surrender
of any option under this or any other plan.
(c) The Board or the Committee shall have authority to
interpret and construe the Plan or any provision thereof, or any agreements
entered into pursuant to the Plan, and to make determinations with respect
thereto. The Board or the Committee may also prescribe, amend or rescind rules
and regulations relating to the Plan and make all other determinations necessary
or advisable for the administration of the Plan. Any interpretation,
determination or other action made or taken by the Board or the Committee shall
be made in accordance with its judgment as to the best interests of the Company
and its shareholders, in accordance with the purposes of the Plan and shall be
final, binding and conclusive. Any decision or determination reduced to writing
and signed by all members of the Committee shall be fully as effective as if
made by unanimous vote at a meeting duly called and held.
(d) The Board or the Committee may authorize the modification,
extension or renewal of any Option outstanding under the Plan, or accept the
exchange of outstanding Options (to the extent not theretofore exercised) for
the granting of new Options in substitution therefor, when, and subject to such
conditions as are deemed to be in the best interests of the Company and in
accordance with the purposes of the Plan, provided that. notwithstanding the
foregoing, no such modification of an Option shall, without the consent of the
Optionee, increase the Purchase Price set forth in such Option, except for
antidilution adjustments made in accordance with SECTION 9 hereof, or alter or
impair any rights or obligations under an Option, theretofore granted under the
Plan.
(e) The Committee small determine the nature and extent of the
restrictions, if any, to be imposed on the exercise of the Option and/or on the
Shares which may be purchased under each Option. Such restrictions may include,
without limitation, the right of the Company to repurchase Shares which have
been purchased under an Option in the event that the Optionee's employment by
the Company or any subsidiary terminates during the Option Period
(f) The Committee may employ such legal counsel, consultants
and agents as it may deem desirable for the administration of the Plan and may
rely upon any opinion received from any such counsel or consultant and any
computation received from any such consultant or agent.
(g) No member or former member of the Committee or of the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Option awarded under it.
(h) In addition to such other rights of indemnification as
they may have as directors or otherwise, the Board and the members (and former
members) of the Committee shall be indemnified and held harmless by the Company
against any costs and expenses (including attorney's fees, which fees may be
advanced by the Company) actually incurred in connection with defense of any
action, suit or proceeding, or in connection with any appeal therefrom, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted thereunder,
unless arising out of such members or former members own fraud or bad faith, and
against ail amounts paid ,by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of judgment in any action, suit or proceeding,
provided that the indemnification provided therein shall be effective so long
as, within 60 days after institution of any such action, suit or proceeding, the
member of the Committee shall in writing offer the Company the opportunity, at
its own expense, to handle and defend such action, suit or proceeding.
(i) The maximum number of Shares which may be the subject of
Options granted to any individual in any calendar year shall not
exceed 300,000 (three hundred thousand) Shares. If the Shares that would be
issued or transferred pursuant to any Option are not issued or transferred and
cease to be issuable or transferable for any reason, the number of Shares
subject to such Option will no longer be charged against the limitation provided
for herein and may again be made subject to Options; provided, that the counting
of Shares subject to Options granted under the Plan against the number of Shares
available for further Options shall in all cases conform to the requirements of
Rule 16b-3 under the Exchange Act; and provided, further, that with respect to
any Option granted to any person who is a "covered employee" as defined in
Section 162(m) of the Internal Revenue Code and the regulations promulgated
thereunder that is canceled, the number of Shares subject to such Option shall
continue to count against the maximum number of Shares which may be the subject
of Options granted to such Eligible Person.
II. INCENTIVE STOCK OPTIONS
6. ELIGIBILITY FOR PARTICIPATION.
(a) Incentive Stock Options may be granted to Employees of the
Company. An Optionee who has been granted an Option hereunder may be granted an
additional Option or Options.
7. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS. Incentive Stock
Options granted pursuant to the Plan shall be evidenced by written agreements in
such form as the Board or the Committee shall from time to time determine, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) DATE OF GRANT. Each Incentive Stock Option shall specify
its effective date (the "Date of Grant") which snail De the date specified by
the Board or the Committee, as the case may be, in its action relating to the
grant of the Option. Any grant of Incentive Stock Options made prior to
obtaining the approval of the Plan by the shareholders of the Company shall be
made contingent upon receiving said shareholder approval within one (1) year
from August 30, 1994. Incentive Stock Options may be granted pursuant to the
Plan until the termination of the Plan on August 29, 2004.
(b) OPTION AGREEMENT. The Option Agreement shall be subject to
the terms and conditions contained in this SECTION 7.
(c) NUMBER OF SHARES. Each Incentive Stock Option shall state
the number of Shares to which it pertains and shall provide for the adjustment
thereof in accordance with the provisions of SECTION 9 hereof.
(d) INCENTIVE STOCK OPTION PERIOD. Incentive Stock Options
shall become exercisable at such time or times as the Board or the Committee
shall determine. Each Incentive Stock Option agreement shall specify the period
for which the Option thereunder is granted and provide that the Option shall
expire at the end of such period. In no case shall such period exceed ten years
from the Date of Grant or, in the case of an Option granted to a Ten Percent
Shareholder, five years from the Date of Grant. No options granted to executive
officers, directors and Ten Percent Shareholders may be exercised in part or in
full prior to the later of six months from the date of grant of the Option or
six months from date of approval of the Plan by the shareholders of the Company.
(e) EXERCISE PRICE. Each Incentive Stock Option shall state
the Exercise Price, which price shall be determined as set forth in SECTION 6(F)
below.
(f) INCENTIVE STOCK OPTION PRICE. The Exercise Price shall be
determined by the Board or the Committee at the time any Incentive Stock Option
is granted, and shall not be less than (i) one hundred percent (100%) of the
Fair Market Value of a Share at the time the Option is granted. or (ii) in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder, not less
than one hundred and ten percent (110%) of the Fair Market Value of one Share on
the Date of Grant as determined by the Committee.
(g) EXERCISE OF INCENTIVE STOCK OPTION.
(i) Subject to SECTIONS 7(D) AND 7(G)(II) below, each
Incentive Stock Option shall become exercisable immediately or
in one or more installments at the time or times and upon the
satisfaction of such conditions as may be provided in the
Option Agreement.
(ii) In the event of a Change of Control of the
Company, all Incentive Stock Options shall
become immediately exercisable.
(h) MANNER OF EXERCISE. Upon the exercise of an Incentive Stock
Option, the Purchase Price shall be payable (i) in United States dollars by
personal check, bank draft, or money order payable to the order of the Company,
or (ii) with the consent of the Board or the Committee, by the delivery or
attestation to the ownership of Shares with a Fair Market Value on the date of
exercise equal to the Purchase Price, or (iii) by a combination of the methods
described in (i) and (ii). The Option Agreement will describe the method of
exercising the Incentive Stock Option and payment of the Purchase Price. No
Shares shall be issued until full payment therefor has been made.
(i) LIMITATION ON INCENTIVE STOCK OPTIONS. In the case of each
Incentive Stock Option granted to an employee the aggregate Fair Market Value
(determined at the time the Incentive Stock Option is granted) of the Common
Stock with respect to which any Incentive Stock Options are exercisable for the
first time by such employee during any calendar year (under all plans of the
Company, and any subsidiary company thereof) may not exceed $100,000. Options
with respect to which no designation is made by the Committee shall be deemed to
be Incentive Stock Options to the extent that the $100,000 limitation described
in the preceding sentence is met. This paragraph shall be applied by taking
Options into account in the order in which they are granted.
(j) RESTRICTION ON DISPOSITION OF SHARES. To qualify as an
Incentive Stock Option, no disposition of Shares issued to the Optionee pursuant
to the exercise of an Incentive Stock Option shall be made by the Optionee
within two (2) years from the Date of Grant, or within one (1) year after the
transfer of such Shares to him.
(k) TERMINATION OF EMPLOYMENT In the event that an Optionee's
employment by the Company is terminated due to death, disability, retirement, or
any other reason, the following provisions shall apply as the case may be:
(i) DEATH OF OPTIONEE. If an Optionee dies, any
Option previously granted to the Optionee may be exercisable
by the personal representative or administrator of the
deceased Optionee's estate, or by any trustee, heir, legatee
or beneficiary who shall have acquired the Option directly
from the Optionee by will or by the laws of descent and
distribution at any time or times within three (3) months
after the Optionee's death. provided that the deceased
Optionee was entitled to exercise such Option at the time of
such death and provided that any exercise must occur. within
the period of time that the decedent, if alive, could have
exercised the Option.
(ii) RETIREMENT. if an Optionee's employment with the
Company terminates by reason of retirement any Option
previously granted to such Optionee shall be exercisable
within three (3) months after the date of such termination.
provided that the Option was exercisable at the time of such
termination by retirement and provided that any exercise must
occur within the period of time that the Option originally was
exercisable. However, if the Optionee dies within three months
after the termination by retirement, any unexercised Incentive
Stock Option, to the extent to which it was exercisable at the
time of such death shall thereafter be exercisable in
accordance with SECTION 7(K)(I).
(iii) DISABILITY. If an Optionee becomes "disabled" as
that term is defined in SECTION 2(G) hereof and at the time
of such disability, the Optionee is entitled to exercise
such Option, the Optionee shall have the right to exercise
such Option within one year after such disability, provided
that the Option was exercisable at the time of such
disability and provided that any exercise must occur within
the period of time that the Option originally was
exercisable. However, if the Optionee dies within one year
after termination by disability, any unexercised Incentive
Stock Option, to the extent to which it was exercisable at
the time of such death, shall thereafter be exercisable in
accordance with SECTION 7(K)(I)
(iv) OPTIONEE'S TERMINATION. If an Optionee's
employment by the Company is terminated for any reason other
than death, retirement, disability, or for cause, any option
previously granted to the Optionee shall be exercisable
within thirty (30) days after the date of such termination,
provided that the Option was exercisable at the time of such
termination and provided that any exercise must occur within
the period of time that the Option originally was
exercisable. However, if the Optionee dies within thirty
(30) days after the termination, any unexercised Option, to
the extent to which it was exercisable at the time of such
death, shall thereafter be exercisable in accordance with
Section 7(k)(i). if an Optionee's employment by the Company
is terminated for cause, the existence of which shall be
determined by the Committee in its sole discretion (which
determination by the Committee shall be conclusive), any
Option previously granted to the Optionee shall immediately
terminate upon such termination.
(l) NONTRANSFERABILITY OF INCENTIVE STOCK OPTION. No Incentive
Stock Option granted under the Plan shall be transferable by the Optionee other
than by will or the laws of descent and distribution. During the lifetime of the
Optionee, the Incentive Stock Option shall be exercisable only by the Optionee.
III. NONQUALIFIED STOCK OPTIONS
8. TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS.
(a) GRANT OF NONQUALIFIED STOCK OPTIONS. Each Option shall
specify its Date of Grant, which shall be the date specified by the Board or the
Committee, as the case may be, in its action relating to the grant of the
Option. Any grant of Options made prior to obtaining the approval of the Plan by
the shareholders of the Company shall be made contingent upon receiving
shareholder approval from within one (1) year of August 30, 1994. Nonqualified
Stock Options may be granted pursuant to the Plan until the termination of the
Plan on August 29, 2004. Nonqualified Stock Options may be granted under this
Plan to any Employee of the Company, at such times and for such number of Shares
as the Board or the Committee shall designate.
(b) OPTION AGREEMENT. The Option Agreement shall be subject to
the terms and conditions contained in this SECTION 8.
(c) NUMBER OF SHARES. Each Nonqualified Stock Option shall
state the number of Shares to which it pertains and shall provide for the
adjustments thereof in accordance with the provisions of SECTION 9 hereof
(d) NONQUALIFIED STOCK OPTION PERIOD. Nonqualified Stock
Options shall become exercisable at such times as the Board or the Committee may
decide. Each Nonqualified Stock Option agreement shall specify the period for
which the Option thereunder is granted and provide that the Option shall expire
at the end of such period In no case shall such period exceed ten years from the
Date of Grant.
(e) EXERCISE PRICE. Each Option shall state the Exercise
Price, which price shall be determined as set forth in SECTION 8(F) below.
(f) NONQUALIFIED STOCK OPTION PRICE. The Exercise Price shall
be determined by the Board or the Committee at the time the Nonqualified Stock
Option is granted and may be less than, equal to or greater than the Fair Market
Value of one Share of Common Stock on the date the Option is granted.
(g) EXERCISE OF NONQUALIFIED STOCK OPTION.
(i) Subject to SECTION 8(G)(II) below, each
Nonqualified Stock Option shall become exercisable immediately
or in one or more installments at the time or times and upon
the satisfaction of such conditions as may be
provided in the Option Agreement:
(ii) In the event of a Change of Control of the
Company, all Nonqualified Stock Options shall become
immediately exercisable.
(h) MANNER OF EXERCISE. Upon the exercise of an Option, the
Purchase Price shall be payable (i) in United States Dollars by personal check,
bank draft, or money order payable to the order of the Company, or (ii) with the
consent of the Board or the Committee, by the delivery or attestation to the
ownership of Shares of Common Stock of the Company with a Fair Market Value
equal to the Purchase Price, or (iii) by a combination of the methods described
in (i) and (ii). The Option Agreement will describe the methods of exercising
the Option and payment of the Purchase Price. No Shares shall be issued until
full payment therefor has been made.
(i) TERMINATION OF EMPLOYMENT. In the event that an Optionee's
employment by the Company is terminated due to death, disability, retirement, or
any other reason, the following provisions shall apply as the case may be:
(A) DEATH OF OPTIONEE. If an Optionee dies, any
Option previously granted to the Optionee may be exercisable
by the personal representative or administrator of the
deceased Optionee s estate, or by any trustee, heir, legatee
or beneficiary who shall have acquired the Option directly
from the Optionee by will or by the laws of descent and
distribution at any time or times within one (1) year after
the Optionee's death, provided that the deceased Optionee was
entitled to exercise such Option at the time of such death and
provided that any exercise must occur within the pence of time
that the decedent, if alive, could have exercised the option.
(B) RETIREMENT. If an Optionee's employment with the
Company terminates by reason of retirement, any Option
previously granted to such Optionee shall be exercisable
within three (3) months after the bate of such termination,
provided that the Option was exercisable at the time of such
termination by retirement and provided that any exercise must
occur within the period of time that the Option originally was
exercisable. However, if the Optionee dies within three (3)
months after the termination by retirement, any unexercised
Option, to the extent to which it was exercisable at the time
of such death shall thereafter be exercisable in accordance
with SECTION 8(I)(A).
(C) DISABILITY. If an Optionee becomes disabled as
that term is defined in SECTION 2(9) hereof, and at the time
of such disability the Optionee is entitled to exercise such
Option, the Optionee shall have the right to exercise such
Option within one year after such disability, provided that
the Option was exercisable at the time of such disability and
provided that any exercise must occur within the period of
time that the Option Originally was exercisable. However, if
the Optionee dies within one year after termination by
disability, any unexercised Option, to the extent to which it
was exercisable at the time of such death, shall thereafter be
exercisable in accordance with SECTION 8(I)(A).
(D) OPTIONEE'S TERMINATION. If an Optionee's
employment by the Company is terminated for any reason other
than death, retirement, disability or cause, any Option
previously granted to him shall be, exercisable within thirty
(30) days after the date of such termination, provided that
the Option was exercisable at the time of such termination and
provided that any exercise must occur within the period of
time that the Option was exercisable. However, if the Optionee
dies within thirty (30) days after the termination, any
unexercised Option, to the extent to which it was exercisable
at the time of such death, shall thereafter be exercisable in
accordance with Section 8(i)(A). if an Optionee's employment
with the Company IS terminated for cause, the existence of
which shall be determined by the Committee in its sole
discretion (which determination by the Committee shall be
conclusive), any Option previously granted to the Optionee
shall thereupon terminate.
(j) NONTRANSFERABILITY OF OPTION. No Nonqualified Stock Option
granted under this Plan shall be transferable by the Optionee other than by will
or the laws of descent and distribution. During the lifetime of the Optionee,
the Nonqualified Stock Options shall be exercisable only by the Optionee
IV. MISCELLANEOUS PROVISIONS
9. RECAPITALIZATION.
(a) In the event that the outstanding Shares which are eligible
for the granting of Options hereunder, or subject to Options theretofore
granted, shall at any time be changed or exchanged by declaration of a stock
dividend, split-up, subdivision or combination of Shares, recapitalization,
merger, consolidation or other corporate reorganization in which the Company is
the surviving corporation, the number and kind of Shares subject to the Plan or
subject to any Options previously granted, and the Exercise Prices, shall be
appropriately and equitably adjusted. so as to maintain the proportionate number
of Shares without changing the aggregate Purchase Price.
(b) Except as heretofore expressly provided in this SECTION 9,
the Optionee shall have no rights by reason of any subdivision or consolidation
of Common Stock or stock of any class, stock split, or the payment of any stock
dividend or any other increase or decrease in the number of shares of any class
or by reason of any dissolution,- liquidation, merger, or consolidation or
spin-off of assets or stock of another corporation, any issue by the Company of
shares of any class or securities convertible into Shares of any Class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to the Option.
(c) The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
10. SUBSTITUTION OR ASSUMPTION OF OPTIONS. Notwithstanding any
provision of the Plan to the contrary (but subject to the provisions of SECTION
3), by action of the Board, the Company may as an incident to or by reason of
any corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, substitute new Options on Common
Stock of the Company for Options granted by another employer to its employee on
stock of such employer or may assume Options granted by another employer to its
employees, at such purchase prices and under such conditions, as may be
permitted by Section 425(a) of the Code, and the Board or the Committee is
hereby expressly authorized to take such action as may be required to effectuate
any such issuance or assumption. Shares subject to any Option so issued or
assumed shall be charged against the total number of Shares available for
issuance under the Plan.
11. USE OF PROCEEDS. Proceeds from the sale of Common Stock pursuant to
Options granted under the Plan shall constitute general funds of the Company.
12. SECURITIES LAW REQUIREMENTS.
(a) No Shares shall be issued upon the exercise of any Option
unless and until the Company has determined that:
(i) it and the Optionee have taken all actions
required to register the Shares under the Securities Act of
1933, as amended (the "Act"), or perfect an exemption from the
registration requirements thereof
(ii) any applicable listing requirements of any stock
exchange on which the Common Stock is listed (or similar
requirement of Nasdaq) have been satisfied; and
(iii) any other applicable provision of state or
federal law has been satisfied.
Nothing herein is deemed nor shall be construed to confer any
registration rights upon the Optionee for an Option or the Shares, and, except
as set forth to the contrary in the Option Agreement, no such registration right
with respect to any Option or Share is provided to any Optionee by the Company.
Without limiting the generality of the foregoing, the Company
may require from the Optionee, upon exercise, such investment representations or
agreements, if any, as counsel for the Company may consider necessary to comply
with federal and state securities laws before issuing Shares.
(b) Unless the offering of such Shares is registered under the
Act, all Shares acquired by an Optionee upon exercise of an Incentive Stock
Option or Nonqualified Stock Option granted under the Plan and issued by the
Company shall be deemed to be "restricted securities" as defined in Rule 144
promulgated under the Act and may be subject to stop orders, and the certificate
evidencing such Shares shall contain a legend substantially as follows:
"The securities presented by this Certificate may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), or pursuant to
an exemption from registration under the Act, the availability
of which is to be established to the satisfaction of the
Company."
13. ADDITIONAL RIGHTS.
(a) NO RIGHTS AS SHAREHOLDER. The Optionee shall have no
rights as a shareholder of the Company with respect to any Shares subject to an
Incentive Stock Option or a Nonqualified Stock Option prior to the date of
issuance to such Optionee of a certificate or certificates for such shares.
(b) NO RIGHT TO CONTINUED EMPLOYMENT. The Options granted
under this Plan shall not confer upon the Optionee any right with respect to
continuance of employment by the Company, nor shall it interfere in any way with
the right of the Company to terminate the Optionee's employment at any time.
(c) NO OBLIGATION TO EXERCISE. The granting of an Option shall
impose no obligation upon the Optionee to exercise the Option.
14. AMENDMENTS.
(a) Insofar as permitted by law, the Board of Directors may
amend, alter, suspend, abandon or terminate the Plan, but no amendment,
alteration, suspension or abandonment shall be made which would impair the
rights of any Optionee under any Options previously granted, without the
Optionee's consent, or which (except for the adjustments under SECTIONS 9 AND 10
above), without the approval of the shareholders of the Company, would:
(i) Increase the total number of Shares issuable under
the Plan or to any individual employee;
(ii) Decrease the Exercise Price of the Common Stock on
the date of the granting of an Option;
(iii) Change the persons (or class or persons) eligible
to receive Options under the Plan; or
(iv) Amend this SECTION 14 to defeat the Plan's
purposes.
(b) Subject to the limitations set forth in this SECTION 14,
the Board may make such changes and revisions in and additions to the Plan as it
may deem proper and in the best interests of the Company or as may be necessary
to comply with Sections 421-425 of the Code and the regulations promulgated
thereunder, or other applicable laws or regulations.
15. GOVERNING LAW. This Plan shall be governed by the laws of the
State of mew Jersey.
16. WITHHOLDING. The holder of an Incentive Stock Option or a
Non-Qualified Stock Option shall, upon notification of the amount due, and prior
to or concurrently with delivery to such holder of a certificate representing
such shares of Common Stock, pay promptly any amount necessary to satisfy
applicable federal, state, local or other tax requirements.
17. NAME. The Plan shall be known as the Pharmaceutical Formulations
1994 Stock Option Plan.
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1 An increase in the number of shares subject to options under the plan from
1,000,000 to 1,500,000 was authorized by the Board of Directors on September 19,
1997 but such increase is subject to approval by the stockholders of the
Company, at the Annual Meeting of Stockholders scheduled for October 15, 1997.
