Filed Pursuant to Rule 424(b)
(3) and Rule 424(c), Registration
Statement No. 333-20849
PHARMACEUTICAL FORMULATIONS, INC.
SUPPLEMENT NO. 1 TO PROSPECTUS DATED MAY 9, 1997
On July 3, 1997, the Company received an arbitration demand dated June 27,
1997 from the estate of Dr. Max Tesler, the former President of the Company who
died in December 1996. For alleged breaches of employment and other agreements
between the Company and Dr. Tesler, the estate is seeking an award of $5,500,000
in compensatory damages, $10,000,000 in punitive damages and such number of
shares of common stock of the Company as would equal 10% of the total number of
shares. For claimed tortuous conduct, the estate is seeking $20,000,000 for
intentional infliction of emotional distress and $5,000,000 for prima facie
tort. The estate is also seeking attorney's fees and a revised warrant agreement
pursuant to claimed antidilution provisions.
The claimed breaches of contract include failure to pay (a) salary through
December 1998, (b) change of control payments on the assumption that there was a
change of control as defined in the agreements with Dr. Tesler with the election
of a new Board of Directors at the November 1996 annual meeting and (c) death
benefits. With respect to the claim for continuing salary, the Company has
advised the estate of counterclaims which the Company has, which exceed the
amount of such payments. The Company maintains that as a result of the
termination of Dr. Tesler's employment in December 1995, the Company ceased to
have any liability under the change-of-control and death benefit provisions of
the various agreements with Dr. Tesler, as well as having other defenses to such
claims. It is also the Company's position that certain provisions of the
warrants issued to Dr. Tesler, as detailed in the Company's Form 10-K for 1996,
were not as agreed and authorized.
The Company has accrued the continuing salary due to Dr. Tesler's estate
for the period through December 1998. It has not made provision for any of the
other amounts claimed, nor has it accrued any amounts due from the estate. As
noted above, the Company believes that the unreserved for claims by the estate
are without merit and that the Company has valid offsetting claims. The Company
intends to vigorously defend against the arbitration claim and to prosecute its
claims against the estate.
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SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus Supplement is July 15, 1997
