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 ss.240.14a-11(c) or
ss.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:_______________
(2) Form, Schedule or Registration Statement No.:_______________
(3) Filing Party:_______________
(4) Date Filed:_______________
<PAGE>
PHARMACEUTICAL FORMULATIONS, INC.
460 PLAINFIELD AVENUE
EDISON, NEW JERSEY 08818
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 1, 1998
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 December 1, 1998, 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 ratify the selection by the Company of BDO Seidman, LLP as
independent auditors of the Company for the year ending June 30,
1999; and
3. To transact such other matters as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on October 26,
1998 (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 1998.
By Order of the Board
of Directors
Frank Marchese, Secretary
Edison, New Jersey
October 27, 1998
<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 Tuesday, December 1, 1998 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 November 6, 1998.
The principal executive offices of the Company are located at 460
Plainfield Avenue, Edison, New Jersey 08818, telephone (732) 985-7100.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record of the Company at the close of business on
October 26, 1998 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 30,253,320 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 64.4% of the total number of shares outstanding).
Accordingly, ICC can appoint the entire board of directors, ratify the selection
of BDO Seidman, LLP to audit the financial statements of the Company and
generally take any action upon which the stockholders are requested to vote. ICC
has indicated that it intends to approve all proposals set forth in this Proxy
Statement and vote in favor of the election of all nominated directors.
Therefore, approval of Proposal No. 2 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
fiscal year 1998, which ended on ended June 30, 1998. 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 1999. 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 67, 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 56, 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 54, 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"), 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.
The Company's Board of Directors met five times during fiscal 1998.
All of the directors attended at least 75% of the meetings of the Board and
committees of which they are members in fiscal 1998.
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
Stock Option Committee are Ray W. Cheesman and John L. Oram. The members of the
Compensation Committee are Ray W. Cheesman, Charles E. LaRosa 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 1998. The Compensation Committee reviews compensation
issues; approves salaries, reviews benefit programs for the executive officers;
reviews and recommends incentive compensation (including stock compensation)
plans; and approves any employment contracts with, or other contractual benefits
for, executive officers. It met two times in fiscal 1998. 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 1998.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON COMPENSATION
OF EXECUTIVE OFFICERS OF THE COMPANY*
COMPENSATION PHILOSOPHY. The Company's philosophy for compensation of
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 initially 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 1998 took the
form of cash bonuses.
_____________________________
* 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.
STOCK OPTIONS. In fiscal 1998, the Stock Option Committee granted
stock options to certain key employees to reward them for their contribution to
the Company's long-term performance and to provide incentives to encourage
future efforts.
CHIEF EXECUTIVE OFFICER'S 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, 1998, the Board
increased Mr. LaRosa's salary to $300,000, from $275,000, in recognition of his
valued services to the Company. In addition, in fiscal 1998, the non-executive
directors of the Company recommended, and Mr. LaRosa received, a stock option
grant 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 such Committee of his compensation.
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 1998 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 1998 the Committee did
not take any action to comply with such 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 1998 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 five most highly compensated
executive officers other than the CEO who were serving as executive officers at
June 30, 1998, to the extent that salary and bonuses exceeded $100,000
(together, these six persons are sometimes referred to as the "Named
Executives").
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 COMPENSATION
PRINCIPAL POSITION YEAR $ $ $ $ # $ $
- ------------------ ---- ------ -------- ------------ --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E.LaRosa 1998 $287,500 $140,000 -- $25,000 250,000 -- --
President and 1997 262,000 100,000 -- -- 75,000 -- --
Chief Executive 1996 110,000 -- -- 19,000 105,000 -- --
Officer(1)
David Belaga 1998 130,500 15,000 -- -- 7,000 -- --
Vice President, 1997 127,000 19,000 -- -- 7,000 -- --
Marketing 1996 21,000 -- -- -- -- -- --
Victor Biller 1998 141,250 18,000 -- 12,500 30,000 -- --
Vice President, 1997 -- -- -- -- -- -- --
Operations(2) 1996 -- -- -- -- -- -- --
Anthony Cantaffa, 1998 125,000 6,500 -- -- -- -- --
Vice President 1997 135,000 5,000 -- -- 5,000 -- --
of New Business 1996 145,000 -- -- -- -- -- --
Development
George Chin 1998 162,000 30,000 -- -- 15,000 -- --
Vice President, 1997 160,000 40,000 -- -- 12,000 -- --
Sales 1996 140,000 30,000 -- -- -- -- --
Fran Marchese 1998 118,500 22,000 -- -- 20,000 -- --
Vice President; 1997 111,000 -- -- -- -- -- --
Chief Financial 1996 106,000 -- -- -- -- -- --
Officer; Secretary
and Treasurer
- -------------------------
1 Mr. LaRosa was elected President in December 1995
2 Mr. Biller was elected a Vice President in July 1997
</TABLE>
OPTION GRANTS IN FISCAL 1998
The following table contains information concerning the grant of stock
options to the Named Executives during fiscal 1998 (no options were granted to
Mr. Cantaffa in fiscal 1998 and the Company has no outstanding stock
appreciation rights "SARs" and granted no SARs during fiscal 1998):
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZATION VALUE AT
SECURITIES TOTAL OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM(1)
NAME GRANTED FISCAL YEAR ($/SHARE)(2) DATE 5%($) 10%($)
- -------- ----------- -------------- ------------ ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa 250,000 72% $.80 11/02 $40,000 $102,500
David Belaga 7,000 2% $.80 11/02 $1,120 $2,870
Victor Biller 30,000 9% $.80 11/02 $4,800 $12,300
George Chin 15,000 4% $.80 11/02 $2,400 $6,150
Frank Marchese 20,000 6% $.80 11/02 $3,200 $8,200
- --------------------
1 Executives may not sell or assign any option grants, which have value only
to the extent of stock price appreciation, which will benefit all
stockholders commensurately. The amounts set forth are based on assumed
appreciation rates of 5% and 10% as prescribed by the Securities and
Exchange Commission rules and are not intended to forecast future
appreciation, if any, of the stock price. The Company did not use an
alternate formula for a grant date valuation as it is not aware of any
formula which will determine with reasonable accuracy a present value based
on future unknown or volatile factors. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and overall stock market conditions. There
can be no assurance that the amounts reflected in this table will be
achieved.
2 The exercise price is equal to or higher than the fair market value of the
Company's Common Stock on the date of the grant.
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES IN FISCAL 1998
No options were exercised by any executive officer of the Company
during fiscal 1998. The following table sets forth information with respect to
the Named Executives concerning unexercised options held at fiscal year-end:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
OPTIONS AT 6/30/98 AT 6/30/98($)(1)
--------------------- --------------------
SHARES
ACQUIRED ON REALIZED VALUE
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------ ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa --- --- 180,000 250,000 $16,950 -0-
David Belaga --- --- 32.000 7,000 6,750 -0-
Anthony Cantaffa --- --- 118,800 --- 6,700 -0-
George Chin --- --- 82,550 15,000 6,750 -0-
Frank Marchese --- --- 60,000 20,000 -0- -0-
Victor Biller --- --- --- 30,000 -0- -0-
- --------------------
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, 1998, were $ .69 and $ .77 respectively. Certain options are
excluded since they are Out of the money.
</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. On January 1, 1998, his salary was increased to $300,000. In
addition, in fiscal 1998, the non-executive directors of the Company
recommended, and Mr. LaRosa received, a stock option grant 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. 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 AND A PEER GROUP BASED ON MARKET CAPITALIZATION FOR THE
PERIOD OF FIVE FISCAL YEARS ENDING ON JUNE 30, 1998. THE GRAPH AND CHART ASSUMES
THAT THE VALUE OF THE INVESTMENT IN THE COMPANY'S COMMON STOCK AND FOR EACH
INDEX WAS $100 ON JUNE 30, 1993 AND REFLECTS REINVESTMENT OF DIVIDENDS AND
MARKET CAPITALIZATION WEIGHING. THE DOLLAR AMOUNTS INDICATED IN THE GRAPH AND
CHART ARE AS OF JUNE 30TH IN EACH YEAR INDICATED.
- ----------
* This section shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under
such Acts.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN ($)
REGISTRANT/INDEX 6/93 6/94 6/95 6/96 6/97 6/98
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical Formulations $100 150.00 112.60 156.20 125.00 150.00
- -----------------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market (US) $100 100.96 134.77 173.03 210.38 277.61
- -----------------------------------------------------------------------------------------------------------------------
Nasdaq Pharmaceuticals $100 83.65 111.03 163.50 166.34 170.69
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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 felt that
such Nasdaq index provides the most appropriate comparison for the Company of
the available indexes and that there is no appropriate peer group to which the
Company could be adequately compared. 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 30, 1998, 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 J. Farber and John
Oram, whose address is 460 Park Avenue, New York, NY 10022):
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------------------ ----------------------- ----------
<S> <C> <C>
ICC Industries Inc. 19,635,894(2) 64.9%
Dr. John Farber 19,635,894(2) 64.9%
John L. Oram 161,536 *
Charles E. LaRosa 263,077 *
Ray W. Cheesman 135,000 *
David Belaga 34,500 *
Victor Biller 25,000 *
Anthony Cantaffa 189,255 *
George Chin 159,195 *
Frank Marchese 64,000 *
Officers and Directors as
a Group (9 persons) 1,083,813 3.5%
- ---------------------------
* 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 2,756,160 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 30, 1998. Such shares are issuable only upon the
issuance by the Company of certain shares to other person pursuant to
agreements which were outstanding as of September 24,1992. 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 30, 1998 or within 60 days thereof as follows: Mr. Belaga:
32,000; Mr. Cantaffa: 118,800; Mr. Cheesman: 75,000; Mr. Chin: 82,550; Mr.
LaRosa: 180,000; Mr. Marchese: 60,000; and all officers and directors as a
group: 596,600.
</TABLE>
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, 1998 were complied with except that Mr.
Cantaffa filed three reports late in fiscal 1998 relating to transactions in
fiscal 1995 and 1997; Mr. Chin filed one report late in fiscal 1998 relating to
a transaction in fiscal 1997; and Mr. Belaga filed one report late in fiscal
1998 relating to his becoming a reporting person.
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). Such warrants expired on October 1, 1998. 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.
As of October 26, 1998, ICC owned a total of 19,635,894 shares of the
Company's Common Stock, representing approximately 64.9% of the total number of
shares outstanding on that date, and it held rights to acquire additional shares
under the Limited Preemptive Rights.
SALE 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 cannot 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 1998, 1997 and 1996 the Company purchased $2,673,000,
$1,226,000 and $795,000, 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.
Since January 1992, the Company has entered into various subleases of
equipment and leasehold improvements from companies affiliated with ICC, for
which the Company pays such affiliates fixed monthly fees. Such leases have
various terms, expiring at different times between 1998 and 2001. In fiscal
1998, the Company assumed these subleases and is now making the lease payments
directly to the leasing company previously associated with ICC. Upon expiration
of the term of each lease, the Company is entitled to purchase the equipment for
a price of $1.00. The Company no longer leases equipment from ICC.
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 pharmaceutical 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 for Cimetidine. It also provided, at its expense,
the raw materials and paid the outside costs related to the preparation of the
OTC ANDA. The Company prepared and filed an ANDA for OTC cimetidine, which
approval was granted in June 1998. ICC is 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 agreement,
if not renewed, the assets of the venture shall be distributed to the two
co-venturers as shall be agreed. The Company had commenced the sale of OTC
Cimetidine and as of June 30, 1998 had accrued an obligation to ICC of $153,000
pursuant to the royalty arrangement noted above.
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. 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 27,567 shares were issued in the last
three fiscal years. The Company is also obligated to issue to such individuals
an aggregate of up to 133,966 additional shares if convertible securities
existing at September 24, 1992 are converted into Common Stock.
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF AUDITORS
The firm of BDO Seidman, LLP audited the financial statements of the
Company for each of the fiscal years ended June 30, 1990 through 1998 and the
Board of Directors has selected such firm to audit the financial statements of
the Company for the year ending June 30, 1999. 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, 1999 IS HEREBY
RATIFIED AND APPROVED.
It is anticipated that a member of BDO Seidman, LLP will be present at
the Annual Meeting to respond to appropriate questions and will have the
opportunity, if he desires, to make a statement.
The affirmative vote of at least a majority of the shares present in
person or by proxy and entitled to vote at the Annual Meeting is necessary for
approval of Proposal No. 2. Under Delaware law, there are no rights of appraisal
or dissenter's rights which arise as a result of a vote to ratify the selection
of auditors.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR"
APPROVAL THEREOF.
STOCKHOLDERS' PROPOSALS
It is anticipated that the Company's 1998 Annual Meeting of
Stockholders will be held in November 1999. 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, 1999.
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 Proposal No. 2 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,
1998. Such a written request is to be directed to Frank Marchese, Secretary,
Pharmaceutical Formulations, Inc., 460 Plainfield Avenue, Edison, New Jersey
08818.
By Order of the Board of Directors,
Frank Marchese, Secretary
Edison, New Jersey
October 27, 1998
FRONT:
PHARMACEUTICAL FORMULATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 1, 1998
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
October 26, 1998, at the Annual Meeting of Stockholders to be held on
December 1, 1998 and any adjournments thereof.
The undersigned hereby directs this Proxy to be voted:
1. Election of directors:
/ / FOR the election of directors or / / WITHHOLD AUTHORITY
of all nominees listed to vote for all
below (except as marked to nominees listed below
the contrary 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 the appointment of BDO Seidman, LLP as independent
auditors for the Company for the year ending June 30, 1998:
/ / FOR / / AGAINST / / ABSTAIN
3. 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
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 AND 2.
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
