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):_______________________________________________________
___________________________________________________________________
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(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 7, 1999
To Our Stockholders:
You are hereby notified that the Annual Meeting of Stockholders of
Pharmaceutical Formulations, Inc., a Delaware corporation (the "Company"), will
be held at Pharmaceutical Formulations, Inc., on Tuesday, December 7, 1999, at
3:30 p.m. local time, for the following purposes:
1. To elect three members to the Board of Directors for a term of one
year to serve until their respective successors are elected and
qualified;
2. To ratify the selection of BDO Seidman, LLP as our independent
auditors for the year ending July 1, 2000; 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 November 5,
1999 (the "Record Date") are entitled to notice of the meeting and to vote at
the meeting or any adjournments.
A proxy statement and proxy are enclosed. You are urged to sign, date
and return the proxy promptly in the enclosed addressed envelope. If you attend
the meeting in person, you may withdraw your proxy and vote your shares. We have
also enclosed our Fiscal 1999 Annual Report.
By Order of the Board
of Directors
Clifford H. Straub, Jr.
Senior Vice President,
Chief Financial and Administrative
Officer and Secretary
Edison, New Jersey
November 8, 1999
<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 7, 1999 and at any
adjournments of that meeting. The accompanying proxy is solicited by our Board
of Directors and is revocable by the stockholder by notifying our 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 our stockholders beginning on or about November 12,
1999.
Our principal executive offices are located at 460 Plainfield Avenue,
Edison, New Jersey 08818, telephone (732) 985-7100.
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders of record of the Company at the close of business on
November 5, 1999 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. 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 our 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 our
outstanding shares. 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 our financial statements 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.
A list of our stockholders will be available for inspection for any
purpose germane to the meeting during normal business hours at our offices 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 our By-Laws and the Certificate of
Incorporation, the size of the Board is set by action of a majority of the whole
board of directors. ICC has advised us that it plans to nominate members to the
Board of Directors from time to time, in accordance with the laws of the State
of Delaware and our By-Laws. Nominees to the Board of Directors can be
effectively chosen by ICC, as majority stockholder.
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 1999, which ended on July 3, 1999. Information with respect to the
principal occupation or employment of each nominee, the name and principal
business of the corporation or other organization in which such person's
occupation or employment is carried on and other affiliations and business
experience during the past five years has been furnished to us by the nominee.
The Board of Directors unanimously recommends that the stockholders
vote FOR the election as directors of the nominees listed below for terms
expiring in 2000. 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.
o RAY W. CHEESMAN, age 68, 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.
o CHARLES E. LAROSA, age 57, has been a director of the Company and
President and Chief Executive Officer since December 1995. For
the five years prior thereto he was President of American Home
Food Products, a subsidiary of American Home Products
Corporation.
o JOHN L. ORAM, age 55, 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 our behalf and for actual expenses incurred in connection with
their attendance at Board and Committee meetings.
Our Board of Directors met five times during fiscal 1999. All of the
directors attended at least 75% of the meetings of the Board and committees of
which they are members in fiscal 1999.
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 1999. 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 1999. 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 1999.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON COMPENSATION
OF EXECUTIVE OFFICERS OF THE COMPANY*
COMPENSATION PHILOSOPHY. Our 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. We do not determine compensation based on any
specific formulas, targets or weighed criteria.
BASE SALARIES. The base salary for our 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. There was no incentive compensation in fiscal
1999.
- -------------------------
* 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 we specifically incorporate this information by
reference, and shall not otherwise be deemed filed under such Acts.
<PAGE>
STOCK OPTIONS. In fiscal 1999, the Stock Option Committee granted
stock options to certain key employees to reward them for their contribution to
our long-term performance and to provide incentives to encourage future efforts.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. Mr. LaRosa, our 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 our 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. In addition, in fiscal 1998, the non-executive directors 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 our stock on a stock exchange or quotation system. The primary
factors and criteria on which the Chief Executive Officer's compensation is
based are our financial results and Mr. LaRosa's role in helping to achieve such
results. The Chief Executive Officer is a member of the 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. None of our executive officer's cash compensation was in excess of
$1,000,000 in fiscal 1999 and, at this time, it is not anticipated that any
executive officer will receive any such cash compensation in excess of this
limit during the current fiscal year. Therefore, during fiscal 1999 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 Board's Compensation Committee (other than Charles
LaRosa, our President and Chief Executive Officer) or Stock Option Committees
are employed by us. No member of the Board 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 1999 plan and
non-plan compensation awarded or paid to, or earned by, the (i) our Chief
Executive Officer ("CEO"), (ii) our most highly compensated executive officers
other than the CEO who were serving as executive officers at July 3, 1999, to
the extent that salary and bonuses exceeded $100,000 and (iii) two persons for
whom disclosure would have been provided pursuant to clause (ii) but for the
fact that the individuals were not executive officers at July 3, 1999 (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
Annual Restricted Securities
Compen Stock Underlying LTIP All Other
Name and Salary Bonus sation Awards Options Payouts Compensation
Principal Position Year $ $ $ $ # $ $
- ------------------ ---- ------ ------ -------- ------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa 1999 $299,988 $ --- --- $ --- --- --- ---
President and 1998 287,500 140,000 --- 25,000 250,000 --- ---
Chief Executive 1997 262,000 100,000 --- --- 75,000 --- ---
Officer
Frank Marchese 1999 130,308 --- 7,518 3 --- --- --- ---
former Vice President, 1998 118,500 22,000 --- --- 20,000 --- ---
Chief Financial 1997 111,000 22,000 --- --- 20,000 --- ---
Officer, Secretary
and Treasurer 1
Victor Biller 1999 132,909 --- 7,668 3 --- --- --- ---
former Vice President, 1998 141,250 18,000 --- 12,500 30,000 --- ---
Operations 2 1997 --- --- --- --- --- --- ---
Anthony Cantaffa 1999 126,635 --- --- --- 7,000 --- ---
Vice President, 1998 125,000 6,500 --- --- --- --- ---
New Business 1997 135,000 5,000 --- --- 5,000 --- ---
Development
George Chin 1999 $164,000 --- --- --- 15,000 --- ---
Vice President, 1998 162,000 30,000 --- --- 15,000 --- ---
Sales 1997 160,000 40,000 --- --- 12,000 --- ---
Brian Barbee 1999 111,000 --- --- --- 7,000 --- ---
Vice President 1998 109,000 8,000 --- --- 7,000 --- ---
Scientific Affairs 1997 104,500 11,000 --- --- 7,000 --- ---
-------------------------
1 Mr. Marchese's employment ended in March 1999
2 Mr. Biller's employment ended in February 1999. He was elected a Vice
President in July 1997
3 Vacation paid as a result of termination of employment
</TABLE>
OPTION GRANTS IN FISCAL 1999
The following table contains information concerning the grant of stock
options to the Named Executives during fiscal 1999 (we have no outstanding stock
appreciation rights -"SARs"- and granted no SARs during fiscal 1999):
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
Number of Percent of Potential Realizable Value at
Securities Total Options Assumed Annual Rates of Stock
Underlying Granted to Exercise Expira- Price Appreciation for
Options Employees in Price tion Option Term 1
Name Granted Fiscal Year ($/Share 2 Date -------------------------------
- ----------------- -------- ---------- ---------- ------- 5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa --- --- --- --- --- ---
Frank Marchese --- --- --- --- --- ---
Victor Biller --- --- --- --- --- ---
Anthony Cantaffa 7,000 2% $.84 11/03 $1,610 $3,570
George Chin 15,000 4% .84 11/03 3,450 7,650
Brian Barbee 7,000 2% .84 11/03 1,610 3,570
- -------------------------
1 Executives may not sell or assign any option grants, which have value only
to the extent of stock price appreciation, which will benefit all
stockholders commensurately. The amounts set forth are based on assumed
appreciation rates of 5% and 10% as prescribed by the Securities and
Exchange Commission rules and are not intended to forecast future
appreciation, if any, of the stock price. We did not use an alternate
formula for a grant date valuation as we are not aware of any formula
which will determine with reasonable accuracy a present value based on
future unknown or volatile factors. Actual gains, if any, on stock option
exercises and common stock holdings are dependent on the future
performance of the common stock and overall stock market conditions. There
can be no assurance that the amounts reflected in this table will be
achieved.
2 The exercise price is equal to or higher than the fair market value of our
common stock on the date of the grant.
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES IN FISCAL 1999
No options were exercised by any of our executive officers during
fiscal 1999. The following table sets forth information with respect to the
Named Executives concerning unexercised options held at fiscal year-end:
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Securities Underlying In-the-Money Options
Options at 7/3/99 at 7/3/99($) 1
---------------------------- ---------------------------
Shares Realized
Acquired on Value
Name Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. LaRosa --- --- 430,000 --- --- ---
Frank Marchese --- --- --- --- --- ---
Victor Biller --- --- --- --- --- ---
Anthony Cantaffa --- --- 92,000 7,000 --- ---
George Chin --- --- 70,750 15,000 --- ---
Brian Barbee --- --- 55,250 7,000 --- ---
- --------------------
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 July 2, 1999, were $ .23 and $ .28 respectively. All 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 our 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 members of the Board 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 our 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 us upon three months
notice, but in such instance he will continue to receive compensation for 12
months from the date on which we choose to cease his employment activities. Mr.
LaRosa may terminate his employment upon two weeks notice.
OPTIONS
Options granted under our 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 our securities representing 20% or more of
the combined voting power of our then-outstanding securities; (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 our stock 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 our stock, 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 us that have
a total fair market value equal to or more than one-third of the total fair
market value of all of our assets 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 our policies 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 we have
(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 our common stock with the cumulative
total return of the Nasdaq Stock Market Index and the Nasdaq Pharmaceutical
Index for the period of five fiscal years ending on June 30, 1999. The graph and
chart assumes that the value of the investment in our common stock and for each
index was $100 on June 30, 1994 and reflects reinvestment of dividends and
market capitalization weighing. The dollar amounts indicated in the graph and
chart are as of June 30th in each year indicated.
- ------------------------
* This section shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under
such Acts.
<PAGE>
[GRAPH OMITTED]
<TABLE>
<CAPTION>
Cumulative Total Return ($)
===================================================================================================
Registrant/Index 6/94 6/95 6/96 6/97 6/98 6/99
==================================== ========== ========= ========== ========= ========== =========
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical Formulations $100 $73 $96 $77 $93 $28
------------------------------------ ---------- --------- ---------- --------- ---------- ---------
Nasdaq Stock Market (US) $100 $133 $171 $208 $274 $393
------------------------------------ ---------- --------- ---------- --------- ---------- ---------
Nasdaq Pharmaceuticals $100 $133 $196 $199 $204 $285
------------------------------------ ---------- --------- ---------- --------- ---------- ---------
</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 us of the
available indexes and that there is no appropriate peer group to which we 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, 1999, with
respect to the beneficial ownership of common stock by (i) each director, (ii)
each Named Executive, (iii) each person or group known to us 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, John Oram, whose address is 460
Park Avenue, New York, NY 10022; Mr. Frank Marchese, whose address is 263 Sylvan
Street, Rutherford, NJ 07070; and Mr. Victor Biller, whose address is 34
Sherwood Lane, Doylestown, PA 18901):
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership1 of Class
------------------- ---------------------- ----------
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 513,077 3 1.7%
Ray W. Cheesman 175,000 3 *
Frank Marchese 4,000 *
Victor Biller 25,000 *
Anthony Cantaffa 169,455 3 *
George Chin 147,395 3 *
Brian Barbee 59,250 3 *
Officers and Directors as a
Group (9 persons) 1,230,713 3 4%
---------------------------
* 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, 1999. Such shares are issuable only upon the
issuance by the Company of certain shares to other persons 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
after three months prior written notice to the Company. Each share of
preferred stock is convertible to such number of shares of common stock as
equals the then-current liquidation preference for such shares of
preferred stock (currently $1.00) divided by the lower of the current
market price for the common stock (as defined) at the conversion date (as
defined) or $2.00 per share (subject to certain antidilution adjustments).
(The current market price is defined as the average of the daily market
prices (as defined) for the common stock for 30 consecutive trading days
commencing 45 days prior to the conversion date, which is the third
monthly anniversary date of the date of notice of conversion). If ICC
elected to convert such shares of preferred stock and it is assumed that
the applicable current market price is equal to the average of the high
and low asked price for the common stock on September 24, 1999 ($.29),
then the 2,500,000 shares of preferred stock would convert into 8,620,689
shares of common stock. After such conversion ICC would then own
28,256,583 shares of common stock, which is 72.7% of the outstanding
common stock. If the market price for the common stock is greater than
$.29 per share at the conversion date ICC would own fewer shares, and if
the market price is less than $.29 per share ICC would own more shares,
after any such conversion. 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, 1999 or within 60 days thereof as follows: Mr. Barbee
55,250; Mr. Cantaffa: 99,000; Mr. Cheesman: 75,000; Mr. Chin: 70,700; Mr.
LaRosa: 430,000; and all officers and directors as a group: 735,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and any exchange
on which our securities may be traded. Officers, directors and greater than
ten-percent stockholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, we believe that all such filing requirements for the
year ended July 3, 1999 were complied with except that newly-elected officers
Ward Barney and Alexander Mark Schobel filed their initial Forms 3 late and Mr.
Cheesman filed one Form 4 late.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH ICC
OPTION AGREEMENT
In September 1991, we 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 our 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 our common stock
granted to management in September 1992, to the extent enforceable, in which
case the price is $.50, which warrants expired on October 1, 1999). The Limited
Preemptive Rights are exercisable for a period of 45 days after we send notice
to ICC that shares have been issued in connection with any outstanding
Convertible Securities. We 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 November 5, 1999, ICC owned a total of 19,635,894 shares of our
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, we 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 we 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. We 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. We may
not, however, 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.
We 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. See footnote 2 to the table at "Securities
Ownership of Certain Beneficial Owners and Management" above for more
information on how many shares would be issued upon conversion under certain
assumed circumstances. Pursuant to the Stock Purchase Agreement, we agreed to
(a) redeem some or all of the Series A Preferred Stock owned by ICC if we have
made a registered public offering of our common stock and the proceeds of such
offering 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 our ability to undertake the required
actions under applicable law and that the redemption or surrender of shares
would not thereby cause us to fail to meet all requirements for listing or
continued listing of our common stock on the Nasdaq Stock Market or such other
exchange on which the common stock may be listed.
PURCHASE OF RAW MATERIALS
We purchased $2,667,000 of raw materials from ICC in 1999, $2,707,000
in 1998 and $1,226,000 in 1997.
LEASE FINANCING
ICC has also assisted us in obtaining certain machinery and equipment
for the expansion of our production capacity. In such cases, ICC, or its
affiliates, typically acted as lessor of the equipment for which fixed monthly
fees are paid by us. As a result of our general financial condition, we would
not otherwise have been able to secure such leases and credit facilities in the
amounts required for our continuing and planned operations.
Since January 1992, we have entered into various subleases of
equipment and leasehold improvements from companies affiliated with ICC, for
which we pay such affiliates fixed monthly fees. Such leases have various terms,
expiring at different times between 1999 and 2001. In fiscal 1999, we assumed
these subleases and are now making the lease payments directly to the leasing
company previously associated with ICC. Upon expiration of the term of each
lease, we are entitled to purchase the equipment for a price of $1.00. We no
longer lease equipment from ICC.
LOANS
On April 1, 1999, ICC provided a term loan of $3,000,000 and a
temporary guarantee of $1,500,000 in advances under a line of credit and term
loan from a lending institution. The term loan is secured by a subordinated
pledge of all our assets and is repayable in 12 monthly installments of $75,000
each commencing in May 2000 and 12 monthly installments of $100,000 each
commencing in May 2001 with a final payment of $900,000 in May 2002. Interest is
payable at 1% over prime. On October 1, 1999 the guaranteed advance was reduced
by $100,000.
CIMETIDINE AGREEMENT
In August 1993, we entered into a cooperative joint venture with ICC
Chemical Corporation, an affiliate of ICC, 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 our
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. We 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 we agree, 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.
LEGAL SERVICES
In fiscal 1996 we appointed the law firm of Stroock & Stroock & Lavan
LLP ("Stroock") as our securities counsel. Stroock has performed and continues
to perform legal services for ICC in matters unrelated to us.
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 our common stock in the
last three fiscal years. A total of 10,768 shares were issued in the last three
fiscal years. We are 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 our financial statements for each
of the fiscal years ended June 30, 1990 through July 3, 1999 and the Board of
Directors has selected such firm to audit the financial statements of the
Company for the year ending July 1, 2000. 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 JULY 1, 2000 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 OUR BEST
INTERESTS AND THE BEST INTEREST OF OUR STOCKHOLDERS AND RECOMMENDS A VOTE "FOR"
APPROVAL THEREOF.
STOCKHOLDERS' PROPOSALS
It is anticipated that our 2000 Annual Meeting of Stockholders will be
held in November 2000. Stockholders who seek to present proposals at our Annual
Meeting of Stockholders must submit their proposals to our Secretary on or
before June 15, 2000.
GENERAL
We do 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. We expect to reimburse banks, brokers and other persons
for their reasonable out-of-pocket expenses in handling proxy materials for
beneficial owners of our 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.
WE UNDERTAKE 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 OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JULY 3, 1999. Such a
written request is to be directed to Clifford Straub, Pharmaceutical
Formulations, Inc., 460 Plainfield Avenue, Edison, New Jersey 08818.
By Order of the Board of Directors,
Clifford H. Straub, Jr.,
Senior Vice President,
Chief Financial and Administrative Officer
and Secretary
Edison, New Jersey
November 8, 1999
<PAGE>
PHARMACEUTICAL FORMULATIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 7, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint Susan I. Baer and Kathleen Lammers, as
Proxies, each with full power to appoint her substitute, and hereby authorize
them to appear and vote as designated below, all shares of Common Stock of
Pharmaceutical Formulations, Inc. held of record by the undersigned on November
5, 1999, at the Annual Meeting of Stockholders to be held on December 7, 1999,
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 to
of ALL nominees (listed below vote for all nominees
(except as marked to the contrary listed below
below)
RAY W. CHEESMAN CHARLES E. LAROSA JOHN L. ORAM
(INSTRUCTION: To withhold authority to vote for any of the above-listed
nominees, strike a line through the nominees's name)
2. Proposal to approve the appointment of BDO Seidman, LLP as independent
auditors for the Company for the year ending July 1, 2000.
/ / 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.
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 and 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.
