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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
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Commission File Number 1-31070
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DERMA SCIENCES, INC.
(Exact name of small business issuer as specified in its Charter)
Pennsylvania 23-2328753
(State or other jurisdiction (IRS employer
of Incorporation) identification number)
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(609) 514-4744
(Address including zip code and telephone
number, of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No __
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Date: September 30, 1997 Class: Common Stock, par value $.01 per share
Shares Outstanding: 4,067,632
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<PAGE>
DERMA SCIENCES, INC.
FORM 10-QSB
<TABLE>
<CAPTION>
INDEX
Description Page
<S> <C>
Part I - Financial Information
Item 1. Condensed Financial Statements
Balance Sheet - September 30, 1997................................................ 2
Statements of Operations - Three months ended September 30, 1996
and September 30, 1997......................................................... 3
Statements of Operations - Nine months ended September 30, 1996
and September 30, 1997......................................................... 4
Statements of Cash Flows - Nine months ended September 30, 1996
and September 30, 1997......................................................... 5
Notes to Condensed Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................... 7
Part II - Other Information
Item 1. Legal Proceedings............................................................. 12
Item 2. Changes in Securities and Use of Proceeds..................................... 12
Item 6. Exhibits and Reports on Form 8-K.............................................. 12
</TABLE>
<PAGE>
DERMA SCIENCES, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 87,251
Short-term investments 561,443
Accounts receivable, net 510,697
Inventory 710,449
Other current assets 256,262
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Total Current Assets 2,126,102
PROPERTY AND EQUIPMENT, NET 83,371
OTHER ASSETS 702,773
----------------
TOTAL ASSETS $2,912,246
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable $ 789,000
Accounts payable 679,931
Other current liabilities 543,121
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Total Current Liabilities 2,012,052
NOTES PAYABLE 95,000
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TOTAL LIABILITIES 2,107,052
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SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 15,000,000 shares,
issued and outstanding 4,067,632 shares 40,676
Additional paid-in capital 4,644,741
Accumulated deficit (3,880,223)
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Total Shareholders' Equity 805,194
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Total Liabilities and Shareholders' Equity $2,912,246
================
See accompanying notes.
2
<PAGE>
DERMA SCIENCES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
-------------------------------------
1996 1997
------------------ -----------------
<S> <C> <C>
NET SALES $1,311,536 $ 1,128,292
COST OF SALES 281,728 183,446
------------------ -----------------
GROSS PROFIT 1,029,808 944,846
------------------ -----------------
OPERATING EXPENSES:
Product development 207,868 87,302
Selling, general and administrative 1,012,216 1,604,902
------------------ -----------------
Total Operating Expenses 1,220,084 1,692,204
------------------ -----------------
LOSS FROM OPERATIONS (190,276) (747,358)
------------------ -----------------
OTHER INCOME (EXPENSE):
Interest income 30,271 34,176
Interest expense (16,546) (18,040)
------------------ -----------------
Total Other Income 13,725 16,136
------------------ -----------------
LOSS BEFORE INCOME TAXES: (176,551) (731,222)
Income taxes (8,335) 0
------------------ -----------------
NET LOSS ($ 168,216) ($731,222)
================== =================
NET LOSS PER COMMON SHARE ($0.04) ($0.18)
================== =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,054,233 4,067,632
================== =================
</TABLE>
See accompanying notes.
3
<PAGE>
DERMA SCIENCES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
-----------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
NET SALES $3,807,934 $2,676,271
COST OF SALES 766,945 593,153
----------------- -----------------
GROSS PROFIT 3,040,989 2,083,118
----------------- -----------------
OPERATING EXPENSES:
Product development 610,153 317,411
Selling, general and administrative 2,865,753 4,001,451
----------------- -----------------
Total Operating Expenses 3,475,906 4,318,862
----------------- -----------------
LOSS FROM OPERATIONS (434,917) (2,235,744)
----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 109,099 65,588
Interest expense (47,092) (45,458)
----------------- -----------------
Total Other Income 62,007 20,130
----------------- -----------------
LOSS BEFORE INCOME TAXES: (372,910) (2,215,614)
Income taxes (50,302) 0
----------------- -----------------
NET LOSS ($ 322,608) ($2,215,614)
================= =================
NET LOSS PER COMMON SHARE ($0.08) ($0.54)
================= =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,054,233 4,067,632
================= =================
</TABLE>
See accompanying notes.
4
<PAGE>
DERMA SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss ($ 322,608) ($2,215,614)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation and amortization 73,370 199,693
Provision for bad debts 64,324 536,975
Changes in operating assets and liabilities:
Accounts receivable (130,193) 272,181
Inventory 168,136 127,210
Other current assets (92,872) 7,848
Other assets (359,699) (121,480)
Accounts payable 48,650 (65,611)
Accrued expenses 19,437 (110,831)
Income taxes payable (88,123) 0
----------------- -----------------
Net Cash Used in Operating Activities (619,578) (1,369,629)
----------------- -----------------
INVESTING ACTIVITIES:
Decrease in short-term investments 269,065 1,325,728
Purchases of property and equipment, net (64,668) (62,687)
Increase in patents and trademarks (37,686) (37,602)
----------------- -----------------
Net Cash Provided by Investing Activities 166,711 1,225,439
----------------- -----------------
FINANCING ACTIVITIES:
Net change in revolving line of credit 100,000 (11,000)
Principal payments on long-term debt and
capitalized lease obligations (247) 0
Proceeds from acquisition 190,000 0
Net change in officers' notes receivable 0 182,233
----------------- -----------------
Net Cash Provided by Financing Activities 289,753 171,233
----------------- -----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (163,114) 27,043
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 195,773 60,208
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,659 $ 87,251
================= =================
</TABLE>
See accompanying notes.
5
<PAGE>
DERMA SCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
1997, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1996, included
in Form 10-KSB filed with the Securities and Exchange Commission on March 24,
1997.
NOTE 2 - CONTINGENCY
ABS Life Sciences, Inc. has instituted litigation against the Company. The
Company has denied having any liability to ABS Life Sciences, Inc. and has been
advised by its counsel that its position is meritorious. Accordingly, no
provision for litigation has been included in the financial statements. For
further information relative to the ABS litigation, please refer to Form 10-KSB
filed by the Company on March 24, 1997.
NOTE 3 - OFFICERS' NOTE RECEIVABLE
Various officers of the Company received draws against incentive
compensation during 1994 totaling approximately $296,156. The Compensation
Committee of the Board of Directors subsequently determined that no incentive
compensation was payable relative to 1994. Accordingly, the officers executed
promissory notes requiring repayment of the incentive compensation over a period
of ten years with interest of 8.01% per annum. The Board of Directors has
determined that the officers may tender either common stock of the Company or
cash in payment of the promissory notes.
In January, 1997, a former officer repaid his promissory note in the amount
of $77,893 inclusive of principal and interest from the proceeds of his
severance compensation. Also in January, 1997, two officers tendered common
stock of the Company at the stock's closing price quoted by Nasdaq on the date
of tender ($2.00 per share) in satisfaction of payments due during 1996 with
respect to their promissory notes. In May, 1997, a former officer's promissory
note in the amount of $74,247.68 was forgiven pursuant to his severance
agreement. For further information, refer to Form 8-K filed with the Securities
and Exchange Commission on July 1, 1997.
6
<PAGE>
DERMA SCIENCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
Net Sales and Gross Profit
Net sales for the third quarter, 1997 decreased $183,244, or 14%, to
$1,128,292 from $1,311,536 in the third quarter, 1996. The decrease in net sales
is attributable both to the restructuring of the Company's distribution system
and the elimination or reduction of Medicare reimbursement for certain product
lines.
Net sales of Dermagran Ointment decreased $165,262, or 17%, to $816,018 in
the third quarter, 1997 from $981,280 in the third quarter, 1996. Net sales of
Dermagran Hydrophilic Wound Dressing decreased marginally to $198,463 in the
third quarter, 1997 versus $212,034 in the third quarter, 1996. The decreases
are attributable to the factors discussed above. Net sales of Dermagran Spray
increased $13,277, or 20%, to $80,590 in the third quarter, 1997 from $67,313 in
the third quarter, 1996. Net sales of Dermagran Zinc-Saline Wet Dressing
increased $4,670, or 35%, to $18,031 in the third quarter, 1997 from $13,361 in
the third quarter, 1996. These increases are primarily attributable to a price
increase during the third quarter of 1997 which increased the overall net sales
of Dermagran Spray and Dermagran Zinc-Saline Wet Dressing. Sales of Dermagran
Wet Dressing (Saline) were not a material revenue producing factor in the third
quarter, 1997 or the third quarter, 1996.
Cost of sales, expressed as a percentage of net sales, decreased from 21%
in the third quarter, 1996 to 16% in the third quarter, 1997. This decrease is
attributable primarily to the increase in net sales resulting from the price
increase, discussed above. Aggregate cost of sales decreased $98,282 or 35% to
$183,446 in the third quarter, 1997 from $281,728 in the third quarter, 1996.
This decrease is primarily attributable to selling less product in the third
quarter, 1997 as discussed above.
Gross profit, expressed as a percentage of net sales, increased from 79% in
the third quarter, 1996 to 84% in the third quarter, 1997. Aggregate gross
profit decreased $84,962, or 8%, to $944,846 in the third quarter, 1997 from
$1,029,808 in the third quarter, 1996. The increase in the gross profit
percentage is attributable to the price increase discussed above. The decrease
in the aggregate gross profit is primarily attributable to the sales decreases,
discussed above.
7
<PAGE>
Operating Expenses
Operating expenses increased $472,120, or 39%, from $1,220,084 in the third
quarter, 1996 to $1,692,204 in the third quarter, 1997. This increase represents
the net effect of the increase in selling, general and administrative expense
and the decrease in product development expense discussed below.
Product development expense for the third quarter, 1997 decreased $120,566,
or 58%, to $87,302 from $207,868 in the third quarter, 1996. This decrease is
attributable to a decrease in product development staffing together with
increased outsourcing of product development functions.
Selling, general and administrative expense for the third quarter, 1997
increased $592,686, or 59%, to $1,604,902 in the third quarter, 1997 from
$1,012,216 in the third quarter, 1996. The aggregate increase is primarily
attributable to increases in wages and benefits expense including the incurrence
of severance expense and an increase in bad debt expense.
Wages and benefits expense for the third quarter, 1997 expressed as a
percentage of sales increased to 42% from 21% in the third quarter, 1996.
Aggregate wages and benefits expense increased $204,720 to $474,902 for the
third quarter, 1997 from $270,182 for the third quarter, 1996. These increases
are attributable to severance costs of $135,000 and compensation incident to the
hiring of marketing and sales personnel of $156,845.
Bad debt expense for the third quarter, 1997 expressed as a percentage of
sales increased to 33% from 2% in the third quarter, 1996. Aggregate bad debt
expense, net of recoveries, increased $342,462 to $370,498 for the third
quarter, 1997 from $28,036 for the third quarter, 1996. These increases are
primarily attributable to the reserve and write off of uncollectible accounts
related to the restructuring of the Company's distribution system.
Loss from Operations
The Company incurred a loss from operations for the third quarter, 1997 in
the amount of $747,358 compared to a loss from operations of $190,276 for the
third quarter, 1996. This increased loss from operations is attributable to the
decrease in net sales and increase in operating expenses discussed above under
"Net Sales and Gross Profit" and "Operating Expenses."
Net Loss
The Company incurred a loss of $731,222, or $0.18 per share, for the third
quarter, 1997 compared to a loss of $168,216, or $.04 per share, for the third
quarter, 1996. The loss for the third quarter, 1997 is attributable to the
factors discussed above under "Loss from Operations."
8
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
Net Sales and Gross Profit
Net sales for the nine months ended September 30, 1997 decreased
$1,131,663, or 30%, to $2,676,271 from $3,807,934 in the nine months ended
September 30, 1996. The decrease in net sales is attributable both to the second
quarter and third quarter, 1997 restructuring of the Company's distribution
system and the elimination or reduction of Medicare reimbursement for certain
product lines.
Net sales of Dermagran Ointment decreased $881,016, or 33%, to $1,800,012
in the nine months ended September 30, 1997 from $2,681,028 in the nine months
ended September 30, 1996. Net sales of Dermagran Hydrophilic Wound Dressing
decreased $110,483, or 15%, to $643,901 in the nine months ended September 30,
1997 from $754,384 in the nine months ended September 30, 1996. Net sales of
Dermagran Spray decreased $62,494, or 27%, to $164,906 in the nine months ended
September 30, 1997 from $227,400 in the nine months ended September 30, 1996.
Net sales of Dermagran Zinc-Saline Wet Dressing decreased $41,224, or 45%, to
$50,642 in the nine months ended September 30, 1997 from $91,866 in the nine
months ended September 30, 1996. Net sales of Dermagran Wet Dressing (Saline)
decreased $1,413 or 10%, to $12,989 in the nine months ended September 30, 1997
from $14,402 in the nine months ended September 30, 1996. These decreases are
attributable to the factors discussed above. During the third quarter, 1997 the
Company increased the sales price on all product lines.
Cost of sales, expressed as a percentage of net sales, increased from 20%
in the nine months ended September 30, 1996 to 22% in the nine months ended
September 30, 1997. This increase is attributable primarily to the sales
decreases, discussed above, in the Company's relatively high margin Dermagran
Ointment, Dermagran Hydrophilic Wound Dressing and Dermagran Spray. Aggregate
cost of sales decreased $173,792 or 23% to $593,153 in the nine months ended
September 30, 1997 from $766,945 in the nine months ended September 30, 1996.
Gross profit, expressed as a percentage of net sales, decreased from 80% in
the nine months ended September 30, 1996 to 78% in the nine months ended
September 30, 1997. Aggregate gross profit decreased $957,871, or 32%, to
$2,083,118 in the nine months ended September 30, 1997 from $3,040,989 in the
nine months ended September 30, 1996. These decreases are primarily attributable
to the increase in cost of sales discussed above.
Operating Expenses
Operating expenses increased $842,956, or 24%, from $3,475,906 in the nine
months ended September 30, 1996 to $4,318,862 in the nine months ended September
30, 1997. This increase represents the net effect of the increase in selling,
general and administrative expense and the decrease in product development
expense discussed below.
9
<PAGE>
Product development expense for the nine months ended September 30, 1997
decreased $292,742, or 48%, to $317,411 from $610,153 for the nine months ended
September 30, 1996. This decrease is attributable to a decrease in product
development staffing together with increased outsourcing of product development
functions.
Selling, general and administrative expense for the nine months ended
September 30, 1997 increased $1,135,698, or 40%, to $4,001,451 in the nine
months ended September 30, 1997 from $2,865,753 in the nine months ended
September 30, 1996. The aggregate increase is primarily attributable to
increases in wages and benefits expense including the incurrence of severance
expense and an increase in bad debt expense together with the incurrence of
recruiting expense.
Wages and benefits expense for the nine months ended September 30, 1997
expressed as a percentage of sales increased to 52% from 19% in the nine months
ended September 30, 1996. Aggregate wages and benefits expense increased
$668,665 to $1,396,434 for the nine months ended September 30, 1997 from
$727,769 for the nine months ended September 30, 1996. These increases are
attributable to severance costs of $386,992 and compensation incident to the
hiring of marketing and sales personnel of $301,937.
Bad debt expense for the nine months ended September 30, 1997 expressed as
a percentage of sales increased to 20% from 2% in the nine months ended
September 30, 1996. Aggregate bad debt expense increased $472,651 to $536,975
for the nine months ended September 30, 1997 from $64,324 for the nine months
ended September 30, 1996. These increases are primarily attributable to the
reserve and write off of uncollectible accounts related to the restructuring of
the Company's distribution system.
Recruiting fees of $97,000 were incurred in the nine months ended September
30, 1997, in connection with the hiring of marketing and sales personnel. No
comparable costs were incurred in the nine months ended September 30, 1996.
Loss from Operations
The Company incurred a loss from operations for the nine months ended
September 30, 1997 in the amount of $2,235,744 compared to a loss from
operations of $434,917 for the nine months ended September 30, 1996. The
increased loss from operations for the nine months ended September 30, 1997 is
attributable to the decrease in net sales and increase in operating expenses
discussed above under "Net Sales and Gross Profit" and "Operating Expenses."
Net Loss
The Company incurred a net loss of $2,215,614, or $.54 per share, for the
nine months ended September 30, 1997 compared to a net loss of $322,608, or $.08
per share, for the nine months ended September 30, 1996. The increased net loss
for the nine months ended September 30, 1997 is attributable to the factors
discussed above under "Loss from Operations."
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments at
September 30, 1997 decreased $1,494,375, or 70%, to $648,694 from $2,143,069 at
September 30, 1996. The Company's working capital at September 30, 1997
decreased $3,129,888, or 96%, to $114,050 from $3,243,938 at September 30, 1996.
These decreases are attributable to lower net sales and increased operating
expenses which occasioned increased use of the Company's short-term investments
and line-of-credit.
The Company has a bank line-of-credit, secured by inventory and accounts
receivable, whose balance at September 30, 1997 was $789,000. This
line-of-credit is renewable (payable in full) November 15, 1997. The Company
believes that it will be able either to secure renewal of its current credit
line or secure credit upon comparable terms with another financial institution.
The Company has instituted several measures with a view to increasing
sales. Among these are included: (a) the hiring of a new vice president for
marketing and a new vice president for sales together with four regional sales
managers and directors, (b) restructuring of the Company's distribution system
to eliminate non-producing distributors, increase profit margins and improve
territorial coverage, (c) expansion of the Company's product line via the
licensing of wound care products from other companies, and (d) licensing the
Company's proprietary products for distribution under private labels. The
Company has also taken steps to reduce its operating expenses, including: (a)
downsizing administrative staff, (b) reducing the size of leasehold facilities,
and (c) outsourcing financial and product development functions. The Company
expects that the foregoing measures will enable it to significantly narrow its
operating loss in the fourth quarter, 1997 and meet its obligations in the
ordinary course of business.
The Company is presently investigating several sources of investment
capital relative to the financing of its growth strategies. Although there can
be no assurance that these efforts will be successful, the Company believes that
it will be able to secure financing in the amounts, and upon terms, acceptable
to it.
Statements that are not historical facts, including statements about the
Company's confidence and strategies, and expectations about new or existing
products, technologies and opportunities, market demand or acceptance of new or
existing products are forward-looking statements that involve risks and
uncertainties. These uncertainties include, but are not limited to, product
demand and market acceptance risks, impact of competitive products and prices,
product development, commercialization or technological delays or difficulties,
and trade, legal, social, financial and economic risks.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information required by Item 103 of Regulation S-B and required hereunder,
as filed with the Securities and Exchange Commission on Form 10-KSB on March 24,
1997, is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 13, 1994, the Company consummated an initial public offering of
900,000 shares of its $.01 par value common stock and received net proceeds of
$3,221,273. The proceeds have been used for the following purposes: repayment of
indebtedness ($470,000), working capital ($1,729,830), professional services
relative to a merger ($300,000) and acquisition of Morgan Paris, Inc., a former
master distributor of the Company ($160,000). The remainder of the proceeds,
$561,443, are invested in Money Market funds. For more information relative to
the use of proceeds please refer to the Company's Form SR as filed with the U.S.
Securities and Exchange Commission on August 21, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS. With the exception of the following, all exhibits required by
Item 601 of Regulation S-B and required hereunder, as filed with the Securities
and Exchange Commission on Form 10-KSB on March 24, 1997 and on Form 8-K on July
1, 1997 are incorporated herein by reference.
Item Description
----- -----------------------------------
10.01 Generic Products Agreement between
Innovative Technologies Limited and
the Company dated September 29, 1997.
10.02 Private Label Agreement between
Innovative Technologies Limited and
the Company dated September 29, 1997.
27 Financial Data Schedule (filed
electronically with the U. S. Securities
and Exchange Commission only)
(B) REPORTS ON FORM 8-K. On July 1, 1997 the Company filed Form 8-K
relative to the resignation of Gary L. Borthwick, its Vice President for Finance
and Operations and Chief Financial Officer, and the severance agreement incident
thereto.
12
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DERMA SCIENCES, INC.
Dated: November 10, 1997 By: /s/ Stephen T. Wills
--------------------------
Stephen T. Wills, CPA, MST
Chief Financial Officer
13
Dated 29th day of September, 1997
Innovative Technologies Limited
- and -
Derma Sciences Incorporated
SALES AND DISTRIBUTION AGREEMENT
Ref: DERMS&D2
<PAGE>
THIS AGREEMENT is made the 29th day of September 1997 BETWEEN:
PARTIES:
INNOVATIVE TECHNOLOGIES LIMITED (a British Company, registration number 2666957)
whose principal place of business is Road Three, Winsford Industrial Estate,
Cheshire CW7 3PD, United Kingdom ('IT'); and
DERMA SCIENCES INCORPORATED (an American Corporation whose principal place of
business is 214 Carnegie Centre, Suite 100, Princeton, New Jersey 08540, USA
("DERMA SCIENCES").
THE PARTIES AGREE as follows:
1. APPOINTMENT, DURATION AND PRODUCT
1.1 The appointment shall be with effect from 29 September, 1997, (the
"Effective Date") and subject to the provisions for earlier termination in
Clause 5 shall last until 28 September 2002 (the "Expiry Date") and shall
continue thereafter unless and until terminated by either party giving to
the other not less than six months notice in writing expiring on or at any
time after the expiry of the said 5 year term.
1.2 IT appoints DERMA SCIENCES as its non-exclusive distributor in The United
States of America (the "Territory") for the products listed in the first
schedule to this Agreement ("Schedule 1") (the "Products") which may be
amended by written agreement between IT and DERMA SCIENCES.
2 PRICES AND PAYMENTS
2.1 The prices to be paid by DERMA SCIENCES for Products shall be those set out
in the second schedule ("Schedule 2"), (the "Prices") or such prices as
otherwise may be in effect at the time of IT's receipt of DERMA SCIENCES's
purchase order. DERMA SCIENCES shall be invoiced for the price of the
Products on despatch of the same and terms of payment shall be forty five
(45) days from the date of such invoice.
2.2 The Prices shall be reviewed and any necessary changes made to them on each
successive anniversary of the Effective Date of this Agreement. The prices
for Product B only shall be reviewed and renegotiated in December 1997 and
thereafter on each successive anniversary of the Effective Date. The price
reviews shall be negotiated in good faith and take into account IT's
production costs and the market situation in the Territory.
2.3 All invoices sent and payment made shall be in American Dollars.
2.4 DERMA SCIENCES acknowledges that IT incurs considerable costs associated
with manufacturing set-up and agrees to share equally with IT any such
manufacturing set-up costs in respect of each new (to IT) product size or
format.
2.5 DERMA SCIENCES acknowledges that IT will incur costs associated with
printing set up utilising DERMA SCIENCES artwork. DERMA SCIENCES agrees to
pay for the full costs associated with printing set up or artwork changes
for which DERMA SCIENCES shall be invoiced immediately IT incurs them.
Terms of payment shall be thirty (30) days from the date of such invoice.
<PAGE>
In the event of DERMA SCIENCES requesting any changes to printing set up or
artwork DERMA SCIENCES agrees to either purchase from IT any remaining stock
bearing the previous printing or artwork or to compensate IT for any loss
incurred in relation to such stock.
2.6 The Prices include the cost of packaging and labelling the Products and are
FOB named Port of Shipment excluding all shipping costs, import duties,
insurance tariffs and customs charges directly or indirectly involved with
so shipping the Products. FOB named Port of Shipment shall have the meaning
and import the respective rights and obligations of buyer and seller as
provided in Incoterms 1990 or any subsequent revision thereto.
2.7 IT shall be entitled to withhold delivery of the Products under this
Agreement at any time if payments are due from DERMA SCIENCES and have not
been paid in accordance with Clause 2.1. All sums due to IT under this
Agreement and unpaid shall bear interest at the rate of two per cent (2%)
over the base rate of Lloyds Bank Plc from time to time for the period from
the due date for payment until the actual payment by DERMA SCIENCES.
3 TITLE, RISK AND INSURANCE
3.1 Title to and property in a particular order of the Products (but not risk
which shall pass on delivery) in accordance with Clause 2.6 shall remain
vested in IT until the price of such Products has been paid, discharged or
satisfied in full:
3.2 Until title to and property in the Products pass to DERMA SCIENCES the
following provisions shall apply:
3.2.1 IT may at any time without prior notice to DERMA SCIENCES require
DERMA SCIENCES to deliver up to IT the Products and may repossess and
resell such Products if any sum due from DERMA SCIENCES to IT under
this Agreement for such Products is not paid on the due date for
payment; and
3.2.2 DERMA SCIENCES shall store separately the Products without charge to
IT and shall not tamper with any IT identification upon such Products
or their packaging but shall ensure that they are clearly identified
as belonging to IT.
3.3 DERMA SCIENCES and IT undertake to maintain adequate product liability
insurance for the Products which is or is equivalent to or exceeds five
million (5,000,000) Pounds Sterling and shall give details of such
insurance to the other party upon written request.
4 OBLIGATIONS OF DERMA SCIENCES
DERMA SCIENCES hereby undertakes during the term of this Agreement:
4.1 to submit its artwork or changes to artwork in respect of the Products to
IT at least ninety (90) days prior to the first date on which it desires
delivery of Products bearing such artwork.
4.2 to submit to IT quarterly on or before the first day of each calendar
quarter (ie January 1, April 1, July 1 and October 1) its non binding
twelve (12) month rolling forecasts for Products.
4.3 to submit its purchase orders not less than sixty (60) days prior to its
requested delivery date. In the event that DERMA SCIENCES's purchase orders
or IT's order acceptances contain terms that contradict any contained in
this Agreement, the terms of this Agreement shall prevail.
<PAGE>
4.4 that any purchase order made for the Products for any one particular size
or format will be for a quantity in excess of five thousand (5,000) units.
4.5 not to amend or in any way relabel, repackage or overlabel the Products
without IT's prior written consent and approval, such consent and approval
not to be unreasonably withheld.
4.6 not to cancel any purchase order (or any part of a purchase order) which
has been accepted by IT except upon prior written agreement by IT and upon
such terms as will indemnify IT for all IT's actual out-of-pocket costs,
charges, expenses, damage or loss including pre-paid freight, costs of
tooling for Products and purchase of raw materials for Products which
cannot be cancelled or used for other IT customers, but excluding lost
profits. IT is not bound to agree to any such cancellation and may complete
the contract notwithstanding any purported cancellation from DERMA
SCIENCES.
4.7 In the event of a non delivery or alleged shortage of Products in a
particular order, DERMA SCIENCES shall submit a written claim to IT within
thirty (30) days following the expected date of receipt or the actual date
of receipt of the shipment. IT will adjust the invoice for the incomplete
shipment and promptly issue a revised invoice to DERMA SCIENCES. DERMA
SCIENCES shall not be entitled to refuse to accept delivery by reason only
of short delivery. In the absence of notice as required above, the correct
quantities of the products shall be deemed to have been delivered in
accordance with this Agreement.
4.8 DERMA SCIENCES shall inform IT without delay in the event of any complaint
in respect of any of the Products, and DERMA SCIENCES shall provide IT with
complete information, including names and addresses of complainants and all
facts concerning the complaint (including whether the complaint concerns an
alleged reaction to the Product or an alleged defect in the Product). DERMA
SCIENCES shall be responsible for acknowledging, dealing with and
investigating any complaint made to it in respect of the Products. DERMA
SCIENCES investigation thereof and DERMA SCIENCES shall without delay
inform IT of any material developments in respect of either the complaint
or DERMA SCIENCES investigation. DERMA SCIENCES shall be responsible for
making any necessary reports on such complaints to the US Food and Drug
Administration ("FDA") and DERMA SCIENCES shall attempt to consult IT on
the content of such reports before submitting them to the FDA. Each of the
parties hereto shall give the other all reasonable assistance if requested
by the other in investigating the complaint or in locating and recovering
any Products alleged to be unsaleable or defective and in preventing their
sale to third parties. Any request by IT as aforesaid shall not of itself
be an admission of liability to DERMA SCIENCES or any other party as to the
condition of the Products
5 OBLIGATIONS OF IT
5.1 IT hereby undertakes during the term of this Agreement:
5.1.1 to manufacture and package quantities of Products in conformance with
DERMA SCIENCES's purchase orders subject to the following provisions:-
5.1.1.1 only to the extent that the purchase order is for a quantity
in excess of five thousand (5,000) units for each individual
product size and format.
5.1.1.2 only to the extent that they comply with DERMA SCIENCES's most
recent non-binding quarterly forecast provided that DERMA
SCIENCES shall accept such quantities being 5% (five per cent)
above or below the quantity specified in the purchase order;
<PAGE>
5.1.2 to use reasonable efforts to manufacture Products ordered by DERMA
SCIENCES that are in quantities in excess of DERMA SCIENCES's most
recent non-binding quarterly forecast provided by DERMA SCIENCES
pursuant to Clause 4.2;
5.1.3 to accept all DERMA SCIENCES purchase orders that conform with the
most recent non-binding quarterly forecast.
5.1.4 to keep in stock such packaging materials, bearing artwork submitted
by DERMA SCIENCES pursuant to Clause 4.1, as needed to package the
quantities of Products specified in DERMA SCIENCES's most recent
non-binding quarterly forecast provided that, in the event of such
materials not being used, DERMA SCIENCES shall reimburse IT for all
direct costs reasonably incurred in the procurement of such.
6 WARRANTIES AND INDEMNITIES
6.1 IT warrants and represents to DERMA SCIENCES that to the best of its
knowledge IT owns the intellectual property rights in the Products free of
any restrictions from third parties, and that to the best of its knowledge
IT may enter into this Agreement without infringing third party rights and
without requiring consents, approvals or similar actions from any third
parties in respect of the Products.
6.2 IT shall indemnify and hold DERMA SCIENCES harmless from all losses, costs
or damages, except financial loss such as consequential loss, loss of time,
loss of profit or similar types of indirect losses, which DERMA SCIENCES
may be held liable to pay as a result of claims or suits arising out of any
injuries to persons and/or damage to property caused by any breach by IT of
any provision of this Agreement or by the fact that the Products were other
than in accordance with the Product Specifications if the claims or suits
incurred are not due to DERMA SCIENCE's own or DERMA SCIENCE's
sub-distributors warranties or negligence.
6.3 DERMA SCIENCES shall in turn indemnify and hold IT harmless from all
losses, costs or damages, except financial loss such as consequential loss,
loss of time, loss of profit or similar types of indirect losses, which IT
may be held liable to pay as a result of claims or suits arising out of any
injuries to persons and/or damage to property by any breach by DERMA
SCIENCES of any provision of this Agreement or arising from DERMA SCIENCE's
own warranties or negligence or if DERMA SCIENCES fails to comply with any
storage, handling or other such instructions in respect of the Products
issued by IT.
6.4 The indemnification which either party may receive under Clause 6.2 and 6.3
shall never exceed the aggregate maximum of the coverage of each party's
product liability insurance for the Product's in accordance with sub-clause
3.3.
7 TERMINATION FOR CAUSE
7.1 Notwithstanding any provision herein to the contrary this Agreement may be
terminated by sixty (60) days notice in writing to the other (and without
compensation becoming due to the other by reason only of such termination)
if the other party fails to perform or observe any of the terms of this
Agreement or any term of a contract and in the case of a breach capable of
remedy has not remedied the breach within thirty (30) days of receipt of
written notification requiring it to do so.
7.2 If DERMA SCIENCES makes default in the payment of any money which shall
have become due hereunder for more than thirty (30) days after
<PAGE>
the due date for payment IT may give DERMA SCIENCES thirty (30) days
written notice of termination notwithstanding any other remedy which may be
available to IT.
7.3 If IT is unable to supply Products as requested by DERMA SCIENCES, provided
that the requests are within the parameters of the current rolling
forecasts supplied by DERMA SCIENCES pursuant to Clause 4.2 DERMA SCIENCES
may give IT thirty (30) days written notice of termination, and IT will
within thirty (30) days of notification compensate DERMA SCIENCES for any
loss directly arising from such inability to supply. Alternatively DERMA
SCIENCES may waive its right to termination and agree to delayed delivery
of the Products without prejudice to its right to compensation for loss
arising directly from the delay of supply of the Products. Nothing in this
Clause 7.3 shall, however, make IT liable for any indirect economic or
consequential loss (including loss of profit or legal fees) or damage.
7.4 Termination of this Agreement, howsoever caused, shall not affect the
accrued rights, or liabilities of either party to it nor shall it eliminate
obligations arising prior to termination.
7.5 Without prejudice to any rights or remedies available to IT, IT may
terminate this agreement, upon one months prior written notice to DERMA
SCIENCES if DERMA SCIENCES undergoes a Change of Control, whereby Control
passes to a direct competitor of IT in the field of healthcare.
7.6 For the purposes of Clause 7.5 "Control" means ownership of more than half
of the capital, business or assets of DERMA SCIENCES, or the power to
exercise or acquire more than half of the voting rights of or the power to
appoint more than half the members of the Board of Directors (or equivalent
officers) of DERMA SCIENCES, and a "Change of Control" shall be deemed to
take place where any person other than the person(s) in Control of DERMA
SCIENCES at the date of execution of this Agreement subsequently acquires
Control of DERMA SCIENCES (either acting alone or in concert with others.)
7.7 On termination of this Agreement howsoever caused, IT shall complete all
orders for the Products which it has accepted from DERMA SCIENCES prior to
the date of termination, provided that such orders are within the
parameters of the rolling forecasts supplied by DERMA SCIENCES pursuant to
Clause 4.2.
7.8 On termination of this Agreement howsoever caused DERMA SCIENCES shall:-
7.8.1 complete all orders from customers for the Products which it has
accepted up to date of termination;
7.8.2 on the expiry of six (6) months following the date of termination of
this Agreement have disposed of all stocks of the Products; and
7.8.3 return to IT or otherwise dispose of as IT may in writing direct and
at DERMA SCIENCES's expense all documents and records including,
without limitation, all promotional literature, catalogues, and other
documents relating to the Products or to the business of IT, and all
copies thereof, in the possession or under the control of DERMA
SCIENCES, providing that DERMA SCIENCES shall have the right to retain
copies of any documentation which may be required by any regulatory
authority in the Territory.
7.9 On and following termination of this Agreement howsoever caused, both
parties shall continue to be bound by the obligations imposed under Clause
8.
<PAGE>
8 CONFIDENTIAL INFORMATION
8.1 On 15th November, 1996 IT and DERMA SCIENCES signed a Secrecy Agreement, a
copy of which is attached as the third schedule hereto ("Schedule 3 -
Secrecy Agreement"). IT and DERMA SCIENCES agree to observe and continue to
be bound by the terms of that Secrecy Agreement, both in respect of
information disclosed independently of, and in respect of information
disclosed pursuant or in relation to, the terms of this Agreement. The
parties agree:
8.1.1 that any Proprietary Information (as defined in the Secrecy Agreement)
disclosed by either hereto to the other under or pursuant to this
Agreement may only be used by the recipient of such Proprietary
Information for the performance of the recipient's obligations under
this Agreement; and
8.1.2 that such disclosure is made under and on the terms of the Secrecy
Agreement.
8.2 Such obligations shall last during the terms of the Secrecy Agreement and
this Agreement and for a period of 5 years from the expiry or termination
of the Secrecy Agreement or this Agreement whichever is the later.
8.3 Except as provided in Clause 8.5 below DERMA SCIENCES agrees and undertakes
that during the term of this Agreement and thereafter it will keep secret
and will not without the prior written consent of IT disclose either
directly or indirectly to any third party the Proprietary Information nor
disclose to any third party any of the financial or other terms and
conditions of this Agreement other than as required by regulatory agencies
or law but such information shall be transmitted only under agreed
conditions as to confidentiality, ie directly to such authorities.
8.4 Except as provided in Clause 8.5 below IT agrees and undertakes that during
the term of this Agreement and thereafter it will keep secret and will not
without the prior written consent of DERMA SCIENCES disclose either
directly or indirectly to any third party any Proprietary Information
provided to it by DERMA SCIENCES nor disclose to any third party any of the
financial or other terms and conditions of this Agreement.
8.5 The obligations contained in Clauses 8.1, 8.2 and 8.3 shall not apply to
any Proprietary Information which:
8.5.1 is at the date of this Agreement or at any time after the date of this
Agreement comes into the public domain other than through breach of
this Agreement by DERMA SCIENCES or its employees or contractors or by
IT or its employees or contractors; or
8.5.2 can be shown by DERMA SCIENCES to the reasonable satisfaction of IT
to have been known by DERMA SCIENCES before disclosure to IT by DERMA
SCIENCES and vice versa; or
8.5.3 subsequently comes lawfully into the possession of DERMA SCIENCES or
IT from a third party.
<PAGE>
9 FORCE MAJEURE
9.1 If the performance by either party of any of its obligations (other than
the obligation to make payments hereunder) shall be in any way prevented,
interrupted or hindered in consequence of circumstances beyond the control
of such party, including without limitation an act of God, war, civil
disturbance, strike, lock-out, cessation of work, combination of workmen or
employees, legislation or restriction of any governmental or other
authority, breakdown or interruption of raw material supply or transport
the obligations of the party concerned shall be wholly or partially
suspended during the continuance and to the extent of such prevention,
interruption or hindrance. If a force majeure situation has continued for
more than one hundred and eighty days (180) days, either party may
terminate this Agreement by notice to the other party, provided that in the
event the parties agree (notwithstanding the provisions of this clause)
that IT shall recommence manufacture and supply of the Products this
agreement shall be deemed to have continued despite the interruption and
the term of the Agreement unexpired before the start of the interruption in
supply shall be the residual term. Any party seeking to rely upon the
provisions of this Clause 9.1 shall notify the other party promptly upon
the event of force majeure or other circumstances arising and a failure to
do so shall prevent the party experiencing the force majeure or other
circumstances from being able to involve the provisions of this clause.
10 GRANT OF SUB LICENCES AND ASSIGNMENT
10.1 DERMA SCIENCES shall have no right to assign or delegate the performance of
its duties hereunder nor to grant sub-licences.
11 ENTIRE AGREEMENT, VARIATION AND CONFLICT
11.1 This Agreement contains the entire agreement between the parties as at the
Effective Date and supersedes all prior agreements and understandings
between the parties whether oral or in writing in relation to the subject
matter herein contained except that both parties hereto agree to observe
and continue to be bound by the terms of the Secrecy Agreement between the
parties bearing an effective date of 15th November, 1996 and annexed hereto
as Schedule 3.
Any amendments to or modifications to this Agreement shall only be valid if
made in writing and signed by both parties hereto.
11.2 In the event of any conflict between this Agreement and any other contract,
the terms of this Agreement shall prevail.
12 GOVERNING Law AND DISPUTES
12.1 The formation, construction, performance, validity and all aspects
whatsoever of this Agreement and any individual contract for the purchase
of the Products by DERMA SCIENCES made hereunder shall be governed by and
construed in accordance with the laws of the state in which the defendant,
in any proceedings, is domiciled. Any proceedings for the determination of
any question or dispute arising in connection with this Agreement shall be
held in New Jersey if initiated by IT and in London if initiated by DERMA
SCIENCES.
<PAGE>
13 NOTICES
13.1 Any notice authorised or required to be given pursuant to this Agreement
shall be in writing and given as follows:-
13.2 Attn: Edward Quilty IT: Attn: D Keith Gilding
Chairman Managing Director
Derma Sciences Incorporated Innovative Technologies Limited
214 Carnegie Centre Road Three
Suite 100, Princeton Industrial Estate, Winsford
New Jersey 08540 USA Cheshire CW7 3PD UK
Facsimile: 001 609 452 0880 Facsimile: 44 1606 86 3600
Any such notice may be given by post or facsimile transmission. To prove
service in the case of a notice given by post it shall be sufficient to
show that the notice was despatched by airmail recorded delivery service in
a correctly addressed and adequately stamped envelope and to prove service
in the case of a notice given by facsimile transmission it shall be
sufficient to show that it was dispatched to the correct telephone number
with a transmission 'OK' printed message. Service by facsimile shall be
deemed to have been effected 24 (twenty-four) hours after dispatch by
facsimile transmission and service by post shall be deemed to have been
effected seven (7) days after the date of postmark.
14 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of which
when executed and delivered shall be an original but all the counterparts
together shall constitute one and the same instrument.
AS WITNESS the hands of the duly authorised representatives of IT and DERMA
SCIENCES the day and year first above written.
Signed by Roy Smith ) /s/ Roy Smith
for and on behalf of INNOVATIVE TECHNOLOGIES LTD ) 25/09/97
Signed by Edward J. Quilty ) /s/ Edward J. Quilty
for and on behalf of DERMA SCIENCES INCORPORATED ) 9/29/97
<PAGE>
SCHEDULE 1 - PRODUCTS
Product A
Alginate wound dressing known as SAD 2C
Product B
Hydrocolloid dressing with intelligent film known as SHD 40
Product C
Intelligent Film known as SFD C44-2 SH40 MB
Product D
Standard Film known as SFD C34 PAD LB
Product E
Sheet Hydrogel (more detailed specification to follow).
<PAGE>
SCHEDULE 2 - PRICES
PRODUCT SIZE UNIT PRICE US$
A 2" x 2" 0.62
A 4" x 4" 1.22
A 16" Rope 1.39
B 3" x 3" 0.78
B 5" x 5" 1.29
B Sacral 2.04
C 2" x 3" 0.47
C 4" x 5" 0.93
C 6" x 7" 1.73
D 2" x 3" 0.15
D 4" x 5" 0.29
D 6" x 7" 0.7
E To be determined
<PAGE>
SCHEDULE 3 - SECRECY AGREEMENT
<PAGE>
SECRECY AGREEMENT
DATE: 15th November 1996
PARTIES:
1. 'IT': INNOVATIVE TECHNOLOGIES LIMITED, a British Company (registered number
2666957) whose principal place of business in Road Three, Winsford
Industrial Estate, Winsford, Cheshire, CW7 3PD UK
2. 'DERMASCI': DERMA SCIENCES INCORPORATED a United States COmpany whose
principal place of business is 121, West Grace Street, Old Forge, PA 18518,
USA.
BACKGROUND:
A. IT has developed novel products and ideas for wound dressing and wound
management products and has technology relating to the same including but
not limited to polyurethane film technology and alginate and other
polysaccharide fibre technology and is the owner of confidential
information relating to the same.
B. DERMASCI has developed and/or acquired chronic wound dressing and/or wound
management product technology and has technology relating to the same
including but not limited to nutrient supply to chronic wounds technology
and is involved in the manufacture and/or distribution of wound dressings
and wound management products and is the owner of confidential information
relating to the same.
C. The parties wish to make disclosure of the confidential information in
their respective possession relating to wound dressings and wound
management including specifically technology relating to nutrient supply to
chronic wounds and alginate fibre technology for the purposes of their
evaluation but subject to the terms of confidentiality appearing below.
OPERATIVE PROVISIONS
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have the
following meanings unless inconsistent with the context.
"IT Information" means any and all information of whatever nature relating
to the business of IT or any Subsidiary or Holding Company of IT
including without limitation data, know-how, formulae, processes,
designs, drawings, specifications, software programmes and samples of
any other material or commercial information generally bearing or
incorporating any information relating to the business of IT.
"DERMASCI Information" means any and all information of whatever nature
relating to the business of DERMASCI or any Subsidiary or Holding
Company of DERMASCI including without limitation data, know-how,
formulae, processes, designs, drawings, specifications, software
programmes and samples of any other material or commercial information
generally bearing or incorporating any information relating to the
business of DERMASCI.
<PAGE>
"Proprietary Information" means the IT Information and the DERMASCI
Information together or either of them.
"Subsidiary" has the meaning set out in section 736 of the Companies Act
1985.
"Holding Company" has the meaning set out in section 736 of the Companies
Act 1985.
"Recipient" means the recipient of any Proprietary Information disclosed in
pursuance of this Agreement.
"Owner" means in relation to the IT Information, IT or any Subsidiary or
Holding Company of IT and in relation to the DERMASCI Information,
DERMASCI or any Subsidiary or Holding Company of DERMASCI.
1.2 In this Agreement the masculine shall include the feminine and neuter and
the singular the plural and vice versa as the context shall admit or
require.
1.3 Reference in this Agreement to a Clause or Schedule shall be construed as a
reference to a Clause or Schedule of this Agreement.
2. UNDERTAKINGS OF THE RECIPIENT
2.1 In consideration of the disclosure of Proprietary Information to the
Recipient by the Owner under this Agreement the Recipient hereby
undertakes:
2.1.1 to use all Proprietary Information so disclosed exclusively for the
purpose of evaluation the accuracy and commercial potential of the
information so disclosed; and
2.1.2 to maintain confidential all Proprietary Information that it may
acquire in any manner; and it will accordingly not directly or
indirectly use or disclose any of the Proprietary Information in whole
or in part save for the purposes of and in accordance with this
Agreement.
3. EXCEPTIONS
3.1 The foregoing restrictions on the Recipient shall not apply to any
Proprietary Information which:
3.1.1 the Recipient can prove by documentary evidence produced to the Owner
within 28 days of disclosure that such Proprietary Information was
already in the possession of the Recipient and at its free disposal
before the disclosure hereunder to the Recipient; or
3.1.2 is hereafter disclosed to the Recipient without any obligation of
confidence by a third party who has derived it directly or indirectly
from the Owner; or
3.1.3 is or becomes generally available to the public in printed
publications in general circulation through no act or default on the
part of the Recipient or the Recipient's agents or employees.
<PAGE>
4 INCLUSIONS
4.1 Without prejudice to the generality of clause 3.1.3 information shall not
be deemed to be generally available to the public by reason only that it is
known to only a few of those people to whom it might be of commercial
interest, and a combination of two or more portions of the Proprietary
Information shall not be deemed to be generally available to the public by
reason only of each separate portion being so available.
5. CONFIDENTIAL MEASURES
5.1 To secure the confidentiality attaching to the Proprietary Information, the
Recipient shall:
5.1.1 keep separate all Proprietary Information and all information
generated by the Recipient based thereon from all documents and other
records of the Recipient;
5.1.2 keep all documents and any other material bearing or incorporating
any of the Proprietary Information at the usual place of business of
the Recipient;
5.1.3 not use, reproduce, transform, or store any of the Proprietary
Information in an externally accessible computer system or electronic
information retrieval system or transmit it in any for or by any means
whatsoever outside of its usual place of business.
5.1.4 allow access to the Proprietary Information exclusively to those
employees of the Recipient who has reasonable need to see and use it
for the purposes of its evaluation by the Recipient and shall inform
each of said employees of the confidential nature of the Proprietary
Information and of the obligations on the Recipient in respect
thereof;
5.1.5 wherever reasonably practicable obtain a written statement from each
of its employees having access to the Proprietary Information
undertaking to maintain the same confidential, and shall take such
steps as may be reasonably desirable to enforce sub obligations;
5.1.6 make copies of the Proprietary Information only to the extent that
the same is strictly required for the purposes of its evaluation by
the Recipient;
5.1.7 on request of the Owner made at any time deliver up to the Owner all
documents and other material in the possession custody or control of
the Recipient that bear or incorporate any part of the Proprietary
Information.
6 TERM
6.1 This Agreement controls only Proprietary Information disclosed to the
Recipient during a five (5) year period from the date of this Agreement.
6.3 The Recipient's obligations under Clauses 2 and 5 subsist for a further
five (5) year period ending ten (10) years from the date of this Agreement.
7 ENTIRE AGREEMENT
7.1 This Agreement sets forth the entire agreement between the parties with
respect to the subject matter herein and supercedes and replaces all prior
communications, representations warranties, stipulations, undertakings and
agreements whether oral or written between the parties.
8 HEADINGS
8.1 The headings to the Clauses of this Agreement shall not effect the
construction of this Agreement.
<PAGE>
9 COPIES
9.1 This Agreement may be executed in more than one copy which, taken together,
shall constitute a single agreement.
10 ENGLISH LAW
10.1 The formation, construction, performance, validity and all aspect
whatsoever of this Agreement shall be governed by English Law and the
parties hereby agree to submit to the exclusive jurisdiction of the English
Courts.
Signed:
/s/ Diane J. Mitchell
for and on behalf of
Innovative Technologies Ltd. Diane J. Mitchell
Date: 15/11/96
/s/ Robert DiGiovine
for and on behalf of
Derma Sciences Inc. Robert DiGiovine - Director
Date: 15/11/96
Dated 29th day of September 1997
Innovative Technologies Limited
- and -
Derma Sciences Incorporated
SALES AND DISTRIBUTION AGREEMENT
Ref: DERCUS2
<PAGE>
THIS AGREEMENT is made the 29th day of September 1997 BETWEEN:
PARTIES:
INNOVATIVE TECHNOLOGIES LIMITED (a British Company, registration number 2666957)
whose principal place of business is Road Three, Winsford Industrial Estate,
Cheshire CW7 3PD, United Kingdom ('IT'); and
DERMA SCIENCES INCORPORATED (an American Corporation whose principal place of
business is 214 Carnegie Centre, Suite 100, Princeton, New Jersey 08540, USA
("DERMA SCIENCES").
THE PARTIES AGREE as follows:
1 APPOINTMENT, DURATION AND PRODUCT
1.1 The appointment shall be with effect from 29 September, 1997, (the
"Effective Date") and subject to the provisions for earlier termination in
Clause 5 shall last until 28 September 2002 (the "Expiry Date") and shall
continue thereafter unless and until terminated by either party giving to
the other not less than six months notice in writing expiring on or at any
time after the expiry of the said 5 year term.
1.2 IT appoints DERMA SCIENCES as its non-exclusive distributor in The United
States of America (the "Territory") for the products listed in the first
schedule to this Agreement ("Schedule 1") (the "Products") for distribution
to the customers (the "Customers") listed in the second schedule to this
Agreement ("Schedule 2"), which may be amended by written agreement between
IT and DERMA SCIENCES.
1.3 Individual customers now included in Schedule 2, The Customers, shall be
excluded from Schedule 2 if sales of the Products to the value of forty
thousand dollars ($40,000) are not made to any such particular customer
within each successive 12 month period from the Effective Date.
2 PRICES AND PAYMENTS
2.1 The prices to be paid by DERMA SCIENCES for Products shall be those set out
in the third schedule ("Schedule 3"), (the "Prices") or such prices as
otherwise may be in effect at the time of IT's receipt of DERMA SCIENCES's
purchase order. DERMA SCIENCES shall be invoiced for the price of the
Products on despatch of the same and terms of payment shall be sixty (60)
days from the date of such invoice.
2.2 The Prices shall be fixed for a period of two years until 29 September 1999
and thereafter received and any necessary changes made to them on each
successive anniversary of the Effective Date of this Agreement. The price
reviews shall be negotiated in good faith and take into account IT's
production costs and the market situation in the Territory.
2.3 All invoices sent and payment made shall be in American Dollars.
2.4 DERMA SCIENCES acknowledges that IT incurs considerable costs associated
with manufacturing set-up and agrees to share equally with IT any such
manufacturing set-up costs in respect of each new (to IT) product size or
format.
2.5 DERMA SCIENCES acknowledges that IT will incur costs associated with
printing set up utilising the Customers' artwork. DERMA SCIENCES agrees to
pay for the full costs associated with printing set up or artwork changes
for which DERMA SCIENCES shall be invoiced immediately IT incurs them.
<PAGE>
Terms of payment shall be thirty (30) days from the date of such invoice.
In the event of DERMA SCIENCES requesting any changes to printing set up or
artwork DERMA SCIENCES agrees to either purchase from IT any remaining
stock bearing the previous printing or artwork or to compensate IT for any
loss incurred in relation to such stock.
2.6 The Prices include the cost of packaging and labelling the Products and are
FOB named Port of Shipment excluding all shipping costs, import duties,
insurance tariffs and customs charges directly or indirectly involved with
so shipping the Products. FOB named Port of Shipment shall have the meaning
and import the respective rights and obligations of buyer and seller as
provided in Incoterms 1990 or any subsequent revision thereto.
2.7 IT shall be entitled to withhold delivery of the Products under this
Agreement at any time if payments are due from DERMA SCIENCES and have not
been paid in accordance with Clause 2.1. All sums due to IT under this
Agreement and unpaid shall bear interest at the rate of two per cent (2%)
over the base rate of Lloyds Bank Plc from time to time for the period from
the due date for payment until the actual payment by DERMA SCIENCES.
3 INSURANCE
3.1 DERMA SCIENCES and IT undertake to maintain adequate product liability
insurance for the Products which is or is equivalent to or exceeds five
million (5,000,000) Pounds Sterling and shall give details of such
insurance to the other party upon written request.
4 OBLIGATIONS OF DERMA SCIENCES
DERMA SCIENCES hereby undertakes during the term of this Agreement:
4.1 to submit its artwork or changes to artwork in respect of the Products to
IT at least ninety (90) days prior to the first date on which it desires
delivery of Products bearing such artwork.
4.2 to submit to IT quarterly on or before the first day of each calendar
quarter (ie January 1, April 1, July 1 and October 1) its non binding
twelve (12) month rolling forecasts for Products.
4.3 to submit its purchase orders not less than sixty (60) days prior to its
requested delivery date. In the event that DERMA SCIENCES's purchase orders
or IT's order acceptances contain terms that contradict any contained in
this Agreement, the terms of this Agreement shall prevail.
4.4 that any purchase order made for the Products for any one particular size
or format will be for a quantity in excess of five thousand (5,000) units.
4.5 not to amend or in any way relabel, repackage or overlabel the Products
without IT's prior written consent and approval, such consent and approval
not to be unreasonably withheld.
4.6 not to cancel any purchase order (or any part of a purchase order) which
has been accepted by IT except upon prior written agreement by IT and upon
such terms as will indemnify IT for all IT's actual out-of-pocket costs,
charges, expenses, damage or loss including pre-paid freight, costs of
tooling for Products and purchase of raw materials for Products which
cannot be cancelled or used for other IT customers, but excluding lost
profits. IT is not bound to agree to any such cancellation and may complete
the contract notwithstanding any purported cancellation from DERMA
SCIENCES.
<PAGE>
4.7 In the event of a non delivery or alleged shortage of Products in a
particular order, DERMA SCIENCES shall submit a written claim to IT within
thirty (30) days following the expected date of receipt or the actual date
of receipt of the shipment. IT will adjust the invoice for the incomplete
shipment and promptly issue a revised invoice to DERMA SCIENCES. DERMA
SCIENCES shall not be entitled to refuse to accept delivery by reason only
of short delivery. In the absence of notice as required above, the correct
quantities of the products shall be deemed to have been delivered in
accordance with this Agreement.
4.8 DERMA SCIENCES shall inform IT without delay in the event of any complaint
in respect of any of the Products, and DERMA SCIENCES shall provide IT with
complete information, including names and addresses of complainants and all
facts concerning the complaint (including whether the complaint concerns an
alleged reaction to the Product or an alleged defect in the Product). DERMA
SCIENCES shall be responsible for acknowledging, dealing with and
investigating any complaint made to it in respect of the Products. DERMA
SCIENCES investigation thereof and DERMA SCIENCES shall without delay
inform IT of any material developments in respect of either the complaint
or DERMA SCIENCES investigation. DERMA SCIENCES shall be responsible for
making any necessary reports on such complaints to the US Food and Drug
Administration ("FDA") and DERMA SCIENCES shall attempt to consult IT on
the content of such reports before submitting them to the FDA. Each of the
parties hereto shall give the other all reasonable assistance if requested
by the other in investigating the complaint or in locating and recovering
any Products alleged to be unsaleable or defective and in preventing their
sale to third parties. Any request by IT as aforesaid shall not of itself
be an admission of liability to DERMA SCIENCES or any other party as to the
condition of the Products
5 OBLIGATIONS OF IT
5.1 IT hereby undertakes during the term of this Agreement:
5.1.1 to manufacture and package quantities of Products in conformance with
DERMA SCIENCES's purchase orders subject to the following provisions:
5.1.2 only to the extent that the purchase order is for a quantity in
excess of five thousand (5,000) units for each individual product size
and format.
5.1.3 only to the extent that they comply with DERMA SCIENCES's most recent
non-binding quarterly forecast provided that DERMA SCIENCES shall
accept such quantities being 5% (five per cent) above or below the
quantity specified in the purchase order;
5.2 to use reasonable efforts to manufacture Products ordered by DERMA SCIENCES
that are in quantities in excess of DERMA SCIENCES's most recent
non-binding quarterly forecast provided by DERMA SCIENCES pursuant to
Clause 4.2;
5.3 to accept all DERMA SCIENCES purchase orders that conform with the most
recent non-binding quarterly forecast.
5.4 to keep in stock such packaging materials, bearing artwork submitted by
DERMA SCIENCES pursuant to Clause 4.1, as needed to package the quantities
of Products specified in DERMA SCIENCES's most recent non-binding quarterly
forecast provided that, in the event of such materials not being used,
DERMA SCIENCES shall reimburse IT for all direct costs reasonably incurred
in the procurement of such.
5.5 not to approach any of the customers, listed in Schedule 2, as may be
amended from time to time, with an intention to sell woundcare products
which may be deemed to be alginate dressings or any other woundcare product
which may be added to the list of Products in Schedule 1 hereto.
<PAGE>
6 WARRANTIES AND INDEMNITIES
6.1 IT warrants and represents to DERMA SCIENCES that to the best of its
knowledge IT owns the intellectual property rights in the Products free of
any restrictions from third parties, and that to the best of its knowledge
IT may enter into this Agreement without infringing third party rights and
without requiring consents, approvals or similar actions from any third
parties in respect of the Products.
6.2 IT shall indemnify and hold DERMA SCIENCES harmless from all losses, costs
or damages, except financial loss such as consequential loss, loss of time,
loss of profit or similar types of indirect losses, which DERMA SCIENCES
may be held liable to pay as a result of claims or suits arising out of any
injuries to persons and/or damage to property caused by any breach by IT of
any provision of this Agreement or by the fact that the Products were other
than in accordance with the Product Specifications if the claims or suits
incurred are not due to DERMA SCIENCE's own or DERMA SCIENCE's
sub-distributors warranties or negligence.
6.3 DERMA SCIENCES shall in turn indemnify and hold IT harmless from all
losses, costs or damages, except financial loss such as consequential loss,
loss of time, loss of profit or similar types of indirect losses, which IT
may be held liable to pay as a result of claims or suits arising out of any
injuries to persons and/or damage to property by any breach by DERMA
SCIENCES of any provision of this Agreement or arising from DERMA SCIENCE's
own warranties or negligence or if DERMA SCIENCES fails to comply with any
storage, handling or other such instructions in respect of the Products
issued by IT.
6.4 The indemnification which either party may receive under Clause 6.2 and 6.3
shall never exceed the aggregate maximum of the coverage of each party's
product liability insurance for the Product's in accordance with sub-clause
3.3.
7 TERMINATION FOR CAUSE
7.1 Notwithstanding any provision herein to the contrary this Agreement may be
terminated by sixty (60) days notice in writing to the other (and without
compensation becoming due to the other by reason only of such termination)
if the other party fails to perform or observe any of the terms of this
Agreement or any term of a contract and in the case of a breach capable of
remedy has not remedied the breach within thirty (30) days of receipt of
written notification requiring it to do so.
7.2 If DERMA SCIENCES makes default in the payment of any money which shall
have become due hereunder for more than thirty (30) days after the due date
for payment IT may give DERMA SCIENCES thirty (30) days written notice of
termination notwithstanding any other remedy which may be available to IT.
7.3 If IT is unable to supply Products as requested by DERMA SCIENCES, provided
that the requests are within the parameters of the current rolling
forecasts supplied by DERMA SCIENCES pursuant to Clause 4.2 DERMA SCIENCES
may give IT thirty (30) days written notice of termination, and IT will
within thirty (30) days of notification compensate DERMA SCIENCES for any
loss directly arising from such inability to supply. Alternatively DERMA
SCIENCES may waive its right to termination and agree to delayed delivery
of the Products without prejudice to its right to compensation for loss
arising directly from the delay of supply of the Products. Nothing in this
Clause 7.3 shall, however, make IT liable for any indirect economic or
consequential loss (including loss of profit or legal fees) or damage.
<PAGE>
7.4 Termination of this Agreement, howsoever caused, shall not affect the
accrued rights, or liabilities of either party to it nor shall it eliminate
obligations arising prior to termination.
7.5 Without prejudice to any rights or remedies available to IT, IT may
terminate this agreement, upon one months prior written notice to DERMA
SCIENCES if DERMA SCIENCES undergoes a Change of Control, whereby Control
passes to a direct competitor of IT in the field of healthcare.
7.6 For the purposes of Clause 7.5 "Control" means ownership of more than half
of the capital, business or assets of DERMA SCIENCES, or the power to
exercise or acquire more than half of the voting rights of or the power to
appoint more than half the members of the Board of Directors (or equivalent
officers) of DERMA SCIENCES, and a "Change of Control" shall be deemed to
take place where any person other than the person(s) in Control of DERMA
SCIENCES at the date of execution of this Agreement subsequently acquires
Control of DERMA SCIENCES (either acting alone or in concert with others.)
7.7 On termination of this Agreement howsoever caused, IT shall complete all
orders for the Products which it has accepted from DERMA SCIENCES prior to
the date of termination, provided that such orders are within the
parameters of the rolling forecasts supplied by DERMA SCIENCES pursuant to
Clause 4.2.
7.8 On termination of this Agreement howsoever caused DERMA SCIENCES shall:
7.8.1 complete all orders from customers for the Products which it has
accepted up to date of termination;
7.8.2 on the expiry of six (6) months following the date of termination of
this Agreement have disposed of all stocks of the Products; and
7.8.3 return to IT or otherwise dispose of as IT may in writing direct and
at DERMA SCIENCES's expense all documents and records including,
without limitation, all promotional literature, catalogues, and other
documents relating to the Products or to the business of IT, and all
copies thereof, in the possession or under the control of DERMA
SCIENCES, providing that DERMA SCIENCE's shall have the right to
retain copies of any documentation which may be required by any
regulatory authority in the Territory.
7.9 On and following termination of this Agreement howsoever caused, both
parties shall continue to be bound by the obligations imposed under Clause
8.
8 CONFIDENTIAL INFORMATION
8.1 On 15th November, 1996 IT and DERMA SCIENCES signed a Secrecy Agreement, a
copy of which is attached as the forth schedule hereto ("Schedule 4 -
Secrecy Agreement"). IT and DERMA SCIENCES agree to observe and continue to
be bound by the terms of that Secrecy Agreement, both in respect of
information disclosed independently of, and in respect of information
disclosed pursuant or in relation to, the terms of this Agreement. The
parties agree:
8.1.1 that any Proprietary Information (as defined in the Secrecy Agreement)
disclosed by either hereto to the other under or pursuant to this
Agreement may only be used by the recipient of such Proprietary
Information for the performance of the recipient's obligations under
this Agreement; and
<PAGE>
8.1.2 that such disclosure is made under and on the terms of the Secrecy
Agreement.
8.2 Such obligations shall last during the terms of the Secrecy Agreement and
this Agreement and for a period of 5 years from the expiry or termination
of the Secrecy Agreement or this Agreement whichever is the later.
8.3 Except as provided in Clause 8.5 below DERMA SCIENCES agrees and undertakes
that during the term of this Agreement and thereafter it will keep secret
and will not without the prior written consent of IT disclose either
directly or indirectly to any third party the Proprietary Information nor
disclose to any third party any of the financial or other terms and
conditions of this Agreement other than as required by regulatory agencies
or law but such information shall be transmitted only under agreed
conditions as to confidentiality, ie directly to such authorities.
8.4 Except as provided in Clause 8.5 below IT agrees and undertakes that during
the term of this Agreement and thereafter it will keep secret and will not
without the prior written consent of DERMA SCIENCES disclose either
directly or indirectly to any third party any Proprietary Information
provided to it by DERMA SCIENCES nor disclose to any third party any of the
financial or other terms and conditions of this Agreement.
8.5 The obligations contained in Clauses 8.1, 8.2 and 8.3 shall not apply to
any Proprietary Information which:
8.5.1 is at the date of this Agreement or at any time after the date of this
Agreement comes into the public domain other than through breach of
this Agreement by DERMA SCIENCES or its employees or contractors or by
IT or its employees or contractors; or
8.5.2 an be shown by DERMA SCIENCES to the reasonable satisfaction of IT
to have been known by DERMA SCIENCES before disclosure to IT by DERMA
SCIENCES and vice versa; or
8.5.3 subsequently comes lawfully into the possession of DERMA SCIENCES or
IT from a third party.
9 FORCE MAJEURE
9.1 If the performance by either party of any of its obligations (other than
the obligation to make payments hereunder) shall be in any way prevented,
interrupted or hindered in consequence of circumstances beyond the control
of such party, including without limitation an act of God, war, civil
disturbance, strike, lock-out, cessation of work, combination of workmen or
employees, legislation or restriction of any governmental or other
authority, breakdown or interruption of raw material supply or transport
the obligations of the party concerned shall be wholly or partially
suspended during the continuance and to the extent of such prevention,
interruption or hindrance. If a force majeure situation has continued for
more than one hundred and eighty days (180) days, either party may
terminate this Agreement by notice to the other party, provided that in the
event the parties agree (notwithstanding the provisions of this clause)
that IT shall recommence manufacture and supply of the Products this
agreement shall be deemed to have continued despite the interruption and
the term of the Agreement unexpired before the start of the interruption in
supply shall be the residual term. Any party seeking to rely upon the
provisions of this Clause 8.1 shall notify the other party promptly upon
the event of force majeure or other circumstances arising and a failure to
do so shall prevent the party experiencing the force majeure or other
circumstances from being able to involve the provisions of this clause.
<PAGE>
10 GRANT OF SUB LICENCES AND ASSIGNMENT
10.1 DERMA SCIENCES shall have no right to assign or delegate the performance of
its duties hereunder nor to grant sub-licences.
11 ENTIRE AGREEMENT, VARIATION AND CONFLICT
11.1 This Agreement contains the entire agreement between the parties as at the
Effective Date and supersedes all prior agreements and understandings
between the parties whether oral or in writing in relation to the subject
matter herein contained except that both parties hereto agree to observe
and continue to be bound by the terms of the Secrecy Agreement between the
parties bearing an effective date of 15th November, 1996 and annexed hereto
as Schedule 4.
Any amendments to or modifications to this Agreement shall only be valid if
made in writing and signed by both parties hereto.
11.2 In the event of any conflict between this Agreement and any other contract,
the terms of this Agreement shall prevail.
12 GOVERNING LAW AND DISPUTES
12.1 The formation, construction, performance, validity and all aspects
whatsoever of this Agreement and any individual contract for the purchase
of the Products by DERMA SCIENCES made hereunder shall be governed by and
construed in accordance with the laws of the state in which the defendant,
in any proceedings, is domiciled. Any proceedings for the determination of
any question or dispute arising in connection with this Agreement shall be
held in New Jersey if initiated by IT and in London if initiated by DERMA
SCIENCES.
13 NOTICES
13.1 Any notice authorised or required to be given pursuant to this Agreement
shall be in writing and given as follows:-
13.2 Attn: Edward Quilty IT: Attn: D Keith Gilding
Chairman Managing Director
Derma Sciences Incorporated Innovative Technologies Limited
214 Carnegie Centre Road Three
Suite 100, Princeton Industrial Estate, Winsford
New Jersey 08540 USA Cheshire CW7 3PD UK
Facsimile: 001 609 452 0880 Facsimile: 44 1606 86 3600
Any such notice may be given by post or facsimile transmission. To prove
service in the case of a notice given by post it shall be sufficient to
show that the notice was despatched by airmail recorded delivery service in
a correctly addressed and adequately stamped envelope and to prove service
in the case of a notice given by facsimile transmission it shall be
sufficient to show that it was dispatched to the correct telephone number
with a transmission 'OK' printed message. Service by facsimile shall be
deemed to have been effected 24 (twenty-four) hours after dispatch by
facsimile transmission and service by post shall be deemed to have been
effected seven (7) days after the date of postmark.
<PAGE>
14 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of which
when executed and delivered shall be an original but all the counterparts
together shall constitute one and the same instrument.
AS WITNESS the hands of the duly authorised representatives of IT and DERMA
SCIENCES the day and year first above written.
Signed by Roy Smith ) /s/ Roy Smith
for and on behalf of INNOVATIVE TECHNOLOGIES LTD ) 25/09/97
Signed by Edward J. Quilty ) /s/ Edward J. Quilty
for and on behalf of DERMA SCIENCES INCORPORATED ) 9/29/97
<PAGE>
SCHEDULE 1 - PRODUCTS
Product A
Alginate wound dressing known as SAD 2
<PAGE>
SCHEDULE 2 - CUSTOMERS
1) Gericare Providers Inc, Englewood, CO 80123 USA
<PAGE>
SCHEDULE 3 - PRICES
PRODUCTS SIZE UNIT PRICES US$
A 2"x2" 0.62
A 4"x4" 1.22
A 16"Rope 1.39
<PAGE>
SCHEDULE 4 - SECRECY AGREEMENT
<PAGE>
SECRECY AGREEMENT
DATE: 15th November 1996
PARTIES:
1. 'IT': INNOVATIVE TECHNOLOGIES LIMITED, a British Company (registered number
2666957) whose principal place of business in Road Three, Winsford
Industrial Estate, Winsford, Cheshire, CW7 3PD UK
2. 'DERMASCI': DERMA SCIENCES INCORPORATED a United States COmpany whose
principal place of business is 121, West Grace Street, Old Forge, PA 18518,
USA.
BACKGROUND:
A. IT has developed novel products and ideas for wound dressing and wound
management products and has technology relating to the same including but
not limited to polyurethane film technology and alginate and other
polysaccharide fibre technology and is the owner of confidential
information relating to the same.
B. DERMASCI has developed and/or acquired chronic wound dressing and/or wound
management product technology and has technology relating to the same
including but not limited to nutrient supply to chronic wounds technology
and is involved in the manufacture and/or distribution of wound dressings
and wound management products and is the owner of confidential information
relating to the same.
C. The parties wish to make disclosure of the confidential information in
their respective possession relating to wound dressings and wound
management including specifically technology relating to nutrient supply to
chronic wounds and alginate fibre technology for the purposes of their
evaluation but subject to the terms of confidentiality appearing below.
OPERATIVE PROVISIONS
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have the
following meanings unless inconsistent with the context.
"IT Information" means any and all information of whatever nature relating
to the business of IT or any Subsidiary or Holding Company of IT
including without limitation data, know-how, formulae, processes,
designs, drawings, specifications, software programmes and samples of
any other material or commercial information generally bearing or
incorporating any information relating to the business of IT.
"DERMASCI Information" means any and all information of whatever nature
relating to the business of DERMASCI or any Subsidiary or Holding
Company of DERMASCI including without limitation data, know-how,
formulae, processes, designs, drawings, specifications, software
programmes and samples of any other material or commercial information
generally bearing or incorporating any information relating to the
business of DERMASCI.
<PAGE>
"Proprietary Information" means the IT Information and the DERMASCI
Information together or either of them.
"Subsidiary" has the meaning set out in section 736 of the Companies Act
1985.
"Holding Company" has the meaning set out in section 736 of the Companies
Act 1985.
"Recipient" means the recipient of any Proprietary Information disclosed in
pursuance of this Agreement.
"Owner" means in relation to the IT Information, IT or any Subsidiary or
Holding Company of IT and in relation to the DERMASCI Information,
DERMASCI or any Subsidiary or Holding Company of DERMASCI.
1.2 In this Agreement the masculine shall include the feminine and neuter and
the singular the plural and vice versa as the context shall admit or
require.
1.3 Reference in this Agreement to a Clause or Schedule shall be construed as a
reference to a Clause or Schedule of this Agreement.
2. UNDERTAKINGS OF THE RECIPIENT
2.1 In consideration of the disclosure of Proprietary Information to the
Recipient by the Owner under this Agreement the Recipient hereby
undertakes:
2.1.1 to use all Proprietary Information so disclosed exclusively for the
purpose of evaluation the accuracy and commercial potential of the
information so disclosed; and
2.1.2 to maintain confidential all Proprietary Information that it may
acquire in any manner; and it will accordingly not directly or
indirectly use or disclose any of the Proprietary Information in whole
or in part save for the purposes of and in accordance with this
Agreement.
3. EXCEPTIONS
3.1 The foregoing restrictions on the Recipient shall not apply to any
Proprietary Information which:
3.1.1 the Recipient can prove by documentary evidence produced to the Owner
within 28 days of disclosure that such Proprietary Information was
already in the possession of the Recipient and at its free disposal
before the disclosure hereunder to the Recipient; or
3.1.2 is hereafter disclosed to the Recipient without any obligation of
confidence by a third party who has derived it directly or indirectly
from the Owner; or
3.1.3 is or becomes generally available to the public in printed
publications in general circulation through no act or default on the
part of the Recipient or the Recipient's agents or employees.
<PAGE>
4 INCLUSIONS
4.1 Without prejudice to the generality of clause 3.1.3 information shall not
be deemed to be generally available to the public by reason only that it is
known to only a few of those people to whom it might be of commercial
interest, and a combination of two or more portions of the Proprietary
Information shall not be deemed to be generally available to the public by
reason only of each separate portion being so available.
5. CONFIDENTIAL MEASURES
5.1 To secure the confidentiality attaching to the Proprietary Information, the
Recipient shall:
5.1.1 keep separate all Proprietary Information and all information
generated by the Recipient based thereon from all documents and other
records of the Recipient;
5.1.2 keep all documents and any other material bearing or incorporating
any of the Proprietary Information at the usual place of business of
the Recipient;
5.1.3 not use, reproduce, transform, or store any of the Proprietary
Information in an externally accessible computer system or electronic
information retrieval system or transmit it in any for or by any means
whatsoever outside of its usual place of business.
5.1.4 allow access to the Proprietary Information exclusively to those
employees of the Recipient who has reasonable need to see and use it
for the purposes of its evaluation by the Recipient and shall inform
each of said employees of the confidential nature of the Proprietary
Information and of the obligations on the Recipient in respect
thereof;
5.1.5 wherever reasonably practicable obtain a written statement from each
of its employees having access to the Proprietary Information
undertaking to maintain the same confidential, and shall take such
steps as may be reasonably desirable to enforce sub obligations;
5.1.6 make copies of the Proprietary Information only to the extent that
the same is strictly required for the purposes of its evaluation by
the Recipient;
5.1.7 on request of the Owner made at any time deliver up to the Owner all
documents and other material in the possession custody or control of
the Recipient that bear or incorporate any part of the Proprietary
Information.
6 TERM
6.1 This Agreement controls only Proprietary Information disclosed to the
Recipient during a five (5) year period from the date of this Agreement.
6.3 The Recipient's obligations under Clauses 2 and 5 subsist for a further
five (5) year period ending ten (10) years from the date of this Agreement.
7 ENTIRE AGREEMENT
7.1 This Agreement sets forth the entire agreement between the parties with
respect to the subject matter herein and supercedes and replaces all prior
communications, representations warranties, stipulations, undertakings and
agreements whether oral or written between the parties.
8 HEADINGS
8.1 The headings to the Clauses of this Agreement shall not effect the
construction of this Agreement.
<PAGE>
9 COPIES
9.1 This Agreement may be executed in more than one copy which, taken together,
shall constitute a single agreement.
10 ENGLISH LAW
10.1 The formation, construction, performance, validity and all aspect
whatsoever of this Agreement shall be governed by English Law and the
parties hereby agree to submit to the exclusive jurisdiction of the English
Courts.
Signed:
/s/ Diane J. Mitchell
for and on behalf of
Innovative Technologies Ltd. Diane J. Mitchell
Date: 15/11/96
/s/ Robert DiGiovine
for and on behalf of
Derma Sciences Inc. Robert DiGiovine - Director
Date: 15/11/96
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Balance Sheet at September 30, 1997 (unaudited) and the Condensed
Statement of Operations for the quarter ended September 30, 1997 (unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000892160
<NAME> Derma Sciences, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 87,251
<SECURITIES> 561,443
<RECEIVABLES> 510,697
<ALLOWANCES> 0
<INVENTORY> 710,449
<CURRENT-ASSETS> 2,126,102
<PP&E> 83,371
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,912,246
<CURRENT-LIABILITIES> 2,012,052
<BONDS> 0
0
0
<COMMON> 40,676
<OTHER-SE> 764,518
<TOTAL-LIABILITY-AND-EQUITY> 2,912,246
<SALES> 1,128,292
<TOTAL-REVENUES> 1,128,292
<CGS> 183,446
<TOTAL-COSTS> 183,446
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,040
<INCOME-PRETAX> (731,222)
<INCOME-TAX> 0
<INCOME-CONTINUING> (731,222)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (731,222)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
</TABLE>
