SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. ]
Filed by the Registrant _X_
Filed by a party other than the Registrant ____
Check the appropriate box :
___ Preliminary Proxy Statement
_X_ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Derma Sciences, Inc.
(Name of Registrant as Specified in Its Charter)
John T. Borthwick, President and Chief Executive Officer
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
_X_ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
___ $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6
(i)(3).
___ Fee computed on table below per Exchange Act Rules 14a-(6)(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
_________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
* Set forth the amount on which the filing fee is calculated and
state how it was determined.
___ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the fiing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _____________________________________
2) Form Schedule or Registration Statement No.: ________________
3) Filing Party: _______________________________________________
4) Date Filed: _________________________________________________
<PAGE>
DERMA SCIENCES, INC.
121 West Grace Street
Old Forge, Pennsylvania 18518
(717) 457-1232
____________________________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 14, 1997
____________________________________________________________
To the Shareholders:
The Annual Meeting of Shareholders of Derma Sciences, Inc. will be held on
May 14, 1997, at 10:00 a.m., at the Convention Hall, 1073 Oak Street, Pittston
Township, Pennsylvania, for the following purposes:
1. To elect directors;
2. To consider ratification of the selection of Ernst & Young LLP as
the independent certified public accountants for the Company for
the year ended December 31, 1997; and
3. To transact such other business as may properly come before the
meeting and all adjournments thereof.
Only shareholders of record at the close of business on March 26, 1997, the
record date and time fixed by the Board of Directors, are entitled to notice of,
and to vote at, the meeting.
The Board of Directors unanimously recommends that shareholders vote "FOR"
(i) the election as directors of the nominees named in the accompanying Proxy
Statement, and (ii) the ratification of the selection of Ernst & Young LLP as
the Company's independent certified public accountants for the year ended
December 31, 1997.
You are cordially invited to attend the meeting. Whether or not you plan to
attend personally, and regardless of the number of shares you own, it is
important that your shares be represented. Accordingly, WE URGE YOU TO COMPLETE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. If you
attend the Annual Meeting and wish to vote in person, you may withdraw your
proxy at that time.
By Order of the Board of Directors,
ROBERT P. DIGIOVINE
Secretary
<PAGE>
DERMA SCIENCES, INC.
121 West Grace Street
Old Forge, Pennsylvania 18518
(717) 457-1232
________________________________________
PROXY STATEMENT
________________________________________
This statement is furnished by the Board of Directors of Derma Sciences,
Inc. (the "Company") in connection with the Board's solicitation of proxies for
use at its Annual Meeting of Shareholders (the "Meeting") to be held at 10:00
a.m. on Wednesday, May 14, 1997, at the Convention Hall, 1073 Oak Street,
Pittston Township, Pennsylvania, and at any adjournments thereof. The purpose of
the Meeting and the matters to be acted upon are set forth in the accompanying
Notice of Annual Meeting of Shareholders.
If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted for the election as directors of those nominees named in the Proxy
and for ratification of the selection of Ernst & Young LLP as independent
certified public accountants for the year ended December 31, 1997. The Board
knows of no matters which are to be presented for consideration at the Meeting
other than those specifically described in the Notice of Annual Meeting of
Shareholders, but if other matters are properly presented, it is the intention
of the persons designated as proxies to vote on them in accordance with their
judgment.
A Proxy may be revoked at any time prior to the time it is voted by written
notice to the Secretary of the Company at the above address or by delivery of a
proxy bearing a later date. Any shareholder may attend the Meeting and vote in
person whether or not a Proxy was previously submitted.
The close of business on March 26, 1997, has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice of,
and to vote at, the Meeting. On the Record Date, the Company had 4,067,632
shares of Common Stock, par value $.01 per share ("Common Stock"), outstanding
and entitled to vote. Such shares of Common Stock are the only voting securities
of the Company. Each share held of record will be entitled to one vote at the
Meeting. It is expected that the Notice of Annual Meeting, Proxy Statement and
form of Proxy will first be mailed to shareholders on or about March 31, 1997.
The expense of solicitation will be borne by the Company. The solicitation
of Proxies will be largely by mail, but may include telephonic, telegraphic or
oral communications by officers or other representatives of the Company. The
Company will also reimburse brokers or other persons holding shares in their
names or in the names of their nominees for the reasonable out-of-pocket
expenses in forwarding Proxies and proxy materials to the beneficial owners of
such shares.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 3, 1997, certain information
regarding the current beneficial ownership of shares of the Company's Common
Stock by (i) each person known by the Company to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each officer of the Company, and (iv) all directors and officers of the
Company as a group:
Percent
Number of Shares Beneficially
Name and Address of Beneficial Owner (1) Beneficially Owned Owned
- ---------------------------------------- ------------------ ------------
Mary G. Clark, RN............................... 1,025,474 25.14%
John T. Borthwick (2)........................... 299,414 7.30%
Dr. Hsia-Fu Chao (3)............................ 252,000 6.18%
Gary L. Borthwick (4)........................... 187,788 4.60%
Edward J. Quilty (5)............................ 50,500 1.24%
Joseph V. Villasin, MD (6)...................... 27,825 *
Robert P. DiGiovine, RPh (7).................... 15,075 *
Laurence F. Lane (8)............................ 12,000 *
Margaret R. Spencer (9)......................... 7,000 *
Robert W. Naismith, Ph.D. (8)................... 4,000 *
Herbert Grossman, RPh (8)....................... 4,000 *
All directors and officers as a group
(11 persons) (10)............................... 1,885,076 46.21%
___________________________
* Less than one percent
(1) Except as otherwise noted, the address of each of the persons listed is 121
West Grace Street, Old Forge, Pennsylvania 18518.
(2) Includes 40,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days.
(3) First Taiwan Investment Holding, Inc., 15/F, 563, Chung Hsiao, East Road,
Section 4 Taipei, Taiwan R.O.C., beneficially owns 248,000 shares of the
Company's Common Stock. These shares are also beneficially owned by First
Taiwan Investment & Development, Inc., First Taiwan Investment Banking
Group and Dr. Chao by virtue of his position as Chairman of First Taiwan
Investment Holding, Inc. Includes 4,000 shares subject to options currently
exercisable. No additional shares subject to options will become
exercisable within 60 days.
(4) Includes 20,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days.
(5) Includes 30,000 shares subject to options currently exercisable. On May 22,
1997, 30,000 additional shares subject to options will become exercisable.
(6) Includes 5,200 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days.
(7) Includes 11,200 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days.
(8) Includes 4,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days.
(9) Includes 6,500 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days.
(10) Includes 128,900 shares subject to options currently exercisable.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors of the Company has reduced its size from eleven to
five directors effective March 14, 1997. However, this reduction does not affect
the terms of incumbent directors. All directors are elected for one year terms
and serve until their successors are elected and qualify. Accordingly, a board
of five directors will be elected at the Meeting by the holders of Common Stock
to hold office until their successors have been elected and qualify. It is
intended that, unless authorization to do so is withheld, the proxies will be
voted "FOR" the election of the director nominees named below. Each nominee has
consented to be named in this Proxy Statement and to serve as a director if
elected. However, if any nominee becomes unable to stand for election as a
director at the Meeting, an event not now anticipated by the Board, the Proxy
will be voted for a substitute designated by the Board.
<PAGE>
The nominees are listed below with brief statements of their principal
occupation and other information:
Name of Nominee Age Director Since Principal Occupation
- --------------- --- -------------- --------------------
Edward J. Quilty 46 March, 1996 Chairman of the Board of the Company
and Chairman of the Board of
RhoMed, Inc.
John T. Borthwick 43 November, 1984 President and Chief Executive Officer
of the Company
Mary G. Clark, RN 64 November, 1984 Vice Chairman of the Board and
Special Consultant of the Company
Herbert Grossman, RPh 66 June, 1995 President and Chief Executive Officer
of Beacon Laboratories LLC
Laurence F. Lane 51 June, 1995 Vice President of Regulatory Affairs
of NovaCare, Inc.
The term of office of each person elected as director will continue until
the Company's next Annual Meeting of Shareholders or until his/her successor has
been elected and qualifies.
Information Relative to Directors
Edward J. Quilty has served as Chairman of the Board since May, 1996 and as
a director of the Company since March, 1996. Mr. Quilty has been the Chairman of
the Board of RhoMed, Inc., a biopharmaceutical company specializing in peptide
drug design for diagnostic and therapeutic agents, since November, 1995. From
July, 1994 through November, 1995, he was President and Chief Executive Officer
of MedChem Products, Inc., a publicly traded developer and manufacturer of
specialty medical products acquired by C.R. Bard in November, 1995. From March,
1992 through July, 1994 Mr. Quilty served as President and Chief Executive
Officer of Life Medical Sciences, Inc., a developer and manufacturer of
specialty medical products including wound healing agents. The assets of Life
Medical Sciences were purchased by MedChem Products Inc. Mr. Quilty has over 25
years of experience in the Healthcare industry primarily in strategic planning,
management and sales and marketing. Mr. Quilty is a member of the Healthcare
Manufacturing Marketing Council. He earned a Bachelor of Science from Southwest
Missouri State University, Springfield, Missouri in 1972 and his MBA from Ohio
University, Athens, Ohio in 1987.
John T. Borthwick has served as President and Chief Executive Officer of
the Company since February, 1991. He has served as a director of the Company
since November, 1984 and served as Vice Chairman of the Board from September,
1994 to June, 1995. Previously, he was Vice President for Marketing and National
Sales Manager of the Company from 1984 through 1990. Mr. Borthwick serves on the
board of directors of Plansoft Corporation, a developmental stage employee
benefit plan administration software company. During 1988 and 1989, Mr.
Borthwick also served as President of Wound Management Services, a Medicare
billing service specializing in wound care. In 1993, Mr. Borthwick served as a
member of the board of directors of the National Association for the Support of
Long Term Care, an organization which represents the legislative and regulatory
interests of the long term care industry. Mr. Borthwick earned a Bachelor of
Arts in Biology from Temple University in 1975.
Mary G. Clark, RN, founded the Company and has served as a Special
Consultant for Scientific Affairs to the Company and Vice Chairman of the Board
since March, 1994 and June, 1995, respectively. She served as Chairman of the
Board of the Company from February, 1991 through March, 1994. Mrs. Clark served
as the Company's President from 1984 to 1990, and as director of the Company
from November, 1984 to March, 1994. She is the inventor and original patent
holder of the Company's flagship products, Dermagran Spray and Dermagran
Ointment. She is also the founder, owner and operator of the Primary Medical and
Nutritional Clinic, Old Forge, Pennsylvania, a clinic specializing in medical
and nutritional preventative therapies. She has over 32 years of clinical
medical experience of which 18 years are in the nutritional biochemistry and
ortho-molecular medicine fields. Mrs. Clark earned a Registered Nurse degree
from Scranton State General Hospital in 1954 and a Clinical Nurse Therapist
degree in Intensive Cardiovascular Care from Mechanicsburg Rehabilitation Center
in 1972. She was appointed by former Pennsylvania Governor Robert P. Casey to
membership on the Entrepreneurial Advisory Board for the Commonwealth of
Pennsylvania.
Herbert Grossman, RPh, has served as a director of the Company since June,
1995. Mr. Grossman has been President, Chief Executive Officer and a director of
Beacon Laboratories LLC, a development stage research company specializing in
the development of technology for the treatment of cancer, since July, 1995. He
has over forty years experience in general management, corporate planning,
marketing, advertising and publishing in the domestic and worldwide healthcare
industry. From 1992 to 1995 Mr. Grossman served as a strategic business
consultant to the Ortho Diagnostic Systems division of Johnson & Johnson. He was
Chairman of the Board and a director of the Zambon Corporation, the United
States subsidiary of the Zambon Group, an Italian based research-intensive,
multinational healthcare manufacturer of pharmaceuticals, fine chemicals and
hospital products, from 1990 through 1992 and 1988 through 1992, respectively.
Mr. Grossman previously served as the founding President and Chief Executive
Officer of the Zambon Corporation. He serves on the boards of directors of the
following corporations: Biofor, Inc., Opticare Centers, Inc., Strategic Medical
Communications, Inc., Jenner Technologies and REMBIS Associates. Mr. Grossman
has served on numerous government and business committees, most recently on
Deloitte Haskins & Sells' National Emerging Business Advisory Board in
conjunction with the White House Conference on Small Business. He earned a
Bachelor of Science in Pharmacy from Long Island University, Brooklyn College of
Pharmacy, New York, in 1951. Mr. Grossman also attended the University of Miami
Graduate Business School and New York University Graduate Business School.
Laurence F. Lane has served as a director of the Company since June, 1995.
Mr. Lane has been the Senior Vice President of Regulatory Affairs of NovaCare,
Inc., a publicly traded medical rehabilitation corporation, since November,
1986. He has over twenty years of government relations and policy experience.
Mr. Lane has served as the Director for Special Programs of the American Health
Care Association, Director for Policy Development of the American Association of
Homes for the Aging and legislative representative of the American Association
of Retired Persons. He managed the 1980 White House Mini-Conference on Long Term
Care and served as a credentialed resource person for the 1981 White House
Conference on Aging. Mr. Lane is a member of the following organizations:
National Association for the Support of Long Term Care, International Subacute
Healthcare Association, National Association for Rehabilitation Agencies,
National Health Lawyers Association, and Healthcare Financial Management
Association. He earned a Bachelor of Arts and M.A. from the School of Public and
International Affairs of George Washington University, Washington, D.C. Mr. Lane
has pursued doctoral studies at the Washington Public Affairs Center, University
of Southern California and received a Gerontology certificate from Andrus
Gerontology Center, University of Southern California in 1974.
Compensation of Directors
All directors are reimbursed for expenses incurred in connection with each
board and committee meeting attended. Each outside director receives $500 for
every board meeting and for each separately held committee meeting attended. In
addition, each outside director receives an annual retainer of $5,000. Inside
directors receive no compensation for their services as directors.
<PAGE>
The following table sets forth certain information with respect to the
grant of all options under the Stock Option Plan to the directors of the
Company:
Exercisable
Options Options at Exercise
Granted December 31, 1996 Price
Name (#) (#) ($/Share) Expiration Date
- ------------------------ -------- ------------------ --------- ---------------
Dr. Hsia-Fu Chao......... 10,000(1) 4,000 2.50 November 21, 2006
Robert P. DiGiovine, RPh 1,500(2) 1,200 3.60 August 14, 1997
Robert W. Naismith, Ph.D. 10,000(1) 4,000 2.50 November 21, 2006
Margaret R. Spencer ..... 3,125(2) 2,500 3.60 August 14, 1997
10,000(1) 4,000 2.50 November 21, 2006
Joseph V. Villasin, MD .. 1,500(2) 1,200 3.60 August 14, 1997
10,000(1) 4,000 2.50 November 21, 2006
_______________________
(1) These options began vesting at a rate of 20% per year on November 21, 1995.
(2) These options began vesting at a rate of 20% per year on August 14, 1993.
<PAGE>
The following table sets forth certain information with respect to the
grant of options to directors of the Company exclusive of the Stock Option Plan:
Exercisable
Options Options at Exercise
Granted December 31, 1996 Price
Name (#) (#) ($/Share) Expiration Date
- ---------------------- -------- ------------------ --------- ---------------
Herbert Grossman, RPh. 10,000(1) 4,000 2.50 November 21, 2006
Laurence F. Lane...... 10,000(1) 4,000 2.50 November 21, 2006
______________________
(1) These options began vesting at a rate of 20% per year on November 21, 1995.
Board Committees
The Company has an Executive Committee composed of John T. Borthwick, Mary
G. Clark, RN and Edward J. Quilty. The Executive Committee exercises such
management functions as may be delegated to it by the Board of Directors. The
Executive Committee held no meetings in 1996.
The Company has an Audit Committee composed of Laurence F. Lane, Margaret
R. Spencer and Herbert Grossman, RPh. The Audit Committee reviews the results
and scope of the audit and financial recommendations provided by the Company's
independent auditors. The Audit Committee held one meeting in 1996.
The Company has a Compensation Committee composed of Edward J. Quilty,
Herbert Grossman, RPh and Laurence F. Lane. The Compensation Committee reviews
the compensation of management and determines the amounts and types of cash and
equity incentives to be offered to management. The Compensation Committee held
one meeting in 1996.
The Company has a Nominating Committee composed of John T. Borthwick,
Laurence F. Lane and Margaret R. Spencer. The Nominating Committee reviews the
qualifications of prospective directors for consideration by the Board of
Directors as management's nominees for directors. The Nominating Committee held
one meeting in 1996.
The Nominating Committee will consider nominations for directors submitted
by shareholders. Shareholder nominations for election to the Board of Directors
must be by written notification received by a member of the Nominating Committee
not later than sixty days prior to the next annual meeting of shareholders. Such
notification shall contain, at a minimum, the following information:
1. The name and residential address of the proposed nominee and of each
notifying shareholder;
2. The principal occupation of the proposed nominee;
3. A representation that the notifying shareholder intends to appear in
person or by proxy at the meeting to nominate the person specified in
the notice;
4. The total number of shares of the Company owned by the notifying
shareholder;
5. A description of all arrangements or understandings between the
notifying shareholder and the proposed nominee and any other person or
persons pursuant to which the nomination is to be made by the
notifying shareholder;
6. Any other information regarding the nominee that would be required to
be included in a proxy statement filed with the SEC; and
7. The consent of the nominee to serve as director of the Company, if
elected.
The Committee will return, without consideration, any notice of proposed
nomination which does not contain the foregoing information.
During 1996, there were five meetings of the Board of Directors. Dr.
Hsia-Fu Chao attended fewer than 75 percent of the total number of meetings of
the Board of Directors held during 1996.
The Board of Directors unanimously recommends that shareholders vote "FOR"
the election as Directors of the nominees listed above.
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are:
Executive Officer
Name Age Positions with the Company of the Company Since
- ----------------- --- -------------------------- --------------------
Edward J. Quilty 46 Chairman of the Board of Directors May, 1996
John T. Borthwick 43 President and Chief Executive Officer February, 1991
Gary L. Borthwick 38 Vice President for Finance & February, 1991
Oper-ations and Chief Financial Officer
Additional information relative to Edward J. Quilty and John T. Borthwick
is included in the preceding pages under "Election of Directors."
Gary L. Borthwick was appointed Vice President for Finance and Operations
in March, 1995 and has served as Vice President for Finance and Chief Financial
Officer of the Company since February, 1991. He served as a director of the
Company from July, 1988 to May, 1997. He joined the Company in 1985 as
Operations Manager and served as Comptroller from 1987 through 1990. Mr.
Borthwick owned and operated K&G Health Foods, a health food store in Old Forge,
Pennsylvania, from 1979 through 1992. In addition, he served from 1988 to 1989
as Secretary/Treasurer of Wound Management Services, Dunmore, Pennsylvania. Mr.
Borthwick earned an Associate Degree in Accounting and Business Administration
from Keystone Junior College in 1979.
Officers are elected by and serve at the discretion of the Board of
Directors.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
Summary Compensation Table
The following table shows all compensation paid by the Company to its Chief
Executive Officer and to each of its executive officers whose compensation
exceeded $100,000 for their services in all capacities during the years 1994,
1995 and 1996:
Annual Compensation
------------------- Options All Other
Name and Principal Position Year Salary Bonus (#) Compensation
- ----------------------------- ---- ------- ------- ------- --------------
John T. Borthwick 1996 $180,000 --- --- $10,861 (1)(2)
President and Chief 1995 150,000 $40,000 100,000 10,712 (1)(2)
Executive Officer 1994 93,500 --- --- 9,962 (1)
Gary L. Borthwick 1996 135,000 --- --- 7,514 (3)
Vice President for 1995 119,000 20,000 50,000 7,514 (3)
Finance & Operations and 1994 72,800 --- --- 7,514 (3)
Chief Financial Officer
Donald F. McHale, RN 1996 150,000 --- --- 2,289 (4)
Vice President for Sales 1995 129,000 13,800 --- 645 (2)
& Marketing 1994 65,000 --- 50,000 ---
_______________________
(1) The Company enrolled John T. Borthwick in a split-dollar life insurance
program on July 1, 1993. The monthly premiums are $830.18 for $500,000
coverage.
(2) Matching contributions made pursuant to the Company's 401(k) plan.
(3) The Company enrolled Gary L. Borthwick in a split-dollar life insurance
program on February 1, 1993. The monthly premiums are $626.15 for $500,000
coverage.
(4) This amount consists solely of matching contributions made pursuant to the
Company's 401(k) plan. Mr. McHale's employment terminated on December 31,
1996. His severance payment, in the amount of $189,000, was accrued for
accounting purposes in 1996 but was not paid until January, 1997.
<PAGE>
Option Grants Table
The following table sets forth information regarding grants of stock
options made for the year ended December 31, 1996:
Percent of Total Exercise
Options Options Granted to Price
Name Granted (#) Employees in 1996 ($/Share) Expiration Date
----------------- ------------ ------------------ ---------- ----------------
Edward J. Quilty 150,000(1) 100% 2.50 May 22, 2007
__________________
(1) These options began vesting at a rate of 20% per year on May 22, 1996.
Aggregate Year End Option Value Table
The following table sets forth information regarding the aggregate number
and value of options held by the above executive officers as of December 31,
1996. No options have been exercised:
Value of Unexercised
Number of Shares In-The-Money Options
Underlying Unexercised at December 31, 1996
Options at December 31, 1996 ($)(1)
----------------------------- ---------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------------------- ----------- ------------- ----------- -------------
John T. Borthwick........ 20,000(2) 80,000 0 0
Gary L. Borthwick........ 10,000(2) 40,000 0 0
Donald F. McHale, RN .... 4,000(3) 0 0 0
20,000(4) 0 0 0
___________________
(1) Determined based on a fair market value for the Company's common stock at
December 31, 1996 of $2.00 per share.
(2) These options began vesting at a rate of 20% per year on January 1, 1996
and are exercisable at $2.31 per share.
(3) These options are exercisable at $3.60 per share and will expire on March
31, 1997 if not exercised.
(4) These options were granted in 1994 in the following amounts and exercise
prices: 10,000 at $4.50 per share; 20,000 at $5.00 per share and 20,000 at
$6.50 per share. All of these options were repriced by the Board of
Directors and are exercisable at $2.50 per share. If unexercised by March
31, 1997, these options will expire.
Employment Arrangements
The Company entered into a five-year employment agreement (the"Agreement")
with John T. Borthwick, its President and Chief Executive Officer, on December
29, 1995, and amended on March 5, 1997. The Agreement provides that Mr.
Borthwick will receive base compensation of $180,000 during the calendar years
1996, 1997 and 1998 and base compensation for the calendar years 1999 and 2000
to be determined by the Board of Directors upon the recommendation of the
Compensation Committee, together with such incentive and/or bonus compensation
as may be awarded upon the recommendation of the Compensation Committee of the
Board of Directors; provided, however, incentive and/or bonus compensation, if
any, shall be predicated upon the extent to which the Company attains its
earnings goals and the extent of Mr. Borthwick's contributions thereto. As
additional compensation, the Agreement grants Mr. Borthwick 100,000
non-qualified stock options, exercisable at a price of $2.31 per share, of which
20,000 are vested as of January 1, 1996 and the remaining 80,000 vest at a rate
of 20% per year. If the Company sells additional common stock during the term of
the Agreement in a transaction, or related series of transactions, the result of
which is to increase the number of shares of common stock outstanding by 40%,
then Mr. Borthwick will be granted such additional stock options, exercisable at
$2.31 per share, as may be necessary to enable him to purchase the same
percentage of outstanding common stock as he maintained prior to such sale or
issuance. In addition, in the event of a sale of substantially all of the stock
or assets of the Company, or a merger or consolidation of the Company in which
the Company is not the surviving entity, or upon the written agreement of the
Company to effect such sale, merger or consolidation, Mr. Borthwick will have
the option of completing the remaining term of his employment under the
Agreement or receiving severance compensation equal to his total compensation
accrued during the twelve-month period immediately preceding such sale, merger
or consolidation. Further, in the event of such sale, merger or consolidation:
(1) the stock options granted pursuant to the Agreement will become exercisable
in their entirety and will remain exercisable for a period of not less than
thirty (30) days; and (2) the promissory note between Mr. Borthwick and the
Company dated January 17, 1995 in the original principal amount of $99,530.34
will be forgiven. The Agreement further provides that Mr. Borthwick will receive
a severance payment of 100% of his total compensation accrued during the
twelve-month period immediately preceding the expiration of the Agreement if the
Company does not renew or extend the term of the Agreement upon expiration
thereof. The Agreement also provides that Mr. Borthwick will receive: (i) a
vehicle for use primarily (but not exclusively) in the conduct of Company
business, (ii) split-dollar life insurance in the face amount of $500,000, and
(iii) disability income insurance providing for payments of 50% of compensation.
Mr. Borthwick may not disclose any confidential information of the Company
during or after the term of the Agreement, and may not compete with the Company
during the term of the Agreement and for a period of one year thereafter.
The Company entered into a five-year employment agreement (the "Agreement")
with Gary L. Borthwick, its Vice President for Finance and Operations and Chief
Financial Officer, on December 29, 1995, and amended on March 5, 1997. The
Agreement provides that Mr. Borthwick will receive base compensation of $135,000
during the calendar years 1996, 1997 and 1998 and base compensation for the
calendar years 1999 and 2000 to be determined by the Board of Directors upon the
recommendation of the Compensation Committee, together with such incentive
and/or bonus compensation as may be awarded upon the recommendation of the
Compensation Committee of the Board of Directors; provided, however, incentive
and/or bonus compensation, if any, shall be predicated upon the extent to which
the Company attains its earnings goals and the extent of Mr. Borthwick's
contributions thereto. As additional compensation, the Agreement grants Mr.
Borthwick 50,000 non-qualified stock options, exercisable at a price of $2.31
per share, of which 10,000 are vested as of January 1, 1996 and the remaining
40,000 vest at a rate of 20% per year. If the Company sells additional common
stock during the term of the Agreement in a transaction, or related series of
transactions, the result of which is to increase the number of shares of common
stock outstanding by 40%, then Mr. Borthwick will be granted such additional
stock options, exercisable at $2.31 per share, as may be necessary to enable him
to purchase the same percentage of outstanding common stock as he maintained
prior to such sale or issuance. In addition, in the event of a sale of
substantially all of the stock or assets of the Company, or a merger or
consolidation of the Company in which the Company is not the surviving entity,
or upon the written agreement of the Company to effect such sale, merger or
consolidation, Mr. Borthwick will have the option of completing the remaining
term of his employment under the Agreement or receiving severance compensation
equal to his total compensation accrued during the twelve-month period
immediately preceding such sale, merger or consolidation. Further, in the event
of such sale, merger or consolidation: (1) the stock options granted pursuant to
the Agreement will become exercisable in their entirety and will remain
exercisable for a period of not less than thirty (30) days; and (2) the
promissory note between Mr. Borthwick and the Company dated January 17, 1995 in
the original principal amount of $84,436.11 will be forgiven. The Agreement
further provides that Mr. Borthwick will receive a severance payment of 100% of
his total compensation accrued during the twelve-month period immediately
preceding the expiration of the Agreement if the Company does not renew or
extend the term of the Agreement upon expiration thereof. The Agreement also
provides that Mr. Borthwick will receive: (i) split-dollar life insurance in the
face amount of $500,000, and (ii) disability income insurance providing for
payments of 80% of compensation. Mr. Borthwick may not disclose any confidential
information of the Company during or after the term of the Agreement, and may
not compete with the Company during the term of the Agreement and for a period
of one year thereafter.
The Company entered into a three-year employment agreement (the
"Agreement") with Robert P. 11, RPh, its Director of Regulatory Compliance and
Product Development, on December 29, 1995. The Agreement provides that Mr.
DiGiovine will receive base compensation of $75,000, $80,000 and $85,000 for the
calendar years 1996, 1997 and 1998, respectively, together with such incentive
and/or bonus compensation as may be awarded upon the recommendation of the
Compensation Committee of the Board of Directors; provided, however, incentive
and/or bonus compensation, if any, shall be predicated upon the extent to which
the Company attains its earnings goals and the extent of Mr. DiGiovine's
contributions thereto; provided, further, that such incentive and/or bonus
compensation shall not exceed 35% of Mr. DiGiovine's base compensation for that
year. In addition, as further compensation under the Agreement, the Company has
granted Mr. DiGiovine 15,000 non-qualified stock options which vest in three
installments during the period January 1, 1996 through January 1, 1998 at an
exercise price of $2.50 per share. In the event of the sale of substantially all
of the stock or assets of the Company, or upon the merger or consolidation of
the Company in which the Company is not the surviving entity, or upon the
written agreement of the Company to effect such sale, merger or consolidation,
Mr. DiGiovine will have the option of completing the remaining term of his
employment under the Agreement or receiving severance compensation equal to his
total compensation accrued during the twelve-month period immediately preceding
such sale, merger or consolidation. Further, in the event of such sale, merger
or consolidation the stock options granted pursuant to the Agreement will become
exercisable in their entirety and shall remain exercisable for a period of not
less than thirty (30) days. The Agreement further provides that Mr. DiGiovine
will receive a severance payment of 100% of his total compensation accrued
during the twelve-month period immediately preceding the expiration of the
Agreement if the Company does not renew or extend the term of the Agreement upon
expiration thereof. The Agreement also provides that Mr. DiGiovine will receive
disability income insurance providing for payments of 50% of compensation. Mr.
DiGiovine may not disclose any confidential information of the Company during or
after the term of the Agreement, and may not compete with the Company during the
term of the Agreement and for a period of one year thereafter.
The Company entered into a three-year employment agreement (the
"Agreement") with Edward J. Quilty, its Chairman of the Board, on August 1,
1996. The Agreement provides that Mr. Quilty will receive base salary of $75,000
per year, together with a $25,000 annual bonus and such additional incentive
compensation as may be awarded upon the recommendation of the Compensation
Committee of the Board of Directors; provided, however, additional incentive
compensation, if any, shall be predicated upon the extent to which the Company
attains its earnings goals and the extent of Mr. Quilty's contributions thereto.
As additional compensation, the Agreement grants Mr. Quilty 150,000
non-qualified stock options, exercisable at a price of $2.50 per share, of which
30,000 are vested as of May 22, 1996 and the remaining 120,000 vest at a rate of
20% per year. These options become 100% exercisable if Mr. Quilty becomes
disabled, the Agreement is terminated by the Company other than "for cause," the
Agreement is terminated by Mr. Quilty for the Company's breach, or in the event
of the sale of substantially all of the stock or assets of the Company, or upon
the merger or consolidation of the Company in which the Company is not the
surviving entity. If the Company sells additional common stock during the term
of the Agreement in a transaction, or related series of transactions, the result
of which is to increase the number of shares of common stock outstanding by 40%,
then Mr. Quilty will be granted such additional stock options, exercisable at
$2.50 per share, as may be necessary to enable him to purchase the same
percentage of outstanding common stock as he maintained prior to such sale or
issuance. In addition, in the event of the sale of substantially all of the
stock or assets of the Company, or upon the merger or consolidation of the
Company in which the Company is not the surviving entity, the Company shall pay
Mr. Quilty a severance payment equal to the greater of his salary for the
remaining term of the Agreement or $100,000. Mr. Quilty may not disclose any
confidential information of the Company during or after the term of the
Agreement, and may not compete with the Company during the term of the Agreement
and for a period of one year thereafter.
Consulting Arrangement
The Company entered into a five-year consulting agreement ("Agreement")
with Mary G. Clark, on March 14, 1994, pursuant to which Mrs. Clark serves the
Company as its Special Consultant for Scientific Affairs. The Agreement provides
that Mrs. Clark will receive annual compensation of $70,000 with compensation to
be adjusted from time to time by the President and Chief Executive Officer of
the Company. Effective April 1, 1996, compensation payable under the Agreement
is $99,000 per year. In addition, in the event of a sale of substantially all of
the stock or assets of the Company, or a merger or consolidation of the Company
in which the Company is not the surviving entity, Mrs. Clark will have the
option of completing the remaining term of the Agreement or receiving severance
compensation equal to her annual compensation. The Agreement further provides
that Mrs. Clark will receive a severance payment equal to her annual
compensation if the Company does not renew or extend the term of the Agreement
upon expiration thereof and disability income insurance providing for payments
of 50% of her annual compensation. Mrs. Clark may not disclose any confidential
information of the Company during or after the term of the Agreement, and may
not compete with the Company during the term of the Agreement and for a period
of one year thereafter.
Mrs. Clark serves as the Company's acting Director of Scientific Affairs.
In this capacity, she maintains primary responsibility for quality control,
product formulations, clinical studies and liaison with the Food and Drug
Administration.
CERTAIN TRANSACTIONS
The Company has entered into a five-year consulting agreement with its Vice
Chairman of the Board, founder and former President, Mary G. Clark. See
"Executive Compensation - Consulting Agreement." In 1996, annual compensation
under this agreement was $99,000.
The Company has entered into a five-year lease agreement with a
shareholder, Amos M. Clark, for the lease of its executive offices. The Company
can terminate the lease at any time upon giving six months notice. The annual
rental payment for 1996 was $43,200. Amos M. Clark is a former Vice President
and director of the Company and is the husband of Mary G. Clark.
PROPOSAL 2 - RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP as independent
certified public accountants for the Company for the year ended December 31,
1997. Ernst & Young LLP has served as the Company's auditors since 1990. The
ratification of the selection of independent certified public accountants is to
be voted upon at the Meeting. Representatives of Ernst & Young LLP are expected
to be present at the Meeting, will have the opportunity to make a statement if
they so desire to do so, and are expected to be available to respond to
appropriate questions.
The Board of Directors unanimously recommends that shareholders vote "FOR"
the ratification of the selection of Ernst & Young LLP as the Company's
independent certified public accountants for the year ended December 31, 1997.
OTHER BUSINESS
Management of the Company knows of no other business which will be
presented for consideration at the Meeting, but should any other matters be
brought before the Meeting, it is intended that the persons named in the
accompanying proxy will vote at their discretion.
SHAREHOLDER PROPOSALS
Any shareholder desiring to present a proposal to other shareholders at the
next Annual Meeting must transmit such proposal to the Company so that it is
received by the Company on or before January 17, 1998. All such proposals should
be in compliance with applicable regulations of the Securities and Exchange
Commission.
ANNUAL REPORT
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH BENEFICIAL HOLDER OF COMMON
STOCK ON THE RECORD DATE, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1996 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH REQUEST
SHOULD BE MADE IN WRITING TO THE CORPORATE SECRETARY, DERMA SCIENCES, INC., 121
WEST GRACE STREET, OLD FORGE, PENNSYLVANIA 18518.
By Order of the Board of Directors,
ROBERT P. DIGIOVINE
Secretary
March 31, 1997
<PAGE>
APPENDIX - PROXY CARD
DERMA SCIENCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Shareholders to be held on May 14, 1997
The undersigned hereby constitutes and appoints John T. Borthwick as proxy of
the undersigned to vote all of the shares of Derma Sciences, Inc. that the
undersigned may be entitled to vote at the Annual Meeting of Shareholders of
Derma Sciences, Inc. to be held at the Convention Hall, 1073 Oak Street,
Pittston Township, Pennsylvania, on May 14, 1997, at 10:00 a.m., and any
adjournments thereof. This proxy shall be voted on the proposals described in
the Proxy Statement as specified below.
The Board of Directors recommends a vote "FOR" each of the following:
1. ELECTION OF DIRECTORS
Election of nominees: John T. Borthwick, Mary G. Clark, RN, Herbert
Grossman, RPh, Laurence F. Lane and Edward J. Quilty. To withhold authority
to vote for an individual nominee, place a line through such nominee's
name.
____ FOR all nominees ____ WITHHOLD AUTHORITY for all nominees
2. RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS CERTIFIED PUBLIC
ACCOUNTANTS FOR THE YEAR ENDED DECEMBER 31, 1997
_____ FOR _____ AGAINST _____ ABSTAIN
(See reverse side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" PROPOSALS 1 AND 2. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY
TO VOTE WITH RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF THE MEETING AND THE
PROXY STATEMENT. The undersigned also hereby ratifies all that the proxy named
herein may do by virtue hereof and hereby confirms that this proxy shall be
valid and may be voted regardless of whether the undersigned's name is signed as
set forth below or a seal is affixed or the description, authority or capacity
of the person signing is given or other defect of signature exists.
_______________________________________________
Signature of Shareholder
_______________________________________________
Signature of Co-Owner
Dated: ___________________, 1997
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE. Please sign this proxy exactly as your
name appears in the address at left. If shares are
registered in more than one name, all owners should sign.
If you are signing in a fiduciary or representative
capacity, such as attorney-in-fact, executor, administrator,
trustee or guardian, please give full title and attach
evidence of authority. Corporations, please sign with full
corporate name by a duly authorized officer or officers and
affix the corporate seal. If a partnership, please sign in
partnership name by an authorized person.
I/WE PLAN TO ATTEND THE MEETING ______
