AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON February 10, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DERMA SCIENCES, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2328753
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(609) 514-4744
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Edward J. Quilty, Chairman
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(609) 514-4744
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications and notices to:
Raymond C. Hedger, Jr., Esq.
Hedger & Hedger
1800 Linglestown Road, Suite 206
Harrisburg, PA 17110
(717) 238-1800
Approximate date of commencement of proposed sale to public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed maximum offering Proposed maximum
Title of each class of Amount to be price per share aggregate offering price Amount of registration
securities to be registered registered fee
================================== =================== =========================== ========================= =======================
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share (1) 3,187,506 $0.63(2) $2,008,129 $ 558
- ---------------------------------- ------------------- --------------------------- ------------------------- -----------------------
Common Stock, $.01 par value per
share (3) 3,187,506 $0.63(2) $2,008,129 $ 558
- ---------------------------------- ------------------- --------------------------- ------------------------- -----------------------
Totals 6,375,012 $4,016,258 $1,116
================================== =================== =========================== ========================= =======================
</TABLE>
(1) To be offered and sold by selling shareholders upon conversion of Series B
Preferred Stock (the "Series B Preferred Stock") into Common Stock, $.01
par value per share. Pursuant to Rule 416 under the Securities Act, this
registration statement also relates to an indeterminate number of
additional shares of common stock which may be issuable upon conversion of
the Series B Preferred Stock to prevent dilution resulting from stock
splits, stock dividends and similar transactions.
(2) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act
based on the average of the high and low sale price for the common stock
as reported by the National Association of Securities Dealers Automated
Quotation System-SmallCap Market on February 8, 1999.
(3) To be offered and sold by selling shareholders upon exercise of certain
outstanding warrants (the "Warrants"). Pursuant to Rule 416 under the
Securities Act, this registration statement also relates to an
indeterminate number of additional shares of common stock which may be
issuable upon exercise of the Warrants to prevent dilution resulting from
stock splits, stock dividends and similar transactions.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
PROSPECTUS
DERMA SCIENCES, INC.
6,375,012 SHARES OF
COMMON STOCK
------------
The shareholders of our Company listed below ("Selling Shareholders")
are offering and selling 6,375,012 shares of common stock ("Shares") under this
prospectus. We will not receive any part of the proceeds from sales of the
Shares.
The Shares covered by this prospectus are issuable to the Selling
Shareholders under the terms of certain convertible preferred stock and warrants
to purchase common stock which we sold to the Selling Shareholders in a private
transaction. The Selling Shareholders will receive the Shares covered by this
prospectus if, and when, they voluntarily convert their preferred stock and
exercise their warrants.
The Selling Shareholders may offer their Shares at prevailing market
prices in public transactions on the Nasdaq SmallCap Market, the Boston Stock
Exchange or the Pacific Exchange, or in privately negotiated transactions. No
period of time has been fixed within which the Shares may be offered or sold.
Our common stock is quoted on: (1) the Nasdaq SmallCap Market trading
under the ticker symbol "DSCI", and (2) the Boston Stock Exchange and the
Pacific Exchange trading under the ticker symbol "DMS". On February 8, 1999 the
closing bid price for the common stock as reported by Nasdaq SmallCap Market was
$0.63.
----------
THESE SHARES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 10, 1999.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). You may read and copy such
reports, proxy statements and other information at the public reference
facilities maintained by the SEC at Room 1204, Judiciary Plaza, 450 Fifth
Street, N.W. Washington, D.C. 20549 and you can obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers, such as our Company, that file electronically with the SEC. Additional
information about our Company can also be found at our Web site at
http://www.dermasciences.com.
The SEC allows us to "incorporate by reference" the information from
the documents we file with them which means that we can disclose important
information to you by referring you to those documents. The information which we
incorporate by reference is part of this prospectus. Additional information that
we file with the SEC will automatically update previous information. We
incorporate the following documents by reference into this prospectus:
(a) Our Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 (the "Form 10-KSB").
(b) The Annual Report on Form 10-KSB for the fiscal year ended May
31, 1998 of our subsidiary, Genetic Laboratories Wound Care,
Inc.
(c) Our Company's Quarterly Reports on Forms 10-QSB for the quarters
ended March, 31, 1998, June 30, 1998 and September 30, 1998.
(d) Our Company's Current Reports on Forms 8-K, as amended, filed
February 12, 1998, February 19, 1998, April 16, 1998, May 13,
1998, June 10, 1998, July 9, 1998, July 13, 1998, September 23,
1998 and November 13, 1998.
(e) Our Company's definitive Proxy Statement for the Special Meeting
of Shareholders held January 7, 1998.
(f) Our Company's definitive Proxy Statement for the first Special
Meeting of Shareholders held September 9, 1998.
(g) Our Company's definitive Proxy Statement for the second Special
Meeting of Shareholders held September 9, 1998.
(h) Our Company's Registration Statement on Form S-4 filed July 17,
1998.
(i) The description of our Company's common stock contained in our
Company's Registration Statement on Form 8-A effective May 13,
1994.
(j) The description of our Company's Series B Convertible Preferred
Stock contained in the Proxy Statement referred to in paragraph
(g) above.
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<PAGE>
This prospectus is part of a Registration Statement we filed with the
SEC under the Securities Act of 1933, as amended (the "Securities Act"). As
permitted by the rules and regulations of the SEC, this prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. The statements contained in this prospectus as
to the contents of any contract or any other document are not necessarily
complete. We qualify any statement by reference to the copy of such contract or
document filed as an exhibit to the Registration Statement. If you would like a
copy of any document incorporated in this prospectus by reference (other than
exhibits unless such exhibits are specifically incorporated by reference in any
such document), you can call or write to us at our principal executive offices:
Attention: Stephen T. Wills, Vice President and Chief Financial Officer, at 214
Carnegie Center, Suite 100, Princeton, New Jersey 08540, telephone (609)
514-4744. We will provide this information upon written or oral request and
without charge to any person, including a beneficial owner, to whom a copy of
this prospectus is delivered.
All documents filed by our Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act after the date of this prospectus and prior to
the filing of a post-effective amendment to the Registration Statement which
indicates that all shares of common stock offered hereby have been sold, or
which deregisters all shares of common stock then remaining unsold, are
considered to be incorporated by reference into this prospectus from the date of
filing of such documents. Any statement contained in this prospectus or in a
document incorporated in this prospectus by reference will be considered
modified or replaced for purposes of this prospectus if the statement is
modified or replaced by a statement in a later document which also is
incorporated by reference in this prospectus.
We have not authorized any dealer, salesperson or other individual to
give any information or to make any representation not contained or incorporated
by reference in this prospectus. If you receive any such information or if any
such representations are made to you, you must not rely on such information or
representations as having been authorized by our Company. Also, you must not
consider that the delivery of this prospectus or any sale made hereunder implies
that there has been no change in the affairs of our Company since the date of
this prospectus or that the information contained in this prospectus is correct
or complete as of any time after the date of this prospectus.
This prospectus and any supplement to this prospectus do not
constitute an offer to sell or a solicitation of an offer to buy any securities
covered by this prospectus to any person in any jurisdiction in which such offer
or solicitation is unlawful.
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<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus carefully
before you decide to invest.
THE COMPANY
We develop, market and sell primarily proprietary sprays, ointments
and dressings for the management of certain chronic non-healing skin ulcerations
such as pressure, diabetic and venous ulcers, surgical incisions and burns. We
sell our products, both through our own direct sales force and through
independent distributors, primarily to the geriatric community such as extended
care facilities, hospitals and home healthcare agencies. Our products are
available throughout the United States and in selected international markets.
Our subsidiary, Genetic Laboratories Wound Care, Inc. ("Genetic
Labs"), markets and sells proprietary wound care products such as sterile
pressure sensitive adhesive wound closure strips, specialty pressure sensitive
adhesive fasteners and tubular net dressings. Genetic Labs sells its products,
both through our direct sales force and through its own distributors, to
hospitals, clinics and extended care facilities within and outside the United
States.
Our subsidiary, Sunshine Products, Inc. ("Sunshine"), manufactures,
markets and sells general purpose and specialized skincare products such as body
washes, shampoos, an incontinent wash, a moisture barrier ointment, skin
moisturizers and lotions, over-the-counter hand washes and sanitizers and a hard
surface disinfectant. Sunshine sells its products, both through our direct sales
force and through its own distributors, to hospitals, nursing homes and other
institutional facilities. Sunshine also manufactures private label cosmetic,
skincare and specialty products to customer specifications.
Our executive offices are located at 214 Carnegie Center, Suite
100, Princeton, New Jersey and our telephone number is (609) 515-4744.
THE OFFERING
Securities Offered. This prospectus relates to the offer and sale of
up to 6,375,012 shares of our common stock (the "Shares") by certain Selling
Shareholders. The Shares are issuable to the Selling Shareholders as follows:
(i) 3,187,506 of the Shares are issuable to the Selling Shareholders upon
conversion of the series B preferred stock ("Preferred Stock") into common
stock; and (ii) 3,187,506 of the Shares are issuable to the Selling Shareholders
upon exercise of warrants to purchase common stock at $1.35 per share
("Warrants"). See "Selling Shareholders."
4
<PAGE>
Securities Outstanding. We have the following securities outstanding:
Common stock (1)................................... 6,261,200 shares
Series A convertible preferred stock (2) ........... 1,750,000 shares
Series B convertible preferred stock (3) ........... 3,333,340 shares
Warrants to purchase common stock (4)............... 2,250,000
Warrants to purchase common stock (5)............... 3,333,340
Warrants to purchase common stock (6)............... 50,000
Options to purchase common stock (7)................ 2,408,828
(1) Common Stock, $.01 par value per share, authorized: 15,000,000 shares.
(2) Series A convertible preferred stock, $.01 par value per share,
authorized: 1,750,000 shares. Each share of series A convertible preferred
stock is convertible into common stock, on a one for one basis, at the
option of the holder.
(3) Series B convertible preferred stock, $.01 par value per share,
authorized: 3,333,340 shares. Each share of series B convertible preferred
stock is convertible into common stock, on a one for one basis, at the
option of the holder.
(4) Each warrant entitles its holder to purchase one share of common stock,
at a price of $.90 per share, at any time prior to November 15, 2001.
(5) Each warrant entitles its holder to purchase one share of common stock, at
a price of $1.35 per share, at any time prior to June 15, 2002.
(6) Each warrant entitles its holder to purchase one share of common stock, at
a price of $1.00 per share, at any time prior to August 2, 2001.
(7) These options entitle holders to purchase a total 2,408,828 shares of
common stock at prices ranging from $0.36 to $2.50 per share. These
options vest at varying rates and expire at various dates during the
period February 16, 2000 through February 1, 2009.
Use of Proceeds. We will not receive any proceeds from the sale of
the common stock sold by the Selling Shareholders.
Risk Factors. See "Risk Factors" for a discussion of certain risks
that you should consider when determining whether to invest in our Company.
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<PAGE>
RISK FACTORS
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK AND YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT.
REFERENCES IN THIS PROSPECTUS TO "WE" AND "OUR" INCLUDE, AS THE CONTEXT
REQUIRES, DERMA SCIENCES, INC. AND/OR OUR SUBSIDIARIES, GENETIC LABORATORIES
WOUND CARE, INC. AND SUNSHINE PRODUCTS, INC. CONSIDER CAREFULLY THESE RISK
FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS.
SOME OF THE INFORMATION IN THIS PROSPECTUS MAY CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND IS SUBJECT TO THE SAFE HARBOR CREATED BY
THAT SECTION. YOU CAN IDENTIFY SUCH STATEMENTS BY NOTING THE USE OF
FORWARD-LOOKING TERMS SUCH AS "BELIEVES," "EXPECTS," "PLANS," "ESTIMATES" AND
OTHER SIMILAR WORDS. CERTAIN RISKS, UNCERTAINTIES OR ASSUMPTIONS THAT ARE
DIFFICULT TO PREDICT MAY AFFECT SUCH STATEMENTS. THE FOLLOWING RISK FACTORS AND
OTHER CAUTIONARY STATEMENTS COULD CAUSE OUR ACTUAL OPERATING RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENT. WE CAUTION YOU
TO KEEP IN MIND THE FOLLOWING RISK FACTORS AND OTHER CAUTIONARY STATEMENTS AND
TO REFRAIN FROM PLACING UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS.
Depressive and Dilutive Effect of Outstanding Derivative Securities
- -------------------------------------------------------------------
Approximately 13,125,508 shares of our common stock are issuable upon
the conversion or exercise of outstanding derivative securities such as
convertible preferred stock, warrants and options. The price paid for our
convertible preferred stock ranges from $0.80 to $1.20 per share and the
exercise price of our options and warrants ranges from $0.36 to $2.50 per share.
The shares of common stock issuable upon conversion or exercise of derivative
securities are substantial compared to the 6,261,200 shares of common stock
currently outstanding. This may hinder the common stock from trading at levels
in excess of the conversion or exercise prices of our derivative securities.
At any time our common stock trades at prices in excess of the
price paid for our convertible preferred stock or in excess of the exercise
price of our warrants and options, it is possible that the owners of the subject
preferred stock, warrants and options would exercise their conversion or
purchase privileges. If this occurs, the number of shares of our outstanding
common stock could increase dramatically. This increase could, in turn, dilute
future earnings per share, if any, and have a depressive effect on the market
value of our common stock.
Currently, common stock issuable upon exercise or conversion of
derivative securities plus common stock outstanding exceed our authorized common
stock by 4,386,708 shares. Upon the occasion of our annual meeting of
shareholders to be held May 5, 1999, we intend to amend our corporate charter to
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<PAGE>
increase our authorized common stock to the amount necessary to satisfy
potential conversion and exercise of our derivative securities.
Our authorized common stock is 15,000,000 shares of which 8,738,800
remain unissued. We believe that our unissued shares will be sufficient to
satisfy any conversion or exercise of our derivative securities pending
authorization of additional common stock. See "The Offering - Securities
Outstanding" for a description of our outstanding common stock and derivative
securities.
Uncertainty Concerning Continued Nasdaq SmallCap Market Listing
- ---------------------------------------------------------------
Our common stock is listed, and trades almost exclusively, on the
Nasdaq SmallCap Market. The Nasdaq SmallCap Market requires, among other
conditions, that listed companies maintain a minimum bid price per share of at
least $1.00. Our common stock does not currently meet this requirement. Prior to
delisting our common stock, the Nasdaq Stock Market will give us the opportunity
to bring our stock price into compliance or propose a plan for achieving
compliance. However, we can not offer assurance that our common stock will
continue to be listed on the Nasdaq SmallCap Market.
If our common stock is delisted from the Nasdaq SmallCap Market, we
would seek to qualify our common stock for trading on the OTC Bulletin Board.
Although OTC Bulletin Board trades are reported on a "real time" basis, the OTC
Bulletin Board listing standards are less demanding than those of the Nasdaq
SmallCap Market. For this reason, OTC Bulletin Board companies tend to be newer,
smaller and less well capitalized than companies listed on the Nasdaq SmallCap
Market. As a result of these factors, investors may consider that OTC Bulletin
Board companies represent a greater investment risk than those listed on the
Nasdaq SmallCap Market.
Lack of Historical Profitability; Recent Losses; Accumulated Deficit
- --------------------------------------------------------------------
We earned income of $88,728 in 1994 and $75,347 in 1995. However, we
incurred losses of $1,436,265 in 1996 and $2,416,244 in 1997. For the nine
months ending September 30, 1998, we incurred a loss of $1,534,642 (unaudited)
and had an accumulated deficit of $5,061,700 (unaudited). Although we have taken
significant measures to increase sales revenues and profit margins, we cannot
offer you any assurance that these measures will be successful or that our
Company will return to profitability.
Volatility of Securities Prices
- -------------------------------
Historically, the market price of our common stock has been volatile.
Events that may affect our stock price include: (1) quarter to quarter
variations in our operating results, (2) changes in earnings estimates by
securities analysts, (3) changes in interest rates or other general economic
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<PAGE>
conditions, (4) changes in market conditions in the wound care industry, and
(5) the introduction of new products either by us or by our competitors.
Although all publicly traded securities are subject to price and
volume fluctuations, it is likely that our common stock will experience these
fluctuations to a greater degree than the securities of more established, and
better capitalized, organizations.
Lack of Dividends
- -----------------
We have not previously, and will not in the near future, pay any
dividends on our common stock. We plan to use our earnings, if any, to develop
and expand our business.
Government Regulation
- ---------------------
Our products are regulated by government agencies in the United
States and foreign countries. In the United States, the agency with primary
responsibility for regulating our products is the Food and Drug Administration
("FDA"). The FDA regulates among other things: (i) the content of our products,
(ii) the treatment indications on our product labels, (iii) the claims in our
product literature and advertising, and (iv) the manufacture of our products.
The FDA and other government agencies may in the future issue new
regulations, or issue new interpretations of existing regulations, which affect
the manufacture, marketing and sale of our products. Our operations may also be
affected if congress passes new legislation or if courts issue new rulings with
respect to existing legislation. We can offer no assurances that we will not be
adversely affected by new, or newly interpreted, regulatory requirements.
Healthcare Reimbursement
- ------------------------
Our sales partly depend on the ability of the users of our products
to obtain reimbursement for the cost of our products from government health
administration agencies and health insurance companies. These organizations
continuously seek to reduce healthcare costs. These cost reduction efforts may
adversely affect both the eligibility of our products for reimbursement and the
rate of such reimbursement. We cannot assure you that our products will continue
to eligible for reimbursement in the future or that the rate of reimbursement
will not be reduced.
Patents and Proprietary Technology
- ----------------------------------
We own patents, both in the United States and abroad, for our
Dermagran Spray, Dermagran Ointment, Dermagran II Moisturizing Spray and
Dermagran II Ointment. We rely upon the protection afforded by our patents and
trade secrets to protect the technology we develop or license. Our success may
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<PAGE>
depend upon our ability to protect our intellectual property. However, the
enforcement of intellectual property rights can be both expensive and time
consuming. Therefore, we may not be able to devote the resources necessary to
prevent infringement of our intellectual property. Also, our competitors may
develop or acquire substantially similar technologies without infringing our
patents or trade secrets. For these reasons, we can not be certain that our
patents and proprietary technology will provide us with a competitive advantage.
Dependence on Third Party Manufacturers
- ---------------------------------------
We and our Genetic Labs subsidiary do not manufacture our products
and do not intend to do so in the future. We believe that there are several
available manufacturers for each of our products. However, if a current
manufacturer were unable or unwilling to continue to manufacture our products,
distribution and sales of the affected products would be delayed for an
indefinite period.
Technological Change and Competition
- ------------------------------------
We operate in an industry where technological developments occur at a
rapid pace. We compete with a large number of established companies and
institutions many of whom have more capital, larger staffs and greater expertise
than our company. Our competitors may develop technologies and products that are
more effective than any that we currently have. If this occurs, our products and
technology could become obsolete.
Attraction and Retention of Key Personnel
- -----------------------------------------
Our success depends on our ability to attract and retain skilled
managerial, marketing and sales personnel. We face competition for such
personnel from other companies and institutions in our industry. Our Company is
smaller and we have fewer resources than many of our competitors. Therefore, we
may have difficulty successfully competing for the personnel required to achieve
future success.
Product Liability; Insurance
- ----------------------------
We sell pharmaceutical products and are exposed to the risk of
lawsuits claiming alleged injury caused by our products. Although we carry
product liability insurance, this insurance may not be adequate to reimburse us
for all damages which we could suffer as a result of successful product
liability claims. We are not aware of any pending product liability claims
against us. However, a successful product liability suit could materially
adversely affect our business.
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Control by Existing Shareholders
- --------------------------------
Following this offering, our current shareholders will continue to
have the ability to elect all of our directors and determine shareholder
actions.
Matters Relating to Year 2000
- -----------------------------
We have reviewed our exposure to damages that could result if our
internal computer systems do not correctly recognize date information when the
year changes to 2000 ("Y2K"). We have also contacted suppliers of our products
to determine whether our suppliers are Y2K compliant. Based upon our
investigations, we believe that the likelihood of a material adverse impact upon
our operations or financial position due to Y2K problems with our internal
systems or our suppliers' systems is remote.
USE OF PROCEEDS
All of the net proceeds from the sale of the Shares will go to the
Selling Shareholders who offer and sell their Shares. Accordingly, we will not
receive any proceeds from the sale of the Shares.
SELLING SHAREHOLDERS
We have agreed with the Selling Shareholders to register the
following Shares: (i) Shares to be issued to the Selling Shareholders upon
conversion of the Preferred Stock, and (ii) Shares to be issued to the Selling
Shareholders upon exercise of the Warrants. We also agreed to use our best
efforts to keep the registration statement effective until the earlier of July
8, 1999 or until the Shares may be publicly sold in accordance with SEC rules.
Our registration of the Shares does not necessarily mean that the Selling
Shareholders will sell all or any of the Shares.
The following table presents certain information regarding the
Selling Shareholders' ownership of our common stock. We determine each Selling
Shareholder's pre-offering ownership by assuming that all warrants held by such
Selling Shareholder have been exercised and all shares of convertible preferred
stock held by such Selling Shareholder have been converted into common stock. We
determine each Selling Shareholder's post-offering ownership by assuming that
all of the Shares offered hereby are sold. Except as noted, no Selling
Shareholder has had any position, office or other material relationship with our
Company, or any of its affiliates, during the past three years other than as an
owner of our securities:
10
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES TO BE OUTSTANDING SHARES
SHARES SHARES OWNED AFTER TO BE OWNED AFTER
NAME BENEFICIALLY OWNED OFFERED HEREBY OFFERING OFFERING
<S> <C> <C> <C> <C>
Steven Elms (1)......................................... 45,000 20,000 25,000 (*)
Kristin L. Enghauser (1)................................ 17,500 5,000 12,500 (*)
Edmond S. Farber........................................ 27,778 27,778 0 0.0%
Galen Employees Fund III, L.P. (2)...................... 22,252 16,566 5,686 (*)
Galen Partners III, L.P. (2)............................ 5,144,912 3,783,918 1,360,994 17.9%
Galen Partners International, III, L.P. (2)............. 499,506 366,186 133,320 2.1%
David Golden (1)........................................ 41,668 16,668 25,000 (*)
Hambrecht & Quist California (3)........................ 2,241,668 1,016,668 1,225,000 16.4%
Vivek Jain (4).......................................... 104,168 41,668 62,500 1.0%
Ronald M. Lazar......................................... 27,778 27,778 0 0.0%
Timothy McInnerney...................................... 83,334 83,334 0 0.0%
Anthony Polak........................................... 27,778 27,778 0 0.0%
Dennis J. Purcell (1)................................... 175,000 50,000 125,000 2.0%
RL Capital Partners L.P................................. 41,668 41,668 0 0.0%
Redwood Asset Management................................ 1,198,334 833,334 365,000 5.6%
John Rumsey............................................. 16,668 16,668 0 0.0%
------------ ------------ ------------
Total Shares................................. 9,715,012 6,375,012 3,340,000
</TABLE>
(1) This Selling Shareholder is employed by Hambrecht & Quist LLC. See
note (3).
(2) Srini Conjeevaram, a director of our Company, is a general partner of
Galen Associates. Galen Associates is the managing partner of Galen
Employee Fund III, L.P., Galen Partners III, L.P. and Galen Partners
International III, L.P.
(3) Hambrecht & Quist LLC, an affiliate of Hambrecht & Quist California,
provides investment banking services to our Company.
(4) Vivek Jain is employed by Hambrecht & Quist LLC and is the executive
primarily responsible for servicing our Company's Hambrecht & Quist
account.
(*) Less than one percent.
PLAN OF DISTRIBUTION
The Selling Shareholders may offer and sell the Shares in several
different ways, including: (i) in public transactions on the Nasdaq SmallCap
Market, the Boston Stock Exchange or the Pacific Exchange at prevailing market
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prices, (ii) in private transactions at prevailing market prices or negotiated
prices, or (iii) in any combination of the above transactions.
The Selling Shareholders may pledge their Shares as collateral for
margin accounts and the pledged Shares could be resold under the terms of the
accounts. Selling Shareholders may also engage in short sales, puts, calls and
other transactions with respect to the Shares and may sell and deliver Shares in
connection with these transactions. There are no restrictions upon either the
Selling Shareholders, their pledgees or transferees as to the number of Shares
which may be sold at any one time. Therefore, it is possible that a large number
of Shares could be offered or sold at the same time. If this occurs, it may have
a depressive effect on the market price of our common stock.
The Selling Shareholders may use broker-dealers to offer and sell
their Shares. Broker-dealers effecting transactions in the Shares will either
receive commissions from the Selling Shareholders or from purchasers for whom
they act as agents. The Selling Shareholders and any persons who participate in
the sale of the Shares may be considered "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any commissions or other compensation paid
to any such persons may be considered "underwriting compensation" under the
Securities Act.
Offers and sales of the Shares by the Selling Shareholders must be
accompanied by a copy of this prospectus. The Shares may be sold in certain
states only through registered or licensed brokers or dealers. Also, in certain
states the Shares may not be sold unless they have been registered or qualified
for sale in such states or an exemption from registration or qualification is
available.
LEGAL MATTERS
For the purposes of this offering, Hedger & Hedger, 1800 Linglestown
Road, Suite 206, Harrisburg, Pennsylvania, 17110, is giving its opinion on the
validity of the shares and certain legal matters pertaining to our Company.
EXPERTS
Our financial statements are incorporated in this prospectus by
reference from our Annual Report on Form 10-KSB for the year ended December 31,
1997. The financial statements of our Genetic Labs subsidiary are incorporated
in this prospectus by reference from the Annual Report on Form 10-KSB of Genetic
Laboratories Wound Care, Inc. for the fiscal year ended May 31, 1998. The
financial statements of our Sunshine subsidiary are incorporated in this
prospectus by reference from our Current Report on Form 8-K filed with the SEC
on November 13, 1998 and amended January 12, 1999. Our financial statements and
those of our Sunshine subsidiary have been audited by Ernst & Young LLP,
independent auditors, and have been incorporated by reference in this prospectus
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in reliance on the report of Ernst & Young LLP given on their authority as
experts in accounting and auditing. The financial statements of our Genetic Labs
subsidiary have been audited by McGladrey & Pullen, LLP, independent auditors,
and have been incorporated by reference in this prospectus in reliance on the
report of McGladrey & Pullen, LLP given on their authority as experts in
accounting and auditing.
13
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses (estimated except for the
registration fee) in connection with the Offering described in the Registration
Statement:
SEC registration fee ........................... $ 1,116
Accounting fees and expenses ................... 5,000
Legal fees and expenses ........................ 15,000
Printing expenses .............................. 2,500
Miscellaneous .................................. 1,000
---------
Total ...................................... $24,616
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law
of 1988 empower the Company, and the bylaws of the Company provide that it shall
have the power, to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in, or in the case of actions undertaken other than
in his official capacity, not opposed to, the best interest of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; except that, in the case of an action or suit
by or in the right of the Company, no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the court in which such action or
suit was brought shall determine that such person is fairly and reasonably
entitled to indemnity for proper expenses.
ITEM 16. EXHIBITS.
Exhibit Number Description
-------------- -----------
5 .............. Opinion of Hedger & Hedger regarding the
legality of the securities being registered
23.1 ........... Consent of Ernst & Young LLP
23.2............ Consent of McGladrey & Pullen, LLP
23.3 ........... Consent of Hedger & Hedger (included in its
opinion filed as Exhibit 5)
24 ............. Powers of Attorney (included in signature page
forming a part hereof)
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(l) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; notwithstanding the foregoing, any increase or decrease in volume of
II-1
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securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement; provided,
however, that paragraphs (l)(i) and (l)(ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, as amended, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the Registration Statement shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Princeton, State of New Jersey, on the 10th day of
February, 1999.
DERMA SCIENCES, INC.
By: /s/
-----------------------------------
Edward J. Quilty, Chairman of the Board
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Edward J. Quilty as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
/s/ Chairman of the Board and Director February 10, 1999
- --------------------- (Principal Executive Officer)
Edward J. Quilty
/s/ Vice President and Chief February 10, 1999
- --------------------- Financial Officer (Principal
Stephen T. Wills, CPA, MST Financial and Accounting
Officer)
/s/ Director February 10, 1999
- ---------------------
Laurence F. Lane
/s/ Director February 10, 1999
- ---------------------
Srini Conjeevaram
/s/ Director February 10, 1999
- ---------------------
Timothy J. Patrick
/s/ Director February 10, 1999
- ---------------------
Arthur A. Beisang
/s/ Director February 10, 1999
- ---------------------
John T. Borthwick
February 10, 1999
The Board of Directors
Derma Sciences, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Re: Registration Statement on Form S-3
Gentlemen:
We are counsel to Derma Sciences, Inc. (the "Company") in connection with the
Registration Statement on Form S-3 filed on February 10, 1999 (the "Registration
Statement") under the Securities Act of 1933, as amended, covering the resale by
certain of the Company's shareholders of up to 6,375,012 shares of the Company's
Common Stock, par value $.01 per share (the "Shares"), which shares are
currently issued or to be issued pursuant to the conversion of the Company's
Series B Convertible Preferred Stock (the "Preferred Stock") and the exercise of
warrants to purchase the Company's Common Stock (the "Warrants").
We have examined the originals, or certified, conformed or reproduction copies,
of such records, agreements, instruments and documents as we have deemed
relevant or necessary as the basis for the opinion hereinafter expressed. In all
such examinations, we have assumed the genuineness of all signatures on original
or certified copies and the conformity to original or certified copies of all
copies submitted to us as conformed or reproduction copies. As to various
questions of fact relevant to our opinion, we have relied upon, and assumed the
accuracy of, certificates and oral or written statements and other information
of or from public officials, officers or representatives of the Company and
others.
Based upon the foregoing, we are of the opinion that the Shares, including
therein those issued and to be issued upon conversion of the Preferred Stock and
exercise of the Warrants, are, or will be, as applicable, validly issued, fully
paid and non-assessable shares of Common Stock of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Opinion" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
HEDGER & HEDGER
/s/ Raymond C. Hedger, Jr.
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-00000) and related Prospectus of Derma
Sciences, Inc. for the registration of 6,375,012 shares of its common stock and
to the incorporation by reference therein of the following: (1) our report dated
February 18, 1998, with respect to the financial statements of Derma Sciences,
Inc. included in its Annual Report (Form 10-KSB) for the year ended December 31,
1997, filed with the Securities and Exchange Commission March 31, 1998, and (2)
our report dated October 9, 1998, with respect to the financial statements of
Sunshine Products, Inc. included in the Current Report (Form 8-K) of Derma
Sciences, Inc. filed November 13, 1998, with the Securities and Exchange
Commission and amended January 12, 1999.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 10, 1999
Consent of Independent Auditors
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated June 25, 1998 (July 7, 1998 as to note
7) which appears in the Annual Report on Form 10-KSB of Genetic Laboratories
Wound Care, Inc. for the year ended May 31, 1998. We also consent to the
reference to our firm under the caption "Experts" in the aforementioned
Registration Statement.
/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 10, 1999
