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 [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Derma Sciences, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[GRAPHIC OMITTED]
DERMA SCIENCES, INC.
NOTICE OF ANNUAL MEETING
and
PROXY STATEMENT
Annual Meeting of Shareholders
Hyatt Regency
U.S. 1 and Alexander Road
Princeton, New Jersey
May 17, 2000
<PAGE>
DERMA SCIENCES, INC.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(800) 825-4325
------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 17, 2000
------------------------------------------------------------
To the Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Derma
Sciences, Inc., a Pennsylvania corporation (the "Company"), will be held on May
17, 2000, at 10:00 a.m., at the Hyatt Regency, U.S. 1 and Alexander Road,
Princeton, New Jersey, for the following purposes:
1. To elect five directors for the year following the annual meeting or
until their successors are elected;
2. To consider and vote upon ratification of the appointment of Ernst &
Young LLP as the Company's independent certified public accountants
for the year ended December 31, 2000; 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 24, 2000,
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, 2000.
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,
EDWARD J. QUILTY
Chairman of the Board
<PAGE>
DERMA SCIENCES, INC.
214 Carnegie Center, Suite 100
Princeton, New Jersey 08540
(800) 825-4325
----------------------------------------
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 17, 2000, at the Hyatt Regency, U.S. 1 and
Alexander Road, Princeton, New Jersey, 08540, 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, 2000. 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 24, 2000, 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
1,409,272 shares of Common Stock, 272,500 shares of Series A Convertible
Preferred Stock, 583,334 shares of Series B Convertible Preferred Stock, 159,092
shares of Series C Convertible Preferred Stock and 148,149 shares of Series D
Convertible Preferred Stock outstanding and entitled to vote. The foregoing
shares of Common and Preferred 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 30, 2000.
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 reasonable out-of-pocket
expenses in connection with 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 the Record Date 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:
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Beneficial Owner (1) Beneficially Owned(12) Beneficially Owned(12)
- ---------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Srini Conjeevaram (2).................................. 2,651,496 65.30%
Hambrecht & Quist California (3)....................... 993,788 41.36%
Redwood Asset Management (4)........................... 573,562 30.57%
Edward J. Quilty (5)................................... 371,117 21.35%
Mary G. Clark, RN (6) ................................. 155,095 11.01%
Stephen T. Wills, CPA (7).............................. 135,920 8.84%
Richard S. Mink (8) ................................... 86,107 5.78%
John T. Borthwick (9).................................. 79,883 5.56%
Timothy J. Patrick (10)................................ 2,000 (*)
All directors and officers as a group (6 persons) (11) 3,481,617 74.40%
</TABLE>
- --------------------------
(1) Except as otherwise noted, the address of each of the persons listed
is: 214 Carnegie Center, Suite 100, Princeton, New Jersey 08540.
(2) Srini Conjeevaram is a general partner of the Galen III Partnerships. The
Galen III Partnerships can be reached at: 610 Fifth Avenue, Fifth Floor,
New York, New York 10020. Includes shares owned by Galen Partners III,
L.P., Galen Partners International III, L.P. and Galen Employee Fund III,
L.P. Ownership consists of: 125,000 shares of Class A Convertible
Preferred Stock ("Class A Preferred"); 75,000 warrants to purchase Common
Stock exercisable at $4.50 per share ("Class A Warrants"); 416,667 shares
of Class B Convertible Preferred Stock ("Class B Preferred"); 416,667
warrants to purchase Common Stock exercisable at $6.75 per share ("Class B
Warrants"); bonds convertible into 363,636 shares of Class C Convertible
Preferred Stock ("Class C Preferred") and 363,636 warrants to purchase
Common Stock exercisable at $1.10 per share ("Class C Warrants"); bonds
convertible into 444,445 shares of Class D Convertible Preferred Stock
("Class D Preferred") and 444,445 warrants to purchase Common Stock
exercisable at $1.01 per share ("Class D Warrants"); and exercisable
options to purchase 2,000 shares of Common Stock. No additional options to
purchase Common Stock will become exercisable within 60 days of the Record
Date.
(3) Hambrecht & Quist California can be reached at: One Bush Street, San
Francisco, California 94104. Ownership consists of: 122,500 shares of
Class A Preferred; 122,500 Class A Warrants; 101,667 shares of Class B
Preferred; 101,667 Class B Warrants; bonds convertible into 272,727 shares
of Class C Preferred and 272,727 Class C Warrants.
(4) Redwood Asset Management can be reached at: Ovre Ullorn Terrasse 32, 0358
Oslo, Norway. Ownership consists of: 106,334 shares of Common Stock;
50,000 Class A Warrants; 83,334 Class B Warrants; 68,182 shares of Class C
Preferred; 68,182 Class C Warrants; 98,765 shares of Class D Preferred;
and 98,765 Class D Warrants.
(5) Ownership consists of: 42,100 shares of Common Stock; 38,000 Class A
Warrants; 8,334 shares of Class B Preferred; 8,334 Class B Warrants;
45,455 shares of Class C Preferred; 45,455 Class C Warrants; 24,692 shares
of Class D Preferred; 24,692 Class D Warrants; and exercisable options to
purchase 134,055 shares of Common Stock. No additional options to purchase
Common Stock will become exercisable within 60 days of the Record Date.
(6) Ownership consists of: 155,095 shares of Common Stock.
(7) Ownership consists of 7,750 shares of Common Stock; 7,750 Class A
Warrants; 4,167 shares of Class B Preferred; 4,167 Class B Warrants;
22,728 shares of Class C Preferred; 22,728 Class C Warrants; 14,815 shares
of Class D Preferred; 14,815 Class D Warrants; and exercisable options to
purchase 37,000 shares of Common Stock. No additional options to purchase
Common Stock will become exercisable within 60 days of the Record Date.
2
<PAGE>
(8) Ownership consists of: 6,250 shares of Common Stock; 6,250 Class A
Warrants; 4,167 shares of Class B Preferred; 4,167 Class B Warrants;
13,637 shares of Class C Preferred; 13,637 Class C Warrants; and options
to purchase 38,000 shares of Common Stock. No additional options to
purchase Common Stock will become exercisable within 60 days of the Record
Date.
(9) Ownership consists of: 51,883 shares of Common Stock; and exercisable
options to purchase 28,000 shares of Common Stock. No additional options
to purchase Common Stock will become exercisable within 60 days of the
Record Date.
(10) Ownership consists of exercisable options to purchase 2,000 shares of
Common Stock. No additional options to purchase Common Stock will become
exercisable within 60 days of the Record Date.
(11) Ownership consists of: an aggregate of 3,240,562 shares of Common Stock,
Class A Preferred, Class B Preferred, Class C Preferred and Class D
Preferred; and options currently exercisable and exercisable within 60
days of the Record Date to purchase 241,055 shares of Common Stock.
(12) The number of shares beneficially owned and the percent beneficially owned
by each entity or individual assume the exercise of all exercisable
options (including those that would be exercisable within 60 days of the
Record Date), the conversion of all convertible bonds into units
consisting of warrants to purchase Common Stock and Convertible Preferred
Stock and the exercise of all warrants and the conversion into Common
Stock of all Convertible Preferred Stock owned by such entity or
individual. The percent beneficially owned is a fraction the numerator of
which is the number of shares of Common Stock beneficially owned by each
entity or individual and the denominator of which is the number of
outstanding shares of Common Stock plus the number of shares of Common
Stock which would be issued upon exercise by the subject entity or
individual of its/his/her own options and warrants, the conversion into
units of its/his/her own convertible bonds and the conversion into Common
Stock of its/his/her own Convertible Preferred Stock. This method of
computing the percent beneficially owned results in the aggregate
ownership percentages exceeding 100%.
(*) Less than one percent
PROPOSAL 1 - ELECTION OF DIRECTORS
A board of five directors will be elected at the Meeting by the
shareholders of the Company 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.
The nominees are listed below with brief statements of their principal
occupation and other information:
<TABLE>
<CAPTION>
Name of Nominee Age Director Since Principal Occupation
- --------------- --- -------------- --------------------
<S> <C> <C> <C>
Edward J. Quilty 49 March, 1996 Chairman of the Board and Chief Executive Officer of
the Company and Chairman of the Board of Palatin
Technologies, Inc.
Mary G. Clark 67 May, 1999 Founder of, and Special Consultant to, the Company
Srini Conjeevaram 41 May, 1998 General Partner and Chief Financial Officer of Galen
Associates
Timothy J. Patrick 41 February, 1998 President and Chief Executive Officer of Proxima
Therapeutics, Inc.
Stephen T. Wills 43 Nominee Vice President and Chief Financial Officer of the
Company
</TABLE>
3
<PAGE>
The term of office of each person elected as director will continue until the
Company's next Annual Meeting of Shareholders or until his or her successor has
been elected and qualifies.
Information Relative to Directors and Nominee
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 Palatin Technologies, 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 which was 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 degree from Southwest Missouri State University,
Springfield, Missouri in 1972 and a Master of Business Administration degree
from Ohio University, Athens, Ohio in 1987.
Mary G. Clark, RN has served as director of the Company since May,
1999. She founded the Company and has served as a Special Consultant for
Scientific Affairs to the Company since March, 1994. She served as Chairman of
the Board of the Company from February, 1991 through March, 1994 and Vice
Chairman from April, 1994 to May, 1998. 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 extensive clinical medical experience with
emphasis 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.
Srini Conjeevaram has served as director of the Company since May,
1998. Mr. Conjeevaram has been the General Partner and Chief Financial Officer
of Galen Associates, a healthcare venture capital firm, since January, 1991.
Prior to his affiliation with Galen Associates, he was an Associate in Corporate
Finance at Smith Barney from July, 1989 to December, 1990 and a Senior Project
Engineer for General Motors Corporation from April, 1982 to July, 1987. Mr.
Conjeevaram serves as a director of Halsey Drug Company, Inc., a publicly traded
company. He earned a Bachelor of Science degree in Mechanical Engineering from
Madras University, Madras, India, a Master of Science degree in Mechanical
Engineering from Stanford University, Stanford, California and a Master of
Business Administration in Finance from Indiana University, Bloomington,
Indiana.
Timothy J. Patrick has served as director of the Company since February,
1998. Mr. Patrick has been the President and Chief Executive Officer of Proxima
Therapeutics, Inc., a medical device company developing proprietary
site-specific delivery systems for the treatment of solid tumors, since April,
1996. He previously served as President of Gesco International, a subsidiary of
MedChem Products that manufactured and marketed PICC vascular access catheters,
from July, 1994 to January, 1996. Mr. Patrick served McGaw, Inc. for 13 years in
various sales executive positions the last of which was President of Central
Admixture Pharmacy Services, a business unit of McGaw, Inc. that provided
patient-specific intravenous solution products to hospitals and home care
companies. Mr. Patrick earned a Bachelor of Arts degree in Biology from Miami
University, Oxford, Ohio in 1981.
Stephen T. Wills, CPA, MST is a nominee for director of the Company. He has
served as Chief Financial Officer of the Company since July, 1997 and Vice
President since November, 1997. Mr. Wills also serves as President and Chief
Operating Officer of Golomb, Wills & Company, PC, a public accounting firm, and
as Vice President and Chief Financial Officer of Palatin Technologies, Inc., a
publicly traded biopharmaceutical company. Mr. Wills is a member of the American
Institute of Certified Public Accountants, New Jersey Society of Certified
Public
4
<PAGE>
Accountants and Pennsylvania Institute of Certified Public Accountants. He
earned a Bachelor of Science degree in Accounting from West Chester University,
West Chester, Pennsylvania in 1979 and a Master of Science in Taxation from
Temple University, Philadelphia, Pennsylvania in 1994.
Compensation of Directors
Outside directors are entitled to an annual retainer of $12,000. Each
outside director may elect, with respect to any calendar year, to receive his or
her retainer in options to purchase Common Stock of the Company. Upon such
election, each electing director will receive options to purchase that number of
shares of Common Stock of the Company determined by dividing $24,000 by the
Common Stock's fair market value. For a given calendar year, the Common Stock's
fair market value is the lowest average between the Common Stock's bid and asked
prices quoted on the Nasdaq SmallCap Market during the period from December 1
through December 15 of the immediately preceding calendar year.
All directors are reimbursed for expenses incurred in connection with
each board and committee meeting attended. Inside directors receive no
compensation for their services as directors.
Mary G. Clark has a consulting agreement with the Company. See Certain
Transactions.
Board Committees
The Company maintains an Audit Committee that is composed of Timothy J.
Patrick and Srini Conjeevaram. The Audit Committee reviews the results and scope
of the audit and the financial recommendations provided by the Company's
independent auditors. The Audit Committee held one meeting in 1999.
The Company maintains a Compensation Committee that is composed of
Edward J. Quilty, Timothy J. Patrick and Srini Conjeevaram. The Compensation
Committee reviews the compensation of management and recommends to the Board of
Directors the amounts and types of cash and equity incentives to be offered to
management. The Compensation Committee held five meetings in 1999.
The Company maintains a Nominating Committee that is composed of Edward
J. Quilty and Timothy J. Patrick. 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 1999.
The Company will consider nominations for directors submitted by
shareholders. Shareholder nominations for election to the Board of Directors
must be made by written notification received by the Company 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
5
<PAGE>
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 1999, there were six meetings of the Board of Directors.
The Board of Directors unanimously recommends that shareholders vote
"FOR" the election as directors of the nominees listed above.
EXECUTIVE OFFICERS
The executive officers of the Company are:
<TABLE>
<CAPTION>
Executive Officer
Name Age Positions with the Company of the Company Since
---- --- -------------------------- --------------------
<S> <C> <C> <C>
Edward J. Quilty 49 Chairman of the Board of Directors May, 1996
Richard S. Mink 47 Vice President and Chief Operating Officer April, 1997
Stephen T. Wills 43 Vice President and Chief Financial Officer July, 1997
</TABLE>
Additional information relative to Edward J. Quilty and Stephen T.
Wills, CPA, MST is included in the preceding pages under "Election of
Directors."
Richard S. Mink has served as Vice President and Chief Operating
Officer of the Company since November, 1997 having previously served as its Vice
President for Marketing since April, 1997. Prior to joining the Company, Mr.
Mink was Senior Vice President/General Manager, Marketing Information Services
Division of Bio Imaging Technologies, Inc., a medical image data and information
management company, from November, 1996 to April, 1997. He was a self-employed
marketing consultant from May, 1995 to October, 1996, Executive Vice President
for Sales and Marketing for MedChem, Inc. from August, 1994 to May, 1995, Vice
President for Sales and Marketing for Life Medical Sciences from July, 1993 to
August, 1994, and had risen to the position of Director of Marketing for Becton
Dickinson Company during his tenure there from August, 1977 to July, 1993.
During May, 1996 through April, 1997, Mr. Mink was a member of the New Jersey
Technology Council Healthcare Advisory Board. He earned a Bachelor of Science
degree in Biology/Chemistry and a Master of Business Administration degree from
Rutgers University, Newark, New Jersey in 1975 and 1977, respectively.
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
Chairman, Chief Financial Officer and each of the Company's executive officers
whose compensation exceeded $100,000 for their services in all capacities during
the years 1997, 1998 and 1999:
6
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
------------------- All Other
Name and Principal Position Year Salary Bonus Options (#)* Compensation
- --------------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward J. Quilty 1999 $150,000 $25,000 -- --
Chairman and Chief Executive Officer 1998 $150,000 $25,000 76,055(1) --
1997 $149,986 -- 60,000(2) --
Richard S. Mink 1999 $160,500 -- -- --
Vice President and 1998 $157,875 $ 6,000 -- --
Chief Operating Officer 1997 $100,961 $25,000(3) 40,000 --
Stephen T. Wills, CPA, MST 1999 $109,500(4) -- 32,000 --
Vice President and 1998 $100,000(4) -- -- --
Chief Financial Officer 1997 $ 85,000(5) -- 15,000 --
John T. Borthwick (6) 1999 $180,000 -- -- $ 9,962(7)
Vice President for Sales 1998 $180,000 -- -- $ 9,962(7)
1997 $180,000 -- 10,000 $ 9,962(7)
Charles F. Caudell, III (8) 1999 $160,500 -- -- --
Former Executive Vice President for 1998 $157,875 $ 6,000 -- --
Field Operations 1997 $100,961 -- 40,000 --
</TABLE>
- ------------------------
* All options have been adjusted to effect the Company's 5-for-1 stock split
effective August 2, 1999.
(1) Options issued pursuant to the anti-dilution provisions of Mr. Quilty's
employment agreement.
(2) Includes 30,000 options originally granted in 1996 and repriced by the
Executive Committee of the Board of Directors on April 8, 1997.
(3) Sign-on bonus.
(4) Does not include payments made to an affiliate of Mr. Wills, Golomb, Wills
& Company, PC. See Certain Transactions below.
(5) Represents compensation earned during the period July through December,
1997.
(6) Mr. Borthwick resigned as Chief Executive Officer and President in May,
1997 and November, 1997, respectively.
(7) The Company enrolled Mr. Borthwick in a split-dollar life insurance program
on July 1, 1993. The monthly premiums are $830.18 for $500,000 coverage.
(8) Mr. Caudell resigned in August, 1999. Of the compensation shown for 1999,
$60,188 represents severance payments.
Option Grants Table
The following table sets forth information regarding grants of stock
options to the following named executive officer made during the year ended
December 31, 1999:
<TABLE>
<CAPTION>
Percent of Total Exercise
Options Options Granted to Price
Name Granted (#) Employees in 1999 ($/Share) Expiration Date
<S> <C> <C> <C> <C>
Stephen T. Wills 12,000 (1) 50.0% $6.00 March 16, 2009
20,000 (2) 50.0% $6.00 December 14, 2008
</TABLE>
- -------------------
(1) Options are 100% vested.
7
<PAGE>
(2) Options vest at the rate of 25% per year commencing February 1, 1999. See
Employment Arrangements below.
Aggregate Year End Option Value Table
The following table sets forth information regarding the aggregate
number and value of options to purchase Common Stock held by the named executive
officers as of December 31, 1999. No options have been exercised:
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at December 31, 1999 (#) At December 31, 1999 ($)(1)
-------------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
132,055 4,000 0 0
Edward J. Quilty ...................
Richard S. Mink .................... 36,000 4,000 0 0
Charles F. Caudell, III ............ 36,000 4,000 0 0
Stephen T. Wills, CPA............... 37,000 10,000 0 0
John T. Borthwick .................. 26,000 4,000 0 0
</TABLE>
- -------------------
(1) Determined based on the fair market value for the Company's Common Stock at
December 31, 1999 of $2.0625 per share.
Employment Arrangements
Edward J. Quilty
The Company employs Edward J. Quilty, its Chairman and Chief Executive
Officer, under an oral agreement (the "Agreement") providing for compensation at
the rate of $175,000 per year. The Agreement is subject to termination by the
Company or Mr. Quilty at any time and for any reason.
Richard S. Mink
The Company entered into an employment agreement on May 7, 1999 (the
"Agreement") with Richard S. Mink, its Vice President and Chief Operating
Officer. The Agreement continues for an indefinite term and can be cancelled by
either party upon thirty days notice. The Agreement provides that Mr. Mink
receive the following: (1) base compensation of $160,500 per year, and (2)
incentive compensation as determined by the Company's Board of Directors upon
recommendation of the Chairman and Chief Executive Officer.
The Agreement further provides that if the Agreement is terminated by
the Company other than "for cause," Mr. Mink will receive severance pay equal to
one year's base salary and the period for Mr. Mink to exercise previously
granted stock options will be extended to the earlier of three years from the
termination date or the original expiration date of said options.
Stephen T. Wills, CPA, MST
The Company entered into an employment agreement on February 1, 1999
(the "Agreement") with Stephen T. Wills, CPA, MST, its Vice President and Chief
Financial Officer. The Agreement continues for an indefinite term and can be
cancelled by either party upon thirty days notice. The Agreement provides that
Mr. Wills receive the following: (1) base salary of $102,000 per year, together
with incentive compensation as may be awarded upon the
8
<PAGE>
recommendation of the Chairman and approved by the Board of Directors; and (2)
20,000 non-qualified stock options, exercisable at $6.00, which options become
exercisable in 5,000 increments on February 1, 1999, December 15, 1999, December
15, 2000 and December 15, 2001. These options become 100% exercisable upon a
change in ownership of in excess of 75% of the Company or the sale by the
Company of substantially all of its assets. Upon termination of the Agreement by
the Company without cause, the Company will pay Mr. Wills a severance payment
equal to his salary for one year and will extend the period to exercise the
options granted under the Agreement to the earlier of five years or December 14,
2008.
John T. Borthwick
The Company entered into a five-year employment agreement on December
29, 1995, as amended on March 5, 1997, (the "Agreement") with John T. Borthwick,
its Director of Business Development and former President and Chief Executive
Officer. 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; provided, however, incentive
and/or bonus compensation, if any, will 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 20,000 non-qualified stock options, exercisable at a price of $11.25
per share, of which all were vested as of January 1, 2000.
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%,
the Agreement provides that Mr. Borthwick will then be granted such additional
stock options, exercisable at $11.55 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 base compensation earned 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 base compensation earned 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.
Stock Option Plan
The Company adopted the Stock Option Plan, (the "Plan") in July 1991,
and amended the Plan in January, 1994, November 21, 1995 and July 14, 1998. The
number of shares of common stock reserved for issuance pursuant to the Plan is
300,000 shares. The Plan authorizes the Company to grant two types of equity
incentives: (i) options intended to qualify as "incentive stock options"
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and (ii) non-qualified stock options ("NQSOs"). The Plan authorizes
options to be granted to directors, officers, key employees and consultants of
the Company, except that ISOs may be granted only to employees. The Plan is
administered by a committee of disinterested directors designated by the Board
of Directors (the "Compensation Committee"). Subject to the provisions of the
Plan, the Compensation Committee determines
9
<PAGE>
who is eligible to receive stock options, together with the nature, amount,
timing, exercise price, vesting schedule and all other terms and conditions of
the options to be granted.
Under the Plan, ISOs and NQSOs may have a term of up to ten years.
Stock options are not assignable or transferable except by will or the laws of
descent and distribution. Stock options granted under the Plan which have lapsed
or terminated revert to the status of "unissued" and become available for
reissuance.
At December 31, 1999, options to purchase 76,200 shares of the
Company's common stock at prices ranging from $4.00 to $5.625 per share had been
granted under the Plan.
CERTAIN TRANSACTIONS
The Company employs the accounting firm of Golomb, Wills & Company, PC
for various tax and financial planning services. Stephen T. Wills, CPA, MST,
Vice President, Chief Financial Officer and nominee for director of the Company,
is a principal of Golomb, Wills & Company, PC. Payments to Golomb, Wills &
Company, PC during 1998 and 1999 totaled $175,500 and $18,035, respectively.
The Company has an oral consulting agreement with its founder, director
and former President, Mary G. Clark, RN. In 1999 compensation under this
agreement was $64,292.
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,
2000. 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 will attend the Meeting and will
have the opportunity to make a statement if they desire to do so. These
representatives will also 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, 2000.
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, 2001. All such proposals should
be in compliance with applicable regulations of the Securities and Exchange
Commission.
10
<PAGE>
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, 1999 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH REQUEST
SHOULD BE MADE IN WRITING TO THE CORPORATE SECRETARY, DERMA SCIENCES, INC., 214
CARNEGIE CENTER, SUITE 100, PRINCETON, NEW JERSEY 08540.
By Order of the Board of Directors,
EDWARD J. QUILTY
Chairman of the Board
March 30, 2000
<PAGE>
[FORM OF PROXY CARD]
DERMA SCIENCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Annual Meeting of Shareholders to be held on May 17, 2000
The undersigned hereby constitutes and appoints Edward J. Quilty 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 Hyatt Regency, U.S. 1 and Alexander Road,
Princeton, New Jersey on May 17, 2000, 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: Edward J. Quilty, Mary G. Clark, RN, Srini Conjeevaram,
Timothy J. Patrick and Stephen T. Wills, CPA, MST. 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, 2000
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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" ALL NOMINEES AND "FOR" PROPOSAL 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.
<PAGE>
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: ____________________ , 2000
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 the 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. If a
partnership, please sign in partnership name by an
authorized person.
[ ] I/WE PLAN TO ATTEND THE MEETING
