<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule
14a- 12
..........Transderm Laboratories Corporation..............
(Name of Registrant as Specified in Its Charter)
..........Transderm Laboratories Corporation...............
(Name of Person(s) Filing Proxy Statement)
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 material:
..................................................
<PAGE>
[ ] 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>
<PAGE>
TRANSDERM LABORATORIES CORPORATION
1212 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held May 12, 1998
To the Stockholders of Transderm Laboratories Corporation:
Notice is hereby given that the Annual Meeting of
Stockholders of Transderm Laboratories Corporation (the
"Company") will be held at the Boardroom of the American
Stock Exchange, 86 Trinity Place, New York, New York, on
May 12, 1998, at 11:30 A.M. (local time) for the following
purposes:
1. To elect nine directors.
2. To transact any such other business as may come
before the meeting or any adjournment or adjournments
thereof.
The Board of Directors has fixed the close of business
on April 2, 1998 as the record date for determining
stockholders entitled to notice of and to vote at the
meeting.
A proxy and return envelope are enclosed for your
convenience.
By Order of the Board of Directors
Robert D. Speiser,
President
April 7, 1998
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
A RETURN ENVELOPE REQUIRING NO POSTAGE IF MAILED IN THE
UNITED STATES IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE>
<PAGE>
TRANSDERM LABORATORIES CORPORATION
1212 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK, 10036
-----------------
PROXY STATEMENT
-----------------
This Proxy Statement is furnished to the stockholders
of Transderm Laboratories Corporation, a Delaware
corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors for use
at the annual meeting of stockholders of the Company (the
"Meeting") to be held on May 12, 1998 and any adjournment
or adjournments thereof. A copy of the notice of meeting
accompanies this Proxy Statement. It is anticipated that
the mailing of this Proxy Statement and the enclosed proxy
will commence on April 9, 1998.
Only stockholders of record at the close of business
on April 2, 1998, the record date for the Meeting, will be
entitled to notice of and to vote at the Meeting. On the
record date, the Company had outstanding for purposes of
voting at the Meeting 40,000,000 shares of common stock,
par value $.001 per share (the "Common Stock").
Directors of the Company are elected by a plurality
vote of the outstanding shares of Common Stock present and
entitled to vote at the Meeting. Action on any other
matter is approved by a majority vote of the outstanding
shares of Common Stock present and entitled to vote at the
Meeting. Health-Chem Corporation ("Health-Chem"), the
owner of 90% of the Company's Common Stock, (indirectly
through its wholly owned subsidiary, Herculite Products,
Inc. ("Herculite")) has indicated its intention to vote for
the nine nominees for the Board of Directors named herein,
thereby assuring the election of these nominees. See
"Security Ownership of Certain Beneficial Owners and
Management."
Stockholders who execute proxies may revoke them by
giving written notice to the Secretary of the Company at
any time before such proxies are voted or by submitting a
duly executed proxy bearing a later date. Attendance at
the Meeting shall not have the effect of revoking a proxy
unless the stockholder so attending shall, in writing, so
notify the Secretary of the Meeting at any time prior to
the voting of the proxy.
<PAGE>
The Board of Directors does not know of any matter
that is expected to be presented for consideration at the
Meeting other than as is described in this Proxy Statement.
However, if other matters properly come before the Meeting,
the persons named in the accompanying proxy intend to vote
thereon in accordance with their judgment.
All proxies received pursuant to this solicitation
will be voted except as to matters where authority to vote
is specifically withheld and, where a choice is specified
as to the proposal, they will be voted in accordance with
such specification. If no instructions are given, the
proxy will be voted for the nominees for election as
directors of the Company listed below. Abstentions and
broker non-votes will each be counted as present for
purposes of determining the presence of a quorum but will
not be treated as votes cast for purposes of any of the
matters to be voted on at the meeting.
The address of the Company's principal executive
office is 1212 Avenue of the Americas, New York, New York
10036.
<PAGE>
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The By-laws of the Company provide that the Board of
Directors may, from time to time, fix the number of
directors constituting the Board of Directors to be not
less than two and not more than ten. The Board of
Directors currently consists of nine members. At the
Meeting, nine directors are to be elected to serve until
the next annual meeting of stockholders or until their
respective successors are elected and qualified. Set forth
below are the names of the nominees for director, their
ages, principal occupations and professional experience for
at least the previous five years. All of the nominees are
currently directors of the Company. It is the intention of
the persons named in the enclosed proxy to vote for the
election as directors of the persons named in the table
below unless a contrary direction is indicated on the
enclosed proxy. If any such nominee should become
unavailable for any reason, which the Board of Directors
has no reason to anticipate, the persons named in the
enclosed proxy reserve the right to substitute another
person of their choice in his or her place. The holders of
Common Stock are entitled to one vote per share. The
election of each director will require the affirmative vote
of a plurality of the votes cast at the Meeting.
Name Age(1) Principal Occupation
Thomas J. Atkins, Ph.D. 51 Vice President of the
Company and Vice
President-Research and
Development of Hercon
Laboratories Corporation
Joyce F. Brown, Ph.D. 51 Psychologist and
Professor of Clinical
Psychology at the
Graduate School and
University Center of The
City University of New
York
Michael J. Campbell 42 Senior Vice President
and Senior Creative
Director of Battan,
Barton, Durstin &
Osbourne
<PAGE>
Name Age(1) Principal Occupation
David N. Dinkins 70 Professor in the
Practice of Public
Affairs at the Columbia
University School of
International and Public
Affairs
Ester R. Fuchs, Ph.D. 46 Director of The Barnard-
Columbia Center for
Urban Policy of Columbia
University
Donald E. Kauffman, Jr. 43 Vice President of the
Company and Vice
President-Manufacturing
of Hercon Laboratories
Corporation
Murray Lieber 59 Vice President of the
Company and Vice
President-Marketing of
Hercon Laboratories
Corporation
Marvin M. Speiser(2) 72 President of Health-Chem
Corporation
Robert D. Speiser(2) 44 President and Chief
Executive Officer of the
Company and Hercon
Laboratories Corporation
and Executive Vice
President of Health-Chem
Corporation
(1) Age as of March 1, 1998.
(2) Marvin M. Speiser is the father of Robert D. Speiser.
The following are summaries of the business experience
during at least the last five years of each of the persons
nominated for election as a director of the Company.
Thomas J. Atkins, Ph.D. has been Vice President and a
director of the Company and Vice President-Research and
Development of the Company's 98.5% owned subsidiary Hercon
Laboratories Corporation ("Hercon Laboratories") since
March 1996. Prior to joining Hercon Laboratories and since
1995, Dr. Atkins served as Vice President, Research and
<PAGE>
Development for Medisorb Technologies International, L.P.
("Medisorb"). From 1988 to 1994, he served as Director,
Polymer Research and Drug Delivery Systems for Stolle
Research & Development Corporation ("Stolle"). Both
Medisorb and its parent, Stolle, are engaged in research
and manufacturing of controlled release drug delivery
systems. Dr. Atkins is the author of numerous publications
and the named inventor on numerous United States and
foreign patents.
Joyce F. Brown, Ph.D., has served as a director of the
Company since July 1995. Dr. Brown is a psychologist and
has served as a professor of Clinical Psychology at the
Graduate School and University Center of The City
University of New York since January 1994. From January
1993 to December 1993, Dr. Brown served as Deputy Mayor for
Public and Community Affairs for The City of New York.
Prior thereto, Dr. Brown held a number of senior
administrative posts at The City University of New York
including serving as Acting President of Baruch College,
Vice Chancellor for Student Affairs and Urban Programs and
Vice Chancellor for Urban Affairs and Development.
Michael J. Campbell has served as a director of the
Company since July 1995. Mr. Campbell is Senior Vice
President and Senior Creative Director of the advertising
firm Battan, Barton, Durstin & Osbourne ("BBDO"). Mr.
Campbell has been with BBDO since 1986.
David N. Dinkins has served as a director of the
Company since April 1996. Mr. Dinkins has served as a
Professor in the Practice of Public Affairs at the School
of International and Public Affairs at Columbia University
since 1994. The 106th Mayor of the City of New York, from
1990 to 1993, Mr. Dinkins served as President of the
Borough of Manhattan from 1986 to 1989. He served as New
York City Clerk from 1975 to 1985 and as President of the
New York City Board of Elections from 1972-1973. Mr.
Dinkins began his career in public service in 1966 in the
New York State Assembly. Mr. Dinkins maintained a private
law practice from 1956 to 1975.
Ester R. Fuchs, Ph.D., has served as a director of the
Company since July 1995. Dr. Fuchs is the Director of The
Barnard-Columbia Center for Urban Policy of Columbia
University. Dr. Fuchs has served as Associate Professor in
the Department of Political Science at Barnard College,
Columbia University and a member of the graduate faculty of
Columbia University's Department of Political Science and
School of International and Public Affairs since 1992. For
ten years prior thereto, Dr. Fuchs served as an Assistant
Professor at Barnard.
<PAGE>
Donald E. Kauffman, Jr. has been Vice President and a
director of the Company since July 1995 and Vice President-
Manufacturing of Hercon Laboratories since July 1987. Mr.
Kauffman joined Hercon Laboratories in June 1976 and has
served in various positions prior to becoming Vice
President.
Murray Lieber has been Vice President and a director
of the Company since July 1995 and Vice President-Marketing
of Hercon Laboratories since June 1992. From September
1989 to June 1992, he was Vice President, Account
Supervisor at Klemtner Advertising, a pharmaceutical
advertising agency. Mr. Lieber was Vice President of
Diversified Health Affiliates, Inc., a pharmaceutical and
health care consulting firm, from January 1988 to September
1989. Prior thereto, Mr. Lieber held positions in
marketing and business development at companies including
Berlex Laboratories (a division of Schering AG), Roche
Laboratories, and Warner Chilcott Laboratories (a division
of Warner Lambert Company).
Marvin M. Speiser has served as President and Chairman
of the Board of Directors of Health-Chem since January
1969. He has been a director of the Company since its
inception.
Robert D. Speiser has served as President and a
director of the Company since its inception on April 7,
1989. He has also been the Executive Vice President of
Health-Chem since April 1, 1994 and President of Hercon
Laboratories since May 1990. From October 1986 to March
1994, he served as Senior Vice President of Health-Chem.
Mr. Speiser also served as President of Union Broach
Corporation, a former Health-Chem subsidiary, from January
1983 through November 1993. Prior to 1986, he served as
Vice President of Health-Chem. Mr. Speiser is an attorney.
Directors' Fees, Committees and Meetings
The Company does not compensate its employee directors
for services rendered as directors. Non-employee directors
receive $1,250 per month and an additional fee of $500 for
each meeting of the Board of Directors attended and $500
for each committee meeting attended that is independently
scheduled. Non-employee directors were also reimbursed for
expenses incurred in attending such meetings.
<PAGE>
During 1997, the Board of Directors held four
meetings. During such period no director participated in
fewer than 75% of the aggregate of the number of meetings
of the Board of Directors and committees thereof of which
such director was a member. The Board of Directors has an
Audit Committee and a Compensation Committee. The
Committees receive their authority and assignments from the
Board of Directors and report to the Board. The Audit and
Compensation Committees are currently composed of Joyce F.
Brown, Michael J. Campbell and Ester R. Fuchs, who are non-
employee directors.
The Audit Committee, among other things, is empowered
to recommend to the Board of Directors the engagement of
the independent auditors and to review the scope and
procedures of the activities of the independent auditors
and their reports on their audits. The Audit Committee
meets periodically with the independent auditors and
management to review their work and confirm that they are
properly discharging their responsibilities. The Audit
Committee met once during 1997.
The Compensation Committee is empowered to make
recommendations to the Board of Directors relating to the
overall compensation arrangements for senior management of
the Company and to make recommendations to the Board of
Directors pertaining to any compensation plans in which
officers and directors of the Company are eligible to
participate. The Compensation Committee is also
responsible for the administration of the Company's 1996
Performance Equity Plan. The Compensation Committee met
once during 1997.
The Company does not have a standing nomination
committee.
EXECUTIVE OFFICERS
The following are the executive officers of the Company:
Officers Position Age(1)
Robert D. Speiser President 44
Thomas J. Atkins, Ph.D. Vice President 51
Ronald J. Burghauser Vice President, 37
Treasurer and Secretary
Donald E. Kauffman, Jr. Vice President 43
Murray Lieber Vice President 59
(1) As of March 1, 1998
<PAGE>
Each of the officers serves at the discretion of the
Board of Directors of the Company or its subsidiary, as the
case may be, from the date of his election until the next
annual meeting of the Board of Directors of the Company or
its subsidiary or until his successor is elected and
qualified, subject to earlier termination by removal or
resignation. The following is a summary of the business
experience of the executive officer of the Company who is
not also a director or nominee for election as director:
Ronald J. Burghauser, a certified public accountant,
has served as Vice President of the Company and Vice
President-Finance of Hercon Laboratories since January 1998
and as Treasurer and Secretary of the Company since July
1995. From June 1995 through December 1997, Mr. Burghauser
was Controller of the Company and Hercon Laboratories.
Prior thereto and since January 1990, Mr. Burghauser served
as Controller for Adell Plastics, Inc. a Baltimore,
Maryland plastics manufacturer. From 1982 to 1989, Mr.
Burghauser was employed by Ernst & Young, Baltimore,
Maryland, as an Audit Manager.
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
(a) As of February 28, 1998, other than as set forth in
the following table, the Company knows of no other person
or "group" (as that term is defined in Section 13(d)(3) of
the Securities Exchange Act of 1934) who beneficially owns
more than 5% of any class of the Company's voting
securities. The following table contains, as to each class
of the Company's voting securities, the name and address of
each such 5% beneficial owner, the amount of securities of
such class beneficially owned, and the percent of such
class beneficially owned.
<PAGE>
<PAGE>
<TABLE> Number of Shares
Beneficially
Owned as of
Title of Class Name and Address February 28, Percent
of Beneficial Owner 1998(1) of Class
<S> <C> <C> <C>
Common Stock Health-Chem Corporation(2) 36,000,000 90.00%
Common Stock Robert D. Speiser(2) 10,156,340(3) 20.31%
Common Stock Marvin M. Speiser(2)(7) 7,520,362(4) 16.71%
Common Stock Laura G. Speiser(2)(7) 7,520,362(5) 16.71%
Common Stock Marvin M. Speiser 7,520,362(6) 16.71%
1996 Trust (2)(7)
________________________
/TABLE
<PAGE>
<PAGE>
(1) The information concerning security holders is based
upon information furnished to the Company by such
security holder. Except as otherwise indicated, all
of the shares are owned of record and beneficially
and the persons identified have sole voting and
dispositive power with respect thereto.
(2) Address is c/o Health-Chem Corporation, 1212 Avenue
of the Americas, New York, NY 10036.
(3) Includes the following shares of Common Stock: (i)
8,826 shares held by Smith Barney as custodian for
the IRA of Robert D. Speiser; (ii) 5,000,000 shares
issuable upon exercise of currently exercisable stock
options; (iii) 144,185 shares held in the Marvin M.
Speiser 1996 Trust (the "1996 Trust"), of which Laura
G. Speiser (the wife of Marvin M. Speiser) and Robert
D. Speiser serve as trustees; and (iv) 5,000,000
shares issuable to the 1996 Trust upon exercise of
currently exercisable stock options. Robert D.
Speiser disclaims beneficial ownership of the shares
of Common Stock referenced in (iii) and (iv) above.
(4) Includes the following shares of Common Stock: (i)
188,475 shares owned by Lauralei Investors, Inc.
("Lauralei"), of which Marvin M. Speiser and Laura G.
Speiser are the sole stockholders; (ii) 144,185
shares held by the 1996 Trust; (iii) 5,000,000 shares
issuable to the 1996 Trust upon the exercise of
currently exercisable stock options; (iv) 220,307
shares held by the Laura G. and Marvin M. Speiser
Trust (the "1995 Trust"), of which Laura G. Speiser
and Marvin M. Speiser serve as trustees; and (v)
274,343 shares of Common Stock owned by Laura G.
Speiser. Marvin M. Speiser disclaims beneficial
ownership of the shares of Common Stock referenced in
(v) above.
(5) Includes the following shares of Common Stock: (i)
188,475 shares owned by Lauralei; (ii) 144,185 shares
held by the 1996 Trust; (iii) 220,307 shares held by
the 1995 Trust; (iv) 5,000,000 shares issuable to the
1996 Trust upon exercise of currently exercisable
stock options; and (v) 1,693,052 shares of Common
Stock owned by Marvin M. Speiser. Laura G. Speiser
disclaims beneficial ownership of the shares of
Common Stock referenced in (i) and (v) above.
<PAGE>
(6) Includes the following shares of Common Stock: (i)
220,307 shares of Common Stock held by the 1995
Trust; (ii) 188,475 shares of Common Stock owned by
Lauralei; (iii) 5,000,000 shares issuable to the 1996
Trust upon exercise of currently exercisable stock
options; (iv) 1,693,052 shares of Common Stock owned
by Marvin M. Speiser; and (v) 274,343 shares of
Common Stock owned by Laura G. Speiser. The 1996
Trust disclaims beneficial ownership of the shares of
Common Stock referenced in (i), (ii), (iv) and (v)
above.
(7) May be deemed to beneficially own, as of February 28,
1998, an aggregate of 2,712,180 shares or 33.56% of
the common stock of Health-Chem.
(b) As of February 28, 1998, each director of the
Company, each of the Company's current executive
officers named in the Summary Compensation Table
below and all directors and officers of the Company,
as a group, beneficially owned the following amounts
(and percentages) of each class of the voting
securities of the Company.<PAGE>
<PAGE>
<TABLE>
Number of Shares
Beneficially Owned
Name of as of Percent of
Title of Class Beneficial Owner February 28, 1998 (1) Class
<S> <C> <C> <C>
Common Stock Thomas J. Atkins 50,000(2) *
Common Stock Ronald J. Burghauser 424 *
Common Stock Joyce F. Brown 0 0
Common Stock Michael J. Campbell 0 0
Common Stock David N. Dinkins 0 0
Common Stock Ester R. Fuchs 1,626 *
Common Stock Donald E. Kauffman, Jr. 30,000(2) *
Common Stock Murray Lieber 203,534(2) *
Common Stock Marvin M. Speiser 7,520,362(3) 16.71%
Common Stock Robert D. Speiser 10,156,340(4) 20.31%
Common Stock All directors and
officers as a group
(10 Persons) 12,818,101(5) 25.49%
* Indicates ownership of less than one (1%) percent of class.
</TABLE>
<PAGE>
<PAGE>
(1) The information concerning security holders is based
upon information furnished to the Company by such
security holder. Except as otherwise indicated, all
of the shares are owned of record and beneficially
and the persons identified have sole voting and
dispositive power with respect thereto.
(2) Includes the following shares of Common Stock subject
to stock options which are currently exercisable or
exercisable within 60 days: Dr. Atkins - 50,000; Mr.
Kauffman - 30,000; and Mr. Lieber - 200,000.
(3) See footnote (4) to the table under (a) above for the
number of shares with respect to which Marvin M.
Speiser has the right to acquire beneficial ownership
and as to the beneficial ownership of certain other
shares.
(4) See footnote (3) to the table under (a) above for the
number of shares with respect to which Robert D.
Speiser has the right to acquire beneficial ownership
and as to the beneficial ownership of certain other
shares.
(5) Includes 10,280,000 shares of Common Stock issuable
upon the exercise of stock options which are
currently exercisable or exercisable within 60 days.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's executive officers, directors and
persons who beneficially own more than 10% of the Company's
Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by
SEC regulations to furnish the Company with copies of all
Section 16(a) reports filed by such persons.
Based solely on the Company's review of such reports
furnished to the Company, and written representations from
certain reporting persons, the Company believes that all
such filing requirements were complied with during or in
respect of the year ended December 31, 1997.
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the
compensation of each of the Chief Executive Officer and the
other most highly-compensated executive officers of the
Company whose annual salary and bonus, if any, exceeded
$100,000 for services in all capacities to the Company
during the last three fiscal years.
<PAGE>
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
Long-term
Compensation All Other
Awards/Securi- Compensa-
Name and Principal Annual Compensation Other Annual ties Underlying tion
Position Year Salary Bonus Compensation(1)Options (1)(2)
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Robert D. Speiser 1997 124,020 --- 518 0 166
President 1996 138,400 --- 990 0 212
1995 137,124 --- 3,641 5,000,000 217
Thomas J. Atkins 1997 130,000 25,000 6,536 0 836
Vice President 1996 104,500 20,069 48,144 250,000 557
Murray Lieber 1997 145,000 --- 448 0 1,350
Vice President 1996 140,000 --- 600 1,000,000 1,350
1995 130,000 5,000 706 0 1,296
</TABLE>
<PAGE>
<PAGE>
(1) Does not include information with respect to personal
benefits, if any, provided to the named individuals
which do not exceed disclosure thresholds established
under Securities and Exchange Commission rules.
(2) Represents the term cost value of all excess group
life insurance policies on behalf of the named
individuals.
(3) Amounts included under Annual Compensation, Other
Annual Compensation and All Other Compensation
represent the portion of the compensation paid by
Health-Chem pursuant to its employment arrangements
with Mr. Speiser and which have been allocated to the
Company. See "Employment Agreement; Options to
Purchase Common Stock" and "Certain Transactions with
Parent Corporation."
<PAGE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
During 1997, no options to purchase Common Stock of the
Company were granted to any named executives.<PAGE>
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUE
Number of Securities Value of
Underlying Unexercised Unexercised
Options In-the-Money
at Options at
Shares Acquired 12/31/97 12/31/97(2)
on Value Exercisable/ Exercisable/
Name Exercises (1) Realized(1) Unexercisable Unexercisable
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
Robert D.
Speiser --- --- 5,000,000 / 0 281,250 / 0
Thomas J.
Atkins --- --- 50,000 / 200,000 1,563 / 6,250
Murray
Lieber --- --- 200,000 / 800,000 6,250 /25,000
(1) No named executive officer exercised any stock options during the fiscal year
ended December 31, 1997.
(2) Based upon the last sales price of the Company's Common Stock reported as
traded in 1997 on the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") Bulletin Board minus the option exercise
price.
</TABLE>
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT; OPTIONS TO PURCHASE COMMON STOCK
In April 1995, Health-Chem entered into a five-year
Employment Agreement with Robert D. Speiser which provided
for an initial base annual salary which included $104,000
in respect of services as an officer of the Company's
Hercon Laboratories subsidiary, plus an annual bonus
determined by the Health-Chem Board at least equal to ten
percent of the amount by which pretax net income of Hercon
Laboratories for a calendar year exceeds the average of
Hercon Laboratories' pretax net income, as defined, for the
prior two calendar years, and for similar benefits,
vacation and perquisites as that made available to
comparable executives of Health-Chem. The Employment
Agreement also provides for minimum yearly salary increases
of 4% on each September 1 during the employment period.
Mr. Speiser received 5% salary increases on each of
September 1, 1995 and 1996. Mr. Speiser and Health-Chem
have agreed to defer consideration of the September 1, 1997
salary increase until consideration of the salary increase
to which Mr. Speiser is entitled in 1998 pursuant to the
Employment Agreement. The Employment Agreement further
provides that upon retirement on or after January 1, 2010
(the "retirement date"), Robert D. Speiser will be entitled
to receive an annual supplemental pension benefit equal to
60% of his final base salary, which for this purpose will
be the highest nominal annual salary paid to him during his
employment. The supplemental pension will be payable for a
period of ten (10) years beginning on the retirement date,
or if later, the January 1 following termination of
employment. In the event of termination of employment
prior to the retirement date, the amount of the
supplemental pension payable on that date will be prorated
based on the period of employment from December 31, 1994 to
the date of termination. No proration will be applied,
however, if Mr. Speiser's employment is involuntarily
terminated (as described below). An actuarially reduced
supplemental pension benefit may be paid if the benefit is
commenced upon termination of employment prior to the
retirement date.
Pursuant to the Employment Agreement, Health-Chem caused
the Company to grant to Robert D. Speiser, in November
1995, an option to purchase 5,000,000 shares of Common
Stock of the Company, at an exercise price of $.10 per
share, which option is exercisable through November 13,
2005.
<PAGE>
Robert D. Speiser is entitled to continue to receive the
salary, bonus and other compensation provided for under the
Employment Agreement for a period of five (5) years
following an involuntary termination of his employment
during the term of the Employment Agreement. Robert D.
Speiser's employment will be deemed to have been
involuntarily terminated if his employment is terminated by
Health-Chem for reasons other than cause, as defined in the
Employment Agreement. Mr. Speiser's employment will be
deemed to have been involuntarily terminated in certain
events as listed in the Employment Agreement, including
termination for any reason within one year following a
Change in Control, as defined in the Employment Agreement.
The Employment Agreement also provides that Mr. Speiser
will be entitled to supplemental compensation to mitigate
the effect of any excise taxes to which he may be subject
as a result of a Change in Control.
In April 1995, Health-Chem also entered into a similar
Employment Agreement with Marvin M. Speiser, including the
same provisions regarding (i) the grant of an option to
acquire shares of the Company's Common Stock on a fully-
diluted basis and (ii) the payment of a portion of his
bonus based on the increase in pretax net income, as
defined, for Hercon Laboratories under the same terms as
set forth above for Robert D. Speiser. Pursuant to this
Employment Agreement, Health-Chem caused the Company to
grant Marvin M. Speiser an option, in November 1995, to
purchase up to 5,000,000 shares of Common Stock of the
Company at an exercise price of $.10 per share on
substantially the same terms and conditions as set forth
above for Robert D. Speiser.
<PAGE>
<PAGE>
<TABLE>
STOCK PERFORMANCE GRAPH
The following graph compares the change in the
cumulative total stockholder return on the Company's Common
Stock since November 28, 1995 (the date public trading of
the Company's stock commenced) through the fiscal year
ended December 31, 1997, with the cumulative total return
of the Russell 2000 Stock Index and the NASDAQ
Pharmaceutical Index. The graph assumes a $100 investment
on November 28, 1995 and the reinvestment of any and all
dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
TRANSDERM LABORATORIES CORPORATION,
RUSSELL 2000 STOCK INDEX and the NASDAQ PHARMACEUTICAL
INDEX
___.___ TRANSDERM LABORATORIES CORPORATION
___|___ NASDAQ PHARMACEUTICAL INDEX
______ RUSSELL 2000 STOCK INDEX
11/28/95 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C>
Transderm
Laboratories Corp. $100.00 $300.00 $100.00 $124.96
Russell 2000
Stock Index $100.00 $115.36 $115.48 $119.54
NASDAQ Pharma-
ceutical Index $100.00 $102.64 $119.68 $146.42
/TABLE
<PAGE>
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors
(the "Committee") is composed of three independent outside
directors of the Company. During 1997, the Committee met
on one occasion to carry out its responsibilities including
the administration of compensation matters for senior
executives of the Company, consistent with the relevant
policies of the Company's parent, Health-Chem Corporation
("Health-Chem").
In administering compensation matters, the Committee
has focused on the compensation of Company executives: on a
competitive basis with other comparably sized and managed
companies; in a manner consistent and supportive of overall
Company objectives; and, through a compensation plan which
is intended to balance the longer and shorter-term
strategic initiatives of the Company. Consistent with
compensation program objectives identified in last year's
Compensation Committee Report, the Committee intends that
the executive compensation program will:
1. reward executives for strategic management and
enhancement of stockholder value;
2. reflect each executive's success at resolving key
operational issues;
3. facilitate both the short and long-term planning
process; and
4. attract and retain key executives believed to be
critical to the long-term success of the Company.
The Company's compensation program for executive
officers generally consists of a fixed base salary,
performance-related bonus awards and long-term incentive
compensation in the form of stock options. In addition,
Company executives are able to participate in various
benefit plans generally available to other full-time
employees of the Company and Health-Chem.
In reviewing the Company and executives' performance
of the past fiscal year, the Committee took into
consideration, the financial performance of the Company's
Hercon Laboratories Corporation subsidiary as the overiding
factor in making its compensation recommendations.
<PAGE>
Compensation of the Company's Chief Executive Officer,
Robert D. Speiser, is governed largely by the terms of an
employment agreement entered into with the Company's
parent, Health-Chem, in 1995. For a more complete
description of this employment agreement see "Executive
Compensation-Employment Agreement; Options to Purchase
Common Stock" elsewhere in this Proxy Statement.
Base Salary
An executive's base salary is intended to provide a
competitive remuneration for services provided to the
Company over a one-year period or such longer period as may
be covered under employment agreements. Base salaries are
set at levels designed to attract and retain the most
appropriately qualified individuals for each of the key
management level positions within the Company.
Short-Term Incentives
Short-term incentives are paid primarily to recognize
specific operating performance achieved within the last
fiscal year. Since such incentive payments are related to
a specific year's performance, the Committee understands
and accepts that such payments may vary considerably from
one year to the next. The Company's bonus program ties
executive compensation directly to operating profitability.
Depending on management level and seniority, certain
executives are able to earn a percentage of the improvement
in operating profitability over the average for the
preceding two calendar years. Based on this formula, no
regular bonus payments were paid to the named executives
for the fiscal year 1997. Dr. Atkins did receive the
minimum $25,000 bonus payment for 1997 that was agreed upon
at the time of his employment with the Company in 1996.
Long-Term Incentives
Although the Committee recognizes the value of stock
option grants in motivating long-term strategic decision
making, no options to acquire Common Stock of the Company
were granted in 1997 nor were any awards made under the
Company's 1996 Performance Equity Plan to any executive
officers, officers or any employees of the Company.
<PAGE>
Chief Executive Officer
Pursuant to his employment agreement, Mr. Robert D.
Speiser, Chief Executive Officer, was entitled to receive
an increase in his base salary of at least 4% over the
prior year's level, effective September 1, 1997. Mr.
Speiser and Health-Chem have agreed to defer consideration
of the September 1, 1997 salary increase until
consideration of the salary increase to which Mr. Speiser
is entitled in 1998 pursuant to the employment agreement.
Pursuant to his employment agreement, the amount of any
bonus for Mr. Speiser is based on the improvement in
earnings over the average earnings for the preceding two
calendar years within the Company's Hercon Laboratories
subsidiary. On this basis, Mr. Speiser received no bonus
payment for 1997. The Committee did not consider any grant
of option to Mr. Speiser in 1997.
The Committee believes that Mr. Speiser's compensation
reflects his contribution to the Company and the
achievement of specific long-term and short-term objectives
of the Company.
Compensation Committee,
JOYCE F. BROWN
MICHAEL J. CAMPBELL
ESTER R. FUCHS
<PAGE>
<PAGE>
CERTAIN TRANSACTIONS WITH PARENT CORPORATION
In 1997, the Company paid Health-Chem $630,000 in
interest under a $7,000,000 principal amount 9%
Subordinated Promissory Note due March 31, 1999. This note
was issued to Health-Chem at the closing of the
transactions under the 1995 Plan of Reorganization and
Asset Exchange Agreement (the "1995 Plan of
Reorganization").
In 1997, the Company paid Health-Chem $332,500 as
dividends in respect of shares of the Company's 7%
Redeemable Preferred Stock $10.00 par value (the "Preferred
Stock") and $1,000,000 in redemption of 100,000 shares of
Preferred Stock. One million shares of Preferred Stock
were originally issued to Health-Chem at the closing under
the 1995 Plan of Reorganization. The Company is required
to redeem 100,000 shares of Preferred Stock at par on March
31 of each year from 1998 through 2004 and 150,000 shares
of Preferred Stock at par on March 31, 2005. An additional
$297,500 in dividends on the Preferred Stock, due to
Health-Chem on September 30, 1997, was accrued by the
Company as legally available funds were not available to
make this payment. Legally available funds were also not
available to make either the dividend payment or the
required redemption payment in March 1998. The terms of
the Preferred Stock provide that if either (i) dividends
payable on the Preferred Stock shall be in default in an
amount equal to two full semi-annual dividend payments or
(ii) a mandatory redemption payment is not made, the holder
of all of the outstanding shares of Preferred Stock shall
be entitled to elect the smallest number of Directors
necessary to constitute a majority of the Company's Board
of Directors until such time as the default is cured.
Health-Chem has agreed to waive this right in respect of
the 1998 Annual Meeting of Stockholders since as a
practical matter, it already possessed such power.
In 1997, the Company reimbursed Health-Chem $521,000
pursuant to a Corporate Services Agreement entered into in
connection with the 1995 Plan of Reorganization. Under
this agreement, Health-Chem provides or otherwise makes
available to the Company certain general corporate services
provided by Health-Chem's corporate staff, including but
not limited to, accounting, tax, corporate communications,
legal, data processing, purchasing, human resources,
financial and other administrative staff functions, and
arranges for administration of insurance and employee
benefit programs. The Company reimburses Health-Chem for
the actual out-of-pocket cost to Health-Chem or, for those
<PAGE>
services not directly attributable to the Company,
reimburses Health-Chem based upon a method (allocation
based upon the Company's net sales as a percentage of
Health-Chem's consolidated net sales) which is considered
by the Company to be reasonable. The agreement has an
initial term that expired on December 31, 1997 and
automatically renewed for a one-year term. The agreement
will continue to automatically renew for successive one-
year terms unless notice of non-renewal is given by either
party.
Pursuant to a Tax Sharing Agreement also entered into
in connection with the 1995 Plan of Reorganization, the
Company is required to pay Health-Chem as it uses Health-
Chem's net operating loss and tax credit carryforwards to
offset future taxable income. In 1997, the amount of such
payment was $168,000 and at December 31, 1997, the maximum
amount of such future payments was $225,000.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P., independent public
accountants, currently audit the Company's books and
records.
Representatives of Coopers & Lybrand, L.L.P. are
expected to be present at the Meeting, will be given the
opportunity to make a statement if they so desire, and are
expected to be available to respond to appropriate
questions.
ANNUAL REPORT TO STOCKHOLDERS
A copy of the Company's 1997 Annual Report has been
mailed to stockholders of record at the close of business
on April 2, 1998 together with this Notice of Meeting and
Proxy Statement. The Company files an annual report on
Form 10-K with the Securities and Exchange Commission which
includes additional information concerning the Company and
its operations. This report, except for exhibits, will be
furnished to stockholders, without charge, upon written
request to the Secretary of the Company.
<PAGE>
COST OF SOLICITATION
The Company will bear the cost of the Meeting and the
cost of soliciting proxies, including the cost of mailing
the proxy material. In addition to solicitation by mail,
directors, officers, and regular employees of the Company
(who will not be specifically compensated for such
services) may solicit proxies by telephone or otherwise.
Arrangements will be made with brokerage houses and other
custodians, nominees, and fiduciaries to forward proxies
and proxy material to their principals, and the Company
will reimburse them for their reasonable expenses incurred
in connection therewith.
STOCKHOLDER PROPOSALS
Stockholders of the Company wishing to include
proposals in the proxy material in relation to the annual
meeting of the Company to be held in 1999 must submit the
same in writing so as to be received at the principal
executive office of the Company on or before November 13,
1998. Such proposals must also meet the other requirements
of the rules of the Securities and Exchange Commission
relating to stockholder proposals.
By Order of the Board of Directors,
Robert D. Speiser
President
New York, New York
