SCHEDULE 14A INFORMATION
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............Transderm Laboratories Corporation..................
(Name of Registrant as Specified in Its Charter)
............Transderm Laboratories Corporation..................
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<PAGE>
TRANSDERM LABORATORIES CORPORATION
460 PARK AVENUE
NEW YORK, NEW YORK 10022
________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held December 10, 1999
To the Stockholders of Transderm Laboratories Corporation:
Notice is hereby given that the Annual Meeting of Stock-
holders of Transderm Laboratories Corporation (the "Company")
will be held at the Marriott Financial Center, 85 Water Street,
New York, New York, on December 10, 1999, 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
October 29, 1999 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 conve-
nience.
By Order of the Board of Directors
Robert D. Speiser,
President
November 22, 1999
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>
TRANSDERM LABORATORIES CORPORATION
460 PARK AVENUE
NEW YORK, NEW YORK 10022
_________________
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 December 10, 1999
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 November 24, 1999.
Only stockholders of record at the close of business on
October 29, 1999, 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.
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 specifi-
cally withheld and, where a choice is specified as to the
proposal, they will be voted in accordance with such specifi-
cation. 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
460 Park Avenue, New York, New York 10022.
<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 occu-
pations 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. 52 Vice President of the
Company and Vice
President - Research and
Development of Hercon
Laboratories Corporation
Joyce F. Brown, Ph.D. 53 President of The Fashion
Institute of Technology
Michael J. Campbell 44 Managing Director of
Atmosphere Interactive,
Inc.
David N. Dinkins 72 Professor in the Practice
of Public Affairs at the
Columbia University
School of International
and Public Affairs
Ester R. Fuchs, Ph.D. 48 Director of the
Center for Urban Research
and Policy of Columbia
University's School of
International & Public
Affairs
Name Age(1) Principal Occupation
Donald E. Kauffman, Jr. 45 Vice President of the
Company and Vice
President - Manufacturing
of Hercon Laboratories
Corporation
Murray Lieber 61 Vice President of the
Company and Vice
President - Marketing of
Hercon Laboratories
Corporation
Marvin M. Speiser(2) 74 President of Health-Chem
Corporation
Robert D. Speiser(2) 46 President and Chief
Executive Officer of the
Company and Hercon
Laboratories Corporation
and Executive Vice
President of Health-Chem
Corporation
(1) Age as of September 1, 1999.
(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 De-
velopment 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 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 President of The Fashion Institute of Technology since
June 1998. From January 1994 to May 1998, Dr. Brown served as a
professor of Clinical Psychology at the Graduate School and
University Center of The City University of New York. 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. Since September 1, 1999, Mr. Campbell has
served as Managing Director of Atmosphere Interactive, Inc., a
subsidiary of the advertising firm Battan, Barton, Durstin &
Osbourne ("BBDO"). Through August 1999, Mr. Campbell was
Senior Vice President and Senior Creative Director of BBDO where
he had been employed 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 prac-
tice 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 Center
for Urban Research and Policy of Columbia University's School of
International & Public Affairs. Dr. Fuchs has served as Assoc-
iate 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.
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 Adver-
tising, a pharmaceutical advertising agency. Mr. Lieber was
Vice President of Diversified Health Affiliates, Inc., a pharma-
ceutical 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 and a director of Health-Chem
since April 1, 1994 and February 1983, respectively, and Pres-
ident 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 Pres-
ident 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. During 1998, non-employee
directors received $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 was independently scheduled.
Non-employee directors were also reimbursed for expenses incurred
in attending such meetings. In April 1999, the Company suspended
payment of all directors' fees until the Company is in a position
to resume their payment.
During 1998, 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 assign-
ments 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 inde-
pendent 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 inde-
pendent auditors and management to review their work and confirm
that they are properly discharging their responsibilities. The
Audit Committee met twice during 1998.
The Compensation Committee is empowered to make recommen-
dations to the Board of Directors relating to the overall compen-
sation 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 Perfor-
mance Equity Plan. The Compensation Committee met once during
1998.
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 46
Thomas J. Atkins, Ph.D. Vice President 52
David J. Heath, Jr. Vice President-Finance 41
Donald E. Kauffman, Jr. Vice President 45
Murray Lieber Vice President 61
Bruce M. Schloss Secretary 43
(1) As of September 1, 1999
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 sum-
mary of the business experience of the executive officers of the
Company who are not also directors or nominees for election as
director:
David J. Heath, Jr. has been Vice President-Finance of the
Company and Health-Chem since August 1999. From January 1998
through August 1999, Mr. Heath served as Controller of Health-
Chem. Mr. Heath served as Assistant Controller of Health-Chem
from March 1989 through December 1997.
Bruce M. Schloss is an attorney. He has been Secretary of
the Company since September 1999. Mr. Schloss has been General
Counsel, Secretary, Vice President and a director of Health-Chem
since September 1991, October 1991, May 1992 and May 1994, res-
pectively. Prior to joining Health-Chem, Mr. Schloss was a
member of the firm of McLaughlin & Stern, Ballen and Ballen.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
(a) As of August 31, 1999, 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.
Number of Shares
Beneficially Owned
Name and Address of as of August 31,
Title of Class Beneficial Owner 1999 (1) Percent of Class
Common Stock Health-Chem 36,000,000 90.00%
Corporation (2)
Common Stock Robert D. Speiser 12,155(3) *
(2)
Common Stock Marvin M. Speiser 2,520,362(4) 6.30%
(2)(6)
Common Stock Laura G. Speiser 2,520,362(5) 6.30%
(2)(6)
________________________
* Indicates ownership of less than one percent (1%) of class.
<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, 460 Park Avenue, New
York, NY 10022.
(3) Includes 8,826 shares held by Smith Barney as custodian for
the IRA of Robert D. Speiser.
(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; and (ii) 2,331,887 shares of Common Stock
owned by Laura G. Speiser. Marvin M. Speiser disclaims
beneficial ownership of the shares of Common Stock refer-
enced in (ii) above.
(5) Includes 188,475 shares owned by Lauralei.
(6) May be deemed to beneficially own, as of August 31, 1999, an
aggregate of 2,396,020 shares or 30.86% of the common stock
of Health-Chem.
(b) As of August 31, 1999, 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>
Number of Shares
Beneficially
Owned as of Percent
Title of Class Name of Beneficial Owner August 31, 1999 (1) of Class
Common Stock Thomas J. Atkins 100,000 (2) *
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. 60,000 (2) *
Common Stock Murray Lieber 403,534 (2) *
Common Stock Marvin M. Speiser 2,520,362 6.30%
Common Stock Robert D. Speiser 12,155 *
Common Stock All directors and
officers as a group 3,097,677 (3) 7.64%
(11 Persons)
- -------------------
* Indicates ownership of less than one percent (1%) of class.
<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 - 100,000; Mr. Kauffman -
60,000; and Mr. Lieber - 400,000.
(3) Includes 560,000 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, 1998.
<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 $100,000 for services
in all capacities to the Company during the last three fiscal
years.
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term
Compen-
sation
Awards
Securit-
Other ies All Other
Annual Annual Under Compensa-
Compensation Compensa- ying tion
Name and Principal Year Salary Bonus tion(1) Options (1)(2)
Position ($) ($) ($) ($) (#) ($)
Robert D. Speiser 1998 132,881 4,541 794 0 314
(3) 1997 124,020 - 518 0 166
President 1996 138,400 - 990 0 212
Thomas J. Atkins 1998 137,615 1,135 6,243 0 850
Vice President 1997 130,000 25,000 6,536 0 836
1996 104,500 20,000 48,144 250,000 557
Murray Lieber 1998 155,462 908 2,267 0 2,106
Vice President 1997 145,000 - 448 0 1,350
1996 140,000 - 600 1,000,000 1,350
Donald E. Kauffman, 1998 101,942 - 6,077 0 205
Jr. 1997 95,000 - 5,827 0 190
Vice President 1996 91,250 - 5,823 150,000 179
(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>
OPTION GRANTS IN LAST FISCAL YEAR
During 1998, no options to purchase Common Stock of the Company were granted
to any named executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR END OPTION VALUE
Number of
Securities Value of
Shares Underlying Unexercised
Acquired Unexercised In--the-Money
on Options at Options at
Value Value 12/31/98 12/31/98 (2)
Exercises Realized Exercisable/ Exercisable/Unex
(1) (1) Unexercisable -ercisable
Name (#) ($) (#) ($)
Robert D. Speiser- _ 0/5,000,000 0/0
Thomas J. Atkins - _ 100,000/150,000 0/0
Murray Lieber - _ 400,000/600,000 0/0
Donald E. Kauffman, - - 60,000/90,000 0/0
Jr.
(1) No named executive officer exercised any stock options
during the fiscal year ended December 31, 1998.
(2) Based upon the last sales price of the Company's Common
Stock reported as traded in 1998 on the National Association
of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") Bulletin Board minus the option exercise price.
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 a
5% salary increase on September 1, 1996. Mr. Speiser and Health-
Chem agreed to defer consideration of the September 1, 1997
salary increase until consideration of the salary increase to
which Mr. Speiser was entitled in 1998 pursuant to the Employment
Agreement. Mr. Speiser received an 11% salary increase on
September 1, 1998. 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. After amendment to the option in November 1998, the
exercise price is $.15 per share, and the option is exercisable
from April 4, 2000 through November 13, 2005, unless there is a
transaction in which Transderm is acquired in which case the
number of shares as to which the option is exercisable will be
limited to twenty (20%) percent of the total number of shares
underlying the option for each year that has passed since April
4, 1995, with part years to be pro-rated temporally.
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 by 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 on
substantially the same terms and conditions as set forth above
for Robert D. Speiser. In November 1998, this option was amended
on substantially the same terms and conditions as the November
1998 amendment to the option for Robert D. Speiser as set forth
above.
<PAGE>
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, 1998, 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 12/31/98
Transderm $100.00 $300.00 $100.00 $125.00 $ 25.00
Laboratories
Corporation
Russell 2000 $100.00 $107.00 $125.00 $152.00 $151.00
Stock Index
NASDAQ $100.00 $121.00 $122.00 $125.00 $160.00
Pharmaceutical
Index
<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 1998, 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 overriding factor in making its
compensation recommendations.
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, certain
of the named executives earned bonus payments aggregating $6,584
for the fiscal year 1998 based on the increase in average
earnings of Hercon Laboratories.
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
1998 nor were any awards made under the Company's 1996
Performance Equity Plan to any named executive officers of the
Company.
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 had
agreed to defer consideration of this salary increase until
consideration of the salary increase to which Mr. Speiser was
entitled in 1998 pursuant to the employment agreement. Mr.
Speiser received an 11% salary increase on September 1, 1998
consistent with the employment agreement and relevant factors
considered by Health-Chem's compensation committee. 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 earned a
bonus for fiscal year 1998 in the amount of $4,541 due to the
improvement in earnings of Hercon Laboratories. The Committee
did not consider any grant of option to Mr. Speiser in 1998.
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
CERTAIN TRANSACTIONS WITH PARENT CORPORATION
In 1998, the Company paid Health-Chem $630,000 in interest
under a $7,000,000 principal amount 9% Subordinated Promissory
Note due March 31, 2002. This note was originally 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 1998, the Company paid Health-Chem $162,000 as dividends
in respect of shares of the Company's 7% Redeemable Preferred
Stock $10.00 par value (the "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 1999 through 2004 and
150,000 shares of Preferred Stock at par on March 31, 2005. The
Company is required to make semi-annual preferred dividend
payments out of funds legally available therefore each March and
September at the annual rate of $.70 per share on the then
outstanding shares. As of June 30, 1998, $162,000 was available
for the payment of preferred dividends. The $162,000 dividend
payment was in respect of dividends in arrears that were due on
September 30, 1997. Legally available funds were not available
to make the entire September 1997 preferred dividend payment of
$297,500. Legally available funds were also not available to
make the March 1998, September 1998 or March 1999 preferred
dividend payments of $297,500 each, nor were they available to
make the required $1,000,000 redemption payments in March 1998
and in March 1999. At December 31, 1998, the Company had accrued
$879,250 in dividends due to Health-Chem on the Preferred Stock.
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 waived this right since,
as a practical matter, it already possessed such power.
In 1998, the Company reimbursed Health-Chem $667,000
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 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 expired on December 31,
1998 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. The Company and Health-Chem are currently reconsidering
the method of allocation in light of the sale of assets of
Health-Chem's Herculite Products, Inc. and Hercon Environmental
Corporation subsidiaries in August 1999.
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 1998, the amount of such payment was $149,000
and at December 31, 1998, the maximum amount of such future
payments was $76,000.
INDEPENDENT PUBLIC ACCOUNTANTS
Richard A. Eisner & Company, LLP, independent public
accountants, currently audit the Company's books and records.
Representatives of Richard A. Eisner & Company, LLP 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 1998 Annual Report has been mailed
to stockholders of record at the close of business on October 29,
1999 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.
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 2000 must submit the same in writing so as
to be received at the principal executive office of the Company
on or before December 31, 1999. 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
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