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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[_] 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 SPECIAL MEETING
and
PROXY STATEMENT
Special Meeting of Shareholders
214 Carnegie Center
Suite 100
Princeton, New Jersey
December 29, 1997
<PAGE>
[GRAPHIC OMITTED]
DERMA SCIENCES, INC.
214 CARNEGIE CENTER, SUITE 100
PRINCETON, NJ 08540
(800) 825-4325
------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 29, 1997
------------------------------------------------------------
To the Shareholders:
A Special Meeting of Shareholders of Derma Sciences, Inc. will be held on
December 29, 1997, at 11:00 a.m., at the principal offices of the Company, 214
Carnegie Center, Suite 100, Princeton, New Jersey, for the following purposes:
1. To consider amendment of the Articles of Incorporation authorizing creation
of a class of preferred stock;
2. 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 October 31, 1997,
the record date and time fixed by the Board of Directors, are entitled to notice
of, and to vote at, the meeting.
The Board of Directors unanimously recommends that shareholders vote "FOR"
amendment of the Articles of Incorporation authorizing creation of a class of
preferred stock.
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 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
<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 a Special Meeting of Shareholders (the "Meeting") to be held
at 11:00 a.m. on Monday, December 29, 1997, at the principal offices of the
Company at 214 Carnegie Center, Suite 100, Princeton, New Jersey, 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 Special 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 amendment to the Company's articles of incorporation
authorizing creation of a class of preferred stock. The Board knows of no
matters which are to be presented for consideration at the Meeting other than
that specifically described in the Notice of Special Meeting of Shareholders.
However, 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 October 31, 1997, has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of, and to vote at, the Meeting. On the Record Date, the Company had
4,067,632 shares of Common Stock, par value $.01 per share ("Common Stock"),
outstanding and entitled to vote. Such shares of Common Stock are the only
voting securities of the Company. Each share held of record will be entitled to
one vote at the Meeting. It is expected that the Notice of Special Meeting,
Proxy Statement and form of Proxy will first be mailed to shareholders on or
about December ___, 1997.
The expense of solicitation will be borne by the Company. The
solicitation of Proxies will be largely by mail, but may include telephonic,
telegraphic or oral communications by officers or other representatives of the
Company. The Company will also reimburse brokers or other persons holding shares
in their names or in the names of their nominees for the reasonable
out-of-pocket expenses in forwarding Proxies and proxy materials to the
beneficial owners of such shares.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of 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(10) BENEFICIALLY OWNED(11)
<S> <C> <C>
Mary G. Clark, RN......................................... 1,025,474 23.35%
John T. Borthwick (2)..................................... 309,414 7.05%
First Taiwan Investment Holding, Inc. (3)................. 248,000 5.65%
Edward J. Quilty (4)...................................... 143,000 3.26%
Robert P. DiGiovine, RPh (5).............................. 32,875 (*)
Laurence F. Lane (6)...................................... 22,000 (*)
Stephen T. Wills, CPA, MST (7)............................ 20,833 (*)
Herbert Grossman, RPh (6)................................. 14,000 (*)
Charles F. Caudell, III (8) .............................. 12,500 (*)
Richard S. Mink (8) ...................................... 10,000 (*)
All directors and officers as a group (9 persons) (9) 1,590,096 36.22%
</TABLE>
(*) Less than one percent
(1) Except as otherwise noted, the address of each of the persons listed is 214
Carnegie Center, Suite 100, Princeton, New Jersey 08540.
(2) Includes 50,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60 days
of the Record Date.
(3) First Taiwan Investment Holding, Inc. is located at: 15/F, 563, Chung
Hsiao, East Road, Section 4 Taipei, Taiwan R.O.C.
(4) Includes 122,500 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60 days
of the Record Date. Shares beneficially owned increased to 523,000, or
10.72%, as a result of shares and warrants to purchase shares acquired
through the November 19, 1997 private placement described in Proposal 1.
(5) Includes 29,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60 days
of the Record Date.
(6) Includes 14,000 shares subject to options currently exercisable. 2,000
shares subject to options will become exercisable within 60 days of the
Record Date.
(7) Includes 20,833 shares subject to options currently exercisable. 8,333
shares subject to options will become exercisable within 60 days of the
Record Date.
(8) Includes 10,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60 days
of the Record Date.
(9) Includes 299,333 shares subject to options currently exercisable.
(10) Number of shares does not include shares acquired through the November 19,
1997 private placement described in Proposal 1.
(11) Number of shares outstanding has been adjusted to reflect 321,333 shares
subject to options currently exercisable by both former and current
directors and officers.
<PAGE>
PROPOSAL 1 - AMENDMENT OF ARTICLES OF INCORPORATION
TO AUTHORIZE CREATION OF A CLASS OF PREFERRED STOCK
The Board of Directors of the Company has approved the amendment of the
Company's Articles of Incorporation (the "Amendment") to authorize the creation
of a class of preferred stock. The Amendment will become effective upon the
affirmative vote of a majority of the votes cast at the Meeting or adjournment
thereof. A quorum for the conduct of business at the Meeting or adjournment
thereof will consist of a majority of the shares issued and outstanding at the
close of business on the Record Date.
For the reasons discussed below, the Board of Directors believes that
the best interests of the Company and its shareholders will be served by the
creation of the proposed class of preferred stock.
PRIVATE FINANCING
The Company on November 19, 1997 closed a private placement of
Convertible Debentures ("Debentures") in which an aggregate of $1.8 million was
raised. Terms of the Debentures require that upon approval of the Company's
shareholders of a new class of Series A Convertible Preferred Shares ("Preferred
Stock"), the Debentures will automatically convert into units ("Unit(s)"), as
hereafter defined, at the rate of $0.80 per Unit. Each Unit will consist of one
share of Preferred Stock convertible into one share of Common Stock and one
warrant ("Warrant(s)") to purchase one share of Common Stock exercisable $0.90
per share. The Company presently seeks shareholder approval for creation of the
Preferred Stock.
The Company on November 24, 1997 accepted the offer of investors owning
$400,000 aggregate principal amount of Debentures to convert these Debentures
directly into Common Stock and Warrants in like manner as if: (1) these
Debentures had been converted into Units, and (2) the Preferred Stock comprising
the Units had been converted into Common Stock. The effect of this conversion is
to transfer, as of November 24, 1997, $400,000 from the Company's debt to
capital and capital surplus thereby increasing the Company's shareholders'
equity from $805,194 to $1,205,194.
The following table sets forth under the heading "Actual" the current
debt and equity capitalization of the Company derived by adjusting the Company's
debt and equity capitalization at September 30, 1997 (as reflected in the
Company's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1997) to give effect to: (1) the November 19, 1997 sale of $1,800,000 aggregate
principal amount of Debentures, and (2) the November 24, 1997 conversion of
$400,000 aggregate principal amount of Debentures into 500,000 shares of Common
Stock and 500,000 Warrants to purchase one share of Common Stock at $.90 per
share. The table sets forth under the heading "As Adjusted" the debt and equity
capitalization of the Company adjusted to give effect to the conversion of the
remaining $1,400,000 aggregate principal amount of Debentures into 1.75 million
Units. The Conversion of the remaining Debentures into Units is contingent upon
the approval by the Company's shareholders of the creation of the Preferred
Stock comprising these Units.
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION
ACTUAL AS ADJUSTED
--------------------- ---------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable ........................................... $ 679,931 $ 679,931
Other current liabilities .................................. 543,121 543,121
DEBENTURES AND NOTES PAYABLE:
Convertible debentures ..................................... 1,400,000 0
Bank line of credit ........................................ 789,000 789,000
Other notes payable......................................... 95,000 95,000
------------- -------------
Total debt ..................................................... $3,507,052 $2,107,052
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, 15,000,000 shares
Authorized, 4,067,632 shares issued and
Outstanding (*) .......................................... $ 45,676 $ 45,676
Series A Preferred Stock, $.01 par value, 1,750,000
Shares to be authorized, issued and outstanding .......... 0 17,500
Additional paid-in capital, common stock ................... 5,039,741 5,039,741
Additional paid-in capital, preferred stock ................ 0 1,382,500
Accumulated deficit ........................................ (3,880,223) (3,880,223)
------------ -------------
Total shareholders' equity ..................................... $1,205,194 $ 2,605,194
------------ -------------
Total capitalization ........................................... $4,712,246 $ 4,712,246
</TABLE>
- -----------------
(*) Excludes: (i) shares of Common Stock subject to currently outstanding
options; (ii) conversion of Series A Preferred Stock into Common Stock; and
(iii) exercise of Warrants to purchase Common Stock.
For additional information relative to the Company's private sale of
the Debentures and the conversion of $400,000 in principal amount thereof into
Common Stock and Warrants, please refer to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on November 24, 1997.
AUTHORIZATION OF PREFERRED STOCK
It is contemplated that the Preferred stock will be authorized pursuant
to the following procedure: (1) the Company's Articles of Incorporation will be
amended to authorize the creation of 1,750,000 shares of preferred stock
("Preferred Stock Amendment") with such designations, voting rights,
preferences, limitations and special rights as the Board of Directors of the
Company may direct, and (2) the Board of Directors will adopt, and file with the
Department of State of the Commonwealth of Pennsylvania, a Certificate of
Designations, Voting Powers, Preferences and Rights of the Preferred Stock
("Certificate of Preferences and Rights"). Accomplishment of the foregoing
procedures, together with the consequent conversion of outstanding Debentures
into Units consisting of Preferred Stock and Warrants, will completely exhaust
the shares of authorized Preferred Stock. The Company has no plans to seek
authority for the issuance of preferred shares other than those described
herein.
<PAGE>
PREFERRED STOCK POWERS AND PREFERENCES
The designations, voting powers, preferences and rights of the
Preferred Stock are summarized below.
Voting Rights
The Preferred Stock will have the same voting rights as the Common
Stock of the Company, i.e. one vote per share. The Preferred Stock and the
Common Stock will vote as one class with respect to all transactions which do
not affect the designations, voting powers, preferences and rights of the
Preferred Stock. The Company may not enter into certain transactions without the
consent of the holders of the Preferred Stock voting as a class. Such
transactions include: (1) the purchase, redemption or other acquisition of any
shares of any class of the Company's outstanding stock; (2) the issuance of any
class of securities with dividend or liquidation rights greater than or equal to
the Preferred Stock; (3) the amendment or alteration of the rights attributable
to the Common stock; (4) an increase in the authorized number of shares of the
Preferred Stock; (5) the liquidation, acquisition, merger or sale of the Company
or the sale of substantially all of its assets; (6) a change of the principal
business of the Company; or (7) the repurchase of Common Stock other than from
the Company's employees.
Conversion Rights
Each share of the Preferred Stock will be convertible, at the option of
the holder thereof, into one fully paid and non-assessable share of Common
Stock.
Liquidation Rights
Holders of the Preferred Stock will be entitled to receive a
liquidation preference of $.80 per share, together with accrued and unpaid
dividends, if any, payable thereon. If, upon liquidation, dissolution or
winding-up of the Company, there are insufficient funds to pay the holders of
the Preferred Stock the aforesaid liquidation preference, then these holders
will share ratably in the distribution of the Company's assets in proportion to
the amounts that would have been payable had assets been sufficient to pay in
full all such amounts.
Dividend and Preemptive Rights
Holders of the Preferred Stock are not entitled to any dividend
preference and maintain no preemptive rights to purchase either Preferred Stock
or Common Stock.
ADDITIONAL INFORMATION
A copy of the Preferred Stock Amendment to be voted upon by the
shareholders at the Meeting is attached hereto as Exhibit A. A copy of the
Certificate of Preferences and Rights which the Board of Directors intends to
adopt upon approval of the Preferred Stock Amendment by the shareholders is
attached hereto as Exhibit B. The discussion herein is qualified in its entirety
by, and should be read in conjunction with, the Preferred Stock Amendment and
the Certificate of Preferences and Rights.
For current financial information relative to the Company, please refer
to the Company's Quarterly Report on Form 10-QSB for the quarter ended September
30, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" AMENDMENT TO THE ARTICLES OF INCORPORATION AUTHORIZING CREATION OF THE
PREFERRED STOCK.
<PAGE>
OTHER BUSINESS
Management of the Company knows of no other business which will be
presented for consideration at the Meeting. However, should any other matters be
brought before the Meeting, it is the intention of the persons named in the
accompanying proxy to vote at their discretion.
By Order of the Board of Directors,
EDWARD J. QUILTY
Chairman
December __, 1997
<PAGE>
EXHIBIT A
Entity Number_____________
-------------------------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 15 Pa.C.S. Sec. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: Derma Sciences, Inc.
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) commercial registered office provider and the county of
venue is (the Department is hereby authorized to correct the following
address to conform to the records of the Deparment):
(a) 1065 Highway 315, Suite 403 Wilkes Barre PA 18702 Luzerne
- --------------------------------------------------------------------------------
Number and Street City State Zip Country
(a)
- --------------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.
3. The statute by or under which it was incorporated is: 15 Pa.C.S. Section
101 et seq.
4. The original date of its incorporation is: March 28, 1996
5. (Check, and if appropriate complete, one of the following):
[X] The amendment shall be effective upon filing these Articles of Amendment in
the Department of State.
[ ] The amendment shall be effective on:
6. (Check one of the following):
[X] The amendment was adopted by the shareholders pursuant to 15 Pa.C.S. Sec.
1914(a) and (b).
[ ] The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
[ ] The amendment adopted by the corporation, set forth in full, is as follows:
[X] The amendment adopted by the corporation as set forth in full in Exhibit A,
attached hereto and made a part hereof.
A-1
<PAGE>
8. (Check if the amendment restates the Articles):
[ ] The restates Articles of Incorporation supercede the original Articles and
all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this _____ day of
____________, 19____.
Derma Sciences, Inc.
-----------------------------------
(Name of Corporation)
BY:________________________________
(Signature)
TITLE: Edward J. Quilty, Chairman
A-2
<PAGE>
ARTICLES OF AMENDMENT
EXHIBIT A
Article 3 of the Articles of Incorporation of the corporation are
amended in their entirety to read as follows:
3. The classes and number of shares which the corporation shall have the
authority to issue are:
(a) Common Stock. 15,000,000 shares of common stock.
(b) Preferred Stock. 1,750,000 shares of preferred stock with such
designations, voting rights, preferences, limitations and special
rights as the board of directors may direct.
A-3
<PAGE>
EXHIBIT B
CERTIFICATE OF DESIGNATIONS, VOTING POWERS,
PREFERENCES AND RIGHTS
OF
THE SERIES OF PREFERRED STOCK
OF
DERMA SCIENCES, INC.
TO BE DESIGNATED
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to the Pennsylvania Business Corporation Law of 1988, I,
Edward J. Quilty, Chairman of the Board of Derma Sciences, Inc., a Pennsylvania
corporation (the "Corporation"), hereby certify that the following is a true and
correct copy of a resolution duly adopted by the Corporation's Board of
Directors at a meeting held on December __, 1997, at which a quorum was present
and acting throughout, and that said resolution has not been amended or
rescinded and is in full force and effect at the date hereof:
RESOLVED, that pursuant to the authority expressly granted and vested
in the Board of Directors of the Corporation by the Corporation's Articles of
Incorporation, as amended to date, the Board of Directors hereby creates a
series of preferred stock of the Corporation, par value $.01 per share, to be
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and to consist of [ shares], and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other rights
and the qualifications, limitations or restrictions thereon, of the Series A
Preferred Stock, as follows:
1. Voting Rights. The holders of Series A Preferred Stock shall have the right
to vote, together with the holders of all the outstanding shares of Common
Stock and not by classes, except as otherwise required by Pennsylvania law,
on all matters on which holders of Common Stock are entitled to vote. Each
holder of shares of Series A Preferred Stock shall have the right to cast
one vote for each share.
2. Liquidation or Dissolution. Subject to the prior rights of the
Corporation's creditors and holders of securities senior to the Series A
Preferred Stock in respect of distributions upon liquidation, dissolution
or winding-up of the Corporation, in the event of the voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Series A Preferred Stock shall be entitled to receive the
purchase price per share (the "Liquidation Preference"), together with
accrued and unpaid dividends payable thereon to the date fixed for payment
of such distribution, if any, which shall be payable on a pro rata basis
among holders of Preferred and Common Stock, all of which shall be paid in
cash. If, upon any such liquidation, dissolution or winding-up of the
B-1
<PAGE>
Corporation, the assets distributable among the holders of Series A
Preferred Stock (and any series of preferred stock ranking in parity with
the Series A Preferred Stock in respect of distributions upon liquidation,
dissolution or winding-up of the Corporation) shall be insufficient to
permit the payment in full to such holders of the preferential amount
payable to such holders determined as aforesaid, then the holders of Series
A Preferred Stock will share ratably in any distribution of the
Corporation's assets in proportion to the respective preferential amounts
that would have been payable if such assets were sufficient to permit
payment in full of all such amounts. After payment of the full amount of
the liquidating distribution to which they are entitled, the holders of
Series A Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Corporation. Under this Section 2, a
distribution of assets in any dissolution, winding-up, liquidation or
reorganization shall include (a) any consolidation or merger of the
Corporation with or into any other corporation in which the Corporation is
not the surviving corporation, (b) a sale or other disposition of all or
substantially all of the Corporation's assets in consideration for cash
and/or the issuance of equity securities of another corporation, or (c) a
Change of Control of the Company. Under this Section 2, a distribution of
assets in any dissolution, winding-up, liquidation or reorganization shall
not include any dissolution, liquidation, winding-up or reorganization of
the Corporation immediately followed by reincorporation of a successor
corporation, provided that the dissolution, liquidation, winding-up or
reorganization does not amend, alter, or change the preferences or rights
of the Series A Preferred Stock or the qualifications, limitations or
restrictions thereof in a manner that adversely affects the Series A
Preferred Stock.
3. Conversion Rights.
(a) Conversion of Series A Preferred Stock. Each share of Series A
Preferred Stock shall be convertible at the option of the holder
thereof into one fully paid and non-assessable share of Common Stock,
("Conversion Share(s)") subject to the provisions set forth herein.
(b) Mechanics of Conversion. The holder of any shares of Series A
Preferred Stock may exercise the conversion right as to any part
thereof by delivering to the Corporation during regular business
hours, at the office of the Corporation at 214 Carnegie Center, Suite
100, Princeton, New Jersey 08540, a conversion notice in the form
attached to the purchase agreement pursuant to which the Series A
Preferred Stock is issued (the "Conversion Notice"). The Conversion
Notice shall state that the holder elects to convert its share subject
to applicable securities laws, (i) the name(s) in which the
certificate(s) representing the Conversion Shares to which such holder
is entitled are to be issued, and (ii) the telecopier number to which
the Corporation shall telecopy its confirmation described below.
Notice given by telecopier to telecopier number (609) 452-0880,
Attention: Edward J. Quilty, shall be deemed notice for purposes of
this paragraph and shall be deemed given when receipt is acknowledged
by transmit confirmation report. Immediately upon receipt of any
Conversion Notice, the Corporation shall, by telecopier, confirm
receipt thereof at the telecopier number included thereon, which
confirmation shall set forth the number of Conversion Shares to be
issued by the Corporation as a result of such conversion. The
Conversion Notice shall be deemed accepted by the Corporation provided
the holder surrenders, or causes any agent for the holder to
surrender, the certificate(s) for the Series A Preferred Stock to be
converted, duly endorsed or assigned in blank or to the Corporation,
at any location set forth above, within seven (7) business days after
delivery of the Conversion Notice. Provided that the certificate(s)
are delivered in accordance with the preceding sentence, the
B-2
<PAGE>
conversion shall be deemed to have been effected on the date of
delivery of the Conversion Notice by telecopier, and such date is
referred to herein as the "Conversion Date." Within three (3) business
days of receipt by the Corporation of the certificate(s) representing
the Series A Preferred Stock, the Corporation shall issue to such
holder a certificate or certificates representing the number of full
Conversion Shares which such holder is entitled to receive. Unless (i)
such Conversion Shares have been held long enough to satisfy the
holding period set forth in Rule 144(k) (or any successor provision)
promulgated under the Securities Act, (ii) such shares become freely
tradeable pursuant to another exemption under the Securities Act, or
(iii) the converting holder purchased such shares pursuant to a
current prospectus under an effective registration statement covering
the purchase and sale of such shares, the certificate(s) representing
the Conversion Shares will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF EITHER AN EFFECTIVE REGISTRATION STATEMENT
FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT. THESE SHARES ARE
SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET FORTH
IN A REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH
MAY BE OBTAINED FROM THE CORPORATION.
If the Registration Statement as hereinafter defined shall have been
declared effective by the Securities and Exchange Commission, the
certificate(s) evidencing the Conversion Shares will bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SHARES MAY BE SOLD PURSUANT TO THE
REGISTRATION STATEMENT PROVIDED THAT THE HOLDER
COMPLIES WITH THE PROSPECTUS DELIVERY REQUIREMENTS
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
SALE IS IN COMPLIANCE WITH THE PLAN OF DISTRIBUTION
AS SET FORTH IN THE PROSPECTUS. THESE SHARES ARE
SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET FORTH
IN A REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH
MAY BE OBTAINED FROM THE CORPORATION.
The person in whose name the certificate(s) for the Conversion Shares
are to be issued shall be deemed to have become a stockholder of
record on the applicable Conversion Date unless the transfer books of
the Corporation are closed on that date, in which event he or she
shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open, but the
Conversion Ratio shall be that in effect on the Conversion Date. Upon
B-3
<PAGE>
conversion of only a portion of the number of whole shares covered by
a certificate representing shares of Series A Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to
or upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series A Preferred Stock
representing the unconverted portion of the certificate so
surrendered, which new certificate shall entitle in all respects the
holder thereof to the rights of Series A Preferred Stock represented
thereby to the same extent as if the certificate theretofore covering
such unconverted shares had not been surrendered for conversion.
(c) Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued upon conversion of shares of Series A Preferred Stock. If
more than one share of Series A Preferred Stock shall be surrendered
for conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount
determined on the basis of the then Current Market Price per share of
Common Stock. Fractional interests shall not be entitled to dividends,
and the holders thereof shall not be entitled to any rights as
stockholders of the Corporation in respect of such fractional
interests.
(d) Adjustments to Conversion Ratio for Certain Events. The number of
Conversion Shares underlying each Preferred Share (the "Conversion
Ratio") shall be subject to adjustment from time to time as set forth
in this subsection (d).
(i) In case at any time, or from time to time, the Corporation shall:
(A) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other
distribution payable in shares of capital stock; (B) subdivide
its outstanding shares of Common Stock into a larger number of
shares; (C) combine its outstanding shares of Common Stock into a
smaller number of shares; or (D) issue by reclassification or
recapitalization of its Common Stock any other class or series of
shares of the Corporation (including any such reclassification or
recapitalization in connection with a consolidation or merger in
which the Corporation is the continuing corporation), the
Conversion Ratio in effect at the time of the record date for
such dividend or of the effective date of such subdivision,
combination, reclassification or recapitalization shall be
proportionately adjusted so that the holder of any Series A
Preferred Stock surrendered for conversion after such time shall
be entitled to receive the aggregate number and kind of shares
which, if such Series A Preferred Stock had been converted
immediately prior to such time, such holder would have owned or
have been entitled to receive. Such adjustment shall be made
successively whenever any event listed above shall occur. In the
event that such dividend or distribution is not so made, the
Conversion Ratio shall again be adjusted to be the Conversion
Ratio which would then be in effect if such record date has not
been fixed.
B-4
<PAGE>
(ii) In case at any time, or from time to time, the Corporation shall
(except as hereinafter provided) issue or sell any Additional
Shares of Common Stock for a consideration per share of Common
Stock less than the Current Market Price, then the Conversion
Ratio shall, on the date specified below for determining the
Current Market Price, be adjusted to that number determined by
multiplying the Conversion Ratio in effect immediately prior to
such adjustment by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to
the issuance of the Additional Shares of Common Stock (including
shares deemed to have been issued pursuant to subsection (d)(iii)
below) plus the number of shares of Common Stock which the
aggregate consideration for the total number of such Additional
Shares of Common Stock so issued would purchase at the Current
Market Price, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus the
number of such Additional Shares of Common Stock so issued
(including shares deemed to have been issued pursuant to
subsection (d)(iii) below). For the purposes of this subsection
(d)(ii), the date as of which the Current Market Price per share
of Common Stock shall be computed shall be the earlier of (x) the
date on which the Corporation shall enter into a legally binding
contract for the issuance or sale of such Additional Shares of
Common Stock or (y) the date of the actual issuance of such
Additional Shares of Common Stock. The provisions of this
subsection (d)(ii) shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under
subsection (i) hereof. No adjustment shall be made under this
subsection (d)(ii) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously
have been made upon the issuance of such warrants or other rights
or upon the issuance of such Convertible Securities (or upon the
issuance of any warrant or other rights therefor) pursuant to
subsection (d)(iii) hereof. Adjustments shall be made
successively whenever such an issuance of Additional Shares of
Common Stock shall occur. In the event that such Additional
Shares of Common Stock are not so issued or sold, the Conversion
Ratio shall again be adjusted to be the Conversion Ratio which
would then be in effect if such issuance had not occurred.
(iii)In case at any time, or from time to time, the Corporation shall
take a record of the holders of the Common Stock for the purpose
of entitling them to receive a distribution of, or shall
otherwise issue, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible
Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable
pursuant to such warrants or other rights or pursuant to the
terms of such Convertible Securities shall be less than the
Current Market Price, then the Conversion Ratio immediately
thereafter shall be adjusted as provided in subsection (d)(ii)
hereof on the basis that (a) the maximum number of Additional
Shares of Common Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of
B-5
<PAGE>
all such Convertible Securities shall be deemed to have been
issued as of the date for the determination of the Current Market
Price per share of Common Stock as hereinafter provided, and (b)
the aggregate consideration for such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Corporation for the
issuance of such Additional Shares of Common Stock pursuant to
such warrants or other rights or pursuant to the terms of such
Convertible Securities. For the purposes of this subsection
(d)(iii), the date as of which the Current Market Price per share
of Common Stock shall be computed shall be the earliest of (i)
the date on which the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive any such warrants or other rights, (ii) the date on which
the Corporation shall enter into a legally binding contract for
the issuance of such warrants or other rights or (iii) the date
of actual issuance of such warrants or other rights. Such
reduction shall be made successively whenever such a record date
is fixed. In the event that such rights or warrants are not so
issued or (if issued) to the extent not exercised, the Conversion
Ratio shall again be adjusted to be the Conversion Ratio, as the
case may be, which would then be in effect if such record date
had not been fixed or such unexercised rights or warrants had not
been issued.
(iv) In case at any time, or from time to time, the Corporation shall
take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution, by dividend or
otherwise, of evidences of its indebtedness or assets (including
securities, but excluding (x) any dividend or distribution
referred to in subsection (d)(i) hereof and (y) any dividend or
distribution paid in cash out of funds legally available therefor
of the Corporation), then in each such case the Conversion Ratio
in effect after such record date shall be determined by
multiplying the Conversion Ratio, in effect immediately prior to
such record date by a fraction, of which the numerator shall be
the total number of outstanding shares of Common Stock multiplied
by the Current Market Price on such record date, less the fair
market value (as determined by the Board of Directors of the
Corporation, whose determination shall be conclusive) of the
portion of the assets or evidences of indebtedness so to be
distributed, and of which the denominator shall be the total
number of outstanding shares of Common Stock multiplied by such
Current Market Price. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Ratio shall again be
adjusted to be the Conversion Ratio which would then be in effect
if such record date had not been fixed.
(v) No adjustment in the Conversion Ratio shall be required unless
such adjustment would require an increase or decrease of at least
one percent (1%) in such Conversion Ratio; provided, however,
that any adjustment which by reason of this paragraph (vi) is not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
subsection (d) shall be made to the nearest cent or to the
nearest 1/100 of a share, as the case may be.
B-6
<PAGE>
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section
3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders
of the Series A Preferred Stock against impairment.
(f) Notice Provisions.
(i) Whenever the Conversion Ratio shall be adjusted pursuant to
subsection (d) hereof, the Corporation shall forthwith obtain a
certificate signed by the Corporation's chief financial officer,
setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Corporation's
independent public accountants determined the fair value of any
evidences of indebtedness, shares of stock, other securities or
property or assets or warrants or other subscription or purchase
rights referred to in subsections (d)(ii) through (d)(v) hereof)
and specifying the new Conversion Ratio and (if applicable)
describing the amount and kind of common stock, securities,
property or assets or cash which may be received upon conversion
of the Series A Preferred Stock, after giving effect to such
adjustment. The Corporation shall promptly cause a signed copy of
such certificate to be delivered to each holder of Series A
Preferred Stock.
(ii) In case the Corporation shall propose (a) to pay any dividend
payable in stock of any class to the holders of its Common Stock
or to make any other distribution to the holders of its Common
Stock, (b) to offer to the holders of its Common Stock rights to
subscribe for or to purchase any Convertible Securities or
Additional Shares of Common Stock or shares of stock of any class
or any other securities, rights or options, (c) to effect any
reclassification of its Common Stock (other than a
reclassification involving only the subdivision or combination of
outstanding shares of Common Stock), (d) to effect any capital
reorganization, (e) to effect any consolidation, merger or sale,
transfer or other distribution of all or substantially all its
property, assets or business, or (f) to effect the liquidation,
dissolution or winding-up of the Corporation, then in each such
case, the Corporation shall give to each holder of Series A
Preferred Stock a notice of such proposed action, which shall
specify the date on which a record is to be taken for the
purposes of such stock dividend, distribution or rights, or the
date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, disposition, liquidation,
dissolution or winding-up is to take place and the date of
participation therein by the holders of Common Stock, if any such
date is to be fixed, and shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the
effect of such action on the Common Stock and the Conversion
Ratio after giving effect to any adjustment which will be
required as a result of such action. Such notice shall be so
given in the case of any action covered by (a) or (b) above at
least 20 days prior to the record date for determining holders of
B-7
<PAGE>
the Common Stock for purposes of such action and, in the case of
any other such action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be the
earlier.
(g) Treasury Stock. The sale or other disposition of any issued shares of
Common Stock owned or held by or for the account of the Corporation
shall be deemed an issuance thereof for purposes of subsection (d)
hereof, but until so issued such shares shall not be deemed to be
outstanding.
(h) Computation of Consideration. To the extent that any Additional Shares
of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for a cash
consideration, the consideration received by the Corporation therefor
shall be deemed to be the amount of the cash received by the
Corporation therefor, or, if such Additional Shares of Common Stock or
Convertible Securities are offered by the Corporation for
subscription, the subscription price, or, if such Additional Shares of
Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the
initial public offering price, in any such case excluding any amounts
paid or receivable for accrued interest or accrued dividends and
without deduction of any compensation, discounts or expenses paid or
incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof. To the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined by the Board
of Directors of the Corporation. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the
consideration received by the Corporation for issuing such warrants or
other rights, plus the additional consideration payable to the
Corporation upon the exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Corporation for issuing any warrants or
other rights to subscribe for or purchase such Convertible Securities,
plus the consideration paid or payable to the Corporation in respect
of the subscription for or purchase of such Convertible Securities,
plus the additional consideration, if any, payable to the Corporation
upon the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment
or satisfaction of any dividend upon any class of stock other than
Common Stock or in payment of any debt, the Corporation shall be
deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such
dividend or debt so paid or satisfied.
(i) Fractional Interests. In computing adjustments under this Section 3,
fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.
(j) Antidilution Provisions. No adjustment shall be made as a result of
B-8
<PAGE>
any increase in the number of Additional Shares of Common Stock
issuable or any decrease in the consideration payable upon any
issuance of Additional Shares of Common Stock, pursuant to any
provisions intended solely to avoid dilution contained in any
warrants, rights or Convertible Securities.
(k) When Adjustment Not Required.
(i) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(ii) If the Corporation declares or makes any dividend or distribution
with respect to Common Stock, other than regular cash dividends
or dividends payable solely in shares of Common Stock, and each
holder of Series A Preferred Stock concurrently receives
dividends or distributions equal in amount and in the same kind
of property (whether cash, securities or other property) as such
holder would be entitled to receive if all of the outstanding
Series A Preferred Stock were converted into Common Stock as of
the record date of such dividend or distribution with respect to
Common Stock, then thereafter no adjustment shall be required
with respect to such dividend or distribution.
(l) Other Action Affecting Common Stock. If a state of facts shall occur
which, without being specifically controlled by the other provisions
of this Section 3, would not fairly protect the conversion rights of
the Series A Preferred Stock in accordance with the essential intent
and principles of such provisions, then the Board of Directors of the
Corporation shall in good faith make an adjustment in the application
of such provisions, in accordance with such essential intent and
principles, so as to protect such conversion rights.
(m) Necessary Corporate Action. Before taking any action which would
result in an adjustment in the Conversion Ratio, the Corporation shall
obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.
(n) Taxes Upon Conversion. The Corporation shall pay all documentary,
stamp or other transaction taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Series A Preferred Stock.
(o) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of
shares of Series A Preferred Stock, the full number of whole shares of
Common Stock then deliverable upon the conversion of all shares of
Series A Preferred Stock at the time outstanding. All shares of Common
B-9
<PAGE>
Stock which shall be so issuable shall, when issued upon conversion of
all or any portion of the Series A Preferred Stock, be duly and
validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issuance thereof. Upon
conversion of Series A Preferred Stock, the shares of Series A
Preferred Stock so converted shall have the status of authorized and
unissued Preferred Stock, and the number of shares of Series A
Preferred Stock which the Corporation shall have authority to issue
shall be decreased by any such conversion.
(p) Dividends Constitute Corporate Debt. All dividends accrued and unpaid
on Series A Preferred Stock to and including the date of conversion,
whether or not declared by the Board of Directors, shall constitute a
debt of the Corporation payable without interest to the converting
holders and shall be paid by the Corporation on the Conversion Date,
in its option, either in cash or by the issuance of Dividend Shares as
provided in Section 4 hereof.
4. No Preemptive Rights. No holder of Series A Preferred Stock shall have any
preemptive or preferential right of subscription to any shares of stock of
the Corporation, or to options, warrants or other interests therein or
therefor, or to any obligations convertible into stock of the Corporation,
issued or sold, or any right of subscription to any thereof other than
such, if any, as the Board of Directors, in its discretion, from time to
time may determine and at such price or prices as the Board of Directors
from time to time may fix pursuant to the authority conferred by the
Corporation's Certificate of Incorporation.
5. Certain Restrictions. So long as any Series A Preferred Stock is
outstanding, the Corporation shall not, without the consent of holders of a
majority of the outstanding shares of Series A Preferred Stock, (i)
purchase, redeem or otherwise acquire any shares of any class of the
Corporation's outstanding capital stock, (ii) issue any class or series of
any class of capital stock which ranks prior to or pari passu with the
Series A Preferred Stock with respect to dividend rights or rights on
liquidation, winding-up or dissolution of the Corporation, (iii) amend,
alter or change the preferences or rights of any series or class of capital
stock of the Corporation (including the Series A Preferred Stock) or the
qualifications, limitations or restrictions thereof if such amendment,
alteration or change adversely affects the Series A Preferred Stock, (iv)
increase the authorized number of shares of Series A Preferred Stock, (v)
take any action which results in the liquidation, acquisition, merger or
sale of the Company or all or substantially all of its assets, (vi) take
any action which results in a change in the principal business of the
Company, or (vii) take any action which results in the repurchase of equity
securities, other than the repurchase of equity securities from Company
employees.
B-10
<PAGE>
6. Definitions.
(a) "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Corporation after November 10, 1997, except Common
Stock which may be issued pursuant to: (i) the conversion of the
Series A Preferred Stock; (ii) the exercise by the holders thereof of
the Corporation's common stock purchase warrants (the "Warrants");
(iii) the exercise by the holders thereof of any options which may be
granted pursuant to the Corporation's Stock Option Plan; (iv) the
exercise by the holders thereof of any currently issued options; and
(v) the exercise by employees of the Corporation or any of its
subsidiaries of options granted pursuant to any stock option plan
which may hereafter be adopted by the Corporation where the exercise
price of such options is not less than the fair market value of a
share of Common Stock on the date of grant thereof.
(b) "Change in Control" shall mean a merger or consolidation of the
Corporation with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent
(50%) of the total of the voting power represented by the voting
securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation or, except as provided
under Section 2 hereof, the closing of a sale or disposition by the
Corporation of all or substantially all of the Corporation's assets
(other than to a subsidiary or subsidiaries of the Corporation).
(c) "Common Stock" shall mean the shares of common stock of the
Corporation, par value $.01 per share, and any stock into which such
Common Stock may hereinafter be changed.
(d) "Conversion Date" shall have the meaning such term is given in Section
3(b) hereof.
(e) "Conversion Notice" shall have the meaning such term is given in
Section 3(b) hereof.
(f) "Conversion Ratio" shall have the meaning such term is given in
Section 3(d) hereof.
(g) "Conversion Shares" shall have the meaning such term is given in
Section 3(a) hereof.
(h) "Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exercisable
or exchangeable for, with or without payment of additional
consideration in cash or property, for Additional Shares of Common
Stock, either immediately or upon the arrival of a specified date or
the happening of a specified event.
(i) "Current Market Price" per share of Common Stock at any date herein
specified shall mean the average of the daily market prices for 5
consecutive Trading Days ending on the last trading day prior to such
date, except that for purposes of Section 3(c) hereof, the "Current
Market Price" per share of Common Stock shall mean the market prices
on the Trading Day therein specified. The market price for each such
B-11
<PAGE>
Trading Day shall be (i) if the Common Stock is quoted on the Nasdaq
National Market or Nasdaq Small Cap Market, the reported last sales
price, or (ii) if the Common Stock is listed or admitted to trading on
a national securities exchange, the last reported sales prices regular
way, or (iii) if the Common Stock is quoted on the NASD OTC Bulletin
Board, the average of the closing bid and asked prices regular way, or
(iv) if the Common Stock is not so quoted, as reasonably determined by
the Board of Directors of the Corporation.
(j) "Liquidation Preference" shall have the meaning such term is given in
Section 2 hereof.
(k) "Person" shall mean any individual, corporation, association, company,
business trust, partnership, joint venture, joint-stock company,
trust, unincorporated organization or association or government or any
agency or political subdivision thereof.
(l) "Securities Act" shall mean the Securities Act of 1933, as amended.
(m) "Trading Day" shall mean any day on which trading takes place (a) in
the over-the-counter-market and prices reflecting such trading are
published by the National Association of Securities Dealers Automated
Quotation System or (b) if the Common Stock is then listed or admitted
to trading on a national securities exchange, on the principal
national securities exchange on which the Common Stock is then listed
or admitted to trading.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this __
day of ___________, 1997.
DERMA SCIENCES, INC.
By:____________________________
Edward J. Quilty
Chairman
ATTEST:
By: ___________________________
________________, Secretary
B-12
<PAGE>
DERMA SCIENCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 29, 1997
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 Special Meeting of Shareholders of
Derma Sciences, Inc. to be held at the offices of Derma Sciences, Inc., 214
Carnegie Center, Suite 100, Princeton, New Jersey, 08540, on December 29, 1997
at 11:00 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" the following:
1. AMENDMENT OF THE ARTICLES OF INCORPORATION TO AUTHORIZE A CLASS OF
PREFERRED STOCK.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER(S) WHOSE SIGNATURE(S) APPEAR(S) ON THE REVERSE HEREOF. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1. 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.
(See reverse side)
<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: ___________________, 1997
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE. Please sign this proxy exactly as your
name appears in the address at left. If shares are
registered in more than one name, all owners should sign. If
you are signing in a fiduciary or representative capacity,
such as attorney-in-fact, executor, administrator, trustee
or guardian, please give full title and attach evidence of
authority. Corporations, please sign with full corporate
name by a duly authorized officer or officers and affix the
corporate seal. If a partnership, please sign in partnership
name by an authorized person.
I/WE PLAN TO ATTEND THE MEETING [_]
