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
August 28, 1998
<PAGE>
DERMA SCIENCES, INC.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(800) 825-4325
------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
August 28, 1998
------------------------------------------------------------
To the Shareholders:
A Special Meeting of Shareholders of Derma Sciences, Inc. will be held
on August 28, 1998, 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 new 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 August 3, 1998,
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 new
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 Friday, August 28, 1998, 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 new 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 August 3, 1998, 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
4,567,632 shares of Common Stock, par value $.01 per share ("Common Stock"), and
1,750,000 shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock") outstanding and entitled to vote. Series A Preferred Stock will vote as
a class. 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 August 11, 1998.
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.
1
<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(14) Beneficially Owned(15)
---------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Hambrecht & Quist California (2).......................... 1,225,000 21.15%
Srini Conjeevaram (3)..................................... 1,010,000 18.96%
Mary G. Clark, RN ........................................ 775,474 16.98%
Aries Funds (4)........................................... 750,000 14.10%
Edward J. Quilty (5)...................................... 670,500 13.34%
Redwood Asset Management (6).............................. 500,000 9.87%
John T. Borthwick (7)..................................... 339,414 7.30%
First Taiwan Investment Holding, Inc. (8)................. 248,000 5.43%
Charles F. Caudell, III (9) .............................. 160,000 3.41%
Richard S. Mink (9) ...................................... 157,500 3.36%
Stephen T. Wills, CPA (10)................................ 134,166 2.88%
Laurence F. Lane (11)..................................... 24,000 (*)
Timothy J. Patrick (12)................................... 10,000 (*)
All directors and officers as a group (8 persons) (13) ... 2,505,580 40.14%
- -------------------
</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) Hambrecht & Quist California can be reached at: One Bush Street, San
Francisco, California 94104. Ownership consists of 612,500 shares of
Series A Convertible Preferred Stock ("Series A Preferred Stock") and
612,500 warrants to purchase Common Stock exercisable at $0.90 per share
("Warrants").
(3) Srini Conjeevaram is a general partner of the Galen III Partnerships. He
and the Galen III Partnerships can be reached at: 610 Fifth Avenue,
Fifth Floor, New York, New York 10020. Includes shares owned by Galen
Partners III, L.P., Galen Partners International III, L.P. and Galen
Employee Fund III, L.P. Galen's Ownership consists of 250,000 shares of
Common Stock, 375,000 shares of Series A Preferred Stock and 375,000
Warrants. Mr. Conjeevaram also has 10,000 shares subject to options
currently exercisable. No additional shares subject to options will
become exercisable within 60 days of the Record Date.
(4) The Aries Funds can be reached at: Paramount Capital, Inc., The Aries
Fund, 787 Seventh Avenue, 48th Floor, New York, New York 10019. Includes
shares owned by The Aries Fund, A Cayman Islands Trust and Aries
Domestic Fund, L.P. Ownership consists of 375,000 shares of Series A
Preferred Stock and 375,000 Warrants.
(5) Includes 460,000 shares subject to options and Warrants currently
exercisable. No additional shares subject to options will become
exercisable within 60 days of the Record Date.
(6) Redwood Asset Management can be reached at: Ovre Ullorn Terrasse 32,
0358 Oslo, Norway. Ownership consists of 250,000 shares of Series A
Preferred Stock and 250,000 Warrants.
(7) Includes 80,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days of the Record Date.
(8) First Taiwan Investment Holding, Inc. can be reached at: 15/F, 563,
Chung Hsiao, East Road, Section 4 Taipei, Taiwan R.O.C.
(9) Includes 126,250 shares subject to options and Warrants currently
exercisable. No additional shares subject to options will become
exercisable within 60 days of the Record Date.
(10) Includes 86,083 shares subject to options and Warrants currently
exercisable and 9,333 shares subject to options that will become
exercisable within 60 days of the Record Date.
(11) Includes 16,000 shares subject to options currently exercisable. No
additional shares subject to options will become exercisable within 60
days of the Record Date.
(12) 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.
2
<PAGE>
(13) Includes 1,673,916 shares subject to options, Series A Preferred Stock
conversion capability and Warrants currently exercisable and exercisable
within 60 days of the Record Date by directors and officers of the
Company.
(14) Number of shares does not include shares acquired through the July 8,
1998 private placement described in Proposal 1.
(15) The percent beneficially owned by each entity or individual assumes the
exercise of all exercisable options (including those that would be
exercisable within 60 days of the Record Date), conversion of all Series
A Preferred Stock into Common Stock and the exercise of all Warrants
owned by such entity or individual.
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 new class of preferred stock. The Amendment will become effective upon the
affirmative vote of a majority of the votes cast by each of the Company's Common
Stock and Series A Preferred Stock, voting separately 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.
The Board of Directors believes that adoption of the Amendment is in
the best interests of the Company and its shareholders. Adoption of the
Amendment will authorize shares for issuance in connection with the Company's
private financing that closed in July, 1998 (set forth in detail below) and,
among other things, possible issuance in connection with such activities as
public or private offerings of shares for cash, dividends payable in stock of
the Company, acquisitions of other companies or properties and implementation of
employee benefit plans. The Company is in the process of negotiating and
consummating certain acquisitions. In connection with such acquisitions, the
Company or its subsidiaries, as part of the purchase price to be paid by it in
such acquisitions, may issue securities which are convertible or exchangeable
into other securities of the Company. The exact number of the Company's
securities issuable in such acquisitions is presently undeterminable, because,
among other things, such transactions have not been completed, and because the
number of shares issuable in such transactions may be subject to adjustment.
Unless otherwise required by applicable law, further authorization from the
Company's shareholders will not be solicited prior to the issuance of such
securities. The voting and equity ownership rights of the Company's shareholders
may be diluted by such issuances.
The additional shares of the newly created preferred stock that would
be available for issuance if the Amendment is approved could be issued for any
proper corporate purpose by the Board of Directors at any time without further
shareholder approval, subject to applicable law and the rules of The Nasdaq
Stock Market, Inc. ("Nasdaq") that apply to the Company as a result of the
quotation of the Common Stock on The Nasdaq SmallCap MarketSM so long as the
Common Stock is so quoted. Shareholders will not have preemptive rights to
subscribe for shares of Common Stock or preferred stock unless the Company
grants such rights at the time of issue. The Company currently has no plans or
proposals to issue any of the shares of the newly created preferred stock other
than in the amount described below relative to its private financing.
For the reasons discussed herein, 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
On July 8, 1998, the Company closed a private placement of Convertible
Debentures ("Debentures") in which an aggregate of $4 million was raised. Terms
of the Debentures require that upon approval of the Company's shareholders of a
new class of Series B Convertible Preferred Shares ("Series B Preferred Stock"),
the Debentures will automatically convert into units ("Unit(s)"), as hereafter
defined, at the rate of $1.20 per Unit. Each Unit will consist of one share of
3
<PAGE>
Series B Preferred Stock convertible into one share of Common Stock and one
warrant ("Warrant(s)") to purchase one share of Common Stock exercisable $1.35
per share. The Company presently seeks shareholder approval for creation of the
Series B Preferred Stock. Approximately 3,333,333 shares are required to be
issued pursuant to this private financing.
For additional information relative to the Company's private sale of
the Debentures, please refer to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 10, 1998.
AUTHORIZATION OF SERIES B PREFERRED STOCK
It is contemplated that the Series B 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 10,000,000 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 Series B Preferred
Stock ("Certificate of Preferences and Rights").
SERIES B PREFERRED STOCK POWERS AND PREFERENCES
The Series B Preferred Stock will have designations, voting rights,
preferences, limitations and special rights identical to those of the Company's
Series A Preferred Stock. If the proposal is approved by the shareholders, the
Board of Directors of the Company would have the authority to create and
authorize issuance of up to 10,000,000 shares of Series B Preferred Stock with
such Rights and Preferences as set forth below, with no further authorization by
holders of Common Stock or Series A Preferred Stock.
Voting Rights
The Series B Preferred Stock will have the same voting rights as the
Common Stock and Series A Preferred Stock of the Company, i.e. one vote per
share. The Series B Preferred Stock, Series A 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 Series A
or Series B Preferred Stock. The Company may not enter into certain transactions
without the consent of the holders of the Series A or Series B Preferred Stock
each 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 Series A or Series B 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 Series A or Series B
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 Series B 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 Series B Preferred Stock will be entitled to receive a
liquidation preference of $1.20 per share (whereas the Series A Preferred
Shareholders are entitled to receive a liquidation preference of $0.80 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 Series A or Series B 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.
4
<PAGE>
Dividend and Preemptive Rights
Holders of the Series B Preferred Stock are not entitled to any
dividend preference and maintain no preemptive rights to purchase either Series
A or Series B Preferred Stock or Common Stock.
ADDITIONAL INFORMATION
The Board of Directors is required to make any determination to issue
shares of the Series B Preferred Stock based on its judgment as to the best
interests of the shareholders and the Company. Although the Board of Directors
has no present intention of doing so, it could issue shares of preferred stock
(within the limits imposed by applicable laws and the rules of Nasdaq as
described above) that could, depending on the circumstances and, in the case of
the Series B Preferred Stock, the Rights and Preferences of the relevant class
or series, make more difficult or discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or other means. When
in the judgment of the Board of Directors such action would be in the best
interest of the Company, such shares could be used to create voting or other
impediments or to discourage persons seeking to gain control of the Company.
Such shares could be privately placed with purchasers favorable to the Board of
Directors in opposing such action. In addition, the Board of Directors could
authorize holders of a class or series of preferred stock to vote either
separately as a class or with the holders of the common stock on any merger,
sale or exchange of assets by the Company or any other extraordinary corporate
transaction. The existence of the Series B Preferred Stock could have the effect
of discouraging unsolicited takeover attempts. The issuance of new shares of
Series B Preferred Stock also could be used to dilute the stock ownership of a
person or entity seeking to obtain control of the Company should the Board of
Directors consider the action of such entity or person not to be in the best
interest of the Company. Any such issuance could also have the effect of
diluting the earnings per share, book value per share and/or voting power of the
Common Stock.
Under Pennsylvania law, shareholders are not entitled to dissenters'
rights of appraisal with respect to the proposed amendment to the Articles of
Incorporation of the Company to authorize the new class of preferred stock.
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.
Management's Discussion and Analysis of Financial Condition and Results
of Operations and the Financial Statements, including the notes thereto,
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997, and in the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1998, are incorporated into this Proxy Statement
by reference.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" AMENDMENT TO THE ARTICLES OF INCORPORATION AUTHORIZING CREATION OF A NEW
CLASS OF PREFERRED STOCK.
5
<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
August 11, 1998
<PAGE>
EXHIBIT A
ARTICLES OF AMENDMENT
Article 3 of the Articles of Incorporation of the corporation is
amended in its 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) Series A Preferred Stock. 1,750,000 shares of series A
preferred stock with such designations, voting rights,
preferences, limitations and special rights as the board of
directors may direct.
(c) Series B Preferred Stock. 10,000,000 shares of series B
preferred stock with such designations, voting rights,
preferences, limitations and special rights as the board of
directors may direct.
A-1
<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 B 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 August __, 1998, 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 B Convertible Preferred Stock" (the "Series B 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 B Preferred Stock, as follows:
1. Voting Rights. The holders of Series B 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 B 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 equal or senior to
the Series B 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 B 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,
B-1
<PAGE>
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 Corporation, the assets
distributable among the holders of Series B Preferred Stock (and any
series of preferred stock ranking in parity with the Series B 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 B
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. For purposes of the
foregoing, the Corporation's Series A Convertible Preferred Stock shall
rank in parity with the Series B Preferred. After payment of the full
amount of the liquidating distribution to which they are entitled, the
holders of Series B 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 B Preferred Stock or the qualifications,
limitations or restrictions thereof in a manner that adversely affects
the Series B Preferred Stock.
3. Conversion Rights.
(a) Conversion of Series B Preferred Stock. Each share of Series B
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 B
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 B 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
B-2
<PAGE>
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 B 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 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 B 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
B-3
<PAGE>
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 conversion of only
a portion of the number of whole shares covered by a
certificate representing shares of Series B 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 B 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 B 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 B
Preferred Stock. If more than one share of Series B 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 B Preferred
Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion
of any shares of Series B 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
B-4
<PAGE>
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 B Preferred Stock
surrendered for conversion after such time shall be
entitled to receive the aggregate number and kind of
shares which, if such Series B 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.
(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 (A) 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 (B) 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
(d)(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
B-5
<PAGE>
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 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 (A) any dividend or
distribution referred to in subsection (d)(i) hereof
and (B) any dividend or distribution paid in cash out
B-6
<PAGE>
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
subsection (d)(v) 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.
(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 B 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 B
B-7
<PAGE>
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 B 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 B 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 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
B-8
<PAGE>
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 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.
B-9
<PAGE>
(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 B
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 B 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 B 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 B 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 B Preferred
Stock, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series B
Preferred Stock at the time outstanding. All shares of Common
Stock which shall be so issuable shall, when issued upon
conversion of all or any portion of the Series B 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 B
Preferred Stock, the shares of Series B Preferred Stock so
converted shall have the status of authorized and unissued
Preferred Stock, and the number of shares of Series B
Preferred Stock which the Corporation shall have authority to
issue shall be decreased by any such conversion.
B-10
<PAGE>
(p) Dividends Constitute Corporate Debt. All dividends accrued and
unpaid on Series B 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 B 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 B Preferred Stock is
outstanding, the Corporation shall not, without the consent of holders
of a majority of the outstanding shares of Series B 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 B 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 B
Preferred Stock) or the qualifications, limitations or restrictions
thereof if such amendment, alteration or change adversely affects the
Series B Preferred Stock, (iv) increase the authorized number of shares
of Series B 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.
6. Definitions.
(a) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after June 15, 1998,
except Common Stock which may be issued pursuant to: (i) the
conversion of the Series B 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-11
<PAGE>
(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 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.
B-12
<PAGE>
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(m) "Trading Day" shall mean any day on which trading takes place
(i) in the over-the-counter-market and prices reflecting such
trading are published by the National Association of
Securities Dealers Automated Quotation System or (ii) 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 ___________, 1998.
DERMA SCIENCES, INC.
By:_______________________
Edward J. Quilty
Chairman
ATTEST:
By: ___________________________
Stephen T. Wills, CPA, MST
Vice President, Chief Financial Officer
and Secretary
B-13
<PAGE>
DERMA SCIENCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Special Meeting of Shareholders to be held on August 28, 1998
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 August 28, 1998 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 NEW 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: ___________________, 199_
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 [__]
