SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. _____]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Derma Sciences, Inc.
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(Name of Registrant as Specified In Its Charter)
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(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:
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[GRAPHIC OMITTED]
DERMA SCIENCES, INC.
NOTICE OF SPECIAL MEETING
and
PROXY STATEMENT
Special Meeting of Shareholders
214 Carnegie Center
Suite 100
Princeton, New Jersey
September 9, 1998
<PAGE>
DERMA SCIENCES, INC.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(800) 825-4325
_________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
September 9, 1998
__________________________________________________
To the Shareholders:
A Special Meeting of Shareholders of Derma Sciences, Inc. will be held
on September 9, 1998, at 10:30 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 additional shares of preferred stock;
2. To consider issuance of up to 3,333,400 shares of the Company's
series B convertible preferred stock in connection with the
Company's private sale of $4,000,000 in aggregate principal
amount of convertible debentures;
3. To transact such other business as may properly come before the
meeting and all adjournments thereof.
Only shareholders of record at the close of business on 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
additional shares of preferred stock and "FOR" issuance of up to 3,333,400
shares of series B convertible 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
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DERMA SCIENCES, INC.
214 CARNEGIE CENTER, SUITE 100
PRINCETON, NEW JERSEY 08540
(800) 825-4325
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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 10:30 a.m. on Wednesday, September 9, 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 additional shares of preferred stock and for the issuance of up to
3,333,400 shares of the Company's Series B Convertible Preferred Stock ("Series
B Preferred Stock") in connection with the Company's private sale of $4,000,000
in aggregate principal amount of convertible debentures. The Board knows of no
matters which are to be presented for consideration at the Meeting other than
those specifically described herein and 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
4,580,132 shares of Common Stock, par value $.01 per share ("Common Stock"), and
1,737,500 shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock") outstanding and entitled to vote. Holders of Common Stock and Series A
Preferred Stock will each vote as a class with respect to both the amendment of
the Company's Articles of Incorporation authorizing additional shares of
preferred stock and the issuance of up to 3,333,400 shares of the Company's
Series B Preferred Stock. Each share of Common Stock and Series A Preferred
Stock held of record will be entitled to one vote at the Meeting. A quorum for
the conduct of business at the Meeting or adjournments thereof will consist of a
majority of the shares of each of the Company's Common Stock and Series A
Preferred Stock issued and outstanding at the close of business on the Record
Date.
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 15, 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
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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.
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%
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</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.
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(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.
(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 2.
(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 ADDITIONAL SHARES OF PREFERRED STOCK
AMENDMENT OF ARTICLES OF INCORPORATION
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 10,000,000 additional shares of preferred stock. The Amendment will become
effective upon the affirmative vote of a majority of the votes cast by holders
of each of the Company's Common Stock and Series A Preferred Stock, voting
separately, at the Meeting or adjournments thereof.
The additional shares of preferred stock that would become available
for issuance if the Amendment is approved could be issued for any proper
corporate purpose, as determined by the Board of Directors, at any time without
further shareholder approval, subject to applicable law and the rules of The
Nasdaq SmallCap Market ("Nasdaq") on which the Common Stock is 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 to issue any of the shares of the
newly created preferred stock other than in the amount described below relative
to its private financing.
DISSENTERS' RIGHTS
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 additional shares of preferred stock.
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 additional 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 ("Certificate of Preferences
and Rights") creating up to 3,333,400 shares of Series B Preferred Stock.
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SERIES B PREFERRED STOCK RIGHTS 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 (with the exception of liquidation rights as discussed
below). If the proposal is approved by the shareholders, the Board of Directors
of the Company intends to create and authorize issuance of up to 3,333,400
shares of Series B Preferred Stock with the rights and preferences summarized
below.
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 Series B Preferred Stock will be entitled to receive a
liquidation preference of $1.20 per share (in contrast to holders of Series A
Preferred Stock who 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 and 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.
Dividend and Preemptive Rights
Holders of the Series B Preferred Stock will not be entitled to any
dividend preference and will maintain no preemptive rights to purchase either
Series A or Series B Preferred Stock or Common Stock.
Preferred Stock Amendment and Certificate of Preferences and Rights
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.
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UNISSUED PREFERRED STOCK
If the proposal is approved by the shareholders and 3,333,400 shares of
newly authorized preferred stock are designated as Series B Preferred Stock and
issued as described above, 6,666,600 shares of preferred stock will remain
authorized and unissued. The Board of Directors is required to make any
determination to issue additional shares of 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,
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 preferred stock could have the effect of discouraging
unsolicited takeover attempts. The issuance of new shares of 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 interests of the Company
or its shareholders. 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.
PROPOSAL 2 - ISSUANCE OF UP TO 3,333,400
SHARES OF SERIES B PREFERRED STOCK
PRIVATE FINANCING
The Company, on July 8, 1998, closed a private placement of $4,000,000
in aggregate principal amount of its convertible debentures ("Debentures").
Terms of the Debentures require that upon: (1) approval of the Company's
shareholders of a sufficient number of additional shares of preferred stock, and
(2) the designation by the Company's Board of Directors of up to 3,333,400
shares of preferred stock as the Company's Series B Preferred Stock (as
described below), 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 Series B Preferred Stock convertible into one share of
Common Stock and one warrant ("Warrant(s)") to purchase one share of Common
Stock exercisable at $1.35 per share. The Company seeks shareholder approval for
the issuance of up to 3,333,400 shares of Series B Preferred Stock pursuant to
this private financing.
CURRENT REPORT ON FORM 8-K
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.
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.
ADDITIONAL INFORMATION
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997, the Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31 and June 30, 1998, and the Company's current report on
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Form 8-K filed with the Securities and Exchange Commission on July 10, 1998 are
incorporated into this Proxy Statement by reference. These documents can be
obtained by contacting Derma Sciences, Inc., 214 Carnegie Center, Suite 100,
Princeton, New Jersey, 08540, telephone: (800) 825-4325.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" AMENDMENT TO THE ARTICLES OF INCORPORATION AUTHORIZING CREATION OF
ADDITIONAL SHARES OF PREFERRED STOCK AND "FOR" ISSUANCE OF UP TO 3,333,400
SHARES OF SERIES B PREFERRED STOCK.
By Order of the Board of Directors,
EDWARD J. QUILTY
Chairman
August 15, 1998
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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
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Number and Street City State Zip Country
(a)
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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
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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
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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. 11,750,000 shares of preferred stock
with such designations, voting rights, preferences,
limitations and special rights as the board of directors
may direct.
A-3
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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 September __, 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 Three Million Three Hundred Thirty Three Thousand Four
Hundred (3,333,400) 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 senior to, or in
parity with, 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, 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
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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 Stock. 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
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
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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 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
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<PAGE>
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 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
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<PAGE>
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 (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 (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 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
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<PAGE>
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 (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 subsection (d)(vi) is not required to be
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
(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.
(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.
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<PAGE>
(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.
(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.
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6. Definitions.
(a) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after June 10, 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) "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
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(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 September, 1998.
DERMA SCIENCES, INC.
By:________________________
Edward J. Quilty
Chairman
ATTEST:
By:___________________________________
Stephen T. Wills, CPA, MST
Vice President, Chief Financial Officer
and Secretary
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DERMA SCIENCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Special Meeting of Shareholders to be held on September 9, 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 September 9, 1998
at 10:30 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 ADDITIONAL
SHARES OF PREFERRED STOCK.
[_] FOR [_] AGAINST [_] ABSTAIN
2. ISSUANCE OF UP TO 3,333,400 SHARES OF SERIES B CONVERTIBLE 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" PROPOSALS 1 AND 2. THIS PROXY
ALSO DELEGATES DISCRETIONARY AUTHORITY TO VOTE WITH RESPECT TO ANY OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
(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: ___________________, 1998
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 I/WE PLAN TO ATTEND THE MEETING [_]
