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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 8, 1998
DERMA SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 1-31070 23-2328753
(State or other jurisdiction (Commission (IRS employer
of incorporation) File Number) identification number)
214 Carnegie Center, Suite 100
Princeton, NJ 08540
(609) 514-4744
(Address including zip code and telephone
number, of principal executive offices)
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ITEM 5. OTHER EVENTS
Derma Sciences, Inc. (the "Registrant") on July 8, 1998 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
Registrant's shareholders of a new class of Series B Convertible Preferred
Shares ("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 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 Registrant expects to seek shareholder
approval for creation of the Preferred Stock at a special meeting of
shareholders which is anticipated to occur in August, 1998.
Purchasers in the offering include Hambrecht & Quist, San Francisco, Galen
Associates, New York, BlueStone Captial Partners, L.P., New York and Redwood
Asset Management, Oslow, Norway, as well as certain of the foregoing firms' and
Registrant's executives and associates. Proceeds from the private placement will
be used for working capital and, where appropriate, strategic acquisitions.
The Debentures have not been registered under the Securities Act of 1933
(the "Act") and may be offered or sold in the United States only upon
registration or pursuant to an exemption from registration. The Registrant has
undertaken to file a registration statement under the Act to permit resale of
the Common Stock issuable upon conversion of the Preferred Stock and upon
exercise of the Warrants.
The terms and conditions governing the offer and sale of the Debentures
are contained in the form of Purchase Agreement attached hereto as exhibit
10.01. The obligations of the Registrant with respect to the registration under
the Act of its Common Stock issuable upon conversion of the Preferred Stock and
upon exercise of the Warrants are described in the form of Registration Rights
Agreement attached hereto as exhibit 10.02. The rights and preferences of the
Preferred Stock which, together with the Warrants, comprise the Units are
described in the form of Certificate of Designations, Voting Powers, Preferences
and Rights of the Series B Convertible Preferred Stock attached hereto as
exhibit 10.03. Terms governing the issuance and exercise of the Warrants are set
forth in the form of Warrant Agreement attached hereto as exhibit 10.04. Terms
governing the rights and responsibilities of the holders of the Debentures are
set forth in the form of Convertible Debenture attached hereto as exhibit 10.05.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not applicable
(b) Not applicable
(c) Exhibits:
Number Description
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10.01 Form of Purchase Agreement.
10.02 Form of Registration Rights Agreement.
10.03 Form of Certificate of Designations, Voting Powers,
Preferences and Rights of the Series B Convertible
Preferred Stock.
10.04 Form of Warrant Agreement
10.05 Form of Convertible Debenture
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DERMA SCIENCES, INC.
Date: July 9, 1998 By:/s/ Stephen T.Wills, CPA, MST
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Vice President and Chief Financial Officer
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made as of the
___ day of June, 1998 by and between Derma Sciences, Inc., a corporation
organized under the laws of the Commonwealth of Pennsylvania (the "Company"),
with its principal offices at 214 Carnegie Center, Suite 100, Princeton, New
Jersey 08540, and the purchaser whose name and address is set forth on the
signature page hereof (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser agree as follows:
SECTION 1. Designation and Authorization of Sale of the
Debentures and Units. Subject to the terms and conditions of this Agreement, the
Company has authorized the sale of up to $4,000,000 aggregate principal amount
of the Company's Convertible Debentures due October 15, 1998 (the "Debentures").
The Debentures will bear interest on, and subject to, the terms described
therein beginning on the 120th day from the date hereof if the Company has not
obtained authorization for the issuance of the Preferred Shares. The Debentures
shall convert automatically and without action by the holder thereof on the
Authorization Date (as defined herein) into such number of Units (as defined
herein) as shall result assuming a purchase price of $1.20 per Unit. Each Unit
(the "Unit") shall consist of one share of Series B Convertible Preferred Stock,
par value $.01 per share (the "Preferred Shares"), and one exchangeable common
stock purchase warrant (the "Warrants"). Each Preferred Share will be
convertible into one share (the "Conversion Shares") of the Company's common
stock, par value $.01 per share (the "Common Stock"), upon the terms set forth
in the Certificate of Designations, Rights, Preferences and Privileges of the
Series B Convertible Preferred Stock (the "Certificate of Designations"),
attached as Exhibit C to the Confidential Private Placement Memorandum (as
defined in Section 4.6 hereof.) Each Warrant shall be issued pursuant to a
Warrant Agreement (the "Warrant Agent Agreement") substantially in the form
included as Exhibit D to the Confidential Private Placement Memorandum. On its
face each Warrant will be exchangeable for such number of shares of common stock
(the "Warrant Shares") obtained by dividing (x) the value of the Warrant
(determined by subtracting the aggregate exercise price of the Warrant from the
aggregate fair market value of the number of shares of Common Stock issuable
upon exercise of the Warrant), by (y) the fair market value of one share of
Common Stock prior to the exchange. Each Warrant will also be exercisable for
one share of Common Stock at an initial exercise price of $1.35 per share (the
"Warrant Price"). The Conversion Shares and the Warrant Shares are referred
herein as the "Underlying Common Shares."
SECTION 2. Agreement to Sell and Purchase the Units. (a) At
the Closing (as defined in Section 3), the Company will sell to the Purchaser,
and the Purchaser will buy from the Company, upon the terms and conditions
hereinafter set forth, Debentures in the aggregate principal amount shown below:
$_______________
(b) The Company proposes to enter into this same form of
purchase agreement with certain other investors (the "Other Purchasers") and
expects to complete sales of the Debentures to them. The Purchaser and the Other
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Purchasers are hereinafter sometimes collectively referred to as the
"Purchasers," and this Agreement and the agreements executed by the Other
Purchasers are hereinafter sometimes collectively referred to as the
"Agreements." The term "Documents" shall mean this Agreement, the Certificate of
Designations and the Warrant Agent Agreement, collectively, together with any
schedules or exhibits thereto.
(c) The Company reserves the right to reject this subscription
for Debentures in whole or in part at any time before the Closing Date (as
defined below) notwithstanding prior receipt by the Purchaser of notice of
acceptance of his subscription, if the Company deems such action to be in its
best interests.
SECTION 3. Delivery of the Debentures at the Closing. The
completion of the purchase and sale of the Debentures (the "Closing") shall
occur at a place and time (the "Closing Date") to be determined by the Company,
and of which the Purchasers will be notified by facsimile transmission or
otherwise. At the Closing, the Company shall deliver to the Purchaser (i) one or
more Debenture certificates registered in the name of the Purchaser, or in such
nominee name(s) as designated by the Purchaser, representing the principal
amount set forth in Section 2 above in such nominee name(s) designated by the
Purchaser as set forth in the Debenture/Stock/Warrant Certificate Questionnaire
attached hereto as part of Appendix I. The Company's obligation to complete the
purchase and sale of the Debentures and deliver such Debenture certificate(s) to
the Purchaser at the Closing shall be subject to receipt of Federal Reserve
(same-day) funds in the full amount of the purchase price for the Debentures
being purchased hereunder. The Purchaser's obligation to accept delivery of such
Debenture certificate(s) and to pay for the Debentures shall be subject to the
condition that the Company shall have (a) entered into a Registration Rights
Agreement in the form of Appendix III hereto (the "Registration Rights
Agreement") and (b) the accuracy in all material respects of the representations
and warranties made by the Company herein and the fulfillment in all material
respects of those undertakings of the Company to be fulfilled prior to Closing.
The Purchaser's obligations hereunder are not conditioned on the purchase by any
or all of the Other Purchasers of the Debentures that they have agreed to
purchase from the Company. The parties agree that there may be more than one
Closing; provided, that any subsequent Closing must be held within seven days of
the initial Closing Date.
SECTION 4. Representations, Warranties and Covenants of the
Company. The Company hereby represents and warrants to, and covenants with, the
Purchaser as follows:
4.1. Organization and Qualification. Each of the Company and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to conduct its business as currently
conducted. Each of the Company and its subsidiaries is qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the operations
of the Company and its subsidiaries, taken as a whole.
4.2. Authorized Capital Stock. As of the date hereof, the
authorized capital stock of the Company consists of: (a) 15,000,000 shares of
Common Stock of which 4,567,632 shares are outstanding, and (b) 1,750,000 shares
of Series A Convertible Preferred Stock of which all 1,750,000 shares are
outstanding.
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4.3. Due Execution, Delivery and Performance of the
Agreements. The Company has full power and authority to enter into this
Agreement and each Document. This Agreement has been, and each Document and the
Debentures will be, duly authorized, executed and delivered by the Company. The
Company's execution, delivery and performance of this Agreement, the Debentures
and each Document will not violate (i) any law, rule or regulation applicable to
the Company or any of its subsidiaries or (ii) the Certificate of Incorporation
or Bylaws of the Company or any of its subsidiaries or (iii) any provision of
any material indenture, mortgage, agreement, contract or other instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their properties or assets is bound as of
the date hereof, or result in a breach of or constitute (upon notice or lapse of
time or both) a default under any such material indenture, mortgage, agreement,
contract or other instrument or result in the creation or imposition of any
lien, security interest, mortgage, pledge, charge or other encumbrance upon any
properties or assets of the Company or any of its subsidiaries, except, in the
case of such clause (iii), where such violation, breach or default would not
have a material adverse effect on the business, properties, prospects, condition
(financial or otherwise), net worth or results of operations of the Company and
its subsidiaries taken as a whole (a "Material Adverse Effect"). Upon their
execution and delivery (assuming the valid execution thereof by the respective
parties thereto other than the Company), this Agreement, the Documents and the
Debentures will constitute valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' and contracting parties' rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.4. Issuance, Sale and Delivery of the Debentures. When
executed and delivered by the Company, the Debentures, will constitute valid and
legally binding obligations of the Company enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' and contracting parties rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding at equity or at law).
The principal amount outstanding under the Debentures will convert into Units in
accordance with their terms and the Preferred Shares and the Warrants comprising
such Units will have been authorized and reserved for issuance within 120 days
of the date hereof (the "Authorization Date") and when issued and delivered in
accordance with the terms of the Debentures will be validly issued, fully paid
and nonassessable.
4.5. Litigation. There is no action, suit or proceeding before
or by any court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company, threatened against or affecting
the Company or any of its subsidiaries which are not described in the
Confidential Private Placement Memorandum or documents incorporated by reference
therein and which might result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries, taken as a whole, or which might
materially and adversely affect their property or assets or which might
materially and adversely affect the consummation of this Agreement and the other
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Documents. All pending legal or governmental proceedings to which the Company or
any of its subsidiaries is a party or of which any of their property or assets
is the subject which are not described in the Confidential Private Placement
Memorandum (as defined below), including ordinary routine litigation incidental
to the business, are, considered in the aggregate, not material to the business
of the Company and its subsidiaries, taken as a whole.
4.6. Additional Information. The information contained
in the following documents is true and correct in all material respects as of
their respective dates:
(a) the Confidential Private Placement Memorandum
dated June 10, 1998 and all exhibits thereto
(the "Confidential Private Placement
Memorandum");
(b) the Company's definitive Proxy Statement
relative to its special meeting of shareholders
held January 7, 1998;
(c) the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997;
(d) the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1998;
(e) the Company's Current Report on Form 8-K dated
February 19, 1998;
(f) the Company's Current Report on Form 8-K dated
April 16, 1998;
(g) the Company's definitive Proxy Statement
relative to its annual meeting of shareholders
held May 12, 1998;
(h) the Company's Current Report on Form 8-K dated
May 14, 1998; and
(i) the Company's Current Report on Form 8-K dated
June 10, 1998.
(j) the Company's Registration Statement on Form S-3
dated February 10 and declared effective
February 19, 1998.
4.7. No Material Change; No Material Misstatement or Omission.
(a) Save as disclosed in the Confidential Private Placement Memorandum or in the
documents filed by the Company under the Exchange Act, there has been no
material adverse change in the consolidated financial condition, business or
results of operations of the Company since March 31, 1998. Save as disclosed in
the Confidential Private Placement Memorandum or in the documents filed by the
Company under the Exchange Act, the Company has not incurred, other than in the
ordinary course of its business, any material liabilities or obligations, direct
or contingent, nor has the Company or any of its subsidiaries purchased any of
their outstanding capital stock, nor paid or declared any dividends or other
distributions on their capital stock; and there has been no change in the
capital stock or, consolidated long-term debt or, any increase in the
consolidated short-term borrowings (other than in the ordinary course of
business) of the Company or any material adverse change to the business,
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properties, assets, net worth, condition (financial or other), results of
operations or prospects of the Company and its subsidiaries, taken as a whole.
(b) As of the date thereof, the Confidential Private Placement
Memorandum, including all addenda and exhibits thereto and all documents
incorporated by reference therein, does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4.8. Legal Opinion. Prior to closing, Hedger & Hedger, counsel
to the Company, will deliver its legal opinion to the Company in the form of
Appendix V hereto and stating that each of the Purchasers may rely thereon as
though such opinion were addressed directly to such Purchaser.
4.9. Issuance of Units. The Company shall, within three (3)
business days of the Authorization Date, issue to Purchaser a certificate or
certificates representing the number of securities comprising the Units to which
such Purchaser is entitled which certificates shall be legended as provided in
the Debentures. The Company shall issue Warrant Shares upon exercise of the
Warrants in accordance with the terms of the Warrant Agreement which shall be
legended as provided therein. After the Registration Statement (as defined) is
declared effective by the Commission, if any holder of legended Warrants or
Underlying Common Shares shall deliver to the Company (i) the certificate
representing such Warrants or Underlying Common Shares and (ii) a letter of
representations to the effect of Sections 5(b) and (c) herein, then the Company
shall within three business days after receipt by the Company of the foregoing
issue new Warrants or Underlying Common Shares in exchange for the
aforementioned legended Warrants or Underlying Common Shares which new Warrants
or Underlying Common Shares shall be legended as follows:
THE SHARES/WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SHARES/WARRANTS 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 SET FORTH IN THE PROSPECTUS. THE SHARES/WARRANTS
ARE SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET FORTH IN A
REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED
FROM THE CORPORATION.
4.10. Certificate. The Company shall deliver a certificate of
the Company executed by the Chairman of the Board or President and the chief
financial or accounting officer of the Company, to be dated the Closing Date, in
form and substance satisfactory to the Purchasers to the effect that the
representations and warranties of the Company set forth in this Section 4 are
true and correct as of the date of this Agreement and as of the Closing Date and
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the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied on or prior to such Closing
Date.
4.11. Authorization Date. The Company agrees and covenants
with the Purchaser to use its best efforts to obtain the necessary authorization
for the issuance of the Preferred Shares as soon as reasonably possible and in
no event later than 120 days from the date hereof (the "Authorization Date").
SECTION 5. Representations, Warranties and Covenants of the
Purchaser. (a) The Purchaser represents and warrants to, and covenants with, the
Company that: (i) the Purchaser is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to investments in
shares presenting an investment decision like that involved in the purchase of
the Debentures, including investments in securities issued by the Company, and
has requested, received, reviewed and considered all information it deems
relevant in making an informed decision to purchase the Debentures; (ii) the
Purchaser is acquiring the principal amount of Debentures set forth in Section 2
above in the ordinary course of its business and for its own account for
investment (as defined for purposes of the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 and the regulations thereunder) only and with no present
intention of distributing any of such Debentures, Units, Preferred Shares,
Warrants or Underlying Common Shares or any arrangement or understanding with
any other persons regarding the distribution or purchase of such Debentures,
Units, Preferred Shares, Warrants or Underlying Common Shares (this
representation and warranty does not limit the Purchaser's right to sell
pursuant to an exemption from registration or pursuant to any registration
statement to be filed by the Company pursuant to the Registration Rights
Agreement or, other than with respect to any claims arising out of a breach of
this representation and warranty, the Purchaser's right to indemnification under
the Registration Rights Agreement); (iii) the Purchaser will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Debentures, Units, Preferred Shares, Warrants or Underlying Common Shares except
in compliance with the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations promulgated thereunder and the Exchange
Act, and the rules and regulations promulgated thereunder, and the terms and
conditions of this Agreement; (iv) the Purchaser has completed or caused to be
completed the Registration Statement Questionnaire and the
Debenture/Stock/Warrant Certificate Questionnaire, both attached hereto as
Appendix I, for use in preparation of the Registration Statement and the answers
thereto are true and correct to the best knowledge of the Purchaser as of the
date hereof and will be true and correct as of the effective date of the
Registration Statement; (v) the Purchaser has, in connection with its decision
to purchase the principal amount of Debentures set forth in Section 2 above,
relied solely upon the Confidential Private Placement Memorandum and the
representations and warranties of the Company contained in writing herein, and
has not relied upon any other statements, representations, warranties, covenants
or assurances of the Company, (vi) the Purchaser is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act ("Regulation D"); and (vii) the Purchaser understands that the Debentures
and the Preferred Shares and, except as provided in Section 4.9 hereof, the
Warrants and the Underlying Common Shares will contain a legend to the following
effect (provided that certificates for the Preferred Shares shall omit the last
sentence thereof):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES 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
SECURITIES ARE SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH MAY
BE OBTAINED FROM THE COMPANY.
(b) The Purchaser hereby covenants with the Company that it
will not directly or indirectly make any offer, sale, pledge, transfer or other
disposition of the Debentures, the Units, the Preferred Shares, the Warrants or
the Underlying Common Shares other than in accordance with all applicable
federal and state securities laws and the terms and conditions of this
Agreement, including, but not limited to, the other representations, warranties
and covenants of the Purchaser in this Section 5.
(c) The Purchaser hereby covenants with the Company not to
make any sale of the Warrants or the Underlying Common Shares without
effectively causing the prospectus delivery requirement under the Securities Act
to be satisfied, and the Purchaser acknowledges and agrees that the Warrants and
the Underlying Common Shares are not transferable on the books of the Company
unless the certificate submitted to the transfer agent evidencing the Warrants
or the Underlying Common Shares is accompanied by a separate officer's
certificate: (i) in the form of Appendix IV hereto, (ii) executed by an officer
of, or other authorized person designated by, the Purchaser, and (iii) to the
effect that (A) the Underlying Common Shares have been sold in accordance with a
Registration Statement and (B) the requirement of delivering a current
prospectus has been satisfied.
(d) The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(e) The Purchaser acknowledges that it has had such access to
financial and other information concerning the Company, the Debentures, the
Units, the Preferred Shares and the Warrants as it deemed necessary in
connection with its decision to purchase the Debentures and the underlying
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Preferred Shares and the Warrants, including an opportunity to ask questions and
request information from the Company and its management and all such questions
have been answered and all information requested has been provided to the
satisfaction of the Purchaser and has not relied on any third party to conduct
due diligence.
(f) If the Purchaser proposes to sell, pledge, assign or
otherwise transfer or convey, directly or indirectly, any of the Debentures, the
Units, Preferred Shares, the Warrants or the Underlying Common Shares prior to
the date that the Registration Statement becomes effective, then the Purchaser
shall provide the Company, prior to the sale of any such Debentures, Units,
Preferred Shares, the Warrants or the Underlying Common Shares with a legal
opinion in form and substance satisfactory to the Company of legal counsel
satisfactory to the Company that such sale, pledge, assignment, transfer or
conveyance is exempt from the registration requirements under the Securities Act
and any applicable state securities and blue sky laws.
SECTION 6. Additional Interest. The Company and the Purchasers
agree that the holders of the Debentures will suffer damages if the Company
fails to promptly, but in no event later than the Authorization Date, obtain the
necessary authorization for the issuance of the Preferred Stock comprising the
Units and the additional shares of Common Stock underlying the Warrants, and
that it would not be feasible to ascertain the extent of such damages with
precision. The Company agrees that if it has failed within 120 days of the date
hereof to obtain the necessary authorization it shall pay additional interest
("Additional Interest") on the Debentures. Additional Interest shall accrue on
the principal amount of the Debentures over and above the stated interest at a
rate of 6.0% per annum and such Additional Interest rate shall increase at a
rate of an additional 1.5% per annum at the beginning of each subsequent 90-day
period.
SECTION 7. Survival of Representations, Warranties and
Agreements. Notwith-standing any representation made by any party to this
Agreement, all covenants, agreements, representations and warranties made by the
Company and the Purchaser in writing herein and in the closing certificates
delivered pursuant hereto shall survive the execution of this Agreement, the
delivery to the Purchaser of the Debentures being purchased and the payment
therefor.
SECTION 8. Registration of Underlying Common Shares. In
recognition of the fact that Purchasers, even though purchasing Preferred Shares
and Warrants for investment, may wish to be legally permitted to sell the
Underlying Common Shares when they deem appropriate, the Company has agreed to
use its best efforts to prepare and file with the Commission a Registration
Statement (the "Registration Statement") with respect to the resale of the
Underlying Common Shares from time to time through the Nasdaq SmallCap Market,
the Boston Stock Exchange, Pacific Exchange or in privately-negotiated
transactions all as described more fully in the Registration Rights Agreement.
SECTION 9. Broker's Fee. Each of the parties hereto hereby
represents that, on the basis of any actions and agreements by it, there are no
brokers or finders entitled to compensation in connection with the sale of the
Debentures, the Units, the Preferred Shares and the Warrants to the Purchaser.
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SECTION 10. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be by telecopier, with a
copy being mailed by a nationally recognized overnight express courier, and
shall be deemed given when receipt is acknowledged by transmit confirmation
report and shall be addressed as follows:
(a) if to the Company, to:
Derma Sciences, Inc.
214 Carnegie Center, Suite 100
Princeton, New Jersey 08540
Telephone: (800) 825-4325
Telecopier: (609) 452-0880
or to such other person at such other place as
the Company shall designate to the Purchaser in
writing;
(b) if to the Purchaser, at its address and
telecopier number as set forth at the end of
this Agreement, or at such other address or
addresses as may have been furnished to the
Company in writing.
SECTION 11. Changes. This Agreement may not be modified
or amended except pursuant to an instrument in writing signed by the Company and
the Purchaser.
SECTION 12. Headings. The headings of the various
sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be part of this Agreement.
SECTION 13. Severability. In case any provision contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
SECTION 14. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without reference to its rules as to conflicts of law) and the federal law of
the United States of America.
SECTION 15. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties. Facsimile signatures are considered
to be originals and shall have the same effect.
9
<PAGE>
SECTION 16. Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
10
<PAGE>
IN WITNESS WHEREOF, the Purchaser has caused this Agreement to
be executed by its duly authorized representative as of the day and year first
above written.
Print or Type: Name of Purchaser
(Individual or Institution):
______________________________
Name of Individual representing
Purchaser (if an Institution):
______________________________
Title of Individual representing
Purchaser (if an Institution):
______________________________
Signature by:
Individual Purchaser or Individual
representing Purchaser:
______________________________
Address:
______________________________
______________________________
Telephone:____________________
Telecopier:___________________
ACCEPTED AND AGREED TO
THIS ___ DAY OF JUNE, 1998:
DERMA SCIENCES, INC.
By:__________________________
Edward J. Quilty
Chairman
11
<PAGE>
Appendix I-A
DERMA SCIENCES, INC.
DEBENTURE/STOCK/WARRANT CERTIFICATE QUESTIONNAIRE
Pursuant to Section 3 of the Agreement, please provide us with the
following information:
1. The exact name that your Debentures are to be
registered in (this is the name that will appear on
your certificate(s)). You may use a nominee name if
appropriate:
---------------------------
2. The relationship between the Purchaser
and the Registered Holder listed
in response to item 1:
---------------------------
3. The mailing address of the Registered
Holder listed in response to item 1 above:
---------------------------
---------------------------
4. The Social Security Number or Tax
Identification Number of the
Registered Holder listed in response
to item 1 above:
--------------------------
<PAGE>
Appendix I-B
DERMA SCIENCES, INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration
Statement, please provide us with the following information:
1. Please state the name of the beneficial owner of the
Debentures to be purchased pursuant to the Purchase Agreement to which this
Appendix I-2 is attached. This is the name that will appear in the "Selling
Securityholder" section of the Registration Statement.
2. Please provide below the number of: (1) Units purchased by
the person or entity named in Item 1 above; (2) Preferred Shares purchased by
the person or entity named in Item 1 above; (3) Warrants purchased by the person
or entity named in Item 1 above; and (4) shares of Common Stock that the person
or entity named in Item 1 above owned at June 10, 1998:
(1) (2) (3) (4)
Number of Units Number of Number of Number of Shares of
Purchased Preferred Shares Warrants Common Stock Owned at
Purchased Purchased June 10, 1998
<PAGE>
Appendix I-B
3. Unless you check the following box, all Underlying Common
Shares relating to the Preferred Shares and the Warrants listed above will be
included in the Registration Statement.
[__]
If you checked the foregoing box, please indicate a lesser number of Preferred
Shares or Warrants to be used to determine the number of Underlying Common
Shares to be included in the Registration Statement.
4. Have you, your organization or the beneficial owner named
above had any position, office or other material relationship within the past
three years with the Company or its affiliates other than as disclosed in the
Prospectus included in the Registration Statement?
____ Yes ____ No
If yes, please indicate the nature of any such relationships
below:
<PAGE>
Appendix II
CONVERSION NOTICE
URGENT/FOR IMMEDIATE ATTENTION
ADDRESSED TO:
DERMA SCIENCES, INC.
214 CARNEGIE CENTER, SUITE 100
PRINCETON, NEW JERSEY 08540
TELEPHONE: (800) 825-4325
TELECOPIER: (609) 452-0880
Name of Nominee or Registered Holder:
................................................................................
(Print)
Telecopier number to which confirmation of receipt of this Conversion Notice
should be sent:
................................................................................
(Print)
Number of shares of Preferred Stock being converted hereby: ____________________
If you want the Common Stock certificate, if any, made out in another person's
name, fill in the form below:
(INSERT OTHER PERSON'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER, WHERE APPLICABLE)
============================================
============================================
................................................................................
................................................................................
................................................................................
................................................................................
(Print or type assignee's name, title, address and zip code)
Date:...........................................................................
Your
Signature:......................................................................
<PAGE>
Appendix III
REGISTRATION RIGHTS AGREEMENT
PLEASE REFER TO EXHIBIT B
OF THE
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
<PAGE>
Appendix IV
Attention:
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
The undersigned, [an officer of, or other person duly authorized by]
________________________________________________________________________________
[fill in official name of individual or institution]
hereby certifies that he/she [said institution] is the Purchaser of the shares/
warrants evidenced by the attached certificate, and as such, sold such shares/
warrants on _____________________________________in accordance with registration
[date]
statement number _______________________________________________________________
[fill in number or otherwise identify registration statement]
and the requirement of delivering a current prospectus and current annual and
quarterly reports by the Company has been complied with in connection with such
sale.
Print or Type:
Name of Purchaser
(Individual or
Institution):______________________________________________
Name of Individual
representing Purchaser
(if an Institution):_________________________________________
Title of Individual
representing Purchaser
(if an Institution):_________________________________________
Signature by:
Individual Purchaser
or Individual
representing
Purchaser:__________________________________________________
<PAGE>
APPENDIX V
FORM OF OPINION OF COUNSEL TO THE COMPANY
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to conduct its business as currently
conducted.
2. As of the date hereof, the authorized capital stock of the Company
consists of (i) fifteen million (15,000,000) shares of common stock, par value
$.01 per share ("Common Stock"), of which 4,567,632 shares are validly issued
and outstanding. To such counsel's knowledge, except as set forth in the
Confidential Private Placement Memorandum, there are no outstanding securities
exercisable for or convertible into shares of capital stock of the Company.
3. The Debentures to be issued and sold by the Company to the
Purchasers will be, upon issuance and payment therefor, duly authorized and
validly issued and legally binding obligations of the Company enforceable
against it in accordance with their terms and entitled to be benefits thereof.
The principal amount outstanding under the Debentures will convert into Units in
accordance with their terms on the Authorization Date.
4. The Company has full corporate power and authority to enter into
this Agreement and each Document. This Agreement has been, and each Document and
the Debentures will be, duly authorized, executed and delivered by the Company.
The Company's execution, delivery and performance of this Agreement, the
Debentures and each Document will not violate (i) any statute, rule or
regulation known to such counsel to be applicable to the Company or its
subsidiaries, (ii) to the best of such counsel's knowledge, any order, judgment,
ruling or decree of any court or any governmental, regulatory or administrative
body applicable to the Company or any of its subsidiaries, (iii) the Certificate
of Incorporation or Bylaws of the Company, or (iv) any provision of any
indenture, mortgage, agreement, contract or other instrument filed by the
Company with (A) its quarterly report on Form 10-QSB for the quarterly period
ended March 31, 1998, (B) filed by the Company with its Annual Report on Form
10-KSB for the year ended December 31, 1997, and (C) all other Exchange Act
Documents or result in a breach of or constitute (upon notice or lapse of time
or both) a default under any thereof, or result in the creation or imposition of
any lien, security interest, mortgage, pledge, charge or other encumbrance upon
any properties or assets of the Company or any of its subsidiaries, except in
the case of the foregoing clauses (i), (ii) and (iv) for those violations,
breaches or defaults which would not singly or in the aggregate, have a Material
Adverse Effect. Upon their execution and delivery (assuming the valid execution
thereof by the respective parties thereto other than the Company), this
Agreement, the Documents and the Debentures will constitute valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
<PAGE>
5. Except as described in the Confidential Private Placement
Memorandum, to such counsel's knowledge (without independent investigation),
there is no action, suit or proceeding before or by any court or governmental
agency or body, domestic or foreign, now pending, or threatened, against or
affecting the Company or any of its subsidiaries which might, singly or in the
aggregate, have a Material Adverse Effect, or which might materially and
adversely affect the consummation of this Agreement and the other Documents; to
such counsel's knowledge without independent investigation all pending legal or
governmental proceedings to which the Company or any of its subsidiaries is a
party or of which any of their property or assets is the subject which are not
described in the Confidential Private Placement Memorandum, including ordinary
routine litigation incidental to the business, are, considered in the aggregate,
not material to the business of the Company and its subsidiaries, taken as a
whole.
6. To such counsel's knowledge, no consent, approval, authorization,
order, registration, filing, qualification, license or permit of or with any
court or any public, governmental, or regulatory agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or assets is required for the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby, except for such as may be required by under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Debentures (as to which counsel expresses no opinion).
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of June 15, 1998 by and between Derma Sciences, Inc., a Pennsylvania
corporation (the "Company"), and the purchaser whose name and address is set
forth on the signature page hereof (the "Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated as of
June 15, 1998 between the Company and the Purchaser (the "Purchase Agreement").
In order to induce the Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide for the benefit of the Purchaser and the Other
Purchasers (as defined below) of the Debentures (as defined below), and any
subsequent holders of Registrable Securities (as defined below), the
registration rights set forth in this Agreement. The execution of this Agreement
is a condition to the closing under the Purchase Agreement.
The Company proposes to enter into substantially this same form of
registration rights agreement with certain other investors (the "Other
Purchasers") and expects to complete sales of Preferred Shares (as defined
below) and Warrants (as defined below) to them. The Purchaser and the Other
Purchasers are hereinafter sometimes collectively referred to as the
"Purchasers," and this Agreement and the registration rights agreements executed
by the Company and the Other Purchasers are hereinafter sometimes collectively
referred to as the "Agreements."
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Authorization Date: Has the meaning such term is given in the
Purchase Agreement.
Certificate of Designations: Means the Certificate of
Designations, Rights, Preferences and Privileges of the Series B
Convertible Stock, attached as Exhibit C to the Confidential Private
Placement Memorandum.
Closing Date: Has the meaning such term is given in the Purchase
Agreement.
Common Stock: The shares of common stock, par value $.01 per
share of the Company.
Confidential Private Placement Memorandum: The Confidential
Private Placement Memorandum dated June 10, 1998 prepared by the Company
in connection with the private placement of the Debentures.
1
<PAGE>
Conversion Notice: Has the meaning such term is given in the
Certificate of Designations.
Conversion Ratio: The Conversion Ratio has the meaning such term
is given in the Certificate of Designations.
Conversion Shares: Shares of Common Stock issuable upon the
conversion of the Preferred Shares. Each Preferred Share initially will
be convertible into one Conversion Share.
Debentures: The Company's Convertible Debentures due October 15,
1998 being sold and issued pursuant to the Purchase Agreement in the
aggregate principal amount set forth therein.
Effective Date: The date that the Resale Registration Statement
is declared effective by the SEC.
Exchange Act: The Securities Exchange Act of 1934, as amended
from time to time.
Holder: Each beneficial holder from time to time of Registrable
Securities.
Indemnified Holder: See Section 6(a).
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
Preferred Shares: The shares of Series B Convertible Preferred
Stock of the Company, par value $.01 per share, issued pursuant to the
Certificate of Designations, as part of the Units.
Prospectus: The prospectus included in any Registration
Statement, as supplemented by any prospectus supplement and as amended
by all amendments, including post-effective amendments and all material
incorporated by reference in such prospectus.
Registrable Securities: The Underlying Common Shares; provided
that an Underlying Common Share ceases to be a Registrable Security when
it (i) has been effectively registered under Section 5 of the Securities
Act and disposed of in accordance with any Registration Statement, (ii)
has been distributed to the public pursuant to Rule 144 under the
Securities Act ("Rule 144") (or any similar provisions then in force) or
(iii) is eligible for distribution to the public by the Holder pursuant
to Rule 144(k) (or any similar provisions then in force).
Registration Expenses: See Section 5.
2
<PAGE>
Registration Statement: Any registration statement of the
Company which, in accordance with Section 3 hereof, covers any of the
Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all
exhibits and all material incorporated by reference in such Registration
Statement.
Resale Registration Statement: See Section 3.
Securities Act: The Securities Act of 1933, as amended from time
to time.
SEC: The Securities and Exchange Commission.
Underlying Common Shares: The Conversion Shares and the Warrant
Shares.
Units: The Company's Units, each consisting of one share of
Series B Convertible Preferred Stock, $.01 par value, and one Common
Stock Purchase Warrant.
Warrant Agreement: The Warrant Agreement dated June 15, 1998
between the Company and StockTrans, Inc., as warrant agent, and included
as Exhibit D to the Confidential Private Placement Memorandum, as
contemplated by the Purchase Agreement.
Warrant Price: Has the meaning such term is given in the Warrant
Agreement.
Warrants: The Common Stock Purchase Warrants issued pursuant to
the Warrant Agreement and pursuant to the Purchase Agreements with the
Purchaser and the other Purchasers.
Warrant Shares: The shares of Common Stock issuable upon
exercise of the Warrants.
2. Securities Subject to this Agreement
Each holder from time to time of Registrable Securities shall be
entitled to the benefits of this Agreement. A Person is deemed to be a Holder of
Registrable Securities whenever such Person is the beneficial owner of
Registrable Securities. The Company is entitled to treat the record holder of
Registrable Securities as beneficial owner of Registrable Securities unless
otherwise notified by such holder.
3. Resale Registration: Timing of Filing, Effectiveness and Period of
Usability
Subject to the provisions of Section 4 hereof, the Company shall file
and use its best efforts to cause to be declared effective not later than the
later of: (i) the Authorization Date, (ii) 90 days from the date hereof, or
(iii) 90 days from the date of consumation or abandonment of the Company's
contemplated acquisition of Genetic Laboratories Wound Care, Inc. as described
in the Confidential Private Placement Memorandum, a "resale" Registration
3
<PAGE>
Statement (a "Resale Registration") on any appropriate form under the Securities
Act for all the Registrable Securities, which form shall be available for the
sale of the Registrable Securities in accordance with the untraded methods of
distribution thereof.
The Company agrees to use its best efforts to keep the Registration
Statement continuously effective and usable for resale of Registrable Securities
until 365 days (the "Effectiveness Period") from the Closing Date or such
shorter period which shall terminate when all the Registrable Securities covered
by such Registration Statement have been sold pursuant to such Registration
Statement or when all Registrable Securities otherwise have been sold pursuant
to Rule 144 or are freely tradeable in essentially the same manner as
contemplated in Section 4 below.
4. Registration Procedures
In connection with the Company's obligation to file Registration
Statements as provided in Section 3 hereof, the Company will as expeditiously as
possible:
(a) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the Holders of the
Registrable Securities covered by such Registration Statement a copy of
all such documents proposed to be filed, which documents will be subject
to the review of such Holders, and the Company will not file any
Registration Statement or amendment thereto or any Prospectus or any
supplement thereto to which the Holders of a majority in aggregate
principal amount of the Registrable Securities covered by such
Registration Statement shall reasonably object (provided that the
Company may assume, for the purposes of the foregoing that any Holder of
Registrable Securities has no objection if the Company has not received
notice from such Holder within five business days after delivery of such
documents to such Holder);
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement, and such
supplements to the Prospectus, as may be required by the rules,
regulations or instructions applicable to the registration form utilized
by the Company or by the Securities Act or rules and regulations
thereunder or otherwise necessary to keep the Registration Statement
effective for the applicable period and cause the Prospectus as so
supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(c) notify Purchaser and the Holders of Registrable Securities
promptly, and confirm such advice in writing,
4
<PAGE>
(1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to
the Registration Statement or any post-effective amendment, when
the same has become effective,
(2) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose, and
(3) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(e) furnish, without charge, to Purchaser and, upon request,
each Holder of Registrable Securities, at least one conformed copy of
the Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those incorporated by
reference);
(f) deliver to Purchaser and each Holder of Registrable
Securities without charge, as many copies of the Prospectus (including
each preliminary prospectus) and any amendment or supplement thereto as
such Persons may reasonably request; the Company consents to the use of
the Prospectus or any amendment or supplement thereto by each Purchaser
and each Holder of Registrable Securities in connection with the
offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(g) use its reasonable efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with
or approved by such governmental agencies or authorities as may be
necessary to enable the Holders thereof to consummate the disposition of
such Registrable Securities in such jurisdictions as the Holders may
reasonably specify in response to inquiries to be made by the Company,
provided that the Company will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process in
any such jurisdiction where it is not then so subject;
(h) if any event shall occur as a result of which it is
necessary, in the opinion of counsel for the Company, to amend or
supplement the Prospectus in order to make the Prospectus not misleading
in the light of the circumstances existing at the time it is delivered
by a Holder, prepare a supplement or post-effective amendment to the
5
<PAGE>
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the Holders of the Registrable
Securities, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(i) obtain a CUSIP number for all Registrable Securities (unless
already obtained), not later than the Effective Date;
(j) make available for inspection during normal business hours
by a representative of the Holders of a majority of the Registrable
Securities and any attorney or accountant retained by such
representative, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by such Holders or any such attorney or accountant in
connection with the Registration Statement; provided that all such
records, information or documents shall be kept confidential by such
Persons unless disclosure of such records, information or documents is
required by court or administrative order or is generally available to
the public other than as a result of disclosure in violation of this
Section 4(j);
(k) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to its
security holders an earnings statement satisfying the provisions of
Section 11(a) of the Securities Act (in accordance with Rule 158
thereunder or otherwise), no later than 45 days after the end of the
12-month period (or 90 days, if such period is a fiscal year) beginning
with the first month of the Company's first fiscal quarter commencing
after the Effective Date, which statements shall cover said 12-month
period;
(l) if at any time an event of the kind described in Section
4(h) shall occur, notify Purchaser and the Holders of Registrable
Securities that the use of the Prospectus must be discontinued (the
Company will not declare any such "black-out" periods in excess of
twenty business days during any twelve month period, unless otherwise
required); and
(m) on or prior to the date the Registration Statement is
declared effective by the SEC, cause all of the Underlying Common Shares
to be listed for trading on the Boston Stock Exchange or Pacific
Exchange (or on any other national securities exchange or the Nasdaq
SmallCap Market) on which the Company's shares of Common Stock are then
listed.
Each Holder of Registrable Securities as to which any
registration is being effected agrees, as a condition to the
registration obligations with respect to such Holder provided herein, to
furnish to the Company such information regarding the distribution of
such Registrable Securities as the Company may from time to time
reasonably request in writing.
6
<PAGE>
Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the
Company described in Section 4(k), such Holder will forthwith
discontinue disposition of Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(g) hereof, or until it is advised in writing
by the Company (which notice the Company shall give as promptly as
possible), that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
5. Registration Expenses
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation:
(1) all registration, filing and listing fees;
(2) fees and expenses of counsel acceptable to the holders of a
majority in principal amount of the Registrable Securities for
compliance with securities or blue sky laws;
(3) the Company's printing, messenger, telephone and delivery
expenses;
(4) fees and disbursements of counsel for the Company;
(5) fees and disbursements of all independent certified public
accountants of the Company (including the expenses of any special audit
necessary to satisfy the requirements of the Securities Act); and
(6) fees and expenses associated with any NASD filing required
to be made in connection with the Registration Statement.
All such expenses ("Registration Expenses") will be borne by the Company,
regardless of whether the Registration Statement becomes effective.
The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on a securities exchange or the Nasdaq SmallCap Market.
7
<PAGE>
6. Indemnification and Contribution
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
employees and agents and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being sometimes hereinafter referred to as an "Indemnified
Holder") from and against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and legal expenses) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission thereof based upon information
furnished in writing to the Company by such Holder or its agent expressly for
use therein; provided further, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission was completely corrected
in an amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such Holder thereafter fails to deliver such Prospectus
as so amended or supplemented, prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage, liability
or expense who purchased such Registrable Security which is the subject thereof
from such Holder. This indemnity will be in addition to any liability which the
Company may otherwise have.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against any Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing (but the omission to so notify the
Company shall not relieve it of any liability that it may have against any
Indemnified Holder otherwise than under this subsection), and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all expenses.
Indemnified Holders shall have the right, collectively, to employ their own
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be the expense of the Indemnified
Holders unless (a) the Company has agreed to pay such fees and expenses or (b)
the Company shall have failed to assume the defense of such action or proceeding
and have failed to employ counsel reasonably satisfactory to the Indemnified
Holders in any such action or proceeding or (c) the named parties to any such
action or proceeding (including any impleaded parties) include the Indemnified
Holders and the Company, and the Indemnified Holders shall have been advised by
counsel that there may be one or more legal defenses available to the
8
<PAGE>
Indemnified Holders which are different from or additional to those available to
the Company (in which case, if the Indemnified Holders notify the Company in
writing that they elect to employ their own counsel at the expense of the
Company, the Company shall not have the right to assume the defense of such
action or proceeding on behalf of the Indemnified Holders, it being understood,
however, that the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for the Indemnified Holders which firm shall be designated in writing by
the Indemnified Holders representing at least a majority of the aggregate
principal amount of the outstanding Registrable Securities). Any such fees and
expenses payable by the Company shall be paid to the Indemnified Holders
entitled thereto as incurred by the Indemnified Holders. The Company shall not
be liable for any settlement of any such action or proceeding effected without
its written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the Company
agrees to indemnify and hold harmless the Indemnified Holders from and against
any loss or liability by reason of such settlement or judgment.
(b) Indemnification by Holder of Registrable Securities. Each Holder of
Registrable Securities agrees to indemnify and hold harmless the Company, its
respective directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such Holder, but only with respect to information relating to such
Holder furnished in writing by such Holder expressly for use in any Registration
Statement or Prospectus, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be brought
against the Company or its respective directors or officers or any such
controlling person, in respect of which indemnity may be sought against a Holder
of Registrable Securities, such Holder shall have the rights and duties given
the Company, and the Company or its respective directors or officers or such
controlling person shall have the rights and duties given to each holder by the
preceding paragraph. In no event shall the liability of any Holder of
Registrable Securities hereunder be greater in amount than the dollar amount of
the proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Contribution. If the indemnification provided for in this Section 6
is unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses, (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company from the sale of the Preferred Shares to Purchaser pursuant to the
Purchase Agreement on the one hand and each Holder of Registrable Securities
from the offering of the Registrable Securities by such Holder, on the other
hand, or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and each Holder of Registrable Securities on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, or liabilities, as well as the other relevant equitable
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<PAGE>
considerations. The relative benefits received by the Company on the one hand
and each Holder of Registrable Securities on the other shall be deemed to be in
the same proportion as the aggregate amount paid by Purchaser to the Company
pursuant to the Purchase Agreement for the Registrable Securities purchased by
such Holder that were sold pursuant to the Registration Statement bears to the
difference (the "Difference") between the amount such Holder paid for the
Registrable Securities that were sold pursuant to the Registration Statement and
the amount received by such Holder from such sale. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the particular
Holder and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Holders of Registrable Securities agree that it would not be just and
equitable if contributions pursuant to this Section 6(c) were to be determined
by pro rata allocation or by any other method of allocation that does not take
account of the equitable consideration referred to in the first sentence of this
Section 6(c). The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this Section
6(c) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigation or defending against
any action or claim that is the subject of this Section 6(c). Notwithstanding
the provisions of this Section 6(c), each Holder of Registrable Securities shall
not be required to contribute any amount in excess of the amount by which the
Difference exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act), shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7. Rule 144 and Rule 144A
For so long as the Company is subject to the reporting requirements of
Section 13 or 15 of the Exchange Act, the Company covenants that it will file
the reports required to be filed by it under the Securities Act and Section
13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the
SEC thereunder. If the Company is not subject to the reporting requirements of
Section 13 or 15 of the Exchange Act, the Company also covenants that it will
provide the information required pursuant to Rule 144A(d)(4) under the
Securities Act upon the request of any Holder of Registrable Securities which
continue to be "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act and it will take such further action as any holder of
such Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell its Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, so long as such provision does not require the
public filing of information relating to the Company which the Company is not
otherwise required to file, (b) Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or (c) any similar rule or regulation
hereafter adopted by the SEC that does not require the public filing of
information relating to the Company. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
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<PAGE>
8. Miscellaneous
(a) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to their securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders of Registrable Securities hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any such agreements.
(b) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to the Registrable
Securities which would adversely affect the ability of the Holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of a
majority of the Registrable Securities.
(d) Notices. All notices, requests, consents and other communications
hereunder shall be by telecopier, with a copy being mailed by a nationally
recognized overnight express courier, and shall be deemed given when receipt is
acknowledged by transmit confirmation report, and shall be delivered as
addressed as follows:
(1) if to the Purchaser, at the most current address given by
the Purchaser to the Company in accordance with the provisions of this
Section 8(d), which address initially is as set forth on the signature
page hereto;
(2) if to a Holder of Registrable Securities, at its address of
record as indicated on the books of the transfer agent and registrar for
the Registrable Securities; and
(3) if to the Company, initially at its address set forth in
Section 10 of the Purchase Agreement and thereafter at such other
addresses, notice of which is given in accordance with the provisions of
this Section 8(d).
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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<PAGE>
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without reference to its
rules as to conflicts of law) and the federal law of the United States of
America.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Calculation of Majority. For purposes of determining whether the
Holders of a majority of the Registrable Securities have taken action pursuant
thereto, any Preferred Shares and Warrants then outstanding shall be deemed to
have been converted into Underlying Common Shares, which shares shall be treated
as outstanding for purposes hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DERMA SCIENCES, INC.
By: _______________________________
Edward J. Quilty, Chairman
Print or Type:
Name of Purchaser
(Individual or Institution):
___________________________________
Name of Individual
representing Purchaser (if an
Institution):
___________________________________
Title of Individual
representing Purchaser (if an
Institution):
___________________________________
Signature by:
Individual Purchaser or Individual
representing Purchaser:
___________________________________
Address: __________________________
Telephone: ________________________
Telecopier: _______________________
13
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,
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
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<PAGE>
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
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
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<PAGE>
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
AS SET FORTH IN THE PROSPECTUS. THESE SHARES ARE
SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET FORTH
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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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.
(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
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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 orexemptions
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.
(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
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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) "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.
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(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.
(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
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of June __, 1998 between Derma Sciences,
Inc.(the "Company") and StockTrans, Inc. (the "Warrant Agent").
The Company proposes to issue common stock purchase warrants (the
"Warrants"). Each Warrant entitles the holder thereof to purchase one share of
Common Stock, par value $.01 per share (the "Common Stock"), at a purchase price
of $1.35 per whole share. The Warrant Agent, at the request of the Company, has
agreed to act as the agent of the Company in connection with the issuance,
registration, transfer, exchange, and exercise of Warrants. Each Warrant shall
be exchangeable at the holder's request pursuant to the terms of Section 6
hereof.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment. The Company may from time to time appoint such
Co-Warrant Agents as it may deem necessary or desirable. The Company shall
promptly notify the Warrant Agent from time to time in writing of the number of
Warrants to be issued and furnish written instructions in connection therewith.
SECTION 2. Form of Warrant Certificates. The Warrant Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially of the tenor and purport recited in
Exhibit A hereto and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Warrant Agreement, or as
may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may from time to time be listed, or to conform to usage. The
Warrant Certificates shall be dated as of the date of issuance thereof by the
Warrant Agent, either upon initial issuance or upon transfer or exchange, and
initially shall entitle the holders thereof to purchase one share of Common
Stock, but the number of such shares and the purchase price per share of Common
Stock shall be subject to adjustments as provided herein.
SECTION 3. Countersignature and Registration. The Warrant Certificates
shall be executed on behalf of the Company by the Chairman of the Board, by
facsimile signature, and shall be attested by the President or the Secretary of
the Company by facsimile signature. The Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose unless
so countersigned. In case any of the Company who shall have signed any of the
Warrant Certificates shall cease to be such of the Company before
countersignature by the Warrant Agent and issuance and delivery by the Company,
such Warrant Certificates, nevertheless, may be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be such officer of the
Company; and any Warrant Certificates may be signed on behalf of the Company by
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any person who, at the actual date of the execution of such Warrant
Certificates, shall be a proper officer of the Company to sign such Warrant
Certificates, although at the date of the execution of this Warrant Agreement
any such person was not such an officer.
The Warrant Agent will keep or cause to be kept, at one of its offices
in the City of Ardmore, Commonwealth of Pennsylvania books for registration and
transfer of the Warrant Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Warrant Certificates, the
number of Warrants evidenced on its face by each of the Warrant Certificates,
and the date of each of the Warrant Certificates.
The Warrant Agent shall countersign a Warrant Certificate only (a) upon
initial issuance of the Warrants in accordance with the written order signed by
the Chairman of the Board and Chief Executive Officer, the President or any Vice
President or (b) upon exchange, transfer or substitution for one or more
previously countersigned Warrant Certificates as hereinafter provided.
SECTION 4. Transfer and Exchange. Subject to Section 6 hereof, the
Warrant Agent shall, from time to time, register the transfer of any outstanding
Warrant Certificate upon the books to be maintained by the Warrant Agent for
that purpose, upon surrender thereof for transfer properly endorsed or
accompanied by appropriate instruments of transfer and written instructions for
transfer. Upon any such registration of transfer, a new Warrant Certificate
shall be issued to the transferee and the surrendered Warrant Certificate shall
be canceled by the Warrant Agent. Any Warrant Certificate may be exchanged at
the option of the holder thereof, upon surrender at the office of the Warrant
Agent specified in Section 21 hereof, for another Warrant Certificate, or other
Warrant Certificates of different denominations, representing in the aggregate
the right to purchase a like number of shares of Common Stock. No fractional
Warrant Certificates will be issued. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Warrant Certificates.
SECTION 5. Common Stock and Warrant Common Stock. As hereinafter used
in this Agreement, Common Stock shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of either earnings or assets of the Company without limit as to
amount or percentage, and Warrant Common Stock shall mean only Common Stock, and
stock of any other class into which such presently authorized Common Stock may
hereafter be changed, issuable upon exercise or exchange of the Warrant. In
case, by reason of the operation of Section 7, the Warrants shall entitle the
registered holders thereof to purchase any other shares of stock or other
securities or property of the Company or of any other corporation, any reference
in this Agreement to the exercise Warrants shall be deemed to refer to and
include the purchase of such other shares of stock or other securities or
property upon such exercise.
SECTION 6. Warrant Price; Conversion Date of Warrants; Exchange of
Warrants. The registered holder of any Warrant Certificate may exercise or
exchange the Warrants evidenced thereby in whole or in part at any time on or
after the date hereof upon surrender of the Warrant Certificate with the form of
election to purchase or exchange on the reverse side thereof duly executed, to
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the Warrant Agent at the principal office of the Warrant Agent in the City of
Ardmore, Commonwealth of Pennsylvania, together with payment of the purchase
price for each one share of Common Stock as to which the Warrants are exercised,
at or prior to 3:30 p.m. Eastern Standard Time on June 15, 2002 (the "Exercise
Date").
The purchase price for each share of Common Stock pursuant to the
exercise of a Warrant (the "Warrant Price") shall be $1.35 during the period
from the date hereof until the Exercise Date, in each case as adjusted pursuant
to Section 7 hereof, and shall be payable in lawful money of the United States
of America.
The Warrants may be exchanged, in whole or in part, at the holder's
option, for that number of shares of Common Stock obtained by dividing the value
of the Warrant (determined by subtracting the aggregate exercise price of the
Warrant from the aggregate fair market value of the number of shares of Common
Stock issuable upon exercise of the Warrant), by the fair market value of one
share of Common Stock prior to the exchange.
SECTION 7. Warrant Adjustments. The Warrant Price and the number of
shares purchasable upon exercise of a Warrant shall be subject to adjustment as
follows:
(a) Stock Dividends, Subdivisions, Combinations and Reclassifications.
In case the Company shall at any time after the date of this Agreement (i)
declare a dividend on the Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, (iii) combine the outstanding Common
Stock into a smaller number of shares, or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the Warrant Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and/or the number and kind of
shares of capital stock issuable upon exercise of the Warrants on such date
shall be proportionately adjusted so that the holder of any Warrant exercised
after such time shall be entitled to receive the aggregate number and kind of
shares of capital stock which, if such Warrant had been exercised immediately
prior to such date and at a time when the Common Stock transfer books of the
Company were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Subscriptions. If at any time after the date hereof the Company
shall fix a record date for the issuance of rights or warrants to all holders of
its Common Stock, entitling them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or to purchase shares of Common
Stock (or securities convertible into shares of Common Stock) or having a
conversion price per share of Common Stock (if a security is convertible into
Common Stock) at a price per share less than the Current Market Price per share
of Common Stock on such record date (as determined in the manner prescribed in
Section 8 hereof) the Warrant Price shall be decreased to an amount determined
by multiplying such Warrant Price in effect immediately prior to such record
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date by a fraction, the numerator of which is the sum of the total number of
shares of Common Stock outstanding immediately prior to such record date plus
the number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so to be offered (or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such Current Market Price and the denominator of which shall be the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock to be offered for subscription or purchase
(or into which the convertible securities so to be offered are initially
convertible). In case such subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be as determined by the Board of Directors of the Company,
whose determination shall be conclusive, and described in a statement filed with
the Warrant Agent. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights or warrants are not so
issued, the Warrant Price shall again be adjusted to be the price which would
then be in effect if such record date had not been fixed.
(c) Distributions. If at any time after the date hereof the Company
shall fix a record date for the making of a distribution to all holders of its
Common Stock of evidences of its indebtedness or assets (excluding cash
distributions made as a dividend payable out of earnings or out of surplus
legally available for dividends under the laws of the jurisdiction of the
Company) or rights to subscribe (excluding those referred to in subsection (b)
above), then in each case the Warrant Price in effect immediately prior to such
record date shall be decreased to an amount determined by multiplying such
Warrant Price by a fraction, the numerator of which is the Current Market Price
on such record date less the then fair market value (as determined by the Board
of Directors of the Company, whose determination shall be conclusive, and
described in a statement filed with the Warrant Agent) of the assets or
evidences of indebtedness so distributed or of such subscription rights and the
denominator of which is the Current Market Price at such date. The number of
shares purchasable on such record date shall be increased to a number of shares
equal to (i) the number of shares purchasable at the date of such distribution
multiplied by the Warrant Price in effect immediately prior to the adjustment
required by the preceding sentence, divided by (ii) the adjusted Warrant Price
computed pursuant to the preceding sentence. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Warrant Price shall again be adjusted to the
Warrant Price which would then be in effect if such record date had not been
fixed.
(d) Consolidation, Merger or Sale of Assets. If, prior to the exercise
of any Warrants, the Company shall at any time consolidate with or merge into
another corporation, the holder of any Warrants will thereafter receive, upon
the exercise thereof in accordance with the terms of this Agreement, the
securities or property to which the holder of the number of shares of Common
Stock then deliverable upon the exercise or conversion of such Warrants would
have been entitled upon such consolidation or merger, and the Company shall take
such steps in connection with such consolidation or merger as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of the Warrants. The Company or the successor
corporation, as the case may be, shall execute and deliver to the Warrant Agent
a supplemental agreement so providing. A sale of all or substantially all the
assets of the Company for a consideration (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a consolidation
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or merger for the foregoing purposes. The provisions of this subsection (d)
shall similarly apply to successive mergers or consolidations or sales or other
transfers.
(e) Calculations to the Nearest Cent and One-Hundredth of a Share. No
adjustment in the Warrant Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in such price; provided, however,
that any adjustments which by reason of this Section 7(e) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 7 shall be made to the nearest
cent and to the nearest one-hundredth of a share as the case may be.
Notwithstanding the first sentence of this subsection (e), any adjustment
required by this Section 7 shall be made no later than the earlier of six months
from the date of the transaction which mandates such adjustment or the
expiration of the right to exercise any Warrant.
(f) Notice of Warrant Adjustment. Whenever the Warrant Price or the
number of shares purchasable upon exercise of a Warrant shall be adjusted as
provided in this Section 7, the Company shall forthwith file with the Warrant
Agent a certificate, signed by a firm of independent public accountants, showing
in detail the facts requiring such adjustment and the Warrant Price and number
of shares so purchasable that will be effective after such adjustment. The
Company shall also cause a notice setting forth any adjustments to be sent by
mailing first class, postage prepaid, to each registered holder of a Warrant or
Warrants at its address appearing on the Warrant register and, at its option,
may cause a copy of such notice to be published once in an English language
newspaper of general circulation in the City of Ardmore, Pennsylvania. The
Warrant Agent shall have no duty with respect to any certificate filed with, it
except to keep the same on file and available for inspection by registered
holders of Warrants during reasonable business hours. The Warrant Agent shall
not at any time be under any duty or responsibility to any holder of a Warrant
to determine whether any facts exist which may require any adjustment of the
Warrant Price, or with respect to the nature of any adjustment of the Warrant
Price when made, or with respect to the method employed in making such
adjustment.
(g) Other Notices. In case the Company after the date hereof shall
propose to take any action of the type described in subsections (b), (c) and (d)
of this Section 7, the Company shall file with the Warrant Agent a certificate,
signed by the Chairman, President or any Vice President of the Company and by
its Treasurer or Assistant Treasurer or Secretary or Assistant Secretary
specifying, in the case of any action of the type specified in subsection (d),
the date on which such action shall take place and shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such facts may be known on the date of such
notice) on the Warrant Price and the number, or kind, or class of shares or
other securities or property which shall be purchasable upon exercise of
Warrants. Such notice shall be given in the case of any action of the type
specified in subsections (b) and (c), at least 10 days prior to the record date
with respect thereto and in the case of any action of the type specified in
subsection (d) at least 10 days prior to the taking of such proposed action. The
Company shall also cause a notice setting forth any adjustments to be sent by
mailing first class, postage prepaid, to each registered holder of a Warrant
Certificate or Warrant Certificates at its address appearing on the Warrant
register and, at its option, may cause a copy of such notice to be published
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once in an English language newspaper of general circulation in the City of
Princeton, New Jersey. Failure to give such notice or any defect therein shall
not affect the legality or validity of such action.
(h) No Change in Warrant Terms on Adjustment. Irrespective of any of
the adjustments in the Warrant Price or the number of shares of Warrant Common
Stock, Warrant Certificates theretofore or thereafter issued may continue to
express the same prices and number of shares as are stated in a similar Warrant
Certificate issuable initially, or at some subsequent time, pursuant to this
Agreement and such number of Shares specified therein shall be deemed to have
been so adjusted.
(i) Treasury Shares. Shares of Common Stock at any time owned by the
Company shall not be deemed to be outstanding for purposes of any computation
under this Section 7.
(j) Optional Reduction in Warrant Price. Anything in this Section 7 to
the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Warrant Price, in addition to those adjustments required by
this Section 7, as it in its sole discretion shall determine to be necessary in
order that any consolidation or subdivision of the Common Stock, issuance wholly
for cash of any Common Stock at less than the Current Market Price, issuance
wholly for cash of Common Stock or securities which by their terms are
convertible into or exchangeable for Common Stock, stock dividend, issuance of
rights, options or warrants referred to hereinabove in this Section 7,
hereinafter made by the Company to its common stockholders, shall not be taxable
to them.
The Company may, at its option, at any time during the term of the
Warrants, reduce the then current Exercise Price to any amount deemed
appropriate by the Board of Directors of the Company, for any length of time.
SECTION 8. Current Market Price. For all purposes of this Agreement,
the Current Market Price per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices for the thirty consecutive
business days commencing before such date. The closing price for each day shall
be (a) if the Common Stock shall be listed or admitted to trading on the New
York Stock Exchange, the closing price on the NYSE-Consolidated Tape (or any
successor composite tape recording transactions on the New York Stock Exchange)
or, if such a composite tape shall not be in use or shall not report
transactions in the Common Stock, or if the Common Stock shall be listed on a
stock exchange other than the New York Stock Exchange, the last reported sales
price regular way on the principal national securities exchange on which the
Common Stock shall be listed or admitted to trading (which shall be the national
securities exchange on which the greatest number of shares of the Common Stock
has been traded during such thirty consecutive business days), or, in either
case, if there is no transaction on any such day, the average of the bid and
asked prices regular way on such day, or (b) if the Common Stock shall not be
listed or admitted to trading on any national securities exchange, the closing
price, if reported, or, if the closing price is not reported, the average of the
closing bid and asked prices, as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or a similar
source selected from time to time by the Company for the purpose. If on any such
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<PAGE>
date the shares of Common Stock are not quoted by any such source, the fair
value of such shares on such date, as determined by the Board of Directors of
the Company, shall be used.
SECTION 9. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right, which may be
exercised as in such Warrant Certificates expressed, to purchase from the
Company (and the Company shall issue and sell to such registered holders of
Warrants) all or part of the number of fully paid and nonassessable shares of
Warrant Common Stock specified in such Warrant Certificates (subject to the
adjustments as herein provided), upon surrender to the Company at the office of
the Warrant Agent specified in Section 21 hereof, of such Warrant Certificates
with the exercise form on the reverse thereof duly filled in and signed, and
upon payment to the Warrant Agent to the account of the Company of the Warrant
Price for the number of shares of Warrant Common Stock in respect of which such
Warrants are then exercised. The date of exercise of any Warrant shall be deemed
to be the date of its receipt by the Warrant Agent duly filled in and signed and
accompanied by proper funds as hereinafter provided. Payment of such Warrant
Price may be made in cash, or by certified or official bank check. No adjustment
shall be made for any cash dividends on shares of Warrant Common Stock issuable
upon exercise of a Warrant. Upon such surrender of Warrants, and payment of the
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the registered
holder of such Warrants and in such name or names as such registered holder may
designate, a certificate or certificates for the number of full shares of
Warrant Common Stock so purchased upon the exercise of such Warrants together
with cash as provided in Section 11 of this Agreement, in respect of any
fraction of a share of such stock issuable upon such surrender.
Each person in whose name any certificate for shares of Common Stock is
issued upon the exercise of Warrants shall for all purposes be deemed to have
become the holder of record of the Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Warrant Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Common Stock
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding business day on which the Common Stock transfer books of the
Company are open.
SECTION 10. Unexercised Warrants. To the extent that any Warrant
Certificates remain outstanding at the expiration of the period during which the
Warrants are exercisable, the unexercised Warrants represented thereby shall be
deemed null and void.
SECTION 11. Elimination of Fractions. The Company shall not be required
to issue fractional shares of stock upon any exercise of Warrants. As to any
final fraction of a share which the same registered holder of one or more
Warrants, the rights under which are exercised in the same transaction or series
of related transactions, would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Current Market Price (as
determined in the manner prescribed in Section 8 hereof) on the business day
which next precedes the day of exercise.
7
<PAGE>
SECTION 12. Issue Taxes. The Company will pay documentary stamp taxes,
if any, attributable to the initial issuance of shares of Warrant Common Stock
upon the exercise of any Warrant; provided, however, that neither the Company
nor the Warrant Agent shall be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue or delivery of any
certificates for shares of Warrant Common Stock in a name other than that of the
registered holder of Warrants, in respect of which such shares are initially
issued.
SECTION 13. Reservation of Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued stock, for the
purpose of effecting the issuance of stock upon exercise of Warrants, such
number of shares of its duly authorized Warrant Common Stock as shall from time
to time be sufficient to effect the issuance of shares of Warrant Common Stock
upon exercise of all Warrants at the time outstanding.
SECTION 14. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. In the case of Warrants which have been countersigned
by the Warrant Agent, but not delivered at the time any such successor to the
Warrant Agent succeeds to the agency created by this Agreement, any such
successor may adopt the countersignature of the original Warrant Agent and
deliver such Warrants so countersigned; and in case at that time any of the
Warrants shall not have been countersigned, any successor to the Warrant Agent
may countersign such Warrants either in the name of the predecessor Warrant
Agent or in the name of the successor Warrant Agent; and in all such cases such
Warrants shall have the full force and effect provided in the Warrants and in
this Agreement. In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrant Certificates so countersigned, and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name; and in all such cases such Warrant Certificates shall have the
full force and effect provided in the Warrant Certificates and in this
Agreement.
SECTION 15. Disposition of Proceeds on Exercise of Warrants, etc. The
Warrant Agent shall account promptly to the Company with respect to Warrants
exercised and concurrently pay to the Company all moneys received by the Warrant
Agent for the purchase of shares of Common Stock through the exercise of such
Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours at its office
specified in Section 21 hereof.
SECTION 16. Supplements and Amendments. The parties hereto may from
time to time supplement or amend this Agreement without the approval of any
8
<PAGE>
holders of Warrants to cure any ambiguity or to correct or supplement any
provision contained in this Agreement which may be defective or inconsistent
with any other provision contained herein, or to make such other provisions with
respect to any change or any supplemental agreement as the parties may deem
necessary or desirable and which shall not materially adversely affect the
interests of the registered holders of the Warrants.
SECTION 17. Mutilated or Missing Warrant Certificates. If any Warrant
shall be mutilated, lost, stolen or destroyed the Warrant Agent shall deliver a
new Warrant Certificate of like tenor and denomination in exchange and
substitution therefor upon surrender and cancellation of the mutilated Warrant
Certificate or, in the case of a lost, stolen or destroyed Warrant Certificate,
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
the loss, theft or destruction of such Warrant Certificate and, in either case,
upon receipt of such indemnity as the Company and the Warrant Agent may
reasonably require. Applicants for substitute Warrant Certificates shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent or the Company may prescribe. Any such new Warrant
Certificate shall constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or destroyed Warrant
Certificate shall be at any time enforceable by anyone.
SECTION 18. Duties of the Warrant Agent. The Warrant Agent undertakes
the duties and obligations imposed by this Warrant Agreement upon the following
terms and conditions, by all of which the Company and the holders of Warrants,
by their acceptance thereof, shall be bound:
The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature thereof and except such as describes
the Warrant Agent or action taken or to be taken by it) or be required to verify
the same, but all such statements and recitals are and shall be deemed to have
been made by the Company only. The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof or in respect of the validity or execution of any Warrant
Certificate (except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant Certificate to be complied with by the Company; nor
shall it be responsible for the making of any adjustment in the Warrant Price or
the number of shares issuable upon the exercise of a Warrant required under the
provisions of Section 7 or responsible for the manner, method or amount of any
such change or the ascertaining of the existence of facts that would require any
such change; nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
to be issued pursuant to this Agreement or any Warrant or as to whether any
shares will, when issued, be validly issued and fully paid and non-assessable.
The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
9
<PAGE>
such attorneys, agents or employees or for any loss to the Company resulting
from such neglect or misconduct, provided reasonable care had been exercised in
the selection and continued employment thereof.
The Warrant Agent may consult at any time with legal counsel
satisfactory to it (who may be legal counsel for the Company) and the advice of
such counsel shall provide complete authorization and protection to the Warrant
Agent as to any action taken or omitted by it in good faith and in accordance
with such advice.
The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of a Warrant Certificate for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
The Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent in the execution of this Warrant
Agreement, to reimburse the Warrant Agent for all expenses (including reasonable
counsel fees), taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the execution of this Warrant Agreement
and to indemnify the Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and reasonable counsel fees, for
anything done or omitted by the Warrant Agent in the execution of this Warrant
Agreement except as a result of the Warrant Agent's negligence, willful
misconduct or bad faith.
The Warrant Agent and any stockholder, director, officer or employee of
the Warrant Agent may buy, sell, or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Warrant Agent
under this Warrant Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.
The Warrant Agent shall act hereunder solely as agent for the Company
and in a ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, willful misconduct or bad faith.
SECTION 19. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement upon 30 days' notice in
writing mailed to the Company by registered or certified mail, and to the
holders of the Warrant Certificates by first-class mail. The Company may remove
the Warrant Agent or any successor Warrant Agent upon 30 days' notice in
writing, mailed to the Warrant Agent or successor Warrant Agent, as the case may
be, and to each transfer agent of the Common Stock by registered or certified
mail, and to the holders of the Warrant Certificates by first-class mail. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in of such resignation by the
resigning or incapacitated Warrant Agent or by the holder of a Warrant
Certificate (who shall, with such notice, submit such holder's Warrant
10
<PAGE>
Certificate for inspection by the Company), then the registered holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new Warrant Agent.
SECTION 20 Identity of Transfer Agent. Forthwith upon the appointment
of any subsequent Transfer Agent for shares of the Common Stock, the Company
will file with the Warrant Agent a statement setting forth the name and address
of such Transfer Agent.
SECTION 21 Notices. Any notice pursuant to this Agreement to be given
by the Warrant Agent or by the registered holder of any Warrant to the Company
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the Company with the
Warrant Agent) as follows:
Derma Sciences, Inc.
214 Carnegie Center, Suite 100
Princeton, New Jersey 08540
Attention: Edward J. Quilty
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder of any Warrant to the Warrant Agreement shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
StockTrans, Inc.
7 East Lancaster Avenue
Ardmore, Pennsylvania 19003
SECTION 22 Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 23 Governing Law. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the
Commonwealth of Pennsylvania, and for all purposes shall be construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
principles of conflict of laws.
SECTION 24 Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant Certificates.
SECTION 25 Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
SECTION 26 Registration of Shares of Common Stock. The Company will
furnish to the Warrant Agent, upon request, an opinion of counsel to the effect
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<PAGE>
that (a) a Registration Statement under the Securities Act of 1933, as amended,
is then in effect with respect to the shares of Warrant Common Stock issuable
upon exercise of the Warrants and the Prospectuses hereinafter referred to
comply as to form in all material respects with the requirements of said Act and
the rules and regulations of the Securities and Exchange Commission thereunder;
or (b) a Registration Statement under said Act with respect to said shares is
not required. In the event that said opinion states that such a Registration
Statement is in effect the Company will, from time to time, furnish the Warrant
Agent with current Prospectuses meeting the requirements of said Act and all
rules and regulations thereunder in sufficient quantity to permit the Warrant
Agent to deliver a Prospectus to each transferee of a Warrant Certificate and
each holder of a Warrant Certificate upon exercise or conversion thereof. The
Company further agrees to pay all fees, costs and expenses in connection with
the preparation and delivery to the Warrant Agent of the foregoing opinions and
Prospectuses.
If any shares of Warrant Common Stock issuable upon the exercise of the
Warrants or the issuance thereof requires registration or approval of any
governmental authority, including, without limitation, the filing of necessary
amendments, supplements or post-effective amendments to a Registration Statement
of the Company under the Securities Act of 1933, or the taking of any other
action under the laws of the United States of America or any political
subdivision hereof or under the laws of any state of the United States of
America before such shares may be validly and legally issued, then the Company
covenants that it will in good faith and as expeditiously as possible endeavor
to secure and keep effective such registration or approval or to take such other
action, as the case may be.
[SIGNATURES ON FOLLOWING PAGE]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed and delivered as of the day and year first above
written.
DERMA SCIENCES, INC.
By:________________________
Edward J. Quilty
Chairman
ATTEST:
By:____________________________
Stephen T. Wills, CPA, MST
Vice President, Chief Financial Officer
and Secretary
STOCKTRANS, INC.
By:________________________
Jonathan A. Miller
President
ATTEST:
By:________________________________
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EXHIBIT A
EXERCISABLE AT ANY TIME AT OR PRIOR TO
3:30 P.M. NEW YORK, EASTERN STANDARD TIME
ON JUNE __, 2002
WARRANT CERTIFICATE
DERMA SCIENCES, INC.
NO. WA-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This certifies that _________________________________ or registered assigns is
the registered holder of the number of Warrants set forth above, and is
entitled, upon surrender of this Warrant Certificate at the office of
StockTrans, Inc., Warrant Agent (or any successor as such Warrant Agent), in the
city of __________________, _______________, at any time on or after the date of
the Warrant Agreement (as defined) and at or prior to 3:30 p.m. Eastern Standard
Time June 15, 2002, to purchase one share of Common Stock, par value $.01, of
Derma Sciences, Inc., a Pennsylvania corporation (the "Company"), at the price
of $1.35 per whole share.
The applicable per share purchase price shown above and the
number of shares issuable upon exercise of the Warrants represented by this
Warrant Certificate are subject to adjustment for the occurrence of certain
events, including stock dividends and split-ups, combinations, reorganizations,
reclassifications, consolidations, mergers or sales of properties and assets and
upon the issuance of certain rights or warrants to holders of Common Stock or
the distribution to such holders of assets or indebtedness, as set forth in the
Warrant Agreement hereinafter referred to. A complete statement with respect to
such adjustments and to other terms and conditions pertaining to the Warrants is
contained in the Warrant Agreement dated as of June 15, 1998 between the Company
and StockTrans, Inc., Warrant Agent (the "Warrant Agreement") a copy of which
may be examined by the registered holder hereof at the office of the Warrant
Agent.
The Warrants may be exchanged, in whole or in part, at the
holder's option, for that number of shares of Common Stock obtained by dividing
the value of the Warrant (determined by subtracting, the aggregate exercise
price of the Warrant from the aggregate fair market value of the number of
shares of Common Stock issuable upon exercise of the Warrant), by the fair
market value of one share of Common Stock prior to the exchange.
To exercise the Warrants represented by this Warrant
Certificate the form of election to purchase on the reverse hereof must be duly
executed and the accompanying instructions for the registration and delivery of
the stock must be filled in.
The Warrants represented by this Warrant Certificate are
transferable (subject to the conditions set forth in the preceding paragraphs)
at the office in the City of Ardmore, Pennsylvania of the Warrant Agent (or of
its successor as Warrant Agent) by registered holder thereof in person or by
attorney duly authorized in writing, upon surrender of this Warrant Certificate.
Upon any such transfer, a new Warrant Certificate, representing the right to
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<PAGE>
purchase a like number of shares of the Company's Common Stock, will be issued
to the transferee in exchange for this Warrant Certificate.
This Warrant Certificate when surrendered at the office in the
City of Ardmore, Pennsylvania of the Warrant Agent (or of its successor as
Warrant Agent) by the registered holder hereof in person or by attorney duly
authorized in writing may be exchanged for another Warrant Certificate or
Warrant Certificates, representing in the aggregate the right to purchase a like
number of shares of the Company's Common Stock.
If the Warrants evidenced by this Warrant Certificate remain
outstanding at the expiration of the period during which Warrants are
exercisable, as set forth in the first paragraph of this Warrant Certificate,
such Warrants shall thereupon be deemed null and void.
No fractional shares of Common Stock will be issued upon the
exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof, a
cash payment will be made, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of Common
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue of
stock, reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or, except as provided in the Warrant Agreement, to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise, until the Warrant or Warrants evidenced by this Warrant Certificate
shall have been exercised as provided in the Warrant Agreement.
DERMA SCIENCES, INC.
ATTEST:
By:_____________________________
Edward J. Quilty, Chairman
By:___________________________
Stephen T. Wills, CPA, MST
Vice President, Chief Financial Officer
and Secretary
This Warrant Certificate is not valid until countersigned by
the Warrant Agent.
COUNTERSIGNED:
STOCKTRANS, INC.
By:______________________________
Jonathan A. Miller, President
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<PAGE>
FORM OF EXERCISE
(FORM OF EXERCISE TO BE EXECUTED BY THE WARRANT
HOLDER AT THE TIME OF EXERCISE)
To StockTrans, Inc. or its successor as Warrant Agent:
The undersigned, holder of the within Warrant Certificate,
hereby (1) irrevocably exercises the undersigned's right to purchase ________
shares of Common Stock, par value $0.01 per share, as Derma Sciences, Inc. (the
"Company") which the undersigned is entitled to purchase under the terms of the
within Warrant Certificate, or such other securities as the undersigned shall be
entitled to purchase under the terms of the Warrant Agreement referred to in
such Warrant Certificate by reason of the occurrence of certain events specified
therein, and (2) elects to make payment in full for the number of shares of
Common Stock so purchased by payment of $____ in cash or by certified or
official bank check.
Please issue the certificate of shares of Common Stock in the
name of, and pay any cash for any fractional share to:
- --------------------------------------------------------------------------------
Print or type name
- --------------------------------------------------------------------------------
Social Security or other Identifying Number
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
State Zip Code
If such number of shares shall not be all the shares purchasable upon the
exercise of the Warrants evidenced by this Warrant Certificate, a new Warrant
Certificate for the balance of such Warrants remaining unexercised shall be
registered in the name of and delivered to:
- --------------------------------------------------------------------------------
Please insert social security or other identifying number:
- ------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
Dated: ___________________ ____________________________________________
Signature
(Signature must conform in all respects to
name of holder as specified on the face
if the Warrant Certificate)
(Signature Medallion Guaranteed): __________________ Date: _______________
(If the Common Stock, cash in lieu of fractional shares, or Warrants for any
unexercised balance are to be issued or paid to a person other than the person
in whose name the within Warrant is registered, or if otherwise requested by the
Company or the Warrant Agent, a signature Medallion guarantee is required.)
3
<PAGE>
ASSIGNMENT
(FORM OF ASSIGNMENT TO BE EXECUTED IF WARRANT
HOLDER DESIRES TO TRANSFER WARRANT)
FOR VALUE RECEIVED, _____________________________________
hereby sells, assigns, and transfer unto ______________________ this Warrant
Certificate together with all right, title or interest therein and does hereby
irrevocably appoint ______________________ attorney to transfer the within
Warrant Certificate on the books of the Warrant Agent with full power of
substitution in the premises.
Dated: ___________________ ___________________________________________
Signature
(Signature must conform in all respects to
name of holder as specified on the face if
the Warrant Certificate)
(Signature Medallion Guaranteed): __________________ Date: _____________
(FORM OF FACE OF DEBENTURE)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED WITHIN THE "UNITED STATES" OR TO "U.S. PERSONS"
(AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF THIS SECURITY,
BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF
THE COMPANY THAT: (I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY, PRIOR TO THE DATE WHICH IS ONE YEAR AFTER THE DATE OF
ORIGINAL ISSUANCE HEREOF EXCEPT (A) TO DERMA SCIENCES, INC., (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT, OR (D) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AS CONFIRMED
IN AN OPINION OF COUNSEL ACCEPTABLE IN FORM AND SUBSTANCE TO THE ISSUER OF THIS
SECURITY AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND (III)
IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT
OF THIS SECURITY OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. ANY OFFER,
SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSE (II)(D) IS SUBJECT TO
THE RIGHT OF THE ISSUER OF THIS SECURITY TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO THEM IN FORM AND
SUBSTANCE.
i
<PAGE>
DERMA SCIENCES, INC.
(Incorporated in the Commonwealth of Pennsylvania)
CONVERTIBLE DEBENTURES DUE OCTOBER 15,1998
No. RA-_______________ U.S. $____________
Derma Sciences, Inc., a corporation duly incorporated and
existing under the laws of the Commonwealth of Pennsylvania (the "Company"), for
value received, hereby promises to pay to _____________________________________,
or registered assigns, the principal sum of United States Dollars on October 15,
1998 (the "Stated Maturity"), subject to extension as described herein. The
Stated Maturity shall be extended through the date on which the Company obtains
authorization for the issuance of the Series B Convertible Preferred Stock (such
date, the "Authorization Date"). The Debentures will be convertible on or after
the Authorization Date. The Debentures will accrue interest beginning 120 days
from the date hereof at a rate of 6% per annum, payable quarterly, with
additional interest becoming due each 90-day period following such initial
120-day period during which the Company has failed to obtain authorization for
the issuance of the Series B Convertible Preferred Stock. Interest hereon shall
be calculated on the basis of a 365/366 day year.
Reference is hereby made to the further provisions of this
Debenture set forth under the Terms and Conditions of the Debentures on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed in its corporate name by the manual or facsimile signature of a
duly authorized signatory, as attested to by another duly authorized signatory
of the Company.
Dated: ______________, 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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[Form of Reverse]
Terms and Conditions of the Debentures
1. General.
(a) This Debenture is one of a duly authorized issue of Debentures of
the Company designated as its Convertible Debentures due October 15, 1998
(herein called the "Securities").
(b) The Securities are issuable, without coupons, in denominations of
U.S. $20 and integral multiples thereof. The Securities, and transfers thereof,
shall be in registered form as provided in Section 6 hereof. The registered
holder of a Security shall (to the fullest extent permitted by applicable law)
be treated at all times, by all persons and for all purposes as the absolute
owner of such Security, regardless of any notice of ownership, theft or loss or
of any writing thereon.
(c) The Securities are direct obligations of the Company. Without the
approval of the holders of the Securities or except as otherwise provided
herein, the Company may not incur or issue any other indebtedness or securities
which ranks senior or pari passu to the Securities.
(d) The Company has agreed, subject to shareholder approval, to amend
its Certificate of Incorporation pursuant to that certain Purchase Agreement
dated June 15, 1998 by and between the Company and certain Purchasers named
therein ("Purchase Agreement") to allow for the issuance of the shares of Series
B Preferred Stock, $.01 par value, set forth in the Purchase Agreement within
120 days of the date hereof (the "Authorization Date"). The Company has agreed
to reserve for issuance the shares of the Company's common stock, $.01 par value
per share, underlying the shares of Series B Convertible Preferred Stock and the
warrants set forth in the Purchase Agreement (the "Warrants") (shares issuable
upon conversion of the Series B Preferred Stock and exercise of the Warrants are
collectively referred to as the "Underlying Common Stock"). On the Authorization
Date the Securities shall convert into units (the "Units") each of which
consists of one share of Series B Convertible Preferred Stock and one Warrant.
Each Debenture shall convert into such number of Units as shall result by
dividing the principal amount of Debentures by the purchase price per Unit. The
Company has agreed to file and use its best efforts to cause to become effective
not later than the date specified in the Purchase Agreement (the "Registration
Date") a registration statement on Form S-3 (the "Registration Statement")
covering the resale of the shares of the Underlying Common Stock issuable upon
conversion of the shares of the Series B Preferred Stock or the exercise of the
Warrants, as the case may be.
2. Conversion.
(a) On the Authorization Date the Securities shall convert
automatically and without action by the holder thereof into Units, as calculated
above, and shall thereafter be void and of no force or effect.
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(b) No payment or adjustment shall be made upon any conversion on
account of any interest accrued on the Securities surrendered for conversion or
on account of any dividends on the Underlying Common Stock. No fractions of
shares or scrip representing fractions of shares will be issued or delivered on
conversion, but instead of any fractional interest the Company shall pay a cash
adjustment as provided herein.
3. Events of Default.
In the event that any of the following ("Events of Default") shall
occur and be continuing:
(a) the Company shall fail to have sufficient shares of Common Stock
authorized and reserved for issuance no later than 120 days after the Closing
Date to permit conversion of the Securities; or
(b) the Company shall fail to maintain the Registration Statement
effective from the date of registration and for one year thereafter; or
(c) the Company shall fail duly to perform or observe any other term,
covenant or agreement contained in any of the Securities for a period of 60 days
after the date on which written notice of such failure, requiring the Company to
remedy the same, shall first have been given to the Company by the holders of at
least 25% in aggregate principal amount of the Securities at the time
outstanding; provided, however, that in the event the Company shall within the
aforesaid period of 60 days commence legal action in a court of competent
jurisdiction seeking a determination that the Company had not failed to duly
perform or observe the term or terms, covenant or covenants or agreement or
agreements specified in the aforesaid notice, such failure shall not be an Event
of Default unless the same continues for a period of 10 days after the date of
any final determination to the effect that the Company had failed to duly
perform or observe one or more of such terms, covenants or agreements; or
(d) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of the property of it or ordering the winding-up or liquidation
of the affairs of it and such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days; or
(e) the Company shall commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due or
shall take any corporate action in furtherance of any of the foregoing; or
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<PAGE>
(f) an event of default, as defined in any indenture or instrument
evidencing or under which the Company shall have outstanding at least $200,000
(or its equivalent in another currency), in aggregate principal amount of
indebtedness for borrowed money, shall have occurred and be continuing and such
default shall involve the failure to pay the principal of such indebtedness (or
any part thereof), when due and payable after the expiration of any applicable
grace period with respect thereto, or such indebtedness shall have been
accelerated so that the same shall be or become due and payable prior to the
date on which the same would otherwise have become due and payable, and failure
to pay shall not have been cured by the Company within 30 days after such
failure or such acceleration shall not be rescinded or annulled within 60 days
after notice thereof shall have first been given to the Company; provided that
if such event of default under such indenture or instrument shall be remedied or
cured by the Company or waived by the holders of such indebtedness, then the
Event of Default hereunder by reason thereof shall be deemed likewise to have
been thereupon remedied, cured or waived without further action upon the part of
any of the holders of Securities;
then the holder of this Security may, at such holder's option, declare the
principal of this Security and the interest accrued hereon to be due and payable
immediately in cash by written notice to the Company. Upon payment of such
amount of principal and interest in cash, all of the Company's obligations in
respect of payment of principal of and interest on this Security shall
terminate.
If an Event of Default, as defined in this Section 3, with respect to
the Securities, or an event which would, with the passing of time or the giving
of notice, or both be an Event of Default, shall occur and be continuing, the
Company shall within two business days of becoming aware thereof notify the
holders in writing of such Event of Default.
The Company shall provide to the holders on each anniversary of the
date hereof a certificate to the effect that there is then existing no default
with respect to the Securities, as defined in this Section.
4. Merger, Consolidation, Sale, Conveyance or Assumption.
(a) The Company will not merge or consolidate with, or sell or convey
all or substantially all of its assets to, any other corporation, unless (i)
either (A) the Company shall be the surviving corporation in the case of a
merger or (B) the surviving, resulting or transferee corporation shall expressly
assume the due and punctual payment of all the Securities, according to their
tenor, and the due and punctual performance of all of the covenants and
obligations of the Company under the Securities, by supplemental agreement
reasonably satisfactory to the holders of the Securities, (ii) the surviving,
resulting or transferee corporation, if not organized and validly existing under
the laws of the United States, shall expressly agree to make payments under the
Securities free of any deduction or withholding for or on account of taxes,
levies, imposts and charges whatsoever imposed by or for the account of the
jurisdiction where such successor corporation is generally subject to taxation
(or any political subdivision or taxing authority thereof or therein) in a
manner equivalent to that set forth herein, subject to the exceptions contained
in such forms of the Securities, and (iii) the Company or such successor
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<PAGE>
corporation, as the case may be, shall not, immediately after such merger,
consolidation, sale or conveyance, be in default in the performance of any
covenants or obligations of the Company under the Securities.
(b) Upon any merger, consolidation, sale, conveyance or assumption as
provided in Section 4(a), the successor or assuming corporation shall succeed to
and be substituted for, and may exercise every right and power of and be subject
to all the obligations of, the Company under the Securities, with the same
effect as if such successor or assuming corporation had been named as the
Company therein and herein and the Company shall be released from its liability
as obligor under the Securities; provided that any successor or assuming
corporation shall have the obligation to purchase the Securities only as a
result of circumstances which occur subsequent to such merger, consolidation,
sale, conveyance or assumption and as a result of which the Company would have
had such obligation if the Company had remained the obligor on the Securities.
In case of any such merger, consolidation, sale, conveyance or
assumption, such successor or assuming corporation shall succeed to and be
substituted for the Company with the same effect, subject to (in the case of a
merger to which the Company is a party) Section 4(b) of the Securities, as if it
had been named in the Securities as the Company; the Company shall thereupon be
relieved of any further obligation or liability hereunder or upon the
Securities, and the Company, as the predecessor corporation may thereupon or at
any time thereafter be dissolved, wound up or liquidated. Subject to all the
terms, conditions and limitations in the Securities prescribed, the successor or
assuming corporation shall deliver any Securities which previously shall have
been signed and delivered by the officers of the Company. All the Securities so
issued shall in all respects have the same legal rank and benefit as the
Securities theretofore or thereafter issued as though all of such Securities had
been issued at the date of the execution hereof.
In case of any merger, consolidation, sale, conveyance or
assumption, such changes in phraseology and form (but not in substance) may be
made in the Securities thereafter to be issued as may be appropriate.
5. Replacement, Transfer and Exchange of Securities.
(a) In case any Security shall at any time become mutilated, destroyed,
stolen or lost and such Security or evidence of the loss, theft or destruction
thereof (together with the indemnity hereinafter referred to and such other
documents or proof as may be required) shall be delivered to the Company, a new
Security of like tenor and date with appropriate interest coupons, if any, will
be issued by the Company in exchange for the Security so mutilated, or in lieu
of the Security so destroyed, stolen or lost, but, in the case of a destroyed,
stolen or lost Security only upon receipt of evidence satisfactory to the
Company that such Security was destroyed, stolen or lost, and if required by the
Company, upon receipt also of indemnity satisfactory to the Company. All
expenses and reasonable charges associated with procuring such indemnity and
with the preparation, authentication and delivery of a new Security shall be
borne by the owner of the Security so mutilated, destroyed, stolen or lost.
(b) Securities are exchangeable at the office of the Company in
Princeton, New Jersey or as designated by the Company for such purpose, for an
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<PAGE>
equal aggregate principal amount of Securities of authorized denominations as
required by the holder surrendering the same. In the event of conversion of a
Security in part only, a new Security or Securities for the unredeemed or
unconverted portion hereof will be issued in the name of the holder thereof.
(c) The costs and expenses of effecting any exchange or registration of
transfer pursuant to the foregoing provisions, except for the expenses of
delivery by other than regular mail (if any) and except, if the Company shall so
require, the payment of a sum sufficient to cover any tax or other governmental
charge or insurance charges that may be imposed in relation thereto, will be
borne by the Company.
(d) For purposes of the provisions of this Security, any Security
authenticated and delivered pursuant hereto shall, as of any date of
determination, be deemed to be "outstanding," except for:
(i) Securities previously converted, or canceled by the
Company or delivered to the Company for cancellation;
(ii) Securities which have become due and payable at maturity
or otherwise and with respect to which monies or shares of Common
Stock, as applicable, sufficient to pay the principal thereof and
interest thereon shall have been made available to the Company; or
(iii) Securities in lieu of or in substitution for which other
Securities have been authenticated and delivered pursuant hereto;
provided, however, that in determining whether the holders of the requisite
principal amount of outstanding Securities are present at a meeting of holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any subsidiary thereof shall be disregarded and deemed not to
be outstanding.
6. Modifications and Amendments.
(a) Without the consent of any holders of Securities, modifications of
or amendments to the Securities may be made for any of the following purposes:
(i) to evidence the succession of another corporation to the
Company and the assumption by any such successor of the covenants of
the Company in the Securities;
(ii) to add to the covenants of the Company for the benefit of
the holders of Securities, or to surrender any right or power herein
conferred upon the Company;
(iii) to make provision with respect to the conversion rights
of holders of Securities pursuant to Section 2 hereof;
(iv) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein; and
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<PAGE>
(v) to make any other provisions with respect to matters or
questions arising under this Security;
No such action pursuant to this paragraph (a) may adversely
affect the interests of the holders of Securities.
(b) Modifications and amendments to these Securities may be made, and
future compliance with or past default by the Company under any of the
provisions thereof may be waived, with the written consent of the holders of at
least a majority in aggregate principal amount of the Securities at the time
outstanding, provided, that no such modification, amendment or waiver may,
without the consent of the holder of each such Security affected thereby:
(i) waive a default in the payment of the principal of or
interest on any Security;
(ii) change the Stated Maturity (except as contemplated
herein) of the principal of or any installment of interest on, any
Security, or reduce the principal amount thereof or the rate of
interest thereon, or change the coin or currency in which any Security
or the interest thereon is payable, or adversely affect the right to
convert any Securities as provided in Section 2 or modify the
provisions of the Securities with respect to subordination of the
Securities in a manner adverse to the holders;
(iii) reduce the requirements of Section 6 hereof for quorum
or voting, or reduce the percentage in principal amount of the
outstanding Securities the consent of whose holders is required for any
amendment or modification of the Terms and Conditions of the
Securities;
(iv) change the obligation of the Company to maintain an
office or agency in Princeton, New Jersey or the City of New York; or
(v) modify any of the provisions of this Section except to
increase any such percentage or to provide that certain other
provisions of the Securities cannot be modified or waived without the
consent of the holder of each outstanding Security affected thereby.
7. Non-Business Days.
In any case where the date of maturity of the principal of or interest
on the Securities or the date fixed for redemption of any Security shall be at
any place of payment a Saturday, Sunday, a legal holiday or a day on which
banking institutions in Princeton, New Jersey or the City of New York are
authorized or obligated by law or executive order to close, then payment of
principal or interest need not be made on such date at such place but may be
made on the next succeeding day at such place of payment which is not a
Saturday, Sunday, a legal holiday or a day on which banking institutions in
Princeton, New Jersey or the City of New York are authorized or obligated by law
or executive order to close, with the same force and effect as if made on the
date of maturity or the date fixed for redemption, and no interest shall accrue
for the period after such date.
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8. Security Register.
The Company shall cause to be kept at its principal office a register
(the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
of transfers of Securities.
As provided herein and subject to certain limitations therein set forth
and compliance by the holder with applicable state and federal securities laws,
the transfer of Securities is registrable on the Security Register upon
surrender of a Security for registration of transfer at the office or agency of
the Company, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company duly executed by, the holder
thereof or his attorney duly authorized in writing, and thereupon one or more
new Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
9. Notices.
All notices to the holders of Securities will be mailed to registered
holders of Securities at their registered addresses as the same shall appear in
the Security Register on the day fifteen days prior to such mailing.
10. Governing Law.
The Securities shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflicts of law.
11. Countersignature and Registration.
This Security shall not become valid or obligatory for any purpose
until the certificate representing this Security shall have been duly executed
by the Company and such signature attested to by an authorized Officer thereof.
12. Warranty of the Company.
The Company hereby certifies and warrants that all acts, conditions and
things required to be done and performed and to have happened precedent to the
creation and issuance of this Security, and to constitute the same legal, valid
and binding obligations of the Company enforceable in accordance with their
terms, have been done and performed and have happened in due and strict
compliance with all applicable laws.
13. Accounting Terms.
All accounting terms not otherwise defined herein shall have the
meanings assigned to them in accordance with generally accepted accounting
principles as applied in the United States.
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14. Descriptive Headings.
The descriptive headings appearing herein are for convenience of
reference only and shall not alter, limit or define the provisions hereof.
<PAGE>
TRANSFER NOTICE
Only if a Security or Unit issued upon conversion of any Security is
transferred (if no registration statement covering the securities comprising the
Units is effective):
FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and
transfer(s) unto ________________________________________________________ whose
taxpayer identification number is ________________ and whose address including
postal/zip code is______________________________________________________________
_______________________________________ the within Security and all rights
thereunder, hereby irrevocably constituting and appointing _________________
attorney-in-fact to transfer said Security on the books of the Company with full
power of substitution in the premises.
In connection with the transfer of this Security, the undersigned
Holder certifies that:
(Check one)
[__] (a) This Security is being transferred with the
consent of the Company to a sophisticated
institutional investor which is an "accredited
investor" (within the meaning of Rule 501(a) under
the Securities Act of 1933, as amended) in a
transaction not involving any general solicitation or
advertising.
[__] (b) This Security is being transferred pursuant to
any other exemption from, or in a transaction not
subject to, the registration requirements of the
Securities Act of 1933, as amended, as confirmed in
an attached opinion of U.S. counsel.
Dated:_____________ Name:_____________________________
By:_______________________________
Title:____________________________
NOTICE: The signature of the Holder to this
assignment must correspond with the name as
written upon the face of the within
instrument in every particular, without
enlargement or any change whatsoever.
SIGNATURE GUARANTEED
_____________________________
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TO BE COMPLETED BY A BROKER OR DEALER IF (b) ABOVE IS CHECKED:
The undersigned represents and warrants that (i) it is a broker or
dealer registered under Section 15 of the Securities Exchange Act of 1934, as
amended; (ii) each person which will become a beneficial owner of this Security
upon transfer is a sophisticated institutional investor which is an "accredited
investor" (within the meaning of Rule 501(a) under the Securities Act of 1933,
as amended); (iii) no general solicitation or advertising was made or used by it
in connection with the offer and sale of this Security to such person(s); and
(iv) each such person has been notified that this Security has not been
registered under the Securities Act of 1933, as amended, and is subject to the
restrictions on transfer of the Security set forth herein.
Dated:____________________ _________________________________
By:______________________________
IF NONE OF THE FOREGOING BOXES IS CHECKED, THE HOLDERS SHALL NOT BE
OBLIGATED TO REGISTER THE TRANSFER OF THIS SECURITY UNLESS AND UNTIL THE
CONDITIONS TO ANY SUCH TRANSFER OF REGISTRATION SET FORTH HEREIN, ON THE FACE
HEREOF SHALL HAVE BEEN SATISFIED.
9
