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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): August 16, 1999
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 August 16, 1999 closed on a private
offering of convertible bonds ("Bonds") in which an aggregate of $800,000 was
raised. The Bonds are due August 15, 2000 and pay interest only, at New York
prime, until maturity. The Bonds may be converted, at the option of the
bondholders, into units ("Units") each consisting of one share of Series C
Convertible Preferred Stock, par value $0.01 per share, ("Preferred Stock") and
one warrant ("Warrant") to purchase one share of common stock, par value $0.01
per share, ("Common Stock") at a per share price estimated to be $1.14. Proceeds
from sale of the Bonds will be used for working capital.
The terms and conditions governing the offer and sale of the Bonds are contained
in the form of Purchase Agreement attached hereto as Exhibit 10.01. The Bonds
and the terms and conditions governing their issuance are set forth in the Form
of Convertible Bond attached hereto as Exhibit 10.02. The Bonds are secured by a
security interest in certain property of the Registrant ("Collateral").
Collateral and the terms and conditions governing the bondholders' recourse to
same are described in the Security Agreement attached hereto as Exhibit 10.03.
The Registrant has undertaken to file a registration statement under the
Securities Act of 1933, as amended, (the"Act") to permit resale of the Common
Stock issuable upon conversion of the Preferred Stock and upon exercise of the
Warrants. The obligations of the Registrant with respect to the registration
under the Act of its Common Stock are described in the form of Registration
Rights Agreement attached hereto as Exhibit 10.04. 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 Preferred Stock attached hereto as Exhibit 10.05.
Item 7. Financial Statements and Exhibits
(a) Not applicable
(b) Not applicable
(c) Exhibits:
10.01 - Form of Purchase Agreement
10.02 - Form of Convertible Bond
10 03 - Form of Security Agreement
10.04 - Form of Registration Rights Agreement
10.05 - Form of Certificate of Designations, Voting Powers,
Preferences and Rights of the Preferred Stock
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Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DERMA SCIENCES, INC.
Date: August 20, 1999 By:/s/ Stephen T. Wills
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Stephen T. Wills, CPA, MST
Vice President and Chief Financial Officer
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made this 16th day of August,
1999, by and among Derma Sciences, Inc., a Pennsylvania corporation with offices
located at 214 Carnegie Center, Suite 100, Princeton, New Jersey ("Derma
Sciences" or "the Company"), and Galen Partners III, L.P., a Delaware limited
partnership with offices at 610 Fifth Avenue, New York, New York 10020, Galen
Partners International III, L.P., a Delaware limited partnership with offices at
610 Fifth Avenue, New York, New York 10020, Galen Employee Fund III, L.P., a
Delaware limited partnership with offices at 610 Fifth Avenue, New York, New
York 10020, Hambrecht & Quist California, LLC, a California limited liability
company with offices at One Bush Street, San Francisco, California 94104, and
Med-Tec Investors, LLC, a New Jersey limited liability company with offices at
777 Alexander Road, Princeton, New Jersey 08540 (these latter individually,
"Purchaser" and collectively, "Purchasers").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and each of the Purchasers agree as follows:
1. DESIGNATION AND AUTHORIZATION OF SALE OF THE BONDS AND UNITS. Subject to
the terms and conditions of this Agreement, the Company has authorized the sale
of up to $800,000 aggregate principal amount of the Company's Convertible Bonds
due August 15, 2000 (the "Bonds"). The Bonds shall provide, and shall be in the
form described below:
1.1. Provisions and Form. The Bonds shall pay interest and principal, shall
be convertible into Units (defined below) and shall otherwise be substantially
in the form as set forth in the Form of Convertible Bond attached hereto as
Exhibit 1.
1.2. Security. The Bonds shall be secured as to principal and interest in
the manner and with the collateral set forth in the Security Agreement attached
hereto as Exhibit 2.
1.3. Conversion Option. The Bonds may be converted, at the option of the
holders thereof ("Bondholders"), into units ("Units") each consisting of one
share of Series C Convertible Preferred Stock, par value $.01 per share,
("Series C Preferred Stock") and one warrant ("Warrant") to purchase one share
of common stock, par value $.01 per share ("Common Stock"). The periods during
which conversion may be effected, the conversion price ("Unit Purchase Price")
and other provisions governing conversion are set forth in sections 1, 2 and 3
of the Terms and Conditions of the Bonds of the Form of Convertible Bond
(Exhibit 1). The preferences and rights of the Series C Preferred Stock are set
forth in the Form of Preferred Stock Certificate and Form of Certificate of
Preferences and Rights of Series C Convertible Preferred Stock attached hereto
as Exhibits 3 and 4, respectively. The exercise price and other provisions
governing the Warrants are set forth in sections 1(d) and 2 of the Terms and
Conditions of the Bonds (Exhibit 1) and in the Form of Warrant Agreement
attached hereto as Exhibit 5.
1.4. Registration Rights. The common stock issuable upon conversion of the
Series C Preferred Stock and exercise of the Warrants ("Underlying Common
Stock") will be registered by the Company for public sale. Terms and conditions
governing registration of the Underlying Common Stock are set forth in the
Registration Rights Agreement attached hereto as Exhibit 6.
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2. AGREEMENT TO SELL AND PURCHASE THE BONDS. At the Closing (as defined in
Section 3), the Company will sell and deliver to each Purchaser, and each
Purchaser will buy from the Company and accept delivery of, the Bonds upon the
terms and conditions hereinafter set forth:
2.1. Principal Amount of the Bonds. The aggregate principal amounts of the
Bonds to be purchased by each Purchaser are as follows:
Purchaser Principal Amount
Galen Partners III, L.P. $365,426.00
Galen Parnters International III, L.P. $33,077.00
Galen Employee Fund III, L.P. $1,497.00
Hambrecht & Quist California, LLC $300,000.00
Med-Tec Investors, LLC $100,000.00
2.2. Documents. This Agreement and the agreements executed by the Company,
its subsidiaries and the Purchasers pursuant hereto are hereinafter sometimes
collectively referred to as the "Documents." The term Documents shall mean this
Agreement, the Form of Convertible Bond, the Security Agreement, the Form of
Preferred Stock Certificate, the Form of Certificate of Preferences and Rights
of Series C Convertible Preferred Stock, the Form of Warrant Agreement and the
Registration Rights Agreement together with any schedules or exhibits thereto.
3. DELIVERY OF THE BONDS AT THE CLOSING. The completion of the purchase and
sale of the Bonds (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; provided, however, that the
closing shall not occur later than August 31, 1999. At the Closing, the Company
shall deliver to each Purchaser (i) one or more Bond 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. The
Company's obligation to complete the purchase and sale of the Bonds and deliver
such Bond 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 Bonds being purchased hereunder by such Purchaser. Each
Purchaser's obligation to accept delivery of such Bond certificate(s) and to pay
for the Bonds shall be subject to the condition that the Company shall have (a)
entered into a Registration Rights Agreement in the form of Exhibit 6 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. No Purchaser's obligations hereunder are
conditioned on the purchase by any other Purchaser of the Bonds that it has
agreed to purchase from the Company. The parties agree that there may be more
than one Closing; provided, that all Closings for the sale of Bonds of the
series offered hereby must be held within seven days of the first Closing for
such series.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
hereby represents and warrants to, and covenants with, each Purchaser as
follows:
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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 and to own its assets wherever located. 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) 30,000,000 shares of Common Stock
of which 1,325,938 shares are outstanding, (b) 1,750,000 shares of Series A
Convertible Preferred Stock of which 272,500 shares are outstanding, (c)
3,333,340 shares of Series B Convertible Preferred Stock of which 666,668 are
outstanding and 6,666,660 shares of undesignated preferred stock of which none
are outstanding.
4.3. Due Execution, Delivery and Performance of the Agreement. The Company
has full power and authority to enter into this Agreement and each of the
Documents. This Agreement has been, and each Document and the Bonds will be,
duly authorized, executed and delivered by the Company. The Company's execution,
delivery and performance of this Agreement, the Bonds 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 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 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 Bonds 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 Bonds, Series C Preferred Stock and
Common Stock. When executed and delivered by the Company, the Bonds, Series C
Preferred Stock and Common Stock 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
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principles of equity (regardless of whether such enforceability is
considered in a proceeding at equity or at law). Upon issuance, the Series C
Preferred Stock, Warrants and Underlying Common Stock will be duly authorized
and validly issued and, upon payment therefor, will be non-assessable.
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 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 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, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material to the business of
the Company and its subsidiaries.
4.6. Exchange Act Reports; No Material Misstatement or Omission. The
Company has timely filed all periodic reports required to be filed under the
Securities Exchange Act of 1934 ("Exchange Act Reports"). As of their respective
dates, the Company's Exchange Act Reports do 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.
4.7. No Material Change. Save as disclosed in the Company's Exchange Act
Reports and on Schedule 4.7 attached hereto, the Company has not incurred 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, properties, assets, net worth, condition (financial or other),
results of operations or prospects of the Company and its subsidiaries, taken as
a whole.
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
II 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 Conversion Notification Date (as defined in the Form of Convertible
Bond), issue to each converting 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
Form of Convertible Bond. The Company shall issue its Common Stock 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 in the Registration Rights Agreement) is declared effective by the
Securities and Exchange Commission, if any holder of Underlying Common Stock
shall deliver to the Company 's transfer agent (i) the certificate
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representing
such Underlying Common Stock and (ii) a letter of representations to the effect
of Sections 5(b) and (c) herein, then the Company's transfer agent shall within
3 business days after receipt of the foregoing issue new Underlying Common Stock
in exchange for the aforementioned legended Underlying Common Stock which new
Underlying Common Stock shall be legended as follows:
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 SET FORTH IN THE PROSPECTUS.
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 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.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. (a) Each
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 presenting an
investment decision like that involved in the purchase of the Bonds, 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 Bonds; (ii) the Purchaser is acquiring the principal
amount of Bonds 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
Bonds, Units, Series C Preferred Stock, Warrants or Underlying Common Stock or
any arrangement or understanding with any other persons regarding the
distribution or purchase of such Bonds, Units, Series C Preferred Stock,
Warrants or Underlying Common Stock; (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
Bonds, Units, Series C Preferred Stock, Warrants or Underlying Common Stock
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, in connection
with its decision to purchase the principal amount of Bonds set forth in Section
2 above, relied solely upon 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, (v) the
Purchaser is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated under the
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Securities Act ("Regulation D"); and (vi) the
Purchaser understands that the Bonds and the Series C Preferred Stock and,
except as provided in Section 4.9 hereof, the Warrants and the Underlying Common
Stock will contain a legend to the following effect (provided that certificates
for the Series C Preferred Stock shall omit the last sentence thereof):
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) Each Purchaser hereby covenants with the Company that it will not
directly or indirectly make any offer, sale, pledge, transfer or other
disposition of the Bonds, the Units, the Series C Preferred Stock, the Warrants
or the Underlying Common Stock 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) Each Purchaser hereby covenants with the Company not to make any public
sale of the Underlying Common Stock without effectively causing any applicable
prospectus delivery requirement under the Securities Act to be satisfied, and
the Purchaser acknowledges and agrees that the Underlying Common Stock is not
transferable on the books of the Company unless the certificate submitted to the
transfer agent evidencing the Underlying Common Stock is accompanied by a
separate officer's certificate: (i) in the form of Appendix I 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 Stock has been
sold in accordance with a Registration Statement and (B) the requirement of
delivering a current prospectus has been satisfied or does not apply.
(d) Each 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).
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(e) Each Purchaser acknowledges that it has had such access to financial
and other information concerning the Company, the Bonds, the Units, the Series C
Preferred Stock and the Warrants as it deemed necessary in connection with its
decision to purchase same, 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.
(f) If a Purchaser proposes to sell, pledge, assign or otherwise transfer
or convey, directly or indirectly, any of the Bonds, the Units, Series C
Preferred Stock, the Warrants or the Underlying Common Stock prior to the date
that the Registration Statement becomes effective, then the Purchaser shall
provide the Company, prior to the sale of any such Bonds, Units, Series C
Preferred Stock, the Warrants or the Underlying Common Stock, with a legal
opinion in form and substance 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.
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Notwithstanding
any representation made by any party to this Agreement, all covenants,
agreements, representations and warranties made by the Company and the
Purchasers in writing herein and in the closing certificates delivered pursuant
hereto shall survive the execution of this Agreement, the delivery to the
Purchasers of the Bonds being purchased and the payment therefor.
7. PURCHASERS' EXPENSES. The Company shall, within 30 days after the
Closing, reimburse to each Purchaser such Purchaser's reasonable expenses
(including counsel fees) incident to purchase of the Bonds, negotiation of the
terms thereof and review of the Bond instruments and related documents.
8. 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 Bonds, the Units,
the Series C Preferred Stock and the Warrants to the Purchasers.
9. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be by telecopier with the original being
forwarded by a nationally recognized overnight express courier, shall be deemed
given when receipt is acknowledged by transmit confirmation report and shall be
addressed as set forth at the head of this Agreement or to such other address as
may hereafter be furnished in writing.
10. CHANGES. This Agreement may not be modified or amended except pursuant
to an instrument in writing signed by the Company and each Purchaser.
11. 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.
12. 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.
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13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania (without reference
to its rules as to conflicts of law) and the federal law of the United States of
America.
14. 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.
15. 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.
[Signatures on next page]
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IN WITNESS WHEREOF, the Purchasers and the Company have caused this
Agreement to be executed by their duly authorized representatives as of the day
and year first above written.
PURCHASERS:
GALEN PARTNERS III, L.P.
By: ___________________________
GALEN PARTNERS INTERNATIONAL III, L.P.
By: ___________________________
GALEN EMPLOYEE FUND III, L.P.
By: ___________________________
HAMBRECHT & QUIST CALIFORNIA, LLC
By: ___________________________
MED-TEC INVESTORS, LLC
By: ___________________________
COMPANY:
DERMA SCIENCES, INC.
By: ___________________________
Edward J. Quilty, Chairman and
Chief Executive Officer
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SCHEDULE 4.7
1. SECOND QUARTER, 1999 OPERATING LOSS
The Company experienced an operating loss of approximately $1,050,000 in
the second quarter, 1999. Approximately $250,000 of this loss was attributable
to the closing of the Company's St. Paul, Minnesota, facility and to other
restructuring charges.
2. CONTINUED LOSSES LIKELY
The Company anticipates that it will continue to experience significant
losses through the third quarter, 1999. The Company believes that its operating
losses will narrow appreciably in the fourth quarter, 1999 and that the Company
may achieve break-even operations during this quarter. However, the Company
cannot offer any assurances as to whether, or the extent to which, its operating
results will improve.
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APPENDIX I
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
The below named institution, by the undersigned duly authorized, hereby
certifies that:
1. It is the purchaser of the shares evidenced by the attached certificate;
2. It sold such shares on _____________ in accordance with the registration
statement dated __________________ and numbered _______________; and
3. The requirement of delivering a current prospectus and current annual
and quarterly reports of the Company has been complied with in connection with
such sale.
Name of Institution:
_____________________________________________
Name of Individual representing Institution:
____________________________________________
Title of Individual representing Institution:
____________________________________________
Signature: ________________________________
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APPENDIX II
[HEDGER & HEDGER LETTERHEAD]
August 16, 1999
Board of Directors
Derma Sciences, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Re: Offer and Sale of Convertible Bonds
Members of the Board:
We are counsel to Derma Sciences, Inc. (the "Company") in connection with the
offer and sale of those certain convertible bonds due August 15, 2000 in the
aggregate principal amount of $800,000 (the "Bonds"). We have examined the
originals, or certified, conformed or reproduction copies, of all records,
agreements, instruments and documents relative to the Bonds as we have deemed
relevant or necessary as the basis for the opinion hereinafter expressed. Our
examination included review of the purchase agreement, convertible bonds,
security agreement, form of preferred stock certificate, form of certificate of
preferences and rights of Series C Convertible Preferred Stock, form of warrant
agreement, registration rights agreement, consents of preferred stockholders and
certificate of compliance ("Document(s)"). In all such examinations, we have
assumed the genuineness of all signatures on original or certified copies and
the conformity to original or certified copies of all copies submitted to us as
conformed or reproduction copies. As to various questions of fact relevant to
our opinion, we have relied upon, and assumed the accuracy of, certificates and
oral or written statements and other information of or from public officials,
officers or representatives of the Company and others.
Based upon the foregoing, we are of opinion as follows:
1. The Company and its subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of their jurisdictions of
incorporation and have all requisite corporate power and authority to conduct
their business as currently conducted.
2. As of the date hereof, the authorized capital stock of the Company
consists of: (a) 30,000,000 shares of Common Stock of which 1,325,938 shares are
outstanding, (b) 1,750,000 shares of Series A Convertible Preferred Stock of
which 272,500 shares are outstanding, (c) 3,333,340 shares
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Board of Directors
August 16, 1999
Page 2
of Series B Convertible Preferred Stock of which 666,668 shares are outstanding
and 6,666,660 shares of undesignated preferred stock of which none are
outstanding.
3. Each of the Documents, upon their execution and delivery (assuming the
valid execution thereof by the respective parties thereto other than the
Company), 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' 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).
Upon payment therefor, the Bonds, together with all securities into which the
Bonds may be converted, will be validly issued and nonassessable.
4. The Company has full corporate power and authority to enter into each
Document. Each Document has been duly authorized, executed and delivered by the
Company. The Company's execution, delivery and performance under each Document
will not violate (i) any statute, rule or regulation applicable to the Company
or its subsidiaries, (ii) to the best of our 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 Articles of
Incorporation or Bylaws of the Company, or (iv) to our knowledge, any provision
of any indenture, mortgage, agreement, contract or other instrument to which the
Company or any of its subsidiaries is bound 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 the Company's operations,
prospects or financial condition ("Material Adverse Effect").
5. To our 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 the Documents; to our 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, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material to the business of
the Company and its subsidiaries.
6. Except for compliance with Rule 506 of Regulation D under the Securities
Act of 1933 and applicable state securities laws in connection with the offer
and sale of the Bonds, and except for compliance with applicable federal and
state securities laws in connection with the resale by purchasers of the Bonds
of the Underlying Common Stock (as defined in the Bonds), no consent, approval,
authorization, order, registration, filing, qualification, license or permit of
or with
<PAGE>
Board of Directors
August 16, 1999
Page 3
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 under the Documents or the consummation of the transactions
contemplated hereby.
----------------------
We hereby authorize the Purchasers to rely upon this opinion as if it were
addressed individually to each Purchaser.
Very truly yours,
HEDGER & HEDGER
Raymond C. Hedger, Jr.
RCH:JMH
DERMA SCIENCES, INC.
CONVERTIBLE BOND DUE AUGUST 15, 2000
No. CB-_ 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 __________________________________________ (the
"Bondholder"), or registered assigns, the principal sum of ______________ United
States Dollars on August 15, 2000 (the "Stated Maturity"), or earlier, together
with interest on the principal sum at an annual rate equal to the Prime Rate.
"Prime Rate" under the Bond is the prime commercial lending rate published in
The Wall Street Journal on the 1st day (or, if the 1st day is not a day on which
The Wall Street Journal is published, the next preceding day of publication) of
the month in which such interest is payable. If more than one prime rate is so
published, the Prime Rate shall be the average of such prime rates. If no such
prime rate is so published, the Prime Rate shall be the prime commercial lending
rate then in effect at Morgan Guaranty Trust Company. The Company shall make
twenty-three (23) interest only payments under the Bond each of which shall be
due on or before the 15th day of each month beginning on September 15, 1999. The
Company shall make a final payment consisting of the entire balance of principal
and accrued but unpaid interest on or before August 15, 2000. If any payment is
due on a Saturday or Sunday, or on any national holiday on which commercial
banks are not open for normal business, such payment shall be made on the next
succeeding business day. All payments under the Bond shall be made to the
Bondholder, in immediately available funds, at its address provided above or to
such account as the Bondholder shall designate in writing. All or any part of
the unpaid principal balance or accrued but unpaid interest may be prepaid by
the Company at any time, and from time to time, without premium or penalty. Any
prepayments shall be paid ratably to each Bondholder and shall be applied first
to accrued but unpaid interest and then to the unpaid principal balance.
1
<PAGE>
The Bond is one of a series of bonds issued and to be issued by the Company
aggregating $800,000 in principal amount, maturing August 15, 2000 and being
otherwise of like tenor and effect (the "Bonds"). All Bonds are, as to both
principal and interest, issued under and equally secured by a security agreement
of even date herewith (the "Security Agreement") whereby the Company has
mortgaged and pledged certain of its property now owned and hereafter acquired
to the holders of the Bonds ("Bondholders"). The Bonds shall share pro rata in
the security created by, and described in, the Security Agreement ("Security")
irrespective of the dates or order of filing thereof or the dates or order of
filing associated Forms UCC-1 or any other indicia of priority.
The Bondholder, at any time prior to the Stated Maturity and at any time
thereafter so long as any portion of the principal or interest due hereunder
remains unpaid, may, at its option, convert all or any portion of the unpaid
principal sum of the Bond into Units in accordance with the Terms and Conditions
of the Bonds attached hereto.
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER, THE COMPANY DOES
HEREBY APPOINT AND EMPOWER THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF
RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR THE COMPANY AND
CONFESS JUDGMENT OR JUDGMENTS AGAINST THE COMPANY IN ANY COURT OF RECORD WITHIN
THE COMMONWEALTH OF PENNSYLVANIA AT ANY TIME AFTER THE DATE OF THIS NOTE IN
FAVOR OF THE BONDHOLDER, ITS SUCCESSORS AND ASSIGNS, FOR THE UNPAID PRINCIPAL
BALANCE OF THE BOND AND ALL INTEREST ACCRUED HEREON, TOGETHER WITH COSTS OF SUIT
AND A REASONABLE ATTORNEY'S COMMISSION FOR COLLECTON OF SUCH SUMS, AND THE
COMPANY HEREBY FOREVER WAIVES AND RELEASES ANY AND ALL ERRORS IN SAID
PROCEEDINGS AND WAIVES STAY OF EXECUTION AND STAY, CONTINUANCE OR ADJOURNMENT OF
SALE ON EXECUTION. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT
AGAINST THE COMPANY SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, AND
MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS THE BONDHOLDER OR ITS
SUCCESSORS AND ASSIGNS SHALL DEEM NECESSARY OR DESIRABLE.
2
<PAGE>
Reference is hereby made to the further provisions of the Bond set forth
under the Terms and Conditions of the Bonds attached hereto 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 the Bond to be duly executed
by the signature of its President and Chief Executive Officer as attested by its
Vice President and Chief Financial Officer.
Dated: August 16, 1999
DERMA SCIENCES, INC.
By:________________________________
Edward J. Quilty, Chairman and
Chief Executive Officer
ATTEST:
By:__________________________________
Stephen T. Wills, CPA, MST
Vice President and Chief Financial Officer
[Transfer of the Bonds is subject to the Transfer Restrictions attached hereto.]
3
<PAGE>
TERMS AND CONDITIONS OF THE BONDS
1. GENERAL.
(a) The Bonds are issuable, without coupons, in denominations of U.S. $20
and multiples thereof. The Bonds, and transfers thereof, shall be in registered
form as provided in Section 6 hereof. The registered holder of a Bond 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 Bond regardless of
any notice of ownership, theft or loss or of any writing thereon.
(b) The Bonds are direct obligations of the Company. Without the approval
of the Bondholders, or except as otherwise provided herein, the Company may not
incur or issue any other indebtedness or bonds which rank senior or pari passu
to the Bonds.
(c) The Company shall, within three (3) business days of the Conversion
Notification Date (defined below), amend its Articles of Incorporation pursuant
to those certain Purchase Agreements of even date herewith by and between the
Company and the Bondholders ("Purchase Agreements") to authorize the issuance of
the shares of Series C Preferred Stock, $.01 par value, set forth in the
Purchase Agreement ("Series C Preferred Stock"). The Company represents and
warrants that it has reserved for issuance, and covenants that it shall continue
to reserve for issuance, that number of shares of Underlying Common Stock
(defined below) required to be issued upon the conversion of the Series C
Preferred Stock and exercise of the Warrants.
(d) On the Conversion Date (defined below) the Bonds shall convert into
units (the "Units") each of which consists of one share of Series C Convertible
Preferred Stock and one Warrant to purchase one share of Common Stock (defined
below) at a price equal to the Unit Purchase Price (defined below). Each Bond
shall convert into such number of Units as shall result by dividing the
principal amount of the Bond by the Unit Purchase Price.
(e) The Company shall file within 60 days of the Conversion Date, and use
its best efforts to cause to become effective, a registration statement (the
"Registration Statement") covering the resale of the shares of the Underlying
Common Stock.
(f) Upon the earlier of final payment by the Company of all principal and
interest due under the Bond or the Stated Maturity, all Warrants which would
otherwise have been issuable to the Bondholder had it converted the Bond into
Units shall thereupon be issued to the Bondholder; provided, however, such
issuance shall not impair the right of the Bondholder to enforce payment of the
balance due, if any, under the Bond.
2. DEFINITIONS.
(a) The "Conversion Notification Date" under the Bond is the date the
Conversion Notice set forth at page 8 hereof is received by the Company.
(b) The "Conversion Date" under the Bond is the later of the Conversion
Notification Date or the date of the filing with the Department of State,
Commonwealth of Pennsylvania, of
4
<PAGE>
the amendment to the Company's Articles of Incorporation to authorize the
issuance of the Series C Preferred Stock.
(c) The "Unit Purchase Price" shall be the lower of: (a) $1.7188, or (b)
the average of the closing bid price of the Company's Common Stock on the Nasdaq
SmallCap Market for the ten (10) trading days including and immediately
following August 2, 1999.
(d) The "Underlying Common Stock" are shares of the Company's common stock,
$.01 par value per share ("Common Stock"), issuable upon conversion of the
Series C Preferred Stock and exercise of the Warrants.
3. CONVERSION.
(a) On the Conversion Date the Bonds that are the subject of a Conversion
Notice shall automatically and without any further action on the part of the
Bondholder be converted into Units, and the Bonds so converted shall thereafter
be void and of no force or effect.
(b) Any fractional Units otherwise issuable by the Company upon conversion
shall be rounded to the next higher whole number of Units.
4. EVENTS OF DEFAULT.
The following shall constitute "Events of Default" under the Bonds:
(a) The Company fails to make any payment of interest or principal under
the Bonds when due; or
(b) The Company fails to have a sufficient number of shares of Series C
Preferred Stock authorized no later than three (3) business days after the
Conversion Notification Date to permit conversion of the Bonds; or
(c) The Company fails duly to perform or observe any other term, covenant
or agreement contained in the Bonds for a period of 30 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 Bonds as from time to time outstanding; or
(d) A court having jurisdiction in the premises enters 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 remains unstayed and in effect for
a period of 30 consecutive days; or
(e) Either the Company, Genetic Laboratories Wound Care, Inc., a Minnesota
corporation, or Sunshine Products, Inc., a Missouri corporation, or any other
subsidiary of the Company, commences a voluntary case or proceeding under any
applicable bankruptcy,
5
<PAGE>
insolvency, reorganization or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, or consents 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 makes any general assignment for the benefit of creditors, or
admits in writing its inability to pay its debts as they become due or takes any
corporate action in furtherance of any of the foregoing; or
(f) An event of default, as defined in any indenture or instrument
evidencing or under which the Company has outstanding at least $200,000 (or its
equivalent in another currency), in aggregate principal amount of indebtedness
for borrowed money, has occurred and is continuing and such default involves the
failure to pay the principal or interest 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 has been accelerated so that
the same becomes due and payable prior to the date on which the same would
otherwise have become due and payable, and failure to pay is not cured by the
Company within 30 days after such failure or such acceleration is not rescinded
or annulled within 60 days after notice thereof has first been given to the
Company; provided that if such event of default under such indenture or
instrument is 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 Bondholders.
If an Event of Default occurs and is continuing, the Bondholders holding
not less than 50% of the aggregate principal amount of the Bonds then
outstanding may, by written notice to the Company, declare the principal of the
Bond and the interest accrued hereon to be due and payable immediately in cash.
If an Event of Default, or an event which would with the passing of time or the
giving of notice or both be an Event of Default, occurs and is continuing, the
Company shall within two (2) business days of becoming aware thereof notify the
Bondholder in writing of such Event of Default.
5. 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 is the surviving corporation in the case of a merger or (B) the
surviving, resulting or transferee corporation expressly assumes the due and
punctual payment of all the Bonds according to their tenor and the due and
punctual performance of all of the covenants and obligations of the Company
under the Bonds, by supplemental agreement reasonably satisfactory to the
Bondholders, (ii) the surviving, resulting or transferee corporation, if not
organized and validly existing under the laws of any state of the United States
or the District of Columbia, expressly agrees to make payments under the Bonds
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
Bonds, and (iii) the Company or such successor corporation, as the case may be,
is not, immediately after such merger, consolidation, sale or
6
<PAGE>
conveyance, in default in the performance of any covenants or obligations of the
Company under the Bonds.
(b) Upon any merger, consolidation, sale, conveyance or assumption as
provided in Section 5(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 Bonds 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 Bonds; provided that any successor or assuming corporation shall have the
obligation to purchase the Bonds 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 Bonds.
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 5(b) of the Bonds, as if it had been named in
the Bonds as the Company; the Company shall thereupon be relieved of any further
obligation or liability hereunder or upon the Bonds, 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 Bonds, the successor or assuming corporation shall deliver any Bonds which
previously have been signed and delivered by the officers of the Company. All
the Bonds so issued shall in all respects have the same legal rank and benefit
as the Bonds theretofore or thereafter issued as though all of such Bonds 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 Bonds
thereafter to be issued as may be appropriate.
6. REPLACEMENT, TRANSFER AND EXCHANGE OF BONDS.
(a) In case any Bond shall at any time become mutilated, destroyed, stolen
or lost and such Bond 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 Bond of like
tenor and date will be issued by the Company in exchange for the Bond so
mutilated, or in lieu of the Bond so destroyed, stolen or lost, but, in the case
of a destroyed, stolen or lost Bond only upon receipt of evidence satisfactory
to the Company that such Bond 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 Bond shall be borne
by the owner of the Bond so mutilated, destroyed, stolen or lost.
(b) Bonds are exchangeable at the office of the Company in Princeton, New
Jersey or as designated by the Company for such purpose, for an equal aggregate
principal amount of Bonds of authorized denominations as required by the
Bondholder surrendering the same. In the
7
<PAGE>
event of conversion of a Bond in part only, a new Bond or Bonds for the
unredeemed or unconverted portion hereof will be issued in the name of the
Bondholder.
(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 the Bond, any Bond authenticated and
delivered pursuant hereto shall, as of any date of determination, be deemed to
be "outstanding," except for:
(i) Bonds previously converted, or canceled by the Company or
delivered to the Company for cancellation;
(ii) Bonds 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) Bonds in lieu of or in substitution for which other Bonds have
been authenticated and delivered pursuant hereto;
provided, however, that in determining whether the holders of the requisite
principal amount of outstanding Bonds are present at a meeting of Bondholders
for quorum purposes or have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, Bonds owned by the Company or any
subsidiary thereof shall be disregarded and deemed not to be outstanding.
7. MODIFICATIONS AND AMENDMENTS.
(a) Without the consent of any Bondholders, modifications of or
amendments to the Bonds 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 Bonds;
(ii) to add to the covenants of the Company for the benefit of
the Bondholders, or to surrender any right or power herein conferred
upon the Company;
(iii) to make provision with respect to the conversion rights of
Bondholders 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
(v) to make any other provisions with respect to matters or
questions arising under the Bond.
8
<PAGE>
No such action pursuant to this paragraph (a) may adversely affect the
interests of the Bondholders.
(b) Modifications and amendments to these Bonds 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 Bonds at the time outstanding;
provided, that no such modification, amendment or waiver may, without the
consent of each Bondholder affected thereby:
(i) waive a default in the payment of the principal of or interest on
any Bond;
(ii) change the Stated Maturity (except as contemplated herein) of the
principal of or any installment of interest on, any Bond, or reduce the
principal amount thereof or the rate of interest thereon, or change the
coin or currency in which any Bond or the interest thereon is payable, or
adversely affect the right to convert any Bonds as provided in Section 2 or
modify the provisions of the Bonds with respect to subordination of the
Bonds in a manner adverse to the Bondholders;
(iii) reduce the requirements of Section 6 hereof for quorum or
voting, or reduce the percentage in principal amount of the outstanding
Bonds the consent of whose holders is required for any amendment or
modification of the Terms and Conditions of the Bonds;
(iv) change the obligation of the Company to maintain an office or
agency in Princeton, New Jersey; 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
Bonds cannot be modified or waived without the consent of the holder of
each outstanding Bond affected thereby.
8. NON-BUSINESS DAYS.
In any case where the date of maturity of the principal of or interest on
the Bonds or the date fixed for redemption of any Bond shall be at any place of
payment a Saturday, Sunday, a legal holiday or a day on which banking
institutions in Princeton, New Jersey 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 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.
9. BOND REGISTER.
The Company shall cause to be kept at its principal office a register (the
"Bond Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Bonds and of
transfers of Bonds.
9
<PAGE>
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 Bonds is registrable on the Bond Register upon surrender of a Bond
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 Bonds, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
10. NOTICES.
All notices to the Bondholders will be mailed to registered Bondholders at
their registered addresses as the same shall appear in the Bond Register on the
day fifteen days prior to such mailing.
11. GOVERNING LAW.
The Bonds shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania without giving effect to principles of
conflicts of law.
12. COUNTERSIGNATURE AND REGISTRATION.
The Bond shall not become valid or obligatory for any purpose until the
certificate representing the Bond shall have been duly executed by the Company
and such signature attested to by an authorized Officer thereof.
13. 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 the Bond, 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.
14. 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.
15. DESCRIPTIVE HEADINGS.
The descriptive headings appearing herein are for convenience of reference
only and shall not alter, limit or define the provisions hereof.
10
<PAGE>
CONVERSION NOTICE
URGENT/FOR IMMEDIATE ATTENTION
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)
Aggregate principal amount of the Bond being converted hereby: ________________
If you want the Preferred Stock certificate and Warrant certificate made out in
another person's name, complete the form below:
(SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER)
|----------------------------------------------------|
| |
|----------------------------------------------------|
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, title, address and zip code)
Date: _______________________
Your Signature: _______________________________________________________________
11
<PAGE>
TRANSFER RESTRICTIONS
THIS BOND 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 BOND 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 BONDHOLDER OF THIS BOND,
BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF
THE COMPANY THAT: (I) IT HAS ACQUIRED A "RESTRICTED" BOND WHICH HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THIS BOND 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
BOND 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 BONDHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM
IT OF THIS BOND 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 BOND TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO IT IN FORM AND
SUBSTANCE.
12
SECURITY AGREEMENT
THIS SECURITY AGREEMENT made this 16th day of August, 1999, by and among
Derma Sciences, Inc., a Pennsylvania corporation with offices located at 214
Carnegie Center, Suite 100, Princeton, New Jersey ("Derma Sciences"), Genetic
Laboratories Wound Care, Inc., a Minnesota corporation with offices at 2726
Patton Road, St. Paul, Minnesota 55113 and Sunshine Products, Inc., a Missouri
corporation with offices at 1149 Reco Drive, St. Louis, Missouri 63126
(collectively, the "Debtors") and Galen Partners III, L.P., a New York limited
partnership with offices at 610 Fifth Avenue, New York, New York 10020, Galen
Partners International III, L.P., a New York limited partnership with offices at
610 Fifth Avenue, New York, New York 10020, Galen Employee Fund III, L.P., a New
York limited partnership with offices at 610 Fifth Avenue, New York, New York
10020, Hambrecht & Quist California, LLC, a California limited liability company
with offices at One Bush Street, San Francisco, California 94104 and Med-Tec
Investors, LLC, a New Jersey limited liability company with offices at 777
Alexander Road, Princeton, New Jersey 08540 (collectively, the "Secured
Parties").
WHEREAS, Derma Sciences has issued bonds of even date herewith (the
"Bonds") to the Secured Parties; and
WHEREAS, as a condition to the Bonds and as collateral for payment of Derma
Sciences' obligations thereunder (the "Obligations"), the Debtors have agreed to
grant the Secured Parties a security interest in the Collateral (as hereinafter
defined);
NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, and intending to be legally bound hereby,
the parties agree as follows:
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1. COLLATERAL. For purposes of this Agreement, "Collateral" means all
property now owned or hereafter acquired by Debtors and any and all inventory,
supplies, accounts receivable, machinery, equipment, tools, fixtures,
furnishings, furniture, books, records, charts, analyses, compilations, contract
rights, reports, any and all other personal property and goods, any and all
general intangibles, trade secrets, intellectual property, trademarks (and all
goodwill pertaining thereto), copyrights, patents, and all replacements,
substitutions and cash and non-cash proceeds thereof. Collateral also includes
all leases, subleases and rentals now or hereafter entered into pertaining to
any of the foregoing, together with all cash and non-cash proceeds thereof, and
the proceeds of any insurance policy payable by reason of loss or damage to any
of the foregoing.
2. SECURITY INTEREST. As security for the prompt payment of the
Obligations, when due, at maturity or by acceleration upon default, the Debtors
hereby grant to the Secured Parties a lien upon and a continuing security
interest in all Collateral in which the Debtors now or may hereafter acquire an
interest.
3. REPRESENTATIONS AND WARRANTIES. The Debtors represent and warrant to
the Secured Parties as follows:
a. Binding Agreement. This Agreement constitutes the valid and legally
binding obligation of the Debtors enforceable in accordance with its terms.
b. Warranty of Title. Each item of Collateral is and will remain at
all times prior to payment in full of the Obligations, the sole property of
the respective Debtors free and clear of any lien, encumbrance, security
interest or claim of adverse interest other than (i) interests granted to
the Secured Parties herein, and (ii) interests of record as of the date
hereof.
4. COVENANTS. The Debtors covenant and agree that so long as any of the
Obligations remain outstanding:
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a. Further assurances. The Debtors will execute such financing
statements, continuation statements, security agreements and other
documents, in form satisfactory to the Secured Parties, as may be necessary
to perfect, or continue perfection of, the security interests of the
Secured Parties in the Collateral. The Debtors agree that the Secured
Parties may file a carbon, photographic copy or other reproduction of any
financing statement in lieu of an executed original thereof.
b. Maintenance of Records. The Debtors will keep and maintain, at
their own cost and expense, satisfactory, complete and current records of
the Collateral. The Debtors will protect their records against fire, theft,
loss or any other manner of destruction.
c. Maintenance of Collateral. The Debtors will keep the Collateral in
good condition and free from all liens and other security interests and the
Debtors will not use the Collateral illegally, sell or offer to sell
(except in the ordinary course of business) or otherwise transfer or
encumber the Collateral or permit it to be affixed to real or personal
property without the prior written consent of the Secured Parties.
d. Taxes. The Debtors will pay promptly when due all taxes, charges
and assessments, including penalties and interest, that are or may become a
lien on the Collateral or any part thereof except to the extent that they
may be contested in good faith and by appropriate proceedings.
e. Inspection and Delivery of Collateral, Books and Records. The
Secured Parties, or their agents, may at anytime and from time to time
inspect the Collateral and the books and records of the Debtors pertaining
thereto.
f. Expenses. The Debtors shall be liable for, and agree to pay the
Secured Parties, any and all expenses incurred or paid by the Secured
Parties in enforcing their rights under this
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Agreement, including reasonable counsel fees and legal expenses. At their
option, the Secured Parties may discharge taxes, liens, security interests
or other encumbrances on the Collateral and may pay for the repair of
damage to the Collateral, the maintenance and preservation thereof and
insurance thereon. The Debtors agree to reimburse the Secured Parties on
demand for any payments so made, and, until such reimbursement, the amount
of any such payments, with interest at the maximum contract rate permitted
by law from date of payment until the date of reimbursement, shall be added
to the Obligation and shall be secured by this Security Agreement.
g. Insurance. The Debtors will continuously insure the Collateral with
a responsible company or companies against fire (with extended coverage) in
the full insurable value of the Collateral and against other casualties in
reasonable amounts. If the Debtors fail to pay the premium, the Secured
Parties at their option may do so for the Debtors' account and add the
amount thereof to the Obligation.
5. EVENTS OF DEFAULT.
a. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
(1) Derma Sciences fails to make any payment of interest or
principal under the Bonds when due; or
(2) Derma Sciences fails to have a sufficient number of shares of
Series C Preferred Stock authorized no later than three (3) days after
the Conversion Notification Date (as defined in the Bonds) to permit
conversion of the Bonds; or
(3) Derma Sciences fails duly to perform or observe any other
term, covenant or agreement contained in the Bonds for a period of 30
days after the date on which written
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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 Bonds as from time to time
outstanding; or
(4) A court having jurisdiction in the premises enters a decree
or order for relief in respect of any of the Debtors 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 any of the Debtors or for any
substantial part of the property thereof or ordering the winding-up or
liquidation of the affairs of any of the Debtors it and such decree or
order remains unstayed and in effect for a period of 30 consecutive
days; or
(5) Any of the Debtors commences a voluntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or similar
official) of any of the Debtors or for any substantial part of the
property thereof, or makes any general assignment for the benefit of
creditors, or admits in writing its inability to pay its debts as they
become due or takes any corporate action in furtherance of any of the
foregoing; or
(6) An event of default, as defined in any indenture or
instrument evidencing or under which any of the Debtors has
outstanding at least $200,000 (or its equivalent in another currency),
in aggregate principal amount of indebtedness for borrowed money, has
occurred and is continuing and such default involves the failure to
pay the principal or interest of such indebtedness (or any part
thereof), when due and payable after the expiration of any applicable
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grace period with respect thereto, or such indebtedness has been
accelerated so that the same becomes due and payable prior to the date
on which the same would otherwise have become due and payable, and
failure to pay is not cured within 30 days after such failure or such
acceleration is not rescinded or annulled within 60 days after notice
thereof has first been given to Derma Sciences; provided that if such
event of default under such indenture or instrument is remedied or
cured by Derma Sciences 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 Bondholders.
b. Remedies on Default. Upon any such Event of Default and at any time
thereafter, the Secured Parties holding 50% or more of the aggregate
principal amount of the Bonds then outstanding may declare all obligations
secured hereby to be immediately due and payable without notice, protest,
presentment or demand, all of which are hereby expressly waived by the
Debtors, and may proceed to enforce payment of the same and exercise any
and all of the rights and remedies set forth herein or provided by the law.
The Secured Parties will give the Debtors reasonable notice of the time and
place of any public sale of the Collateral or any part hereof or of the
time after which any private sale or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be deemed met if
such notice is mailed, postage prepaid, to the address of the Debtors shown
at the head of this Agreement at least ten (10) days before the time of the
sale or disposition, but nothing contained herein shall be construed to
mean that any other notice or a shorter period of time does not constitute
reasonable notice for the sale of the Collateral or any part thereof.
Expenses of retaking, holding, preparing for sale, selling or the like
shall include the Secured Parties' reasonable counsel fees and legal
expenses. Should an Event of Default occur, the Debtors shall upon request
by the Secured
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Parties assemble the Collateral or any designated part thereof and make it
available to the Secured Parties at such place as is designated by the
Secured Parties. The Debtors shall pay the Secured Parties, on demand, any
and all expenses, including all reasonable counsel fees and legal expenses
incurred or paid by the Secured Parties in protecting or enforcing their
rights, powers and remedies hereunder or under any other agreement between
the parties or under any obligation secured hereby or thereby.
6. MISCELLANEOUS.
a. Amendment and Waiver. The provisions of this Agreement may be
amended or compliance with this Agreement waived only by the written
agreement of the Secured Parties and the Debtors.
b. Titles. The titles and section headings herein are included for
convenience only and shall not be deemed to be a part of this Agreement.
c. Cumulative Rights. Each and every right granted to the Secured
Parties hereunder or under any other document delivered hereunder or in
connection herewith or allowed by law or equity shall be cumulative and may
be exercised from time to time. No failure on the part of the Secured
Parties to exercise, and no delay in exercising, any right shall operate as
a waiver thereof, nor shall any single or partial exercise by the Secured
Parties of any right preclude any other or future exercise thereof or the
exercise of any other right.
d. Pro Rata Recourse to Collateral. The Secured Parties, upon
occurrence of an Event of Default which is not timely cured in accordance
with the terms hereof and in the further event the Collateral or proceeds
thereof are insufficient to satisfy the Obligations, shall have recourse
against the collateral pro rata in proportion to the principal amounts of
their respective
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Bonds irrespective of the dates or order of filing of this
Security Agreement or the dates or order of filing associated Forms UCC-1
or any other indicia of priority.
e. Choice of Law; Saving Clause. This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Wherever possible each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
7. TERM AND TERMINATION. This Security Agreement shall remain in full force
and effect until the earlier to occur of: (i) the agreement by all parties
hereto to terminate this Security Agreement; or (ii) the satisfaction by Derma
Sciences of all of the Obligations.
8. COUNTERPARTS. This Security 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.
[Signatures on next page]
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IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
executed by their duly authorized officers the day and year first above written.
DEBTORS: SECURED PARTIES:
DERMA SCIENCES, INC. GALEN PARTNERS III, L.P.
By: _____________________________ By: _______________________________
Stephen T. Wills, CPA, MST
Vice President and
Chief Financial Officer
GENETIC LABORATORIES GALEN PARTNERS INTERNATIONAL III, L.P.
WOUND CARE, INC.
By: _____________________________ By: _______________________________
Stephen T. Wills, CPA, MST
Vice President and
Chief Financial Officer
SUNSHINE PRODUCTS, INC GALEN EMPLOYEE FUND III, L.P.
By: _____________________________ By: _______________________________
Stephen T. Wills, CPA, MST
Vice President and
Chief Financial Officer
HAMBRECHT & QUIST CALIFORNIA, LLC
By:_______________________________
MED-TEC INVESTORS, LLC
By:_______________________________
Stephen T. Wills, CPA, MST
9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made this 16th day of
August, 1999, by and among Derma Sciences, Inc., a Pennsylvania corporation with
offices located at 214 Carnegie Center, Suite 100, Princeton, New Jersey ("Derma
Sciences"), and Galen Partners III, L.P., a Delaware limited partnership with
offices at 610 Fifth Avenue, New York, New York 10020, Galen Partners
International III, L.P., a Delaware limited partnership with offices at 610
Fifth Avenue, New York, New York 10020, Galen Employee Fund III, L.P., a
Delaware limited partnership with offices at 610 Fifth Avenue, New York, New
York 10020, Hambrecht & Quist California, LLC, a California limited liability
company with offices at One Bush Street, San Francisco, California 94104, and
Med-Tec Investors, LLC, a New Jersey limited liability company with offices at
777 Alexander Road, Princeton, New Jersey 08540 (these latter individually,
"Purchaser" and collectively, "Purchasers").
This Agreement is made pursuant to the Purchase Agreement of even date
herewith between the Company and the Purchasers (the "Purchase Agreement"). In
order to induce the Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide for the benefit of the Purchasers of the Bonds (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 parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized terms
shall have the following meanings:
Certificate of Preferences and Rights: Means the Certificate of
Preferences and Rights, of the Series C Convertible Stock attached as
Exhibit 4 to the Purchase Agreement.
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.
Conversion Date: Has the meaning given in the Convertible Bond
attached as Exhibit 1 to the Purchase Agreement.
Conversion Notification Date: Has the meaning given in the Convertible
Bond attached as Exhibit 1 to the Purchase Agreement.
Conversion Ratio: The Conversion Ratio has the meaning such term is
given in the Certificate of Preferences and Rights.
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.
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Bonds: The Company's Convertible Bonds due August 15, 2000 being sold
and issued pursuant to the Purchase Agreement.
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 C Convertible Preferred Stock
of the Company, par value $.01 per share, issued pursuant to the
Certificate of Preferences and Rights 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 Stock; provided that
Underlying Common Stock 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.
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.
Securities Act: The Securities Act of 1933, as amended from time to
time.
SEC: The Securities and Exchange Commission.
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Underlying Common Stock: The Conversion Shares and the Warrant Shares.
Units: The Company's Units, each consisting of one share of Series C
Convertible Preferred Stock, $.01 par value, and one Warrant.
Warrant Agreement: The Warrant Agreement between the Company and
StockTrans, Inc., as warrant agent, attached as Exhibit 5 to 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 Agreement.
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
shall be entitled to the benefits of this Agreement. A Person is deemed to be a
Holder 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 the
Holder thereof.
3. RESALE REGISTRATION; TIMING OF FILING, EFFECTIVENESS AND PERIOD OF
USABILITY. Subject to the provisions of Section 4 hereof, the Company shall file
not later than 60 days after the Conversion Date, and use its best efforts to
cause to be declared effective not later than 120 days after the Conversion
Date, a Registration Statement on any appropriate form under the Securities Act
for all the Registrable Securities such as to permit the public resale of the
Registrable Securities.
The Company agrees to use its best efforts to keep the Registration
Statement continuously effective and usable for resale of Registrable Securities
until the date which is two (2) years (the "Effectiveness Period") after the
date upon which the Commission declares the Registration Statement effective 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. The Effectiveness Period shall be extended,
day for day, by the length of any "black out" periods declared pursuant to
section 4(l) hereof.
4. REGISTRATION PROCEDURES. In connection with the Company's obligation to
file a Registration Statement as provided in Section 3 hereof, the Company will
as expeditiously as possible:
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(a) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the Holders 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
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 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 each Purchaser and the Holders promptly, and confirm such
advice in writing,
(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 each Purchaser and, upon request, each
Holder, at least one conformed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, all documents
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incorporated therein by reference and all exhibits (including those
incorporated by reference);
(f) deliver to each Purchaser and each Holder 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 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 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, 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-
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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 each Purchaser and the Holders 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 Stock to be listed
for trading on the Boston Stock Exchange (or on any other national
securities exchange) and the Nasdaq SmallCap Market.
Each Holder 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.
Each Holder agrees by acquisition of such Registrable Securities that,
upon receipt of any notice from the Company described in Section 4(l), 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(f) 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. All of the following expenses ("Registration
Expenses") incident to the Company's performance of or compliance with this
Agreement will be borne by the Company, regardless of whether the Registration
Statement becomes effective:
(1) all registration, filing and listing fees;
(2) fees and expenses of counsel acceptable to the Holders of a
majority 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;
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(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.
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 the Boston Stock Exchange and the Nasdaq SmallCap Market.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Holder, 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
7
<PAGE>
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 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. Each Holder 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, 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 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,
8
<PAGE>
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 each Purchaser
pursuant to the Purchase Agreement on the one hand and each Holder 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 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
considerations. The relative benefits received by the Company on the one
hand and each Holder on the other shall be deemed to be in the same
proportion as the aggregate amount paid by each 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 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 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 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
9
<PAGE>
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, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements.
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 in
this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders 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 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 a 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 at the head of
this Agreement;
(2) if to a Holder, 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 at the
head of this Agreement and thereafter at such other addresses notice
of which is given in accordance with the provisions of this Section
8(d).
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<PAGE>
(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.
(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.
(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 Stock which shares
shall be treated as outstanding for purposes hereof.
9. 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.
[Signatures on next page]
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<PAGE>
IN WITNESS WHEREOF, the Purchasers and Company have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
PURCHASERS:
GALEN PARTNERS III, L.P.
By: ___________________________
GALEN PARTNERS INTERNATIONAL III, L.P.
By: ___________________________
GALEN EMPLOYEE FUND III, L.P.
By: ___________________________
HAMBRECHT & QUIST CALIFORNIA, LLC
By: ___________________________
MED-TEC INVESTORS, LLC
By: ___________________________
COMPANY:
DERMA SCIENCES, INC.
By: ___________________________
Edward J. Quilty, Chairman and
Chief Executive Officer
12
CERTIFICATE OF DESIGNATIONS, VOTING POWERS,
PREFERENCES AND RIGHTS
OF
THE SERIES OF PREFERRED STOCK
OF
DERMA SCIENCES, INC.
TO BE DESIGNATED
SERIES C CONVERTIBLE PREFERRED STOCK
Pursuant to the Pennsylvania Business Corporation Law of 1988, I, Edward J.
Quilty, Chief Executive Officer and 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 __________, ____ 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 C Convertible Preferred Stock" (the "Series C 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 C Preferred Stock, as
follows:
1. VOTING RIGHTS. The holders of Series C Preferred Stock shall have the right
to vote, together with the holders of all the outstanding shares of Series
A Convertible Preferred Stock, Series B Convertible Preferred Stock and
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 C 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 C 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 C Preferred Stock shall be entitled to receive the
purchase price per share (the "Liquidation
1
<PAGE>
Preference"), together with accrued and unpaid dividends payable thereon to
the date fixed for payment of such distribution, if any, which shall be
payable on a pro rata basis among holders of Preferred and Common Stock,
all of which shall be paid in cash. If, upon any such liquidation,
dissolution or winding-up of the Corporation, the assets distributable
among the holders of Series C Preferred Stock (and any series of preferred
stock ranking in parity with the Series C 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 C 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
and Series B Convertible Preferred Stock shall rank in parity with the
Series C Preferred Stock. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of Series
C 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 C Preferred Stock or the qualifications, limitations or
restrictions thereof in a manner that adversely affects the Series C
Preferred Stock.
3. CONVERSION RIGHTS.
(a) CONVERSION OF SERIES C PREFERRED STOCK. Each share of Series C
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 C
Preferred Stock may exercise the conversion right as to any part
thereof by delivering to the Corporation during regular business
hours, at the principal office of the Corporation at 214 Carnegie
Center, Suite 100, Princeton, New Jersey 08540, or at such other
principal office as the Corporation may from time to time maintain, a
conversion notice in the form attached to the purchase agreement
pursuant to which the Series C Preferred Stock is issued (the
"Conversion Notice"). The Conversion Notice shall include a statement
that the holder elects to convert its shares subject to applicable
securities laws, the name(s) in which the certificate(s) representing
the Conversion Shares to which such holder is entitled are to be
issued, and the telecopier number to which the Corporation shall
telecopy its confirmation described below. Notice given by telecopier
to telecopier number
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<PAGE>
(609) 452-0880, Attention: Edward J. Quilty, shall be deemed notice
for purposes of this paragraph and shall be deemed given when receipt
is acknowledged by transmit confirmation report. Immediately upon
receipt of any Conversion Notice, the Corporation shall, by
telecopier, confirm receipt thereof at the telecopier number included
thereon, which confirmation shall set forth the number of Conversion
Shares to be issued by the Corporation as a result of such conversion.
The Conversion Notice shall be deemed accepted by the Corporation
provided the holder surrenders, or causes any agent for the holder to
surrender, the certificate(s) for the Series C 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 C 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 and the converting holder may
rely upon Rule 144(k) (or any successor provision) at the time of such
conversion, (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 defined in the Registration Rights
Agreement) has 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
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<PAGE>
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.
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 C 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 C 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 C 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 C Preferred Stock. If
more than one share of Series C 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 C
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series C 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
4
<PAGE>
any such reclassification or recapitalization in connection with
a consolidation or merger in which the Corporation is the
continuing corporation), the Conversion Ratio in effect at the
time of the record date for such dividend or of the effective
date of such subdivision, combination, reclassification or
recapitalization shall be proportionately adjusted so that the
holder of any Series C Preferred Stock surrendered for conversion
after such time shall be entitled to receive the aggregate number
and kind of shares which, if such Series C 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 date on which the
Corporation shall enter into a legally binding contract for the
issuance or sale 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
5
<PAGE>
are not so issued or sold, the Conversion Ratio shall again be
adjusted to be the Conversion Ratio which would then be in effect
if such issuance had not occurred.
(iii) In case at any time, or from time to time, the Corporation shall
take a record of the holders of the Common Stock for the purpose
of entitling them to receive a distribution of, or shall
otherwise issue, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible
Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable
pursuant to such warrants or other rights or pursuant to the
terms of such Convertible Securities shall be less than the
Current Market Price, then the Conversion Ratio immediately
thereafter shall be adjusted as provided in subsection (d)(ii)
hereof on the basis that (A) the maximum number of Additional
Shares of Common Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been
issued as of the date for the determination of the Current Market
Price per share of Common Stock as hereinafter provided, and (B)
the aggregate consideration for such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum
consideration received or 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, a legally binding contract for the issuance of such
warrants or other rights is entered or such warrants or other
rights are issued. 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
6
<PAGE>
date by a fraction, of which the numerator shall be the total
number of outstanding shares of Common Stock multiplied by the
Current Market Price on such record date, less the fair market
value (as determined by the Board of Directors of the
Corporation, whose determination shall be conclusive) of the
portion of the assets or evidences of indebtedness so to be
distributed, and of which the denominator shall be the total
number of outstanding shares of Common Stock multiplied by such
Current Market Price. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Ratio shall again be
adjusted to be the Conversion Ratio which would then be in effect
if such record date had not been fixed.
(v) No adjustment in the Conversion Ratio shall be required unless
such adjustment would require an increase or decrease of at least
one percent (1%) in such Conversion Ratio; provided, however,
that any adjustment which by reason of this paragraph subsection
(d)(v) is not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations
under this subsection (d) shall be made to the nearest cent or to
the nearest 1/100 of a share, as the case may be.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its Articles
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 C 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 C 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 C
Preferred Stock.
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(ii) In case the Corporation shall propose (A) to pay any dividend
payable in stock of any class to the holders of its Common Stock
or to make any other distribution to the holders of its Common
Stock, (B) to offer to the holders of its Common Stock rights to
subscribe for or to purchase any Convertible Securities or
Additional Shares of Common Stock or shares of stock of any class
or any other securities, rights or options, (C) to effect any
reclassification of its Common Stock (other than a
reclassification involving only the subdivision or combination of
outstanding shares of Common Stock), (D) to effect any capital
reorganization, (E) to effect any consolidation, merger or sale,
transfer or other distribution of all or substantially all its
property, assets or business, or (F) to effect the liquidation,
dissolution or winding-up of the Corporation, then in each such
case, the Corporation shall give to each holder of Series C
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
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consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such
issuance as determined by the Board of Directors of the Corporation.
The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Corporation for
issuing such warrants or other rights, plus the additional
consideration payable to the Corporation upon the exercise of such
warrants or other rights. The consideration for any Additional Shares
of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Corporation for
issuing any warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Corporation in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any,
payable to the Corporation upon the exercise of the right of
conversion or exchange in such Convertible Securities. In case of the
issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividend upon
any class of stock other than Common Stock or in payment of any debt,
the Corporation shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal
to the amount of such dividend or debt so paid or satisfied.
(i) FRACTIONAL INTERESTS. In computing adjustments under this Section 3,
fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.
(j) ANTIDILUTION PROVISIONS. No adjustment shall be made as a result of
any increase in the number of Additional Shares of Common Stock
issuable or any decrease in the consideration payable upon any
issuance of Additional Shares of Common Stock, pursuant to any
provisions intended solely to avoid dilution contained in any
warrants, rights or Convertible Securities.
(k) WHEN ADJUSTMENT NOT REQUIRED.
(i) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(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 C 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
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holder would be entitled to receive if all of the outstanding
Series C Preferred Stock were converted into Common Stock as of
the record date of such dividend or distribution with respect to
Common Stock, then thereafter no adjustment shall be required
with respect to such dividend or distribution.
(l) OTHER ACTION AFFECTING COMMON STOCK. If a state of facts shall occur
which, without being specifically controlled by the other provisions
of this Section 3, would not fairly protect the conversion rights of
the Series C Preferred Stock in accordance with the essential intent
and principles of such provisions, then the Board of Directors of the
Corporation shall in good faith make an adjustment in the application
of such provisions, in accordance with such essential intent and
principles, so as to protect such conversion rights.
(m) NECESSARY CORPORATE ACTION. Before taking any action which would
result in an adjustment in the Conversion Ratio, the Corporation shall
obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.
(n) TAXES UPON CONVERSION. The Corporation shall pay all documentary,
stamp or other transaction taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Series C 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 C Preferred Stock, the full number of whole shares of
Common Stock then deliverable upon the conversion of all shares of
Series C 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 C 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 C Preferred Stock, the shares of Series C
Preferred Stock so converted shall have the status of authorized and
unissued Preferred Stock, and the number of shares of Series C
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 C 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 in cash on the Conversion
Date.
4. NO PREEMPTIVE RIGHTS. No holder of Series C 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,
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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
Articles of Incorporation.
5. CERTAIN RESTRICTIONS. So long as any Series C Preferred Stock is
outstanding, the Corporation shall not, without the consent of holders of a
majority of the outstanding shares of Series C 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 C Preferred Stock with respect to dividend rights or rights on
liquidation, winding-up or dissolution of the Corporation, (iii) amend,
alter or change the preferences or rights of any series or class of capital
stock of the Corporation or the qualifications, limitations or restrictions
thereof if such amendment, alteration or change adversely affects the
Series C Preferred Stock, (iv) increase the authorized number of shares of
Series C 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 July 15, 1999, except Common
Stock which may be issued pursuant to: (i) the conversion of the
Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock; (ii) the exercise by the holders thereof of the
Corporation's currently issued 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).
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(c) "Common Stock" shall mean the shares of common stock of the
Corporation, par value $.01 per share, and any stock into which such
Common Stock may hereinafter be changed.
(d) "Conversion Date" shall have the meaning such term is given in Section
3(b) hereof.
(e) "Conversion Notice" shall have the meaning such term is given in
Section 3(b) hereof.
(f) "Conversion Ratio" shall have the meaning such term is given in
Section 3(d) hereof.
(g) "Conversion Shares" shall have the meaning such term is given in
Section 3(a) hereof.
(h) "Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exercisable
or exchangeable for, with or without payment of additional
consideration in cash or property, for Additional Shares of Common
Stock, either immediately or upon the arrival of a specified date or
the happening of a specified event.
(i) "Current Market Price" per share of Common Stock at any date herein
specified shall mean the average of the daily market prices for 5
consecutive Trading Days ending on the last trading day prior to such
date, except that for purposes of Section 3(c) hereof, the "Current
Market Price" per share of Common Stock shall mean the market prices
on the Trading Day therein specified. The market price for each such
Trading Day shall be (i) if the Common Stock is quoted on the Nasdaq
National Market or Nasdaq Small Cap Market, the reported last sales
price, or (ii) if the Common Stock is listed or admitted to trading on
a national securities exchange, the last reported sales prices regular
way, or (iii) if the Common Stock is quoted on the NASD OTC Bulletin
Board, the average of the closing bid and asked prices regular way, or
(iv) if the Common Stock is not so quoted, as reasonably determined by
the Board of Directors of the Corporation.
(j) "Liquidation Preference" shall have the meaning such term is given in
Section 2 hereof.
(k) "Person" shall mean any individual, corporation, association, company,
business trust, partnership, joint venture, joint-stock company,
trust, unincorporated organization or association or government or any
agency or political subdivision thereof.
(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.
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IN WITNESS WHEREOF, the undersigned has executed this Certificate this __
day of _________, ______.
DERMA SCIENCES, INC.
By: ______________________________
Edward J. Quilty, Chairman and
ATTEST: Chief Executive Officer
By: _____________________________
Stephen T. Wills, CPA, MST
Vice President and Chief Financial Officer
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