SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
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): December 29, 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 December 29, 1999 closed on a
private offering of convertible bonds ("Bonds") in which an aggregate of
$500,000 was raised. The Bonds are due December 31, 2000 and pay interest only,
at New York prime, until maturity. Interest accrued under the Bonds, at the
option of the bondholders, may be satisfied either by cash payment or
capitalization of accrued interest into the principal of the bonds. The Bonds
may be converted, at the option of the bondholders, into units ("Units") each
consisting of one share of Series D 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 of $1.0125. 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: January 7, 2000 By:/s/ Stephen T. Wills
--------------------------------
Stephen T. Wills, CPA, MST
Vice President and Chief Financial Officer
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made this ____ day of
December, 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, 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 $750,000 aggregate principal amount of the
Company's Convertible Bonds due December 31, 2000 (the "Bonds"). The Bonds shall
provide, and shall be in the form, described below:
1.1. Provisions and Form. The Bonds shall bear interest, 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 D Convertible Preferred Stock, par value $.01 per share,
("Series D 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 D Preferred Stock are set
forth in the Form of Preferred Stock Certificate and Form of Certificate of
Preferences and Rights of Series D 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 D 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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1.5 Other Purchasers. The company may enter into purchase agreements in
the same form as the Agreement with certain other investors ("Other Purchasers")
relative to the sale up to $250,000 aggregate principal amount of the Bonds.
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. $411,104.00
Galen Partners International III, L.P. $37,212.00
Galen Employee Fund III, L.P. $1,684.00
Med-Tec Investors, LLC $50,000.00
2.2. Documents. This Agreement and the agreements executed by the
Company, its subsidiaries, the Purchasers and the Other Purchasers relative to
the Bonds 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 D 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 December 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 Purchaser or 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
fifteen days of the first Closing for such series.
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4. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, each Purchaser as
follows:
4.1. Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to conduct its business as currently
conducted 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. Capitalization. As of the date hereof, the capitalization 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, (d) 6,666,660
shares of undesignated preferred stock of which none are outstanding, and (e)
$875,000 aggregate principal amount of convertible bonds due August 15, 2000.
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 D Preferred Stock
and Common Stock. When executed and delivered by the Company, the Bonds, Series
D 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
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applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' and contracting parties rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding at equity or at law).
Upon issuance, the Series D 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, 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 seven (7) 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
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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 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 know-ledgeable, 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 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 D
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 D 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 D
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,
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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 Securities Act ("Regulation D"); and (vi) the Purchaser understands
that the Bonds and the Series D 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 Bonds,
Warrants and Series D 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 D 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 D 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
D 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 D
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 D 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
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provisions contained herein shall not in any way be affected or impaired
thereby.
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: Claudius, L.L.C.
Its General Partner
By: ______________________
Bruce F. Wesson
Senior Managing Member
GALEN PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C.
Its General Partner
By: ______________________
Bruce F. Wesson
Senior Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
Its General Partner
By: ______________________
Bruce F. Wesson
President
MED-TEC INVESTORS, LLC
By: ______________________
COMPANY:
DERMA SCIENCES, INC.
By: ______________________
Stephen T. Wills, CPA, MST.
Vice President and Chief Financial Officer
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APPPENDIX 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:
_____________________________________________
<PAGE>
APPENDIX II
[HEDGER & HEDGER LETTERHEAD]
December , 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 December 31, 2000 in the
aggregate principal amount of $750,000 (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 D 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)
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Board of Directors
December , 1999
Page 2
3,333,340 shares of Series B Convertible Preferred Stock of which 666,668 shares
are outstanding, (d) 6,666,660 shares of undesignated preferred stock of which
none are outstanding and (e) $875 aggregate principal amount of convertible
bonds due August 15, 2000.
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
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Board of Directors
December , 1999
Page 3
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 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 DECEMBER 31, 2000
NO. CBB-4 U.S. $50,000.00
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 MED-TEC INVESTORS, LLC, 777 Alexander Road,
Princeton, New Jersey 08540 (the "Bondholder"), or registered assigns, the
principal sum of FIFTY THOUSAND United States Dollars on December 31, 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 accrues.
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. Interest under the Bond shall accrue at the aforesaid Prime Rate,
compounded monthly, and shall be payable quarterly as specified below.
The Company shall make three (3) interest only payments under the Bond
which payments shall be due on or before each of April 1, 2000, July 1, 2000 and
October 1, 2000. The Company shall make a final payment consisting of the entire
balance of principal and accrued but unpaid interest on or before December 31,
2000. If any payment is due on a Saturday or Sunday, or on any national holiday
on which commercial banks in New York, New York are not open for normal
business, such payment shall be made on the next succeeding business day. At the
option of the Bondholder, accrued interest under the Bond for any given calendar
quarter shall be satisfied either by: (1) cash payment on the first business day
following the end of the calendar quarter with respect to which the subject
interest accrued, or (2) capitalization of the accrued interest into the
principal of the Bond.
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
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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.
The Bond is one of a series of bonds issued and to be issued by the
Company aggregating not greater than $750,000 in principal amount, maturing
December 31, 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"), subject to the prior rights in the Security of the
holders of the Company's $875,000 aggregate principal amount convertible bonds
due August 15, 2000, irrespective of the dates or order of filing of the various
Security Agreements, or the dates or order of filing of 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 and accrued interest 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
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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.
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: December , 1999
DERMA SCIENCES, INC.
By:________________________________
Stephen T. Wills, CPA, MST
Vice President and Chief Financial Officer
ATTEST:
By:__________________________________
Richard S. Mink
Executive Vice President and Chief Operating Officer
[Transfer of the Bonds is subject to the Transfer Restrictions attached hereto.]
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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 seven (7) 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 D Preferred Stock, $.01 par value, set forth in the
Purchase Agreement ("Series D 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 D
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 D 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
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the amendment to the Company's Articles of Incorporation to authorize the
issuance of the Series D Preferred Stock.
(c) The "Unit Purchase Price" shall be $1.0125.
(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 D Preferred Stock and exercise of the Warrants.
3. CONVERSION.
(a) On the Conversion Date the Bonds, together with accrued interest
thereon, 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 D
Preferred Stock authorized no later than seven (7) 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,
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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
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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
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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.
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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.
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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.
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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: _______________________________________________________________
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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.
9
SECURITY AGREEMENT
THIS SECURITY AGREEMENT made this ____ day of December, 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, 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:
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,
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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. Provided, however, the security interest granted hereby is, and shall
be, subject to the prior security interest in the Collateral ("Prior Security
Interest") granted to the holders of the Company's $875,000 aggregate principal
amount convertible bonds due August 15, 2000.
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, (ii) the Prior Security Interest, (iii) interests of
record as of the date hereof, and (iv) purchase money security interests in
after acquired Collateral.
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4. COVENANTS. The Debtors covenant and agree that so long as any of the
Obligations remain outstanding:
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.
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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 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 D Preferred Stock authorized no later than seven (7) days after the
Conversion Notification Date (as defined in the Bonds) to permit conversion of
the Bonds; or
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(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 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
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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 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
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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 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
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recourse against the collateral pro rata in proportion to the principal amounts
of their respective 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.
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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: Claudius, L.L.C.
Its General Partner
By: ______________________
Stephen T. Wills, CPA, MST
Vice President and By: ______________________
Chief Financial Officer Bruce F. Wesson
Senior Managing Member
GENETIC LABORATORIES GALEN PARTNERS INTERNATIONAL III, L.P.
WOUND CARE, INC.
By: Claudius, L.L.C.
Its General Partner
By: ______________________
Stephen T. Wills, CPA, MST
Vice President and By: ______________________
Chief Financial Officer Bruce F. Wesson
Senior Managing Member
SUNSHINE PRODUCTS, INC GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
Its General Partner
By: ______________________
Stephen T. Wills, CPA, MST
Vice President and By: ______________________
Chief Financial Officer Bruce F. Wesson
President
MED-TEC INVESTORS, LLC
By: ______________________
Stephen T. Wills, CPA, MST
9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made this ___ day
of December, 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, 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 D 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 December 31, 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 D 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.
Underlying Common Stock: The Conversion Shares and the Warrant
Shares.
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Units: The Company's Units, each consisting of one share of
Series D 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
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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 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
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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-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
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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;
(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.
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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 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
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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, 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
9
<PAGE>
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 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.
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<PAGE>
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).
(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.
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<PAGE>
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without reference to its
rules as to conflicts of law) and the federal law of the United States of
America.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) Calculation of Majority. For purposes of determining whether the
Holders of a majority of the Registrable Securities have taken action pursuant
thereto, any Preferred Shares and Warrants then outstanding shall be deemed to
have been converted into Underlying Common 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: Claudius, L.L.C.
Its General Partner
By: ______________________
Bruce F. Wesson
Senior Managing Member
GALEN PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C.
Its General Partner
By: ______________________
Bruce F. Wesson
Senior Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
Its General Partner
By: ______________________
Bruce F. Wesson
President
MED-TEC INVESTORS, LLC
By: ______________________
COMPANY:
DERMA SCIENCES, INC.
By: ______________________
Stephen T. Wills, CPA, MST.
Vice President and Chief Financial Officer
13
CERTIFICATE OF DESIGNATIONS, VOTING POWERS,
PREFERENCES AND RIGHTS
OF
THE SERIES OF PREFERRED STOCK
OF
DERMA SCIENCES, INC.
TO BE DESIGNATED
SERIES D 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 D Convertible Preferred Stock" (the "Series D 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 D Preferred Stock, as
follows:
1. VOTING RIGHTS. The holders of Series D 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 , Series C 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 D 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 D 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 D Preferred Stock shall be
entitled to receive the purchase price per share (the "Liquidation
Preference"), together with accrued and unpaid dividends payable
thereon to the date fixed for
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<PAGE>
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 D Preferred Stock (and any series of preferred stock
ranking in parity with the Series D 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 D 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, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock shall rank in parity with the
Series D Preferred Stock. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of
Series D 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 D Preferred Stock or the qualifications,
limitations or restrictions thereof in a manner that adversely affects
the Series D Preferred Stock.
3. CONVERSION RIGHTS.
(a) CONVERSION OF SERIES D PREFERRED STOCK. Each share of Series D
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 D
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 D 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 (609)
452-0880, Attention: Edward J. Quilty, shall be deemed notice
for purposes of
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<PAGE>
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 D 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 D 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
REGISTRATION STATEMENT PROVIDED THAT THE HOLDER
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<PAGE>
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 D 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 D 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 D 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 D
Preferred Stock. If more than one share of Series D 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 D Preferred
Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion
of any shares of Series D Preferred Stock, the Corporation
shall pay a cash adjustment in respect of such fractional
interest in an amount determined on the basis of the then
Current Market Price per share of Common Stock. Fractional
interests shall not be entitled to dividends, and the holders
thereof shall not be entitled to any rights as stockholders of
the Corporation in respect of such fractional interests.
(d) ADJUSTMENTS TO CONVERSION RATIO FOR CERTAIN EVENTS. The number
of Conversion Shares underlying each Preferred Share (the
"Conversion Ratio") shall be subject to adjustment from time
to time as set forth in this subsection (d).
(i) In case at any time, or from time to time, the
Corporation shall: (A) take a record of the holders
of its Common Stock for the purpose of entitling them
to receive a dividend or other distribution payable
in shares of capital stock; (B) subdivide its
outstanding shares of Common Stock into a larger
number of shares; (C) combine its outstanding shares
of Common Stock into a smaller number of shares; or
(D) issue by reclassification or recapitalization of
its Common Stock any other class or series of shares
of the Corporation (including any such
reclassification or recapitalization in connection
with a consolidation
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<PAGE>
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 D Preferred Stock surrendered for conversion
after such time shall be entitled to receive the
aggregate number and kind of shares which, if such
Series D 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 are not so
issued or sold, the Conversion Ratio shall again be
adjusted to be the
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<PAGE>
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 date by a
fraction, of which the numerator shall be the total
number of
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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 D 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 D
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 D 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 D 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 D
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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<PAGE>
holder would be entitled to receive if all of the
outstanding Series D 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 D 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 D 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 D Preferred
Stock, the full number of whole shares of Common Stock then
deliverable upon the conversion of all shares of Series D
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 D 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 D
Preferred Stock, the shares of Series D Preferred Stock so
converted shall have the status of authorized and unissued
Preferred Stock, and the number of shares of Series D
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 D 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 D Preferred Stock shall have
any preemptive or preferential right of subscription to any shares of
stock of the Corporation, or to options, warrants or other interests
therein or therefor, or to any obligations convertible into stock of
the Corporation, issued or sold, or any right of subscription to any
thereof other than such, if any, as the Board of Directors, in its
discretion, from time to time may determine and at such price
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<PAGE>
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 D Preferred Stock is
outstanding, the Corporation shall not, without the consent of holders
of a majority of the outstanding shares of Series D 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 D 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 D Preferred Stock, (iv) increase
the authorized number of shares of Series D 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 December 15,
1999, except Common Stock which may be issued pursuant to: (i)
the conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D
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).
(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.
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(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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