Settlement Agreement

SETTLEMENT AGREEMENT (INCLUDING STIPULATION OF DISMISSAL)



                          UNITED STATES DISTRICT COURT
                             DISTRICT OF NEW JERSEY


------------------------------------
                                   :
ABS LIFESCIENCE, INC.              :
                                   :
               Plaintiff           :    Civil Action No. 95-5200
                                   :
     v.                            :    Hon. Nicholas H. Politan
                                   :    U.S.D.J.
DERMA SCIENCES,                    :
                                   :
               Defendant           :    FILED UNDER SEAL
                                   :    ----------------
------------------------------------


           SETTLEMENT AGREEMENT (INCLUDING STIPULATION OF DISMISSAL)
           ---------------------------------------------------------

     ABS LIFESCIENCE, INC. ("ABS") and DERMA SCIENCES, INC. ("Derma") agree this
8th day of June 1998 that this action is settled on the following terms.

        1. ABS and Derma hereby  stiputate  that this action is  dismissed  with
prejudice  and without  either  party being liable to the other for any costs of
this action,  subject to reinstatement of this action pursuant to paragraph 6 of
this settlement agreement.

        2. Within three (3) business  days after this  settlement  agreement has
been so  ordered  by the above  court (the  "Court"),  Derma will wire  transfer
$250,000  to  ABS's  account  the  ("ABS   Account"):   CoreStates  Bank,  N.A.,
Philadelphia, PA., ABA $ 031000011, for credit to Integra Life Sciences, account
00105-56594.

        3. Derma will wire  transfer  $37,500 (a total of  $225,000)  to the ABS
Account on each of the following dates:




          July 1, 1998
          August 3, 1998
          September 1, 1998
          October 1, 1998
          November 2, 1998
          December 1, 1998

        4. Derma will will  transfer  $75,000 to the ABS Account on December 31,
1998.

        5. Within ten (10)  business  days after this  settlement  agreement has
been so ordered by the Court, Derma will deliver to ABS or its designee,  at 515
South  Franklin  Street,  West Chester,  PA 19382,  Derma's  total  inventory of
approximately  1426 cases (144  units  each case) of  Chronicure.  Title to such
Chronicure shall pass from Derma to ABS at the time of delivery.

        6. If Derma fails to make any wire transfer to the ABS Account  required
under  paragraphs  2, 3 and 4, in the  amount  and by the  dates  set  forth  in
paragraphs 2, 3 and 4 respectively, ABS may give Derma written notice of default
by  registered  mail or by Express  Mail,  Federal  Express  or other  overnight
delivery service,  addressed to Derma Science,  Inc., c/o Palatin  Technologies,
Inc. 214 Carnegie Center, Suite 100, Princeton, NJ 08540,  attention:  Edward J.
Quilty  ("Quilty"),  with a copy by one of the same methods to Eric J.  Wallach,
Esq., Kasowitz,  Benson, Torres & Friedman LLP, 1301 Avenue of the Americas, New
York, New York  10019-6002  ("Wallach").  If Derma fails to wire transfer to the
ABS  Account  the  particular  installment  due  within  ten (10) days of actual
receipt by Derma of said written notice of default. ABS shall have the right, at
any time within sixty (60) days following such failure of delivery,  to provide,
by an affidavit  sworn to by an officer of ABS,  written  notice to the Court of
Derma's failure to make payment, with copies to Quilty and Wallach by one of the
methods listed above; whereupon, the Court shall reinstate this action and shall
enter  judgment in favor of ABS and  against  Derma in the amount of One Million
Two Hundred Fifty Thousand Dollars ($1,250,000), which such shall constitute the
total amount of monetary payment by Derma to ABS under this


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settlement  agreement.  Upon the entry of such judgment,  all monetary  payments
previously made by Derma to ABS under this settlement agreement shall be applied
to the satisfaction of said judgment, and Derma's obligation to make any and all
remaining unpaid payments under  paragraphs 2, 3 and 4 shall be eliminated.  ABS
thereafter  may collect the judgment by any lawful means,  subject to any credit
allowable hereunder.

        7. ABS and Derma,  each the "Releasor," each hereby forever releases and
discharges the oother (along with the other's parents, affiliates,  subsidiaries
and divisions, and the other's stockholders,  predecessors, successors, assigns,
agents, officers, directors, employees, representatives, and attorneys both past
and present,  collective  the  "Releasees"),  from any and all claims,  demands,
causes of action and liabilities of any kind whatsoever, known and unknown, both
past and present,  including without  limitation all invoices that ABS submitted
to Derma for goods sold and/or  delivered,  which  Releasor ever had, now has or
may have against  Releasees,  up to and  including  the date of this  settlement
agreement.

        8. ABS and Derma each agree not to  disparage,  or make any  disparaging
remark, or send any disparaging  communication  concerning the other,  including
the other's  parents,  affiliates,  subsidiaries  and  divisions and the other's
reputation,  business,  officers,  directors  shareholders  and employees.  This
provision  shall not apply,  however,  to any statement that ABS or Derma may be
required by law to make (e.g.,  in  testimony  required in a court  proceeding).
This  provision also shall not apply to any statement that may be made by either
party about the other in the course of marketing  or  promoting  the products of
the party  making  such  statement,  to the  extent  that such  products  are in
competition  in the  marketplace  with the products  marketed or promoted by the
other party.

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        9. ABS and  Derma  each  agrees  to keep  secret  and  confidential  the
existence  and  terms of this  settlement  agreement.  If any party is asked any
question  concerning the controversy between the parties hereto, such party will
state only that "the matter has been amicably  resolved."  This provision  shall
not apply,  however,  to any disclosure that ABS or Derma may be required by law
to make (e.g., in testimony required in a court proceeding). This provision also
shall not apply to any press release or SEC or other public  reporting  that ABS
or Derma may issue or file in good  faith,  to satisfy  disclosure  requirements
that it determines may exist under applicable law or regulations,  provided that
the party  shall  submit any such  press  release or report in draft form to the
other for review and comment  before it is issued or filed.  In  addition,  this
provision  shall not  preclude a  disclosure  by ABS or Derma to its  employees,
accountants or attorneys, provided that ABS or Derma shall so disclose the terms
of this  settlement  agreement  only to the  extent  that  such  persons  have a
legitimate need to known such terms to carry out their  responsibilities  to ABS
or Derma,  and provided  furhter that ABS or Derma shall secure the agreement of
such persons not to disclose  further the existence or terms of this  settlement
agreement except as expressly permitted hereunder.

        10. This  settlement  agreement shall be deemed to have been made in New
Jersey, and shall be interpreted,  construed,  and enforced pursuant to the laws
of New Jersey.

        11.  This  settlement  agreement  may  be  executed  by the  parties  in
counterparts and submitted to the Court as such, with all counterparts  together
constituting a single agreement.

        12. This settlement  agreement sets forth the entire  agreement  between
the  parties  hereto,   fully   supersedes  any  and  all  prior  agreements  or
understandings  between  the parties  hereto  pertaining  to the subject  matter
hereof, and may be modified only in writing duly executed by the parties hereto.

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        13. This  settlement  agreement will be filed under seal and will not be
disclosed to anyone unless so ordered by the Court,  or unless  permitted  under
the express terms of this settlement agreement.

AGREED: June 8, 1998



ABS LIFESCIENCES, INC.                            DERMA SCIENCES, INC.



     /s/ Richard Caruso                                /s/ Edward J. Quilty
By:_________________________                      By:_________________________
Richard Caruso, Chairman                          Edward J. Quilty, Chairman




     /s/ David F. Abernethy                            /s/ Eric J. Wallach
By:_________________________                      By:_________________________
David F. Abernethy, Esq.                          Eric J. Wallach, Esq.
DRINKER, BIDDLE & REATH                           KASOWITZ, BENSON, TORRES
47 Hulfish Street                                   & FRIEDMAN
P. O. Box 627                                     1301 Avenue of the Americas
Attorneys for ABS LifeSciences, Inc.              New York, NY 10019-6022
                                                  Attorneys for Derma Sciences, 
                                                    Inc.
                                                  (202) 506-1750


                                                  SO ORDERED




                                                  ____________________________
                                                  HON. NICHOLAS H. POLITAN
                                                  U.S.D.J.

                                                  Date: June __, 1998


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