PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 18th day of
July, 2000, by and among Derma Sciences, Inc., a Pennsylvania corporation with
offices located at 000 Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxx, Xxx Xxxxxx, 00000
("Derma Sciences" or "the Company"), Kensington Management Group, LLC, 000 Xxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000, Dolphin Offshore Partners, 000 Xxxx 00xx
Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000, Redwood Asset Management, Xxxx Xxxxxx
Xxxxxxxx Xx. 00, 0000, Xxxx, Xxxxxx and Xxxxxx X. Xxxxxx, 000 Xxxxxxxx Xxxxxx,
Xxxxx 000, Xxxxxxxxx, Xxx Xxxxxx, 00000 (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 Units. Subject to the
terms and conditions of this Agreement, the Company has authorized the sale of
$500,000 in dollar amount of the Company's series E units (the "Unit(s)") at the
price of $0.75 per Unit. The Units shall provide, and shall be in the form,
described below:
1.1. Units. Each Unit consists of one share of common stock, par value
$.01 per share, ("Common Stock ") and one and one tenth (1.1) warrants to
purchase one share of Common Stock at a price of $0.85 per whole share
("Warrant(s)"). The provisions governing the Warrants are set forth in the Form
of Warrant Agreement attached hereto as Exhibit 1.
1.2. Registration Rights. The Common Stock comprising the Units and the
Common Stock issuable upon 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 2.
2. Agreement to Sell and Purchase the Units. 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 Units at the
price of $0.75 per Unit and upon the terms and conditions hereinafter set forth:
2.1. Dollar Amounts of the Units. The dollar amounts of the Units to be
purchased by each Purchaser are as follows:
Purchaser Amount
Kensington Management Group, LLC $300,000
Dolphin Offshore Partners $100,000
Redwood Asset Management $50,000
Xxxxxx X. Xxxxxx $50,000
2.2. Documents. This Agreement and the agreements executed by the
Company and the Purchasers relative to the Units are hereinafter sometimes
collectively referred to as the
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"Documents." The term Documents shall mean this Agreement, the Form of Warrant
Agreement and the Registration Rights Agreement together with any schedules or
exhibits thereto.
3. Delivery of the Units at the Closing. The completion of the purchase
and sale of the Units (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 July 28, 2000. At the Closing, the Company
shall deliver to each Purchaser one or more certificates registered in the name
of the Purchaser, or in such nominee name(s) as designated by the Purchaser,
representing the Common Stock and Warrants comprising the Units purchased by
such Purchaser as set forth in section 2.1 hereof. Fractional shares of
Underlying Common Stock shall be rounded to the next higher number of whole
shares. The Company's obligation to complete the purchase and sale of the Units
at the Closing shall be subject to receipt of Federal Reserve (same-day) funds
in the full amount of the purchase price for the Units being purchased hereunder
by such Purchaser. Each Purchaser's obligation to accept and to pay for the
Units shall be subject to the condition that the Company shall have (a) entered
into a Registration Rights Agreement in the form of Exhibit 2 hereto (the
"Registration Rights Agreement") and (b) the accuracy in all material respects
of the representations and warranties made by the Company herein and the
fulfillment in all material respects of those undertakings of the Company to be
fulfilled prior to Closing. The parties agree that there may be more than one
Closing; provided, that all Closings for the sale of Units must be held not
later than July 28, 2000.
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
subsidiary 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
subsidiary 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 subsidiary,
taken as a whole.
4.2. 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 Units will be,
duly authorized, executed and delivered by the Company. The Company's execution,
delivery and performance of this Agreement and each Document will not violate
(i) any law, rule or regulation applicable to the Company or its subsidiary or
(ii) the Certificate of Incorporation or Bylaws of the Company or its subsidiary
or (iii) any provision of any indenture, mortgage, agreement, contract or other
instrument to which the Company or its subsidiary is a party or by which the
Company or its subsidiary 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 its subsidiary, except, in the case of
such clause (iii), where such violation, breach or default would not have a
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material adverse effect on the business, properties, prospects, condition
(financial or otherwise), net worth or results of operations of the Company and
its subsidiary 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 and the Documents 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).
4.3. Issuance of the Common Stock and Warrants. Upon issuance, the
Warrants and Underlying Common Stock will be duly authorized and validly issued
and, upon payment therefor, will be non-assessable.
4.4. 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
its subsidiary 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 subsidiary, 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
its subsidiary 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
subsidiary.
4.5. 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.
4.6. 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 its subsidiary
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 subsidiary, taken as a whole.
4.7. Legal Opinion. Prior to closing, Xxxxxx & Xxxxxx, 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.
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4.8. Issuance of Common Stock Upon Warrant Exercise. The Company shall
issue its Common Stock upon exercise of the Warrants in accordance with the
terms of the Warrant Agreement, which shall be legended as provided therein.
After the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective by the Securities and Exchange Commission, if
any holder of Underlying Common Stock shall deliver to the Company 's transfer
agent (i) the certificate 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.
4.9. 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 Units, 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 Units; (ii) the Purchaser is acquiring the Units 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 Xxxx-Xxxxx-Xxxxxx
Antitrust Improvement Act of 1976 and the regulations thereunder) only and with
no present intention of distributing any of such Units, Warrants or Underlying
Common Stock or any arrangement or understanding with any other persons
regarding the distribution or purchase of such Units, 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 Units, 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 Units
set forth in Section 2 above,
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relied solely upon the representations and warranties of the Company contained
in writing herein, and has not relied upon any other statements,
representations, warranties, covenants or assurances of the Company, (v) the
Purchaser is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act ("Regulation D"); and (vi) the
Purchaser understands that the Units and, except as provided in Section 4.8
hereof, the Warrants and the Underlying Common Stock will contain a legend to
the following effect (provided that certificates for the Warrants 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 Units, 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 Units, 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 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 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. Nomination to Board of Directors. In the event the Company is
delisted from the Nasdaq SmallCap Market, Kensington Management Group, LLC
("Kensington") shall have the option of nominating one individual for election
to the board of directors of the Company. Upon any such nomination, the Company
shall cause its board of directors to (i) expand the board of directors by one
member and (ii) elect the nominee of Kensington to fill the vacancy on the board
of directors thereby created. Thereafter, during the pendency of the Company's
delisting from the Nasdaq SamllCap Market, the Company shall cause its board of
directors to nominate the nominee of Kensington for election to the Company's
board of directors upon the occasion of each of the Company's annual meetings of
shareholders.
7. 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 Units being purchased and the payment therefor.
8. 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.
9. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and each Purchaser.
10. 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.
11. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
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12. 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.
13. 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.
14. 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.
COMPANY:
DERMA SCIENCES, INC.
By:
-----------------------------------------------
Xxxxxx X. Xxxxxx, President and CEO
PURCHASERS:
KEINSINGTON MANAGEMENT GROUP, LLC
By:
---------------------------------------------
DOLPHIN OFFSHORE PARTNERS
By:
---------------------------------------------
REDWOOD ASSET MANAGEMENT
By:
-----------------------------------------------
Morten Hornness, Analyst
XXXXXX X. XXXXXX
--------------------------------------------------
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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:
--------------------------------------
APPENDIX II
[XXXXXX & XXXXXX LETTERHEAD]
July 18, 2000
Board of Directors
Derma Sciences, Inc.
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Re: Offer and Sale of Series E Units
Members of the Board:
We are counsel to Derma Sciences, Inc. (the "Company") in connection with the
offer and sale of those certain series E units ("Unit(s)") consisting of one
share of common stock, par value $.01 per share ("Common Stock") and one and one
tenth (1.1) warrants to purchase one share of Common Stock at $0.85 per whole
share ("Warrant(s)"). We have examined the originals, or certified, conformed or
reproduction copies, of all records, agreements, instruments and documents
relative to the Units as we have deemed relevant or necessary as the basis for
the opinion hereinafter expressed. Our examination included review of the
purchase agreement, form of warrant agreement, registration rights agreement 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 subsidiary are corporations duly organized,
validly existing and in good standing under the laws of their jurisdictions of
incorporation and have all requisite corporate power and authority to conduct
their business as currently conducted.
2. As of the date hereof, the authorized capital stock of the Company
consists of: (a) 30,000,000 shares of Common Stock of which 1,325,938 shares are
outstanding, (b) 1,750,000 shares of Series A Convertible Preferred Stock of
which 272,500 shares are outstanding, (c) 3,333,340 shares of Series B
Convertible Preferred Stock of which 666,668 shares are outstanding, (d) 795,457
shares of Series C Convertible Preferred Stock of which 431,818 shares are
Board of Directors
July 18, 2000
Page 2
outstanding, (e) 592,597 shares of Series D Convertible Preferred Stock of which
148,149 are outstanding, (f) 5,278,606 shares of undesignated preferred stock of
which none are outstanding, and, (g) $850,000 aggregate principal amount of
convertible bonds due January 7, 2001.
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 Common Stock, together with all Common Stock issuable
upon exercise of the Warrants, 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 subsidiary, (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 its subsidiary, (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 its subsidiary 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 its
subsidiary, 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 its subsidiary 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 its subsidiary 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 subsidiary.
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 Units, and except for compliance with applicable
federal and
Board of Directors
July 18, 2000
Page 3
state securities laws in connection with the resale by purchasers of
the Underlying Common Stock (as defined in the purchase agreement), 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 its subsidiary 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,
XXXXXX & XXXXXX
Xxxxxxx X. Xxxxxx, Xx.
RCH:JMH
