SECURITY AGREEMENT
THIS SECURITY AGREEMENT made this 16th day of August, 1999, by and among
Derma Sciences, Inc., a Pennsylvania corporation with offices located at 000
Xxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxx, Xxx Xxxxxx ("Xxxxx Sciences"), Genetic
Laboratories Wound Care, Inc., a Minnesota corporation with offices at 0000
Xxxxxx Xxxx, Xx. Xxxx, Xxxxxxxxx 00000 and Sunshine Products, Inc., a Missouri
corporation with offices at 0000 Xxxx Xxxxx, Xx. Xxxxx, Xxxxxxxx 00000
(collectively, the "Debtors") and Xxxxx Partners III, L.P., a New York limited
partnership with offices at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Xxxxx
Partners International III, L.P., a New York limited partnership with offices at
000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Xxxxx Employee Fund III, L.P., a New
York limited partnership with offices at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000, Xxxxxxxxx & Xxxxx California, LLC, a California limited liability company
with offices at Xxx Xxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000 and Med-Tec
Investors, LLC, a New Jersey limited liability company with offices at 000
Xxxxxxxxx Xxxx, Xxxxxxxxx, Xxx Xxxxxx 00000 (collectively, the "Secured
Parties").
WHEREAS, Derma Sciences has issued bonds of even date herewith (the
"Bonds") to the Secured Parties; and
WHEREAS, as a condition to the Bonds and as collateral for payment of Derma
Sciences' obligations thereunder (the "Obligations"), the Debtors have agreed to
grant the Secured Parties a security interest in the Collateral (as hereinafter
defined);
NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, and intending to be legally bound hereby,
the parties agree as follows:
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1. COLLATERAL. For purposes of this Agreement, "Collateral" means all
property now owned or hereafter acquired by Debtors and any and all inventory,
supplies, accounts receivable, machinery, equipment, tools, fixtures,
furnishings, furniture, books, records, charts, analyses, compilations, contract
rights, reports, any and all other personal property and goods, any and all
general intangibles, trade secrets, intellectual property, trademarks (and all
goodwill pertaining thereto), copyrights, patents, and all replacements,
substitutions and cash and non-cash proceeds thereof. Collateral also includes
all leases, subleases and rentals now or hereafter entered into pertaining to
any of the foregoing, together with all cash and non-cash proceeds thereof, and
the proceeds of any insurance policy payable by reason of loss or damage to any
of the foregoing.
2. SECURITY INTEREST. As security for the prompt payment of the
Obligations, when due, at maturity or by acceleration upon default, the Debtors
hereby grant to the Secured Parties a lien upon and a continuing security
interest in all Collateral in which the Debtors now or may hereafter acquire an
interest.
3. REPRESENTATIONS AND WARRANTIES. The Debtors represent and warrant to
the Secured Parties as follows:
a. Binding Agreement. This Agreement constitutes the valid and legally
binding obligation of the Debtors enforceable in accordance with its terms.
b. Warranty of Title. Each item of Collateral is and will remain at
all times prior to payment in full of the Obligations, the sole property of
the respective Debtors free and clear of any lien, encumbrance, security
interest or claim of adverse interest other than (i) interests granted to
the Secured Parties herein, and (ii) interests of record as of the date
hereof.
4. COVENANTS. The Debtors covenant and agree that so long as any of the
Obligations remain outstanding:
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a. Further assurances. The Debtors will execute such financing
statements, continuation statements, security agreements and other
documents, in form satisfactory to the Secured Parties, as may be necessary
to perfect, or continue perfection of, the security interests of the
Secured Parties in the Collateral. The Debtors agree that the Secured
Parties may file a carbon, photographic copy or other reproduction of any
financing statement in lieu of an executed original thereof.
b. Maintenance of Records. The Debtors will keep and maintain, at
their own cost and expense, satisfactory, complete and current records of
the Collateral. The Debtors will protect their records against fire, theft,
loss or any other manner of destruction.
c. Maintenance of Collateral. The Debtors will keep the Collateral in
good condition and free from all liens and other security interests and the
Debtors will not use the Collateral illegally, sell or offer to sell
(except in the ordinary course of business) or otherwise transfer or
encumber the Collateral or permit it to be affixed to real or personal
property without the prior written consent of the Secured Parties.
d. Taxes. The Debtors will pay promptly when due all taxes, charges
and assessments, including penalties and interest, that are or may become a
lien on the Collateral or any part thereof except to the extent that they
may be contested in good faith and by appropriate proceedings.
e. Inspection and Delivery of Collateral, Books and Records. The
Secured Parties, or their agents, may at anytime and from time to time
inspect the Collateral and the books and records of the Debtors pertaining
thereto.
f. Expenses. The Debtors shall be liable for, and agree to pay the
Secured Parties, any and all expenses incurred or paid by the Secured
Parties in enforcing their rights under this
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Agreement, including reasonable counsel fees and legal expenses. At their
option, the Secured Parties may discharge taxes, liens, security interests
or other encumbrances on the Collateral and may pay for the repair of
damage to the Collateral, the maintenance and preservation thereof and
insurance thereon. The Debtors agree to reimburse the Secured Parties on
demand for any payments so made, and, until such reimbursement, the amount
of any such payments, with interest at the maximum contract rate permitted
by law from date of payment until the date of reimbursement, shall be added
to the Obligation and shall be secured by this Security Agreement.
g. Insurance. The Debtors will continuously insure the Collateral with
a responsible company or companies against fire (with extended coverage) in
the full insurable value of the Collateral and against other casualties in
reasonable amounts. If the Debtors fail to pay the premium, the Secured
Parties at their option may do so for the Debtors' account and add the
amount thereof to the Obligation.
5. EVENTS OF DEFAULT.
a. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
(1) Derma Sciences fails to make any payment of interest or
principal under the Bonds when due; or
(2) Derma Sciences fails to have a sufficient number of shares of
Series C Preferred Stock authorized no later than three (3) days after
the Conversion Notification Date (as defined in the Bonds) to permit
conversion of the Bonds; or
(3) Derma Sciences fails duly to perform or observe any other
term, covenant or agreement contained in the Bonds for a period of 30
days after the date on which written
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notice of such failure, requiring the Company to remedy the same,
shall first have been given to the Company by the holders of at least
25% in aggregate principal amount of the Bonds as from time to time
outstanding; or
(4) A court having jurisdiction in the premises enters a decree
or order for relief in respect of any of the Debtors in an involuntary
case or proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of any of the Debtors or for any
substantial part of the property thereof or ordering the winding-up or
liquidation of the affairs of any of the Debtors it and such decree or
order remains unstayed and in effect for a period of 30 consecutive
days; or
(5) Any of the Debtors commences a voluntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or similar
official) of any of the Debtors or for any substantial part of the
property thereof, or makes any general assignment for the benefit of
creditors, or admits in writing its inability to pay its debts as they
become due or takes any corporate action in furtherance of any of the
foregoing; or
(6) An event of default, as defined in any indenture or
instrument evidencing or under which any of the Debtors has
outstanding at least $200,000 (or its equivalent in another currency),
in aggregate principal amount of indebtedness for borrowed money, has
occurred and is continuing and such default involves the failure to
pay the principal or interest of such indebtedness (or any part
thereof), when due and payable after the expiration of any applicable
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grace period with respect thereto, or such indebtedness has been
accelerated so that the same becomes due and payable prior to the date
on which the same would otherwise have become due and payable, and
failure to pay is not cured within 30 days after such failure or such
acceleration is not rescinded or annulled within 60 days after notice
thereof has first been given to Derma Sciences; provided that if such
event of default under such indenture or instrument is remedied or
cured by Derma Sciences or waived by the holders of such indebtedness,
then the Event of Default hereunder by reason thereof shall be deemed
likewise to have been thereupon remedied, cured or waived without
further action upon the part of any of the Bondholders.
b. Remedies on Default. Upon any such Event of Default and at any time
thereafter, the Secured Parties holding 50% or more of the aggregate
principal amount of the Bonds then outstanding may declare all obligations
secured hereby to be immediately due and payable without notice, protest,
presentment or demand, all of which are hereby expressly waived by the
Debtors, and may proceed to enforce payment of the same and exercise any
and all of the rights and remedies set forth herein or provided by the law.
The Secured Parties will give the Debtors reasonable notice of the time and
place of any public sale of the Collateral or any part hereof or of the
time after which any private sale or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be deemed met if
such notice is mailed, postage prepaid, to the address of the Debtors shown
at the head of this Agreement at least ten (10) days before the time of the
sale or disposition, but nothing contained herein shall be construed to
mean that any other notice or a shorter period of time does not constitute
reasonable notice for the sale of the Collateral or any part thereof.
Expenses of retaking, holding, preparing for sale, selling or the like
shall include the Secured Parties' reasonable counsel fees and legal
expenses. Should an Event of Default occur, the Debtors shall upon request
by the Secured
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Parties assemble the Collateral or any designated part thereof and make it
available to the Secured Parties at such place as is designated by the
Secured Parties. The Debtors shall pay the Secured Parties, on demand, any
and all expenses, including all reasonable counsel fees and legal expenses
incurred or paid by the Secured Parties in protecting or enforcing their
rights, powers and remedies hereunder or under any other agreement between
the parties or under any obligation secured hereby or thereby.
6. MISCELLANEOUS.
a. Amendment and Waiver. The provisions of this Agreement may be
amended or compliance with this Agreement waived only by the written
agreement of the Secured Parties and the Debtors.
b. Titles. The titles and section headings herein are included for
convenience only and shall not be deemed to be a part of this Agreement.
c. Cumulative Rights. Each and every right granted to the Secured
Parties hereunder or under any other document delivered hereunder or in
connection herewith or allowed by law or equity shall be cumulative and may
be exercised from time to time. No failure on the part of the Secured
Parties to exercise, and no delay in exercising, any right shall operate as
a waiver thereof, nor shall any single or partial exercise by the Secured
Parties of any right preclude any other or future exercise thereof or the
exercise of any other right.
d. Pro Rata Recourse to Collateral. The Secured Parties, upon
occurrence of an Event of Default which is not timely cured in accordance
with the terms hereof and in the further event the Collateral or proceeds
thereof are insufficient to satisfy the Obligations, shall have recourse
against the collateral pro rata in proportion to the principal amounts of
their respective
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Bonds irrespective of the dates or order of filing of this
Security Agreement or the dates or order of filing associated Forms UCC-1
or any other indicia of priority.
e. Choice of Law; Saving Clause. This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Wherever possible each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
7. TERM AND TERMINATION. This Security Agreement shall remain in full force
and effect until the earlier to occur of: (i) the agreement by all parties
hereto to terminate this Security Agreement; or (ii) the satisfaction by Derma
Sciences of all of the Obligations.
8. COUNTERPARTS. This Security Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties. Facsimile signatures are considered to be
originals and shall have the same effect.
[Signatures on next page]
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IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
executed by their duly authorized officers the day and year first above written.
DEBTORS: SECURED PARTIES:
DERMA SCIENCES, INC. XXXXX PARTNERS III, L.P.
By: _____________________________ By: _______________________________
Xxxxxxx X. Xxxxx, CPA, MST
Vice President and
Chief Financial Officer
GENETIC LABORATORIES XXXXX PARTNERS INTERNATIONAL III, L.P.
WOUND CARE, INC.
By: _____________________________ By: _______________________________
Xxxxxxx X. Xxxxx, CPA, MST
Vice President and
Chief Financial Officer
SUNSHINE PRODUCTS, INC XXXXX EMPLOYEE FUND III, L.P.
By: _____________________________ By: _______________________________
Xxxxxxx X. Xxxxx, CPA, MST
Vice President and
Chief Financial Officer
XXXXXXXXX & XXXXX CALIFORNIA, LLC
By:_______________________________
MED-TEC INVESTORS, LLC
By:_______________________________
Xxxxxxx X. Xxxxx, CPA, MST
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