8-K

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):  February 28, 2002



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)

Item 5. Other Events

         Derma Sciences, Inc. (the “Registrant”) as of February 28, 2002 concluded subscription agreements with its President, Edward J. Quilty, together with 15 other individual and institutional investors for the sale of 1,300,000 shares of the Registrant’s common stock, par value $0.01 per share (“Common Stock”), at a price of $0.50 per share, for a total investment of $650,000. Subscriptions totaling $565,000 have been funded. The Registrant expects the balance of the subscriptions to be funded not later than March 31, 2002. The Registrant has agreed to file a registration statement with the Securities and Exchange Commission relative to the Common Stock.

         The Purchase Agreement, Registration Rights Agreement and Legal Opinion relative to the Common Stock are attached hereto as Exhibits 10.01, 10.02 and 10.03, respectively.

Item 7. Financial Statements and Exhibits

(a)	Not applicable
(b)	Not applicable
(c)	Exhibits:
	10.01 – Purchase Agreement
	10.02 – Registration Rights Agreement
	10.03 – Legal Opinion

2

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DERMA SCIENCES, INC.
Date: March 5, 2002	By: /s/ John E. Yetter            John E. Yetter, CPA       Vice President and Chief Financial Officer

3

EX-10

PURCHASE AGREEMENT

        THIS PURCHASE AGREEMENT (“Agreement”) made this 28th day of February, 2002, by and among Derma Sciences, Inc., a Pennsylvania corporation with offices located at 214 Carnegie Center, Suite 100, Princeton, New Jersey, 08540 (“Derma Sciences” or “the Company”) and Kensington Partners L.P., 200 Park Avenue, New York, New York 10016, Kensington Partners II L.P., 200 Park Avenue, New York, New York 10016, Peter Orthwein Family Trust, 200 Park Avenue, New York, New York 10016, Peter Orthwein Managed Account, 200 Park Avenue, New York, New York 10016, Bald Eagle Fund Ltd., 200 Park Avenue, New York, New York 10016, Dolphin Offshore Partners, 129 East 17^th Street, New York, New York 10003, Guerrilla Partners, 237 Park Avenue, 9^th Floor, New York, New York 10017, Guerrilla IRA Partners, 237 Park Avenue, 9^th Floor, New York, New York 10017, Synergetics Capital, Ovre Ullorn Terrasse No. 32, 0358, Oslo, Norway, Edward J. Quilty, 1031 Creamery Road, Newtown, Pennsylvania 18940, Saleem Noorani and Ann T. Noorani, 358 Ocean Avenue, Marblehead, Massachusetts 01945, James T. O’Brien, 11801 Pawnee Lane, Leawood, Kansas 66211, Stephen T. Wills, CPA, MST, 13 Highview Lane, Lower Makefield Pennsylvania 19067, John E. Yetter, CPA, 27 Brandywine Road, Skillman, New Jersey 08558, Vivek Jain, 307 East 77^th Street, Apartment 6D, New York, New York 10021and Geoffrey T. Michael, 7 Roszel Road, 4^th Floor, 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.     Authorization of Sale of the Common Stock. The Company has authorized the sale of up to $1,000,000 in dollar amount of the Company’s common stock, par value $0.01 per share, (“Common Stock”) at the price of $0.50 per share pursuant to the terms and conditions of this Agreement.

        2.     Agreement to Sell and Purchase the Common Stock. At the Closing (as defined in Section 4), the Company will sell and deliver to each Purchaser, and each Purchaser will buy from the Company and accept delivery of, the Common Stock at the price of $0.50 per share and upon the terms and conditions hereinafter set forth:

        2.1.   Number and Dollar Amounts of the Common Stock. The number and dollar amounts of the Common Stock to be purchased by each Purchaser are as follows:

     Purchaser                                   Number of Shares        Amount
     ---------                                   ----------------        ------

     Kensington Partners L.P.                         292,000           $146,000
     Kensington Partners II L.P.                       20,000            $10,000
     Peter Orthwein Family Trust                      100,000            $50,000
     Peter Orthwein Managed Account                    28,000            $14,000
     Bald Eagle Fund Ltd.                              60,000            $30,000
     Dolphin Offshore Partners                        200,000           $100,000
     Guerrilla Partners                               200,000           $100,000
     Guerrilla IRA Partners                           100,000            $50,000

     Purchaser                                   Number of Shares        Amount
     ---------                                   ----------------        ------

     Synergetics Capital                              120,000            $60,000
     Edward J. Quilty                                  50,000            $25,000
     Saleem Noorani and Ann T. Noorani (Jt Ten)        30,000            $15,000
     James T. O'Brien                                  30,000            $15,000
     Stephen T. Wills, CPA, MST                        20,000            $10,000
     John E. Yetter, CPA                               20,000            $10,000
     Vivek Jain                                        20,000            $10,000
     Geoffrey T. Michael                               10,000             $5,000

        2.2.   Documents. This Agreement and all other agreements executed by the Company and the Purchasers relative to the Common Stock are hereinafter sometimes collectively referred to as the “Documents.” The term Documents shall mean this Agreement and the Registration Rights Agreement together with any schedules or exhibits thereto.

        2.3.   Additional Purchasers. The Company may, but shall be under no obligation to sell the Common Stock upon the terms set forth in this Agreement to purchasers in addition to those named in paragraph 2.1 hereinabove (these latter individually, “Additional Purchaser” and collectively, “Additional Purchasers”). The default of any Purchaser or Additional Purchaser under this Agreement or any other agreement of like tenor for purchase of the Common Stock shall not alter or affect the obligations of any other Purchaser or Additional Purchaser hereunder or thereunder.

        2.4.   Right of Rescission. In the event the Company has not consummated the purchase of all of the issued and outstanding equity securities of FNC Medical Corporation prior to July 1, 2002, then the undersigned Purchaser shall have the option to rescind the within purchase of Common stock and receive all consideration paid therefor; provided, however, such option shall be exercised, if at all, prior to August 1, 2002.

        3.     Registration Rights. The Common Stock will be registered by the Company for public sale. Terms and conditions governing registration of the Common Stock are set forth in the Registration Rights Agreement attached hereto as Exhibit 1.

        4.     Delivery of the Common Stock at the Closing. The completion of the purchase and sale of the Common Stock (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 January 31, 2002. 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 purchased by such Purchaser as set forth in section 2.1 hereof. The Company’s obligation to complete the purchase and sale of the Common Stock at the Closing shall be subject to receipt of Federal Reserve (same-day) funds in the full amount of the purchase price for the Common Stock being purchased hereunder by such Purchaser. Each Purchaser’s obligation to accept and to pay for the Common Stock shall be subject to the condition that the Company shall have (a) entered into a Registration Rights Agreement in the form of Exhibit 1 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.

2

        5.     Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, each Purchaser as follows:

        5.1.     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.

        5.2.     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 Common Stock 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 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).

        5.3.     Issuance of the Common Stock and Warrants. Upon issuance, the Warrants and Common Stock will be duly authorized and validly issued and, upon payment therefor, will be non-assessable.

        5.4.     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.

3

        5.5.     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.

        5.6.     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.

        5.7.     Legal Opinion. Prior to closing, Hedger & Hedger, counsel to the Company, will deliver its legal opinion to the Company in the form of Exhibit 2 hereto and stating that each of the Purchasers may rely thereon as though such opinion were addressed directly to such Purchaser.

        5.8.     Common Stock Legend. After the Registration Statement (as defined in the Registration Rights Agreement) is declared effective by the Securities and Exchange Commission, if any holder of Common Stock shall deliver to the Company ‘s transfer agent (i) the certificate representing such Common Stock and (ii) a letter of representations to the effect of Sections 6(b) and (c) herein, then the Company’s transfer agent shall within 3 business days after receipt of the foregoing issue new Common Stock in exchange for the aforementioned legended Common Stock which new 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.

        5.9.     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 5 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.

        6.     Representations, Warranties and Covenants of the Purchaser. (a) Each Purchaser represents and warrants to, and covenants with, the Company that: (i) the Purchaser is

4

knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments presenting an investment decision like that involved in the purchase of the Common Stock and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Common Stock; (ii) the Purchaser is acquiring the Common Stock 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 Common Stock or any arrangement or understanding with any other persons regarding the distribution or purchase of such 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 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 Common Stock set forth in Section 2 above, relied solely upon the representations and warranties of the Company contained in writing herein, and has not relied upon any other statements, representations, warranties, covenants or assurances of the Company, (v) the Purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act (“Regulation D”); and (vi) the Purchaser understands that the Common Stock, except as provided in Section 5.8 hereof, will contain a legend to the following effect:

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 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 6.

        (c)     Each Purchaser hereby covenants with the Company not to make any public sale of the 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 Common Stock is not transferable on the books of the Company unless the certificate submitted to the transfer agent evidencing the Common Stock is accompanied by a separate officer’s certificate: (i) executed by an officer of, or other authorized person designated by, the Purchaser, and (ii) to the effect that (A) the 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.

5

        (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).

        (e)     Each Purchaser acknowledges that it has had such access to financial and other information concerning the Company and the Common Stock 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 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 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.

        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 Common Stock 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.

6

        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.

        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:________________________________

Edward J. Quilty, President and CEO

PURCHASERS:

KENSINGTON PARTNERS L.P.	KENSINGTON PARTNERS II L.P.
By:________________________________	By:________________________________
PETER ORTHWEIN FAMILY TRUST	PETER ORTHWEIN MANAGED ACCOUNT
By:________________________________	By:________________________________

7

BALD EAGLE FUND LTD.	DOLPHIN OFFSHORE PARTNERS
By:________________________________	By:________________________________
GUERRILLA PARTNERS	GUERRILLA IRA PARTNERS
By:________________________________	By:________________________________
SYNERGETICS CAPITAL
By:________________________________	___________________________________
	Edward J. Quilty
___________________________________	___________________________________
Saleem Noorani	Ann T. Noorani
___________________________________	___________________________________
James T. O'Brien	Stephen T. Wills, CPA, MST
___________________________________	___________________________________
John E. Yetter, CPA	Vivek Jain
___________________________________
Geoffrey T. Michael

8

EX-10

REGISTRATION RIGHTS AGREEMENT

        THIS REGISTRATION RIGHTS AGREEMENT (“Agreement”) made this 28th day of February, 2002, by and among Derma Sciences, Inc., a Pennsylvania corporation with offices located at 214 Carnegie Center, Suite 100, Princeton, New Jersey, 08540 (“Derma Sciences” or “the Company”) and Kensington Partners L.P., 200 Park Avenue, New York, New York 10016, Kensington Partners II L.P., 200 Park Avenue, New York, New York 10016, Peter Orthwein Family Trust, 200 Park Avenue, New York, New York 10016, Peter Orthwein Managed Account, 200 Park Avenue, New York, New York 10016, Bald Eagle Fund Ltd., 200 Park Avenue, New York, New York 10016, Dolphin Offshore Partners, 129 East 17^th Street, New York, New York 10003, Guerrilla Partners, 237 Park Avenue, 9^th Floor, New York, New York 10017, Guerrilla IRA Partners, 237 Park Avenue, 9^th Floor, New York, New York 10017, Synergetics Capital, Ovre Ullorn Terrasse No. 32, 0358, Oslo, Norway, Edward J. Quilty, 1031 Creamery Road, Newtown, Pennsylvania 18940, Saleem Noorani and Ann T. Noorani, 358 Ocean Avenue, Marblehead, Massachusetts 01945, James T. O’Brien, 11801 Pawnee Lane, Leawood, Kansas 66211, Stephen T. Wills, CPA, MST, 13 Highview Lane, Lower Makefield Pennsylvania 19067, John E. Yetter, CPA, 27 Brandywine Road, Skillman, New Jersey 08558, Vivek Jain, 307 East 77^th Street, Apartment 6D, New York, New York 10021and Geoffrey T. Michael, 7 Roszel Road, 4^th Floor, 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 Common Stock (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:

                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 purchased and sold 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.

1

                Person: An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof.

                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 Common Stock; provided that the 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.

        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 120 days after the date hereof, and use its best efforts to cause to be declared effective not later than 150 days after the date hereof, 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

2

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.

        In the event the Registration Statement has not been declared effective within 150 days of the date hereof, the Company shall remit to the undersigned Purchaser a penalty equal to two tenths of one percent (.2%) of such Purchaser’s investment in the Common Stock for each day beyond 150 days that the Registration statement has not been declared effective; provided, however, if the Company files the Registration Statement within 120 days of the date hereof and responds to all comments of the SEC relative to the Registration Statement within 15 days of the receipt thereof, then the foregoing penalty shall not apply.

        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:

        (a) before filing a Registration Statement or Prospectus or any amendments or supplements thereto, furnish to the Holders covered by such Registration Statement a copy of all such documents proposed to be filed, which documents will be subject to the review of such Holders, and the Company will not file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto to which the Holders of a majority of the Registrable Securities covered by such Registration Statement shall reasonably object (provided that the Company may assume, for the purposes of the foregoing that any Holder has no objection if the Company has not received notice from such Holder within five business days after delivery of such documents to such Holder);

        (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement, and such supplements to the Prospectus, as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder or otherwise necessary to keep the Registration Statement effective for the applicable period and cause the Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus;

        (c) notify each Purchaser and the Holders promptly, and confirm such advice in writing,

        (1) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective,

        (2) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose, and

3

        (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 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;

4

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 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 Common Stock to be listed for trading on the Boston Stock Exchange (or on any other national securities exchange) and the OTC Bulletin Board.

        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:

        (a) all registration, filing and listing fees;

        (b) fees and expenses of counsel acceptable to the Holders of a majority of the Registrable Securities for compliance with securities or blue sky laws;

5

        (c) the Company's printing, messenger, telephone and delivery expenses;

        (d) fees and disbursements of counsel for the Company;

        (e) 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

        (f) fees and expenses associated with any NASD filing required to be made in connection with the Registration Statement.

        The Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on the Boston Stock Exchange and the OTC Bulletin Board.

        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

6

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 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.

7

                (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 Common Stock to each Purchaser pursuant to the Purchase Agreement on the one hand and each Holder from the offering of the Registrable Securities by such Holder, on the other hand, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and each Holder on the other in connection with the statements or omissions that resulted in such losses, claims, damages, or liabilities, as well as the other relevant equitable considerations. The relative benefits received by the Company on the one hand and each Holder on the other shall be deemed to be in the same proportion as the aggregate amount paid by each Purchaser to the Company pursuant to the Purchase Agreement for the Registrable Securities purchased by such Holder that were sold pursuant to the Registration Statement bears to the difference (the "Difference") between the amount such Holder paid for the Registrable Securities that were sold pursuant to the Registration Statement and the amount received by such Holder from such sale. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the particular Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Holders agree that it would not be just and equitable if contributions pursuant to this Section 6(c) were to be determined by pro rata allocation or by any other method of allocation that does not take account of the equitable consideration referred to in the first sentence of this Section 6(c). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this Section 6(c) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigation or defending against any action or claim that is the subject of this Section 6(c). Notwithstanding the provisions of this Section 6(c), each Holder shall not be required to contribute any amount in excess of the amount by which the Difference exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

        7.     Rule 144 and Rule 144A. For so long as the Company is subject to the reporting requirements of Section 13 or 15 of the Exchange Act, the Company covenants that it will file the reports required to be filed by it under the Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the SEC thereunder. If the Company is not subject to the reporting requirements of Section 13 or 15 of the Exchange Act, the Company also covenants that it will provide the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any Holder which continue to be “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act and it will take such further action

8

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. 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).

9

                (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders.

                (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

                (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

                (h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without reference to its rules as to conflicts of law) and the federal law of the United States of America.

                (i) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

                (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the securities sold pursuant to the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

        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.

        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.

COMPANY:

DERMA SCIENCES, INC.

By:________________________________

Edward J. Quilty, President and CEO

10

PURCHASERS:

KENSINGTON PARTNERS L.P.	KENSINGTON PARTNERS II L.P.
By:________________________________	By:________________________________
PETER ORTHWEIN FAMILY TRUST	PETER ORTHWEIN MANAGED ACCOUNT
By:________________________________	By:________________________________
BALD EAGLE FUND LTD.	DOLPHIN OFFSHORE PARTNERS
By:________________________________	By:________________________________
GUERRILLA PARTNERS	GUERRILLA IRA PARTNERS
By:________________________________	By:________________________________
SYNERGETICS CAPITAL
By:________________________________	___________________________________
	Edward J. Quilty
___________________________________	___________________________________
Saleem Noorani	Ann T. Noorani
___________________________________	___________________________________
James T. O'Brien	Stephen T. Wills, CPA, MST

11

___________________________________	___________________________________
John E. Yetter, CPA	Vivek Jain
___________________________________
Geoffrey T. Michael

12

EX-10

February 28, 2002

Board of Directors
Derma Sciences, Inc.
214 Carnegie Center, Suite 100
Princeton, NJ 08540

Re: Offer and Sale of Common Stock

Members of the Board:

We are counsel to Derma Sciences, Inc. (the "Company") in connection with the offer and sale of up to 2,000,000 shares of common stock, par value $.01 per share (“Common Stock”) at a price per share of $0.50. We have examined the originals, or certified, conformed or reproduction copies, of all records, agreements, instruments and documents relative to the Common Stock as we have deemed relevant or necessary as the basis for the opinion hereinafter expressed. Our examination included, but was not limited to, review of the purchase 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. 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 will be validly issued and nonassessable.

Board of Directors
February 28, 2002
Page 2

        3. 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").

        4. 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.

        5. Except for compliance with applicable federal and state securities laws in connection with the resale by purchasers of the 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.

___________________

Board of Directors
February 28, 2002
Page 3

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