Exhibit 10.01
 
FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT
 
THIS FIFTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this “Amendment”), dated
as of March 26, 2010, is by and among GE BUSINESS FINANCIAL SERVICES
INC., formerly known as Merrill Lynch Business Financial Services Inc., in its
capacity as successor Administrative Agent and as a Lender under the Credit
Agreement (as defined below) (“Agent”), DERMA SCIENCES, INC., a Pennsylvania
corporation, DERMA FIRST AID PRODUCTS, INC., a Pennsylvania corporation,
SUNSHINE PRODUCTS, INC., a Missouri corporation and any additional Borrower that
may hereafter be added to this Agreement (each individually as a “Borrower” and
collectively as “Borrowers”).
 
WHEREAS, Borrower and Agent (in its capacity as Administrative Agent and as a
Lender thereunder) are parties to that certain Credit and Security Agreement,
dated as of November 8, 2007 (the “Credit Agreement”);
 
WHEREAS, Borrower and Agent entered into that certain First Amendment to Credit
and Security Agreement on March 28, 2008;
 
WHEREAS, Borrower and Agent entered into that certain Second Amendment to Credit
and Security Agreement on August 13, 2008;
 
WHEREAS, Borrower and Agent entered into that certain Third Amendment to Credit
and Security Agreement on March 31, 2009;
 
WHEREAS, Borrower and Agent entered into that certain Fourth Amendment to Credit
and Security Agreement on February 26, 2010;
 
WHEREAS, Borrower and Agent have agreed to amend certain provisions of the
Credit Agreement;
 
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
 
1.           Defined Terms.  Capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned to such terms in the Credit
Agreement, as amended.
 
2.           Amendments to Credit Agreement.
 
a.           Section 1.1. Base Rate Definition.  The definition of “Base Rate”
is deleted in its entirety and replaced with the following:
 
““Base Rate” means the LIBOR Rate; provided that effective March 28, 2010, the
Base Rate shall mean the greater of: 1.50% or the LIBOR Rate.”
 

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b.           Section 1.1 - Borrowing Base Definition.  Subject to the completion
of and satisfactory review of the next field exam by Agent, which field exam
does not provide for any material adjustments compared to the applicable.,
comparative borrowing base certificate prepared by Borrower, the definition of
“Borrowing Base” is amended by deleting “$1,500,000” and replacing it with
“$1,000,000” at the end of subsection (v).
 
c.           Section 1.1 - Minimum Excess Availability Reserve Definition.
Subject to the completion of and satisfactory review of the next field exam by
Agent, which field exam does not provide for any material adjustments compared
to the applicable., comparative borrowing base certificate prepared by Borrower,
the definition of “Minimum Excess Availability Reserve” is amended by deleting
“$1,500,000” and replacing it with “$1,000,000.”
 
d.           Section 5.10.  Payments and Modifications of Subordinated
Debt.  Section 5.10 is amended by adding the following to the end of Section
5.10:
 
“Notwithstanding the forgoing or anything in Section 5.10 to the contrary, Agent
acknowledges and agrees that, on or before April 30, 2010, Borrower may pay
Western Medical up to $500,000 on account of the Subordinated Debt, provided
that no Default or Event of Default exists and no Default or Event of Default
will be created by reason of such payment.”
 
e.           Section 6.2 Minimum EBITDA.  Section 6.2 is amended by deleting
Section 6.2 in its entirety.
 
f.           Section 6.3 Fixed Charge Coverage Ratio.  Section 6.3 is amended by
deleting Section 6.3 and replacing it with the following:
 
“Section 6.3 Fixed Charge Coverage Ratio. Borrowers will not permit the Fixed
Charge Coverage Ratio for any period set forth below to be less than the ratio
set forth below for such period:
 

  Period Ratio            
As of the end of any given calendar quarter,
after January 1, 2010, as measured on
a trailing 12-month basis    
1.50 to 1.00  

 
For clarity, the Defined Period for calculation of Operating Cash Flow and Fixed
Charges shall be for the same period as the corresponding EBITDA for such
Defined Period.”
 
g.           Section 6.4 Senior Leverage Ratio.  Section 6.4 is amended by
deleting Section 6.4 in its entirety.
 
h.           Section 6.5 Total Leverage Ratio.  Section 6.5 is amended by
deleting Section 6.5 and replacing it with the following:
 
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“Section 6.5 Total Leverage Ratio.  Borrowers shall not permit the Total
Leverage Ratio for any period set forth below to exceed the ratio set forth
below for such period:
 

  Period Ratio            
As of the end of any given calendar quarter,
after January 1, 2010, as measured on
a trailing 12-month basis
2.0 to 1.0”  

i.           Fixed Charge Coverage Ratio Worksheet.  The Fixed Charge Coverage
Ratio Worksheet attached to the Compliance Certificate is deleted and replaced
with the attached worksheet.
 
3.           Representations and Warranties.  Borrower represents and warrants
to Agent as follows:
 
a.           After giving effect to this Amendment, the representations and
warranties set forth in each of the Financing Documents shall be true and
correct in all respects on and as of the Effective Date (as defined below) with
the same effect as if then made (unless stated to relate solely to an earlier
date, in which case such representations and warranties shall be true and
correct in all material respects as of such earlier date.)
 
b.           The execution, delivery and performance by Borrower of this
Amendment are within Borrower’s powers, have been duly authorized and do not:
 
i.           (A) contravene any of Borrower’s Organizational Documents, or (B)
result in a default under any contractual restriction binding on or affecting
Borrowers, or any law or governmental regulation binding on or affecting
Borrower; or
 
ii.           result in, or require the creation or imposition of, any Lien on
any of Borrower’s properties.
 
c.           This Amendment and the Credit Agreement, as amended hereby,
constitute the legal, valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms (except, in any case,
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally at law or by principles of equity).
 
d.           After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
 
4.           Conditions to Effectiveness.  This Amendment shall become effective
as of March 28, 2010 (the “Effective Date”), subject to (a) the due
authorization, execution and delivery of this Amendment by Borrower and Agent,
and (b) with respect to the amendments to the definitions of “Borrowing Base”
and “Minimum Excess Availability Reserve”, such amendments are conditioned upon
the completion of and satisfactory review of the next field exam by Agent, which
field exam shall not provide for any material adjustments compared to the
applicable., comparative borrowing base certificate prepared by Borrower,.  In
addition, Borrowers shall be responsible for the payment of all reasonable fees
incurred by Agent (including legal fees) incurred in connection with the
preparation of this Amendment and in consideration of the modifications set
forth herein.  Borrower hereby authorizes Agent to deduct all of such fees from
the proceeds of the next Revolving Loan.
 
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5.           Documents to Remain in Effect; Confirmation of Obligations;
References.  The Financing Documents shall remain in full force and effect as
originally executed and delivered by the parties, except as expressly modified
and amended herein. Borrower hereby (a) confirms and reaffirms all of its
respective obligations under the Financing Documents, as modified and amended
herein; (b) acknowledge and agree that Agent, by entering into this Agreement,
does not waive any existing or future Default or Event of Default under any of
the Financing Documents, or any rights or remedies under any of the Financing
Documents; (c) acknowledge and agree that Agent has not heretofore waived any
Default or Event of Default under any of the Financing Documents, or any rights
or remedies under any of the Financing Documents, other than as expressly
provided for hereunder; and (d) acknowledge that they do not have any defense,
set-off or counterclaim to the payment or performance of any of their respective
obligations under the Financing Documents, as modified and amended herein.  From
and after the date hereof, this Amendment shall be deemed a Financing Document
for all purposes of the Credit Agreement and the other Financing Documents and
each reference to the Financing Documents shall be deemed to include this
Amendment.
 
6.           Counterparts; Integration.  This Amendment may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same
instrument.  Signatures by facsimile or by electronic mail delivery of an
electronic version of an executed signature page shall bind the parties
hereto.  This Amendment constitutes the entire agreement and understanding among
the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.  In the
event of any irreconcilable inconsistency between this Amendment and any of the
other Financing Documents, the terms of this Amendment shall control.
 
7.           Governing Law.  THIS AMENDMENT, AND ALL MATTERS RELATING HERETO OR
ARISING HEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE),
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARDING TO CONFLICTS OF LAWS
PRINCIPLES.
 
[Remainder of page intentionally left blank; signature pages follow.]
 
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IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the
date first set forth above.
 
BORROWER:
 
DERMA SCIENCES, INC.
 
By: _____________________________
Name: ___________________________
Title: ____________________________
 
DERMA FIRST AID PRODUCTS, INC.
 
By: _____________________________
Name: ___________________________
Title: ____________________________
 
SUNSHINE PRODUCTS, INC.
 
By: _____________________________
Name: ___________________________
Title: ____________________________

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AGENT:
 
GE BUSINESS FINANCIAL SERVICES INC.
(formerly known as Merrill Lynch Business Financial Services Inc.),
as Administrative Agent

By: ____________________________
Name: __________________________
    Its Duly Authorized Signatory
 
LENDER:
 
GE BUSINESS FINANCIAL SERVICES INC.
(formerly known as Merrill Lynch Business Financial Services Inc.),
as a Lender
 
By: ____________________________
Name: __________________________
    Its Duly Authorized Signatory
 
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Fixed Charge Coverage Ratio Worksheet  (Attachment to Compliance Certificate)
 
Fixed Charge Coverage Ratio for the applicable measurement period (the “Defined
Period”) is defined as follows:  
         
Fixed Charges:
         
Interest expense ($______), net of interest income ($______), interest paid in
kind ($______) and amortization of capitalized fees and expenses and included in
interest expense ($______), included in the determination of net income of
Borrowers and their Consolidated Subsidiaries for the Defined Period (“Total
Interest Expense”)
 
$__________
      Plus:
Any provision for (or less any benefit from) income or franchise taxes included
in the determination of net income for the Defined Period *
 
___________
         
Scheduled payments of principal for the Defined Period with respect to all Debt
(including the portion of scheduled payments under capital leases allocable to
principal but excluding mandatory prepayments required by Section 2.1(a) and
excluding amortization and repayment of the Term Loan, repayment of the
Subordinated Debt and scheduled repayments of Revolving Loans and other Debt
subject to reborrowing to the extent not accompanied by a concurrent and
permanent reduction of the Revolving Loan Commitment (or equivalent loan
commitment))
 
___________
 
         
Restricted Distributions made by Borrowers pursuant to Section 5.3 during the
Defined Period
 
___________
       
Fixed Charges
 
$                      
     
Operating Cash Flow:
         
EBITDA for the Defined Period (calculated in the manner required by relevant
worksheet attached to the Compliance Certificate)
 
$__________
      Less:
Unfinanced capital expenditures for the Defined Period (calculated as capital
expenditures not financed with new Debt or capital leases)
 
___________
         
To the extent not already reflected in the calculation of EBITDA, other
capitalized costs, defined as the gross amount paid in cash and capitalized
during the Defined Period, as long term assets, other than amounts capitalized
during the Defined Period as capital expenditures for property, plant and
equipment or similar fixed asset accounts
 
___________
        Operating Cash Flow  
$                      
        Fixed Charge Coverage Ratio (Ratio of Operating Cash Flow to Fixed
Charges) for the Defined Period  
___ to 1.0
        Minimum Fixed Charge Coverage for the Defined Period  
1.5 to 1.0
        In Compliance  
Yes/No