THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT

THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT

THIS THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this “ Amendment ”), dated as of March 31, 2009, 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 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.

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 January 1, 2010, the Base Rate shall mean the greater of: 3.00% or the LIBOR Rate in the event the Revolving Loan Availability is less than $3,000,000 on or before December 31, 2009.”

b.      Section 1.1. Base Rate Margin Definition . The definition of “Base Rate Margin” is deleted in its entirety and replaced with the following:

““ Base Rate Margin ” means 4.25% per annum with respect to the Revolving Loans and other Obligations (other than the Term Loan), and (b) 5.75% per annum with respect to the Term Loan; provided that as long as the Cash Collateral Account maintains a balance of at least $2,000,000 and is subject to a fully

 executed and effective Deposit Account Control Agreement in form and substance acceptable to Administrative Agent, then the Base Rate Margin solely with respect to $2,000,000 of the Term Loan shall be 3.75%.”

c.      Section 1.1. LIBOR Rate Definition . The definition of “LIBOR Rate” is deleted in its entirety and replaced with the following:

““ LIBOR Rate ” means for each interest period, the offered rate for deposits in U.S. dollars in the London interbank market for the relevant interest period which is published by the British Bankers' Association, and currently appears on Reuters Screen LIBOR01 Page, as of 11:00 a.m. (London time) on the day which is two (2) business days prior to the first day of such interest period adjusted for reserve requirements, provided that such rate shall not be less than the rate applicable for a 3 month interest period.”

d.      Additional Definitions . The following are added in alphabetical order as new definitions in Section 1.1:

““ Excess Cash Flow ” has the meaning set forth in Schedule 8 of the Compliance Certificate.

“ Source of Cash ” means a Working Capital Change that results in a positive number.

“ Use of Cash ” means a Working Capital Change that results in a negative number.

“ Working Capital ” is defined on Schedule 9 of the Compliance Certificate.

“ Working Capital Change ” means the Borrower’s Working Capital from the prior calendar year end less the Borrower’s Working Capital for the applicable calendar year end, each as measured based upon the Borrower’s consolidated, audited balance sheet as of December 31, prepared consistently in accordance with GAAP.”

e.      Section 2.1(a)(ii)(B). Mandatory Prepayments . The following is added as a new subsection (iii) under Section 2.1(a)(ii)(B):

“(iii) an amount equal to fifty percent (50%) of Borrowers’ Excess Cash Flow, paid contemporaneously with any approved payment by Borrower on account of any principal repayment of Subordinated Debt pursuant to Section 5.10.”

f.      Section 4.1.     Financial Statements and Other Reports . Section 4.1 is amended by adding “and inventory reports” at the end of the last sentence of Section 4.1.

g.      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:

“Subject to the provisions of this Section 5.10, Borrower may execute that certain Forbearance Agreement dated March 31, 2009 with Western Medical, Ltd. (“ Western Medical ”); provided that Western Medical acknowledges that its loan is subordinated to Lender, its loan is unsecured, and Lender has a first priority lien of Borrower’s assets, in a form acceptable to Administrative Agent (the “ Western Medical Acknowledgement ”).

Borrower and Administrative Agent agree that Borrower may pay principal payments to Western Medical on account of such Subordinated Debt of no more than twenty (20%) of Borrower’s Excess Cash Flow, calculated for fiscal year 2009 and fiscal year 2010, and paid on April 18, 2010 and April 18, 2011, respectively; provided that the following conditions are met:

(a) Administrative Agent has reviewed and approved Borrowers’ fiscal year end audit;

(b) the Revolving Loan Availability is at least (i) $1,500,000 as of December 31, 2009 and at all times thereafter with respect to any payment made on April 18, 2010, and (ii) $2,000,000 as of December 31, 2010 at all times thereafter with respect to any payment made on April 18, 2011;

(c) Borrower does not have more than $400,000 in accounts payable greater than sixty (60) days past due (excluding any related party accounts payable);

(d) contemporaneously with any such principal repayment, Borrower makes a mandatory repayment as set forth in Section 2.1(a)(ii)(B)(iii);

(e) at the time of such payment and after giving effect to such payment, no default exists under the Subordinated Debt and no default under the Subordinated Debt will be