<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 11, 1995
Health-Chem Corporation
Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-6787 13-2682801
(Commission File Number) (IRS Employer Identification No.
1212 Avenue of the Americas, New York, NY 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 398-0700
<PAGE>
Item 5. Other Events
On October 11, 1995, Pacific Combining Corporation
("Pacific"), a subsidiary of Health-Chem Corporation (the
"Company"), obtained a $1,750,000 term loan (the "Loan") from The
First National Bank of Maryland (the "Lender"). Pursuant to a Loan
and Security Agreement dated as of October 11, 1995 between
Pacific, the Company and its other operating subsidiaries (the
"Guarantors") and the Lender, the Lender has agreed to provide
financing to Pacific in the maximum aggregate principal amount of
$1,750,000. Unless Pacific elects otherwise in accordance with the
loan documents, borrowings under the Loan and Security Agreement
will bear interest at the Lender's prime rate plus .375%. The Loan
is secured by a pledge of substantially all the assets of Pacific
and the Guarantors with the exception of real estate. These assets
also secure the Company's $6,000,000 revolving line of credit
facility from the Lender which was originally entered into in July
1994.
Proceeds from borrowings under the Loan and Security Agreement
will be used by Pacific to finance the acquisition costs of certain
new equipment and machinery and for general working capital
purposes.
The terms of the Loan are more fully described in the Loan and
Security Agreement, a copy of which is annexed as an exhibit hereto
and incorporated herein by reference.
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Item 7. Financial Statements and Exhibits
Page
1. Loan and Security Agreement, dated October 11, 1995 6
between Pacific Combining Corporation, the Company, Hercon
Laboratories Corporation, Herculite Products, Inc., Hercon
Environmental Corporation, Transderm Laboratories Corporation
and the First National Bank of Maryland.
2. Press release, dated October 13, 1995, by the Company 5
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
HEALTH-CHEM CORPORATION
Date: October 19, 1995 By: /s/ Robert D. Speiser
Robert D. Speiser
Executive Vice President
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CONTACT: -or- HEALTH-CHEM'S INVESTOR RELATIONS FIRM:
Health-Chem Corporation The Equity Group Inc.
Bruce M. Schloss Devin Sullivan (212) 836-9608
Vice President Tamara Ehlin (212) 836-9607
(212) 398-0700
FOR IMMEDIATE RELEASE
HEALTH-CHEM'S PACIFIC COMBINING SUBSIDIARY OBTAINS
$1.75 MILLION TERM LOAN
New York, NY -- October 13, 1995 -- Health-Chem Corporation
[ASE:HCH] today announced that its Pacific Combining Corporation
subsidiary ("Pacific") has obtained a $1.75 million term loan from
The First National Bank of Maryland. This loan will bear interest
at the Bank's prime rate plus .375% and is secured by assets of
Pacific, Health-Chem and Health-Chem's other operating
subsidiaries, with the exception of real estate.
The loan will be used by Pacific to finance the acquisition costs
of certain new equipment and machinery and for the general working
capital needs.
LOAN AND SECURITY AGREEMENT
By And Between
PACIFIC COMBINING CORP.,
A California Corporation
Borrower
And
HEALTH-CHEM CORPORATION,
A Delaware Corporation
HERCON LABORATORIES CORPORATION,
A Delaware Corporation
HERCULITE PRODUCTS, INC.,
A New York Corporation
HERCON ENVIRONMENTAL CORPORATION,
A Delaware Corporation
and
TRANSDERM LABORATORIES CORPORATION,
A Delaware Corporation
Guarantors
And
THE FIRST NATIONAL BANK OF MARYLAND,
A National Banking Association
Lender
_________________________________
Term Loan
_________________________________
Dated As Of October 11, 1995
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of October 11,
1995, by and between PACIFIC COMBINING CORP., a California
corporation ("BORROWER"), HEALTH-CHEM CORPORATION, a Delaware
corporation, HERCON LABORATORIES CORPORATION, a Delaware
corporation, HERCULITE PRODUCTS, INC., a New York corporation,
HERCON ENVIRONMENTAL CORPORATION, a Delaware corporation, and
TRANSDERM LABORATORIES CORPORATION, a Delaware corporation
(individually a "GUARANTOR" and collectively the "GUARANTORS")
and THE FIRST NATIONAL BANK OF MARYLAND, a national banking
association ("LENDER").
RECITALS
The BORROWER has applied to the LENDER for a term loan. The
LENDER is willing to provide the requested loan to the BORROWER
upon the terms and conditions of this Loan And Security
Agreement, and upon the granting by the BORROWER to the LENDER
of the security interests, liens, and other assurances of
payment provided for in this Loan And Security Agreement.
NOW, THEREFORE, in consideration of these premises and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
As used in this Loan And Security Agreement, the terms set
forth in this Article 1 have the meanings set forth below,
unless the specific context of this Loan And Security Agreement
clearly requires a different meaning. Terms defined in this
Article 1 or elsewhere in this Loan And Security Agreement are
in all capital letters throughout this Loan And Security
Agreement. The singular use of any defined term includes the
plural and the plural use includes the singular.
Section 1.1. Accounts, Chattel Paper, Contract Rights,
Documents, Equipment, Fixtures, General Intangibles, Goods, And
Instruments. The terms "ACCOUNTS, "CHATTEL PAPER,"
"DOCUMENTS," "EQUIPMENT," "GENERAL INTANGIBLES," "GOODS," and
"INSTRUMENTS" shall have the same respective meanings as are
given to those terms in the Maryland Uniform Commercial
Code-Secured Transactions, Title 9, Commercial Law Article,
Annotated Code of Maryland, as amended. The term "CONTRACT
RIGHTS" shall have the meaning given to that term in the 1962
Official Text With Comments of the Uniform
Commercial Code as promulgated by the National Conference Of
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Commissioners On Uniform State Laws And The American Law
Institute. The term "FIXTURES" shall have the meaning provided
by the common law of the state in which the fixtures are
physically located.
Section 1.2. Affiliate. The term "AFFILIATE" means: (a)
any SUBSIDIARY of a COMPANY; (b) any PERSON which, directly or
indirectly, controls, is controlled by or is under common
control or ownership with a COMPANY; and (c) any PERSON which
owns or has voting control of ten percent (10%) or more of the
beneficial interests in a COMPANY.
Section 1.3. Agreement. The term "AGREEMENT" means this
Loan And Security Agreement, as amended, extended, or modified
from time to time by the parties hereto, as well as all
schedules, exhibits and attachments hereto.
Section 1.4. Business Day. The term "BUSINESS DAY" means
any day other than a Saturday, Sunday, or other day on which
commercial banking institutions in the State of Maryland are
required to be closed.
Section 1.5. Capital Expenditures. The term "CAPITAL
EXPENDITURES" means, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities
and including expenditures for CAPITAL LEASE OBLIGATIONS) by
the COMPANIES during such periods that are required by G.A.A.P.
to be included in or reflected by the property, plant, or
EQUIPMENT or similar fixed asset, accounts in the balance sheet
of the COMPANIES.
Section 1.6. Capital Lease. The term "CAPITAL LEASE"
means a lease with respect to which the lessee's obligations
thereunder should, in accordance with G.A.A.P., be capitalized
and reflected as a liability on the balance sheet of the
lessee.
Section 1.7. Capital Lease Obligations. The term "CAPITAL
LEASE OBLIGATIONS" means any indebtedness incurred as a lessee
pursuant to a CAPITAL LEASE.
Section 1.8. Closing. The term "CLOSING" means the
execution and delivery of the LOAN DOCUMENTS. The date of
CLOSING is the date first written above as the date of this
AGREEMENT.
Section 1.9. Code. The term "CODE" means the Internal
Revenue Code of 1986, as amended, and all Treasury regulations,
revenue rulings, revenue procedures or announcements issued
thereunder.
Section 1.10. Collateral. The term "COLLATERAL" means all
of the tangible and intangible assets, property rights, and
benefits with respect to which the BORROWER has granted a
security interest or lien to the LENDER or has assigned as
security or otherwise pledged to the LENDER pursuant to the
LOAN DOCUMENTS.
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Section 1.11. Company; Companies. The term "COMPANIES"
means collectively the BORROWER and each of the GUARANTORS; and
the term "COMPANY" means the BORROWER or any one of the
GUARANTORS individually.
Section 1.12. Customers. The term "CUSTOMERS" means the
persons to or for whom the BORROWER sells or leases GOODS or
INVENTORY or for whom the BORROWER performs services, together
with all other account debtors of the BORROWER.
Section 1.13. ERISA. The term "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended from time to
time, and the regulations and published interpretations
thereof.
Section 1.14. ERISA Affiliate. The term "ERISA AFFILIATE"
means: (a) any corporation included with a COMPANY in a
controlled group of corporations within the meaning of Section
414(b) of the CODE; (b) any trade or business (whether or not
incorporated) which is under common control with a COMPANY
within the meaning of Section 414(c) of the CODE; (c) any
member of an affiliated service group of which a COMPANY is a
member within the meaning of Section 414(m) of the CODE; or (d)
any other PERSON treated as an affiliate of a COMPANY by the
Internal Revenue Service under Section 414(o) of the CODE.
Section 1.15. Event Of Default. The term "EVENT OF
DEFAULT" means any of the events set forth in Article 7 of this
AGREEMENT, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other expressly
stated condition, has been satisfied.
Section 1.16. Fiscal Year. The term "FISCAL YEAR" means
with respect to the COMPANIES, the twelve (12) month accounting
period of the COMPANIES commencing January 1st and ending
December 31st of each calendar year.
Section 1.17. Fixed Charge Coverage. The term "FIXED
CHARGE COVERAGE" means for the four fiscal quarters of
determination, the number obtained by dividing: (a) the sum of
the consolidated net profits (before minority interests) of the
COMPANIES (minus dividends) plus consolidated depreciation
expense, consolidated interest expense and consolidated lease
expense, by (b) the sum of (i) consolidated interest expense,
(ii) consolidated lease expense and (iii) consolidated
prospective current portion of long-term debt, including
payments to be made to the sinking fund for the SUBORDINATED
INDENTURE, provided that for purposes of determining the
prospective current portion of long-term debt for this
definition any prepayments on long-term debt (except for up to
Five Hundred Thousand Dollars ($500,000.00) of either early
sinking fund payments under the SUBORDINATED INDENTURE or
purchases of portions of the INDEBTEDNESS under the
SUBORDINATED INDENTURE, during the period between July 1, 1995
and September 30, 1996, inclusive)
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shall be deemed to be applied in the inverse order of scheduled
maturities.
Section 1.18. G.A.A.P. The term "G.A.A.P." means, with
respect to any date of determination, generally accepted
accounting principles as used by the Financial Accounting
Standards Board and/or the American Institute of Certified
Public Accountants consistently applied and maintained
throughout the periods indicated.
Section 1.19. Guaranty Agreements. The term "GUARANTY
AGREEMENTS" means collectively the Secured Corporate Guaranty
Agreements of even date herewith executed by the GUARANTORS for
the benefit of the LENDER.
Section 1.20. Hazardous Substance. The term "HAZARDOUS
SUBSTANCE" means any chemical, solid, liquid, gas, or other
substance having the characteristics identified in, listed
under, or designated pursuant to any of the following: (a) the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C.A. Section 9601(14), as
a "hazardous substance"; (b) the Clean Water Act, 33 U.S.C.A.
Section 1321(b)(2)(A), as a "hazardous substance"; (c) the Clean
Water Act, 33 U.S.C.A. Sections 1317(a) and 1362(13), as a "toxic
pollutant"; (d) the Clean Air Act, 42 U.S.C.A. Section 7412(a)(1),
as a "hazardous air pollutant"; (e) the Toxic Substances Control
Act, 15 U.S.C.A. Section 2606(f), as an "imminently hazardous
chemical substance or mixture"; (f) the Resource, Conservation and
Recovery Act, 42 U.S.C.A. Sections 6903(5) and 6921, as a
"hazardous waste"; or (g) any other LAW as presenting an imminent
and substantial danger to the public health or welfare or to the
environment, or as otherwise requiring special handling,
collection, storage, treatment, disposal, or transportation.
The term "HAZARDOUS SUBSTANCE" also includes: (a) petroleum,
crude oil, gasoline, natural gas, liquified natural gas,
synthetic fuel, or other petroleum, oil, or gas based product;
(b) any nuclear, radioactive, or atomic substance, mixture,
waste, compound, material, element, product, or matter; or (c)
any other substance, mixture, waste, compound, material,
element, product or matter that presents an imminent and
substantial danger to the public health or welfare or to the
environment upon its RELEASE.
Section 1.21. Indebtedness. The term "INDEBTEDNESS" means,
with respect to any PERSON: (a) indebtedness for borrowed
money or for the deferred purchase price of property or
services in respect of which such PERSON is liable,
contingently or otherwise, as obligor or otherwise or any
commitment by which such PERSON assures a creditor against
loss, including contingent reimbursement obligations with
respect to letters of credit; (b) indebtedness guaranteed in
any manner by such PERSON (excluding guarantees by indorsement
of INSTRUMENTS in the ordinary course of business), including
guarantees in the form of an agreement to repurchase or
reimburse; (c) obligations under leases which shall have been
or
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should be, in accordance with G.A.A.P., recorded as CAPITAL
LEASES, in respect of which obligations such PERSON is liable,
contingently or otherwise, as obligor, guarantor, or otherwise,
or in respect of which obligations such PERSON assures a
creditor against loss; and (d) any unfunded obligation of such
PERSON to any PLAN.
Section 1.22. Insolvency Proceedings. The term "INSOLVENCY
PROCEEDINGS" means, with respect to any PERSON, any proceeding
commenced by or against such PERSON, under any provision of the
United States Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency law, or any assignments for the
benefit of creditors, formal or informal moratoriums,
compositions or extensions with some or all creditors with
respect to any indebtedness of such PERSON.
Section 1.23. Inventory. The term "INVENTORY" means all
inventory, goods, merchandise, materials, raw materials, goods
in process, finished goods, work in progress, bindings or
component materials, packaging and shipping materials and other
tangible personal property, now owned or hereafter acquired and
held for sale or lease or furnished or to be furnished under
contracts of service or which contribute to the finished
products or the sale, promotion, storage and shipment thereof,
whether located at facilities owned or leased, in the course of
transport to or from customers, placed on consignment, or held
at storage locations.
Section 1.24. Laws. The term "LAWS" means all ordinances,
statutes, rules, regulations, orders, injunctions, writs or
decrees of any government or political subdivision or agency
thereof, or any court or similar entity established by any
thereof.
Section 1.25. Lender Expenses. The term "LENDER EXPENSES"
means all reasonable out-of-pocket expenses or costs incurred
by the LENDER for whatever reason arising out of, pertaining
to, or in any way connected with this AGREEMENT, any of the
other LOAN DOCUMENTS, the OBLIGATIONS, or any documents
executed in connection herewith or transactions hereunder,
including without limitation: All costs or expenses required
to be paid by the BORROWER pursuant to this AGREEMENT or as
otherwise provided for in any of the LOAN DOCUMENTS or as
required by any other present or future agreement between the
BORROWER and the LENDER evidencing and/or securing the
OBLIGATIONS which are paid or advanced by the LENDER; taxes and
insurance premium of every nature and kind of BORROWER paid by
the LENDER; filing, recording, consulting fees, audit fees,
search fees and other expenses paid or incurred by the LENDER
in connection with the LENDER'S transactions with the BORROWER;
reasonable and necessary costs and expenses incurred by the
LENDER in the collection of the ACCOUNTS (with or without the
institution of legal action), to correct any default or enforce
any provision of this AGREEMENT, or in gaining possession of,
maintaining, handling, evaluating, preserving, storing,
shipping, selling, preparing for sale and/or advertising to
sell the COLLATERAL or any other property of the BORROWER in
which the LENDER has a lien whether or
<PAGE>
not a sale is consummated; reasonable and necessary costs and
expenses of litigation incurred by the LENDER, or any
participant of the LENDER in the LOAN, in enforcing or
defending this AGREEMENT or any portion hereof; and reasonable
and necessary attorneys' fees and expenses incurred by the
LENDER in obtaining advice or the services of its attorneys
with respect to the structuring, drafting, negotiating,
reviewing, amending, terminating, enforcing or defending of
this AGREEMENT, or any portion hereof or any agreement or
matter related hereto, whether or not litigation is instituted;
and reasonable travel expenses related to any of the foregoing.
Section 1.26. Liabilities. The term "LIABILITIES" means
total liabilities as determined in accordance with G.A.A.P.
Section 1.27. Loan. The term "LOAN" means the term loan
extended by the LENDER to the BORROWER in accordance with the
terms set forth in this AGREEMENT.
Section 1.28. Loan Documents. The term "LOAN DOCUMENTS"
means this AGREEMENT, the NOTE, the GUARANTY AGREEMENTS, the
Financing Statements and the other documents executed by the
COMPANIES in connection with the LOAN.
Section 1.29. Multiemployer Plan. The term "MULTIEMPLOYER
PLAN" means a PLAN described in Section 4001(a)(3) of ERISA
which covers employees of a BORROWER or of any ERISA AFFILIATE.
Section 1.30. Note. The term "NOTE" means the Term
Promissory Note of even date herewith from the BORROWER as
maker thereof payable to the order of the LENDER in the stated
principal amount of One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000.00).
Section 1.31. Obligations. The term "OBLIGATIONS" means
the obligations of the BORROWER to pay to the LENDER: (a) all
sums due to the LENDER pursuant to the LOAN or otherwise
pursuant to the terms of the LOAN DOCUMENTS; (b) all LENDER
EXPENSES; (c) all overdrafts of the BORROWER upon any accounts
with the LENDER; (d) all other indebtedness or liability of the
BORROWER to the LENDER, whether direct or indirect, joint or
several, absolute or contingent, now existing or hereafter
arising; and (e) any indebtedness or liability which may exist
or arise as a result of any payment made by or for the benefit
of the BORROWER being avoided or set aside as a preference
under Sections 547 and 550 of the United States Bankruptcy
Code, as amended, or under any state law governing insolvency
or creditors' rights.
Section 1.32. PBGC. The term "PBGC" means the Pension
Benefit Guaranty Corporation or any entity succeeding to any or
all of its functions under ERISA.
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Section 1.33. Permitted Liens. The term "PERMITTED LIENS"
means: (a) liens for taxes, assessments, or similar charges
incurred in the ordinary course of business that are not yet
due and payable or being contested in accordance with the terms
of Section 5.9 of this AGREEMENT; (b) deposits or pledges to
secure the performance of bids, tenders, contracts, leases,
public or statutory obligations, surety or appeal bonds or
other deposits or pledges for purposes of a like general nature
in the ordinary course of business; (c) liens in favor of the
LENDER; (d) the existing lien of Keystone Financial Leasing
Corp. in the Monroe RL-945DX Photocopier of Health-Chem
Corporation; (e) subsequently arising liens which are approved
in advance by the LENDER in writing; and (f) liens on
EQUIPMENT, leased under CAPITAL LEASES, in favor of the lessor
of the EQUIPMENT securing the OBLIGATIONS under the CAPITAL
LEASE.
Section 1.34. Person. The term "PERSON" means any
individual, corporation, partnership, association, joint-stock
company, trust, unincorporated organization, joint venture,
court, or government or political subdivision or agency
thereof.
Section 1.35. Plan. The term "PLAN" means any employee
benefit plan or other plan established, maintained or to which
contributions have been made by a COMPANY or any ERISA
AFFILIATE and covered by Title IV of ERISA, or subject to the
minimum funding standards under Section 412 of the CODE.
Section 1.36. Prohibited Transaction. The term "PROHIBITED
TRANSACTION" means any transaction set forth in Section 4975 of
ERISA or Section 406 of the CODE.
Section 1.37. Real Property. The term "REAL PROPERTY"
means all real property and the improvements thereon presently
or hereafter used or occupied or leased by the BORROWER or
otherwise used by the BORROWER in the operation of its business
or for the manufacture, storage, or location of any of the
COLLATERAL.
Section 1.38. Receivables. The term "RECEIVABLES" means
all of the BORROWER'S ACCOUNTS, CONTRACT RIGHTS, INSTRUMENTS,
DOCUMENTS, GENERAL INTANGIBLES, CHATTEL PAPER, notes, notes
receivable, drafts, acceptances, and choses in action, now
existing or hereafter created or acquired, and all proceeds and
products thereof, and all rights thereto, arising from the sale
or lease of or the providing of INVENTORY, GOODS, or services
by the BORROWER to CUSTOMERS, as well as all other rights,
contingent or non-contingent, of any kind of the BORROWER to
receive payment, benefit, or credit from any PERSON.
Section 1.39. Records. The term "RECORDS" means
correspondence, memoranda, tapes, discs, papers, books and
other documents, or transcribed information of any type,
whether expressed in ordinary, computer or machine language.
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Section 1.40. Release. The term "RELEASE" means any
spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, or dumping.
Section 1.41. Remedial Action. The term "REMEDIAL ACTION"
means: (a) the clean-up or removal of HAZARDOUS SUBSTANCES;
(b) such action as may be necessary to monitor, assess, or
evaluate the RELEASE or threatened RELEASE of HAZARDOUS
SUBSTANCES; (c) the proper disposal or removal of HAZARDOUS
SUBSTANCES; (d) the taking of such other actions as may be
necessary to prevent, minimize, or mitigate the damages caused
by a RELEASE or threatened RELEASE of HAZARDOUS SUBSTANCES to
the public health or welfare or to the environment; and (e) the
providing of emergency assistance after a RELEASE. REMEDIAL
ACTIONS include but are not limited to such actions at the
location of a RELEASE as: storage; confinement; perimeter
protection using dikes, trenches, or ditches; clay cover;
neutralization; clean-up of HAZARDOUS SUBSTANCES or
contaminated materials; recycling or reuse; diversion;
destruction; segregation of reactive wastes; dredging or
excavations; repair or replacement of leaking containers;
collection of leachate and runoff; onsite treatment or
incineration; providing alternative water supplies; and any
monitoring reasonably required to assure that such actions
protect the public health and welfare and the environment.
Section 1.42. Reportable Event. The term "REPORTABLE
EVENT" means any of the events set forth in Section 4043 of
ERISA.
Section 1.43. Solvent. The term "SOLVENT" means, as to any
PERSON, that such PERSON at the time of determination: (a)
owns assets whose fair saleable aggregate value is greater than
the amount required to pay all of its liabilities; (b) is able
to pay all of its liabilities as such liabilities mature; and
(c) has a sufficient source of funds to carry on its business
and transactions and all business and transactions in which it
engages or is about to engage.
Section 1.44. Subordinated Indenture. The term
"SUBORDINATED INDENTURE" means collectively, the Indenture
dated April 15, 1981 by and between Health-Chem Corporation and
Bankers Trust Company, as trustee, and all Debentures issued
thereunder.
Section 1.45. Subsidiary. The term "SUBSIDIARY" means any
corporation of which a COMPANY directly or indirectly owns or
controls at the time: (a) at least a majority of the
outstanding stock having under ordinary circumstances (not
dependent upon the happening of a contingency) voting power to
elect a majority of the board of directors (in the case of a
corporation having directors); or (b) a majority of the voting
stock of any corporation not having directors. The term
"SUBSIDIARY" also means any general or limited partnership or
other entity of which more than fifty percent (50%) of the
outstanding partnership interests or ownership interests shall,
at the time of determination, be owned directly, or indirectly
through one or more intermediaries, by a COMPANY.
<PAGE>
Section 1.46. Tangible Net Worth. The term "TANGIBLE NET
WORTH" means the COMPANIES' consolidated stockholders' equity
(excluding redeemable common stock) less intangible assets, all
as determined in accordance with G.A.A.P.
ARTICLE 2
TERMS AND PURPOSE OF THE LOAN
Section 2.1. Advances Of Loan Proceeds. Subject to the
continued satisfaction of all conditions precedent to the
making of advances hereunder, and the continued absence of any
event, circumstance, act or omission which with the giving of
notice, the passage of time, or both would constitute an EVENT
OF DEFAULT, the LENDER shall advance to the BORROWER from time
to time such amounts under the LOAN as the BORROWER may
request, provided that: (a) the aggregate principal amount of
all advances under the LOAN shall not exceed One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000.00); (b) there shall
be no more than three (3) advances under the LOAN; (c) each
advance shall be in a principal amount of not less than Five
Hundred Thousand Dollars ($500,000.00); and (d) no advances
shall be made after December 31, 1995.
Section 2.2. Interest And Repayment. All sums advanced
under the LOAN shall be evidenced by, and shall be repaid with
interest in accordance with, the provisions of the NOTE, the
terms and conditions of which are incorporated herein by
reference. The date and amounts of each advance made by the
LENDER and each payment made by the BORROWER shall be recorded
by the LENDER on the books and records of the LENDER, but any
failure to record such dates or amounts shall not relieve the
BORROWER of its OBLIGATIONS under the LOAN DOCUMENTS.
Section 2.3. Purpose. The proceeds of the LOAN shall be
used by the BORROWER solely and exclusively: (a) to finance
the acquisition costs of a new 86-inch wide laminator, a new
86-inch wide printer/coater/thermal oven and related CAPITAL
ASSETS; and (b) up to Four Hundred Thousand Dollars
($400,000.00) for the BORROWER'S general working capital needs.
Section 2.4. Quarterly Fee. The BORROWER shall pay to the
LENDER a quarterly fee equal to one-quarter of one percent
(.25%) per annum of the principal balance of the LOAN as of the
end of each fiscal quarter of the COMPANIES in which the FIXED
CHARGE COVERAGE of the COMPANIES for the immediately preceding
four fiscal quarters is less than 1.25. Such quarterly fee is
payable on the same date the certificate described in Section
5.13.c. is required to be delivered to the LENDER.
Section 2.5. Closing Fee. At CLOSING, the BORROWER shall
pay to the LENDER a fee of Four Thousand Three Hundred Seventy-
Five Dollars ($4,375.00), which fee shall be the property of
the LENDER upon payment.
<PAGE>
Section 2.6. Mandatory Prepayment. The BORROWER shall
make mandatory prepayments on the LOAN, which prepayments shall
be applied to the principal balance in the inverse order of
scheduled maturities, in amounts equal to the net proceeds
obtained by any COMPANY in connection with any sale or offering
of any equity interest in any of the COMPANIES, excluding (a)
the net proceeds obtained in the offering made, or to be made,
in 1995 in connection with equity interests in Transderm
Laboratories Corporation, and (b) the net proceeds obtained by
the exercise of any presently existing stock options for stock
in Health-Chem Corporation. Each such mandatory prepayment
shall be made within five (5) calendar days after the receipt
by any COMPANY of any such proceeds.
Section 2.7. Payments Are Provisional. All payments made
by the BORROWER to the LENDER on any of the OBLIGATIONS shall
be provisional and shall not be considered final unless and
until such payment is not subject to avoidance under any
provision of the United States Bankruptcy Code, as amended,
including Sections 547 and 550, or any state law governing
insolvency or creditors' rights. If any payment is avoided or
set aside under any provision of the United States Bankruptcy
Code, including Sections 547 and 550, or any state law
governing insolvency or creditors' rights, the payment shall be
considered not to have been made for all purposes of this
AGREEMENT and the LENDER shall adjust its records to reflect
the fact that the avoided payment was not made and has not been
credited against the OBLIGATIONS.
ARTICLE 3
SECURITY FOR THE LOAN
The repayment of the LOAN, the satisfaction of the
OBLIGATIONS, and the full, complete and absolute performance by
the BORROWER of each of the terms and conditions of the LOAN
DOCUMENTS shall be secured by the following described security
interests, liens, guarantees, assignments and pledges.
Section 3.1. Grant Of Security Interest. The BORROWER
hereby assigns to the LENDER all of the BORROWER'S right,
title, and interest in and to, and grants to the LENDER a
continuing security interest in and to, all of the tangible and
intangible assets owned by the BORROWER, wherever located,
whether now owned or hereafter acquired by the BORROWER,
together with all substitutions therefor, and all replacements
and renewals thereof, and all accessions, additions,
replacement parts, manuals, warranties and packaging relating
thereto, including but not limited to the following tangible
and intangible assets and property rights of the BORROWER:
a. ACCOUNTS;
b. CHATTEL PAPER;
c. CONTRACT RIGHTS;
d. DOCUMENTS;
<PAGE>
e. EQUIPMENT;
f. FIXTURES;
g. GENERAL INTANGIBLES, contracts with CUSTOMERS,
deposits and prepayments;
h. GOODS;
i. INSTRUMENTS;
j. INVENTORY;
k. Leasehold improvements and all rights as lessee
under all leases for real or personal property;
l. RECEIVABLES;
m. Rights to returned, rejected, or repossessed
INVENTORY and rights of reclamation and stoppage
in transit with respect to INVENTORY sold to
CUSTOMERS;
n. All monies, bank accounts, and deposits with any
financial institution;
o. GENERAL INTANGIBLES in the form of all franchises,
subfranchises, rights to distribute, sales
agencies, licenses, permits, leases, rights to
indemnification, rights as insured, including the
right to be provided a defense, warranty rights,
concessions and concession rights, customer lists,
yellow page or trade journal listings, telephone
numbers, and any and all other property or rights
necessary, convenient, or proper with respect to
the continued operation of the business of the
BORROWER as now or hereafter conducted by the
BORROWER or with respect to the operation or use
of the EQUIPMENT or FIXTURES in which the LENDER
has been granted a security interest or any real
property in which the LENDER has been granted a
mortgage;
p. GENERAL INTANGIBLES in the form of patents and
patent applications, together with the right to
sue for past, present, and future infringements,
all rights corresponding thereto throughout the
world and all reissues, divisions, continuations,
renewals, extensions, and continuations-in-part
thereof and all improvements thereon;
q. GENERAL INTANGIBLES in the form of trademarks,
trade names, and trade secrets, together with the
right to sue for past, present, and future
violations corresponding thereto, and all good
will associated therewith;
r. GENERAL INTANGIBLES in the form of copyrights,
together with the right to sue for past, present,
or future violations or infringements of rights of
the copyrights, and all renewals, extensions and
continuations thereof;
s. All rights of the BORROWER as a secured party with
respect to collateral security now or hereafter
securing any of the obligations of third parties
to the BORROWER, together with all agreements and
<PAGE>
instruments evidencing or creating any such
security; and
t. All RECORDS relating to or pertaining to any of
the above listed COLLATERAL.
In addition to the kinds and types of property described
above, the BORROWER hereby assigns, transfers and sets over to
the LENDER all of the BORROWER'S right, title and interest in
and to, and grants to the LENDER a continuing security interest
in and to, all amounts that may be owing at any time and from
time to time by the LENDER to the BORROWER in any capacity,
including but not limited to any balance or share belonging to
the BORROWER of any deposit or other account with the LENDER,
which security interest shall be independent of and in addition
to any right of set-off which the LENDER may have.
Section 3.2. Proceeds And Products. The LENDER'S security
interests provided for herein shall apply to the proceeds,
including but not limited to insurance proceeds, and the
products of the COLLATERAL.
Section 3.3. Priority Of Security Interest. Each of the
security interests granted by the BORROWER to the LENDER
pursuant to this AGREEMENT shall be a perfected first priority
security interest in the COLLATERAL, except as expressly agreed
in advance to the contrary by the LENDER in writing.
Section 3.4. Future Advances. The security interests
granted by the BORROWER to the LENDER hereunder shall secure
all current and all future advances made by the LENDER to the
BORROWER, or for the account or benefit of the BORROWER.
Section 3.5. Guaranty Agreements. Each of the GUARANTORS
shall execute and deliver to the LENDER a GUARANTY AGREEMENT
pursuant to which the GUARANTORS shall guaranty the full and
absolute repayment of all of the OBLIGATIONS and secure their
obligations under the GUARANTY AGREEMENTS with security
interests in all of the GUARANTORS' assets.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the LENDER to extend the LOAN and to enter into
this AGREEMENT, each COMPANY makes the representations and
warranties set forth in this Article 4. Each COMPANY
acknowledges the LENDER'S justifiable right to rely upon these
representations and warranties.
Section 4.1. Accuracy Of Information. All information,
documents, reports, statements, financial statements, and data
submitted by or on behalf of any COMPANY in connection with the
LOAN, or in support thereof, are true, accurate, and complete
in
<PAGE>
all material respects as of the date made and contain no
knowingly false, incomplete or misleading statements.
Section 4.2. No Defaults. No COMPANY is in default with
respect to any of its existing INDEBTEDNESS, and the execution
and performance of this AGREEMENT and the LOAN DOCUMENTS will
not immediately, or with the passage of time, the giving of
notice, or both: (a) violate the charter, by-laws or any other
organizational document of a COMPANY; (b) violate any LAWS; (c)
result in a default under any contract, agreement, or
instrument to which a COMPANY is a party or by which a COMPANY
or its property is bound; or (d) result in the creation or
imposition of any security interest in, or lien or encumbrance
upon, any of the assets of a COMPANY except in favor of the
LENDER.
Section 4.3. No Litigation. Except as set forth on
Schedule 4.3 attached hereto and certain litigation commenced
by Key Pharmaceuticals, Inc. against Hercon Laboratories
Corporation (as more particularly described in the Prospectus
for Transderm Laboratories Corporation dated September 18,
1995), there are no actions, suits, investigations, or
proceedings pending or, to the knowledge of any COMPANY
threatened against a COMPANY or the assets of a COMPANY other
than actions, suits, investigations, or proceedings which if
adversely determined would result in an aggregate uninsured
liability not exceeding Two Hundred Fifty Thousand Dollars
($250,000.00).
Section 4.4. No Liability Or Adverse Change. Except as
set forth on Schedule 4.4 attached hereto, in the audited
financial statements of the COMPANIES previously provided to
the LENDER, or in the audited financial statements of Transderm
Laboratories Corporation previously provided to the LENDER, no
COMPANY has any direct or contingent material liability or
INDEBTEDNESS known to any COMPANY and not previously disclosed
to the LENDER, nor does any COMPANY know of or expect any
material adverse change in the assets, LIABILITIES, properties,
business, or condition, financial or otherwise, of the
COMPANIES.
Section 4.5. Title To Collateral. The BORROWER has good
and marketable title to all of the COLLATERAL. The LENDER'S
liens described herein shall constitute first and indefeasible
security interests or liens thereon, except to the limited
extent that the LENDER in advance agrees in writing to the
contrary.
Section 4.6. Status. The BORROWER is validly incorporated
under the LAWS of the state of its incorporation. The BORROWER
has the power to own its properties, conduct its business and
affairs, and enter into the LOAN and perform the OBLIGATIONS.
The BORROWER'S entry into the LOAN with the LENDER has been
validly and effectively approved by its board of directors and
shareholders as may be required by its charter, by-laws, and
applicable LAWS. All copies of the charter, by-laws, and
corporate resolutions of the BORROWER submitted to the LENDER
are true, accurate, and complete
<PAGE>
and no action has been taken in diminution or abrogation
thereof. The BORROWER has not changed its name, been the
surviving corporation or partnership in a merger, or changed
the location of its chief executive office within the last five
(5) years, except as set forth on Schedule 4.6 attached hereto.
Section 4.7. Valid, Binding and Enforceable. The LOAN
DOCUMENTS executed by the COMPANIES are the valid and binding
obligations of each COMPANY and are fully enforceable against
each COMPANY in accordance with their terms.
Section 4.8. No Events Of Default. There is not currently
existing any action, event, or condition which presently
constitutes an EVENT OF DEFAULT, or which with notice, the
passage of time, or both would constitute an EVENT OF DEFAULT.
Section 4.9. Taxes. Each COMPANY: (a) has filed all
federal, state and local tax returns and other reports which
the COMPANY is required by LAW to file prior to the date hereof
and which are material to the conduct of the business of the
COMPANY; (b) has paid or caused to be paid all taxes,
assessments and other governmental charges that are due and
payable prior to the date hereof; and (c) has made adequate
provision for the payment of such taxes, assessments or other
charges accruing but not yet payable. No COMPANY has any
knowledge of any deficiency or additional assessment in a
materially important amount in connection with any taxes,
assessments or charges not provided for on the COMPANIES' books
of account or reflected in the COMPANIES' financial statements.
Section 4.10. ERISA. Each COMPANY and each SUBSIDIARY or
ERISA AFFILIATE of a COMPANY is in compliance in all material
respects with all applicable provisions of ERISA.
Specifically, each COMPANY represents with respect to the
COMPANIES and each of its SUBSIDIARIES and ERISA AFFILIATES
that: (a) no REPORTABLE EVENT has occurred and is continuing
with respect to any PLAN; (b) no notice of intent to terminate
a PLAN has been filed, nor has any PLAN been terminated; (c) no
circumstances exist which constitute grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administrate, a PLAN, nor
has the PBGC instituted any such proceedings; (d) neither the
COMPANIES nor any ERISA AFFILIATE has completely or partially
withdrawn under Sections 4201, 4203, 4204 or 4205 of ERISA from
a MULTIEMPLOYER PLAN and no MULTIEMPLOYER PLAN is in
reorganization as defined in Section 4241(a) of ERISA; (e) each
COMPANY and each ERISA AFFILIATE has met its minimum funding
requirements under ERISA with respect to all of its PLANS and
the fair market value of all PLAN assets allocable to accrued
benefits under each PLAN exceeds the present value of all such
benefits, as determined on the most recent valuation date of
the PLAN and in accordance with the provisions of ERISA and the
regulations thereunder for calculating the potential liability
of a COMPANY or of any ERISA AFFILIATE to the PBGC or the PLAN
under Title IV of ERISA; (f)
<PAGE>
neither any COMPANY nor any ERISA AFFILIATE has incurred any
liability to the PBGC under ERISA; (g) no lien has attached and
no person has threatened to attach a lien on any of a COMPANY'S
or any ERISA AFFILIATE'S property as a result of failure to
comply with ERISA or as a result of the termination of any
PLAN; (h) neither any COMPANY nor any ERISA AFFILIATE has an
unfulfilled obligation to contribute to any MULTIEMPLOYER PLAN;
(i) no PROHIBITED TRANSACTION has occurred with respect to any
PLAN or other employee benefit plan, as described in Section
3(3) of ERISA, of the BORROWER or any ERISA AFFILIATE; and (j)
each PLAN, as most recently amended, including amendment to any
trust agreement, group annuity or insurance contract, or other
governing instrument, is the subject of a current favorable
determination by the Internal Revenue Service with respect to
its qualification under Section 401(a) of the CODE.
Section 4.11 Compliance With Laws. Each COMPANY has
complied in all material respects with all applicable LAWS with
respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that it sells or to the
services it performs; (b) the conduct of its business; (c) the
use, maintenance, and operation of the real and personal
properties owned or leased by it in the conduct of its
business; (d) the obtaining of all necessary licenses and
permits necessary to engage in its business; and (e) the
making, storing, handling, treating, disposing, generating,
transporting, or RELEASE of HAZARDOUS SUBSTANCES.
Section 4.12. Chief Place Of Business. The BORROWER'S (a)
chief executive office is located at 1212 Avenue of the
Americas, New York, New York, (b) chief place of business is
located at 3055 East Fruitland Avenue, Los Angeles, California
and (c) place where it keeps its RECORDS concerning the
COLLATERAL is 3055 East Fruitland Avenue, Los Angeles,
California 90058 and Aberdeen Road, Emigsville, Pennsylvania
17405.
Section 4.13. Location Of Equipment And Fixtures. The
BORROWER owns no EQUIPMENT or FIXTURES which are COLLATERAL and
which are located at a location other than 3055 East Fruitland
Avenue, Los Angeles, California and 3063 East Fruitland Avenue,
Los Angeles, California.
Section 4.14. Location Of Inventory. The BORROWER'S
INVENTORY is and shall be kept solely at the BORROWER'S
locations referred to in the prior two Sections, and shall not
be moved, sold or otherwise disposed of without prior
notification to the LENDER, except for sales of INVENTORY to
CUSTOMERS in the ordinary course of the BORROWER'S business.
None of the BORROWER'S INVENTORY is stored with or in the
possession of any bailee, warehouseman, or other similar
PERSON.
Section 4.15. No Labor Agreements. The BORROWER is not
subject to any collective bargaining agreement or any
agreement,
<PAGE>
contract, decree or order requiring it to recognize, deal with
or employ any PERSONS organized as a collective bargaining unit
or other form of organized labor, except as set forth on
Schedule 4.15 attached hereto.
Section 4.16. Franchises. Each COMPANY possesses all
franchises, approvals, contracts, merchandising agreements and
merchandising contracts necessary for it lawfully to conduct
its business and operation.
Section 4.17. No Hazardous Substances. To the best of the
BORROWER'S knowledge and belief, (a) the REAL PROPERTY has
never been and is not being used to make, store, handle, treat,
dispose of, generate, or transport HAZARDOUS SUBSTANCES in
violation of any applicable LAW, (b) there has not been a
RELEASE of HAZARDOUS SUBSTANCES on, from, or near the REAL
PROPERTY, and (c) the BORROWER has never received any
notification, citation, complaint, violation, or notice of any
kind (collectively, "Notices") from any PERSON relating or
pertaining to the making, storing, handling, treating,
disposing, generating, transporting, or RELEASE of HAZARDOUS
SUBSTANCES, except for Notices relating to matters which have
been settled.
ARTICLE 5
AFFIRMATIVE COVENANTS
The COMPANIES covenant and agree during the term of this
AGREEMENT and while any OBLIGATIONS are outstanding and unpaid
to do and perform each of the acts and promises set forth in
this Article 5:
Section 5.1. Payment And Performance. All OBLIGATIONS
shall be paid and performed in full when and as due.
Section 5.2. Casualty Insurance. The BORROWER shall
maintain during the term of the LOAN for all of its respective
assets and properties, whether real, personal, or mixed and
including but not limited to the COLLATERAL, fire and extended
coverage casualty insurance in amounts sufficient to prevent
any co-insurance liability (which amount shall be the full
insurable value of the assets and properties insured unless the
LENDER in writing agrees to a lesser amount), naming the LENDER
as secured party and sole loss payee with respect to the
COLLATERAL, with an insurance company acceptable to the LENDER
under policy forms containing standard mortgagee clauses. The
BORROWER shall submit to the LENDER copies of the casualty
insurance policies and paid receipts evidencing payment of the
premiums due on the same. The casualty insurance policies
shall be endorsed so as to make them noncancellable unless
thirty (30) days prior notice of cancellation is provided to
the LENDER. The proceeds of any insured loss shall be applied
by the LENDER to the OBLIGATIONS, in such order of application
as determined by the LENDER, unless the LENDER in its
<PAGE>
sole discretion permits the use thereof to repair or replace
damaged or destroyed COLLATERAL.
Section 5.3. Liability And Worker's Compensation
Insurance. The BORROWER shall maintain during the term of the
LOAN public liability and property damage insurance in such
amounts and with insurance companies acceptable to and approved
by the LENDER. In addition, the BORROWER shall maintain during
the term of the LOAN worker's compensation insurance in such
amounts as required by applicable LAW. The BORROWER, on
request, shall submit to the LENDER copies of the liability and
worker's compensation insurance policies and receipts
evidencing the payment of premiums due thereon or,
alternatively, certificates from the insurance companies
certifying to the existence of the policies, summarizing the
terms of the policies, and indicating the payment of premiums
due thereon.
Section 5.4 Business Interruption Insurance. The
BORROWER shall obtain and maintain in full force and effect
during the term of the LOAN, business interruption insurance
with insurance companies reasonably satisfactory to the LENDER,
which names the LENDER as the secured party and loss payee.
The BORROWER shall submit to the LENDER copies of the business
interruption insurance policies and paid receipts evidencing
payment of the premiums due on the same. The business
interruption insurance policies shall be endorsed so as to make
them noncancellable unless thirty (30) days prior notice of
cancellation is provided to the LENDER. The proceeds of any
insured loss shall be applied by the LENDER to the OBLIGATIONS,
in such order of application as determined by the LENDER.
Section 5.5. Books And Records. The COMPANIES at all
times hereafter shall maintain a standard and modern system of
accounting in accordance with G.A.A.P. and applicable LAW. The
COMPANIES shall notify the LENDER in writing if the COMPANIES
modify or change their method of accounting.
Section 5.6. Notice Of Litigation And Proceedings. The
COMPANIES shall give immediate notice to the LENDER of any
action, suit, citation, violation, direction, notice or
proceeding before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic
or foreign, affecting a COMPANY or any SUBSIDIARY, or the
assets or properties thereof, which, if determined adversely to
a COMPANY or such SUBSIDIARY: (a) could require a COMPANY or
such SUBSIDIARY to pay over more than Two Hundred Fifty
Thousand Dollars ($250,000.00) or deliver assets the value of
which exceeds that sum (whether or not the claim is considered
to be covered by insurance); or (b) could materially and
adversely affect, on a consolidated basis, the operations,
financial conditions, property, or business of the COMPANIES or
such SUBSIDIARY.
<PAGE>
Section 5.7. Notice Of Change Of Business Location. The
COMPANIES shall notify the LENDER thirty (30) days in advance
of: (a) any change in the location of their existing offices
or place of business; (b) the establishment of any new, or the
discontinuation of any existing, place of business; and (c) any
change in or addition to the locations at which the COLLATERAL
is kept. In the event any assets in which the LENDER has a
security interest is to be moved to a location which is not
owned by a COMPANY, then prior to moving any assets to such
location the COMPANIES shall obtain and deliver to the LENDER
an agreement, in form and substance acceptable to the LENDER,
pursuant to which the owner of such location shall: (a)
subordinate any rights which it may have, or thereafter may
obtain, in any of the assets of the COMPANY to the rights and
security interests of the LENDER in such assets; and (b) allow
the LENDER access to the assets of the COMPANY in order to
remove such assets from such location. In the event any assets
of a COMPANY are to be stored with a warehousemen or other
bailee, then the COMPANIES shall cause the warehouseman or
other bailee to issue warehouse receipts in the name of the
LENDER evidencing the storage of such assets.
Section 5.8. ERISA. The COMPANIES shall furnish to
LENDER: (a) within ten (10) days after they have reason to know
that any COMPANY or any ERISA AFFILIATE has incurred withdrawal
liability under Sections 4201, 4203, 4204 or 4205 of ERISA, or
that any MULTIEMPLOYER PLAN is in reorganization (within the
meaning of Section 4241(a) of ERISA), or that any REPORTABLE
EVENT has occurred with respect to any PLAN, or that any
PROHIBITED TRANSACTION has occurred with respect to any PLAN or
other employee benefit plan, as described in Section 3(3) of
ERISA, of a COMPANY or any ERISA AFFILIATE, or that PBGC has
instituted or will institute proceedings under Title IV of
ERISA to terminate any PLAN or to appoint a trustee to
administer any PLAN, a statement setting forth the details as
to such withdrawal liability, reorganization, REPORTABLE EVENT,
PROHIBITED TRANSACTION or termination or appointment
proceedings and the action which it (or the MULTIEMPLOYER PLAN
sponsor or PLAN sponsor if other than a COMPANY) proposes to
take with respect thereto, together with a copy of any notice
of withdrawal liability or reorganization given to a COMPANY or
any ERISA AFFILIATE and a copy of the notice of such REPORTABLE
EVENT given to PBGC if a copy of such notice is available to
any COMPANY or any of its ERISA AFFILIATES; and (b) promptly
after receipt thereof, a copy of any notice any COMPANY or any
ERISA AFFILIATES or the sponsor of any PLAN receives from PBGC
or the Internal Revenue Service which sets forth or proposes
any action or determination with respect to the PLAN. The
COMPANIES shall notify the LENDER promptly of any taxes,
assessments, charges or levies which have been assessed or
which the COMPANIES or any of its ERISA AFFILIATES has reason
to believe may be assessed against a COMPANY or any of its
ERISA AFFILIATES by the Internal Revenue Service with respect
to any PLAN or MULTIEMPLOYER PLAN. Within the time required
for notice to the PBGC under Section 302(f)(4)(A) of
<PAGE>
ERISA, the COMPANIES shall notify the LENDER of any lien
arising under Section 302(f) of ERISA in favor of any PLAN.
Section 5.9. Payment Of Taxes. Each COMPANY shall pay or
cause to be paid when and as due all taxes, assessments and
charges or levies imposed upon it or on any of its property or
which it is required to withhold and pay over to the taxing
authority or which it must pay on its income, except where
contested in good faith, by appropriate proceedings and at its
own cost and expense; provided, however, that a COMPANY shall
not be deemed to be contesting in good faith by appropriate
proceedings unless: (a) such proceedings operate to prevent
the taxing authority from attempting to collect the taxes,
assessments or charges; (b) the assets of the COMPANY are not
subject to sale, forfeiture or loss during such proceedings;
(c) the COMPANY'S contest does not subject the LENDER to any
claim by the taxing authority or any other person; (d) the
COMPANY establishes appropriate reserves, satisfactory to the
LENDER in its sole discretion, for the payment of all taxes,
assessments, charges, levies, legal fees, court costs and other
expenses for which the COMPANY would be liable if it is
unsuccessful in its contest; (e) the COMPANY prosecutes the
contest continuously to its final conclusion; and (f) at the
conclusion of the proceedings, the COMPANY promptly pays all
amounts determined to be payable, including but not limited to
all taxes, assessments, charges, levies, legal fees and court
costs.
Section 5.10. Examination Of Books And Records And
Collateral. The LENDER shall have the right to call at any
COMPANIES' places of business at any time during business hours
after not less than twenty-four (24) hours prior notice (except
no notice shall be required at any time after an EVENT OF
DEFAULT) and, without hinderance or delay, to inspect the
assets of the COMPANIES and to audit, inspect, verify, check
and make extracts or photocopies from the records of the
COMPANIES and other data relating to the collateral or any of
the COMPANIES' indebtedness, and the COMPANIES shall reimburse
the LENDER for the cost of all of such audits, inspections,
verifications, copying and extractions made by the LENDER,
provided that the annual cost to the COMPANIES for such audits,
inspections and copying shall not exceed Ten Thousand Dollars
($10,000.00).
Section 5.11. Further Assurances. The BORROWER shall
execute from time to time such other and further documents,
including but not limited to confirmatory deeds, deeds of
trust, promissory notes, security agreements, agreements,
financing statements, continuation statements, and the like
which, in the sole opinion of the LENDER or the LENDER'S
counsel, may be necessary to perfect, confirm, establish,
reestablish, continue, or complete the security interests and
liens in the COLLATERAL and the purposes and intentions of this
AGREEMENT, it being the intention of the BORROWER to provide
hereby a full and absolute warranty of further assurance to the
LENDER.
<PAGE>
Section 5.12. Advances With Respect To Collateral. If the
BORROWER fails to perform any of the affirmative covenants
contained in this Article or to protect or preserve its assets
and properties, or if the BORROWER fails to protect or preserve
the COLLATERAL or the status and priority of the security
interest of the LENDER in the COLLATERAL, the LENDER, at any
time after an EVENT OF DEFAULT may make advances to perform the
same on behalf of the BORROWER or to protect or preserve the
assets and properties of the BORROWER or to protect or preserve
the COLLATERAL or the status and priority of the security
interest of the LENDER in the COLLATERAL, and all sums so
advanced shall immediately upon advance become secured by the
security interest created by this AGREEMENT, and shall become
part of the principal amount owed to the LENDER with interest
to be assessed at the applicable rate thereon and subject to
the terms and provisions of this AGREEMENT and all of the LOAN
DOCUMENTS. The BORROWER shall repay on demand all sums so
advanced on the BORROWER'S behalf, plus all expenses or costs
incurred by the LENDER, including reasonable legal fees, with
interest thereon at the highest rate provided for in the LOAN
DOCUMENTS. The provisions of this Section shall not be
construed to prevent the institution of the rights and remedies
of the LENDER upon the occurrence of an EVENT OF DEFAULT. The
contrary notwithstanding, the authorization contained in this
Section shall impose no duty or obligation on the LENDER to
perform any action or make any advancement on behalf of the
BORROWER and is for the sole benefit and protection of the
LENDER.
Section 5.13. Lender's Right To Control Deposits. Upon
notice from the LENDER, the BORROWER shall transmit and deliver
to the LENDER, immediately upon receipt thereof, all cash,
checks, drafts, and other instruments for the payment of money,
properly indorsed, which have been received by the BORROWER in
full or partial payment of any RECEIVABLE, in the exact form
received, without commingling with other funds or property.
All items received by the LENDER in payment of any such
RECEIVABLE shall be deposited to the credit of the BORROWER in
an account with the LENDER, as the LENDER'S property. The
LENDER shall apply all of the collected funds in such deposit
account toward payment of all or any part of the OBLIGATIONS,
whether or not then due.
Section 5.14. Collection Of Receivables By Lender. The
LENDER, at any time or from time to time after an EVENT OF
DEFAULT, may terminate the BORROWER'S authority to collect the
RECEIVABLES. Upon a termination of the BORROWER'S authority,
the LENDER shall have the right to send notices of assignment
or notices of the LENDER'S security interest to any and all
CUSTOMERS or any third party holding or otherwise concerned
with any of the COLLATERAL, and thereafter the LENDER shall
have the sole right to collect the RECEIVABLES and to take
possession of the COLLATERAL and RECORDS relating thereto. All
of the LENDER'S collection expenses shall be charged to the
BORROWER'S account and added to the OBLIGATIONS. If the LENDER
is collecting the RECEIVABLES as above provided, the LENDER
shall have the right to receive, indorse, assign and deliver
<PAGE>
in the LENDER'S name or the BORROWER'S name any and all checks,
drafts and other instruments for the payment of money relating
to the RECEIVABLES, and the BORROWER hereby waives notice of
presentment, protest and non-payment of any instrument so
endorsed. If the LENDER is collecting the RECEIVABLES directly
as above provided, the BORROWER hereby constitutes the LENDER
or the LENDER'S designee as the BORROWER'S attorney-in-fact
with power with respect to the RECEIVABLES: (a) to indorse the
BORROWER'S name upon all notes, acceptances, checks, drafts,
money orders or other evidences of payment of COLLATERAL that
may come into the LENDER'S possession; (b) to sign the
BORROWER'S name on any invoices relating to any of the
RECEIVABLES, drafts against CUSTOMERS, assignments and
verifications of RECEIVABLES and notices to CUSTOMERS; (c) to
send verifications of RECEIVABLES to any CUSTOMER; (d) to
notify the Post Office to change the address for delivery of
mail addressed to the BORROWER to such address as the LENDER
may designate; (e) to receive, open, and dispose of all mail
addressed to the BORROWER; and (f) to do all other acts and
things necessary, proper, or convenient to carry out the terms
and conditions and purposes and intent of this AGREEMENT. All
acts of such attorney or designee are hereby ratified and
approved, and such attorney or designee shall not be liable for
any acts of omission or commission, nor for any error of
judgment or mistake of fact or law in accordance with this
AGREEMENT, with the exception of acts arising from actual fraud
or gross and wanton negligence. The power of attorney hereby
granted, being coupled with an interest, is irrevocable while
any of the OBLIGATIONS remain unpaid. If the LENDER is
collecting the RECEIVABLES pursuant to the terms of this
Section, the LENDER, without notice to or consent from the
BORROWER, may sue upon or otherwise collect, extend the time of
payment of or compromise or settle for cash, credit or
otherwise upon any terms, any of the RECEIVABLES or any
securities, instruments or insurances applicable thereto or
release the obligor thereon. The LENDER is authorized and
empowered to accept the return of the goods represented by any
of the RECEIVABLES, without notice to or consent by the
BORROWER, all without discharging or in any way affecting the
BORROWER'S liability under the LOAN DOCUMENTS. The LENDER does
not, by anything herein or in any assignment or otherwise,
assume any of the BORROWER'S obligations under any contract or
agreement assigned to the LENDER, and the LENDER shall not be
responsible in any way for the performance by the BORROWER of
any of the terms and conditions thereof.
Section 5.15. Notice Of Events Affecting Collateral;
Compromise Of Receivables; Returned Or Repossessed Goods. The
BORROWER, immediately upon learning thereof, shall report to
the LENDER: (a) any reclamation, return or repossession of
goods having an aggregate sales price of Two Hundred Fifty
Thousand Dollars ($250,000.00) or more; and (b) all claims or
disputes asserted by any CUSTOMER or other obligor involving in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00).
<PAGE>
Section 5.16. Documentation Of Collateral. The BORROWER,
upon request of the LENDER, shall provide the LENDER from time
to time with: (a) written statements or schedules identifying
and describing the COLLATERAL, and all additions,
substitutions, and replacements thereof, in such detail as the
LENDER may require; (b) copies of CUSTOMERS' invoices or
billing statements; (c) evidence of shipment or delivery of
goods or merchandise to or performance of services for
CUSTOMERS; and (d) such other schedules and information as the
LENDER reasonably may require. The items to be provided under
this Section shall be in form satisfactory to the LENDER and
are to be executed and delivered to the LENDER from time to
time solely for the LENDER'S convenience in maintaining RECORDS
of the COLLATERAL. The BORROWER'S failure to give any of such
items to the LENDER shall not affect, terminate, modify or
otherwise limit the LENDER'S security interest in the
COLLATERAL. The LENDER shall have the right, at any time and
from time to time, to verify the eligibility of the BORROWER'S
RECEIVABLES, including obtaining verification of the
RECEIVABLES directly from CUSTOMERS.
Section 5.17. Reporting Requirements. The COMPANIES shall
submit the following items to the LENDER:
a. SEC Reports. The COMPANIES shall within fifteen
(15) calendar days after delivery to the Securities and
Exchange Commission deliver to the LENDER copies of all
quarterly and annual financial reports and other information,
documents and reports filed by any COMPANY with the Securities
and Exchange Commission.
b. Management Letters. Promptly upon receipt
thereof, the COMPANIES shall submit to the LENDER copies of any
reports submitted to a COMPANY or any SUBSIDIARY by independent
certified public accountants in connection with the examination
of the financial statements of a COMPANY or any SUBSIDIARY made
by such accountants.
c. Certificates Of No Default. Within the time
period for providing the quarterly and annual reports filed
with the Securities And Exchange Commission as set forth above,
the COMPANIES shall submit to the LENDER, each fiscal quarter,
a certificate of the chief financial officer of the COMPANIES
certifying that: (i) there exists no EVENT OF DEFAULT, or if
an EVENT OF DEFAULT exists, specifying the nature thereof, the
period of existence thereof and what action the COMPANIES
propose to take with respect thereto; (ii) no material adverse
change in the condition, financial or otherwise, business,
property or results of operations of the COMPANIES has occurred
since the previous certificate was sent to the LENDER by the
COMPANIES or, if any such change has occurred, specifying the
nature thereof and what action the COMPANIES have taken or
propose to take with respect thereto; (iii) all insurance
premiums then due have been paid; (iv) all taxes then due have
been paid or, for those taxes which have not been paid, a
statement of the taxes not paid and a description of the
COMPANIES' rationale therefor; (v) no litigation, investigation
<PAGE>
or proceedings, or injunction, writ or restraining order is
pending or threatened which could result in a COMPANY incurring
a liability of Two Hundred Fifty Thousand Dollars ($250,000.00)
or more; (vi) stating whether or not the COMPANIES are in
compliance with the covenants in this AGREEMENT, including a
calculation of the financial covenants in the schedule attached
to such officer's certificate in form satisfactory to the
LENDER; and (vii) stating whether any COMPANY has obtained any
patents or trademarks or has filed any applications for patents
or trademarks since the previous certificate was sent to the
LENDER.
d. Reports To Other Creditors. Promptly after the
furnishing thereof, the COMPANIES shall submit to the LENDER
copies of any statement or report furnished to any other party
pursuant to the terms of any indenture, loan, or credit or
similar agreement and not otherwise required to be furnished to
the LENDER pursuant to any other provisions of this AGREEMENT.
e. General Information. In addition to the items set
forth in paragraphs (a) through (d) above, the COMPANIES shall
submit to the LENDER such other information respecting the
condition or operations, financial or otherwise, of the
COMPANIES or any SUBSIDIARY of any COMPANY as the LENDER may
reasonably request from time to time.
Section 5.18. Environmental Matters. Each COMPANY shall:
(a) immediately notify the LENDER and any other PERSON that it
is required to notify pursuant to any applicable LAWS once it
is aware of a RELEASE or threatened RELEASE of HAZARDOUS
SUBSTANCES on, from, or near the REAL PROPERTY which pursuant
to applicable LAWS must be reported to a governmental
department or agency; (b) immediately notify the LENDER once an
environmental investigation or clean-up proceeding is
instituted by any PERSON in connection with the REAL PROPERTY;
(c) fully comply with and assist, to the extent required by
applicable LAWS, any such environmental investigation and
clean-up proceeding; and (d) immediately notify the LENDER of
any citation, notification, complaint, or violation which it
receives from any PERSON which relates or pertains to any
matters concerning the making, storing, handling, treating,
disposing, generating, transporting or RELEASE of any HAZARDOUS
SUBSTANCE if any such matter could result in liability to any
COMPANY in excess of Two Hundred Fifty Thousand Dollars
($250,000.00).
Section 5.19. Maintenance Of Equipment. The COMPANIES
shall maintain and preserve all of their EQUIPMENT in a state
of good and efficient working order except for normal wear and
tear and except for items of EQUIPMENT which are obsolete and
no longer used in the COMPANIES' businesses.
Section 5.20. Consignments. The BORROWER shall advise the
LENDER of all PERSONS to whom it has consigned or assigned
INVENTORY for sale or distribution, and the location of the
<PAGE>
INVENTORY subject to any such consignment or assignment
arrangement. The BORROWER shall: (a) duly and properly file
financing statements in all applicable places of public record
with respect to each of such consignments or assignments, which
filings shall comply with Section 9-114 of the 1972 version of
the Uniform Commercial Code and with all other requirements
necessary for the BORROWER to protect its interests therein
under applicable LAWS; (b) supply the LENDER with prior
evidence of such filing and with a financing statement,
judgment and tax lien search in the name of the consignee or
assignee in all applicable places of public record; and (c)
provide written notification to any holder of any security
interests in the inventory of the consignee or assignee who has
filed a financing statement before the BORROWER files its
financing statement, which notice shall state that the BORROWER
expects to deliver goods or assignments, shall describe the
goods by item or type and which notification shall be received
by any such holder within five (5) years before the consignee
receives possession of the goods and at five (5) year intervals
thereafter.
Section 5.21. Federal Assignment Of Claims Act. The
BORROWER shall notify the LENDER if any RECEIVABLE arises out
of a contract providing for aggregate payments in excess of One
Hundred Thousand Dollars ($100,000.00) with the United States
of America, or any department, agency or instrumentality
thereof, and shall execute all documents or instruments and
shall take all steps or actions required by the LENDER so that
all monies due or to become due under such contract are
assigned to the LENDER and notice given thereof to the United
States in accordance with the requirements of the Federal
Assignment of Claims Act, as amended.
Section 5.22. Compliance With Laws. Each COMPANY shall
comply in all material respects with all applicable LAWS with
respect to: (a) all restrictions, specifications, or other
requirements pertaining to products that it sells or to the
services it performs; (b) the conduct of its business; (c) the
use, maintenance, and operation of the real and personal
properties owned or leased by it in the conduct of its
business; (d) the obtaining of all necessary licenses and
permits necessary to engage in its business; (e) the making,
storing, handling, treating, disposing, generating,
transporting, or RELEASE of HAZARDOUS SUBSTANCES; and (f) the
providing of information and reports as required by the
Securities And Exchange Commission and applicable securities
LAWS.
Section 5.23. Sale-Leaseback Transactions. The COMPANIES
shall notify the LENDER of any sale-leaseback transactions
entered into by a COMPANY within ten (10) days after such sale-
leaseback transaction.
Section 5.24. Financial Covenants. The COMPANIES, on a
consolidated basis, shall remain in compliance with the
financial covenants set forth below. The COMPANIES acknowledge
that the following financial covenants are based on the
understanding that
<PAGE>
the various companies, other than the COMPANIES, which are
included in the consolidated financial statements of the
COMPANIES are inactive companies, and therefore do not
materially effect the following financial covenants. If during
the term of the LOAN, any company, other than the COMPANIES,
which is included in the consolidated financial statements of
the COMPANIES becomes an active company, the COMPANIES will
need to either: (a) provide the LENDER with quarterly and
annual financial information, in a form acceptable to the
LENDER, which does not include any such other company; or (b)
cause such other company to become a guarantor of the LOAN by
the execution of such documents as the LENDER deems appropriate
at such time.
a. Tangible Net Worth. The COMPANIES shall
maintain, as of the end of each fiscal quarter, a TANGIBLE NET
WORTH of not less than the sum of: (i) Five Million Two Hundred
Thousand Dollars ($5,200,000.00); plus (ii) fifty percent (50%)
of the COMPANIES' consolidated profit (without making any
adjustment if there is a loss instead of a profit) for each
year commencing with the FISCAL YEAR ending December 31, 1994
(e.g., on September 30, 1995, the minimum TANGIBLE NET WORTH
shall be Five Million Two Hundred Thousand Dollars
($5,200,000.00) plus fifty percent (50%) of the COMPANIES'
consolidated profit for the FISCAL YEAR ending December 31,
1994, and on December 31, 1995, March 31, 1996, June 30, 1996
and September 30, 1996, the minimum TANGIBLE NET WORTH shall be
Five Million Two Hundred Thousand Dollars ($5,200,000.00) plus
fifty percent (50%) of the COMPANIES' consolidated profit for
the FISCAL YEAR ending December 31, 1994 plus fifty percent
(50%) of the BORROWERS' consolidated profit for the FISCAL YEAR
ending December 31, 1995).
b. Debt To Worth. The COMPANIES shall maintain, as
of the end of each fiscal quarter, a ratio of LIABILITIES to
TANGIBLE NET WORTH of not greater than: (i) 4.25 to 1.0 for
the period between CLOSING and December 31, 1995, inclusive;
and (ii) 3.5 to 1.0 at all times after December 31, 1995.
c. Fixed Charge Coverage. As of the end of each
fiscal quarter of the COMPANIES, the COMPANIES shall maintain
on a consolidated basis a FIXED CHARGE COVERAGE for the
immediately preceding four fiscal quarters of not less than:
(i) 1.0 as of the end of the fiscal quarter ending September
30, 1995; (ii) 1.05 as of the end of the fiscal quarters ending
December 31, 1995 and March 31, 1996; (iii) 1.2 as of the end
of the fiscal quarters ending June 30, 1996 and September 30,
1996; and (iv) 1.25 as of the end of each fiscal quarter after
June 30, 1996.
<PAGE>
ARTICLE 6
NEGATIVE COVENANTS
The COMPANIES covenant and agree during the term of this
AGREEMENT and while any OBLIGATIONS are outstanding and unpaid
not to do or to permit to be done or to occur any of the acts
or happenings set forth in this Article 6 without the prior
written authorization of the LENDER.
Section 6.1. No Change Of Name, Merger, Etc. No COMPANY
shall change its name or enter into any merger, consolidation,
reorganization or recapitalization, except GUARANTORS may merge
together and any SUBSIDIARY of a GUARANTOR may merge into a
GUARANTOR provided the GUARANTOR is the surviving entity.
Section 6.2. No Sale Or Transfer Of Assets. None of the
COMPANIES shall sell or transfer any of their assets other than
(i) sales of INVENTORY in the ordinary course of the COMPANIES'
businesses, (ii) sales of obsolete or unusable EQUIPMENT
(excluding the EQUIPMENT purchased by the BORROWER with the
proceeds of the LOAN), (iii) sales of other items of EQUIPMENT
(excluding the EQUIPMENT purchased by the BORROWER with the
proceeds of the LOAN) for fair consideration provided that the
aggregate book value of EQUIPMENT sold in any one FISCAL YEAR
shall not exceed fifteen percent (15%) of the aggregate book
value of the COMPANIES' EQUIPMENT, and (iv) transfers of assets
from one GUARANTOR to another GUARANTOR provided that the
LENDER is given not less than thirty (30) days prior written
notice of any such transfer.
Section 6.3. No Encumbrance Of Assets. None of the
COMPANIES shall mortgage, pledge, grant or permit to exist a
security interest in or lien upon any of its assets of any
kind, now owned or hereafter acquired, except for PERMITTED
LIENS. No COMPANY shall make any negative pledges for the
benefit of any person or entity other than the LENDER.
Section 6.4. No Indebtedness. No COMPANY shall incur,
create, assume, or permit to exist any INDEBTEDNESS except: (a)
the LOAN described herein; (b) trade INDEBTEDNESS incurred in
the ordinary course of business; (c) INDEBTEDNESS secured by
PERMITTED LIENS; (d) INDEBTEDNESS under the SUBORDINATED
INDENTURE; (e) INDEBTEDNESS now or hereafter owed to the
LENDER; and (f) INDEBTEDNESS owed to another COMPANY.
Section 6.5. No Dividends. The COMPANIES shall not
declare or pay any dividends or purchase any stock from any of
their shareholders other than dividends or purchases of stock
which in the aggregate in any FISCAL YEAR of the COMPANIES does
not exceed sixty-six percent (66%) of the COMPANIES'
consolidated profits in excess of One Million Dollars
($1,000,000.00) for the immediately preceding FISCAL YEAR.
<PAGE>
Section 6.6. Transactions With Affiliates. No COMPANY
shall make any purchase from, or contract for the performance
of any services by, any AFFILIATE or any officer or director of
any COMPANY, except: (i) on terms which fairly represent
generally available terms to be obtained in transactions of a
similar nature with independent third PERSONS, (ii) the
transactions described in the Stock Purchase And Option
Agreement dated July 15, 1994, by and between Health-Chem
Corporation and Marvin M. Speiser; (iii) the transactions
described in the Amended and Restated Option Agreement dated
August 30, 1991 by and between Health-Chem Corporation and
Marvin M. Speiser, a copy of which has been delivered to the
LENDER; and (iv) the Corporate Services Agreement and Tax
Sharing Agreement, both by and between Health-Chem Corporation
and Transderm Laboratories Corporation and more particularly
described in the Prospectus of Transderm Laboratories
Corporation dated September 18, 1995.
Section 6.7. Capital Expenditures. The COMPANIES, on a
consolidated basis, shall not make any CAPITAL EXPENDITURES in
excess of: (a) Four Million Two Hundred Thousand Dollars
($4,200,000.00) in the COMPANIES' 1995 FISCAL YEAR; (b) Seven
Hundred Fifty Thousand Dollars ($750,000.00) in the COMPANIES'
1996 FISCAL YEAR; and (c) One Million Five Hundred Thousand
Dollars ($1,500,000.00) in any of the COMPANIES' FISCAL YEARS
after 1996; provided, however, that in the event that the
COMPANIES do not make CAPITAL EXPENDITURES in an aggregate
amount up to the maximum amount permitted above in any one
FISCAL YEAR, the difference between the maximum amount
permitted above and the actual amount of CAPITAL EXPENDITURES
made by the COMPANIES may be spent on CAPITAL EXPENDITURES in
the immediately succeeding FISCAL YEAR in addition to the
maximum amount set forth above.
Section 6.8. No Acquisition Of Third Person. No COMPANY
shall acquire any stock in, or all or substantially all of the
assets of, any PERSON, except (i) stock in a newly formed
SUBSIDIARY of a COMPANY, provided such SUBSIDIARY (a) executes
such documents as the LENDER deems appropriate in order for
such SUBSIDIARY to become a guarantor of the OBLIGATIONS, and
(b) does not have any liabilities or obligations to any PERSON
other than to a COMPANY, and (ii) the COMPANIES may have at any
one time an aggregate amount of $10,000.00 worth of stock in
entities for investment purposes provided that such stock in
any one entity does not exceed five percent (5%) of the issued
and outstanding stock in such entity.
Section 6.9. No Assignment. No COMPANY shall assign or
attempt to assign this AGREEMENT.
Section 6.10. No Alteration Of Structure Or Operations. No
COMPANY shall amend or change materially its capital structure
and
<PAGE>
no COMPANY shall materially change its line or scope of
business, nor engage in business ventures other than those in
which it is presently engaged and those which are not a
material deviation from those in which it is presently engaged.
Section 6.11. No Handling Of Hazardous Substances In
Violation Of Applicable Laws. No COMPANY shall use in its
business or operations, produce as a result or as a by-product
of its business or operations, or store or hold at any site or
location at which it conducts its business or operations, or at
any other real property, HAZARDOUS SUBSTANCES which under any
LAW require special handling, collection, storage, treatment,
disposal, or transportation, unless the COMPANY complies in all
material respects with all requirements of applicable LAWS.
Section 6.12. Unpermitted Uses Of Loan Proceeds. The
BORROWER shall not use any part of the proceeds of the LOAN
hereunder for any purpose which constitutes a violation of, or
is inconsistent with, regulations of the Board of Governors of
the Federal Reserve System, including without limitation, the
purchase or carrying of (or refinancing of indebtedness
originally incurred to purchase or carry) margin securities.
Section 6.13. Subordinated Indenture. The COMPANIES shall
not prepay any INDEBTEDNESS under the SUBORDINATED INDENTURE or
acquire portions of such INDEBTEDNESS which would result in the
aggregate amount of such prepayments and acquisitions to exceed
the amount of One Million Five Hundred Thousand Dollars
($1,500,000.00) (excluding prepayment and acquisitions which
have reduced previously due payments on the sinking fund
established by the SUBORDINATED INDENTURE).
ARTICLE 7
EVENTS OF DEFAULT
The occurrence of any of the following events shall
constitute EVENTS OF DEFAULT and shall entitle the LENDER to
exercise the LENDER'S rights and remedies under Article 8 of
this AGREEMENT.
Section 7.1. Failure To Pay. The failure by the BORROWER
to pay any of the OBLIGATIONS and such failure is not cured
within five (5) BUSINESS DAYS.
Section 7.2. Violation Of Covenants; Failure Of Conditions
Precedent. The occurrence of any of the following: (a) the
failure of the any COMPANY to comply with the covenants
contained in Sections 6.1, 6.2, 6.5 or 6.9 of this AGREEMENT;
(b) any COMPANY shall incur, create, assume or permit to exist
any INDEBTEDNESS in excess of One Hundred Thousand Dollars
($100,000.00) in violation of the terms of Section 6.4 of this
AGREEMENT; (c) Transderm Laboratories Corporation (or any
COMPANY to whom Transderm Laboratories Corporation hereafter
transfers any or all of its real property) shall mortgage,
pledge, grant or permit to exist any lien <PAGE>
upon any of its real property in violation of the terms of
Section 6.3 of this AGREEMENT; (d) the BORROWER shall pledge,
grant or permit to exist any lien upon any of the EQUIPMENT
purchased with proceeds of the LOAN in violation of the terms
of Section 6.3 of this AGREEMENT; (e) any COMPANY shall fail to
comply with any agreement or covenant contained in this
AGREEMENT (other than those specifically set forth above in
this Section 7.2 but including any violation of the terms of
Sections 6.3 or 6.4 other than as specifically provided for in
(b), (c) and (d) above) and such failure is not cured within
fifteen (15) BUSINESS DAYS after written notice from the
LENDER.
Section 7.3. Representation Or Warranty. The failure of
any representation or warranty made by any COMPANY to be true
in any material respect, as of the date made.
Section 7.4. Cross-Default. The occurrence of either of
the following: (a) an acceleration of any other INDEBTEDNESS
owed to the LENDER or any other lender, including, but not
limited to, an acceleration of the INDEBTEDNESS under the
SUBORDINATED DEBENTURE; (b) failure by the COMPANIES to make
payment when due of all sums owed by the COMPANIES to the
LENDER under the revolving line of credit being provided by the
LENDER to the COMPANIES; or (c) a default by any GUARANTOR
under the terms of the GUARANTY AGREEMENT executed by such
GUARANTOR.
Section 7.5. Judgments. Any COMPANY shall suffer final
judgments for the payment of money aggregating in excess of One
Hundred Thousand Dollars ($100,000.00) and shall not discharge
the same within a period of thirty (30) days unless, pending
further proceedings, execution has not been commenced or if
commenced has been effectively stayed.
Section 7.6. Levy By Judgment Creditor. A judgment
creditor of any COMPANY shall obtain possession of any of such
COMPANY'S assets by any means, including but not limited to
levy, distraint, replevin or self-help, and the COMPANIES shall
not remedy same within thirty (30) days thereof.
Section 7.7. Failure To Pay Debts. Any COMPANY shall fail
to pay any debt in excess of One Hundred Thousand Dollars
($100,000.00) which is due and payable, and such failure shall
continue beyond any applicable grace period, unless such
COMPANY holds a reasonably good faith defense to payment and
has set aside reasonable reserves for the payment thereof.
Section 7.8. Involuntary Insolvency Proceedings. The
institution of involuntary INSOLVENCY PROCEEDINGS against any
COMPANY and the failure of any such INSOLVENCY PROCEEDINGS to
be dismissed within sixty (60) days of the institution thereof.
Section 7.9. Voluntary Insolvency Proceedings. The
commencement by any COMPANY of INSOLVENCY PROCEEDINGS.
<PAGE>
Section 7.10. ERISA. If: (a) there occurs an accumulated
funding deficiency with respect to any PLAN and the COMPANIES
or any of its ERISA AFFILIATES fails to correct such
accumulated funding deficiency with respect to any PLAN within
the time prescribed under either Section 412 or Section 4971 of
the CODE, whichever is applicable; (b) there occurs any
PROHIBITED TRANSACTION with respect to any COMPANY or any ERISA
AFFILIATE; (c) there arises a lien under Section 302(f) of
ERISA in favor of any PLAN; (d) any COMPANY or any of its ERISA
AFFILIATES incurs any withdrawal liability with respect to any
MULTIEMPLOYER PLAN; (e) any MULTIEMPLOYER PLAN enters
reorganization (within the meaning of Section 4241(a) of
ERISA); or (f)(i)(A) any PLAN is terminated within the meaning
of Title IV of ERISA, or (B) a trustee is appointed by the
appropriate United States District Court to administer any
PLAN, or (C) PBGC institutes proceedings to terminate any PLAN
or to appoint a trustee to administer any PLAN or (D) any
REPORTABLE EVENT occurs which the LENDER determines indicates
a substantial likelihood that an event described in (A), (B) or
(C) above will occur, and (ii) the benefit liabilities (within
the meaning of Section 4001(a)(16) of ERISA) exceed the market
value of the assets in the fund under the PLAN by five percent
(5%) or more of the COMPANIES' consolidated TANGIBLE NET WORTH.
Section 7.1 Injunction. If a COMPANY is enjoined,
restrained or in any way prevented by court order for more than
thirty (30) calendar days from continuing to conduct all or any
material part of its business affairs.
ARTICLE 8
RIGHTS AND REMEDIES ON THE OCCURRENCE
OF AN EVENT OF DEFAULT
Section 8.1. Lender's Specific Rights And Remedies. In
addition to all other rights and remedies provided by LAW and
the LOAN DOCUMENTS, the LENDER, on the occurrence of any EVENT
OF DEFAULT, may:
a. Accelerate and call due the unpaid principal
balances of the LOAN, and all accrued interest and other sums
due as of the date of the EVENT OF DEFAULT;
b. Impose the default rate of interest provided
in the NOTE, with or without acceleration of the NOTE, until
such time as the EVENT OF DEFAULT is cured;
c. Foreclose or enforce all or any security
interests, mortgage interests, deed of trusts, liens,
assignments, or pledges created by any LOAN DOCUMENT;
<PAGE>
d. Confess judgment or file suit against the
BORROWER on the NOTE or against any or all of the GUARANTORS
under the GUARANTY AGREEMENTS;
e. File suit against any or all of the COMPANIES
on this AGREEMENT, or on any other LOAN DOCUMENT;
f. Seek specific performance or injunctive
relief to enforce performance of the undertakings, duties, and
agreements provided in the LOAN DOCUMENTS, whether or not a
remedy at law exists or is adequate;
g. Exercise any rights of a secured creditor
under the Uniform Commercial Code, as adopted and amended in
Maryland, including the right to take possession of the
COLLATERAL without the use of judicial process or hearing of
any kind and the right to require the BORROWER to assemble the
COLLATERAL at such place as the LENDER may specify; and
h. Set-off any amounts in any account or
represented by any certificate with the LENDER in the name of
the BORROWER or in which the BORROWER has an interest.
Section 8.2. Sale Of Collateral. In addition to any other
remedy provided herein, upon the occurrence of an EVENT OF
DEFAULT, the LENDER, in a commercially reasonable fashion, may
sell at public or private sale or otherwise realize upon, the
whole or, from time to time, any part of all COLLATERAL which
is personal property, or any interest which the BORROWER may
have therein. Pending any such action, the LENDER may collect
and liquidate such COLLATERAL. After deducting from the
proceeds of sale or other disposition of such COLLATERAL all
expenses, including all expenses for legal services, the LENDER
shall apply such proceeds toward the satisfaction of the
OBLIGATIONS. Any remainder of the proceeds after satisfaction
in full of the OBLIGATIONS shall be distributed as required by
applicable LAW. Notice of any sale or other disposition shall
be given to the BORROWER at least five (5) days before the time
of any intended public sale or of the time after which any
intended private sale or other disposition of the COLLATERAL is
to be made, which the BORROWER hereby agrees shall be
commercially reasonable notice of such sale or other
disposition. The BORROWER shall assemble, or shall cause to be
assembled, at the BORROWER'S own expense, the COLLATERAL at
such place or places as the LENDER shall designate. At any
such sale or other disposition, the LENDER may, to the extent
permissible under applicable law, purchase the whole or any
part of the COLLATERAL, free from any right of redemption on
the part of the BORROWER, which right is hereby waived and
released to the extent lawfully permitted. Without limiting
the generality of any of the rights and remedies conferred upon
the LENDER under this Section, the LENDER may, to the full
extent permitted by applicable law: (a) enter upon the
premises of the BORROWER, exclude therefrom the BORROWER or any
PERSON connected therewith, and take immediate possession of
the
<PAGE>
COLLATERAL, either personally or by means of a receiver
appointed by a court of competent jurisdiction, using all
necessary force to do so; (b) at the LENDER'S option, use,
operate, manage, and control the COLLATERAL in any lawful
manner; (c) collect and receive all income, revenue, earnings,
issues, and profits therefrom; and (d) maintain, alter or
remove the COLLATERAL as the LENDER may determine in the
LENDER'S discretion.
Section 8.3. Remedies Cumulative. The rights and remedies
provided in this AGREEMENT and in the other LOAN DOCUMENTS or
otherwise under applicable LAWS shall be cumulative and the
exercise of any particular right or remedy shall not preclude
the exercise of any other rights or remedies in addition to, or
as an alternative of, such right or remedy.
Section 8.4. Proof Of Sums Due On Loan. In any action or
proceeding brought by the LENDER to collect the sums owed on
the LOAN, a certificate signed by an officer of the LENDER
setting forth the unpaid balances of principal, and any accrued
interest, default interest, legal fees, and late charges owed
on the LOAN shall be presumed correct and shall be admissible
in evidence for the purpose of establishing the truth of what
it asserts. If the BORROWER wishes to contest the accuracy of
the figures set forth in any such certificate, the BORROWER
shall have the burden of proving by a preponderance of evidence
that the certificate is inaccurate or incorrect.
Section 8.5. Obligations Are Unconditional. The payment
and performance of the OBLIGATIONS shall be the absolute and
unconditional duty and obligation of the BORROWER, and shall be
independent of any defense or any rights of set-off, recoupment
or counterclaim which the BORROWER might otherwise have against
the LENDER, and the BORROWER shall pay absolutely during the
term of the LOAN the payments of the principal and interest to
be made on account of the LOAN and all other payments required
hereunder, free of any deductions and without abatement,
diminution or set-off other than those herein expressly
provided. Until such time as the OBLIGATIONS have been fully
paid and performed, the BORROWER: (a) shall not suspend or
discontinue any payments provided for herein and in the NOTE;
(b) shall perform and observe all of the BORROWER'S other
covenants and agreements contained in the LOAN DOCUMENTS,
including but not limited to making all payments required to be
made to the LENDER; and (c) shall not terminate or attempt to
terminate the LOAN DOCUMENTS for any cause.
ARTICLE 9
GENERAL CONDITIONS AND TERMS
Section 9.1. Lender Expenses. In connection with the LOAN
and all transactions relating thereto, all LENDER EXPENSES
shall be paid by the BORROWER, whether incurred prior to or
after closing.
<PAGE>
Section 9.2. Incorporation; Construction Of Inconsistent
Provisions. The terms and conditions of the LOAN DOCUMENTS are
incorporated by reference and made a part hereof, as if fully
set forth herein. In the event of any inconsistency between
this AGREEMENT and any other LOAN DOCUMENT, the terms and
provisions of this AGREEMENT shall control.
Section 9.3. Waivers. The LENDER at any time or from time
to time may waive all or any rights under this AGREEMENT or any
other LOAN DOCUMENT, but any waiver or indulgence by the LENDER
at any time or from time to time shall not constitute a future
waiver of performance or exact performance by the COMPANIES.
Section 9.4. Continuing Obligation Of Companies. The
terms, conditions, and covenants set forth herein and in the
LOAN DOCUMENTS shall survive CLOSING and shall constitute a
continuing obligation of the COMPANIES during the course of the
transactions contemplated herein. The obligations of the
COMPANIES under this AGREEMENT shall remain in effect so long
as any OBLIGATION is outstanding, unpaid or unsatisfied between
the BORROWER and the LENDER.
Section 9.5. Binding Obligation. This AGREEMENT shall be
binding upon the parties and their successors and assigns.
Section 9.6. Final Agreement. This AGREEMENT and the LOAN
DOCUMENTS contain the final and entire agreement and
understanding of the parties relating to the subject matter
contained herein.
Section 9.7. Amendment. This AGREEMENT may be amended or
altered only in writing signed by the party to be bound by the
change or alteration.
Section 9.8. Time. Time is of the essence of this
AGREEMENT.
Section 9.9. Choice Of Law. The laws of the State of
Maryland (excluding, however, conflict of law principles) shall
govern and be applied to determine all issues relating to this
AGREEMENT and the rights and obligations of the parties hereto,
including the validity, construction, interpretation, and
enforceability of this AGREEMENT and its various provisions and
the consequences and legal effect of all transactions and
events which resulted in the execution of this AGREEMENT or
which occurred or were to occur as a direct or indirect result
of this AGREEMENT having been executed.
Section 9.10. Consent To Jurisdiction; Agreement As To
Venue. Each COMPANY irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Maryland and of the
United States District Court For The District Of Maryland, if
a basis for federal jurisdiction exists. Each COMPANY agrees
that venue shall be proper in any circuit court of the State of
Maryland selected by
<PAGE>
the LENDER or in the United States District Court For The
District Of Maryland if a basis for federal jurisdiction exists
and waives any right to object to the maintenance of a suit in
any of the state or federal courts of the State of Maryland on
the basis of improper venue or of inconvenience of forum.
Section 9.11. Actions Against Lender. Any action brought
by any COMPANY against the LENDER which is based, directly or
indirectly, on this AGREEMENT or any matter in or related to
this AGREEMENT, including but not limited to the making of the
LOAN or the administration or collection thereof, shall be
brought only in the courts of the State of Maryland. The
COMPANIES may not file a counterclaim against the LENDER in a
suit brought by the LENDER against the COMPANIES in a state
other than the State of Maryland unless under the rules of
procedure of the court in which the LENDER brought the action
or the counterclaim is mandatory, and not merely permissive,
and will be considered waived unless filed as a counterclaim in
the action instituted by the LENDER. Each COMPANY agrees that
any forum other than the State of Maryland is an inconvenient
forum and that a suit brought by a COMPANY against the LENDER
in a court of any state other than the State of Maryland should
be forthwith dismissed or transferred to a court located in the
State of Maryland by that court.
Section 9.12. Number, Gender, And Captions. As used
herein, the singular includes the plural and the plural
includes the singular. The use of any gender applies to all
genders. The captions contained herein are for purposes of
convenience only and are not a part of this AGREEMENT.
Section 9.13. Photocopies Sufficient. A carbon,
photographic, photocopy or other reproduction of a security
agreement or financing statement shall be sufficient as a
financing statement.
Section 9.14. Notices. Any notice required or permitted by
or in connection with this AGREEMENT shall be in writing and
shall be made by facsimile (confirmed on the date the facsimile
is sent by one of the other methods of giving notice provided
for in this Section) or by hand delivery, by Federal Express,
or other similar overnight delivery service, or by certified
mail, unrestricted delivery, return receipt requested, postage
prepaid, addressed to the LENDER or the COMPANIES at the
appropriate address set forth below or to such other address as
may be hereafter specified by written notice by the LENDER or
the COMPANIES. Notice shall be considered given as of the date
of the facsimile or the hand delivery, one (1) BUSINESS DAY
after delivery to Federal Express or similar overnight delivery
service, or three (3) BUSINESS DAYS after the date of mailing,
independent of the date of actual delivery or whether delivery
is ever in fact made, as the case may be, provided the giver of
notice can establish the fact that notice was given as provided
herein. If notice is tendered pursuant to the provisions of
this Section and is refused by the intended recipient thereof,
the notice, nevertheless, shall be considered to
<PAGE>
have been given and shall be effective as of the date herein
provided.
If to the LENDER:
THE FIRST NATIONAL BANK OF MARYLAND
Post Office Box 1867
York, Pennsylvania 17405
ATTN: Garth C. Harding, Vice President
Fax No.: (717) 845-3026
If to the GUARANTORS:
HEALTH-CHEM CORPORATION
1212 Avenue of the Americas
New York, New York 10036
ATTN: Marvin M. Speiser, President
Fax No.: (212) 398-0884
If to the BORROWER:
PACIFIC COMBINING CORP.
Aberdeen Road
Emigsville, Pennsylvania 17318
ATTN: Paul R. Moeller, Vice President-
Finance
Fax No.: (717) 764-5211
Section 9.15. Effective Date. This AGREEMENT shall be
effective as of the date first above written, independent of
the date of execution or delivery hereof.
Section 9.16. Waiver Of Trial By Jury. Each party to this
AGREEMENT agrees that any suit, action, or proceeding, whether
claim or counterclaim, brought or instituted by either party
hereto or any successor or assign of any party on or with
respect to this AGREEMENT or any other LOAN DOCUMENT or which
in any way relates, directly or indirectly, to the LOAN or any
event, transaction, or occurrence arising out of or in any way
connected with the LOAN, or the dealings of the parties with
respect thereto, shall be tried only by a court and not by a
jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. Each COMPANY
acknowledges and agrees that this Section is a specific and
material aspect of this AGREEMENT between the parties and that
the LENDER would not extend the LOAN to the BORROWER if this
waiver of jury trial Section were not a part of this AGREEMENT.
IN WITNESS WHEREOF, the LENDER and the COMPANIES have duly
executed this AGREEMENT under seal as of the date first above
<PAGE>
written. This AGREEMENT may be executed in counterparts and
shall be enforceable against each signatory hereto regardless
of whether all indicated signatories ultimately execute this
AGREEMENT.
WITNESS/ATTEST: LENDER:
THE FIRST NATIONAL BANK OF
MARYLAND,
A National Banking Association
_________________________ By:
_________________________(SEAL)
Garth C. Harding,
Vice President
BORROWER:
PACIFIC COMBINING CORP.,
A California Corporation
_________________________ By:
_________________________(SEAL)
Name: __________________
Title: __________________
GUARANTORS:
HEALTH-CHEM CORPORATION,
A Delaware Corporation
_________________________ By:
_________________________(SEAL)
Name: __________________
Title: __________________
HERCON LABORATORIES CORPORATION,
A Delaware Corporation
_________________________ By:
_________________________(SEAL)
Name: __________________
Title: __________________
HERCULITE PRODUCTS, INC.,
A New York Corporation
_________________________ By: _________________________(SEAL)
Name: __________________
Title: __________________
<PAGE>
WITNESS/ATTEST: HERCON ENVIRONMENTAL CORPORATION,
A Delaware Corporation
_________________________ By:
_________________________(SEAL)
Name: __________________
Title: __________________
TRANSDERM LABORATORIES CORPORATION,
A Delaware Corporation
_________________________ By:
_________________________(SEAL)
Name: __________________
Title: __________________
ACKNOWLEDGMENTS
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY, that on this ____ day of October, 1995,
before me, the undersigned a Notary Public of the State of
Maryland, personally appeared GARTH C. HARDING, who
acknowledged himself to be a Vice President of THE FIRST
NATIONAL BANK OF MARYLAND, a national banking association, and
acknowledged that he, as such Vice President, being authorized
so to do, executed the foregoing instrument for the purposes
therein contained by signing the name of THE FIRST NATIONAL
BANK OF MARYLAND by himself as Vice President.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this _____ day of October, 1995,
before me, the undersigned Notary Public of the State
aforesaid, personally appeared _____________________, and
acknowledged himself to be the ___________________ of PACIFIC
COMBINING CORP., a California corporation, and that he, as such
_____________ being
<PAGE>
authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of PACIFIC
COMBINING CORP. by himself as _________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this _____ day of October, 1995,
before me, the undersigned Notary Public of the State
aforesaid, personally appeared _____________________, and
acknowledged himself to be the ___________________ of HEALTH-
CHEM CORPORATION, a Delaware corporation, and that he, as such
_____________ being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the
name of HEALTH-CHEM CORPORATION by himself as _________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this _____ day of October, 1995,
before me, the undersigned Notary Public of the State
aforesaid, personally appeared _____________________, and
acknowledged himself to be the ______________________ of HERCON
LABORATORIES CORPORATION, a Delaware corporation, and that he,
as such _____________ being authorized so to do, executed the
foregoing instrument for the purposes therein contained by
signing the name of HERCON LABORATORIES CORPORATION by himself
as _________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_____________________
<PAGE>
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this _____ day of October, 1995,
before me, the undersigned Notary Public of the State
aforesaid, personally appeared _____________________, and
acknowledged himself to be the ______________________ of
HERCULITE PRODUCTS, INC., a New York corporation, and that he,
as such _____________ being authorized so to do, executed the
foregoing instrument for the purposes therein contained by
signing the name of HERCULITE PRODUCTS, INC. by himself as
_________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY that on this _____ day of October, 1995,
before me, the undersigned Notary Public of the State
aforesaid, personally appeared _____________________, and
acknowledged himself to be the ______________________ of HERCON
ENVIRONMENTAL CORPORATION, a Delaware corporation, and that he,
as such _____________ being authorized so to do, executed the
foregoing instrument for the purposes therein contained by
signing the name of HERCON ENVIRONMENTAL CORPORATION by himself
as _______________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_____________________
STATE OF _______________, CITY/COUNTY OF _______________, TO
WIT:
I HEREBY CERTIFY that on this _____ day of October, 1995,
before me, the undersigned Notary Public of the State
aforesaid, personally appeared _____________________, and
acknowledged himself to be the ______________________ of
TRANSDERM LABORATORIES CORPORATION, a Delaware corporation, and
that he, as such _____________ being authorized so to do,
executed the foregoing
<PAGE>
instrument for the purposes therein contained by signing the
name of TRANSDERM LABORATORIES CORPORATION by himself as
_________________.
IN WITNESS MY Hand and Notarial Seal.
___________________________(SEAL)
NOTARY PUBLIC
My Commission Expires:
_____________________
<PAGE>
