<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995 Commission File Number 1-6787
HEALTH-CHEM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2682801
(State of Incorporation) (I.R.S. Employer Identification
No)
1212 Avenue of the Americas, 24th Floor, New York, NY 10036
(Address of principal executive offices)
Registrant's Telephone Number: 212-398-0700
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months,
and has been subject to such filing requirements for the past 90 days.
As of April 30, 1995, 7,980,424 shares of Common Stock, $.01 Par Value were
outstanding.
Page 1
<PAGE>
<PAGE>
<TABLE>
HEALTH-CHEM CORPORATION Part I
CONSOLIDATED BALANCE SHEETS Item 1
(In thousands) Page 2
<CAPTION>
<S> March 31, December 31,
ASSETS 1995 1994
<C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 235 $ 624
Accounts receivable, net 5,832 5,224
Inventories (Note 3) 10,710 9,540
Other current assets 1,425 1,097
Total Current Assets 18,202 16,485
PROPERTY, PLANT & EQUIPMENT
Land and buildings 5,696 5,696
Other Property, Plant & Equipment 18,485 18,087
Total Property, Plant & Equipment 24,181 23,783
Less accumulated depreciation & amortization 12,816 12,419
Net Property, Plant & Equipment 11,365 11,364
NON-CURRENT ASSETS
Notes receivable 1,500 1,500
Cash surrender value of life insurance policies 1,846 1,808
Excess of cost over fair value of assets acquired 749 755
Other non-current assets 246 265
Total Non-Current Assets 4,341 4,328
TOTAL ASSETS $33,908 $32,177
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,730 $ 4,215
Accrued expenses and other current liabilities 2,988 3,069
Income taxes payable 633 1,022
Total Current Liabilities 8,351 8,306
LONG-TERM LIABILITIES
10.375% Convertible Subordinated Debentures 11,915 12,500
Long-term bank debt 3,446 1,519
Other long-term debt 200 400
Minority Interest 16 0
Deferred and other long-term income taxes 1,242 741
REDEEMABLE COMMON STOCK 0 0
STOCKHOLDERS' EQUITY
Convertible special stock 7 7
Common stock 145 145
Additional paid in capital 18,281 18,281
Less stockholder notes receivable <188> <188>
Accumulated deficit <1,824> <1,851>
Subtotal 16,421 16,394
Less treasury stock, at cost <7,683> <7,683>
Total Stockholders' Equity 8,738 8,711
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,908 $32,177
<FN>
See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Item 1
(In thousands, except per share amounts) Page 3
<CAPTION>
For The Three Months
Ended March 31,
<S> 1995 1994
REVENUE: <C> <C>
Net sales $11,020 $10,764
Cost of goods sold 7,741 7,396
Gross profit 3,279 3,368
OPERATING EXPENSES:
Selling, general and administrative expense 2,135 1,950
Research and development expense 786 1,066
Net interest expense 340 335
Total operating expenses 3,261 3,351
INCOME FROM OPERATIONS 18 17
Other income - net 87 200
INCOME FROM OPERATIONS BEFORE TAXES AND MINORITY INTEREST 105 217
Income tax provision 67 24
INCOME BEFORE MINORITY INTEREST 38 193
Minority Interest in earnings of subsidiary <16> 0
INCOME BEFORE EXTRAORDINARY GAIN 22 193
Extraordinary gain from repurchase of debentures 4 1
NET INCOME $ 26 $ 194
Earnings per common share (Primary & Fully Diluted)
(Note 4):
Income before extraordinary gain $ 0.00 $ 0.02
Extraordinary gain from repurchase of debentures 0.00 0.00
NET INCOME PER SHARE $ 0.00 $ 0.02
Average number of common and common equivalent
shares outstanding, excluding redeemable
common shares (Note 4)
Primary 7,996 7,467
Fully Diluted 8,000 7,467
<FN>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
CONSOLIDATED CASH FLOW STATEMENTS Item 1
(Unaudited) Page 4
(In thousands)
<CAPTION>
For The Three Months
Ended March 31,
<S> 1995 1994
Cash was Provided by <Used for>: <C> <C>
OPERATIONS:
Income before extraordinary gain $ 22 $ 193
Adjustments to reconcile to net cash provided by
<used for> operations:
Depreciation and amortization 421 405
Deferred income taxes 6 <27>
Minority interest 16 0
Changes in:
Accounts receivable <608> <1,203>
Inventories <1,170> <548>
Other current assets <199> 276
Other non-current assets <38> 101
Accounts payable 515 <56>
Accrued expenses and other current liabilities <687> <165>
Interest and income taxes payable 289 352
Net cash used for operations <1,433> <672>
INVESTING:
Additions to property, plant and equipment <399> <352>
Proceeds on disposals of property, plant and equipment 0 7
Payments received on notes receivable 31 75
Net cash used for investing <368> <270>
FINANCING:
Long-term debt proceeds 3,077 1,400
Long-term debt payments <1,150> <400>
Repurchase of convertible subordinated debentures <515> <82>
Net cash provided by financing 1,412 918
Net Decrease in Cash and Cash Equivalents <389> <24>
Cash and Cash Equivalents at beginning of period 624 460
Cash and Cash Equivalents at end of period $ 235 $ 436
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 58 $ 22
Cash paid during the period for income taxes 119 71
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Item 1
(Unaudited) Page 5
1. Basis of Presentation
The Consolidated Balance Sheet as of March 31, 1995, the Consolidated
Statements of Operations and the Consolidated Cash Flow Statements for the
interim periods ended March 31, 1995 and 1994 have been prepared by the
Company, without audit. In the opinion of the Company, all necessary
adjustments, consisting of normal recurring items, have been made to present
fairly the financial position, results of operations and cash flows at March
31, 1995 and for all periods presented.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's December 31,
1994 Annual Report on Form 10-K. The results of operations for the periods
ended March 31, 1995 and 1994 are not necessarily indicative of the operating
results for the full year.
2. Taxes on Income (In thousands) For the Three Months
Ended March 31,
1995 1994
The provision for income taxes includes:
State and local income taxes $ 8 $ 12
Federal income taxes 61 12
Total $ 69 $ 24
Taxes charged <credited> to operations are
comprised of:
Currently payable $ 63 $ 51
Deferred 6 <27>
Total $ 69 $ 24
Charged to:
Income before extraordinary gain $ 67 $ 24
Extraordinary gain on repurchase of debentures 2 0
Total $ 69 $ 24
A reconciliation of taxes on income to the federal statutory rate is as
follows:
For the Three Months
Ended March 31,
1995 1994
Tax provision at statutory rate $ 38 $ 74
Increase <decrease> resulting from:
Intangibles and officers life insurance premiums 22 18
Proceeds from officers life insurance 0 <81>
State and local taxes, net of federal tax benefit 4 9
Other 5 4
Tax provision $ 69 $ 24
<PAGE>
HEALTH-CHEM CORPORATION Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Item 1
(Unaudited) Page 6
3. Inventories (In thousands)
March 31, 1995 December 31, 1994
Raw materials $ 5,849 $5,222
Finished goods and work-in-process 4,861 4,318
Total Inventory $10,710 $9,540
4. Earnings Per Share
Primary and fully diluted earnings per share are based upon the weighted
average number of common and common equivalent shares outstanding. Shares
issuable upon exercise of dilutive stock options are included in the number of
common and common equivalent shares outstanding for 1995 and 1994.
Subordinated debentures are anti-dilutive for all periods presented.
Accretion of discount on redeemable common stock (redeemed in July 1994) of
$22,500 for the quarter ended March 31, 1994 has been deducted from net income
and income before extraordinary gain for the purposes of computing earnings
per share.
5. Subsequent Event
On April 25, 1995 the Company announced that its Board of Directors has
approved a plan to distribute to its shareholders rights to purchase shares of
its subsidiary, Transderm Laboratories Corporation. Transderm Laboratories is
the parent company of Hercon Laboratories, which develops and manufactures
transdermal pharmaceutical products. In an earlier transaction, Hercon
Laboratories' environmental chemical business was being split off into another
subsidiary of Health-Chem. It is anticipated that Transderm Laboratories
Corporation will trade over the counter.
Following the effectiveness of a registration statement under the Securities
Act of 1933, covering the purchase warrants and the underlying shares of
Transderm Laboratories, warrants to purchase shares of Transderm
Laboratories will be issued to Health-Chem's shareholders of record on a date
to be determined. If all warrants are exercised, approximately 10% of the
common stock will be owned by Health-Chem shareholders. The remainder of
Transderm Laboratories will be owned by Health-Chem Corporation. The
transaction is expected to be completed early in the third quarter of 1995.
<PAGE>
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 7
Liquidity
The following measures of liquidity are derived from the Company's
Consolidated Financial Statements:
March 31, December 31,
1995 1994
------------- ------------
Working Capital (current assets less current
liabilities, in thousands) $9,851 8,179
Current Ratio (current assets/current
liabilities) 2.2 2.0
Quick Ratio (cash & receivables/current
liabilities) .7 .7
Working capital increased $1.7 million from December 31, 1994 to March 31,
1995 due primarily to a $1.7 million increase in current assets. Inventories
increased $1.2 million, accounts receivable, net increased $.6 million, other
current assets increased $.3 million and cash & cash equivalents decreased $.4
million. Inventory growth, principally related to synthetic fabric products,
is expected to decrease over the remainder of 1995 as manufacturing processes
are redesigned and improved as a result of controls inherent to the Company's
new computer system.
Accounts receivable, net increased $.6 million principally reflecting the fact
that the majority of the quarter's sales were in the later part of the
quarter. Cash used by operations and cash generated by financing activities
for the quarter ended March 31, 1995 were both $1.4 million.
The Company expects to meet $0.7 million of debenture interest payments each
April and October and other periodic interest payments out of working capital.
The required $1.5 million sinking fund payment on the Company's subordinated
debentures due on April 15, 1995 was satisfied by application of $.5 million
debentures previously repurchased and by calling for redemption the remaining
$1 million. The Company owns an additional $.6 million of debentures which
may be used to meet the 1996 sinking fund requirements.
The Company has not paid cash dividends and does not anticipate paying such
dividends on its common stock in the foreseeable future.
Capital Resources
At March 31, 1995, the Company had borrowed $3.4 million on its $6.0 million
line of credit from the First National Bank of Maryland. The credit line bears
interest, at the Company's option, at either the bank's prime rate or the
London Inter-Bank Offer Rate, is secured by the Company's assets with the
exception of real estate, and expires in July of 1997. Subsequent to March 31,
1995, the Company borrowed an additional $1.8 million on the line of credit
increasing the balance to $5.2 million at April 30, 1995. It is the Company's
practice to utilize the line of credit to fund current obligations when
required and to pay down the line of credit when funds become available.
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 8
In efforts to meet sinking fund requirements the Company purchased, in market
transactions throughout the first quarter of 1995, $0.5 million principal
amount of its 10.375% convertible subordinated debentures for $0.5 million.
Additional debentures may be repurchased and retired or, if debentures are not
available for purchase, the Company may call for redemption the amount
required to meet sinking fund requirements.
The Company's debt to equity ratio was 3:1 at March 31, 1995 and at December
31, 1994.
Management believes anticipated expenditures in 1995 such as capital
expenditures, debenture repurchasing, research and development costs and other
operating expenses will be funded with cash generated from operations,
supplemented by the utilization of the line of credit. The Company
anticipates capital expenditures for property plant and equipment in 1995 to
be approximately $3.5 million to $4.0 million. These capital expenditures
will primarily consist of manufacturing tooling and equipment and leasehold
improvements.
Results of Operations
Sales increased $.3 million, or 2% for the three months ended March 31, 1995
as compared to the same period for 1994. The increase is due primarily to a
$.6 million increase in the sales of transdermal nitroglycerin patches,
offset by a $.2 million decrease in the sales of environmental products and a
$.1 million decrease in synthetic fabrics sales. Transdermal nitroglycerin
patch sales have increased due partially to market demand and partially due to
distributors adjusting their inventories. Environmental product sales
decreased $.2 million due primarily to the loss of a customer for the Japanese
Beetle Lures. The Company plans to rebuild this business through new
distributors. Synthetic fabrics sales decreased $.1 million due principally
to decrease in customer demand.
Gross profit decreased $.1 million, or 3% for the three months ended March 31,
1995 as compared to the same period in 1994. The decrease is due primarily to
decreased gross profits from sales of synthetic fabrics of $.5 million and
environmental products of $.2 million, offset by increased gross profits from
sales of transdermal nitroglycerin patches of $.6 million. Gross profit as a
percent of sales was 30% for the three months ended March 31, 1995 as compared
to 31% for the same period in 1994. This decrease was primarily the result of
increased raw material and overhead costs related to sales of synthetic
fabrics and lower gross margins for the Company's environmental products.
Selling, general and administrative expenses increased $.2 million for the
three months ended March 31, 1995 as compared to the corresponding period in
1994. The increase is due primarily to a $.2 million non-recurring reduction
of 1994 expenses from a receipt for life insurance proceeds relating to a
former officer.
<PAGE>
HEALTH-CHEM CORPORATION Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF Item 2
FINANCIAL CONDITION & RESULTS OF OPERATIONS Page 9
Research & Development expense decreased $.3 million for the three months
ended March 31, 1995 as compared to the same period in 1994 due primarily to
lower outside testing expenses related to pharmaceutical product research.
The Company views this decrease as temporary and anticipates research and
development expenses related to pharmaceutical products in 1995 to equal or
exceed 1994 levels as new studies for patch applications are developed from
initial formulation work through commercial scale up and current studies
advance through various phases of completion.
Interest expense is approximately the same for the three months ended March
31, 1995 as compared to the same period in 1994. Total debt at March 31, 1995
is higher as compared to March 31, 1994, however the average interest rate is
lower. The balance on the Company's long-term line of credit was $3.4 million
at March 31, 1995 as compared to $1 million at the end of the same period in
1994. This increase was partially offset by a $1 million decrease in the
balance of the Company's subordinated debentures from the prior period.
Other income - net decreased $.1 million for the three months ended March 31,
1995 as compared to the corresponding period in 1994. The decrease is due
primarily to a 1994 non-recurring sale of equipment.
Income from operations before taxes and minority interest decreased $.1
million for the three months ended March 31, 1995 as compared to the
corresponding period in 1994 due primarily to the net decrease in other
income. Income tax provision or benefit varies with the amount and nature of
the components of income or loss from operations before income taxes (See Note
2). In 1994, the tax provision was lower due primarily to a nontaxable
receipt relating to life insurance proceeds. Minority interest in earnings of
subsidiary represents a shareholder's interest in the earnings of a subsidiary
which now has a positive net worth.
The results of operations for the periods ended March 31, 1995 and 1994 are
not necessarily indicative of the operating results for the full years.
<PAGE>
<PAGE>
Part II
Item 1
Page 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
10.1 Employment Agreement between Marvin M. Speiser and the Company dated
April 4, 1995. Filed herewith on page 11.
10.2 Employment Agreement between Robert D. Speiser and the Company dated
April 4, 1995. Filed herewith on page 21.
(b) During the three months ended March 31, 1995 the Company did not file any
reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities 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
May 11, 1995 /s/ Marvin M. Speiser
By: Marvin M. Speiser
Chairman of the Board and
President (Principal
Executive Officer)
/s/ Paul R. Moeller
By: Paul R. Moeller
Vice President - Finance
(Principal Financial Officer)
(Principal Accounting Officer)
<PAGE>
EMPLOYMENT AGREEMENT
(Marvin M. Speiser)
This Agreement is made as of this 4th day of April, 1995, by and between
Health-Chem Corporation, a Delaware corporation (the "Employer") and Marvin M.
Speiser (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive has served the Employer as its Chairman of the
Board and President since 1976; and
WHEREAS, the Employer wishes to continue to secure for itself the
Executive's extensive experience, outstanding abilities and services and to
enhance the Executive's abilities to act in the best interest of the Employer
and its stockholders during periods of uncertainty relating to the structure
or ownership of the Employer or its subsidiaries, without being influenced by
any uncertainties with respect to Executive's position with the Employer; and
WHEREAS, to achieve this purpose, the Board of Directors of the Employer
considered and approved this Agreement to be entered into with the Executive
as being in the best interests of the Employer and its stockholders; and
WHEREAS, the Executive desires to provide such services under the terms
and conditions hereof;
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
1. Effective Date. The "Effective Date of this Agreement" shall be the
date set forth above.
2. Employment. (a) The Employer hereby agrees to continue the
Executive in its employ for a period of sixty (60) months commencing on the
Effective Date of this Agreement (the "Employment Period"), with the same
director and officer titles, duties and responsibilities as in effect
immediately prior to the Effective Date of this Agreement, and in such other
executive capacity within the New York City Metropolitan area as the
Employer's Board of Directors may reasonably request. The Executive agrees
that during the Employment Period he shall continue to devote such time to his
executive duties as necessary for the proper performance of his duties and
shall perform such duties faithfully, diligently and to the best of his
ability during the Employment Period, provided, however, that Executive's
continued service for other corporations and entities, and on any other
corporate, civic, charity or foundation board shall not be deemed to breach
Executive's obligations hereunder.
<PAGE>
<PAGE> (b) The Employment Period shall be automatically extended for
consecutive twelve (12) month periods upon each anniversary of the Effective
Date unless not less than ninety (90) days prior thereto the Employer or
Executive notifies the other party in writing that there shall be no extension
or further extension of this Agreement.
3. Compensation, Compensation Plans, Benefits and Perquisites. During
the Employment Period, the Employer shall pay and the Executive shall be
entitled to receive:
(a) An annual salary at a rate which is not less than $415,552 (of
which $120,000 shall be in consideration of Executive's services as an
executive officer of Herculite (as defined below)), with the opportunity for
increases from time to time thereafter which are in accordance with the
regular practices of the Employer or its affiliates (which for purposes of
this Agreement, shall mean any corporation or enterprise which, as of a given
date, is a member of the same controlled group of corporations, the same group
of trades or businesses under common control or the same affiliated service
group, determined in accordance with Section 414(b), (c), (m) or (o) of the
Code (as defined in Paragraph 8(a) hereof), as is the Employer) with respect
to executives with comparable duties; provided, however, that the rate of such
annual salary shall be increased by at least four percent (4%) on each first
day of September which occurs during the Employment Period and after a Change
in Control.
(b) In each calendar year during which the Employment Period runs,
a bonus determined by the Board of Directors of the Employer, which bonus
shall not be less than an amount equal to the sum of (i) ten percent (10%) of
the amount by which the Net Income of Herculite Products, Inc., or any
successor thereto ("Herculite") for such calendar year exceeds the average of
the Net Income of Herculite for the preceding two calendar years; and (ii) ten
percent (10%) of the amount by which the Net Income of the Pharmaceutical
Division of Hercon Laboratories Corporation ("Hercon"), or any successor to
such pharmaceutical division or business ("Hercon Pharmaceutical") for such
calendar year exceeds the average of the Net Income of Hercon Pharmaceutical
for the preceding two calendar years, plus (iii) ten percent (10%) of the
amount by which the Net Income of the Environmental Division of Hercon, or any
successor to such environmental division or business ("Hercon Environmental")
for such calendar year exceeds the average of the Net Income of Hercon
Environmental for the preceding two calendar years, provided further, that
after a Change in Control the annual bonus determined and payable hereunder
shall not be less than the average of the three highest annual bonus amounts
paid to the Executive, provided that in the event of a Change in Control
involving Herculite, Hercon Pharmaceutical or Hercon Environmental only, then
such minimum annual bonus amount shall apply only to that portion of the bonus
attributable to Herculite, Hercon Pharmaceutical or Hercon Environmental, as
the case may be. For the purposes of this paragraph, "Net Income" for any
calendar year means the net earnings of Herculite, Hercon Pharmaceutical or
Hercon Environmental as the case may be, for such calendar year and before
provisions for all taxes on income and for bonuses under this Agreement and
for bonuses paid pursuant to any other arrangements providing for bonuses
based on income by and between any other employee and Herculite, Hercon
Pharmaceutical or Hercon Environmental, as the case may be, and with such
adjustments for any unusual or non-recurring items of income or loss not
arising in the ordinary course of business as the Board of Directors of the
<PAGE>
Employer in its sole discretion may determine. The Employer shall pay said
bonus provided for under this paragraph to the Executive within one hundred
(100) days after the end of such year.
(c) Stock options or other equity incentive awards and any other
bonus incentive compensation plans maintained from time to time by the
Employer or its affiliates during the Employment Period and in which
executives with comparable duties are eligible to participate. In addition,
in the event that the Employer shall issue, or shall directly or indirectly
cause a subsidiary of the Employer to issue, to the security holders of the
Employer or other persons any securities representing a direct or indirect
interest in Pharmaceutical Division or business of Hercon, then the Employer
shall upon the date of such issuance cause the entity (the "Issuer") to which
such issued securities relate to grant to Executive an option to purchase
shares of the common equity of the Issuer. The number of shares of common
equity to be covered by such option shall equal that number which would
represent ten percent of the number of shares of common equity then
outstanding, assuming for such purpose, that all shares of common equity
issuable upon the exercise or conversion of all the outstanding common equity
equivalents (including and any options granted to officers, directors or
employees of the Employer or Issuer) were issued and outstanding. The
purchase price per share will be equal to the fair market value of such
shares as of the date of grant and the option shall be exercisable in full on
the first anniversary of the date of grant, subject to acceleration in the
event of a Change in Control. The option will expire ten years from the date
of grant, subject to earlier termination in circumstances similar to those
applicable to options granted under the Employer's 1995 Performance Equity
Plan and forfeiture of the value of the option in the event Executive enters
into competitive conduct with the Employer, its subsidiaries or the Issuer, or
its subsidiaries. The Employer shall cause the Issuer to enter into an option
agreement effective as of the grant date which shall reflect the terms and
provisions of this Paragraph 3(c).
(d) Benefits under any group or executive medical, dental,
disability, life insurance, retirement, profit sharing, thrift and other plans
and programs, including nonqualified and deferred compensation plans and
programs, maintained from time to time by the Employer or its affiliates
during the Employment Period and in which executives with comparable duties
are eligible to participate.
(e) Premiums on the whole-life insurance policy taken out in June
1993 on the lives of Executive and his spouse, Laura G. Speiser provided, that
upon the second-to-die of Executive and his spouse, the Employer shall be
entitled to receive from the proceeds of such policy an amount equal to the
aggregate amount of premiums previously paid by the Employer with respect to
such policy, and, provided further, in the event that prior to the death of
the second-to-die the policy is surrendered for the cash value thereof, such
cash value shall be paid to the Employer.
(f) Vacation, perquisites and reimbursement of reasonable business
expenses to the extent provided by the Employer or its affiliates from time to
time during the Employment Period to executives with comparable duties, but in
<PAGE>
no event shall such vacations, perquisites or reimbursements be less favorable
than the vacation, perquisites and reimbursement of reasonable business
expenses to which he was entitled immediately prior to the Effective Date of
this Agreement (including, but not limited to, company car and allowances,
club memberships and dues, subscriptions and travel).
(g) Upon the Executive's retirement on or after January 1, 2000 (the
"Retirement Date"), Executive shall be entitled to receive an annual
supplemental pension benefit ("Supplemental Pension"). The amount of the
annual Supplemental Pension shall be equal to 60% of Executive's final base
salary, which, for this purpose, shall mean the highest nominal annual salary
paid to the Executive by the Employer during the period commencing on the
Effective Date of this Agreement and ending on the Retirement Date. The
Supplemental Pension shall be paid in monthly installments for a period of 120
months, commencing on the later of the Retirement Date or the January 1 next
following the Executive's retirement. In the event of the Executive's death
while receiving such payments, a lump sum equal to the present value of the
remaining payments (determined on the basis of the Prime Rate (as defined in
Paragraph 9(a) hereof) as in effect on the first day of the month in which the
Executive's death occurs) shall be paid to his designated beneficiary, or in
the absence of a designated beneficiary, to his estate. In the event the
Executive's employment terminates prior to the Retirement Date for reasons
other than death or those that constitute a "termination" within the meaning
of Paragraph 4 hereof, then the amount of the annual Supplemental Pension
payable at the Retirement Date shall be prorated to reflect the actual period
of service from December 31, 1994 to the date of termination of employment, as
compared to the expected period of service from December 31, 1994 to the
Retirement Date. No proration will be applicable, however, if such
termination of employment is due to the death of the Executive or in
circumstances which constitute a termination under Paragraph 4 hereof. In
the event of the Executive's death, a lump sum payment equal to the present
value (determined as described above) of the payments that would have
commenced on the Retirement Date shall be paid to his designated beneficiary,
or in the absence of a designated beneficiary, to his estate. In the event of
a termination of employment prior to the Retirement Date, the Executive may
elect to commence the Supplemental Pension as of the January 1 next following
the date of such termination. The amount of the payments shall be adjusted,
however, such that the present value of the Supplemental Pension commencing
at such earlier date is equal to the present value of the Supplemental Pension
that would have commenced on the Retirement Date. The present value shall be
based on the Prime Rate as in effect on the December 1 immediately preceding
the January 1 on which such payments are to commence.
4. Termination During Employment Period.
(a) For purposes of this Agreement, the term "termination" shall
mean (i) termination by the Employer of the employment of the Executive with
the Employer and all of its affiliates for any reason other than death,
disability or "cause" (as defined below), or (ii) resignation of the Executive
for "constructive discharge" (as defined below).
(b) The term "constructive discharge" shall mean the Executive's
resignation from the Employer and all of its affiliates upon any one of the
following:
<PAGE>
(i) the failure of the Employer to pay or provide the
compensation, benefits and perquisites contemplated by this Agreement;
(ii) there shall have occurred a material diminution in the
Executive's duties and responsibilities from those in effect prior to the
Effective Date of this Agreement;
(iii) the Employer changes the Executive's primary employment
location to a place that is outside the New York City Metropolitan area;
and/or
(iv) at any time for any reason prior to the first anniversary
of a Change in Control.
(c) The term "cause" means (i) felony conviction resulting from an
act or acts of dishonesty or moral turpitude, other than a felony predicated
upon the Executive's vicarious liability or (ii) the Executive's continued and
willful failure to substantially perform his duties under this Agreement. For
purposes of this paragraph, no act or failure to act on the Executive's part
will be considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or omission was in
the interests of the Employer or not opposed to the interests of the Employer.
5. Confidentiality. The Executive agrees that during and after the
Employment Period, he shall retain in confidence any confidential information
known to him concerning the Employer and its affiliates and their respective
businesses for as long as such information is not publicly disclosed.
6. Termination Benefits. In the event of a termination of the Executive
during the Employment Period, the Employer shall provide and the Executive
shall be entitled to receive the following:
(a) The Executive shall, notwithstanding such termination, be
entitled to continue to receive salary payments for sixty (60) months from the
date of termination (which sixty (60) month period shall be treated hereunder
as a continuation of the Employment Period) at the greater of the rate
required by Paragraph 3(a) and that in effect immediately prior to
termination.
(b) In addition to the payments under (a) above, the Executive shall
also receive bonus payments with respect to each annual bonus period during
such sixty (60) month period, including a pro rata payment for the calendar
year in which such sixty (60) month period ends, based upon the average annual
cash bonus described in Paragraph 3(b). Such payment, if any, shall be made
within the period set forth in Paragraph 3(b).
<PAGE>
(c) The Employer shall maintain in full force and effect for the
Executive's continued benefit all of the other employee benefit plans,
programs and arrangements required by Paragraphs 3(c) (option and equity
incentive plans which, for this purpose, shall include Executive's ability to
exercise outstanding options), 3(d) (medical insurance, profit sharing and
other employee benefit plans, programs or arrangements), 3(e) (life insurance
premiums) and perquisites (but not vacation pay or expense reimbursements)
required by Paragraph 3(f), to which he would have been entitled under all
such plans, programs or arrangements maintained by the Employer if he had
remained in the employ of the Employer through the remainder of the Employment
Period (as extended in Section 6(a) above), or if such continuation is not
possible under the terms and provisions of such plans, programs or
arrangements, the Employer shall arrange to provide benefits substantially
similar to those which the Executive (and, to the extent applicable, his
dependents) would have been entitled to receive if the Executive had remained
a participant in such plans, programs or arrangements for such period. In
addition to the foregoing, coverage under the Employer's group health plans
shall continue after the extended Employment Period for the life of the
Executive and his spouse at no cost to such Executive or spouse.
(d) From and after the date of a termination until full
satisfaction of the obligations of the Employer hereunder and under the plans,
programs and arrangements referred to herein and under any other agreement
with respect to which Employer may be obligated to make post-employment
payments to the Executive, the Employer shall maintain a grantor trust in form
and substance reasonably acceptable to Executive to assist the Employer in the
discharge of its obligations hereunder and under any other nonqualified,
deferred compensation plan maintained by the Employer under which Executive
has an interest. The Employer shall deposit assets and make contributions
into the grantor trust in amounts necessary to maintain the assets of the
grantor trust at a level equal to the present value of the obligations of the
Employer to the Executive under this Agreement and any such plans, programs or
arrangements. Such amounts due shall be paid from the grantor trust or by the
Employer directly, in which case the Employer shall be entitled to
reimbursement form the grantor trust.
7. Supplemental Compensation.
(a) If it is determined (in the reasonable opinion of independent
public accountants then regularly retained by Employer in consultation with
tax counsel acceptable to Executive), that any amount payable to Executive by
Employer under this Agreement or any other plan, program or agreement under
which Executive participates or is a party would constitute an "Excess
Parachute Payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), subject to the excise
tax imposed by Section 4999 of the Code, as amended from time to time (the
"Excise Tax"), Employer shall pay to Executive the amount (a "Gross-Up
Payment") of such Excise Tax and all Excise Tax, federal and state income,
payroll (such as Social Security and Medicare), or other taxes with respect to
the payment of the amount of such Excise Tax including all such taxes with
respect to any such additional amount. If no determination by the Employer's
accountants is made prior to the time a tax return reflecting amounts subject
to Code Section 4999 is required to be filed by Executive, Executive shall be
entitled to receive a Gross-Up Payment from the Employer calculated on the
<PAGE>
basis of the amounts subject to Code Section 4999 reported on such tax return,
within 10 days of the filing of such return. If at a later date, the Internal
Revenue Service assesses a deficiency against Executive for the Excise Tax
with respect to any amount paid to Executive under this Agreement or any other
plan, program or agreement under which Executive participates or is a party
greater than that which was determined at the time such amounts were paid,
Employer shall pay to Executive the amount of such Excise Tax plus any
interest, penalties, professional fees or expenses incurred by Executive as a
result of such assessment, together with all Excise Tax, federal and state
income, payroll or other taxes with respect to the payment of the amount of
such Excise Tax, interest, penalties, professional fees or expenses, including
all such taxes with respect to any such additional amount. The highest
effective marginal tax rate (determined by taking into account any reduction
in itemized deductions and/or exemptions attributable to the inclusion of the
additional amounts payable under this Paragraph 7 in the Executive's adjusted
gross or taxable income) applicable to individuals at the time of payment of
such amounts will be used for purposes of determining the federal and state
income and other taxes with respect thereto.
8. No Obligation to Mitigate Damages. The Executive shall not be
obligated to seek other employment in mitigation of amounts payable or
arrangements made under the provisions of this Agreement and the obtaining of
any such other employment shall in no event effect any reduction of the
Employer's obligations under this Agreement.
9. Enforcement; Arbitration.
(a) In the event the Employer shall fail to pay any amounts due to
Executive or any successor under this Agreement or any plan, program or
arrangement referred to herein as they come due, the Employer agrees to pay
interest on such amounts at the prime rate of interest as from time to time
announced by Chemical Bank as its prime rate (the "Prime Rate") plus four
percent (4%) per annum until paid.
(b) Each of the Employer and the Executive or any successor shall
have the right and option to elect to have any dispute or controversy arising
under or in connection with this Agreement, or any plan, program or
arrangement referred to herein, or any breach thereof, settled exclusively by
arbitration, conducted before an arbitrator in accordance with rules of the
American Arbitration Association then in effect. Judgment may be entered on
the award of the arbitrator in any court having jurisdiction. Any such
arbitration shall be held in New York, New York.
(c) The Employer shall pay all reasonable legal fees, costs of
litigation, and other reasonable expenses incurred by the Executive or any
successor who is successful pursuant to legal judgment, arbitration or
settlement in a challenge resulting from the Employer's refusal to pay any
amounts due under this Agreement or any plan, program or arrangement referred
to herein to which it is determined that the Executive or successor is
entitled, or as a result of the Employer's contesting the validity,
enforceability or interpretation of this Agreement or any such plan, program
or arrangement.
<PAGE>
(d) Each of the Employer or the Executive or any successor shall
provide written notice ("initial notice") at least fifteen (15) business days
prior to the commencement of any action under this Agreement or any plan,
program or arrangement referred to herein, which initial notice shall indicate
whether such party is invoking arbitration pursuant to Paragraph 10(b) above.
If such party is not electing to invoke arbitration, then the other party may
by written notice within ten (10) business days following receipt of the
initial notice elect to invoke arbitration pursuant to said Paragraph 9(b).
10. Indemnification. In the event that legal action is instituted
against Executive during or after the term hereof by a third party (or
parties) based on the performance or nonperformance by Executive of his duties
hereunder, the Employer will assume the defense of such action by its attorney
or attorneys selected by the Employer reasonably satisfactory to the Executive
and advance the costs and expenses thereof (including reasonable attorneys'
fees) without prejudice to or waiver by the Employer of its rights and
remedies against Executive. In the event that there is a final judgment
entered against Executive in any such litigation, and Employer's Board of
Directors determines that Executive should, in accordance with its charter,
By-Laws, or insurance reimburse the Employer, Executive shall be liable to
Employer for all such costs and expenses paid or incurred by it in the defense
of any such litigation (the "Reimbursement Amount"). The Reimbursement Amount
shall be paid by Executive within thirty (30) days after rendition of the
final judgment. The Employer shall be entitled to set off the reimbursement
amount against all sums which may be owed or payable by the Employer to
Executive hereunder or otherwise. The parties shall cooperate in the defense
of any asserted claim, demand or liability against Executive or the Employer
or its subsidiaries or affiliates. The term "final judgment" as used herein
shall be defined to mean the decision of a court of competent jurisdiction,
and in the event of an appeal, then the decision of the appellate court, after
petition for rehearing has been denied, or the time for filing the same (or
the filing of further appeal) has expired.
The rights to indemnification under this Paragraph 10 shall be in
addition to any rights which Executive may now or hereafter have under the
charter or by-laws of the Employer or any of its affiliates, under any
insurance contract maintained by the Employer or any of its affiliates or any
agreement between Executive and the Employer or any of its affiliates.
11. Payments in the Event of Disability or Death. Upon the permanent
disability or death of the Executive prior to a termination, the Employer
shall continue to pay to the Executive, or if applicable, to his
representative or designated beneficiary (or failing such designation, the
executor of his estate), the compensation to which Executive would have been
entitled under this Agreement for a period of one (1) year following such
disability or death. Upon the death of the Executive after a termination has
occurred, then the beneficiary designated by the Executive or, if no
beneficiary has been designated, his executor, shall be entitled to a lump sum
death benefit equal to the present value of the payments that were remaining
to be paid under Paragraphs 6(a) and (b) as of the date of death. Such lump
sum present value payment shall be determined using an interest rate per annum
equal to the Prime Rate on the first business day of the month in which the
Executive's death occurred and shall be paid within 30 days of the date of
<PAGE>
death. Such payment shall be in addition to the benefits to be provided to
Executive's surviving spouse under Paragraphs 3(d) and 3(e) and to any other
benefit provided by the Employer or under any plan, program or arrangement
maintained by the Employer upon Executive's death.
12. Change in Control. As used in this Agreement, a "Change in Control"
shall be deemed to occur (a) when the Employer acquires actual knowledge that
any person, as such term is used in the Exchange Act, including Section
14(d)(2) thereof, (other than (i) any employee benefit plan established or
maintained by the Employer or any of its subsidiaries, (ii) Executive or any
member of his immediate family or any affiliate of Executive or any member of
his immediate family, and (iii) any person who is deemed to be the beneficial
owner of any securities of the Employer to which any person in clause (i) or
(ii) above are and remain beneficial owners, including, without limitation,
any person that is a member of a group (as defined in said Section 14(d)(2) of
the Exchange Act) in which any person defined in clause (i) or (ii) above is
also a member) is or becomes the beneficial owner (as defined in Rule 13d-3 of
the Exchange Act), directly or indirectly, of securities of the Employer
representing 25% or more of the combined voting power of the Employer's then
outstanding securities, (b) upon the first purchase of the Employer's Common
Stock pursuant to a tender or exchange offer (other than a tender or exchange
offer made by the Employer or an employee benefit plan established or
maintained by the Employer or any of its subsidiaries), (c) upon the approval
by the Employer's stockholders of (i) a merger or consolidation of the
Employer with or into another corporation (other than a merger or
consolidation in which the Company is the surviving corporation and which does
not result in any capital reorganization or reclassification or other change
in the Employer's then outstanding shares of Common Stock), (ii) a sale or
disposition of all or substantially all of the Employer's assets, or (iii) a
plan of liquidation or dissolution of the Employer, or (d) if during any
period of two (2) consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Employer cease for any reason
to constitute at least two-thirds thereof, unless the election or nomination
for the election by the Employer's stockholders of each new director was
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period. For purposes of
Paragraphs 3(a) and 3(c) hereof, "Change in Control" shall also mean and be
deemed to have occurred with respect to Herculite, Hercon Pharmaceutical or
Hercon Environmental, respectively, upon a direct or indirect sale or
disposition of all or substantially all of the assets of Herculite, Hercon
Pharmaceutical or Hercon Environmental, as the case may be, to any person
other than the Employer or one of its subsidiaries.
13. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent
by registered or certified mail to the Executive at the last address he has
filed in writing the Employer or, in the case of the Employer, at its
principal executive offices.
14. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
<PAGE>
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by
operation of law, except by will or the laws of descent and distribution.
15. Governing Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of New York.
16. Amendment. This Agreement may be amended or cancelled by mutual
agreement of the parties in writing without the consent of any other person
and, so long as the Executive lives, no person, other than the parties hereto,
shall have any rights under or interest in this Agreement or the subject
matter hereof.
17. Binding Effect; Successors. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the Employer
and any successor of the Employer and to the benefit of Executive's executors,
administrators, legal representatives, heirs and legatees. The Employer shall
require any successor or assignee, whether direct or indirect, by purchase,
merger, consolidation or otherwise, expressly and unconditionally to assume
and agree to perform the Employer's obligations under this Agreement,
whereupon such successor or assignee shall become the Employer hereunder.
18. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Employer has
caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
_______________________________________________
Executive
HEALTH-CHEM CORPORATION, a Delaware Corporation
By: __________________________________________
Its: __________________________________________
ATTEST:
___________________________________
Secretary
<PAGE>
EMPLOYMENT AGREEMENT
(Robert D. Speiser)
This Agreement is made as of this 4th day of April, 1995, by and between
Health- Chem Corporation, a Delaware corporation (the "Employer") and Robert
D. Speiser (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive has served the Employer as an executive officer
since 1980 and as President of its Hercon Laboratories Corporation subsidiary
since 1990; and
WHEREAS, the Employer wishes to continue to secure for itself the
Executive's extensive experience, outstanding abilities and services and to
enhance the Executive's abilities to act in the best interest of the Employer
and its stockholders during periods of uncertainty relating to the structure
or ownership of the Employer or its subsidiaries, without being influenced by
any uncertainties with respect to Executive's position with the Employer; and
WHEREAS, to achieve this purpose, the Board of Directors of the Employer
considered and approved this Agreement to be entered into with the Executive
as being in the best interests of the Employer and its stockholders; and
WHEREAS, the Executive desires to provide such services under the terms
and conditions hereof;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties hereto agree as follows:
1. Effective Date. The "Effective Date of this Agreement" shall be the
date set forth above.
2. Employment. (a) The Employer hereby agrees to continue the
Executive in its employ for a period of sixty (60) months commencing on the
Effective Date of this Agreement (the "Employment Period"), with the same
director and officer titles, duties and responsibilities as in effect
immediately prior to the Effective Date of this Agreement, and in such other
executive capacity within the New York City Metropolitan area as the
Employer's Board of Directors may reasonably request. The Executive agrees
that during the Employment Period he shall continue to devote such time to his
executive duties as necessary for the proper performance of his duties and
shall perform such duties faithfully, diligently and to the best of his
ability during the Employment Period, provided, however, that Executive's
continued service for other corporations and entities, and on any other
corporate, civic, charity or foundation board shall not be deemed to breach
Executive's obligations hereunder.
<PAGE>
<PAGE>
(b) The Employment Period shall be automatically extended for
consecutive twelve (12) month periods upon each anniversary of the Effective
Date unless not less than ninety (90) days prior thereto the Employer or
Executive notifies the other party in writing that there shall be no extension
or further extension of this Agreement.
3. Compensation, Compensation Plans, Benefits and Perquisites. During
the Employment Period, the Employer shall pay and the Executive shall be
entitled to receive:
(a) An annual salary at a rate which is not less than $223,668 (of
which $104,000 shall be in consideration of Executive's services as an
executive officer of Hercon (as defined below)), with the opportunity for
increases from time to time thereafter which are in accordance with the
regular practices of the Employer or its affiliates (which for purposes of
this Agreement, shall mean any corporation or enterprise which, as of a given
date, is a member of the same controlled group of corporations, the same group
of trades or businesses under common control or the same affiliated service
group, determined in accordance with Section 414(b), (c), (m) or (o) of the
Code (as defined in Paragraph 8(a) hereof), as is the Employer) with respect
to executives with comparable duties; provided, however, that the rate of such
annual salary shall be increased by at least four percent (4%) on each first
day of September which occurs during the Employment Period and after a Change
in Control.
(b) In each calendar year during which the Employment Period runs,
a bonus determined by the Board of Directors of the Employer, which bonus
shall not be less than an amount equal to ten percent (10%) of the amount by
which the Net Income of the pharmaceutical division of Hercon Laboratories
Corporation ("Hercon"), or any successor to such pharmaceutical business
("Hercon Pharmaceutical") for such calendar year exceeds the average of the
Net Income of Hercon Pharmaceutical for the preceding two calendar years,
provided that after a Change in Control of Hercon Pharmaceutical, the annual
bonus determined and payable hereunder shall not be less than the average of
the three highest annual bonus amounts paid to the Executive. For the
purposes of this paragraph, "Net Income" for any calendar year means the net
earnings of Hercon Pharmaceutical for such calendar year and before provisions
for all taxes on income and for bonuses under this Agreement and for bonuses
paid pursuant to any other arrangements providing for bonuses based on income
by and between any other employee and Hercon Pharmaceutical, as the case may
be, and with such adjustments for any unusual or non-recurring items of income
or loss not arising in the ordinary course of business as the Board of
Directors of the Employer in its sole discretion may determine. The Employer
shall pay said bonus provided for under this paragraph to the Executive within
one hundred (100) days after the end of such year.
(c) Stock options or other equity incentive awards and any other
bonus incentive compensation plans maintained from time to time by the
Employer or its affiliates during the Employment Period and in which
executives with comparable duties are eligible to participate. In addition,
in the event that the Employer shall issue, or shall directly or indirectly
cause a subsidiary of the Employer to issue, to the security holders of the
<PAGE>
Employer or other persons any securities representing a direct or indirect
interest in Hercon Pharmaceutical, then the Employer shall upon the date of
such issuance cause the entity (the "Issuer") to which such issued securities
relate to grant to Executive an option to purchase shares of the common equity
of the Issuer. The number of shares of common equity to be covered by such
option shall equal that number which would represent ten percent of the number
of shares of common equity then outstanding, assuming for such purpose, that
all shares of common equity issuable upon the exercise or conversion of all
then outstanding common equity equivalents (including this option and any
options granted to officers, directors or employees of the Employer or Issuer)
were issued and outstanding. The purchase price per share will be equal to
the fair market value of such shares as of the date of grant and the option
shall be exercisable in full on the first anniversary of the date of grant,
subject to acceleration in the event of a Change in Control. The option will
expire ten years from the date of grant, subject to earlier termination in
circumstances similar to those applicable to options granted under the
Employer's 1995 Performance Equity Plan and forfeiture of the value of the
option in the event Executive enters into competitive conduct with the
Employer, its subsidiaries or the Issuer or its subsidiaries. The Employer
shall cause the Issuer to enter into an option agreement effective as of the
grant date which shall reflect the terms and provisions of this Paragraph
3(c).
(d) Benefits under any group or executive medical, dental,
disability, life insurance, retirement, profit sharing, thrift and other plans
and programs, including nonqualified and deferred compensation plans and
programs, maintained from time to time by the Employer or its affiliates
during the Employment Period and in which executives with comparable duties
are eligible to participate.
(e) Vacation, perquisites and reimbursement of reasonable business
expenses to the extent provided by the Employer or its affiliates from time to
time during the Employment Period to executives with comparable duties, but in
no event shall such vacations, perquisites or reimbursements be less favorable
than the vacation, perquisites and reimbursement of reasonable business
expenses to which he was entitled immediately prior to the Effective Date of
this Agreement (including, but not limited to, company car and allowances,
club memberships and dues, subscriptions and travel).
(f) Upon the Executive's retirement on or after January 1, 2010
(the "Retirement Date"), Executive shall be entitled to receive an annual
supplemental pension benefit ("Supplemental Pension"). The amount of the
annual Supplemental Pension shall be equal to 60% of Executive's final base
salary, which, for this purpose, shall mean the highest nominal annual salary
paid to the Executive by the Employer during the period commencing on the
Effective Date of this Agreement and ending on the Retirement Date. The
Supplemental Pension shall be paid in monthly installments for a period of 120
months, commencing on the later of the Retirement Date or the January 1 next
following the Executive's retirement. In the event of the Executive's death
while receiving such payments, a lump sum equal to the present value of the
remaining payments (determined on the basis of the Prime Rate (as defined in
Paragraph 9(a) hereof) as in effect on the first day of the month in which the
Executive's death occurs) shall be paid to his designated beneficiary, or in
the absence of a designated beneficiary, to his estate. In the event the
<PAGE>
Executive's employment terminates prior to the Retirement Date for reasons
other than death or those that constitute a "termination" within the meaning
of Paragraph 4 hereof, then the amount of the annual Supplemental Pension
payable at the Retirement Date shall be prorated to reflect the actual period
of service from December 31, 1994 to the date of termination of employment, as
compared to the expected period of service from December 31, 1994 to the
Retirement Date. No proration will be applicable, however, if such
termination of employment is due to the death of the Executive or in
circumstances which constitute a termination under Paragraph 4 hereof. In
the event of the Executive's death, a lump sum payment equal to the present
value (determined as described above) of the payments that would have
commenced on the Retirement Date shall be paid to his designated beneficiary,
or in the absence of a designated beneficiary, to his estate. In the event of
a termination of employment prior to the Retirement Date, the Executive may
elect to commence the Supplemental Pension as of the January 1 next following
the date of such termination. The amount of the payments shall be adjusted,
however, such that the present value of the Supplemental Pension commencing
at such earlier date is equal to the present value of the Supplemental Pension
that would have commenced on the Retirement Date. The present value shall be
based on the Prime Rate as in effect on the December 1 immediately preceding
the January 1 on which such payments are to commence.
4. Termination During Employment Period.
(a) For purposes of this Agreement, the term "termination" shall
mean (i) termination by the Employer of the employment of the Executive with
the Employer and all of its affiliates for any reason other than death,
disability or "cause" (as defined below), or (ii) resignation of the Executive
for "constructive discharge" (as defined below).
(b) The term "constructive discharge" shall mean the Executive's
resignation from the Employer and all of its affiliates upon any one of the
following:
(i) the failure of the Employer to pay or provide the
compensation, benefits and perquisites contemplated by this Agreement;
(ii) there shall have occurred a material diminution in the
Executive's duties and responsibilities from those in effect prior to the
Effective Date of this Agreement;
(iii) the Employer changes the Executive's primary employment
location to a place that is outside the New York City Metropolitan area;
and/or
(iv) at any time for any reason prior to the first anniversary
of a Change in Control.
(c) The term "cause" means (i) felony conviction resulting from an
act or acts of dishonesty or moral turpitude, other than a felony predicated
<PAGE>
upon the Executive's vicarious liability or (ii) the Executive's continued and
willful failure to substantially perform his duties under this Agreement. For
purposes of this paragraph, no act or failure to act on the Executive's part
will be considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or omission was in
the interests of the Employer or not opposed to the interests of the Employer.
5. Confidentiality. The Executive agrees that during and after the
Employment Period, he shall retain in confidence any confidential information
known to him concerning the Employer and its affiliates and their respective
businesses for as long as such information is not publicly disclosed.
6. Termination Benefits. In the event of a termination of the Executive
during the Employment Period, the Employer shall provide and the Executive
shall be entitled to receive the following:
(a) The Executive shall, notwithstanding such termination, be
entitled to continue to receive salary payments for sixty (60) months from the
date of termination (which sixty (60) month period shall be treated hereunder
as a continuation of the Employment Period) at the greater of the rate
required by Paragraph 3(a) and that in effect immediately prior to
termination.
(b) In addition to the payments under (a) above, the Executive shall
also receive bonus payments with respect to each annual bonus period during
such sixty (60) month period, including a pro rata payment for the calendar
year in which such sixty (60) month period ends, based upon the average annual
cash bonus described in Paragraph 3(b). Such payment, if any, shall be made
within the period set forth in Paragraph 3(b).
(c) The Employer shall maintain in full force and effect for the
Executive's continued benefit all of the other employee benefit plans,
programs and arrangements required by Paragraphs 3(c) (option and equity
incentive plans which, for this purpose, shall include Executive's ability to
exercise outstanding options), 3(d) (medical insurance, profit sharing and
other employee benefit plans, programs or arrangements), and perquisites (but
not vacation pay or expense reimbursements) required by Paragraph 3(e), to
which he would have been entitled under all such plans, programs or
arrangements maintained by the Employer if he had remained in the employ of
the Employer through the remainder of the Employment Period (as extended in
Section 6(a) above), or if such continuation is not possible under the terms
and provisions of such plans, programs or arrangements, the Employer shall
arrange to provide benefits substantially similar to those which the Executive
(and, to the extent applicable, his dependents) would have been entitled to
receive if the Executive had remained a participant in such plans, programs or
arrangements for such period. In addition to the foregoing, coverage under
the Employer's group health plans shall continue after the extended Employment
Period for the life of the Executive and his spouse at no cost to such
Executive or spouse.
<PAGE>
(d) From and after the date of a termination until full satisfaction
of the obligations of the Employer hereunder and under the plans, programs and
arrangements referred to herein and under any other agreement with respect to
which Employer may be obligated to make post-employment payments to the
Executive, the Employer shall maintain a grantor trust in form and substance
reasonably acceptable to Executive to assist the Employer in the discharge of
its obligations hereunder and under any other nonqualified, deferred
compensation plan maintained by the Employer under which Executive has an
interest. The Employer shall deposit assets and make contributions into the
grantor trust in amounts necessary to maintain the assets of the grantor trust
at a level equal to the present value of the obligations of the Employer to
the Executive under this Agreement and any such plans, programs or
arrangements. Such amounts due shall be paid from the grantor trust or by the
Employer directly, in which case the Employer shall be entitled to
reimbursement form the grantor trust.
7. Supplemental Compensation.
(a) If it is determined (in the reasonable opinion of independent
public accountants then regularly retained by Employer in consultation with
tax counsel acceptable to Executive), that any amount payable to Executive by
Employer under this Agreement or any other plan, program or agreement under
which Executive participates or is a party would constitute an "Excess
Parachute Payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), subject to the excise
tax imposed by Section 4999 of the Code, as amended from time to time (the
"Excise Tax"), Employer shall pay to Executive the amount (a "Gross-Up
Payment") of such Excise Tax and all Excise Tax, federal and state income,
payroll (such as Social Security and Medicare), or other taxes with respect to
the payment of the amount of such Excise Tax including all such taxes with
respect to any such additional amount. If no determination by the Employer's
accountants is made prior to the time a tax return reflecting amounts subject
to Code Section 4999 is required to be filed by Executive, Executive shall be
entitled to receive a Gross-Up Payment from the Employer calculated on the
basis of the amounts subject to Code Section 4999 reported on such tax return,
within 10 days of the filing of such return. If at a later date, the Internal
Revenue Service assesses a deficiency against Executive for the Excise Tax
with respect to any amount paid to Executive under this Agreement or any other
plan, program or agreement under which Executive participates or is a party
greater than that which was determined at the time such amounts were paid,
Employer shall pay to Executive the amount of such Excise Tax plus any
interest, penalties, professional fees or expenses incurred by Executive as a
result of such assessment, together with all Excise Tax, federal and state
income, payroll or other taxes with respect to the payment of the amount of
such Excise Tax, interest, penalties, professional fees or expenses, including
all such taxes with respect to any such additional amount. The highest
effective marginal tax rate (determined by taking into account any reduction
in itemized deductions and/or exemptions attributable to the inclusion of the
additional amounts payable under this Paragraph 7 in the Executive's adjusted
gross or taxable income) applicable to individuals at the time of payment of
such amounts will be used for purposes of determining the federal and state
income and other taxes with respect thereto.
<PAGE>
8. No Obligation to Mitigate Damages. The Executive shall not be
obligated to seek other employment in mitigation of amounts payable or
arrangements made under the provisions of this Agreement and the obtaining of
any such other employment shall in no event effect any reduction of the
Employer's obligations under this Agreement.
9. Enforcement; Arbitration.
(a) In the event the Employer shall fail to pay any amounts due to
Executive or any successor under this Agreement or any plan, program or
arrangement referred to herein as they come due, the Employer agrees to pay
interest on such amounts at the prime rate of interest as from time to time
announced by Chemical Bank as its prime rate (the "Prime Rate") plus four
percent (4%) per annum until paid.
(b) Each of the Employer and the Executive or any successor shall
have the right and option to elect to have any dispute or controversy arising
under or in connection with this Agreement, or any plan, program or
arrangement referred to herein, or any breach thereof, settled exclusively by
arbitration, conducted before an arbitrator in accordance with rules of the
American Arbitration Association then in effect. Judgment may be entered on
the award of the arbitrator in any court having jurisdiction. Any such
arbitration shall be held in New York, New York.
(c) The Employer shall pay all reasonable legal fees, costs of
litigation, and other reasonable expenses incurred by the Executive or any
successor who is successful pursuant to legal judgment, arbitration or
settlement in a challenge resulting from the Employer's refusal to pay any
amounts due under this Agreement or any plan, program or arrangement referred
to herein to which it is determined that the Executive or successor is
entitled, or as a result of the Employer's contesting the validity,
enforceability or interpretation of this Agreement or any such plan, program
or arrangement.
(d) Each of the Employer or the Executive or any successor shall
provide written notice ("initial notice") at least fifteen (15) business days
prior to the commencement of any action under this Agreement or any plan,
program or arrangement referred to herein, which initial notice shall indicate
whether such party is invoking arbitration pursuant to Paragraph 10(b) above.
If such party is not electing to invoke arbitration, then the other party may
by written notice within ten (10) business days following receipt of the
initial notice elect to invoke arbitration pursuant to said Paragraph 9(b).
10. Indemnification. In the event that legal action is instituted
against Executive during or after the term hereof by a third party (or
parties) based on the performance or nonperformance by Executive of his duties
hereunder, the Employer will assume the defense of such action by its attorney
or attorneys selected by the Employer reasonably satisfactory to the Executive
and advance the costs and expenses thereof (including reasonable attorneys'
fees) without prejudice to or waiver by the Employer of its rights and
remedies against Executive. In the event that there is a final judgment
<PAGE>
entered against Executive in any such litigation, and Employer's Board of
Directors determines that Executive should, in accordance with its charter,
By-Laws, or insurance reimburse the Employer, Executive shall be liable to
Employer for all such costs and expenses paid or incurred by it in the defense
of any such litigation (the "Reimbursement Amount"). The Reimbursement Amount
shall be paid by Executive within thirty (30) days after rendition of the
final judgment. The Employer shall be entitled to set off the reimbursement
amount against all sums which may be owed or payable by the Employer to
Executive hereunder or otherwise. The parties shall cooperate in the defense
of any asserted claim, demand or liability against Executive or the Employer
or its subsidiaries or affiliates. The term "final judgment" as used herein
shall be defined to mean the decision of a court of competent jurisdiction,
and in the event of an appeal, then the decision of the appellate court, after
petition for rehearing has been denied, or the time for filing the same (or
the filing of further appeal) has expired.
The rights to indemnification under this Paragraph 10 shall be in
addition to any rights which Executive may now or hereafter have under the
charter or by-laws of the Employer or any of its affiliates, under any
insurance contract maintained by the Employer or any of its affiliates or any
agreement between Executive and the Employer or any of its affiliates.
11. Payments in the Event of Disability or Death. Upon the permanent
disability or death of the Executive prior to a termination, the Employer
shall continue to pay to the Executive, or if applicable, to his
representative or designated beneficiary (or failing such designation, the
executor of his estate), the compensation to which Executive would have been
entitled under this Agreement for a period of one (1) year following such
disability or death. Upon the death of the Executive after a termination has
occurred, then the beneficiary designated by the Executive or, if no
beneficiary has been designated, his executor, shall be entitled to a lump sum
death benefit equal to the present value of the payments that were remaining
to be paid under Paragraphs 6(a) and (b) as of the date of death. Such lump
sum present value payment shall be determined using an interest rate per annum
equal to the Prime Rate on the first business day of the month in which the
Executive's death occurred and shall be paid within 30 days of the date of
death. Such payment shall be in addition to any other benefit provided by the
Employer or under any plan, program or arrangement maintained by the Employer
upon Executive's death.
12. Change in Control. As used in this Agreement, a "Change in Control"
shall be deemed to occur (a) when the Employer acquires actual knowledge that
any person, as such term is used in the Exchange Act, including Section
14(d)(2) thereof, (other than (i) any employee benefit plan established or
maintained by the Employer or any of its subsidiaries, (ii) Executive or any
member of his immediate family or any affiliate of Executive or any member of
his immediate family, and (iii) any person who is deemed to be the beneficial
owner of any securities of the Employer to which any person in clause (i) or
(ii) above are and remain beneficial owners, including, without limitation,
any person that is a member of a group (as defined in said Section 14(d)(2) of
the Exchange Act) in which any person defined in clause (i) or (ii) above is
also a member) is or becomes the beneficial owner (as defined in Rule 13d-3 of
the Exchange Act), directly or indirectly, of securities of the Employer
<PAGE>
representing 25% or more of the combined voting power of the Employer's then
outstanding securities, (b) upon the first purchase of the Employer's Common
Stock pursuant to a tender or exchange offer (other than a tender or exchange
offer made by the Employer or an employee benefit plan established or
maintained by the Employer or any of its subsidiaries), (c) upon the approval
by the Employer's stockholders of (i) a merger or consolidation of the
Employer with or into another corporation (other than a merger or
consolidation in which the Employer is the surviving corporation and which
does not result in any capital reorganization or reclassification or other
change in the Employer's then outstanding shares of Common Stock), (ii) a sale
or disposition of all or substantially all of the Employer's assets, or (iii)
a plan of liquidation or dissolution of the Employer, or (d) if during any
period of two (2) consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Employer cease for any reason
to constitute at least two-thirds thereof, unless the election or nomination
for the election by the Employer's stockholders of each new director was
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period. For purposes of
Paragraphs 3(a) and 3(c), hereof, "Change in Control" shall also mean a direct
or indirect sale or disposition of all or substantially all of the assets of
Hercon Pharmaceutical by the Company to any person other than the Employer or
any of its subsidiaries.
13. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and if sent
by registered or certified mail to the Executive at the last address he has
filed in writing the Employer or, in the case of the Employer, at its
principal executive offices.
14. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by
operation of law, except by will or the laws of descent and distribution.
15. Governing Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of New York.
16. Amendment. This Agreement may be amended or cancelled by mutual
agreement of the parties in writing without the consent of any other person
and, so long as the Executive lives, no person, other than the parties hereto,
shall have any rights under or interest in this Agreement or the subject
matter hereof.
17. Binding Effect; Successors. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the Employer
and any successor of the Employer and to the benefit of Executive's executors,
administrators, legal representatives, heirs and legatees. The Employer shall
require any successor or assignee, whether direct or indirect, by purchase,
merger, consolidation or otherwise, expressly and unconditionally to assume
and agree to perform the Employer's obligations under this Agreement,
whereupon such successor or assignee shall become the Employer hereunder.
<PAGE>
18. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Employer has
caused this Agreement to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its Secretary, all as of
the day and year first above written.
______________________________________________
Executive
HEALTH-CHEM CORPORATION, a Delware Corporation
By: ________________________________________
Its: ________________________________________
ATTEST:
_________________________________
Secretary
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