SECOND MODIFICATION AGREEMENT
THIS SECOND MODIFICATION AGREEMENT ("AGREEMENT") is made as
of the 11th day of October, 1995 by and between HEALTH-CHEM
CORPORATION, a Delaware corporation, HERCON LABORATORIES
CORPORATION, a Delaware corporation, HERCULITE PRODUCTS, INC.,
a New York corporation, PACIFIC COMBINING CORP., a California
corporation, HERCON ENVIRONMENTAL CORPORATION, a Delaware
corporation and TRANSDERM LABORATORIES CORPORATION, a Delaware
corporation (collectively, "BORROWERS") and THE FIRST NATIONAL
BANK OF MARYLAND, a national banking association ("LENDER").
RECITALS
Pursuant to the terms and provisions of a Loan And Security
Agreement dated July 15, 1994 by and between the LENDER,
HEALTH-CHEM CORPORATION, HERCON LABORATORIES CORPORATION,
HERCULITE PRODUCTS, INC., and PACIFIC COMBINING CORP., as
amended pursuant to the terms of a Modification Agreement dated
August 31, 1995 by and between the BORROWERS and the LENDER
("LOAN AGREEMENT"), the LENDER is providing the BORROWERS a
revolving line of credit in the maximum principal amount of Six
Million Dollars ($6,000,000.00) ("LOAN"). The LOAN is
evidenced by an Amended and Restated Promissory Note dated
August 31, 1995 from the BORROWERS to the order of the LENDER
in the stated principal amount of Six Million Dollars
($6,000,000.00) ("NOTE").
The BORROWERS have requested that the LENDER: (a) extend
the maturity date of the REVOLVER; and (b) modify certain of
the covenants contained in the LOAN AGREEMENT. The LENDER is
willing to consent to the BORROWERS' request subject to the
terms and provisions contained in this AGREEMENT.
NOW, THEREFORE, in consideration of the premises, and other
good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree as follows:
SECTION 1. RECITALS. The parties hereto acknowledge the
accuracy of the above recitals and hereby incorporate the
recitals into this AGREEMENT.
SECTION 2. AMENDMENT TO NOTE. The NOTE is hereby
amended by deleting the date "July 15, 1997" from the first
paragraph of the NOTE, which paragraph commences with the words
"FOR VALUE RECEIVED," and substituting in lieu thereof the date
"October 15, 1997." It is the intention of the parties that
the "MATURITY DATE," as that term is used in the NOTE, shall be
October 15, 1997.
SECTION 3. AMENDMENT TO LOAN AGREEMENT. The LOAN
AGREEMENT is hereby amended as follows:
(a) Section 1.18. Section 1.18 of the LOAN AGREEMENT
is hereby amended by deleting its present language in its
entirety and substituting in lieu thereof the following:
Section 1.18. 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
BORROWERS (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) shall be deemed to
be applied in the inverse order of scheduled
maturities.
(b) Section 1.48. Article 1 of the LOAN AGREEMENT is
hereby amended by inserting after the presently existing
Section 1.47 the following new section:
Section 1.48. Term Loan. The term "TERM LOAN"
means the term loan in the maximum principal
amount of One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000.00) being provided by the
LENDER to PACIFIC COMBINING CORP., a California
corporation, pursuant to the terms and provisions
of a Loan And Security Agreement dated October 11,
1995, as the same may be hereafter amended or
modified.
(c) Section 2.1. Section 2.1 of the LOAN AGREEMENT is
hereby amended by deleting its present language in its entirety
and substituting in lieu thereof the following:
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
BORROWERS by depositing into the COMMERCIAL
ACCOUNT from time to time such sums as any
BORROWER may request, provided that the aggregate
outstanding principal balance of the LOAN at any
one time shall never exceed the lesser of: (a)
Six Million Dollars ($6,000,000.00) ("DOLLAR
CAP"); or (b) the sum of (i) eighty percent (80%)
of the face amount of billed ELIGIBLE ACCOUNTS,
plus (ii) thirty-five percent (35%) of the value
(i.e., the lower of the BORROWERS' manufacturing
costs and the lowest selling price) of the
BORROWERS' INVENTORY, minus (iii) the principal
balance outstanding under the TERM LOAN minus Five
Hundred Thousand Dollars ($500,000.00). The
amount of the DOLLAR CAP shall be reduced, from
time to time, by the aggregate amount of "Equity
Proceeds" (as hereafter defined) received by any
BORROWER, each such reduction to occur five (5)
calendar days after a BORROWER'S receipt of Equity
Proceeds. As used herein, the term "Equity
Proceeds" means an amount equal to (a) the net
proceeds obtained by any BORROWER in connection
with any sale or offering of any equity interest
in any of the BORROWERS (excluding net proceeds
obtained in the offering made, or to be made, in
1995 in connection with equity interests in
Transderm Laboratories Corporation and net
proceeds obtained by the exercise of any presently
existing stock options for stock in Health-Chem
Corporation), minus (b) the portion of such net
proceeds which have been paid to the LENDER to
prepay all or a portion of the TERM LOAN. The
BORROWERS shall not request any advance under the
LOAN which would cause the aggregate amount of
advances made to or for the BORROWERS and
outstanding under the LOAN DOCUMENTS to exceed the
limitations as to the maximum amount of advances
as herein set forth, or as set from time to time
by the LENDER. In the event the principal amount
outstanding under the LOAN ever exceeds the
maximum amount which may be outstanding pursuant
to the above limitations the BORROWERS shall
immediately, upon demand of the LENDER, reduce the
principal amount outstanding under the LOAN to an
amount which does not exceed the above
limitations. Any termination of the LOAN pursuant
to the terms of this AGREEMENT, shall relieve the
LENDER of the LENDER'S obligation to lend money or
to make financial accommodations to or for the
BORROWERS and the BORROWER'S account, and shall in
no way release, terminate, discharge or excuse the
BORROWERS from their absolute duty to pay and
perform the obligations.
(d) Section 2.3. Section 2.3 of the LOAN AGREEMENT is
hereby amended by deleting the date "July 15, 1997" and
substituting in lieu thereof the date "October 15, 1997."
(e) Section 2.5.a. Article 2 of the LOAN AGREEMENT is
hereby amended by inserting immediately after the presently
existing Section 2.5 the following new section:
Section 2.5.a. Quarterly Fee. The BORROWERS shall
pay to the LENDER a quarterly fee equal to one-
quarter of one percent (.25%) per annum of the
DOLLAR CAP as of the end of each fiscal quarter of
the BORROWERS in which the FIXED CHARGE COVERAGE
of the BORROWERS 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 6.17.c is
required to be delivered to the LENDER.
(f) Subsection 6.24.c. Subsection 6.24.c of the LOAN
AGREEMENT is hereby amended by deleting its present language in
its entirety and substituting in lieu thereof the following:
Subsection 6.24.c. Fixed Charge Coverage. As of
the end of each fiscal quarter of the BORROWERS,
the BORROWERS 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.
(g) Section 7.7. Section 7.7 of the LOAN AGREEMENT is
hereby amended by deleting its present language in its entirety
and substituting in lieu thereof the following:
Section 7.7. Capital Expenditures. The
BORROWERS, 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 BORROWERS' 1995 FISCAL
YEAR; (b) Seven Hundred Fifty Thousand Dollars
($750,000.00) in the BORROWERS' 1996 FISCAL YEAR;
and (c) One Million Five Hundred Thousand Dollars
($1,500,000.00) in any of the BORROWERS' FISCAL
YEARS after 1996; provided, however, that in the
event that the BORROWERS 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 BORROWERS may be spent on
CAPITAL EXPENDITURES in the immediately succeeding
FISCAL YEAR in addition to the maximum amount set
forth above.
(h) Section 7.13. Article 7 of the LOAN AGREEMENT is
hereby amended by inserting immediately after the presently
existing Section 7.12 the following new section:
Section 7.13. Subordinated Indenture. The
BORROWERS 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 prepayments and acquisitions which have
reduced previously due payments on the sinking
fund established by the SUBORDINATED INDENTURE).
SECTION 4. OTHER TERMS. Except as specifically modified
herein, all other terms and provisions of the NOTE, the LOAN
AGREEMENT and all documents and agreements evidencing, securing
or otherwise documenting the LOAN (collectively, "LOAN
DOCUMENTS") remain in full force and effect and are hereby
ratified and confirmed. It is the specific intention of the
parties hereto that the modifications contained herein shall
not constitute a novation of any of the BORROWERS' obligations
to the LENDER.
SECTION 5. WARRANTIES AND REPRESENTATIONS. As an
inducement to the LENDER to enter into this AGREEMENT, the
BORROWERS make the following representations and warranties to
the LENDER and acknowledge the LENDER'S justifiable reliance
thereon:
(a) No BORROWER is in default under any of the LOAN
DOCUMENTS;
(b) The LOAN DOCUMENTS, as modified and amended
herein, are the valid and binding obligations of each of the
BORROWERS and are fully enforceable in accordance with their
terms; and
(c) The LENDER'S security interests and liens set
forth in the LOAN DOCUMENTS in the assets of each of the
BORROWERS (excluding real estate) secure all of each BORROWER'S
obligations, whether now existing or hereafter incurred, to the
LENDER under the LOAN DOCUMENTS, as amended and modified
herein.
SECTION 6. ENFORCEABILITY. This AGREEMENT shall be
binding and enforceable upon and inure to the benefit of the
LENDER, the BORROWERS and their respective successor and
assigns.
SECTION 7. FEES AND EXPENSES. The BORROWERS shall pay
all of the fees, costs and expenses, including the LENDER'S
counsel fees and expenses, in connection with the negotiation
and preparation of this AGREEMENT.
SECTION 8. CHOICE OF LAW. This AGREEMENT and all of the
LOAN DOCUMENTS shall be governed by and enforced pursuant to,
the internal laws of the State of Maryland, and the parties
hereto consent to the non-exclusive jurisdiction and venue of
the Circuit Court of any county in the State of Maryland, the
Circuit Court for the City of Baltimore and the State of
Maryland, or the U.S. District Court for the District of
Maryland.
SECTION 9. WAIVER OF JURY TRIAL. The parties hereto
each hereby waive the right to a trial by jury in any action,
suit or proceeding arising out of or related to the LOAN or
this AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this SECOND
MODIFICATION AGREEMENT with the specific intention of creating
a document under seal as of the day and year first above
written.
WITNESS/ATTEST: BORROWERS:
HEALTH-CHEM CORPORATION,
A Delaware Corporation
_________________________ By: _______________________(SEAL)
Xxxxxx X. Xxxxxxx,
Chairman of the Board
HERCON LABORATORIES CORPORATION,
A Delaware Corporation
_________________________ By: _______________________(SEAL)
Xxxxxx X. Xxxxxxx,
Chairman of the Board
HERCULITE PRODUCTS, INC.,
A New York Corporation
_________________________ By: _______________________(SEAL)
Xxxxxx X. Xxxxxxx,
Chairman of the Board
WITNESS/ATTEST: PACIFIC COMBINING CORP.,
A California Corporation
_________________________ By: _______________________(SEAL)
Name: __________________
Title: __________________
HERCON ENVIRONMENTAL CORPORATION,
A Delaware Corporation
_________________________ By: _______________________(SEAL)
Name: __________________
Title: __________________
TRANSDERM LABORATORIES CORPORATION,
A Delaware Corporation
_________________________ By: _______________________(SEAL)
Name: __________________
Title: __________________
LENDER:
THE FIRST NATIONAL BANK OF MARYLAND,
A National Banking Association
_________________________ 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 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 XXXXXX X. XXXXXXX, and
acknowledged himself to be the Chairman of the Board of HERCON
LABORATORIES CORPORATION, a Delaware corporation, and that he,
as such Chairman of the Board 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 Chairman of the Board.
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 XXXXXX X. XXXXXXX, and
acknowledged himself to be the Chairman of the Board of
HERCULITE PRODUCTS, INC., a New York corporation, and that he,
as such Chairman of the Board 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 Chairman of the Board.
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 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 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 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:
_____________________
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 XXXXX X. XXXXXXX, 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:
_____________________
