Security Agreement

Security Agreement

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                                                                    Exhibit 10.6



                               SECURITY AGREEMENT


         THIS SECURITY AGREEMENT (as amended, modified or otherwise supplemented
from time to time, this "Security Agreement"), dated as of November 22, 1999, is
executed by DUSA Pharmaceuticals, Inc., a New Jersey corporation ("Debtor"), in
favor of Schering AG, a German corporation ("Secured Party").

                                    RECITALS

     A.           Debtor has executed a Secured Line of Credit Promissory Note
                  dated the date in the principal amount of $1,000,000.00 in
                  favor of Secured Party (the "Note") pursuant to which Secured
                  Party will make Advances from time to time to Debtor for the
                  purpose of purchasing Equipment.

     B.           In order to induce Secured Party to extend the credit
                  evidenced by the Note, Debtor has agreed to enter into this
                  Security Agreement and to grant Secured Party the security
                  interest in the Collateral described below.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:


1. Definitions and Interpretation. When used in this Security Agreement, the
following terms have the following respective meanings:

                  "COLLATERAL" has the meaning given to that term in Section 2
         hereof.

                  "EQUIPMENT" means the light sources from time to time
         purchased by Debtor with the Advances under the Note, including without
         limitation, the BLU-U(TM) Light Source, together with the stand
         supporting such light source.

                  "UCC" means the Uniform Commercial Code as in effect in the
         State of New York from time to time.

         All capitalized terms used but not otherwise defined in this Security
Agreement have the respective meanings given to them in the Note executed
between the Debtor and Secured Party as of the same date herewith. Unless
otherwise defined in this Security Agreement or the Note, all terms used in this
Security Agreement and defined in the UCC have the meanings given to those terms
in the UCC.

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2. Grant of Security Interest. As security for the Obligations, Debtor hereby
grants to Secured Party a security interest in all right, title and interests of
Debtor in, to and under all of the following, whether now existing or hereafter
from time to time acquired (collectively and severally, the "Collateral"):

         (a) all Equipment; and

         (b) any and all additions and accessions to and proceeds thereof,
including, without limitation, insurance, condemnation, requisition or similar
payments.

3. Representations and Warranties. Debtor represents and warrants to Secured
Party that:

         (a) Debtor is the owner of the Collateral (or, in the case of
after-acquired Collateral, at the time Debtor acquires rights in the Collateral,
will be the owner thereof) and that no other Person has (or, in the case of
after-acquired Collateral, at the time Debtor acquires rights therein, will
have) any right, title, claim or interest (by way of Lien or otherwise) in,
against or to the Collateral, other than Permitted Liens.

         (b) Secured Party has (or in the case of after-acquired Collateral, at
the time Debtor acquires rights therein, will have) a first priority perfected
security interest in the Collateral, except for Permitted Liens.

         (c) Debtor's chief executive office, principal place of business and
the place where Debtor maintains its records concerning the Collateral are
located at the address set forth in Section 8(a).

4. Covenants Relating to Collateral. Debtor shall:

         (a) perform all acts that may be necessary to maintain, preserve,
protect and perfect the Collateral, the Lien granted to Secured Party therein
and the priority of such Lien, except for Permitted Liens;

         (b) not use or permit any Collateral to be used (i) in violation of any
provision of any Transaction Document, (ii) in violation of any applicable law,
rule or regulation, or (iii) in violation of any policy of insurance covering
the Collateral;

         (c) pay promptly when due all taxes and other governmental charges, all
Liens and all other charges now or hereafter imposed upon or affecting any
Collateral;

         (d) without 30 days' prior written notice to Secured Party, not change
Debtor's name or place of business (or, if Debtor has more than one place of
business, its chief executive office);

         (e) procure, execute and deliver from time to time any endorsements,
assignments, financing statements and other writings reasonably deemed necessary
or

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appropriate by Secured Party to perfect, maintain and protect its Lien under
this Security Agreement and the priority thereof and to deliver promptly to
Secured Party all originals of Collateral consisting of instruments;

         (f) appear in and defend any action or proceeding which may affect its
title to or Secured Party's interest in the Collateral;

         (g) keep separate, accurate and complete records of the Collateral and
to provide Secured Party with such records and such other reports and
information relating to the Collateral as Secured Party may reasonably request
from time to time; and

         (h) except as permitted under the terms of the Note, not surrender or
lose possession of (other than to Secured Party), sell, encumber, lease, rent,
or otherwise dispose of or transfer any Collateral or right or interest therein,
and to keep the Collateral free of all Liens except Permitted Liens.

5. Authorized Action by Agent. Debtor hereby irrevocably appoints Secured Party
as its attorney-in-fact and agrees that Secured Party may perform (but Secured
Party will not be obligated to and will incur no liability to Debtor or any
third party for failure so to do) any act which Debtor is obligated by this
Security Agreement to perform, and to exercise such rights and powers as Debtor
might exercise with respect to the Collateral, including the right to (a)
collect by legal proceedings or otherwise and endorse, receive and receipt for
all dividends, interest, payments, proceeds and other sums and property now or
hereafter payable on or on account of the Collateral; (b) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) insure, process and preserve the Collateral;
(d) make any compromise or settlement, and take any action it deems advisable,
with respect to the Collateral; (e) pay any Indebtedness of Debtor relating to
the Collateral; and (f) execute UCC financing statements and other documents,
instruments and agreements required under this Security Agreement; provided,
however, that Secured Party shall not exercise any such powers prior to the
occurrence of an Event of Default and may exercise such powers only during the
continuance of an Event of Default. Debtor agrees to reimburse Secured Party
upon demand for any reasonable costs and expenses, including attorneys' fees,
Secured Party may incur while acting as Debtor's attorney-in-fact under this
Security Agreement, all of which costs and expenses are included in the
Obligations. It is further agreed and understood between the parties hereto that
such care as Secured Party gives to the safekeeping of its own property of like
kind constitutes reasonable care of the Collateral when in Secured Party's
possession; provided, however, that Secured Party will not be required to make
any presentment, demand or protest, or give any notice and need not take any
action to preserve any rights against any prior party or any other person in
connection with the Obligations or with respect to the Collateral.

6. Default and Remedies. Debtor will be deemed in default under this Security
Agreement upon the occurrence and during the continuance of an Event of Default.
Upon the occurrence and during the continuance of any such Event of Default,
Secured Party will have the rights of a secured creditor under the UCC, all
rights granted by this Security Agreement

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and by law, including the right to: (a) require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party; and (b) prior to the disposition of the Collateral, store,
process, repair or recondition it or otherwise prepare it for disposition in any
manner and to the extent Secured Party deems appropriate and in connection with
such preparation and disposition. Debtor hereby agrees that [c.i.] notice of any
intended sale or disposition of any Collateral is reasonable.

7. In Furtherance of Security Interest.

         (a) Duration of Security Interest. Secured Party's security interest in
the Collateral will continue until the payment in full and the satisfaction of,
or termination of, all Obligations, whereupon such security interest will
terminate. Secured Party, upon payment in full and the satisfaction of the
Obligations, shall execute such further documents and take such further actions
as may be necessary to effect the release and/or termination contemplated by
this Section 7(a), including duly executing and delivering to Debtor termination
statements for filing in all relevant jurisdictions.

         (b) Possession of Collateral. Except as set forth in this Security
Agreement, so long as no Event of Default has occurred and is continuing, Debtor
may remain in full possession, enjoyment and control of the Collateral (except
only as may be otherwise required by Secured Party for perfection of its
security interest therein) and to manage, operate and use the same and each part
thereof with the rights and franchises appertaining thereto; provided, however,
that the possession, enjoyment, control and use of the Collateral is at all
times be subject to the observance and performance of the terms of this Security
Agreement.

         (c) Further Assurances. Debtor will, at its own expense, make, execute,
indorse, acknowledge, file and/or deliver to Secured Party from time to time
such lists, descriptions, and designations of the Collateral, warehouse
receipts, receipts in the nature of warehouse receipts, bills of lading,
documents of title, vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, reports and other assurances or instruments and take such further
steps relating to the Collateral and other property and rights covered by the
security interest granted hereby, which Secured Party reasonably deems advisable
or appropriate to perfect, preserve or protect its security interest in the
Collateral.

8. Miscellaneous.

         (a) Notices. Except as otherwise provided in this Security Agreement,
all notices, requests, demands, consents, instructions or other communications
to or upon Debtor or Secured Party under this Security Agreement must be or in
writing and mailed or delivered to each party at its address set forth below (or
to such other address as the recipient of any notice shall have notified the
other in writing). All such notices and communications will be effective (a)
when sent by Federal Express or other overnight service of recognized standing,
on the Business Day following the deposit with such service; (b) when mailed, by
registered or certified mail, first class postage prepaid and addressed as
aforesaid through the United States Postal Service, upon

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receipt; and (c) when delivered by hand, upon delivery.

  Secured Party:                    Schering AG
                                    D13342
                                    Berlin, Germany
                                    Attn: Head Center of Dermatology

  Debtor:                           DUSA Pharmaceuticals, Inc.
                                    25 Upton Drive
                                    Wilmington, MA  01887
                                    Attn:  President and Chief Executive Officer
                                    Telecopier No.:  (416) 363-6602

         (b) Nonwaiver. No failure or delay on Secured Party's part in
exercising any right under this Security Agreement will operate as a waiver
thereof or of any other right nor will any single or partial exercise of any
such right preclude any other further exercise thereof or of any other right.

         (c) Amendments and Waivers. This Security Agreement may not be amended
or modified, nor may any of its terms be waived, except by written instruments
signed by Debtor and Secured Party. Each waiver or consent under any provision
hereof will be effective only in the specific instances for the purpose for
which given.

         (d) Assignments. This Security Agreement will be binding upon and inure
to the benefit of Secured Party and Debtor and their respective successors and
assigns; provided, however, that Debtor may not sell, assign or delegate rights
and obligations under this Security Agreement without the prior written consent
of Secured Party.

         (e) Cumulative Rights, etc. The rights, powers and remedies of Secured
Party under this Security Agreement are in addition to all rights, powers and
remedies given to Secured Party by virtue of any applicable law, rule or
regulation of any governmental authority, any Transaction Document or any other
agreement, all of which rights, powers, and remedies are cumulative and may be
exercised successively or concurrently without impairing Secured Party's rights
under this Security Agreement. Debtor waives any right to require Secured Party
to proceed against any Person or to exhaust any Collateral or to pursue any
remedy in Secured Party's power.

         (f) Payments Free of Taxes, Etc. All payments made by Debtor under this
Security Agreement shall be made by Debtor free and clear of and without
deduction for any and all present and future taxes, levies, charges, deductions
and withholdings. In addition, Debtor shall pay upon demand any stamp or other
taxes, levies or charges of any jurisdiction with respect to the execution,
delivery, registration, performance and enforcement of this Security Agreement.
Upon request by Secured Party, Debtor shall furnish evidence satisfactory to
Secured Party that all requisite authorizations and approvals by, and notices to
and filings with, governmental authorities and regulatory bodies have been
obtained and made and that all

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requisite taxes, levies and charges have been paid.

         (g) Partial Invalidity. If at any time any provision of this Security
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law or any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions of this Security Agreement nor the legality, validity
or enforceability of such provision under the law of any other jurisdiction
shall in any way be affected or impaired thereby.

         (h) Expenses. Debtor shall pay on demand all reasonable fees and
expenses, including reasonable attorneys' fees and expenses, incurred by Secured
Party in connection with custody, preservation or sale of, or other realization
on, any of the Collateral or the enforcement or attempt to enforce any of the
Obligations which is not performed as and when required by this Security
Agreement.

         (i) Headings. Headings in this Security Agreement and each of the other
Transaction Documents are for convenience of reference only and are not part of
the substance hereof or thereof.

         (j) Plural Terms. All terms defined in this Security Agreement or any
other Transaction Document in the singular form have comparable meanings when
used in the plural form and vice versa.

         (k) Construction. Each of this Security Agreement and the other
Transaction Documents is the result of negotiations among, and has been reviewed
by, Debtor, Secured Party and their respective counsel. Accordingly, this
Security Agreement and the other Transaction Documents will be deemed to be the
product of all parties hereto, and no ambiguity may be construed in favor of or
against Debtor or Secured Party.

         (l) Entire Agreement. This Security Agreement, MD&S Agreement, Light
Source Agreement, Stock Purchase Agreement, Guaranty, and Promissory Note,
together with all the Exhibits thereto, constitute the entire agreement, both
written or oral, with respect to the subject matter hereof, and supersede all
prior or contemporaneous understandings or agreements, whether written or oral,
between Debtor and Secured Party with respect to such subject matter.

         (m) Other Interpretive Provisions. References in this Security
Agreement and each of the other Transaction Documents to any document,
instrument or agreement (a) includes all exhibits, schedules and other
attachments thereto, (b) includes all documents, instruments or agreements
issued or executed in replacement thereof, and (c) means such document,
instrument or agreement, or replacement or predecessor thereto, as amended,
modified and supplemented from time to time and in effect at any given time. The
words "hereof," "herein" and "hereunder" and words of similar import when used
in this Security Agreement or any other Transaction Document refer to this
Security Agreement or such other Transaction Document, as the case may be, as a
whole and not to any particular provision of this Security Agreement or such
other Transaction Document, as the case may be. The words "include" and
"including" and words of similar import when used in this Security Agreement or
any other Transaction Document may not be construed to be limiting or exclusive.

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(n) Governing Law. This Security Agreement and all actions arising out of or in
connection with this Security Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, U.S.A., without
reference to conflicts of laws principles (except to the extent governed by the
UCC). Any legal action arising under this Note may be brought in the United
States District Court for the Southern District of New York.


         Debtor has caused this Security Agreement to be executed as of the day
and year first above written.

                                         DUSA PHARMACEUTICALS, INC.




                                         BY:    /s/ D. Geoffrey Shulman
                                            ------------------------------
                                            NAME: D. Geoffrey Shulman,MD,FRCPC
                                            TITLE: President and Chief
                                                   Executive officer

AGREED:

SCHERING AG



BY: /s/ Klaus Pohle
   -------------------------------
   NAME: Prof. Klaus Pohle
   TITLE: Vice Chairman of the Board
          of Executive Directors



BY: /s/ Hans Maier
    ------------------------------
   NAME: Dr. Hans Maier
   TITLE: Head of Center of Dermatology

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