SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d-
1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a)
(Amendment No. __)(1)
Halsey Drug Co., Inc.
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(Name of Issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(Title of Class of Securities)
406369 10 8
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(CUSIP Number)
George Abrahams, Esq.
Wolf, Block, Schorr and Solis-Cohen, LLP
250 Park Avenue
New York, New York 10177
Tel. No. (212) 986-1116
-----------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 10, 1998
--------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note. Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1 (a) for other parties to whom copies are to
be sent.
(Continued on the following pages)
(Page 1 of 107 Pages)
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(1) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to the "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
CUSIP No. 406369-10-8 13D Page 2 of 107 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Galen Partners III, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 13,397,926
BENEFICIALLY --------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 0
REPORTING --------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 13,397,926
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
13,397,926
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
46.9%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 406369-10-8 13D Page 3 of 107 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Galen Employee Fund III, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 58,758
BENEFICIALLY --------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 0
REPORTING --------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 58,758
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
58,758
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
.2%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 406369-10-8 13D Page 4 of 107 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Galen Partners International III, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 1,484,731
BENEFICIALLY --------------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH 0
REPORTING --------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 1,484,731
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,484,731
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.2%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Item 1. Security and Issuer.
This Statement covers a total of 14,941,415 shares of Common Stock, par
value $.01 per share (the "Common Stock"), of Halsey Drug Co., Inc., a New York
corporation (the "Company"). The Reporting Persons (as defined in Item 2 hereof)
as of the date hereof hold (i) 5% Convertible Senior Secured Debentures due
March 15, 2003, of the Company in the aggregate principal amount of $17,200,000
(the "Debentures"), which as of the date hereof are convertible into an
aggregate of 11,466,667 shares of Common Stock, (ii) warrants for the purchase
of an aggregate of 1,737,374 shares of Common Stock at an initial purchase price
of $1.50 per share (the "$1.50 Warrants") and (iii) warrants for the purchase of
an aggregate of 1,737,374 shares of Common Stock at an initial purchase price of
$2.375 per share (the "$2.375 Warrants" and together with the $1.50 Warrants,
the "Warrants"). The Debentures and Warrants are referred to herein,
collectively, as the "Securities."
The Company's principal executive offices are located at 1827 Pacific
Street, Brooklyn, New York 11233.
Item 2. Identity and Background.
This statement is being filed by Galen Partners III, L.P. ("Galen"), Galen
Partners International III, L.P. ("Galen Intl") and Galen Employee Fund III,
L.P. ("GEF"), each of which is a Delaware limited partnership (each, a
"Reporting Person" and collectively, the "Reporting Persons"). Each of the
Reporting Persons is a private investment fund engaged in the business of making
investments in the securities of companies in the health care industry. Under
the definition of "beneficial owner" in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934 (the "Act"), each Reporting Person may be deemed
to beneficially own the Securities owned by the other Reporting Persons and
therefore may be deemed under Rule 13d-5 promulgated under Act to be a member of
a "group" with the other Reporting Persons. The filing of this statement is not
intended as, and should not be deemed, an acknowledgment of shared voting or
dispositive power by any Reporting Person with respect to any of the Securities
held by any other Reporting Person.
William R. Grant, Bruce F. Wesson, L. John Wilkerson, David Jahns, Srini
Conjeevaram and Zubeen Shroff are all natural persons and are the members of
Claudius, L.L.C. ("Claudius"), the general partner of each of Galen and Galen
Intl. Bruce F. Wesson is the President of Wesson Enterprises, Inc. ("Wesson
Enterprises"), which is the general partner of GEF. Mr. Wesson is the sole
executive officer, sole director and sole shareholder of Wesson Enterprises.
Each of Messrs. Grant, Wesson, Wilkerson, Jahns and Shroff are citizens of the
United States of America; Mr. Conjeevaram is a lawful permanent resident of the
United States of America and a citizen of India. Messrs. Grant, Wesson,
Wilkerson, Jahns, Conjeevaram and Shroff, together with Claudius and Wesson
Enterprises, are referred to herein, collectively, as the "Related Persons."
The principal place of business and the principal office of each of the
Reporting Persons and Related Persons are at 610 Fifth Avenue, 5th Floor, New
York, New York 10020. During the last five years, none of the Reporting Persons
or the Related Persons has been (i) convicted in a criminal proceeding or (ii) a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding has been subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
The funds for the acquisition of the Securities were allocated from the
working capital of the Reporting Persons and were not obtained by means of a
loan or other borrowing arrangement.
The Securities were acquired by the Reporting Persons at a purchase price
equal to the principal amount of Debentures comprising a part of the Securities
which were purchased. The purchase prices paid by each of Galen Intl and GEF
were $15,423,195, $1,709,167 and $67,638, respectively, and were all paid in
cash.
Item 4. Purpose of Transaction.
The Company, the Reporting Persons and certain other persons have entered
into a Debenture and Warrant Purchase Agreement, dated as of March 10, 1998 (the
"Purchase Agreement") providing for the purchase by the Reporting Persons and
other persons (collectively, the "Investors") of an aggregate of $20,800,000
principal amount of Debentures, $1.50 Warrants to purchase an aggregate of
2,101,010 shares of Common Stock and $2.375 Warrants to purchase an aggregate of
2,101,010 shares of Common Stock and the issuance and delivery to the Investors
of instruments evidencing the Debentures and Warrants. The Debentures were at
the time of issuance convertible into Common Stock at the rate of one share of
Common Stock for each $1.50 principal amount of Debentures (an aggregate of
13,866,666 shares of Common Stock for the Debentures issued to all Investors and
11,466,667 shares of Common Stock for the Debentures issued to the Reporting
Persons). The $1.50 Warrants and $2.375 Warrants issued to the Reporting Persons
are exercisable for a period of seven years commencing on the issue date thereof
for an aggregate of 1,737,374 and 1,737,374 shares of Common Stock,
respectively.
The conversion rates of the Debentures into Common Stock and the exercise
prices of the Warrants and the number of shares of Common Stock issuable upon
conversion or exercise thereof are subject to adjustment to protect the holders
thereof against dilution. In addition, the conversion rates and exercise prices
of such Securities are subject to a downward adjustment in the event the
liabilities of the Company and its subsidiaries as of February 28, 1998 exceed
$27,640,000.
Pursuant to the Purchase Agreement, the Purchasers are entitled to and have
designated two persons to become directors of the Company and such persons were
elected as directors on March 10, 1998. The Purchasers also have the right to
designate an additional person to be a member of the Board of Directors
commencing with the first Annual Meeting of Shareholders of the Company to be
held after the closing of the Purchase Agreement, which the Company has agreed
in the Purchase Agreement to hold on or prior to June 30, 1998 (the "Next
Shareholders Meeting").
The Company also agreed in the Purchase Agreement to present for approval
by shareholders at the Next Shareholders Meeting, proposals to amend the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 20,000,000 to 40,000,000 Shares and to provide that
the Debentures shall have the right to vote as part of a single class with all
holders of Common Stock of the Company on all matters with the holders of
Debentures to have such number of votes as shall equal the number of votes they
would have had they converted the entire principal amount of their Debentures
into Common Stock immediately prior to the record date relating to such vote.
In accordance with the Purchase Agreement, certain shareholders of the
Company have given to a designee of Galen a proxy to vote all of their shares on
the foregoing proposals at the Next Shareholders Meeting. The Reporting Persons
and the proxy holder disclaim beneficial ownership of
such shares and such shares are not reported herein as beneficially owned by any
of the Reporting Persons.
Pursuant to the Purchase Agreement each Investor, including the Reporting
Persons, has been given a right of first refusal, subject to certain
limitations, to purchase additional equity securities of the Company (including
convertible debt securities) offered for sale by the Company. Such right is
exercisable on a pro rata basis among all Investors and certain other persons
holding other convertible debentures of the Company. In addition, the Investors
were granted an option to purchase on a pro rata basis for a purchase price of
$5,000,000 additional Securities on the same terms and conditions as set forth
in the Purchase Agreement. The option is exercisable by the holders of a
majority in principal amount of the outstanding Debentures. The option expires
18 months after the date of the Purchase Agreement. None of such additional
Securities is being reported herein as beneficially owned by any of the
Reporting Persons.
Each of the Reporting Persons acquired its Securities as long-term
investments. Except as set forth herein, none of the Reporting Persons presently
intends to acquire additional securities of the Company. However, if any
Reporting Person believes that further investment in the Company is attractive,
whether because of the market price of the Company's securities or otherwise,
such Reporting Person may acquire additional securities of the Company.
Similarly, any Reporting Person, subject to applicable law and depending upon
market and other factors, may from time to time determine to dispose some or all
of the Securities.
Except as set forth herein, the Reporting Persons have no present intention
to engage or cause the Company to engage in any of the transactions or
activities specified in paragraphs (a) through (j) of Item 4 of Schedule 13D.
However, each Reporting Person reserves the right, either individually or
together with other persons, to act in respect of its interest in the Company in
accordance with its best judgment in light of the circumstances existing at that
time.
Item 5. Interest in Securities of the Issuer.
(a) Each Reporting Person owns or has the right to acquire the number of
Securities shown opposite its name:
=========================================================================================================================
(1) (2) (3) (4) (5)
- -------------------------------------------------------------------------------------------------------------------------
Number of Shares
Number of Shares of Common Stock Percentage of
of Common Stock which may be Outstanding
into which acquired pursuant Shares of
Debentures are to exercise of Total of Columns Common Stock
Reporting Person Convertible Warrants (2) and (3) (see Note below)
- -------------------------------------------------------------------------------------------------------------------------
Galen 10,282,130 3,115,780 13,397,926 46.9%
- -------------------------------------------------------------------------------------------------------------------------
Galen Intl 1,139,445 345,286 1,484,731 5.2%
- -------------------------------------------------------------------------------------------------------------------------
GEF 45,092 13,664 58,758 0.2%
- -------------------------------------------------------------------------------------------------------------------------
Total 11,466,667 3,474,730 14,941,415 52.3%
=========================================================================================================================
Note: The percentages shown in each row of column (5) were calculated, for
each respective row, by (i) adding the totals in the bottom row of columns (2)
and (3) to 13,597,423 (the number of shares of Common Stock outstanding as of
February 28, 1998, such number having been provided by the Company to the
Reporting Persons) (the "Total Adjusted Outstanding Shares"), then (ii) dividing
the amount in column (4) by the Total Adjusted Outstanding Shares, and then
(iii) expressing such quotient in terms of a percentage.
(b) Each Reporting Person possesses the sole power to vote and to dispose
of its respective Securities.
(c) See Item 3.
(d) None.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to
Securities of the Issuer.
See Item 4, which is incorporated herein by reference.
Item 7. Material to be filed as Exhibits.
1. Joint Filing Agreement, dated March 20, 1998, by the Reporting Persons
and the Related Persons.
2. Purchase Agreement
3. Form of Debenture
4. Form of $1.50 Warrant
5. Form of $2.375 Warrant
6. Form of Proxy to Vote on Certain Matters at Next Shareholders Meeting
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in the statement is true, complete and
correct.
Dated: March 20, 1998
GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, Managing Member
GALEN PARTNERS
INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.,
General Partner
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, President
CLAUDIUS, L.L.C.
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, Managing Member
WESSON ENTERPRISES, INC.
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, President
/s/ William R. Grant
------------------------------------------
William R. Grant
/s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson
/s/ L. John Wilkerson
------------------------------------------
L. John Wilkerson
/s/ David Jahns
------------------------------------------
David Jahns
/s/ Srini Conjeevaram
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Srini Conjeevaram
/s/ Zubeen Shroff
------------------------------------------
Zubeen Shroff
EXHIBIT 1
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) under the Securities Exchange Act of 1934,
the persons named below agree to the joint filing on behalf of each of them of a
Statement on Schedule 13D (including exhibits and schedules thereto) with
respect to the acquisition of, or the right to acquire, the Common Stock of
Halsey Drug Co., Inc., a New York corporation. This Agreement shall be included
as an Exhibit to such joint filing. In evidence thereof, each of the
undersigned, being duly authorized, hereby executes this Agreement this 20th day
of March, 1998.
GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, Managing Member
GALEN PARTNERS
INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.,
General Partner
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, President
CLAUDIUS, L.L.C.
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, Managing Member
WESSON ENTERPRISES, INC.
By: /s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson, President
/s/ William R. Grant
------------------------------------------
William R. Grant
/s/ Bruce F. Wesson
------------------------------------------
Bruce F. Wesson
/s/ L. John Wilkerson
------------------------------------------
L. John Wilkerson
/s/ David Jahns
------------------------------------------
David Jahns
/s/ Srini Conjeevaram
------------------------------------------
Srini Conjeevaram
/s/ Zubeen Shroff
------------------------------------------
Zubeen Shroff
EXHIBIT 2
March 10, 1998
To the Purchaser(s) Set Forth on Exhibit A hereto:
HALSEY DRUG CO., INC., a New York corporation (the "Company"), agrees with
you as follows:
ARTICLE I
AUTHORIZATION OF THE SECURITIES; ADJUSTMENT OF CONVERSION
PRICE AND WARRANT PRICES
1.1. Authorization of Securities. The Company represents that it has taken
all corporate action necessary to authorize the issuance and sale of (a) its 5%
Convertible Senior Secured Debentures due March 15, 2003 in the aggregate
principal amount of $20,800,000 (the "Debentures"), (b) warrants to purchase an
aggregate of 2,101,010 shares of Common Stock, par value $.01 per share ("Common
Stock"), of the Company initially at a price of $2.375 per share (the "$2.375
Warrants") and (c) warrants to purchase an aggregate of 2,101,010 shares of
Common Stock initially at a price of $1.50 per share (the "$1.50 Warrants" and
together with the $2.375 Warrants, the "Warrants"). The Debentures and the
Warrants (collectively, the "Securities") are to be sold pursuant to this
Agreement to you (each of you is sometimes referred to herein as a "Purchaser").
Interest on the Debentures is payable at the rate of 5% per annum, as more
particularly specified in the form of Debenture attached hereto as Exhibit B.
Each Debenture is convertible in whole or in part from time to time into a
number of shares of Common Stock initially at the rate of one share of Common
Stock for each $1.50 in principal amount of the Debenture to be converted. For
purposes of this Agreement, the term "Shares" shall mean the shares of Common
Stock which may be issued upon conversion of all or a portion of the principal
amount of the Debentures and the shares of Common Stock that may be issued from
time to time pursuant to the exercise of the Warrants. The term "Shares" does
not include any other shares of Common Stock or other capital stock of the
Company.
1.2. Adjustment of Conversion Price and Warrant Prices.
(a) The prices at which Shares may be acquired upon conversion of the
Debentures and exercise of the Warrants (the "Conversion Price" and the "Warrant
Prices", respectively) are subject to adjustment as set forth therein. In
addition, the initial Conversion Price and Warrant Prices shall each be subject
to a downward adjustment as provided in Section 1.2(b).
(b) The Company shall prepare and cause Grant Thornton LLP to review a
schedule of liabilities of the Company and its subsidiaries as of February 28,
1998. The Company shall deliver to the Purchasers such schedule accompanied by
the report of Grant Thornton LLP on its review thereof not later than March 10,
1998 (the "Reviewed Liability
Schedule"). If the total liabilities set forth in the Reviewed Liability
Schedule exceeds $27,640,000, then, to the extent the total liabilities set
forth on the Reviewed Liability Schedule exceeds $27,140,000 (which is the total
estimated liabilities of the Company and its subsidiaries as of February 28,
1998 as set forth on a schedule of estimated liabilities delivered to the
Purchasers by the Company prior to the date hereof), each of the initial
Conversion Price and the initial Warrant Prices shall be reduced by an amount
equal to the quotient obtained by dividing such excess by 13,597,423 (which is
the number of shares of Common Stock of the Company outstanding as of February
28, 1998). For example, if the total liabilities of the Company and its
subsidiaries as set forth in the Reviewed Liability Schedule is $29,140,000,
then the initial Conversion Price and initial Warrant Prices shall each be
reduced by $.147 ($2,000,000 divided by 13,597,423) and after such reductions
will be $1.353, $1.353 and $2.228, respectively.
ARTICLE II
SALE AND PURCHASE OF THE SECURITIES; SECURITY DOCUMENTS
2.1. Sale and Purchase of the Securities. Subject to the terms and
conditions hereof and in reliance on the representations and warranties
contained herein, or made pursuant hereto, the Company will issue and sell to
each Purchaser and/or such Purchaser's designees, and each Purchaser will
purchase from the Company, on the Closing Date specified in Article 3, the
Securities for the purchase prices set forth opposite such Purchaser's name on
Exhibit A.
2.2. Company Security Documents. All of the obligations of the Company
under the Debentures shall be secured by the following:
(a) A lien on all the personal property and assets of the Company now
existing or hereinafter acquired granted pursuant to a Company General
Security Agreement dated of even date herewith between the Company and
Galen Partners III, L.P. ("Galen"), as agent for the Purchasers (the
"Company General Security Agreement"), which, except for Permitted Liens
(as hereinafter defined), shall be a first lien.
(b) Collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Company (collectively, the
"Company Collateral Assignments").
2.3. Guaranties. All of the obligations of the Company under the Debentures
shall be guaranteed pursuant to Continuing Unconditional Secured Guaranties
(each, a "Guaranty" and collectively, the "Guaranties") by each of the following
subsidiaries of the Company (each, a "Guarantor"):
(a) Houba, Inc. ("Houba");
(b) Halsey Pharmaceuticals, Inc.;
(c) Indiana Fine Chemicals Corporation;
(d) Cenci Powder Products, Inc. ("CPP"); and
2
(e) H.R. Cenci Laboratories, Inc. ("HR Cenci")
2.4. Guarantor Security Documents. All of the obligations of the Guarantors
under the Guaranties shall be secured by the following:
(a) A lien on all of the personal property and assets of the
respective Guarantors now existing or hereinafter acquired, granted
pursuant to a Guarantors General Security Agreement dated of even date
herewith between the Guarantors and Galen, as agent for the Purchasers (the
"Guarantors Security Agreement"), which, except for Permitted Liens, shall
be a first lien.
(b) Collateral assignments of all leases, contracts, patents,
copyrights, trademarks and service marks of the Guarantors (collectively,
"Guarantor Collateral Assignments").
(c) A first mortgage granted by Houba on real property owned by Houba
located at 16235 State Road 17, Culver, Indiana (the "Culver Mortgage").
(d) A first mortgage granted by CPP and HR Cenci on real property
owned by HR Cenci located at 152 North Broadway, Fresno, California (the
"Fresno Mortgage" and together with the Culver Mortgage, the "Mortgages").
ARTICLE III
CLOSING
The closing of the purchase and sale of the Securities (the "Closing") will
take place at the offices of Wolf, Block, Schorr and Solis-Cohen LLP, 250 Park
Avenue, New York, New York 10177 simultaneously with the execution of this
Agreement, or such other place, time and date as shall be mutually agreed to by
the Company and the Purchaser. Such time and date is herein called the "Closing
Date."
On the Closing Date there will be delivered to each Purchaser (a) a
Debenture dated the Closing Date, in the principal amount set forth opposite the
name of such Purchaser in Exhibit A, (b) a warrant certificate or certificates
substantially in the form of Exhibit C registered in such Purchaser's name
representing the right to purchase for $2.375 per Share the number of Shares set
forth opposite the name of such Purchaser on Exhibit A and (c) a warrant
certificate or certificates substantially in the form of Exhibit D representing
the right to purchase for $1.50 per Share the number of Shares set forth
opposite the name of such Purchaser on Exhibit A. The number of Shares which may
be purchased upon exercise of the Warrants is subject to adjustment as provided
therein. The foregoing Securities shall be delivered by the Company, against
delivery by each Purchaser to the Company of an unendorsed certified or official
bank check payable to the order of the Company drawn upon or issued by a bank
which is a member of the New York Clearinghouse for banks (or wire transfer) for
the amount set forth opposite the name of such Purchaser on Exhibit A.
3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to you as follows:
4.1. Organization and Existence, etc. Except as set forth in Section 4.1 of
the Schedule of Exceptions attached hereto as Exhibit E (the "Schedule of
Exceptions") or in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as amended, or the Company's Quarterly Report in Form
10-Q for the quarter ended September 30, 1997 (collectively, the "Selected
Reports"), the Company is a corporation duly organized and validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
all requisite corporate power and authority to carry on its business as now
conducted and proposed to be conducted; the Company has all requisite corporate
power and authority to enter into this Agreement, to issue the Securities as
contemplated herein and to carry out and perform its obligations under the terms
and conditions of this Agreement. Except as set forth in Section 4.1 of the
Schedule of Exceptions, the Company does not own or lease any property or engage
in any activity in any jurisdiction which might require qualification to do
business as a foreign corporation in such jurisdiction and where the failure to
so qualify would have a material adverse effect on the financial condition of
the Company and its Subsidiaries, taken as a whole, or subject the Company to a
material liability. To the extent the Company has not qualified to do business
in such jurisdictions, it will prepare and file such necessary applications or
documents to be filed with the appropriate authorities in such jurisdictions to
obtain such qualifications within 60 days. The Company has furnished you with
true, correct and complete copies of its Certificate of Incorporation, By-Laws
and all amendments thereto to date.
4.2. Subsidiaries and Affiliates. Section 4.2 of the Schedule of Exceptions
sets forth the name, jurisdiction of incorporation and authorized and
outstanding capitalization of each entity in which the Company owns securities
having a majority of the voting power in the election of directors or persons
serving equivalent functions (each, a "Subsidiary"). Except as set forth in
Section 4.2 of the Schedule of Exceptions, the Company has, and upon the Closing
will have, no Subsidiaries and does not, and upon the Closing will not, own of
record or beneficially any capital stock or equity interest or investment in any
corporation, association or business entity. Except as set forth in Section 4.2
of the Schedule of Exceptions or in the Selected Reports, each Subsidiary is a
corporation duly organized and validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to carry on its business as now conducted and proposed to be
conducted. Except as set forth in Section 4.2 of the Schedule of Exceptions, no
Subsidiary owns or leases
4
any property or engages in any activity in any jurisdiction which might require
such Subsidiary to qualify to do business as a foreign corporation in such
jurisdiction and where the failure to so qualify would have a material adverse
effect on the financial condition of the Company and its Subsidiaries, taken as
a whole, or subject such Subsidiary to a material liability. To the extent any
Subsidiary has not qualified to do business in such jurisdictions, it will
prepare and file such necessary applications or documents to be filed with the
appropriate authorities in such jurisdictions to obtain such qualifications
within 60 days.
4.3. Capitalization.
(a) As of the date hereof, the Company's authorized capital stock consists
of 20,000,000 shares of Common Stock, par value $.01 per share, of which
13,597,423 shares are outstanding and 4,672,868 of which are reserved for
issuance for the purposes set forth in Section 4.3 of the Schedule of
Exceptions, 2,179,312 of which have been reserved for issuance upon conversion
of the Debentures and none of which have been reserved for issuance upon
exercise of the Warrants. As of the date hereof, the Company holds 449,603
shares of Common Stock in its treasury which shares may be reissued.
(b) All the issued and outstanding shares of capital stock of the Company
shall, as of the Closing, (i) have been duly authorized and validly issued, (ii)
be fully paid and nonassessable and (iii) have been offered, issued, sold and
delivered by the Company in compliance with applicable Federal and state
securities laws. Other than as set forth in Section 4.3(a), Section 4.3 of the
Schedule of Exceptions or the Selected Reports, there are no outstanding
preemptive, conversion or other rights, options, warrants, calls, agreements or
commitments granted or issued by or binding upon the Company, for the purchase
or acquisition of any shares of its capital stock or securities convertible into
or exercisable or exchangeable for capital stock.
4.4. Authorization. All corporate action on the part of the Company and the
directors and stockholders of the Company necessary for the authorization,
execution, delivery and performance by the Company of this Agreement and the
transactions contemplated herein, and for the authorization, issuance and
delivery of the Securities, has been taken or will have been taken prior to the
Closing.
4.5. Binding Obligations; No Material Adverse Contracts, etc. This
Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms. Except as set forth in Section 4.5 of the Schedule of
Exceptions, the execution, delivery and performance by the Company of this
Agreement and compliance herewith will not result in any violation of and will
not conflict with, or result in a breach of any of the terms of, or constitute a
default under, any provision of state or Federal law to which the Company is
subject, the Certificate of Incorporation, as amended, or the By-Laws, as
amended, of the Company, or any mortgage, indenture, agreement, instrument,
judgment, decree, order, rule or regulation or other restriction to which the
Company is a party or by which it is bound, or except for liens on the assets of
the Company created in favor of the Purchasers, result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company
5
pursuant to any such term. Except as set forth in Section 4.5 of the Schedule of
Exceptions or the Selected Reports, no stockholder of the Company has or will
have any preemptive rights or rights of first refusal by reason of the issuance
of the Securities or Shares issuable upon conversion or exercise of the
Securities.
4.6. Compliance with Instruments, etc. Except as set forth in Section 4.6
of the Schedule of Exceptions or the Selected Reports, neither the Company nor
any Subsidiary is (a) in default past any grace, notice or cure period under any
indenture, agreement or instrument to which it is a party or by which it is
bound, (b) in violation of its Certificate of Incorporation, By-Laws or of any
applicable law, (c) in default with respect to any order, writ, injunction or
decree of any court, administrative agency or arbitrator, or (d) in default
under any order, license, regulation or demand of any government agency, which
default or violation would materially and adversely affect the business,
properties or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole.
4.7. Litigation. Except as set forth in Section 4.7 of the Schedule of
Exceptions or the Selected Reports, there is no action, suit or proceeding
pending, or, to the knowledge of the Company, threatened, against the Company or
any Subsidiary before any court, administrative agency or arbitrator or any
action, suit or proceeding pending, or, to the knowledge of the Company,
threatened, which challenges the validity of any action taken or to be taken
pursuant to or in connection with this Agreement or the issuance of the
Securities.
4.8. Financial Information; SEC Documents.
(a) The Company has furnished to the Purchasers the consolidated financial
statements of the Company and its Subsidiaries, including consolidated balance
sheets as of December 31, 1995 and 1996 and consolidated statements of
operations, changes in cash flows and stockholders' equity, covering the three
years ended December 31, 1996, all of which statements have been certified by
Grant Thornton LLP, certified public accountants, and all of which statements
are included or incorporated by reference in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 filed with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such financial statements fairly present the
condition of the Company and its Subsidiaries as of the dates thereof and the
results of the operations of the Company and its Subsidiaries for such periods.
(b) The Company has also furnished to the Purchasers the unaudited
consolidated balance sheet of the Company and its subsidiaries as of September
30, 1997, and the related unaudited consolidated statements of operations,
consolidated statements of cash flow and consolidated statements of
stockholders' equity for the three months and nine months ended September 30,
1996 and September 30, 1997, set forth in the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997, as filed with the
Commission. Such financial statements fairly present, in conformity with
generally accepted accounting principles ("GAAP") applied on a basis consistent
with the financial statements referred to in paragraph (a) of this Section, the
consolidated financial position of the Company and its
6
Subsidiaries as of such date and their consolidated results of operations for
such periods (subject to normal year-end adjustments). Since September 30, 1997,
the Company has not had net losses (as calculated in conformity with GAAP
applied on a basis consistent with the financial statements referred to in
paragraph (a) of this Section) of more than $5,000,000.
(c) None of the documents filed by the Company with the Commission since
December 31, 1995 contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements contained therein not false or misleading in light of the
circumstances in which they were made. There is no fact known to the Company
which the Company has not disclosed to the Purchasers prior to or as of the date
of this Agreement which materially and adversely affects, or in the future is
likely to materially and adversely affect, the business, properties, condition
(financial or otherwise) or business prospects of the Company and its
Subsidiaries, taken as a whole.
4.9. Offering. Subject in part to the truth and accuracy of the Purchasers'
representations and the compliance by each Purchaser with its covenants set
forth in this Agreement and any subscription agreement executed and delivered by
the Purchasers, the offer, sale and issuance of the Securities as contemplated
by this Agreement are not subject to the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Company, or
anyone acting on its behalf, will not take any action hereafter that would cause
such registration requirements to be applicable.
4.10. Permits; Governmental and Other Approvals.
(a) Other than as set forth in Section 4.10 of the Schedule of Exceptions
or the Selected Reports, each of the Company and its Subsidiaries possesses such
franchises, licenses, permits and other authority as are necessary for the
conduct of its business as now being conducted and proposed to be conducted
(except where the failure to possess such franchises, licenses, permits or other
authority would not materially and adversely affect the business, properties or
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole) and the Company and its Subsidiaries are not in default under any of
such franchises, licenses, permits or other authority. Other than as set forth
in Section 4.10 of the Schedule of Exceptions or the Selected Reports, no
approval, consent, authorization or other order of, and no designation, filing,
registration, qualification or recording with, any governmental authority or any
other person or entity is required in connection with the Company's valid
execution, delivery and performance of this Agreement or the offer, issuance and
sale of the Securities by the Company to the Purchasers or the consummation of
any other transaction contemplated on the part of the Company hereby.
(b) Without limiting the generality of the representations and warranties
made in Section 4.10(a), the Company represents and warrants that (i) it and its
Subsidiaries are in compliance in all material respects with all applicable
provisions of the Federal Food, Drug, and Cosmetic Act (the "FDC Act"), (ii) its
products and those of its Subsidiaries are not adulterated or misbranded and are
in lawful distribution, and (iii) it and its Subsidiaries are in compliance with
the following specific requirements: the Company and its Subsidiaries have
7
registered all facilities with the United States Food and Drug Administration
(the "FDA"); the Company and its Subsidiaries have listed all drug products with
the FDA; each drug product marketed by the Company or any Subsidiary is the
subject of an application approved by the FDA; all marketed drug products comply
with any conditions of approval and the terms of the application submitted to
the FDA; all drug products are manufactured in compliance with the FDA's good
manufacturing practice regulations; all products are labeled and promoted in
accordance with the terms of the marketing application and the provisions of the
FDC Act; all adverse events that were required to be reported to the FDA have
been reported to the FDA in a timely manner; each of the Company and its
Subsidiaries is in compliance in all material respects with the terms of the
consent agreement entered into by the Company with the United States Attorney
for the Eastern District of New York on behalf of the FDA on June 29, 1993; to
the Company's knowledge, neither the Company nor any Subsidiary is employing or
utilizing the services of any individual who has been debarred under the FDC
Act; all stability studies required to be performed for products distributed by
the Company or a Subsidiary have been completed or are ongoing in accordance
with the applicable FDA requirements; any products exported by the Company or a
Subsidiary have been exported in compliance with the FDC Act; and each of the
Company and its Subsidiaries is in compliance in all material respects with the
provisions of the Prescription Drug Marketing Act, to the extent applicable.
(c) Without limiting the generability of the representations and warranties
made in Section 4.10(a), the Company also represents and warrants that it and
its Subsidiaries are in compliance in all material respects with all applicable
provisions of the Controlled Substances Act (the "CSA") and that the Company and
its Subsidiaries are in compliance with the following specific requirements: the
Company and its Subsidiaries are registered with the Drug Enforcement
Administration (the "DEA") at each facility where controlled substances are
exported, imported, manufactured or distributed; all controlled substances are
stored and handled pursuant to DEA security requirements; all records and
inventories of receipt and distributions of controlled substances are maintained
in the manner and form as required by DEA regulations; all reports, including,
but not limited to, ARCOS, manufacturing quotas, production quotas, and
disposals, have been submitted to DEA in a timely manner; all adverse events,
including thefts or significant losses of controlled substances, have been
reported to DEA in a timely manner; to the Company's knowledge, neither the
Company nor any Subsidiary is employing any individual, with access to
controlled substances, who has previously been convicted of a felony involving
controlled substances; and any imports or exports of controlled substances have
been conducted in compliance with the CSA and DEA regulations.
4.11. Sales Representatives, Customers and Key Employees. Other than as set
forth in Section 4.11 of the Schedule of Exceptions or the Selected Reports, to
the knowledge of the Company, no independent sales representatives, customers or
key employees or group of key employees of the Company or its Subsidiaries has
any intention to terminate his, her or its relationship with the Company or such
Subsidiary on or after the Closing or in the case of employees, leave, as of the
Closing, the employ of the Company on and after the Closing. Other than as set
forth in Section 4.11 of the Schedule of Exceptions or the Selected Reports or
as contemplated by this Agreement, all personnel are employed on an "at will"
basis and may be terminated upon notice of not more than 30 days.
8
4.12. Copyrights, Trademarks and Patents. (a) Section 4.12 of the Schedule
of Exceptions sets forth a list of all of the Company's and any Subsidiary's
patents, patent applications, trademarks, copyrights, trademark registrations
and applications therefor, patent, trademark or trade name licenses, contracts
with employees or others relating in whole or in part todisclosure, assignment
or patenting of any inventions, discoveries, improvements, processes, formulae
or other know-how, and all patent, trademark or trade names or copyright
licenses which are in force (referred to collectively as "Intellectual Property
Rights"). The Intellectual Property Rights are, to the best of the Company's
knowledge and belief, fully valid and are in full force and effect.
(b) The Company or a Subsidiary owns outright all of the Intellectual
Property Rights listed on Section 4.12 of the Schedule of Exceptions attached
hereto free and clear of all liens and encumbrances and pays no royalty to
anyone under or with respect to any of them.
(c) Neither the Company nor any Subsidiary has licensed anyone to use any
of such Intellectual Property Rights and has no knowledge of the infringing use
by the Company or any Subsidiary of any intellectual property rights.
(d) The Company has no knowledge, nor has it received any notice (i) of any
conflict with the asserted rights of others with respect to any Intellectual
Property Rights used in, or useful to, the operation of the business conducted
by the Company and its Subsidiaries or with respect to any license under which
the Company or a Subsidiary is licensor or licensee; or (ii) that the
Intellectual Property Rights infringe upon the rights of any third party.
4.13. Inventory. All inventory of the Company consists of a quality and
quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been or
will be written off or written down to net realizable value on the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 1997. The quantities of each type of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable and
warranted in the present circumstances of the Company.
4.14. Registration Rights. Except as provided for in this Agreement or as
set forth in Section 4.14 of the Schedule of Exceptions or in the Selected
Reports, neither the Company nor any Subsidiary is under any obligation to
register any of its currently outstanding securities or any of its securities
which may hereafter be issued.
4.15. No Discrimination. Neither the Company nor any Subsidiary in any
manner or form discriminates, fosters discrimination or permits discrimination
against any person belonging to any minority race or believing in any minority
creed or religion.
9
4.16. Environmental Matters.
(a) Each of the Company and its Subsidiaries has obtained all
environmental, health and safety permits necessary or required for the operation
of its business (except where the failure to possess such franchises, licenses,
permits or other authority would not materially and adversely affect the
business, properties or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole), and all such permits are in full force and
effect and each of the Company and its Subsidiaries is in compliance in all
material respects with all terms and conditions of such permits.
(b) Except as set forth in Section 4.16 of the Schedule of Exceptions or
the Selected Reports, there is no proceeding pending or, to the best knowledge
of the Company, threatened, which may result in the denial, rescission,
termination, modification or suspension of any environmental or heath or safety
permits necessary for the operation of the business of the Company and its
Subsidiaries.
(c) Except as set forth in Section 4.16 of the Schedule of Exceptions or
the Selected Reports, during the occupancy by the Company or any Subsidiary of
any real property leased by the Company or such Subsidiary, and to the best
knowledge of the Company, no other person or entity, has caused or permitted
materials to be generated, released, stored, treated, recycled, disposed of on,
under or at such parcels, which materials, if known to be present, would require
clean up, removal or other remedial or responsive action under any environmental
laws. To the best knowledge of the Company, there are no underground storage
tanks and no polychlorinated biphenyls ("PCB's"), PCB contaminated oil or
asbestos on any property leased by the Company or any Subsidiary.
(d) Except as set forth in Section 4.16 of the Schedule of Exceptions or
the Selected Reports, neither the Company nor any Subsidiary is subject to any
judgment, decree, order or citation related to or arising out of environmental
laws, or has received notice that it has been named or listed as a potentially
responsible party by any person or governmental body or agency in any matter
arising under environmental laws.
(e) To the best of knowledge of the Company, each of the Company and its
Subsidiaries has disposed of all waste in full compliance with all environmental
laws.
4.17. Taxes. Except as set forth in Section 4.17 of the Schedule of
Exceptions or the Selected Reports, the Company and each of its Subsidiaries
have filed all necessary income, franchise and other material tax returns,
domestic and foreign and have paid all taxes shown as due thereunder, and the
Company has no knowledge of any tax deficiency which might be assessed against
the Company or any of the Subsidiaries which, if so assessed, would have a
material adverse effect on the business, properties, assets, net worth,
condition (financial or other), or results of operations of the Company and its
Subsidiaries taken as a whole.
10
4.18. Employee Benefit Plans and Similar Arrangements.
(a) Section 4.18 of the Schedule of Exceptions lists all employee benefit
plans and collective bargaining, labor and employment agreements or other
similar arrangements in effect to which the Company, its Subsidiaries, and any
of its ERISA Affiliates are a party or by which the Company, its Subsidiaries,
and any of its ERISA Affiliates are bound, legally or otherwise, including,
without limitation, any profit-sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement, severance,
welfare or incentive plan, agreement or arrangement; any plan, agreement or
arrangement providing for fringe benefits or perquisites to employees, officers,
directors or agents, including but not limited to benefits relating to
employer-supplied automobiles, clubs, medical, dental, hospitalization, life
insurance and other types of insurance, retiree medical, retiree life insurance
and any other type of benefits for retired and terminated employees; any
employment agreement; or any other "employee benefit plan" (within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended through the date of this Agreement ("ERISA")) (herein referred to
individually as "Plan" and collectively as "Plans"). For purposes of this
Agreement, "ERISA Affiliate" means (i) any corporation which at any time on or
before the Closing Date is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Internal Revenue Code
of 1986, as amended (the "Code")) as the Company, its Subsidiaries, or any ERISA
Affiliate; (ii) any partnership, trade or business (whether or not incorporated)
which at any time on or before the Closing Date is or was under common control
(within meaning of Section 414(c) of the Code) with the Company, its
Subsidiaries, or any ERISA Affiliate; and (iii) any entity which at any time on
or before the Closing Date is or was a member of the same affiliated service
group (within the meaning of Section 414(m) of the Code) as the Company, its
Subsidiaries or any ERISA Affiliate, or any corporation described in clause (i)
or any partnership, trade or business described in clause (ii) of this
paragraph.
(b) True and complete copies of the following documents with respect to any
Plan of the Company, its Subsidiaries, and each ERISA Affiliate, as applicable,
have been delivered to the Purchaser: (i) the most recent Plan document and
trust agreement (including any amendments thereto and prior plan documents, if
amended with the last two years), (ii) the last two Form 5500 filings and
schedules thereto, (iii) the most recent Internal Revenue Service ("IRS")
determination letter, (iv) all summary plan descriptions, (v) a written
description of each material non-written Plan, (vi) each written communication
to employees intended to describe a Plan or any benefit provided by such Plan,
(vii) the most recent actuarial report, and (viii) all correspondence with the
IRS, the Department of Labor and the Pension Benefit Guaranty Corporation
concerning any controversy. Each report described in clause (vii) accurately
reflects the funding status of the Plan to which it relates and subsequent to
the date of such report there has been no adverse change in the funding status
or financial condition of such Plan.
(c) Each Plan is and has been maintained in compliance in all material
respects with applicable law, including but not limited to ERISA, and the Code
and with any applicable collective bargaining agreements or other contractual
obligations.
11
(d) Except as shown on Section 4.18 of the Schedule of Exceptions, with
respect to any Plan that is subject to Section 412 of the Code ("412 Plan"),
there has been no failure to make any contribution or pay any amount due as
required by Section 412 of the Code, Section 302 of ERISA or the terms of any
such Plan, and no funding waiver has been requested or received from the IRS.
The assets of the Company, its Subsidiaries, or and ERISA Affiliates are not
now, nor will they after the passage of time be, subject to any lien imposed
under Code Section412(n) by reason of a failure of the Company, any Subsidiary,
or any ERISA Affiliate to make timely installments or other payments required
under Code Section 412.
(e) Except as shown on Section 4.18 of the Schedule of Exceptions or in the
Selected Reports, no Plan subject to Title IV of ERISA has any "Unfunded Pension
Liability." For purpose of this Agreement, Unfunded Pension Liability means, as
of any determination date, the amount, if any, by which the present value of all
benefit liabilities (as that term is defined in Section 4001(a)(16) of ERISA) of
a plan subject to Title IV of ERISA exceeds the fair market value of all assets
of such plan, all determined using the actuarial assumptions that would be used
by the PBGC in the event of a termination of the plan on such determination
date.
(f) Except as shown on Section 4.18 of the Schedule of Exceptions, to the
best knowledge of the Company, its Subsidiaries, and ERISA Affiliates, there are
no pending or threatened claims, actions or lawsuits, other than routine claims
for benefits in the ordinary course, asserted or instituted against (i) any Plan
or its assets, (ii) any ERISA Affiliate with respect to any 412 Plan, or (iii)
any fiduciary with respect to any Plan for which the Company, its Subsidiaries,
or any ERISA Affiliate may be directly or indirectly liable, through
indemnification obligations or otherwise.
(g) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
incurred and or reasonably expects to incur (i) any withdrawal liabilities as
defined in Section 4201 of ERISA ("Withdrawal Liability") and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in Withdrawal Liabilities, or any liability under Section 4063, 4064, or
4243, or (ii) any outstanding liability under Title IV of ERISA with respect to
any 412 Plan.
(h) Except as shown on Section 4.18 of the Schedule of Exceptions, within
the last five years, neither the Company, any Subsidiary, nor any ERISA
Affiliate has transferred anyassets or liabilities of a 412 Plan subject to
Title IV of ERISA which had, at the date of such transfer, an Unfunded Pension
Liability or has engaged in a transaction which may reasonably be subject to
Section 4212(c) or Section 4069 of ERISA.
(i) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
engaged, directly or indirectly, in a non-exempt prohibited transaction (as
defined in Section 4975 of the Code or Section 406 of ERISA) in connection with
any Plan.
(j) Except as shown on Section 4.18 of the Schedule of Exceptions, neither
the Company, any Subsidiary, nor any ERISA Affiliate has any unfunded liability
with respect to any non-tax qualified deferred compensation plan.
12
(k) Neither the Purchaser nor its affiliates will have (i) an obligation to
make contribution(s) to any multiemployer plan (as defined in Section 3(37) of
ERISA), or (ii) any Withdrawal Liability (whether imposed and not yet paid or
calculated assuming a complete or partial withdrawal of the Company, any
Subsidiary, or any ERISA Affiliate as of such date not yet imposed) which it
would not have had it not entered into the transactions described in this
Agreement.
(l) Except as shown on Section 4.18 of the Schedule of Exceptions, during
the last two years there have been no amendments to any Plan, no written
interpretation or announcement (whether or not written) by the Company, any
Subsidiary, or any ERISA Affiliate relating to any Plan, there have been and are
no negotiations, demands, or proposals which are pending that concern any Plan,
nor has any Plan been established, which resulted in or could result in a
material increase in (i) the accrued or promised benefits of any employees of
the Company, or any Subsidiary, or any ERISA Affiliate and (ii) any material
increase in the level of expense incurred in respect thereof.
(m) There has been no "Reportable Event" with respect to any 412 Plan
subject to Title IV of ERISA within the last five years.
(n) Neither the Company, any Subsidiary, nor any ERISA Affiliate sponsors,
maintains or has obligations, direct, contingent or otherwise, with respect to
any Plan that is subject to the laws of any country other than the United
States.
(o) No ERISA Affiliate maintains an employee stock ownership plan or other
plan holding securities of the Company, any Subsidiary, or any ERISA Affiliate.
(p) Each Plan that provides welfare benefits has been operated in
compliance with all requirements of Sections 601 through 608 of ERISA and either
(i) Section 162(i)(2) and (k) of the Code and regulations thereunder (prior to
1989) or (ii) Section 4980B of the Code and regulations thereunder after 1988,
relating to the continuation of coverage under certain circumstances in which
coverage would otherwise cease. Neither the Company, any Subsidiary, nor any
ERISA Affiliate has contributed to a nonconforming group health plan (as defined
under Code Section 5000(c) and no ERISA Affiliate has incurred a tax under
Section 5000(a) of the Code which could become a liability of the Company, any
Subsidiary, or any ERISA Affiliate. Except as shown on Section 4.18 of the
Schedule of Exceptions or in the Selected Reports, the Company, any Subsidiary,
or any ERISA Affiliate does not and has not maintained, sponsored or provided
post-retirement medical benefits, post-retirement death benefits or other post-
retirement welfare benefits to its current employees or former employees except
as required by Section 4980B of the Code and at the sole expense of the
participant or the beneficiary of the participant. The Company has complied in
all respects with all requirements of the Health Insurance Portability and
Accountability Act of 1996 with respect to each Plan that provides welfare
benefits.
(q) Except as shown on Section 4.18 of the Schedule of Exceptions, the
Company, its Subsidiaries, and its ERISA Affiliates has funded or will fund each
Plan in
13
accordance with the terms of such Plan through the Closing Date, including the
payment of applicable premiums on any insurance contract funding a Plan, for
coverage provided through the Closing Date.
(r) No Plan has been amended since the date of its most recent IRS
determination letter which would materially increase its cost and no Plan has
been amended in a manner that would require security to be provided in
accordance with Section 401(a)(29) of the Code.
(s) Each Plan that is intended to be a tax qualified Plan under Section
401(a) of the Code ("Tax Qualified Plan") has been determined by the IRS to
qualify under Section 401 of the Code, and the trusts created thereunder have
been determined to be exempt from tax under the provisions of Section 501 of the
Code, and to the best knowledge of the Company, its Subsidiaries, and its ERISA
Affiliates nothing has occurred, including the adoption of or failure to adopt
any Plan amendment, which would adversely affect its qualification or tax-exempt
status.
(t) Except as disclosed on Section 4.18 of the Schedule of Exceptions, no
employee or former employee of the Company, any Subsidiary, or any ERISA
Affiliate will become entitled to any bonus, retirement, severance, job security
or similar benefit, or any enhancement to any such benefit (including
acceleration of vesting or exercise of an incentive award) as a result of the
transactions contemplated under this Agreement and no agreement (whether oral or
written) of the employer, with respect to a current or former employee, provides
for the payment of any amounts which would fail to be deductible for federal
income tax purposes by reason of Section 280G of the Code.
4.19. Disclosure. The information heretofore provided and to be provided
pursuant to this Agreement, including the Schedules of Exceptions and the
Exhibits hereto, and each of the agreements, documents, certificates and
writings previously delivered to the Purchasers or their representatives, do not
and will not contain any untrue statement of a material fact and do not and will
not omit to state a material fact required to be stated herein or therein or
necessary in order to make the statements and writings contained herein and
therein not false or misleading in the light of the circumstances under which
they were made. To the knowledge of the Company, there is no fact which
materially adversely affects the business, prospects or condition (financial or
otherwise) of the Company which has not been set forth herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally represents and warrants to the Company
that it is acquiring the Securities for investment for its own account and is
not acquiring any of the Securities with the view to, or for resale in
connection with, any distribution thereof. Each Purchaser understands that none
of the Securities have been registered under the Securities Act.
14
If the Purchaser should in the future decide to dispose of any Securities it is
understood that the Purchaser may do so only in compliance with the Securities
Act.
ARTICLE VI
CONDITIONS TO CLOSING OF THE PURCHASERS
The obligation of each Purchaser to purchase the Securities at the Closing
is subject to the fulfillment to such Purchaser's satisfaction on or prior to
the Closing Date of each of the following conditions, any of which may be waived
by such Purchaser:
6.1. Representations and Warranties Correct. The representations and
warranties in Article 4 hereof shall be true and correct in all material
respects when made, and shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been made on and
as of the Closing Date.
6.2. Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with by the Company in
all material respects.
6.3. Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate of the Company's President, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 6.1 and
6.2 of this Agreement and other matters as the Purchaser shall reasonably
request.
6.4. No Impediments. Neither the Company nor any Purchaser shall be subject
to any order, decree or injunction of a court or administrative agency of
competent jurisdiction which would impose any material limitation on the ability
of such Purchaser to exercise full rights of ownership of the Securities.
6.5. Waivers and Amendments of Rights of First Refusal. The Company shall
have obtained from each person other than a Purchaser who has any currently
effective right of first refusal with respect to the Securities, a written
waiver of such right in form and substance satisfactory to the Purchasers. In
addition, (a) each person (other than a holder of the Company's 10% Convertible
Subordinated Debentures due August 6, 2001 (the "Prior Debentures")) who holds
any other right of first refusal or preemptive right, shall have irrevocably
waived and released such rights and (b) each holder of a Prior Debenture ("Old
Holder") shall have agreed to amend such Old Holder's right so that such rights
shall be governed by Section 16.1(b) of this Agreement.
6.6. Other Agreements and Documents. The Company shall have issued to such
Purchaser all of the Securities (including the Debenture, the $2.375 Warrants
and the $1.50 Warrants) and the Company or each of its Subsidiaries (other than
any Subsidiary which has no material assets and is inactive) shall have executed
and delivered the following agreements and documents:
15
(a) The Company Security Agreement in the form of Exhibit F attached
hereto;
(b) The Guaranties in the form of Exhibit G attached hereto;
(c) The Guarantors Security Agreement in the form of Exhibit H
attached hereto;
(d) Financing Statements on Form UCC-1 with respect to all personal
property and assets of the Company and each Guarantor;
(e) A certified copy of the Certificate of Incorporation of the
Company and each Guarantor and all amendments thereto;
(f) A copy of the By-Laws of the Company and each Guarantor as amended
to date, certified as being true by a principal officer of the Company;
(g) A Certificate of Good Standing and Tax Status from the state of
incorporation of the Company and each Guarantor and from every state in
which any of them is qualified to do business; and
(h) The Mortgages.
6.7. Consents. The Company shall have obtained all necessary consents or
waivers, if any, from all parties to any other material agreements to which the
Company is a party or by which it is bound immediately prior to the Closing in
order that the transactions contemplated hereby may be consummated and the
business of the Company may be conducted by the Company after the Closing
without adversely affecting the Company.
6.8. Legal Investment. At the time of the Closing, the purchase of the
Securities to be purchased by each Purchaser hereunder shall be legally
permitted by all laws and regulations to which the Purchasers and the Company
are subject.
6.9. Due Diligence Investigation. No fact shall have been discovered,
whether or not reflected in the Schedule of Exceptions, which in a Purchaser's
determination would make the consummation of the transactions contemplated by
this Agreement not in such Purchaser's best interests.
6.10. Proceedings and Other Documents. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement shall have
been taken and the Purchasers shall have received such other documents, in form
and substance reasonably satisfactory to the Purchasers and their counsel, as to
such other matters incident to the transaction contemplated hereby as the
Purchasers may reasonably request.
16
6.11. Opinion of Counsel. The Purchasers shall have received the opinion of
St. John & Wayne, L.L.C., counsel to the Company, dated the Closing Date,
substantially in the form of Exhibit I attached hereto.
6.12. Election of Directors. Two designees of the Purchasers shall have
been elected as directors of the Company and shall have taken office.
6.13. Employment Agreements. Michael Reicher and Peter Clemens shall have
entered into Employment Agreements with the Company substantially in the form of
Exhibits J and K, respectively.
6.14. Proxies. The persons set forth on Exhibit L-1 shall have delivered to
a person designated by Galen an irrevocable proxy in the form of Exhibit L-2.
6.15. Deferred Conditions. To the extent set forth on Exhibit M, the
Purchasers waive compliance by the Company on or prior to the Closing Date of
those, but only those, conditions of the Purchase Agreement set forth on Exhibit
M (the "Deferred Conditions"); provided, however, that if the Company does not
comply with all Deferred Conditions prior to April 10, 1998, then an Event of
Default (as hereinafter defined) shall be deemed to occur as of 5:00 p.m. on
April 10, 1998 and the occurrence of such Event of Default shall not be subject
to the giving of any notice to the Company or an opportunity to cure.
ARTICLE VII
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell the Securities at the Closing is subject
to the fulfillment to its satisfaction on or prior to the Closing Date of each
of the following conditions:
7.1. Representations. The representations made by each Purchaser pursuant
to Article 5 hereof shall be true and correct when made and shall be true and
correct on the Closing Date.
7.2. Legal Investment. At the time of the Closing, the purchase of the
Securities shall be legally permitted by all laws and regulations to which the
Purchasers and the Company are subject.
7.3. Payment of Purchase Price. The Company shall have received payment in
full of the purchase price for the Securities.
17
ARTICLE VIII
PREPAYMENT; CHANGE OF CONTROL
PURCHASE OFFER; CONVERSION RIGHTS
8.1. No Optional Prepayments. The Company may not at any time, without the
prior written consent of the holders of all outstanding Debentures, prepay any
Debenture, in whole or in part.
8.2. Change of Control.
(a) Upon the occurrence of a Change of Control (as hereinafter defined),
the Company shall make an offer to all holders of Debentures to purchase (a
"Change of Control Offer") all outstanding Debentures and will purchase, on a
day not more than thirty (30) days after the occurrence of the Change of Control
(such purchase date being the "Change of Control Purchase Date"), all Debentures
properly tendered pursuant to such offer to purchase for a cash price (the
"Change of Control Purchase Price") equal to the applicable percentage of the
outstanding principal amount of the Debentures in the table set forth below,
plus accrued and unpaid interest, if any, to the Change of Control Purchase
Date. The applicable percentages are as follows:
Purchase Price as a Percentage of
If Change of Control Occurs During the Outstanding Principal of Debenture
Twelve Month Period Commencing on to be Purchased
- -------------------------------------- ------------------------------------
Closing Date 150%
First Anniversary of Closing Date 140%
Second Anniversary of Closing Date 130%
Third Anniversary of Closing Date 120%
Fourth Anniversary of Closing Date 110%
(b) In order to effect a Change of Control Offer, the Company shall within
ten (10) days after the occurrence of the Change of Control mail to each holder
of a Debenture a copy of the Change of Control Offer. The Change of Control
Offer shall remain open from the time of mailing for at least fifteen (15)
calendar days. The notice, which shall govern the terms of the Change of Control
Offer, shall include such disclosures as are required by law and shall state:
(i) the date of such Change of Control and, briefly, the events
causing such Change of Control;
(ii) that the Change of Control Offer is being made pursuant to this
Section 8.2 and that all Debentures tendered in the Change of Control Offer
will be accepted for payment;
18
(iii) the Change of Control Purchase Price for each Debenture, the
Change of Control Purchase Date, the date on which the Change of Control
Offer expires, that ifthe holder desires to accept the Change of Control
Offer, the Debenture held by such holder must be surrendered to the Company
or any designated paying agent prior to 5:00 p.m. on the Change of Control
Purchase Date, and the name and address of any such paying agent, if any;
(iv) that any Debenture not tendered for payment will continue to
accrue interest in accordance with the terms thereof;
(v) that, unless the Company shall default in the payment of the
Change of Control Purchase Price, any Debenture accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date;
(vi) that holders will be entitled to withdraw their election if the
Company or paying agent receives, not later than 5:00 p.m. on the day
preceding the Change of Control Purchase Date a telex or facsimile
transmission (confirmed by overnight delivery of the original thereof) or
letter setting forth the name of the holder, the principal amount of
Debentures the holder delivered for purchase, and a statement that such
holder is withdrawing its election to have such Debentures purchased;
(vii) that holders whose Debentures are purchased only in part will be
issued Debentures equal in principal amount to the unpurchased portion of
the Debentures surrendered; and
(viii) any other instructions that holders must follow in order to
tender their Debentures and the procedures for withdrawing a election to
accept a Change on Control Offer.
(c) On the Change of Control Purchase Date, the Company shall (i) accept
for payment Debentures or portions thereof tendered pursuant to the Change of
Control Offer and (ii) deposit with the paying agent, if any, money in United
States dollars, in immediately available funds, sufficient to pay the Change of
Control Purchase Price of all Debentures or portions thereof so tendered and
accepted. The Company shall, or cause any paying agent to, promptly disburse or
deliver to the holders of Debentures so accepted payment in an amount equal to
such Change of Control Purchase Price, and mail or deliver to such holders a new
Debenture equal in principal amount to any unpurchased portion of each Debenture
surrendered.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations, in connection with the repurchase of Debentures pursuant to a
Change of Control Offer. To the extent that the provision of any securities laws
or regulations conflict with the provisions of this Section 8.2, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 8.2 by virtue
thereof.
(e) For purposes of this Agreement, the term "Change of Control" means the
occurrence of any of the following: (i) the consummation of any transaction the
result of which
19
is that any person or group (as such term is used in Section 13(d)(3) of the
Exchange Act), other than Galen or any affiliate thereof or any group comprised
of any of the foregoing, owns, directly or indirectly, 51% of the Common Equity
(as hereinafter defined) of the Company, (ii) the Company consolidates with, or
merges with or into, another person (other than a direct or indirect
wholly-owned Subsidiary) or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of the Company's assets or the
assets of the Company and its Subsidiaries taken as a whole to any person, or
any person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock (as
hereinafter defined) of the Company, as the case may be, is converted into or
changed for cash, securities or other property, other than any such transaction
where the outstanding Voting Stock of the Company, as the case may be, is
converted into or exchanged for Voting Stock of the surviving or transferee
corporation and the beneficial owners of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction, (iii) the Company, either individually or in
conjunction with one or more Subsidiaries sells, assigns, conveys, transfers,
leases or otherwise disposes of, or the Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of, all or substantially all of the
properties and assets of the Company and its Subsidiaries, taken as a whole
(either in one transaction or a series of related transactions), including
capital stock of the Subsidiaries, to any person (other than the Company or a
wholly owned Subsidiary of the Company), or (iv) during any two (2) year period
commencing subsequent to the date of this Agreement, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of two-thirds of the directors then still in office) who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved cease for any reason to constitute a
majority of the Board of Directors then in office; provided, however, that a
person shall not be deemed to have ceased being a director for such purpose if
such person shall have resigned or died or if the involuntary removal of such
person was made at the direction of persons holding a majority in principal
amount of the outstanding Debentures. For purposes of this Section 8.2(e), (i)
the term "Common Equity" of the Company means all capital stock of the Company
that is generally entitled to vote on the election of Directors and (ii) the
term "Voting Stock" of the Company mean securities of any class of capital stock
of the Company entitling the holders thereof to vote in the election of members
of the board of directors of the Company.
ARTICLE IX
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees, so long as any Securities remain
outstanding, as follows:
9.1. Maintenance of Corporate Existence, Properties and Leases; Taxes;
Insurance.
20
(a) The Company shall and shall cause each of its Subsidiaries to, maintain
in full force and effect its corporate existence, rights and franchises and all
material terms of licenses and other rights to use licenses, trademarks, trade
names, service marks, copyrights, patents or processes owned or possessed by it
and necessary to the conduct of its business.
(b) The Company shall and shall cause its Subsidiaries to, keep each of its
properties necessary to the conduct of its business in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company shall and shall cause its Subsidiaries to
at all times comply with each material provision of all leases to which it is a
party or under which it occupies property.
(c) The Company shall and shall cause each of its Subsidiaries to, promptly
pay and discharge, or cause to be paid and discharged when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, assets, property or business of the Company and its
Subsidiaries, and all claims or indebtedness (including, without limitation,
claims or demands of workmen, materialmen, vendors, suppliers, mechanics,
carriers, warehousemen and landlords) which, if unpaid might become a lien upon
the assets or property of the Company or Subsidiary; provided, however, that any
such tax, assessment, charge or levy need not be paid if the validity thereof
shall be contested timely and in good faith by appropriate proceedings, if the
Company or Subsidiary shall have set aside on its books adequate reserves with
respect thereto, and the failure to pay shall not be prejudicial in any material
respect to the holders of the Securities, and provided, further, that the
Company or Subsidiary will pay or cause to be paid any such tax, assessment,
charge or levy forthwith upon the commencement of proceedings to foreclose any
lien which may have attached as security therefor. The Company shall and shall
cause its Subsidiaries to pay or cause to be paid all other indebtedness
incident to the operations of the Company or its Subsidiaries.
(d) The Company shall and shall cause each of its Subsidiaries to, keep its
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by theft, fire, explosion and other
risks customarily insured against by companies in the line of business of the
Company or its Subsidiaries, in amounts sufficient to prevent the Company or its
Subsidiaries from becoming a co-insurer of the property insured; and the Company
shall and shall cause its Subsidiaries to maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated or as may be required by law, including,
without limitation, general liability, fire and business interruption insurance,
and product liability insurance as may be required pursuant to any license
agreement to which the Company or its Subsidiaries is a party or by which it is
bound.
9.2. Basic Financial Information. The Company shall furnish the following
reports to each Purchaser (or any transferee of any Securities), so long as the
Purchaser is a holder of any Securities:
(a) within sixty (60) days (for each of March and April 1998),
forty-five (45) days (for each of the next 12 months thereafter) and thirty
(30) days (for each month thereafter)
21
after the end of each of the twelve (12) monthly accounting periods in each
fiscal year (or when furnished to the Company's Board of Directors, if
earlier), unaudited consolidated statements of income and retained earnings
and cash flows of the Company and its Subsidiaries for each monthly period
and for the period from the beginning of such fiscal year to the end of
such monthly period, together with consolidated balance sheets of the
Company and its Subsidiaries as at the end of each monthly period, setting
forth in each case comparisons to budget (with respect to the provision of
the financial information to be provided herein commencing January 1999 and
thereafter) and to corresponding periods in the preceding fiscal year,
which statements will be prepared in accordance with generally accepted
accounting principles, consistently applied;
(b) within ninety (90) days after the end of each fiscal year,
consolidated statements of income and retained earnings and cash flows of
the Company and its Subsidiaries for the period from the beginning of each
fiscal year to the end of such fiscal year, and consolidated balance sheets
as at the end of such fiscal year, setting forth in each case in
comparative form corresponding figures for the preceding fiscal year, which
statements will be prepared in accordance with generally accepted
accounting principles, consistently applied (except as approved by the
accounting firm examining such statements and disclosed by the Company),
and will be accompanied by:
(i) an unqualified report of the Company's independent certified
public accounting firm; for purposes of this Section, a report on the
consolidated financial statements of the Company and its Subsidiaries
as of December 31, 1997 and for the year then ended disclosing a
"going concern" qualification, but no other qualification, shall be
considered "unqualified, but a report covering any period ending
subsequent to December 31, 1997 disclosing a "going concern" paragraph
shall not be considered "unqualified";
(ii) a report from such accounting firm, addressed to the
Purchasers, stating that in making the audit necessary to express
their opinion on such financial statements, nothing has come to their
attention which would lead them to believe that the Company is not in
compliance with all the financial covenants contained in, or an event
of default has occurred with respect to, any material agreements to
which the Company or its Subsidiaries is a party or by which it is
bound, including, without limitation, this Agreement (an "Event of
Noncompliance") or, if such accountants have reason to believe that
any Event of Noncompliance has occurred, a letter specifying the
nature thereof; and
(iii) the management letter of such accounting firm;
(c) within forty-five (45) days after the end of each quarterly
accounting period in each fiscal year, a certificate of the Chief Financial
Officer of the Company stating that the Company is in compliance with the
terms of this Agreement and any other material contract or commitment to
which the Company or any of its Subsidiaries is a party or by which any of
them is bound, or if the Company or any of its Subsidiaries is not in
compliance, specifying the nature and period of noncompliance, and what
actions the Company or such Subsidiary has taken and/or proposes to take
with respect thereto. Notwithstanding the foregoing, the certificate
delivered at the end of each fiscal year of the Company shall be signed by
both the Chief Executive Officer
22
and the Chief Financial Officer of the Company and shall be delivered
within ninety (90) days after the end of the fiscal year;
(d) promptly upon receipt thereof, any additional reports or other
detailed information concerning significant aspects of the operations and
condition, financial or otherwise, of the Company and its Subsidiaries,
given to the Company by its independent accountants;
(e) at least thirty (30) days prior to the end of each fiscal year
(commencing with November 30, 1998 for the fiscal year commencing on
January 1, 1999), a detailed annual operating budget and business plan for
the Company and its Subsidiaries for the succeeding twelve-month period.
Such budgets shall be prepared on a monthly basis, displaying consolidated
statements of anticipated income and retained earnings, consolidated
statements of anticipated cash flow and projected consolidated balance
sheets, setting forth in each case the assumptions (which assumptions and
projections shall represent and be based upon the good faith judgment in
respect thereof of the chief executive officer of the Company) behind the
projections contained in such financial statements, and which budgets shall
have been approved by the Board of Directors of the Company (including a
majority of the directors designated by the Purchasers in accordance with
Section 9.8(a) of this Agreement) prior to the beginning of each
twelve-month period for which such budget shall have been prepared and,
promptly upon preparation thereof, any other budgets that the Company may
prepare and any revisions of such annual or other budgets;
(f) within ten (10) days after transmission or receipt thereof, copies
of all financial statements, proxy statements and reports which the Company
sends to its stockholders or directors, and copies of all registration
statements and all regular, special or periodic reports which it or any of
its officers or directors files with the Commission, the American Stock
Exchange (the "AMEX") or with any other securities exchange on which any of
the securities of the Company are then listed or proposed to be listed,
copies of all press releases and other statements made generally available
by the Company to the public concerning material developments in the
business of the Company and its Subsidiaries and copies of material
communications sent to or received from stockholders, directors or
committees of the Board of Directors of the Company or any of its
Subsidiaries and copies of all material communications sent to and received
from any lender to the Company; and
(g) with reasonable promptness such other information and financial
data concerning the Company as any person entitled to receive materials
under this Section 9.2 may reasonably request.
9.3. Notice of Adverse Change. The Company shall promptly give notice to
all holders of any Securities (but in any event within seven (7) days) after
becoming aware of the existence of any condition or event which constitutes, or
the occurrence of, any of the following:
(a) any Event of Noncompliance;
(b) any other Event of Default;
23
(c) the institution or threatening of institution of an action, suit
or proceeding against the Company or any Subsidiary before any court,
administrative agency or arbitrator, including, without limitation, any
action of a foreign government or instrumentality, which, if adversely
decided, could materially adversely affect the business, prospects,
properties, financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole whether or not arising in the ordinary
course of business; or
(d) any information relating to the Company or any Subsidiary which
could reasonably be expected to materially and adversely affect the assets,
property, business or condition (financial or otherwise) of the Company or
its ability to perform the terms of this Agreement. Any notice given under
this Section 9 shall specify the nature and period of existence of the
condition, event, information, development or circumstance, the anticipated
effect thereof and what actions the Company has taken and/or proposes to
take with respect thereto.
9.4. Compliance With Agreements; Compliance With Laws. The Company shall
comply and cause its Subsidiaries to comply, with the terms and conditions of
all material agreements, commitments or instruments to which the Company or any
of its Subsidiaries is a party or by which it or they may be bound. The Company
shall and shall cause each of its Subsidiaries to duly comply in all material
respects with any material laws, ordinances, rules and regulations of any
foreign, Federal, state or local government or any agency thereof, or any writ,
order or decree, and conform to all valid requirements of governmental
authorities relating to the conduct of their respective businesses, properties
or assets, including, but not limited to, the requirements of the FDA Act, the
Prescription Drug Marketing Act, the CSA, the Employee Retirement Income
Security Act of 1978, the Environmental Protection Act, the Occupational Safety
and Health Act, the Foreign Corrupt Practices Act and the rules and regulations
of each of the agencies administering such acts.
9.5. Protection of Licenses, etc. The Company shall and shall cause its
Subsidiaries to, maintain, defend and protect to the best of their ability
licenses and sublicenses (and to the extent the Company or a Subsidiary is a
licensee or sublicensee under any license or sublicense, as permitted by the
license or sublicense agreement), trademarks, trade names, service marks,
patents and applications therefor and other proprietary information owned or
used by it or them and shall keep duplicate copies of any licenses, trademarks,
service marks or patents owned or used by it, if any, at a secure place selected
by the Company.
9.6. Accounts and Records; Inspections.
(a) The Company shall keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to the business and affairs of the Company and its Subsidiaries in
accordance with generally accepted accounting principles applied on a consistent
basis.
(b) The Company shall permit each holder of any Securities or any of such
holder's officers, employees or representatives during regular business hours of
the Company, upon reasonable notice and as often as such holder may reasonably
request, to visit and inspect the offices and properties of the Company and its
Subsidiaries and (i) to make extracts or copies
24
of the books, accounts and records of the Company or its Subsidiaries, and (ii)
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries, with the Company's (or Subsidiary's) directors and officers, its
independent public accountants, consultants and attorneys.
(c) Nothing contained in this Section 9.6 shall be construed to limit any
rights which a holder of any Securities (a "Holder") may have with respect to
the books and records of the Company and its Subsidiaries, to inspect its
properties or to discuss its affairs, finances and accounts.
9.7. Independent Accountants. The Company will retain a firm of independent
certified public accountants approved by a majority of the directors designated
by the Purchasers pursuant to Section 9.8 of this Agreement (an "Approved
Accounting Firm") to audit the Company's financial statements at the end of each
fiscal year. In the event the services of the Approved Accounting Firm or any
firm of independent public accountants hereafter employed by the Company are
terminated, the Company will promptly thereafter request the firm of independent
public accountants whose services are terminated to deliver to any Holders a
letter of such firm setting forth its understanding as to the reasons for the
termination of their services andwhether there were, during the two most recent
fiscal years or such shorter period during which said firm had been retained by
the Company any disagreements between them and the Company on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. In its notice, the Company shall state whether the change of
accountants was recommended or approved by the Board of Directors or any
committee thereof. In the event of such termination, the Company will promptly
thereafter engage another Approved Accounting Firm.
9.8. Board Members and Meetings.
(a) The Company agrees to hold meetings of its Board of Directors at least
four (4) times a year, at no more than three-month intervals. So long as the
Purchasers own any Securities, the Purchasers shall have the right to designate
for nomination two persons to be members of the Company's Board of Directors and
the Company shall cause such designees to be elected on the Closing Date. The
Purchasers shall have the right to designate an additional person to be a member
of the Board of Directors commencing with the first Annual Meeting of
Stockholders of the Company to be held after the Closing Date and, so long as
the Purchasers own any Securities, at each annual meeting of Stockholders held
thereafter, the Purchaser shall have the right to nominate three designees to be
members of the Board of Directors. The Purchasers shall also have the right at
all times so long as the Purchasers own any Securities to designate one
additional person to attend all meetings of the Board of Directors or committees
thereof as an observer.
(b) If at any time the Board of Directors designates a committee or
committees to act on behalf of the Board, at least one of the directors
designated by the Purchasers shall be a member of such committee or committees.
(c) The following matters require the approval of a majority of the
directors designated by the Purchasers: (i) approval of budgets; (ii) the
issuance by the Company of any
25
capital stock at a price below the current market price of such stock; (iii) any
amendment of the Certificate of Incorporation or By-Laws of the Company; (iv)
any action to be taken by the Company which would result in a Change of Control;
and (v) the selection of an Approved Accounting Firm;
9.9. Maintenance of Office. The Company will maintain its principal office
at the address of the Company set forth in Section 17.5 of this Agreement where
notices, presentments and demands in respect of this Agreement and any of the
Securities may be made upon the Company, until such time as the Company shall
notify the holders of the Securities in writing, at least thirty (30) days prior
thereto, of any change of location of such office.
9.10. Use of Proceeds. The Company shall use all the proceeds received from
the sale of the Securities pursuant to this Agreement for the purposes set forth
in Section 9.10 of the Schedule of Exceptions.
9.11. Key Man Life Insurance. Within 90 days after the Closing Date, the
Company shall obtain a five year (or longer) "key man" insurance policy on the
life of Michael Reicher, naming the Company as beneficiary. Such policy shall be
issued by an insurance company licensed to do business in New York and having a
rating from Best's not less than "A". The policy shall provide that duplicate
copies of premium notices shall be delivered to each Purchaser simultaneously
with delivery to the Company. The Company covenants that it will not cancel any
key man life insurance policy referred to herein without the prior written
consent of the holders of a majority of the outstanding principal amount of the
Debentures. The Company will pay the premiums on the insurance policy referred
to in this Section 9.11 at least ten (10) days prior to the due date thereof
and, simultaneously with such payment, will deliver proof of payment to the
Purchasers.
9.12. Payment of Debentures. The Company shall pay the principal of and
interest on the Debentures in the time, the manner and the form provided
therein.
9.13. Reporting Requirements. The Company shall comply with its reporting
and filing obligations pursuant to Section 13 or 15(d) of the Exchange Act. The
Company shall provide copies of such reports, including, without limitation,
reports on Form 10-K, 10-Q, 8-K and Schedule 14A promulgated under the Exchange
Act, or substantially the same information required to be contained in any
successor form, to each holder of Securities promptly upon filing with the
Commission.
9.14. Authorization of Shares of Common Stock for Issuance Upon Conversion
of Debentures and Exercise of Warrants and Voting Rights for Debenture Holders.
The Company willpresent to its shareholders for consideration at the next annual
meeting of the Company's shareholders, to occur on or prior to June 30, 1998, a
proposal to amend the Company's Certificate of Incorporation to (a) increase the
number of authorized shares of the Company's common stock available for issuance
from 20,000,000 to 40,000,000 shares in order to provide for a sufficient number
of authorized shares to be available and reserved for issuance upon conversion
of the Debentures and exercise of the Warrants and (b) provide that holders of
Debentures shall have the right to vote as part of a single class with all
holders of Common Stock
26
of the Company on all matters to be voted on by such stockholders with such
Holder having such number of votes as shall equal the number of votes they would
have had such Holders converted the entire outstanding principal amount of the
Debentures into Shares immediately prior to the record date relating to such
vote. Upon receipt of approval from the Company's shareholders to increase the
Company's authorized shares from 20,000,000 to 40,000,000 shares, the Company
will at all times cause there to be reserved for issuance a sufficient number of
Shares upon conversion of the Debentures and exercise of the Warrants.
9.15. Listing of Common Stock. As promptly as practicable after the Closing
Date, the Company shall file the appropriate applications for listing on the
AMEX of the maximum number of Shares available under the Company's authorized
shares which are not otherwise reserved for issuance pursuant to outstanding
options, warrants and other convertible securities. As promptly as practicable
following receipt of shareholder approval of the amendment to the Company's
Certificate of Incorporation contemplated in Section 9.14 hereof, the Company
shall file the appropriate applications for listing with the AMEX the Shares not
covered by the listing application filed by the Company in accordance with the
preceding sentence. The Company shall use its best efforts and work diligently
to accomplish such listings as promptly as practicable after the Closing Date.
9.16. HSR Act Filing. The Purchasers acknowledge and agree that until the
filing, if required, of all Pre-Merger Notifications and reports
("Notifications") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), with respect to the issuance of the
Securities and the expiration or termination of all applicable waiting periods
thereunder, a Certificate of Amendment to the Certificate of Incorporation of
the Company providing for voting rights for the Holders will not be filed. The
Company agrees to file all Notifications, if any, required to be filed by it
under the HSR within sixty (60) days after the date hereof.
9.17. Further Assurances. From time to time the Company shall execute and
deliver to the Purchasers and the Purchasers shall execute and deliver to the
Company such other instruments, certificates, agreements and documents and take
such other action and do all other things as may be reasonably requested by the
other party in order to implement or effectuate the terms and provisions of this
Agreement and any of the Securities.
ARTICLE X
NEGATIVE COVENANTS
The Company hereby covenants and agrees, so long as any Purchaser owns any
Debentures, it will not (and not allow any of its Subsidiaries to), directly or
indirectly, without the prior written consent of the holders of at least a
majority in aggregate principal amount of the Debentures then outstanding, as
follows:
10.1. Payment of Dividends; Stock Purchase. Declare or pay any cash
dividends on, or make any distribution to the holders of, any shares of capital
stock of the Company, other than dividends or distributions payable in such
capital stock, or purchase, redeem or otherwise
27
acquire or retire for value any shares of capital stock of the Company or
warrants or rights to acquire such capital stock.
10.2. Stay, Extension and Usury Laws. At any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereinafter in
force, which may affect the covenants or the performance of the Debentures, the
Company hereby expressly waiving all benefit or advantage of any such law, or by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Holders but will suffer and permit the execution of every
such power as though no such law had been enacted.
10.3. Reclassification. Effect any reclassification, combination or reverse
stock split of the common stock of the Company.
10.4. Liens. Except as otherwise provided in this Agreement, create, incur,
assume or permit to exist any mortgage, pledge, lien, security interest or
encumbrance on any part of its properties or assets, or on any interest it may
have therein, now owned or hereafter acquired, nor acquire or agree to acquire
property or assets under any conditional sale agreement or title retention
contract, except that the foregoing restrictions shall not apply to:
(a) liens for taxes, assessments and other governmental charges, if
payment thereof shall not at the time be required to be made, and provided
such reserve as shall be required by generally accepted accounting
principles consistently applied shall have been made therefor;
(b) liens of workmen, materialmen, vendors, suppliers, mechanics,
carriers, warehouseman and landlords or other like liens, incurred in the
ordinary course of business for sums not then due or being contested in
good faith, if an adverse decision in which contest would not materially
affect the business of the Company;
(c) liens securing indebtedness of the Company or any Subsidiaries
which (i) is permitted under Section 10.5(h) or (ii) is in an aggregate
principal amount not exceeding $500,000 and which liens are subordinate to
liens on the same assets held by the Holders;
(d) statutory liens of landlords, statutory liens of banks and rights
of set-off, and other liens imposed by law, in each case incurred in the
ordinary course of business (i) for amounts not yet overdue or (ii) for
amounts that are overdue and that are being contested in good faith by
appropriate proceedings, so long as such reserves or other appropriate
provisions, if any, as shall be required by generally accepted accounting
principles shall have been made for any such contested amounts;
(e) liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
28
(f) any attachment or judgment lien not constituting an Event of
Default;
(g) easements, rights-of-way, restrictions, encroachments, and other
minor defects or irregularities in title, in each case which do not and
will not interfere in any material respect with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
(h) any (i) interest or title of a lessor or sublessor under any
lease, (ii) restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to, or (iii) subordination of the
interest of the lessee or sublessee under such lease to any restriction or
encumbrance referred to in the preceding clause (ii), so long as the holder
of such restriction or encumbrance agrees to recognize the rights of such
lessee or sublessee under such lease;
(i) liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(j) any zoning or similar law or right reserved to or vested in any
governmental office or agency to control or regulate the use of any real
property;
(k) liens securing obligations (other than obligations representing
debt for borrowed money) under operating, reciprocal easement or similar
agreements entered into in the ordinary course of business of the Company
and its Subsidiaries;
(l) the liens listed in Section 10.4 of the Schedule of Exceptions
("Permitted Liens"); and
(m) the replacement, extension or renewal of any lien permitted by
this Section 10.4 upon or in the same property theretofore subject or the
replacement, extension or renewal (without increase in the amount or change
in any direct or contingent obligor) of the indebtedness secured thereby.
10.5. Indebtedness. Create, incur, assume, suffer, permit to exist, or
guarantee, directly or indirectly, any indebtedness, excluding, however, from
the operation of the covenant:
(a) any indebtedness or the incurring, creating or assumption of any
indebtedness secured by liens permitted by the provisions of Section 10.4
(c) above;
(b) the endorsement of instruments for the purpose of deposit or
collection in the ordinary course of business;
(c) indebtedness which may, from time to time be incurred or
guaranteed by the Company which in the aggregate principal amount does not
exceed $500,000 and is subordinate to the indebtedness under this
Agreement;
(d) indebtedness existing on the date hereof and described in Section
10.5 of the Schedule of Exceptions;
29
(e) indebtedness relating to contingent obligations of the Company and
its Subsidiaries under guaranties in the ordinary course of business of the
obligations of suppliers, customers, and licensees of the Company and its
Subsidiaries;
(f) indebtedness relating to loans from the Company to its
Subsidiaries;
(g) indebtedness relating to capital leases in an amount not to exceed
$500,000;
(h) indebtedness relating to a working capital line of credit in an
amount not to exceed $5,000,000;
(i) accounts or notes payable arising out of the purchase of
merchandise or services in the ordinary course of business; or
(j) indebtedness (if any) expressly permitted by, and in accordance
with, the terms and conditions of this Agreement.
For purposes hereof, the term "indebtedness" shall mean and include (A) all
items which would be included on the liability side of a balance sheet of the
Company (or a Subsidiary) as of the date on which indebtedness is to be
determined, excluding capital stock, surplus, capital and earned surplus
reserves, which, in effect, were appropriations of surplus or offsets to asset
values (other than reserves in respect of obligations, the amount, applicability
or validity of which is, at such date, being contested by such corporation),
deferred credits of amounts representing capitalization of leases; (B) the full
amount of all indebtedness of others guaranteed or endorsed (otherwise than for
the purpose of collection) by the Company (or Subsidiary) for which the Company
(or Subsidiary) is obligated, contingently or otherwise, to purchase or
otherwise acquire, or for the payment or purchase of which the Company (or
Subsidiary) has agreed, contingently or otherwise, to advance or supply funds,
or with respect to which the Company (or Subsidiary) is contingently liable,
including, without limitation, indebtedness for borrowed money and indebtedness
guaranteed or supported indirectly by the Company (or Subsidiary) through an
agreement, contingent or otherwise (1) to purchase the indebtedness, or (2) to
purchase, sell, transport or lease (as lessee or lessor) property, or to
purchase or sell services at prices or in amounts designed to enable the debtor
to make payment of the indebtedness or to assure the owner of the indebtedness
against loss, or (3) to supply funds to or in any other manner invest in the
debtor; and (C) indebtedness secured by any mortgage, pledge, security interest
or lien whether or not the indebtedness secured thereby shall have been assumed;
provided, however, that such term shall not mean and include any indebtedness
(x) in respect to which monies sufficient to pay and discharge the same in full
shall have been deposited with a depositary, agency or trustee in trust for the
payment thereof, or (y) as to which the Company (or Subsidiary) is in good faith
contesting, provided that an adequate reserve therefor has been set up on the
books of the Company (or Subsidiary).
10.6. Merger, Consolidation, etc. Merge or consolidate with any person
(except that the Company may merge with any wholly-owned Subsidiary so long as
the Company is the
30
surviving corporation in such merger), or sell, transfer, lease or otherwise
dispose of 10% or more of its consolidated assets (as shown on the most recent
financial statements of the Company orthe Subsidiary, as the case may be) in any
single transaction or series of related transactions (other than the sale of
inventory in the ordinary course of business), or liquidate, dissolve,
recapitalize or reorganize in any form of transaction, or acquire all or
substantially all of the capital stock or assets of another business or entity.
10.7. Amendment of Charter Documents. Except as contemplated by this
Agreement, make any amendment to the Certificate of Incorporation as heretofore
amended, or By-Laws, as heretofore amended, of the Company or the Certificate of
Incorporation or By-Laws of any of its Subsidiaries.
10.8. Loans and Advances. Except for loans and advances outstanding as of
the Closing Date and set forth in Section 10.8 of the Schedule of Exceptions,
directly or indirectly, make any advance or loan to, or guarantee any obligation
of, any person, firm or entity, except for (i) loans to employees of the Company
not in excess of $25,000 to any one employee or $100,000 in the aggregate where
such loan(s) are necessary under exigent circumstances of such employee(s) as
determined by the Board of Directors, or (ii) intercompany loans or advances and
those provided for in this Agreement.
10.9. Intercompany Transfers; Transactions With Affiliates; Diversion of
Corporate Opportunities.
(a) Make any intercompany transfers of monies or other assets in any single
transaction or series of transactions, except as otherwise permitted in this
Agreement.
(b) Engage in any transaction with any of the officers, directors,
employees or affiliates of the Company or of its Subsidiaries, except on terms
no less favorable to the Company or the Subsidiary as could be obtained at Arm's
Length (as hereinafter defined).
(c) Divert (or permit anyone to divert) any business or opportunity of the
Company or Subsidiary to any other corporate or business entity.
10.10. Personal Expenses. Except as set forth in Section 10.10 of the
Schedule of Exceptions, permit any person to charge to the Company (or any of
its Subsidiaries) any expense not directly related to the business of the
Company (or Subsidiary), including, without limitation, expenses for country and
health club membership fees and expenses, and personal travel and entertainment
expenses, or reimburse such person for any such expense.
10.11. Other Business. Enter into or engage, directly or indirectly, in any
business other than the business currently conducted or proposed to be conducted
as contemplated by this Agreement by the Company or any Subsidiary.
10.12. Investments. Make any investments in, or purchase any stock, option,
warrant, or other security or evidence of indebtedness of, any person or entity
(exclusive of any Subsidiary), other than obligations of the United States
Government or certificates of deposit or
31
other instruments maturing within one year from the date of purchase from
financial institutions with capital in excess of $100 million.
10.13. Benefit Plans. Except as contemplated by this Agreement: (a) enter
into any agreement to provide for or otherwise establish any written or
unwritten employee benefit plan, program or other arrangement of any kind,
covering current or former employees of the Company or its Subsidiaries except
for (i) any such plan, program or arrangement expressly permitted under an
agreement listed in Section 10.13 of the Schedule of Exceptions, and (ii) any
such plan, program or arrangement which a company similar to the Company in size
and financial condition, and which is engaged in a business substantially
similar to the business of the Company and its Subsidiaries, would establish or
implement for the benefit of its employees inthe ordinary course of business;
provided, however, that no such plan, program or arrangement may be established
or implemented if such action would have a material affect on the terms of
employment of the employees of the Company or its Subsidiaries, or (b) provide
for or agree to any material increase in any benefit provided to current or
former employees of the Company or its Subsidiaries over that which is provided
to such individuals pursuant to a plan or arrangement disclosed in Section 4.18
of the Schedule of Exceptions to this Agreement as of the Closing Date. For
purpose of this Section, a "material increase" shall not include any cost of
living increase or similar regular increase agreed to pursuant to the Collective
Bargaining Agreement between Halsey Drug Co., Inc. and the Drug, Chemical,
Cosmetic, Plastics and Affiliated Industries Warehouse Employees Local 815,
International Brotherhood of Teamsters.
10.14. Capital Expenditures. Other than for a capital expenditure contained
in any budget approved by the Board of Directors, including a majority of the
directors designated by thePurchasers, or capital expenditures not contained in
any such budget, but which do not exceed $100,000 in the aggregate during any
fiscal year of the Company, make or commit to make any capital expenditures.
10.15. Arm's Length Transactions. Enter into any transaction, contract or
commitment or take any action other than at Arm's Length. For purposes hereof
the term "Arm's Length" means a transaction or negotiation in which each party
is completely independent of the other, seeks to obtain terms which are most
favorable to it and has no economic or other interest in making concessions to
the other party.
ARTICLE XI
REGISTRATION RIGHTS
11.1. Restrictive Legend. Each certificate representing (i) any Debenture,
(ii) the Warrants or (iii) any Shares or other securities issued in respect of
the Debentures, Warrants or Shares, upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event or upon the exercise of
the Warrants or conversion of the Debentures, shall be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable state securities laws):
32
"THIS [NAME OF SECURITY] [AND THE COMMON STOCK ISSUABLE UPON
[CONVERSION] [EXERCISE] HEREOF] HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR ANY STATE SECURITIES
LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH
[NAME OF SECURITY] REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH [NAME OF SECURITY] [AND/OR COMMON STOCK] MAY BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
11.2. Certain Definitions. As used in this Article 11, the following terms
shall have the following respective meanings:
"Holders" shall mean the Purchasers or any person to whom a Purchaser or
transferee of a Purchaser has assigned any Debenture, Warrants or Shares.
"Initiating Holders" shall mean any persons who in the aggregate are
Holders of at least a majority of the Shares.
"Registrable Securities" shall mean any Shares issued upon exercise of the
Warrants, conversion of any Debenture or in respect of the Shares issued upon
exercise of the Warrants or conversion of any Debenture upon any stock split,
stock dividend, recapitalization or similar event.
"Requesting Stockholders' shall mean holders of securities of the Company
entitled to have securities included in any registration pursuant to Section
11.3 and who shall request such inclusion.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Sections 11.3 and 11.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling Holders for a "due diligence"
examination of the Company, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company),
exclusive of Selling Expenses.
33
"Restricted Securities" shall mean the securities of the Company required
to bear or bearing the legend set forth in Section 11.1 hereof.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder, except as otherwise provided herein.
11.3. Requested Registration.
(a) Requests for Registration. The Initiating Holders may request
registration under the Securities Act of all or part of their Registrable
Securities. Within ten (10) days after receipt of any such request, the Company
will give written notice of such requested registration to all other Holders of
Registrable Securities and any other stockholder having registration rights
which entitle it to participate in such registration. The Company will include
in such registration all Registrable Securities with respect to which it has
received written requests for inclusion therein within fifteen (15) days after
receipt of the Company's notice. The Company shall cause its management to
cooperate fully and to use its best efforts to support the registration of the
Registrable Securities and the sale of the Registrable Securities pursuant to
such registration as promptly as is practicable. Such cooperation shall include,
but not be limited to, management's attendance and reasonable presentations in
respect of the Company at road shows with respect to the offering of Registrable
Securities. The registration requested under this Section 11.3(a) is referred to
herein as a "Demand Registration."
(b) Number of Registrations. The Holders of Registrable Securities will be
entitled to request one (1) Demand Registration for which the Company will pay
all Registration Expenses. A registration will not count as a Demand
Registration until it has become effective; provided, however, that whether or
not it becomes effective the Company will pay all Registration Expenses in
connection with any registration so initiated.
(c) Priority on Demand Registrations. If a Demand Registration is an
underwritten offering, and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be included exceeds the number which can be sold in such offering, the Company
will include in such registration such number of Shares, which in the opinion of
such underwriters, may be sold, allocated among the Holders electing to
participate pro rata in accordance with the amounts of securities requested to
be so included by the respective Holders. The Company will not include in any
Demand Registration any securities which are not Registrable Securities without
the written consent of the Holders of a majority of the Registrable Securities
requesting such registration. Any persons other than Holders of Registrable
Securities who participate in a Demand Registration which is not at the
Company's expense must pay their share of the Registration Expenses. A
registration shall not count as a Demand Registration if some or all of the
Shares which any Holder desires to include therein are not included due to the
determination of the managing underwriters referred to in the first sentence of
this Section 11.3(c).
(d) Restrictions on Demand Registrations. The Company will not be obligated
to effect any Demand Registration within six (6) months after the effective date
of a previous
34
registration in which the Holders of Registrable Securities were given piggyback
rights pursuant to Section 11.4 other than a registration of Registrable
Securities intended to be offered on a continuous or delayed basis under Rule
415 or any successor rule under the Securities Act (a "Shelf Registration").
11.4. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any of
its securities under the Securities Act (other than pursuant to a Demand
Registration or pursuant to a registration on Forms S-4 or S-8 or any successors
to such forms) and the registration form to be used may be used for the
registration and contemplated disposition of Registrable Securities (a
"Piggyback Registration"), the Company will give prompt written notice to all
Holders of Registrable Securities of its intention to effect such a
registration. The Company will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within thirty (30) days after the receipt of the Company's
notice.
(b) Piggyback Expenses. The Registration Expenses of the Holders of
Registrable Securities will be paid by the Company.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities and securities of the Company with respect to
which similar registration rights have heretofore been granted and requested to
be included in such registration, pro rata in accordance with the amounts of
Registrable Securities and such securities requested to be so included by the
respective Holders and holders of such securities of the Company; and (iii)
third, any other securities requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
will include in such registration (i) first, the securities requested to be
included therein by the holders requesting such registration, (ii) second, the
Registrable Securities and securities of the Company with respect to which
similar registration rights have heretofore been granted and requested to be
included in such registration, pro rata in accordance with the amounts of
Registrable Securities and such securities requested to be so included by the
respective Holders and holders of such securities of the Company, and (iii)
third, other securities requested to be included in such registration.
(e) Other Restrictions. The Company hereby agrees that if it has previously
filed a registration statement with respect to Registrable Securities pursuant
to Section 11.3 or pursuant
35
to this Section 11.4, and if such previous registration has not been withdrawn
or abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any other similar form for employee benefit plans),
whether on its own behalf or at the request of any holder or holders of such
securities, until a period of at least six (6) months has elapsed from the
effective date of such previous registration or, if sooner, until all
Registrable Securities included in such previous registration have been sold.
11.5. Holdback Agreements.
(a) Each Holder of Registrable Securities which is a party to this
Agreement agrees not to effect any public sale or distribution of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration) or, if sooner, until all Registrable Securities
included within such registration have been sold.
(b) The Company agrees (i) not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any other
similar form for employee benefit plans) or, if sooner, until all Registrable
Securities included within such registration have been sold, and (ii) to use its
reasonable best efforts to cause each holder of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any public sale or
distribution of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted) or, if sooner, until all
Registrable Securities included within such registration have been sold.
11.6. Registration Procedures. Whenever the Holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Article 11, the Company will use its reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities, which registration statement will
state that the Holders of Registrable Securities covered thereby may sell
such Registrable Securities either under such registration statement or, at
any Holder's proper request, pursuant to Rule 144 (or any similar rule then
in effect), and use its best efforts to cause such registration statement
to become effective (provided that before filing a registration statement
or prospectus or any amendments or supplements thereto, the Company will
furnish to the counsel selected by the Holders of a
36
majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period set forth in Section 11.6(j) hereof and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
subsection, (ii) subject itself to taxation in any such jurisdiction, or
(iii) consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any fact necessary to make
the statements therein not misleading, and, at the request of any such
seller, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Holders
of a majority of the Registrable Securities being sold or the underwriters,
if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
using its best efforts to effect a stock split or a combination of shares);
37
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(j) keep each registration statement effective until the earlier to
occur of (i) the Holder or Holders have completed the distribution
described in the registration statement relating thereto (including a Shelf
Registration) and (ii) two years.
11.7. Expenses of Registration. All Registration Expenses incurred in
connection with a registration, qualification or compliance pursuant to this
Article 11 shall be borne by the Company, and all Selling Expenses shall be
borne by the Holders and the Requesting Stockholders of the securities so
registered pro rata on the basis of the number of their shares so registered;
provided, however, that the Company shall not be required to pay any
Registration Expenses if, as a result of the withdrawal of a request for
registration by Initiating Holders, the registration statement does not become
effective, in which case the Holders and Requesting Stockholders requesting
registration shall bear such Registration Expenses pro rata on the basis of the
number of their shares so included in the registration request, and, further,
that such registration shall not be counted as a Demand Registration pursuant to
Section 11.3.
11.8. Indemnification.
(a) The Company will indemnify each Holder, each Holder's officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance of such Holder's securities has
been effected pursuant to this Article 11, and each underwriter, if any, and
each person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, prospectus, offering circular or other document
(including any related registration statement notification or the like) incident
to any such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each Holder's officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, provided, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or action arises out of or is based on any untrue
statement or omission of material fact based upon written information furnished
to the Company by such Holder or underwriter and stated to be specifically for
use therein.
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(b) Each Holder and Requesting Stockholder will, if Registrable Securities
held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
the Company's directors and officers and each underwriter, if any, of the
Company's securities covered by such registration statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act and the rules and regulations thereunder, each other Holder and Requesting
Stockholder and each of their officers, directors and partners, and each person
controlling such Holder or Requesting Stockholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document incident to any such registration, qualification or compliance,
or based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, its officers and directors, each
underwriter, each person controlling the Company or such underwriter, each other
Holder and Requesting Stockholders, their officers, directors, partners and
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder or Requesting Stockholder and stated to
be specifically for use therein; provided, however, that the obligations of each
Holder and Requesting Stockholders hereunder shall be limited to an amount equal
to the proceeds to each such Holder or Requesting Stockholder of securities sold
as contemplated herein.
(c) Each party entitled to indemnification under this Section 11.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld and for such purpose approval is hereby given for Wolf,
Block, Schorr and Solis-Cohen LLP ("Wolf, Block") to be such counsel), and the
Indemnified Party may participate in such defense at such party's expense, and
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Article 11 unless such failure has had a material adverse effect on
such claim. The parties to this Agreement reserve any rights to claim under this
Agreement for damages actually incurred by reason of any failure of the
Indemnified Party to give prompt notice of a claim. To the extent counsel for
the Indemnifying Party shall in such counsel's reasonable judgment, have a
conflict in representing an Indemnified Party in conjunction with the
Indemnifying Party or other Indemnified Parties, such Indemnified Party shall be
entitled to separate counsel at the expense of the Indemnifying Party subject to
the approval of such counsel by the Indemnified Party (whose approval shall not
be unreasonably withheld and for such purpose approval is hereby given for Wolf,
Block to be such counsel). No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of
39
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and any litigation resulting therefrom.
11.9. Information by Holders. Each Holder of Registrable Securities, and
each Requesting Stockholder holding securities included in any registration,
shall furnish to the Company such information regarding such Holder or
Requesting Stockholder and the distribution proposed by such Holder or
Requesting Stockholder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification
or compliance referred to in this Article 11.
11.10. Limitations on Registration of Issues of Securities. From and after
the date of this Agreement, the Company shall not enter into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder the right to require the Company to register any
securities of the Company equal to or more favorable than the rights granted
under this Article 11. Any right given by the Company to any holder or
prospective holder of the Company's securities in connection with the
registration of securities shall be conditioned such that it shall be consistent
with the provisions of this Article 11 and with the rights of the Holders
provided in this Agreement and such holder or prospective holder agrees to be
bound by the terms of this Article 11.
11.11. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined and interpreted in and under Rule 144 under the
Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to anyone other than its
employees;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act at any time after it has
become subject to such reporting requirements; and
(c) so long as the Purchaser owns any Restricted Securities, furnish
to the Purchaser forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety (90) days following the effective date of the
first registration statement filed by the Company for an offering of its
securities to anyone other than its employees), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed as the
Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Purchaser to sell any such
securities without registration.
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11.12. Participation in Underwritten Registrations. No person may
participate in any underwritten registration hereunder unless such person (i)
agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (ii) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
11.13. Selection of Underwriters. If any Demand Registration is an
underwritten offering, the Holders of a majority of the Registrable Securities
included in such registration have the right to select the investment banker(s)
and manager(s) to administer the offering, subject to the approval of the
Company (which approval will not be unreasonably withheld). If any registration
other than a Demand Registration is an underwritten offering, the Company will
have the right to select the investment banker(s) and manager(s) to administer
the offering, subject to the approval of the Holders of a majority of the
Registrable Securities included in such registration (which approval will not be
unreasonably withheld).
11.14. Termination of Registration Rights. The rights of Holders to request
a Demand Registration or participate in a Piggyback Registration shall expire on
March 10, 2007.
ARTICLE XII
EVENTS OF DEFAULTS
12.1. Events of Default. If any of the following events (herein called an
"Event of Default") shall occur and be continuing:
(a) if the Company shall default in the payment of (i) any part of the
principal of any Debenture, when the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise; or (ii) the interest on any Debenture; when the same shall
become due and payable; and in each case such default shall have continued
without cure for ten (10) days after written notice (a "Default Notice") is
given to the Company of such default;
(b) If the Company shall default in the performance of any of the
covenants contained in Articles 9 or 10 and such default shall have
continued without cure for fifteen (15) daysafter a Default Notice is given
to the Company with respect to such covenant by any Holder or Holders of
the Debentures (the Company to give forthwith to all other Holders of the
Debentures at the time outstanding written notice of the receipt of such
Default Notice, specifying the default referred to therein);
(c) If the Company shall default in the performance of any other
material agreement or covenant contained in this Agreement and such default
shall not have been remedied to the satisfaction of the Holder or Holders
of at least a majority in aggregate principal amount of the Debentures then
outstanding, within thirty-five (35) days after a Default Notice shall have
been given to the Company (the Company to give forthwith to all other
Holders of Debentures at the time outstanding written notice of the receipt
of such Default Notice, specifying the default referred to therein);
41
(d) If any representation or warranty made in this Agreement or in or
any certificate delivered pursuant hereto shall prove to have been
incorrect in any material respect when made;
(e) If any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at
the time outstanding any indebtedness of the Company or a Subsidiary, in
excess of $100,000, or which results in such indebtedness, in an aggregate
amount (with other defaulted indebtedness) in excess of $250,000 becoming
due and payable prior to its due date and if such indenture or instrument
so requires, the holder or holders thereof (or a trustee on their behalf)
shall have declared such indebtedness due and payable;
(f) If any of the Company or its Subsidiaries shall default in the
observance or performance of any term or provision of an agreement to which
it is a party or by which it is bound which default will have a material
adverse effect on the Company and its Subsidiaries, taken as a whole, and
such default is not waived or cured within the applicable grace period;
(g) If a final judgment which, either alone or together with other
outstanding final judgments against the Company and its Subsidiaries,
exceeds an aggregate of $250,000 shall be rendered against the Company or
any Subsidiary and such judgment shall have continued undischarged or
unstayed for thirty-five (35) days after entry thereof;
(h) If the Company or any Subsidiary shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its
debts; or if the Company or any Subsidiary shall suffer a receiver or
trustee for it or substantially all of its assets to be appointed, and, if
appointed without its consent, not to be discharged or stayed within ninety
(90) days; or if the Company or any Subsidiary shall suffer proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors to be instituted by or against it, and, if contested by
it, not to be dismissed or stayed within ninety (90) days; or if the
Company or any Subsidiary shall suffer any writ of attachment or execution
or any similar process to be issued or levied against it or any significant
part of its property which is not released, stayed, bonded or vacated
within ninety (90) days after its issue or levy; or if the Company or any
Subsidiary takes corporate action in furtherance of any of the aforesaid
purposes or conditions;
(i) Prior to July 1, 1998, the directors or the shareholders of the
Company do not approve an amendment to the Certificate of Incorporation of
the Company to (a) increase the number of authorized shares of Common Stock
from 20,000,000 to [40,000,000] and (b) give the holders of Debentures
voting rights as set forth in Section 9.14 of this Agreement; or
(j) If three designees of the Purchasers are not elected as directors
of the Company prior to July 1, 1998.
12.2. Remedies.
(a) Upon the occurrence of an Event of Default, any Holder or Holders of a
majority in aggregate principal amount of the Debentures at the time outstanding
may at any time (unless all defaults shall theretofore have been remedied) at
its or their option, by written notice
42
or notices to the Company (i) declare all the Debentures to be due and payable,
whereupon the same shall forthwith mature and become due and payable, together
with interest accrued thereon, without presentment, demand, protest or notice,
all of which are hereby waived; and (ii) declare any other amounts payable to
the Purchasers under this Agreement or as contemplated hereby due and payable.
(b) Notwithstanding anything contained in Section 12.2(a), in the event
that at any time after the principal of the Debentures shall so become due and
payable and prior to the date of maturity stated in the Debentures all arrears
of principal of and interest on the Debentures (with interest at the rate
specified in the Debentures on any overdue principal and, to the extent legally
enforceable, on any interest overdue) shall be paid by or for the account of the
Company, then the holder or holders of at least a majority in aggregate
principal amount of the Debentures then outstanding, by written notice or
notices to the Company, may (but shall not be obligated to) waive such Event of
Default and its consequences and rescind or annul such declaration, but no such
waiver shall extend to or affect any subsequent Event of Default or impair any
right resulting therefrom. If any holder of a Debentures shall give any notice
or take any other action with respect to a claimed default, the Company,
forthwith upon receipt of such notice or obtaining knowledge of such other
action will give written notice thereof to all other holders of the Debentures
then outstanding, describing such notice or other action and the nature of the
claimed default.
12.3. Enforcement. In case any one or more Events of Default shall occur
and be continuing, the Holder of a Debenture then outstanding may proceed to
protect and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in such Debenture or for an injunction against
a violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law. Each Holder agrees that it will
give written notice to the other Holders prior to instituting any such action.
In case of a default in the payment of any principal of or interest on any
Debenture, the Company will pay to the Holder thereof such further amount as
shall be sufficient to cover the cost and the expenses of collection, including,
without limitation, reasonable attorney's fees, expenses and disbursements. No
course of dealing and no delay on the part of any Holder of any Debenture in
exercising any rights shall operate as a waiver thereof or otherwise prejudice
such Holder's rights. No right conferred hereby or by any Debenture upon any
Holder thereof shall be exclusive of any other right referred to herein or
therein or now available at law in equity, by statute or otherwise.
ARTICLE XIII
AMENDMENT AND WAIVER
This Agreement may not be amended, discharged or terminated (or any
provision hereof waived) without the written consent of the Company and the
Purchasers. Provided that such written consent of the Company and the Purchasers
is given:
(a) Holders of at least a majority in aggregate principal amount of the
Debentures then outstanding may by written instrument amend or waive any term or
condition
43
of this Agreement relating to the rights or obligations of Holders of
Debentures, which amendment or waiver operates for the benefit of such Holders,
except that no such amendment or waiver shall (i) change the fixed maturity of
any Debentures, the rate or the time of mandatory prepayment of principal
thereof or payment of interest thereon, the principal amount thereof, without
the consent of the holder of the Debentures so affected, (ii) change the
aforesaid percentage of Debentures, the Holders of which are required to consent
to any such amendment or waiver, without the consent of the holders of all the
Debentures then outstanding or (iii) change the percentage of the amount of the
Debentures, the Holders of which may declare the Debentures to be due and
payable under Article 12.
The Company and each Holder of a Debenture then or thereafter outstanding
shall be bound by any amendment or waiver effected in accordance with the
provisions of this Article 13, whether or not such Debenture shall have been
marked to indicate such modification, but any Debenture issued thereafter shall
bear a notation as to any such modification. Promptly after obtaining the
written consent of the holders herein provided, the Company shall transmit a
copy of such modification to all of the holders of the Debentures then
outstanding.
(b) Holders of at least a majority of the Shares then outstanding may by
written instrument amend or waive any term or condition of this Agreement
relating to the rights or obligations of holders of Shares, which amendment or
waiver operates for the benefit of such holders but in no event shall the
obligation of any holder of Shares hereunder be increased, except upon the
written consent of such holder of Shares.
The Company and each holder of a Share then or thereafter outstanding shall
be bound by any amendment or waiver effected in accordance with the provisions
of this Article 13, whether or not such Share shall have been marked to indicate
such modification, but any Share issued thereafter shall bear a notation as to
any such modification. Promptly after obtaining the written consent of the
holders herein provided, the Company shall transmit a copy of such modification
to all of the holders of the Shares then outstanding.
ARTICLE XIV
EXCHANGE AND REPLACEMENT OF DEBENTURES
14.1. Subject to Section 15.2, at any time at the request of any Holder of
one or more of the Debentures to the Company at its office provided under
Section 9.9, the Company at its expense (except for any transfer tax or any
other tax arising out of the exchange) will issue in exchange therefor new
Debentures, in such denomination or denominations ($100,000 or any larger
multiple of $100,000, plus one Debenture in a lesser denomination, if required)
as such Holder may request, in aggregate principal amount equal to the unpaid
principal amount of the Debenture or Debentures surrendered and substantially in
the form thereof, dated as of the date to which interest has been paid on the
Debenture or Debentures surrendered (or, if no interest has yet been so paid
thereon, then dated the date of the Debenture or Debentures so surrendered) and
payable to such person or persons or order as may be designated by such Holder.
14.2. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Debenture and, in the case of any such
loss, theft, or destruction,
44
upon delivery of a bond of indemnity satisfactory to the Company (provided that
if the holder is a Purchaser or a financial institution, its own agreement will
be satisfactory), or in the case of any such mutilation, upon surrender and
cancellation of such Debenture, the Company will issue a new Debenture of like
tenor as if the lost, stolen, destroyed or mutilated Debenture were then
surrendered for exchange in lieu of such lost, stolen, destroyed or mutilated
Debenture.
ARTICLE XV
TRANSFER OF AND PAYMENT OF DEBENTURES
15.1. Notification of Proposed Sale.
(a) Subject to Section 15.1(b), each holder of a Debenture by acceptance
thereof agrees that it will give the Company ten (10) days written notice prior
to selling or otherwise disposing of such Debenture. No such sale or other
disposition shall be made unless (i) the holder shall have supplied to the
Company an opinion of counsel for the holder reasonably acceptable to the
Company to the effect that no registration under the Securities Act is required
withrespect to such sale or other disposition, or (ii) an appropriate
registration statement with respect to such sale or other disposition shall have
been filed by the Company and declared effective by the Commission.
(b) If the Holder of a Debenture has obtained an opinion of counsel
reasonably acceptable to the Company to the effect that the sale of its
Debenture may be made without registration under the Securities Act pursuant to
compliance with Rule 144 (or any successor rule under the Securities Act), the
holder need not provide the Company with the notice required in Section 15.1(a).
15.2. Payment. So long as a Purchaser shall be the holder of any Debenture,
the Company will make payments of principal and interest to such Purchaser no
later than 11 a.m. Eastern Time on the date when such payment is due. Payments
shall be made by delivery to such Purchaser at such Purchaser's address
furnished to the Company in accordance with this Agreement of a certified or
official bank check drawn upon or issued by a bank which is a member of the New
York Clearinghouse for banks or by wire transfer to such Purchaser's (or such
Purchaser's nominee's) account at any bank or trust company in the United States
of America. Each Purchaser further agrees that, before a Debenture is assigned
or transferred, such Purchaser will make or cause to be made a notation thereon
of principal payments previously made thereof and of the date to which interest
thereon has been paid and will notify the Company of the name and address of the
transferee of such Debenture if such name and address are known to the
Purchaser.
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ARTICLE XVI
RIGHT OF FIRST REFUSAL; ADDITIONAL INVESTMENT
16.1 Right of First Refusal. Each Holder of the Debentures, Holder of
Shares (provided any Debentures remain outstanding and the Shares received upon
conversion have not been sold, transferred or otherwise disposed of)(the "Common
Holder") and Old Holders shall be entitled to the following right of first
refusal:
(a) Except in the case of Excluded Securities (as hereinafter
defined), the Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange
(i) any shares of Common Stock, (ii) any other equity security of the
Company, (iii) any debt security of the Company which by its terms is
convertible into or exchangeable for, with or without consideration, any
equity security of the Company, (iv) any security of the Company that is a
combination of debt and equity or (v) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any equity security or any
such debt security of the Company (collectively, the "Equity Securities"),
unless in each case, the Company shall have first offered to sell to the
Holders of Debentures, the Common Holders and the Old Holders, the Equity
Securities, at a price and on such other terms as shall have been specified
by the Company in writing delivered to each of the Holders of Debentures,
the Common Holders and the Old Holders (the "Offer"), which Offer by its
terms shall remain open and irrevocable for a period of thirty (30) days
from the date it is delivered by the Company to the Holders of Debentures,
the Common Holders and the Old Holders; provided, however, that such
issuance, sale or exchange of equity securities shall result in gross
proceeds to the Company (whether at the time of issuance or upon
conversion, exercise, or exchange thereof) of an amount in excess of
$200,000 (the "Minimum Offering Threshold"). For purposes of computing the
Minimum Offering Threshold, any offering, issuance, sale or exchange of
Equity Securities during any rolling 12-month period shall be aggregated.
(b) Each of the Holders of Debentures, the Common Holders (provided
the Debentures remain outstanding and the Shares received upon conversion
has not been sold, transferred or otherwise disposed of) and the Old
Holders shall have the right to purchase up to its pro rata share of the
Equity Securities. The "pro rata share" of each Holder of Debentures,
Common Holder and Old Holder shall be that amount of the Equity Securities
multiplied by a fraction, the numerator of which is the sum of (i) of
Shares underlying the Debenture held by such person if such person is the
Holder of a Debenture, (ii) the number of Shares of Common Stock issued to
such Common Holder upon conversion of a Debenture if such person is a
Common Holder and (iii) the number of shares of Common Stock underlying the
Prior Debenture held by such person if such person is an Old Holder, and
the denominator of which is the sum of (x) the total number of shares of
Common Stock underlying the Debentures issued pursuant to this Agreement
and (y) the total number of shares of Common Stock into which the Prior
Debentures are convertible on the date of this Agreement.
(c) Notice of the intention of each Holder of a Debenture, Common
Holder or Old Holder to accept, in whole or in part, an offer shall be
evidenced by a writing signed by such person, as the case may be, and
delivered to the Company prior to the end of the 30-day period commencing
with the date of such Offer (or, if later, within 10 days after the
46
giving of any written notice of a material change in such Offer), setting
forth such portion (specifying number of shares, principal amount or the
like) of the Equity Securities as such person elects to purchase (the
"Notice of Acceptance").
(d) In the event that all of the Holders of Debentures, Common Holders
and Old Holders do not elect to purchase all of the Equity Securities, the
persons which have provided notice of their intention to exercise the
refusal rights as provided in subparagraph (c) above shall have the right
to purchase, on a pro rata basis, any unsubscribed portion of the Equity
Securities during a period of 10 days following the 30-day period provided
in subparagraph (c) above. Following such additional 10-day period, in the
event the Holders of the Debentures, the Common Holders and the Old Holders
have not elected to purchase all of the Equity Securities, the Company
shall have 90 days from the expiration of the foregoing 40-day period to
sell all or any part of such Equity Securities as to which a Notice of
Acceptance has not been given by any of such persons (the "Refused
Securities") to any other person or persons, but only upon termsand
conditions in all material respects, including without limitation, unit
price and interest rates (but excluding payment of legal fees of counsel of
the purchaser), which are no more favorable, in the aggregate, to such
other person or persons or less favorable to the Company than those set
forth in the Offer. Upon the closing of the sale to such other person or
persons of all the Refused Securities, which shall include payment of the
purchase price to the Company in accordance with the terms of the Offer, if
the Holders of Debentures, the Common Holders and/or Old Holders have
timely submitted a Notice of Acceptance, it and/or they shall purchase from
the Company, and the Company shall sell to such persons, as the case may
be, the Equity Securities in respect of which a Notice of Acceptance was
delivered to the Company, at the terms specified in the Offer. The purchase
by the Holders, Common Holders and/or Old Holders of any Equity Securities
is subject in all cases to the preparation, execution and delivery by the
Company such persons of a purchase agreement and other customary
documentation relating to such Equity Securities as is satisfactory in form
and substance to such persons and each of their respective counsel.
(e) In each case, any Equity Securities not purchased by the Holders
of Debentures, the Common Holders, the Old Holders or by a person or
persons in accordance with Section 16.1(d) hereof may not be sold or
otherwise disposed of until they are again offered to such persons under
the procedures specified in Section 16.1(a), (c) and (d) hereof.
(f) The rights of the Holders of Debentures, the Common Holders and
the Old Holders under this Section 16.1 shall not apply to the following
securities (the "Excluded Securities"):
(i) Common Stock or options to purchase such Common Sock, issued
to officers, employees or directors of, or consultants to,
the Company, pursuant to any agreement, plan or arrangement
approved by the Board of Directors of the Company;
47
(ii) Common Stock issued as a stock dividend or upon any stock
split or other subdivision or combination of shares of
Common Stock;
(iii) Common Stock issued upon conversion of the Debentures or
exercise of the Warrants; and
(iv) any securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar
business combination.
(g) Notwithstanding anything to the contrary contained herein, a
Holder of a Debenture or a Common Holder (other than an initial Purchaser)
shall not be considered as such for purposes of this Section 16.1 only,
unless such person then holds Debentures with an outstanding principal
amount of at least $200,000 or Shares issued upon conversion of at least
$200,000 in principal of Debentures or a combination of Debentures and
Shares such that the outstanding principal of the Debentures held by such
person plus the amount of principal of Debentures converted into Shares
held by such person equals or exceeds $200,000.
16.2 Additional Investment. Notwithstanding anything to the contrary
contained in Section 16.1, prior to the expiration of 18 months after the date
of this Agreement, the Purchasers (on a pro rata basis) only shall have the
right to purchase additional Securities on the same terms and conditions as set
forth herein for an aggregate purchase price of $5,000,000. Purchasers holding a
majority in principal amount of the outstanding Debentures may elect to make
such purchase by giving written notice of such election to the Company. The Old
Holders shall not have any right to participate in such purchase of additional
Securities unless (and then only to the extent that) they are Purchasers.
ARTICLE XVII
MISCELLANEOUS
17.1. Governing Law. This Agreement and the rights of the parties hereunder
shall be governed in all respects by the laws of the State of New York wherein
the terms of this Agreement were negotiated.
17.2. Survival. Except as specifically provided herein, the
representations, warranties, covenants and agreements made herein shall survive
(a) any investigation made by the Purchasers and (b) the Closing.
17.3. Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon
and enforceable by and against, the successors, assigns, heirs, executors and
administrators of the parties hereto; provided, however, that the Company may
not assign its rights hereunder.
17.4. Entire Agreement. This Agreement (including the Exhibits hereto) and
the other documents delivered pursuant hereto and simultaneously herewith
constitute the full and
48
entire understanding and agreement between the parties with regard to the
subject matter hereof and thereof.
17.5. Notices, etc. All notices, demands or other communications given
hereunder shall be in writing and shall be sufficiently given if delivered
either personally or by a nationally recognized courier service marked for next
business day delivery or sent in a sealed envelope by first class mail, postage
prepaid and either registered or certified, addressed as follows:
(a) if to the Company:
Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Attention: Mr. Michael Reicher
Chief Executive Officer
(b) if to a Purchaser, to the address set forth on Exhibit A
attached hereto:
or to such other address with respect to any party hereto as such party may from
time to time notify (as provided above) the other parties hereto. Any such
notice, demand or communication shall be deemed to have been given (i) on the
date of delivery, if delivered personally, (ii) on the date of facsimile
transmission, receipt confirmed, (iii) one business day after delivery to a
nationally recognized overnight courier service, if marked for next day delivery
or (iv) five business days after the date of mailing, if mailed. Copies of any
notice, demand or communication given to (x) the Company, shall be delivered to
St. John & Wayne, L.L.C., Two Penn Plaza East, Newark, New Jersey 07105-2249
Attn.: John P. Reilly, Esq., or such other address as may be directed and (y)
any Purchaser, shall be delivered to Wolf, Block, Schorr and Solis-Cohen LLP,
250 Park Avenue, New York, New York, 10177, Attn.: George Abrahams, Esq., or
such other address as may be directed.
17.6. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Securities upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence,therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement must be, made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
17.7. Rights; Severability. Unless otherwise expressly provided herein,
each Purchaser's rights hereunder are several rights, not rights jointly held
with any other person. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity,
49
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
17.8. Agent's Fees.
(a) The Company hereby (i) represents and warrants that except for HKS
Company, Inc. which is being compensated in full by the issuance of Securities
as set forth in Exhibit A, the Company has not retained a finder or broker in
connection with the transactions contemplated by this Agreement and (ii) agrees
to indemnify and to hold the Purchasers harmless of and from any liability for
commission or compensation in the nature of an agent's fee to any broker, person
or firm, and the costs and expenses of defending against such liability or
asserted liability, including, without limitation, reasonable attorney's fees,
arising from any act by the Company or any of the Company's employees or
representatives; provided, however, that the Company will have the right to
defend against such liability by representative(s) of its own choosing, which
representative(s) shall be approved by the Holders of a majority in aggregate
principal amount of the Debentures and the Holders of a majority of the Shares
(which approval shall not be unreasonably withheld or delayed), and provided,
further, that the Company will not settle or compromise any claim or lawsuit
without prior written notice to the Purchasers of the terms and provisions
thereof. In the event that the Company shall fail to undertake the defense
within ten (10) days of any notice of such claim, the Purchasers shall have the
right to undertake the defense, compromise or settlement of such claim upon
written notice to the Company by holders of a majority in principal amount of
the Debentures and the holders of a majority of the Shares and the Company will
be responsible for and shall pay all costs and expenses of defending such
liability or asserted liability and any amounts paid in settlement.
(b) Each Purchaser (i) severally represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated by
this Agreement and (ii) hereby severally agrees to indemnify and to hold the
Company harmless from any liability for any commission or compensation in the
nature of an agent's or finder's fee to any broker or other person or firm (and
the costs, including reasonable legal fees, and expenses of defending against
such liability or asserted liability) for which such Purchaser, or any of its
employees or representatives, are responsible.
17.9. Expenses. The Company shall bear its own expenses and legal fees
incurred on its behalf with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement, and the Company
will reimburse the Purchasers for all of the reasonable expenses incurred by the
Purchasers and their affiliates with respect to the negotiation, execution and
consummation of the transactions contemplated by this Agreement and the
transactions contemplated hereby and due diligence conducted in connection
therewith, including the fees and disbursements of counsel and auditors for the
Purchasers; provided, however, that the amount of such reimbursement shall not
exceed $100,000. Such reimbursement shall be paid on the Closing Date.
17.10. Litigation. The parties each hereby waive trial by jury in any
action or proceeding of any kind or nature in any court in which an action may
be commenced arising out of this Agreement or by reason of any other cause or
dispute whatsoever between them. The parties hereto agree that the State and
Federal Courts which sit in the State of New York and the
50
County of New York shall have exclusive jurisdiction to hear and determine any
claims or disputes between the Company and such holders, pertaining directly or
indirectly to this Agreement or to any matter arising therefrom. The parties
each expressly submit and consent in advance to such jurisdiction in any action
or proceeding commenced in such courts provided that such consent shall not be
deemed to be a waiver of personal service of the summons and complaint, or other
process or papers issued therein. The choice of forum set forth in this Section
17.10 shall not be deemed to preclude the enforcement of any judgment obtained
in such forum or the taking of any action under this Agreement to enforce same
in any appropriate jurisdiction. The parties each waive any objection based upon
forum non conveniens and any objection to venue of any action instituted
hereunder.
17.11. Titles and Subtitles. The titles of the articles, sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
17.12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
If the Purchaser is in agreement with the foregoing the Purchaser shall
sign where indicated below and thereupon this letter shall become a binding
agreement between such Purchaser and the Company.
Very truly yours,
HALSEY DRUG CO., INC.
By:
--------------------------------
Michael Reicher
Chief Executive Officer
AGREED:
GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
By:
-----------------------------
Name: Bruce F. Wesson
Title: Managing Member
51
GALEN PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Partner
By:
-----------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
By:
-----------------------------
Name: Bruce F. Wesson
Title: Managing Member
[ADDITIONAL PURCHASERS]
52
EXHIBIT A
- -------------------------------------------------------------------------------------------------------------------------------
Principal Amount of $1.50 $2.375
Name and Address of Purchaser Debenture Purchased Warrants Warrants Purchase Price
- ----------------------------- ------------------- -------- -------- --------------
- -------------------------------------------------------------------------------------------------------------------------------
Galen Partners III, L.P. $15,423,198 1,557,898 1,557,898 $15,423,195
610 Fifth Avenue, 5th Floor
New York, New York 10020
- -------------------------------------------------------------------------------------------------------------------------------
Galen Partners International III, L.P. $1,709,167 172,643 172,643 $1,709,167
611 Fifth Avenue, 5th Floor
New York, New York 10020
- -------------------------------------------------------------------------------------------------------------------------------
Galen Employee Fund III, L.P. $67,633 6,833 6,833 $67,638
610 Fifth Avenue, 5th Floor
New York, New York 10020
- -------------------------------------------------------------------------------------------------------------------------------
Michael Reicher $300,000 30,303 30,303 $300,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
- -------------------------------------------------------------------------------------------------------------------------------
Peter Clemens $100,000 10,101 10,101 $100,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
- -------------------------------------------------------------------------------------------------------------------------------
Stefanie Heitmeyer $20,000 2,020 2,020 $20,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
- -------------------------------------------------------------------------------------------------------------------------------
Dan Hill $10,000 1,010 1,010 $10,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
- -------------------------------------------------------------------------------------------------------------------------------
Alan Smith $10,000 1,010 1,010 $10,000
c/o Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
- -------------------------------------------------------------------------------------------------------------------------------
Dennis Adams $1,170,000 118,182 118,182 $1,170,000
120 Kynlyn Road
Radnor, Pennsylvania 19087
- -------------------------------------------------------------------------------------------------------------------------------
Patrick Coyne $50,000 5,051 5,051 $50,000
477 Margo Lane
Berwyn, Pennsylvania 19312
- -------------------------------------------------------------------------------------------------------------------------------
Michael Weisbrot and Susan Weisbrot $300,000 30,303 30,303 $300,000
1136 Rock Creek Road
Gladwyne, Pennsylvania 19035
- -------------------------------------------------------------------------------------------------------------------------------
Greg Wood $100,000 10,101 10,101 $100,000
1263 East Calaveras Street
Altadena, California 91001
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Principal Amount of $1.50 $2.375
Name and Address of Purchaser Debenture Purchased Warrants Warrants Purchase Price
- ----------------------------- ------------------- -------- ------- --------------
- -------------------------------------------------------------------------------------------------------------------------------
Hement K. Shah and Varsha H. Shah $950,000 95,960 95,960 $950,000
29 Christy Drive
Warren, New Jersey 07059
- -------------------------------------------------------------------------------------------------------------------------------
Varsha H. Shah as Custodian for $20,000 2,020 2,020 $20,000
Suneet H. Shah
29 Christy Drive
Warren, New Jersey 07059
- -------------------------------------------------------------------------------------------------------------------------------
Varsha H. Shah as Custodian for $20,000 2,020 2,020 $20,000
Sachin H. Shah
29 Christy Drive
Warren, New Jersey 07059
- -------------------------------------------------------------------------------------------------------------------------------
Bernard Selz $400,000 40,404 40,404 $400,000
121 East 73rd Street
New York, New York 10021
- -------------------------------------------------------------------------------------------------------------------------------
Ilene Rainisch $25,000 2,525 2,525 $25,000
315 Devon Place
Morganville, New Jersey 07751
- -------------------------------------------------------------------------------------------------------------------------------
Michael Rainisch $25,000 2,525 2,525 $25,000
48 Radford Street
Staten Island, New York 10314
- -------------------------------------------------------------------------------------------------------------------------------
Ken Gimbel $100,000 10,101 10,101 $100,000
876 Kimball Road
Highland Park, Illinois 60035
- -------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 3
THIS CONVERTIBLE SENIOR SECURED DEBENTURE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH DEBENTURE REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH DEBENTURE AND/OR COMMON STOCK MAY BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
HALSEY DRUG CO., INC.
5% Convertible Senior Secured Debenture
Due March 15, 2003
$ No. N-1
- ------------------
March 10, 1998
HALSEY DRUG CO., INC., a corporation organized under the laws of the State
of New York (the "Company"), for value received, hereby promises to pay to
___________________ or registered assigns (the "Payee" or "Holder") upon due
presentation and surrender of this Debenture, on March 15, 2003 (the "Maturity
Date"), the principal amount of Dollars ($ ) and accrued interest thereon as
hereinafter provided.
This Debenture was issued by the Company pursuant to a certain Debenture
and Warrant Purchase Agreement dated the date hereof among the Company and
certain persons, including the Payee (together with the Schedules and Exhibits
thereto, the "Purchase Agreement") relating to the purchase and sale of 5%
Convertible Senior Secured Debentures maturing March 15, 2003 (the "Debentures")
in the aggregate principal amount of $20,800,000.00. The holders of such
Debentures are referred to hereinafter as the "Holders." The Payee is entitled
to the benefits of the Purchase Agreement. Reference is made to the Purchase
Agreement with respect to certain additional rights of the Holder and
obligations of the Company not set forth herein.
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT
1.1 Payment of the principal and accrued interest on this Debenture shall
be made in such coin or currency of the United States of America as at the time
of payment shall belegal tender for the payment of public and private debts.
Interest (computed on the basis of a 360-day year of twelve 30-day months) on
the unpaid portion of said principal amount from time to time outstanding shall
be paid by the Company at the rate of five percent (5%) per annum (the "Stated
Interest Rate"), in like coin and currency, payable to the Payee in three (3)
month intervals on each January 1, April 1, July 1 and October 1 during the term
of this Debenture (commencing April 1, 1998) (an "Interest Payment Date") and on
the Maturity Date. Both principal hereof and interest thereon are payable at the
Holder's address above or such other address as the Holder shall designate from
time to time by written notice to the Company. The Company will pay or cause to
be paid all sums becoming due hereon for principal and interest by check sent to
the Holder's above address or to such other address as the Holder may designate
for such purpose from time to time by written notice to the Company, without any
requirement for the presentation of this Debenture or making any notation
thereon, except that the Holder hereof agrees that payment of the final amount
due shall be made only upon surrender of this Debenture to the Company for
cancellation. Prior to any sale or other disposition of this instrument, the
Holder hereof agrees to endorse hereon the amount of principal paid hereon and
the last date to which interest has been paid hereon and to notify the Company
of the name and address of the transferee.
1.2 In the event any payment of principal or interest or both shall remain
unpaid for a period of ten (10) days or more, a late charge equivalent to five
(5%) percent of each installment shall be charged. Interest on the indebtedness
evidenced by this Debenture after default or maturity accelerated or otherwise
shall be due and payable at the rate of seven (7%) percent per annum, subject to
the limitations of applicable law.
1.3 If this Debenture or any installment hereof becomes due and payable on
a Saturday, Sunday or public holiday under the laws of the State of New York,
the due date hereof shall be extended to the next succeeding full business day
and interest shall be payable at the rate of five (5%) percent per annum during
such extension. All payments received by the Holder shall be applied first to
the payment of all accrued interest payable hereunder.
ARTICLE II
SECURITY
2.1 The obligations of the Company under this Debenture are secured
pursuant to security interests on and collateral assignments of, assets,
tangible and intangible, of the Company granted by the Company to the Payee
pursuant to a security agreement of even date herewith and collateral
assignments referred to in the Purchase Agreement. In addition, each of Houba,
Inc. ("Houba"), Halsey Pharmaceuticals, Inc., Indiana Fine Chemicals Corporation
and Cenci Powder Products, Inc. ("CPP"), each a wholly-owned subsidiary of the
Company, and H.R. Cenci Laboratories, Inc. ("HR Cenci"), a 97% owned subsidiary
of the Company
2
(collectively, the Guarantors"), has executed in favor of the Holder a certain
Continuing Unconditional Guaranty, dated of even date, guaranteeing the full and
unconditional payment when due of the amounts payable by the Company to the
Holder pursuant to the terms of this Debenture (each the "Guaranty"). The
obligations of each Guarantor under its Guaranty are secured pursuant to
security interests on and collateral assignments of, assets, tangible and
intangible, of such Guarantor granted by the Guarantor to the Payee pursuant to
a security agreement of even date herewith and collateral assignments referred
to in the Purchase Agreement. The obligations of Houba under its Guaranty are
also secured pursuant to a Mortgage on real property located at 16235 State Road
17, Culver, Indiana. The obligations of each of CPP and HR Cenci under their
Guaranties are also secured pursuant to a Mortgage on real property located at
152 North Broadway, Fresno, California.
ARTICLE III
CONVERSION
3.1 Conversion at Option of Holder. At any time and from time to time on
and after the date hereof (the "Initial Conversion Date") until the earlier of
(i) the Maturity Date or (ii) the conversion of the Debenture in accordance with
Section 3.2 hereof, this Debenture is convertible in whole or in part at the
Holder's option into shares of Common Stock of the Company upon surrender of
this Debenture, at the office of the Company, accompanied by a written notice of
conversion in form reasonably satisfactory to the Company duly executed by the
registered Holder or its duly authorized attorney. "Common Stock" of the Company
means common stock of the Company as it exists on the date this Debenture is
originally signed. This Debenture is convertible on or after the Initial
Conversion Date into shares of Common Stock at a price per share of Common Stock
equal to $1.50 per share (the "Conversion Price"). Interest shall accrue to and
including the day prior to the date of conversion and shall be paid on the last
day of the month in which conversion rights hereunder are exercised. No
fractional shares or scrip representing fractional shares will be issued upon
any conversion, but an adjustment in cash will be made, in respect of any
fraction of a share which would otherwise be issuable upon the surrender of this
Debenture for conversion. The Conversion Price is subject to adjustment as
provided in Section 3.5 and Section 3.7 hereof. As soon as practicable following
conversion and upon the Holder's compliance with the conversion procedure
described in Section 3.3 hereof, the Company shall deliver a certificate for the
number of full shares of Common Stock issuable upon conversion and a check for
any fractional share and, in the event the Debenture is converted in part, a new
Debenture in the principal amount equal to the remaining principal balance of
this Debenture after giving effect to such partial conversion.
3.2 Conversion at Option of the Company. Provided that an Event of Default
as provided in Section 12.1(a) of the Purchase Agreement (relating to the
failure to pay principal and interest under the Debentures) shall not have
occurred and then be continuing, in the event that either (a) following the
second anniversary of the date hereof, the closing price per share of the
Company's Common Stock on the American Stock Exchange ("AMEX") or the NASDAQ
National Market ("NNM") exceeds $4.75 per share for each of twenty (20)
consecutive trading days or (b) following the third anniversary of the date
hereof, the closing price per share of the Company's Common Stock on the AMEX or
NNM exceeds $7.125 per share for each of twenty (20) consecutive trading days,
then at any time thereafter until the earlier of (i) the Maturity
3
Date or (ii) the date a Change of Control (as defined in the Purchase Agreement)
occurs, the Company may upon written notice to the Holders of all Debentures
(the "Mandatory Conversion Notice") require that all, but not less than all, of
the outstanding principal amount of the Debentures be converted into shares of
Common Stock at a price per share equal to the Conversion Price (as such
Conversion Price may be adjusted as provided in Sections 3.5 and 3.7 hereof).
The Mandatory Conversion Notice shall state (1) the date fixed for conversion
(the "Conversion Date") (which date shall not be prior to the date the Mandatory
Conversion Notice is given), (2) any disclosures required by law, (3) the
trading dates and closing prices of the Common Stock giving rise to the
Company's option to require conversion of the Debenture, (4) that the Debentures
shall cease to accrue interest after the day immediately preceding the
Conversion Date, (5) the place where the Debentures shall be delivered and (6)
any other instructions that Holders must follow in order to tender their
Debentures in exchange for certificates for Common Stock. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such conversion, except as to a Holder (x) to
whom notice was not mailed or (y) whose notice was defective. An affidavit of
the Secretary or an Assistant Secretary of the Company or an agent employed by
the Company that notice of conversion has been mailed postage prepaid to the
last address of the Holder appearing on the Debenture registry books kept by the
Company shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. On and after the Conversion Date, except as provided in the next
two sentences, Holders of the Debentures shall have no further rights except to
receive, upon surrender of the Debentures, a certificate or certificates for the
number of shares of Common Stock as to which the Debenture shall have been
converted. Interest shall accrue to and including the day prior to the
Conversion Date and shall be paid on the last day of the month in which
Conversion Date occurs. No fractional shares or scrip representing fractional
shares will be issued upon any conversion, but an adjustment in cash will be
made, in respect of any fraction of a share which would otherwise be issuable
upon the surrender of this Debenture for conversion.
3.3 Registration of Transfer; Conversion Procedure. The Company shall
maintain books for the transfer and registration of the Debentures. Upon the
transfer of any Debenture in accordance with the provisions of the Purchase
Agreement, the Company shall issue and register the Debenture in the names of
the new holders. The Debentures shall be signed manually by the Chairman, Chief
Executive Officer, President or any Vice President and the Secretary or
Assistant Secretary of the Company. The Company shall convert, from time to
time, any outstanding Debentures upon the books to be maintained by the Company
for such purpose upon surrender thereof for conversion properly endorsed and, in
the case of a conversion pursuant to Section 3.1 hereof, accompanied by a
properly completed and executed Conversion Notice attached hereto as Attachment
II. Subject to the terms of this Debenture, upon surrender of this Debenture the
Company shall issue and deliver with all reasonable dispatch to or upon the
written order of the Holder of such Debenture and in such name or names as such
Holder may designate, a certificate or certificates for the number of full
shares of Common Stock due to such Holder upon the conversion of this Debenture.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become the
Holder of record of such Shares as of the date of the surrender of this
Debenture; provided, however, that if, at the date of surrender the transfer
books of the Common Stock shall be closed, the certificates for the Shares shall
be issuable as of the date on which such books shall be opened and until such
date the Company shall be under
4
no duty to deliver any certificate for such Shares; provided, further, however,
that such transfer books, unless otherwise required by law or by applicable rule
of any national securities exchange, shall not be closed at any one time for a
period longer than twenty (20) days.
3.4 Company to Provide Common Stock. The Company has reserved the remaining
balance of its authorized but unissued and unreserved shares of Common Stock and
its Common Stock held in treasury to permit the conversion of the Debentures to
the extent of its current unissued and unreserved authorized Common Stock. In
accordance with the provisions of Section 9.14 of the Purchase Agreement, the
Company covenants to seek the approval of its shareholders to amend its
Certificate of Incorporation to increase its authorized shares from 20,000,000
to 40,000,000 shares of Common Stock and to provide voting rights to the Holders
on an as converted basis. Promptly upon receipt of shareholder approval to amend
its certificate of incorporation to increase its authorized shares, the Company
shall reserve out of its authorized but unissued common stock a sufficient
number of shares to permit the conversion of the Debentures in full. The shares
of Common Stock which may be issued upon the conversion of the Debentures shall
be fully paid and non-assessable and free of preemptive rights. The Company will
endeavor to comply with all securities laws regulating the offer and delivery of
the Shares upon conversion of the Debentures and will endeavor to list such
shares on each national securities exchange upon which the Common Stock is
listed.
3.5 Dividends; Reclassifications, etc.. In the event that the Company
shall, at any time prior to the earlier to occur of (i) exercise of conversion
rights hereunder and (ii) the Maturity Date: (i) declare or pay to the holders
of the Common Stock a dividend payable in any kind of shares of capital stock of
the Company; or (ii) change or divide or otherwise reclassify its Common Stock
into the same or a different number of shares with or without par value, or in
shares of any class or classes; or (iii) transfer its property as an entirety or
substantially as an entirety to any other company or entity; or (iv) make any
distribution of its assets to holders of its Common Stock as a liquidation or
partial liquidation dividend or by way of return of capital; then, upon the
subsequent exercise of conversion rights, the Holder thereof shall receive, in
addition to or in substitution for the shares of Common Stock to which it would
otherwise be entitled upon such exercise, such additional shares of stock or
scrip of the Company, or such reclassified shares of stock of the Company, or
such shares of the securities or property of the Company resulting from
transfer, or such assets of the Company, which it would have been entitled to
receive had it exercised these conversion rights prior to the happening of any
of the foregoing events.
3.6 Notice to Holder. If, at any time while this Debenture is outstanding,
the Company shall pay any dividend payable in cash or in Common Stock, shall
offer to the holders of its Common Stock for subscription or purchase by them
any shares of stock of any class or any other rights, shall enter into an
agreement to merge or consolidate with another corporation, shall propose any
capital reorganization or reclassification of the capital stock of the Company,
including any subdivision or combination of its outstanding shares of Common
Stock or there shall be contemplated a voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company shall cause notice thereof
to be mailed to the registered Holder of this Debenture at its address appearing
on the registration books of the Company, at least thirty (30) days prior to the
record date as of which holders of Common Stock shall participate in such
5
dividend, distribution or subscription or other rights or at least thirty (30)
days prior to the effective date of the merger, consolidation, reorganization,
reclassification or dissolution.
3.7 Adjustments to Conversion Price. In order to prevent dilution of the
conversion right granted hereunder, the Conversion Price shall be subject to
adjustment from time to time in accordance with this Section 3.7. Upon each
adjustment of the Conversion Price pursuant to this Section 3.7, the Holder of
this Debenture shall thereafter be entitled to acquire upon conversion under
Section 3.1 or Section 3.2, at the Applicable Conversion Price (as hereinafter
defined), the number of shares of Common Stock obtainable by multiplying the
Conversion Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Applicable Conversion Price resulting from
such adjustment.
The Conversion Price in effect at the time of the exercise of conversion
rights hereunder set forth in Section 3.1 shall be subject to adjustment from
time to time as follows:
(a) If at any time after the date of issuance hereof the Company shall
grant or issue any shares of Common Stock, or grant or issue any rights or
options for the purchase of, or stock or other securities convertible into,
Common Stock (such convertible stock or securities being herein
collectively referred to as "Convertible Securities") other than:
(i) shares issued in a transaction described in subsection (b) of
this Section 3.7; or
(ii) shares issued, subdivided or combined in transactions
described in Section 3.5 if and to the extent that the number of
shares of Common Stock received upon conversion of this Debenture
shall have been previously adjusted pursuant to Section 3.5 as a
result of such issuance, subdivision or combination of such
securities;
for a consideration per share which is less than the Fair Market Value (as
hereinafter defined) of the Common Stock, then the Conversion Price in effect
immediately prior to such issuance or sale (the "Applicable Conversion Price")
shall, and thereafter upon each issuance or sale for a consideration per share
which is less than the Fair Market Value of the Common Stock, the Applicable
Conversion Price shall, simultaneously with such issuance or sale, be adjusted,
so that such Applicable Conversion Price shall equal a price determined by
multiplying the Applicable Conversion Price by a fraction, the numerator of
which shall be:
(A) the sum of (x) the total number of shares of Common Stock outstanding
when the Applicable Conversion Price became effective, plus (y) the number
of shares of Common Stock which the aggregate consideration received, as
determined in accordance with subsection 3.7(c) for the issuance or sale of
such additional Common Stock or Convertible Securities deemed to be an
issuance of Common Stock as provided in subsection 3.7(d), would purchase
(including any consideration received by the Company upon the issuance of
any shares of Common Stock since the date the Applicable Conversion Price
became effective not previously included in any computation resulting in an
adjustment pursuant to
6
this Section 3.7(a)) at the Fair Market Value of the Common Stock; and the
denominator of which shall be
(B) the total number of shares of Common Stock outstanding (or deemed to be
outstanding as provided in subsection 3.7(d) hereof) immediately after the
issuance or sale of such additional shares.
For purposes of this Section 3.7, "Fair Market Value" shall mean the
average of the closing price of the Common Stock for each of the twenty (20)
consecutive trading days prior to such issuance or sale on the principal
national securities exchange on which the Common Stock is traded, or if shares
of Common Stock are not listed on a national securities exchange during such
period, the closing price per share as reported by the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ") National Market System
if the shares are quoted on such system during such period, or the average of
the bid and asked prices of the Common Stock in the over-the-counter market at
the close of trading during such period if the shares are not traded on an
exchange or listed on the NASDAQ National Market System, or if the Common Stock
is not traded on a national securities exchange or in the over-the-counter
market, the fair market value of a share of Common Stock during such period as
determined in good faith by the Board of Directors.
If, however, the Applicable Conversion Price thus obtained would result in the
issuance of a lesser number of shares upon conversion than would be issued at
the initial Conversion Price specified in Section 3.1, as appropriate, the
Applicable Conversion Price shall be such initial Conversion Price.
Upon each adjustment of the Conversion Price pursuant to this subsection
(a), the total number of shares of Common Stock into which this Debenture shall
be convertible shall be such number of shares (calculated to the nearest tenth)
purchasable at the Applicable Conversion Price multiplied by a fraction, the
numerator of which shall be the Conversion Price in effect immediately prior to
such adjustment and the denominator of which shall be the exercise price in
effect immediately after such adjustment.
(b) Anything in this Section 3.7 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be made in connection with:
(i) the grant, issuance or exercise of any Convertible Securities
pursuant to the Company's qualified or non-qualified Employee
Stock Option Plans or any other bona fide employee benefit plan
or incentive arrangement, adopted or approved by the Company's
Board of Directors and approved by the Company's shareholders, as
may be amended from time to time, or under any other bona fide
employee benefit plan hereafter adopted by the Company's Board of
Directors; or
(ii) the grant, issuance or exercise of any Convertible
Securities in connection with the hire or retention of any
officer, director or key employee of the Company, provided such
grant is approved by the Company's Board of Directors; or
7
(iii) the issuance of any shares of Common Stock pursuant to the
grant or exercise of Convertible Securities outstanding as of the
date hereof (exclusive of any subsequent amendments thereto).
(c) For the purpose of subsection 3.7(a), the following provisions
shall also be applied:
(i) In case of the issuance or sale of additional shares of
Common Stock for cash, the consideration received by the Company
therefor shall be deemed to be the amount of cash received by the
Company for such shares, before deducting therefrom any
commissions, compensation or other expenses paid or incurred by
the Company for any underwriting of, or otherwise in connection
with, the issuance or sale of such shares.
(ii) In the case of the issuance of Convertible Securities, the
consideration received by the Company therefor shall be deemed to
be the amount of cash, if any, received by the Company for the
issuance of such rights or options, plus the minimum amounts of
cash and fair value of other consideration, if any, payable to
the Company upon the exercise of such rights or options or
payable to the Company upon conversion of such Convertible
Securities.
(iii) In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part,
other than cash, the consideration other than cash shall be
deemed to be the fair market value thereof as reasonably
determined in good faith by the Board of Directors of the Company
(irrespective of accounting treatment thereof); provided,
however, that if such consideration consists of the cancellation
of debt issued by the Company, the consideration shall be deemed
to be the amount the Company received upon issuance of such debt
(gross proceeds) plus accrued interest and, in the case of
original issue discount or zero coupon indebtedness, accrued
value to the date of such cancellation, but not including any
premium or discount at which the debt may then be trading or
which might otherwise be appropriate for such class of debt.
(iv) In case of the issuance of additional shares of Common Stock
upon the conversion or exchange of any obligations (other than
Convertible Securities), the amount of the consideration received
by the Company for such Common Stock shall be deemed to be the
consideration received by the Company for such obligations or
shares so converted or exchanged, before deducting from such
consideration so received by the Company any expenses or
commissions or compensation incurred or paid by the Company for
any underwriting of, or otherwise in connection with, the
issuance or sale of such obligations or shares, plus any
consideration received by the Company in connection with such
conversion or exchange other than a payment in adjustment of
interest and dividends. If obligations or shares of the same
class or series of a class as the obligations or shares so
converted or exchanged have been originally issued for different
amounts of consideration, then the amount of consideration
received by the Company upon the original issuance of each of the
obligations or shares so
8
converted or exchange shall be deemed to be the average amount of
the consideration received by the Company upon the original
issuance of all such obligations or shares. The amount of
consideration received by the Company upon the original issuance
of the obligations or shares so converted or exchanged and the
amount of the consideration, if any, other than such obligations
or shares, received by the Company upon such conversion or
exchange shall be determined in the same manner as provided in
paragraphs (i) and (ii) above with respect to the consideration
received by the Company in case of the issuance of additional
shares of Common Stock or Convertible Securities.
(v) In the case of the issuance of additional shares of Common
Stock as a dividend, the aggregate number of shares of Common
Stock issued in payment of such dividend shall be deemed to have
been issued at the close of business on the record date fixed for
the determination of stockholders entitled to such dividend and
shall be deemed to have been issued without consideration;
provided, however, that if the Company, after fixing such record
date, shall legally abandon its plan to so issue Common Stock as
a dividend, no adjustment of the Applicable Conversion Price
shall be required by reason of the fixing of such record date.
(d) For purposes of the adjustment provided for in subsection 3.7(a)
above, if at any time the Company shall issue any Convertible Securities,
the Company shall be deemed to have issued at the time of the issuance of
such Convertible Securities the maximum number of shares of Common Stock
issuable upon conversion of the total amount of such Convertible
Securities.
(e) On the expiration, cancellation or redemption of any Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith
be readjusted to such Conversion Price as would have been obtained (a) had
the adjustments made upon the issuance or sale of such expired, canceled or
redeemed Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually delivered
upon the exercise or conversion of such Convertible Securities (and the
total consideration received therefor) and (b) had all subsequent
adjustments been made on only the basis of the Conversion Price as
readjusted under this subsection 3.7(e) for all transactions (which would
have affected such adjusted Conversion Price) made after the issuance or
sale of such Convertible Securities.
(f) Anything in this Section 3.7 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in such Conversion
Price; provided, however, that any adjustments which by reason of this
subsection 3.7(f) are not required to be made shall be carried forward and
taken into account in making subsequent adjustments. All calculations under
this Section 3.7 shall be made to the nearest cent.
(g) Upon any adjustment of any Conversion Price, then and in each such
case the Company shall promptly deliver a notice to the registered Holder
of this Debenture, which notice shall state the Conversion Price resulting
from such adjustment, setting
9
forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
3.8 Reorganization of the Company. If the Company is a party to a merger or
other transaction which reclassifies or changes its outstanding Common Stock,
upon consummation of such transaction this Debenture shall automatically become
convertible into the kind and amount of securities, cash or other assets which
the Holder of this Debenture would have owned immediately after such transaction
if the Holder had converted this Debenture at the Conversion Price in effect
immediately before the effective date of the transaction. Concurrently with the
consummation of such transaction, the person obligated to issue securities or
deliver cash or other assets upon conversion of this Debenture shall execute and
deliver to the Holder a supplemental Debenture so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided in this Article 3. The successor Company
shall mail to the Holder a notice describing the supplemental Debenture.
If securities deliverable upon conversion of this Debenture, as provided
above, are themselves convertible into the securities of an affiliate of a
corporation formed, surviving or otherwise affected by the merger or other
transaction, that issuer shall join in the supplemental Debenture which shall so
provide. If this section applies, Section 3.5 does not apply.
ARTICLE IV
MISCELLANEOUS
4.1 Default. Upon the occurrence of any one or more of the events of
default specified or referred to in the Purchase Agreement or in the other
documents or instruments executed in connection therewith, all amounts then
remaining unpaid on this Debenture may be declared to be immediately due and
payable as provided in the Purchase Agreement.
4.2 Collection Costs. In the event that this Debenture shall be placed in
the hands of an attorney for collection by reason of any event of default
hereunder, the undersigned agrees to pay reasonable attorney's fees and
disbursements and other reasonable expenses incurred by the Holder in connection
with the collection of this Debenture.
4.3 Rights Cumulative. The rights, powers and remedies given to the Payee
under this Debenture shall be in addition to all rights, powers and remedies
given to it by virtue of the Purchase Agreement, any document or instrument
executed in connection therewith, or any statute or rule of law.
4.4 No Waivers. Any forbearance, failure or delay by the Payee in
exercising any right, power or remedy under this Debenture, the Purchase
Agreement, any documents or instruments executed in connection therewith or
otherwise available to the Payee shall not be deemed to be a waiver of such
right, power or remedy, nor shall any single or partial exercise of any right,
power or remedy preclude the further exercise thereof.
4.5 Amendments in Writing. No modification or waiver of any provision of
this Debenture, the Purchase Agreement or any documents or instruments executed
in connection
10
therewith shall be effective unless it shall be in writing and signed by the
Payee, and any such modification or waiver shall apply only in the specific
instance for which given.
4.6 Governing Law. This Debenture and the rights and obligations of the
parties hereto, shall be governed, construed and interpreted according to the
laws of the State of New York, wherein it was negotiated and executed, and the
undersigned consents and agrees that the State and Federal Courts which sit in
the State of New York, County of New York shall have exclusive jurisdiction of
all controversies and disputes arising hereunder.
4.7 No Counterclaims. The undersigned waives the right to interpose
counterclaims or set-offs of any kind and description in any litigation arising
hereunder and waives the right in any litigation with the Payee (whether or not
arising out of or relating to this Debenture) to trial by jury.
4.8 Successors. The term "Payee" and "Holder" as used herein shall be
deemed to include the Payee and its successors, endorsees and assigns.
4.9 Certain Waivers. The Company hereby waives presentment, demand for
payment, protest, notice of protest and notice of non-payment hereof.
4.10 Stamp Tax. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Common Stock issuable upon the
conversion of this Debenture; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for the Common Stock in
a name other than that of the Holder in respect of which such Common Stock is
issued, and in such case the Company shall not be required to issue or deliver
any certificate for the Common Stock until the person requesting the same has
paid to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
4.11 Mutilated, Lost, Stolen or Destroyed Debentures. In case this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall issue
and deliver in exchange and substitution for and upon cancellation of the
mutilated Debenture, or in lieu of and substitution for the Debenture,
mutilated, lost, stolen or destroyed, a new Debenture of like tenor and
representing an equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction and an indemnity,
if requested, also satisfactory to it.
4.12 Maintenance of Office. The Company covenants and agrees that so long
as this Debenture shall be outstanding, it will maintain an office or agency in
New York (or such other place as the Company may designate in writing to the
holder of this Debenture) where notices, presentations and demands to or upon
the Company in respect of this Debenture may be given or made.
IN WITNESS WHEREOF, Halsey Drug Co., Inc. has caused this Debenture to be
signed by its President and to be dated the day and year first above written.
11
ATTEST [SEAL] HALSEY DRUG CO., INC.
By:
- ---------------------------- ----------------------------
Michael Reicher
Chief Executive Officer
12
ATTACHMENT I
Assignment
For value received, the undersigned hereby assigns subject to the
provisions of Section of the Purchase Agreement, to ________ $_________________
principal amount of the 5% Convertible Senior Secured Debenture due March 15,
2003 evidenced hereby and hereby irrevocably appoint _______________ attorney to
transfer the Debenture on the books of the within named corporation with full
power of substitution in the premises.
Dated:
In the presence of:
- ---------------------------- ----------------------------
13
ATTACHMENT II
CONVERSION NOTICE
TO: HALSEY DRUG CO., INC.
The undersigned holder of this Debenture hereby irrevocably exercises the
option to convert $_________ principal amount of such Debenture (which may be
less than the stated principal amount thereof) into shares of Common Stock of
Halsey Drug Co., Inc., in accordance with the terms of such Debenture, and
directs that the shares of Common Stock issuable and deliverable upon such
conversion, together with a check (if applicable) in payment for any fractional
shares as provided in such Debenture, be issued and delivered to the undersigned
unless a different name has been indicated below. If shares of Common Stock are
to be issued in the name of a person other than the undersigned holder of such
Debenture, the undersigned will pay all transfer taxes payable with respect
thereto.
--------------------------------------------------------
Name and address of Holder
--------------------------------------------------------
Signature of Holder
Principal amount of Debenture to be converted $
----------
If shares are to be issued otherwise then to the holder:
- -------------------------------------
Name of Transferee
Address of Transferee
--------------------------------------
--------------------------------------
--------------------------------------
Social Security Number of Transferee
--------------------------------------
14
EXHIBIT 4
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.01 PER SHARE
OF
HALSEY DRUG CO., INC.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER
ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE
HOLDER OF SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH WARRANT
AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
This certifies that, for value received, __________________ or registered
assigns ("Warrantholder"), is entitled to purchase from HALSEY DRUG CO., INC.
(the "Company"), subject to the provisions of this Warrant, at any time during
the Exercise Period (as hereinafter defined) _________ Shares of the Company's
Common Stock, par value $.01 per share ("Warrant Shares"). The purchase price
payable upon the exercise of this Warrant shall be $1.50 per Warrant Share. The
purchase price and the number of Warrant Shares which the Warrantholder is
entitled to purchase are subject to adjustment upon the occurrence of the
contingencies set forth in this Warrant, and as adjusted from time to time, such
purchase price is hereinafter referred to as the "Warrant Price."
For purposes of this Warrant, the term "Exercise Period" means the period
commencing on the date of issuance of this Warrant and ending on the seventh
anniversary of such date.
This Warrant is subject to the following terms and conditions:
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part but not for a
fractional share. Upon delivery of this Warrant at the offices of the
Company or at such other address as the Company may designate by notice in
writing to the registered holder hereof with the Subscription Form annexed
hereto duly executed, accompanied by payment of the Warrant Price for the
number of Warrant Shares purchased (in cash, by certified, cashier's or
other check
acceptable to the Company, by Common Stock or other securities of the
Company having a Market Value (as hereinafter defined) equal to the
aggregate Warrant Price for the Warrant Shares to be purchased, or any
combination of the foregoing), the registered holder of this Warrant shall
be entitled to receive a certificate or certificates for the Warrant Shares
so purchased. Such certificate or certificates shall be promptly delivered
to the Warrantholder. Upon any partial exercise of this Warrant, the
Company shall execute and deliver a new Warrant of like tenor for the
balance of the Warrant Shares purchasable hereunder.
(b) In lieu of exercising this Warrant pursuant to Section 1(a), the
holder may elect to receive shares of Common Stock equal to the value of
this Warrant determined in the manner described below (or any portion
thereof remaining unexercised) upon delivery of this Warrant at the offices
of the Company or at such other address as the Company may designate by
notice in writing to the registered holder hereof with the Notice of
Cashless Exercise Form annexed hereto duly executed. In such event the
Company shall issue to the holder a number of shares of the Company's
Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the holder.
Y = the number of shares of Common Stock purchasable under this
Warrant (at the date of such calculation).
A = the Market Value of the Company's Common Stock on the business
day immediately preceding the day on which the Notice of Cashless
Exercise is received by the Company.
B = Warrant Price (as adjusted to the date of such calculation).
(c) The Warrant Shares deliverable hereunder shall, upon issuance, be
fully paid and non-assessable and the Company agrees that at all times
during the term of this Warrant it shall cause to be reserved for issuance
such number of shares of its Common Stock as shall be required for issuance
and delivery upon exercise of this Warrant.
(d) For purposes of Section 1(b) of this Warrant, the Market Value of
a share of Common Stock on any date shall be equal to (A) the closing sale
price per share as published by a national securities exchange on which
shares of Common Stock are traded (an "Exchange") on such date or, if there
is no sale of Common Stock on such date, the average of thebid and asked
prices on such Exchange at the close of trading on such date or, (B) if
shares of Common Stock are not listed on an Exchange on such date, the
closing price per share as published on the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ") National Market
System if the shares are quoted on such system on such date, or (C) the
average of the bid and asked prices in the over-the-counter market at the
close of trading on such date if the shares are not traded on an Exchange
or listed on the NASDAQ National Market System, or (D) if the security is
not traded on an Exchange or in the over-the-counter
2
market, the fair market value of a share of Common Stock on such date as
determined in good faith by the Board of Directors. If the holder disagrees
with the determination of the Market Value of any securities of the Common
Stock determined by the Board of Directors under Section 1(d)(i)(D) the
Market Value shall be determined by an independent appraiser acceptable to
the Company and the holder. If they cannot agree on such an appraiser, then
each of the Company and the holder shall select an independent appraiser,
such two appraisers shall select a third independent appraiser and Market
Value shall be the median of the appraisals made by such appraisers). If
there is one appraiser, the cost of the appraisal shall be shared equally
between the Company and the holder. If there are three appraisers, each of
the Company and the holder shall pay for its own appraiser and shall share
equally the cost of the third appraiser.
2. Transfer or Assignment of Warrant.
(a) Any assignment or transfer of this Warrant shall be made by surrender
of this Warrant at the offices of the Company or at such other address as the
Company may designate in writing to the registered holder hereof with the
Assignment Form annexed hereto duly executed and accompanied by payment of any
requisite transfer taxes, and the Company shall, without charge, execute and
deliver a new Warrant of like tenor in the name of the assignee for the portion
so assigned in case of only a partial assignment, with a new Warrant of like
tenor to the assignor for the balance of the Warrant Shares purchasable.
(b) Prior to any assignment or transfer of this Warrant, the holder thereof
shall deliver an opinion of counsel to the Company to the effect that the
proposed transfer may be effected without registration under the Securities Act
of 1933, as amended (the "Securities Act"). Each Warrant issued upon or in
connection with such transfer shall bear the restrictive legend set forth on the
front of this Warrant unless, in the opinion of the Company's counsel, such
legend is no longer required to insure compliance with the Securities Act.
3. Adjustments to Warrant Price and Warrant Shares -- Anti-Dilution
Provisions. In order to prevent dilution of the exercise right granted
hereunder, the Warrant Price shall be subject to adjustment from time to time in
accordance with this Section 3. Upon each adjustment of the Warrant Price
pursuant to this Section 3, the holder shall thereafter be entitled to acquire
upon exercise of this Warrant, at the Applicable Warrant Price (as hereinafter
defined), the number of shares of Common Stock obtainable by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Applicable Warrant Price resulting from such
adjustment.
The Warrant Price in effect at the time of the exercise of this Warrant
shall be subject to adjustment from time to time as follows:
(a) In the event that the Company shall at any time: (i) declare or
pay to the holders of the Common Stock a dividend payable in any kind of
shares of capital stock of the Company; or (ii) change or divide or
otherwise reclassify its Common Stock into the same or a different number
of shares with or without par value, or in shares of any class or classes;
or (iii) transfer its property as an entirety or substantially as an
entirety to any other company or entity; or (iv) make any distribution of
its assets to holders of its Common Stock as a liquidation or partial
liquidation dividend or by way of return of capital; then, upon the
subsequent exercise
3
of this Warrant, the holder thereof shall receive, in addition to or in
substitution for the shares of Common Stock to which it would otherwise be
entitled upon such exercise, such additional shares of stock or scrip of
the Company, or such reclassified shares of stock of the Company, or such
shares of the securities or property of the company resulting from
transfer, or such assets of the Company, which it would have been entitled
to receive had it exercised these rights prior to the happening of any of
the foregoing events.
(b) If at any time after the date of issuance hereof the Company shall
grant or issue any shares of Common Stock, or grant or issue any rights or
options for the purchase of, or stock or other securities convertible into,
Common Stock (such convertible stock or securities being herein
collectively referred to as "Convertible Securities") other than:
(i) shares issued in a transaction described in subsection 3(c);
or
(ii) shares issued, subdivided or combined in transactions
described in subsection 3(a) if and to the extent that the number of
shares of Common Stock receivable upon exercise of this Warrant shall
have been previously adjusted pursuant to subsection 3(a) as a result
of such issuance, subdivision or combination of such securities;
for a consideration per share which is less than the Fair Market Value (as
hereinafter defined) of the Common Stock, then the Warrant Price in effect
immediately prior to such issuance or sale (the "Applicable Warrant Price")
shall, and thereafter upon each issuance or sale for a consideration per
share which is less than the Fair Market Value of the Common Stock, the
Applicable Warrant Price shall, simultaneously with such issuance or sale,
be adjusted, so that such Applicable Warrant Price shall equal a price
determined by multiplying the Applicable Warrant Price by a fraction, the
numerator of which shall be:
(A) the sum of (x) the total number of shares of Common Stock
outstanding when the Applicable Warrant Price became effective, plus
(y) the number of shares of Common Stock which the aggregate
consideration received, as determined in accordance with subsection
3(d) for the issuance or sale of such additional Common Stock or
Convertible Securities deemed to be an issuance of Common Stock as
provided in subsection 3(e), would purchase (including any
consideration received by the Company upon the issuance of any shares
of Common Stock since the date the Applicable Warrant Price became
effective not previously included in any computation resulting in an
adjustment pursuant to this subsection 3(b)) at the Fair Market Value
of the Common Stock; and the denominator of which shall be
(B) the total number of shares of Common Stock outstanding (or deemed
to be outstanding as provided in subsection 3(e) hereof) immediately
after the issuance or sale of such additional shares.
For purposes of this Section 3, "Fair Market Value" shall mean the
average of the closing price of the Common Stock for each of the twenty
(20) consecutive trading days
4
prior to such issuance or sale on an Exchange or if shares of Common Stock
are not listed on an Exchange during such period, the closing price per
share as reported by NASDAQ National Market System if the shares are quoted
on such system during such period, or the average of the bid and asked
prices of the Common Stock in the over-the-counter market at the close of
trading during such period if the shares are not traded on an Exchange or
listed on the NASDAQ National Market System, or if the Common Stock is not
traded on an Exchange or in the over-the-counter market, the fair market
value of a share of Common Stock during such period as determined in good
faith by the Board of Directors.
If, however, the Applicable Warrant Price thus obtained would result in the
issuance of a lesser number of shares upon conversion than would be issued
at the initial Warrant Price, the Applicable Warrant Price shall be such
initial Warrant Price.
Upon each adjustment of the Warrant Price pursuant to this subsection
3(b), the total number of shares of Common Stock for which this Warrant
shall be exercisable shall be such number of shares (calculated to the
nearest tenth) purchasable at the Applicable Warrant Price multiplied by a
fraction, the numerator of which shall be the Warrant Price in effect
immediately prior to such adjustment and the denominator of which shall be
the exercise price in effect immediately after such adjustment.
(c) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be made in connection with:
(i) the grant, issuance or exercise of any Convertible Securities
pursuant to the Company's qualified or non-qualified Employee
Stock Option Plans or any other bona fide employee benefit plan
or incentive arrangement, adopted or approved by the Company's
Board of Directors and approved by the Company's shareholders, as
may be amended from time to time, or under any other bona fide
employee benefit plan hereafter adopted by the Company's Board of
Directors; or
(ii) the grant, issuance or exercise of any Convertible
Securities in connection with the hire or retention of any
officer, director or key employee of the Company, provided such
grant is approved by the Company's Board of Directors; or
(iii) the issuance of any shares of Common Stock pursuant to the
grant or exercise of Convertible Securities outstanding as of the
date hereof (exclusive of any subsequent amendments thereto).
(d) For the purpose of subsection 3(b), the following provisions shall
also be applied:
(i) In case of the issuance or sale of additional shares of
Common Stock for cash, the consideration received by the Company
therefor shall be deemed to be
5
the amount of cash received by the Company for such shares,
before deducting therefrom any commissions, compensation or other
expenses paid or incurred by the Company for any underwriting of,
or otherwise in connection with, the issuance or sale of such
shares.
(ii) In the case of the issuance of Convertible Securities, the
consideration received by the Company therefor shall be deemed to
be the amount of cash, if any, received by the Company for the
issuance of such rights or options, plus the minimum amounts of
cash and fair value of other consideration, if any, payable to
the Company upon the exercise of such rights or options or
payable to the Company upon conversion of such Convertible
Securities.
(iii) In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part,
other than cash, the consideration other than cash shall be
deemed to be the fair market value thereof as reasonably
determined in good faith by the Board of Directors of the Company
(irrespective of accounting treatment thereof); provided,
however, that if such consideration consists of the cancellation
of debt issued by the Company, the consideration shall be deemed
to be the amount the Company received upon issuance of such debt
(gross proceeds) plus accrued interest and, in the case of
original issue discount or zero coupon indebtedness, accrued
value to the date of such cancellation, but not including any
premium or discount at which the debt may then be trading or
which might otherwise be appropriate for such class of debt.
(iv) In case of the issuance of additional shares of Common Stock
upon the conversion or exchange of any obligations (other than
Convertible Securities), the amount of the consideration received
by the Company for such Common Stock shall be deemed to be the
consideration received by the Company for such obligations or
shares so converted or exchanged, before deducting from such
consideration so received by the Company any expenses or
commissions or compensation incurred or paid by the Company for
any underwriting of, or otherwise in connection with, the
issuance or sale of such obligations or shares, plus any
consideration received by the Company in connection with such
conversion or exchange other than a payment in adjustment of
interest and dividends. If obligations or shares of the same
class or series of a class as the obligations or shares so
converted or exchanged have been originally issued for different
amounts of consideration, then the amount of consideration
received by the Company upon the original issuance of each of the
obligations or shares so converted or exchange shall be deemed to
be the average amount of the consideration received by the
Company upon the original issuance of all such obligations or
shares. The amount of consideration received by the Company upon
the original issuance of the obligations or shares so converted
or exchanged andthe amount of the consideration, if any, other
than such obligations or shares, received by the Company upon
such conversion or exchange shall be determined
6
in the same manner as provided in paragraphs (i) and (ii) above
with respect to the consideration received by the Company in case
of the issuance of additional shares of Common Stock or
Convertible Securities.
(v) In the case of the issuance of additional shares of Common
Stock as a dividend, the aggregate number of shares of Common
Stock issued in payment ofsuch dividend shall be deemed to have
been issued at the close of business on the record date fixed for
the determination of stockholders entitled to such dividend and
shall be deemed to have been issued without consideration;
provided, however, that if the Company, after fixing such record
date, shall legally abandon its plan to so issue Common Stock as
a dividend, no adjustment of the Applicable Conversion Price
shall be required by reason of the fixing of such record date.
(e) For purposes of the adjustment provided for in subsection 3(b)
above, if at any time the Company shall issue any Convertible Securities,
the Company shall be deemed to have issued at the time of the issuance of
such Convertible Securities the maximum number of shares of Common Stock
issuable upon conversion of the total amount of such Convertible
Securities.
(f) On the expiration, cancellation or redemption of any Convertible
Securities, the Warrant Price then in effect hereunder shall forthwith be
readjusted to such Warrant Price as would have been obtained (a) had the
adjustments made upon the issuance or sale of such expired, canceled or
redeemed Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually delivered
upon the exercise or conversion of such Convertible Securities (and the
total consideration received therefor) and (b) had all subsequent
adjustments been made on only the basis of the Warrant Price as readjusted
under this subsection 3(f) for all transactions (which would have affected
such adjusted Warrant Price) made after the issuance or sale of such
Convertible Securities.
(g) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be required unless such adjustment
would require an increase or decrease of at least 1% in such Warrant Price;
provided, however, that any adjustments which by reason of this subsection
3(g) are not required to be made shall be carried forward and taken into
account in making subsequent adjustments. All calculations under this
Section 3 shall be made to the nearest cent.
(h) If, at any time while this Warrant is outstanding, the Company
shall pay any dividend payable in cash or in Common Stock, shall offer to
the holders of its Common Stock for subscription or purchase by them any
shares of stock of any class or any other rights, shall enter into an
agreement to merge or consolidate with another corporation, shall propose
any capital reorganization or reclassification of the capital stock of the
Company, including any subdivision or combination of its outstanding shares
of Common Stock or there shall be contemplated a voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall
cause notice thereof to be mailed to the registered holder of this Warrant
at
7
its address appearing on the registration books of the Company, at least
thirty (30) days prior to the record date as of which holders of Common
Stock shall participate in such dividend, distribution or subscription or
other rights or at least thirty (30) days prior to the effective date of
the merger, consolidation, reorganization, reclassification or dissolution.
Upon any adjustment of any Warrant Price, then and in each such case the
Company shall promptly deliver a notice to the registered holder of this
Warrant, which notice shall state the Warrant Price resulting from such
adjustment, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
(i) If the Company is a party to a merger or other transaction which
reclassifies or changes its outstanding Common Stock, upon consummation of
such transaction this Warrant shall automatically become exercisable for
the kind and amount of securities, cash or other assets which the holder of
this Warrant would have owned immediately after such transaction if the
holder had converted this Warrant at the Warrant Price in effect
immediately before the effective date of the transaction. Concurrently with
the consummation of such transaction, the person obligated to issue
securities or deliver cash or other assets upon exercise of this Warrant
shall execute and deliver to the holder a supplemental Warrant so providing
and further providing for adjustments which shall be as nearly equivalent
as may be practical to the adjustments provided in this Section 3. The
successor company shall mail to the holder a notice describing the
supplemental Warrant.
If securities deliverable upon exercise of this Warrant, as provided above,
are themselves convertible into or exercisable for the securities of an
affiliate of a corporation formed, surviving or otherwise affected by the merger
or other transaction, that issuer shall join in the supplemental Warrant which
shall so provide. If this subsection 3(i) applies, subsection 3(a) does not
apply.
4. Charges, Taxes and Expenses. The issuance of certificates for Warrant
Shares upon any exercise of this Warrant shall be made without charge to the
holder of this Warrant for any tax or other expense in respect to the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued only in the name of the holder of
this Warrant.
5. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall inure to the
benefit of any successors or assigns of the Company and of the holder or holders
hereof and of the shares of Common Stock issued or issuable upon the exercise
hereof.
(b) No holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be deemed to be a stockholder of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder of this Warrant, as such, any rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action,
receive notice of meetings, receive dividends or subscription rights, or
otherwise.
8
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of an agreement to the foregoing terms and conditions.
(d) The Warrant and the performance of the parties hereunder shall be
construed and interpreted in accordance with the laws of the State of New York
wherein it was negotiated and executed and the parties hereunder consent and
agree that the State and Federal Courts which sit in the State of New York and
the County of New York shall have exclusive jurisdiction with respect to all
controversies and disputes arising hereunder.
(e) The shares issuable upon exercise of this Warrant are entitled to the
benefits of the registration rights provisions of the Debenture and Warrant
Purchase Agreement dated the date hereof among the Company and various other
parties (the "Purchase Agreement").
(f) This Warrant is subject to certain other agreements contained in the
Purchase Agreement, a copy of which is on file with the Secretary of the
Company. Shares issued upon exercise of this Warrant shall contain a legend
substantially to the same effect as the legend set forth on the first page of
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and its corporate seal to be affixed hereto.
Dated as of March ____, 1998
HALSEY DRUG CO., INC.
BY:
---------------------------------
Name:
Title:
9
SUBSCRIPTION FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER
IF HE DESIRES TO EXERCISE THE WARRANT)
To: HALSEY DRUG CO., INC.
The undersigned hereby exercises the right to purchase _________ shares of
Common Stock, par value $.01 per share, covered by the attached Warrant in
accordance with the terms and conditions thereof, and herewith makes payment of
the Warrant Price for such shares in full.
-----------------------------------
SIGNATURE
-----------------------------------
ADDRESS
DATED:
---------------------------
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[ Date ]
Halsey Drug Co., Inc. Aggregate Price of $
a New York corporation of Warrant ---------------
1827 Pacific Street Aggregate Price Being
Brooklyn, New York 11233 Exercised: $
Attention: ---------------
----------------- Warrant Price
(per share): $
---------------
Market Value (per
share): $
---------------
Number of Shares of
Common Stock under
this Warrant: ---------------
Number of Shares of
Common Stock to be
Issued Under this
Notice: ---------------
CASHLESS EXERCISE
Gentlemen:
The undersigned, the registered holder of the Warrant to Purchase Common
Stock delivered herewith ("Warrant"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of HALSEY DRUG CO.,
INC., a New York corporation, as provided below. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given in the Warrant.
The portion of the Aggregate Price (as hereinafter defined) to be applied toward
the purchase of Common Stock pursuant to this Notice of Exercise is $__________,
thereby leaving a remainder Aggregate Price (if any) equal to $__________. Such
exercise shall be pursuant to the net issue exercise provisions of Section 1(b)
of the Warrant; therefore, the holder makes no payment with this Notice of
Exercise. The number of shares to be issued pursuant to this exercise shall be
determined by reference to the formula in Section 1(b) of the Warrant which
requires the use of the Market Value (as defined in Section 1(d) of the Warrant)
of the Company's Common Stock on the business day immediately preceding the day
on which this Notice is received by the Company. To the extent
the foregoing exercise is for less than the full Aggregate Price of the Warrant,
the remainder of the Warrant representing a number of Shares equal to the
quotient obtained by dividing the remainder of the Aggregate Price by the
Warrant Price (and otherwise of like form, tenor and effect) may be exercised
under Section 1(a) of the Warrant. For purposes of this Notice the term
"Aggregate Price" means the product obtained by multiplying the number of shares
of Common Stock for which the Warrant is exercisable times the Warrant Price.
----------------------------------------
SIGNATURE
DATE:
------------------ ----------------------------------------
ADDRESS
2
ASSIGNMENT
(To be Executed by the Registered Holder
if he Desires to Transfer the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________ the right to purchase shares of Common Stock of
HALSEY DRUG CO., INC., evidenced by the within Warrant, and does hereby
irrevocably constitute and appoint Attorney to transfer the said Warrant on the
books of the Company, with full power of substitution.
----------------------------------------
SIGNATURE
DATED:
------------------ ----------------------------------------
ADDRESS
IN THE PRESENCE OF:
- -----------------------
3
EXHIBIT 5
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.01 PER SHARE
OF
HALSEY DRUG CO., INC.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER
ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE
HOLDER OF SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH WARRANT
AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
This certifies that, for value received, __________________ or registered
assigns ("Warrantholder"), is entitled to purchase from HALSEY DRUG CO., INC.
(the "Company"), subject to the provisions of this Warrant, at any time during
the Exercise Period (as hereinafter defined) _________ Shares of the Company's
Common Stock, par value $.01 per share ("Warrant Shares"). The purchase price
payable upon the exercise of this Warrant shall be $2.375 per Warrant Share. The
purchase price and the number of Warrant Shares which the Warrantholder is
entitled to purchase are subject to adjustment upon the occurrence of the
contingencies set forth in this Warrant, and as adjusted from time to time, such
purchase price is hereinafter referred to as the "Warrant Price."
For purposes of this Warrant, the term "Exercise Period" means the period
commencing on the date of issuance of this Warrant and ending on the seventh
anniversary of such date.
This Warrant is subject to the following terms and conditions:
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part but not for a
fractional share. Upon delivery of this Warrant at the offices of the Company or
at such other address as the Company may designate by notice in writing to the
registered holder hereof with the Subscription Form annexed hereto duly
executed, accompanied by payment of the Warrant Price for the number of Warrant
Shares purchased (in cash, by certified, cashier's or other check
acceptable to the Company, by Common Stock or other securities of the Company
having a Market Value (as hereinafter defined) equal to the aggregate Warrant
Price for the Warrant Shares to be purchased, or any combination of the
foregoing), the registered holder of this Warrant shall be entitled to receive a
certificate or certificates for the Warrant Shares so purchased. Such
certificate or certificates shall be promptly delivered to the Warrantholder.
Upon any partial exercise of this Warrant, the Company shall execute and deliver
a new Warrant of like tenor for the balance of the Warrant Shares purchasable
hereunder.
(b) In lieu of exercising this Warrant pursuant to Section 1(a), the holder
may elect to receive shares of Common Stock equal to the value of this Warrant
determined in the manner described below (or any portion thereof remaining
unexercised) upon delivery of this Warrant at the offices of the Company or at
such other address as the Company may designate by notice in writing to the
registered holder hereof with the Notice of Cashless Exercise Form annexed
hereto duly executed. In such event the Company shall issue to the holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
--------
A
Where X = the number of shares of Common Stock to be issued to the holder.
Y = the number of shares of Common Stock purchasable under this Warrant
(at the date of such calculation).
A = the Market Value of the Company's Common Stock on the business day
immediately preceding the day on which the Notice of Cashless Exercise
is received by the Company.
B = Warrant Price (as adjusted to the date of such calculation).
(c) The Warrant Shares deliverable hereunder shall, upon issuance, be fully
paid and non-assessable and the Company agrees that at all times during the term
of this Warrant it shall cause to be reserved for issuance such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of this Warrant.
(d) For purposes of Section 1(b) of this Warrant, the Market Value of a
share of Common Stock on any date shall be equal to (A) the closing sale price
per share as published by a national securities exchange on which shares of
Common Stock are traded (an "Exchange") on such date or, if there is no sale of
Common Stock on such date, the average of thebid and asked prices on such
Exchange at the close of trading on such date or, (B) if shares of Common Stock
are not listed on an Exchange on such date, the closing price per share as
published on the National Association of Securities Dealers Automatic Quotation
System ("NASDAQ") National Market System if the shares are quoted on such system
on such date, or (C) the average of the bid and asked prices in the
over-the-counter market at the close of trading on such date if the shares are
not traded on an Exchange or listed on the NASDAQ National Market System, or (D)
if the security is not traded on an Exchange or in the over-the-counter
2
market, the fair market value of a share of Common Stock on such date as
determined in good faith by the Board of Directors. If the holder disagrees with
the determination of the Market Value of any securities of the Common Stock
determined by the Board of Directors under Section 1(d)(i)(D) the Market Value
shall be determined by an independent appraiser acceptable to the Company and
the holder. If they cannot agree on such an appraiser, then each of the Company
and the holder shall select an independent appraiser, such two appraisers shall
select a third independent appraiser and Market Value shall be the median of the
appraisals made by such appraisers). If there is one appraiser, the cost of the
appraisal shall be shared equally between the Company and the holder. If there
are three appraisers, each of the Company and the holder shall pay for its own
appraiser and shall share equally the cost of the third appraiser.
2. Transfer or Assignment of Warrant.
(a) Any assignment or transfer of this Warrant shall be made by surrender
of this Warrant at the offices of the Company or at such other address as the
Company may designate in writing to the registered holder hereof with the
Assignment Form annexed hereto duly executed and accompanied by payment of any
requisite transfer taxes, and the Company shall, without charge, execute and
deliver a new Warrant of like tenor in the name of the assignee for the portion
so assigned in case of only a partial assignment, with a new Warrant of like
tenor to the assignor for the balance of the Warrant Shares purchasable.
(b) Prior to any assignment or transfer of this Warrant, the holder thereof
shall deliver an opinion of counsel to the Company to the effect that the
proposed transfer may be effected without registration under the Securities Act
of 1933, as amended (the "Securities Act"). Each Warrant issued upon or in
connection with such transfer shall bear the restrictive legend set forth on the
front of this Warrant unless, in the opinion of the Company's counsel, such
legend is no longer required to insure compliance with the Securities Act.
3. Adjustments to Warrant Price and Warrant Shares -- Anti-Dilution
Provisions. In order to prevent dilution of the exercise right granted
hereunder, the Warrant Price shall be subject to adjustment from time to time in
accordance with this Section 3. Upon each adjustment of the Warrant Price
pursuant to this Section 3, the holder shall thereafter be entitled to acquire
upon exercise of this Warrant, at the Applicable Warrant Price (as hereinafter
defined), the number of shares of Common Stock obtainable by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Applicable Warrant Price resulting from such
adjustment.
The Warrant Price in effect at the time of the exercise of this Warrant
shall be subject to adjustment from time to time as follows:
(a) In the event that the Company shall at any time: (i) declare or
pay to the holders of the Common Stock a dividend payable in any kind of
shares of capital stock of the Company; or (ii) change or divide or
otherwise reclassify its Common Stock into the same or a different number
of shares with or without par value, or in shares of any class or classes;
or (iii) transfer its property as an entirety or substantially as an
entirety to any other company or entity; or (iv) make any distribution of
its assets to holders of its Common Stock as a liquidation or partial
liquidation dividend or by way of return of capital; then, upon the
subsequent exercise
3
of this Warrant, the holder thereof shall receive, in addition to or in
substitution for the shares of Common Stock to which it would otherwise be
entitled upon such exercise, such additional shares of stock or scrip of
the Company, or such reclassified shares of stock of the Company, or such
shares of the securities or property of the company resulting from
transfer, or such assets of the Company, which it would have been entitled
to receive had it exercised these rights prior to the happening of any of
the foregoing events.
(b) If at any time after the date of issuance hereof the Company shall
grant or issue any shares of Common Stock, or grant or issue any rights or
options for the purchase of, or stock or other securities convertible into,
Common Stock (such convertible stock or securities being herein
collectively referred to as "Convertible Securities") other than:
(i) shares issued in a transaction described in subsection 3(c);
or
(ii) shares issued, subdivided or combined in transactions
described in subsection 3(a) if and to the extent that the number of
shares of Common Stock receivable upon exercise of this Warrant shall
have been previously adjusted pursuant to subsection 3(a) as a result
of such issuance, subdivision or combination of such securities;
for a consideration per share which is less than the Fair Market Value (as
hereinafter defined) of the Common Stock, then the Warrant Price in effect
immediately prior to such issuance or sale (the "Applicable Warrant Price")
shall, and thereafter upon each issuance or sale for a consideration per share
which is less than the Fair Market Value of the Common Stock, the Applicable
Warrant Price shall, simultaneously with such issuance or sale, be adjusted, so
that such Applicable Warrant Price shall equal a price determined by multiplying
the Applicable Warrant Price by a fraction, the numerator of which shall be:
(A) the sum of (x) the total number of shares of Common Stock
outstanding when the Applicable Warrant Price became effective, plus
(y) the number of shares of Common Stock which the aggregate
consideration received, as determined in accordance with subsection
3(d) for the issuance or sale of such additional Common Stock or
Convertible Securities deemed to be an issuance of Common Stock as
provided in subsection 3(e), would purchase (including any
consideration received by the Company upon the issuance of any shares
of Common Stock since the date the Applicable Warrant Price became
effective not previously included in any computation resulting in an
adjustment pursuant to this subsection 3(b)) at the Fair Market Value
of the Common Stock; and the denominator of which shall be
(B) the total number of shares of Common Stock outstanding (or deemed
to be outstanding as provided in subsection 3(e) hereof) immediately
after the issuance or sale of such additional shares.
For purposes of this Section 3, "Fair Market Value" shall mean the average
of the closing price of the Common Stock for each of the twenty (20) consecutive
trading days
4
prior to such issuance or sale on an Exchange or if shares of Common Stock are
not listed on an Exchange during such period, the closing price per share as
reported by NASDAQ National Market System if the shares are quoted on such
system during such period, or the average of the bid and asked prices of the
Common Stock in the over-the-counter market at the close of trading during such
period if the shares are not traded on an Exchange or listed on the NASDAQ
National Market System, or if the Common Stock is not traded on an Exchange or
in the over-the-counter market, the fair market value of a share of Common Stock
during such period as determined in good faith by the Board of Directors.
If, however, the Applicable Warrant Price thus obtained would result in the
issuance of a lesser number of shares upon conversion than would be issued at
the initial Warrant Price, the Applicable Warrant Price shall be such initial
Warrant Price.
Upon each adjustment of the Warrant Price pursuant to this subsection 3(b),
the total number of shares of Common Stock for which this Warrant shall be
exercisable shall be such number of shares (calculated to the nearest tenth)
purchasable at the Applicable Warrant Price multiplied by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the exercise price in
effect immediately after such adjustment.
(c) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be made in connection with:
(i) the grant, issuance or exercise of any Convertible Securities pursuant
to the Company's qualified or non-qualified Employee Stock Option Plans or
any other bona fide employee benefit plan or incentive arrangement, adopted
or approved by the Company's Board of Directors and approved by the
Company's shareholders, as may be amended from time to time, or under any
other bona fide employee benefit plan hereafter adopted by the Company's
Board of Directors; or
(ii) the grant, issuance or exercise of any Convertible Securities in
connection with the hire or retention of any officer, director or key
employee of the Company, provided such grant is approved by the Company's
Board of Directors; or
(iii) the issuance of any shares of Common Stock pursuant to the grant or
exercise of Convertible Securities outstanding as of the date hereof
(exclusive of any subsequent amendments thereto).
(d) For the purpose of subsection 3(b), the following provisions shall also
be applied:
(i) In case of the issuance or sale of additional shares of Common Stock
for cash, the consideration received by the Company therefor shall be
deemed to be
5
the amount of cash received by the Company for such shares, before
deducting therefrom any commissions, compensation or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in connection
with, the issuance or sale of such shares.
(ii) In the case of the issuance of Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the
amount of cash, if any, received by the Company for the issuance of such
rights or options, plus the minimum amounts of cash and fair value of other
consideration, if any, payable to the Company upon the exercise of such
rights or options or payable to the Company upon conversion of such
Convertible Securities.
(iii) In the case of the issuance of shares of Common Stock or Convertible
Securities for a consideration in whole or in part, other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as reasonably determined in good faith by the Board of Directors of
the Company (irrespective of accounting treatment thereof); provided,
however, that if such consideration consists of the cancellation of debt
issued by the Company, the consideration shall be deemed to be the amount
the Company received upon issuance of such debt (gross proceeds) plus
accrued interest and, in the case of original issue discount or zero coupon
indebtedness, accrued value to the date of such cancellation, but not
including any premium or discount at which the debt may then be trading or
which might otherwise be appropriate for such class of debt.
(iv) In case of the issuance of additional shares of Common Stock upon the
conversion or exchange of any obligations (other than Convertible
Securities), the amount of the consideration received by the Company for
such Common Stock shall be deemed to be the consideration received by the
Company for such obligations or shares so converted or exchanged, before
deducting from such consideration so received by the Company any expenses
or commissions or compensation incurred or paid by the Company for any
underwriting of, or otherwise in connection with, the issuance or sale of
such obligations or shares, plus any consideration received by the Company
in connection with such conversion or exchange other than a payment in
adjustment of interest and dividends. If obligations or shares of the same
class or series of a class as the obligations or shares so converted or
exchanged have been originally issued for different amounts of
consideration, then the amount of consideration received by the Company
upon the original issuance of each of the obligations or shares so
converted or exchange shall be deemed to be the average amount of the
consideration received by the Company upon the original issuance of all
such obligations or shares. The amount of consideration received by the
Company upon the original issuance of the obligations or shares so
converted or exchanged andthe amount of the consideration, if any, other
than such obligations or shares, received by the Company upon such
conversion or exchange shall be determined
6
in the same manner as provided in paragraphs (i) and (ii) above with
respect to the consideration received by the Company in case of the
issuance of additional shares of Common Stock or Convertible Securities.
(v) In the case of the issuance of additional shares of Common Stock as a
dividend, the aggregate number of shares of Common Stock issued in payment
ofsuch dividend shall be deemed to have been issued at the close of
business on the record date fixed for the determination of stockholders
entitled to such dividend and shall be deemed to have been issued without
consideration; provided, however, that if the Company, after fixing such
record date, shall legally abandon its plan to so issue Common Stock as a
dividend, no adjustment of the Applicable Conversion Price shall be
required by reason of the fixing of such record date.
(e) For purposes of the adjustment provided for in subsection 3(b) above,
if at any time the Company shall issue any Convertible Securities, the Company
shall be deemed to have issued at the time of the issuance of such Convertible
Securities the maximum number of shares of Common Stock issuable upon conversion
of the total amount of such Convertible Securities.
(f) On the expiration, cancellation or redemption of any Convertible
Securities, the Warrant Price then in effect hereunder shall forthwith be
readjusted to such Warrant Price as would have been obtained (a) had the
adjustments made upon the issuance or sale of such expired, canceled or redeemed
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered upon the
exercise or conversion of such Convertible Securities (and the total
consideration received therefor) and (b) had all subsequent adjustments been
made on only the basis of the Warrant Price as readjusted under this subsection
3(f) for all transactions (which would have affected such adjusted Warrant
Price) made after the issuance or sale of such Convertible Securities.
(g) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in such Warrant Price; provided,
however, that any adjustments which by reason of this subsection 3(g) are not
required to be made shall be carried forward and taken into account in making
subsequent adjustments. All calculations under this Section 3 shall be made to
the nearest cent.
(h) If, at any time while this Warrant is outstanding, the Company shall
pay any dividend payable in cash or in Common Stock, shall offer to the holders
of its Common Stock for subscription or purchase by them any shares of stock of
any class or any other rights, shall enter into an agreement to merge or
consolidate with another corporation, shall propose any capital reorganization
or reclassification of the capital stock of the Company, including any
subdivision or combination of its outstanding shares of Common Stock or there
shall be contemplated a voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall cause notice thereof to be mailed
to the registered holder of this Warrant at
7
its address appearing on the registration books of the Company, at least thirty
(30) days prior to the record date as of which holders of Common Stock shall
participate in such dividend, distribution or subscription or other rights or at
least thirty (30) days prior to the effective date of the merger, consolidation,
reorganization, reclassification or dissolution. Upon any adjustment of any
Warrant Price, then and in each such case the Company shall promptly deliver a
notice to the registered holder of this Warrant, which notice shall state the
Warrant Price resulting from such adjustment, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
(i) If the Company is a party to a merger or other transaction which
reclassifies or changes its outstanding Common Stock, upon consummation of such
transaction this Warrant shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of this Warrant
would have owned immediately after such transaction if the holder had converted
this Warrant at the Warrant Price in effect immediately before the effective
date of the transaction. Concurrently with the consummation of such transaction,
the person obligated to issue securities or deliver cash or other assets upon
exercise of this Warrant shall execute and deliver to the holder a supplemental
Warrant so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided in this
Section 3. The successor company shall mail to the holder a notice describing
the supplemental Warrant.
If securities deliverable upon exercise of this Warrant, as provided above,
are themselves convertible into or exercisable for the securities of an
affiliate of a corporation formed, surviving or otherwise affected by the merger
or other transaction, that issuer shall join in the supplemental Warrant which
shall so provide. If this subsection 3(i) applies, subsection 3(a) does not
apply.
4. Charges, Taxes and Expenses. The issuance of certificates for Warrant
Shares upon any exercise of this Warrant shall be made without charge to the
holder of this Warrant for any tax or other expense in respect to the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued only in the name of the holder of
this Warrant.
5. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall inure to the
benefit of any successors or assigns of the Company and of the holder or holders
hereof and of the shares of Common Stock issued or issuable upon the exercise
hereof.
(b) No holder of this Warrant, as such, shall be entitled to vote or
receive dividends or be deemed to be a stockholder of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder of this Warrant, as such, any rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action,
receive notice of meetings, receive dividends or subscription rights, or
otherwise.
8
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of an agreement to the foregoing terms and conditions.
(d) The Warrant and the performance of the parties hereunder shall be
construed and interpreted in accordance with the laws of the State of New York
wherein it was negotiated and executed and the parties hereunder consent and
agree that the State and Federal Courts which sit in the State of New York and
the County of New York shall have exclusive jurisdiction with respect to all
controversies and disputes arising hereunder.
(e) The shares issuable upon exercise of this Warrant are entitled to the
benefits of the registration rights provisions of the Debenture and Warrant
Purchase Agreement dated the date hereof among the Company and various other
parties (the "Purchase Agreement").
(f) This Warrant is subject to certain other agreements contained in the
Purchase Agreement, a copy of which is on file with the Secretary of the
Company. Shares issued upon exercise of this Warrant shall contain a legend
substantially to the same effect as the legend set forth on the first page of
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and its corporate seal to be affixed hereto.
Dated as of March ____, 1998
HALSEY DRUG CO., INC.
BY:
------------------------------------
Name:
Title:
9
SUBSCRIPTION FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER
IF HE DESIRES TO EXERCISE THE WARRANT)
To: HALSEY DRUG CO., INC.
The undersigned hereby exercises the right to purchase _________ shares of
Common Stock, par value $.01 per share, covered by the attached Warrant in
accordance with the terms and conditions thereof, and herewith makes payment of
the Warrant Price for such shares in full.
---------------------------------------
SIGNATURE
---------------------------------------
ADDRESS
DATED:
-----------------------
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[ Date ]
Halsey Drug Co., Inc. Aggregate Price of $
a New York corporation of Warrant -------------
1827 Pacific Street Aggregate Price Being
Brooklyn, New York 11233 Exercised: $
Attention: -------------
-------------------- Warrant Price
(per share): $
-------------
Market Value (per
share): $
-------------
Number of Shares of
Common Stock under
this Warrant: -------------
Number of Shares of
Common Stock to be
Issued Under this
Notice: -------------
CASHLESS EXERCISE
Gentlemen:
The undersigned, the registered holder of the Warrant to Purchase Common
Stock delivered herewith ("Warrant"), hereby irrevocably exercises such Warrant
for, and purchases thereunder, shares of the Common Stock of HALSEY DRUG CO.,
INC., a New York corporation, as provided below. Capitalized terms used herein,
unless otherwise defined herein, shall have the meanings given in the Warrant.
The portion of the Aggregate Price (as hereinafter defined) to be applied toward
the purchase of Common Stock pursuant to this Notice of Exercise is $_________,
thereby leaving a remainder Aggregate Price (if any) equal to $__________ . Such
exercise shall be pursuant to the net issue exercise provisions of Section 1(b)
of the Warrant; therefore, the holder makes no payment with this Notice of
Exercise. The number of shares to be issued pursuant to this exercise shall be
determined by reference to the formula in Section 1(b) of the Warrant which
requires the use of the Market Value (as defined in Section 1(d) of the Warrant)
of the Company's Common Stock on the business day immediately preceding the day
on which this Notice is received by the Company. To the extent
theforegoing exercise is for less than the full Aggregate Price of the Warrant,
the remainder of the Warrant representing a number of Shares equal to the
quotient obtained by dividing the remainder of the Aggregate Price by the
Warrant Price (and otherwise of like form, tenor and effect) may be exercised
under Section 1(a) of the Warrant. For purposes of this Notice the term
"Aggregate Price" means the product obtained by multiplying the number of shares
of Common Stock for which the Warrant is exercisable times the Warrant Price.
---------------------------------------
SIGNATURE
---------------------------------------
ADDRESS
DATE:
-----------------------
2
ASSIGNMENT
(To be Executed by the Registered Holder
if he Desires to Transfer the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________ the right to purchase shares of Common Stock of
HALSEY DRUG CO., INC., evidenced by the within Warrant, and does hereby
irrevocably constitute and appoint _________________________ Attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
---------------------------------------
SIGNATURE
---------------------------------------
ADDRESS
DATED:
-----------------------
IN THE PRESENCE OF:
- -----------------------------
3
EXHIBIT 6
HALSEY DRUG CO, INC.
PROXY FOR SHAREHOLDERS' MEETING
IRREVOCABLE PROXY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that I, __________________ , residing at
__________________________________ being the holder of ____________ shares of
Common Stock of HALSEY DRUG CO., INC. (the "Company"), do hereby constitute and
appoint Bruce F. Wesson, as my proxy to attend the first Annual Meeting of the
Stockholders of the Company to be held after the date hereof or any continuation
or adjournment thereof, with full power to vote and act for me and in my name,
place and stead, on each of the below listed matters in the same manner, to the
same extent and with the same effect that I might were I personally present
thereat, giving to said Bruce F. Wesson, full power of substitution and
revocation, and I hereby revoke any other proxy heretofore given by me:
(i) to vote in favor of a proposed amendment to the Company's Certificate
of Incorporation
(a) increasing the number of shares of the Company's Common Stock
authorized for issuance from 20,000,000 to 40,000,000 shares; and
(b) providing that the holder of Debentures issued by the Company to
those Purchasers a party to that certain Debenture and Warrant
Purchase Agreement, dated on or about March 10, 1998 (the
"Purchase Agreement"), shall have the right to vote as part of a
single class with all holders of the Company's Common Stock on an
as-converted basis;
each as provided in Section 9.14 of the Purchase Agreement, and
(ii) to ratify the appointment of three (3) persons nominated to the
Company's Board of Directors at the request of the Purchasers pursuant
to Section 9.8 of the Purchase Agreement.
A copy of the Purchase Agreement is attached hereto and made a part hereof.
Dated March ______, 1998
-------------------------------------
Shareholder
-------------------------------------
Print Name
