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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
HALSEY DRUG CO., INC.
(Name of Issuer)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
406369108
(CUSIP Number)
Mr. Daniel Schloendorn
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
(212) 821-8265
(Name, Address and Telephone Number
of Person Authorized to Receive Notices
and Communications)
November 27, 1995
(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 |_|.
Check the following box if a fee is being paid with the statement |X|.
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SCHEDULE 13D
CUSIP No. 406369108
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Mr. William A. Marquard
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
a[ ]
b[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
PF
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7. SOLE VOTING POWER
734,900
NUMBER OF 8. SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY
EACH 9. SOLE DISPOSITIVE POWER
REPORTING
PERSON 734,900
WITH
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
734,900
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.2%
14. TYPE OF REPORTING PERSON*
IN
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Item 1. Security and Issuer.
This statement relates to the Common Stock, par value $.01
per share (the "Common Stock" or the "Shares"), of Halsey Drug Co., Inc.
(the "Company"), which has its principal executive offices at 1827 Pacific
Street, Brooklyn, New York 11233.
Item 2. Identity and Background.
This statement is being filed by Mr. William A. Marquard
("Mr. Marquard"). The business address of Mr. Marquard is c/o Eaglestone Farm,
2199 Maysville Road, Carlisle, Kentucky 41311. Mr. Marquard is the owner of
Eagleston Farm.
Mr. Marquard has not, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors), nor has Mr. Marquard, during the last five years, been a
party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which he was or is 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.
Mr. Marquard is a citizen of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
Pursuant to a Subscription Agreement, dated as of July 12,
1995 (the "July Subscription Agreement," a copy of which is filed with this
Schedule 13D as Exhibit 1 and incorporated herein by reference), between Mr.
Marquard and the Company, Mr. Marquard
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agreed to subscribe for 50 units of the Company (the "July Units"), each
such unit consisting of a 10% Convertible Subordinated Debenture in the
principal amount of $10,000 (each, a "Debenture") and 750 Redeemable Common
Stock Purchase Warrants (each, a "Warrant"), for an aggregate purchase price
of $500,000. A copy of the Debenture purchased pursuant to the July
Subscription Agreement, in the principal amount of $500,000 (the "July
Debenture"), is attached hereto as Exhibit 2 and incorporated herein by
reference. A copy of the Warrant Certificate issued pursuant to the
July Subscription Agreement (the "July Warrant") is attached hereto as
Exhibit 3 and incorporated herein by reference.
Pursuant to a Subscription Agreement, dated as of November
27, 1995 (the "November Subscription Agreement," a copy of which is filed with
this Schedule 13D as Exhibit 4 and incorporated herein by reference),
between Mr. Marquard and the Company, Mr. Marquard agreed to subscribe for
90 units of the Company (the "November Units" and, together with the July
Units, the "Units"), each such unit consisting of a 10% Convertible
Subordinated Debenture in the principal amount of $10,000 and 600 Warrants,
for an aggregate purchase price of $900,000. A copy of the Debenture
purchased pursuant to the November Subscription Agreement, in the
principal amount of $900,000 (the "November Debenture"), is attached
hereto as Exhibit 5 and incorporated herein by reference. A copy of the
Warrant Certificate issued
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pursuant to the November Subscription Agreement (the "November Warrant")
is attached hereto as Exhibit 6 and incorporated herein by reference.
On March 18, 1996, Mr. Marquard exercised (i) the July
Warrant for 37,500 Shares at an aggregate exercise price of $75,000 and
(ii) the November Warrant for 54,000 Shares at an aggregate exercise price of
$135,000. On July 18, 1996, pursuant to Section 8.2 of the July
Debenture, the July Debenture automatically converted into 250,000 shares
of Common Stock at a conversion price of $2.00 per share.
At the election of Mr. Marquard, all or any part of
the November Debenture may be converted into Common Stock at a conversion
price of $2.50 per Share, subject to adjustment as more fully set forth in
the November Debenture, until the earlier of (i) November 28, 2000, (ii)
receipt by Mr. Marquard from the Company of Notice of Redemption (as
defined in the November Debenture) and (iii) the automatic conversion of
the November Debenture in accordance with Section 8.2 of the November
Debenture.
The foregoing summaries of the July Subscription
Agreement, the July Debenture, the July Warrant, the November Subscription
Agreement, the November Debenture and the November Warrant are qualified in
their entirety by reference to such documents, copies of which have been filed
as Exhibits hereto.
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As of the date hereof, Mr. Marquard beneficially owned
734,900 shares of Common Stock, comprised of (i) 37,500 shares of Common Stock
purchased upon exercise of the July Warrant, (ii) 54,000 shares of Common
Stock purchased upon exercise of the November Warrant, (iii) 250,000
Shares issued upon the automatic conversion of the July Debenture, (iv)
360,000 Shares issuable upon conversion of the November Debenture at the
current conversion price of $2.50 per Share and (v) 33,400 Shares purchased
for an aggregate consideration of $122,461.
Item 4. Purpose of Transaction.
Mr. Marquard purchased the Units and Common Stock in order
to acquire an equity interest in the Company. Pursuant to Section 5.14 of
the November Debenture, the Company has agreed to use its best efforts to
cause the election of two (2) members of the Board of Directors of the Company
reasonably acceptable to the holders of a majority in interest in the
principal amount of the Debentures. The holders of a majority in interest in
the principal amount of the Debentures, including Mr. Marquard, have
exercised their rights under Section 5.14 of the November Debenture by
selecting Mr. Richard H. Francis and Mr. William G. Skelly for election as
members of the Board of Directors.
As of the date hereof, Mr. Marquard is holding the
Common Stock and November Debenture solely for investment and has no present
plans or proposals with respect to any material change in the Company's
business or corporate structure or, generally, any other action referred to in
instructions (a) through (j) of
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Item 4 of the form of Schedule 13D. Depending on market conditions and
other factors, Mr. Marquard may continue purchases of Common Stock or other
equity securities of the Company or may sell or otherwise dispose of all or
portions of such securities, if such sales and purchases would be desirable
investments.
Item 5. Interest in Securities of the Issuer.
As of the date hereof, Mr. Marquard beneficially owned
the aggregate number and percentage of outstanding Common Stock set forth
below:
Number of Shares Percentage
734,900(1) 7.2(2)
Except as set forth within, no transactions in the securities
of the Company were effected by Mr. Marquard within the period beginning 60
days prior to November 27, 1995 and ending on the date of this filing.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Pursuant to the July Subscription Agreement described more
fully in Item 3 above, which agreement is filed as Exhibit 1 to this Schedule
13D, Mr. Marquard purchased (i) the July
- ------------------------------------------
(1) As to all Shares, there is sole voting power and sole power to dispose
or to direct the disposition of such Shares.
(2) Based on 10,198,353 shares of Common Stock deemed outstanding on
the date hereof, derived from the sum of (a) 9,588,353 Shares as
indicated in the Company's Form 10-Q for the quarterly period
ended June 30, 1996, (b) 250,000 Shares yet to be issued as a result
of the automatic conversion of the July Debenture and (c) 360,000
Shares issuable upon conversion of the November Debenture.
<PAGE>8
Debenture, which automatically converted into 250,000 shares of Common
Stock, and (ii) the July Warrant, which Mr. Marquard exercised for 37,500
shares of Common Stock.
Pursuant to the November Subscription Agreement described
more fully in Item 3 above, which agreement is filed as Exhibit 4 to this
Schedule 13D, Mr. Marquard purchased (i) the November Debenture, which is
convertible into 360,000 shares of Common Stock, and (ii) the November
Warrant, which Mr. Marquard exercised for 54,000 shares of Common Stock.
Except as otherwise set forth in this statement, to the
best knowledge of the undersigned, there are no contracts,
arrangements, understandings or relationships (legal or otherwise) among
or between the undersigned and any other person with respect to any
securities of the Company, including but not limited to transfer or voting
of any of the securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or
loss, or the giving or withholding of proxies.
Item 7. Material to be Filed as Exhibits.
Exhibit 1. Subscription Agreement, dated July 12, 1995, by and
between Mr. Marquard and the Company.
Exhibit 2. 10% Convertible Subordinated Debenture, dated July
18, 1995, due July 17, 2000, executed by the
Company in favor of Mr. Marquard in the aggregate
principal amount of $500,000.
Exhibit 3. Redeemable Common Stock Purchase Warrant Certificate,
dated July 18, 1995, to purchase from the Company
37,500 shares of Common Stock.
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Exhibit 4. Subscription Agreement, dated November 27, 1995, by and
between Mr. Marquard and the Company.
Exhibit 5. 10% Convertible Subordinated Debenture, dated
November 29, 1995, due November 28, 2000, executed
by the Company in favor of Mr. Marquard in the
aggregate principal amount of $900,000.
Exhibit 6. Redeemable Common Stock Purchase Warrant Certificate,
dated November 29, 1995, to purchase from the
Company 54,000 shares of Common Stock.
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After reasonable inquiry and to the best knowledge and
belief of the undersigned, the undersigned certifies that the information set
forth in this statement is true, complete and correct.
Date: September 17, 1996
/s/ William A. Marquard
-----------------------
William A. Marquard
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Exhibit Index
Exhibit
Exhibit 1. Subscription Agreement, dated July 12, 1995, by and between Mr.
Marquard and the Company.
Exhibit 2. 10% Convertible Subordinated Debenture, dated July 18, 1995,
due July 17, 2000, executed by the Company in favor of Mr.
Marquard in the aggregate principal amount of $500,000.
Exhibit 3. Redeemable Common Stock Purchase Warrant Certificate, dated
July 18, 1995, to purchase from the Company 37,500 shares
of Common Stock.
Exhibit 4. Subscription Agreement, dated November 27, 1995, by and between
Mr. Marquard and the Company.
Exhibit 5. 10% Convertible Subordinated Debenture, dated November 29,
1995, due November 28, 2000, executed by the Company in favor
of Mr. Marquard in the aggregate principal amount of
$900,000.
Exhibit 6. Redeemable Common Stock Purchase Warrant Certificate, dated
November 29, 1995, to purchase from the Company 54,000 shares
of Common Stock.
<PAGE>1
HALSEY DRUG CO., INC.
SUBSCRIPTION AGREEMENT
To: Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Attention: Rosendo Ferran,
President and CEO
1. The undersigned hereby subscribes for 50 Units, each Unit
consisting of a 10% Convertible Subordinated Debenture in the principal
amount of $10,000 (each a "Debenture") and 750 Redeemable Common Stock
Purchase Warrants (the "Warrants") of Halsey Drug Co., Inc. (the "Company"),
which Units are offered pursuant to the Company's Private Placement Memorandum,
dated June 29, 1995 (the "Memorandum"). Each Unit is offered at a subscription
price of $10,000, and the minimum subscription is one Unit per investor. The
undersigned delivers herewith the full subscription price for the Units
subscribed for herein.
The undersigned agrees that this subscription is and shall be
irrevocable, but that it may be rejected, in whole or in part, by the Company,
and that the obligations of the undersigned hereunder will terminate if this
subscription is not accepted by the Company. The undersigned understands that
the Company will notify him/it if this subscription has been rejected for any
reason. If this subscription is rejected, the payment tendered by him/it will be
returned to him/it forthwith, without interest or deduction. If this
subscription is accepted by the Company, the amount of the payment tendered by
him/it will be applied in accordance with the description set forth in the
Memorandum.
2. The undersigned understands and agrees that an investment
in the Units is not a liquid investment. In particular, the undersigned
recognizes, acknowledges and agrees that:
(a) The undersigned must bear the economic risk of investment
in the Units for an indefinite period of time, since neither the Units, the
Debentures nor the Warrants have been registered under the Securities Act of
1933, as amended (the "Act") or applicable state securities laws ("State Acts"),
and, therefore, cannot be transferred or sold unless either they are
subsequently registered under the Act and applicable State Acts, or an exemption
from registration is available and a favorable opinion of counsel to that effect
is obtained.
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(b) The undersigned will only have those limited rights to
register the Common Stock underlying the Debentures and the Warrants under the
Act and applicable State Acts as are provided in the Memorandum to which the
undersigned and the Company hereby agree.
(c) There is presently no established public market for the
Units, the Debentures or the Warrants and the holders of the Debentures and the
Warrants have no registration rights with respect to such securities.
3. The undersigned represents to and agrees with the Company
that:
(a) The undersigned and his/its purchaser
representative(s), if any, have carefully reviewed and understand the risks
of and other considerations relating to a purchase of the Units.
(b) The undersigned and his/its purchaser representative(s),
if any, have been afforded the opportunity to obtain any information necessary
to verify the accuracy of any representations or information set forth in the
Memorandum and have had all of their inquiries to the Company answered in full,
and have been furnished all requested materials relating to the Company, the
offering and sale of the Units and any other matter described in the Memorandum.
(c) Neither the undersigned nor his/its purchaser
representative(s), if any, have been furnished any offering literature by the
Company, the Placement Agent or any of their affiliates, associates or agents,
other than the Memorandum and the exhibits and attachments thereto and the
undersigned has not received or heard any print or electronic media advertising
with respect to this Offering.
(d) The undersigned is acquiring the Units for which he/it
hereby subscribes as principal for his/its own investment account, and not (1)
with a view to the resale or distribution of all or any part thereof or (2) on
behalf of another person who has not made the foregoing representation.
(e) The undersigned is an accredited investor, as defined in
Rule 501(a) of Regulation D promulgated pursuant to the Act by virtue of the
fact that (initial applicable choices):
(i) The undersigned had individual income (exclusive of
any income attributable to spouse) of more than $200,000 in
each of the most recent two years or joint income with the
undersigned's spouse in excess of $300,000 in
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each of such years and reasonably expects to have income of at
least the same level for the current year.
X (ii) The undersigned has an individual net worth, or a
combined net worth with the undersigned's spouse, in excess of
$1,000,000. For purposes of this Subscription Agreement,
"individual net worth" means the excess of total assets at
fair market value, including home and personal property, over
total liabilities.
(iii) The undersigned is a director or executive
officer of the Company.
Accredited partnership, corporation, trust or other entity
investors must initial at least one of the following
statements.
(iv) The undersigned is a bank as defined in section
3(a)(2) of the Act, or a savings and loan association or other
institution as defined in section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; a
broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; an insurance company as
defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a
business development company as defined in section 2(a)(48) of
the Act; a Small Business Investment Company licensed by the
U.S. Small Business Administration under section 301(c) or (d)
of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees
if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in section
3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000, or, if a self-directed plan, with
investment decisions made solely by persons that are
accredited investors.
(v) The undersigned is a private business development
company as defined in section 202(a)(22) of the Investment
Advisers Act of 1940.
(vi) The undersigned is an organization described in
section 501(c)(3) of the Internal Revenue Code, corporation,
Massachusetts or similar business
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trust, or partnership, not formed of the specific purpose of
acquiring the securities offered, with total assets in excess
of $5,000,000.
(vii) The undersigned is a trust, with total assets in
excess of $5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii)
of Regulation D.
(viii) All of the equity owners of the undersigned
qualify as accredited investors under one of the statements
set forth above.
(f) The undersigned has evaluated the risks of investing in
the Company and has substantial experience in making investment decisions of
this type or is relying on his professional advisors or purchaser
representative(s), if applicable, in making this investment decision.
(g) The undersigned understands the fundamental aspects of and
risks involved in an investment in the Company, including (1) the speculative
nature of the investment, (2) the financial hazards involved, including the risk
of losing the entire investment, (3) the lack of liquidity and the restrictions
on transferability of the Units, (4) the business of the Company, (5) the
limited registration rights regarding the Common Stock underlying the Debentures
and the Warrants, and (6) the fact that the Company has a recent history of
losses, limited capital resources and will require additional financing within
the next 12 months.
(h) The address set forth on the Subscription Agreement
Signature Page hereof is the undersigned's true and correct principal address,
and the undersigned has no present intention of becoming a resident of any other
state or jurisdiction.
(i) The undersigned, if a corporation, partnership, trust or
other form of business entity, (1) is authorized and otherwise duly qualified to
purchase and hold the Units, (2) has its principal place of business at its
residence address set forth on the Subscription Agreement Signature Page hereof,
(3) has not been formed for the specific purpose of acquiring the Units, and (4)
has submitted and executed all documents required pursuant to the Certificate
for Corporate, Partnership, Trust and Joint Purchasers and Special Subscription
Instructions. The person executing this Subscription Agreement and all other
documents related to the offering hereby represents that he is duly authorized
to execute all such documents on behalf of the entity. IF THE UNDERSIGNED IS ONE
OF THE AFOREMENTIONED ENTITIES, IT HEREBY
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AGREES TO SUPPLY ANY ADDITIONAL WRITTEN INFORMATION THAT MAY BE REQUIRED BY THE
COMPANY.
(j) All of the information that the undersigned has heretofore
furnished to the Company, or that is set forth herein with respect to
himself/itself, his/its financial position, and his/its business and investment
experience, is correct and complete as of the date hereof, and, if there should
be any material change in such information prior to the closing of the sale of
the Units, the undersigned will immediately furnish the revised or corrected
information to the Company.
(k) The undersigned agrees to be bound by all of the terms and
conditions of the offering made by the Memorandum and the exhibits thereto.
(l) No person other than the undersigned will have a direct or
indirect interest in the Units subscribed for hereby.
(m) The undersigned consents to the placement of a legend on
any certificate or other document evidencing the Debentures and the Warrants as
well as the Common Stock issuable upon conversion of the Debentures and the
Warrants stating that they have not been registered under the Act and setting
forth or referring to the restrictions on transferability and sale thereof. The
undersigned is aware that the Company will make a notation in its appropriate
records with respect to the restrictions on the transferability of such
securities.
(n) The undersigned understands that the Company will review
this Subscription Agreement and is hereby given authority by the undersigned to
call his/its bank or place of employment or otherwise review the financial
standing of the undersigned; and it is further agreed that the Company reserves
the unrestricted right to reject or limit in whole or in part any subscription
and to close the offer at any time.
(o) Wisconsin Residents. In making an investment decision
investors must rely on their own examination of the issuer and the terms of the
offering, including the merits and risks involved. These securities have not
been recommended by any federal or state securities commission or regulatory
authority. Furthermore, the foregoing authorities have not confirmed the
accuracy of this document. Any representation to the contrary is a criminal
offense.
These securities are subject to restrictions on transferability and resale and
may not be transferred or resold except as permitted under the securities act of
1933, as amended, and the applicable state
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securities laws, pursuant to registration or exemption therefrom. Investors
should be aware that they may be required to bear the financial risks of this
investment for an indefinite period of time.
(p) Connecticut Residents. The undersigned acknowledges that
the Units and the Component securities have not been registered under the
Connecticut Uniform Securities Act, as amended (the "Connecticut Act") and are
subject to restrictions on transferability and sale of securities as set forth
herein. The undersigned hereby agrees that such securities will not be
transferred or sold without registration under the Connecticut Act or exemption
therefrom.
(q) Colorado Residents. The undersigned acknowledges that the
Units and the component securities have not been registered under the Colorado
Securities Act (the "Colorado Act"), and therefore cannot be sold or transferred
by the investor except in a transaction which is exempt under the Colorado Act
or pursuant to an effective registration thereunder.
(r) Florida Residents. As described in the introductory pages
of the Memorandum, Florida investors have, under certain circumstances, a right
of recision pursuant to Section 517.061(11)(a)(5) of the Florida Securities and
Investor Protection Act.
(s) Massachusetts Residents. The undersigned acknowledges that
the Units and the component securities have not been registered under the
Securities Act of 1933, as amended, or the Massachusetts Uniform Securities Act,
by reason of specific exemptions thereunder relating to the limited availability
of the offering. Such securities cannot be sold, transferred or otherwise
disposed of to any person or entity unless subsequently registered under the
Securities Act of 1933, as amended, or the Massachusetts Securities Act, if such
registration is required. Commonwealth accredited investors who are natural
persons, shall not invest more than 25% of the purchaser's net worth (excluding
principal residence and its furnishings). The purchaser's net worth shall
include the net worth of his or her spouse.
(t) New Jersey Residents. The undersigned acknowledges that
the Units and the component securities offered hereby have not been approved or
disapproved by the Bureau of Securities of the State of New Jersey nor has the
Bureau passed on or endorsed the merits of this offering.
Any representation to the contrary is unlawful.
(u) New York Residents. Each New York purchaser of the Units
understands that this offering of Units of the Company has not been reviewed by
the attorney general of the State of New York. The undersigned understands that
any offering literature used in connection with this offering has not been
pre-filed with the attorney general and has not been reviewed by the attorney
general prior to its use. The attorney general of the state of New York
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has not passed on or endorsed the merits of this offering. Any representation to
the contrary is unlawful. The Units are being purchased for the undersigned's
own account for investment, and not for distribution or resale to others. The
undersigned agrees that he will not sell or otherwise transfer the Units or the
component securities unless they are registered under the federal Securities Act
of 1933 or unless an exemption from such registration is available. The
undersigned represents that he has adequate means of providing for his current
needs and possible personal contingencies, and that he has no need for liquidity
of this investment.
(v) Pennsylvania Residents. The undersigned hereby
acknowledges that the Company is relying upon the exemption from registration of
Units set forth in Section 203(d) of the Pennsylvania Securities Act of 1972, as
amended (the "Pennsylvania Act") in connection with the sale of the Units to the
undersigned. In accordance with the requirements of Section 203(d) of the
Pennsylvania Act, the undersigned hereby agrees not to sell his Units (or the
underlying securities) within twelve (12) months from the date of purchase,
unless such Units, (or the underlying securities) are registered under the Act
and the Pennsylvania Act. Additionally, the undersigned is aware of the right of
withdrawal under Section 207(m) of the Pennsylvania Act described in the cover
pages of the Memorandum.
(w) Texas Residents. The undersigned hereby acknowledges that
the Units and the component securities cannot be sold unless they are
subsequently registered under the Securities Act of 1933, as amended, and the
Texas Securities Act, or an exemption from registration is available. The
undersigned further acknowledges that because such securities are not readily
transferable, he must bear the economic risk of his investment for an indefinite
period of time.
4. The Terms of Subscription.
(a) The subscription will begin as of the date of the
Memorandum and will terminate at 11:59 p.m. eastern time on August 31, 1995
unless extended by the Company to September 30, 1995 (the "Termination Date").
The Units will be offered on a "best efforts" basis; no minimum number of Units
will be required to be sold in the offering. The Company reserves the right in
its discretion, to offer and sell Units in excess of the maximum.
(b) Pending receipt and acceptance by the Company of all
subscription documents and payment (collected funds) for the Debentures, all
funds hereunder shall be held by Weiss, Peck & Greer of New York, New York, as
escrow agent, in a trust account. Upon such receipt and acceptance, the Company
shall, with reasonable promptness, issue and mail Units so purchased to
investors. The Company will continue this procedure if, as and when additional
Units are purchased, until the earlier of (i) the Termination Date or (ii) the
purchase of the maximum number of Units offered. The Company reserves the right
to sell Units in excess of the maximum
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<PAGE>8
offered. No minimum number of Units must be sold for the Company to accept a
subscription under this offering.
5. The foregoing representations are true and accurate as of the
date hereof, shall be true and accurate as of the date of the closing of this
offering, and shall survive such closing. If, in any respect, such
representations shall not be true and accurate prior to or upon the closing of
this offering, the undersigned shall give written notice of such fact to the
Company, specifying which representations are not true and accurate and the
reasons therefor, with a copy to his/its purchaser representative(s), if any.
6. The undersigned agrees to indemnify and hold harmless the
Company, the Placement Agent, their affiliate and respective legal counsel, and
each of the officers, directors, partners and shareholders of each, from and
against any loss, damage or liability due to or arising out of a breach of any
of the foregoing representations.
7. If the undersigned is more than one person or entity, the
obligations of the undersigned shall be joint and several and the
representations and the indemnification obligation herein contained shall be
deemed to be made by and be binding upon each such person and his heirs,
executors, administrators, successor and assigns.
8. This subscription is not transferable or assignable by the
undersigned.
9. This subscription, upon acceptance by the Company, shall be
binding upon the heirs, executors, administrators, successors and assigns of the
undersigned.
10. This Subscription Agreement shall be construed in accordance
with and governed by the laws of the State of New York, without giving effect to
conflict of laws principles.
8
<PAGE>9
HALSEY DRUG CO., INC.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned hereby subscribes for the number of Units set forth
below as described in the Private Placement Memorandum, dated June 29, 1995
issued by Halsey Drug Co., Inc., a corporation organized under the laws of the
State of New York. The entire Subscription Agreement, of which this is the
Signature Page, is provided as Exhibit B to the Memorandum.
1. Dated: July 12, 1995
2. Number of Units: 50
3. Subscription Price ($10,000 per Unit, minimum Subscription,
one (1) Unit): $500,000.00
William A. Marquard
Name of Person/Entity Subscribing
/s/ William A. Marquard ###-##-####
Signature of Subscriber Taxpayer Identification or
(and title, if applicable) Social Security Number
Signature of Joint Purchaser Taxpayer Identification or
(if any) Social Security Number
Name and Residence Address Mailing Address, if Different
(Not Post Office Address) from Residence Address:
William A. Marquard
Name (please print)
Name (please print)
c/o BEA Associates
One Citicorp Center
153 East 53rd Street
Number of Street Number and Street
New York, NY 10022
City State Zip Code City State Zip Code
9
<PAGE>10
Subscription for 50 Units accepted as of July 12, 1995.
HALSEY DRUG CO., INC.
By: /s/ Rosendo Ferran
Name: Rosendo Ferran
Title: President and Chief Executive Officer
<PAGE>1
THIS CONVERTIBLE SUBORDINATED 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 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.
10% Convertible Subordinated Debenture
Due July 17, 2000
$500,000 No. DB-4
July 18, 1995
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
William A. Marquard having an address located at c/o BEA Associates, One
Citicorp Center, 153 East 53rd Street, New York, New York 10022 or registered
assigns (the "Payee" or "Holder") upon due presentation and surrender of this
Debenture, on July 17, 2000 (the "Maturity Date"), the principal amount of FIVE
HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000) and accrued interest thereon as
hereinafter provided.
This debenture was issued by the Company pursuant to a certain Private
Placement Memorandum dated June 29, 1995 (together with the Attachments thereto
the "Private Placement Memorandum") relating to an offering of units (the
"Units"), each Unit consisting of a 10% Convertible Subordinated Debenture (the
"Debentures") in the principal amount of $10,000 and 750 redeemable common stock
purchase warrants (the "Warrants"). The holders of such Debentures are referred
to hereinafter as the "Holders."
<PAGE>2
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT
----------------------------------------------------
Payment of the principal on this Debenture shall be made in such coin
or currency of the United States of America as at the time of payment shall be
legal 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 ten percent (10%) per annum (the "Stated Interest Rate"), in like
coin and currency, payable to the Payee in three (3) month intervals on each
September 30, December 31, March 31 and June 30 during the term of this
Debenture (commencing September 30, 1995) (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.
ARTICLE 2
SUBORDINATION
-------------
2.1 Subordination to Senior Debt. The Company, for itself, its
successors and assigns, covenants and agrees, and the Payee and each successive
Holder by acceptance of this Debenture, likewise covenants and agrees that the
payment of the principal of and interest on this Debenture is subordinated in
right of payment to the payment of all existing and future Senior Debt (as
hereinafter defined) of the Company. "Senior Debt" means the principal of,
premium, if any, and accrued and unpaid interest on Indebtedness (as herein
after defined) of the Company, whether outstanding on the date of issuance of
this Debenture or thereafter created, incurred or assumed, unless, in the
agreement or instrument creating or evidencing the same or pursuant to which the
same is outstanding, it is provided that such Indebtedness is not superior in
right of payment to this Debenture. Notwithstanding the foregoing, "Senior Debt"
with respect to the Company shall not include (i) any Indebtedness of the
Company to any subsidiary or affiliate (as such terms are defined in Rule 405
under the Act) or money borrowed or advanced from such subsidiary or affiliate
and (ii) any Indebtedness representing the redemption price of any preferred
stock.
<PAGE>3
2.2 Indebtedness. "Indebtedness" means (a) any liability of the
Company to banks and other institutional lenders (i) for borrowed money, or (ii)
evidenced by a note, debenture, bond or other instrument of indebtedness
(including, without limitation, a purchase money obligation), given in
connection with the acquisition of property, assets or services, or (iii) for
the payment of rent or other amounts relating to capitalized lease obligations,
(b) any purchase money liability of the Company in connection with acquisitions
in the ordinary course of the Company's business provided it is not in excess of
the purchase price of the asset(s) purchased, (c) any liability of others
described in the preceding clause (a) which the Company has guaranteed or which
is otherwise its legal liability; and (d) any modification, renewal, extension,
replacement or refunding of any such liability described in the preceding
clauses (a) and (c); provided, however, that notwithstanding the foregoing,
"Indebtedness" does not include unsecured trade debt.
2.3 Default. The Company may not pay principal or interest on the
Debentures and may not acquire, redeem or retire any Debentures for cash or
property other than capital stock of the Company if (i) a default on Senior Debt
occurs and is continuing that permits holders of Senior Debt to accelerate its
maturity, and (ii) the default is the subject of judicial proceedings or the
Company receives notice of a default from a holder of the Senior Debt. The
Company may resume payments on the Debentures and may acquire, redeem or retire
them when (A) the default is cured or waived, or (B) 120 days have passed after
the notice of default is given by the holder of the Senior Debt if the default
is not the subject of judicial proceedings.
2.4 Liquidation; Dissolution; Bankruptcy. Upon any distribution
to creditors of the Company in a liquidation or dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property (i) holders of Senior Debt shall be
entitled to receive payment in full in cash of the principal of and interest to
the date of payment on the Senior Debt before Holders shall be entitled to
receive any payment of principal of or interest on the Debentures; and (ii)
until the Senior Debt is paid in full in cash, any distribution to which the
Holder would be entitled but for this Article 2 shall be made to Holders of
Senior Debt as their interests may appear, except that Holders may receive
securities that are subordinated to Senior Debt to at least the same extent as
the Debentures.
2.5 Acceleration of Debentures. If payment of the Debentures is
accelerated because of an Event of Default as defined in Article 7 hereof, the
Company shall promptly notify holders of Senior Debt of the acceleration. The
Company may pay the Debentures when 120 days have passed after the acceleration
occurs if this Article 2 permits the payment at such time.
2.6 Subrogation. After all Senior Debt is paid in full and until
the Debentures are paid in full, Holders shall be subrogated to the rights of
the holders of the Senior Debt to receive distributions applicable to Senior
Debt. A distribution made under this Article 2 to holders of Senior
<PAGE>4
Debt which would otherwise have been made to Holders is not, as between the
Company and the Holders, a payment by the Company on this Debenture
2.7 Relative Rights. This Article 2 defines the relative rights
of the Holder and the holders of Senior Debt. Nothing in this Debenture shall
(i) impair, as between the Company and the Holder, the obligation of the
Company, which is absolute and unconditional, to pay principal and interest on
this Debenture in accordance with its terms; (ii) affect the relative rights of
the Holder and creditors of the Company other than the holders of Senior Debt;
or (iii) prevent any Holder from exercising its available remedies upon an Event
of Default, subject to the rights of holders of Senior Debt to receive
distributions otherwise payable to the Holders.
2.8 Article 2 Subordination Not Designed to Prevent Events of
Default. The failure of the Company to make a payment on account of principal
and interest on this Debenture by reason of any provision of this Article 2
shall not be construed as preventing the occurrence of an Event of Default under
Article 7 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
3.1 The Company represents and warrants to the Holder that the
Company:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted and as presently proposed to be conducted;
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the business
transacted by it or any of its subsidiaries or the nature of the property owned
or leased by it or any of its subsidiaries, makes such licensing or
qualification necessary, except for those jurisdiction in which the failure so
to qualify can be cured without having a material adverse effect on the Company
taken as a whole;
(d) the Company has all requisite power and authority to execute,
deliver and perform its obligations under this Debenture. This Debenture has
been duly and validly authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
<PAGE>5
by bankruptcy, insolvency, reorganization or other laws relating to or affecting
the rights of creditors generally;
(e) except as otherwise described in the Private Placement
Memorandum, the Company is not, and will not be at the time of the original
issuance of this Debenture by the Company, in default under the terms of any
Senior Debt or other indebtedness and the Company is not aware, nor has it been
notified by the holder of any Senior Debt or other indebtedness, that grounds
for default exist with respect to any Senior Debt or other indebtedness;
(f) the execution and delivery of the Debentures by the Company
and the consummation by the Company of the transactions contemplated pursuant to
the Private Placement Memorandum (a) are not in violation or breach of, do not
conflict with or constitute a default under any of the terms of the charter
documents or by-laws of the Company; (b) will not result in a violation under
any law, judgment, decree, order, rule, regulation or other legal requirement or
of any governmental authority, court or arbitration tribunal whether federal,
state, municipal or local at law or in equity, and applicable to the Company;
and (c) will not violate or constitute a breach of or constitute a default under
any Senior Debt of the Company or any subsidiary or affiliate of the Company;
and
(g) the Private Placement Memorandum does not, and will not at
the time of the original issuance of this Debenture by the Company, contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE 4
REDEMPTION
----------
4.1 Optional. The Debentures may be redeemed by the Company in
whole or from time to time in part, at the option of the Company, at any time on
or after July 17, 1996 at a redemption price equal to 105% of the principal
amount thereof, in each case together with accrued interest to the Redemption
Date.
4.2 Notice of Redemption. Notice of Redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Debentures to be redeemed at his registered address. Debentures in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. In the event of a redemption of less than all of the
Debentures, the Debentures will be chosen for redemption by the Company,
generally pro rata or by lot. The Notice of Redemption shall identify the
Debentures to be redeemed and shall state (i) the redemption date and redemption
price; (ii) the conversion price, as determined pursuant to Article 8 hereof;
(iii) that Debentures called for redemption may be converted at any time before
the close of business on the
<PAGE>6
redemption date; (iv) that Holders of the Debentures who want to convert the
Debentures must satisfy the requirements of Article 8 hereof; (v) that
Debentures called for redemption must be surrendered to the Company or a
designated paying agent specified in the Redemption Notice to collect the
redemption price; and (vi) that, unless the Company defaults in making the
redemption payment, interest on the Debentures ceases to accrue on and after the
redemption date.
4.3 Effective Notice of Redemption. Once Notice of Redemption is
mailed, Debentures called for redemption become due and payable on the
redemption date at the redemption price.
4.4 Deposit of Redemption Price. On or before the Redemption
Date, the Company shall deposit in a bank account solely dedicated for this
purpose, or deposit with a designated paying agent, money sufficient to pay the
redemption price of and accrued interest on all Debentures to be redeemed on
that date.
4.5 Debentures Redeemed in Part. Upon surrender of a Debenture
that is redeemed in part, the Company shall issue for the Holder at the expense
of the Company a new Debenture equal in principal amount to the unredeemed
portion of the Debenture surrendered.
ARTICLE 5
COVENANTS
---------
5.1 Payment of Debentures. The Company shall pay the principal of
and interest on this Debenture in the time and in the manner provided in Article
1 hereof. The Company shall pay interest quarterly (including post-petition
interest in any proceeding under any bankruptcy law) on (i) overdue principal,
at the rate required by this Debenture and (ii) overdue installments of interest
(including interest contemplated by clause (i) and without regard to any
applicable grace period) at the same rate.
5.2 Reporting Requirements. The Company shall comply with its
reporting and filing obligations pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
shall make 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, available
to the Holder.
5.3 Limitation on Dividends; Stock Purchase. The Company will not
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, and neither the Company nor any
subsidiary will purchase, redeem or otherwise acquire or retire for value any
shares of capital
<PAGE>7
stock of the Company or warrants or rights to acquire such capital stock except
for the shares of the Company's Common Stock owned by Ranbaxy Pharmaceuticals,
Inc. to be repurchased by the Company as described in the Private Placement
Memorandum.
5.4 Stay, Extension and Usury Laws. The Company covenants that it
will not 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 this Debenture; and the Company hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Holder but will suffer and permit the execution of every
such power as though no such law had been enacted.
5.5 Corporate Existence. Subject to Article 6 hereof, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and that of each subsidiary and the
rights (charter and statutory) and franchises of the Company and its
subsidiaries; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Company shall in good faith
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its subsidiaries considered as a whole and that
the loss thereof is not disadvantageous in any material respect to the Holder.
5.6 Maintenance of Properties. The Company will cause all
property used or useful in the conduct of its business or the business of any
subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this section shall prevent the
Company from discontinuing the operation and maintenance of any such properties,
or disposing of any of them, if such discontinuance or disposal is, in the
reasonable judgment of the Company or any subsidiary concerned, desirable in the
conduct of its business or business of any subsidiary and not disadvantageous in
any material respect to the Holder.
5.7 Liquidation. The Company shall not adopt any plan of
liquidation which provides for, contemplates or the effectuation of which is
preceded by (A) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company or any subsidiary otherwise than
substantially as an entirety in accordance with Article 6 hereof and (B) the
distribution of all or substantially all the proceeds of such sale, lease,
conveyance or other disposition and the remaining assets of the Company to the
holders of common stock of the Company, unless the Company shall in connection
with the adoption of such plan make provision for, or agree that prior to making
any liquidating distributions it will make provision for, the satisfaction of
the Company's obligations under this Debenture as to the payment of principal
and interest.
<PAGE>8
5.8 Limitation on Indebtedness. Neither the Company nor any
subsidiary will incur, create or assume any indebtedness except: (i) Senior Debt
in existence as of the date of this Debenture aggregating $3,278,000; (ii)
indebtedness to any banks or other financial institutions with whom the Company
may contract to replace or refinance its current Senior Debt provided such
replacement or refinancing does not increase the principal amount of the
Company's Senior Debt to an amount in excess of $5,522,000; and (iii) purchase
money obligations incurred in the ordinary course of business; and (iv) trade
indebtedness incurred in the ordinary course of business.
5.9 Liens. Neither the Company nor any subsidiary will mortgage,
pledge, grant or permit to exist any lien or other security interest in any of
its assets, of any kind, now owned or hereafter acquired, nor hypothecate or
grant a lien or security interest in its capital, net worth, equity accounts or
any capital stock, as the case may be, except for (i) the security interests
granted by the Company as of the date hereof to the holders of its Senior Debt
and to Mallinckrodt Chemical, Inc.; (ii) the security interest held by any banks
or other financial institutions with whom the Company may contract to replace or
refinance its current Senior Debt, provided such replacement or refinancing does
not increase the principal amount of its Senior Debt to an amount in excess of
$5,522,000; (iii) a lien or security interest created with respect to purchase
money obligations incurred by the Company or its subsidiaries in the ordinary
course of business and provided the indebtedness related to such security
interest does not exceed the purchase price of the subject asset(s).
5.10 Authorization of Shares of Common Stock for Issuance Upon
Conversion. The Company will at all times cause there to be authorized and
reserved for issuance upon conversion of this Debenture, or otherwise available
from treasury shares, such number of shares of common stock as would be issuable
upon conversion of this Debenture.
5.11 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent (i) all taxes, assessments and governmental charges levied or imposed
upon the Company or any subsidiary upon the income, profits or property of the
Company or any subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim which amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which adequate
reserves have been maintained by the Company.
5.12 Transactions with Affiliates. The Company shall not, and
shall not permit any subsidiary to, directly or indirectly, pay any funds to or
for the account or benefit of, or enter into or permit to exist any transaction,
including, without limitation, the purchase, sale, lease or exchange of any
property or assets or securities or any loan transaction or the rendering of any
service, with any
<PAGE>9
Affiliate unless such transaction is for fair value to the Company or its
subsidiary and on terms and conditions not less favorable to the Company or such
subsidiary than could be obtained on an arms-length basis from unrelated third
parties, as determined in each case by the Board of Directors of the Company (as
evidenced by resolutions duly adopted by the Board); provided, however, that the
provisions of this Section 5.10 shall not apply to (a) reasonable compensation
for services in connection with employment or services as a director, or (b)
payments to Affiliates of the Company in respect of contracts or transactions in
existence on the date hereof which are described or referred to in the Private
Placement Memorandum pursuant to which this Debenture was originally sold. For
purposes of this Section 5.10 the terms "Affiliate" and "Control" shall have the
meanings ascribed thereto in Rule 405 under the Act.
5.13 Listing of Common Stock. As promptly as practicable after
the execution of this Debenture, the Company shall file the appropriate
applications for listing on the American Stock Exchange and any other applicable
exchange or national security system with respect to the Shares. The Company
shall use its best efforts and work diligently to accomplish such listing as
promptly as practicable after the execution of this Debenture.
ARTICLE 6
SUCCESSORS
----------
6.1 When Company May Merge, etc. The Company shall not
consolidate or merge with or into, or sell, lease, convey or otherwise dispose
of all or substantially all of its assets to, any person unless:
1. The person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, lease, conveyance
or other disposition shall have been made, is (x) a corporation organized and
existing under the laws of the United States, any state thereof or the District
of Columbia or (y) a corporation or a comparable legal entity organized under
the laws of a foreign jurisdiction whose equity securities are listed on a
national securities exchange in the United States or authorized for quotation on
the National Market System of National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), and in each case, the net worth of such
person formed by or surviving any such consolidation or merger is equal to or
greater than the consolidated net worth of the Company immediately preceding
such consolidation or merger;
2. The corporation formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
lease, conveyance or other disposition shall have been made, assumes by
supplemental agreement, all the obligations of the Company under the Debentures
and this Debenture, except that it need not assume the obligations of the
Company as to the conversion of this Debenture if, pursuant to a reorganization
of the Company as provided in Section 8.8, the
<PAGE>10
Company or another person enters into a separate agreement, obligating it to
deliver the securities, cash and other assets deliverable upon conversion of the
Debentures;
3. Immediately after the transaction, no Event of Default as
defined in Article 7 hereof exists; and
4. Such transaction does not adversely affect the validity
or enforceability of the Debentures.
6.2 Successor Corporations Substituted. Upon any consolidation or
merger, or any sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with Section 6.1
hereof, the successor corporation formed by such consolidation or into or with
which the Company is merger or to which such sale, lease, conveyance or other
disposition is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Debenture with the same effect
as if such successor person had been named as the Company herein; provided,
however, that the predecessor Company in the case of a sale, lease, conveyance
or other disposition shall not be released from the obligation to pay the
principal of and interest on this Debenture.
ARTICLE 7
EVENTS OF DEFAULT
-----------------
7.1 A. An Event of Default occurs if (i) the Company defaults in
the payment of interest on this Debenture when the same become due and payable
and such default continues for a period of 30 days, whether or not such payment
is prohibited by the provisions of Article 2 hereof; (ii) the Company defaults
in the payment of principal on this Debenture when the same becomes due and
payable upon maturity, upon redemption or otherwise; (iii) any representation or
warranty made or furnished by the Company in this Debenture or in the Private
Placement Memorandum, shall be false, incorrect or incomplete when made as to
any material fact or facts; (iv) the Company fails to comply with any of its
other covenants or other agreements in this Debenture and solely with respect to
the covenants set forth in Sections 5.2, 5.11 and 5.12 hereof, such failure
continues for a period of 30 days following written notice from the Holder; (v)
the Company or any of its subsidiaries fail to pay when due or within any
applicable grace period any principal or interest on any Indebtedness or shall
be in breach or default with respect to any Indebtedness, if the effect of such
failure to pay, default or breach is to cause the holder or holders (or a
trustee on behalf of such holder or holders) to accelerate such Indebtedness;
(vi) the Company or any subsidiary pursuant to or within the meaning of any
Bankruptcy Law (A) commences a voluntary case, (B) consents to the entry of an
order for relief against it in an involuntary case, (C) consents to the
appointment of a custodian of it for all or substantially all of its property,
or (D) makes a general assignment for the benefit of its creditors; (vii) a
court of competent
<PAGE>11
jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for
relief against the Company or a subsidiary in an involuntary case, (B) appoints
a custodian of the Company or a subsidiary for all or substantially all of its
property, or (C) orders the liquidation of the Company or any subsidiary, and
the order or decree remains unstayed and in effect for 60 days of the entry
thereof; (viii) trading in any securities of the Company or any of its
subsidiaries shall be suspended for a period exceeding five (5) days by the
Securities and Exchange Commission, any stock exchange or in the
over-the-counter market or a minimum or maximum price for trading in such
securities shall be established; (ix) a judgment in an amount exceeding $250,000
is entered against the Company or any of its subsidiaries and such judgment is
not satisfied or stayed within sixty (60) days; or (x) the holder of any
Indebtedness or other debt of the Company aggregating at least $250,000 shall
commence any proceeding, or take any action to collect on such Indebtedness or
debt, or seize, dispose of or apply in satisfaction of such Indebtedness or
debt, any assets of the Company having a fair market value in excess of $250,000
individually or in the aggregate.
B. The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or State law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
C. A Default under Section 7.1A(iv) (other than Defaults under
Sections 5.7, 6.1, 8.1 or 9.1 which Defaults shall be Events of Default with the
Notice but without the passage of time specified in this paragraph) or Section
7.1A(v) is not an Event of Default until the Holders of at least 25% in the
principal amount of the then outstanding Debentures notify the Company of the
Default and the Company does not cure the Default within 30 days after such
Notice. The Notice must specify the Default and demand that it be remedied.
7.2 Acceleration. If an Event of Default occurs and is
continuing, subject to the provisions of Section 7.1C hereof, the Holder may
declare the principal of and accrued interest on this Debenture to be due and
payable by written notice to the Company in the manner provided in Section 11.2
hereof. Upon such declaration, the principal and interest on this Debenture
shall be due and payable immediately. The Holder may rescind an acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Event of Default or
impair any right consequent thereto.
7.3 Other Remedies. If an Event of Default occurs and is
continuing, the Holder may pursue any available remedy to collect the payment of
principal of and interest on this Debenture or to enforce the performance of any
provision of this Debenture. A delay or omission by the Holder in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
<PAGE>12
ARTICLE 8
CONVERSION
----------
8.1 Exercise of Conversion Privilege. At any time and from time
to time commencing from the date hereof (the "Initial Conversion Date") until
the earlier of (i) the Maturity Date, (ii) receipt by the Holder from the
Company of Notice of Redemption and (iii) the automatic conversion of the
Debenture in accordance with Section 8.2 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 $2.00 per share (the "Conversion
Price"). Interest shall accrue to and including the business 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 8.5 and
Section 8.7 hereof. As soon as practicable following conversion and upon the
Holder's compliance with the conversion procedure described in Section 8.3
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.
8.2 Automatic Conversion. Notwithstanding anything to the
contrary contained in this Debenture, the Debentures shall be automatically
converted into Common Stock in the event that following the first anniversary of
the date hereof the closing price per share of the Company's Common Stock as
listed and reported on the American Stock Exchange or in the NASDAQ National
Market or Small-Cap System exceeds two dollars ($2.00) per share for each of the
twenty (20) consecutive trading days following such one year anniversary and
prior to conversion. In such event, the Company shall notify the Holder of the
effective date of the automatic conversion.
8.3 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 Section 10.1
or Section 10.2 hereof, 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
<PAGE>13
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 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 (the "Shares"). 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 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.
8.4 Company to Provide Common Stock. The Company has reserved and
shall continue to reserve out of its authorized but unissued Common Stock or its
Common Stock held in treasury enough shares of Common Stock 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
of Common Stock upon conversion of the Debentures, including, without
limitation, compliance with provisions of Article 9 hereof, and will endeavor to
list such shares on each national securities exchange upon which the Common
Stock is listed.
8.5 Dividends; Reclassifications, etc.. In the event that the
Company shall, at any time prior to the exercise of conversion rights hereunder:
(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.
<PAGE>14
8.6 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 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.
8.7 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 8.7. Upon each
adjustment of the Conversion Price pursuant to this Section 8.7, the Holder of
this Debenture shall thereafter be entitled to acquire upon conversion, 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 Sections 8.1 and 8.2 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 8.7; or
(ii) shares issued, subdivided or combined in transactions
described in Section 8.5 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 8.5 as a result of such issuance,
subdivision or combination of such securities;
<PAGE>15
for a consideration per share which is less than the Conversion Price, 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 greater of the Conversion
Price or the Applicable Conversion Price, 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 8.7(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 8.7(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 this Section 8.7(a)) at the
Applicable Conversion Price; 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
8.7(d) hereof) immediately after the issuance or sale of
such additional shares.
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 8.1 or 8.2, as appropriate,
the Applicable Conversion Price shall be such initial Conversion Price.
The provision of this subparagraph (a) can be illustrated with
the following examples:
1. Company sells 100,000 shares of stock at a price of $1.50 per
share
- Applicable Conversion Price for the Debentures = $2.00
- Total shares outstanding prior to issuance - 1,000,000
- Number of shares of stock that would be purchased with
the proceeds received by the Company from the sale of
the 100,000 shares at the Applicable Conversion Price -
75,000 shares
Dilution Adjustment Calculation:
<PAGE>16
2 x [1,000,000 + 75,000] = 2 x .97727 = 1.9545
1,000,000 + 100,000
2. Company issues warrants to Senior Creditor to purchase 100,000
shares at an exercise price of $1.50 per share
- Applicable Conversion Price = $1.95
- Total shares outstanding prior to warrant issuance -
1,100,000
- Number of shares of stock that would be purchased with
the proceeds received by the Company upon exercise of
the Warrants at the Applicable Conversion Price =
76,923
Dilution Adjustment Calculation:
1.95 x [1,100,000 + 76,923] = 1.95 x .980769 = 1.9125
1,100,000 + 100,000
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 8.7 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 annual grant of options to Joseph F. Limongelli to purchase
up to 10,000 shares of the Company's Common Stock at an exercise price
equal to closing price of the Company's Common Stock as reported on
the American Stock Exchange, or successor exchange or over-the-counter
market on which the Common Stock is then traded, on the date of grant;
or
<PAGE>17
(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) including,
without limitation, the conversion of any Debenture issued in the same
placement of securities pursuant to which this Debenture was issued by
the Company, whether or not outstanding on the issuance date hereof.
(c) For the purpose of subsection 8.7(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, compensations
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,
accreted 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
<PAGE>18
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 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
8.7(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, cancelled 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
<PAGE>19
subsection 8.7(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 8.7 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
8.7(f) are not required to be made shall be carried forward and taken into
account in making subsequent adjustments. All calculations under this Section
8.7 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 forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
8.8 Reorganization of the Company. If the Company is a party to a
transaction subject to Article 6 or a merger which classifies 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 the consolidation, merger, transfer or lease 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 8. 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 the formed, surviving, transferee or lessee corporation, that
issuer shall join in the supplemental debenture which shall so provide. If this
section applies, Section 8.5 does not apply.
ARTICLE 9
REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933
----------------------------------------------------
9.1(a) Issuance of Stock Registered under the Act by the Company
upon Conversion. Not later than 90 days from the date of this Debenture, the
Company will file a registration statement under the Act with respect to the
number of shares of Common Stock issuable upon conversion of the Debentures (the
"Registrable Securities") in order to provide for the issuance by the Company of
<PAGE>20
Common Stock upon conversion of the Debentures which has been registered under
the Act, and shall use its best effort to cause such registration statement to
become and remain effective until such time as all of the Debentures shall have
been converted in accordance with the provisions of section 8.1 or 8.2 hereof.
(b) Supplemental Registration Rights. In the event the Company is
precluded by the U.S. Securities and Exchange Commission (the "Commission") from
registering under the Act the Registrable Securities for issuance upon
conversion of this Debenture or if the Holder shall have converted this
Debenture prior to the effectiveness of the registration statement described in
subparagraph (a) above, the Holder shall have the following registration rights:
(i) Piggyback Registration Rights. The Company shall advise
the Holder or its transferee, whether the Holder holds the Debentures or has
converted the Debentures and holds the Common Stock underlying the Debentures,
by written notice at least four weeks prior to the filing of any registration
statement under the Act covering any securities of the Company, for its own
account or for the account of others, and will, until the Maturity Date, upon
the request of the Holder, register under the Act all or any portion of the
Registrable Securities and cause such registration statement to become and
remain effective as provided in paragraph 9(c) hereof.
(ii) Demand Registration Rights. If any 51% Holder (as
defined in Section 9.1(f) hereof) shall give notice to the Company at any time
to the effect that such holder desires to have the Company register under the
Act any Registrable Securities, the Company will promptly, but no later than
four weeks after receipt of such notice, file a registration statement under the
Act with respect to such number of Registrable Securities as shall be indicated
in the notice to the Company by the Holder and the Company will use its best
efforts to cause such registration statement to become and remain effective
(including the taking of such steps as are necessary to obtain the removal of
any stop order); provided, that the Holder shall furnish the Company with
appropriate information in connection therewith as the Company may reasonably
request in writing. The Holder may, at its option, request the filing of a
registration statement under the Act on one occasion until the Maturity Date.
Within ten days after receiving any such notice pursuant to this subsection
(b)(ii) of this Article 9, the Company shall give notice to the other Holders of
the Debentures and any Common Stock issued upon the conversion of any Debentures
advising that the Company is proceeding with such registration statement and
offer to include therein the Common Stock underlying the Debentures of the other
Holders, provided that they shall furnish the Company with such appropriate
information (relating to the intentions of such holders) in connection therewith
as the Company shall reasonably request in writing.
If the Company elects to include securities to be sold by it in
any registration statement pursuant to this Section 9(b)(ii), such registration
shall be deemed to have been a registration under Section 9(b)(i).
<PAGE>21
(c) Registration Covenants of the Company. A. In the event that
any Registrable Securities are to be registered pursuant to Sections 9(a) or
9(b) of this Debenture, the Company covenants and agrees that the Company will
use its best efforts to effect the registration and cooperate in the sale of the
Registrable Securities to be registered and will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to the Registrable Securities (as well as any necessary
amendments or supplements thereto)(a "Registration Statement") which
Registration Statement (A) will state that the holders of Registrable Securities
covered thereby may sell such Registrable Securities under such Registration
Statement or pursuant to Rule 144 (or any similar rule then in effect), (B) when
it becomes effective, and when any post-effective amendment thereof and
supplement thereto is filed, the Registration Statement, as then amended or
supplemented, will comply in all material respects with the applicable
provisions of the Act and the rules and regulations thereunder and, except for
information provided in writing by the Holder for inclusion in the Registration
Statement for which the Company does not represent or warrant as to its
accuracy, will not contain an untrue statement or a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(ii) furnish to the Holders copies of such Registration
Statement and any amendments or supplements thereto and any prospectus forming a
part thereof prior to filing, which documents will be subject to the review of
counsel for the Holders;
(iii) use its best efforts to cause such Registration
Statement to become effective;
(iv) notify the Holders, promptly after the Company shall
receive notice thereof, of the time when said Registration Statement becomes
effective or when any amendment or supplement to any prospectus forming a part
of said Registration Statement has been filed;
(v) notify the Holders promptly of any request by the
Commission for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(vi) advise the Holders after the Company shall receive
notice or obtain knowledge thereof of the issuance of any order by the
Commission suspending the effectiveness of any such Registration Statement or
amendment thereto or of the initiation or threatening of any proceeding for that
purpose, and promptly use its reasonable best efforts to prevent the issuance of
any stop order or to obtain its withdrawal promptly if such stop order should be
issued;
<PAGE>22
(vii) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus forming a part
thereof as may be necessary to keep such Registration Statement effective (a) in
the case of a Registration Statement filed and declared effective pursuant to
Section 9(a) hereof, until such time as all Holders of the Debentures shall have
converted the Debentures into Common Stock, or (b) in the case of a Registration
Statement filed and declared effective pursuant to Section 9(b) hereof, until
such time as the Holders pursuant to such Registration Statement have disposed
of all such Registrable Securities but in no event exceeding five (5) years from
the date of effectiveness;
(viii) furnish to each Holder 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 that Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Holder.
(ix) use its reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as determined by the Holders and do any and all other acts and
things which may be reasonably necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of the Registrable Securities
(provided that the Company will not be required to: (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify; (B) subject itself to taxation in any such jurisdiction; or (C) consent
to general service of process in any such jurisdiction);
(x) notify the Holders at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which such Registration Statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of the Holder, prepare a supplement or amendment to such
Registration Statement so that such Registration Statement will not contain, to
the Company's knowledge, an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(xi) cause all Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(xii) provide a transfer agent for all such Registrable
Securities not later than the effective date of such Registration Statement;
<PAGE>23
(xiii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
participating Holders or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of the Registrable Securities;
(xiv) make available for inspection by the Holder of such
Registrable Securities, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
professional retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
Inspectors in connection with such Registration Statement; and
(xv) use its reasonable best efforts to cause the
Registrable Securities covered by such Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the Holders to consummate the disposition of such
Registrable Securities.
B. The Holder covenants and agrees to reasonably cooperate in the
preparation of the Registration Statement by providing such information as the
Company shall reasonably need from the Holder to include the Registrable
Securities in the Registration Statement.
(d) Expenses. All expenses in connection with preparing and
filing any Registration Statement including, without limitation, costs of
complying with federal and state securities laws and regulations, attorney's and
accounting fees of the Company, printing expenses and federal and state filing
fees shall be borne in full by the Company, except that the underwriting
commissions and expenses attributable to the Registrable Securities so
registered and the fees and disbursements of counsel, if any, to the Holders of
the Registrable Securities shall be borne by such Holders.
(e) Indemnification. Each Holder of Registrable Securities
exercising the rights under paragraphs 9(a) or 9(b) hereof will indemnify the
Company, and each person who controls the Company within the meaning of Section
15 of the Act, from and against any and all losses, claims, damages, expenses
and liabilities caused by any untrue statement or statement contained in any
registration statement or statement contained in a prospectus furnished under
the Act or caused by omission to state a material fact therein necessary to make
the statements therein not misleading, insofar as such losses, claims, damages,
expenses and liabilities are caused by such untrue statement or omission based
upon information furnished in writing to the Company by any such Holder
expressly for use in any registration statement or prospectus and will reimburse
each such indemnified person, as incurred, for any legal or other expenses
reasonably incurred by them in investigating, defending or
<PAGE>24
preparing to defend any such loss, claim, damage, liability, action or
proceeding. In addition, each Holder will execute and deliver all such documents
and undertakings as the Company may reasonably deem necessary or desirable for
purposes of compliance with applicable federal and state securities laws. This
indemnity agreement is in addition to any liability which the Holder may
otherwise have. The Company's obligations as set forth in paragraph 9(a), (b)
and (c) with respect to each Holder are contingent on such Holder's satisfaction
of his or its obligations set forth in this paragraph 9(e).
The Company agrees to indemnify and hold harmless the
Holders (and each person, if any, who controls the Holders within the meaning of
the Act) from and against any loss, claim, damage or liability, joint or
several, to which they may become subject (under the Act or otherwise) insofar
as such loss, claim, damage or liability (or action or proceeding in respect
thereof) arises out of, or is based upon, (A) any untrue statement or alleged
untrue statement of a material fact contained (x) in the Registration Statement,
any preliminary prospectus, if used prior to the effective date of the
Registration Statement, or any final prospectus, or any amendment thereof or
supplement thereto, or (y) in any blue sky application or other document
executed by the Company, or based upon written information furnished by the
Company, filed in any state or other jurisdiction in order to qualify any or all
of the Registrable Securities under the securities laws thereof (as such
application, document or information being hereinafter called a "Blue Sky
Application"), or (B) the omission or alleged omission to state in the
Registration Statement, any preliminary prospectus, if used prior to the
effective date of the Registration Statement, or any final prospectus, or any
amendment thereof or supplement thereto, or in any Blue Sky Application, of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and will reimburse each such indemnified person, as incurred, for
any legal or other expenses reasonably incurred by them in investigating,
defending or preparing to defend any such loss, claim, damage, liability, action
or proceeding; provided, however, that the Company shall not be liable in any
such case to the extent, but only to the extent, that such loss, claim, damage
or liability arises out of or is based upon an untrue statement or an alleged
untrue statement or omission or alleged omission made in such Registration
Statement or in any Blue Sky Application in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration Statement or any such
preliminary prospectus or the final prospectus or any such amendment thereof or
supplement thereto, or any Blue Sky Application (including information
concerning the manner in which the Holders intend to effect sales of the
Registrable Securities). This indemnity agreement is in addition to any
liability which the Company may otherwise have.
(f) The term "51% Holder" as used in this Section 9.1 shall
mean the holders of at least 51% of the shares of common stock into which the
Debentures are convertible (considered in the aggregate) and shall include any
owner or combination of owners of Debentures in any combination if the holdings
of the aggregate amount of: (i) the common stock held by him or among them as a
result of the conversion of the Debentures, plus (ii) the common stock which he
or they would be holding if
<PAGE>25
the Debentures owned by him or among them were converted, would constitute 51%
or more of the common stock into which the Debentures were originally
convertible. The Company's agreement with respect to the registration of the
Common Stock in this Section 9.1 shall survive the conversion and surrender of
the Debentures and upon conversion in full, the Company shall deliver to the
Holder an agreement evidencing the Company's obligation under this Section 9.1.
ARTICLE 10
TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933
--------------------------------------------------
10.1 The Holder of this Debenture, each transferee hereof and any
Holder and transferee of any Shares, by his acceptance thereof, agrees that no
public distribution of Debentures or Shares will be made in violation of the Act
or applicable state securities laws. The Holder of this Debenture and each
transferee hereof further agrees that if any distribution of any Shares is
proposed to be made by them otherwise than by delivery of a prospectus meeting
the requirements of Section 10 of the Act, such action shall be taken only after
submission to the Company of an opinion of counsel, reasonably satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
distribution will not be in violation of the Act or of applicable state law.
Furthermore, it shall be a condition to the transfer of this Debenture that any
transferee thereof deliver to the Company his written agreement to accept and be
bound by all of the terms and conditions contained in this Debenture.
10.2 This Debenture or the shares of the Common Stock or any
other security issued or issuable upon conversion of this Debenture may not be
sold or otherwise disposed of except as follows:
(1) To a person who, in the opinion of counsel for the
Holder reasonably acceptable to the Company, is a person to whom this Debenture
or shares of Common Stock may legally be transferred without registration under
the Act and then only against receipt of an agreement of such person to comply
with the provisions of this Section 10.2 with respect to any resale or other
disposition of such securities which agreement shall be satisfactory in form and
substance to the Company and its counsel; provided that the foregoing shall not
apply to any such Debenture, shares of Common Stock or other security as to
which such Holder shall have received an opinion letter from counsel to the
Company or other counsel reasonably acceptable to the Company, as to the
exemption thereof from the registration under the Act pursuant to Rule 144 under
the Act; or
(2) to any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the offering thereof
for such sale or disposition.
<PAGE>26
10.3 STATE LEGENDS.
Notice to Wisconsin Purchasers. IN MAKING AN INVESTMENT DECISION
INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
10.4 Each certificate for Shares shall bear a legend relating to
the non-registered status of such shares under the Act, unless at the time of
conversion of this Debenture such shares of Common Stock have been registered
under the Act or are in the opinion of counsel reasonably acceptable to the
Company transferable without registration under the Act.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 No Recourse. No recourse, whatsoever, either directly or
through the Company or any trustee, receiver of assignee, shall be had in any
event or in any manner against any past, present or future stockholder, director
or officer of the Company for the payment of the redemption price, principal of
or interest on this Debenture or any of them or for any claim based thereon or
otherwise in respect this Debenture, this Debenture being a corporate obligation
only.
11.2 Notices. All communications provided hereunder shall be in
writing and, if to the Company, delivered or mailed by registered or certified
mail addressed to Halsey Drug Co., Inc., 1827 Pacific Street, Brooklyn, New York
11233, Attention: President, with a copy to Kenneth Goodwin, Esq., Coleman &
Rhine, LLP, 1120 Avenue of the Americas, New York, New York, or, if to the
Holder at the address shown for the Holder in the registration books maintained
by the Company.
11.3 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,
<PAGE>27
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.
11.4 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.
11.5 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.
11.6 Governing Law. This Debenture shall be construed in
accordance with and governed by the laws of the State of New York, without
giving effect to conflict of laws principles.
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.
ATTEST [SEAL] HALSEY DRUG CO., INC.
/s/ Authorized Signatory /s/ Rosendo Ferran
- ---------------------------- By:----------------------------
Name: Rosendo Ferran
Title: President
<PAGE>28
ATTACHMENT I
------------
Assignment
For value received, I hereby assign subject to the provisions of
Section 10, to $________ principal amount of the Convertible Subordinated
Debenture due __________, 2000 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:
__________________________
__________________________
<PAGE>29
ATTACHMENT II
-------------
CONVERSION NOTICE
-----------------
TO: HALSEY DRUG CO., INC.
The undersigned holder of this Debenture hereby irrevocable
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 converted $-------
If shares are to be issued otherwise then to the holder:
- ------------------
Name of Transferee
Address of Transferee
-----------------------------------
-----------------------------------
-----------------------------------
Social Security Number of Transferee
-----------------------------------
<PAGE>1
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME ON JULY 17, 2000.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
(COLLECTIVELY THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HALSEY DRUG
CO., INC. THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
HALSEY DRUG CO., INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE 37,500
SHARES OF COMMON STOCK
Certificate No. W-4
This Warrant Certificate certifies that WILLIAM A. MARQUARD, SS#
###-##-####, having an office c/o BEA ASSOCIATES, One Citicorp Center, 153 East
53rd Street, New York, New York 10022 or registered assigns, is the registered
Holder (the "Holder") of 37,500 Redeemable Common Stock Purchase Warrants (the
"Warrants") to purchase shares of the common stock, $.01 par value (the "Common
Stock") of Halsey Drug Co., Inc., a New York corporation (the "Company").
The Warrants represented by this Warrant Certificate were issued as a
component of a Unit offered by the Company pursuant to a certain Private
Placement Memorandum dated June 29, 1995 (the "Private Placement Memorandum").
In addition to Warrants to purchase 750 shares of Common Stock, each Unit
consists of a Convertible Subordinated Debenture of the Company in the principal
amount of $10,000 (the "Debentures").
THIS WARRANT IS REDEEMABLE AT THE OPTION OF THE COMPANY UNDER CERTAIN
CIRCUMSTANCES. SEE SECTION 11.
<PAGE>2
1. EXERCISE OF WARRANT.
(A) Each Warrant enables the Holder, subject to the provisions of
this Warrant Certificate to purchase from the Company at any time and from time
to time commencing on the date of issuance (the "Initial Exercise Date") through
and including 5:00 p.m., Eastern Standard Time on July 17, 2000 (the "Expiration
Date") one (1) fully paid and non-assessable share of Common Stock ("Shares")
upon due presentation and surrender of this Warrant Certificate accompanied by
payment of the purchase price of $2.00 per Share (the "Exercise Price"). Payment
shall be made in lawful money of the United States of America by certified check
payable to the Company at its principal office at 1827 Pacific Street, Brooklyn,
New York 11233. As hereinafter provided, the Exercise Price and number of Shares
purchasable upon the exercise of the Warrants are subject to modification or
adjustment upon the happening of certain events.
(B) This Warrant Certificate is exercisable at any time on or after
the Initial Exercise Date in whole or in part by the Holder in person or by
attorney duly authorized in writing at the principal office of the Company.
2. EXCHANGE, FRACTIONAL SHARES, TRANSFER.
(A) Upon surrender to the Company, this Warrant Certificate may be
exchanged for another Warrant Certificate or Warrant Certificates evidencing a
like aggregate number of Warrants. If this Warrant Certificate shall be
exercised in part, the Holder shall be entitled to receive upon surrender hereof
another Warrant Certificate or Warrant Certificates evidencing the number of
Warrants not exercised;
(B) Anything herein to the contrary notwithstanding, in no event
shall the Company be obligated to issue Warrant Certificates evidencing other
than a whole number of Warrants or issue certificates evidencing other than a
whole number of Shares upon the exercise of this Warrant Certificate; provided,
however, that the Company shall pay with respect to any such fraction of a Share
an amount of cash based upon the current public market value (or book value, if
there shall be no public market value) for Shares purchasable upon exercise
hereof, as determined in accordance with subparagraph (A) of Section 11 hereof;
(C) The Company may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute true and lawful owner hereof
for all purposes whatsoever; and
(D) This Warrant Certificate may not be transferred except in
compliance with the provisions of the Act or applicable state securities laws
and in accordance with the provisions of Section 12 hereof.
2
<PAGE>3
3. RIGHTS OF A HOLDER. No Holder shall be deemed to be the Holder of
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose nor shall anything contained
herein be construed to confer upon the Holder any of the rights of a shareholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof or to give or withhold
consent to any corporate action (whether upon any reorganization, issuance of
stock, reclassification or conversion of stock, change of par value,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings or to receive dividends or subscription rights or otherwise until a
Warrant shall have been exercised and the Common Stock purchasable upon the
exercise thereof shall have become issuable.
4. REGISTRATION OF TRANSFER. The Company shall maintain books for the
transfer and registration of Warrants. Upon the transfer of any Warrants in
accordance with the provisions of Section 2(D) hereof (a "Permitted Transfer"),
the Company shall issue and register the Warrants in the names of the new
Holder. The Warrants 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 transfer, from time to time, any
outstanding Warrants upon the books to be maintained by the Company for such
purpose upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer. Upon any Permitted Transfer, a new
Warrant Certificate shall be issued to the transferee and the surrendered
Warrants shall be cancelled by the Company. Warrants may be exchanged at the
option of the Holder, when surrendered at the office of the Company, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Shares.
Subject to the terms of this Warrant Certificate, upon such surrender and
payment of the purchase price at any time after the Initial Exercise Date, the
Company shall issue and deliver with all reasonable dispatch to or upon the
written order of the Holder of such Warrants and in such name or names as such
Holder may designate, a certificate or certificates for the number of full
Shares so purchased upon the exercise of such Warrants. 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 such Warrants and payment of the
purchase price; provided, however, that if, at the date of surrender and
payment, the transfer books of the Company 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 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 or interdealer quotation system, shall not be closed at any
one time for a period longer than 20 days. The rights of purchase represented by
the Warrants shall be exercisable, at the election of the Holders, either as an
entirety or from time to time for only part of the Shares at any time on or
after the Initial Exercise Date.
5. STAMP TAX. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Shares issuable upon the exercise of
the Warrants; provided, however,
3
<PAGE>4
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 Shares in a name other than that of the Holder in respect of
which such Shares are issued, and in such case the Company shall not be required
to issue or deliver any certificate for Shares or any Warrant 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.
6. DESTROYED, LOST, STOLEN OR MUTILATED CERTIFICATES. In case this
Warrant Certificate shall be destroyed, lost, stolen or mutilated, the Company
may, in its discretion, issue and deliver in exchange and substitution for and
upon cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate of like tenor representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company of such
destruction, loss, theft or mutilation and an indemnity, if requested, also
satisfactory to it.
7. RESERVED SHARES. The Company warrants that there have been reserved,
and covenants that at all times in the future it shall keep reserved, out of the
authorized and unissued Common Stock, a number of Shares sufficient to provide
for the exercise of the rights of purchase represented by this Warrant
Certificate. The Company agrees that all Shares issuable upon exercise of the
Warrants shall be, at the time of delivery of the certificates for such Shares,
validly issued and outstanding, fully paid and non-assessable and that the
issuance of such Shares will not give rise to preemptive rights in favor of
existing stockholders.
8. ANTI-DILUTION PROVISIONS.
(A) Dividends; Reclassifications, etc. In the event that the Company
shall, at any time prior to the exercise of this Warrant: (i) declare or pay to
the holders of the Common Stock a dividend payable in any kind of shares of
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 (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 this Warrant, the Holder 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 such transfer, or such
assets of the Company, which it would have been entitled to receive had it
exercised this Warrant prior to the happening of any of the foregoing events.
(B) Notice of Certain Transactions. 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
4
<PAGE>5
class or any other rights, or shall enter into an agreement to merge or
consolidate with another corporation, the Company shall cause notice thereof to
be mailed to the registered holder of this Warrant at its address appearing on
the registration books of the Company, at least 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 30 days prior to the
effective date of the merger or consolidation. Failure to give notice as
required by this Section, or any defect therein, shall not affect the legality
or validity of any dividend, distribution or subscription or other right.
(C) Adjustments to Exercise Price. 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 subparagraph
(D) of this Paragraph 8; or
(ii) shares issued, subdivided or combined in transactions
described in subparagraph (A) of this Paragraph 8 if and to the
extent that an adjustment to the Exercise Price shall have been
previously made pursuant to subparagraph (A) of this Paragraph 8 as
a result of such issuance, subdivision or combination of such
securities;
for a consideration per share which is less than the Exercise Price, then the
Exercise Price in effect immediately prior to such issuance or sale (the
"Applicable Exercise Price") shall, and thereafter upon each issuance or sale,
the Applicable Exercise Price shall, simultaneously with such issuance or sale,
be adjusted, so that such Applicable Exercise Price shall equal a price
determined by multiplying the Applicable Exercise Price by a fraction, the
numerator of which shall be:
(a) the sum of (x) the total number of shares of Common Stock
outstanding immediately prior to such issuance plus (y) the number
of shares of Common Stock which the aggregate consideration
received, as determined in accordance with subparagraph (E) below
for the issuance or sale of such additional Common Stock or
Convertible Securities deemed to be an issuance of Common Stock as
provided in subparagraph (F) below, would purchase (including any
consideration received by the Company upon the issuance of any
shares of Common Stock or Convertible Securities since the date the
Applicable Exercise Price became effective not previously included
in any computation resulting in an adjustment pursuant to this
subparagraph (C)) at the Applicable Exercise Price; 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 subparagraph (E))
immediately after the issuance or sale of such additional shares.
5
<PAGE>6
If, however, the Applicable Exercise Price thus obtained would result in the
issuance of a lesser number of shares upon conversion than would be issued at
the initial Exercise Price specified in Paragraph 1, the Applicable Exercise
Price shall be such initial Exercise Price.
Upon each adjustment of the Exercise Price pursuant to this Subsection
(C) the total number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be such number of shares (calculated to the nearest tenth)
purchasable at the Applicable Exercise Price multiplied by a fraction, the
numerator of which shall be Exercise Price in effect immediately prior to such
adjustment and the denominator of which shall be the Exercise Price in effect
immediately after such adjustment.
(D) Exclusions. Anything in this Paragraph 8 to contrary
notwithstanding, no adjustment in the Exercise 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 by the Company's Board of
Directors, as may be amended from time to time;
(ii) The annual grant of options to Joseph F. Limongelli to
purchase up to 10,000 shares of the Company's Common Stock at an
exercise price equal to the closing price of the Company's Common
Stock as reported on the American Stock Exchange, or successor
Exchange or over-the-counter market on which the Common Stock is
then traded, on the date of grant; 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 including, without limitation, the exercise of any
Warrant issued in the same placement of securities in which this
Warrant was issued by the Company, whether or not outstanding on the
issuance date hereof.
(E) Calculation of Consideration. For the purpose of subparagraph
(C) above, 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,
compensations or other expenses paid or incurred by the Company for
any underwriting or placement of, or otherwise in connection with
the issuance or sale of such shares.
6
<PAGE>7
(ii) In 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 Convertible Securities, 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 on 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 the
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, accredited 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
compensations 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 exchanged 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 subparagraphs
(E)(i) and (E)(iii) 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
7
<PAGE>8
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 Exercise Price shall be required by reason of the fixing
of such record date.
(F) Deemed Issuances of Common Stock. For purposes of the
adjustments provided for in subparagraph (C) 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.
(G) Readjustments of Exercise Price. On the expiration, cancellation
or redemption of any Convertible Securities, the Exercise Price then in effect
hereunder shall forthwith be readjusted to such Exercise Price as would have
been obtained (a) had the adjustments made upon the issuance or sale of such
expired, cancelled 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 only on the basis of the Exercise Price as
readjusted under this subparagraph (G) for all transactions (which would have
affected such adjusted Exercise Price) made after the issuance or sale of such
Convertible Securities.
(H) Carry Forwards. Anything in this Paragraph 8 to the contrary
notwithstanding, no adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
Exercise Price; provided, however, that any adjustments which by reason of this
subparagraph (H) are not required to be made shall be carried forward and taken
into account in making subsequent adjustments. All calculations under this
Paragraph 8 shall be made to the nearest cent or to the nearest tenth of a
share, as the case may be.
(I) Notice of Adjustments. Upon any adjustment of the Exercise
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 Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of Shares purchasable at such price upon the exercise hereof, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
9. CONSOLIDATION OR MERGER. The Company covenants and agrees that it
will not merge or consolidate with or into or sell or otherwise transfer all or
substantially all of its
8
<PAGE>9
assets to any other corporation or entity unless at the time of or prior to such
transaction such other corporation or other entity shall expressly assume all of
the liabilities and obligations of the Company under this Warrant and (without
limiting the generality of the foregoing) shall expressly agree that the Holder
of this Warrant shall thereafter have the right (subject to subsequent
adjustment as nearly equivalent as practicable to the adjustments provided for
in Paragraph 8 of this Warrant) to receive upon the exercise of this Warrant the
number and kind of shares of stock and other securities and property receivable
upon such transaction by a Holder of the number and kind of shares which would
have been receivable upon the exercise of this Warrant immediately prior to such
transaction.
10. REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933.
A. Issuance of Stock Registered under the Act by the Company upon
Exercise. Not later than 90 days from the date of this Warrant, the Company will
file a registration statement under the Act with respect to the number of shares
of Common Stock issuable upon the exercise of this Warrant (the "Registrable
Securities") in order to provide for the issuance by the Company of Common Stock
upon exercise of this Warrant which has been registered under the Act, and shall
use its best efforts to cause such registration statement to become and remain
effective until such time as all of the Warrants shall have been exercised and
the Common Stock issuable thereunder has been issued by the Company.
B. Supplemental Registration Rights. In the event the Company is
precluded by the U.S. Securities and Exchange Commission (the "Commission") from
registering under the Act the Registrable Securities for issuance upon exercise
of this Warrant or if the Holder shall have exercised this Warrant prior to the
effectiveness of the registration statement described in Subsection A above, the
Holder shall have the following registration rights:
Piggyback Registration Rights. If (i) any 51% Holder (as defined
in Section 10.F hereof) shall give notice to the Company at any time to the
effect that such holder desires to have the Company registered under the Act any
common stock issuable upon conversion of the Debentures, or (ii) the Company
proposes to file a registration statement covering any securities of the
Company, for its own account or for the account of others, the Company shall
advise the Holder or its transferee, whether the Holder holds the Warrant or has
converted the Warrant and holds the Common Stock underlying the Warrant, by
written notice at least four weeks prior to the filing of any registration
statement under the Act, and will, until the Expiration Date, upon the request
of the Holder, register under the Act all or any portion of the Registrable
Securities and cause such registration statement to become and remain effective
as provided in Subsection C hereof.
C. Registration Covenants of the Company. (a) In the event that any
Registrable Securities are to be registered pursuant to Subsections A or B of
this Warrant, the Company covenants and agrees that the Company will use its
best efforts to effect the registration
9
<PAGE>10
and cooperate in the sale of the Registrable Securities to be registered and
will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to the Registrable Securities (as well as any
necessary amendments or supplements thereto)(a "Registration
Statement") which Registration Statement (A) will state that the
holders of Registrable Securities covered thereby may sell such
Registrable Securities under such Registration Statement or pursuant
to Rule 144 (or any similar rule then in effect), (B) when it
becomes effective, and when any post-effective amendment thereof and
supplement thereto is filed, the Registration Statement, as then
amended or supplemented, will comply in all material respects with
the applicable provisions of the Act and the rules and regulations
thereunder and, except for information provided in writing by the
Holder for inclusion in the Registration Statement for which the
Company does not represent or warrant as to its accuracy, will not
contain an untrue statement or a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
are made, not misleading;
(ii) furnish to the Holders copies of such Registration
Statement and any amendments or supplements thereto and any
prospectus forming a part thereof prior to filing, which documents
will be subject to the review of counsel for the Holders;
(iii) use its best efforts to cause such Registration Statement
to become effective;
(iv) notify the Holders, promptly after the Company shall
receive notice thereof, of the time when said Registration Statement
becomes effective or when any amendment or supplement to any
prospectus forming a part of said Registration Statement has been
filed;
(v) notify the Holders promptly of any request by the
Commission for the amending or supplementing of such Registration
Statement or prospectus or for additional information;
(vi) advise the Holders after the Company shall receive notice
or obtain knowledge thereof of the issuance of any order by the
Commission suspending the effectiveness of any such Registration
Statement or amendment thereto or of the initiation or threatening
of any proceeding for that purpose, and promptly use its reasonable
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal promptly if such stop order should be issued;
(vii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus
forming a part thereof as may be necessary to keep such Registration
Statement effective (a) in the case of a Registration Statement
10
<PAGE>11
filed and declared effective pursuant to Subsection A hereof, until such time as
all Holders of the Warrants shall have exercised the Warrants, or (b) in the
case of a Registration Statement filed and declared effective pursuant to
Subsection B hereof, until such time as the Holders pursuant to such
Registration Statement have disposed of all such Registrable Securities but in
no event exceeding five (5) years from the date of effectiveness;
(viii) furnish to each Holder 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 that Holder may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Holder;
(ix) use its reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as determined by the Holders and do any
and all other acts and things which may be reasonably necessary or
advisable to enable the Holders to consummate the disposition in
such jurisdictions of the Registrable Securities (provided that the
Company will not be required to: (A) qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify; (B) subject itself to taxation in any such
jurisdiction; or (C) consent to general service of process in any
such jurisdiction);
(x) notify the Holders at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening
of any event as a result of which such Registration Statement
contains an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, and, at the request of the
Holder, prepare a supplement or amendment to such Registration
Statement so that such Registration Statement will not contain, to
the Company's knowledge, an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(xi) cause all Registrable Securities to be listed on each
securities exchange on which similar securities issued by the
Company are then listed;
(xii) provide a transfer agent for all such Registrable
Securities not later than the effective date of such Registration
Statement;
(xiii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other
actions as the participating Holders or the underwriters, if any,
reasonably request in order to expedite or facilitate the
disposition of the Registrable Securities;
11
<PAGE>12
(xiv) make available for inspection by the Holder of such
Registrable Securities, any underwriter participating in any
disposition pursuant to such Registration Statement and any
attorney, accountant or other professional retained by any such
Holder or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection
with such Registration Statement; and
(xv) use its reasonable best efforts to cause the Registrable
Securities covered by such Registration Statement to be registered
with or approved by such other governmental agencies or authorities
as may be necessary to enable the Holders to consummate the
disposition of such Registrable Securities.
(b) The Holder covenants and agrees to reasonably cooperate
in the preparation of the Registration Statement by providing such information
as the Company shall reasonably need from the Holder to include the Registrable
Securities in the Registration Statement.
D. Expenses. All expenses in connection with preparing and filing
any Registration Statement including, without limitation, costs of complying
with federal and state securities laws and regulations, attorney's and
accounting fees of the Company, printing expenses and federal and state filing
fees shall be borne in full by the Company, except that the underwriting
commissions and expenses attributable to the Registrable Securities so
registered and the fees and disbursements of counsel, if any, to the Holders of
the Registrable Securities shall be borne by such Holders.
E. Indemnification. Each Holder of Registrable Securities exercising
the rights under Subsections A or B hereof will indemnify the Company, and each
person who controls the Company within the meaning of Section 15 of the Act,
from and against any and all losses, claims, damages, expenses and liabilities
caused by any untrue statement or statement contained in any registration
statement or statement contained in a prospectus furnished under the Act or
caused by omission to state a material fact therein necessary to make the
statements therein not misleading, insofar as such losses, claims, damages,
expenses and liabilities are caused by such untrue statement or omission based
upon information furnished in writing to the Company by any such Holder
expressly for use in any registration statement or prospectus and will reimburse
each such indemnified person, as incurred, for any legal or other expenses
reasonably incurred by them in investigating, defending or preparing to defend
any such loss, claim, damage, liability, action or proceeding. In addition, each
Holder will execute and deliver all such documents and undertakings as the
Company may reasonably deem necessary or desirable for purposes of compliance
with applicable federal and state securities laws. This indemnity agreement is
in addition to any liability which the Holder may otherwise have. The Company's
obligations as set forth in Subsections A, B
12
<PAGE>13
and C with respect to each Holder are contingent on such Holder's satisfaction
of his or its obligations set forth in this Subsection E.
The Company agrees to indemnify and hold harmless the Holders (and
each person, if any, who controls the Holders within the meaning of the Act)
from and against any loss, claim, damage or liability, joint or several, to
which they may become subject (under the Act or otherwise) insofar as such loss,
claim, damage or liability (or action or proceeding in respect thereof) arises
out of, or is based upon, (A) any untrue statement or alleged untrue statement
of a material fact contained (x) in the Registration Statement, any preliminary
prospectus, if used prior to the effective date of the Registration Statement,
or any final prospectus, or any amendment thereof or supplement thereto, or (y)
in any blue sky application or other document executed by the Company, or based
upon written information furnished by the Company, filed in any state or other
jurisdiction in order to qualify any or all of the Registrable Securities under
the securities laws thereof (as such application, document or information being
hereinafter called a "Blue Sky Application"), or (B) the omission or alleged
omission to state in the Registration Statement, any preliminary prospectus, if
used prior to the effective date of the Registration Statement, or any final
prospectus, or any amendment thereof or supplement thereto, or in any Blue Sky
Application, of a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and will reimburse each such indemnified person, as
incurred, for any legal or other expenses reasonably incurred by them in
investigating, defending or preparing to defend any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Company shall not
be liable in any such case to the extent, but only to the extent, that such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or an alleged untrue statement or omission or alleged omission made in
such Registration Statement or in any Blue Sky Application in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such Holder specifically for use in preparation of the Registration Statement
or any such preliminary prospectus or the final prospectus or any such amendment
thereof or supplement thereto, or any Blue Sky Application (including
information concerning the manner in which the Holders intend to effect sales of
the Registrable Securities). This indemnity agreement is in addition to any
liability which the Company may otherwise have.
F. The term "51% Holder" as used in this Section 10 shall mean the
Holders of at least 51% of the shares of common stock into which the Debentures
comprising a portion of the Units offered pursuant to the Private Placement
Memorandum are convertible (considered in the aggregate) and shall included any
owner or combination of owners of Debentures in any combination if the holdings
of the aggregate amount of: (i) the common stock held by him or among them as a
result of the conversion of the Debentures, plus (ii) the common stock which he
or they would be holding if the Debentures owned by him or among them were
converted, would constitute 51% or more of the common stock into which the
Debentures were originally convertible. The Company's agreement with respect to
the registration of the common stock in this Section 10 shall survive the
exercise and surrender of this Warrant and upon exercise
13
<PAGE>14
in full, the Company shall deliver to the Holder an agreement evidencing the
Company's obligations under this Section 10.
11. REDEMPTION.
(A) This Warrant Certificate may be redeemed on not less than
thirty (30) days' notice, at a redemption price of $.01 per Warrant, provided
the market price of the Common Stock receivable upon exercise of such Warrant
shall exceed $2.00 per share (the "Target Price"), subject to adjustment as set
forth in Subsection (D) below. Market price for the purpose of this Section 11
shall mean as applicable (i) the closing sale price, for twenty (20) consecutive
trading days (during which the Shares are registered pursuant to the Securities
Act), of the Common Stock as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System; or (ii) the last reported sale price,
for twenty (20) consecutive trading days (during which the Shares are registered
pursuant to the Securities Act, on the primary exchange on which the Common
Stock is traded, if the Common Stock is traded on a national securities
exchange; or (iii) the closing bid price, for twenty (20) consecutive trading
days (during which the Shares are registered pursuant to the Act) in the
over-the-counter market as reported by the National Quotation Bureau or similar
information provider.
(B) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (Eastern Standard
Time) on the business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Warrants shall be the "Redemption
Date." No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Holder (a) to whom notice was not mailed or (b) 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 redemption has been
mailed postage prepaid to the last address of the Holder appearing on the
Warrant Certificate registry books kept by the Company shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. Any right to
exercise a Warrant shall terminate at 5:00 P.M. (Eastern Standard Time) on the
business day immediately preceding the Redemption Date. On and after the
Redemption Date, Holders of the Warrants shall have no further rights except to
receive, upon surrender of the Warrant, the redemption price.
(C) From and after the date specified for redemption, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of one or more
Warrants to be redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum in cash equal to the redemption price of each such
Warrant. From and after the date fixed for redemption and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption,
14
<PAGE>15
such Warrants shall expire and become void and all rights hereunder, except the
right to receive payment of the redemption price, shall cease.
(D) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
(E) If less than all of the Warrants are called for redemption by
the Company, the particular Warrants to be redeemed shall be redeemed pro-rata
in accordance with the Warrants then outstanding. If there shall be drawn for
redemption less than all of the Warrants represented by this Warrant
Certificate, the Company shall execute and deliver, upon surrender of this
Warrant Certificate, without charge to the Holder, a new Warrant Certificate
representing the unredeemed balance of the Warrant represented by this Warrant
Certificate.
12. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
(A) The Holder of this Warrant Certificate, each transferee hereof
and any Holder and transferee of any Shares, by his acceptance thereof, agrees
that (a) no public distribution of Warrants or Shares will be made in violation
of the Act, and (b) during such period as the delivery of a prospectus with
respect to Warrants or Shares may be required by the Act, no public distribution
of Warrants or Shares will be made in a manner or on terms different from those
set forth in, or without delivery of, a prospectus then meeting the requirements
of Section 10 of the Act and in compliance with applicable state securities
laws. The Holder of this Warrant Certificate and each transferee hereof further
agrees that if any distribution of any of the Warrants or Shares is proposed to
be made by them otherwise than by delivery of a prospectus meeting the
requirements of Section 10 of the Act, such action shall be taken only after
submission to the Company of an opinion of counsel, reasonably satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
distribution will not be in violation of the Act or of applicable state law.
Furthermore, it shall be a condition to the transfer of the Warrants that any
transferee thereof deliver to the Company his written agreement to accept and be
bound by all of the terms and conditions contained in this Warrant Certificate.
(B) This Warrant or the Shares or any other security issued or
issuable upon exercise of this Warrant may not be sold or otherwise disposed of
except as follows:
(1) To a person who, in the opinion of counsel for the Holder
reasonably acceptable to the Company, is a person to whom this Warrant or Shares
may legally be transferred without registration and without the delivery of a
current prospectus under the Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this
subsection (B)(1) with respect to any resale or other disposition of such
securities
15
<PAGE>16
which agreement shall be satisfactory in form and substance to the Company and
its counsel; provided that the foregoing shall not apply to any such Warrant,
Shares or other security as to which such Holder shall have received an opinion
letter from counsel to the Company as to the exemption thereof from the
registration under the Act pursuant to Rule 144 under the Act; or
(2) To any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the offering thereof
for such sale or disposition.
(C) Each certificate for Shares issued upon exercise of this
Warrant shall bear a legend relating to the non-registered status of such Shares
under the Act, unless at the time of exercise of this Warrant such Shares are
subject to a currently effective registration statement under the Act.
13. MISCELLANEOUS.
(A) LAW TO GOVERN. This Warrant shall be governed by and construed
in accordance with the substantive laws of the State of New York, without giving
effect to conflict of laws principles.
(B) ENTIRE AGREEMENT. This Warrant Certificate constitutes and
expresses the entire understanding between the parties hereto with respect to
the subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions whether express or
implied, oral or written. Neither this Warrant Certificate nor any portion or
provision hereof may be changed, waived or amended orally or in any manner other
than by an agreement in writing signed by the Holder and the Company.
(C) NOTICES. Except as otherwise provided in this Warrant
Certificate, all notices, requests, demands and other communications required or
permitted under this Warrant Certificate or by law shall be in writing and shall
be deemed to have been duly given, made and received only when delivered against
receipt or when deposited in the United States mails, certified or registered
mail, return receipt requested, postage prepaid, addressed as follows:
Company: Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Attn: President
Holder: At the address shown for the
Holder in the registration
book maintained by the
Company.
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<PAGE>17
(D) SEVERABILITY. If any provision of this Warrant Certificate is
prohibited by or is unlawful or unenforceable under any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction be in effect to the
extent of such prohibition without invalidating the remaining provisions hereof;
provided, however, that any such prohibition in any jurisdiction shall not
invalidate such provision in any other jurisdiction; and provided, further that
where the provisions of any such applicable law may be waived, that they hereby
are waived by the Company and the Holder to the full extent permitted by law and
to the end that this Warrant instrument shall be deemed to be a valid and
binding agreement in accordance with its terms.
IN WITNESS WHEREOF, Halsey Drug Co., Inc. has caused this Warrant
Certificate to be signed by its duly authorized officers as of the 18th day of
July, 1995.
HALSEY DRUG CO., INC.
By:/s/ Rosendo Ferran
Rosendo Ferran, President
Attest:
[CORPORATE SEAL]
17
<PAGE>18
PURCHASE FORM
To: Halsey Drug Co., Inc.
, 19
The undersigned hereby irrevocably elects to exercise the attached
Warrant Certificate, Certificate No. W- , to the extent of Shares of Common
Stock, $.01 par value per share of Halsey Drug Co., Inc., and hereby makes
payment of $ in payment of the aggregate exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:
(Please typewrite or print in block letters)
Address:
By:
<PAGE>1
HALSEY DRUG CO., INC.
SUBSCRIPTION AGREEMENT
To: Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Attention: Rosendo Ferran,
President and CEO
1. The undersigned hereby subscribes for 90 Units, each Unit
consisting of a 10% Convertible Subordinated Debenture in the principal
amount of $10,000 (each a "Debenture") and 600 Redeemable Common Stock
Purchase Warrants (the "Warrants") of Halsey Drug Co., Inc. (the
"Company"), which Units are offered pursuant to the Company's Private
Placement Memorandum, dated November 20, 1995 (the "Memorandum"). Each Unit is
offered at a subscription price of $10,000, and the minimum subscription is
one Unit per investor. The undersigned delivers herewith the full
subscription price for the Units subscribed for herein.
The undersigned agrees that this subscription is and shall be
irrevocable, but that it may be rejected, in whole or in part, by the Company,
and that the obligations of the undersigned hereunder will terminate if this
subscription is not accepted by the Company. The undersigned understands that
the Company will notify him/it if this subscription has been rejected for any
reason. If this subscription is rejected, the payment tendered by him/it will be
returned to him/it forthwith, without interest or deduction. If this
subscription is accepted by the Company, the amount of the payment tendered by
him/it will be applied in accordance with the description set forth in the
Memorandum.
2. The undersigned understands and agrees that an investment in the
Units is not a liquid investment. In particular, the undersigned recognizes,
acknowledges and agrees that:
(a) The undersigned must bear the economic risk of investment in
the Units for an indefinite period of time, since neither the Units, the
Debentures nor the Warrants have been registered under the Securities Act of
1933, as amended (the "Act") or applicable state securities laws ("State Acts"),
and, therefore, cannot be transferred or sold unless either they are
subsequently registered under the Act and applicable State Acts, or an exemption
from registration is available and a favorable opinion of counsel to that effect
is obtained.
(b) The undersigned will only have those limited rights to
register the Common Stock underlying the Debentures and the Warrants under the
Act and applicable State Acts as are provided in the Memorandum to which the
undersigned and the Company hereby agree.
<PAGE>2
(c) There is presently no established public market for the Units,
the Debentures or the Warrants and the holders of the Debentures and the
Warrants have no registration rights with respect to such securities.
3. The undersigned represents to and agrees with the Company that:
(a) The undersigned and his/its purchaser representative(s), if
any, have carefully reviewed and understand the risks of and other
considerations relating to a purchase of the Units.
(b) The undersigned and his/its purchaser representative(s), if
any, have been afforded the opportunity to obtain any information necessary to
verify the accuracy of any representations or information set forth in the
Memorandum and have had all of their inquiries to the Company answered in full,
and have been furnished all requested materials relating to the Company, the
offering and sale of the Units and any other matter described in the Memorandum.
(c) Neither the undersigned nor his/its purchaser
representative(s), if any, have been furnished any offering literature by the
Company, the Placement Agent or any of their affiliates, associates or agents,
other than the Memorandum and the exhibits and attachments thereto and the
undersigned has not received or heard any print or electronic media advertising
with respect to this Offering.
(d) The undersigned is acquiring the Units for which he/it hereby
subscribes as principal for his/its own investment account, and not (1) with a
view to the resale or distribution of all or any part thereof or (2) on behalf
of another person who has not made the foregoing representation.
(e) The undersigned is an accredited investor, as defined in Rule
501(a) of Regulation D promulgated pursuant to the Act by virtue of the fact
that (INITIAL APPLICABLE CHOICES):
(i) The undersigned had individual income (exclusive of any
income attributable to spouse) of more than $200,000 in each of the most recent
two years or joint income with the undersigned's spouse in excess of $300,000 in
each of such years and reasonably expects to have income of at least the same
level for the current year.
(ii) The undersigned has an individual net worth, or a
combined net worth with the undersigned's spouse, in excess of $1,000,000. For
purposes of this Subscription Agreement, "individual net worth" means the excess
of total assets at fair market value, including home and personal property, over
total liabilities.
(iii) The undersigned is a director or executive officer of
the Company.
Accredited partnership, corporation, trust or other entity
investors must initial at least one of the following statements.
<PAGE>3
(iv) The undersigned is a bank as defined in section 3(a)(2)
of the Act, or a savings and loan association or other institution as defined in
section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in section 2(13) of the
Act; an investment company registered under the Investment Company Act of 1940
or a business development company as defined in section 2(a)(48) of the Act; a
Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; a plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees if such plan has total assets in
excess of $5,000,000; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment decision is
made by a plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000, or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors.
(v) The undersigned is a private business development company
as defined in section 202(a)(22) of the Investment Advisers Act of 1940.
(vi) The undersigned is an organization described in section
501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed of the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000.
(vii) The undersigned is a trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of Regulation D.
(viii) All of the equity owners of the undersigned qualify as
accredited investors under one of the statements set forth above.
(f) The undersigned has evaluated the risks of investing in the
Company and has substantial experience in making investment decisions of this
type or is relying on his professional advisors or purchaser representative(s),
if applicable, in making this investment decision.
(g) The undersigned understands the fundamental aspects of and
risks involved in an investment in the Company, including (1) the speculative
nature of the investment, (2) the financial hazards involved, including the risk
of losing the entire investment, (3) the lack of liquidity and the restrictions
on transferability of the Units, (4) the business of the Company, (5) the
limited registration rights regarding the Common Stock underlying the Debentures
and the Warrants, and (6) the fact that the Company has a recent history of
losses, limited capital resources and will require additional financing within
the next 12 months.
<PAGE>4
(h) The address set forth on the Subscription Agreement Signature
Page hereof is the undersigned's true and correct principal address, and the
undersigned has no present intention of becoming a resident of any other state
or jurisdiction.
(i) The undersigned, if a corporation, partnership, trust or other
form of business entity, (1) is authorized and otherwise duly qualified to
purchase and hold the Units, (2) has its principal place of business at its
residence address set forth on the Subscription Agreement Signature Page hereof,
(3) has not been formed for the specific purpose of acquiring the Units, and (4)
has submitted and executed all documents required pursuant to the Certificate
for Corporate, Partnership, Trust and Joint Purchasers and Special Subscription
Instructions. The person executing this Subscription Agreement and all other
documents related to the offering hereby represents that he is duly authorized
to execute all such documents on behalf of the entity. IF THE UNDERSIGNED IS ONE
OF THE AFOREMENTIONED ENTITIES, IT HEREBY AGREES TO SUPPLY ANY ADDITIONAL
WRITTEN INFORMATION THAT MAY BE REQUIRED BY THE COMPANY.
(j) All of the information that the undersigned has heretofore
furnished to the Company, or that is set forth herein with respect to
himself/itself, his/its financial position, and his/its business and investment
experience, is correct and complete as of the date hereof, and, if there should
be any material change in such information prior to the closing of the sale of
the Units, the undersigned will immediately furnish the revised or corrected
information to the Company.
(k) The undersigned agrees to be bound by all of the terms and
conditions of the offering made by the Memorandum and the exhibits thereto.
(l) No person other than the undersigned will have a direct or
indirect interest in the Units subscribed for hereby.
(m) The undersigned consents to the placement of a legend on any
certificate or other document evidencing the Debentures and the Warrants as well
as the Common Stock issuable upon conversion of the Debentures and the Warrants
stating that they have not been registered under the Act and setting forth or
referring to the restrictions on transferability and sale thereof. The
undersigned is aware that the Company will make a notation in its appropriate
records with respect to the restrictions on the transferability of such
securities.
(n) The undersigned understands that the Company will review this
Subscription Agreement and is hereby given authority by the undersigned to call
his/its bank or place of employment or otherwise review the financial standing
of the undersigned; and it is further agreed that the Company reserves the
unrestricted right to reject or limit in whole or in part any subscription and
to close the offer at any time.
(o) Wisconsin Residents. In making an investment decision
investors must rely on their own examination of the issuer and the terms of the
offering, including the merits and risks involved. These securities have not
been recommended by any federal or state securities
<PAGE>5
commission or regulatory authority. Furthermore, the foregoing authorities have
not confirmed the accuracy of this document. Any representation to the contrary
is a criminal offense.
These securities are subject to restrictions on transferability and resale and
may not be transferred or resold except as permitted under the securities act of
1933, as amended, and the applicable state securities laws, pursuant to
registration or exemption therefrom. Investors should be aware that they may be
required to bear the financial risks of this investment for an indefinite period
of time.
(p) Connecticut Residents. The undersigned acknowledges that the
Units and the Component securities have not been registered under the
Connecticut Uniform Securities Act, as amended (the "Connecticut Act") and are
subject to restrictions on transferability and sale of securities as set forth
herein. The undersigned hereby agrees that such securities will not be
transferred or sold without registration under the Connecticut Act or exemption
therefrom.
(q) Colorado Residents. The undersigned acknowledges that the
Units and the component securities have not been registered under the Colorado
Securities Act (the "Colorado Act"), and therefore cannot be sold or transferred
by the investor except in a transaction which is exempt under the Colorado Act
or pursuant to an effective registration thereunder.
(r) Florida Residents. As described in the introductory pages of
the Memorandum, Florida investors have, under certain circumstances, a right of
recision pursuant to Section 517.061(11)(a)(5) of the Florida Securities and
Investor Protection Act.
(s) Massachusetts Residents. The undersigned acknowledges that the
Units and the component securities have not been registered under the Securities
Act of 1933, as amended, or the Massachusetts Uniform Securities Act, by reason
of specific exemptions thereunder relating to the limited availability of the
offering. Such securities cannot be sold, transferred or otherwise disposed of
to any person or entity unless subsequently registered under the Securities Act
of 1933, as amended, or the Massachusetts Securities Act, if such registration
is required. Commonwealth accredited investors who are natural persons, shall
not invest more than 25% of the purchaser's net worth (excluding principal
residence and its furnishings). The purchaser's net worth shall include the net
worth of his or her spouse.
(t) New Jersey Residents. The undersigned acknowledges that the
Units and the component securities offered hereby have not been approved or
disapproved by the Bureau of Securities of the State of New Jersey nor has the
Bureau passed on or endorsed the merits of this offering. Any representation to
the contrary is unlawful.
(u) New York Residents. Each New York purchaser of the Units
understands that this offering of Units of the Company has not been reviewed by
the attorney general of the State of New York. The undersigned understands that
any offering literature used in connection with this offering has not been
pre-filed with the attorney general and has not been reviewed by the attorney
general prior to its use. The attorney general of the state of New York has not
passed on or endorsed the merits of this offering. Any representation to the
contrary is unlawful. The Units are being purchased for the undersigned's own
account for investment, and not for distribution or resale to
<PAGE>6
others. The undersigned agrees that he will not sell or otherwise transfer the
Units or the component securities unless they are registered under the federal
Securities Act of 1933 or unless an exemption from such registration is
available. The undersigned represents that he has adequate means of providing
for his current needs and possible personal contingencies, and that he has no
need for liquidity of this investment.
(v) Pennsylvania Residents. The undersigned hereby acknowledges
that the Company is relying upon the exemption from registration of Units set
forth in Section 203(d) of the Pennsylvania Securities Act of 1972, as amended
(the "Pennsylvania Act") in connection with the sale of the Units to the
undersigned. In accordance with the requirements of Section 203(d) of the
Pennsylvania Act, the undersigned hereby agrees not to sell his Units (or the
underlying securities) within twelve (12) months from the date of purchase,
unless such Units, (or the underlying securities) are registered under the Act
and the Pennsylvania Act. Additionally, the undersigned is aware of the right of
withdrawal under Section 207(m) of the Pennsylvania Act described in the cover
pages of the Memorandum.
(w) Texas Residents. The undersigned hereby acknowledges that
the Units and the component securities cannot be sold unless they are
subsequently registered under the Securities Act of 1933, as amended, and the
Texas Securities Act, or an exemption from registration is available. The
undersigned further acknowledges that because such securities are not readily
transferable, he must bear the economic risk of his investment for an indefinite
period of time.
4. The Terms of Subscription.
(a) The subscription will begin as of the date of the Memorandum
and will terminate at 11:59 p.m. eastern time on December 31, 1995 unless
extended by the Company to January 31, 1996 (the "Termination Date"). The Units
will be offered on a "best efforts" basis; no minimum number of Units will be
required to be sold in the offering. The Company reserves the right in its
discretion, to offer and sell Units in excess of the maximum.
(b) Pending receipt and acceptance by the Company of all
subscription documents and payment (collected funds) for the Debentures, all
funds hereunder shall be held by Weiss, Peck & Greer of New York, New York, as
escrow agent, in a trust account. Upon such receipt and acceptance, the Company
shall, with reasonable promptness, issue and mail Units so purchased to
investors. The Company will continue this procedure if, as and when additional
Units are purchased, until the earlier of (i) the Termination Date or (ii) the
purchase of the maximum number of Units offered. The Company reserves the right
to sell Units in excess of the maximum offered. No minimum number of Units must
be sold for the Company to accept a subscription under this offering.
5. The foregoing representations are true and accurate as of the date
hereof, shall be true and accurate as of the date of the closing of this
offering, and shall survive such closing. If, in any respect, such
representations shall not be true and accurate prior to or upon the closing of
this offering, the undersigned shall give written notice of such fact to the
Company, specifying which representations are not true and accurate and the
reasons therefor, with a copy to his/its purchaser representative(s), if any.
<PAGE>7
6. The undersigned agrees to indemnify and hold harmless the
Company, the Placement Agent, their affiliate and respective legal counsel, and
each of the officers, directors, partners and shareholders of each, from and
against any loss, damage or liability due to or arising out of a breach of any
of the foregoing representations.
7. If the undersigned is more than one person or entity, the
obligations of the undersigned shall be joint and several and the
representations and the indemnification obligation herein contained shall be
deemed to be made by and be binding upon each such person and his heirs,
executors, administrators, successor and assigns.
<PAGE>8
8. This subscription is not transferable or assignable by the
undersigned.
9. This subscription, upon acceptance by the Company, shall be
binding upon the heirs, executors, administrators, successors and assigns of the
undersigned.
10. This Subscription Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without giving effect to
conflict of laws principles.
<PAGE>9
HALSEY DRUG CO., INC.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned hereby subscribes for the number of Units set forth
below as described in the Private Placement Memorandum, dated November 20, 1995
issued by Halsey Drug Co., Inc., a corporation organized under the laws of the
State of New York. The entire Subscription Agreement, of which this is the
Signature Page, is provided as Exhibit 4 to the Memorandum.
1. Dated: November 27, 1995
2. Number of Units: 90
3. Subscription Price ($10,000 per Unit, minimum
Subscription, one (1) Unit): $900,000
William A. Marquard
Name of Person/Entity Subscribing
/s/ William A. Marquard ###-##-####
Signature of Subscriber Taxpayer Identification or
(and title, if applicable) Social Security Number
Signature of Joint Purchaser Taxpayer Identification or
(if any) Social Security Number
Name and Residence Address Mailing Address, if Different
(Not Post Office Address) from Residence Address:
William A. Marquard William A. Marquard
Name (please print) Name (please print)
5214 Fisher Island Drive 2291 Maysville Rd.
Number of Street Number and Street
Fisher Island, FL 33109 Carlisle, KY 40311
City State Zip Code City State Zip Code
<PAGE>10
Subscription for 90 Units accepted as of November 27, 1995.
HALSEY DRUG CO., INC.
By: /s/ Rosendo Ferran
Name: Rosendo Ferran
Title: President and Chief Executive Officer
<PAGE>1
THIS CONVERTIBLE SUBORDINATED 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 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.
10% Convertible Subordinated Debenture
Due November 28, 2000
$900,000 No. DB4
November 29, 1995
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
William A. Marquard residing at 5214 Fisher Island Drive, Fisher Island, Florida
33109 or registered assigns (the "Payee" or "Holder") upon due presentation and
surrender of this Debenture, on November 28, 2000 (the "Maturity Date"), the
principal amount of Nine Hundred Thousand and 00/100 Dollars ($900,000) and
accrued interest thereon as hereinafter provided.
This debenture was issued by the Company pursuant to a certain Private
Placement Memorandum dated November 20, 1995 (together with the Attachments
thereto the "Private Placement Memorandum") relating to an offering of units
(the "Units"), each Unit consisting of a 10% Convertible Subordinated Debenture
(the "Debentures") in the principal amount of $10,000 and 600 redeemable common
stock purchase warrants (the "Warrants"). The holders of such Debentures are
referred to hereinafter as the "Holders."
<PAGE>2
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT
----------------------------------------------------
Payment of the principal on this Debenture shall be made in such coin
or currency of the United States of America as at the time of payment shall be
legal 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 ten percent (10%) 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, February 1 and October 1 during the term of this Debenture
(commencing January 1, 1996) (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.
ARTICLE 2
SUBORDINATION
-------------
2.1 Subordination to Senior Debt. The Company, for itself, its
successors and assigns, covenants and agrees, and the Payee and each successive
Holder by acceptance of this Debenture, likewise covenants and agrees that the
payment of the principal of and interest on this Debenture is subordinated in
right of payment to the payment of all existing and future Senior Debt (as
hereinafter defined) of the Company. "Senior Debt" means the principal of,
premium, if any, and accrued and unpaid interest on Indebtedness (as herein
after defined) of the Company, whether outstanding on the date of issuance of
this Debenture or thereafter created, incurred or assumed, unless, in the
agreement or instrument creating or evidencing the same or pursuant to which the
same is outstanding, it is provided that such Indebtedness is not superior in
right of payment to this Debenture. Notwithstanding the foregoing, "Senior Debt"
with respect to the Company shall not include (i) any Indebtedness of the
Company to any subsidiary or affiliate (as such terms are defined in Rule 405
under the Act) or money borrowed or advanced from such subsidiary or affiliate
and
<PAGE>3
(ii) any Indebtedness representing the redemption price of any preferred stock.
2.2 Indebtedness. "Indebtedness" means (a) any liability of the
Company to banks and other institutional lenders (i) for borrowed money, or (ii)
evidenced by a note, debenture, bond or other instrument of indebtedness
(including, without limitation, a purchase money obligation), given in
connection with the acquisition of property, assets or services, or (iii) for
the payment of rent or other amounts relating to capitalized lease obligations,
(b) any purchase money liability of the Company in connection with acquisitions
in the ordinary course of the Company's business provided it is not in excess of
the purchase price of the asset(s) purchased, (c) any liability of others
described in the preceding clause (a) which the Company has guaranteed or which
is otherwise its legal liability; and (d) any modification, renewal, extension,
replacement or refunding of any such liability described in the preceding
clauses (a) and (c); provided, however, that notwithstanding the foregoing,
"Indebtedness" does not include unsecured trade debt.
2.3 Default. The Company may not pay principal or interest on the
Debentures and may not acquire, redeem or retire any Debentures for cash or
property other than capital stock of the Company if (i) a default on Senior Debt
occurs and is continuing that permits holders of Senior Debt to accelerate its
maturity, and (ii) the default is the subject of judicial proceedings or the
Company receives notice of a default from a holder of the Senior Debt. The
Company may resume payments on the Debentures and may acquire, redeem or retire
them when (A) the default is cured or waived, or (B) 120 days have passed after
the notice of default is given by the holder of the Senior Debt if the default
is not the subject of judicial proceedings.
2.4 Liquidation; Dissolution; Bankruptcy. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property (i) holders of Senior Debt shall be
entitled to receive payment in full in cash of the principal of and interest to
the date of payment on the Senior Debt before Holders shall be entitled to
receive any payment of principal of or interest on the Debentures; and (ii)
until the Senior Debt is paid in full in cash, any distribution to which the
Holder would be entitled but for this Article 2 shall be made to Holders of
Senior Debt as their interests may appear, except that Holders may receive
securities that are subordinated to Senior Debt to at least the same extent as
the Debentures.
2.5 Acceleration of Debentures. If payment of the Debentures is
accelerated because of an Event of Default as defined in Article 7 hereof, the
Company shall promptly notify holders of Senior Debt of the acceleration. The
Company may pay the
<PAGE>4
Debentures when 120 days have passed after the acceleration occurs if this
Article 2 permits the payment at such time.
2.6 Subrogation. After all Senior Debt is paid in full and until the
Debentures are paid in full, Holders shall be subrogated to the rights of the
holders of the Senior Debt to receive distributions applicable to Senior Debt. A
distribution made under this Article 2 to holders of Senior Debt which would
otherwise have been made to Holders is not, as between the Company and the
Holders, a payment by the Company on this Debenture
2.7 Relative Rights. This Article 2 defines the relative rights of the
Holder and the holders of Senior Debt. Nothing in this Debenture shall (i)
impair, as between the Company and the Holder, the obligation of the Company,
which is absolute and unconditional, to pay principal and interest on this
Debenture in accordance with its terms; (ii) affect the relative rights of the
Holder and creditors of the Company other than the holders of Senior Debt; or
(iii) prevent any Holder from exercising its available remedies upon an Event of
Default, subject to the rights of holders of Senior Debt to receive
distributions otherwise payable to the Holders.
2.8 Article 2 Subordination Not Designed to Prevent Events of Default.
The failure of the Company to make a payment on account of principal and
interest on this Debenture by reason of any provision of this Article 2 shall
not be construed as preventing the occurrence of an Event of Default under
Article 7 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
3.1 The Company represents and warrants to the Holder that the
Company:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York;
(b) has all requisite power and authority and all necessary licenses
and permits to own and operate its properties and to carry on its business as
now conducted and as presently proposed to be conducted;
(c) is duly licensed or qualified and is in good standing as a foreign
corporation in each jurisdiction wherein the nature of the business transacted
by it or any of its subsidiaries or the nature of the property owned or leased
by it or any of its subsidiaries, makes such licensing or qualification
necessary, except for those jurisdiction in which the failure so to qualify can
be cured without having a material adverse effect on the Company taken as a
whole;
<PAGE>5
(d) the Company has all requisite power and authority to execute,
deliver and perform its obligations under this Debenture. This Debenture has
been duly and validly authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization or other laws relating to or affecting
the rights of creditors generally;
(e) except as otherwise described in the Private Placement Memorandum,
the Company is not, and will not be at the time of the original issuance of this
Debenture by the Company, in default under the terms of any Senior Debt or other
indebtedness and the Company is not aware, nor has it been notified by the
holder of any Senior Debt or other indebtedness, that grounds for default exist
with respect to any Senior Debt or other indebtedness;
(f) the execution and delivery of the Debentures by the Company and
the consummation by the Company of the transactions contemplated pursuant to the
Private Placement Memorandum (a) are not in violation or breach of, do not
conflict with or constitute a default under any of the terms of the charter
documents or by-laws of the Company; (b) will not result in a violation under
any law, judgment, decree, order, rule, regulation or other legal requirement or
of any governmental authority, court or arbitration tribunal whether federal,
state, municipal or local at law or in equity, and applicable to the Company;
and (c) will not violate or constitute a breach of or constitute a default under
any Senior Debt of the Company or any subsidiary or affiliate of the Company;
and
(g) the Private Placement Memorandum does not, and will not at the
time of the original issuance of this Debenture by the Company, contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE 4
REDEMPTION
----------
4.1 Optional. The Debentures may be redeemed by the Company in whole
or from time to time in part, at the option of the Company, at any time on or
after November 29, 1996 at a redemption price equal to 105% of the principal
amount thereof, in each case together with accrued interest to the Redemption
Date.
4.2 Notice of Redemption. Notice of Redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Debentures to be redeemed at his registered address. Debentures in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. In
<PAGE>6
the event of a redemption of less than all of the Debentures, the Debentures
will be chosen for redemption by the Company, generally pro rata or by lot. The
Notice of Redemption shall identify the Debentures to be redeemed and shall
state (i) the redemption date and redemption price; (ii) the conversion price,
as determined pursuant to Article 8 hereof; (iii) that Debentures called for
redemption may be converted at any time before the close of business on the
redemption date; (iv) that Holders of the Debentures who want to convert the
Debentures must satisfy the requirements of Article 8 hereof; (v) that
Debentures called for redemption must be surrendered to the Company or a
designated paying agent specified in the Redemption Notice to collect the
redemption price; and (vi) that, unless the Company defaults in making the
redemption payment, interest on the Debentures ceases to accrue on and after the
redemption date.
4.3 Effective Notice of Redemption. Once Notice of Redemption is
mailed, Debentures called for redemption become due and payable on the
redemption date at the redemption price.
4.4 Deposit of Redemption Price. On or before the Redemption Date, the
Company shall deposit in a bank account solely dedicated for this purpose, or
deposit with a designated paying agent, money sufficient to pay the redemption
price of and accrued interest on all Debentures to be redeemed on that date.
4.5 Debentures Redeemed in Part. Upon surrender of a Debenture that is
redeemed in part, the Company shall issue for the Holder at the expense of the
Company a new Debenture equal in principal amount to the unredeemed portion of
the Debenture surrendered.
ARTICLE 5
COVENANTS
---------
5.1 Payment of Debentures. The Company shall pay the principal of and
interest on this Debenture in the time and in the manner provided in Article 1
hereof. The Company shall pay interest quarterly (including post-petition
interest in any proceeding under any bankruptcy law) on (i) overdue principal,
at the rate required by this Debenture and (ii) overdue installments of interest
(including interest contemplated by clause (i) and without regard to any
applicable grace period) at the same rate.
5.2 Reporting Requirements. The Company shall comply with its
reporting and filing obligations pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
shall make 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, available
to the Holder.
<PAGE>7
5.3 Limitation on Dividends; Stock Purchase. The Company will not
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, and neither the Company nor any
subsidiary will purchase, redeem or otherwise acquire or retire for value any
shares of capital stock of the Company or warrants or rights to acquire such
capital stock except for the shares of the Company's Common Stock owned by
Ranbaxy Pharmaceuticals, Inc. to be repurchased by the Company as described in
the Private Placement Memorandum.
5.4 Stay, Extension and Usury Laws. The Company covenants that it will
not 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 this Debenture; and the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Holder but will suffer and permit the execution of every such
power as though no such law had been enacted.
5.5 Corporate Existence. Subject to Article 6 hereof, the Company will
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and that of each subsidiary and the rights
(charter and statutory) and franchises of the Company and its subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right or franchise if the Company shall in good faith determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its subsidiaries considered as a whole and that the loss thereof
is not disadvantageous in any material respect to the Holder.
5.6 Maintenance of Properties. The Company will cause all property
used or useful in the conduct of its business or the business of any subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this section shall prevent the Company from
discontinuing the operation and maintenance of any such properties, or disposing
of any of them, if such discontinuance or disposal is, in the reasonable
judgment of the Company or any subsidiary concerned, desirable in the conduct of
its business or business of any subsidiary and not disadvantageous in any
material respect to the Holder.
<PAGE>8
5.7 Liquidation. The Company shall not adopt any plan of liquidation
which provides for, contemplates or the effectuation of which is preceded by (A)
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company or any subsidiary otherwise than substantially as an
entirety in accordance with Article 6 hereof and (B) the distribution of all or
substantially all the proceeds of such sale, lease, conveyance or other
disposition and the remaining assets of the Company to the holders of common
stock of the Company, unless the Company shall in connection with the adoption
of such plan make provision for, or agree that prior to making any liquidating
distributions it will make provision for, the satisfaction of the Company's
obligations under this Debenture as to the payment of principal and interest.
5.8 Limitation on Indebtedness. Neither the Company nor any subsidiary
will incur, create or assume any indebtedness except: (i) Senior Debt in
existence as of the date of this Debenture aggregating $3,278,000; (ii)
indebtedness to any banks or other financial institutions with whom the Company
may contract to replace or refinance its current Senior Debt provided such
replacement or refinancing does not increase the principal amount of the
Company's Senior Debt to an amount in excess of $6,722,000 (inclusive of secured
indebtedness to an existing creditor of the Company in the principal amount of
approximately $1,200,000); and (iii) purchase money obligations incurred in the
ordinary course of business; and (iv) trade indebtedness incurred in the
ordinary course of business.
5.9 Liens. Neither the Company nor any subsidiary will mortgage,
pledge, grant or permit to exist any lien or other security interest in any of
its assets, of any kind, now owned or hereafter acquired, nor hypothecate or
grant a lien or security interest in its capital, net worth, equity accounts or
any capital stock, as the case may be, except for (i) the security interests
granted by the Company as of the date hereof to the holders of its Senior Debt
and to Mallinckrodt Chemical, Inc.; (ii) the security interest held by any banks
or other financial institutions with whom the Company may contract to replace or
refinance its current Senior Debt, provided such replacement or refinancing does
not increase the principal amount of its Senior Debt to an amount in excess of
$5,522,000; (iii) a lien or security interest created with respect to purchase
money obligations incurred by the Company or its subsidiaries in the ordinary
course of business and provided the indebtedness related to such security
interest does not exceed the purchase price of the subject asset(s).
5.10 Authorization of Shares of Common Stock for Issuance Upon
Conversion. The Company will at all times cause there to be authorized and
reserved for issuance upon conversion of this Debenture, or otherwise available
from treasury shares, such number of shares of common stock as would be issuable
upon conversion of this Debenture.
<PAGE>9
5.11 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent (i) all taxes, assessments and governmental charges levied or imposed
upon the Company or any subsidiary upon the income, profits or property of the
Company or any subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim which amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which adequate
reserves have been maintained by the Company.
5.12 Transactions with Affiliates. The Company shall not, and shall
not permit any subsidiary to, directly or indirectly, pay any funds to or for
the account or benefit of, or enter into or permit to exist any transaction,
including, without limitation, the purchase, sale, lease or exchange of any
property or assets or securities or any loan transaction or the rendering of any
service, with any Affiliate unless such transaction is for fair value to the
Company or its subsidiary and on terms and conditions not less favorable to the
Company or such subsidiary than could be obtained on an arms-length basis from
unrelated third parties, as determined in each case by the Board of Directors of
the Company (as evidenced by resolutions duly adopted by the Board); provided,
however, that the provisions of this Section 5.10 shall not apply to (a)
reasonable compensation for services in connection with employment or services
as a director, or (b) payments to Affiliates of the Company in respect of
contracts or transactions in existence on the date hereof which are described or
referred to in the Private Placement Memorandum pursuant to which this Debenture
was originally sold. For purposes of this Section 5.10 the terms "Affiliate" and
"Control" shall have the meanings ascribed thereto in Rule 405 under the Act.
5.13 Listing of Common Stock. As promptly as practicable after the
execution of this Debenture, the Company shall file the appropriate applications
for listing on the American Stock Exchange and any other applicable exchange or
national security system with respect to the Shares. The Company shall use its
best efforts and work diligently to accomplish such listing as promptly as
practicable after the execution of this Debenture.
5.14 Election of Directors. (a) The Company agrees to use its best
efforts (x) at any annual or special meeting of stockholders of the Company
called for the purpose of voting on the election or removal of Directors or (i)
by consensual action of stockholder with respect to the election or removal of
Directors, as may be necessary to cause the following:
(i) The Board of Directors shall consist of no more than 7 persons;
<PAGE>10
(ii) Two (2) Directors shall be persons reasonably acceptable to a
majority in interest in the principal amount of the Debentures;
(iii) To effect the removal, with or without cause, of either of the
Directors selected by a majority in interest of the principal amount of
Debentures upon request and for the election to the board of a substitute
designated by a majority in interest in the principal amount of the Debentures;
and
(iv) One (1) of the Directors selected by a majority in interest in
the principal amount of the Debentures shall serve as a member of the Executive
Committee, Compensation Committee, Audit Committee and/or any other committee of
the Board of Directors in the event any such committees currently exists or is
established in the future.
(b) If at any time a vacancy is created on the Board of Directors by
reason of death, removal or resignation of any Director appointed pursuant to
Section 5.14(a) above, the Company agrees to use its best efforts to take
immediate action to nominate and elect a person for such vacancy in accordance
to the provisions Section 5.14(a) hereof.
5.15 Appointment of Chief Financial Officer. The Company agrees to use
its best efforts to (i) appoint a person to serve as the Chief Financial Officer
of the Company, which person shall be reasonably acceptable to a majority in
interest in the principal amount of the Debentures and (ii) to cause such
position to be filled during the term of the Debentures. Any replacement or
successor Chief Financial Officer appointed by the Company during the term of
the Debentures shall be reasonably acceptable to a majority in interest in the
principal amount of the Debentures.
<PAGE>11
ARTICLE 6
SUCCESSORS
----------
6.1 When Company May Merge, etc. The Company shall not consolidate or
merge with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person unless:
1. The person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, lease, conveyance or other
disposition shall have been made, is (x) a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia or (y) a corporation or a comparable legal entity organized under the
laws of a foreign jurisdiction whose equity securities are listed on a national
securities exchange in the United States or authorized for quotation on the
National Market System of National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), and in each case, the net worth of such person
formed by or surviving any such consolidation or merger is equal to or greater
than the consolidated net worth of the Company immediately preceding such
consolidation or merger;
2. The corporation formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, lease, conveyance or
other disposition shall have been made, assumes by supplemental agreement, all
the obligations of the Company under the Debentures and this Debenture, except
that it need not assume the obligations of the Company as to the conversion of
this Debenture if, pursuant to a reorganization of the Company as provided in
Section 8.8, the Company or another person enters into a separate agreement,
obligating it to deliver the securities, cash and other assets deliverable upon
conversion of the Debentures;
3. Immediately after the transaction, no Event of Default as defined
in Article 7 hereof exists; and
4. Such transaction does not adversely affect the validity or
enforceability of the Debentures.
6.2 Successor Corporations Substituted. Upon any consolidation or
merger, or any sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with Section 6.1
hereof, the successor corporation formed by such consolidation or into or with
which the Company is merger or to which such sale, lease, conveyance or other
disposition is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Debenture with the same effect
as if such successor person had been named as the Company herein; provided,
however, that the predecessor Company in the case of a sale, lease, conveyance
or
<PAGE>12
other disposition shall not be released from the obligation to pay the principal
of and interest on this Debenture.
ARTICLE 7
EVENTS OF DEFAULT
-----------------
7.1 A. An Event of Default occurs if (i) the Company defaults in the
payment of interest on this Debenture when the same become due and payable and
such default continues for a period of 10 days, whether or not such payment is
prohibited by the provisions of Article 2 hereof; (ii) the Company defaults in
the payment of principal on this Debenture when the same becomes due and payable
upon maturity, upon redemption or otherwise; (iii) any representation or
warranty made or furnished by the Company in this Debenture or in the Private
Placement Memorandum, shall be false, incorrect or incomplete when made as to
any material fact or facts; (iv) the Company fails to comply with any of its
other covenants or other agreements in this Debenture and solely with respect to
the covenants set forth in Sections 5.2, 5.11 and 5.12 hereof, such failure
continues for a period of 30 days following written notice from the Holder; (v)
the Company shall have failed to use its best efforts to satisfy the
requirements of Section 5.14 hereof; (vi) the Company or any of its subsidiaries
fail to pay when due or within any applicable grace period any principal or
interest on any Indebtedness or shall be in breach or default with respect to
any Indebtedness, if the effect of such failure to pay, default or breach is to
cause the holder or holders (or a trustee on behalf of such holder or holders)
to accelerate such Indebtedness; (vii) the Company or any subsidiary pursuant to
or within the meaning of any Bankruptcy Law (A) commences a voluntary case, (B)
consents to the entry of an order for relief against it in an involuntary case,
(C) consents to the appointment of a custodian of it for all or substantially
all of its property, or (D) makes a general assignment for the benefit of its
creditors; (viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (A) is for relief against the Company or a
subsidiary in an involuntary case, (B) appoints a custodian of the Company or a
subsidiary for all or substantially all of its property, or (C) orders the
liquidation of the Company or any subsidiary, and the order or decree remains
unstayed and in effect for 60 days of the entry thereof; (ix) trading in any
securities of the Company or any of its subsidiaries shall be suspended for a
period exceeding five (5) days by the Securities and Exchange Commission, any
stock exchange or in the over-the-counter market or a minimum or maximum price
for trading in such securities shall be established; (x) a judgment in an amount
exceeding $250,000 is entered against the Company or any of its subsidiaries and
such judgment is not satisfied or stayed within sixty (60) days; or (xi) the
holder of any Indebtedness or other debt of the Company aggregating at least
$250,000 shall commence any proceeding, or take any action to collect on such
Indebtedness or debt, or seize, dispose of or apply in satisfaction of such
Indebtedness or debt,
<PAGE>13
any assets of the Company having a fair market value in excess of $250,000
individually or in the aggregate.
B. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or State law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
<PAGE>14
C. A Default under Section 7.1A(iv) (other than Defaults under
Sections 5.7, 6.1, 8.1 or 9.1 which Defaults shall be Events of Default with the
Notice but without the passage of time specified in this paragraph) or Section
7.1A(vi) is not an Event of Default until the Holders of at least 25% in the
principal amount of the then outstanding Debentures notify the Company of the
Default and the Company does not cure the Default within 30 days after such
Notice. The Notice must specify the Default and demand that it be remedied.
7.2 Acceleration. If an Event of Default occurs and is continuing,
subject to the provisions of Section 7.1C hereof, the Holder may declare the
principal of and accrued interest on this Debenture to be due and payable by
written notice to the Company in the manner provided in Section 11.2 hereof.
Upon such declaration, the principal and interest on this Debenture shall be due
and payable immediately. The Holder may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Event of Default or
impair any right consequent thereto.
7.3 Other Remedies. If an Event of Default occurs and is continuing,
the Holder may pursue any available remedy to collect the payment of principal
of and interest on this Debenture or to enforce the performance of any provision
of this Debenture. A delay or omission by the Holder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
ARTICLE 8
CONVERSION
----------
8.1 Exercise of Conversion Privilege. At any time and from time to
time commencing from the date hereof (the "Initial Conversion Date") until the
earlier of (i) the Maturity Date, (ii) receipt by the Holder from the Company of
Notice of Redemption and (iii) the automatic conversion of the Debenture in
accordance with Section 8.2 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 $2.50 per share (the "Conversion Price"). Interest shall
accrue to and
<PAGE>15
including the business 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 8.5 and Section 8.7 hereof. As soon as practicable following
conversion and upon the Holder's compliance with the conversion procedure
described in Section 8.3 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.
8.2 Automatic Conversion. Notwithstanding anything to the contrary
contained in this Debenture, the Debentures shall be automatically converted
into Common Stock in the event that following the first anniversary of the date
hereof the closing price per share of the Company's Common Stock as listed and
reported on the American Stock Exchange or in the NASDAQ National Market or
Small-Cap System exceeds two and 50/100 dollars $2.50) per share for each of the
twenty (20) consecutive trading days following such one year anniversary and
prior to conversion. In such event, the Company shall notify the Holder of the
effective date of the automatic conversion.
8.3 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 Section 10.1 or
Section 10.2 hereof, 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 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 (the "Shares"). 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
<PAGE>16
which such books shall be opened and until such date the Company shall be under
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.
8.4 Company to Provide Common Stock. The Company has reserved and
shall continue to reserve out of its authorized but unissued Common Stock or its
Common Stock held in treasury enough shares of Common Stock 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
of Common Stock upon conversion of the Debentures, including, without
limitation, compliance with provisions of Article 9 hereof, and will endeavor to
list such shares on each national securities exchange upon which the Common
Stock is listed.
8.5 Dividends; Reclassifications, etc.. In the event that the Company
shall, at any time prior to the exercise of conversion rights hereunder: (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.
8.6 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
<PAGE>17
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 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.
8.7 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 8.7. Upon each
adjustment of the Conversion Price pursuant to this Section 8.7, the Holder of
this Debenture shall thereafter be entitled to acquire upon conversion, 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 Sections 8.1 and 8.2 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 8.7; or
(ii) shares issued, subdivided or combined in transactions described
in Section 8.5 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 8.5 as a result of such issuance, subdivision or combination
of such securities;
for a consideration per share which is less than the lower of (i) the Conversion
Price or (ii) 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 lower of
(i) the Applicable Conversion Price or (ii) 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:
<PAGE>18
(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 8.7(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 8.7(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
this Section 8.7(a)) at the higher of (i) the Applicable Conversion Price or
(ii) 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 8.7(d) hereof) immediately after the
issuance or sale of such additional shares.
For purposes of this Section 8.7, "Fair Market Value" shall mean the
average of the closing price of the Common Stock as listed and reported on the
American Stock Exchange or in the NASDAQ National Market or System for each of
the twenty (20) consecutive trading days prior to such issuance or sale.
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 8.1 or 8.2, as appropriate,
the Applicable Conversion Price shall be such initial Conversion Price.
The provision of this subparagraph (a) can be illustrated with the
following examples:
1. Company sells 100,000 shares of stock at a price of $2.75 per share
- Applicable Conversion Price for the Debentures = $2.50
- Fair Market Value of the Common Stock - $3.00
- Total shares outstanding prior to issuance - 1,000,000
- Number of shares of stock that would be purchased with the
proceeds received by the Company from the sale of the 100,000 shares at the
Applicable Conversion Price or the Fair Market Value - 91,666 shares
Dilution Adjustment Calculation:
2.5 x [1,000,000 + 91,666] = 2.5 x .99242 = 2.4810
--------------------
<PAGE>19
1,000,000 + 100,000
2. Thereafter, the Company issues warrants to Senior Creditor to
purchase 100,000 shares at an exercise price of $2.25 per share
- Applicable Conversion Price = $2.48
- Fair Market Value of Common Stock - $2.00
- Total shares outstanding prior to warrant issuance - 1,100,000
- Number of shares of stock that would be purchased with the
proceeds received by the Company upon exercise of the Warrants at the higher of
the Conversion Price or the Fair Market Value = 90,725
Dilution Adjustment Calculation:
2.48 x [1,100,000 + 90,725= 2.48 x .99227 = 2.46
------------------
1,100,000 + 100,000
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 8.7 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 annual grant of options to Joseph F. Limongelli to purchase
up to 10,000 shares of the Company's Common Stock at an exercise price equal to
closing price of the Company's Common Stock as reported on the American Stock
Exchange, or successor exchange or over-the-counter market on which the Common
Stock is then traded, on the date of grant; 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) including, without limitation,
the conversion of any Debenture issued in the same placement of securities
pursuant to which this Debenture was issued by the Company, whether or not
outstanding on the issuance date hereof.
<PAGE>20
(c) For the purpose of subsection 8.7(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, compensations 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, accreted 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
<PAGE>21
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 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
8.7(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, cancelled 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 8.7(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 8.7 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
8.7(f) are not required to be made shall be carried forward and taken into
account in making subsequent adjustments. All
<PAGE>22
calculations under this Section 8.7 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 forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
8.8 Reorganization of the Company. If the Company is a party to a
transaction subject to Article 6 or a merger which classifies 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 the consolidation, merger, transfer or lease 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 8. 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 the formed, surviving, transferee or lessee corporation, that issuer shall
join in the supplemental debenture which shall so provide. If this section
applies, Section 8.5 does not apply.
ARTICLE 8A
RIGHT OF FIRST REFUSAL
----------------------
8A.1 Right of First Refusal. Each Holder of the Debentures and the
holders of Common Stock upon conversion of the Debentures (the "Common 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
<PAGE>23
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 and the
Common 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 and the Common 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 and the Common 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 and the Common Holders shall have the
right to purchase up to its pro rata share of the Equity Securities. Each of the
Holders' and the Common Holders' "pro rata share" shall be that amount of the
Equity Securities which would result in each of the Holders and the Common
Holders owning the same percentage of the Company's issued and outstanding
Common Stock after the issuance of Equity Securities as such Holder and Common
Holder owned immediately prior to the issuance (assuming in each case the
issuance of all shares issuable upon the conversion of (i) the Debenture held by
the Holder and Common Holder, if any, and (ii) the Equity Securities).
(c) Notice of each of the Holder's and the Common Holder's
intention to accept, in whole or in part, an offer shall be evidenced by a
writing signed by the Holder or the Common Holder, 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 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 the Holder or the Common Holder, as the case may be, elects to
purchase (the "Notice of Acceptance").
(d) In the event that the Holder and the Common Holders do not
elect to purchase all of the Equity Securities, the Company shall have 90 days
from the expiration of the foregoing 30-day period to sell all or any part of
such Equity Securities as to which a Notice of Acceptance has not been given by
the Holder and the Common Holders (the "Refused Securities") to any other
<PAGE>24
Person or Persons, but only upon terms and 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 and/or the Common Holders have timely submitted a Notice
of Acceptance, it and/or they shall purchase from the Company, and the Company
shall sell to the Holders and/or Common Holders, as the case may be, the Equity
Securities in respect of which a Notice of Acceptance was delivered to the
Company by the Holders and/or the Common Holders, as the case may be, at the
terms specified in the Offer. The purchase by the Holders and/or the Common
Holders of any Equity Securities is subject in all cases to the preparation,
execution and delivery by the Company and the Holders and/or the Common Holders
of a purchase agreement and other customary documentation relating to such
Equity Securities as is satisfactory in form and substance to the Holders, the
Common Holders and each of their respective counsel.
(e) In each case, any Equity Securities not purchased by the
Holders, the Common Holders or by a Person or Persons in accordance with Section
8A.1(d) hereof may not be sold or otherwise disposed of until they are again
offered to the Holders and the Common Holders under the procedures specified in
Section 8A.1(a), (c) and (d) hereof.
(f) The rights of the Holders and the Common Holders under this
Section 8A.1 shall not apply to the following securities (the "Excluded
Securities"):
(i) Common Stock or options to purchase such Common Stock,
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 and approved or ratified by its stockholders; (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;
and
(iv) any securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination.
ARTICLE 9
REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933
----------------------------------------------------
9.1(a) Issuance of Stock Registered under the Act by the
Company upon Conversion. Not later than 120 days from the date of this
Debenture, the Company will file a registration statement under the Act with
respect to the number of shares of Common Stock issuable upon conversion of the
Debentures (the "Registrable Securities") in order to provide for the issuance
by the Company of
<PAGE>25
Common Stock upon conversion of the Debentures which has been registered under
the Act, and shall use its best effort to cause such registration statement to
become and remain effective until such time as all of the Debentures shall have
been converted in accordance with the provisions of section 8.1 or 8.2 hereof.
(b) Supplemental Registration Rights. In the event the Company is
precluded by the U.S. Securities and Exchange Commission (the "Commission") from
registering under the Act the Registrable Securities for issuance upon
conversion of this Debenture or if the Holder shall have converted this
Debenture prior to the effectiveness of the registration statement described in
subparagraph (a) above, the Holder shall have the following registration rights:
(i) Piggyback Registration Rights. The Company shall advise the
Holder or its transferee, whether the Holder holds the Debentures or has
converted the Debentures and holds the Common Stock underlying the Debentures,
by written notice at least four weeks prior to the filing of any registration
statement under the Act covering any securities of the Company, for its own
account or for the account of others, and will, until the Maturity Date, upon
the request of the Holder, register under the Act all or any portion of the
Registrable Securities and cause such registration statement to become and
remain effective as provided in paragraph 9(c) hereof.
(ii) Demand Registration Rights. If any 51% Holder (as defined in
Section 9.1(f) hereof) shall give notice to the Company at any time to the
effect that such holder desires to have the Company register under the Act any
Registrable Securities, the Company will promptly, but no later than four weeks
after receipt of such notice, file a registration statement under the Act with
respect to such number of Registrable Securities as shall be indicated in the
notice to the Company by the Holder and the Company will use its best efforts to
cause such registration statement to become and remain effective (including the
taking of such steps as are necessary to obtain the removal of any stop order);
provided, that the Holder shall furnish the Company with appropriate information
in connection therewith as the Company may reasonably request in writing. The
Holder may, at its option, request the filing of a registration statement under
the Act on one occasion until the Maturity Date. Within ten days after receiving
any such notice pursuant to this subsection (b)(ii) of this Article 9, the
Company shall give notice to the other Holders of the Debentures and any Common
Stock issued upon the conversion of any Debentures advising that the Company is
proceeding with such registration statement and offer to include therein the
Common Stock underlying the Debentures of the other Holders, provided that they
shall furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing.
<PAGE>26
If the Company elects to include securities to be sold by it in any
registration statement pursuant to this Section 9(b)(ii), such registration
shall be deemed to have been a registration under Section 9(b)(i).
(c) Registration Covenants of the Company. A. In the event that
any Registrable Securities are to be registered pursuant to Sections 9(a) or
9(b) of this Debenture, the Company covenants and agrees that the Company will
use its best efforts to effect the registration and cooperate in the sale of the
Registrable Securities to be registered and will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to the Registrable Securities (as well as any necessary
amendments or supplements thereto)(a "Registration Statement") which
Registration Statement (A) will state that the holders of Registrable Securities
covered thereby may sell such Registrable Securities under such Registration
Statement or pursuant to Rule 144 (or any similar rule then in effect), (B) when
it becomes effective, and when any post-effective amendment thereof and
supplement thereto is filed, the Registration Statement, as then amended or
supplemented, will comply in all material respects with the applicable
provisions of the Act and the rules and regulations thereunder and, except for
information provided in writing by the Holder for inclusion in the Registration
Statement for which the Company does not represent or warrant as to its
accuracy, will not contain an untrue statement or a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(ii) furnish to the Holders copies of such Registration
Statement and any amendments or supplements thereto and any prospectus forming a
part thereof prior to filing, which documents will be subject to the review of
counsel for the Holders;
(iii) use its best efforts to cause such Registration
Statement to become effective;
(iv) notify the Holders, promptly after the Company shall
receive notice thereof, of the time when said Registration Statement becomes
effective or when any amendment or supplement to any prospectus forming a part
of said Registration Statement has been filed;
(v) notify the Holders promptly of any request by the
Commission for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(vi) advise the Holders after the Company shall receive
notice or obtain knowledge thereof of the issuance of any order by the
Commission suspending the effectiveness of any such Registration Statement or
amendment thereto or of the
<PAGE>27
initiation or threatening of any proceeding for that purpose, and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal promptly if such stop order should be issued;
(vii) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus forming a part
thereof as may be necessary to keep such Registration Statement effective (a) in
the case of a Registration Statement filed and declared effective pursuant to
Section 9(a) hereof, until such time as all Holders of the Debentures shall have
converted the Debentures into Common Stock, or (b) in the case of a Registration
Statement filed and declared effective pursuant to Section 9(b) hereof, until
such time as the Holders pursuant to such Registration Statement have disposed
of all such Registrable Securities but in no event exceeding five (5) years from
the date of effectiveness;
(viii) furnish to each Holder 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 that Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Holder.
(ix) use its reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as determined by the Holders and do any and all other acts and
things which may be reasonably necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of the Registrable Securities
(provided that the Company will not be required to: (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify; (B) subject itself to taxation in any such jurisdiction; or (C) consent
to general service of process in any such jurisdiction);
(x) notify the Holders at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which such Registration Statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of the Holder, prepare a supplement or amendment to such
Registration Statement so that such Registration Statement will not contain, to
the Company's knowledge, an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(xi) cause all Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
<PAGE>28
(xii) provide a transfer agent for all such Registrable
Securities not later than the effective date of such Registration Statement;
(xiii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
participating Holders or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of the Registrable Securities;
(xiv) make available for inspection by the Holder of such
Registrable Securities, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
professional retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
Inspectors in connection with such Registration Statement; and
(xv) use its reasonable best efforts to cause the
Registrable Securities covered by such Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the Holders to consummate the disposition of such
Registrable Securities.
B. The Holder covenants and agrees to reasonably cooperate in the
preparation of the Registration Statement by providing such information as the
Company shall reasonably need from the Holder to include the Registrable
Securities in the Registration Statement.
(d) Expenses. All expenses in connection with preparing and
filing any Registration Statement including, without limitation, costs of
complying with federal and state securities laws and regulations, attorney's and
accounting fees of the Company, printing expenses and federal and state filing
fees shall be borne in full by the Company, except that the underwriting
commissions and expenses attributable to the Registrable Securities so
registered and the fees and disbursements of counsel, if any, to the Holders of
the Registrable Securities shall be borne by such Holders.
(e) Indemnification. Each Holder of Registrable Securities
exercising the rights under paragraphs 9(a) or 9(b) hereof will indemnify the
Company, and each person who controls the Company within the meaning of Section
15 of the Act, from and against any and all losses, claims, damages, expenses
and liabilities caused by any untrue statement or statement contained in any
registration statement or statement contained in a prospectus furnished under
the Act or caused by omission to state a
<PAGE>29
material fact therein necessary to make the statements therein not misleading,
insofar as such losses, claims, damages, expenses and liabilities are caused by
such untrue statement or omission based upon information furnished in writing to
the Company by any such Holder expressly for use in any registration statement
or prospectus and will reimburse each such indemnified person, as incurred, for
any legal or other expenses reasonably incurred by them in investigating,
defending or preparing to defend any such loss, claim, damage, liability, action
or proceeding. In addition, each Holder will execute and deliver all such
documents and undertakings as the Company may reasonably deem necessary or
desirable for purposes of compliance with applicable federal and state
securities laws. This indemnity agreement is in addition to any liability which
the Holder may otherwise have. The Company's obligations as set forth in
paragraph 9(a), (b) and (c) with respect to each Holder are contingent on such
Holder's satisfaction of his or its obligations set forth in this paragraph
9(e).
The Company agrees to indemnify and hold harmless the Holders (and
each person, if any, who controls the Holders within the meaning of the Act)
from and against any loss, claim, damage or liability, joint or several, to
which they may become subject (under the Act or otherwise) insofar as such loss,
claim, damage or liability (or action or proceeding in respect thereof) arises
out of, or is based upon, (A) any untrue statement or alleged untrue statement
of a material fact contained (x) in the Registration Statement, any preliminary
prospectus, if used prior to the effective date of the Registration Statement,
or any final prospectus, or any amendment thereof or supplement thereto, or (y)
in any blue sky application or other document executed by the Company, or based
upon written information furnished by the Company, filed in any state or other
jurisdiction in order to qualify any or all of the Registrable Securities under
the securities laws thereof (as such application, document or information being
hereinafter called a "Blue Sky Application"), or (B) the omission or alleged
omission to state in the Registration Statement, any preliminary prospectus, if
used prior to the effective date of the Registration Statement, or any final
prospectus, or any amendment thereof or supplement thereto, or in any Blue Sky
Application, of a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and will reimburse each such indemnified person, as
incurred, for any legal or other expenses reasonably incurred by them in
investigating, defending or preparing to defend any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Company shall not
be liable in any such case to the extent, but only to the extent, that such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or an alleged untrue statement or omission or alleged omission made in
such Registration Statement or in any Blue Sky Application in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such Holder specifically for use in preparation of the Registration Statement
or any such
<PAGE>30
preliminary prospectus or the final prospectus or any such amendment thereof or
supplement thereto, or any Blue Sky Application (including information
concerning the manner in which the Holders intend to effect sales of the
Registrable Securities). This indemnity agreement is in addition to any
liability which the Company may otherwise have.
(f) The term "51% Holder" as used in this Section 9.1 shall mean
the holders of at least 51% of the shares of common stock into which the
Debentures are convertible (considered in the aggregate) and shall include any
owner or combination of owners of Debentures in any combination if the holdings
of the aggregate amount of: (i) the common stock held by him or among them as a
result of the conversion of the Debentures, plus (ii) the common stock which he
or they would be holding if the Debentures owned by him or among them were
converted, would constitute 51% or more of the common stock into which the
Debentures were originally convertible. The Company's agreement with respect to
the registration of the Common Stock in this Section 9.1 shall survive the
conversion and surrender of the Debentures and upon conversion in full, the
Company shall deliver to the Holder an agreement evidencing the Company's
obligation under this Section 9.1.
ARTICLE 10
TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933
--------------------------------------------------
10.1 The Holder of this Debenture, each transferee hereof and any
Holder and transferee of any Shares, by his acceptance thereof, agrees that no
public distribution of Debentures or Shares will be made in violation of the Act
or applicable state securities laws. The Holder of this Debenture and each
transferee hereof further agrees that if any distribution of any Shares is
proposed to be made by them otherwise than by delivery of a prospectus meeting
the requirements of Section 10 of the Act, such action shall be taken only after
submission to the Company of an opinion of counsel, reasonably satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
distribution will not be in violation of the Act or of applicable state law.
Furthermore, it shall be a condition to the transfer of this Debenture that any
transferee thereof deliver to the Company his written agreement to accept and be
bound by all of the terms and conditions contained in this Debenture.
10.2 This Debenture or the shares of the Common Stock or any other
security issued or issuable upon conversion of this Debenture may not be sold or
otherwise disposed of except as follows:
(1) To a person who, in the opinion of counsel for the
Holder reasonably acceptable to the Company, is a person to whom this Debenture
or shares of Common Stock may legally be transferred without registration under
the Act and then only
<PAGE>31
against receipt of an agreement of such person to comply with the provisions of
this Section 10.2 with respect to any resale or other disposition of such
securities which agreement shall be satisfactory in form and substance to the
Company and its counsel; provided that the foregoing shall not apply to any such
Debenture, shares of Common Stock or other security as to which such Holder
shall have received an opinion letter from counsel to the Company or other
counsel reasonably acceptable to the Company, as to the exemption thereof from
the registration under the Act pursuant to Rule 144 under the Act; or
(2) to any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the offering thereof
for such sale or disposition.
10.3 STATE LEGENDS.
--------------
Notice to Wisconsin Purchasers. IN MAKING AN INVESTMENT DECISION
INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
10.4 Each certificate for Shares shall bear a legend relating to the
non-registered status of such shares under the Act, unless at the time of
conversion of this Debenture such shares of Common Stock have been registered
under the Act or are in the opinion of counsel reasonably acceptable to the
Company transferable without registration under the Act.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 No Recourse. No recourse, whatsoever, either directly or through
the Company or any trustee, receiver of assignee, shall be had in any event or
in any manner against any past, present or future stockholder, director or
officer of the Company for the payment of the redemption price, principal of or
interest on this Debenture or any of them or for any claim based thereon or
otherwise in respect this Debenture, this Debenture being a corporate obligation
only.
<PAGE>32
11.2 Notices. All communications provided hereunder shall be in
writing and, if to the Company, delivered or mailed by registered or certified
mail addressed to Halsey Drug Co., Inc., 1827 Pacific Street, Brooklyn, New York
11233, Attention: President, with a copy to Kenneth Goodwin, Esq., Coleman &
Rhine, LLP, 1120 Avenue of the Americas, New York, New York, or, if to the
Holder at the address shown for the Holder in the registration books maintained
by the Company.
11.3 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.
11.4 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.
11.5 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.
11.6 Governing Law. This Debenture shall be construed in accordance
with and governed by the laws of the State of New York, without giving effect to
conflict of laws principles.
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.
ATTEST [SEAL] HALSEY DRUG CO., INC.
_________________________ By: /s/ Rosendo Ferran
Name: Rosendo Ferran
Title: President
<PAGE>33
ATTACHMENT I
------------
Assignment
For value received, I hereby assign subject to the provisions
of Section 10, to ________ $_________________ principal amount of the
Convertible Subordinated Debenture due , 2000 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:
<PAGE>34
ATTACHMENT II
CONVERSION NOTICE
-----------------
TO: HALSEY DRUG CO., INC.
The undersigned holder of this Debenture hereby irrevocable 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 converted $
If shares are to be issued otherwise then to the holder:
Name of Transferee
Address of Transferee
Social Security Number of Transferee
<PAGE>1
VOID AFTER 5:00 P.M., EASTERN STANDARD TIME ON NOVEMBER 28, 2000.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
(COLLECTIVELY THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO HALSEY DRUG
CO., INC. THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
HALSEY DRUG CO., INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE 54,000
SHARES OF COMMON STOCK
Certificate No. W-4
This Warrant Certificate certifies that William A. Marquard,
SS####-##-#### residing at 5214 Fisher Island Drive, Fisher Island, Florida
33109, or registered assigns, is the registered Holder (the "Holder") of 54,000
Redeemable Common Stock Purchase Warrants (the "Warrants") to purchase shares of
the common stock, $.01 par value (the "Common Stock") of Halsey Drug Co., Inc.,
a New York corporation (the "Company").
The Warrants represented by this Warrant Certificate were issued as a
component of a Unit offered by the Company pursuant to a certain Private
Placement Memorandum dated November 20, 1995 (the "Private Placement
Memorandum"). In addition to Warrants to purchase 600 shares of Common Stock,
each Unit consists of a Convertible Subordinated Debenture of the Company in the
principal amount of $10,000 (the "Debentures").
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THIS WARRANT IS REDEEMABLE AT THE OPTION OF THE COMPANY UNDER CERTAIN
CIRCUMSTANCES. SEE SECTION 11.
1. EXERCISE OF WARRANT.
(A) Each Warrant enables the Holder, subject to the provisions of
this Warrant Certificate to purchase from the Company at any time and from time
to time commencing on the date of issuance (the "Initial Exercise Date") through
and including 5:00 p.m., Eastern Standard Time on November 28, 2000 (the
"Expiration Date") one (1) fully paid and non-assessable share of Common Stock
("Shares") upon due presentation and surrender of this Warrant Certificate
accompanied by payment of the purchase price of $2.50 per Share (the "Exercise
Price"). Payment shall be made in lawful money of the United States of America
by certified check payable to the Company at its principal office at 1827
Pacific Street, Brooklyn, New York 11233. As hereinafter provided, the Exercise
Price and number of Shares purchasable upon the exercise of the Warrants are
subject to modification or adjustment upon the happening of certain events.
(B) This Warrant Certificate is exercisable at any time on or after
the Initial Exercise Date in whole or in part by the Holder in person or by
attorney duly authorized in writing at the principal office of the Company.
2. EXCHANGE, FRACTIONAL SHARES, TRANSFER.
(A) Upon surrender to the Company, this Warrant Certificate may be
exchanged for another Warrant Certificate or Warrant Certificates evidencing a
like aggregate number of Warrants. If this Warrant Certificate shall be
exercised in part, the Holder shall be entitled to receive upon surrender hereof
another Warrant Certificate or Warrant Certificates evidencing the number of
Warrants not exercised;
(B) Anything herein to the contrary notwithstanding, in no event
shall the Company be obligated to issue Warrant Certificates evidencing other
than a whole number of Warrants or issue certificates evidencing other than a
whole number of Shares upon the exercise of this Warrant Certificate; provided,
however, that the Company shall pay with respect to any such fraction of a Share
an amount of cash based upon the current public market value (or book value, if
there shall be no public market value) for Shares purchasable upon exercise
hereof, as determined in accordance with subparagraph (A) of Section 11 hereof;
(C) The Company may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute true and lawful owner hereof
for all purposes whatsoever; and
(D) This Warrant Certificate may not be transferred except in
compliance with the provisions of the Act or applicable state securities laws
and in accordance with the provisions of Section 12 hereof.
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3. RIGHTS OF A HOLDER. No Holder shall be deemed to be the Holder of
Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose nor shall anything contained
herein be construed to confer upon the Holder any of the rights of a shareholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof or to give or withhold
consent to any corporate action (whether upon any reorganization, issuance of
stock, reclassification or conversion of stock, change of par value,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings or to receive dividends or subscription rights or otherwise until a
Warrant shall have been exercised and the Common Stock purchasable upon the
exercise thereof shall have become issuable.
4. REGISTRATION OF TRANSFER. The Company shall maintain books for the
transfer and registration of Warrants. Upon the transfer of any Warrants in
accordance with the provisions of Section 2(D) hereof (a "Permitted Transfer"),
the Company shall issue and register the Warrants in the names of the new
Holder. The Warrants 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 transfer, from time to time, any
outstanding Warrants upon the books to be maintained by the Company for such
purpose upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer. Upon any Permitted Transfer, a new
Warrant Certificate shall be issued to the transferee and the surrendered
Warrants shall be cancelled by the Company. Warrants may be exchanged at the
option of the Holder, when surrendered at the office of the Company, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Shares.
Subject to the terms of this Warrant Certificate, upon such surrender and
payment of the purchase price at any time after the Initial Exercise Date, the
Company shall issue and deliver with all reasonable dispatch to or upon the
written order of the Holder of such Warrants and in such name or names as such
Holder may designate, a certificate or certificates for the number of full
Shares so purchased upon the exercise of such Warrants. 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 such Warrants and payment of the
purchase price; provided, however, that if, at the date of surrender and
payment, the transfer books of the Company 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 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 or interdealer quotation system, shall not be closed at any
one time for a period longer than 20 days. The rights of purchase represented by
the Warrants shall be exercisable, at the election of the Holders, either as an
entirety or from time to time for only part of the Shares at any time on or
after the Initial Exercise Date.
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5. STAMP TAX. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Shares issuable upon the exercise of
the Warrants; 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 Shares in a name other than that of
the Holder in respect of which such Shares are issued, and in such case the
Company shall not be required to issue or deliver any certificate for Shares or
any Warrant 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.
6. DESTROYED, LOST, STOLEN OR MUTILATED CERTIFICATES. In case this
Warrant Certificate shall be destroyed, lost, stolen or mutilated, the Company
may, in its discretion, issue and deliver in exchange and substitution for and
upon cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate of like tenor representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company of such
destruction, loss, theft or mutilation and an indemnity, if requested, also
satisfactory to it.
7. RESERVED SHARES. The Company warrants that there have been reserved,
and covenants that at all times in the future it shall keep reserved, out of the
authorized and unissued Common Stock, a number of Shares sufficient to provide
for the exercise of the rights of purchase represented by this Warrant
Certificate. The Company agrees that all Shares issuable upon exercise of the
Warrants shall be, at the time of delivery of the certificates for such Shares,
validly issued and outstanding, fully paid and non-assessable and that the
issuance of such Shares will not give rise to preemptive rights in favor of
existing stockholders.
8. ANTI-DILUTION PROVISIONS.
(A) Dividends; Reclassifications, etc. In the event that the Company
shall, at any time prior to the exercise of this Warrant: (i) declare or pay to
the holders of the Common Stock a dividend payable in any kind of shares of
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 (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 this Warrant, the Holder 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 such transfer, or such
assets of the Company, which it would have been entitled to receive had it
exercised this Warrant prior to the happening of any of the foregoing events.
(B) Notice of Certain Transactions. If, at any time while this
Warrant is outstanding, the Company shall pay any dividend payable in cash or in
Common Stock, shall offer
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to the holders of its Common Stock for subscription or purchase by them any
shares of stock of any class or any other rights, or shall enter into an
agreement to merge or consolidate with another corporation, the Company shall
cause notice thereof to be mailed to the registered holder of this Warrant at
its address appearing on the registration books of the Company, at least 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 30
days prior to the effective date of the merger or consolidation. Failure to give
notice as required by this Section, or any defect therein, shall not affect the
legality or validity of any dividend, distribution or subscription or other
right.
(C) Adjustments to Exercise Price. 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 subparagraph
(D) of this Paragraph 8; or
(ii) shares issued, subdivided or combined in transactions
described in subparagraph (A) of this Paragraph 8 if and to the extent that an
adjustment to the Exercise Price shall have been previously made pursuant to
subparagraph (A) of this Paragraph 8 as a result of such issuance, subdivision
or combination of such securities;
for a consideration per share which is less than the lower of (i) the Exercise
Price or (ii) the Fair Market Value (as hereinafter defined) of the Common
Stock, then the Exercise Price in effect immediately prior to such issuance or
sale (the "Applicable Exercise Price") shall, and thereafter upon each issuance
or sale, the Applicable Exercise Price shall, simultaneously with such issuance
or sale, be adjusted, so that such Applicable Exercise Price shall equal a price
determined by multiplying the Applicable Exercise Price by a fraction, the
numerator of which shall be:
(a) the sum of (x) the total number of shares of Common
Stock outstanding immediately prior to such issuance plus (y) the
number of shares of Common Stock which the aggregate consideration
received, as determined in accordance with subparagraph (E) below for
the issuance or sale of such additional Common Stock or Convertible
Securities deemed to be an issuance of Common Stock as provided in
subparagraph (F) below, would purchase (including any consideration
received by the Company upon the issuance of any shares of Common Stock
or Convertible Securities since the date the Applicable Exercise Price
became effective not previously included in any computation resulting
in an adjustment pursuant to this subparagraph (C)) at the higher of
(i) the Applicable Exercise Price or (ii) the Fair Market Value of the
Common Stock; and the denominator of which shall be
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(b) the total number of shares of Common Stock outstanding
(or deemed to be outstanding as provided in subparagraph (E))
immediately after the issuance or sale of such additional shares.
For purposes of this Section 8(c), "Fair Market Value" shall mean
the average of the closing price of the Common Stock as listed and reported on
the American Stock Exchange or in the NASDAQ National Market or Small-Cap Market
System for each of the twenty (20) consecutive trading days prior to such
issuance or sale.
If, however, the Applicable Exercise Price thus obtained would result in the
issuance of a lesser number of shares upon conversion than would be issued at
the initial Exercise Price specified in Paragraph 1, the Applicable Exercise
Price shall be such initial Exercise Price.
Upon each adjustment of the Exercise Price pursuant to this
Subsection (C) the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be such number of shares (calculated to the
nearest tenth) purchasable at the Applicable Exercise Price multiplied by a
fraction, the numerator of which shall be Exercise Price in effect immediately
prior to such adjustment and the denominator of which shall be the Exercise
Price in effect immediately after such adjustment.
(D) Exclusions. Anything in this Paragraph 8 to contrary
notwithstanding, no adjustment in the Exercise 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 by the Company's Board of Directors, as may be amended from
time to time;
(ii) The annual grant of options to Joseph F. Limongelli to
purchase up to 10,000 shares of the Company's Common Stock at an exercise price
equal to the closing price of the Company's Common Stock as reported on the
American Stock Exchange, or successor Exchange or over-the-counter market on
which the Common Stock is then traded, on the date of grant; 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 including, without limitation, the exercise of any Warrant issued in the
same placement of securities in which this Warrant was issued by the Company,
whether or not outstanding on the issuance date hereof.
(E) Calculation of Consideration. For the purpose of subparagraph
(C) above, the following provisions shall also be applied:
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(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, compensations or other expenses paid
or incurred by the Company for any underwriting or placement of, or otherwise in
connection with the issuance or sale of such shares.
(ii) In 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
Convertible Securities, 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 on 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 the 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, accredited 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
compensations 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 exchanged 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 subparagraphs (E)(i) and (E)(iii) above with
respect to the consideration received by the Company in case of the issuance of
additional shares of Common Stock or Convertible Securities.
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(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 Exercise Price shall be required by reason of the fixing of
such record date.
(F) Deemed Issuances of Common Stock. For purposes of the
adjustments provided for in subparagraph (C) 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.
(G) Readjustments of Exercise Price. On the expiration, cancellation
or redemption of any Convertible Securities, the Exercise Price then in effect
hereunder shall forthwith be readjusted to such Exercise Price as would have
been obtained (a) had the adjustments made upon the issuance or sale of such
expired, cancelled 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 only on the basis of the Exercise Price as
readjusted under this subparagraph (G) for all transactions (which would have
affected such adjusted Exercise Price) made after the issuance or sale of such
Convertible Securities.
(H) Carry Forwards. Anything in this Paragraph 8 to the contrary
notwithstanding, no adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
Exercise Price; provided, however, that any adjustments which by reason of this
subparagraph (H) are not required to be made shall be carried forward and taken
into account in making subsequent adjustments. All calculations under this
Paragraph 8 shall be made to the nearest cent or to the nearest tenth of a
share, as the case may be.
(I) Notice of Adjustments. Upon any adjustment of the Exercise
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 Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of Shares purchasable at such price upon the exercise hereof, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
9. CONSOLIDATION OR MERGER. The Company covenants and agrees that it
will not merge or consolidate with or into or sell or otherwise transfer all or
substantially all of its assets to any other corporation or entity unless at the
time of or prior to such transaction such other
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corporation or other entity shall expressly assume all of the liabilities and
obligations of the Company under this Warrant and (without limiting the
generality of the foregoing) shall expressly agree that the Holder of this
Warrant shall thereafter have the right (subject to subsequent adjustment as
nearly equivalent as practicable to the adjustments provided for in Paragraph 8
of this Warrant) to receive upon the exercise of this Warrant the number and
kind of shares of stock and other securities and property receivable upon such
transaction by a Holder of the number and kind of shares which would have been
receivable upon the exercise of this Warrant immediately prior to such
transaction.
10. REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933.
A. Issuance of Stock Registered under the Act by the Company upon
Exercise. Not later than 120 days from the date of this Warrant, the Company
will file a registration statement under the Act with respect to the number of
shares of Common Stock issuable upon the exercise of this Warrant (the
"Registrable Securities") in order to provide for the issuance by the Company of
Common Stock upon exercise of this Warrant which has been registered under the
Act, and shall use its best efforts to cause such registration statement to
become and remain effective until such time as all of the Warrants shall have
been exercised and the Common Stock issuable thereunder has been issued by the
Company.
B. Supplemental Registration Rights. In the event the Company is
precluded by the U.S. Securities and Exchange Commission (the "Commission") from
registering under the Act the Registrable Securities for issuance upon exercise
of this Warrant or if the Holder shall have exercised this Warrant prior to the
effectiveness of the registration statement described in Subsection A above, the
Holder shall have the following registration rights:
Piggyback Registration Rights. If (i) any 51% Holder (as defined
in Section 10.F hereof) shall give notice to the Company at any time to the
effect that such holder desires to have the Company registered under the Act any
common stock issuable upon conversion of the Debentures, or (ii) the Company
proposes to file a registration statement covering any securities of the
Company, for its own account or for the account of others, the Company shall
advise the Holder or its transferee, whether the Holder holds the Warrant or has
converted the Warrant and holds the Common Stock underlying the Warrant, by
written notice at least four weeks prior to the filing of any registration
statement under the Act, and will, until the Expiration Date, upon the request
of the Holder, register under the Act all or any portion of the Registrable
Securities and cause such registration statement to become and remain effective
as provided in Subsection C hereof.
C. Registration Covenants of the Company. (a) In the event that any
Registrable Securities are to be registered pursuant to Subsections A or B of
this Warrant, the Company covenants and agrees that the Company will use its
best efforts to effect the registration and cooperate in the sale of the
Registrable Securities to be registered and will as expeditiously as possible:
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(i) prepare and file with the Commission a registration
statement with respect to the Registrable Securities (as well as any necessary
amendments or supplements thereto)(a "Registration Statement") which
Registration Statement (A) will state that the holders of Registrable Securities
covered thereby may sell such Registrable Securities under such Registration
Statement or pursuant to Rule 144 (or any similar rule then in effect), (B) when
it becomes effective, and when any post-effective amendment thereof and
supplement thereto is filed, the Registration Statement, as then amended or
supplemented, will comply in all material respects with the applicable
provisions of the Act and the rules and regulations thereunder and, except for
information provided in writing by the Holder for inclusion in the Registration
Statement for which the Company does not represent or warrant as to its
accuracy, will not contain an untrue statement or a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(ii) furnish to the Holders copies of such Registration
Statement and any amendments or supplements thereto and any prospectus forming a
part thereof prior to filing, which documents will be subject to the review of
counsel for the Holders;
(iii) use its best efforts to cause such Registration Statement
to become effective;
(iv) notify the Holders, promptly after the Company shall
receive notice thereof, of the time when said Registration Statement becomes
effective or when any amendment or supplement to any prospectus forming a part
of said Registration Statement has been filed;
(v) notify the Holders promptly of any request by the
Commission for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(vi) advise the Holders after the Company shall receive notice
or obtain knowledge thereof of the issuance of any order by the Commission
suspending the effectiveness of any such Registration Statement or amendment
thereto or of the initiation or threatening of any proceeding for that purpose,
and promptly use its reasonable best efforts to prevent the issuance of any stop
order or to obtain its withdrawal promptly if such stop order should be issued;
(vii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus forming a part
thereof as may be necessary to keep such Registration Statement effective (a) in
the case of a Registration Statement filed and declared effective pursuant to
Subsection A hereof, until such time as all Holders of the Warrants shall have
exercised the Warrants, or (b) in the case of a Registration Statement filed and
declared effective pursuant to Subsection B hereof, until such time as the
Holders pursuant to such
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Registration Statement have disposed of all such Registrable Securities but in
no event exceeding five (5) years from the date of effectiveness;
(viii) furnish to each Holder 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 that Holder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Holder;
(ix) use its reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as determined by the Holders and do any and all other acts and
things which may be reasonably necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of the Registrable Securities
(provided that the Company will not be required to: (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify; (B) subject itself to taxation in any such jurisdiction; or (C) consent
to general service of process in any such jurisdiction);
(x) notify the Holders at any time when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any event
as a result of which such Registration Statement contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and, at the
request of the Holder, prepare a supplement or amendment to such Registration
Statement so that such Registration Statement will not contain, to the Company's
knowledge, an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(xi) cause all Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(xii) provide a transfer agent for all such Registrable
Securities not later than the effective date of such Registration Statement;
(xiii) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
participating Holders or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of the Registrable Securities;
(xiv) make available for inspection by the Holder of such
Registrable Securities, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
professional retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company as shall be reasonably necessary to enable
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them to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any Inspectors in connection with such Registration Statement; and
(xv) use its reasonable best efforts to cause the Registrable
Securities covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the Holders to consummate the disposition of such Registrable
Securities.
(b) The Holder covenants and agrees to reasonably
cooperate in the preparation of the Registration Statement by providing
such information as the Company shall reasonably need from the Holder
to include the Registrable Securities in the Registration Statement.
D. Expenses. All expenses in connection with preparing and filing
any Registration Statement including, without limitation, costs of complying
with federal and state securities laws and regulations, attorney's and
accounting fees of the Company, printing expenses and federal and state filing
fees shall be borne in full by the Company, except that the underwriting
commissions and expenses attributable to the Registrable Securities so
registered and the fees and disbursements of counsel, if any, to the Holders of
the Registrable Securities shall be borne by such Holders.
E. Indemnification. Each Holder of Registrable Securities exercising
the rights under Subsections A or B hereof will indemnify the Company, and each
person who controls the Company within the meaning of Section 15 of the Act,
from and against any and all losses, claims, damages, expenses and liabilities
caused by any untrue statement or statement contained in any registration
statement or statement contained in a prospectus furnished under the Act or
caused by omission to state a material fact therein necessary to make the
statements therein not misleading, insofar as such losses, claims, damages,
expenses and liabilities are caused by such untrue statement or omission based
upon information furnished in writing to the Company by any such Holder
expressly for use in any registration statement or prospectus and will reimburse
each such indemnified person, as incurred, for any legal or other expenses
reasonably incurred by them in investigating, defending or preparing to defend
any such loss, claim, damage, liability, action or proceeding. In addition, each
Holder will execute and deliver all such documents and undertakings as the
Company may reasonably deem necessary or desirable for purposes of compliance
with applicable federal and state securities laws. This indemnity agreement is
in addition to any liability which the Holder may otherwise have. The Company's
obligations as set forth in Subsections A, B and C with respect to each Holder
are contingent on such Holder's satisfaction of his or its obligations set forth
in this Subsection E.
The Company agrees to indemnify and hold harmless the Holders (and
each person, if any, who controls the Holders within the meaning of the Act)
from and against any loss, claim, damage or liability, joint or several, to
which they may become subject (under the Act or otherwise) insofar as such loss,
claim, damage or liability (or action or proceeding in respect
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thereof) arises out of, or is based upon, (A) any untrue statement or alleged
untrue statement of a material fact contained (x) in the Registration Statement,
any preliminary prospectus, if used prior to the effective date of the
Registration Statement, or any final prospectus, or any amendment thereof or
supplement thereto, or (y) in any blue sky application or other document
executed by the Company, or based upon written information furnished by the
Company, filed in any state or other jurisdiction in order to qualify any or all
of the Registrable Securities under the securities laws thereof (as such
application, document or information being hereinafter called a "Blue Sky
Application"), or (B) the omission or alleged omission to state in the
Registration Statement, any preliminary prospectus, if used prior to the
effective date of the Registration Statement, or any final prospectus, or any
amendment thereof or supplement thereto, or in any Blue Sky Application, of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and will reimburse each such indemnified person, as incurred, for
any legal or other expenses reasonably incurred by them in investigating,
defending or preparing to defend any such loss, claim, damage, liability, action
or proceeding; provided, however, that the Company shall not be liable in any
such case to the extent, but only to the extent, that such loss, claim, damage
or liability arises out of or is based upon an untrue statement or an alleged
untrue statement or omission or alleged omission made in such Registration
Statement or in any Blue Sky Application in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Holder
specifically for use in preparation of the Registration Statement or any such
preliminary prospectus or the final prospectus or any such amendment thereof or
supplement thereto, or any Blue Sky Application (including information
concerning the manner in which the Holders intend to effect sales of the
Registrable Securities). This indemnity agreement is in addition to any
liability which the Company may otherwise have.
F. The term "51% Holder" as used in this Section 10 shall mean the
Holders of at least 51% of the shares of common stock into which the Debentures
comprising a portion of the Units offered pursuant to the Private Placement
Memorandum are convertible (considered in the aggregate) and shall included any
owner or combination of owners of Debentures in any combination if the holdings
of the aggregate amount of: (i) the common stock held by him or among them as a
result of the conversion of the Debentures, plus (ii) the common stock which he
or they would be holding if the Debentures owned by him or among them were
converted, would constitute 51% or more of the common stock into which the
Debentures were originally convertible. The Company's agreement with respect to
the registration of the common stock in this Section 10 shall survive the
exercise and surrender of this Warrant and upon exercise in full, the Company
shall deliver to the Holder an agreement evidencing the Company's obligations
under this Section 10.
11. REDEMPTION.
(A) This Warrant Certificate may be redeemed on not less than thirty
(30) days' notice, at a redemption price of $.01 per Warrant, provided the
market price of the Common Stock receivable upon exercise of such Warrant shall
exceed $2.50 per share (the "Target Price"), subject
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to adjustment as set forth in Subsection (D) below. Market price for the purpose
of this Section 11 shall mean as applicable (i) the closing sale price, for
twenty (20) consecutive trading days (during which the Shares are registered
pursuant to the Securities Act), of the Common Stock as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System; or (ii) the
last reported sale price, for twenty (20) consecutive trading days (during which
the Shares are registered pursuant to the Securities Act, on the primary
exchange on which the Common Stock is traded, if the Common Stock is traded on a
national securities exchange; or (iii) the closing bid price, for twenty (20)
consecutive trading days (during which the Shares are registered pursuant to the
Act) in the over-the-counter market as reported by the National Quotation Bureau
or similar information provider.
(B) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (Eastern Standard
Time) on the business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Warrants shall be the "Redemption
Date." No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Holder (a) to whom notice was not mailed or (b) 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 redemption has been
mailed postage prepaid to the last address of the Holder appearing on the
Warrant Certificate registry books kept by the Company shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. Any right to
exercise a Warrant shall terminate at 5:00 P.M. (Eastern Standard Time) on the
business day immediately preceding the Redemption Date. On and after the
Redemption Date, Holders of the Warrants shall have no further rights except to
receive, upon surrender of the Warrant, the redemption price.
(C) From and after the date specified for redemption, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of one or more
Warrants to be redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum in cash equal to the redemption price of each such
Warrant. From and after the date fixed for redemption and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void and all rights
hereunder, except the right to receive payment of the redemption price, shall
cease.
(D) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
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(E) If less than all of the Warrants are called for redemption by
the Company, the particular Warrants to be redeemed shall be redeemed pro-rata
in accordance with the Warrants then outstanding. If there shall be drawn for
redemption less than all of the Warrants represented by this Warrant
Certificate, the Company shall execute and deliver, upon surrender of this
Warrant Certificate, without charge to the Holder, a new Warrant Certificate
representing the unredeemed balance of the Warrant represented by this Warrant
Certificate.
12. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
(A) The Holder of this Warrant Certificate, each transferee hereof
and any Holder and transferee of any Shares, by his acceptance thereof, agrees
that (a) no public distribution of Warrants or Shares will be made in violation
of the Act, and (b) during such period as the delivery of a prospectus with
respect to Warrants or Shares may be required by the Act, no public distribution
of Warrants or Shares will be made in a manner or on terms different from those
set forth in, or without delivery of, a prospectus then meeting the requirements
of Section 10 of the Act and in compliance with applicable state securities
laws. The Holder of this Warrant Certificate and each transferee hereof further
agrees that if any distribution of any of the Warrants or Shares is proposed to
be made by them otherwise than by delivery of a prospectus meeting the
requirements of Section 10 of the Act, such action shall be taken only after
submission to the Company of an opinion of counsel, reasonably satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
distribution will not be in violation of the Act or of applicable state law.
Furthermore, it shall be a condition to the transfer of the Warrants that any
transferee thereof deliver to the Company his written agreement to accept and be
bound by all of the terms and conditions contained in this Warrant Certificate.
(B) This Warrant or the Shares or any other security issued or
issuable upon exercise of this Warrant may not be sold or otherwise disposed of
except as follows:
(1) To a person who, in the opinion of counsel for the Holder
reasonably acceptable to the Company, is a person to whom this Warrant or Shares
may legally be transferred without registration and without the delivery of a
current prospectus under the Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this
subsection (B)(1) with respect to any resale or other disposition of such
securities which agreement shall be satisfactory in form and substance to the
Company and its counsel; provided that the foregoing shall not apply to any such
Warrant, Shares or other security as to which such Holder shall have received an
opinion letter from counsel to the Company as to the exemption thereof from the
registration under the Act pursuant to Rule 144 under the Act; or
(2) To any person upon delivery of a prospectus then meeting the
requirements of the Act relating to such securities and the offering thereof for
such sale or disposition.
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(C) Each certificate for Shares issued upon exercise of this Warrant
shall bear a legend relating to the non-registered status of such Shares under
the Act, unless at the time of exercise of this Warrant such Shares are subject
to a currently effective registration statement under the Act.
13. MISCELLANEOUS.
(A) LAW TO GOVERN. This Warrant shall be governed by and construed
in accordance with the substantive laws of the State of New York, without giving
effect to conflict of laws principles.
(B) ENTIRE AGREEMENT. This Warrant Certificate constitutes and
expresses the entire understanding between the parties hereto with respect to
the subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions whether express or
implied, oral or written. Neither this Warrant Certificate nor any portion or
provision hereof may be changed, waived or amended orally or in any manner other
than by an agreement in writing signed by the Holder and the Company.
(C) NOTICES. Except as otherwise provided in this Warrant
Certificate, all notices, requests, demands and other communications required or
permitted under this Warrant Certificate or by law shall be in writing and shall
be deemed to have been duly given, made and received only when delivered against
receipt or when deposited in the United States mails, certified or registered
mail, return receipt requested, postage prepaid, addressed as follows:
Company: Halsey Drug Co., Inc.
1827 Pacific Street
Brooklyn, New York 11233
Attn: President
Holder: At the address shown for the
Holder in the registration
book maintained by the
Company.
(D) SEVERABILITY. If any provision of this Warrant Certificate is
prohibited by or is unlawful or unenforceable under any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction be in effect to the
extent of such prohibition without invalidating the remaining provisions hereof;
provided, however, that any such prohibition in any jurisdiction shall not
invalidate such provision in any other jurisdiction; and provided, further that
where the provisions of any such applicable law may be waived, that they hereby
are waived by the Company and the Holder to the full extent permitted by law and
to the end that this Warrant instrument shall be deemed to be a valid and
binding agreement in accordance with its terms.
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IN WITNESS WHEREOF, Halsey Drug Co., Inc. has caused this Warrant
Certificate to be signed by its duly authorized officers as of the 29th day of
November, 1995.
HALSEY DRUG CO., INC.
By: /s/ Rosendo Ferran
Rosendo Ferran, President
Attest:
________________
[CORPORATE SEAL]
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PURCHASE FORM
To: Halsey Drug Co., Inc.
, 19__
The undersigned hereby irrevocably elects to exercise the attached Warrant
Certificate, Certificate No. W- , to the extent of Shares of Common Stock, $.01
par value per share of Halsey Drug Co., Inc., and hereby makes payment of $ in
payment of the aggregate exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:___________________________________________
(Please typewrite or print in block letters)
Address: _____________________________________
_________________________________________
____________________
By:_________________
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