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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1 to
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file No. 1-10113
HALSEY DRUG CO., INC.
(Exact name of registrant as specified in its charter)
New York 11-0853640
(State of Incorporation) (I.R.S. Employer Identification No.)
1827 Pacific Street, Brooklyn, New York) 11233
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 467-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange
on which registered:
Common Stock, Par Value $0.01 The American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __ No _X_
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of August 15 , 1997, the registrant had 14,012,410 shares of Common
stock, par value $0.01, outstanding. Based on the average of the high and low
sales prices of the common stock on August 15 , 1997 ($3.75), the aggregate
market value of the voting stock held by non-affiliates of the registrant was
approximately $50,508,000.
Documents Incorporated by Reference
None.
- --------------------------------------------------------------------------------
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information about the directors and executive officers of Halsey Drug Co.,
Inc. ("Halsey" or the "Company"), a New York corporation, is set forth
immediately below.
Year First
Name Background Elected as
Information a Director
----------- -----------
Rosendo Ferran President and Chief Executive Officer. From 1987
November 1988 to June 1993, Mr. Ferran served as
Senior Vice President and Chief Financial Officer
of the Company. From March 1987 to November 1988,
Mr. Ferran served as a financial consultant to the
Company.
Age: 57
William G. Skelly Chairman. Since 1990 Mr. Skelly has served as 1996
Chairman, President and Chief Executive Officer of
Central Biomedia, Inc. and its subsidiary SERA,
INC., companies involved in the animal health
industry including veterinary biologicals and
custom manufacturing of animal sera products. From
1985 to 1994, Mr. Skelly served as President of
Martec Pharmaceutical, Inc., a distributor and
manufacturer of human generic prescription
pharmaceuticals.
Age: 46
Richard H. Francis Retired since 1991. Presently serves as director 1995
of The Indonesian Fund (BEA Associates) and The
Infinity Mutual Funds (Concord Financial Group).
From 1988 until October 1991 Mr. Francis served as
Executive Vice President-Office of the Chairman
and Chief Financial Officer of Pan Am Corporation
and as Executive Vice President-Finance and Chief
Financial Officer of Pan American World Airways.1
From 1985 through 1988 Mr. Francis served as
Senior Vice President and Chief Financial Officer
of American Standard, Inc.
Age: 64
Alan J. Smith Ph.D. Since 1991 Dr. Smith has been a management 1995
consultant specializing in pharmaceutical quality
management, quality control, quality assurance and
auditing, the Food and Drug Administrations's
Current Good Manufacturing Practice regulations
and technology training, documentary systems, and
stability programming. From 1985 to 1991 he was
Corporate Director of Quality Affairs for
Whitehall Laboratories, a division of American
Home Products Corporation. Dr. Smith holds B.Sc.
and Ph.D. degrees from the University of London.
Age: 67
- --------
(1) Pan Am Corporation and Pan American World Airways, Inc. filed petitions
under the United States Bankruptcy Code in January 1991.
2
<PAGE>
Compliance with Section 16 of the Exchange Act
Based solely on a review of the copies of Forms 3 and 4 and amendments
thereto, furnished to the Company pursuant to Section 16a-3(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") during the fiscal year
ended December 31, 1996, and Form 5 and amendments thereto, furnished to the
Company regarding its most recent fiscal year, or written representations from
the Company's executive officers and directors, the Company is not aware of any
failure to file timely reports pursuant to Section 16(a) of the Exchange Act.
Item 11. Executive Compensation.
The following table sets forth, for the Company's last three fiscal years,
the cash salary, bonus and non-cash salary or bonuses earned or paid by the
Company, as well as certain other compensation paid or accrued for those years,
to the Company's President and Chief Executive Officer and to each of the
Company's executive officers whose compensation exceeded $100,000:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- -----------------------
Shares of Common
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary ($) Bonus ($) Compensation Stock Options Compensation
- ------------------ ---- ---------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Rosendo Ferran 1996 221,186 -- 12,950 -- --
President and Chief 1995 263,604 -- 16,150 150,000 --
Executive Officer 1994 229,029 -- 20,742 -- --
Leonard H. Weiss 1996 115,330 -- 7,900 -- --
Executive Vice 1995 141,750 -- 8,397 75,000 --
President(1) 1994 115,129 -- 11,200 -- --
</TABLE>
(1) Mr. Weiss retired as an officer and director of the Company in December
1996.
Other Compensatory Arrangements
Benefits. Executive officers and key employees participate in medical and
disability insurance plans provided to all non-union employees of the Company.
During 1996, the Company maintained term life insurance policies on behalf of
Rosendo Ferran and Leonard H. Weiss, the benefits of which are payable to
beneficiaries designated by these individuals. Aggregate premiums paid by the
Company during 1996 on all such policies amounted to $12,470. The value of these
payments to the individual officers are reflected where applicable in the
summary compensation chart. The Company also provided automobiles to certain of
its executive officers. Although the Company is unable to assign any value to
possible personal benefits derived for the use of the automobiles, the Company
believes that, as to each officer, such personal benefits amount to less than
the lesser of $9,000 or 10% of such officer's compensation reported above in the
summary compensation table.
3
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Stock Option Grants
The Company maintains a stock option plan, as set forth below, but the
Company does not have any plan pursuant to which stock appreciation rights may
be granted.
1984 Stock Option Plan. In March 1984, the shareholders of the Company
approved the adoption of a stock option plan (the "1984 Stock Option Plan"). The
1984 Stock Option Plan, as amended provided for the grant of options to purchase
up to 1,000,000 shares. The 1984 Stock Option Plan terminated in March 1994.
Incentive stock options ("ISO's") to purchase 821,666 shares and
non-qualified options to purchase 120,363 shares had been granted under the 1984
Stock Option Plan. The average per share exercise price for all 1994 outstanding
ISO's is approximately $2.70 and the average per share exercise price of the
Company's Common Stock on the grant dates ranged from $2.50 to $6.25 per share.
No exercise price of an ISO was set less than 110% of the fair market value of
the underlying Common Stock on the date of grant to any person who owns stock
possessing more than 10% of the total voting power of the Company and no
exercise price of an ISO was set less than 100% of the fair market value of the
underlying Common Stock on the date of grant to any other person. There are no
other options outstanding under the 1984 Stock Option Plan.
1995 Stock Option Plan. In September 1995 the Company established the 1995
Halsey Drug Co., Inc. Stock Option and Restricted Stock Purchase Plan (the "1995
Stock Option Plan"). Under the Plan, the Company may grant options to purchase
up to 1,000,000 shares. Incentive stock options may be granted to employees of
the Company and its subsidiaries, and non-qualified options may be granted to
employees, directors and other persons employed by, or performing services for,
the Company and its subsidiaries. Subject to the Plan, the Compensation
Committee determines the employees to whom grants are made and the vesting,
timing, amounts and other terms of such grants. An employee may not receive
incentive stock options exercisable in one calendar year for shares with a fair
market value on the date of grant in excess of $100,000. No quantity limitations
apply to the grant of non-qualified stock options.
As of December 31, 1996, ISO's to purchase 461,600 shares and non-qualified
options to purchase 30,000 shares had been granted under the 1995 Stock Option
Plan. The average per share exercise price for all outstanding ISO's under the
1995 Stock Option Plan is approximately $3.19 and the average per share exercise
price of the Company's Common Stock on the grant dates is $3.19 per share. No
exercise price of an ISO was set less than 110% of the fair market value of the
underlying Common Stock on the date of grant to any person who owns stock
possessing more than 10% of the total voting power of the Company and no
exercise price of an ISO was set less than 100% of the fair market value of the
underlying Common Stock on the date of grant to any other person. There are no
other options outstanding under the 1995 Stock Option Plan.
The following table sets forth selected option grant information for the
fiscal year ended December 31, 1996 awarded to the Chief Executive Officer and
each of the executive officers of the Company whose compensation exceeded
$100,000.
4
<PAGE>
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------
Name Potential Realizable Value at Assumed
% of Total Annual Rates of Stock Price Appreciation
Type of Number of Options Exercise for Option Term
Option Options Granted to Price Per Expiration ---------------
Granted Granted Employees(a) Share Date
------- ------- ------------ ----- ----
0% 5%(b) 10%(b)
-- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rosendo -- -- -- --
Ferran
Leonard -- -- -- --
Weiss
</TABLE>
(a) Represents individual option grant as a percentage of total options issued
in fiscal year 1996.
(b) The hypothetical potential appreciation shown in these columns reflects the
required calculations at compounded annual rates of 5% and 10% set by the
Securities and Exchange Commission, and therefore is not intended to
represent either historical appreciation or anticipated future price
appreciation of the Company's Common Stock.
Stock Option Exercises and Holdings
The following table sets forth information related to options exercised
during 1996 by the Company's President and Chief Executive Officer and by the
Company's other most highly compensated executive officer during 1996 and the
number and value of options held at December 31, 1996 by such individuals.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1996
and Option Values at December 31, 1996
--------------------------------------
Number of Unexercised Value of Unexercised In the
--------------------- ---------------------------
Options at Money Options at
---------- ----------------
Name Shares Acquired Value December 31, 1996 December 31, 1996
- ---- --------------- ----- ------------------ -----------------
on exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rosendo Ferran 6,000 20,000 156,000 -0- $ 423,000 -0-
Leonard H. Weiss -0- -0- 80,000 -0- $ 235,000 -0-
</TABLE>
5
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Pension Arrangements
The following table shows the estimated annual benefit payable under the
Halsey Drug Co., Inc. Pension Trust (the "Pension Plan") for each of the
individuals named in the summary compensation table with payments at the
participant's normal retirement date and in the form of 10-year certain and life
annuity thereafter. The amounts shown are additionally based upon benefits as of
the plan year ending November 30, 1996:
Estimated
Name Annual Benefit
---- --------------
Rosendo Ferran $ 18,288
Leonard H. Weiss $ 14,184
The following table shows estimated annual retirement benefits payable
under the Pension Plan as a straight life annuity to persons in specified
compensation and years-of-service classifications, assuming retirement in 1995
at age 65 (after at least 15 years of service). Benefits shown in the table are
net of an offset for a portion of the participant's Social Security benefit.
Estimated Annual
----------------
Benefit-Years of
----------------
Service at
----------
Retirement
----------
Five Year 15 20 25 30 35
- ---------
Average
- -------
Base Salary
- ---- ------
150,000 $33,264 $33,264 $33,264 $33,264 $33,264
125,000 $27,264 $27,264 $27,264 $27,264 $27,264
100,000 $21,264 $21,264 $21,264 $21,264 $21,264
75,000 $15,264 $15,264 $15,264 $15,264 $15,264
50,000 $9,264 $9,264 $9,264 $9,264 $9,264
Employees of the Company who are at least 20 1/2 years of age and have
completed at least one year of service are eligible to participate in the
Pension Plan. This defined benefits pension plan provides monthly benefits at a
participant's normal retirement date (the participant's 65th birthday) equal to
24% of the participants' compensation in excess of covered compensation based
upon the taxable wage base under Table I of the Social Security Act of 1972. In
order to qualify for a full pension under this formula, the participant must
have 15 years of service; the benefit under the formula is reduced pro-rata for
each year of service at the normal retirement date less than 15. For purposes of
determining the benefit at a participant's normal retirement date, compensation
is, in general, determined by averaging the participant's earnings as shown on
Federal Tax Form W-2 over the first five years of his last 10 years of
participation prior to his normal retirement date. The Pension Plan was amended,
effective December 1, 1984, to comply with the provisions of the Tax Equity and
Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1984, and the
Retirement Equity Act of 1984. The Internal Revenue Service
6
<PAGE>
issued, by letter dated February 4, 1986, a favorable determination as to the
qualification of the Plan under the Internal Revenue Code.
Mr. Ferran has 8 years of credited service under the Pension Plan.
Employment Agreements
The Company entered into an employment agreement with Rosendo Ferran
effective as of January 1, 1993. Mr. Ferran's agreement has a term of five
years, subject to earlier termination. As per the agreement, in 1996, Mr. Ferran
was entitled to receive a base salary of $266,000, part of which he deferred,
resulting in his receiving $221,000 during 1996. His base salary will
automatically be increased by 10% in 1997. Pursuant to the agreement, Mr. Ferran
is entitled to an annual car allowance and to life insurance, in an amount
determined by the Board of Directors, the benefits of which are payable to
beneficiaries designated by Mr. Ferran and the premiums for which are paid by
the Company.
The employment agreement also provides that Mr. Ferran will be entitled to
a cash severance payment equal to his annual base compensation then in effect
if, following the expiration of the term of his agreement, his employment with
the Company is not continued on the same or substantially similar terms, and
within six months of such expiration his employment with the Company is
terminated. Mr. Ferran's agreement further provides that in the event of his
death during the term of the agreement, his estate shall be entitled to the
value of six months' of Mr. Ferran's compensation at the then applicable rates.
Pursuant to the agreement, if Mr. Ferran is terminated without cause or if
there is a change in his responsibilities or a reduction in his base annual
salary following a change in control of the Company and, as a result, he
terminates his employment with the Company, he shall receive, as severance, a
lump sum equal to three times his base annual salary at the highest rate in
effect during the 12 months immediately preceding his date of termination and
all stock options then held by Mr. Ferran shall automatically become vested.
The employment agreement of Mr. Ferran also obligates the Company to use
its best efforts to cause Mr. Ferran to be nominated as a director at each
annual meeting of the Company's shareholders.
Advances
From time to time the Company has made advances against anticipated bonuses
to Rosendo Ferran, the President, Chief Executive Officer and a director of the
Company. These advances, which do not bear interest, aggregated $48,500 at
December 31, 1992. In April 1993, the Company made an additional advance to Mr.
Ferran in the amount of $62,500. Mr. Ferran commenced repaying the advances by
means of payroll deductions beginning in April 1993. As a result of such
repayments, the amount outstanding under the advances aggregated $ 51,900 at
December 31, 1996.
7
<PAGE>
Item 12. Security Ownership of Certain beneficial Owners and Management.
The following table sets forth certain information regarding the Common
Stock beneficially owned by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
each executive officer and director named in the summary compensation table
below and (iii) all the directors and executive officers of the Company as a
group, at the close of business on April 25, 1997. Each of the persons named in
the table below as beneficially owning the shares set forth therein has sole
voting power and sole investment power with respect to such shares.
Amount
Name of Beneficially Percent of
Title of Class Beneficial Owner Owned(1) Class
- -------------- ---------------- -------- -----
Common Stock Rosendo Ferran 185,904(2) 1.4
Common Stock Leonard H. Weiss 85,625(3) *
Common Stock Richard H. Fancis 23,000 *
Common Stock Alan J. Smith 4,600 --
Common Stock William G. Skelly -- --
Common Stock Harbour Investments, Ltd. 1,723,384(5) 12.8
Common Stock Strong Special Investment 575,000 4.4
Limited Partnership
Common Stock Strong Capital Management, Inc. 3,380,242(6) 25.6
Common Stock Strong Quest Limited 36,926(7) .3
Partnership
Common Stock Strong Discovery Fund 219,710(8) 1.6
Common Stock William Marquard 701,500 5.3
Common Stock All directors and executive 299,129 2.3
officers as a group (5 persons)
(Footnotes on following page)
-----------------------------
8
<PAGE>
1 The information with respect to William Marquard, Harbour Investments,
Ltd., Strong Special Investment Limited Partnership, Strong Capital
Management, Inc., Strong Quest Limited Partnership and Strong Discovery
Fund is based on the total number securities sold by the Company directly
to such persons and/or their affiliates. The Company has no knowledge
whether such persons hold other securities of the Company. The information
with respect to Zatpack, Inc., Messrs. Ferran, Weiss, Smith, Adams, Skelly
and Francis is based upon filings with the Securities and Exchange
Commission or information provided to the Company.
2 Includes 156,000 shares subject to currently exercisable stock options.
3 Includes 55,000 shares subject to currently exercisable stock options which
have been exercised during 1997.
4 Includes 642,407 shares issuable upon conversion of a convertible
subordinated promissory note, including interest accruing thereon through
February 25, 1997.
5 Includes 246,154 shares issuable upon conversion of August debentures.
6 Strong Capital Management, Inc.("SCMI") has and Richard Strong, a principal
of SCMI, may be deemed to have, beneficial ownership of 3,416,446 shares.
Includes all shares beneficially owned by Harbour Investments
Ltd("Harbour") of which SCMI is the advisor and all shares beneficailly
owned by Strong Special Investment Limited Partnership, Strong Quest
Limited Partnership and Strong Discovery Fund, entities advised by SCMI.
The information with respect to Mr. Strong and SCMI is based upon a
Schedule 13-G dated April 26, 1996 filed by such persons and other
information provided to the Company.
7 Includes 30,769 shares issuable upon conversion of August Debentures, 778
shares issuable in payment of interest on August Debentures.
8 Includes 184,615 shares issuable upon conversion of August Debentures,
4,666 shares issuable in payment of interest on August Debentures.
Item 13. Certain Relationships and Related Transactions.
August Private Placement. The Company completed a private offering in
August 1996 (the "Private Placement"). The Private Placement consisted of 250
units ("Units") of securities of the Company. Each Unit consisted of (i) a 10%
convertible subordinated debenture (each, a "Debenture") in the principal amount
of $10,000 issued at par and (ii) 461 redeemable Common Stock purchase warrants
("Warrants"). The Debentures will become due and payable as to principal five
years from the date of issuance. Interest, at the rate of 10% per annum, will be
payable on a quarterly basis. Holders of the Debentures may elect to have
interest paid in Common Stock at an issuance price of $3.25 per share. The
Debentures are convertible at any time after issuance into shares of Common
Stock of the Company at a conversion price of $3.25 per share, subject to
adjustment, and automatically convert into shares of Common Stock under certain
circumstances.
Each Warrant entitles the holder to purchase one share of Common Stock for
$3.25 during the five year period commencing on the date of issuance. The
Warrants are redeemable by the Company at a price of $.01 per warrant at any
time commencing one year after issuance, upon not less than 30 days prior
written notice, if the last sale price of the Common Stock on the American Stock
Exchange, Inc. (the "Exchange") following such one year anniversary equals or
exceeds $3.25 per share
9
<PAGE>
for the 20 consecutive trading days ending on the third day prior to the notice
of redemption to holders.
The Company has registered the shares underlying the Debentures and the
Warrants under the Securities Act of 1933, as amended (the "Securities Act").
The Units in the aggregate are convertible (in the case of the Debentures)
and/or exercisable (in the case of the Warrants), as the case may be, into
766,667 shares of Common Stock.
The Private Placement closed on August 6, 1996 with all 250 July Units sold
to investors. Subscriptions were solicited by management of the Company on a
"best efforts" basis. HKS & Co., Inc. ("HKS") assisted the Company in the July
Private Placement. For its services, the Company paid HKS a fee equal to 5% of
the gross purchase price of Units sold in the Private Placement ($125,000) and
the Company reimbursed HKS for expenses incurred in connection with the Private
Placement.
Holders of the Debentures have a right of first refusal while the
Debentures remain outstanding to participate in any offering of securities by
the Company to the extent the gross proceeds from such offering, or series of
related offerings, will exceed $200,000.
The net proceeds of the Private Placement was approximately $2,350,000.
In connection with the November Private Placement, the Company agreed to
use its best efforts to appoint two independent directors to its Board of
Directors, each of whom are reasonably acceptable to the holders of a majority
in interest (the "Majority in Interest") of the principal amount of the
Debentures. The Board of Directors has agreed to nominate and appoint, subject
to shareholder approval, such individuals to the Board for so long as the
Debentures remain outstanding. Although Leonard H. Weiss resigned as a director
effective December 31, 1996, as of the date hereof, the Majority in Interest
have not requested that two directors be appointed to the Company's Board of
Directors.
The Company has agreed to use its best efforts to appoint a Chief Financial
Officer reasonably acceptable to the Majority in Interest. For so long as the
Debentures remain outstanding, any successor Chief Financial Officer similarly
must be reasonably acceptable to the Majority in Interest. As of the date of
this Proxy Statement, the Company has not appointed a Chief Financial Officer.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HALSEY DRUG CO., INC.
---------------------
(Registrant)
By: /s/ Rosendo Ferran
-------------------------
Rosendo Ferran, President
August 20, 1997
