<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file number 1-10113
HALSEY DRUG CO., INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 11-0853640
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
695 North Perryville Road, Crimson Building No. 2, Rockford, Illinois 61107
(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
None
(Title of Class)
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 X No__
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 March 16, 1998, the registrant had 13,708,081 shares of Common
Stock, par value $0.01, outstanding. Based on the closing price of the Common
Stock on March 16, 1998 ($3 1/16), the aggregate market value of the voting
stock held by non-affiliates of the registrant was approximately $32,933,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART III
Item 10. Directors and Executive Officers of the Registrant 2
Item 11. Executive Compensation 4
Item 12. Security Ownership of Certain Beneficial Owners and 8
Management
Item 13. Certain Relationships and Related Transactions 11
</TABLE>
<PAGE> 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Halsey Drug Co., Inc. ("Halsey" or the "Company"), or
industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: changes in
general economic and business conditions; loss of market share through
competition; introduction of competing services by other companies; changes in
industry capacity; pressure on prices from competition or from purchasers of the
Company's products; regulatory changes in the generic pharmaceutical
manufacturing industry; regulatory obstacles to the introduction of new products
are important to the Company's growth; availability of qualified personnel; the
loss of any significant customers; and other factors both referenced and not
referenced in this Report. When used in this Report, the words "estimate,"
"project," "anticipate," "expect," "intend," "believe," and similar expressions
are intended to identify forward-looking statements.
1
<PAGE> 4
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William Skelly 47 Chairman of the Board
Michael K. Reicher 51 President, Chief Executive
Officer and Director
Alan J. Smith, Ph.D. 68 Director and Consultant
William A. Sumner 60 Director
Bruce F. Wesson 55 Director
Srini Conjeevaram 39 Director
Peter A. Clemens 45 Vice President and Chief Financial Officer
Stephanie Heitmeyer 52 Vice President - Sales
Ash Tankha 51 Vice President and General Manager
Daniel Hill 62 Vice President of Managed Care Sales
Carol Whitney 51 Vice President of Administration
Robert Seiser 34 Corporate Controller and Treasurer
</TABLE>
WILLIAM SKELLY has been a Director of the Company since May 1996 and
Chairman of the Company since October 1996. Since 1990, Mr. Skelly has served as
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 1990, Mr. Skelly served as President of Martec
Pharmaceutical, Inc., a distributor and manufacturer of human generic
prescription pharmaceuticals.
MICHAEL K. REICHER has been President, Chief Executive Officer and a
Director of the Company since February 19, 1998. In 1980, Mr. Reicher founded
UDL Laboratories, Inc., a manufacturer of human generic pharmaceuticals, and
served as its President through February 1998. In February 1996, UDL
Laboratories, Inc. was purchased by Mylan Laboratories, Inc., and Mr. Reicher
remained in the office of President until joining the Company in February 1998.
ALAN J. SMITH, PH.D. has been a Director of the Company since 1995 and
a consultant to the Company since March 1998. Since 1991, Dr. Smith has been a
management consultant specializing in pharmaceutical quality management, quality
control, quality assurance and auditing, the Food and Drug Administration'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.
2
<PAGE> 5
WILLIAM A. SUMNER has been a director of the Company since August 1997.
From 1974 until his retirement in 1995, Mr. Sumner held various positions within
Hoechst-Roussel Pharmaceuticals, Inc., a manufacturer and distributor of
pharmaceutical products, including Vice-President and General Manager,
Dermatology Division from 1991 through 1995, Vice President, Strategic Business
Development, from 1989 to 1991 and Vice President, Marketing from 1985 to 1989.
Since his retirement from Hoechst-Roussel Pharmaceuticals, Inc. in 1995, Mr.
Sumner has acted as a consultant to various entities in the pharmaceutical
field.
BRUCE F. WESSON has been a director of the Company since March 1998.
Mr. Wesson is President of Galen Associates, a health care venture firm, and a
General Partner of Galen Partners III, L.P. Prior to January 1991, he was Senior
Vice President and Managing Director of Smith Barney, Harris Upham & Co. Inc.,
an investment banking firm. He currently serves on the Boards of Witco
Corporation, a publicly traded company, and several privately held companies.
Mr. Wesson earned a degree from Colgate University and a Master of Business
Administration from Columbia University.
SRINI CONJEEVARAM has been a director of the Company since March 1998.
Mr. Conjeevaram is Chief Financial Officer of Galen Associates, a health care
venture firm, and a General Partner of Galen Partners III, L.P. Prior to January
1991, he was an Associate in Corporate Finance at Smith Barney, Harris Upham &
Co. Inc. from 1989 to 1990 and a Senior Project Engineer for General Motors
Corporation from 1982 to 1987. Mr. Conjeevaram serves as a director of Derma
Sciences, Inc., a publicly traded company. He earned a Bachelor of Science
degree in Mechanical Engineering from Madras University, a Master of Science
degree in Mechanical Engineering from Stanford University, and a Master of
Business Administration from Indiana University.
PETER A. CLEMENS has been Vice President and Chief Financial Officer of
the Company since February 19, 1998. From February, 1988 until joining the
Company, Mr. Clemens was employed by TC Manufacturing Co., Inc. (TC") who,
through its various subsidiaries and divisions, manufactures generic
pharmaceuticals, industrial coatings and flexible packaging. Mr. Clemens was
TC's President from February, 1996 through February, 1998. Prior to that time,
he held the position of Vice President and Chief Financial Officer.
STEPHANIE HEITMEYER has been Vice President - Sales since March 1998.
Prior to joining the Company, Ms. Heitmeyer served as Senior Manager, National
Accounts of Mylan Laboratories, Inc., a pharmaceutical manufacturer, and prior
to that, served as Corporate Account Manager, Managed Healthcare Specialist of
Amgen Pharmaceuticals.
ASH TANKHA has been Vice President and General Manager of the Company
since March 1998. Prior to joining the Company, Mr. Tanhka provided consulting
services to a variety of companies in the pharmaceutical industry with respect
to pharmaceutical operations, technology, FDA and DEA regulatory compliance,
intellectual property and quality management. Mr. Tankha holds graduate degrees
in Chemical Engineering from the University of Denver, and a J.D. from The John
Marshall School of Law, Chicago.
DAN W. HILL has been Vice President of Managed Care of the Company
since March 1998. From 1993 until joining the Company, Mr. Hill served as
Director of Managed Care for Mylan Laboratories, Inc. Mr. Hill has been involved
in the generic drug industry for over 30 years.
ROBERT A. SEISER has been Treasurer and Corporate Controller of the
Company since March 1998. From 1992 until joining the Company, Mr. Seiser served
as Treasurer and Corporate Controller of TC Manufacturing Co., Inc., a privately
held company based in Evanston, Illinois. Mr. Seiser is a Certified Public
Accountant and earned a B.B.A. degree from Loyola University of Chicago.
CAROL J. WHITNEY has been Vice President of Administration of the
Company since April 1998. From 1992 until joining the Company, Ms. Whitney
served as Director of Human Resources for UDL Laboratories, Inc., a generic
pharmaceutical manufacturer located in Rockford, Illinois.
3
<PAGE> 6
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors and executive officers, and persons who own
beneficially more than ten percent (10%) of the Common Stock of the Company, to
file reports of ownership and changes of ownership with the Commission and the
AMEX. Copies of all filed reports are required to be furnished to the Company
pursuant to Section 16(a). Based solely on the reports received by the Company
and on written representations from reporting persons, the Company believes the
Directors, executive officers and greater than ten percent (10%) beneficial
owners complied with all Section 16(a) filing requirements during the year ended
December 31, 1997 except that (i) the Form 3 Initial Statement of Beneficial
Ownership filing by each of Messrs. Skelly and Sumner required upon their
appointment to the Board were filed late and (ii) Mr. Ferran's Form 4 filings
for April 1996 and December 1996, 1997 were filed late.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth a summary of the compensation paid by
the Company for services rendered in all capacities to the Company during the
fiscal years ended December 31, 1997, 1996 and 1995 to the Company's President
and Chief Executive Officer and each of the Company's executive officers (the
"named executive officers") whose total annual compensation for 1997 exceeded
$100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name and Underlying
Principal Other Annual Stock All Other
Position Year Salary Bonus Compensation Options Compensation
- --------- ------ ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Rosendo Ferran(1) 1997 $241,082 0 $ 7,400 -- --
President and
Chief Executive 1996 $221,186 0 $ 12,950 -- --
Officer
1995 $263,604 0 $ 16,150 150,000 --
======================== ======== ======== ======= ======== ======== ========
Bernard Sandiford 1997 $150,140 0 $ 11,860 -- --
Vice President -
Manufacturing 1996 $150,300 0 $ 11,800 30,000 --
1995 $150,275 0 $ 11,750 30,000 --
======================== ======== ======== ======= ======== ======== ========
George Scholes 1997 $103,700 0 -- -- --
Vice President -
Regulatory Affairs 1996 $ 87,980 0 -- 30,000 --
1995 $ 63,100 0 -- 17,000 --
======================== ======== ======== ======= ======== ======== ========
</TABLE>
(1) Mr. Ferran was named Executive Vice President effective February 19, 1998.
Mr. Michael Reicher was appointed as the Company's President and Chief Executive
Officer as of such date.
4
<PAGE> 7
Other Compensatory Arrangements
Executive Officers and key employees participate in medical and
disability insurance plans provided to all non-union employees of the Company.
During 1997, the Company maintained term life insurance policies on behalf of
Messrs. Ferran and Sandiford, the benefits of which are payable to beneficiaries
designated by these individuals. Aggregate premiums paid by the Company during
1997 on all such policies amounted to approximately $12,000. 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 a precise value
to the possible personal benefit derived from the use of the automobiles, the
Company believes that, as to each officer, such personal benefit amount is less
than the lesser of $6,000 or 10% of such officer's compensation reported above
in the Summary Compensation Table.
Employment Agreements
Michael K. Reicher is employed pursuant to an Employment Agreement
effective as of March 10, 1998, which provides that Mr. Reicher will serve as
the Company's President and Chief Executive Officer for a term of five years.
The Agreement provides for an annual base salary of $175,000 plus the payment of
an annual bonus in the amount of $93,750 for the 1998 fiscal year, subject to
the attainment by the Company of certain minimum net sales revenue. The amount
of the annual bonus payable to Mr. Reicher for fiscal 1999 and thereafter will
be determined in accordance with such targets, conditions or parameters as may
be set from time to time by the Compensation Committee of the Board of Directors
of the Company. The Employment Agreement also provides for the grant of stock
options to purchase 1,000,000 shares of the Company's Common Stock at an
exercise price of $2.375 per share (representing the closing price for the
Company's common stock as reported by the AMEX on the day preceding the grant of
the option), which option shall vest in an equal amount of 62,500 option shares
at the end of each quarterly period during the term of the Agreement (as such
vesting schedule may be amended by mutual agreement between Mr. Reicher and the
Board of Directors). The Employment Agreement also permits the Company to
repurchase the vested portion of Mr. Reicher's options upon his termination for
cause (as defined in the Agreement) or his resignation, at a purchase price
equal to the positive difference, if any, between the average of the Closing
Price of the Company's common stock as reported by the AMEX for the five trading
days prior to the date of termination or resignation, multiplied by the number
of option shares which, as of the date of termination, are vested under the
option. The Employment Agreement contains standard termination provisions
including upon death, disability, for cause (as defined in the Agreement) and
without cause. In the event the Employment Agreement is terminated without
cause, the Company is required to pay Mr. Reicher an amount equal to $350,000 or
twice his then base salary, whichever is greater, payable in 24 equal monthly
installments. The Employment Agreement permits Mr. Reicher to terminate the
Agreement in the event of a change of control (as defined in the Agreement) and
restricts Mr. Reicher from disclosing, disseminating or using for his personal
benefit or for the benefit of others confidential or proprietary information (as
defined in the Employment Agreement) and, provided the Company has not breached
the terms of the Employment Agreement, from competing with the Company at any
time prior to two years after the earlier to occur of the expiration of the term
and the termination of his employment.
Peter Clemens is employed pursuant to an Employment Agreement effective
as of March 10, 1998, which provides that Mr. Clemens will serve as the
Company's Vice President and Chief Financial Officer for a term of three years.
The Employment Agreement provides an annual base salary of $140,000 plus the
payment of an annual bonus of $82,500 in fiscal 1998, subject to the attainment
by the Company of certain minimum net sales revenues. Bonus payments for fiscal
1999 and thereafter are subject to such targets, conditions or parameters as may
be determined from time to time by the Compensation Committee of the Board of
Directors. The Employment Agreement also provides for the grant of stock options
to purchase 300,000 shares of the Company's common stock at an exercise price of
$2.375 per share, which options shall vest and be exercisable in an amount equal
to 25,000 option shares at the end of each quarterly period during the term of
the Employment Agreement (as such vesting schedule may be amended by mutual
agreement of Mr. Clemens and the Board of Directors). The remaining terms of Mr.
Clemen's Employment Agreement with the Company are substantially identical to
that of Mr. Reicher.
5
<PAGE> 8
The Employment Agreement dated January 1, 1993 between the Company and
Mr. Rosendo Ferran expired by its terms on January 1, 1998.
Compensation of Directors
Directors who are employees of the Company receive no additional or
special remuneration for their serviced as Directors. Directors who are not
employees of the Company receive an annual grant of options to purchase 10,000
shares of the Company's common stock (15,000 shares in the case of the Chairman
of the Board) and $500.00 for each meeting attended ($250 in the case of
telephonic meetings). This option-based compensation structure was approved by
the Board for fiscal 1998, replacing the prior compensation structure providing
for an annual retainer of $25,000 and an additional fee of $500 per meeting
attended. The Company also reimburses Directors for travel and lodging expenses,
if any, occurred in connection with attendance at Board meetings. Directors who
serve on any of the Committees established by the Board of Directors receive
$250 for each Committee meeting attended unless held on the day of a full Board
meeting.
The Company has retained the services of Alan J. Smith, Ph.D., a
Director of the Company, to provide consulting services in the areas of quality
control and quality assurance, effective as of March 13,1998. The terms of Dr.
Smith's engagement provide that he will provide such consulting services for a
period of 5 months, expiring August 13, 1998, on an average of one day per week
and be compensated at the rate of $1,000 per consulting day.
Stock Option Plans
The Company currently maintains a stock option plan adopted in 1984 and
a stock option plan adopted in 1995. In addition, the Board of Directors has
adopted, subject to shareholder approval pursuant to Proposal 4 described in
this Proxy Statement, a 1998 Stock Option Plan. The Company in the past has
used, and will continue to use, stock options to attract and retain key
employees in the belief that employee stock ownership and stock-related
compensation devices encourage a community of interest between employees and
shareholders.
THE 1984 STOCK OPTION PLAN. In March 1984, the Company's shareholders
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 of the Company's common stock. The 1984 Stock
Option Plan terminated by its terms in March 1994.
Incentive Stock Options ("ISO's") to purchase 821,666 shares and
non-qualified stock options to purchase 120,363 shares have been granted under
the 1984 Stock Option Plan. Stock options granted under the 1984 Stock Option
Plan have a term of ten years. As of March 31, 1998, options to purchase 21,569
shares of the Company's common stock were outstanding under the 1984 Stock
Option Plan and options to purchase 528,431 shares had been exercised. The
average per share exercise price for stock options currently outstanding under
the 1984 Stock Option Plan is approximately $4.73. No exercise price of an ISO
was set at less than 100% of the market value of the underlying Common Stock on
the date of grant, except that in the case of any person who owned stock
possessing more than 10% of the total voting power of the Company, the exercise
price was set at 110% of the market value of the underlying Common Stock. No
further stock options may be granted under the 1984 Stock Option Plan.
THE 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 of the Company's Common Stock. ISO's 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 persons to whom grants are made and
the vesting, timing, amounts and other terms of such grants. An employee may not
receive ISO's exercisable in any 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.
6
<PAGE> 9
As of March 31, 1998, ISO's to purchase 567,600 shares and
non-qualified options to purchase 40,000 shares have been granted under the 1995
Stock Option Plan. The average per share exercise price for all outstanding
options under the 1995 Stock Option Plan is approximately $3.53. No exercise
price of an ISO was set at less than 100% of the fair market value of the
underlying Common Stock, except for grants made to any person who owned stock
possessing more than 10% of the total voting power of the Company, in which case
the exercise price was set at not less than 110% of the fair market value of the
underlying Common Stock. The 1995 Stock Option Plan will terminate in September
2005 unless earlier terminated by the Board of Directors.
THE 1998 STOCK OPTION PLAN. The 1998 Stock Option Plan was adopted by
the Board of Directors in April 1998 and, subject to shareholder approval,
permits the Company to grant ISO and non-qualified stock options to purchase an
aggregate of 2,600,000 shares of the Company's common stock. ISO's 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 terms
of the Plan, the Stock Option Committee determines the persons to whom grants
are made and the vesting, timing, amounts and other terms of such grants. An
employee may not receive ISO's exercisable in any 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 April 15, 1998, no stock options had been granted under the 1998
Stock Option Plan. Subject to the receipt of shareholder approval for the 1998
Stock Option Plan, such Plan will terminate in April, 2008, unless earlier
terminated by the Board of Directors.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table presents information regarding option exercises in
1997 and the value of options outstanding at December 31, 1997 for each of the
named executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS
OPTIONS AT FISCAL AT FISCAL YEAR END(1)
YEAR END
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rosendo 144,000 0 $ -- $ --
Ferran
Bernard 40,000 20,000 $ -- $ --
Sandiford
George 27,000 20,000 $ -- $ --
Scholes
</TABLE>
- ---------------------------------
(1) Value is based upon a fair market value of $1.56 per share at December 31,
1997.
7
<PAGE> 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of March 31, 1998 for individuals or entities
in the following categories: (i) each of the Company's Directors; (ii) the Chief
Executive Officer and other executive officers of the Company whose total annual
compensation for 1997 exceeded $100,000 (the "named executive officers"); (iii)
all Directors and executive officers as a group; and (iv) each person known by
the Company to be a beneficial owner of more than 5% of the Common Stock. Unless
indicated otherwise, each of the shareholders has sole voting and investment
power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
Amount
Name of Beneficially Percent of
Beneficial Owner Owned(1) Class
- ---------------- -------------- ------------
<S> <C> <C>
Galen Partners III, L.P. 16,618,580(2) 55.0%
610 Fifth Avenue, 5th Floor
New York, New York 10020
Galen Partners International III, L.P. 1,841,637(3) 11.9%
610 Fifth Avenue, 5th Floor
New York, New York 10020
Hemant K. Shah and Varsha H. Shah 1,462,692(4) 9.9%
29 Christy Drive
Warren, New Jersey 07059
Dennis Adams 1,260,682(5) 8.4%
c/o Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
Harbour Investments, Ltd. 1,655,431(6) 11.8%
c/o Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Strong Discovery Fund, Inc. 903,084(7) 6.5%
c/o Strong Capital Management, Inc.
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Strong Capital Management, Inc. 3,485,739(8) 24.6%
100 Heritage Reserve
Menomonee Falls, Wisconsin 53051
William A. Marquard 734,900 5.4%
2199 Maysville Road
Carlisle, Kentucky 41311
Michael K. Reicher 323,106(9) 2.3%
William Skelly 15,000(10) *
</TABLE>
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<TABLE>
<CAPTION>
Amount
Name of Beneficially Percent of
Beneficial Owner Owned(1) Class
- ---------------- -------------- ------------
<S> <C> <C>
William A. Sumner 10,000(11) *
Alan J. Smith, Ph.D 23,287(12) *
Bruce F. Wesson 10,000(13) *
Srini Conjeevaram 10,000(14) *
Rosendo Ferran 185,904(15) 1.3%
Bernard Sandiford 47,300(16) *
George Scholes 27,000(17) *
All Directors and executive
officers as a group (12 persons) 503,262(18) 3.5%
</TABLE>
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
(1) The information with respect to Hemant K. Shah and Varsha H. Shah,
Dennis Adams, Harbour Investments, Ltd., Strong Discovery Fund, Inc.,
Strong Capital Management, Inc. and William A. Marquard is based upon
filings with the Commission and/or information provided to the Company.
(2) Includes (i) 10,282,130 shares issuable upon conversion of 5%
convertible senior secured debentures due March 2003 (the
"Debentures"), (ii) 3,115,796 shares issuable upon exercise of common
stock purchase warrants issued in connection with the Offering (the
"Warrants"), and (iii) 3,220,654 shares issuable upon conversion of the
Debentures and the exercise of the Warrants allocable to such security
holder under the option (the "Investor Option") provided in that
certain Debenture and Warrant Purchase Agreement dated March 10, 1998
between the Company and the Galen Investor Group.
(3) Includes (i) 1,139,445 shares issuable upon conversion of Debentures,
(ii) 345,286 shares issuable upon exercise of Warrants, and (iii)
356,906 shares issuable upon the conversion of the Debentures and
exercise of the Warrants allocable to such securityholder under the
Investor Option.
(4) Includes (i) 660,000 shares issuable upon conversion of Debentures,
(ii) 200,000 shares issuable upon exercise of Warrants, (iii) 61,539
shares issuable upon conversion of 10% convertible subordinated
debentures issued by the Company in August, 1996 (the "August
Debentures"), and (iv) 206,730 shares issuable upon the conversion of
the Debentures and the exercise of the Warrants allocable to such
securityholder under the Investor Option.
(5) Includes (i) 780,000 shares issuable upon conversion of Debentures,
(ii) 236,364 shares issuable upon exercise of Warrants, and (iii)
244,318 shares issuable upon the conversion of the Debentures and the
exercise of the Warrants allocable to such securityholder under the
Investor Option. The information with respect to Mr. Adams is based
upon a Schedule 13G dated March 23, 1998.
(6) Includes 246,154 shares issuable upon conversion of the August
Debentures.
(7) Includes 184,615 shares issuable upon exercise of the August
Debentures.
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<PAGE> 12
(8) Strong Capital Management, Inc. ("SCMI") has, and Richard Strong, a
principal of SCMI, may be deemed to have, either sole voting power
and/or sole dispositive power over the listed shares. Includes all
shares beneficially owned by Harbour Investments Ltd., of which SCMI is
the advisor, and all shares beneficially owned by Strong Special
Investment Limited Partnership and Strong Quest Limited Partnership,
entities advised by SCMI. The information with respect to Mr. Strong
and SCMI is based upon a Schedule 13G dated February 16, 1998.
(9) Includes (i) 200,000 shares issuable upon conversion of Debentures,
(ii) 60,606 shares issuable upon exercise of Warrants and (iii) 62,500
shares subject to currently exercisable common stock purchase options.
(10) Includes 15,000 shares subject to currently exercisable common stock
purchase options.
(11) Includes 10,000 shares subject to currently exercisable common stock
purchase options.
(12) Includes (i) 10,000 shares subject to currently exercisable common
stock purchase options, (ii) 6,667 shares issuable upon conversion of
Debentures, and (iii) 2,020 shares issuable upon exercise of Warrants.
(13) Includes 10,000 shares subject to currently exercisable common stock
purchase options. Mr. Wesson is President of Galen Associates and a
General Partner of Galen Partners III, L.P.
(14) Includes 10,000 shares subject to currently exercisable common stock
purchase options. Mr. Conjeevaram is Chief Financial Officer of Galen
Associates and a General Partner of Galen Partners III, L.P.
(15) Includes 162,000 shares subject to currently exercisable common stock
purchase options.
(16) Includes 40,000 shares subject to currently exercisable common stock
purchase options.
(17) Includes 27,000 shares subject to currently exercisable common stock
purchase options.
(18) Includes 498,662 shares which Directors and executive officers have the
right to acquire within the next 60 days through the conversion of
Debentures, exercise of Warrants and exercise of outstanding options.
Change of Control
A change of control of the Company occurred on March 10, 1998
pursuant to the completion of the Offering of Debentures and Warrants. Assuming
the receipt of shareholder approval to a proposed amendment to the Company's
Certificate of Incorporation to provide the holders of the Debentures with "as
converted" voting rights, Galen would control 45.6% of the Company's common
stock (51% upon issuance of the additional Debentures in the event the Investor
Option provided in the Offering were exercised). Assuming further the exercise
of the Warrants issued in the Offering, Galen would control 52.5% of the
Company's common stock (57.6% in the event the Warrants issuable under the
Investor Option provided in the Offering were exercised).
Reference is made to the Company's Current Report on Form 8-K as
filed with the Commission on March 24, 1998 for a description of the terms and
provisions of the Purchase Agreement relating to the Offering and, the
Debentures and the Warrants relating to the change of control transaction.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March, 10, 1998, the Company completed a private offering of
securities for an aggregate purchase price of $20.8 million (the "Offering").
The securities issued in the Offering consisted of 5% convertible senior secured
debentures (the "Debentures") and common stock purchase warrants (the
"Warrants") exercisable for an aggregate of 4,202,020 shares of the Company's
Common Stock. The Debentures and Warrants were issued by the Company pursuant to
a certain Debenture and Warrant Purchase Agreement dated March 10, 1998 (the
"Purchase Agreement") by and among the Company, Galen and the Galen Investor
Group.
HKS & Company, Inc., an entity beneficially owned by Hemant K.
Shah, acted as placement agent in connection with the Offering. In consideration
for the services of HKS & Company, Inc., the Company paid $990,000, representing
5% of the gross proceeds of the Offering. Mr. Shah invested the entire amount of
such fee for the purchase of Debentures and Warrants in the Offering. Mr. Shah
is the beneficial owner of approximately 9.9% of the Company's common stock
(inclusive of the shares of Common Stock underlying the Debentures and
Warrants).
Each of Messrs. Wesson and Conjeevaram, members of the Board of
Directors, are designees of the Galen Investor Group pursuant to the terms of
the Purchase Agreement which provides, among other things, that the Company must
nominate and appoint to the Board of Directors, subject to shareholder approval,
three designees of the Galen Investor Group for so long as the Debentures and
Warrants remain outstanding. Each of Messrs. Wesson and Conjeevaram is a General
Partner of Galen Associates, an affiliate of each of the Galen entities included
in the Galen Investor Group. The Company's shareholders will be presented with
proposals at the 1998 Annual Meeting of Shareholders seeking shareholder
approval to amend the Company's Certificate of Incorporation to provide for an
increase in the Company's authorized common stock and voting rights for holders
of the Debentures issued in the Offering. If such amendments are approved, Galen
will control a majority of the Company's Common Stock and provide it with
sufficient voting rights to control the nomination and election of the Board of
Directors of the Company.
Pursuant to the terms of the Purchase Agreement executed in
connection with the Offering, certain existing shareholders of the Company and
members of the Galen Investor Group, who as of the Company's Record Date owned
in the aggregate approximately 25% of the outstanding Common Stock, have entered
into an irrevocable proxy agreement with Galen pursuant to which they have
granted Bruce F. Wesson, a designee of Galen and a nominee to the Board of
Directors of the Company, to vote the shares of the Company's Common Stock held
by them at the Company's 1998 Annual Meeting of Shareholders with respect to the
election of directors and the above-described amendments to the Company's
Certificate of Incorporation. Mr. Wesson has indicated that he intends to
exercise the proxy and vote such shares in favor of each of such proposals.
The Purchase Agreement also provides the Galen Investor Group with
an option expiring September 10, 2000 to purchase (on a pro-rata basis)
additional Debentures and Warrants on the same terms as provided in the Offering
for a purchase price of $5,000,000 (the "Investor Option"). The Investor Option
may be exercised by a majority in interest of the principal amount of the
Debentures outstanding, which provides Galen with the discretion as to whether
to exercise the Investor Option.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HALSEY DRUG CO., INC.
By /s/ Michael Reicher
--------------------------------------
Michael Reicher, President and
Chief Executive Officer (Principal
Executive Officer)
Date: April 29, 1998
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