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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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, 1998
[ ] 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)
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NEW YORK 11-0853640
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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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: (815) 399-2060
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, PAR VALUE $0.01 THE AMERICAN STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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 15, 1999, the registrant had 14,260,711 shares of Common Stock,
par value $0.01, outstanding. Based on the closing price of the Common Stock on
March 15, 1999 ($1 3/16), the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $16,890,000.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF
SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III. SUCH PROXY STATEMENT
WILL BE FILED WITHIN 120 DAYS AFTER THE END OF THE FISCAL YEAR COVERED BY THIS
ANNUAL REPORT ON FORM 10-K.
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CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure.................................... 21
PART III
Item 10., Directors and Executive Officers of the
Registrant; Item 11., Executive Compensation;
Item 12., Security Ownership of Certain Beneficial Owners
and Management; and Item 13., Certain Relationships and
Related Transactions are incorporated by reference to the
Company's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders.
PART IV
Item
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K Signatures.............................................. 21
Index to Consolidated Financial Statements.................. F-1
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report under the captions Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," Item
1, "Business", Item 3, "Legal Proceedings" and elsewhere 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
products by other companies; the timing of regulatory approval and the
introduction of new products by the Company; 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 that 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.
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PART I
ITEM 1. BUSINESS.
GENERAL
The Company, a New York corporation established in 1935, and its
subsidiaries, are engaged in the manufacture, sale and distribution of generic
drugs. A generic drug is the chemical and therapeutic equivalent of a brand-name
drug for which patent protection has expired. A generic drug may only be
manufactured and sold if patents (and any additional government-granted
exclusivity periods) relating to the brand-name equivalent of the generic drug
have expired. A generic drug is usually marketed under its generic chemical name
or under a brand name developed by the generic manufacturer. The Company sells
its generic drug products under its Halsey label and under private-label
arrangements with drugstore chains and drug wholesalers. While subject to the
same governmental standards for safety and efficacy as its brand-name
equivalent, a generic drug is usually sold at a price substantially below that
of its brand-name equivalent.
The Company manufactures its products at facilities in New York and
Indiana. During the last several years, the Company has sought to diversify its
businesses through strategic acquisitions and through the development,
manufacture and sale of bulk chemical products used by others as raw materials
in the manufacture of finished drug forms.
RECENT EVENTS
Regulatory Compliance
During the past several years, the Company's business has been adversely
affected by the discovery of various manufacturing and record keeping problems
identified with certain products manufactured at its Brooklyn, New York plant.
In October 1991, the U.S. Food and Drug Administration (the "FDA") placed the
Company on the FDA's Application Integrity Policy list and its restrictions
(collectively, the "AIP"). Under the AIP, the FDA suspended all of the parent
company's applications for new drug approvals, including Abbreviate New Drug
Applications ("ANDAs") and Supplements to ANDAs. During the period that
followed, the U.S. Department of Justice ("DOJ") conducted an investigation into
the manufacturing and record keeping practices at the Company's Brooklyn plant.
As a consequence, on June 21, 1993, the Company entered into a plea agreement
(the "Plea Agreement") with the DOJ to resolve the DOJ's investigation. Under
the terms of the Plea Agreement, the Company agreed to plead guilty to five
counts of adulteration of a single drug product shipped in interstate commerce
and related record keeping violations. The Plea Agreement also required the
Company to pay a fine of $2,500,000 over five years in quarterly installments of
$125,000 commencing in September 1993. As of February 28, 1998, the Company was
in default of the payment terms of the Plea Agreement and had made payments
aggregating $350,000. On March 27, 1998, the Company and the DOJ signed a Letter
Agreement serving to amend the Plea Agreement relating to the terms of the
Company's satisfaction of the fine assessed under the Plea Agreement. The Letter
Agreement provides, among other things, that the Company will satisfy the
remaining $2,150,000 of the fine through the payment of $25,000 on a monthly
basis commencing June 1, 1998, plus interest on the outstanding balance. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" for a more detailed
description of the Letter Amendment to the Plea Agreement between the DOJ and
the Company.
On June 29, 1993, the Company entered into a consent decree (the "Consent
Decree") with the U.S. Attorney for the Eastern District of New York on behalf
of the FDA that resulted from the FDA's investigation into the Brooklyn plant's
compliance with the FDA's Current Good Manufacturing Practices ("CGMP")
regulations. Under the terms of the Consent Decree, the Company was enjoined
from shipping any solid dosage drug products (i.e., excluding liquid drug
formulations) manufactured at the Brooklyn plant until the Company established,
to the satisfaction of the FDA, that the methods used in, and the facilities and
controls used for, manufacturing, processing, packing, labeling and holding any
drug, were established, operated, and administered in conformity with the
Federal Food, Drug, and Cosmetic Act and all CGMP
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Regulations. As part of satisfying these requirements, the Company was required
to validate the manufacturing processes for each solid dosage drug product prior
to manufacturing and shipping the drug product.
On October 23, 1996, the Company withdrew four of its ANDAs, including its
ANDA (the "Capsules ANDA") for acetaminophen/oxycodone capsules (the
"Capsules"), and halted sales of the affected products. Net sales derived from
the withdrawn Capsule ANDA were approximately $3 million and $8 million for the
years ended December 31, 1996 and December 31, 1995, respectively, and accounted
for approximately 24% and 40% of the Company's total net sales during such
twelve month periods. The Company instituted the withdrawal of the Capsule ANDA
at the suggestion of the FDA and in anticipation of its release from the AIP. At
the FDA's suggestion, the Company retained outside consultants to perform
validity assessments of its drug applications. Thereafter, in October 1996, the
FDA recommended that several applications, including the Capsule ANDA, be
withdrawn. As a basis for its decision, the FDA cited questionable and
incomplete data submitted in connection with the applications. The FDA indicated
that the withdrawal of the four ANDAs was necessary for the release of the
Company from the AIP. The FDA further required submission by the Company of a
Corrective Action Plan, which was prepared and submitted by the Company and
accepted by the FDA.
On December 19, 1996, the FDA released the Company from the AIP. As a
consequence, for the first time since October 1991, the Company was permitted to
submit ANDAs to the FDA for review. Since its release from the AIP in December
1996, through the fiscal year ended December 31, 1998, the Company submitted 13
ANDAs for review by the FDA, including a new ANDA with respect to the Capsules.
During the period from the Company's release from the AIP to March 15, 1999, the
Company received the following ANDA approvals, all of which relate to ANDA
filings made with the FDA subsequent to the Company's release from the AIP:
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PRODUCT NAME
(DRUG CLASS) STRENGTH TRADE NAME STATUS
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Hydrocodone Bitartate and..... 5mg/500mg Vicodin(R)(1) FDA approval of ANDA received
Acetaminophen Tablets September 26, 1997.
(narcotic analgesic)
Hydrocodone Bitartate and..... 7.5mg/750mg VicodinES(R)(1) FDA approval of ANDA received
Acetaminophen Tablets September 26, 1997.
(narcotic analgesic)
Hydrocodone Bitartate and..... 7.5mg/650mg Lorcet FDA approval of ANDA received
Acetaminophen Tablets, CIII Plus(R)(2) November 26, 1997.
(narcotic analgesic)
Hydrocodone Bitartrate and.... 10mg/650mg Lorcet(R)(2) FDA approval of ANDA received
Acetaminophen Tablets, CIII November 26, 1997.
(narcotic analgesic)
Oxycodone HCI and............. 5mg/50mg Tylox(R)(3) FDA approval of ANDA received
Acetaminophen Capsules, CII January 22, 1998.
(narcotic analgesic)
Oxycodone HCI/Oxycodone....... 4.5mg/325mm Percodan(R)(4) FDA approval of ANDA received
Terephthalate Tablets, CII July 24, 1998
(narcotic analgesic)
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(1) Registered trademark of Knoll Pharmaceutical Co.
(2) Registered trademark of Forest Laboratories, Inc.
(3) Registered trademark of McNeil Consumer Products Company
(4) Registered Trademark of DuPont Merck
As of March 15, 1999, the Company had submitted one ANDA for review by the
FDA in fiscal 1999 and anticipates the submission of five additional ANDAs
during the balance of fiscal 1999. Although the Company has been successful in
receiving the ANDA approvals described above since its release from the AIP in
December 1996, there can be no assurance that any of its newly submitted ANDAs,
or those contemplated to
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be submitted, will be approved by the FDA. The Company will not be permitted to
market any new product unless and until the FDA approves the ANDA relating to
such product. Failure to obtain FDA approval for the Company's pending ANDAs, or
a significant delay in obtaining such approval, would adversely affect the
Company's business operations and financial condition.
Private Offerings and Bridge Financing
On March 10, 1998, the Company completed a private offering of securities
(the "Offering") to Galen Partners III, L.P., Galen Partners International III,
L.P., Galen Employee Fund III, L.P., (collectively, "Galen") and each of the
Purchasers listed on the signature page to a certain Debenture and Warrant
Purchase Agreement dated March 10, 1998 between the Company and such Purchasers
(inclusive of Galen, collectively the "Galen Investor Group"). 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 common stock.
The net proceeds to the Company from the Offering, after the deduction of
related Offering expenses, was approximately $19.6 million. In addition, in
accordance with the terms of the Debenture and Warrant Purchase Agreement
pursuant to which the Offering was completed, the Company granted the Galen
Investor Group an option to invest an additional $5 million in the Company at
any time within 18 months from the date of the closing of the Offering in
exchange for Debentures and Warrants having terms identical to those issued in
the Offering (the "Galen Option"). In June 1998, the Galen Investor Group
exercised this option.
The net proceeds of the Offering have, in large part, been used to satisfy
a substantial portion of the Company's liabilities and accounts payable.
Additionally, pursuant to agreements reached with other large creditors in
anticipation of the completion of the Offering, including the Company's landlord
and the DOJ, the Company has been able to bring these creditors current and will
be in compliance with installment payment agreements providing favorable terms
to the Company. The net proceeds from the exercise of the Galen Option have been
used, in large part, to fund working capital, including the purchase of raw
materials, payroll expenses and other Company expenses.
In addition to the net proceeds from the Offering and the exercise of the
Galen Option, the Company secured bridge financing from Galen and certain
investors in the Offering in the aggregate amount of $9,504,111 funded through
seven separate bridge loan transactions between the period from August through
and including December, 1998, as well as an additional bridge loan in March,
1999 (collectively, the "Bridge Loans"). The Bridge Loans were consolidated on
December 2, 1998 pursuant to an Amended, Restated and Consolidated Bridge Loan
Agreement (the "Consolidated Bridge Loan"). The Consolidated Bridge Loan bears
interest at 10% per annum, is secured by a first lien on all of the Company's
assets and has a maturity date of May 30, 1999. Approximately $9,120,000 in the
principal amount of the Consolidated Bridge Loan was advanced by Galen with the
balance of approximately $384,000 advanced by certain investors in the Offering.
The Consolidated Bridge Loan was secured by the Company in order to provide
necessary working capital. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a more detailed discussion of
the Consolidated Bridge Loan transaction.
Lease of Congers, New York Facility
Effective March 22, 1999, the Company leased, as sole tenant, a
pharmaceutical manufacturing facility located in Congers, New York (the "Congers
Facility") from Par Pharmaceuticals, Inc. ("Par") pursuant to an Agreement to
Lease (the "Lease"). The Congers Facility contains office, warehouse and
manufacturing space and is approximately 35,000 square feet. The Lease provides
for a term of three years, with a two year renewal option and provides for
annual fixed rent of $500,000 per year during the primary term of the Lease and
$600,000 per year during the option period. The Lease also covers certain
manufacturing and related equipment previously used by Par in its operations at
the Congers Facility (the "Leased Equipment"). In connection with the execution
of the Lease, the Company and Par entered into a certain Option Agreement
pursuant to which the Company may purchase the Congers Facility and the Lease
Equipment at any time during the lease term for $5 million.
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As part of the execution of the Lease, the Company and Par entered into a
certain Manufacturing and Supply Agreement (the "M&S Agreement") having a
minimum term of twenty seven months. The M&S Agreement provides for the
Company's contract manufacture of certain designated products manufactured by
Par at the Congers Facility prior to the effective date of the Lease. The M&S
Agreement also provides that Par will purchase a minimum of $1,150,000 in
product during the initial 18 months of the Agreement. The M&S Agreement further
provides that the Company will not manufacture, supply, develop or distribute
the designated products to be supplied by the Company to Par under the M&S
Agreement to or for any other person for a period of three years.
Cessation of California Operations
On March 20, 1998, the Company discontinued the operations of H.R. Cenci
Laboratories, a wholly-owned subsidiary. H.R. Cenci Laboratories had been a
manufacturer of drug products in liquid preparations. Continuing operating
losses and the Company's inability to leverage the manufacturing capacity of
Cenci Laboratories were among factors considered by the Board and Management in
its determination to cease such operations.
On March 30, 1998, the Company completed the sale of substantially all of
the non-real property assets of Cenci Powder Products, a wholly-owned
subsidiary, to Zuellig Botanical. The purchase price for the assets consisted of
the forgiveness by Zuellig Botanical of approximately $262,000 in indebtedness
owed by Cenci Powder to Zuellig Botanical related to the purchase of raw
materials. The Agreement provided further that Zuellig Botanical would satisfy
the manufacture and delivery requirements of Cenci Powder at its located
facility in Fresno, California, under an existing third party supply contract.
On December 4, 1998, the Company disposed of the real property owned by Cenci
Powder in Fresno, California to an unrelated third party for a net sales price
of approximately $73,000. Continuing operating losses and the Company's
inability to leverage the manufacturing capacity of Cenci Powder were among the
factors considered by the Board and Management in its determination to terminate
the operations of Cenci Powder.
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PRODUCTS AND PRODUCT DEVELOPMENT
Generic Drug Products
The Company historically has manufactured and sold a broad range of
prescription and over-the-counter drug products. The Company's pharmaceutical
product list currently includes a total of approximately 28 products, consisting
of 18 dosage forms and strengths of prescription drugs and 10 dosage forms and
strengths of over-the-counter drugs. Each dosage form and strength of a
particular drug is considered in the industry to be a separate drug product. The
Company's drug products are sold in various forms, including liquid and powder
preparations, compressed tablets and two-piece, hard-shelled capsules.
Most of the generic drug products manufactured by the Company can be
classified within one of the following categories:
1. Antibiotics,
2. Narcotic analgesics,
3. Anti-infective and anti-tubercular drugs,
4. Antihistamines and antihistaminic decongestants, or
5. Antitussives.
During fiscal 1998, sales of antitussives and narcotic analgesics accounted
for approximately 75% of total net sales during such year. The Company
anticipates that sales of antitussives and narcotic analgesics will continue to
represent a significant portion of the Company's revenue.
The Company's development strategy for new drug products has been to focus
on the development of a broad-range of generic form drugs, each of which (i) has
developed a solid market acceptance with a wide base of customers, (ii) can be
sold on a profitable basis notwithstanding intense competition from other drug
manufacturers, and (iii) is no longer under patent protection. The Company has
also diversified its current product line to include some less widely prescribed
drugs as to which limited competition might be expected. In addition, the
Company will continue to pursue the development of its existing pharmaceutical
business as well as the development of the chemical products business of its
Houba subsidiary.
Development activities for each new generic drug product begin several
years in advance of the patent expiration date of the brand-name drug
equivalent. This is because the profitability of a new generic drug usually
depends on the ability of the Company to obtain FDA approval to market that drug
product upon or immediately after the patent expiration date of the equivalent
brand-name drug. Being among the first to market a new generic drug product is
vital to the profitability of the product. As other off-patent drug
manufacturers receive FDA approvals on competing generic products, prices and
revenues typically decline. Accordingly, the Company's ability to attain
profitable operations will, in large part, depend on its ability to develop and
introduce new products, the timing of receipt of FDA approval of such products
and the number and timing of FDA approvals for competing products.
Active Pharmaceutical Ingredients
In the last few years, the Company has increased its efforts to develop and
manufacture active pharmaceutical ingredients also known as bulk chemical
products. The development and sale of active pharmaceutical ingredients
generally is not subject to the same level of regulation as is the development
and sale of drug products; accordingly, active pharmaceutical ingredients may be
brought to market substantially sooner than drug products. While the Company
currently is focusing on the development and manufacture of active
pharmaceutical ingredients for use in production of finished dosage products at
the Company's Brooklyn and Congers, New York facilities, active pharmaceutical
ingredients eventually may be marketed and sold to third parties.
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RESEARCH AND DEVELOPMENT
The Company conducts research and development activities at each of its
Brooklyn and Indiana facilities. The Company's research and development
activities consist primarily of new generic drug product development efforts and
manufacturing process improvements, as well as the development for sale of new
chemical products. New drug product development activities are primarily
directed at conducting research studies to develop generic drug formulations,
reviewing and testing such formulations for therapeutic equivalence to brand
name products and additional testing in areas such as bioavailability,
bioequivalence and shelf-life. For fiscal years 1998, 1997 and 1996, total
research and development expenditures were $651,000, $979,000 and $1,854,000,
respectively. During 1999, the Company's research and development efforts will
cover products in a variety of therapeutic applications.
As of March 15, 1999, the Company maintained a full-time staff of five in
its Research and Development Departments.
MARKETING AND CUSTOMERS
The application of the AIP to the Company's operations until December 1996,
combined with the Company's continuing operating losses and lack of adequate
working capital during fiscal 1997 and the first quarter of 1998 resulted in the
Company's inability to maintain sufficient raw materials and finish goods
inventories to permit the Company to actively solicit customer orders, and when
orders were received, to fill such orders promptly. Following the completion of
the Offering, new Management adopted a marketing strategy focused on developing
and maintaining sufficient raw materials and finish goods inventories so as to
permit a targeted sales effort by the Company to a core customer group, with an
emphasis on quality, prompt product delivery and excellent customer service. The
Company's products are sold by Stephanie Heitmeyer, Vice President of Sales, and
three salaried sales persons. Sales of the Company's drugs in dosage form are
made primarily to drug wholesalers, drugstore chains, distributors and other
manufacturers and are not concentrated in any specific region.
During 1998, the Company had net sales to one customer aggregating 11.5% of
total sales. The sales to such customer were made pursuant to a certain contract
manufacturing agreement entered into with the Company as part of the Company's
sale of its ANDA for oxycodone HCI/325 mg acetaminophen tablets in March, 1995.
The Company anticipates that net sales to this customer (which aggregated
approximately 22.3% of total sales in 1997) will continue to decline during 1999
and thereafter. The Company does not believe that the continuing decline of net
sales to this customer will have a material adverse effect on the Company.
Also during 1998, the Company had net sales to two customers aggregating
approximately 19.1% of total sales. The Company believes that the loss of these
customers would have a material adverse effect on the Company. During 1997 the
Company had net sales to one customer in excess of 10% of total sales,
aggregating 22.3% of total sales. During 1996, the Company had net sales to one
customer in excess of 10% of total sales, aggregating 10% of total sales.
The estimated dollar amount of the backlog of orders for future delivery as
of March 15, 1999 was approximately $500,000 as compared with approximately
$800,000 as of March 15, 1998. Although these orders are subject to
cancellation, management expects to fill substantially all orders by the second
quarter of 1999. The decline in the Company's backlog as of March 15, 1999
compared to that in 1998 is largely a function of the Company's increased
efficiency in the processing and filling of customer orders.
GOVERNMENT REGULATION
General
All pharmaceutical manufacturers, including the Company, are subject to
extensive regulation by the Federal government, principally by the FDA, and, to
a lesser extent, by state and local governments. Additionally, the Company is
subject to extensive regulation by the DEA as a manufacturer of controlled
substances. The Company cannot predict the extent to which it may be affected by
legislative and other
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regulatory developments concerning its products and the healthcare industry
generally. The Federal Food, Drug, and Cosmetic Act, the Generic Drug
Enforcement Act of 1992, the Controlled Substance Act and other Federal statutes
and regulations govern or influence the testing, manufacture, safe labeling,
storage, record keeping, approval, pricing, advertising, promotion, sale and
distribution of pharmaceutical products. Noncompliance with applicable
requirements can result in fines, recall or seizure of products, criminal
proceedings, total or partial suspension of production, and refusal of the
government to enter into supply contracts or to approve new drug applications.
The FDA also has the authority to revoke approvals of new drug applications. The
ANDA drug development and approval process now averages approximately eight
months to two years. The approval procedures are generally costly and time
consuming.
FDA approval is required before any "new drug," whether prescription or
over-the-counter, can be marketed. A "new drug" is one not generally recognized
by qualified experts as safe and effective for its intended use. Such general
recognition must be based on published adequate and well controlled clinical
investigations. No "new drug" may be introduced into commerce without FDA
approval. A drug which is the "generic" equivalent of a previously approved
prescription drug also will require FDA approval. Furthermore, each dosage form
of a specific generic drug product requires separate approval by the FDA. In
general, as discussed below, less costly and time consuming approval procedures
may be used for generic equivalents as compared to the innovative products.
Among the requirements for drug approval is that the prospective manufacturer's
methods must conform to the CGMPs. CGMPs apply to the manufacture, receiving,
holding and shipping of all drugs, whether or not approved by the FDA. CGMPs
must be followed at all times during which the drug is manufactured. To ensure
full compliance with standards, some of which are set forth in regulations, the
Company must continue to expend time, money and effort in the areas of
production and quality control. Failure to so comply risks delays in approval of
drugs, disqualification from eligibility to sell to the government, and possible
FDA enforcement actions, such as an injunction against shipment of the Company's
products, the seizure of noncomplying drug products, and/or, in serious cases,
criminal prosecution. The Company's manufacturing facilities are subject to
periodic inspection by the FDA.
In addition to the regulatory approval process, the Company is subject to
regulation under Federal, state and local laws, including requirements regarding
occupational safety, laboratory practices, environmental protection and
hazardous substance control, and may be subject to other present and future
local, state, Federal and foreign regulations, including possible future
regulations of the pharmaceutical industry.
Drug Approvals
There are currently three ways to obtain FDA approval of a new drug.
1. New Drug Applications ("NDA"). Unless one of the procedures discussed
in paragraph 2 or 3 below is available, a prospective manufacturer must conduct
and submit to the FDA complete clinical studies to prove a drug's safety and
efficacy, in addition to the bioavailability and/or bioequivalence studies
discussed below, and must also submit to the FDA information about manufacturing
practices, the chemical make-up of the drug and labeling.
2. Abbreviated New Drug Applications ("ANDA"). The Drug Price Competition
and Patent Term Restoration Act of 1984 (the "1984 Act") established the ANDA
procedure for obtaining FDA approval for those drugs that are off-patent or
whose exclusivity has expired and that are bioequivalent to brand-name drugs. An
ANDA is similar to an NDA, except that the FDA waives the requirement of
conducting complete clinical studies of safety and efficacy, although it may
require expanded clinical bioavailability and/or bioequivalence studies.
"Bioavailability" means the rate of absorption and levels of concentration of a
drug in the blood stream needed to produce a therapeutic effect.
"Bioequivalence" means equivalence in bioavailability between two drug products.
In general, an ANDA will be approved only upon a showing that the generic drug
covered by the ANDA is bioequivalent to the previously approved version of the
drug, i.e., that the rate of absorption and the levels of concentration of a
generic drug in the body are substantially equivalent to those of a previously
approved equivalent drug. The principle advantage of this approval mechanism is
that an ANDA applicant is not required to conduct the same preclinical and
clinical studies to demonstrate that the product is safe and effective for its
intended use.
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The 1984 Act, in addition to establishing the ANDA procedure, created new
statutory protections for approved brand-name drugs. In general, under the 1984
Act, approval of an ANDA for a generic drug may not be made effective until all
product and use patents listed with the FDA for the equivalent brand name drug
have expired or have been determined to be invalid or unenforceable. The only
exceptions are situations in which the ANDA applicant successfully challenges
the validity or absence of infringement of the patent and either the patent
holder does not file suit or litigation extends more than 30 months after notice
of the challenge was received by the patent holder. Prior to enactment of the
1984 Act, the FDA gave no consideration to the patent status of a previously
approved drug. Additionally, under the 1984 Act, if specific criteria are met,
the term of a product or use patent covering a drug may be extended up to five
years to compensate the patent holder for the reduction of the effective market
life of that patent due to federal regulatory review. With respect to certain
drugs not covered by patents, the 1984 Act sets specified time periods of two to
ten years during which approvals of ANDAs for generic drugs cannot become
effective or, under certain circumstances, ANDAs cannot be filed if the
equivalent brand-name drug was approved after December 31, 1981.
3. "Paper" NDA. An alternative NDA procedure is provided by the 1984 Act
whereby the applicant may rely on published literature and more limited testing
requirements. While that alternative sometimes provides advantages over the ANDA
procedure, it is not frequently used.
Generic Drug Enforcement Act
As a result of hearings and investigations concerning the activities of the
generic drug industry and the FDA's generic drug approval process, Congress
enacted the Generic Drug Enforcement Act of 1992 (the "Generic Drug Act"). The
Generic Drug Act confers significant new authority upon the FDA to impose
debarment and civil penalties for individuals and companies who commit certain
illegal acts relating to the generic drug approval process.
The Generic Drug Act requires the mandatory debarment of companies or
individuals convicted of a federal felony for conduct relating to the
development or approval of any ANDA, and gives the FDA discretion to debar
corporations or individuals for similar conduct resulting in a federal
misdemeanor or state felony conviction. The FDA may not accept or review during
the period of debarment (one to ten years in the case of mandatory, or up to
five years in the case of permissive, debarment of a corporation) any ANDA
submitted by or with the assistance of the debarred corporation or individual.
The Generic Drug Act also provides for temporary denial of approval of generic
drug applications during the investigation of crimes that could lead to
debarment. In addition, in more limited circumstances, the Generic Drug Act
provides for suspension of the marketing of drugs under approved generic drug
applications sponsored by affected companies. The Generic Drug Act also provides
for fines and confers authority on the FDA to withdraw, under certain
circumstances, approval of a previously granted ANDA if the FDA finds that the
ANDA was obtained through false or misleading statements. The Company was not
debarred as a result of the FDA investigation and settlement and the Consent
Decree with the FDA makes no provision therefor.
Healthcare Reform
Several legislative proposals to address the rising costs of healthcare
have been introduced in Congress and several state legislatures. Many of such
proposals include various insurance market reforms, the requirement that
businesses provide health insurance coverage for all their employees,
significant reductions in the growth of future Medicare and Medicaid
expenditures, and stringent government cost controls that would directly control
insurance premiums and indirectly affect the fees of hospitals, physicians and
other healthcare providers. Such proposals could adversely affect the Company's
business by, among other things, reducing the demand, and the prices paid, for
pharmaceutical products such as those produced and marketed by the Company.
Additionally, other developments, such as (i) the adoption of a nationalized
health insurance system or a single payor system, (ii) changes in needs-based
medical assistance programs, or (iii) greater prevalence of capitated
reimbursement of healthcare providers, could adversely affect the demand for the
Company's products.
10
<PAGE> 12
COMPETITION
The Company competes in varying degrees with numerous companies in the
health care industry, including other manufacturers of generic drugs (among
which are divisions of several major pharmaceutical companies) and manufacturers
of brand-name drugs. Many of the Company's competitors have substantially
greater financial and other resources and are able to expend more money and
effort than the Company in areas such as marketing and product development.
Although a company with greater resources will not necessarily receive FDA
approval for a particular generic drug before its smaller competitors,
relatively large research and development expenditures enable a company to
support many FDA applications simultaneously, thereby improving the likelihood
of being among the first to obtain approval of at least some generic drugs.
One of the principal competitive factors in the generic pharmaceutical
market is the ability to introduce generic versions of brand-name drugs promptly
after a patent expires. The Company believes that it was at a competitive
disadvantage until its release from the AIP program and the FDA's resumption of
review of ANDAs submitted by the Company's Brooklyn plant. See "Government
Regulation -- Generic Drug Enforcement Act" above. Other competitive factors in
the generic pharmaceutical market are price, quality and customer service
(including maintenance of sufficient inventories for timely deliveries).
RAW MATERIALS
The raw materials essential to the Company's business are bulk
pharmaceutical chemicals purchased from numerous sources. Raw materials are
generally available from several sources. The Federal drug application process
requires specification of raw material suppliers. If raw materials from a
supplier specified in a drug application were to become unavailable on
commercially acceptable terms, FDA supplemental approval of a new supplier would
be required. During 1998, the Company purchased approximately $2,583,000 of its
raw materials (constituting 29% of its aggregate purchases of raw materials)
from Mallinckrodt. Although the Company is now able to submit Supplements to the
FDA in order to allow the Company to purchase raw materials from alternate
sources, there can be no assurance that if the Company were unable to continue
to purchase raw materials from this supplier, that the Company would be
successful in receiving FDA approval to such Supplement or that it would not
face difficulties in obtaining raw materials on commercially acceptable terms.
Failure to receive FDA approval for, and to locate, an acceptable alternative
source of raw materials would have a material adverse effect on the Company.
The United States Drug Enforcement Administration (the "DEA") limits the
quantity of the Company's inventories of certain raw materials used in the
production of controlled substances based on historical sales data. In view of
the Company's recently depressed sales volume, these DEA limitations could
increase the likelihood of raw material shortages and of manufacturing delays in
the event the Company experiences increased sales volume or is required to find
new suppliers of these raw materials.
SUBSIDIARIES
The Company's Indiana manufacturing operations are conducted by Houba,
Inc., an Indiana corporation and wholly-owned subsidiary of the Company. Halsey
Pharmaceuticals, Inc., a Delaware corporation, is a wholly-owned subsidiary
which is currently inactive. The Company also has the following additional
subsidiaries, each of which is currently inactive and anticipated to be
dissolved during the remainder of the 1999 fiscal year: Indiana Fine Chemicals
Corporation, a Delaware corporation, H.R. Cenci Laboratories, Inc., a California
corporation, Cenci Powder Products, Inc., a Delaware corporation, Blue Cross
Products, Inc., a New York corporation, and The Medi-Gum Corporation, a Delaware
corporation.
EMPLOYEES
As of March 15, 1999, the Company had approximately 160 full-time
employees. Approximately 39 employees are administrative and professional
personnel and the balance are in production and shipping. Among the professional
personnel, 5 are engaged in research and product development. Approximately 45
employees at the Company's Brooklyn plant are represented by a local collective
bargaining unit. The collective bargaining agreement between the Company and the
union was extended on March 5, 1998
11
<PAGE> 13
(retroactive to July 2, 1997) and expires June 30, 2000. Management believes
that its relations with its employees and the union are satisfactory.
ITEM 2. PROPERTIES.
Halsey leases, as sole tenant, a pharmaceutical manufacturing facility of
approximately 35,000 square feet located at 77 Brenner Drive, Congers, New York.
The Agreement of Lease, with an unaffiliated third party, contains a three year
term with a two year renewal option and provides for annual fixed rent of
$500,000 per year during the primary term of the Lease and $600,000 per year
during the renewal period. The primary term of the Lease expires on March 21,
2002. The Leased facility houses a portion of the Company's manufacturing
operations and includes office and warehouse space. The Lease also contains an
option pursuant to which the Company may purchase the leased premises and
improvements (including certain production and related equipment) for a purchase
price of $5 million, exercisable at any time during the Lease term.
Halsey leases, as sole tenant, a total of approximately 112,300 square feet
in three buildings on Pacific Street and Dean Street in Brooklyn, New York. Each
of these leases is between Halsey and unaffiliated lessors. The approximate
aggregate minimum rental commitments under these operating leases are as
follows: $1,023,000 for the year 1999, $1,075,000 for the year 2000 and
$1,128,000 for the year 2001. These leases expire on December 31, 2005. The
buildings leased by Halsey in Brooklyn house its research and development
operations and a portion of its manufacturing operations.
Halsey leases approximately 4,700 square feet of office space located at
695 North Perryville Road, Building No. 2, Rockford, Illinois. The lease is
between the Company and an unaffiliated lessor. The lease has a term of two
years expiring March 30, 2000 and calls for annual rental, including maintenance
and common area expense, of approximately $50,000 per year. This leased facility
houses the Company's principal executive offices, including its sales,
administration and finance operations.
Houba owns approximately 45,000 square feet of building space on
approximately 30 acres of land in Culver, Indiana, which includes a 15,000
square foot manufacturing facility. This manufacturing facility houses separate
plants for the production of Doxycycline raw materials, Doxycycline capsules and
tablets. In 1996, in conjunction with a settlement with two former employees,
the Company acquired real property, improved by a residential property, in
Culver, Indiana adjacent to the manufacturing facility.
ITEM 3. LEGAL PROCEEDINGS.
GOVERNMENTAL PROCEEDINGS
By letter dated October 23, 1995, the Company was notified by the New York
State Education Department (the "Department") that the Professional Conduct
Officer of the Office of Professional Discipline had determined that there was
sufficient evidence of professional misconduct on the Company's part to warrant
a disciplinary proceeding under New York law. Upon contacting the Deputy
Director of the Office of Professional Discipline, counsel for the Company was
advised that the alleged misconduct related to the same activities that were the
subject of the DOJ investigation. The Company submitted a written response to
the Department on November 16, 1995. The Company and the Department entered into
a consent order effective July 18, 1997, concluding any disciplinary
proceedings. The consent order requires that the Company pay $175,000 in fines
over a period of five years. The consent order also provides that the Company's
registration as a manufacturer of drugs in New York State is revoked, but such
revocation is stayed and the Company has been placed on probation for a maximum
period of five years. The Company has the right to apply for removal from
probation two years after the effective date of the consent order. At December
3, 1998, the Company is current in its payment obligations and the remaining
balance is $140,000.
Immediately prior to the completion of the Offering, the Company was in
default under the consent order with the Department for failure to satisfy two
of the monthly installments of the fine as provided in the consent order. Prior
to the completion of the Offering, the Company advised the Department as to the
existence of the default and that such deficiencies would be corrected upon the
completion of the Offering. The Company has
12
<PAGE> 14
satisfied these outstanding amounts and is now current under the consent order
with the Department. Based on discussions between representatives of the
Department and the Company's outside counsel handling this matter, the Company
has been advised that the revocation of the Company's registration as a
manufacturer of drugs in the State of New York will remain stayed and that the
Company continues to have the right to apply for removal from probation after
two years from the effective date of the consent order.
Reference is also made to the discussion of the Company's Plea Agreement
and Letter Agreement with the DOJ contained in "Item 1. Business -- Recent
Events" and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OTHER LEGAL PROCEEDINGS
Beginning in 1992, actions were commenced against the Company and numerous
other pharmaceutical manufacturers in the Pennsylvania Court of Common Pleas,
Philadelphia Division, in connection with the alleged exposure to
diethylstilbestrol ("DES"). The defense of all of such matters was assumed by
the Company's insurance carrier, and a substantial number have been settled by
the carrier. Currently, five actions remain pending with the Company as a
defendant, and the insurance carrier is defending each action. Similar actions
were brought in Ohio, and have been dismissed based on Ohio law. The Company
does not believe any of such actions will have a material impact on the
Company's financial condition.
The Company has been named as a defendant in four additional actions, each
of which has been referred to the Company's insurance carrier and has been
accepted for defense. The first action, Alonzo v. Halsey Drug Co., Inc. and
K-Mart Corp., No. 64DOT-95111-CT-2736 (Indiana Superior Court, Porter County),
was commenced on November 7, 1995 and involves a claim for unspecified damages
relating to the alleged ingestion of "Doxycycline 100." At this early stage of
the proceedings, the Company is unable to predict with any degree of certainty
the likely outcome of these claims and whether they will have a material adverse
effect on the Company's financial condition. The second action, Files v. Halsey
Drug Co., Index No. 198787/93 (New York Supreme Court, Suffolk County),
commenced on September 16, 1993, seeking $10,000,000 in damages for wrongful
death allegedly caused by the ingestion of Isoniazid. Halsey has been dismissed
from this action on motion for summary judgment. The third and fourth actions,
entitled Hunt v. Halsey Drug Co., Inc., and McCray v. Halsey Drug Co., Inc. (New
York State Supreme Court, Kings County), were commenced on October 21, 1993,
seeking the recovery of $8,000,000 for alleged personal injuries suffered by two
Well Fargo security guards who responded to an alarm and were shot, resulting in
the death of one and the injury to the other. The Company is being defended by
its insurance carrier. The Company has impleaded the former security service
used by the Company as a third-party defendant. These actions were settled at a
conference before the Court on December 21, 1998. The settlement documents have
been executed, and the settlement is expected to be consummated shortly.
The Company has been named as a defendant in a complaint filed with the
United States District Court, Eastern District of New York, on June 30, 1998
(the "Complaint") by Quality Products and Services, L.L.C. The Complaint alleges
the existence of a Joint Venture Agreement between the Plaintiff and the Company
concerning the development, manufacture and marketing of a single product. The
Complaint also alleges that the Company has breached the Agreement by failing to
satisfy its respective obligations defined in the Agreement. The Complaint seeks
monetary damages of approximately $20 million. The Company believes that the
allegations contained in the Complaint are without basis in fact, and that is
has meritorious defenses to each of the allegations. The Company has retained
counsel and intends to vigorously defend this action. This matter is currently
in discovery. The Company has filed a third-party complaint against Rosendo
Ferran, the Company's former President, in connection with the Complaint.
The Company has been named as a defendant in an action in Suffolk County,
New York, by Designed Laboratories, Inc., for construction work allegedly
performed at the Company's facilities in Brooklyn. Plaintiffs is seeking
approximately $148,000. The Company has no records of work being performed by
this entity, and is therefore defending the action.
The Company's former President, Rosendo Ferran, has instituted an
arbitration against the Company, seeking sums allegedly due under his employment
contract in the amount of $225,000.00, deferred salary in
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<PAGE> 15
the approximate amount of $100,000.00, and unspecified damages upon allegations
of age, ethnic and religious discrimination. The Company believes it has
meritorious defenses to the allegations claimed in the arbitration. The Company
does not believe this claim will have a material adverse effect on the Company's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
MARKET AND MARKET PRICES OF COMMON STOCK
The Company's Common Stock is listed on the American Stock Exchange (the
"Exchange") under the symbol "HDG." Set forth below for the periods indicated
are the high and low sales prices for the Common Stock as reported on the
Exchange.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- ---
<S> <C> <C>
1999 Fiscal Year
First Quarter (through March 15, 1999).................... 1 9/16 1
1998 Fiscal Year
First Quarter............................................. 3 5/8 1 1/4
Second Quarter............................................ 3 1/8 2 3/8
Third Quarter............................................. 2 3/4 1 1/2
Fourth Quarter............................................ 1 7/8 1
1997 Fiscal Year
First Quarter............................................. 6 4 3/8
Second Quarter............................................ 5 1/8 2 9/16
Third Quarter............................................. 4 13/16 2 5/16
Fourth quarter............................................ 4 13/16 1 5/16
</TABLE>
The Company does not meet certain of the Exchange's criteria for continued
listing. Accordingly, there can be no assurance that the Company's common stock
will remain listed on the American Stock Exchange or that the Exchange will not
commence a review of the Company's continued listing eligibility. If the Common
Stock should become delisted from the Exchange, trading, if any, in the Common
Stock would continue on the OTC Bulletin Board, an NASD-sponsored inter-dealer
quotation system, or in what is commonly referred to as the "Pink Sheets". In
such event, a shareholder may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of the Common Stock.
HOLDERS
There were 827 holders of record of the Company's common stock on March 15,
1999. This number, however, does not reflect the ultimate number of beneficial
holders of the Company's common stock.
DIVIDEND POLICY
The payment of cash dividends from current earnings is subject to the
discretion of the Board of Directors and is dependent upon many factors,
including the Company's earnings, its capital needs and its general financial
condition. The terms of the Company's 5% convertible senior secured debentures
and the Consolidated Bridge Loan prohibit the Company from paying cash
dividends. The Company does not intend to pay any cash dividends in the
foreseeable future.
14
<PAGE> 16
PRIVATE OFFERINGS
The Company secured bridge financing from Galen and certain investors in
the Offering in the aggregate amount of $9,504,111, funded through seven
separate bridge loan transactions between the period August through and
including December, 1998, as well as an additional bridge loan completed in
March, 1999 (collectively, the "Bridge Loans"). The Bridge Loans were
consolidated on December 2, 1998 pursuant to an Amended, Restated and
Consolidated Bridge Loan Agreement, as amended to permit the March, 1999 bridge
loan (the "Consolidated Bridge Loan"). The Consolidated Bridge Loan is evidenced
by ten (10%) percent convertible senior secured promissory notes which are
convertible at any time prior to the maturity date of May 30, 1999 into shares
of the Company's Common Stock at a conversion price of approximately $1.368 per
share with respect to approximately $7,820,000 of such indebtedness, $1.331 per
share with respect to approximately $284,000 of such indebtedness, and $1.197
per share with respect to approximately $1,400,000 of such indebtedness, for an
aggregate of 7,099,338 shares of Common Stock (such conversion prices equal the
fair market value of the Common Stock at the date of issuance of the convertible
promissory notes). In addition, in consideration for the initial extension for
the Bridge Loans and the extension of the maturity dates of the Bridge Loans
pursuant to the consolidation of such loans on December 2, 1998, the Company
issued common stock purchase warrants to the lenders in the Consolidated Bridge
Loan to purchase an aggregate of approximately 1,009,909 shares of the Company's
Common Stock. The Bridge Loan warrants are substantially identical to those
issues in the debenture and warrant offering completed March 10, 1998.
Each of the lenders in the Consolidated Bridge Loan transaction are
accredited investors as defined in Rule 501(a) of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"). The convertible notes and
warrants issued in connection with the Consolidated Bridge Loan were issued
without registration under the Act in reliance upon Section 4(2) of the Act and
Regulation D promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data presented on the following pages
for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 are derived
from the Company's audited Consolidated Financial Statements. The Consolidated
Financial Statements as of December 31, 1998 and December 31, 1997, and for each
of the years in the three year period ended December 31, 1998, and the report
thereon, are included elsewhere herein. The selected financial information as of
and for the years ended December 31, 1995 and 1994 are derived from the audited
Consolidated Financial Statements of the Company not presented herein.
The information set forth below is qualified by reference to, and should be
read in conjunction with, the Consolidated Financial Statements and related
notes thereto included elsewhere in this Report and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
15
<PAGE> 17
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.......................... $ 8,841 $ 9,088 $ 12,379 $ 20,225 $ 24,182
Costs and expenses
Cost of sales.................... 12,712 15,407 16,826 18,097 21,584
Research and development........... 651 979 1,854 818 502
Selling, general and
administrative................... 8,078 6,308 7,486 6,098 7,128
Interest expense................... 1,946 1,144 1,708 1,307 735
Loss (Gain) on sale of assets...... (1,822) 264 (1,000) (2,288) --
Income (loss) before provision for
income taxes..................... (12,724) (15,014) (14,495) (3,807) (5,767)
Provision (benefit) for
income taxes..................... -- -- -- 296 --
Net income (loss).................. (12,724) $ (15,014) $ (14,495) $ (4,103) $ (5,767)
=========== =========== ========== ========== ==========
Net income (loss) per share........ $ (.92) $ (1.12) $ (1.49) $ (.52) $ (.80)
=========== =========== ========== ========== ==========
Weighted average common shares
outstanding...................... 13,812,529 13,434,215 9,724,106 7,886,101 7,173,908
=========== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)......... $ (6,665) $(22,304) $(12,201) $ (7,393) $(4,451)
Total assets......................... 15,913 7,667 11,982 18,862 19,276
Total liabilities.................... 44,866 27,524 19,063 20,402 19,924
Retained earnings
(accumulated deficit).............. (57,221) (44,497) (29,484) (14,989) (10,886)
Stockholders' equity (deficit)....... (28,953) (19,857) (7,081) (1,540) (468)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain statements set forth under this caption constitute "forward-looking
statements" within the meaning of the Reform Act. See "Special Note Regarding
Forward-Looking Statements " on page 1 of this Report for additional factors
relating to such Statements.
OVERVIEW
The Company reported a net loss of $12,724,000 or $.92 per share for the
year ended December 31, 1998 as compared with the net loss of $15,015,000 or
$1.12 per share for 1997. Sales for the year ended December 31, 1998 were
approximately $8,841,000 as compared to sales of approximately $9,088,000 for
1997. Notwithstanding these results, the Company had the following achievements
in 1998:
- Received infusion of capital enabling the Company to settle past
obligations and provide for future opportunities.
- Reestablished itself in the marketplace as a dependable supplier of
quality products, expanded its customer base and reduced reliance upon a
single customer.
- Reestablished relationships with suppliers.
- Received approval from the FDA of two ANDA's, submitted five others for
approval and continued development on additional products for submission
in 1999.
- Discontinued certain non-core operations and reduced the workforce by
approximately 25%.
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<PAGE> 18
RESULTS OF OPERATIONS
The following chart reflects expenses, earnings, income, losses and profits
expressed as a percentage of net sales for the years 1998, 1997 and 1996.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE
YEAR-TO-YEAR
INCREASE (DECREASE)
PERCENTAGE OF NET SALES YEARS ENDED
YEAR ENDED DECEMBER DECEMBER 31,
-------------------------- ----------------------------
1998 1997 1996 1997 TO 1998 1996 TO 1997
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100% 100% 100.0% (2.7) (26.6)
Cost of Goods.......................... 143.8 169.5 135.9 (17.5) (8.47)
Gross Profit........................... (43.8) (69.5) (35.9) (38.7) 42.1
Research & Development................. 7.4 10.8 15.0 (33.5) 47.2
Selling, general and administrative
expense.............................. 91.4 69.4 60.5 29.5 (15.7)
(Loss) from operations................. (142.5) (149.7) (111.4) (6.7) (1.3)
Interest expense....................... 22.0 12.6 13.9 70.1 (33.0)
Other (income) expenses................ (20.6) 2.9 (8.2) -- (126.4)
(Loss) before income taxes............. (143.9) (165.2) (117.1) (14.6) 3.6
Net (loss)............................. (143.9)% (165.2)% (117.1)% (14.6)% 3.6%
====== ====== ======
</TABLE>
NET SALES
Net sales for 1998 of $8,841,000 represents a decrease of $247,000 as
compared to net sales for 1997. The decrease is attributable in part to a
reduction in toll manufacturing revenue from Mallinckrodt of approximately
$878,000 from the prior year. Additionally, the Company was unable to market
successfully to the retail pharmacy marketplace until the third quarter of 1998
because during fiscal 1996 and 1997, the Company had failed to pay required
rebates to state Medicaid agencies. This caused those states to deny medicaid
reimbursement to the retail pharmacies on their sales of the Company's products.
Commensurate with the infusion of new capital and personnel in March, 1998, the
Company began reestablishing itself in good standing with all states. This task
was completed by July, 1998. Also during much of 1988, the Company experienced
difficulty in obtaining certain raw materials which reduced sales. These
shortages were remedied by December 31, 1998.
Net sales for 1997 of $9,088,000 represents a decreased of $3,291,000 as
compared to net sales for 1996. This decrease is primarily attributable to a
lack of sufficient working capital necessary to purchase raw materials. Without
adequate inventory, the Company was unable to satisfy customer orders in a
timely fashion and caused customers to procure products from competitors.
GROSS MARGINS
The Company's gross margin for 1998 of (43.8)% is a 38.7% improvement over
gross margin for 1997. This improvement is due, in part, to the elimination of
non-core manufacturing operations in California, tighter inventory controls and
a general reduction in manufacturing labor. Additionally, the Company's revenues
in 1998 from sales to Mallinckrodt under a toll manufacturing agreement
decreased by approximately $878,000. The gross margins on these products were
substantially less than on the Company's other products.
The Company's gross margin for 1997 of (69.5)% is a 42.1% reduction over
gross margin for 1996. This deterioration occurred because the Company failed to
react quickly enough to falling sales by decreasing manufacturing expenses.
Additionally, the Company incurred approximately $1,572,000 of manufacturing
costs in operating non-core facilities that generated sales of only $495,000.
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<PAGE> 19
RESEARCH & DEVELOPMENT EXPENSES
For 1998, research and development expenses amounted to $651,000 as
compared to $979,000 for 1997. The decrease primarily reflects the costs of
biostudies performed in 1997 that were not duplicated in 1998.
For 1997, research and development expenses amounted to $979,000 as
compared to $1,854,000 for 1996. This decrease was a result of reductions in
personnel necessitated by the Company's liquidity crisis.
The Company expects research and development expenses to increase
significantly in 1999 consistent with its plans to increase the number of ANDA
submissions as compared to 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative costs were $8,078,000 (91.4% of net
sales) for 1998 compared to $6,308,000 (69.4% of net sales) for 1997. This
increase is primarily due to costs associated with capital financing, legal
expenses and settlement costs of certain litigation, severance costs associated
with personnel reductions, installation of a new information system and costs
associated with expanded regulatory and compliance departments.
Selling, general and administrative costs were $6,308,000 (69.4% of net
sales) for 1997 compared to $7,486,000 (60.5% of net sales) for 1996. This
decrease is due primarily to a reduction in legal expenses and litigation
settlements as compared to 1996.
INTEREST EXPENSE
Interest expense for 1998 increased by 62% over that of 1997 reflecting the
substantial new debt in the form of $25,800,000 of convertible debentures that
was added in 1998 [include bridge loan debt?]. Interest expense for 1997
decreased 33.0% as compared to 1996 due primarily to the conversion in the
latter part of 1996 of $7,740,000 of convertible debentures bearing interest at
10% into common stock. Interest expense for 1996 increased 77.8% as compared to
1995 as a result of a higher level of borrowings due to the issuance of
convertible subordinated debentures, as well as fees payable to the Company's
banks.
OTHER INCOME
Included in other income for 1998 is $1,900,000 realized from the sale of
certain assets to Mallinckrodt. This transaction was entered into in 1997 but
the conditions for realization of the gain from the sale were not met until
1998.
PROVISION FOR INCOME TAXES
The Company had no tax (benefit) provision for 1998, 1997 and 1996 since
the available loss carry back to prior years was completely utilized by the net
operating loss for 1993 carry back to the prior three years. At December 31,
1998, the Company has a Federal tax refund claim of approximately $1,000,000
pending before the tax authorities. In the meantime, the IRS is holding up
action to collect approximately $1,300,000 of past due payroll taxes.
Additionally, the Company has negotiated payment plans for approximately
$500,000 of past due state and local taxes. The Company has net operating loss
carryforwards of approximately $45,600,000 which expire in the years 2011
through 2018.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents of
$1,850,000 as compared to $26,000 at December 31, 1997. The Company had a
working capital deficit at December 31, 1998 of $(6,665,000).
On March 10, 1998, the Company completed the Offering to Galen Partners
III, L.P., Galen Partners International III, L.P., Galen Employee Fund III, L.P.
(collectively, "Galen") and each of the Purchasers (along with Galen,
collectively the "Galen Investor Group") listed on the signature page to a
certain Debenture and Warrant Purchase Agreement dated March 10, 1998 (the
"Purchase Agreement"). The net
18
<PAGE> 20
proceeds to the Company from the Offering, after deduction of related Offering
expenses, were approximately $19.6 million. 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. In addition,
in accordance with the terms of the Purchase Agreement, the Company granted the
Galen Investor Group an option to invest an additional $5 million in the Company
at any time within 18 months from the date of the closing of the Offering in
exchange for Debentures and Warrants having terms identical to those issued in
the Offering (the "Option"). In June 1998, the Galen Investor Group exercised
the Option.
The net proceeds of the Offering were, in large part, used to satisfy a
substantial portion of the Company's liabilities and accounts payable. Such
liabilities include the full satisfaction of the Company's Bank indebtedness and
related fees, payment of arrearages in rent to the landlord of the Brooklyn
facility and satisfaction of outstanding judgments and liens. Additionally,
pursuant to agreements reached with other large creditors in anticipation of the
completion of the Offering, including the Department of Justice, the Company has
been able to bring these creditors current and bring the Company into compliance
with installment payment agreements providing more favorable terms to the
Company. The Offering proceeds also allowed the Company to satisfy its
outstanding state and Federal payroll tax obligations and meet current payroll
tax obligations. The net proceeds from the exercise of the Option were used to
fund working capital, including the purchase of raw materials, payroll expenses
and other Company expenses.
Prior to the completion of the Offering, the Company was in negotiations
with the DOJ to restructure the payment of the $2,500,000 fine that had been
levied under the Plea Agreement in order to address the Company's failure to
satisfy the $125,000 quarterly installments provided for under the Plea
Agreement. On March 30, 1998, the Company and the DOJ signed a Letter Agreement
serving to amend the Plea Agreement relating to the terms of the Company's
satisfaction of the fine assessed under the Plea Agreement. Specifically, the
Letter Agreement provides that the Company will satisfy the remaining $2,150,000
of the fine through the payment of $25,000 on a monthly basis commencing June 1,
1998, plus interest on such outstanding balance (at the rate calculated pursuant
to 28 U.S.C. Section 1961)(currently 5.319%). Such payment schedule would result
in the full satisfaction of the DOJ fine in January, 2006. The Letter Agreement
also provides certain restrictions on the payment of salary or compensation to
any individual in excess of $150,000 without the written consent of the United
States District Court for the District of Maryland, subject to certain
exceptions. In addition, the Letter Agreement requires the prepayment of the
outstanding fine to the extent of 25% of the Company's after tax profit and 25%
of the net proceeds received by the Company on any sale of a capital asset for a
sum in excess of $10,000.
During the period from May 1997 through July 1997, the Company borrowed
approximately $3 million from Mylan Laboratories, Inc. pursuant to five
unsecured, demand promissory notes. The advances made by Mylan Laboratories,
Inc. were part of a proposed investment by Mylan Laboratories, Inc. in the
Company, including the proposed purchase of the Company's Houba Indiana facility
as well as a partial tender offer for the Company's common stock. The Company
used the proceeds of these borrowings for working capital. To date, $236,000 has
been paid by the Company to Mylan against such indebtedness in the form of
product deliveries to Mylan. Pursuant to an agreement reached between the
parties, the Company is required to satisfy interest on the outstanding
indebtedness on an annual basis while the indebtedness remains outstanding and
to satisfy the principal amount of such indebtedness in the form of product
deliveries to Mylan until such time as the indebtedness is satisfied in full.
The Company secured bridge financing from Galen and certain investors in
the Offering in the aggregate amount of $9,504,111, funded through seven
separate bridge loan transactions between the period from August through and
including December, 1998, as well as an additional bridge loan in March, 1999
(collectively, the "Bridge Loans"). The Bridge Loans were consolidated on
December 2, 1998 pursuant to an Amended, Restated and Consolidated Bridge Loan
Agreement, as amended to permit the March, 1999 bridge loan (the "Consolidated
Bridge Loan"). The Consolidated Bridge Loan bears interest at 10% per annum, is
secured by a first lien on all of the Company's assets and has a maturity date
of May 30, 1999. Approximately $9,120,000 in the principal amount of the
Consolidated Bridge Loan was advanced by Galen with the balance of approximately
$384,000 advanced by certain investors in the Offering. The Consolidated Bridge
Loan is
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<PAGE> 21
evidenced by 10% convertible senior secured promissory notes which are
convertible at any time prior to maturity into shares of the Company's Common
Stock at a conversion price of approximately $1.368 per share with respect to
approximately $7,820,000 of such indebtedness, $1.331 per share with respect to
approximately $284,000 of such indebtedness, and $1.197 per share with respect
to approximately $1,400,000 of such indebtedness, for an aggregate of 7,099,338
shares of common stock (such conversion prices equal the fair market value of
the Common Stock at the date of issuance of the convertible promissory notes).
In addition, in consideration for the initial extension of the Bridge Loans and
the extension of the maturity dates of the Bridge Loans pursuant to the
consolidation of such loans on December 2, 1998, as amended to permit the March,
1999 bridge loan, the Company issued common stock purchase warrants to Galen and
the other investors in the Consolidated Bridge Loan, to purchase an aggregate of
approximately 1,009,909 shares of the Company's common stock (representing
warrants to purchase 50,000 shares of Common Stock for each $1,000,000 in
principal amount of Bridge Loan having a term of 90 days from the date of the
making of the Bridge Loan). The Bridge Loan warrants are substantially identical
to those issued by the Company in its Debenture and Warrant Offering completed
on March 10, 1998.
The Consolidated Bridge Loan was obtained by the Company in order to
provide necessary working capital. In view of the Company's current cash
reserves and projections for revenues through May 30, 1999, the Company will be
unable to satisfy the Consolidated Bridge Loan in full at the stated maturity
date of May 30, 1999. Galen, the holder of approximately 96% of such
indebtedness, has indicated to the Company a willingness to cooperate in the
restructuring of the indebtedness evidenced by the Consolidated Bridge Loan to
extend the maturity date of such debt and/or convert the debt into common stock
or longer-term convertible indebtedness. The terms of such restructuring will
depend, to a large extent, on the terms and timing of any third-party
investment, as described below. Accordingly, the terms of any such restructuring
have yet to be agreed to by the parties and will be subject to the negotiation
and preparation of definitive agreements.
The Company is in preliminary discussions with an unaffiliated third party
concerning the terms of a proposed investment in the Company in an amount of up
to $15 million, to be funded in three equal increments based on the achievement
of certain milestones. The structure of the investment will likely take the form
of convertible debentures and common stock purchase warrants, similar in many
respects to the debentures and warrants issued by the Company in its March 10,
1998 offering. The discussions with this third party investor are in the
preliminary stages and no assurance can be given that final terms acceptable to
the Company will result and/or that if consummated, that the Company will be
successful in achieving the milestones necessary to fund all or any portion of
the proposed investment.
In the event the Company is successful in restructuring the Consolidated
Bridge Loan and completing a third party investment of the type and size
described above, the Company will have sufficient cash reserves to satisfy its
working capital requirements for at least the next 12 months. The Company is
also seeking to secure a senior revolving line of credit from a banking
institution. There can be no assurance, however, that the Company will be able
to obtain such third party investment or a bank facility. If the Company is
unable to complete the third party investment described above or obtain other
sources of working capital, including a bank line of credit or proceeds from the
issuance of debt and/or equity securities, the Company's cash reserves will be
sufficient to satisfy the Company's working capital requirements for
approximately two to three months. Failure to obtain a third party investment of
the type described above, a bank line of credit or alternative sources of
financing of a comparable amount in the near term will materially adversely
affect the Company's working capital position and financial condition and
results of operations.
CAPITAL EXPENDITURES
The Company's capital expenditures during 1998, 1997 and 1996 were
$1,545,000, $85,000 and $390,000. The increase in capital expenditures in 1998
as compared to prior years is attributable to the implementation of certain
equipment and facility upgrades that had been delayed in prior years due to the
Company's cash conservation measures in those years.
20
<PAGE> 22
YEAR 2000 COMPLIANCE
The Company is aware of issues associated with the programming code in
existing computer systems as the Year 2000 approaches and has undertaken a
compliance program to assess the Company's potential exposure to business
interruptions due to the possible Year 2000 computer software failures,
including necessary remediation and testing. In 1999, the Company installed a
new information system, including hardware and software, which the Company
believes, based on its testing, is Year 2000 compliant.
At this time, the Company is not aware of any material Year 2000 issues
with respect to dealings with third parties, however, the assessment phase of
such risks of third parties is in the early stage of review.
In the event the Year 2000 issues were to disrupt the Company and its
operations, such disruption may have a material impact on the Company and its
results of operations. Given that no significant issues have arisen based on the
assessments to date, the Company has identified a preliminary contingency plan
and is prepared to make necessary corrections to its systems in the event a
problem should occur. The Company will continue to assess the Year 2000
compliance issue on an on-going basis in an effort to resolve any Year 2000
issues in a timely manner.
IMPACT OF INFLATION
The Company believes that inflation did not have a material impact on its
operations for the periods reported. Significant increases in labor, employee
benefits and other expenses could have a material adverse effect on the
Company's performance.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is submitted as a separate section of this Report
commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
In accordance with General Instruction G(3) of Form 10-K, the information
called by Item 10, Directors and Executive Officers of the Registrant, Item 11,
Executive Compensation, Item 12, Security Ownership of Certain Beneficial Owners
and Management, and Item 13, Certain Relationships and Related Transactions, of
Part III of this Report is incorporated by reference to the Company's definitive
Proxy Statement for its 1999 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements -- See Index to Financial Statements.
(b) Reports on Form 8-K
No reports on Form 8 K were filed during the last quarter of the fiscal
year covered by this Annual Report on Form 10-K.
(c) Exhibits
The following exhibits are included as a part of this Annual Report on Form
10-K or incorporated herein by reference.
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*3.1 Certificate of Incorporation and amendments.
3.2 Restated Bylaws (incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
*3.3 Restated By-Laws
10.1 Credit Agreement, dated as of December 22, 1992, among the
Registrant and The Chase Manhattan Bank, N.A. (incorporated
by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992
(the "1992 Form 10-K")).
10.2 Amendment Two, dated as of January 12, 1994, to Credit
Agreement among the Registrant and The Chase Manhattan Bank,
N.A., together with forms of Stock Warrant and Registration
Rights Agreement (incorporated by reference to Exhibit 10.1.
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 (the "1993 Form 10-K")).
10.3 Amendment Three, dated as of May 31, 1994, to Credit
Agreement among the Registrant and The Chase Manhattan Bank,
N.A. (incorporated by reference to Exhibit 6(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994).
10.4 Amendment Four, dated as of July 1994, to Credit Agreement
among the Registrant and The Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 6(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
10.5 Amendment Five, dated as of March 21, 1995, to Credit
Agreement among the Registrant and The Chase Manhattan Bank,
N.A. (incorporated by reference to Exhibit 10.7 to the
Registrant's Current Report on Form 8-K dated March 21, 1995
(the "March 8-K")).
10.5(l) Form of Warrants issued to The Bank of New York, The Chase
Manhattan Bank, N.A. and the Israel Discount Bank
(incorporated by reference to Exhibit 10.5(i) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 Form 10-K")).
10.5(2) Letter Agreement, dated July 10, 1995, among Halsey Drug
Co., Inc., The Chase Manhattan Bank, N.A., The Bank of New
York and Israel Discount Bank of New York (incorporated by
reference to Exhibit 6(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (the
"June 10-Q")).
10.5(3) Letter Agreement, dated November 16, 1995, among Halsey Drug
Co., Inc., The Chase Manhattan Bank, N.A., The Bank of New
York and Israel Discount Bank of New York (incorporated by
reference to Exhibit 10.25(iv) to the 1995 10-K).
10.5(4) Amendment 6, dated as of August 6, 1996, to Credit Agreement
among Halsey Drug Co., Inc., The Chase Manhattan Bank, N.A.,
The Bank of New York and Israel Discount Bank of New York
(incorporated by reference to Exhibit 10.1 to Amendment No.
1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 (the "June 1996 10-Q").
10.5(5) Letter Agreement, dated March 25, 1997 among Halsey Drug
Co., Inc., The Chase Manhattan Bank, as successor in
interest to The Chase Manhattan Bank (National Association),
The Bank of New York and Israel Discount Bank.
10.6 Agreement Regarding Release of Security Interests dated as
of March 21, 1995 by and among the Company, Mallinckrodt
Chemical Acquisition, Inc. and The Chase Manhattan Bank,
N.A. (incorporated by reference to Exhibit 10.9 of the March
8-K).
10.7 Consulting Agreement dated as of September, 1993 between the
Registrant and Joseph F. Limongelli (incorporated by
reference to Exhibit 10.6 to the 1993 Form 10-K).
10.8 Employment Agreement, dated as of January 1, 1993, between
the Registrant and Rosendo Ferran (incorporated by reference
to Exhibit 10.2 to the 1992 Form 10-K).
10.10(1) Halsey Drug Co., Inc. 1984 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.3 to the 1992 Form
10-K).
10.10(2) Halsey Drug Co., Inc. 1995 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form S-8, File
No. 33-98396).
10.10(3) Halsey Drug Co., Inc. Non-Employee Director Stock Option
Plan.
</TABLE>
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<TABLE>
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NUMBER DOCUMENT
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10.11 Leases, effective February 13, 1989 and January 1, 1990,
respectively, among the Registrant and Milton J. Ackerman,
Sue Ackerman, Lee Hinderstein, Thelma Hinderstein and
Marilyn Weiss (incorporated by reference to Exhibits 10.6
and 10.7, respectively, to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989).
10.12 Lease, effective as of April 15, 1988, among the Registrant
and Milton J. Ackerman, Sue Ackerman, Lee Hinderstein,
Thelma Hinderstein and Marilyn Weiss, and Rider thereto
(incorporated by reference to Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.12(l) Lease, as of October 31, 1994, among Registrant and Milton
J. Ackerman, Sue Ackerman, Lee Hinderstein, Thelma
Hinderstein and Marilyn Weiss, together with Modification,
Consolidation and Extension Agreement (incorporated by
reference to Exhibit 10. 12(i) to the 1995 Form 10-K).
10.13 Asset Purchase Agreement dated as of March 21, 1995 among
Mallinckrodt Chemical Acquisition, Inc. ("Acquisition"),
Mallinckrodt Chemical, Inc., as guarantor and the Registrant
(incorporated by reference to Exhibit 10.1 to the March
8-K).
10.14 Toll Manufacturing Agreement for APAP/Oxycodone Tablets
dated as of March 21, 1995 between Acquisition and the
Registrant (incorporated by reference to Exhibit 10.2 to the
March 8-K).
10.15 Capsule ANDA Option Agreement dated as of March 21, 1995
between Acquisition and the Registrant (incorporated by
reference to Exhibit 10.3 to the March 8-K).
10.16 Tablet ANDA Noncompetition Agreement dated as of March 21,
1995 between the Registrant and Acquisition (incorporated by
reference to Exhibit 10.4 to the March 8-K).
10.17 Subordinated Non-Negotiable Promissory Term Note in the
amount of $1,200,00 dated March 21, 1995 issued by the
Registrant to Acquisition (incorporated by reference to
Exhibit 10.5 to the March 8-K).
10.18 Term Note Security Agreement dated as of March 21, 1995
among the Company, Houba, Inc. and Acquisition (incorporated
by reference to Exhibit 10.6 to the March 8-K).
10.19 Amendment dated March 21, 1995 to Subordination Agreement
dated as of July 21, 1994 between Mallinckrodt Chemical,
Inc., Mallinckrodt Chemical Acquisition, Inc., the
Registrant, The Chase Manhattan Bank (National Association),
Israel Discount Bank of New York, The Bank of New York, and
The Chase Manhattan Bank (National Association)
(incorporated by reference to Exhibit 10.8 to the March
8-K).
10.20 Agreement dated as of March 30, 1995 between the Registrant
and Zatpack, Inc. (incorporated by reference to Exhibit
10.10 to the March 8-K).
10.21 Waiver and Termination Agreement dated as of March 30, 1995
between Zuellig Group, W.A., Inc. and Indiana Fine Chemicals
Corporation (incorporated by reference to Exhibit 10.11 to
the March 8-K).
10.22 Convertible Subordinated Note of the Registrant dated
December 1, 1994 issued to Zatpack, Inc. (incorporated by
reference to Exhibit 10.12 to the March 8-K).
10.23 Agreement dated as of March 30, 1995 among the Registrant,
Indiana Fine Chemicals Corporation, Zuellig Group, N.A.,
Inc., Houba Inc., Zetapharm, Inc. and Zuellig Botanical,
Inc. (incorporated by reference to Exhibit 10.13 to the
March 8-K).
10.24 Supply Agreement dated as of March 30, 1995 between Houba,
Inc. and ZetaPharm, Inc. (incorporated by reference to
Exhibit 10.14 to the March 8-K).
10.25 Form of 10% Convertible Subordinated Debenture (incorporated
by reference to Exhibit 6(a) to the June 10-Q).
10.26 Form of Redeemable Common Stock Purchase Warrant
(incorporated by reference to Exhibit 6(a) to the June
10-Q).
10.27 Form of 10% Convertible Subordinated Debenture (incorporated
by reference to Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated December 4, 1995 (the "December
8-K")).
10.28 Form of Redeemable Common Stock Purchase Warrant
(incorporated by reference to Exhibit 4.2 to the December
8-K).
10.29 Form of 10% Convertible Subordinated Debenture (incorporated
by reference to Exhibit 99 to the June 1996 10-Q).
</TABLE>
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10.30 Form of Redeemable Common Stock Purchase Warrant
(incorporated by reference to Exhibit 4.1 to Amendment No. 1
to the June 1996 10-Q).
10.31 Form of 5% Convertible Senior Secured Debenture
(incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated March 24, 1998
(the "March 1998 8-K")).
10.32 Form of Common Stock Purchase Warrant (incorporated by
reference to Exhibit 4.2 to the March 1998 8-K).
10.33 Debenture and Warrant Purchase Agreement dated March 10,
1998, by and among the Registrant, Galen Partners III, L.P.
and the other Purchasers listed on the Signature Page
thereto (incorporated by reference to Exhibit 10.1 to the
March 1998 8-K).
10.34 Form of General Security Agreement of Halsey Drug Co., Inc.
dated March 10, 1998 (incorporated by reference to Exhibit
10.2 to the March 1998 8-K).
10.35 Form of Agreement of Guaranty of Subsidiaries of Halsey Drug
Co., Inc. dated March 10, 1998 (incorporated by reference to
Exhibit 10.3 to the March 1998 8-K).
10.36 Form of Guarantor General Security Agreement dated March 10,
1998 (incorporated by reference to Exhibit 10.4 to the March
1998 8-K).
10.37 Stock Pledge Agreement dated March 10, 1998 by and between
the Registrant and Galen Partners III, L.P., as agent
(incorporated by reference to Exhibit 10.5 to the March 1998
8-K).
10.38 Form of Irrevocable Proxy Agreement (incorporated by
reference to Exhibit 10.6 to the March 1998 8-K).
10.39 Agency Letter Agreement dated March 10, 1998 by and among
the Purchasers a party to the Debenture and Warrant Purchase
Agreement, dated March 10, 1998 (incorporated by reference
to Exhibit 10.7 to the March 1998 8-K).
10.40 Press Release of Registrant dated March 13, 1998
(incorporated by reference to Exhibit 99.1 to the March 1998
8-K).
10.41 Current Report on Form 8-K as filed by the Registrant with
the Securities and Exchange Commission on March 24, 1998.
10.42 Letter Agreement between the Registrant and the U.S.
Department of Justice dated March 27, 1998 relating to the
restructuring of the fine assessed by the Department of
Justice under the Plea Agreement dated June 21, 1993.
10.43 Employment Agreement dated as of March 10, 1998 between the
Registrant and Michael K. Reicher.
10.44 Employment Agreement dated as of March 10, 1998 between the
Registrant and Peter Clemens.
*10.45 Amended, Restated and Consolidated Bridge Loan Agreement
dated as of December 2, 1998 between the Company, Galen
Partners III, L.P., Galen Partners International III, L.P.,
Galen Employee Fund III, L.P. and the other signatures
thereto.
*10.46 First Amendment to Amended, Restated and Consolidated Bridge
Loan Agreement dated December 7, 1998 between the Company
and the lenders listed on the signature page thereto.
*10.47 Second Amendment to Amended, Restated and Consolidated
Bridge Loan Agreement dated March 8, 1999 between the
Company and the lenders listed on the signature page
thereto.
*10.48 Form of 10% Convertible Secured Note due May 30, 1999.
*10.49 Form of Common Stock Purchase Warrant issued pursuant to be
Amended, Restated and Consolidated Bridge Loan Agreement.
*10.50 Amended and Restated General Security Agreement dated
December 2, 1998 between the Company and Galen Partners III,
L.P., as Agent.
*10.51 Subordination Agreement dated December 2, 1998 between the
Registrant and Galen Partners III, L.P., as Agent.
*10.52 Agency Letter Agreement dated December 2, 1998 by and among
the lenders a party to the Amended, Restated and
Consolidated Bridge Loan Agreement, as amended.
*10.53 Lease Agreement dated March 17, 1999 between the Registrant
and Par Pharmaceuticals, Inc.
</TABLE>
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*10.54 Lease Agreement dated September 1, 1998 between the
Registrant and Crimson Ridge Partners.
*10.55 Manufacturing and Supply Agreement dated March 17, 1999
between the Registrant and Par Pharmaceuticals, Inc.
*10.56 Halsey Drug Co., Inc. 1998 Stock Option Plan.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 22 to the 1993 Form 10-K).
*23.1 Consent of Grant Thornton LLP, independent certified public
accountants.
*27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for informational
purposes only and not filed.
</TABLE>
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* Filed herewith.
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<PAGE> 27
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: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ WILLIAM G. SKELLY Chairman and Director March 31, 1999
- -----------------------------------------------------
William G. Skelly
/s/ MICHAEL REICHER President, Chief Executive March 31, 1999
- ----------------------------------------------------- Officer and Director
Michael Reicher (Principal Executive
Officer)
/s/ PETER CLEMENS Vice President, Chief March 31, 1999
- ----------------------------------------------------- Financial Officer
Peter Clemens (Principal Financial and
accounting Officer) and
Director
/s/ ALAN J. SMITH Director March 31, 1999
- -----------------------------------------------------
Alan J. Smith
/s/ BRUCE F. WESSON Director March 31, 1999
- -----------------------------------------------------
Bruce F. Wesson
/s/ WILLIAM SUMNER Director March 31, 1999
- -----------------------------------------------------
William Sumner
/s/ SRINI CONJEEVARAM Director March 31, 1999
- -----------------------------------------------------
Srini Conjeevaram
/s/ ZUBEEN SHROFF Director March 31, 1999
- -----------------------------------------------------
Zubeen Shroff
</TABLE>
26
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INDEX TO FINANCIAL STATEMENTS
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Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Stockholders' Equity.............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-8 - F-24
</TABLE>
F-1
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Halsey Drug Co., Inc.
We have audited the accompanying consolidated balance sheets of Halsey Drug
Co., Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Halsey Drug
Co., Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
March 5, 1999
F-2
<PAGE> 30
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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DECEMBER 31,
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1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 1,850 $ 26
Accounts receivable -- trade, net of allowances for
doubtful accounts of $280 and $542 in 1998 and 1997,
respectively........................................... 1,439 62
Inventories............................................... 6,354 2,456
Prepaid insurance and other current assets................ 148 274
-------- --------
Total current assets.............................. 9,791 2,818
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 4,787 4,630
DEFERRED PRIVATE OFFERING COSTS............................. 1,335 219
-------- --------
$ 15,913 $ 7,667
======== ========
CURRENT LIABILITIES
Notes payable............................................. $ 10,850 $ 4,825
Bank overdraft............................................ 159
Due to banks.............................................. 2,476
Convertible subordinated debentures....................... 2,244
Accounts payable.......................................... 1,834 6,086
Accrued expenses.......................................... 3,972 7,232
Deferred gain............................................. 1,900
Other current liabilities................................. 300 200
-------- --------
Total current liabilities.............................. 16,956 25,122
LONG-TERM DEBT, NET......................................... 26,186
OTHER LIABILITIES........................................... 2,224 2,402
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock -- $.01 par value; authorized, 40,000,000
shares; issued 14,443,212 shares and 14,029,718 shares
in 1998 and 1997, respectively......................... 144 140
Additional paid-in capital................................ 29,113 25,489
Accumulated deficit....................................... (57,221) (44,497)
-------- --------
(27,964) (18,868)
Less treasury stock -- at cost (439,603 shares in 1998 and
1997, respectively).................................... (989) (989)
-------- --------
(28,953) (19,857)
-------- --------
$ 15,913 $ 7,667
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 31
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.................................................. $ 8,841 $ 9,088 $ 12,379
Cost of goods sold......................................... 12,712 15,406 16,826
-------- -------- --------
Gross margin.......................................... (3,871) (6,318) (4,447)
Research and development................................... 651 979 1,854
Selling, general and administrative expenses............... 8,078 6,308 7,486
-------- -------- --------
Loss from operations.................................. (12,600) (13,605) (13,787)
Interest expense........................................... (1,946) (1,144) (1,708)
Other income (expense)..................................... 1,802 (264) 1,000
-------- -------- --------
NET LOSS.............................................. $ 12,724 $(15,013) $(14,495)
======== ======== ========
Basic loss per common share................................ $ (.92) $ (1.12) $ (1.49)
======== ======== ========
Weighted average number of outstanding shares.............. 13,813 13,434 9,724
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 32
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK, TREASURY STOCK,
$.01 PAR VALUE ADDITIONAL AT COST
--------------- PAID-IN ACCUMULATED ----------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
------ ------ ---------- ----------- ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............. 8,974 $ 90 $14,459 $(14,989) (500) $(1,100) $ (1,540)
Issuance of common stock conversion of
debentures........................... 3,504 35 6,724 6,759
Issuance of shares as settlement....... 60 262 25 56 318
Issuance of warrants with convertible
subordinated debentures.............. 355 355
Exercise of warrants of convertible
debentures........................... 589 6 1,363 1,369
Stock options exercised................ 49 153 153
Net loss for the year ended December
31, 1996............................. (14,495) (14,495)
------ ---- ------- -------- ------ ------- --------
Balance at December 31, 1996........... 13,176 131 23,316 (29,484) (475) (1,044) (7,081)
Issuance of common stock -- conversion
of debentures........................ 643 7 1,529 1,536
Issuance of shares as payment of
interest............................. 69 1 224 225
Sale of treasury stock................. 25 45 35 55 100
Exercise of warrants of convertible
debentures........................... 22 72 72
Stock options exercised................ 95 1 303 304
Net loss for the year ended December
31, 1997............................. (15,013) (15,013)
------ ---- ------- -------- ------ ------- --------
Balance at December 31, 1997........... 14,030 140 25,489 (44,497) (440) (989) (19,857)
Issuance of common stock -- conversion
of notes payable..................... 110 1 213 214
Issuance of shares as payment of
interest............................. 263 3 592 595
Issuance of common stock -- settlement
of trade payables.................... 40 55 55
Deferred debt discount on warrants
issued with convertible debentures... 2,264 2,264
Net loss for the year ended December
31, 1998............................. (12,724) (12,724)
------ ---- ------- -------- ------ ------- --------
Balance at December 31, 1998........... 14,443 $144 $28,613 $(57,221) (440) $ (989) $(29,453)
====== ==== ======= ======== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 33
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss................................................. $(12,724) $(15,013) $(14,495)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization......................... 1,774 1,733 1,906
Provision for losses on accounts receivable........... (262) 118 144
Provision for loss on investment...................... 500
(Gain) loss on disposal of assets..................... 170 38 (1,000)
Changes in assets and liabilities
Accounts receivable................................. (1,115) 45 1,319
Inventories......................................... (3,898) 1,302 3,958
Prepaid insurance and other current assets.......... 126 165 (96)
Accounts payable.................................... (4,197) 1,851 1,029
Deferred gain....................................... (1,900)
Accrued expenses.................................... (2,665) 4,553 2,913
-------- -------- --------
Total adjustments..................................... (11,967) 9,805 10,673
-------- -------- --------
Net cash used in operating activities................. (24,691) (5,208) (3,822)
-------- -------- --------
Cash flows from investing activities
Capital expenditures..................................... (1,545) (85) (390)
Net proceeds from sale of assets......................... 96
Collection of notes receivable........................... 1,000
-------- -------- --------
Net cash (used in) provided by investing activities... (1,449) 915 (390)
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of notes payable.................. $ 6,495 $ 3,881 $ 25
Proceeds from issuance of common stock................... 318
Reissuance of treasury stock............................. 70
Payments to Department of Justice........................ (178)
Bank overdraft........................................... (159) (127) 73
Due to banks............................................. (2,476)
Payments to minority stockholders........................ (206)
Proceeds from issuance of convertible subordinated
debentures............................................ 25,800 2,500
Proceeds from exercise of stock options and warrants..... 305 153
Proceeds from exercise of warrants....................... 72 1,369
Deferred private offering costs.......................... (1,518) (255)
-------- -------- --------
Net cash provided by financing activities............. 27,964 4,201 3,977
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS......................................... 1,824 (92) (235)
Cash and cash equivalents at beginning of year............. 26 118 353
-------- -------- --------
Cash and cash equivalents at end of year................... $ 1,850 $ 26 $ 118
======== ======== ========
</TABLE>
F-6
<PAGE> 34
HALSEY DRUG CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
Supplemental disclosures of noncash activities:
Year ended December 31, 1998
1. The Company issued 262,836 shares of common stock as payment for
$593,313 in accrued interest.
2. The Company reissued 20,000 shares of common stock as payment for
$25,000 in legal fees and 20,000 shares of common stock as payment for
$30,000 in trade payables.
3. The Company issued 110,658 shares of common stock as payment of
outstanding notes payable in amounts of $214,000 and $1,782 in accrued
interest.
4. The Company issued approximately 4,202,020 warrants (Note A) and
1,009,909 warrants (Note A) valued and recorded in aggregate as
$3,118,000 of unamortized debt discount and a reduction in the related
amount of the obligation.
Year ended December 31, 1997
1. The Company issued 642,407 shares of common stock to Zatpack, Inc. as
payment for an outstanding note payable in the amount of $1,536,000.
2. The Company reissued 25,000 shares of treasury stock as payment for
$30,000 in consulting fees and the receipt of $70,000 in cash.
3. The Company issued 25,000 shares of common stock as payment for
$225,452 in accrued interest.
4. The Company recorded the satisfaction of $1,400,000 of subordinated
promissory notes, related accrued interest of $200,000 and accounts
payable of $300,000 due to Mallinckrodt, in lieu of Mallinckrodt paying
$1,900,000 owed to the Company as described in Note E.
Year ended December 31, 1996
1. The issuance of 3,504,000 shares of the Company's common stock upon
conversion of $6,759,000 of convertible subordinated debentures is
included in common stock and additional paid-in capital.
2. The valuation of the warrants issued in 1996 of $355,000 with
convertible subordinated debentures is included in additional paid-in
capital.
3. The issuance in 1996 of 59,550 shares of the Company's common stock is
valued at $318,000 in connection with litigation settlements.
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 35
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
Halsey Drug Co., Inc. (the "Company"), a New York-based corporation
established in 1935, and its subsidiaries are engaged in the manufacture, sale
and distribution of generic drugs. The Company sells its generic drug products
under its Halsey label and under private-label arrangements with drug store
chains and drug wholesalers throughout the United States.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.
1. Principles of Consolidation and Basis of Presentation
The consolidated financial statements include 100% of the accounts of the
Company and its wholly-owned subsidiaries, Blue Cross Products Co., Inc., Houba,
Inc., Halsey Pharmaceuticals, Inc., and Indiana Fine Chemicals Corporation, The
Medi-Gum Corporation (100% owned). The Medi-Gum Corporation and Halsey
Pharmaceuticals have not commenced operations. All material intercompany
accounts and transactions have been eliminated.
2. Liquidity Matters
As of December 31, 1998, the Company has a working capital deficiency of
approximately $6,665,000, has an accumulated deficit of approximately
$57,221,000 and has incurred a loss of approximately $12,724,000 for the year
then ended.
On March 10, 1998, the Company completed a private offering (the
"Offering") of securities to an investor group ("Galen") consisting of 5%
convertible senior secured debentures due March 15, 2003, and common stock
purchase warrants (with a 5 year life) exercisable for 2,101,010 shares of the
Company's common stock at an exercise price of $1.50 and 2,101,010 shares at an
exercise price of $2.375. The unamortized discount resulting from the issuance
of such warrants ($2,618,000) has Been recorded as a reduction of the related
obligation. The net proceeds to the Company from the Offering, after the
deduction of related offering expenses, was approximately $19.6 million. In
addition, in accordance with the terms of the private offering, during June
1998, Galen invested an additional $5 million in the Company in exchange for
debentures and warrants having terms identical to those issued in the Offering.
The net proceeds from the Offering and the additional investment have
primarily been used to satisfy a substantial portion of the Company's
liabilities and accounts payable. Such liabilities include the full satisfaction
of the Company's bank indebtedness and related fees, payment to the landlord of
the Brooklyn facility and satisfaction of outstanding judgments and liens.
Further, pursuant to agreements reached with other large creditors in
anticipation of the completion of the offering, including the Company's landlord
and the Department of Justice ("DOJ"), the Company has been able to bring these
creditors current and bring the Company in compliance with installment payment
agreements providing more favorable terms to the Company. The offering proceeds
also allowed the Company to satisfy its outstanding state and Federal payroll
tax obligations and meet current payroll tax obligations. The net proceeds from
the exercise of the option were used to fund working capital, including the
purchase of raw materials, payroll expenses and other Company expenses.
The Company secured bridge financing from Galen and certain investors in
the Offering in the aggregate amount of $9,504,111, funded through seven
separate bridge loan transactions between the period from August through and
including December 1998, as well as an additional bridge loan in March 1999
(collectively, the "Bridge Loans"). The Bridge Loans were consolidated on
December 2, 1998 pursuant to an Amended, Restated and Consolidated Bridge Loan
Agreement, as amended to permit the March 1999 bridge loan (the "Consolidated
Bridge Loan"). The Consolidated Bridge Loan bears interest at 10% per annum, is
F-8
<PAGE> 36
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
secured by a first lien on all of the Company's assets and has a maturity date
of May 30, 1999. Approximately $9,120,000 in the principal amount of the
Consolidated Bridge Loan was advanced by Galen with the balance of approximately
$384,000 advanced by certain investors in the Offering. The Consolidated Bridge
Loan is evidenced by 10% convertible senior secured promissory notes which are
convertible at any time prior to maturity into shares of the Company's Common
Stock at a conversion price of approximately $1.368 per share with respect to
approximately $7,820,000 of such indebtedness, $1.331 per share with respect to
approximately $284,000 of such indebtedness, and $1.197 per share with respect
to approximately $1,400,000 of such indebtedness, for an aggregate of 7,099,338
shares of common stock (such conversion prices equal the fair market value of
the Common Stock at the date of issuance of the convertible promissory notes).
In addition, in consideration for the initial extension of the Bridge Loans and
the extension of the maturity dates of the Bridge Loans pursuant to the
consolidation of such loans on December 2, 1998, as amended to permit the March
1999 bridge loan, the Company issued common stock purchase warrants to Galen and
the other investors in the Consolidated Bridge Loan, to purchase an aggregate of
approximately 1,009,909 shares of the Company's common stock (representing
warrants to purchase 50,000 shares of Common Stock for each $1,000,000 in
principal amount of Bridge Loan having a term of 90 days from the date of the
making of the Bridge Loan). The unamortized discount resulting form the issuance
of such warrants ($500,000) has been recorded as a reduction of the related
obligation. The Bridge Loan warrants are substantially identical to those issued
by the Company in its Debenture and Warrant Offering completed on March 10,
1998.
The Consolidated Bridge Loan was obtained by the Company in order to
provide necessary working capital. In view of the Company's current cash
reserves and projections for revenues through May 30, 1999, the Company will be
unable to satisfy the Consolidated Bridge Loan in full at the stated maturity
date of May 30, 1999. Galen, the holder of approximately 96% of such
indebtedness, has indicated to the Company a willingness to cooperate in the
restructuring of the indebtedness evidenced by the Consolidated Bridge Loan to
extend the maturity date of such debt and/or convert the debt into common stock
or longer-term convertible indebtedness. The terms of such restructuring will
depend, to a large extent, on the terms and timing of any third-party
investment, as described below. Accordingly, the terms of any such restructuring
have yet to be agreed to by the parties and will be subject to the negotiation
and preparation of definitive agreements.
The Company is in preliminary discussions with an unaffiliated third party
concerning the terms of a proposed investment in the Company in an amount of up
to $15 million, to be funded in three equal increments based on the achievement
of certain milestones. The structure of the investment will likely take the form
of convertible debentures and common stock purchase warrants, similar in many
respects to the debentures and warrants issued by the Company in its March 10,
1998 offering. The discussions with this third-party investor are in the
preliminary stages and no assurance can be given that final terms acceptable to
the Company will result and/or that if consummated, that the Company will be
successful in achieving the milestones necessary to fund all or any portion of
the proposed investment.
In the event the Company is successful in restructuring the Consolidated
Bridge Loan and completing the third-party investment of the type and size
described above, the Company will have sufficient cash reserves to satisfy its
working capital requirements for at least the next twelve months. The Company is
also seeking to secure a senior revolving line of credit from a banking
institution. There can be no assurance, however, that the Company will be able
to obtain such third-party investment or a bank facility. If the Company is
unable to complete the third-party investment described above or obtain other
sources of working capital, including a bank line of credit or proceeds from the
issuance of debt and/or equity securities, the Company's cash reserves will be
sufficient to satisfy the Company's working capital requirements for
approximately two to three months. Failure to obtain a third-party investment of
the type described above, a bank line of credit or alternative sources of
financing of a comparable amount in the near term will materially adversely
affect the Company's working capital position and financial condition and
results of operations.
F-9
<PAGE> 37
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. Inventories
Inventories are stated at the lower of cost or market; cost is determined
using the first-in, first-out method.
4. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, principally on a straight-line basis. The
estimated lives used in determining depreciation and amortization are:
<TABLE>
<S> <C>
Buildings................................................... 25 years
Machinery and equipment..................................... 5-10 years
Leasehold improvements...................................... 5-10 years
</TABLE>
Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter.
5. Income Taxes
The Company accounts for income taxes utilizing an asset liability method
for financial accounting and reporting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
6. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. The Company paid no substantial income
taxes for the years ended December 31, 1998, 1997 and 1996. In addition, the
Company paid interest of approximately $1,946,000, $1,113,000, $1,173,000,
respectively, for the years ended December 31, 1998, 1997 and 1996.
7. Use of Estimates in Consolidated Financial Statements
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8. Research and Development Costs
All research and development costs, including payments related to licensing
agreements on products under development and research consulting agreements are
expensed when incurred.
9. Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
held and used for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable (Note I).
F-10
<PAGE> 38
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. Stock-Based Compensation
The Company accounts for stock-based compensation under Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation," and continues to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans and does not recognize compensation expense for its
stock-based compensation plans other than for restricted stock (Note K).
Equity instruments issued to nonemployees in exchange for goods and/or
services are accounted for under the fair value method of SFAS No. 123.
11. New Pronouncements
Earnings (Loss) Per Share
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128"), "Earnings Per Share," which requires public companies
to present basic earnings (loss) per share and, if applicable, diluted earnings
per share. All comparative periods have been restated in accordance with SFAS
No. 128.
The computation of basic earnings (loss) per share of common stock is based
upon the weighted average number of common shares outstanding during the period.
Diluted earnings per share is equal to basic earnings per share for all years
presented as the effect of other potentially dilutive securities would be
antidilutive.
Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income," which is effective for the Company's year ended December
31, 1998. The statement addresses the reporting and displaying of comprehensive
income and its components. Earnings per share is only reported for net income
and not for comprehensive income and its components. At December 31, 1998, 1997
and 1996, the Company had no items of other comprehensive income.
12. Reclassifications
Certain reclassifications have been made to the 1997 and 1996 presentations
to conform to the 1998 presentation.
NOTE B -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Long-term and Short-term Debt and Convertible Subordinated Debentures
The fair value of the Company's long-term and short-term debt and
convertible subordinated debentures is estimated based upon the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same outstanding maturities. Accordingly, the carrying
amount of these financial instruments approximates their fair value at December
31, 1998 and 1997.
F-11
<PAGE> 39
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $2,675 $ 789
Work-in-process............................................. 1,166 263
Raw materials............................................... 2,513 1,404
------ ------
$6,354 $2,456
====== ======
</TABLE>
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment..................................... $12,278 $11,478
Leasehold improvements...................................... 6,103 5,967
Building.................................................... 747 997
Land........................................................ 44 265
------- -------
19,172 18,707
Less accumulated depreciation and amortization.............. 14,385 14,077
------- -------
$ 4,787 $ 4,630
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996
was approximately $1,122,000, $1,640,000, and $1,562,000, respectively.
NOTE E -- DEBT
Due to Banks
At December 31, 1997 the Company had $2,476,000 under a line of credit
agreement with three participating banks for which the average borrowing rate
for the year then ended was 11.9 %. The agreement contained certain financial
covenants, for which the Company was not in compliance at December 31, 1997.
During March 1998, the Company completely satisfied its bank indebtedness and
terminated the line of credit agreement with its banks.
Notes Payable
At December 31, 1998 and 1997, notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Unsecured promissory demand notes........................... $ 2,817
Subordinated promissory notes............................... $4,825
Bridge Loans (Note A)....................................... 7,533
------- ------
$10,350 $4,825
======= ======
</TABLE>
F-12
<PAGE> 40
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Company borrowed from and issued to several debenture
holders and shareholders unsecured, demand promissory notes in the amount of
$1,125,000, bearing interest at 12% per annum, with interest payable quarterly.
These notes were paid in full in 1998.
During the period from May 1997 through July 1997, the Company borrowed
approximately $3 million from Mylan Laboratories, Inc. ("Mylan") pursuant to
five unsecured, demand promissory notes. The advances made by Mylan
Laboratories, Inc. were part of a proposed investment by Mylan in the Company,
including the proposed purchase of the Company's Houba Indiana facility as well
as a partial tender offer for the Company's common stock. The Company used the
proceeds of these borrowings for working capital. To date, $236,000 has been
paid by the Company to Mylan against such indebtedness in the form of product
deliveries to Mylan. Pursuant to an agreement reached between the parties, the
Company is required to satisfy interest on the outstanding indebtedness on an
annual basis while the indebtedness remains outstanding and to satisfy the
principal amount of such indebtedness in the form of product deliveries to Mylan
until such time as the indebtedness is satisfied in full. In 1998, the Company,
in exchange for extending the loan, agreed to grant a warrant to purchase 50,000
shares of the Company's common stock at a price of $1.94 per share.
Additionally, the Company began reducing the loan by supplying product to Mylan.
At December 31, 1998, the loan balance was $2,817,000.
During the fourth quarter of 1997, the Company received $500,000 from an
investor of a proposed joint venture, a demand promissory note bearing interest
at 10% per annum which was secured by the property of Houba. In addition, as
part of a proposed financing agreement, the Company received $200,000 as a
promissory note bearing interest at 8% per annum during the fourth quarter of
1997. Both of these promissory notes were paid in full in 1998.
NOTE F -- CONVERTIBLE SUBORDINATED DEBENTURES AND STOCK WARRANTS
In connection with certain 1995 amendments to the line of credit agreement
described in Note E, the Company issued stock warrants to the bank, expiring
July 17, 2000, to purchase up to 699,696 shares of the Company's common stock at
exercise prices ranging from $1.98 to $2.07 per share. The fair value of the
warrants, $200,000, as determined by the Company's Board of Directors, was
recorded by the Company in 1994 as additional paid-in capital and a discount to
bank debt which was fully amortized through the maturity date, August 31, 1995.
On July 18, 1995, the Company issued 408 units, at $10,000 per unit, in a
private placement of its securities ("July Private Placement"). Each unit
consisted of: (i) a 10% convertible subordinated debenture due July 18, 2000 in
the principal amount of $10,000, interest payable quarterly, and convertible
into shares of the Company's common stock at a conversion price of $2.00 per
share, subject to antidilution provisions, and (ii) 750 redeemable common stock
purchase warrants ("warrants"). Each warrant entitled the holder to purchase one
share of common stock for $2.00, subject to adjustment during the five-year
period commencing July 18, 1995. The warrants were redeemable by the Company at
a price of $.01 per warrant at any time commencing July 18, 1996, provided that
at July 18, 1996, the fair market value of the Company's common stock equals or
exceeds $2.00 per share for the 20 consecutive trading days ending on the third
day prior to the notice of redemption to the holders of the warrant. The
debentures were converted into 2,040,000 shares of common stock in August 1996.
On November 29, 1995, the Company issued 366 units, at $10,000 per unit, in
a private placement of its securities ("November Private Placement"). Each unit
consisted of (i) a 10% convertible subordinated debenture due November 29, 2000
in the principal amount of $10,000, interest payable quarterly, and convertible
into shares of the common stock, at a conversion price of $2.50 per share,
subject to dilution, and (ii) 600 redeemable common stock purchase warrants. The
terms and conditions of the warrants issued in connection with the November
Private Placement are similar to those issued in the July Private Placement,
F-13
<PAGE> 41
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
except that the exercise price of the warrant pursuant to the November Private
Placement is $2.50 per share. These debentures were converted into 1,464,000
shares of common stock in December 1996.
On August 6, 1996, the Company issued 250 units, at $10,000 per unit, in a
private placement of its securities ("August Private Placement"). Each unit
consisted of: (i) a 10% convertible subordinated debenture due August 6, 2001 in
the principal amount of $10,000, interest payable quarterly, and convertible
into shares of the Company's common stock at a conversion price of $3.25 per
share, subject to dilution, and (ii) 750 redeemable common stock purchase
warrants ("warrants"). Each warrant entitled the holder to purchase one share of
common stock for $3.25, subject to adjustment during the five-year period
commencing August 6, 1996. Pursuant to the agreement, the Company was required
to establish an escrow account to repay interest in the outstanding convertible
debenture, which was fully paid during 1997.
NOTE G -- ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Payroll taxes payable (Note H).............................. $1,714 $3,290
Interest.................................................... 619 1,018
Professional fees........................................... 539 537
Accrued pension and welfare................................. 15 501
Medicaid rebates payable.................................... 169 481
Accrued payroll............................................. 92 420
Directors' fees............................................. 126 90
New York State Department of Education...................... 140 134
Medical claims.............................................. 149
Commissions................................................. 30 42
Property taxes.............................................. 94
Accrued chargeback liability................................ 40
Accrued equipment purchase.................................. 56
Other....................................................... 189 719
------ ------
$3,972 $7,232
====== ======
</TABLE>
At December 31, 1998, payroll taxes payable include approximately
$1,373,000 and $275,000 of delinquent payroll taxes (including penalties and
interest) due to the Internal Revenue Service and the State of New York,
respectively, all of which liability was incurred in 1997 and 1996. The Company
expects that the Federal liability will be substantially offset by income tax
refund claims which were filed and are pending before the IRS. Until such time
as the IRS completes its review, the Company has not recorded any expected tax
refund claims. The Company has negotiated a payment plan with the State of New
York and the balance will be paid by the end of 1999.
F-14
<PAGE> 42
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- INCOME TAXES
The actual income tax expense varies from the Federal statutory rate
applied to consolidated operations as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate............... $(4,326) (34.0)% $(5,105) (34.0)% $(4,928) (34.0)%
Loss for which no tax benefit was
provided........................... 4,247 33.8 4,924 32.8 4,233 29.1
Losses of subsidiaries with no tax
benefit............................ 424 3.0
Amortization of Warrants............. 24 .2 32 .2
Goodwill amortization................ 12 .1 73 .5
Department of Justice settlement..... 42 .1 57 .4
Other................................ 37 .1 145 .9 109 .8
------- ----- ------- ----- ------- -----
Actual tax expense................... $ -- --% $ -- --% $ -- --%
======= ===== ======= ===== ======= =====
</TABLE>
The Company has net operating loss carryforwards aggregating approximately
$45,572,700, expiring during the years 2011 through 2018. In addition, certain
of the Company's subsidiaries filed separate Federal income tax returns in prior
years and have separate net operating loss carryforwards aggregating
approximately $4,062,758 expiring during the years 1999 through 2018.
The tax loss carryforwards of the Company and its subsidiaries are subject
to limitation by Section 382 of the Internal Revenue Code with respect to the
amount utilizable each year. This limitation reduces the Company's ability to
utilize net operating loss carryforwards included above each year. The amount of
the limitation has not been quantified by the Company.
F-15
<PAGE> 43
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's deferred tax assets (liabilities), pursuant
to SFAS No. 109, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards.......................... $ 21,831 $ 15,125
Allowance for doubtful accounts........................... 75 304
Research and development tax credit....................... 212 212
Reserve for inventory..................................... 169 886
Litigation settlement..................................... 73 195
Rent...................................................... 231 172
Reserve for Medicaid...................................... 71 209
Capital loss carryforwards................................ 210
Reserve for property, plant and equipment................. 111
Other..................................................... 15 24
-------- --------
Gross deferred tax assets.............................. 22,677 17,448
-------- --------
Deferred tax liabilities
Depreciation.............................................. (332) (828)
Installment sale gain..................................... (798)
Other..................................................... (42) (42)
-------- --------
(374) (1,668)
-------- --------
Net deferred tax assets before valuation allowance..... 22,303 15,780
Valuation allowance......................................... (22,303) (15,780)
-------- --------
Net deferred tax assets................................ $ -- $ --
======== ========
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets may not be realized. The valuation allowance
at December 31, 1998 primarily pertains to uncertainties with respect to future
utilization of net operating loss carryforwards.
NOTE I -- OTHER INCOME (EXPENSE)
Cessation of California Operations
During 1997, management decided to shut down its California operations
which comprised two of its subsidiaries, Cenci Powder Products, Inc. and H.R.
Cenci Laboratories, Inc. The Company had not incurred any significant costs to
exit these operations other than minimal vacation compensation and salary paid
to a former plant employee to manage the exit process. Continuing operating
losses and the inability to leverage the manufacturing capacity were among
factors considered by the Board and Management in their determination to cease
such operations.
At December 31, 1997, the net assets of H.R. Cenci Laboratories, Inc.,
consisted primarily of building, equipment and land with a net carrying value of
$528,000 and inventory with a total net carrying value of $93,000. Accordingly,
during 1997 the Company recorded a charge of $264,000 to reduce the fixed assets
to their then estimated net realizable value, and a $93,000 charge to write off
the remaining inventory. In 1998,
F-16
<PAGE> 44
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company disposed of the remaining assets and recorded a charge of $191,000.
For the years ended December 31, 1998, 1997 and 1996, these subsidiaries, in
aggregate, accounted for revenues of approximately $160,000, $495,000, and
$290,000, respectively.
On March 30, 1998, the Company completed the sale of substantially all of
the non-real property assets of Cenci Powder Products to Zuellig Botanical. The
purchase price for the assets consisted of the forgiveness by Zuellig Botanical
of approximately $262,000 in indebtedness owed by Cenci Powder to Zuellig
Botanical related to the purchase of raw materials. The Agreement provided
further that Zuellig Botanical would satisfy the manufacture and delivery
requirements of Cenci Powder at its facility located at Fresno, California,
under an existing third party supply contract.
Sale of Assets
On March 21, 1995, the Company sold its Abbreviated New Drug Application
("ANDA") for 5mg Oxycodone HCL/325mg Acetaminophen Tablets ("Tablets") and
certain equipment used in the production of the Tablets for up to $5.4 million
to Mallinckrodt. The Company received $500,000 of the proceeds in July 1994,
which was recorded as deferred income on the Company's 1994 consolidated balance
sheet. Mallinckrodt also paid the Company $2,000,000 on March 21, 1995 and the
remainder was to be payable as follows: (i) $1,000,000 upon the Company
receiving general clearance from the FDA for unrestricted operations at its
Brooklyn facility and written notice from the FDA that it is in compliance with
certain provisions of the consent degree dated June 29, 1993 and (ii) $1,900,000
at the earlier of (a) Mallinckrodt receiving certain authorizations from the FDA
or (b) September 21, 1997. Mallinckrodt also agreed to defer $1,200,000 of the
Company's trade debt due to an affiliate of Mallinckrodt (Note E). Pursuant to
the release of the Company from the FDA's Application Integrity Policy list and
its Restrictions (collectively, the "AIP") by the FDA on December 19, 1996, the
Company recorded a gain of $1,000,000. On January 9, 1997, Mallinckrodt tendered
this amount to the Bank Group. Pursuant to the agreement of September 21, 1997,
the Company recorded $1,900,000 as a deferred gain which was recognized on March
21, 1998.
In connection with the agreement, the Company agreed to manufacture Tablets
for Mallinckrodt for a period of three years and Mallinckrodt agreed to order a
minimum number of Tablets from the Company for two years ending March 21, 1997.
The Company and Mallinckrodt entered into a noncompetition agreement pursuant to
which the Company agreed not to compete with Mallinckrodt and its affiliates
with respect to the Tablets until March 21, 2000.
NOTE J -- PENSION EXPENSE
1. Management Pension Plan
The Company had maintained a defined benefit plan covering substantially
all nonunion employees which was terminated in November 1996. Subsequently, all
Plan assets were converted to cash and held in a money market fund (to continue
the Trust) from which all vested participant interests were to be paid. Based on
information provided by the Company's actuary, the total liability of the Plan
as of the plan year ended November 30, 1997 was $398, 281. The actuary
determined that this amount was sufficient to pay the vested interests of all of
the participants who were in the Plan as of November 30, 1996, and for any
participants who had terminated with previously vested interests that had not
yet been paid. Included in the Plan's assets as of November 30, 1997, were
receivables from the Company and the Insurer for $54,631 and $57,468,
respectively, which were subsequently paid in March 1998. No additional
contributions were required to be paid to the Trust for the period ended
November 30, 1997.
In 1998 the Company received approval to terminate the Plan by the Pension
Benefit Guarantee Corporation, all assets were distributed to the vested
participants, the Trust was terminated and a final filing was made with the
Internal Revenue Service.
F-17
<PAGE> 45
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. Employees' Pension Plan
The Company contributed approximately $421,000, $407,000, and $492,000 in
1998, 1997 and 1996, respectively, to a multiemployer pension plan for employees
covered by collective bargaining agreements. This plan is not administered by
the Company and contributions are determined in accordance with provisions of
negotiated labor contracts. Information with respect to the Company's
proportionate share of the excess, if any, of the actuarially computed value of
vested benefits over the total of the pension plan's net assets is not available
from the plan's administrator.
The Multiemployer Pension Plan Amendments Act of 1980 (the "Act")
significantly increased the pension responsibilities of participating employers.
Under the provision of the Act, if the plans terminate or the Company withdraws,
the Company could be subject to a "withdrawal liability."
NOTE K -- STOCK OPTION PLAN
In June 1998, the stockholders of the Company approved the adoption of a
stock option and restricted stock purchase plan (the "1998 Option Plan"). The
1998 Option Plan replaces the 1995 Option Plan which was terminated in 1998. The
1998 Option Plan provides for the granting of (i) nonqualified options to
purchase the Company's common stock at not less than the fair market value on
the date of the option grant, (ii) incentive stock options to purchase the
Company's common stock at not less than the fair market value on the date of the
option grant and (iii) rights to purchase the Company's common stock on a
"Restricted Stock" basis, as defined, at not less than the fair market value on
the date the right is granted. As of December 31, 1998, there was no exercise of
rights to purchase any common stock on a restricted stock basis. The total
number of shares which may be sold pursuant to options and rights granted under
the 1998 Option Plan is 2,600,000. No option can be granted under the 1998
Option Plan after April, 2008 and no option can be outstanding for more than ten
years after its grant.
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." It applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans and does not
recognize compensation expense for its stock-based compensation plans other than
for restricted stock. If the Company had elected to recognize compensation
expense based upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by SFAS No. 123, the Company's net
income and earnings per share would be reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net loss
As reported...................................... $(12,724) $(15,013) $(14,495)
Pro forma........................................ (13,663) (15,323) (14,180)
Loss per share
As reported...................................... $ (.92) $ (1.12) $ (1.49)
Pro forma........................................ (.98) (1.14) (1.46)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expenses related to
grants made before 1995. The fair value of these options was estimated at the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for the years ended December 31, 1998, 1997 and
1996, respectively: expected volatility of 67%, 65%, and 82% ; risk-free
interest rates of 5.6%, 6.0%, and 6.6% ; and expected lives of 10 years, 4 years
and 4.6 years. At the date of grant, all exercise prices equaled the market
value of the stock.
F-18
<PAGE> 46
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair market estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
STOCK AVERAGE AVERAGE
OPTIONS EXERCISE FAIR
OUTSTANDING PRICE VALUE
----------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1996........................... 600,500 $3.49
Granted.............................................. 126,000 4.77
Exercised............................................ (49,159) 3.12
Cancelled............................................ (21,334) 4.39
---------
Balance at December 31, 1996......................... 656,007 3.53
Exercised............................................ (89,300) 3.22 $3.39
Cancelled............................................ (84,968) 5.16 3.39
---------
Balance at December 31, 1997......................... 481,739 3.60
=========
Granted.............................................. 2,254,850 2.37 1.71
Cancelled............................................ (511,303) 3.16 2.08
---------
Balance at December 31, 1998......................... 2,225,286 2.46
=========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable stock options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGES OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
- --------------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$1.19 - $2.00 70,000 8.10 $1.55 20,000 $1.97
2.01 - 3.00 2,025,350 9.19 2.40 348,750 2.38
3.01 - 4.88 129,936 7.32 3.86 80,036 3.74
--------- -------
2,225,286 448,786
========= =======
</TABLE>
NOTE L -- COMMITMENTS
The Company occupies plant and office facilities under noncancellable
operating leases which expire in December 2005. These operating leases provide
for scheduled base rent increases over the term of the lease, however, the total
amount of the base rent payments will be charged to operations using the
straight-line method over the term of the lease. The leases provide for payment
of real estate taxes based upon a percentage of the annual increase. In
addition, the Company rents certain equipment under operating leases, generally
for terms of four years. Total rent expense for the years ended December 31,
1998, 1997 and 1996 was approximately $1,243,000, $884,000 and $659,000,
respectively.
F-19
<PAGE> 47
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31,1998, the approximate minimum rental commitments under
these operating leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Twelve months ending December 31,
1999......................................... $1,023
2000......................................... 1,075
2001......................................... 1,128
2002......................................... 1,186
2003 and thereafter.......................... 3,921
------
Total minimum payments required........... $8,333
======
</TABLE>
Employment Contracts
During March 1998, the Company entered into employment contracts with each
of two new officers/employees of the Company which cover a five-year and a
three-year period, respectively. The contracts provide for, among other things:
(i) annual salaries of $170,000 and $140,000 to be paid over the five-year and
three-year periods, respectively and (ii) an aggregate of 1,300,000 options
(included in the 1998 grants -- Note K) to purchase the Company's stock at an
exercise price of $2.38 per common share that vest evenly over a
three-to-five-year service period and expire in ten years.
NOTE M -- CONTINGENCIES
The Company currently is a defendant in several lawsuits involving product
liability and other claims. The Company's insurance carriers have assumed the
defense for all product liability and other actions involving the Company. None
of the lawsuits is brought as a class action. The ultimate outcome of these
lawsuits cannot be determined at this time, and accordingly, no adjustment has
been made to the consolidated financial statements.
On October 23, 1996, the Company withdrew four of its Abbreviated New Drug
Applications ("ANDAs") including its ANDA for acetaminophen/oxycodone capsules
(the "Capsule ANDA"), and halted sales of the affected products. The Company
instituted the withdrawal at the suggestion of the FDA and in anticipation of
its release from the FDA's Application Integrity Policy ("AIP"). The FDA has
placed the Company on the AIP, in October 1991, in connection with its
investigation of the Company's operations which culminated in the 1993 consent
decree. Under the AIP, the FDA suspended all of the parent company's (i.e.,
Halsey Drug Co.'s) applications for new drug approvals, including ANDAs and
supplements to ANDAs. At the FDA's suggestion, the Company retained outside
consultants to perform validity assessments of its drug applications.
Thereafter, in October 1996, the FDA recommended that several applications,
including the Capsule ANDA, be withdrawn. As a basis of its decision, the FDA
cited questionable and incomplete data submitted in connection with the
applications. The FDA indicated that withdrawal of the four ANDAs was necessary
for the release of the Company from the AIP. The FDA further required submission
by the Company of a Corrective Action Plan. Said Plan was prepared and submitted
by the Company and accepted by the FDA during 1997.
On December 19, 1996, the FDA released the Company from the AIP. As a
consequence, for the first time since October 1991, the Company was permitted to
submit ANDAs to the FDA for review. Since its release from the AIP in December
1996, through the fiscal year ended December 31, 1998, the Company submitted
thirteen ANDAs for review by the FDA, including a new ANDA with respect to the
Capsules. During the period from the Company's release from the AIP to March 15,
1999, the Company received six ANDA approvals, all of which relate to ANDA
filings made with the FDA subsequent to the Company's release from the AIP.
As of March 15, 1999, the Company had submitted one additional ANDA for
review by the FDA in fiscal 1999 and anticipates the submission of five
additional ANDAs during the balance of fiscal 1999.
F-20
<PAGE> 48
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Although the Company has been successful in receiving the ANDA approvals
described above since its release from the AIP in December 1996, there can be no
assurance that any of its newly submitted ANDAs, or those contemplated to be
submitted, will be approved by the FDA. The Company will not be permitted to
market any new product unless and until the FDA approves the ANDA relating to
such product. Failure to obtain FDA approval for the Company's pending ANDAs, or
a significant delay in obtaining such approval, would adversely affect the
Company's business operations and financial condition.
On June 21, 1993, the Company entered into a Plea Agreement with the DOJ to
resolve the DOJ's investigation into the manufacturing and record keeping
practices of the Company's Brooklyn plant. Under the terms of the Plea
Agreement, the Company agreed to plead guilty to five counts of adulteration of
drug products shipped in interstate commerce. Each count involved product
adulteration, and record keeping deficiencies relating to a single drug product,
Quinidine Gluconate (324mg tablets), manufactured at the Brooklyn plant. The
Plea Agreement also required the Company to pay a fine of $2,500,000 over five
years in quarterly installments of $125,000, commencing on or about September
15, 1993. The Company's plea was entered and the terms of the Plea Agreement
were approved by the United States District Court for the District of Maryland
on July 13, 1993. As of February 28, 1998, the Company was in default of the
payment terms of the Plea Agreement and had made payments aggregating $350,000.
On March 27, 1998, the Company and the DOJ signed the Letter Agreement serving
to amend the Plea Agreement relating to the terms of the Company's satisfaction
of the fine assessed under the Plea Agreement Specifically, the Letter Agreement
provided that the Company will satisfy the remaining $2,150,000 of the fine
through the payment of $25,000 on a monthly basis commencing June 1, 1998, plus
interest on such outstanding balance (at the rate calculated pursuant to 28
U.S.C Section 1961)(currently 5.319%). Such payment schedule will result in the
full satisfaction of the DOJ fine in December, 2005. The Letter Agreement also
provides certain restrictions on the payment of salary or compensation to any
individual in excess of $150,000 without the written consent of the United
States District Court for the District of Maryland, subject to certain
exceptions. In addition, the Letter Agreement requires the repayment of the
outstanding fine to the extent of 25% of the Company's after-tax profit or the
remaining balance owed and 25% of the net proceeds received by the Company on
any sale of a capital asset for a sum in excess of $10,000. If, at any time, the
Company does not make the payments required under the Letter Agreement in a
timely fashion, the United States will be free to declare that the fine is
delinquent and/or in default, and exercise all legal process to immediately
collect the full amount of the fine, interest and applicable penalties.
By letter dated October 23, 1995, the Company was notified by the New York
State Education Department (the "Department") that the Professional Conduct
Officer of the Office of Professional Discipline had determined that there was
sufficient evidence of professional misconduct on the Company's part to warrant
a disciplinary proceeding pursuant to New York law. Upon contacting the Deputy
Director of the Office of Professional Discipline, counsel for the Company was
advised that the alleged misconduct related to the same activities that were the
subject of the DOJ investigation, indictment and plea. The Company submitted a
written response on November 16, 1995. The Company and the Department have
agreed to the entry of a Consent Order concluding any disciplinary proceedings.
The Company will pay $175,000 in fines over five years. In addition, the
Company's registration as a manufacturer of drugs in New York State is revoked,
but such revocation is stayed and the Company has been placed on probation for a
maximum of five years. The Company has the right to apply for removal from
probation after two years. At December 31, 1998, the Company is current in its
payment obligations with a remaining obligation of $140,000.
The Company's Common Stock is listed on the American Stock Exchange (the
"Exchange") under the symbol "HDG."
The Company does not meet certain of the Exchange's criteria for continued
listing. Accordingly, there can be no assurance that the Company's common stock
will remain listed on the Exchange or that the Exchange will not commence a
review of the Company's continued listing eligibility. If the Common Stock
should become delisted from the Exchange, trading, if any, in the Common Stock
would continue on the OTC
F-21
<PAGE> 49
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bulletin Board, an NASD-sponsored inter-dealer quotation system, or in what is
commonly referred to as the "Pink Sheets." In such event, a shareholder may find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of the Common Stock.
Immediately prior to the completion of the Offering, the Company was in
default under the consent order with the Department for failure to satisfy two
of the monthly installments of the fine as provided in the consent order. Prior
to the completion of the Offering, the Company advised the Department as to the
existence of the default and that such deficiencies would be corrected upon the
completion of the Offering. The Company has satisfied these outstanding amounts
and is now current under the consent order with the Department. Based on
discussions between representatives of the Department and the Company's outside
counsel handling this matter, the Company has been advised that the revocation
of the Company's registration as a manufacturer of drugs in the State of New
York will remain stayed and that the Company continues to have the right to
apply for removal from probation after two years from the effective date of the
consent order.
Other Legal Proceedings
Beginning in 1992, actions were commenced against the Company and numerous
other pharmaceutical manufacturers in the Pennsylvania Court of Common Pleas,
Philadelphia Division, in connection with the alleged exposure to
diethylstilbestrol ("DES"). The defense of all of such matters was assumed by
the Company's insurance carrier, and a substantial number have been settled by
the carrier. Currently, five actions remain pending with the Company as a
defendant, and the insurance carrier is defending each action. Similar actions
were brought in Ohio, and have been dismissed based on Ohio law. The Company and
its legal counsel do not believe any of such actions will have a material impact
on the Company's financial condition.
The Company has been named as a defendant in four additional actions, each
of which has been referred to the Company's carrier and has been accepted for
defense. The first action, Alonzo v. Halsey Drug Co., Inc. and K-Mart Corp., No.
64DOT-95111-CT-2736 (Indiana Superior Court, Porter County), was commenced on
November 5, 1995 and involves a claim for unspecified damages relating to the
alleged ingestion of "Doxycycline 100." At this early stage of the proceedings,
the Company is unable to predict with any degree of certainty the likely outcome
of these claims and whether they will have a material adverse effect on the
Company's financial condition. The second action, Files v. Halsey Drug Co.,
Index No. 198787193 (New York Supreme Court, Suffolk County), commenced on
September 16, 1993, seeking $10,000,000 in damages for wrongful death allegedly
caused by the ingestion of Isoniazid. Halsey has been dismissed from this action
on motion for summary judgment. The third and fourth actions, entitled Hunt v.
Halsey Drug Co., Inc., and McCray v. Halsey Drug Co., Inc. (New York State
Supreme Court, Kings County), were commenced on October 21, 1993, seeking the
recovery of $8,000,000 for alleged personal injuries suffered by two Wells Fargo
security guards who responded to an alarm and were shot, resulting in the death
of one and the injury to the other. The Company's insurance carrier and the
plaintiffs in these matters have agreed in principle to a settlement providing
for the payment by the Company's insurance carrier of the sum of $600,000 to the
estate of John McCray and the sum of $150,000 to Joseph Hunt in full and final
settlement of all their respective claims against the Company.
The Company has been named as a defendant in a complaint filed with the
United States District Court, Eastern District of New York, on June 30, 1998
(the "Complaint") by Quality Products and Services, L.L.C. The Complaint alleges
the existence of a Joint Venture Agreement between the Plaintiff and the Company
concerning the development, manufacture and marketing of a single product. The
Complaint also alleges that the Company has breached the Agreement by failing to
satisfy its respective obligations defined in the Agreement. The Complaint seeks
monetary damages of approximately $20 million. The Company believes that the
allegations contained in the Complaint are without basis in fact, and that it
has meritorious defenses to each of the allegations. The Company has retained
counsel and intends to vigorously defend this action. This matter is currently
in discovery. The Company has filed a third-party complaint against Rosendo
Ferran, the Company's former President, in connection with the Complaint.
F-22
<PAGE> 50
HALSEY DRUG CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has been named as a defendant in an action in Suffolk County,
New York, by Designed Laboratories, Inc., for construction work allegedly
performed at the Company's facilities in Brooklyn. Plaintiff is seeking
approximately $148,000. The Company has no records of work being performed by
this entity, and is therefore defending the action.
The Company's former President, Rosendo Ferran, has instituted an
arbitration against the Company, seeking sums alleged due under his employment
contract in the amount of $225,000, deferred salary in the approximate amount of
$100,000, and unspecified damages upon allegations of age, ethnic and religious
discrimination. The Company believes it has meritorious defenses to the
allegations claimed in the arbitration. The Company and its legal counsel do not
believe this claim will have a material adverse effect on the Company's
financial condition.
NOTE N -- SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company sells its products to a large number of customers who are
primarily drug distributors, drugstore chains and wholesalers and are not
concentrated in any specific region. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. During
1998, the Company had net sales to one customer in excess of 10% of total sales,
aggregating 11.5% of total sales. During 1997, the Company had net sales to two
customers in excess of 10% of total sales. One customer (Mallinckrodt) accounted
for 22.1% of total sales and another customer (Warner Chilcott) accounted for
10% of total sales. During 1996, the Company had net sales to one customer
aggregating 10% of total sales.
During 1998 and 1997, the Company purchases approximated $2,583,000 and
$1,187,000, respectively, representing approximately 29% and 25%, respectively,
of total purchases for those years.
NOTE O -- SUBSEQUENT EVENTS
Lease of Congers, New York Facility
Effective March 22, 1999, the Company leased, as sole tenant, a
pharmaceutical manufacturing facility located in Congers, New York (the "Congers
Facility") from Par Pharmaecutical, Inc. ("Par") pursuant to an Agreement to
Lease (the "Lease"). The Congers Facility contains office, warehouse and
manufacturing space and is approximately 35,000 square feet. The Lease provides
for a term of three years, with a two-year renewal option and provides for
annual fixed rent of $500,000 per year during the primary term of the Lease and
$600,000 per year during the option period. The Lease also covers certain
manufacturing and related equipment previously used by Par in its operations at
the Congers Facility (the "Leased Equipment"). In connection with the execution
of the Lease, the Company and Par entered into a certain Option Agreement
pursuant to which the Company may purchase the Congers Facility and the Lease
Equipment at any time during the lease term for $5 million.
As part of the execution of the Lease, the Company and Par entered into a
certain Manufacturing and Supply Agreement (the "M&S Agreement") having a term
of two years. The M&S Agreement provides for the Company's contract manufacture
of certain designated products manufactured by Par at the Congers Facility prior
to the effective date of the Lease. The M&S Agreement also provides that Par
will purchase a minimum of $1,150,000 in product during the initial 18 months of
the Agreement. The M&S Agreement further provides that the Company will not
manufacture, supply, develop or distribute the designated products to be
supplied by the Company to Par under the M&S Agreement to or for any other
person for a period of three years.
F-23
<PAGE> 51
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 5, 1999, accompanying the
consolidated financial statements included in the Annual Report of Halsey Drug
Co., Inc. on Form 10-K for the year ended December 31, 1998. We hereby consent
to the incorporation by reference of said report in the Registration Statements
of Halsey Drug Co., Inc. on Form S-8 (File No. 33-98396, effective October 19,
1995).
GRANT THORNTON LLP
New York, New York
March 5, 1999
F-24
<PAGE> 52
EXHIBIT INDEX
Exhibit 3.1
Certificate of Incorporation and amendments
Exhibit 3.3
Restated By-Laws
Exhibit 10.45
[Amended, Restated and Consolidated Bridge Loan Agreement dated as of
December 2, 1998 between the Company, Galen Partners III, L.P., Galen
Partners International III, L.P., Galen Employee Fund III, L.P.
and the other signatures thereto]
Exhibit 10.46
[First Amendment to Amended, Restated and Consolidated Bridge Loan Agreement
dated December 7, 1998 between the Company and the lenders listed
on the signature page thereto]
Exhibit 10.47
[Second Amendment to Amended, Restated, Consolidated Bridge Loan
Agreement dated March 8, 1999 between the Company and the
lenders listed on the signature pages thereto]
Exhibit 10.48
[Form of 10% Convertible Secured Note due May 30, 1999]
Exhibit 10.49
[Form of Common Stock Purchase Warrant issued pursuant to the Amended,
Restated and Consolidated Bridge Loan Agreement]
Exhibit 10.50
[Amended and Restated General Security Agreement dated December 2, 1998
between the Company and Galen Partners III, L.P., as Agent]
Exhibit 10.51
[Subordination Agreement dated December 2, 1998 between the Registrant
and Galen Partners III, L.P., as Agent]
<PAGE> 53
Exhibit 10.52
[Agency Letter Agreement dated December 2, 1998 by and among the lenders a party
to the Amended, Restated and Consolidated Bridge Loan Agreement, as amended]
Exhibit 10.53
[Lease Agreement dated March 17, 1998 between the
Registrant and Par Pharmaceuticals Inc.]
Exhibit 10.54
[Lease Agreement dated September 1, 1998 between the Registrant and Crinson
Ridge Partners]
Exhibit 10.55
[Manufacturing and Supply Agreement dated March 17, 1999 between
the Company and Par Pharmaceuticals Inc.]
Exhibit 10.56
[Halsey Drug Co., Inc. 1998 Stock Option Plan]
Exhibit 23.1
[Consent of Grant Thornton LLP, independent certified public accountants]
Exhibit 27
[Financial Data Schedule, which is submitted electronically to the Securities
and Exchange Commission for informational purposes only and not filed]
<PAGE> 1
Exhibit 3.1
[Amendments to Certificate of Incorporation]
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
HALSEY DRUG CO., INC.
UNDER SECTION 805 OF THE NEW YORK BUSINESS CORPORATION LAW
* * * * *
WE, THE UNDERSIGNED, Michael K. Reicher and Peter Clemens, being
respectively the President and the Secretary of Halsey Drug Co., Inc., hereby
certify:
1. The name of the corporation is Halsey Drug Co., Inc. The corporation
was originally incorporated under the name of Halsey Drug Co. Inc.
2. The certificate of incorporation of said corporation was filed with the
Department of State on the 10th day of April, 1935, amended on June 16, 1952,
restated on February 23, 1962, amended on March 12, 1984, amended on February 7,
1986, amended on August 20, 1986, amended on May 24, 1989, and further amended
on August 27, 1998.
3. (a) The certificate of incorporation is amended to increase the
number of directors to not more than eight (8).
(b) To effect the foregoing, Article SIXTH relating to the number
of directors is amended to read as follows:
<PAGE> 2
SIXTH: The number of directors shall be not less than
three (3) nor more than eight (8) none of whom need be
stockholders of the Corporation.
4. The amendment was authorized in the following manner:
By a unanimous written consent of the Board of Directors followed by
an affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of the corporation entitled to vote thereon.
IN WITNESS WHEREOF, we have signed this certificate on the 28 day of
January, 1999 and we affirm the statements contained herein as true under
penalties of perjury.
_/S/_________________________________
Michael K. Reicher
President and Chief Executive Officer
_/S/_________________________________
Peter Clemens
Secretary
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
HALSEY DRUG CO., INC.
Please forward the filing receipt for this document to:
ST. JOHN & WAYNE, L.L.C.
Attn: John P. Reilly, Esq.
2 Penn Plaza East, 10th Floor
Newark, New Jersey 07105
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
HALSEY DRUG CO., INC.
UNDER SECTION 805 OF THE NEW YORK BUSINESS CORPORATION LAW
* * * * *
WE, THE UNDERSIGNED, Michael K. Reicher and Peter Clemens, being
respectively the President and the Secretary of Halsey Drug Co., Inc., hereby
certify:
1. The name of the corporation is Halsey Drug Co., Inc. The corporation
was originally incorporated under the name of Halsey Drug Co. Inc.
2. The certificate of incorporation of said corporation was filed with the
Department of State on the 10th day of April, 1935, amended on June 16, 1952,
restated on February 23, 1962, amended on March 12, 1984, amended on February 7,
1986, amended on August 20, 1986 and further amended on May 24, 1989.
3. (a) The certificate of incorporation is amended to increase
the number of authorized shares of Common Stock available from
20,000,000 to 40,000,000 Shares.
(b) To effect the foregoing, Article THIRD relating to the amount
of authorized capital stock of the Corporation is amended to
read as follows:
<PAGE> 5
THIRD: The amount of the authorized capital
stock of the Corporation shall be Four
Hundred Thousand ($400,000) Dollars
consisting of 40,000,000 shares of Common
Stock, each share having a par value of $.01
per share.
4. The amendment was authorized in the following manner:
By a unanimous written consent of the Board of Directors followed by
an affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of the corporation entitled to vote thereon.
IN WITNESS WHEREOF, we have signed this certificate on the 21st day of
July and we affirm the statements contained herein as true under penalties of
perjury.
_/S/_________________________________
Michael K. Reicher
President and Chief Executive Officer
_/S/_________________________________
Peter Clemens
Secretary
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
HALSEY DRUG CO., INC.
Please forward the filing receipt for this document to:
ST. JOHN & WAYNE, L.L.C.
Attn: B. Knochenmus
2 Penn Plaza East, 10th Floor
Newark, New Jersey 07105
<PAGE> 1
Exhibit 3.3
[Amended and Restated Bylaws]
As Amended: April 24, 1998
RESTATED
BY-LAWS
of
HALSEY DRUG CO., INC.
ARTICLE I.
STOCKHOLDERS.
SECTION 1. Annual Meeting. The annual meeting of the stockholders shall be
held at such time and place in the City and State of New York as the Board of
Directors may from time to time designate on a day not later than one hundred
fifty (150) days from the end of the Corporation's last fiscal year, each year
for the purpose of electing directors and of transacting such other business as
may properly come before the meeting. The directors shall be chosen by a
plurality of the votes at such election.
SECTION 2. Special Meetings. Special meetings of the stockholders may be
called by a majority of the members of the Board of Directors or the President
and shall be called at any time by the President, any Vice President or the
Secretary upon the written request of stockholders owning a majority of the
outstanding shares of the Corporation entitled to vote at the meeting, and shall
be hold at such time and place in the City and State of New York as may be fixed
in the call and stated in the notice.
SECTION 3. Notice of Meetings. Notice of each meeting of stockholders
shall be in writing and signed by the President or a Vice President or the
Secretary or an Assistant Secretary. Such notice shall state the purpose or
purposes for which the meeting is called and the time when and the place where
it is to be held, and copy thereof shall be served, either personally or by
mail, upon each stockholder of record entitled to vote at such meeting, and upon
each stockholder of record who, by reason of any action proposed at such
meeting, would be entitled to have his stock appraised if such action were
taken, not less than ten nor more than forty days before the meeting. If mailed,
it shall be directed to a stockholder at his address as it appears on the
stockbook unless he shall have filed with the Secretary of the Corporation a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request.
<PAGE> 2
A meeting of stockholders may be held without notice, and any action
proper to be taken by the stockholders may be taken thereat, if at any time
before or after such action be completed the requirements for notice be waived
in writing by all the stockholders of record entitled to notice of such meeting
or by their attorneys thereunto authorized.
SECTION 4. Qualification of Voters. Unless otherwise provided in a
certificate filed pursuant to law, every stockholder of record of the
Corporation shall be entitled at every meeting of the stockholders to one vote
for every share of stock standing in his name on the books of the Corporation.
Shares of its own stock belonging to the Corporation at the time of the
meeting or at the time a voting record therefor, as hereafter provided, is
taken, shares retired before the meeting and no longer deemed to be issued and
outstanding at the time of the meeting although outstanding at the time a voting
record therefor is taken, and shares issued before the meeting but after a
voting record therefor is taken, shall not be voted, directly or indirectly, and
shall not be counted in determining a quorum or the number of shares necessary
to constitute a quorum or to take any action contemplated, unless otherwise
provided by law.
The books and papers containing the list of stockholders shall be produced
at any meeting of the stockholders upon the request of any stockholder. If the
right to vote at any such meeting shall be challenged, the inspectors of
election, or other person presiding thereat, shall require such books to be
produced as evidence of the right of the person challenged to vote at such
meetings and all persons who may appear from such books to be stockholders of
the Corporation entitled to vote may vote at such meeting in person or by proxy,
subject to the provisions of the law.
SECTION 5. Determination of Stockholders of Record for Certain Purposes.
The Board of Directors may prescribe a period not exceeding forty days prior to
any meeting of the stockholders or prior to the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose without a
meeting, or prior to the payment of any dividend, or the making of any
distribution, or the delivery of evidence of rights or evidences of interests
arising out of any change, conversion or exchange of capital stock, during which
no transfer of stock on the books of the corporation may be made. In lieu of
prohibiting the transfer of stock as aforesaid, the Board of Directors may fix a
day and hour, not more than forty days prior to any such meeting, or to any such
last day for the expression of consent or dissent, or to any such dividend
payment, distribution or delivery, as the time as of which stockholders entitled
to notice of and to vote at such meeting, or to express such consent or dissent
or to the receipt of such dividend payment, distribution or delivery, as the
case may be, shall be determined, and all persons who were stockholders of
record at such time and no others shall be entitled to notice of and to vote at
such meeting, to express such consent or dissent, or to the receipt of such
dividend payment, distribution or delivery, as the case may be.
<PAGE> 3
SECTION 6. Quorum. The amount of stock which must be represented at a
meeting of the stockholders to constitute a quorum, unless otherwise provided by
law, shall be a majority of the shares of the Corporation which are entitled to
be voted at such meeting, represented by holders of record entitled to vote
thereat, present in person or by proxy.
If at any meeting of the stockholders the amount of stock so represented
shall not constitute a quorum or shall be less than the amount required by
statute to take the action then contemplated, the holders of a majority of the
shares of stock so represented may adjourn the meeting from time to time during
the period of not more than forty days thereafter, without notice other than
announcement at the meeting, until the required amount of stock shall be
represented at the meeting, when such action may be taken as was contemplated by
the notice of the meeting.
SECTION 7. Proxies. Every stockholder of the Corporation entitled to vote
at any meeting thereof may vote by proxy. Every proxy must be executed in
writing by the stockholder or by his duly authorized attorney. No proxy shall be
valid after the expiration of eleven months from the date of execution unless
the stockholder executing it shall have specified therein its duration.
SECTION 8. Inspectors of Election. Two inspectors of election to serve at
each election of directors by stockholders or in any other case in which
inspectors may act shall be appointed by the chairman at the meeting. The
inspectors so appointed, before entering upon the discharge of their duties,
shall be sworn faithfully to execute the duties of inspectors at such meeting
with strict impartiality, and according to the best of their ability, and the
oath so taken shall be subscribed by them. Thereupon the inspectors shall take
charge of the polls and after the balloting shall make a certificate of the
result of the vote taken. No director or candidate for the office of director
shall be appointed such inspector.
SECTION 9. Form of Stock Certificates. The stock of the Corporation shall
be represented by certificates, in such forms as the Board of Directors may from
time to time prescribe, signed by the President or a Vice President and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and sealed with the seal of the Corporation. Such seal may be a facsimile,
engraved or printed. Where any such certificate in signed by a transfer agent or
transfer clerk, the signatures of any such President, Vice-President, Secretary,
Assistant Secretary, Treasurer and Assistant Treasurer upon such certificate may
be facsimiles, engraved or printed. In case any such officer who has signed or
whose facsimile signature has been placed upon such certificate shall have
ceased to be such before such certificate is issued, it may be issued by the
Corporation with the same effect as if such officer had not ceased to be such at
the date of its issue.
Every certificate of stock issued by the Corporation shall plainly state
upon the face thereof the number, kind and class of shares, including series, if
any, which it represents.
SECTION 10. Transfers of Stock. Shares of the stock of the Corporation
shall be transferable on the books of the Corporation, by the holder thereof in
person or by his attorney, upon surrender or cancellation of certificates for
the same number of shares, with a written assignment of
<PAGE> 4
the certificate or a power of attorney to sell, assign or transfer the same or
the shares represented thereby, signed by the person appearing by the
certificate to be the owner of the shares represented thereby, either indorsed
thereon or attached thereto, with such proof of the authenticity of the
signature as the Corporation or its agents may reasonably require. Such
assignment or power of attorney may be either in blank or to a specified person,
and shall have affixed thereto all stock transfer stamps required by law.
No share shall be transferable until all previous calls thereon shall have
been fully paid in.
SECTION 11. Lost, Stolen or Destroyed Stock Certificates. No certificate
for shares of stock of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed, except upon
production of such evidence of the loss, theft or destruction, and upon such
indemnification of the Corporation and its agents to such extent and in such
manner as the Board of Directors may from time to time prescribe.
ARTICLE II.
BOARD OF DIRECTORS.
SECTION 1. Power of Board and Qualification of Directors. The business of
the Corporation shall be managed by its Board of Directors, all of whom shall be
of full age and need not be stockholders. Directors shall be elected at the
annual meetings of the stockholders and each director shall be elected to serve
for one year and until his successors shall be elected and shall qualify.
SECTION 2. Number. The number of directors of the Corporation shall be not
less than three nor more than eleven as fixed from time to time within said
limits by the Board of Directors.
SECTION 3. Meetings or the Board. The annual meeting of the Board of
Directors shall be held in each year after the adjournment of the annual
stockholders' meeting and on the same day. If a quorum of the directors are not
present on the day appointed for the annual meeting, the meeting shall be
adjourned to some convenient day. No notice need be given of the annual meeting
of the Board.
Meetings of the Board of Directors shall be held at such place as may from
time to time be specified in the call of any meeting.
Regular meetings of the Board of Directors shall be held at such times as
may from time to time be fixed by resolution of the Board, and no notice need be
given of regular meetings.
Special meetings of the Board may be called at any time by the President
and shall be called by the President, any Vice President or the Secretary upon
the written request of any two members of the Board, to be held not more than
five days after receipt of the said request. Notice of special
<PAGE> 5
meetings say be oral, telegraphic or written and shall be served on or sent or
mailed to each director not less than forty-eight hours before such meeting.
A special meeting of the Board of Directors may be held without notice,
and any action proper to be taken by the Board of Directors may be taken
thereat, if every member of the Board of Directors is present or if at any time
before or after such action be completed the requirement for notice be waived in
writing by every director entitled to notice of such meeting.
SECTION 4. Quorum and Power of a Majority. A majority of the Board of
Directors at a meeting duly assembled shall be necessary to constitute a quorum
for the transaction of business and the act of a majority of the directors
present at such meeting shall be the act of the Board of Directors.
SECTION 5. Resignations. Any director of the Corporation may resign at any
time by giving written notice to the Board of Directors or to the President or
to the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein; and unless otherwise Specified therein the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 6. Vacancies. Vacancies in the Board of Directors, whether caused
by death, resignation, increase in the number of directors, or otherwise, may be
filled by a vote of a majority of the directors in office at the time. However,
in case the number of directors be increased by action of the stockholders, the
additional directors may be elected by vote of the stockholders at the meeting
at which the increase is effected.
SECTION 7. Compensation. Directors, as such, shall not receive any stated
salary for their services, but by resolution of the Board of Directors a fixed
sum and expenses of attendance, if any may be allowed for attendance at each
meeting of the Board. However, this by-law shall not be construed to preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of the Executive Committee and of other
committees may be allowed like compensation for attending committee meetings.
SECTION 8. Executive Committee. The Board of Directors may, by vote of a
majority of the Board, designate an Executive Committee, to consist of the
President and such other member or members of the Board of Directors as may be
designated by the Board of Directors. The Executive Committee shall have and may
exercise, so far as may be permitted by law, all the powers of the Board of
Directors in the management of the business, affairs and property of the
Corporation during the intervals between meetings of the Board of Directors and
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it; but the Executive Committee shall not have power to
fill vacancies in the Board of Directors or to change the membership of, or to
fill vacancies in, the Executive Committee, or to make or amend the by-laws of
the Corporation. The Board of Directors shall have the power at any time to fill
vacancies in, to change the membership of, or to dissolve the Executive
Committee. The Executive Committee may hold meetings and make rules for the
conduct of its business and appoint such committees and assistants
<PAGE> 6
as it shall from time to time deem necessary. A majority of the members of the
Executive Committee shall constitute a quorum determine its action. All action
of the Executive Committee shall be reported at the meeting or the Board of
Directors next succeeding such action.
SECTION 9. Other Committees. The Board of Directors may in its discretion
appoint other committees which shall have such powers and perform such duties as
from time to time may be prescribed by the Board of Directors. A majority of the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. The Board of
Directors shall have power at any time to change the membership of any such
committee, to fill vacancies, and to discharge any such committee.
SECTION 10. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, members of the Board of Directors
or any committee thereof may participate in a meeting of such Board or committee
by means of a conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time,
and participation in a meeting pursuant to such means shall constitute presence
in person at such meeting.
ARTICLE III.
OFFICERS.
SECTION 1. Officers. The Board of Directors, as soon as may be after the
annual election of directors, shall elect a President, one or more Vice
Presidents, a Secretary and a Treasurer, and from time to time may appoint such
other officers (including among others, an Executive Vice President, one or more
Assistant Secretaries and one or more Assistant Treasurers), agents and
employees as it may deem proper. More than one office may be hold by the same
person. The President shall be chosen from among the directors but no other
officer need be a director.
SECTION 2. Salaries of Officers. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. Term of Office. The term of office for all officers shall be
for one year and until their respective successors are chosen and qualified.
SECTION 4. Powers and Duties.
(a) The President
The President shall preside at all meetings of the directors and shall
generally oversee the management of the business of the Corporation. He shall be
the chief executive officer of the Corporation and shall have the management of
the business of the Corporation. He shall preside at all meetings of
stockholders. Except as the Board of Directors may otherwise direct and except
as
<PAGE> 7
otherwise expressly provided in these by-laws or by law, the President shall
execute any action on behalf of the Corporation as may from time to time be
taken by the Board of Directors.
(b) Vice Presidents
The Vice Presidents, in the order designated by the Board of Directors,
during the absence or disability of the President, shall perform the duties and
exercise the powers of the President, and shall perform such other duties as the
Board of Directors shall prescribe.
(c) Secretary
The Secretary shall attend all sessions of the Board and all meetings of
the stockholders and record all votes and the minutes of all proceedings in a
book to be kept for that purpose. He shall give or cause to be given notice of
all meetings of stockholders and special meetings of the Board of Directors and
shall Perform such other duties as may be prescribed by the Board of Directors.
He shall keep in safe custody the seal of the Corporation and affix it to any
instrument when authorized by the Board of Directors.
(d) Treasurer
The Treasurer shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and directors at the
regular meetings of the Boards or whenever they may require it, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
The Treasurer shall, if required by the Board of Directors, give the
Corporation a bond in such sum or sums and with such surety or sureties as shall
be satisfactory to tho Board of Directors, conditioned upon the faithful
performance of his duties and for the restoration to the Corporation in case of
his death, resignation, retirement or removal from office of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 5. Books to be Kept. The officers shall keep at the office of the
Corporation correct books of account of all its business and transactions, and a
book to be known as the stockbook, containing the names, alphabetically
arranged, of all persons who are stockholders of the Corporation, showing their
places of residence, the number of shares of stock held by them respectively,
the time when they respectively became the owners thereof, and the amount paid
thereon.
<PAGE> 8
SECTION 6. Checks, Notes, etc. All checks and drafts on the Corporation's
bank accounts and all bills of exchange and promissory notes and all
acceptances, obligations and other instruments for the payment of money, shall
be signed by such officer or officers or agent or agents as shall be thereunto
authorized from time to time by the Board of Director.
ARTICLE IV.
OTHER MATTERS.
SECTION 1. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation and such other appropriate legend as the Board of
Directors may from time to time determine. In lieu of the corporate seal, when
so authorized by the Board of Directors or a duly empowered committee thereof, a
facsimile thereof may be affixed or reproduced.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 3. Amendments. The by-laws of the Corporation may be amended,
added to or repealed at any meeting of the stockholders by the vote of the
holders of record of a majority of the outstanding shares of the Corporation
entitled to vote at the meeting, provided that notice of the proposed change
shall have been given in the notice of the meeting. The by-laws may also be,
amended or Added to or repealed at any meeting of the Board of Directors by the
vote of a majority of all members of the Board, provided that notice of the
proposed change shall have been given in the notice of the meeting. However, any
by-laws hereafter duly adopted at a meeting of the stockholders shall control
action of the directors except as therein otherwise provided.
SECTION 4. Reliance Upon Reports. Each Director, each officer and each
member of any committee designated by the Board of Directors shall in the
performance of his duties be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officials, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors, or by such officer or by such
committee, or in relying in good faith upon other records of the Corporation.
SECTION 5. Removals.
(a) The stockholders may, at any meeting called for the purpose, by vote
of a majority of the capital stock issued and outstanding and entitled to vote
thereon, remove any director from office. The Board of Directors may, at any
meeting called for the purpose, by an affirmative vote of two-thirds of their
entire number holding office at the time, and for good cause shown, remove any
director from office.
(b) The-Board of Directors may, at any meeting called for the purpose, by
a vote of a majority of their entire number holding office at the time, remove
from office any officer or agent
<PAGE> 9
of the Corporation or any member of any committee appointed by the Board of
Directors or by any committee appointed by the Board of Directors or by any
officer or agent of the Corporation.
SECTION 6. Indemnification . It is expressly provided that any and every
person made a party to any action, suit, or proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he,
his testator or intestate, is or was a director or officer of this corporation
or of any corporation which be served as such at the request of this
corporation, may be indemnified by the corporation to the full extent permitted
by law, against any and all reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with the defense of such
action or in connection with any appeal therein, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
officer or director has breached his duty to the corporation.
It is further expressly provided that any and every person made a party to
any action, suit, or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, which any director or officer of the corporation
served in any capacity at the request of the corporation, by reason of the fact
that he, his testator or interstate, was a director or officer of the
corporation, or served such other corporation in any capacity, may be
indemnified by the corporation, to the full extent permitted by law, against
judgments, fines, amounts paid in settlement, and reasonable expenses, including
attorneys' fees; actually and necessarily incurred as a result of such action,
suit or proceeding, or any appeal therein, if such person acted in good faith
for a purpose which he reasonably believed to be in the best interests of the
corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
<PAGE> 1
Exhibit 10.45
[Amended, Restated and Consolidated Bridge Loan Agreement dated as of
December 2, 1998 between the Company, Galen Partners III, L.P., Galen
Partners International III, L.P., Galen Employee Fund III, L.P. and the
other signatures thereto]
================================================================================
AMENDED, RESTATED AND CONSOLIDATED
BRIDGE LOAN AGREEMENT
for
$8,500,000
among
HALSEY DRUG CO., INC., as Borrower,
and
GALEN PARTNERS III, L.P.
GALEN PARTNERS INTERNATIONAL III, L.P.
GALEN EMPLOYEE FUND III, L.P.
and OTHERS, as Lenders,
and
GALEN PARTNERS III, L.P., as Agent for Lenders
Dated as of December 2, 1998
================================================================================
Wolf, Block, Schorr and Solis-Cohen LLP
250 Park Avenue
New York, New York 10177
<PAGE> 2
TABLE of CONTENTS
SECTION 1. DEFINITIONS, TERMS AND HEADINGS..................................2
1.1. General Definitions..............................................2
1.2. Accounting Terms and Determinations..............................9
1.3. Other Terms; Headings............................................9
SECTION 2. TERMS OF THE CONSOLIDATED BRIDGE LOAN............................9
2.1. Commitment.......................................................9
2.2. Consolidated Bridge Loan.........................................9
2.3. Amended, Restated and Consolidated Notes........................10
(a) The Amount................................................10
(b) General Terms ............................................10
(c) Adjustment of Conversion Price............................10
(d) Payment...................................................10
(e) Interest..................................................10
(f) Prepayments of Notes......................................11
(g) Interest After Event of Default...........................11
(h) Exchange or Replacement...................................11
(i) Transfer..................................................12
2.4. Warrants........................................................12
2.5. Security; Subordination of the Existing Credit Facility.........12
2.6. Registration Rights.............................................12
2.7. Consent and Waiver..............................................12
2.8. Agency Agreement ...............................................13
2.9. Miscellaneous...................................................13
SECTION 3. CONDITION PRECEDENT.............................................13
3.1. Conditions Precedent to Consolidated Bridge Loan................13
3.2. No Liens........................................................13
3.3. Representations and Warranties Correct..........................14
3.4. Legal Opinion of Counsel to Borrower............................14
3.5. Officer's Certificate...........................................14
3.6. Closing Fees....................................................14
SECTION 4. REPRESENTATIONS AND WARRANTIES..................................14
4.1. Representations and Warranties of Borrower......................14
(a) Organization and Qualification............................14
(b) Authority; Consents and Filings...........................14
(c) Enforceability............................................15
(d) No Conflict...............................................15
(e) Government Regulation.....................................15
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<PAGE> 3
(f) Indebtedness; Rights in Collateral........................15
(g) Locations of Offices, Records and Inventory...............16
(h) Inventory.................................................16
(i) No Judgments or Litigation................................16
(j) No Defaults...............................................16
(k) Financial Information, SEC Documents......................16
(l) Compliance with Law.......................................16
(m) Intellectual Property.....................................16
(n) Licenses and Permits......................................17
(o) Taxes.....................................................18
(p) Labor Disputes and Acts of God............................18
(q) Partnerships..............................................18
(r) Solvency..................................................18
(s) Forfeiture Proceeding.....................................18
(t) Offering..................................................18
(u) No Discrimination.........................................19
(v) ERISA.....................................................19
(w) Registration Rights.......................................19
(x) Accuracy and Completeness of Information..................19
4.2. Representations and Warranties of Lenders.......................19
SECTION 5. CHANGE OF CONTROL PURCHASE ORDER;
CONVERSION RIGHTS...............................................20
5.1. Change of Control...............................................20
SECTION 6. AFFIRMATIVE COVENANTS...........................................22
(a) Financial Reporting and Projections.......................22
(b) Discharge Taxes and Indebtedness..........................22
(c) Notification Requirements.................................23
(d) Notice of Default.........................................23
(e) Proceedings or Adverse Changes............................23
(f) Corporate Existence, Charter and By-Laws; Corporate Name..23
(g) Books and Records; Inspections............................23
(h) Compliance with Laws; Compliance with Agreements..........23
(i) Use of Proceeds...........................................24
(j) Maintenance of Insurance..................................24
(k) Further Assurances........................................24
(l) Payment of Note...........................................24
(m) Reporting Requirements....................................24
(n) Authorization of Shares of Common Stock for Issuance
Upon Conversion of Note and Exercise of Warrants and
Voting Rights for Note Holders............................24
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<PAGE> 4
(o) Listing of Common Stock...................................25
(p) HSR Act Filing............................................25
(q) Year 2000 Computer Capability.............................25
SECTION 7. NEGATIVE COVENANTS..............................................25
(a) Additional Indebtedness...................................25
(b) No Guarantee..............................................25
(c) Liens.....................................................26
(d) No Transfer of Asset......................................26
(e) Extraordinary Transactions and Disposal of Asset..........26
(f) Restricted Payments.......................................26
(g) Investments...............................................26
(h) Affiliate Transactions; Intercompany Transfers; Diversion
of Corporate Assets ......................................26
(i) Mergers...................................................27
(j) No Activities Leading to Forfeiture.......................27
(k) Corporate Documents; Fiscal Year..........................27
(l) Capital Expenditure.......................................27
SECTION 8. REGISTRATION RIGHTS.............................................27
8.1. Restrictive Legend..............................................27
8.2. Certain Definitions.............................................28
8.3. Requested Registration..........................................28
8.4. Piggyback Registrations.........................................29
8.5. Holdback Agreements.............................................30
8.6. Registration Procedures.........................................31
8.7. Expenses of Registration........................................32
8.8. Indemnification.................................................32
8.9. Information by Holders..........................................34
8.10. Limitations on Registration of Issues of Securities.............34
8.11. Rule 144 Reporting..............................................34
8.12. Participation in Underwritten Registrations.....................35
8.13. Selection of Underwriters.......................................35
8.14. Termination of Registration Rights..............................35
SECTION 9. EVENTS OF DEFAULT AND REMEDIES..................................35
9.1. Events of Default...............................................35
9.2. Acceleration....................................................36
9.3. Remedies........................................................37
9.4. Application of Proceeds; Surplus; Deficiencies..................37
SECTION 10. GENERAL PROVISIONS..............................................37
10.1. GOVERNING LAW...................................................37
iii
<PAGE> 5
10.2. SUBMISSION TO JURISDICTION.....................................37
10.3. SERVICE OF PROCESS.............................................38
10.4. JURY TRIAL.....................................................38
10.5. LIMITATION OF LIABILITY........................................38
10.6. Notices........................................................38
10.7. Indemnification................................................39
10.8. Amendments and Waivers.........................................40
10.9 Construction...................................................40
10.10. Counterparts and Effectiveness.................................41
10.11. Severability...................................................41
10.12. Entire Agreement; Successors and Assigns.......................41
10.13. Assignments and Participations.................................41
10.14. No Brokers.....................................................41
10.15. No Novation....................................................42
Exhibits
Exhibit A List of Lenders, Their Contributions, Their Notes and Their
Warrants
Exhibit B Amended, Restated and Consolidated Notes
Exhibit C Warrants
Exhibit D Consent and Waiver
Exhibit E Agency Letter
Exhibit F Amended and Restated General Security Agreement
Exhibit G Subordination Agreement
iv
<PAGE> 6
AMENDED, RESTATED AND CONSOLIDATED
BRIDGE LOAN AGREEMENT
THIS AMENDED, RESTATED AND CONSOLIDATED BRIDGE LOAN AGREEMENT is entered
into as of December 2, 1998 among HALSEY DRUG CO., INC., a New York corporation
("Borrower"), GALEN PARTNERS III, L.P. ("Galen" or a "Lender"), GALEN PARTNERS
INTERNATIONAL III, L.P. and GALEN EMPLOYEE FUND III, L.P., each a Delaware
limited partnership (each a "Lender", and collectively, with Galen, the "Galen
Entities"), THOSE PERSONS WHOSE NAMES ARE SET FORTH ON THE SIGNATURE PAGE HERETO
(each a "Lender", and collectively, with the Galen Entities, the "Lenders") and
GALEN, as agent for the Lenders (in such capacity, the "Agent").
WHEREAS, Borrower and the Galen Entities entered into a Bridge Loan
Agreement dated as of August 12, 1998 (as amended through the date hereof, the
"Original Bridge Loan Agreement"), pursuant to which the Galen Entities made a
loan to Borrower in the amount of $1,000,000 (the "Initial Bridge Loan"), as
evidenced by a promissory note ("Bridge Note 1") in such amount;
WHEREAS, Borrower and the Galen Entities entered into a First Amendment to
Bridge Loan Agreement dated as of September 17, 1998 (the "First Amendment"),
pursuant to which the Galen Entities made a loan to Borrower in the amount of
$500,000 (the "First Amendment Loan"), as evidenced by a promissory note
("Bridge Note 2") in such amount;
WHEREAS, Borrower and the Galen Entities entered into a Second Amendment
to Bridge Loan Agreement dated as of October 2, 1998 (the "Second Amendment"),
pursuant to which the Galen Entities made a loan to Borrower in the amount of
$500,000 (the "Second Amendment Loan"), as evidenced by a promissory note
("Bridge Note 3") in such amount;
WHEREAS, Borrower, the Galen Entities and Michael Weisbrot and Susan
Weisbrot (each, a "Lender" and collectively, the "Weisbrots") entered into a
Third Amendment to Bridge Loan Agreement dated as of October 19, 1998 (the
"Third Amendment"), pursuant to which the Galen Entities made a loan to Borrower
in the amount of $150,000 (the "Third Amendment Galen Loan"), as evidenced by a
promissory note ("Bridge Note 4") in such amount, and, pursuant to which the
Weisbrots made a loan to Borrower in the amount of $100,000 (the "Third
Amendment Weisbrot Loan", as evidenced by a promissory note ("Bridge Note 5") in
such amount (the Third Amendment Galen Loan and the Third Amendment Weisbrot
Loan, collectively the "Third Amendment Loan");
WHEREAS, Borrower and the Galen Entities entered into a Fourth Amendment
to Bridge Loan Agreement dated as of October 29, 1998 (the "Fourth Amendment"),
pursuant to which the Galen Entities made a loan to Borrower in the amount of
$750,000 (the "Fourth Amendment Loan"), as evidenced by a promissory note
("Bridge Note 6") in such amount;
1
<PAGE> 7
WHEREAS, Borrower and the Galen Entities entered into a Fifth Amendment to
Bridge Loan Agreement dated as of November 6, 1998, pursuant to which the Galen
Entities made a loan to Borrower in the amount of $1,500,000 (the "Fifth
Amendment Loan"), as evidenced by a promissory note ("Bridge Note 7") in such
amount (the Initial Bridge Loan, the First Amendment Loan, the Second Amendment
Loan, the Third Amendment Loan, the Fourth Amendment Loan and the Fifth
Amendment Loan, collectively, the "Original Bridge Loan" and Bridge Note 1,
Bridge Note 2, Bridge Note 3, Bridge Note 4, Bridge Note 5, Bridge Note 6 and
Bridge Note 7, collectively, the "Original Notes");
WHEREAS, Borrower has requested that some or all Lenders consider making
an additional $3,250,000 bridge loan to Borrower ("Additional Bridge Loan");
WHEREAS, to induce such Lenders to extend to Borrower the Additional
Bridge Loan, Borrower has agreed to execute this Amended, Restated and
Consolidated Bridge Loan Agreement (the "Agreement");
WHEREAS, some or all of the Lenders, as signatories to a certain Debenture
and Warrant Purchase Agreement dated as of March 10, 1998 (the "Debenture and
Warrant Purchase Agreement") and as holders of certain 10% convertible
subordinated debentures issued and dated August 6, 1996 (the "1996 Debentures")
desire to participate in this Agreement by exercising certain first refusal or
preemptive rights granted under Section 16.1 of the Debenture and Warrant
Purchase Agreement and under Article 8A of the 1996 Debentures;
WHEREAS, Borrower and Lenders desire to amend and restate the Original
Bridge Loan Agreement and consolidate the Original Bridge Loan with the
Additional Bridge Loan, such that the terms of such Original Bridge Loan as set
forth in the Original Bridge Loan Agreement, as so amended and restated, the
terms of such Additional Bridge Loan and the terms of such consolidation, are
set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the recipient and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
2
<PAGE> 8
SECTION 1.
DEFINITIONS, TERMS AND HEADINGS
1.1. General Definitions.
Additional Bridge Loan has the meaning set forth in the Recitals to
this Agreement.
Additional Bridge Loan Commitment means the commitment of each
Lender to fund the dollar amount of its share of the Additional Bridge Loan in
the amount set forth opposite such Lender's name on Exhibit A, copy of which is
attached hereto and made a part hereof.
Affiliate of a Person means another Person who directly or
indirectly controls, is controlled by, is under common control with or is a
director or officer of, such Person. For purposes of this definition, "control"
means the possession, directly or indirectly, of the power to vote five percent
(5%) or more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a business.
Agency Agreement means the Agency Agreement by and among the Agent
and each Lender dated as of the date hereof and entered into simultaneously
herewith, substantially in the form of Exhibit E attached hereto
Agreement means this Agreement, as the same may be amended,
extended, modified, restated or supplemented from time to time.
Authorizations means all filings, recordings and registrations with,
and all validations or exemptions, approvals, orders, authorizations, consents,
licenses, certificates and permits from any Governmental Authority.
Bridge Loan Documents mean, collectively, this Agreement, the Notes,
the Warrants, the Consent and Waiver, the Agency Agreement, each of the
Collateral Documents and all other documents, agreements, instruments, opinions
and certificates now or hereafter executed and delivered in connection herewith
or therewith, as amended, extended, modified, restated or supplemented from time
to time.
Business Day means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close.
Closing Date means the date upon which the last of the events, the
fulfillment of each of which is condition precedent to the effectiveness of this
Agreement, as set forth in Section 3 of this Agreement, shall have occurred.
Code has the meaning set forth in Section 1.3.
3
<PAGE> 9
Collateral means all property of Borrower, of whatever kind or
nature whether now owned or hereafter acquired or created, wherever located,
including, without limitation, all property identified as security for the
Obligations under the Collateral Documents.
Collateral Documents means the General Security Agreement, the
Subordination Agreement and all other contracts, instruments and other documents
pursuant to which Liens are now or hereafter granted to Agent, for the benefit
of Lenders, or to Lenders, to secure the Obligations, as any of such documents
may be amended, extended, modified, restated or supplemented from time to time.
Common Stock means the common stock of Borrower, par value $.01 per
share.
Consent and Waiver means the Consent and Waiver executed by Majority
Holders simultaneously herewith as of the date hereof, substantially in the form
of Exhibit D attached hereto.
Consolidated Bridge Loan has the meaning set forth in Section 2.2.
Conversion Shares has the meaning set forth in Section 2.3(b) of
this Agreement.
Debenture and Warrant Purchase Agreement means the Debenture and
Warrant Purchase Agreement by and among Borrower, the Galen Entities, the
Weisbrots and others, dated as of March 10, 1998.
Default means an event, condition or default which, with the giving
of notice, the passage of time, or, both, would be an Event of Default.
Equipment means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
Event(s) of Default has the meaning set forth in Section 9.1.
Existing Credit Facility/ies means the 5% Convertible Senior Secured
Debentures in the aggregate principal amount of $25,800,000 issued pursuant to
the Debenture and Warrant Purchase Agreement.
Expenses means (i) all reasonable costs and expenses of Lenders, or
Agent, on behalf of Lenders, incurred in connection with, arising under or
relating to the Bridge Loan Documents and the transactions contemplated therein
and (ii) all reasonable costs and expenses (including the reasonable fees and
expenses of legal counsel and other professionals) paid or incurred by Lenders,
or Agent, on behalf of Lenders, (a) during the continuance of an Event of
Default, (b) in enforcing or defending its rights under or with respect to this
Agreement, the other Bridge Loan Documents, the Collateral Documents or any
other document or instrument now or hereafter
4
<PAGE> 10
executed and delivered in connection herewith, (c) in collecting the
Consolidated Bridge Loan, (d) in foreclosing or otherwise collecting upon the
Collateral or any part thereof and (e) in obtaining any legal, accounting or
other advice in connection with any of the foregoing.
Forfeiture Proceeding means the commencement of any action or
proceeding affecting Borrower before any court, Governmental Authority,
commission, board, bureau, agency or instrumentality, domestic or foreign which
may result in the seizure or forfeiture of any of its property which would cause
a Material Adverse Effect upon the operations, business, properties or financial
condition of Borrower or on the ability of Borrower to perform its obligations
hereunder.
GAAP means generally accepted accounting principles in the United
States as in effect from time to time.
General Security Agreement means the Amended and Restated General
Security Agreement by and between Borrower and Agent dated the date hereof and
executed simultaneously herewith, substantially in the form of Exhibit F
attached hereto.
Governing Documents means certificates or articles of incorporation,
by-laws and other organizational or governing documents.
Governmental Authority means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
Indebtedness of a Person means (a) indebtedness for borrowed money
or for the deferred purchase price of property or services (other than trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), whether on open account or evidenced by a
note, bond, debenture or similar instrument, (b) obligations under capital
leases, (c) reimbursement obligations for letters of credit, banker's
acceptances or other credit accommodations, (d) any direct, indirect, contingent
or non-contingent guaranty or obligation for the indebtedness of another Person,
except endorsements in the ordinary course of business and (e) indebtedness
secured by any Lien on that Person's property, even if that Person has not
assumed such Indebtedness.
Investment means all expenditures made and all liabilities incurred
(contingently or otherwise) for or in connection with the acquisition of stock
or Indebtedness of, or for loans, advances, capital contributions or transfers
of property to, or acquisition of substantially all the assets of, a Person. In
determining the aggregate amount of Investments outstanding at any particular
time, (i) the amount of any Investment represented by a guaranty shall be taken
at not less than the principal amount of the obligations guaranteed and
outstanding; (ii) there shall be deducted in respect of each such Investment any
amount received as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution); (iii)
there shall not be deducted in respect of any Investment any amounts received as
earnings on such Investment,
5
<PAGE> 11
whether as dividends, interest or otherwise; and (iv) there shall not be
deducted from the aggregate amount of Investments any decrease in the market
value thereof.
Lien means any lien, claim, charge, pledge, security interest,
assignment, hypothecation, deed of trust, mortgage, capitalized lease,
conditional sale, retention of title, or other preferential arrangement having
substantially the same economic effect as any of the foregoing, whether
voluntary or imposed by law.
Majority Holders has the meaning set forth in Section 6.1(p).
Material Adverse Effect means a material adverse effect on (i) the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (ii) the ability of Borrower to
perform its obligations under the Bridge Loan Documents, (iii) the ability of
Agent or Lenders to enforce the Obligations or realize upon the Collateral, or
(iv) the value of the Collateral or the amount which Lenders would be likely to
receive (after giving consideration to delays in payment and costs of
enforcement) in a liquidation of such Collateral.
Maturity Date means May 30, 1999.
1998 Debentures mean the 5% convertible senior secured debentures
issued pursuant to the Debenture and Warrant Purchase Agreement.
1996 Debentures mean the 10% convertible subordinated debentures
issued and dated August 6, 1996.
Notes has the meaning set forth in Section 2.3.
Obligations means the unpaid principal and interest hereunder,
Expenses and all other obligations and liabilities of Borrower to Lenders under
this Agreement, the Notes, or any other Bridge Loan Document and includes, but
is not limited to, any and all indebtedness of Borrower to Lenders, whether now
existing or hereafter incurred, of every kind and character, direct or indirect,
and whether such indebtedness is from time to time reduced and thereafter
increased, or entirely extinguished and thereafter reincurred, including,
without limitation: (a) indebtedness not yet outstanding, but contracted for, or
with respect to which any other commitment by Lenders exists; (b) all interest
provided in any instrument, document, or agreement (including this Agreement)
which accrues on any indebtedness until payment of such indebtedness in full;
and (c) any moneys payable as hereinabove provided.
Permitted Investments mean (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of America or any agency or
any State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating
6
<PAGE> 12
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., and (iii) certificates of deposit maturing no more than one (1)
year from the date of investment therein issued by Bank.
Permitted Liens mean:
(a) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such Equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment.
(b) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such Equipment and Liens arising from UCC financing
statements regarding leases permitted by this Agreement.
(c) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (b) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
(d) Liens securing the obligation arising out of the Debenture
and Warrant Purchase Agreement.
(e) Liens for taxes, assessments and other governmental
charges, if payment thereof shall not at the time be required to be made, and
provided such reserve as shall be required by GAAP consistently applied shall
have been made therefor;
(f) Liens of workmen, materialmen, vendors, suppliers,
mechanics, carriers, warehouseman and landlords or other like Liens, incurred in
the ordinary course of business for sums not then due or being contested in good
faith, if an adverse decision in which contest would not materially affect the
business of Borrower;
(g) Liens securing indebtedness of Borrower or any
Subsidiaries which (i) relates to a working capital line of credit in an amount
not to exceed $10,000,000 or (ii) is in an aggregate principal amount not
exceeding $500,000;
(h) Statutory Liens of landlords, statutory Liens of banks and
rights of set-off, and other Liens imposed by law, in each case incurred in the
ordinary course of business (i) for amounts not yet overdue or (ii) for amounts
that are overdue and that are being contested in good
7
<PAGE> 13
faith by appropriate proceedings, so long as such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made for any
such contested amounts;
(i) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(j) Any attachment or judgment Lien not constituting an Event
of Default;
(k) Easements, rights-of-way, restrictions, encroachments, and
other minor defects or irregularities in title, in each case which do not and
will not interfere in any material respect with the ordinary conduct of the
business of Borrower or any of its Subsidiaries;
(l) Any (i) Interest or title of a lessor or sublessor under
any lease, (ii) Restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to, or (iii) Subordination of the interest of
the lessee or sublessee under such lease to any restriction or encumbrance
referred to in the preceding clause (ii), So long as the holder of such
restriction or encumbrance agrees to recognize the rights of such lessee or
sublessee under such lease;
(m) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with the
importation of goods;
(n) Any zoning or similar law or right reserved to or vested
in any governmental office or agency to control or regulate the use of any real
property;
(o) Liens securing obligations (other than obligations
representing debt for borrowed money) under operating, reciprocal easement or
similar agreements entered into in the ordinary course of business of Borrower
and its Subsidiaries;
(p) The liens listed in the Permitted Lien Schedule of the
Schedule of Exceptions; and
(q) The replacement, extension or renewal of any Lien
permitted by under Section 10.4 of the Debenture and Warrant Purchase Agreement
upon or in the same property theretofore subject or the replacement, extension
or renewal (without increase in the amount or change in any direct or contingent
obligor) of the indebtedness secured thereby.
Person means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (including any division, agency or
department thereof), and its successors, heirs and assigns.
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Prime Rate means the rate of interest quoted in the "Money Rates"
column of The Wall Street Journal as published in the City of New York from time
to time as the then prevailing prime rate, provided, however, that if no such
rate can be finally determined on any Business Day by reference to such column
or newspaper then the Prime Rate in effect on such day shall mean the rate of
interest then announced by Morgan Guaranty Trust Company as its "prime rate",
"base rate" or "reference rate".
Requirement of Law means any law, treaty, rule or regulation or
determination of an arbitrator, court or other Governmental Authority.
Solvent, when used with respect to any Person on a particular date,
means that on such date: (a) the fair saleable value of its assets is in excess
of the total amount of its liabilities, including, without limitation, the
reasonably expected amount of such Person's obligations with respect to
contingent liabilities, (b) the present fair saleable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (d) such Person is not engaged in business or a
transaction for which such Person's property would constitute an unreasonably
small capital.
Subordination Agreement means the subordination agreement by and
among the Borrower, the Agent and the agent acting on behalf of the purchasers
under the Debenture and Warrant Purchase Agreement dated the date hereof and
executed simultaneously herewith, substantially in the form of Exhibit G
attached hereto.
Subsidiary means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
Total Commitment means the commitment of each Lender to fund the
aggregate dollar amount of its share of the Consolidated Bridge Loan, in the
amount set forth opposite such Lender's name on Exhibit A. For purposes of
calculating such Total Commitment, the Total Commitment of the Weisbrots shall
be treated as a single joint and several commitment.
Warrant Shares has the meaning set forth in Section 2.4 of this
Agreement.
Warrants mean the warrants to purchase 689,722 shares, in the
aggregate, of the Common Stock, dated the date hereof, substantially in the form
of Exhibit C hereto.
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1.2. Accounting Terms and Determinations. Unless otherwise defined or
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a consistent basis. The Financial Statements
required to be delivered hereunder from and after the Closing Date, and all
financial records, shall be maintained in accordance with reasonable accounting
standards and practices, consistently applied.
1.3. Other Terms; Headings. Terms used herein that are defined in the
Uniform Commercial Code in effect in the State of New York (the "Code") shall
have the meanings given in the Code. Each of the words "hereof," "herein," and
"hereunder" refer to this Agreement as a whole. An Event of Default shall
"continue" or be "continuing" until it shall have been cured or until Lenders
shall have agreed in writing to waive such Event of Default. References to
Sections, Articles, Annexes, Schedules, and Exhibits are internal references to
this Agreement, and to its attachments, unless otherwise specified. The headings
and the Table of Contents are for convenience only and shall not affect the
meaning or construction of any provision of this Agreement.
SECTION 2.
TERMS OF THE CONSOLIDATED BRIDGE LOAN
2.1. Commitment. Subject to the terms and conditions of this Agreement:
(i) each Lender hereby agrees to amend and restate the Original Notes and the
Original Bridge Loan Agreement; (ii) each Lender hereby agrees to fund the
amount of its Additional Bridge Loan Commitment and (iii) each Lender hereby
agrees to consolidate the Original Bridge Loan, together with all interest
accrued thereon, with the Additional Bridge Loan.
2.2. Consolidated Bridge Loan. Borrower warrants, represents and confirms
that, as of the Closing Date, (i) the aggregate outstanding principal balance of
the Original Bridge Loan equals $4,500,000, (ii) the aggregate accrued interest
on such principal balance equals $71,111 and (iii) the aggregate outstanding
principal balance of the Additional Bridge Loan equals $3,250,000. Borrower and
Lenders agree that effective on the Closing Date, upon the consolidation of the
outstanding principal balances of the Original Bridge Loan and the Additional
Bridge Loan, and the addition to principal of the accrued interest on the
Original Bridge Loan, Lenders shall be deemed to have made a single loan to
Borrower in the aggregate principal amount of $7,721,111 (the "Consolidated
Bridge Loan").
2.3 Amended, Restated and Consolidated Notes.
(a) The Amount. The Consolidated Bridge Loan is evidenced by
Amended, Restated and Consolidated Notes payable by Borrower to the order of
each Lender, each such Note in the form of Exhibit B attached hereto and each
such Note in the original principal amount equal to such Lender's Total
Commitment (each a "Note" and collectively, "Notes").
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(b) General Terms. The Notes are 10% Convertible Senior Secured
Notes due on May 30, 1999. Each Note is convertible, in whole or in part, from
time to time, into a number of shares of Common Stock, initially at the rate of
one share of Common Stock for each $1.3688 in principal amount of the Note to be
converted. For purposes of this Agreement, the term "Conversion Shares" shall
mean the shares of Common Stock which may be issued upon conversion of all or a
portion of the principal amount of the Notes.
(c) Adjustment of Conversion Price. The price at which the
Conversion Shares may be acquired upon conversion of the Notes is subject to
adjustment as set forth in Section 3.7 of each Note.
(d) Payment. So long as a Lender shall be the holder of any Note,
Borrower will make payments of principal and interest to such Lender no later
than 11 a.m. Eastern Standard Time on the date when such payment is due.
Payments shall be made by delivery to such Lender at such Lender's address,
furnished to Borrower in accordance with this Agreement, of a certified or
official bank check drawn upon or issued by a bank which is a member of the New
York Clearinghouse for banks or by wire transfer to such Lender's (or such
Lender's nominee's) account at any bank or trust company in the United States of
America, or with respect to the payment of accrued interest on the Notes, shares
of Common Stock, as provided in Section 2.3(e) below. Each Lender further agrees
that, before a Note is assigned or transferred, such Lender will make or cause
to be made a notation thereon of principal payments previously made thereof and
of the date to which interest thereon has been paid and will notify Borrower of
the name and address of the transferee of such Note.
(e) Interest.
(i) Payment of Interest. Borrower shall pay interest to
Lenders on the aggregate unpaid principal amount of the Consolidated Bridge Loan
at the fixed rate of ten percent (10%) per annum at Maturity Date, as further
set forth in each Note. Interest shall be calculated on the basis of a year of
360 days for the actual number of days elapsed. Each Lender shall have the
option of (i) having the accrued interest on the principal of such Lender's Note
paid at the Maturity Date in immediately available funds, or, alternatively,
having the accrued interest on the principal of such Lender's Note converted
into shares of Common Stock, the conversion price to be based on the average
closing price of the Common Stock for the twenty (20) days prior to the payment
date of the interest payment or as reported by the American Stock Exchange.
Interest on the Consolidated Bridge Loan shall be paid in arrears on the date of
any prepayment (on the amount prepaid), and on the Maturity Date (whether by
acceleration or otherwise).
(ii) Excessive Interest. Notwithstanding any provision
contained in this Agreement or any other Bridge Loan Document to the contrary,
Lenders shall not be entitled to receive, collect or apply, as interest on the
Consolidated Bridge Loan under this Agreement, any amount in excess of the
maximum rate of interest permitted to be charged by applicable law, and, if
Lenders shall have received, collected or applied as interest any such excess,
such amount which
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<PAGE> 17
would be excessive interest shall be applied first to the reduction of principal
then outstanding, and second, if such principal amount is paid in full, any
remaining excess shall forthwith be returned to Borrower.
(f) Prepayments of Notes. Borrower may not, without having received
the prior written consent of the Majority Holders ("Majority Approval") prepay
any Note, in whole or in part. Upon receipt of Majority Approval, Borrower may,
upon at least three (3) Business Days' prior written notice to the Lenders,
prepay the Notes, in whole or in part, with accrued interest to the date of such
prepayment on the amount prepaid, provided that each such partial prepayment
shall be in a principal amount of not less than $100,000. Prepayment of all or
any portion of the Notes shall not entitle the Borrower to reborrow the amount
so prepaid.
(g) Interest After Event of Default. From the date of occurrence of
an Event of Default until the earlier to occur of the date upon which (i) all
Obligations shall have been paid and satisfied in full or (ii) such Event of
Default shall have been waived, interest on the Consolidated Bridge Loan shall
be payable on demand at a rate per annum equal to the Prime Rate plus five and
three-quarter percent (5-3/4%).
(h) Exchange or Replacement.
(i) Notice of Exchange or Replacement. Subject to Sections 2.3
(d); 2.3(g)(ii)and 10.13 below, at any time at the request of any holder of one
or more of the Notes to Borrower at its office provided under Section 10.6 (the
Notice Provision), Borrower, at its expense (except for any transfer tax or any
other tax arising out of the exchange) will issue in exchange therefor new
Notes, in such denomination or denominations ($100,000 or any larger multiple of
$100,000, plus one Note in a lesser denomination, if required) as such holder
may request, in the aggregate principal amount equal to the unpaid principal
amount of the Note or Notes surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note or Notes
surrendered (or, if no interest has yet been so paid thereon, then dated the
date of the Note or Notes so surrendered) and payable to such person or persons
or order as may be designated by such holder.
(ii) Actual Exchange or Replacement. Upon receipt of evidence
satisfactory to Borrower of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft, or destruction, upon delivery of
a bond of indemnity satisfactory to Borrower (provided that if the holder is a
Lender or a financial institution, its own agreement will be satisfactory), or
in the case of any such mutilation, upon surrender and cancellation of such
Note, Borrower will issue a new Note of like tenor as if the lost, stolen,
destroyed or mutilated Note were then surrendered for exchange in lieu of such
lost, stolen, destroyed or mutilated Note.
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(i) Transfer.
(i) Notification of Proposed Sale. Subject to Sections 2.3
(h)(ii) and 10.13 below, each holder of a Note, by acceptance thereof, agrees
that it will give Borrower ten (10) days written notice prior to selling or
otherwise disposing of such Note. No such sale or other disposition shall be
made unless:
(a) the holder shall have supplied to Borrower an
opinion of counsel to the holder, reasonably acceptable to Borrower, to the
effect that no registration under the Securities Act of 1933, as amended (the
"Securities Act") is required with respect to such sale or other disposition, or
(b) an appropriate registration statement with respect
to such sale or other disposition shall have been filed by Borrower and declared
effective by the Securities and Exchange Commission (the "Commission").
(ii) Transfer without Notification. If the holder of a Note
has obtained an opinion of counsel reasonably acceptable to Borrower to the
effect that the sale of its Note may be made without registration under the
Securities Act pursuant to compliance with Rule 144 (or any successor rule under
the Securities Act), the holder need not provide Borrower with the notice
required in Section 2.3 (h)(i) above.
2.4 Warrants. Subject to the terms of this Agreement and the terms of the
Warrants substantially in the form of Exhibit C, Borrower will issue Warrants to
purchase in the aggregate, 689,722 shares of the Common Stock, initially, at a
price per share equal to the average closing price of a share of the Common
Stock for the twenty (20) trading days immediately preceding the Closing Date,
as reported the price of each share is reported by the American Stock Exchange.
The Warrants shall be issued to each of Lenders in the amounts set forth
opposite their names on Exhibit A. For purposes of this Agreement, the term
"Warrant Shares" shall mean the shares of Common Stock that may be issued from
time to time pursuant to the exercise of the Warrants.
2.5 Security; Subordination of the Existing Credit Facility. All of the
Obligations of Borrower under this Agreement will be secured by the General
Security Agreement, substantially in the form of Exhibit F. The indebtedness and
Liens granted by Borrower pursuant to the Debenture and Warrant Purchase
Agreement are subordinate to the indebtedness and Liens granted by Borrower
pursuant to this Agreement, in accordance with the terms of the Subordination
Agreement, substantially in the form of Exhibit G.
2.6 Registration Rights. The Conversion Shares and the Warrant Shares are
entitled to the registrations rights set forth in Section 8 of this Agreement.
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2.7 Consent and Waiver. The lien, indebtedness and registration right
restrictions and limitations have been waived by the holders of the 1998
Debentures pursuant to the Consent and Waiver, substantially in the form of
Exhibit D.
2.8 Agency Agreement. In connection with the acts contemplated under this
Agreement, the Bridge Loan Documents, the Collateral Documents or any other
document relating hereto or thereto, the rights, powers, duties and obligations
of Agent are set forth in the Agency Agreement, substantially in the form of
Exhibit E.
2.9 Miscellaneous.
(a) Expenses. Borrower shall reimburse the Expenses of Lenders
and Agent promptly upon demand. Payment of Expenses shall be made not later than
2:00 P.M. Eastern Standard Time on the day when due, in immediately available
funds, to the offices of the Agent, at its offices located at the address set
forth on Exhibit A, or as Agent may otherwise direct Borrower.
(b) Distribution and Application of Payments. Unless an Event
of Default has occurred and is continuing, all payments received by Agent shall
be applied against the Obligations in the following order: first, to the payment
of any Expenses due and payable to Agent under any of the Bridge Loan Documents;
second, to the ratable payment of any Expenses or Obligations due and payable to
Lenders under any of the Bridge Loan Documents, other than those Obligations
specifically referred to in the two clauses below; third, to the ratable payment
of interest due on the Consolidated Bridge Loan; and, finally, to the ratable
payment of principal due on the Consolidated Bridge Loan.
SECTION 3
CONDITIONS PRECEDENT
3.1. Conditions Precedent to Consolidated Bridge Loan. The obligation of
each Lender to fund its ratable portion of the Additional Bridge Loan is subject
to the satisfaction or waiver of the following conditions precedent:
(a) Each Lender shall have received duly executed originals
of:
(i) this Agreement;
(ii) its Note;
(iii) its Warrant;
(iv) the General Security Agreement;
(v) the Subordination Agreement;
(vi) the Agency Agreement; and
(vii) the Waiver and Consent;
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<PAGE> 20
each conforming to the requirements hereof and executed as of the date of this
Agreement by a duly authorized representative of Borrower, the Agent and each
Lender, as the case may require.
3.2. No Liens. From the date of effectiveness of the Fifth Amendment to
the Closing Date of this Agreement, no Liens shall have arisen or been recorded
against the Collateral.
3.3. Representations and Warranties Correct. The representations and
warranties in Section 4 hereof shall be true and correct in all material
respects when made, and shall be true and correct in all material respects on
the Closing Date with the same force and effect as if they had been made on and
as of the Closing Date.
3.4. Legal Opinion of Counsel to Borrower. Agent and Lenders shall have
received an opinion of St. John & Wayne, L.L.C., counsel to Borrower, which
opinion shall be dated as of the Closing Date and shall be reasonably
satisfactory to Agent and Lenders and their respective counsel.
3.5. Officer's Certificate. Agent shall have received an Officer's
Certificate of Borrower dated as of the Closing Date, certifying as to the (i)
Borrower's Certificate of Incorporation and all amendments thereto, (ii)
accuracy and completeness of all By-Laws attached thereto, (iii) updated
Certificates of Good Standing with respect to the Borrower from the Secretaries
of State of New York and Illinois, (iv) resolutions of the Borrower's Board of
Directors approving the transactions relating to this Agreement and (v)
incumbency and signature of the Borrower's duly authorized officers signing this
Agreement and each of the Bridge Loan Documents to which it or they are a party
and any other certificate or other document to be delivered pursuant thereto,
together with evidence of the incumbency of such officer signing the same.
3.6. Closing Fees. All Expenses outstanding as of the date of this
Agreement, including legal fees, relating to this Agreement and any and all
documents relating thereto shall have been paid on or prior to the Closing Date.
SECTION 4
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of Borrower. To induce Lenders to
enter into this Agreement and make the Additional Bridge Loan, Borrower hereby
represents and warrants to Lenders that the representations and warranties
contained in this Section 4 are true, correct and complete. Such representations
and warranties, and all other representations and warranties made by Borrower in
any other Bridge Loan Documents, shall survive the execution and delivery of
this Agreement and such other Bridge Loan Documents.
(a) Organization and Qualification. Borrower (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation,
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(ii) has the power and authority to own its properties and assets and to
transact the businesses in which it presently is, or proposes to be, engaged and
(iii) is duly qualified and is authorized to do business and is in good standing
in each jurisdiction where it presently is, or proposes to be, engaged in
business, except where the failure to so qualify would not have a Material
Adverse Effect.
(b) Authority; Consents and Filings. Borrower has the requisite
corporate power and authority to execute and deliver each of the Bridge Loan
Documents. Subject to: (a) compliance with the terms of the right of first
refusal provided (i) in Section 16.1 of the Debenture and Warrant Purchase
Agreement and (ii) in Article 8A of the 10% convertible subordinated debentures
issued and dated August 6, 1996 and (b) the receipt of shareholder approval (i)
to amend Borrower's certificate of incorporation to increase its authorized
shares of Common Stock and (ii) to the extent required under Section 713 of the
American Company Stock Exchange Guide, to authorize the issuance of the
Conversion Shares and the Warrant Shares in the event a dilution adjustment to
the Warrants results in an issuances of the Conversion Shares or the Warrant
Shares at less than fair market value, no consent, authorization, permit or
filing is required in connection with the execution, delivery and performance of
this Agreement or any Bridge Loan Document, or the continuing operations of
Borrower, except (i) those that have been obtained or made and (ii) filings
necessary to create, perfect or retain the perfection of Liens against the
Collateral. Except as otherwise set forth in this Section, all corporate action
necessary for the execution, delivery and performance of any of the Bridge Loan
Documents has been taken, provided however, that the listing of the Conversion
Shares and the Warrant Shares on the American Stock Exchange is subject to the
consent of the American Stock Exchange.
(c) Enforceability. This Agreement and each Bridge Loan Document is
the legal, valid and binding obligation of Borrower, enforceable in accordance
with its terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency or similar laws affecting creditors' rights generally, and (ii)
general principles of equity.
(d) No Conflict. The execution, delivery and performance of each
Bridge Loan Document by Borrower is not in contravention of (i) the Governing
Documents of Borrower, or (ii) any Requirement of Law, or (iii) any franchise,
license, permit, indenture, contract, lease, agreement (other than the loan
agreements or security agreements executed in connection with the Existing
Credit Facilities), instrument or other commitment to which it is a party or by
which it or any of its properties are bound and will not, except as contemplated
herein, result in the such imposition of any Liens upon any of its properties.
No order, consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or completion by, any Governmental
Authority, or any subdivision thereof, is required to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, this Agreement or any of the
other Bridge Loan Documents.
(e) Government Regulation. Borrower is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law, other than the
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Bankruptcy Code, that limits its ability to incur indebtedness or its ability to
consummate the transactions contemplated in this Agreement and the other Bridge
Loan Documents.
(f) Indebtedness; Rights in Collateral. Borrower is not obligated or
liable with respect to any Indebtedness, other than Indebtedness described on
Borrower's Form 10-Q for the quarter ended September 30, 1998. All Collateral is
owned or leased by Borrower, free and clear of any and all Liens in favor of
third parties, other than the Permitted Liens, those Liens permitted in the
Existing Credit Facilities and the Lien in favor of Lenders. Upon the proper
filing of the UCC financing statements executed by Borrower in favor of the
Agent, the security interests granted pursuant to the Bridge Loan Documents
constitute valid and enforceable and perfected Liens on the Collateral, to the
extent such Liens can be perfected by the filing of such financing statements.
(g) Locations of Offices, Records and Inventory. The address of the
principal place of business and chief executive office of Borrower is set forth
on Borrower's Form 10-Q for the quarter ended September 30, 1998. The books and
records of Borrower, and all its chattel paper and records of Accounts, are
maintained exclusively at such locations. There is no jurisdiction in which
Borrower has any Collateral (except for vehicles and Inventory in transit for
processing) other than those jurisdictions identified on Borrower's Form 10-Q
for the quarter ended September 30, 1998.
(h) Inventory. All inventory of Borrower consists of a quality and
quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been or
will be written off or written down to net realizable value on the unaudited
consolidated balance sheet of Borrower and its Subsidiaries as of September 30,
1998. The quantities of each type of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable and
warranted in the present circumstances of Borrower.
(i) No Judgments or Litigation. No judgments, orders, writs or
decrees are outstanding against Borrower nor is there now pending or, to the
best of Borrower's knowledge after diligent inquiry, threatened, any litigation,
contested claim, investigation, arbitration, or governmental proceeding by or
against Borrower, other than those which, either singly or in the aggregate,
would not have a Material Adverse Effect other than those identified on
Borrower's Form 10-Q for the quarter ended September 30, 1998 and at its
Brooklyn facility located at 1827 Pacific Street, Brooklyn, New York 11233.
(j) No Defaults. Borrower is not in default in any material respect
under any term of any indenture, contract, lease, agreement, instrument or other
commitment to which it is a party or by which it is bound. Except as otherwise
described on Borrower's Form 10-Q for the quarter ended September 30, 1998,
Borrower knows of no dispute regarding any such indenture, contract, lease,
agreement, instrument or other commitment.
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(k) Financial Information, SEC Documents. None of the documents
filed by Borrower with the Commission since December 31, 1995 contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein
not false or misleading in light of the circumstances in which they were made.
There is no fact known to Borrower which Borrower has not disclosed to Lenders
prior to or as of the date of this Agreement which materially and adversely
affects, or in the future is likely to materially and adversely affect, the
business, properties, condition (financial or otherwise) or business prospects
of Borrower and its Subsidiaries, taken as a whole.
(l) Compliance with Law. Borrower has not violated or failed to
comply in any material respect with any Requirement of Law, including without
limitation (a) applicable rules and regulations of any Governmental Authority
having jurisdiction over its activities, (b) environmental laws, the consequence
of which violation or failure has or is reasonably likely to have a Material
Adverse Effect.
(m) Intellectual Property. Borrower possesses such assets, licenses,
patents, patent applications, copyrights, service marks, trademarks, trade
names, New Drug Applications, Investigatory New Drug Applications, Abbreviated
New Drug Applications, Alternative New Drug Applications, registrations and
quotas as issued by the Drug Enforcement Agency or the Attorney General of the
United States pursuant to the Controlled Substances Act, as are necessary or
advisable to continue to conduct its present and proposed business activities.
(n) Licenses and Permits
(i) Generally. Borrower and its Subsidiaries possesses such
franchises, licenses, permits and other authority as are necessary for the
conduct of its business as now being conducted and proposed to be conducted
(except where the failure to possess such franchises, licenses, permits or other
authority would not have a Material Adverse Effect on Borrower and its
Subsidiaries taken as a whole) and Borrower and its Subsidiaries are not in
default under any of such franchises, licenses, permits or other authority.
Other than the approval required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"); other than as set forth in
Schedule 4.10 of the Schedule of Exceptions or [Selected Reports] to the
Debenture and Warrant Purchase Agreement; and other than those consents that
have been obtained; no approval, consent, authorization or other order of, and
no designation, filing, registration, qualification or recording with, any
governmental authority or any other person or entity is required in connection
with Borrower's valid execution, delivery and performance of this Agreement or
the offer, issuance and sale of the Notes, Warrants, the Conversion Shares or
the Warrant Shares by Borrower to Lenders or the consummation of any other
transaction contemplated on the part of Borrower hereby.
(ii) The FDC, FDA, DEA and Controlled Substances Act, etc.
Without limiting the generality of the representations and warranties made in
Section 4.1(n)(i) above, Borrower represents and warrants that (1) it and its
Subsidiaries are in compliance in all material
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respects with all applicable provisions of the Federal Food, Drug, and Cosmetic
Act (the "FDC Act"), (2) its products and those of its Subsidiaries are not
adulterated or misbranded and are in lawful distribution, and (3) it and its
Subsidiaries are in compliance with the following specific requirements:
Borrower and its Subsidiaries have registered all facilities with the United
States Food and Drug Administration (the "FDA"); Borrower and its Subsidiaries
have listed all drug products with the FDA; each drug product marketed by
Borrower or any Subsidiary is the subject of an application approved by the FDA;
all marketed drug products comply with any conditions of approval and the terms
of the application submitted to the FDA; all drug products are manufactured in
compliance with the FDA's good manufacturing practice regulations; all products
are labeled and promoted in accordance with the terms of the marketing
application and the provisions of the FDC Act; all adverse events that were
required to be reported to the FDA have been reported to the FDA in a timely
manner; each of Borrower and its Subsidiaries is in compliance in all material
respects with the terms of the consent agreement entered into by Borrower with
the United States Attorney for the Eastern District of New York on behalf of the
FDA on June 29, 1993, as modified by the Joint Motion for Modification of
Sentence dated May 8, 1998; to Borrower's knowledge, neither Borrower nor any
Subsidiary is employing or utilizing the services of any individual who has been
debarred under the FDC Act; all stability studies required to be performed for
products distributed by Borrower or a Subsidiary have been completed or are
ongoing in accordance with the applicable FDA requirements; any products
exported by Borrower or a Subsidiary have been exported in compliance with the
FDC Act; and each of Borrower and its Subsidiaries is in compliance in all
material respects with the provisions of the Prescription Drug Marketing Act, to
the extent applicable. Without limiting the generality of the representations
and warranties made in Section 4(q)(i), Borrower also represents and warrants
that it and its Subsidiaries are in compliance in all material respects with all
applicable provisions of the Controlled Substances Act (the "CSA") and that
Borrower and its Subsidiaries are in compliance with the following specific
requirements: Borrower and its Subsidiaries are registered with the Drug
Enforcement Administration (the "DEA") at each facility where controlled
substances are exported, imported, manufactured or distributed; all controlled
substances are stored and handled pursuant to DEA security requirements; all
records and inventories of receipt and distributions of controlled substances
are maintained in the manner and form as required by DEA regulations; all
reports, including, but not limited to, ARCOS, manufacturing quotas, production
quotas, and disposals, have been submitted to DEA in a timely manner; all
adverse events, including thefts or significant losses of controlled substances,
have been reported to DEA in a timely manner; to Borrower's knowledge, neither
Borrower nor any Subsidiary is employing any individual, with access to
controlled substances, who has previously been convicted of a felony involving
controlled substances; and any imports or exports of controlled substances have
been conducted in compliance with the CSA and DEA regulations.
(o) Taxes. Except as set forth on Schedule A to the General Security
Agreement, Borrower has filed all tax returns (federal, state and local)
required to be filed by it and Borrower has paid all taxes, assessments and
governmental charges and levies thereon that are due, including interest and
penalties, other than taxes, assessments and governmental charges and levies
being contested in good faith by appropriate proceedings and with respect to
which adequate
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reserves, in conformity with GAAP, consistently applied, shall have been
provided on the books of Borrower.
(p) Labor Disputes and Acts of God. Neither the business nor the
properties of Borrower are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or of the public enemy or other casualty (whether or not covered by
insurance), materially and adversely affecting such business or properties or
the operations of Borrower or the ability of Borrower to perform its
obligations.
(q) Partnerships. Borrower is not a partner in any partnership.
(r) Solvency. Borrower is solvent.
(s) Forfeiture Proceeding. Borrower is not engaged in or does not
propose to be engaged in the conduct of any business or activity which could
result in a Forfeiture Proceeding and no Forfeiture Proceeding against Borrower
is pending, or to the best knowledge of Borrower, threatened.
(t) Offering. Subject in part to the truth and accuracy of Lenders'
representations and the compliance by Lenders with its covenants set forth in
this Agreement and any subscription agreement executed and delivered by Lenders,
the issuance of the Notes, the Warrants, the Conversion Shares and the Warrant
Shares as contemplated by this Agreement are not subject to the registration
requirements of the Securities Act, and, Borrower, or anyone acting on its
behalf, will not take any action hereafter that would cause such registration
requirements to be applicable.
(u) No Discrimination. Borrower does not in any manner or form
discriminate, foster discrimination or permit discrimination against any person
on the grounds of age, color, handicap, mental status, national origin, race,
religion or sex.
(v) ERISA. Borrower has not received any notice indicating that it
is not in compliance with any of the requirements of the Employee Retirement
Income Security Act, as amended ("ERISA") and the regulations promulgated
thereunder. With respect to the Borrower, there exists no event described in
Section 4043 of ERISA.
(w) Registration Rights. Except as provided for in this Agreement,
the Debenture and Warrant Purchase Agreement, and as set forth in Schedule 4.14
of the Debenture and Warrant Purchase Agreement, the Borrower is not under any
binding obligation to register any of its currently outstanding securities or
any of its securities which may hereafter be issued.
(x) Accuracy and Completeness of Information. All factual
information furnished by or on behalf of Borrower in writing to Lenders for
purposes of or in connection with this Agreement or any Bridge Loan Documents,
or any transaction contemplated hereby or thereby
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is or will be true and accurate in all material respects on the date as of which
such information is dated or certified and not incomplete by omitting to state
any material fact necessary to make such information not misleading at such
time.
4.2. Representations and Warranties of Lenders. Each Lender represents and
warrants that:
(a) Investment Intent. The Warrants and the Notes being acquired
hereunder and the Conversion Shares and Warrant Shares that may be acquired upon
conversion or of any of the Notes or Warrants, as the case may be, would be
acquired for its own account and not with the view to, or the resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act by reason of their issuance in a transaction exemption
from the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof, that they must be held indefinitely unless
they are registered under the Securities Act or are exempt from registration and
that the reliance of Borrower and others upon this exemption is predicated in
part upon this representation and warranty.
(b) Acts and Proceedings. This Agreement has been duly authorized by
all necessary action on the part of each Lender, has been executed and delivered
by it and is a valid and binding agreement upon its part, enforceable in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency or similar laws affecting creditors' rights generally,
and (ii) general principles of equity.
SECTION 5.
CHANGE OF CONTROL
PURCHASE OFFER; CONVERSION RIGHTS
5.1. Change of Control.
(a) Upon the occurrence of a Change of Control (as hereinafter
defined), Borrower shall make an offer to all holders of Notes to purchase (a
"Change of Control Offer") all outstanding Notes and will purchase, on a day not
more than thirty (30) days after the occurrence of the Change of Control (such
purchase date being the "Change of Control Purchase Date"), all Notes properly
tendered pursuant to such offer to purchase for a cash price (the "Change of
Control Purchase Price") equal to 150% of the outstanding principal amount of
the Notes, plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date.
(b) In order to effect a Change of Control Offer, Borrower shall,
within ten (10) days after the occurrence of a Change of Control, in accordance
with Section 10.6 (the Notice Provision), provide a Change of Control Offer to
each Note holder. The Change of Control Offer shall remain open from the time of
receipt thereof for at least fifteen (15) calendar days. The notice,
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which shall govern the terms of the Change of Control Offer, shall include such
disclosures as are required by law and shall state:
(i) the date of such Change of Control and, briefly, the
events causing such Change of Control;
(ii) that the Change of Control Offer is being made pursuant
to this Section 5.1 and that all Notes properly tendered pursuant to the Change
of Control Offer will be accepted for payment;
(iii) the Change of Control Purchase Price for each Note, the
Change of Control Purchase Date, the date on which the Change of Control Offer
expires, that if the holder desires to accept the Change of Control Offer, the
Note held by such holder must be surrendered to Borrower or any designated
paying agent of Borrower prior to 5:00 p.m. Eastern Standard Time on the Change
of Control Purchase Date, and the name and address of any such paying agent, if
any;
(iv) that any Note not tendered for payment will continue to
accrue interest in accordance with the terms thereof;
(v) that, unless Borrower shall default in the payment of the
Change of Control Purchase Price, any Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date;
(vi) that holders will be entitled to withdraw their
acceptance of the Change of Control Offer election if Borrower or paying agent
of Borrower receives, not later than 5:00 p.m. Eastern Standard Time on the day
preceding the Change of Control Purchase Date a telex or facsimile transmission
(confirmed by overnight delivery of the original thereof) or letter setting
forth the name of the holder, the principal amount of Notes the holder delivered
for purchase, and a statement that such holder is withdrawing its election to
have such Notes purchased;
(vii) that holders whose Notes are purchased only in part will
be issued Notes equal in principal amount to the unpurchased portion of the
Notes surrendered; and
(viii) any other instructions that holders must follow in
order to tender their Notes and the procedures for withdrawing an election to
accept a Change of Control Offer.
(c) On the Change of Control Purchase Date, Borrower shall accept
for payment Notes or portions thereof tendered pursuant to the Change of Control
Offer and deposit with the paying agent, if any, money in United States dollars,
in immediately available funds, sufficient to pay the Change of Control Purchase
Price of all Notes or portions thereof so tendered and accepted. Borrower shall,
or cause any paying agent to, promptly disburse or deliver to the holders of
Notes so accepted payment in an amount equal to such Change of Control Purchase
Price,
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and mail or deliver to such holders a new Note equal in principal amount to any
unpurchased portion of each Note surrendered.
(d) Borrower shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and any other securities laws or regulations, in
connection with the repurchase of Notes pursuant to a Change of Control Offer.
To the extent that the provision of any securities laws or regulations conflict
with the provisions of this Section 5.1, Borrower shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 5.1 by virtue thereof.
(e) For purposes of this Section:
(i) the term "Change of Control" means the occurrence of any
of the following: the consummation of any transaction the result of which is
that any person or group (as such term is used in Section 13(d)(3) of the
Exchange Act), other than any of the Galen Entities, the Lenders or any
Affiliate thereof or any group comprised of any of the foregoing, owns, directly
or indirectly, 51% of the Common Equity (as hereinafter defined) of Borrower,
Borrower consolidates with, or merges with or into, another person (other than a
direct or indirect wholly-owned Subsidiary) or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of
Borrower's assets or the assets of Borrower and its Subsidiaries taken as a
whole to any person, or any person consolidates with, or merges with or into,
Borrower, in any such event pursuant to a transaction in which the outstanding
Voting Stock (as hereinafter defined) of the Borrower, as the case may be, is
converted into or changed for cash, securities or other property, other than any
such transaction where the outstanding Voting Stock of Borrower, as the case may
be, is converted into or exchanged for Voting Stock of the surviving or
transferee corporation and the beneficial owners of the Voting Stock of Borrower
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction, Borrower, either individually or in
conjunction with one or more Subsidiaries sells, assigns, conveys, transfers,
leases or otherwise disposes of, or the Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of, all or substantially all of the
properties and assets of Borrower and its Subsidiaries, taken as a whole (either
in one transaction or a series of related transactions), including capital stock
of the Subsidiaries, to any person (other than Borrower or a wholly owned
Subsidiary of Borrower), or during any two (2) year period commencing subsequent
to the date of this Agreement, individuals who at the beginning of such period
constituted the Board of Directors of Borrower (together with any new directors
whose election by such Board of Directors or whose nomination for election by
the stockholders of Borrower was approved by a vote of two-thirds of the
directors then still in office) who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved cease for any reason to constitute a majority of the Board of Directors
then in office; provided, however, that a person shall not be deemed to have
ceased being a director for such purpose if such person shall have resigned or
died or if the involuntary removal of such person was made at the direction the
Galen Entities or of persons holding a majority in principal amount of the
outstanding Notes;
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(ii) the term "Common Equity" of Borrower means all capital
stock of Borrower that is generally entitled to vote on the election of members
of the board of directors and (iii) the term "Voting Stock" of Borrower means
securities of any class of capital stock of Borrower entitling the holders
thereof to vote in the election of members of the board of directors of
Borrower.
SECTION 6.
AFFIRMATIVE COVENANTS
6.1. Until termination of this Agreement and payment and satisfaction of
all Obligations due hereunder, Borrower agrees as follows:
(a) Financial Reporting and Projections. Borrower shall keep
adequate records and books of account with respect to its business activities in
which true, proper and accurate entries are made in accordance with reasonable
accounting standards and practices, reflecting all its financial transactions.
In addition, Borrower shall cause to be prepared and furnished to Lenders the
financial information required to be delivered by it pursuant to the Debenture
and Warrant Purchase Agreement and the documents ancillary thereto, at the times
and in the manner set forth therein, provided, however, that in the event
Borrower is no longer obligated to comply with such financial reporting
requirements, then Borrower shall cause to be prepared and furnished to Lenders
(a) not later than (i) thirty (30) days after the end of each month after the
Closing Date, (ii) forty-five (45) days after the end of each fiscal quarter
after the Closing Date and (iii) 120 days after the end of each fiscal year
after the Closing Date, unaudited Financial Statements as of the end of such
month, quarter and year and of the portion of Borrower's fiscal year then
elapsed, each certified by the chief financial officer of Borrower as prepared
in accordance with GAAP, consistently applied and fairly presenting the
financial position, results of operations and statement of cash flows of
Borrower for such month, quarter and year, and (b) such other data and
information (financial and otherwise) as Lenders, from time to time, may
reasonably request, bearing upon or related to Borrower's financial condition or
results of operations.
(b) Discharge Taxes and Indebtedness. The Borrower will pay and
discharge, as they become due, all taxes, assessments, debts, claims and other
governmental or non-governmental charges lawfully imposed upon or incurred by it
or the properties and assets of the Borrower, except taxes, assessments, debts,
claims and charges contested in good faith in appropriate proceedings for which
the Borrower shall have set aside adequate reserves for the payment of such tax,
assessment, debt, claim or charge. The Borrower shall provide each Lender, upon
Lender's request, evidence of payment of such taxes, assessments, debts, claims
and charges satisfactory to Lender.
(c) Notification Requirements. Borrower shall timely give Lenders
the following notices:
(d) Notice of Defaults. Promptly, and in any event within two (2)
Business Days after becoming aware of the occurrence of a Default or Event of
Default, a certificate of the chief
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executive officer or chief financial officer of Borrower specifying the nature
thereof and Borrower's proposed response thereto, each in reasonable detail.
(e) Proceedings or Adverse Changes. Promptly, and in any event
within five (5) Business Days after Borrower becomes aware of (i) any proceeding
being instituted or threatened to be instituted by or against Borrower in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign) which, if adversely
determined, could result in the entry of an order, judgment or decree against
Borrower; (ii) any order, judgment or decree being entered against Borrower or
any of its properties or assets or (iii) any actual or prospective change,
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, a written statement describing such proceeding, order,
judgment, decree, change, development or event and any action being taken with
respect thereto by Borrower.
(f) Corporate Existence, Charter and By-Laws; Corporate Name.
Borrower shall (i) maintain its corporate existence, (ii) maintain in full force
and effect all licenses, bonds, franchises, leases, trademarks and
qualifications to do business, and, all patents, New Drug Applications,
Investigatory Drug Applications, Abbreviated New Drug Applications, Alter New
Drug Applications, registrations and quotas as issued by the Drug Enforcement
Agency or the Attorney General of the United States, pursuant to the Controlled
Substances Act, contracts and other rights necessary or advisable to the
profitable conduct of its business, and (iii) continue in, and limit its
operations to, the same general lines of business as presently conducted by it.
(g) Books and Records; Inspections. Borrower agrees to maintain
books and records pertaining to the Collateral in such detail, form and scope as
is consistent with good business practice. Borrower agrees that Lenders or its
agents may enter upon the premises of Borrower at any time and from time to
time, during normal business hours and upon reasonable notice under the
circumstances, and at any time at all on and after the occurrence of a Default
which continues beyond the expiration of any grace or cure period applicable
thereto, and which has not otherwise been waived by Lenders, for the purposes of
(i) inspecting and verifying the Collateral, (ii) inspecting and/or copying (at
Borrower's expense) any and all records pertaining thereto, and (iii) discussing
the affairs, finances and business of Borrower with any officers, managerial
employees and directors of Borrower.
(h) Compliance with Laws; Compliance with Agreements. Borrower
agrees to comply in all material respects with all Requirements of Law
applicable to the Collateral or any part thereof, or to the operation of its
business or its assets generally, unless Borrower contests any such Requirements
of Law in a reasonable manner and in good faith. Borrower agrees to maintain in
full force and effect its licenses and permits granted by any Governmental
Authority as may be necessary or advisable for Borrower to conduct its business
in all material respects. Borrower shall comply with the terms and conditions of
all material agreements, commitments, or instruments to which Borrower is a
party or by which it may be bound, including, without limitation, this Agreement
and the Debenture and Warrant Purchase Agreement.
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(i) Use of Proceeds. Proceeds of the Consolidated Bridge Loan made
hereunder shall be used by Borrower solely for its ongoing working capital
requirements and other general corporate purposes. Borrower shall not use any
portion of the proceeds of the Consolidated Bridge Loan for the purpose of
purchasing or carrying any "margin stock" (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) in any manner which violates
the provisions of Regulation T or X of said Board of Governors or for any other
purpose in violation of any applicable statute or regulation, or of the terms
and conditions of this Agreement.
(j) Maintenance of Insurance. Borrower shall maintain insurance with
financially sound and reputable insurance companies or associations in such
amounts and covering such risks as are usually carried by companies engaged in
the same or a similar business and similarly situated. Borrower shall (i)
deliver to Agent, upon its request, a detailed list of insurance then in effect,
stating (A) the names of the insurance companies, (B) the amounts and rates of
the insurance, (C) dates of expiration thereof and the properties and risks
covered thereby; (ii) within fifteen (15) days after notice from Agent, obtain
such additional insurance as Agent may reasonably request; and (iii) upon
request, provide to Agent copies of all insurance policies. All such policies
shall name Agent for Lenders as an additional insured and shall be part of the
Collateral securing the Notes.
(k) Further Assurances. Borrower shall take all such further actions
and execute all such further documents and instruments as Lenders may at any
time reasonably determine in their sole discretion to be necessary or desirable
to further carry out and consummate the transactions contemplated by the
Consolidated Bridge Loan Documents and any documentation relating thereto, to
cause the execution, delivery and performance of the Bridge Loan Documents to be
duly authorized and to perfect or protect the Liens (and the priority status
thereof) of Lenders on the Collateral.
(l) Payment of Notes. Borrower shall pay the principal of and
interest on the Notes in the time, the manner and the form provided therein.
(m) Reporting Requirements. Borrower shall comply with its reporting
and filing obligations pursuant to Section 13 or 15(d) of the Exchange Act.
Borrower shall provide copies of such reports, including, without limitation,
reports on Form 10-K, 10-Q, 8-K and Schedule 14A promulgated under the Exchange
Act, or substantially the same information required to be contained in any
successor form, to each Lender promptly upon filing with the Commission.
(n) Authorization of Shares of Common Stock for Issuance Upon
Conversion of Note and Exercise of Warrants and Voting Rights for Note Holders.
Borrower will present to its shareholders for consideration at the next annual
meeting of Borrower's shareholders, to occur on or prior to May 30, 1999, a
proposal to amend Borrower's Certificate of Incorporation to increase the number
of authorized shares of Borrower's common stock available for issuance from
40,000,000 to 75,000,000 shares in order to provide for a sufficient number of
authorized shares to be available and reserved for issuance upon conversion of
the Notes and exercise of the Warrants. Upon receipt of approval from Borrower's
shareholders to increase Borrower's authorized shares from 40,000,000 to
75,000,000 shares, Borrower will at all times cause there to be reserved for
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issuance a sufficient number of Conversion Shares and Warrant Shares upon
conversion of the Notes and exercise of the Warrants.
(o) Listing of Common Stock. As promptly as practicable after the
filing of a Certificate of Amendment to Borrower's Certificate of Incorporation
to increase its Shares of Common Stock in accordance with Section 6.1(o) above,
Borrower shall file the appropriate applications for listing with the American
Stock Exchange the Conversion Shares and Warrant Shares. Borrower shall use its
best efforts and work diligently to accomplish such listings as promptly as
practicable after the annual meeting of the stockholders of the Company to take
place on or prior to May 30, 1999.
(p) HSR Act Filing. Borrower hereby agrees to file all the
Pre-Merger Notifications and reports, if any, required to be filed by it under
the HSR Act with forty-five (45) days after its receipt of a written request to
do so by the holder or holders of at least a majority of the aggregate principal
amount of the Notes, then outstanding ("Majority Holders"). Such request shall
be made in accordance with Section 10.6 below.
(q) Year 2000 Computer Capability. Borrower shall take all action
necessary to assure that at all times the computer-based systems utilized by
Borrower and each of its Subsidiaries are able to effectively interpret, process
and manipulate data, including dates before, on and after December 31, 1999. At
Agent's request, Borrower shall provide to Agent assurance that is reasonably
satisfactory to Agent that the computer-based systems utilized by Borrower and
each of its Subsidiaries are able to recognize and perform without error
functions involving dates before, on and after December 31, 1999.
SECTION 7.
NEGATIVE COVENANTS
7.1. Until the termination of this Agreement and the payment and
satisfaction in full of all Obligations due hereunder, neither the Borrower, nor
any of its Subsidiaries, will, either directly or indirectly, do or permit to be
done, absent the prior written consent of the Majority Holders, the following:
(a) Additional Indebtedness. Borrower shall not directly or
indirectly incur, create, assume or suffer to exist any Indebtedness other than
(a) Indebtedness under the Bridge Loan Documents, (b) Indebtedness permitted
under the Existing Credit Facility, but not any increase in the outstanding
principal amount thereof and (c) Indebtedness relating to a working capital line
of credit in an amount not to exceed $10,000,000.
(b) No Guarantees. Except for obligations owing to Lenders under
this Agreement and owing under the Existing Credit Facilities, Borrower will not
assume, endorse or become liable for or guarantee the obligations of any
corporation, partnership, individual or other
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entity excluding the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
(c) Liens. Except for Permitted Liens, Borrower shall not directly
or indirectly create, incur, assume, or suffer to exist any Lien on any of its
property now owned or hereafter acquired except Liens granted to Lenders under
the Bridge Loan Documents and Liens described or permitted under the Existing
Credit Facility.
(d) No Transfer of Assets. Borrower will not (a) enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), (b) convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of the business, property, or assets,
whether now owned or hereafter acquired, of Borrower, or (c) acquire by purchase
or otherwise all or substantially all of the property, assets, stock, or other
evidence of beneficial ownership of any person or entity, except where the
purchase price for such acquisition is less than $10,000 and the aggregate
purchase price for all acquisitions made within any period of twelve months is
less than $25,000.
(e) Extraordinary Transactions and Disposal of Assets. Borrower will
not enter into any transaction not in the ordinary and usual course of
Borrower's business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
properties or assets (other than sales of inventory to buyers in the ordinary
course of Borrower's business as currently conducted).
(f) Restricted Payments. Borrower shall not directly or indirectly
(a) declare or pay any dividend (other than dividends payable solely in Common
Stock) on, or make any payment on account of, or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of capital stock of Borrower or
any warrants, options or rights to purchase any such capital stock, whether now
or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
Borrower; or (b) make any optional payment or prepayment on or redemption
(including, without limitation, by making payments to a sinking or analogous
fund) or repurchase of any Indebtedness (other than Indebtedness pursuant to
this Agreement and in accordance with this Agreement).
(g) Investments. Except for Permitted Investments, Borrower shall
not directly or indirectly make any Investment in any Person, whether in cash,
securities, or other property of any kind.
(h) Affiliate Transactions; Intercompany Transfers; Diversion of
Corporate Assets. Borrower shall not directly or indirectly (a) Enter into any
transaction with, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service to, any Subsidiary or Affiliate of
Borrower, unless any such transaction is at arm's length, on fair and reasonable
terms to Borrower, and on terms which are no more onerous to Borrower as
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could be obtained from a Person unrelated to Borrower; (b) Make any intercompany
transfers of monies or other assets in any single transaction or series of
transactions, except as otherwise permitted in this Agreement; or (c) Divert (or
permit anyone to divert) any business or opportunity of Borrower to any other
corporate or business entity.
(i) Mergers. Borrower shall not merge or consolidate with any Person
or sell, assign, lease or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) or acquire all or substantially all of the assets
or the business of any Person (or enter into any agreement to do any of the
foregoing).
(j) No Activities Leading to Forfeiture. Borrower shall not engage
in the conduct of any business or activity which could result in a Forfeiture
Proceeding.
(k) Corporate Documents; Fiscal Year. Borrower shall not amend,
modify or supplement its certificate or articles of incorporation or by-laws in
any way which would adversely affect the ability of Borrower to perform its
obligations hereunder. Borrower shall not change its fiscal year.
(l) Capital Expenditures. Other than for a capital expenditure
contained in any budget approved by the Board of Directors, including a majority
of the directors designated by the purchasers pursuant to the terms and
conditions of Debenture and Warrant Purchase Agreement, or capital expenditures
not contained in any such budget, but which do not exceed $100,000 in the
aggregate during any fiscal year of Borrower, make or commit to make any capital
expenditures.
SECTION 8.
REGISTRATION RIGHTS
8.1. Restrictive Legend. Each certificate representing
(a) any Note, the Warrants or any Conversion Shares, any Warrant
Shares or other securities issued with respect to the Notes, Warrants,
Conversion Shares or Warrant Shares, upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event or upon the exercise of
the Warrants or conversion of the Notes, shall be stamped or otherwise imprinted
with a legend in the following form (in addition to any legend required under
applicable state securities laws):
"THIS [NAME OF SECURITY] [AND THE COMMON STOCK ISSUABLE UPON [CONVERSION]
[EXERCISE] HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, NOR ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1)
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A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAW OR (2) BORROWER RECEIVES AN
OPINION OF COUNSEL TO BORROWER OR OTHER COUNSEL TO THE HOLDER OF SUCH
[NAME OF SECURITY] REASONABLY SATISFACTORY TO BORROWER THAT SUCH [NAME OF
SECURITY] [AND/OR COMMON STOCK] MAY BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS."
8.2. Certain Definitions As used in this Section 8, the following terms
shall have the following respective meanings:
"Holders" shall mean Lenders or any person to whom a Lender or
transferee of a Lender has assigned any Note, Warrants, Conversion Shares or
Warrant Shares.
"Initiating Holders" shall mean any persons who in the aggregate are
Holders of at least a majority of the Conversion Shares and the Warrant Shares.
"Registrable Securities" shall mean any Conversions Shares and
Warrant Shares issued upon exercise of the Warrants, conversion of any Note or
in respect of the Conversion Shares and Warrant Shares issued upon exercise of
the Warrants or conversion of any Note upon any stock split, stock dividend,
recapitalization or similar event.
"Requesting Stockholders'" shall mean holders of securities of
Borrower entitled to have securities included in any registration pursuant to
Section 8.3 and who shall request such inclusion.
The terms "register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by Borrower
in compliance with Sections 8.3 and 8.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for Borrower, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling Holders for a "due diligence"
examination of Borrower, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of Borrower, which shall be paid in any event by Borrower), exclusive
of Selling Expenses.
"Restricted Securities" shall mean the securities of Borrower
required to bear or bearing the legend set forth in Section 8.1 hereof.
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"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder, except as otherwise provided herein.
8.3. Requested Registration.
(a) Requests for Registration. The Initiating Holders may request
registration under the Securities Act of all or part of their Registrable
Securities. Within ten (10) days after receipt of any such request, Borrower
will give written notice of such requested registration to all other Holders of
Registrable Securities and any other stockholder having registration rights
which entitle it to participate in such registration. Borrower will include in
such registration all Registrable Securities with respect to which it has
received written requests for inclusion therein within fifteen (15) days after
receipt of Borrower's notice. Borrower shall cause its management to cooperate
fully and to use its best efforts to support the registration of the Registrable
Securities and the sale of the Registrable Securities pursuant to such
registration as promptly as is practicable. Such cooperation shall include, but
not be limited to, management's attendance and reasonable presentations in
respect of Borrower at road shows with respect to the offering of Registrable
Securities. The registration requested under this Section 8.3(a) is referred to
herein as a "Demand Registration."
(b) Number of Registrations. The Holders of Registrable Securities
will be entitled to request one (1) Demand Registration for which Borrower will
pay all Registration Expenses. A registration will not count as a Demand
Registration until it has become effective; provided, however, that whether or
not it becomes effective, Borrower will pay all Registration Expenses in
connection with any registration so initiated.
(c) Priority on Demand Registrations. If a Demand Registration is an
underwritten offering, and the managing underwriters advise Borrower in writing
that in their opinion the number of Registrable Securities requested to be
included exceeds the number which can be sold in such offering, Borrower will
include in such registration such number of Conversion Shares and Warrant
Shares, which in the opinion of such underwriters, may be sold, allocated among
the Holders electing to participate pro rata in accordance with the amounts of
securities requested to be so included by the respective Holders. Borrower will
not include in any Demand Registration any securities which are not Registrable
Securities without the written consent of the Holders of a majority of the
Registrable Securities requesting such registration. Any persons other than
Holders of Registrable Securities who participate in a Demand Registration which
is not at Borrower's expense must pay their share of the Registration Expenses.
A registration shall not count as a Demand Registration if some or all of the
Conversion Shares and Warrant Shares which any Holder desires to include therein
are not included due to the determination of the managing underwriters referred
to in the first sentence of this Section 8.3(c).
(d) Restrictions on Demand Registrations. Borrower will not be
obligated to effect any Demand Registration within six (6) months after the
effective date of a previous registration in which the Holders of Registrable
Securities were given piggyback rights pursuant to Section 8.4 other than a
registration of Registrable Securities intended to be offered on a continuous
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or delayed basis under Rule 415 or any successor rule under the Securities Act
(a "Shelf Registration").
8.4. Piggyback Registrations.
(a) Right to Piggyback. Whenever Borrower proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration or pursuant to a registration on Forms S-4 or S-8 or any successors
to such forms) and the registration form to be used may be used for the
registration and contemplated disposition of Registrable Securities (a
"Piggyback Registration"), Borrower will give prompt written notice to all
Holders of Registrable Securities of its intention to effect such a
registration. Borrower will include in such registration all Registrable
Securities with respect to which Borrower has received written requests for
inclusion therein within thirty (30) days after the receipt of Borrower's
notice.
(b) Piggyback Expenses. The Registration Expenses of the Holders of
Registrable Securities will be paid by Borrower.
(c) Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration on behalf of Borrower, and the managing
underwriters advise Borrower in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, Borrower will include in such registration
first, the securities Borrower proposes to sell, second, the Registrable
Securities and securities of Borrower with respect to which similar registration
rights have been granted and requested to be included in such registration, pro
rata in accordance with the amounts of Registrable Securities and such
securities requested to be so included by the respective Holders and holders of
such securities of Borrower; and third, any other securities requested to be
included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of Borrower's
securities, and the managing underwriters advise Borrower in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, Borrower
will include in such registration first, the securities requested to be included
therein by the holders requesting such registration, second, the Registrable
Securities and securities of Borrower with respect to which similar registration
rights have heretofore been granted and requested to be included in such
registration, pro rata in accordance with the amounts of Registrable Securities
and such securities requested to be so included by the respective Holders and
holders of such securities of Borrower, and third, other securities requested to
be included in such registration.
(e) Other Restrictions. Borrower hereby agrees that if it has
previously filed a registration statement with respect to Registrable Securities
pursuant to Section 8.3 or pursuant to this Section 8.4, and if such previous
registration has not been withdrawn or abandoned, Borrower will not file or
cause to be effected any other registration of any of its equity securities or
securities
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convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any other similar form for employee
benefit plans), whether on its own behalf or at the request of any holder or
holders of such securities, until a period of at least six (6) months has
elapsed from the effective date of such previous registration or, if sooner,
until all Registrable Securities included in such previous registration have
been sold.
8.5. Holdback Agreements.
(a) Each Holder of Registrable Securities which is a party to this
Agreement agrees not to effect any public sale or distribution of equity
securities of Borrower, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration) or, if sooner, until all Registrable Securities
included within such registration have been sold.
(b) Borrower agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days prior
to and the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to registrations on Form S-8 or
any other similar form for employee benefit plans) or, if sooner, until all
Registrable Securities included within such registration have been sold, and
(ii) to use its reasonable best efforts to cause each holder of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, purchased from Borrower at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution of any such securities during such period
(except as part of such underwritten registration, if otherwise permitted) or,
if sooner, until all Registrable Securities included within such registration
have been sold.
8.6. Registration Procedures. Whenever the Holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Section 8, Borrower will use its reasonable best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto Borrower will as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities, which registration statement will
state that the Holders of Registrable Securities covered thereby may sell such
Registrable Securities either under such registration statement or, at any
Holder's proper request, pursuant to Rule 144 (or any similar rule then in
effect), and use its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, Borrower will furnish to the counsel
selected by the Holders of a majority of the Registrable Securities covered
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by such registration statement copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period set forth in Section 8.6(j) hereof and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that Borrower will not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subsection, subject itself to taxation in any such jurisdiction, or
consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any fact necessary to make the statements
therein not misleading, and, at the request of any such seller, Borrower will
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the Lenders of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by Borrower are then
listed;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Holders of a
majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate
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the disposition of such Registrable Securities (including, without limitation,
using its best efforts to effect a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of Borrower, and cause Borrower's officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement; and
(j) keep each registration statement effective until the earlier to
occur of (i) the Holder or Holders have completed the distribution described in
the registration statement relating thereto (including a Shelf Registration) and
(ii) two (2) years.
8.7. Expenses of Registration. All Registration Expenses incurred in
connection with a registration, qualification or compliance pursuant to this
Section 8 shall be borne by Borrower, and all Selling Expenses shall be borne by
the Holders and the Requesting Stockholders of the securities so registered pro
rata on the basis of the number of their shares so registered; provided,
however, that Borrower shall not be required to pay any Registration Expenses
if, as a result of the withdrawal of a request for registration by Initiating
Holders, the registration statement does not become effective, in which case the
Holders and Requesting Stockholders requesting registration shall bear such
Registration Expenses pro rata on the basis of the number of their shares so
included in the registration request, and, further, that such registration shall
not be counted as a Demand Registration pursuant to Section 8.3.
8.8. Indemnification.
(a) Borrower will indemnify each Holder, each Holder's officers,
directors and partners, and each person controlling such Holder, with respect to
which registration, qualification or compliance of such Holder's securities has
been effected pursuant to this Section 8, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, prospectus, offering circular or other document
(including any related registration statement notification or the like) incident
to any such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by Borrower of the Securities Act or any rule or regulation thereunder
applicable to Borrower and relating to action or inaction required of Borrower
in connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each Holder's officers, directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided, that Borrower will not be liable in any
such case
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to the extent that any such claim, loss, damage, liability or action arises out
of or is based on any untrue statement or omission of material fact based upon
written information furnished to Borrower by such Holder or underwriter and
stated to be specifically for use therein.
(b) Each Holder and Requesting Stockholder will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify Borrower,
each of Borrower's directors and officers and each underwriter, if any, of
Borrower's securities covered by such registration statement, each person who
controls Borrower or such underwriter within the meaning of the Securities Act
and the rules and regulations thereunder, each other Holder and Requesting
Stockholder and each of their officers, directors and partners, and each person
controlling such Holder or Requesting Stockholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document incident to any such registration, qualification or compliance,
or based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse Borrower, its officers and directors, each
underwriter, each person controlling Borrower or such underwriter, each other
Holder and Requesting Stockholders, their officers, directors, partners and
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to Borrower by such Holder or Requesting Stockholder and stated to be
specifically for use therein; provided, however, that the obligations of each
Holder and Requesting Stockholders hereunder shall be limited to an amount equal
to the proceeds to each such Holder or Requesting Stockholder of securities sold
as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.8
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld and for such purpose approval is hereby given for Wolf,
Block, Schorr and Solis-Cohen LLP ("Wolf, Block") to be such counsel), and the
Indemnified Party may participate in such defense at such party's expense, and
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 8 unless such failure has had a Material Adverse Effect on
such claim. The parties to this Agreement reserve any rights to claim under this
Agreement for damages actually incurred by reason of any failure of the
Indemnified Party to give prompt notice of a claim. To the extent counsel for
the Indemnifying Party shall in such counsel's reasonable judgment, have a
conflict in representing an Indemnified Party in conjunction with the
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Indemnifying Party or other Indemnified Parties, such Indemnified Party shall be
entitled to separate counsel at the expense of the Indemnifying Party subject to
the approval of such counsel by the Indemnified Party (whose approval shall not
be unreasonably withheld and for such purpose approval is hereby given for Wolf,
Block to be such counsel). No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability with respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with the defense of such claim and any litigation resulting therefrom.
8.9. Information by Holders. Each Holder of Registrable Securities, and
each Requesting Stockholder holding securities included in any registration,
shall furnish to Borrower such information regarding such Holder or Requesting
Stockholder and the distribution proposed by such Holder or Requesting
Stockholder as Borrower may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.10. Limitations on Registration of Issues of Securities. From and after
the date of this Agreement, Borrower shall not enter into any agreement with any
holder or prospective holder of any securities of Borrower giving such holder or
prospective holder the right to require Borrower to register any securities of
Borrower equal to or more favorable than the rights granted under this Section
8. Any right given by Borrower to any holder or prospective holder of Borrower's
securities in connection with the registration of securities shall be
conditioned such that it shall be consistent with the provisions of this Section
8 and with the rights of the Holders provided in this Agreement and such holder
or prospective holder agrees to be bound by the terms of this Section 8.
8.11. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, Borrower agrees to:
(a) make and keep public information available, as those terms are
understood, defined and interpreted in and under Rule 144 under the Securities
Act, at all times from and after ninety (90) days following the effective date
of the first registration under the Securities Act filed by Borrower for an
offering of its securities to anyone other than its employees;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of Borrower under the Securities
Act and the Exchange Act at any time after it has become subject to such
reporting requirements; and
(c) so long as Lender owns any Restricted Securities, furnish to
Lender forthwith, upon request, a written statement by Borrower as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first
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registration statement filed by Borrower for an offering of its securities to
anyone other than its employees), and of the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements), a copy
of the most recent annual or quarterly report of Borrower, and such other
reports and documents so filed as Lender may reasonably request in availing
itself of any rule or regulation of the Commission allowing Lender to sell any
such securities without registration.
8.12. Participation in Underwritten Registrations. No person may
participate in any underwritten registration hereunder unless such person agrees
to sell such person's securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and completes and executes all reasonable questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
8.13. Selection of Underwriters. If any Demand Registration is an
underwritten offering, the Holders of a majority of the Registrable Securities
included in such registration have the right to select the investment banker(s)
and manager(s) to administer the offering, subject to the approval of Borrower
(which approval will not be unreasonably withheld). If any registration other
than a Demand Registration is an underwritten offering, Borrower will have the
right to select the investment banker(s) and manager(s) to administer the
offering, subject to the approval of the Holders of a majority of the
Registrable Securities included in such registration (which approval will not be
unreasonably withheld).
8.14. Termination of Registration Rights. The rights of Holders to request
a Demand Registration or participate in a Piggyback Registration shall expire on
May 30, 2003.
SECTION 9.
EVENTS OF DEFAULT AND REMEDIES
9.1. Events of Default. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
(a) Failure to Pay. Borrower shall fail to pay any of its
Obligations when the same shall become due and payable.
(b) Breach of Certain Covenants. Borrower shall fail to comply with
any covenant contained in Sections 6 or 7 hereof ("Affirmative Covenants" and
"Negative Covenants"), which, in the case of Borrower's failure to comply with
the covenants contained in Sections 6.1 and 6.13 above, continues for a period
of ten (10) days following Borrower's receipt of written notice thereof from the
Agent.
(c) Breach of Representation or Warranty. Any representation or
warranty made or deemed to be made by Borrower in this Agreement or in any other
Bridge Loan Document (and
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in any statement or certificate given under this Agreement or any other Bridge
Loan Document), shall be false or misleading in any material respect when made
or deemed to be made.
(d) Breach of Other Covenants. Borrower shall fail to comply with
any covenant contained in this Agreement or any other Bridge Loan Document,
other than as set forth in Section 10.1(b), and such failure shall continue for
ten (10) Business Days after its occurrence.
(e) Cross Default. There shall occur any default or event of default
on the part of any Borrower under (i) any agreement, document or instrument to
which Borrower is a party or by which Borrower or any of its property is bound,
creating or relating to any indebtedness (other than the Obligations), the
unpaid principal balance of which is in excess of $100,000, if the payment or
maturity of such indebtedness is accelerated in consequence of such event of
default or demand for payment of such indebtedness is made or (ii) the Debenture
and Warrant Purchase Agreement.
(f) Dissolution, etc. Borrower shall cease to do business, take
steps to wind-up or dissolve or shall suffer the appointment of a receiver,
trustee, examiner, custodian or similar fiduciary, or shall make an assignment
for the benefit of creditors.
(g) Bankruptcy, etc.. Borrower (i) shall generally not, or be unable
to, or shall admit in writing its inability to, pay its debts as such debts
become due; (ii) shall make an assignment for the benefit of creditors, petition
or apply to any tribunal for the appointment of a custodian, receiver or trustee
for it or a substantial part of its assets; (iii) shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; (iv) shall have had any such petition or application filed
or any such proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered, or which
petition, application or proceeding remains undismissed for a period of 30 days
or more; or shall be the subject of any proceeding under which its assets may be
subject to seizure, forfeiture or divestiture; (v) by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a custodian,
receiver or trustee for all or any substantial part of its property; (vi) shall
suffer any such custodianship, receivership or trusteeship to continue
discharged for a period of 30 days or more; or (vii) shall cease to be Solvent.
(h) Judgments. One or more judgments, decrees or orders for the
payment of money in excess of $100,000 in the aggregate shall be rendered
against Borrower, and such judgments, decrees, or orders shall continue
unsatisfied and in effect for a period of 30 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending appeal.
(i) Forfeiture Proceeding. Any Forfeiture Proceeding shall have been
commenced against Borrower.
9.2. Acceleration. Upon the occurrence and during the continuance of any
Event of Default, without prejudice to the rights of any Lender to enforce its
claims against Borrower and by
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delivery of written notice to Borrower from Agent on behalf of Lenders, all
Obligations shall be immediately due and payable (except with respect to any
Event of Default set forth in Section 9.1(f) or (g) hereof, in which case all
Obligations shall automatically become immediately due and payable without the
necessity of any notice or other demand to Borrower) without presentment,
demand, protest or any other action or obligation of Lenders.
9.3. Remedies.
(a) Upon the occurrence of an Event of Default, Majority Holders may
at any time (unless all defaults shall theretofore have been remedied) at its or
their option, by written notice or notices to the Company (i) declare all the
Notes to be due and payable, whereupon the same shall forthwith mature and
become due and payable, together with interest accrued thereon, without
presentment, demand, protest or notice, all of which are hereby waived; and (ii)
declare any other amounts payable to the Lenders under this Agreement or as
contemplated hereby due and payable.
(b) Notwithstanding anything contained in Section 9.3(a), if, at any
time after the principal of the Notes shall so become due and payable and prior
to the date of maturity stated in the Notes all arrears of principal of and
interest on the Notes (with interest at the rate specified in the Notes on any
overdue principal and, to the extent legally enforceable, on any interest
overdue) shall be paid by or for the account of the Company, then Majority
Holders, by written notice(s) to the Company, may (but shall not be obligated
to) waive such Event of Default and its consequences and rescind or annul such
declaration; but no such waiver shall extend to or affect any subsequent Event
of Default or impair any right resulting therefrom. If any holder of a Note
shall give any notice or take any other action with respect to a claimed
Default, the Company, forthwith upon receipt of such notice or obtaining
knowledge of such other action will give written notice thereof to all other
holders of the Notes then outstanding, describing such notice or other action
and, the nature of the claimed Default.
9.4. Application of Proceeds; Surplus; Deficiencies. The net cash proceeds
resulting from Agent's exercise of any of the foregoing rights against any
Collateral (after deducting all of Lenders' Expenses related thereto) shall be
applied by Agent to the payment of the Obligations, whether due or to become
due, in the order set forth in Section 2.9. Borrower shall remain liable to
Lenders for any deficiencies, and Lenders in turn agree to remit to Borrower or
its successors or assigns, any surplus resulting therefrom.
SECTION 10.
GENERAL PROVISIONS
10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER BRIDGE LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE BRIDGE LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS (AS
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OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW
YORK.
10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES AMONG BORROWER AND LENDERS,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY
BY STATE AND FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, AND THE COURTS TO
WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT LENDERS SHALL
HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST
BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY LENDERS IN GOOD
FAITH TO ENABLE LENDERS TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF LENDERS. BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
BY LENDERS. BORROWER WAIVES ANY OBJECTION THAT THEY MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH LENDERS HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
10.3. SERVICE OF PROCESS. BORROWER HEREBY IRREVOCABLY AGREES THAT SERVICE
OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER BRIDGE LOAN DOCUMENT MAY BE AFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS RESPECTIVE
ADDRESS SET FORTH IN SECTION 10.6.
10.4. JURY TRIAL. BORROWER, AGENT AND LENDERS EACH HEREBY WAIVE ANY RIGHT
TO A TRIAL BY JURY.
10.5. LIMITATION OF LIABILITY. NEITHER AGENT NOR ANY OF THE LENDERS SHALL
HAVE ANY LIABILITY TO BORROWER (WHETHER SOUNDING IN TORT, CONTRACT, OR
OTHERWISE) FOR LOSSES SUFFERED BY BORROWER IN CONNECTION WITH, ARISING OUT OF,
OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER
BINDING ON LENDERS, THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS
CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.6. Notices. Except as otherwise provided herein, all notices and
correspondences hereunder shall be in writing and sent by certified or
registered mail, return receipt requested, or by overnight delivery service,
with all charges prepaid, or by facsimile transmission, promptly confirmed in
writing sent by first class mail:
41
<PAGE> 47
If to any Lender then to Agent, as follows:
Mr. Srini Conjeevaram
Galen Partners III, L.P.
Rockefeller Center
610 Fifth Avenue, 5th Floor
New York, New York 10020
With copies to:
Wolf, Block, Schorr and Solis-Cohen LLP
250 Park Avenue
New York, New York 10177
Attention: George N. Abrahams, Esq.
Fax no. (212) 986-0604
If to Borrower:
Halsey Drug Co., Inc.
695 N. Perryville Road
Rockford, Illinois 61107
Attention: Mr. Michael Reicher
Fax no. (815) 399-9710
With copies to:
St. John & Wayne LLC
Two Penn Plaza East
Newark, New Jersey 07105-2249
Attention: John P. Reilly, Esq.
Fax no. (973) 491-3555
All such notices and correspondence shall be deemed given (i) if sent by
certified or registered mail, three Business Days after being postmarked, (ii)
if sent by overnight delivery service, when received at the above stated
addresses or when delivery is refused and (iii) if sent by telex or facsimile
transmission, when receipt of such transmission is acknowledged.
10.7. Indemnification. Borrower hereby indemnifies and agrees to defend
and hold harmless Agent, each of the Lenders and their respective partners,
directors, officers, agents, employees and counsel from and against any and all
losses, claims, damages, liabilities, deficiencies, judgments or expenses
incurred by any of them (except to the extent that it is finally judicially
determined to have resulted from their own gross negligence or willful
misconduct) arising out of or by reason of (a) any litigations, investigations,
claims or proceedings which arise out of or are in any way related to (i) this
Agreement or the transactions contemplated hereby, (ii) any actual or
42
<PAGE> 48
proposed use by Borrower of the proceeds of the Consolidated Bridge Loan or
Lenders entering into this Agreement, the other Bridge Loan Documents or any
other agreements and documents relating hereto, including, without limitation,
amounts paid in settlement, court costs and the fees and disbursements of
counsel incurred in connection with any such litigation, investigation, claim or
proceeding or any advice rendered in connection with any of the foregoing and
(b) any remedial or other action taken by Borrower or Lenders in connection with
compliance by Borrower, or any of its property, with any federal, state or local
environmental laws, acts, rules, regulations, orders, directions, ordinances,
criteria or guidelines.
10.8. Amendments and Waivers. This Agreement may not be amended,
discharged or terminated (or any provision hereof waived) without the written
consent of Borrower and the Lenders as set forth below:
(a) Holders of at least fifty one percent (51%) in aggregate
principal amount of the Notes then outstanding may by written instrument amend
or waive any term or condition of this Agreement, except that no such amendment
or waiver shall (i) except as otherwise permitted in Section 2.3(f) hereof with
respect to voluntary prepayments of the Notes by the Borrower, extend the fixed
maturity of any Notes, the rate or the time of payment or mandatory prepayment
of principal thereof or payment of interest thereon, or the principal amount
thereof, without the consent of the holders of the Notes so affected, (ii)
change the aforesaid percentage of Notes, the holders of which are required to
consent to any such amendment or waiver, without the consent of the holders of
all the Notes then outstanding or (iii) change the percentage of the amount of
the Notes, the holders of which may declare the Notes to be due and payable
under Section 9.1.
Borrower and each holder of a Note then or thereafter outstanding
shall be bound by any amendment or waiver effected in accordance with the
provisions of this Section 10.8, whether or not such Note shall have been marked
to indicate such modification, but any Note issued thereafter shall bear a
notation as to any such modification. Promptly after obtaining the written
consent of the holders herein provided, Borrower shall transmit a copy of such
modification to all of the holders of the Notes then outstanding.
(b) Holders of at least a majority of the Conversion Shares and the
Warrant Shares in the aggregate then outstanding may by written instrument amend
or waive any term or condition of this Agreement relating to the rights or
obligations of holders of Conversion Shares and Warrant Shares, which amendment
or waiver operates for the benefit of such holders but in no event shall the
obligation of any holder of Conversion Shares and Warrant Shares hereunder be
increased, except upon the written consent of such holder of Conversion Shares
and Warrant Shares.
Borrower and each holder of a Conversion Share or a Warrant Share
then or thereafter outstanding shall be bound by any amendment or waiver
effected in accordance with the provisions of this Section 10.8, whether or not
such Conversion Share or Warrant Share shall have been marked to indicate such
modification, but any Conversion Share and Warrant Share issued thereafter shall
bear a notation as to any such modification. Promptly after obtaining the
written consent of the
43
<PAGE> 49
holders herein provided, Borrower shall transmit a copy of such modification to
all of the holders of the Conversion Shares and the Warrant Shares then
outstanding.
10.9. Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Article, Section, subsection,
paragraph, clause, schedule, and exhibit references are to this Agreement unless
otherwise specified. Any reference in this Agreement shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
10.10. Counterparts and Effectiveness. This Agreement and any waiver or
amendment hereto may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Agreement shall become effective on
the date on which all of the parties hereto shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to
Lenders pursuant to Section 10.6 or shall have given to Lenders written,
telecopied or telex notice (actually received) at such office that the same has
been signed and mailed to it.
10.11. Severability. In case any provision in or obligation under this
Agreement or any Note or the other Bridge Loan Documents shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
10.12. Entire Agreement; Successors and Assigns. This Agreement and the
other Bridge Loan Documents constitute the entire agreement among Borrower and
Lenders, supersedes any prior agreements among them, and shall bind and benefit
Borrower and Lenders and their respective successors and assigns.
10.13 Assignments and Participations.
(a) Each Lender may assign its rights and delegate its obligations
under this Agreement and further may assign, or sell participations in, all or
any part of the Consolidated Bridge Loan, such Lender's Total Commitment or any
other interest herein to an Affiliate or to another Person. In the case of an
assignment authorized under this Section 10.13, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it would
if it were a Lender hereunder, shall be deemed to be a Lender for all purposes,
and such assigning Lender shall be relieved of its obligations hereunder with
respect to such Lender's Total Commitment or assigned portion thereof. Borrower
hereby acknowledges and agrees that any assignment will give rise to a direct
obligation of Borrower to the assignee and that the assignee shall be considered
to be a
44
<PAGE> 50
"Lender". Any such Lender may furnish any information concerning Borrower and
its Subsidiaries in its possession from time to time to assignees and
participants (including prospective assignees and participants).
(b) The Borrower and the Lenders hereby authorize the Agent to
modify this Agreement by unilaterally amending or supplementing Exhibit A to
reflect the assignment by a Lender of all or any part of its Total Commitment to
any other Lender hereunder or to any Person whatsoever, and to reflect the Total
Commitment of any Person that elects to become a Lender after the date hereof by
extending a new loan to Borrower.
10.14 No Brokers. Each Lender and Borrower represents and warrants to each
other that it has not employed or dealt with any broker in connection with any
transactions contemplated by this Agreement and each of Lender and the Borrower
shall indemnify and hold harmless the other from and against any and all claims
at any time heretofore or hereafter made for broker's or finder's fees or
commissions, which claim or claims arise from, out of, or in connection with any
of the transactions contemplated by this Agreement.
10.15 No Novation. This Agreement amends and restates in its entirety the
Original Bridge Loan Agreement and consolidates the Original Bridge Loan with
the Additional Bridge Loan. Neither this Agreement nor any of the Notes creates
a novation of or in any manner diminishes or extinguishes the unpaid principal
balance of, or the accrued interest on, Borrower's indebtedness to Lenders
originally evidenced by the Original Notes. Such unpaid principal balance of,
and such accrued interest on, such indebtedness continues to be due and owing by
Borrower to Lenders, as of the date hereof, and Borrower hereby reaffirms and
confirms same.
[SIGNATURE PAGE FOLLOWS]
45
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in the state of New York, and delivered by their proper and duly
authorized officers and representatives as of the date set forth above.
Borrower: HALSEY DRUG CO., INC.
By: /s/
------------------------------
Name: Michael Reicher
Title: Chief Executive Officer
Lenders: GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/
------------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Partner
By: /s/
------------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc., General Partner
By: /s/
------------------------------
Name: Bruce F. Wesson
Title: President
/s/
----------------------------------
Michael Weisbrot
/s/
----------------------------------
Susan Weisbrot
46
<PAGE> 1
Exhibit 10.46
[First Amendment to Amended, Restated and Consolidated Bridge Loan Agreement
dated December 7, 1998 between the Company and the lenders listed
on the signature page thereto]
Execution Copy
FIRST AMENDMENT
TO
AMENDED, RESTATED AND CONSOLIDATED
BRIDGE LOAN AGREEMENT
THIS FIRST AMENDMENT TO AMENDED, RESTATED AND CONSOLIDATED BRIDGE LOAN
AGREEMENT (the "First Amendment") dated as of December 7, 1998 by and among
HALSEY DRUG CO., INC., a New York corporation ("Borrower"), GALEN PARTNERS III,
L.P. ("Galen", an "Initial Lender" or a "Lender") a Delaware limited
partnership, GALEN PARTNERS INTERNATIONAL III, L.P. and GALEN EMPLOYEE FUND III,
L.P., each a Delaware limited partnership (each an "Initial Lender", a "Lender",
and collectively, with Galen, the "Galen Entities"), PATRICK COYNE ("Coyne", a
"First Amendment Lender" or a "Lender"), an individual residing at 477 Margo
Lane, Berwyn, Pennsylvania 19312, ALAN SMITH ("Smith", a "First Amendment
Lender" or a "Lender"), an individual residing at 21 Bedlow Avenue, Newport,
Rhode Island 02840, MICHAEL WEISBROT AND SUSAN WEISBROT (collectively, the
"Weisbrots" or jointly and severally, with respect to the Initial Commitment, an
"Initial Lender", with respect to the First Amendment Commitment, a "First
Amendment Lender" or a "Lender"), individuals residing at 1136 Rock Creek Road,
Gladwyne, Pennsylvania 19035, GREG WOOD ("Wood", a "First Amendment Lender" or a
"Lender"), an individual residing at c/o D.R. International, 7474 Figueron
Street, Los Angeles, California 90041, (Coyne, Smith, the Weisbrots and Wood,
each a "First Amendment Lender" and collectively, the "First Amendment Lenders"
and the First Amendment Lenders, together with the Galen Entities and the
Weisbrots, each a "Lender", and collectively, the "Lenders"), and GALEN, as
agent for the Lenders (in such capacity, the "Agent") to the Amended, Restated
and Consolidated Bridge Loan Agreement dated as of December 2, 1998 by and among
Borrower, the Galen Entities and the Weisbrots
(the Weisbrots and the Galen Entities, each an "Initial Lender", a "Lender" and
collectively, the "Initial Lenders", as amended through the date hereof, the
"Consolidated Bridge Loan Agreement"). Terms that are capitalized in this First
Amendment and not otherwise defined shall have the meaning ascribed to such
terms in the Consolidated Bridge Loan Agreement.
WITNESSETH:
WHEREAS, the Borrower and the Initial Lenders have entered into the
Consolidated Bridge Loan Agreement;
WHEREAS, Borrower has requested that certain Lenders consider making an
additional $283,000 bridge loan ("First Amendment Bridge Loan") available to
Borrower, the proceeds of which will be used by Borrower solely for Borrower's
working capital purposes and other general
<PAGE> 2
business purposes, in each case pursuant to the Consolidated Bridge Loan
Agreement and in accordance with the terms thereof and hereof.
WHEREAS, Borrower and the Lenders have agreed to add Smith, Wood and Coyne
as a party to the Consolidated Bridge Loan Agreement effective from the First
Amendment Closing Date;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the recipient and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1.
AMENDMENTS
A. Amendment of Section 1. Definitions.
1. Paragraph 1.1 is amended by:
(i) adding thereto, in the appropriate alphabetical order, each of
the terms "Agency Agreements", "Agent", "Consents and Waivers", "Consolidated
Bridge Loan", "First Amendment", "First Amendment Agency Agreement", "First
Amendment Bridge Loan", "First Amendment Closing Date", "First Amendment Closing
Fees", "First Amendment Commitment", "First Amendment Consent and Waiver",
"First Amendment Conversion Price", "First Amendment Lenders", "First Amendment
Loan", "First Amendment Notes", "First Amendment Warrants", "Initial Agency
Agreement", "Initial Closing Date", "Initial Commitment", "Initial Consent and
Waiver", "Initial Consolidated Bridge Loan", "Initial Consolidated Bridge Loan
Agreement", "Initial Conversion Price", "Initial Lenders", "Initial Notes",
"Initial Warrants", "Note 1", "Note 2", "Note 3", "Note 4", "Note 5", "Note 6",
"Note 7", "Note 8" and the definitions thereof, as hereinafter provided, and
(ii) deleting the definitions of the terms "Agreement", "Bridge Loan
Documents", "Lenders", "Notes", "Obligations", "Warrants" and substituting the
definitions set forth below in lieu thereof:
"Agency Agreements" mean the Initial Agency Agreement and the First
Amendment Agency Agreement.
"Agent" means Galen acting as agent to the Lenders pursuant to the
Initial Agency Agreement and the First Amendment Agency Agreement.
"Agreement" means the Initial Consolidated Bridge Loan Agreement, as
amended by the First Amendment, as the same may hereafter be further amended,
extended, modified, restated or supplemented from time to time.
2
<PAGE> 3
"Bridge Loan Documents" means, collectively, this Agreement, the
Notes, the Warrants, the Agency Agreements, the Consents and Waivers, each of
the Collateral Documents and all other documents, agreements, instruments,
opinions and certificates now or hereafter executed and delivered in connection
herewith or therewith, as modified, amended, extended, restated or supplemented
from time to time.
"Consents and Waivers" mean the Initial Consent and Waiver and the
First Amendment Consent and Waiver.
"Consolidated Bridge Loan" has the meaning set forth in Section
I(B)(1) hereto.
"First Amendment" means the First Amendment to the Initial
Consolidated Bridge Loan Agreement dated as of December 7, 1998 by and among
Borrower, the Lenders and Agent, as the same may hereafter be further amended,
extended, modified, restated or supplemented from time to time.
"First Amendment Agency Agreement" means the Agency Agreement by and
among the First Amendment Lenders dated the date hereof and entered into
simultaneously herewith, substantially in the Form of Exhibit E attached hereto.
"First Amendment Bridge Loan" has the meaning set forth in the
Recitals to this Agreement.
"First Amendment Closing Date" means the date upon which the last of
the events, the fulfillment of each of which is condition precedent to the
effectiveness of this First Amendment, as set forth in Section II of this First
Amendment, shall have occurred.
"First Amendment Closing Fees" means the expenses as set forth in
Section II(4) of this First Amendment.
"First Amendment Commitment" means the commitment of each First
Amendment Lender to fund the dollar amount of its share of the First Amendment
Loan in the amount set forth opposite such Lender's name on Exhibit A, a copy of
which is attached hereto and made a part hereof.
"First Amendment Consent and Waiver" means a consent and waiver of
lien, indebtedness and registration rights restrictions executed by the Majority
Holders in connection with this First Amendment dated the date hereof and
executed simultaneously herewith, substantially in the form of Exhibit D
attached hereto.
"First Amendment Conversion Price" means $1.3133.
3
<PAGE> 4
"First Amendment Lenders" has the meaning set forth in the Section
entitled "Pari Passu and Pro Rata Relationship of the Initial Lenders to the
First Amendment Lenders" (Section I(B)(4) hereof).
"First Amendment Notes" mean Note 5, Note 6, Note 7 and Note 8.
"First Amendment Warrants" means the warrants to purchase 28,300
shares, in the aggregate, of the Common Stock, dated the date hereof and issued
by Borrower to each of the First Amendment Lenders, substantially in the form of
Exhibit C attached hereto.
"Initial Agency Agreement" means a certain Agency Agreement by and
among the Agent and each of the Initial Lenders dated as of December 2, 1998
entered into in connection with the Initial Consolidated Bridge Loan Agreement.
"Initial Closing Date" means the Closing Date.
"Initial Commitment" means the Total Commitment of each Initial
Lender.
"Initial Consent and Waiver" means a certain consent and waiver of
lien, indebtedness and registration rights restrictions executed by the Majority
Holders in connection with the Initial Consolidated Bridge Loan Agreement dated
as of December 2, 1998.
"Initial Consolidated Bridge Loan" has the meaning set forth in
Section I(B)1 hereof.
"Initial Consolidated Bridge Loan Agreement" means the agreement
dated as of December 2, 1998 by and among Borrower, the Initial Lenders and the
Agent.
"Initial Conversion Price" means $1.3688.
"Initial Lenders" has the meaning set forth in the Section entitled
"Pari Passu and Pro Rata Relationship of the Initial Lenders to the First
Amendment Lenders" (Section I(B)(4) hereof).
"Initial Notes" means Note 1, Note 2, Note 3 and Note 4.
"Initial Warrants" mean the warrants dated December 2, 1998 and
issued to the Initial Lenders to purchase 689,722 shares, in the aggregate, of
the Common Stock.
"Lenders" mean the Initial Lenders and the First Amendment Lenders.
"Note 1" means a certain promissory note dated as of December 2,
1998 payable by Borrower to the order of Galen Partners III, L.P. in the amount
of $7,052,621.
4
<PAGE> 5
"Note 2" means a certain promissory note dated as of December 2,
1998 payable by Borrower to the order of Galen Partners International III, L.P.
in the amount of $638,389.
"Note 3" means a certain promissory note dated as of December 2,
1998 payable by Borrower to the order of Galen Employee Fund III, L.P. in the
amount of $28,880.
"Note 4" means a certain promissory note dated as of December 2,
1998 payable by Borrower to the order of Michael Weisbrot and Susan Weisbrot in
the amount of $101,222.
"Note 5" means a promissory note dated the date hereof payable by
Borrower to the order of Alan Smith in the amount of $8,000, substantially in
the form of Exhibit B attached hereto.
"Note 6" means a promissory note dated the date hereof payable by
Borrower to the order of Michael Weisbrot and Susan Weisbrot in the amount of
$150,000, substantially in the form of Exhibit B.
"Note 7" means a promissory note dated the date hereof payable by
Borrower to the order of Greg Wood in the amount of $100,000, substantially in
the form of Exhibit B.
"Note 8" means a promissory note dated the date hereof payable by
Borrower to the order of Patrick Coyne in the amount of $25,000, substantially
in the form of Exhibit B.
"Notes" means Note 1, Note 2, Note 3, Note 4, Note 5, Note 6, Note
7, and Note 8, or any one of the Notes ("Note").
"Obligations" means the unpaid principal and interest hereunder,
expenses and all other obligations and liabilities of Borrower to the Lenders
under this Agreement, the Notes or any other Bridge Loan Document, and includes,
but is not limited to, any and all indebtedness of Borrower to the Lenders,
whether now existing or hereafter incurred, of every kind and character, direct
or indirect, and whether such indebtedness is from time to time reduced and
thereafter increased, or entirely extinguished and thereafter reincurred,
including, without limitation: (a) indebtedness not yet outstanding, but
contracted for, or with respect to which any other commitment by the Lenders
exists; (b) all interest provided in any instrument, document, or agreement
(including this Agreement) which accrues on any indebtedness until payment of
such indebtedness in full; and (c) any moneys payable as hereinafter provided.
"Warrants" mean the Initial Warrants and the First Amendment
Warrants.
5
<PAGE> 6
B. Amendment of Section 2. Terms of the Consolidated Bridge Loan.
1. Section 2.2 of the Agreement is amended in its entirety to read as
follows:
"2.2 Initial Consolidated Bridge Loan; Consolidated Bridge Loan.
(a) Initial Consolidated Bridge Loan. Borrower warrants,
represents and confirms that, as of the Initial Closing Date,
(i) the aggregate outstanding principal balance of the
Original Bridge Loan equals $4,500,000, (ii) the aggregate
accrued interest on such principal balance equals $71,111 and
(iii) the aggregate outstanding principal balance of the
Additional Bridge Loan equals $3,250,000. Borrower and Lenders
agree that effective on the Initial Closing Date, upon the
consolidation of the outstanding principal balances of the
Original Bridge Loan and the Additional Bridge Loan, and the
addition to principal of the accrued interest on the Original
Bridge Loan, Lenders shall be deemed to have made a single
loan to Borrower in the aggregate principal amount of
$7,821,111 (the "Initial Consolidated Bridge Loan").
(b) Consolidated Bridge Loan. Borrower warrants,
represents and confirms that, as of the First Amendment
Closing Date (i) the aggregate outstanding principal balance
of the Original Bridge Loan equals $4,500,000, (ii) the
aggregate accrued interest on such principal balance equals
$71,111, (iii) the aggregate outstanding principal balance of
the Additional Bridge Loan equals $3,250,000 and (iv) the
aggregate outstanding principal balance of the First Amendment
Loan equals $283,000. Borrower and the Lenders agree that
effective on the First Amendment Closing Date, the total
amount of funds advanced by the Lenders equals, in the
aggregate principal amount $8,104,111 (the "Consolidated
Bridge Loan")."
2. Section 2.3(a) of the Agreement is amended in its entirety to read as
follows:
"2.3 Amended, Restated and Consolidated Notes.
(a) The Amount. The Initial Consolidated Bridge Loan is
evidenced by the Initial Notes and the First Amendment Loan is
evidenced by the First Amendment Notes (each of the Initial
Notes and the First Amendment Notes, a " Note" and
collectively, the "Notes")."
3. Section 2.4 of the Agreement is amended in its entirety to read as
follows:
"2.4 Warrants. Subject to the terms of Initial Consolidated Bridge
Loan Agreement and the terms of the Initial Warrants, Borrower has
issued Initial Warrants to purchase in the aggregate, 689,722 shares
of the Common Stock, initially, at a price per share equal to
Initial Conversion Price, in the amounts set
6
<PAGE> 7
forth opposite each Initial Lender's name on Exhibit A. Subject to
the terms of this First Amendment and the terms of the First
Amendment Warrants substantially in the form of Exhibit C, Borrower
will issue Warrants to purchase in the aggregate, 28,300 shares of
the Common Stock, initially, at a price per share equal to the First
Amendment Conversion Price. The First Amendment Warrants shall be
issued to each of the First Amendment Lenders in the amounts set
forth opposite each First Amendment Lender's name on Exhibit A. For
purposes of this Agreement, the term "Warrant Shares", shall mean
the shares of Common Stock that may be issued from time to time
pursuant to the exercise of the Warrants."
4. The following Section 2.10 is to be added after Section 2.9 of
Agreement:
"2.10.Pari Passu and Pro Rata Relationship of the Initial Lenders to
the First Amendment Lenders. Until such time as the unpaid principal
balance of the Initial Notes, in the original aggregate principal
amount of $7,821,111 and the First Amendment Notes, in the original
aggregate principal amount of $283,000, shall have been paid in
full, or in a manner otherwise satisfactory to the Agent, (i) the
Initial Lenders' Lien on the Borrower's Collateral with respect to
the Obligations of Borrower to the Initial Lenders under this
Agreement, any other Bridge Loan Documents and the Initial Notes, on
the one hand, and the Obligations of Borrower to the First Amendment
Lenders under this Agreement, any other Bridge Loan Documents and
the First Amendment Notes, on the other hand, shall rank pari passu
with one another, and (ii) each of the Initial Lenders and the First
Amendment Lenders shall share pro rata in the proceeds of the
Borrower's Collateral in accordance with a fraction, the denominator
of which shall equal the unpaid principal balance of the
Consolidated Bridge Loan, and the numerator of which shall equal, in
the case of the Initial Lenders, the unpaid principal balance of the
Initial Notes, and in the case of the First Amendment Lenders, the
unpaid principal balance of the First Amendment Notes, all such
amounts to be calculated as of (A) the Maturity Date, or (B) the
date each Note becomes due and payable, whether by acceleration or
otherwise, whichever date is sooner to occur."
SECTION II.
CONDITIONS PRECEDENT.
This First Amendment shall become effective on the date when all of the
following conditions, the fulfillment of each of which is a condition precedent
to the effectiveness of this First Amendment, shall have occurred or shall have
been waived in writing by Borrower and the Agent:
7
<PAGE> 8
1. First Amendment Closing Documents. Each Lender shall have received a
duly executed original of, as is appropriate:
(i) this First Amendment;
(ii) its Note, if applicable;
(iii) its Warrant, if applicable;
(iv) the First Amendment Agency Agreement; and
(v) the First Amendment Waiver and Consent;
each conforming to the requirements hereof and executed as of the date of this
First Amendment by a duly authorized representative of Borrower, the Lenders and
the Agent, as the case may be.
2. Legal Opinion of Counsel to Borrower. The Agent shall have received an
opinion, dated as of the First Amendment Closing Date, of St. John & Wayne,
L.L.C., counsel to Borrower, which opinion shall be reasonably satisfactory to
the Agent and its counsel.
3. Officer's Certificate. Borrower shall have received an Officer's
Certificate from Borrower dated as of the First Amendment Closing Date,
certifying as to the (i) Certificate of Incorporation of Borrower and all
amendments thereto, (ii) accuracy and completeness of all By-Laws attached
thereto, (iii) validity of the updated Certificates of Good Standing from the
Secretaries of State of New York and Illinois with respect to Borrower, (iv)
validity of the resolutions of the Board of Directors of Borrower approving the
transactions relating to this First Amendment and each of the Bridge Loan
Document to which it or they are a party and any other certificate or other
document to be delivered pursuant thereto, together with evidence of the
incumbency of such officer signing the same.
4. First Amendment Closing Fees. All expenses outstanding as of the date
of this Agreement, including legal fees, relating to the Initial Consolidated
Bridge Loan Agreement and the First Amendment and any and all documents relating
thereto shall have been paid on or prior to the First Amendment Closing Date.
5. Updated Certificates of Good Standing. The Agent shall have received
updated Certificates of Good Standing with respect to Borrower from the
Secretaries of the State of New York and of Illinois.
6. Representations and Warranties. Upon the effectiveness of this First
Amendment, all representations and warranties set forth in the Initial
Consolidated Bridge Loan Agreement (except for such inducing representations and
warranties that were only required to be true and correct as of a prior date),
shall be true and correct in all material respects on and as of the effective
date hereof, and no Default or Event of Default shall have occurred and be
continuing and Agent shall have received a certificate of the President of
Borrower to the same effect.
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<PAGE> 9
7. Material Adverse Effect. No event or development shall have occurred
since the date of delivery to the Agent of Borrower's most recent Form 10-Q and
most recent financial statements which event or development has had or is
reasonably likely to have a Material Adverse Effect.
8. President's Certificate. The Agent shall have received a certificate
from the President of Borrower, as to the satisfaction of paragraphs 6, 7 and 10
of this Section II.
9. Additional Documents. All corporate and legal proceedings and all
documents and instruments executed or delivered in connection with this First
Amendment shall be satisfactory in form and substance to the Lenders, the Agent
and their respective counsel, and the Lenders, the Agent and their respective
counsel shall have received all information and copies of all documents which
the Lenders, the Agent and their respective counsel may have requested in
connection herewith and the matters contemplated hereunder, such documents, when
requested by them, to be certified by the appropriate authorities.
10. Litigation. There shall be no action, suit or proceeding pending or
threatened against Borrower before any court (including bankruptcy court),
arbitrator or governmental or administrative body or agency that challenges or
relates to the performance of this First Amendment or any other transactions
contemplated herein.
11. Consents and Filings. Subject to (i) the receipt of shareholder
approval to amend Borrower's Certificate of Incorporation to increase the
authorized shares of Common Stock and the filing of such amendment with the
Office of the Secretary of State of the State of New York, (ii) the receipt of
the approval of the American Stock Exchange to the extent required under Section
713 of the American Company Stock Exchange Guide, to authorize the issuance of
the Conversion Shares and the Warrant Shares in the event of a dilution
adjustment to the Notes or the Warrants results in issuances of the Conversion
Shares or the Warrant Shares at less than fair market value and (iii) the
approval required under the Hart-Scott-Rodin Antitrust Improvements Act of 1976,
as amended (the "HSR Act"); and except as otherwise obtained, no consent of any
Person (including, without limitation, shareholders or creditors of such
Borrower, as the case may be) other than the Majority Holders, the Agent shall
have received such further agreements, consents, certificates, instruments and
documents as may be necessary or proper in the reasonable opinion of the Agent
and its counsel to carry out the provisions and purposes of this First
Amendment.
12. No Liens. From the date of effectiveness of the Fourth Amendment to
the date of effectiveness of this First Amendment, no Liens shall have arisen or
been recorded against the Collateral.
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<PAGE> 10
SECTION III.
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants (which representations and warranties
shall survive the execution and delivery hereof) to each Lender and the Agent
that:
1. Authority. Borrower has the corporate power, authority and legal right
to execute, deliver and perform this First Amendment, and the instruments,
agreements, documents and transactions contemplated hereby, and has taken all
actions necessary to authorize the execution, delivery and performance of this
First Amendment, and the instruments, agreements, documents and transactions
contemplated hereby.
2. Consents and Filings. Subject to (i) the receipt of shareholder
approval to amend Borrower's Certificate of Incorporation to increase the
authorized shares of Common Stock and the filing of such amendment with the
Office of the Secretary of State of the State of New York, (ii) the receipt of
the approval of the American Stock Exchange to the extent required under Section
713 of the American Company Stock Exchange Guide, to authorize the issuance of
the Conversion Shares and the Warrant Shares in the event of a dilution
adjustment to the Notes or the Warrants results in issuances of the Conversion
Shares or the Warrant Shares at less than fair market value and (iii) the
approval required under the Hart-Scott-Rodin Antitrust Improvements Act of 1976,
as amended (the "HSR Act"); and except as otherwise obtained, no consent of any
Person (including, without limitation, shareholders or creditors of such
Borrower, as the case may be) other than the Majority Holders, no consent,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is required
in connection with the execution, delivery, performance, validity or
enforceability of this First Amendment, and the instruments, agreements,
documents and transactions contemplated hereby.
3. Due Execution. This First Amendment has been duly executed and
delivered on behalf of Borrower, and constitutes the legal, valid and binding
obligation of Borrower, enforceable in accordance with its terms.
4. No Default. Borrower is not in default in any material respect under
any indenture, mortgage, deed of trust, agreement or other instrument to which
it is a party or by which it may be bound. Except as otherwise described on
Borrower's Form 10-Q for the quarter ended September 30, 1998, Borrower knows of
no dispute regarding any such indenture, contract, lease, agreement, instrument
or other commitment. Neither the execution and delivery of this First Amendment
nor any Bridge Loan Document, nor the performance of the transactions herein or
therein contemplated, nor compliance with the provisions hereof or thereof will
(i) violate any law or regulation, or (ii) result in or cause a violation by
such Borrower of any order or decree of any court or government instrumentality,
or (iii) conflict with, or result in the breach of, or constitute a default
under, any indenture, mortgage, deed of trust, agreement or other instrument to
which such Borrower is a party or by which it may be bound, or (iv) result in
the creation or imposition of any lien, charge, or encumbrance upon any of the
property of such Borrower, except in favor of the Agent, on behalf of
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<PAGE> 11
the Lenders, to secure the Obligations, or (v) violate any provision of the
Certificate of Incorporation, By-Laws, or any capital stock provisions of such
Borrower, except as otherwise provided in Section III(2) above.
5. No Event of Default. No Event of Default has occurred and is
continuing.
6. Recitals. The recitals contained in this First Amendment are true and
correct in all respects.
SECTION IV.
GENERAL PROVISIONS
1. Except as herein expressly amended, the Consolidated Bridge Loan
Agreement and all other agreements, documents, instruments and certificates
executed in connection therewith, are ratified and confirmed in all respects and
shall remain in full force and effect in accordance with their respective terms.
2. All references in the Bridge Loan Documents to the Consolidated Bridge
Loan Agreement shall mean the Consolidated Bridge Loan Agreement as amended as
of the effective date hereof, and as amended hereby and as hereafter amended,
extended, modified, restated or supplemented from time to time. From and after
the date hereof, all references in the Consolidated Bridge Loan Agreement to
"this Agreement," "hereof," "herein," or similar terms, shall mean and refer to
the Consolidated Bridge Loan Agreement as amended by this First Amendment.
3. The headings preceding the text of the sections and subsections of this
First Amendment are used solely for convenience of reference and shall not
affect the meaning, construction, or effect of the Agreement.
4. The validity and effect of this First Amendment shall be determined by
reference to the substantive laws of the State of New York without regard to
that State's principles of conflicts of laws, except to the extent that such
other laws may govern the grant and perfection of a security interest in the
Collateral.
5. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which together shall constitute but one
and the same First Amendment.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in the state of New York, and delivered by their proper and duly
authorized officers or managers as of the date set forth above.
Borrower: HALSEY DRUG CO., INC.
By:/s/
--------------------------------------------
Name: Michael Reicher
Title: Chief Executive Officer
The Lenders: GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
By:/s/
--------------------------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Partner
By:/s/
--------------------------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
By:/s/
--------------------------------------------
Name: Bruce F. Wesson
Title: President
12
<PAGE> 13
/s/
-----------------------------------------------
Alan Smith
/s/
-----------------------------------------------
Michael Weisbrot
/s/
-----------------------------------------------
Susan Weisbrot
/s/
-----------------------------------------------
Greg Wood
/s/
-----------------------------------------------
Patrick Coyne
13
<PAGE> 1
Exhibit 10.47
SECOND AMENDMENT
TO
AMENDED, RESTATED AND CONSOLIDATED
BRIDGE LOAN AGREEMENT
THIS SECOND AMENDMENT dated as of March 8, 1999 to Amended Restated and
Consolidated Bridge Loan Agreement dated as of December 2, 1998 (as amended
through the date hereof, the "Consolidated Bridge Loan Agreement") by and among
HALSEY DRUG CO., INC., a New York corporation ("Borrower"), GALEN PARTNERS III,
L.P. ("Galen", an "Initial Lender", a "Second Amendment Lender" or a "Lender") a
Delaware limited partnership, GALEN PARTNERS INTERNATIONAL III, L.P. and GALEN
EMPLOYEE FUND III, L.P., each a Delaware limited partnership (each an "Initial
Lender", a "Second Amendment Lender", a "Lender", and collectively, with Galen,
the "Galen Entities"), THOSE PERSONS WHOSE NAMES ARE SET FORTH ON THE SIGNATURE
PAGE HERETO ( each a "Second Amendment Lender", a "Lender", and collectively,
with the Galen Entities, the "Lenders") and GALEN, as agent for the Lenders (in
such capacity, the "Agent") to the Amended, Restated and Consolidated Bridge
Loan Agreement dated as of December 2, 1998 by and among Borrower, the Galen
Entities and Michael Weisbrot and Susan Weisbrot (collectively, the "Weisbrots"
or jointly and severally, an "Initial Lender", a "First Amendment Lender" or a
"Lender" (the Weisbrots and the Galen Entities, each an "Initial Lender", a
"Lender" and collectively, the "Initial Lenders"; as amended through the date
hereof, the "Consolidated Bridge Loan Agreement"). Terms that are capitalized in
this Second Amendment and not otherwise defined shall have the meaning ascribed
to such terms in the Consolidated Bridge Loan Agreement.
WITNESSETH:
WHEREAS, the Borrower and the Initial Lenders have entered into the
Consolidated Bridge Loan Agreement;
WHEREAS, the Borrower, the Initial Lenders and the First Amendment Lenders
amended the Consolidated Bridge Loan Agreement pursuant to a certain First
Amendment to Amended, Restated and Consolidated Bridge Loan Agreement dated as
of December 7, 1998 (the "First Amendment") pursuant to which the First
Amendment Lenders made an additional bridge loan of $283,000 (the "First
Amendment Loan") available to the Borrower pursuant to the terms of the
Consolidated Bridge Loan Agreement;
WHEREAS, Borrower has requested that the Galen Entities consider making an
additional One Million Four Hundred Thousand Dollars ($1,400,000) bridge loan
("Second Amendment Bridge Loan") available to Borrower, the proceeds of which
will be used by Borrower solely for Borrower's working capital purposes and
other general business purposes, in each case pursuant to the Consolidated
Bridge Loan Agreement and in accordance with the terms thereof and hereof.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
for other good and valuable consideration, the recipient and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1.
AMENDMENTS
A. Amendment of Section 1. Definitions.
1. Section 1.1 of the Consolidated Bridge Loan Agreement entitled "General
Definitions", is amended by the First Amendment:
(i) adding thereto, in the appropriate alphabetical order, each of
the terms "Second Amendment", "Second Amendment Agency Agreement", "Second
Amendment Bridge Loan", "Second Amendment Closing Date", "Second Amendment
Closing Fees", "Second Amendment Commitment", "Second Amendment Consent and
Waiver", "Second Amendment Conversion Price", "Second Amendment Lenders",
"Second Amendment Loan", "Second Amendment Notes", "Second Amendment Warrants",
"Note 9", "Note 10", "Note 11", and the definitions thereof, as hereinafter
provided, and
(ii) deleting the definitions of the terms "Agency Agreements",
"Agent", "Agreement", "Bridge Loan Documents", "Consents and Waivers",
"Consolidated Bridge Loan", "Lenders", "Notes", "Obligations", "Warrants" and
substituting the definitions set forth below in lieu thereof:
"Agency Agreements" mean the Initial Agency Agreement, the First
Amendment Agency Agreement and the Second Amendment Agency Agreement.
"Agent" means Galen acting as agent to the Lenders pursuant to the
Initial Agency Agreement, the First Amendment Agency Agreement and the Second
Amendment Agency Agreement.
"Agreement" means the Initial Consolidated Bridge Loan Agreement, as
amended by the First Amendment, as further amended by the Second Amendment, and
as the same may hereafter be further amended, extended, modified, restated or
supplemented from time to time.
"Bridge Loan Documents" means, collectively, the Consolidated
Bridge Loan Agreement, the First Amendment, the Second Amendment, the Notes, the
Warrants, the Agency Agreements, the Consents and Waivers, each of the
Collateral Documents and all other documents, agreements, instruments, opinions
and certificates now or hereafter executed and delivered in connection herewith
or therewith, as modified, amended, extended, restated or supplemented from time
to time.
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<PAGE> 3
"Consents and Waivers" mean the Initial Consent and Waiver, the
First Amendment Consent and Waiver and the Second Amendment Consent and Waiver.
"Consolidated Bridge Loan" has the meaning set forth in Section
I(B)(2) hereto.
"Lenders" mean the Initial Lenders, the First Amendment Lenders and
the Second Amendment Lenders.
"Note 9" means a certain promissory note dated as of March 8, 1999
payable by Borrower to the order of Galen in the amount of $1,278,992.
"Note 10" means a certain promissory note dated as of March 8, 1999
payable by Borrower to the order of Galen Partners International III, L.P. in
the amount of $115,771.
"Note 11" means a certain promissory note dated as of March 8, 1999
payable by Borrower to the order of Galen Employee Fund III, L.P. in the amount
of $5,237.
"Notes" means Note 1, Note 2, Note 3, Note 4, Note 5, Note 6, Note
7, Note 8, Note 9, Note 10 and Note 11 or any one of the Notes (individually a
"Note").
"Obligations" means the unpaid principal and interest hereunder,
expenses and all other obligations and liabilities of Borrower to the Lenders
under this Agreement, the Notes or any other Bridge Loan Document, and includes,
but is not limited to, any and all indebtedness of Borrower to the Lenders,
whether now existing or hereafter incurred, of every kind and character, direct
or indirect, and whether such indebtedness is from time to time reduced and
thereafter increased, or entirely extinguished and thereafter reincurred,
including, without limitation: (a) indebtedness not yet outstanding, but
contracted for, or with respect to which any other commitment by the Lenders
exists; (b) all interest provided in any instrument, document, or agreement
(including this Agreement) which accrues on any indebtedness until payment of
such indebtedness in full; and (c) any moneys payable as hereinafter provided.
"Second Amendment" means the Second Amendment to the Initial
Consolidated Bridge Loan Agreement dated as of March 8, 1999 by and among
Borrower, the Lenders and Agent, as the same may hereafter be further amended,
extended, modified, restated or supplemented from time to time.
"Second Amendment Agency Agreement" means the Agency Agreement by
and among the Second Amendment Lenders dated the date hereof and entered into
simultaneously herewith, substantially in the Form of Exhibit E attached hereto.
"Second Amendment Bridge Loan" has the meaning set forth in the
Recitals to this Agreement.
3
<PAGE> 4
"Second Amendment Closing Date" means the date upon which the last
of the events, the fulfillment of each of which is condition precedent to the
effectiveness of this Second Amendment, as set forth in Section II of this
Second Amendment, shall have occurred.
"Second Amendment Closing Fees" means the expenses as set forth in
Section II(4) of this Second Amendment.
"Second Amendment Commitment" means the commitment of each Second
Amendment Lender to fund the dollar amount of its share of the Second Amendment
Loan in the amount set forth opposite such Lender's name on Exhibit A, a copy of
which is attached hereto and made a part hereof.
"Second Amendment Consent and Waiver" means a consent and waiver of
lien, indebtedness and registration rights restrictions executed by the Majority
Holders in connection with this Second Amendment dated the date hereof and
executed simultaneously herewith, substantially in the form of Exhibit D
attached hereto.
"Second Amendment Conversion Price" means $1.1969.
"Second Amendment Lenders" has the meaning set forth in the Section
entitled "Pari Passu and Pro Rata Relationship of the Initial Lenders to the
First Amendment Lenders and to the Second Amendment Lenders" (Section I(B)(4)
hereof).
"Second Amendment Notes" mean Note 9, Note 10, and Note 11.
"Second Amendment Warrants" means the warrants to purchase 66,887
shares, in the aggregate, of the Common Stock, dated the date hereof and issued
by Borrower to each of the Second Amendment Lenders, substantially in the form
of Exhibit C attached hereto.
"Warrants" mean the Initial Warrants, and the First Amendment
Warrants and the Second Amendment Warrants.
B. Amendment of Section 2. Terms of the Consolidated Bridge Loan.
1. Section 2.1 of the Agreement is amended in its entirety to read as
follows:
"2.1 Commitment. Subject to the terms and conditions of this
Agreement, (i) each Lender hereby agrees to amend and restate the original Notes
and the original Bridge Loan Agreement; (ii) each of the Galen entities hereby
agrees to fund the amount of its Additional Bridge Loan Commitment; (iii) each
Initial Lender hereby agrees to consolidate the Original Bridge Loan, together
with all interest accrued thereon, with the Additional Bridge Loan; (iv) each
First Amendment Lender hereby agrees to fund the amount of its First Amendment
Commitment; and (v)
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<PAGE> 5
each First Amendment Lender hereby agrees to fund the amount of its Second
Amendment Commitment."
2. Section 2.2 of the Agreement is amended in its entirety to read as
follows:
"2.2 Initial Consolidated Bridge Loan; Consolidated Bridge Loan.
(a) Initial Consolidated Bridge Loan. Borrower warrants,
represents and confirms that, as of the Initial Closing Date,
(i) the aggregate outstanding principal balance of the
Original Bridge Loan equals $4,500,000, (ii) the aggregate
accrued interest on such principal balance equals $71,111 and
(iii) the aggregate outstanding principal balance of the
Additional Bridge Loan equals $3,250,000. Borrower and Lenders
agree that effective on the Initial Closing Date, upon the
consolidation of the outstanding principal balances of the
Original Bridge Loan and the Additional Bridge Loan, and the
addition to principal of the accrued interest on the Original
Bridge Loan, Lenders shall be deemed to have made a single
loan to Borrower in the aggregate principal amount of
$7,821,111 (the "Initial Consolidated Bridge Loan").
(b) Consolidated Bridge Loan. Borrower warrants,
represents and confirms that, as of the First Amendment
Closing Date (i) the aggregate outstanding principal balance
of the Original Bridge Loan equals $4,500,000, (ii) the
aggregate accrued interest on such principal balance equals
$71,111, (iii) the aggregate outstanding principal balance of
the Additional Bridge Loan equals $3,250,000 and (iv) the
aggregate outstanding principal balance of the First Amendment
Loan equals $283,000. Borrower further warrants, represents
and confirms that, as of the Second Amendment Closing Date,
the aggregate outstanding principal balance of the Second
Amendment Loan equals $1,400,000. Borrower and the Lenders
agree that effective on the Second Amendment Closing Date, the
total amount of funds advanced by the Lenders equals, in the
aggregate principal amount $9,504,111 (the "Consolidated
Bridge Loan")."
3. Section 2.3(a) and (b) of the Agreement is amended in its entirety to
read as follows:
"2.3 Amended, Restated and Consolidated Notes.
(a) The Amount. The Initial Consolidated Bridge Loan is
evidenced by the Initial Notes, the First Amendment Loan is
evidenced by the First Amendment Notes and the Second
Amendment Loan is evidenced by the Second Amendment Notes.
(b) General Terms. The Notes are 10% Convertible Senior
Secured Notes due on May 30, 1999. Each Note is convertible,
in whole or
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<PAGE> 6
in part, from time to time, into a number of shares of Common
Stock, initially at the rate set forth in the Notes. For
purposes of this Agreement, the term "Conversion Shares" shall
mean the shares of Common Stock which may be issued upon
conversion of all or a portion of the principal amounts of the
Notes."
4. Section 2.4 of the Agreement is amended in its entirety to read as
follows:
"2.4 Warrants. Subject to the terms of Initial Consolidated Bridge
Loan Agreement and the terms of the Initial Warrants, Borrower has
issued Initial Warrants to purchase in the aggregate, 689,722 shares
of the Common Stock, initially, at a price per share equal to
Initial Conversion Price, in the amounts set forth opposite each
Initial Lender's name on Exhibit A. Subject to the terms of the
First Amendment and the terms of the First Amendment Warrants,
Borrower has issued Warrants to purchase in the aggregate, 28,300
shares of the Common Stock, initially, at a price per share equal to
the First Amendment Conversion Price. Subject to the terms of this
Second Amendment and the terms of the Second Amendment Warrants
substantially in the form of Exhibit C, Borrower will issue warrants
to purchase in the aggregate, 66,887 shares of the Common Stock,
initially, at a price per share equal to the Second Amendment
Conversion Price. The Second Amendment Warrants shall be issued to
each of the Second Amendment Lenders in the amounts set forth
opposite each Second Amendment Lender's name on Exhibit A. For
purposes of this Agreement, the term "Warrant Shares", shall mean
the shares of Common Stock that may be issued from time to time
pursuant to the exercise of the Warrants."
5. Section 2.10 of the Agreement is amended in its entirety to read as
follows:
"2.10.Pari Passu and Pro Rata Relationship of the Initial Lenders to
the First Amendment Lenders and to the Second Amendment Lenders.
Until such time as the unpaid principal balance of the Initial
Notes, in the original aggregate principal amount of $7,821,111, the
First Amendment Notes, in the original aggregate principal amount of
$283,000, and the Second Amendment Notes, in the original principal
amount of $1,400,000 shall have been paid in full, or in a manner
otherwise satisfactory to the Agent, (i) the Initial Lenders' Lien
on the Borrower's Collateral with respect to the Obligations of
Borrower to the Initial Lenders under this Agreement, any other
Bridge Loan Documents and the Initial Notes, the Obligations of
Borrower to the First Amendment Lenders under this Agreement, any
other Bridge Loan Documents and the First Amendment Notes, and the
Obligations of Borrower to the Second Amendment Lenders under this
Agreement, any other Bridge Loan
6
<PAGE> 7
Documents and the Second Amendment Notes, shall rank pari passu with
one another, and (ii) each of the Initial Lenders, the First
Amendment Lenders and the Second Amendment Lenders shall share pro
rata in the proceeds of the Borrower's Collateral in accordance with
a fraction, the denominator of which shall equal the unpaid
principal balance of the Consolidated Bridge Loan, and the numerator
of which shall equal, in the case of the Initial Lenders, the unpaid
principal balance of the Initial Notes, in the case of the First
Amendment Lenders, the unpaid principal balance of the First
Amendment Notes, and in the case of the Second Amendment Lenders,
the unpaid principal amount of the Second Amendment Notes, all such
amounts to be calculated as of (A) the Maturity Date, or (B) the
date each Note becomes due and payable, whether by acceleration or
otherwise, whichever date is sooner to occur."
SECTION II.
CONDITIONS PRECEDENT.
This Second Amendment shall become effective on the date when all of the
following conditions, the fulfillment of each of which is a condition precedent
to the effectiveness of this Second Amendment, shall have occurred or shall have
been waived in writing by Borrower and the Agent:
1. Second Amendment Closing Documents. Each Lender shall have received a
duly executed original of, as is appropriate:
(i) this Second Amendment;
(ii) its Note, if applicable;
(iii) its Warrant, if applicable;
(iv) the Second Amendment Agency Agreement; and
(v) the Second Amendment Waiver and Consent;
each conforming to the requirements hereof and executed as of the date of this
Second Amendment by a duly authorized representative of Borrower, the Lenders
and the Agent, as the case may be.
2. Legal Opinion of Counsel to Borrower. The Agent shall have received an
opinion, dated as of the Second Amendment Closing Date, of St. John & Wayne,
L.L.C., counsel to Borrower, which opinion shall be reasonably satisfactory to
the Agent and its counsel.
3. Officer's Certificate. Borrower shall have received an Officer's
Certificate from Borrower dated as of the Second Amendment Closing Date,
certifying as to the (i) Certificate of Incorporation of Borrower and all
amendments thereto, (ii) accuracy and completeness of all By-Laws attached
thereto, (iii) validity of the updated Certificates of Good Standing from the
Secretaries of State of
7
<PAGE> 8
New York and Illinois with respect to Borrower, (iv) validity of the resolutions
of the Board of Directors of Borrower approving the transactions relating to
this Second Amendment and each of the Bridge Loan Document to which it or they
are a party and any other certificate or other document to be delivered pursuant
thereto, together with evidence of the incumbency of such officer signing the
same.
4. Second Amendment Closing Fees. All expenses outstanding as of the date
of this Agreement, including legal fees, relating to the Initial Consolidated
Bridge Loan Agreement, and the Second Amendment and any and all documents
relating thereto shall have been paid on or prior to the Second Amendment
Closing Date.
5. Updated Certificates of Good Standing. The Agent shall have received
updated Certificates of Good Standing with respect to Borrower from the
Secretaries of the State of New York and of Illinois.
6. Representations and Warranties. Upon the effectiveness of this Second
Amendment, all representations and warranties set forth in the First Amendment
(except for such inducing representations and warranties that were only required
to be true and correct as of a prior date), shall be true and correct in all
material respects on and as of the effective date hereof, and no Default or
Event of Default shall have occurred and be continuing and Agent shall have
received a certificate of the President of Borrower to the same effect.
7. Material Adverse Effect. No event or development shall have occurred
since the date of delivery to the Agent of Borrower's most recent Form 10-Q and
most recent financial statements which event or development has had or is
reasonably likely to have a Material Adverse Effect.
8. President's Certificate. The Agent shall have received a certificate
from the President of Borrower, as to the satisfaction of paragraphs 6, 7 and 10
of this Section II.
9. Additional Documents. All corporate and legal proceedings and all
documents and instruments executed or delivered in connection with this Second
Amendment shall be satisfactory in form and substance to the Lenders, the Agent
and their respective counsel, and the Lenders, the Agent and their respective
counsel shall have received all information and copies of all documents which
the Lenders, the Agent and their respective counsel may have requested in
connection herewith and the matters contemplated hereunder, such documents, when
requested by them, to be certified by the appropriate authorities.
10. Litigation. There shall be no action, suit or proceeding pending or
threatened against Borrower before any court (including bankruptcy court),
arbitrator or governmental or administrative body or agency that challenges or
relates to the performance of this Second Amendment or any other transactions
contemplated herein.
8
<PAGE> 9
11. Consents and Filings. Subject to (i) the receipt of shareholder
approval to amend Borrower's Certificate of Incorporation to increase the
authorized shares of Common Stock and the filing of such amendment with the
Office of the Secretary of State of the State of New York, (ii) the receipt of
the approval of the American Stock Exchange to the extent required under Section
713 of the American Company Stock Exchange Guide, to authorize the issuance of
the Conversion Shares and the Warrant Shares in the event of a dilution
adjustment to the Notes or the Warrants results in issuances of the Conversion
Shares or the Warrant Shares at less than fair market value and (iii) the
approval required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); and except as otherwise obtained, no consent
of any Person (including, without limitation, shareholders or creditors of such
Borrower, as the case may be) other than the Majority Holders, the Agent shall
have received such further agreements, consents, certificates, instruments and
documents as may be necessary or proper in the reasonable opinion of the Agent
and its counsel to carry out the provisions and purposes of this Second
Amendment.
12. No Liens. From the date of effectiveness of the First Amendment to the
date of effectiveness of this Second Amendment, no Liens shall have arisen or
been recorded against the Collateral.
SECTION III.
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants (which representations and warranties
shall survive the execution and delivery hereof) to each Lender and the Agent
that:
1. Authority. Borrower has the corporate power, authority and legal right
to execute, deliver and perform this Second Amendment, and the instruments,
agreements, documents and transactions contemplated hereby, and has taken all
actions necessary to authorize the execution, delivery and performance of this
Second Amendment, and the instruments, agreements, documents and transactions
contemplated hereby.
2. Consents and Filings. Subject to (i) the receipt of shareholder
approval to amend Borrower's Certificate of Incorporation to increase the
authorized shares of Common Stock and the filing of such amendment with the
Office of the Secretary of State of the State of New York, (ii) the receipt of
the approval of the American Stock Exchange to the extent required under Section
713 of the American Company Stock Exchange Guide, to authorize the issuance of
the Conversion Shares and the Warrant Shares in the event of a dilution
adjustment to the Notes or the Warrants results in issuances of the Conversion
Shares or the Warrant Shares at less than fair market value and (iii) the
approval required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); and except as otherwise obtained, no consent
of any Person (including, without limitation, shareholders or creditors of such
Borrower, as the case may be) other than the Majority Holders, no consent,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is required
in connection with the
9
<PAGE> 10
execution, delivery, performance, validity or enforceability of this First
Amendment, and the instruments, agreements, documents and transactions
contemplated hereby.
3. Due Execution. This Second Amendment has been duly executed and
delivered on behalf of Borrower, and constitutes the legal, valid and binding
obligation of Borrower, enforceable in accordance with its terms.
4. No Default. Borrower is not in default in any material respect under
any indenture, mortgage, deed of trust, agreement or other instrument to which
it is a party or by which it may be bound. Except as otherwise described on
Borrower's Form 10-Q for the quarter ended September 30, 1998, Borrower knows of
no dispute regarding any such indenture, contract, lease, agreement, instrument
or other commitment. Neither the execution and delivery of this Second Amendment
nor any Bridge Loan Document, nor the performance of the transactions herein or
therein contemplated, nor compliance with the provisions hereof or thereof will
(i) violate any law or regulation, or (ii) result in or cause a violation by
such Borrower of any order or decree of any court or government instrumentality,
or (iii) conflict with, or result in the breach of, or constitute a default
under, any indenture, mortgage, deed of trust, agreement or other instrument to
which such Borrower is a party or by which it may be bound, or (iv) result in
the creation or imposition of any lien, charge, or encumbrance upon any of the
property of such Borrower, except in favor of the Agent, on behalf of the
Lenders, to secure the Obligations, or (v) violate any provision of the
Certificate of Incorporation, By-Laws, or any capital stock provisions of such
Borrower, except as otherwise provided in Section III(2) above.
5. No Event of Default. No Event of Default has occurred and is
continuing.
6. Recitals. The recitals contained in this Second Amendment are true and
correct in all respects.
SECTION IV.
GENERAL PROVISIONS
1. Except as herein expressly amended, the Consolidated Bridge Loan
Agreement and all other agreements, documents, instruments and certificates
executed in connection therewith, are ratified and confirmed in all respects and
shall remain in full force and effect in accordance with their respective terms.
2. All references in the Bridge Loan Documents to the Consolidated Bridge
Loan Agreement shall mean the Consolidated Bridge Loan Agreement as amended as
of the effective date hereof, and as amended hereby and as hereafter amended,
extended, modified, restated or supplemented from time to time. From and after
the date hereof, all references in the Consolidated Bridge Loan Agreement to
"this Agreement," "hereof," "herein," or similar terms, shall mean and refer to
the Consolidated Bridge Loan Agreement as amended by the First Amendment and as
further amended by this Second Amendment.
10
<PAGE> 11
3. The headings preceding the text of the sections and subsections of this
Second Amendment are used solely for convenience of reference and shall not
affect the meaning, construction, or effect of the Agreement.
4. The validity and effect of this Second Amendment shall be determined by
reference to the substantive laws of the State of New York without regard to
that State's principles of conflicts of laws, except to the extent that such
other laws may govern the grant and perfection of a security interest in the
Collateral.
5. This Amendment may be executed in any number of counterparts, each of
which shall be an original and all of which together shall constitute but one
and the same Second Amendment.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in the state of New York, and delivered by their proper and duly
authorized officers or managers as of the date set forth above.
Borrower: HALSEY DRUG CO., INC.
By:/s/
--------------------------------------------
Name: Michael Reicher
Title: Chief Executive Officer
The Lenders: GALEN PARTNERS III, L.P.
By: Claudius, L.L.C., General Partner
By:/s/
--------------------------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN PARTNERS INTERNATIONAL III, L.P.
By: Claudius, L.L.C., General Partner
By:/s/
--------------------------------------------
Name: Bruce F. Wesson
Title: Managing Member
GALEN EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc.
By:/s/
--------------------------------------------
Name: Bruce F. Wesson
Title: President
12
<PAGE> 13
/s/
-----------------------------------------------
Alan Smith
/s/
-----------------------------------------------
Michael Weisbrot
/s/
-----------------------------------------------
Susan Weisbrot
/s/
-----------------------------------------------
Greg Wood
/s/
-----------------------------------------------
Patrick Coyne
13
<PAGE> 1
Exhibit 10.48
[Form of 10% Convertible Secured Note due May 30, 1999]
THIS CONVERTIBLE SENIOR SECURED NOTE 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 NOTE REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH NOTE 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.
Amended, Restated and Consolidated
10% Convertible Senior Secured Note
Due May 30, 1999
$[___________] No. [____]
December 2, 1998
HALSEY DRUG CO., INC., a corporation organized under the laws of the State
of New York (the "Company"), for value received, hereby promises to pay to the
order of [_______________________] ("________"), a Delaware limited partnership,
with its principal place of business at 610 Fifth Avenue, 5th Floor, New York,
New York 10020 or registered assigns (the "Payee" or "Holder") upon due
presentation and surrender of this Note, on May 30, 1999 (the "Maturity Date"),
the principal amount of [_____________________________] ($__________________)
and accrued interest thereon as hereinafter provided.
This Note was issued by the Company pursuant a certain Amended, Restated
and Consolidated Bridge Loan Agreement dated the date hereof among the Company
and certain persons, including the Payee, (together with the Schedules and
Exhibits thereto, the "Agreement") relating to the issuance of 10% Convertible
Senior Secured Notes maturing May 30, 1999 (the "Notes") in the original
aggregate principal amount of $8,571,111. The holders of such Notes are referred
to hereinafter as the "Holders". The Payee is entitled to the benefits of the
Agreement.
<PAGE> 2
Reference is made to the Agreement with respect to certain additional rights of
the Payee and obligations of the Company not set forth herein. Terms that are
capitalized in this Note, but not otherwise defined, shall have the meanings
ascribed to them in the Agreement.
This Note evidences the amendment and restatement, in its entirety, of
Galen's share of the Original Bridge Loan, and, the consolidation of Galen's
Share of the Original Bridge Loan with Galen's share of the Additional Bridge
Loan. This Note does not create a novation of, nor does this Note, in any
manner, diminish or extinguish the unpaid principal balance of, or the accrued
interest on, the Company's indebtedness to Galen, as originally set forth in the
Original Bridge Loan Agreement, and, as evidenced by the Original Notes. Such
unpaid balance of, and such accrued interest on such indebtedness continues to
be due and owing by the Company to Galen, as described herein, and the Company
hereby reaffirms and confirms same.
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT
1.1 Payment of Principal and Interest. Payment of the principal and
accrued interest on the principal of this Note 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") payable
to the Payee on the Maturity Date.
1.2 Method of Payment. Both principal hereof and interest thereon
are payable to the Holder at the address of the Holder above, or such other name
or 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 Note 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 Note to the Company for cancellation. Prior to any sale or
other disposition of this instrument, the Holder hereof agrees to endorse hereon
the amount of principal paid hereon and the last date to which interest has been
paid hereon and to notify the Company of the name and address of the transferee.
1.3 Late Payments. In the event any payment of principal or interest
or both shall remain unpaid for a period of ten (10) days or more, a late charge
equivalent to five (5%) percent of each installment shall be charged. Interest
on the indebtedness evidenced by this Note after default, or maturity
accelerated or otherwise, shall be due and payable at the rate of twelve (12%)
percent per annum, subject to the limitations of applicable law.
1.4 Miscellaneous. If this Note or any installment hereof becomes
due and payable on a Saturday, Sunday or public holiday under the laws of the
State of New York, the due date hereof shall be extended to the next succeeding
full business day and interest shall be payable at the rate of
<PAGE> 3
ten (10%) percent per annum during such extension. All payments received by the
Holder shall be applied first to the payment of all accrued interest payable
hereunder.
ARTICLE II
SECURITY
2.1 The payment and performance of the Obligations of the Company
under this Note are secured by liens on and security interests in and to the
Collateral granted by the Company to the Lenders pursuant to a certain Amended
and Restated Security Agreement dated the date hereof, and executed
simultaneously herewith.
ARTICLE III
CONVERSION
3.1 Conversion at Option of Holder. At any time and from time to
time, until the payment in full of the outstanding principal and the accrued
interest on the principal of this Note, this Note and the accrued interest
thereon is convertible, in whole or in part, at the Holder's option into shares
of Common Stock upon surrender of this Note, 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. The outstanding principal balance of this Note is convertible into
shares of Common Stock initially at a price per share of Common Stock equal to
$1.3688 per share. Interest shall accrue to and include the day prior to the
date of conversion, and, if any accrued interest on the principal of this Note
is not converted into Common Stock , the such accrued interest shall be paid on
the last day of the month during which any conversion rights are exercised. If
the Holder elects to convert such accrued interest, then the conversion price is
to be based on the average closing price of the Common Stock for the twenty (20)
days immediately preceding the payment date of the interest as reported by the
American Stock Exchange. Instead of issuing fractional shares, or a scrip
representing fractional shares, an adjustment in cash will be made for any
fraction of a share that would otherwise have been issuable upon the conversion
of any portion of this Note. The Conversion Price is subject to adjustment as
provided in Sections 3.5 and 3.7 hereof. As soon as practicable after conversion
and upon the Holder's compliance with the conversion procedure described in
Section 3.3 below, 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, if the Note is converted in part, a new Note in the
principal amount equal to the principal balance remaining under this Note after
giving effect to such partial conversion.
3.2 [INTENTIONALLY LEFT BLANK]
3.3 Registration of Transfer; Conversion Procedure. The Company shall
maintain books for the transfer and registration of the Notes. Upon the transfer
of any Note in accordance with the provisions of the Agreement, the Company
shall issue and register the Note in the names of the new holders. The Notes
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 Notes upon the books
to be maintained by the Company for such purpose upon surrender thereof for
conversion properly endorsed and, in the case of a
<PAGE> 4
conversion pursuant to Section 3.1 hereof, accompanied by a properly completed
and executed Conversion Notice attached hereto as Attachment II. Subject to the
terms of this Note, upon surrender of this Note the Company shall issue and
deliver with all reasonable dispatch to or upon the written order of the Holder
of such Note 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 Note. 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 Note; 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.
3.4 Company to Provide Common Stock. In accordance with the
provisions of Section 6(1)(m) of the Agreement, the Company covenants to seek
the approval of its shareholders to amend its Certificate of Incorporation to
increase its authorized shares from 40,000,000 to 75,000,000 shares of Common
Stock. Promptly upon receipt of shareholder approval to amend its certificate of
incorporation to increase its authorized shares, the Company shall reserve out
of its authorized but unissued common stock a sufficient number of shares to
permit the conversion of the Notes in full. The shares of Common Stock which may
be issued upon the conversion of the Notes shall be fully paid and
non-assessable and free of preemptive rights. The Company will endeavor to
comply with all securities laws regulating the offer and delivery of the Shares
upon conversion of the Notes and will endeavor to list such shares on each
national securities exchange upon which the Common Stock is listed.
3.5 Dividends; Reclassifications, etc. At any time before the
earlier of (i) the exercise of conversion rights hereunder or (ii) the Maturity
Date, if the Company: (i) declares or pays to the holders of the Common Stock a
dividend payable in any kind of shares of capital stock of the Company; or (ii)
changes or divides or otherwise reclassifies 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) transfers its property as an entirety or substantially as
an entirety to any other company or entity; or (iv) makes 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 exercising its
conversion rights, the Holder thereof shall receive, in addition to or in
substitution for the shares of Common Stock to which it would have otherwise
been entitled upon such exercise: (i) such additional shares of stock or scrip
of the Company; (ii) such reclassified shares of stock of the Company, or (iii)
such shares of the securities or property of the Company resulting from
transfer, or (iv) such assets of the Company, which it would have been entitled
to receive had it exercised these conversion rights prior to the happening of
any of the foregoing events.
3.6 Notice to Holder. If, at any time while this Note is
outstanding, the Company shall pay any dividend payable in cash or in shares of
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
<PAGE> 5
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 Note at its address appearing on the
registration books of the Company, at least thirty (30) days before 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.
3.7 Adjustments to Conversion Price. In order to prevent dilution of
the conversion rights granted hereunder, the Conversion Price shall be subject
to adjustment from time to time in accordance with this Section 3.7. The
Conversion Price in effect at the time of the exercise of conversion rights
hereunder, shall be subject to adjustment, or further adjustment, from time to
time as follows:
(a) If at any time after the date of issuance hereof and prior
to the payment in full of the principal and the accrued interest on the
principal of this Note, 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") or
any combination whatsoever of Common Stock or Convertible Securities, other
than:
(i) shares issued in a transaction described in
subsection (b) of this Section 3.7; or
(ii) shares issued, subdivided or combined in
transactions described in Section 3.5 if and to the extent that the number of
shares of Common Stock received upon conversion of this Note shall have been
previously adjusted pursuant to Section 3.5 as a result of such issuance,
subdivision or combination of such securities;
for a consideration per share which is less than the Conversion Price in effect
immediately prior to such issuance or sale, then the Conversion Price, and
thereafter upon each issuance or sale for a consideration per share which is
less than the Conversion Price in effect immediately prior to such issuance or
sale, the Conversion Price shall, simultaneously with such issuance or sale, be
adjusted, so that the Conversion Price immediately prior to such issuance or
sale, shall be reduced to the consideration received by the Company for each
share of Common Stock in such issuance.
Upon each adjustment of the Conversion Price pursuant to this
subsection (a), the total number of shares of Common Stock into which this Note
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 Applicable Conversion Price in effect
immediately prior to such adjustment and the denominator of which shall be the
conversion price in effect immediately after such adjustment.
(b) Anything in this Section 3.7 to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made in
connection with:
<PAGE> 6
(i) the grant, issuance or exercise of any Convertible
Securities pursuant to the Company's qualified or non-qualified Employee Stock
Option Plans or any other bona fide employee benefit plan or incentive
arrangement, adopted or approved by the Company's Board of Directors and
approved by the Company's shareholders, as may be amended from time to time, or
under any other bona fide employee benefit plan hereafter adopted by the
Company's Board of Directors; or
(ii) the grant, issuance or exercise of any Convertible
Securities in connection with the hire or retention of any officer, director or
key employee of the Company, provided such grant is approved by the Company's
Board of Directors; or
(iii) the issuance of any shares of Common Stock
pursuant to the grant or exercise of Convertible Securities outstanding as of
December 2, 1998 (exclusive of any subsequent amendments thereto).
(c) For the purpose of subsection 3.7(a), the following
provisions shall also be applied:
(i) In case of the issuance or sale of additional shares
of Common Stock for cash, the consideration received by the Company therefor
shall be deemed to be the amount of cash received by the Company for such
shares, before deducting therefrom any commissions, compensation or other
expenses paid or incurred by the Company for any underwriting of, or otherwise
in connection with, the issuance or sale of such shares.
(ii) In the case of the issuance of Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the amount of cash, if any, received by the Company for the issuance of
such rights or options, plus the minimum amounts of cash and fair value of other
consideration, if any, payable to the Company upon the exercise of such rights
or options or payable to the Company upon conversion of such Convertible
Securities.
(iii) In the case of the issuance of shares of Common
Stock or Convertible Securities for a consideration in whole or in part, other
than cash, the consideration other than cash shall be deemed to be the fair
market value thereof as reasonably determined in good faith by the Board of
Directors of the Company (irrespective of accounting treatment thereof);
provided, however, that if such consideration consists of the cancellation of
debt issued by the Company, the consideration shall be deemed to be the amount
the Company received upon issuance of such debt (gross proceeds) plus accrued
interest and, in the case of original issue discount or zero coupon
indebtedness, accrued value to the date of such cancellation, but not including
any premium or discount at which the debt may then be trading or which might
otherwise be appropriate for such class of debt.
(iv) In case of the issuance of additional shares of
Common Stock upon the conversion or exchange of any obligations (other than
Convertible Securities), the amount of the consideration received by the Company
for such Common Stock shall be deemed to be the consideration received by the
Company for such obligations or shares so converted or exchanged, before
deducting from such consideration so received by the Company any expenses or
commissions
<PAGE> 7
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.
(d) 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 Note, 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.
3.8 Reorganization of the Company. If the Company is a party to a
merger or other transaction which reclassifies or changes its outstanding Common
Stock, upon consummation of such transaction this Note shall automatically
become convertible into the kind and amount of securities, cash or other assets
which the Holder of this Note would have owned immediately after such
transaction if the Holder had converted this Note 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 Note shall
execute and deliver to the Holder a supplemental Note so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided in this Article 3. The successor Company
shall mail to the Holder a notice describing the supplemental Note.
If securities deliverable upon conversion of this Note, as provided
above, are themselves convertible into the securities of an affiliate of a
corporation formed, surviving or otherwise affected by the merger or other
transaction, that issuer shall join in the supplemental Note which shall so
provide. If this section applies, Section 3.5 does not apply.
ARTICLE IV
MISCELLANEOUS
4.1 Default. Upon the occurrence of any one or more of the Events of
Default specified or referred to in the Agreement or in the other documents or
instruments executed in connection therewith, all amounts then remaining unpaid
on this Note may be declared to be immediately due and payable as provided in
the Agreement.
<PAGE> 8
4.2 Collection Costs. In the event that this Note shall be placed in
the hands of an attorney for collection by reason of any Event of Default
hereunder, the undersigned agrees to pay reasonable attorney's fees and
disbursements and other reasonable expenses incurred by the Holder in connection
with the collection of this Note.
4.3 Rights Cumulative. The rights, powers and remedies given to the
Payee under this Note shall be in addition to all rights, powers and remedies
given to it by virtue of the Agreement, any document or instrument executed in
connection therewith, or any statute or rule of law.
4.4 No Waivers. Any forbearance, failure or delay by the Payee in
exercising any right, power or remedy under this Note, the Agreement, any
documents or instruments executed in connection therewith or otherwise available
to the Payee shall not be deemed to be a waiver of such right, power or remedy,
nor shall any single or partial exercise of any right, power or remedy preclude
the further exercise thereof.
4.5 Amendments in Writing. No modification or waiver of any
provision of this Note, the Agreement or any documents or instruments executed
in connection therewith shall be effective unless it shall be in writing and
signed by the Payee, and any such modification or waiver shall apply only in the
specific instance for which given.
4.6 Governing Law. This Note and the rights and obligations of the
parties hereto, shall be governed, construed and interpreted according to the
laws of the State of New York, without reference to its choice of law
principles, wherein it was negotiated and executed, and the undersigned consents
and agrees that the State and Federal Courts which sit in the State of New York,
County of New York shall have exclusive jurisdiction of all controversies and
disputes arising hereunder.
4.7 No Counterclaims. The undersigned waives the right to interpose
counterclaims or set-offs of any kind and description in any litigation arising
hereunder and waives the right in any litigation with the Payee (whether or not
arising out of or relating to this Note) to trial by jury.
4.8 Successors. The term "Payee" and "Holder" as used herein shall
be deemed to include the Payee and its successors, endorsees and assigns.
4.9 Certain Waivers. The Company hereby waives presentment, demand
for payment, protest, notice of protest and notice of non-payment hereof.
4.10 Stamp Tax. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Common Stock issuable upon the
conversion of this Note; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable for 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 for 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.
<PAGE> 9
4.11 Mutilated, Lost, Stolen or Destroyed Notes. In case this Note
shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Note, or in lieu of and substitution for the Note, mutilated, lost, stolen or
destroyed, a new Note of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Company of such
loss, theft or destruction and an indemnity, if requested, also satisfactory to
it.
4.12 Maintenance of Office. The Company covenants and agrees that so
long as this Note 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 Note) where notices, presentations and demands to or upon the
Company regarding of this Note may be given or made.
IN WITNESS WHEREOF, Halsey Drug Co., Inc. has caused this Note to be
signed by its President and to be dated the day and year first above written.
ATTEST [SEAL] HALSEY DRUG CO., INC.
___________________________________ By:___________________________________
Michael Reicher
Chief Executive Officer
<PAGE> 10
ATTACHMENT I
Assignment
For value received, the undersigned hereby assigns to
________________________, subject to the provisions of Section 11.13 of the
Agreement, $_________________ principal amount of the Amended, Restated and
Consolidated 10% Convertible Senior Secured Note due May 30, 1999 evidenced
hereby and hereby irrevocably appoint _______________ attorney to transfer the
Note on the books of the within named corporation with full power of
substitution in the premises.
Dated:
In the presence of:
_________________________________________
<PAGE> 11
ATTACHMENT II
CONVERSION NOTICE
TO: HALSEY DRUG CO., INC.
The undersigned holder of this Note hereby irrevocably exercises the
option to convert $_________________ principal amount of such Note and/or
$______________________ amount of accrued interest on the principal of such Note
(which may be less than the stated amount of principal thereof or accrued
interest thereon) into shares of Common Stock of Halsey Drug Co., Inc., in
accordance with the terms of such Note, 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 Note, 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 Note, the undersigned will pay
all transfer taxes payable with respect thereto.
Name and Address of Holder
Signature of Holder
Principal amount of Note to be converted $
Amount of accrued interest on the principal
of the Note to be converted $
If shares are to be issued otherwise then to the Holder:
____________________________________
Name of Transferee
Address of Transferee
Social Security Number of Transferee
<PAGE> 1
Exhibit 10.49
[Form of Common Stock Purchase Warrant issued pursuant to the Amended,
Restated and Consolidated Bridge Loan Agreement]
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.01 PER SHARE
OF
HALSEY DRUG CO., INC.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER
ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE
HOLDER OF SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH WARRANT
AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS.
This certifies that, for value received, [ ]or registered
assigns ("Warrantholder"), is entitled to purchase from HALSEY DRUG CO., INC.
(the "Company"), subject to the provisions of this Warrant, at any time during
the Exercise Period (as hereinafter defined) [ ] shares of the
Company's Common Stock, par value $.01 per share ("Warrant Shares"). The
purchase price payable upon the exercise of this Warrant shall be $1.3313 per
Warrant Share. The purchase price and the number of Warrant Shares which the
Warrantholder is entitled to purchase are subject to adjustment upon the
occurrence of the contingencies set forth in this Warrant, and as adjusted from
time to time, such purchase price is hereinafter referred to as the "Warrant
Price."
For purposes of this Warrant, the term "Exercise Period" means the
period commencing on the date of issuance of this Warrant and ending on the
seventh anniversary of such date.
This Warrant is subject to the following terms and conditions:
<PAGE> 2
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part but not
for a fractional share. Upon delivery of this Warrant at the offices of the
Company or at such other address as the Company may designate by notice in
writing to the registered holder hereof with the Subscription Form annexed
hereto duly executed, accompanied by payment of the Warrant Price for the number
of Warrant Shares purchased (in cash, by certified, cashier's or other check
acceptable to the Company, by Common Stock or other securities of the Company
having a Market Value (as hereinafter defined) equal to the aggregate Warrant
Price for the Warrant Shares to be purchased, or any combination of the
foregoing), the registered holder of this Warrant shall be entitled to receive a
certificate or certificates for the Warrant Shares so purchased. Such
certificate or certificates shall be promptly delivered to the Warrantholder.
Upon any partial exercise of this Warrant, the Company shall execute and deliver
a new Warrant of like tenor for the balance of the Warrant Shares purchasable
hereunder.
(b) In lieu of exercising this Warrant pursuant to Section
1(a), the holder may elect to receive shares of Common Stock equal to the value
of this Warrant determined in the manner described below (or any portion thereof
remaining unexercised) upon delivery of this Warrant at the offices of the
Company or at such other address as the Company may designate by notice in
writing to the registered holder hereof with the Notice of Cashless Exercise
Form annexed hereto duly executed. In such event the Company shall issue to the
holder a number of shares of the Company's Common Stock computed using the
following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the holder.
Y = the number of shares of Common Stock purchasable under this
Warrant (at the date of such calculation).
A = the Market Value of the Company's Common Stock on the business day
immediately preceding the day on which the Notice of Cashless
Exercise is received by the Company.
B = Warrant Price (as adjusted to the date of such calculation).
(c) The Warrant Shares deliverable hereunder shall, upon
issuance, be fully paid and non-assessable and the Company agrees that at all
times during the term of this Warrant it shall cause to be reserved for issuance
such number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of this Warrant.
(d) For purposes of Section 1(b) of this Warrant, the Market
Value of a share of Common Stock on any date shall be equal to (A) the closing
sale price per share as published by a national securities exchange on which
shares of Common Stock are traded (an
<PAGE> 3
"Exchange") on such date or, if there is no sale of Common Stock on such date,
the average of the bid and asked prices on such Exchange at the close of trading
on such date or, (B) if shares of Common Stock are not listed on an Exchange on
such date, the closing price per share as published on the National Association
of Securities Dealers Automatic Quotation System ("NASDAQ") National Market
System if the shares are quoted on such system on such date, or (C) the average
of the bid and asked prices in the over-the-counter market at the close of
trading on such date if the shares are not traded on an Exchange or listed on
the NASDAQ National Market System, or (D) if the security is not traded on an
Exchange or in the over-the-counter market, the fair market value of a share of
Common Stock on such date as determined in good faith by the Board of Directors.
If the holder disagrees with the determination of the Market Value of any
securities of the Common Stock determined by the Board of Directors under
Section 1(d)(i)(D) the Market Value shall be determined by an independent
appraiser acceptable to the Company and the holder. If they cannot agree on such
an appraiser, then each of the Company and the holder shall select an
independent appraiser, such two appraisers shall select a third independent
appraiser and Market Value shall be the median of the appraisals made by such
appraisers). If there is one appraiser, the cost of the appraisal shall be
shared equally between the Company and the holder. If there are three
appraisers, each of the Company and the holder shall pay for its own appraiser
and shall share equally the cost of the third appraiser.
2. Transfer or Assignment of Warrant.
(a) Any assignment or transfer of this Warrant shall be made
by surrender of this Warrant at the offices of the Company or at such other
address as the Company may designate in writing to the registered holder hereof
with the Assignment Form annexed hereto duly executed and accompanied by payment
of any requisite transfer taxes, and the Company shall, without charge, execute
and deliver a new Warrant of like tenor in the name of the assignee for the
portion so assigned in case of only a partial assignment, with a new Warrant of
like tenor to the assignor for the balance of the Warrant Shares purchasable.
(b) Prior to any assignment or transfer of this Warrant, the
holder thereof shall deliver an opinion of counsel to the Company to the effect
that the proposed transfer may be effected without registration under the
Securities Act of 1933, as amended (the "Securities Act"). Each Warrant issued
upon or in connection with such transfer shall bear the restrictive legend set
forth on the front of this Warrant unless, in the opinion of the Company's
counsel, such legend is no longer required to insure compliance with the
Securities Act.
3. Adjustments to Warrant Price and Warrant Shares -- Anti-Dilution
Provisions. In order to prevent dilution of the exercise right granted
hereunder, the Warrant Price shall be subject to adjustment from time to time in
accordance with this Section 3. Upon each adjustment of the Warrant Price
pursuant to this Section 3, the holder shall thereafter be entitled to acquire
upon exercise of this Warrant, at the Applicable Warrant Price (as hereinafter
defined), the number of shares of Common Stock obtainable by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Applicable Warrant Price resulting from such
adjustment.
<PAGE> 4
The Warrant Price in effect at the time of the exercise of this
Warrant shall be subject to adjustment from time to time as follows:
(a) In the event that the Company shall at any time: (i) declare or
pay to the holders of the Common Stock a dividend payable in any kind of shares
of capital stock of the Company; or (ii) change or divide or otherwise
reclassify its Common Stock into the same or a different number of shares with
or without par value, or in shares of any class or classes; or (iii) transfer
its property as an entirety or substantially as an entirety to any other company
or entity; or (iv) make any distribution of its assets to holders of its Common
Stock as a liquidation or partial liquidation dividend or by way of return of
capital; then, upon the subsequent exercise of this Warrant, the holder thereof
shall receive, in addition to or in substitution for the shares of Common Stock
to which it would otherwise be entitled upon such exercise, such additional
shares of stock or scrip of the Company, or such reclassified shares of stock of
the Company, or such shares of the securities or property of the company
resulting from transfer, or such assets of the Company, which it would have been
entitled to receive had it exercised these rights prior to the happening of any
of the foregoing events.
(b) If at any time after the date of issuance hereof the Company
shall grant or issue any shares of Common Stock, or grant or issue any rights or
options for the purchase of, or stock or other securities convertible into,
Common Stock (such convertible stock or securities being herein collectively
referred to as "Convertible Securities") other than:
(i) shares issued in a transaction described in subsection 3(c); or
(ii) shares issued, subdivided or combined in transactions described
in subsection 3(a) if and to the extent that the number of shares of Common
Stock receivable upon exercise of this Warrant shall have been previously
adjusted pursuant to subsection 3(a) as a result of such issuance, subdivision
or combination of such securities;
for a consideration per share which is less than the Fair Market Value (as
hereinafter defined) of the Common Stock, then the Warrant Price in effect
immediately prior to such issuance or sale (the "Applicable Warrant Price")
shall, and thereafter upon each issuance or sale for a consideration per share
which is less than the Fair Market Value of the Common Stock, the Applicable
Warrant Price shall, simultaneously with such issuance or sale, be adjusted, so
that such Applicable Warrant Price shall equal a price determined by multiplying
the Applicable Warrant Price by a fraction, the numerator of which shall be:
(A) the sum of (x) the total number of shares of Common Stock
outstanding when the Applicable Warrant Price became effective, plus
(y) the number of shares of Common Stock which the aggregate
consideration received, as determined in accordance with subsection
3(d) for the issuance or sale of such additional Common Stock or
Convertible Securities deemed to be an issuance of Common Stock as
provided in subsection 3(e), would purchase (including any
consideration received by the Company upon the issuance of any
shares of Common Stock since the date the Applicable Warrant Price
became effective not previously included in any
<PAGE> 5
computation resulting in an adjustment pursuant to this subsection
3(b)) at the Fair Market Value of the Common Stock; and the
denominator of which shall be
(B) the total number of shares of Common Stock outstanding (or
deemed to be outstanding as provided in subsection 3(e) hereof)
immediately after the issuance or sale of such additional shares.
For purposes of this Section 3, "Fair Market Value" shall mean the
average of the closing price of the Common Stock for each of the twenty (20)
consecutive trading days prior to such issuance or sale on an Exchange or if
shares of Common Stock are not listed on an Exchange during such period, the
closing price per share as reported by NASDAQ National Market System if the
shares are quoted on such system during such period, or the average of the bid
and asked prices of the Common Stock in the over-the-counter market at the close
of trading during such period if the shares are not traded on an Exchange or
listed on the NASDAQ National Market System, or if the Common Stock is not
traded on an Exchange or in the over-the-counter market, the fair market value
of a share of Common Stock during such period as determined in good faith by the
Board of Directors.
If, however, the Applicable Warrant Price thus obtained would result in the
issuance of a lesser number of shares upon conversion than would be issued at
the initial Warrant Price, the Applicable Warrant Price shall be such initial
Warrant Price.
Upon each adjustment of the Warrant Price pursuant to this
subsection 3(b), the total number of shares of Common Stock for which this
Warrant shall be exercisable shall be such number of shares (calculated to the
nearest tenth) purchasable at the Applicable Warrant Price multiplied by a
fraction, the numerator of which shall be the Warrant Price in effect
immediately prior to such adjustment and the denominator of which shall be the
exercise price in effect immediately after such adjustment.
(c) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be made in connection with:
(i) the grant, issuance or exercise of any Convertible Securities
pursuant to the Company's qualified or non-qualified Employee Stock
Option Plans or any other bona fide employee benefit plan or
incentive arrangement, adopted or approved by the Company's Board of
Directors and approved by the Company's shareholders, as may be
amended from time to time, or under any other bona fide employee
benefit plan hereafter adopted by the Company's Board of Directors;
or
(ii) the grant, issuance or exercise of any Convertible Securities
in connection with the hire or retention of any officer, director or
key employee of the Company, provided such grant is approved by the
Company's Board of Directors; or
(iii) the issuance of any shares of Common Stock pursuant to the
grant or exercise of Convertible Securities outstanding as of March
10, 1998 (exclusive of any subsequent amendments thereto).
<PAGE> 6
(d) For the purpose of subsection 3(b), the following provisions
shall also be applied:
(i) In case of the issuance or sale of additional shares of Common
Stock for cash, the consideration received by the Company therefor
shall be deemed to be the amount of cash received by the Company for
such shares, before deducting therefrom any commissions,
compensation or other expenses paid or incurred by the Company for
any underwriting of, or otherwise in connection with, the issuance
or sale of such shares.
(ii) In the case of the issuance of Convertible Securities, the
consideration received by the Company therefor shall be deemed to be
the amount of cash, if any, received by the Company for the issuance
of such rights or options, plus the minimum amounts of cash and fair
value of other consideration, if any, payable to the Company upon
the exercise of such rights or options or payable to the Company
upon conversion of such Convertible Securities.
(iii) In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part,
other than cash, the consideration other than cash shall be deemed
to be the fair market value thereof as reasonably determined in good
faith by the Board of Directors of the Company (irrespective of
accounting treatment thereof); provided, however, that if such
consideration consists of the cancellation of debt issued by the
Company, the consideration shall be deemed to be the amount the
Company received upon issuance of such debt (gross proceeds) plus
accrued interest and, in the case of original issue discount or zero
coupon indebtedness, accrued value to the date of such cancellation,
but not including any premium or discount at which the debt may then
be trading or which might otherwise be appropriate for such class of
debt.
(iv) In case of the issuance of additional shares of Common Stock
upon the conversion or exchange of any obligations (other than
Convertible Securities), the amount of the consideration received by
the Company for such Common Stock shall be deemed to be the
consideration received by the Company for such obligations or shares
so converted or exchanged, before deducting from such consideration
so received by the Company any expenses or commissions or
compensation incurred or paid by the Company for any underwriting
of, or otherwise in connection with, the issuance or sale of such
obligations or shares, plus any consideration received by the
Company in connection with such conversion or exchange other than a
payment in adjustment of interest and dividends. If obligations or
shares of the same class or series of a class as the obligations or
shares so converted or exchanged have been originally issued for
different amounts of consideration, then the amount of consideration
received by the Company upon the original issuance of each of the
obligations or shares so converted or exchange shall be deemed to be
the average amount of the consideration received by the Company upon
the original issuance of all such obligations or shares. The amount
of consideration received by the Company upon the original issuance
of the obligations or shares so converted or
<PAGE> 7
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.
(e) For purposes of the adjustment provided for in subsection 3(b)
above, if at any time the Company shall issue any Convertible Securities, the
Company shall be deemed to have issued at the time of the issuance of such
Convertible Securities the maximum number of shares of Common Stock issuable
upon conversion of the total amount of such Convertible Securities.
(f) On the expiration, cancellation or redemption of any Convertible
Securities, the Warrant Price then in effect hereunder shall forthwith be
readjusted to such Warrant Price as would have been obtained (a) had the
adjustments made upon the issuance or sale of such expired, canceled or redeemed
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered upon the
exercise or conversion of such Convertible Securities (and the total
consideration received therefor) and (b) had all subsequent adjustments been
made on only the basis of the Warrant Price as readjusted under this subsection
3(f) for all transactions (which would have affected such adjusted Warrant
Price) made after the issuance or sale of such Convertible Securities.
(g) Anything in this Section 3 to the contrary notwithstanding, no
adjustment in the Warrant Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in such Warrant Price; provided,
however, that any adjustments which by reason of this subsection 3(g) are not
required to be made shall be carried forward and taken into account in making
subsequent adjustments. All calculations under this Section 3 shall be made to
the nearest cent.
(h) If, at any time while this Warrant is outstanding, the Company
shall pay any dividend payable in cash or in Common Stock, shall offer to the
holders of its Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights, shall enter into an agreement to merge
or consolidate with another corporation, shall propose any capital
reorganization or reclassification of the capital stock of the Company,
including any subdivision or combination of its outstanding shares of Common
Stock or there shall be contemplated a voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company shall cause notice thereof
to be mailed to the registered holder of this Warrant at its address appearing
on the registration books of the Company, at least thirty (30) days prior to the
record date as of which
<PAGE> 8
holders of Common Stock shall participate in such dividend, distribution or
subscription or other rights or at least thirty (30) days prior to the effective
date of the merger, consolidation, reorganization, reclassification or
dissolution. Upon any adjustment of any Warrant Price, then and in each such
case the Company shall promptly deliver a notice to the registered holder of
this Warrant, which notice shall state the Warrant Price resulting from such
adjustment, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(i) If the Company is a party to a merger or other transaction which
reclassifies or changes its outstanding Common Stock, upon consummation of such
transaction this Warrant shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of this Warrant
would have owned immediately after such transaction if the holder had converted
this Warrant at the Warrant Price in effect immediately before the effective
date of the transaction. Concurrently with the consummation of such transaction,
the person obligated to issue securities or deliver cash or other assets upon
exercise of this Warrant shall execute and deliver to the holder a supplemental
Warrant so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided in this
Section 3. The successor company shall mail to the holder a notice describing
the supplemental Warrant.
If securities deliverable upon exercise of this Warrant, as provided
above, are themselves convertible into or exercisable for the securities of an
affiliate of a corporation formed, surviving or otherwise affected by the merger
or other transaction, that issuer shall join in the supplemental Warrant which
shall so provide. If this subsection 3(i) applies, subsection 3(a) does not
apply.
4. Charges, Taxes and Expenses. The issuance of certificates for
Warrant Shares upon any exercise of this Warrant shall be made without charge to
the holder of this Warrant for any tax or other expense in respect to the
issuance of such certificates, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued only in the name of the
holder of this Warrant.
5. Miscellaneous.
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or assigns of the Company and of the
holder or holders hereof and of the shares of Common Stock issued or issuable
upon the exercise hereof.
(b) No holder of this Warrant, as such, shall be entitled to
vote or receive dividends or be deemed to be a stockholder of the Company for
any purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder of this Warrant, as such, any rights of a stockholder of the
Company or any right to vote, give or withhold consent to any corporate action,
receive notice of meetings, receive dividends or subscription rights, or
otherwise.
(c) Receipt of this Warrant by the holder hereof shall
constitute acceptance of an agreement to the foregoing terms and conditions.
<PAGE> 9
(d) The Warrant and the performance of the parties hereunder
shall be construed and interpreted in accordance with the laws of the State of
New York wherein it was negotiated and executed and the parties hereunder
consent and agree that the State and Federal Courts which sit in the State of
New York and the County of New York shall have exclusive jurisdiction with
respect to all controversies and disputes arising hereunder.
(e) The shares issuable upon exercise of this Warrant are
entitled to the benefits of the registration rights provisions of Section 8 of
the Amended, Restated and Consolidated Bridge Loan Agreement dated December 2,
1998 as amended by the First Amendment to the Amended, Restated and Consolidated
Bridge Loan Agreement dated the date hereof and executed simultaneously herewith
(as amended, modified, restated or supplemented from time to time the
"Consolidated Bridge Loan Agreement").
(f) This Warrant is subject to certain other provisions
contained in:(i) the Consolidated Bridge Loan Agreement, and (ii) the Debenture
and Warrant Purchase Agreement dated March 10, 1998 among the Company and
various other parties, copies of which are on file with the Secretary of the
Company. Shares issued upon exercise of this Warrant shall contain a legend
substantially to the same effect as the legend set forth on the first page of
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer and its corporate seal to be affixed hereto.
Dated as of December 7, 1998
HALSEY DRUG CO., INC.
BY:__________________________
Name: Michael Reicher
Title: President
<PAGE> 10
SUBSCRIPTION FORM
(TO BE EXECUTED BY THE REGISTERED HOLDER
IF HE DESIRES TO EXERCISE THE WARRANT)
To: HALSEY DRUG CO., INC.
The undersigned hereby exercises the right to purchase _________
shares of Common Stock, par value $.01 per share, covered by the attached
Warrant in accordance with the terms and conditions thereof, and herewith makes
payment of the Warrant Price for such shares in full.
SIGNATURE
ADDRESS
DATED:_____________
<PAGE> 11
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
[ Date ]
Halsey Drug Co., Inc. Aggregate Price of $
a New York corporation of Warrant
1827 Pacific Street Aggregate Price Being
Brooklyn, New York 11233 Exercised: $
Attention:_______________
Warrant Price
(per share): $
Market Value (per
share): $
Number of Shares of
Common Stock under
this Warrant:
Number of Shares of
Common Stock to be
Issued Under this
Notice:
CASHLESS EXERCISE
Gentlemen:
The undersigned, the registered holder of the Warrant to Purchase
Common Stock delivered herewith ("Warrant"), hereby irrevocably exercises such
Warrant for, and purchases thereunder, shares of the Common Stock of HALSEY DRUG
CO., INC., a New York corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as hereinafter defined) to be
applied toward the purchase of Common Stock pursuant to this Notice of Exercise
is $____________, thereby leaving a remainder Aggregate Price (if any) equal to
$__________. Such exercise shall be pursuant to the net issue exercise
provisions of Section 1(b) of the Warrant; therefore, the holder makes no
payment with this Notice of Exercise. The number of shares to be issued pursuant
to this exercise shall be determined by reference to the formula in Section 1(b)
of the Warrant which requires the use of the Market Value (as defined in Section
1(d) of the Warrant) of the Company's Common Stock on the business day
immediately preceding the day on which this Notice is received by the Company.
To the extent the foregoing exercise is for less than the full Aggregate Price
of the Warrant, the remainder of the Warrant representing a number of Shares
equal to the quotient
<PAGE> 12
obtained by dividing the remainder of the Aggregate Price by the Warrant Price
(and otherwise of like form, tenor and effect) may be exercised under Section
1(a) of the Warrant. For purposes of this Notice the term "Aggregate Price"
means the product obtained by multiplying the number of shares of Common Stock
for which the Warrant is exercisable times the Warrant Price.
SIGNATURE
DATE:_______________
ADDRESS
2
<PAGE> 13
ASSIGNMENT
(To be Executed by the Registered Holder
if he Desires to Transfer the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto __________________ the right to purchase shares of Common Stock
of HALSEY DRUG CO., INC., evidenced by the within Warrant, and does hereby
irrevocably constitute and appoint ______________________ Attorney to transfer
the said Warrant on the books of the Company, with full power of substitution.
SIGNATURE
ADDRESS
DATED:____________________
IN THE PRESENCE OF:
________________________
3
<PAGE> 1
Exhibit 10.50
[Amended and Restated General Security Agreement dated December 2, 1998
between the Company and Galen Partners III, L.P., as Agent]
Execution Copy
AMENDED AND RESTATED GENERAL SECURITY AGREEMENT
THIS AMENDED AND RESTATED GENERAL SECURITY AGREEMENT (together with the
Schedules and Exhibits hereto, and, as amended, extended, modified, restated or
supplemented, from time to time, the "Agreement") is made and entered into as of
December 2, 1998, by and between HALSEY DRUG CO., INC., a New York corporation
(the "Debtor"), with its principal place of business at 695 N. Perryville Road,
Rockford, Illinois 61107, and GALEN PARTNERS III, L.P. (the "Galen"), a Delaware
limited partnership, with its principal place of business at 610 Fifth Avenue,
5th Floor, New York, New York 10020, acting in its capacity as agent on behalf
of certain lenders (in such capacity, the "Agent"), including Galen (each a
"Lender" or a "Secured Party", collectively, the "Lenders" or the "Secured
Parties") pursuant to and in connection with a certain Amended, Restated and
Consolidated Bridge Loan Agreement (the "Consolidated Bridge Loan Agreement")
dated the date hereof and executed simultaneously herewith. Terms that are
capitalized herein and not otherwise defined, shall have the meanings ascribed
to them in the Consolidated Bridge Loan Agreement.
W I T N E S S E T H
WHEREAS, the Debtor and certain Lenders have entered into a Bridge Loan
Agreement and a General Security Agreement dated as of August 12, 1998 (each as
amended through the date hereof, the "Original Bridge Loan Agreement" and the
"Original Security Agreement", and, together with all documents, agreements,
instruments and certificates relating thereto, the "Original Bridge Loan
Documents").
WHEREAS, concurrently with the execution of this Agreement, the Debtor,
the Secured Parties and the Agent are entering into the Consolidated Bridge Loan
Agreement pursuant to which the Debtor and each Secured Party have agreed to
amend and restate the Original Bridge Loan Agreement and, each secured party has
agreed to (i) fund its Additional Bridge Loan Commitment and (ii) consolidate
its Additional Bridge Loan into the Original Bridge Loan pursuant to the terms
and conditions of the Consolidated Bridge Loan Agreement.
WHEREAS, as a condition precedent to the effectiveness of the Consolidated
Bridge Loan Agreement, the Secured Parties have required that the Debtor enter
into this Agreement in order to: (i) reaffirm the lien on and security interest
in and to the "Collateral" (as defined in the Original Security Agreement, the
"Original Collateral") in order to secure the payment and performance by the
Debtor of all of the "Obligations" (as defined in the Original Bridge Loan
Agreement, the
<PAGE> 2
"Original Obligations") arising under the Original Bridge Loan Agreement and
(ii) grant to the Agent, on behalf of the Secured Parties, a lien on and a
security interest in and to all of the Collateral (as defined in Section II
below), in order to secure the Obligations (as defined in Section 1.1 of the
Consolidated Bridge Loan Agreement), to the extent that such Obligations have
been amended and restated, and, to the extent that such Obligations reflect the
consolidation of the Additional Bridge Loan into the Original Bridge Loan, as
more fully set forth herein and therein; and
NOW, THEREFORE, in consideration of the premises and to induce the Secured
Parties to enter into and perform the Consolidated Bridge Loan Agreement, the
Debtor and the Agent hereby agree as follows:
SECTION 1. CONFIRMATION OF EXISTING SECURITY INTEREST AND CREATION OF
SECURITY INTEREST.
The Debtor hereby confirms and reaffirms that the liens and security
interests granted by the Debtor pursuant to the Original Security Agreement
continue to be perfected liens of record and in full force and effect, and, that
the date of perfection of such liens and security interests continues to relate
back to the date of recordation of the financing statements as executed by the
Debtor on form UCC-1 in connection with the Original Security Agreement. Without
in any way modifying the foregoing confirmation by the Debtor, or, in any way
altering the priority of the lien in favor of the Secured Parties in and to the
Original Collateral, the Debtor hereby pledges, assigns and grants to the Agent,
for the ratable benefit of the Secured Parties, a continuing perfected lien on
and security interest in all of the Debtor's right, title, and interest in and
to the Collateral (as defined in Section II below) to secure the payment and
performance of all Obligations (as defined in Section 1.1 of the Consolidated
Bridge Loan Agreement) owing by the Debtor.
SECTION 2. COLLATERAL.
For purposes of this Agreement, the term "Collateral" shall mean all of
the kinds and types of property described in subsections A. through E. hereof,
whether now owned or hereafter at any time arising, acquired or created by the
Debtor and wherever located, and includes all replacements, additions,
accessions, substitutions, repairs, proceeds and products relating thereto or
therefrom, and all documents, ledger sheets and files of the Debtor relating
thereto. "Proceeds" hereunder include (i) whatever is now or hereafter received
by the Debtor upon the sale, exchange, collection or other disposition of any
item of Collateral, whether such proceeds constitute inventory, accounts,
accounts receivable, general intangibles, instruments, securities (including,
without limitation, United States of America Treasury Bills), credits, claims,
demands, documents, letters of credit and letter of credit proceeds, chattel
paper, documents of title, certificates of title, certificates of deposit,
warehouse receipts, bills of lading, leases, deposit ac counts, money, tax
refund claims, contract rights, goods or equipment and (ii) any such items which
are now or hereafter acquired by the Debtor with any proceeds of Collateral
hereunder:
<PAGE> 3
a. Accounts. All of the Debtor's accounts, whether now existing or
existing in the future, including without limitation (i) all
accounts receivable (whether or not specifically listed on schedules
furnished to Agent or the Secured Parties), including, without
limitation, all accounts created by or arising from all of the
Debtor's sales of goods or rendition of services made under any of
Debtor's trade names, or through any of its divisions, (ii) all
unpaid seller's rights (including rescission, replevin, reclamation
and stoppage in transit) relating to the foregoing or arising
therefrom, (iii) all rights to any goods represented by any of the
foregoing, including returned or repossessed goods, (iv) all
reserves and credit balances held by the Debtor with respect to any
such accounts receivable or account debtors and (v) all guarantees
or collateral for any of the foregoing (all of the foregoing
property and similar property being hereinafter referred to as
"Accounts");
b. Inventory. All of the Debtor's inventory, including without
limitation (i) all raw materials, work in process, parts,
components, assemblies, supplies and materials used or consumed in
the Debtor's businesses, wherever located and whether in the
possession of the Debtor or any other Person (for the purposes of
this Agreement, the term "Person" means any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, institution, entity, party
or government (including any division, agency or department
thereof), and its successors, heirs and assigns); (ii) all goods,
wares and merchandise, finished or unfinished, held for sale or
lease or leased or furnished or to be furnished under contracts of
service, wherever located and whether in the possession of the
Debtor or any other Person or entity; and (iii) all goods returned
to or repossessed by the Debtor (all of the foregoing property being
hereinafter referred to as "Inventory");
c. Equipment. All of the equipment owned or leased by the Debtor,
including, without limitation, machinery, equipment, office
equipment and supplies, computers and related equipment, furniture,
furnishings, tools, tooling, jigs, dies, fixtures, manufacturing
implements, fork lifts, trucks, trailers, motor vehicles, and other
equipment (all of the foregoing property being hereinafter referred
to as "Equipment");
d. Intangibles. All of the Debtor's general intangibles, instruments,
securities (including, without limitation, United States of America
Treasury Bills), credits, claims, demands, documents, letters of
credit and letter of credit proceeds, chattel paper, documents of
title, certificates of title, certificates of deposit, warehouse
receipts, bills of lading, leases which are permitted to be assigned
or pledged, deposit accounts, money, tax refund claims, contract
rights which are permitted to be assigned or pledged (all of the
foregoing property being hereinafter referred to as "Intangibles");
and
<PAGE> 4
e. Intellectual Property. All of the Debtor's intellectual property,
including, without limitation, New Drug Applications, Investigatory
New Drug Applications, Abbreviated New Drug Applications,
Alternative New Drug Applications, registrations and quotas as
issued by the Drug Enforcement Administration and/or the Attorney
General of the United States pursuant to the Controlled Substances
Act, certifications, permits and approvals of federal and state
governmental agencies, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications,
trade names, technical knowledge and processes, formal or informal
licensing arrangements which are permitted to be assigned or
pledged, blueprints, technical specifications, computer software,
copyrights, copyright applications and other trade secrets, and all
embodiments thereof, and rights thereto, including, without
limitation, all of the Debtor' rights to use the patents,
trademarks, copyrights, service marks, or other property of the
aforesaid nature of other Persons now or hereafter licensed to the
Debtor, together with the goodwill of the business symbolized by or
connected with the Debtor's trademarks, copyrights, service marks,
licenses and the other rights included in this section II(E).
SECTION 3. THE DEBTOR'S REPRESENTATIONS AND WARRANTIES.
a. Places of Business. The Debtor has no other place of business, or
warehouses in which it leases space, other than those set forth on
Section IIIA of Schedule A, a copy of which is attached hereto and
made a part hereof ("Schedule A").
b. Location of Collateral. Except for the movement of Collateral from
time to time from one place of business or warehouse listed on
Section IIIA of Schedule A, to another place of business or
warehouse listed on Section IIIA of such Schedule A, the Collateral
is located at the Debtor's chief executive office or other places of
business or warehouses listed on such Section IIIA of Schedule A,
and not at any other location.
c. Restrictions on Collateral Disposition. Except as may otherwise be
provided in the Debenture and Warrant Purchase Agreement dated March
10, 1998 between the Debtor and the Signatories thereto
(the"Existing Credit Facility") none of the Collateral is subject to
contractual obligations that may restrict or inhibit the Agent's
right or ability to sell or dispose of the Collateral or any part
thereof after the occurrence of an Event of Default.
d. Status of Accounts. Each Account is based on an actual and bona fide
rendition of services to customers, made by the Debtor in the
ordinary course of its business; the Accounts created are its
exclusive property and are not and shall not be subject to any lien,
consignment arrangement, encumbrance, security interest or financing
statement whatsoever, except as otherwise provided in Section
<PAGE> 5
IIID of Schedule A, and to the best knowledge of the Debtor, the
Debtor's customers have accepted the services, and owe and are
obligated to pay the full amounts stated in the invoices according
to their terms, without any dispute, offset, defense or
counterclaim.
SECTION 4. COVENANTS OF THE DEBTOR.
a. Defend Against Claims. The Debtor will defend the Collateral against
all claims and demands of all persons at any time claiming the same
or any interest therein unless the Agent determines that the claim
or demand is not material and that, consequently, such defense would
not be consistent with good business judgment. The Debtor will not
permit any lien notices with respect to the Collateral or any
portion thereof to exist or be on file in any public office except
for those in favor of Agent and those permitted under the terms of
the Consolidated Bridge Loan Agreement.
b. Change in Collateral Location. The Debtor will not (i) change its
corporate name, (ii) change the location of its chief executive
office or establish any place of business other than those specified
in Section IIIA of Schedule A, or (iii) move or permit movement of
the Collateral from the locations specified therein except from one
such location to another such location, unless in each case the
Debtor shall have given the Agent at least thirty (30) days prior
written notice thereof, and shall have, in advance, executed and
caused to be filed and/or delivered to Agent any financing
statements or other documents required by Agent to perfect the
security interest of the Secured Parties in the Collateral in
accordance with Section IVC hereof, all in form and substance
satisfactory to the Agent.
c. Additional Financing Statements. Promptly upon the reasonable
request of Agent, the Debtor will execute and deliver or use its
reasonable efforts to procure any document, give any notices,
execute and file any financing statements, mortgages or other
documents, all in form and substance satisfactory to Agent, mark any
chattel paper, deliver any chattel paper or instruments to Agent and
take any other actions that are necessary or, in the opinion of
Agent, desirable to perfect or continue the perfection and the first
priority of the Secured Parties' security interest in the
Collateral, to protect the Collateral against the rights, claims, or
interests of third persons, or to effect the purposes of this
Agreement. The Debtor will pay the costs incurred in connection with
any of the foregoing.
d. Additional Liens; Transfers. Without the prior written consent of
the Agent, the Debtor will not, in any way, hypothecate or create or
permit to exist any lien, security interest, charge or encumbrance
on or other interest in the Collateral, other than those permitted
under the terms of the Consolidated Bridge Loan Agreement, and the
Debtor will not sell, transfer, assign, pledge, collaterally assign,
exchange or otherwise dispose of the Collateral, other than the sale
of Inventory in the ordinary course of business and the sale of
obsolete or worn out
<PAGE> 6
Equipment. Notwithstanding the foregoing, if the proceeds of any
such sale consist of notes, instruments, documents of title, letters
of credit or chattel paper, such proceeds shall be promptly
delivered to Agent to be held as Collateral hereunder. If the
Collateral, or any part thereof, is sold, transferred, assigned,
exchanged, or otherwise disposed of in violation of these
provisions, the security interest of the Agent shall continue in
such Collateral or part thereof notwithstanding such sale, transfer,
assignment, exchange or other disposition, and the Debtor will hold
the proceeds thereof for the ratable benefit of the Secured Parties,
and promptly transfer such proceeds to the Secured Parties in kind.
e. Contractual Obligations. The Debtor will not enter into any
contractual obligations which may restrict or inhibit the Agent's
rights or ability to sell or otherwise dispose of the Collateral or
any part thereof after the occurrence or during the continuance of
an Event of Default.
f. Agent's Right to Protect Collateral. Upon the occurrence or
continuance of an Event of Default, Agent shall have the right at
any time to make any payments and do any other acts Agent may deem
necessary to protect the security interests of the Secured Parties
in the Collateral, including, without limitation, the right to pay,
purchase, contest or compromise any encumbrance, charge or lien
which, in the reasonable judgment of Agent, appears to be prior to
or superior to the security interests granted hereunder, and appear
in and defend any action or proceeding purporting to affect its
security interests in, and/or the value of, the Collateral. The
Debtor hereby agrees to reimburse Agent for all payments made and
expenses incurred under this Agreement including reasonable fees,
expenses and disbursements of attorneys and paralegals acting for
Agent, including any of the foregoing payments under, or acts taken
to protect its security interests in the Collateral, which amounts
shall be secured under this Agreement, and agrees it shall be bound
by any payment made or act taken by Agent hereunder absent Agent's
gross negligence or willful misconduct. Agent shall have no
obligation to make any of the foregoing payments or perform any of
the foregoing acts.
g. Further Obligations With Respect to Accounts. In furtherance of the
continuing assignment and security interest in the Accounts of the
Debtor granted pursuant to this Agreement, upon the creation of
Accounts, upon the Agent's request, the Debtor will execute and
deliver to Agent in such form and manner as the Agent may require,
solely for its convenience in maintaining records of Collateral,
such confirmatory schedules of Accounts, and other appropriate
reports designating, identifying and describing the Accounts as the
Agent may reasonably require. In addition, upon the Agent's request,
the Debtor shall provide the Agent with copies of agreements with,
or purchase orders from the customers of the Debtor and copies of
invoices to customers, proof of shipment or delivery and such other
documentation and information relating to said Accounts and other
Collateral as the Agent may reasonably require. Furthermore, upon
the Agent's request, the Debtor shall deliver to the Agent any
documents or certificates of title issued with
<PAGE> 7
respect to any property included in the Collateral, and any
promissory notes, letters of credit or instruments related to or
otherwise in connection with any property included in the
Collateral, which in any such case came into the possession of the
Debtor, or shall cause the issuer thereof to deliver any of the same
directly to the Agent, in each case with any necessary endorsements
in favor of Agent. Failure to provide the Agent with any of the
foregoing shall in no way affect, diminish, modify or otherwise
limit the security interests granted herein. The Debtor hereby
authorizes Agent to regard the Debtor's printed name or rubber stamp
signature on assignment schedules or invoices as the equivalent of a
manual signature by the Debtor's authorized officers or agents.
h. Insurance. The Debtor agrees to maintain public liability insurance,
third party property damage insurance and replacement value
insurance on the Collateral under such policies of insurance, with
such insurance companies, in such amounts and covering such risks as
are at all times satisfactory to the Agent in its commercially
reasonable judgment. All policies covering the Collateral are to
name Agent as an additional insured and the loss payee in case of
loss, and are to contain such other provisions as the Agent may
reasonably require to fully protect the Secured Parties' interest in
the Collateral and to any payments to be made under such policies.
i. Taxes. The Debtor agrees to pay, when due, all taxes lawfully levied
or assessed against the Debtor or any of the Collateral before any
penalty or interest accrues thereon; provided, however, that, unless
such taxes have become a Federal tax or Employment Retirement
Security Income Act lien on any of the assets of the Debtor, no such
tax need be paid if the same is being contested, in good faith, by
appropriate proceedings promptly instituted and diligently conducted
and if an adequate reserve or other appropriate provision shall have
been made therefor as required in order to be in conformity with
generally accepted accounting principles and procedures in effect in
the United States of America.
j. Compliance with Laws. The Debtor agrees to comply in all material
respects with all requirements of law applicable to the Collateral
or any part thereof, or to the operation of its business or its
assets generally, unless the Debtor contests any such requirements
of law in a reasonable manner and in good faith. The Debtor agrees
to maintain in full force and effect, its respective licenses and
permits granted by any governmental authority as may be necessary or
advisable for the Debtor to conduct its business in all material
respects.
k. Maintenance of Property. The Debtor agrees to keep all property
useful and necessary to its business in good working order and
condition (ordinary wear and tear excepted) and not to commit or
suffer any waste with respect to any of its properties.
<PAGE> 8
l. Environmental and Other Matters. The Debtor will conduct its
business so as to comply in all material respects with all
environmental, land use, occupational, safety or health laws,
regulations, directions, ordinances, criteria and guidelines in all
jurisdictions in which it is or may at any time be doing business,
except to the extent that the Debtor is contesting, in good faith by
appropriate legal, administrative or other proceedings, any such
law, regulation, direction, ordinance, criteria, guideline, or
interpretation thereof or application thereof; provided, further,
that the Debtor shall comply with the order of any court or other
governmental authority relating to such laws unless the Debtor shall
currently be prosecuting an appeal, proceedings for review or
administrative proceedings and shall have secured a stay of
enforcement or execution or other arrangement postponing enforcement
or execution pending such appeal, proceedings for review or
administrative proceedings.
m. Further Assurances. The Debtor shall take all such further actions
and execute all such further documents and instruments (including,
but not limited to, collateral assignments of Intellectual Property
and Intangibles or any portion thereof) as the Agent may at any time
reasonably determine in its sole discretion to be necessary or
desirable to further carry out and consummate the transactions
contemplated by the Consolidated Bridge Loan Agreement and the
documentation relating thereto, including this Agreement, and to
perfect or protect the liens (and the priority status thereof) of
the Secured Parties in the Collateral.
SECTION 5. REMEDIES.
a. Obtaining the Collateral Upon Default. If any Event of Default shall
have occurred and be continuing, then and in every such case,
subject to any mandatory requirements of applicable law then in
effect, the Agent, in addition to any rights now or hereafter
existing under applicable law, shall have all rights as a secured
creditor under the Uniform Commercial Code in all relevant
jurisdictions and may, without limitation:
(i) personally, or by agents or attorneys,
immediately retake possession of the
Collateral or any part thereof, from the
Debtor or any other Person who then has
possession of any part thereof, with or
without notice or process of law, and for
that purpose may enter upon the Debtor's
premises where any of the Collateral is
located and remove the same, and, use in
connection with such removal, any and all
services, supplies, aids or other facilities
of the Debtor;
(ii) instruct the obligor or obligors on any
agreement, instrument or other obligation
(including,
<PAGE> 9
without limitation, the Accounts)
constituting the Collateral to make any
payment required by the terms of such
instrument or agreement directly to the
Agent;
(iii) withdraw all monies, securities and
instruments held pursuant to any pledge
arrangement for application to the
Obligations;
(iv) sell, assign or otherwise liquidate, or
direct the Debtor to sell, assign or
otherwise liquidate, any or all of the
Collateral or any part thereof, and take
possession of the proceeds of any such sale
or liquidation;
(v) take possession of the Collateral or any
part thereof, by directing the Debtor in
writing to deliver the same to the Agent at
any place or places designated by Agent, in
which event the Debtor shall at its own
expense:
(1) forthwith cause the same to be moved to the place or
places so designated by the Agent and there delivered to
the Agent,
(2) store and keep any Collateral so delivered to the Agent
at such place or places pending further action by the
Agent as provided in Section VB, and
(3) while the Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and
maintain the Collateral in good condition;
it being understood that the Debtor's obligation to so deliver the
Collateral is of the essence of this Agreement and that, accordingly, upon
application to a court of equity having jurisdiction, the Agent shall be
entitled to a decree requiring specific performance by the Debtor of said
obligation.
b. Disposition of the Collateral. Any collateral repossessed by the
Agent under or pursuant to Section VA and any other Collateral
whether or not so repossessed by the Agent, may be sold, assigned,
leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of
sale the property to be sold, and in general, in such manner, at
such time or times, at such place or places and on such terms as the
Agent may, in compliance with any mandatory requirements of
applicable law, determine to be commercially reasonable. Any of the
Collateral may be sold,
<PAGE> 10
leased or otherwise disposed of, in the condition in which the same
existed when taken by Agent or after any overhaul or repair which
the Agent shall determine to be commercially reasonable. Any such
disposition which shall be a private sale or other private
proceedings permitted by such requirements, shall be made upon not
less than ten (10) days' written notice to the Debtor specifying the
time at which such disposition is to be made and the intended sale
price or other consideration therefor, and shall be subject, for the
ten (10) days after the giving of such notice, to the right of the
Debtor or any nominee of the Debtor to acquire the Collateral
involved at a price or for such other consideration at least equal
to the intended sale price or other consideration so specified. Any
such disposition which shall be a public sale permitted by such
requirements, shall be made upon not less than ten (10) days'
written notice to the Debtor specifying the time and place of such
sale and, in the absence of applicable requirements of law, shall be
by public auction (which may, at the option of the Secured Parties,
after publication of notice of such auction not less than ten (10)
days prior thereto in two (2) newspapers in general circulation in
the City of New York, as the Agent may determine. To the extent
permitted by any such requirement of law, Agent may bid for and
become the purchaser of the Collateral or any item thereof, offered
for sale in accordance with this Section without accountability to
the Debtor (except to the extent of surplus money received). If,
under mandatory requirements of applicable law, Agent shall be
required to make disposition of the Collateral within a period of
time which does not permit the giving of notice to the Debtor as
hereinabove specified, Agent need give the Debtor only such notice
of disposition as shall be reasonably practicable in view of such
mandatory requirements of applicable law.
c. Power of Attorney. The Debtor hereby irrevocably authorizes and
appoints Agent, or any Person or agent that the Secured Parties may
designate, as the Debtor's attorney-in-fact, at the Debtor's cost
and expense, to exercise all of the following powers upon and at any
time after the occurrence and during the continuance of an Event of
Default, which powers, being coupled with an interest, shall be
irrevocable until all of the Obligations owing by the Debtor shall
have been paid and satisfied in full:
(i) accelerate or extend the time of payment,
compromise, issue credits, bring suit or
administer and otherwise collect Accounts or
proceeds of any Collateral;
(ii) receive, open and dispose of all mail
addressed to the Debtor and notify postal
authorities to change the address for
delivery thereof to such address as Agent
may designate;
<PAGE> 11
(iii) give customers indebted on Accounts notice
of Secured Parties' interest therein, and/or
to instruct such customers to make payment
directly to Agent for the Debtor's account;
(iv) convey any item of Collateral to any
purchaser thereof;
(v) give any notices or record any liens under
Section IVC hereof; and
(vi) make any payments or take any acts under
Section IVF hereof.
Agent's authority under this section VC shall include, without limitation, the
authority to execute and give a receipt for any certificate of ownership or any
document, transfer title to any item of Collateral, sign the Debtor's name on
all financing statements or any other documents deemed necessary or appropriate
to preserve, protect or perfect the security interest in the Collateral and to
file the same, prepare, file and sign the Debtor's name on any notice of lien,
assignment or satisfaction of lien or similar document in connection with any
Account and prepare, file and sign Debtor's name on a proof of claim in
bankruptcy or similar document against any customer of the Debtor, and to take
any other actions arising from or incident to the rights, powers and remedies
granted to the Agent in this Agreement. This power of attorney is coupled with
an interest and is irrevocable by the Debtor.
d. Waiver of Claims. Except as otherwise provided in this Agreement,
the DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE AND JUDICIAL HEARING IN CONNECTION WITH AGENT'S TAKING
POSSESSION OF OR DISPOSING OF ANY OF THE COLLATERAL, INCLUDING,
WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH THE DEBTOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE, and the Debtor hereby further waives,
to the extent permitted by law:
(i) all damages occasioned by such taking of
possession except any damages which are the
direct result of Agent's gross negligence or
willful misconduct;
(ii) all other requirements as to the time, place
and terms of sale or other requirements with
respect to the enforcement of the Agent's
rights hereunder, except as expressly
provided herein; and
<PAGE> 12
(iii) all rights of redemption, appraisement,
valuation, stay, extension or moratorium now
or hereafter in force under any applicable
law in order to prevent or delay the
enforcement of this Agreement or the
absolute sale of the Collateral or any
portion thereof, and the Debtor, for itself
and all who may claim under it, insofar as
it or they now or hereafter lawfully may,
hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Debtor therein and thereto, and shall
be a perpetual bar both at law and in equity against the Debtor and against any
and all persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon, or any part thereof, from, through and under the Debtor.
e. Remedies Cumulative. Each and every right, power and remedy hereby
specifically given to Agent shall be in addition to every other
right, power and remedy specifically given under this Agreement,
under the Consolidated Bridge Loan Agreement or under other
documentation relating thereto or now or hereafter existing at law
or in equity, or by statute, and each and every right, power and
remedy whether specifically herein given or otherwise existing may
be exercised from time to time or simultaneously and as often and in
such order as may be deemed expedient by Agent. All such rights,
powers and remedies shall be cumulative and the exercise or the
beginning of exercise of one shall not be deemed a waiver of the
right to exercise of any other or others. No delay or omission of
Agent in the exercise of any such right, power or remedy and no
renewal or extension of any of the Obligations shall impair any such
right, power or remedy or shall be construed to be a waiver of any
default or Event of Default or any acquiescence therein.
SECTION 6. MISCELLANEOUS PROVISIONS.
a. Notices. All notices, approvals, consents or other communications
required or desired to be given hereunder shall be delivered in
person, by facsimile transmission followed promptly by first class
mail or by overnight mail, and delivered if to the Debtor, then to
the attention of Mr. Michael Reicher, c/o Halsey Drug Co., Inc., 695
N. Perryville Road, Rockford, Illinois 61107. fax no. (815)
399-9710, with a copy to John P. Reilly, Esq., c/o St. John & Wayne,
2 Penn Plaza East, Newark, New Jersey 07105, fax no. (973) 491-3407,
and if to the Agent, then to the attention of Mr. Srini Conjeevaram
c/o Galen Partners III, L.P., Rockefeller Center, 610 Fifth Avenue,
5th Floor, New York, New York 10020, fax no. (212) 218-4999, with a
copy to George N. Abrahams, Esq. c/o Wolf,
<PAGE> 13
Block, Schorr and Solis-Cohen LLP, 250 Park Avenue, New York, New
York 10177, fax no. (212) 986-0604.
b. Headings. The headings in this Agreement are for purposes of
reference only and shall not affect the meaning or construction of
any provision of this Agreement.
c. Severability. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect, in that jurisdiction only, such
clause or provision, or part thereof, and shall not in any manner
affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
d. Amendments, Waivers and Consents. Any amendment or waiver of any
provision of this Agreement and any consent to any departure by the
Debtor from any provision of this Agreement shall be effective only
if made or given in writing signed by the Agent.
e. Interpretation of Agreement. Time is of the essence in each
provision of this Agreement of which time is an element. All terms
not defined herein shall have the meaning set forth in the
applicable Uniform Commercial Code. Acceptance of or acquiescence in
a course of performance rendered under this Agreement shall not be
relevant in determining the meaning of this Agreement even though
the accepting or acquiescing party had knowledge of the nature of
the performance and opportunity for objection.
f. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral, and shall (i) remain
in full force and effect until indefeasible payment in full of the
Obligations owing by the Debtor, (ii) be binding upon the Debtor,
and its successors and assigns and (iii) inure to the benefit of the
Secured Parties and their successors and assigns.
g. Reinstatement. To the extent permitted by law, this Agreement shall
continue to be effective or be reinstated if at any time any amount
received by Agent or the Secured Parties in respect of the
Obligations owing by the Debtor is rescinded or must otherwise be
restored or returned by Agent or the Secured Parties upon the
occurrence or during the pendency of any Event of Default, all as
though such payments had not been made.
h. Survival of Provisions. All representations, warranties and
covenants of the Debtor contained herein shall survive the execution
and delivery of this Agreement, and shall terminate only upon the
full and final indefeasible payment and performance by the Debtor of
the Obligations secured hereby.
<PAGE> 14
i. Setoff. The Secured Parties shall have all rights of setoff
available at law or in equity.
j. Power of Attorney. In addition to the powers granted to the Secured
Parties under Section VC, the Debtor hereby irrevocably authorizes
and appoints Agent, or any Person or agent that the Secured Parties
may designate, as the Debtor's attorney-in-fact, at the Debtor's
cost and expense, to exercise all of the following powers, which
being coupled with an interest, shall be irrevocable until all of
the Obligations shall have been indefeasibly paid and satisfied in
full:
(i) after the occurrence of an Event of Default,
to receive, take, endorse, sign, assign and
deliver, all in the name of Agent or the
Debtor, any and all checks, notes, drafts,
and other documents or instruments relating
to the Collateral; and
(ii) to request, at any time from customers
indebted on Accounts, verification of
information concerning the Accounts and the
amounts owing thereon.
k. Indemnification; Authority of Agent. Neither Agent or the Secured
Parties nor any partner, director, officer, employee, attorney or
agent of Agent or the Secured Parties shall be liable to the Debtor
for any action taken or omitted to be taken by it or them hereunder,
except for its or their own gross negligence or willful misconduct,
nor shall Agent or the Secured Parties be responsible for the
validity, effectiveness or sufficiency of this Agreement or of any
document or security furnished pursuant hereto. Agent or the Secured
Parties and its partners, directors, officers, employees, attorneys
and agents shall be entitled to rely on any communication,
instrument or document reasonably believed by it or them to be
genuine and correct and to have been signed or sent by the proper
person or persons. The Debtor agrees to indemnify and hold Agent or
the Secured Parties and any other person harmless from and against
any and all costs, expenses (including reasonable fees, expenses and
disbursements of attorneys and paralegals (including, without
duplication, reasonable charges of inside counsel)), claims or
liability incurred by Agent or the Secured Parties or such person
hereunder, unless such claim or liability shall be due to willful
misconduct or gross negligence on the part of Agent or the Secured
Parties or such person.
l. Release; Termination of Agreement. Subject to the provisions of
Section VIG hereof, this Agreement shall terminate upon full and
final indefeasible payment and performance of all the Obligations
owing by the Debtor. At such time, Agent shall, at the request of
the Debtor, reassign and redeliver to the Debtor all of the
Collateral hereunder which has not been sold, disposed of, retained
or applied by Agent in accordance with the terms hereof. Such
reassignment and
<PAGE> 15
redelivery shall be without warranty by or recourse to Agent or the
Secured Parties, except as to the absence of any prior assignments
by Agent of its interest in the Collateral, and shall be at the
expense of the Debtor.
m. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same agreement.
n. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS
OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
o. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE DEBTOR AND
AGENT OR THE SECURED PARTIES, WHETHER SOUNDING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL
COURTS LOCATED IN NEW YORK, NEW YORK, AND THE COURTS TO WHICH AN
APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT AGENT OR THE
SECURED PARTIES SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO PROCEED AGAINST THE DEBTOR OR ITS PROPERTY IN ANY
LOCATION REASONABLY SELECTED BY AGENT OR THE SECURED PARTIES IN GOOD
FAITH TO ENABLE AGENT OR THE SECURED PARTIES TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
AGENT OR THE SECURED PARTIES. THE DEBTOR AGREES THAT IT WILL NOT
ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY
PROCEEDING BROUGHT BY AGENT OR THE SECURED PARTIES. THE DEBTOR
WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
IN WHICH AGENT HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM
NON CONVENIENS.
p. SERVICE OF PROCESS. THE DEBTOR HEREBY IRREVOCABLY AGREES THAT
SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE DEBTOR AT ITS
ADDRESS SET FORTH IN SECTION VIA HEREOF.
<PAGE> 16
q. JURY TRIAL. THE DEBTOR, AGENT AND EACH OF THE SECURED PARTIES EACH
HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY.
r. LIMITATION OF LIABILITY. NEITHER AGENT NOR THE SECURED PARTIES SHALL
HAVE ANY LIABILITY TO THE DEBTOR (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE DEBTOR IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY
ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT
IS DETERMINED BY A FINAL AND NON APPEALABLE JUDGMENT OR COURT ORDER
BINDING ON AGENT OR THE SECURED PARTIES, THAT THE LOSSES WERE THE
RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
s. Delays; Partial Exercise of Remedies. No delay or omission of Agent
or the Secured Parties to exercise any right or remedy hereunder,
whether before or after the happening of any Event of Default, shall
impair any such right or shall operate as a waiver thereof or as a
waiver of any such Event of Default. No single or partial exercise
by Agent or the Secured Parties of any right or remedy shall
preclude any other or further exercise thereof, or preclude any
other right or remedy.
T. No Novation. This Agreement amends and restates in its entirety the
Original Security Agreement, and similarly, the Consolidated Bridge Loan
Agreement amends and restates in its entirety the Original Bridge Loan
Agreement. However, no novation of the Original Obligations has occurred, and
such Original Obligations continue to be owing by the Debtor in accordance with
the terms of the Consolidated Bridge Loan Agreement. Similarly, the liens and
security interests granted by the Debtor pursuant to the Original Security
Agreement continue to be perfected liens of record and in full force and effect,
the Debtor hereby confirms and reaffirms the same, and the date of perfection of
such liens and security interests continues to relate back to the date of
recordation of the financing statements on form UCC-1 executed by the Debtor in
connection therewith.
[SIGNATURE PAGES FOLLOW]
<PAGE> 17
IN WITNESS WHEREOF, the Debtor has caused this Agreement to be duly
executed and delivered as of the day and year first above written.
HALSEY DRUG CO., INC.
By:/s/
-----------------------------------------
Name: Michael Reicher
Title: Chief Executive Officer
General Security Agreement
<PAGE> 18
By its acceptance hereof, as of the day and year first above written,
Agent, on behalf of the Secured Parties, agrees to be bound by the provisions
hereof applicable to it.
GALEN PARTNERS III, L.P., as Agent on behalf of
the Secured Parties
By: Claudius, L.L.C., General Partner
By:/s/
-----------------------------------
Name: Bruce F. Wesson
Title: Managing Member
General Security Agreement
<PAGE> 19
SCHEDULE A
IIIA. Locations of Collateral
1. 1827 Pacific Street, Brooklyn, New York
2. 695 N. Perryville Road, Rockford, Illinois
IIID. Liens
1. Liens permitted under the Existing Credit
Facility.
2. Liens described on Schedule 10.4 to
the Existing Credit Facility.
General Security Agreement
<PAGE> 1
Exhibit 10.51
[Subordination Agreement dated December 2, 1998 between the Registrant
and Galen Partners III, L.P., as Agent]
Execution Copy
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is made as of the 2nd day
of December, 1998, by and among GALEN PARTNERS III, L.P., a Delaware limited
partnership ("Galen"), acting in its capacity as agent on behalf of certain
lenders (in such capacity, the "Lenders' Agent"), including Galen (each, a
"Lender", collectively, the "Lenders") in connection with and pursuant to a
certain Amended, Restated and Consolidated Bridge Loan Agreement dated as of the
date hereof and executed simultaneously herewith, (together with Schedules and
Exhibits thereto, as the same may be amended, extended, modified, restated or
supplemented, the "Consolidated Bridge Loan Agreement"); GALEN, acting in its
capacity as agent on behalf of certain purchasers (in such capacity, the
"Purchasers' Agent"), including Galen (each a "Purchaser", collectively, the
"Purchasers") in connection with and pursuant to a certain Debenture and Warrant
Purchase Agreement dated March 10, 1998 (together with Schedules and Exhibits
thereto, as the same may be amended, extended, modified, restated and
supplemented, from time to time, the "Purchase Agreement") and HALSEY DRUG CO.,
INC., a New York corporation (the "Borrower"). Terms that are capitalized herein
and not otherwise defined shall have the meaning ascribed to them in
Consolidated Bridge Loan Agreement.
WHEREAS, pursuant to the Purchase Agreement, the Borrower granted to the
Purchasers' Agent, for the ratable benefit of the Purchasers, a security
interest (the "Purchase Agreement Security Interest") in and to any and all of
the property of the Borrower (the "Property") in accordance with the terms of
the General Security Agreement dated March 10, 1998 by and between the Borrower
and the Purchasers' Agent;
WHEREAS, the Borrower and certain Lenders funded the Original Bridge Loan
in accordance with the terms of the Original Bridge Loan Agreement, pursuant to
which the Borrower granted to the Galen Entities and to Galen, as agent to the
Weisbrots (in such capacity, the "Weisbrot Agent"), for the ratable benefit of
the Galen Entities and the Weisbrot Agent, a security interest in and to the
Property (the "Original Bridge Loan Security Interest") in accordance with the
terms of a certain General Security Agreement dated as of August 12, 1998
(together with all Schedules and Exhibits thereto, as amended through the date
hereof, the "Original Bridge Loan Security Agreement"), and, the Purchasers'
Agent subordinated the Purchase Agreement Security Interest to the Original
Bridge Loan Security Interest in accordance with the terms of a certain
Subordination Agreement dated as of August 12, 1998 (as amended through the date
hereof, the "Original Subordination Agreement")
<PAGE> 2
WHEREAS, the Borrower has requested that some or all of the Lenders
consider making an additional bridge loan to Borrower on the terms and
conditions contained in the Consolidated Bridge Loan Agreement, the proceeds of
which will be used by the Borrower to finance its working capital needs;
WHEREAS, each Lender, the Borrower and the Agent have agreed to enter into
the Consolidated Bridge Loan Agreement pursuant to which each Lender, the
Borrower and the Agent has agreed (i) to amend and restate the Original Bridge
Loan Agreement; (ii) to fund its Additional Bridge Loan Commitment and (iii) to
consolidate its Additional Bridge Loan into the Original Bridge Loan pursuant to
the terms and conditions of the Consolidated Bridge Loan Agreement.
WHEREAS, as a condition precedent to entering into the Consolidated Bridge
Loan Agreement, the Lenders require that, among other things, (x) the Borrower
enter into a certain Amended and Restated Security Agreement dated the date
hereof and executed simultaneously herewith in order to grant the Lenders'
Agent, for the ratable benefit of the Lenders, a security interest in and to the
Collateral (the "Amended and Restated Security Interest") in order to secure the
payment and performance of the Obligations arising under the Consolidated Bridge
Loan Agreement, and, (y) the Purchasers' Agent enter into this Subordination
Agreement dated the date hereof and executed simultaneously herewith in order to
(1) subordinate the Purchase Agreement Security Interest to the Amended and
Restated Security Interest in accordance with the terms set forth below and (2)
subordinate the Subordinated Debt (as defined below) to the Senior Debt (as
defined below) in accordance with the terms set forth below.
NOW, THEREFORE, in consideration of the above recitals and the provisions
set forth herein, the Lenders' Agent on behalf of each Lender, the Purchasers'
Agent on behalf of each Purchaser, and Borrower agree as follows:
1. Definitions. The following terms in this Agreement shall have the
following meanings:
"Senior Debt" means (a) all indebtedness, liabilities and obligations of
every kind or nature, absolute or contingent, now or existing or hereafter
arising, of Borrower owed to the Lenders under the Senior Loan Documents,
including without limitation the principal of, and interest on (including any
interest accruing after the commencement of any bankruptcy, insolvency or
similar proceeding with respect to Borrower whether or not allowed as a claim in
such proceeding), and all premiums, fees, charges, expenses and indemnities
arising under or in connection with the Consolidated Bridge Loan Agreement; and
(b) any modifications, amendments, refunds, refinancings, renewals or extensions
of any indebtedness or obligation described in clause (a) above.
"Senior Loan Documents" means the Consolidated Bridge Loan Agreement, the
Bridge Loan Documents and the Collateral Documents, as defined in Section 1.1 of
the Consolidated Bridge Loan Agreement, and, any other agreements, including any
amendments, restatements, supplements or modifications thereto, relating to the
Senior Debt.
<PAGE> 3
"Subordinated Debt" means all present or future indebtedness loans,
advances, debit balances, liabilities, covenants, duties or obligations of
Borrower to the Purchasers under the Purchase Agreement, howsoever evidenced,
whether evidenced by the 1998 Debentures or otherwise, whether direct or
indirect, absolute or contingent, secured or unsecured, due or to become due,
now existing or hereafter arising, and whether created directly or acquired
indirectly by assignment, pledge, purchase or otherwise, together with all
interest, fees, charges, expenses and attorneys' fees for which Borrower is now
or hereafter becomes liable to pay to the Purchasers or Purchasers' Agent under
any agreement or by law.
2. Subordination of Amended and Restated Security Interest and
Subordination of Subordinated Debt to Senior Debt. The Purchasers' Agent hereby:
(i) subordinates the Purchase Agreement Security Interest to the Amended and
Restated Security Interest to the extent and in the manner hereinafter set forth
and (ii) subordinates all Subordinated Debt such that all Subordinated Debt is
and shall be subordinate and junior in right of payment, to the extent and in
the manner hereinafter set forth, to the prior indefeasible payment in full of
all Senior Debt. Except as and to the extent provided hereinafter, the
Purchasers or Purchasers' Agent, will not ask, demand, sue for, take or receive
from Borrower, by set-off or in any other manner, direct or indirect payment
(whether in cash or property), of the whole or any part of the Subordinated
Debt, or any transfer of any property in payment of or as security therefor,
unless and until all of the Senior Debt has been fully and indefeasibly paid in
full and until any obligations owed by the Borrower to the Lenders under the
Senior Loan Agreements have been terminated.
3. Distributions in Liquidation and Bankruptcy. Notwithstanding anything
to the contrary in this Agreement or in the 1998 Debentures in the event of any
distribution, division or application partial or complete, voluntary or
involuntary, by operation of law or otherwise, of all or any part of the assets
of Borrower or the proceeds thereof (including any assets now or hereafter
securing any Subordinated Debt) to creditors of Borrower or upon any
indebtedness of Borrower, as a result of the liquidation, dissolution or other
winding up, partial or complete, of Borrower, or as a result of any
receivership, insolvency or bankruptcy proceeding, or assignment for the benefit
of creditors or marshalling of assets, or as a result of any proceeding by or
against Borrower for any relief under any bankruptcy or insolvency law or laws
relating to the relief of debtors, readjustment of indebtedness, arrangements,
reorganizations, compositions or extensions, or as a result of the sale of all
or substantially all of the assets of Borrower, then and in any such event:
(a) Lenders' Agent shall be entitled to receive payment in full of
all Senior Debt before Purchasers' Agent shall be entitled to receive any
payment or other distributions on, or with respect to, the Subordinated Debt;
(b) Any payment or distribution of any kind or character, whether in
cash, securities or other property, which but for these provisions would be
payable or deliverable upon or with respect to the Subordinated Debt shall
instead be paid or delivered directly to Lenders' Agent for the benefit of the
holders of the Senior Debt for application on the Senior Debt, whether then due
or not due, until the Senior Debt shall have first been fully and indefeasibly
paid in full;
<PAGE> 4
(c) The Purchasers and Purchasers' Agent shall duly and promptly
take such action as may reasonably be requested by Lenders' Agent to assist in
the collection of the Subordinated Debt for the account of any holder of the
Senior Debt, including the filing of appropriate proofs of claim with respect to
the Subordinated Debt and the voting of such claims;
(d) In the event that the Purchasers or Purchasers' Agent shall not
have filed a claim in any bankruptcy, insolvency or similar proceeding with
respect to Borrower at least sixty (60) days prior to the expiration of the time
to file such claims, then Lenders' Agent, on behalf of the Purchasers, shall be
authorized to file a claim with respect to the Subordinated Debt; and
(e) Should any direct or indirect payment be made to the Purchasers
or Purchasers' Agent upon or with respect to the Subordinated Debt prior to the
payment in full of the Senior Debt in accordance with these provisions,
Purchasers' Agent will forthwith deliver the same to Lenders' Agent in precisely
the form received (except for the endorsement or assignment by the Purchasers or
Purchasers' Agent, where necessary) for application on the Senior Debt, whether
then due or not due. Until so delivered, the payment or distribution shall be
held in trust by the Purchasers and Purchasers' Agent as property of the holders
of the Senior Debt. In the event of the failure of the Purchasers or Purchasers'
Agent to make any such endorsement or assignment, Lenders' Agent, or any of its
officers or employees, are hereby irrevocably authorized to make the same.
4. No Payments on Subordinated Debt. Until such time as the Senior Debt is
indefeasibly paid in full, Borrower may not make and neither the Purchasers, nor
the Purchasers' Agent, may accept, any payments on the Subordinated Debt,
including without limitation any payments of interest on or principal of the
Subordinated Debt; provided, however, that except as otherwise provided in
paragraph 3 above, unless and until an Event of Default has occurred and is
continuing under the Consolidated Bridge Loan Agreement, the Borrower may make
and the Purchasers' Agent may accept scheduled payments of interest on the
principal outstanding under the 1998 Debentures, strictly in accordance with the
terms of the 1998 Debentures as in effect on the date of execution thereof.
Without limiting the generality of the foregoing, Borrower shall not pay and
neither the Purchasers nor Purchasers' Agent shall not accept any prepayments of
the Subordinated Debt, whether voluntary or mandatory, or any payment of any
accelerated amounts due under the Subordinated Debt.
5. Turnover of Payments. If, notwithstanding the prohibition on payments
contained in paragraph 4 hereof, the Purchasers or Purchasers' Agent shall
receive any payment or distribution of any kind (whether from any collateral
securing the Subordinated Debt or otherwise), with the exception of the
scheduled payments of interest that are made in accordance the terms of
paragraph 4 above, such payment or distribution shall be received in trust for,
and shall be delivered to Lenders' Agent promptly in precisely the form received
(except for the endorsement or assignment by the Purchasers or Purchasers'
Agent, where necessary) for application on the Senior Debt, whether then due or
not due. Until so delivered, the payment or distribution shall be held in trust
by the Purchasers, or Purchasers' Agent, as property of the holders of Senior
Debt.
6. No Acceleration or Exercise of Remedies. So long as any Senior Debt
remains unpaid, Purchasers' Agent will not (a) accelerate, or cause to be
accelerated, the Subordinated Debt
<PAGE> 5
or otherwise cause the Subordinated Debt to become due prior to its original
stated maturity; or (b) accept any payment, prepayment or defeasance of any
portion of the Subordinated Debt, as provided herein; or (c) modify or alter in
any way the terms of the Subordinated Debt if the effect of such is to
accelerate the payments due thereon; or (d) exercise any remedies with respect
to the Subordinated Debt or any collateral at any time securing payment or
performance thereof unless and until, in each such case, all of the Senior Debt
shall have been indefeasibly paid in full, or the Lenders shall have otherwise
consented in writing.
7. Bankruptcy. Until the Senior Debt shall have been indefeasibly paid in
full, the Purchasers, or Purchasers' Agent, will not without the prior written
consent of each of the Lenders commence, or join with any other person in
commencing, any proceeding against any person with respect to the Subordinated
Debt under any bankruptcy reorganization, readjustment of debt, dissolution,
receivership, liquidation or insolvency law or statute now or hereafter in
effect in any jurisdiction.
8. Continuing Subordination. The subordination effected by these
provisions is a continuing subordination and may not be modified or terminated
by the Purchasers, or Purchasers' Agent, or any other holder of any Subordinated
Debt until all of the Senior Debt shall have been indefeasibly paid in full. At
any time and from time to time, without consent of or notice to the Purchasers,
or Purchasers' Agent, or any other holder of Subordinated Debt, and without
impairing or affecting the obligations of any of them hereunder:
(a) The time for Borrower's performance of, or compliance with, any
of its agreements contained in the Senior Loan Agreements, or any other
agreement, instrument or document relating to the Senior Debt, may be modified
or extended or such performance or compliance may be waived;
(b) The Lenders, or Lenders' Agent, may exercise or refrain from
exercising any rights under the Senior Loan Agreements, or any other agreement,
instrument or document relating to the Senior Debt;
(c) The Senior Loan Agreements, or any other agreement, instrument
or document relating to the Senior Debt, may be revised, amended or otherwise
modified for the purpose of adding or changing any provisions thereof
(including, without limitation, increases in the principal amount or increases
in the interest charges or fees), or changing in any manner the rights of the
Lenders, Borrower, or any guarantor of the Senior Debt;
(d) Payment of the Senior Debt or any portion thereof may be
extended, refunded or refinanced or any notes evidencing such Senior Debt may be
renewed in whole or in part;
(e) The maturity of the Senior Debt may be accelerated, and any
collateral security therefor or any other rights of Lender may be exchanged,
sold, surrendered, released or otherwise dealt with, in accordance with the
terms of any present or future agreement with Borrower or any guarantor and any
other agreement of subordination (and the debt covered thereby) may be
<PAGE> 6
surrendered, released or discharged, or the terms thereof modified or otherwise
dealt with in any manner;
(f) Any person liable in any manner for payment of the Senior Debt
may be released by holders of Senior Debt; and
(g) Notwithstanding the occurrence of any of the foregoing, these
subordination provisions shall remain in full force and effect with respect to
the Senior Debt, as the same shall have been extended, renewed, modified,
refunded or refinanced.
9. Waivers. Purchasers' Agent hereby waives, and agrees not to assert: (a)
any right, now or hereafter existing, to require the Lenders or Lenders' Agent
to proceed against or exhaust any collateral at any time securing the Senior
Debt, or to marshal any assets in favor of the Purchasers, or Purchasers' Agent,
or any other holder of Subordinated Debt; and (b) any notice of the incurrence
of Senior Debt, it being understood that Lender may, in reliance upon these
subordination provisions, make advances under the Loan Documents, or any other
agreement, document or instrument now or hereafter relating to the Senior Debt,
without notice to or authorization of Creditor.
10. Lien Subordination and Standby. Any lien, security interest,
encumbrance, charge or claim of the Purchasers, or Purchasers' Agent, on any
assets or property of Borrower or any proceeds or revenues therefrom which
Purchasers' Agent, may have at any time as security for any Subordinated Debt
shall be, and hereby is, subordinated to all liens, security interests, or
encumbrances now or hereafter granted to the Lenders' Agent by Borrower or by
law, notwithstanding the date or order of attachment or perfection of any such
lien, security interest, encumbrance or claim or charge or the provision of any
applicable law. Until each of the Lenders have received indefeasible payment in
full of the Senior Debt, the Purchasers, and Purchasers' Agent, agree that the
Purchasers, or Purchasers' Agent, will not assert or seek to enforce against
Borrower any interest of any of the Purchaser in any and all collateral for the
Subordinated Debt and that Lenders' Agent may dispose of any or all of the
collateral for the Senior Debt free of any and all liens, including but not
limited to liens created in favor of Purchasers' Agent through judicial or
nonjudicial proceedings, in accordance with applicable law including taking
title, after notice to Purchasers' Agent. The Purchasers agree that any such
sale or other disposition by Lenders' Agent of so much of the collateral for the
Senior Debt as is necessary to satisfy in full, all of the principal of,
interest on and reasonable costs of collection of the Senior Debt shall be made
free and clear of any security interest granted to holder provided the entire
proceeds (after deducting reasonable expenses of sale) are applied in reduction
of the Senior Debt. Upon Lenders' Agent's request, the Purchasers, and
Purchasers' Agent, shall execute and deliver any releases or other documents and
agreements that Lenders' Agent in its reasonable discretion deems necessary to
dispose of the collateral for the Senior Debt free of the Purchasers interest in
same. The Purchasers retain all of its rights as junior secured creditors with
respect to the surplus, if any, arising from any such disposition of the
collateral for the Senior Debt.
11. Subrogation. Until the Senior Debt shall have been indefeasibly paid
in full, the Purchasers, and Purchasers' Agent, hereby waive all rights of
subrogation with respect to the rights
<PAGE> 7
of the Lenders to receive payments or distributions and with respect to any
rights to any collateral for the Senior Debt. Upon payment in full of the Senior
Debt, Creditor shall be subrogated, to the extent permitted by law, to all
rights of the holders of Senior Debt.
12. Subordination Not Impaired by Borrower. No right of any holder of
Senior Debt to enforce the subordination of the Subordinated Debt shall be
impaired by any act or failure to act by Borrower or by its failure to comply
with these provisions.
13. No Third Party Beneficiaries. This Agreement is not intended to give
or confer any rights to any person other than the holders of the Senior Debt. No
other party, including Borrower, is intended to be a third party beneficiary of
this Agreement.
14. Legend on Note or Other Instrument. If any portion of the Subordinated
Debt is evidenced by a promissory note, debenture, stock certificate or other
instrument, the Purchasers' Agent and Borrower agree to promptly add a
conspicuous legend or other reference to such instrument stating that the rights
of any holder and Borrower thereof are subject to this Agreement.
15. Representations and Warranties. Each of the Purchasers hereby
represent and warrant that: (a) the execution and delivery of this Agreement and
the performance by the Purchasers and Purchasers' Agent of its obligations
hereunder have received all necessary approvals, corporate or otherwise, and do
not and will not contravene or conflict with any provision of law or any
provision of any indenture, instrument or other agreement to which the
Purchasers or Purchasers' Agent is a party or by which it or its property may be
bound or affected; (b) the Purchasers, and Purchasers' Agent, has full power,
authority and legal right to make and perform this Agreement; (c) neither the
Purchasers, or Purchasers' Agent, have assigned or transferred any indebtedness
owing by Borrower or any of the collateral for the Subordinated Debt and
Creditor will not assign or transfer same without at least ten (10) days prior
written notice to each of the Lenders and Lenders' Agent; and (d) this Agreement
is the legal, valid and binding obligation of each of the Purchasers and
Purchasers' Agent, enforceable against the Purchasers and Purchasers' Agent in
accordance with its terms.
16. No Waiver. No failure on the part of the Lenders or Lenders' Agent to
exercise, no delay in exercising, and no course of dealing with respect to, any
right or remedy hereunder will operate as a waiver thereof; nor will any single
or partial exercise of any right or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right or remedy. This
Agreement may not be amended or modified except by written agreement of the
Lenders' Agent, the Purchasers' Agent, and the Borrower, and no consent or
waiver hereunder shall be valid unless in writing and signed by the Lenders'
Agent.
17. Successor and Assigns. This Agreement, and the terms, covenants and
conditions hereof, shall be binding upon and inure to the benefit of the parties
hereto, and their respective successors and assigns.
18. Governing Law. This Agreement will be construed in accordance with and
governed by the laws of the State of New York, without reference to its conflict
of laws.
<PAGE> 8
19. Provisions Applicable to Borrower. Borrower has signed this Agreement
to indicate its acknowledgment thereof and its agreement to be bound by the
provisions applicable to it.
20. Original Subordination Agreement. This Agreement supercedes and
replaces, in its entirety, the Original Subordination Agreement, and, upon the
effectiveness of this Agreement, the Original Subordination Agreement is of no
further force and effect.
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
Borrower: Halsey Drug Co., Inc.
By: /S/
----------------------------------------
Name: Michael Reicher
Title: President
Purchasers: GALEN PARTNERS III, L.P., as Agent on behalf
of the Purchasers
By: Claudius, L.L.C., General Partner
By: /S/
----------------------------------------
Name: Bruce F. Wesson
Title: Managing Member
Lenders: GALEN PARTNERS III, L.P., as Agent on behalf
of the Lenders
By: Claudius, L.L.C., General Partner
By: /S/
----------------------------------------
Name: Bruce F. Wesson
Title: Managing Member
Notice Addresses:
Borrower:
Halsey Drug Co., Inc.
Attn: Michael Reicher, President
695 N. Perryville Road
Rockford, Illinois 61107
Fax No. (815) 399-9710
Purchasers' Agent and Lenders' Agent:
Galen Partners III, L.P.
Rockefeller Center
610 Fifth Avenue, 5th Floor
New York, New York 10020
(212) 218-4999
<PAGE> 1
Exhibit 10.52
[Agency Letter Agreement dated December 2, 1998 by and among the lenders a party
to the Amended, Restated and Consolidated Bridge Loan Agreement, as amended]
December 2, 1998
Galen Partners III, L.P., as Agent
610 Fifth Avenue, 5th Floor
New York, New York 10020
Gentlemen:
Reference is made to the Amended, Restated and Consolidated Bridge Loan
Agreement (the "Consolidated Bridge Loan Agreement") dated as of December 2,
1998, by and among Halsey Drug Co., Inc., a New York corporation (the
"Company"), Galen Partners III, L.P., a Delaware limited partnership ("Galen" or
a "Lender") and certain other parties (each, a "Lender", collectively, the
"Lenders"), and Galen, as agent for the Lenders (in such capacity, the "Agent")
and each of the agreements, documents and instruments executed and delivered
pursuant thereto or in connection therewith (collectively, with the Consolidated
Bridge Loan Agreement, the "Transaction Documents"). Capitalized terms used
herein which are not defined herein have the meanings ascribed to them in the
Consolidate Bridge Loan Agreement.
This will confirm that, notwithstanding anything to the contrary contained
in the Transaction Documents:
1. Appointment of Agent
(a) Each Lender hereby designates Galen as its Agent and irrevocably
authorizes the Agent to take action on its behalf under the Transaction
Documents, to exercise the powers and perform the duties described therein, and
to exercise such other powers reasonably incidental thereto; provided, however,
that each Lender shall retain the sole power and discretion to convert the Note
and exercise the Warrants held by it into Conversion Shares and for Warrant
Shares, as the case may be, and to exercise any registration rights under the
Transaction Documents. The Agent may perform any of its duties through its
agents or employees.
(b) This Section 1 is for the benefit of the Agent and the Lenders
only. The Agent acts only for the Lenders and assumes no obligation to or agency
or trust relationship with the Company or any of its affiliates or subsidiaries,
except for the ratable disbursement to the Lenders of payments received by the
Agent for the account of the Lenders.
<PAGE> 2
Galen Partners III, L.P
December 2, 1998
2. Nature of Duties of Agent. The Agent has no duties or responsibilities,
except those expressly set forth in this Agreement and the Transaction
Documents. Neither the Agent nor any of its officers, directors, employees or
agents shall be liable for any action taken or omitted hereunder or in
connection herewith. The duties of the Agent shall be mechanical and
administrative in nature. The Agent shall not have a fiduciary relationship to
the Lenders or any participant of the Lenders.
3. Lack of Reliance on Agent. Independently and without reliance upon the
Agent, each Lender has made and shall continue to make its own independent
investigation and analysis of the content and validity of this Agreement and the
Transaction Documents or of the performance and creditworthiness of the Company
thereunder. The Agent assumes no responsibility and undertakes no obligation to
make inquiry with respect to such matters.
4. Certain Rights of the Agent. The Agent may request instructions from
the Lenders at any time. If the Agent requests instructions from the Lenders
with respect to any action or inaction, the Agent shall be entitled to await
instructions from the Lenders before such action or inaction. The Lenders shall
have no right of action based upon the Agent's action or inaction in response to
instructions from the Lenders.
5. Reliance by Agent. The Agent may rely upon written or telephonic
communication it believes to be genuine and to have been signed, sent or made by
the proper person. The Agent may obtain the advice of legal counsel (including,
for matters concerning the Company, counsel for the Company), independent public
accountants and other experts selected by it and shall have no liability for
action or inaction taken or not taken, in good faith, based upon such advice.
6. Indemnification of Agent. Each Lender agrees to reimburse and indemnify
the Agent for any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including attorneys fees and
disbursements) or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in performing its duties
hereunder or otherwise relating to this Agreement and the Transaction Documents,
unless resulting from the Agent's gross negligence or willful misconduct.
7. The Agent in its Individual Capacity. In its individual capacity, the
Agent shall have the same rights and powers hereunder as a Lender and may
exercise them as though it was not performing the duties specified herein.
8. Successor Agent.
(a) The Agent may, upon fifteen (15) business days' notice to each
Lender and the Company, resign by giving written notice thereof to each Lender
and the Company. The Agent's resignation shall be effective upon the appointment
of a successor Agent.
<PAGE> 3
Galen Partners III, L.P
December 2, 1998
(b) Upon receipt of the Agent's resignation, the Lenders may appoint
a successor Agent. If a successor Agent has not accepted its appointment within
fifteen (15) business days, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent.
(c) Upon its acceptance of the agency hereunder, a successor Agent
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations under this Agreement. The retiring Agent shall
continue to have the benefit of this Agreement for any action or inaction while
it was Agent.
9. Collateral Matters.
(a) The Lenders authorize and direct the Agent to enter into the
other agreements for the benefit of each Lender. Except as otherwise set forth
herein, any action or exercise of powers by the holder or holders of a majority,
in the aggregate, of the Notes then outstanding (the "Majority Holders") shall
be authorized and binding on all Lenders. At any time, without notice to or
consent from the Lenders, the Agent may take any action necessary or advisable
to perfect and maintain the perfection of the Liens on the Collateral.
(b) The Agent is authorized to subordinate or release any Lien
granted to or held by the Agent upon any Collateral. The Agent may request, and
the Lenders will provide, confirmation of the Agent's authority to release
particular types or items of Collateral.
(c) The Agent shall have no obligation to assure that the Collateral
exists or is owned by the Company or any of its Affiliates or Subsidiaries, or
that such Collateral is cared for, protected or insured, or that the Liens on
the Collateral have been created, perfected, or have any particular priority.
With respect to the Collateral, the Agent may act in any manner it may deem
appropriate, in its sole discretion, given Agent's own interest in the
Collateral as a Lender, and it shall have no duty or liability whatsoever to any
of the Lenders, except for its gross negligence or willful misconduct.
10. Actions with Respect to Defaults. In addition to the Agent's right to
take actions on its own accord as permitted under this Agreement, the Agent
shall take such action with respect to a Default or Event of Default as shall be
directed by the Majority Holders. Until the Agent shall have received such
directions, the Agent may act (or not act) as it deems advisable and in the best
interests of the Lenders.
11. Waiver. No failure on the part of the Agent to exercise, and no delay
in exercising, any right, power, or remedy hereunder shall operate as a waiver
thereof.
<PAGE> 4
Galen Partners III, L.P
December 2, 1998
12. Governing Law. This Agreement is entered into in accordance with and
shall be governed by the laws of the State of New York, without regard to any
principles of conflicts of laws.
13. Severability. If any provision or portion of any provision of this
Agreement is held to be unenforceable or invalid by any court of competent
jurisdiction, the remaining portions of any such provision and the remaining
provisions hereof shall remain in effect.
14. Further Assurances. The Lenders and the Agent shall execute, in a
proper and timely manner, at or after the date hereof, such additional documents
and instruments as may be reasonably requested by the other parties in
connection with the consummation or confirmation of the transactions
contemplated by this Agreement.
15. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Entire Agreement; Amendment. This Agreement supercedes and replaces,
in its entirety, any previous agreements between the parties relating to the
subject matter hereof, and no modification or amendment may be made except by a
written instrument signed by all parties.
17. Notices. All notices, approvals, consents or other communications
required or desired to be given hereunder shall be delivered in person, by
facsimile transmission followed promptly by first class mail or by overnight
mail, and delivered, if to the Lenders, then to the address set forth opposite
the name of each of the Lenders on the signature page hereof and if to Agent,
then to the attention of Mr. Srini Conjeevaram c/o Galen Partners III, L.P.,
Rockefeller Center, 610 Fifth Avenue, 5th Floor, New York, New York 10020, fax
no. (212) 218-4999, with a copy to George N. Abrahams, Esq. c/o Wolf, Block,
Schorr and Solis-Cohen LLP, 250 Park Avenue, New York, New York 10177, fax no.
(212) 986-0604.
18. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any breach or termination thereof, shall be settled by
arbitration in the County of New York in accordance with the laws of the State
of New York, without regard to any of that State's conflict of laws principles
and rules, then obtaining, of the American Arbitration Association or any
successor thereto. Within ten (10) days after a request for arbitration by one
party to the other, an arbitrator shall then be chosen in accordance with the
rules of the American Arbitration Association locate in New York City then
obtaining. The American Arbitration Association shall name the arbitrator. The
arbitration shall be held in New York County, New York. The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of
<PAGE> 5
Galen Partners III, L.P
December 2, 1998
the arbitrator shall be final, conclusive and binding on the parties to the
arbitration. In connection with such arbitration and the enforcement of any
award rendered as a result thereof, the parties hereto irrevocably consent to
the personal jurisdiction of the Courts of the State of New York, and further
consent that any process or notice of motion or other application to the said
Court or Judge thereof may beserved inside or outside the State of New York by
registered mail or personal service, provided a time period of at least twenty
(20) days for appearance is allowed.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE> 6
Galen Partners III, L.P
December 2, 1998
Very truly yours,
Address of Michael Weisbrot:
1136 Rock Creek Road
Gladwyne, Pennsylvania 19036 /s/
--------------------------------------
Michael Weisbrot
Address of Susan Weisbrot:
1136 Rock Creek Road
Gladwyne, Pennsylvania 19036 /s/
--------------------------------------
Susan Weisbrot
Address of Galen Partners III, L.P. GALEN PARTNERS III, L.P.
610 Fifth Avenue, 5th Floor By: Claudius, L.L.C., General Partner
New York, NY 10020
By:/s/
-----------------------------------
Name: Bruce F. Wesson
Title: Managing Member
Address of Galen Partners
International III, L.P. GALEN PARTNERS INTERNATIONAL
610 Fifth Avenue, 5th Floor INTERNATIONAL III, L.P.
New York, NY 10020 By: Claudius, L.L.C., General Partner
By:/s/
-----------------------------------
Name: Bruce F. Wesson
Title: Managing Member
Address of Galen Employee GALEN EMPLOYEE FUND III, L.P.
Fund III, L.P. By: Wesson Enterprises, Inc.
610 Fifth Avenue, 5th Floor
New York, NY 10020 By:/s/
-----------------------------------
Name: Bruce F. Wesson
Title: Managing Member
<PAGE> 1
Exhibit 10.53
[Lease Agreement dated March 17, 1999 between the
Registrant and Par Pharmaceuticals, Inc.]
AGREEMENT OF LEASE
between
PAR PHARMACEUTICAL, INC.
and
HALSEY DRUG CO., INC.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
ARTICLE 1. DEMISE; TERM......................................................1
ARTICLE 2. FIXED RENT; ADDITIONAL RENT.......................................3
ARTICLE 3 REAL ESTATE TAXES AND OTHER CHARGES................................5
ARTICLE 4 SUBORDINATION OF LEASE; MODIFICATION FOR FEE MORTGAGE..............6
ARTICLE 5. USE OF THE PREMISES...............................................7
ARTICLE 6. REPRESENTATIONS BY LANDLORD; DISCLAIMER...........................9
ARTICLE 7. LANDLORD NOT LIABLE FOR FAILURE OF WATER SUPPLY ETC..............12
ARTICLE 8. OBLIGATION TO REPAIR.............................................13
ARTICLE 9. TENANT TO COMPLY WITH LAWS AND PERMITS...........................14
ARTICLE 10. OPERATION OF PREMISES...........................................15
ARTICLE 11. ALTERATIONS; IMPROVEMENTS.......................................16
ARTICLE 12. NO SET-OFFS.....................................................16
ARTICLE 13. INSURANCE REQUIREMENTS; WAIVER OF SUBROGATION...................17
ARTICLE 14. FIRE OR CASUALTY................................................19
ARTICLE 15. LANDLORD MAY CURE DEFAULTS......................................20
ARTICLE 16. BANKRUPTCY, INSOLVENCY, REORGANIZATION, LIQUIDATION OR
DISSOLUTION OF TENANT OR GUARANTOR....................................21
ARTICLE 17. DEFAULT CLAUSES.................................................23
ARTICLE 18. LANDLORD'S REMEDIES.............................................24
ARTICLE 19. TENANT'S AND LANDLORD'S INDEMNITIES.............................26
ARTICLE 20. MECHANICS' LIENS................................................27
ARTICLE 21 CONDEMNATION.....................................................27
ARTICLE 22. OWNERSHIP OF PERSONAL PROPERTY..................................22
ARTICLE 23. SHORING.........................................................23
<PAGE> 3
ARTICLE 24. WAIVER OF REDEMPTION............................................29
ARTICLE 25. BROKER..........................................................29
ARTICLE 26. COVENANT OF QUIET ENJOYMENT.....................................29
ARTICLE 27. TENANT'S COVENANTS..............................................29
ARTICLE 28. WAIVER OF COUNTERCLAIM AND JURY TRIAL...........................30
ARTICLE 29. ASSIGNMENT AND SUBLETTING.......................................30
ARTICLE 30. WAIVERS AND SURRENDERS TO BE IN WRITING.........................31
ARTICLE 31. LANDLORD'S RIGHTS AND REMEDIES CUMULATIVE.......................32
ARTICLE 32. TIMELY SURRENDER OF PREMISES; REMOVAL OF PERSONAL PROPERTY.
.....................................................................32
ARTICLE 33. SALE OR CONVEYANCE OF PREMISES; LIMITS OF LIABILITY OF
LANDLORD..............................................................33
ARTICLE 34. TENANT'S PURCHASE OPTION.......................................34
ARTICLE 35. TENANT TO FURNISH STATEMENTS....................................35
ARTICLE 36. INSPECTIONS BY LANDLORD.........................................35
ARTICLE 37. COVENANTS BINDING ON SUCCESSORS AND ASSIGNS.....................35
ARTICLE 38. ENTIRE AGREEMENT................................................35
ARTICLE 39. NOTICES.........................................................36
ARTICLE 40. MISCELLANEOUS...................................................37
ARTICLE 41. MEANINGS OF CERTAIN LEASE TERMS.................................37
ARTICLE 42. LANDLORD'S FAILURE TO GIVE APPROVAL.............................39
ARTICLE 43. LEASE NOT BINDING UNLESS EXECUTED...............................39
ARTICLE 44. APPOINTMENT OF LANDLORD AS AGENT................................40
ARTICLE 45. ARBITRATION OF CERTAIN DISPUTES.................................40
<PAGE> 4
EXHIBITS
EXHIBIT A DESCRIPTION OF PROPERTY
EXHIBIT B DESCRIPTION OF EQUIPMENT
EXHIBIT C PERMITTED ENCUMBRANCES
EXHIBIT D PERMITS
EXHIBIT E (INTENTIONALLY OMITTED)
EXHIBIT F CONTRACT OF SALE
<PAGE> 5
AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE, dated as of the 17 day of March, 1999, is
by and between Par Pharmaceutical, Inc., a New Jersey corporation having an
office at One Ram Ridge Road, Spring Valley, New York 10977 (hereinafter
referred to as "Landlord") and Halsey Drug Co., Inc., a New York corporation
having an office at 695 No. Perryville Road, Rockford, Illinois 61107
(hereinafter referred to as "Tenant").
STATEMENT OF FACTS
Landlord desires to lease to Tenant, and Tenant desires to hire from
Landlord, those certain plots, pieces and parcels of land described on Exhibit A
annexed hereto, and by this reference, made a part hereof (hereinafter referred
to as the "Land"), together with the buildings and other structures, if any, now
or hereafter located thereon (hereinafter collectively referred to as the
"Improvements" and individually referred to as an "Improvement") located at 77
Brenner Drive, Congers, New York in the County of Rockland and State of New
York, together with the equipment listed on Exhibit B hereto (hereinafter
referred to as the "Production Equipment" and together with all strips and gores
adjacent to or abutting the Land and all appurtenances and easements appurtenant
to the Land and Improvements and, in addition to (and not in limitation of) the
foregoing, all of the following items, properties and rights, if any: (i) all
appliances; all electrical, plumbing, mechanical, heating, lighting,
ventilating, refrigeration, air conditioning, incinerating, life-safety and
sprinkler installations, systems and equipment and other equipment necessary for
the use and operation of the Premises as presently used and operated, (ii) all
parking lots, driveways, pavings, access cuts, parking lot striping, bumpers,
drainage systems, site improvements and landscaping situate upon the Land (the
"Site Improvements"), (iii) all rights, privileges, benefits and appurtenances
thereunto belonging or in anywise appertaining, or otherwise benefiting the Land
or the Building, and all easements and rights benefiting the Land, the Building,
or the use thereof, including without limitation all easements and rights over
any property or premises adjacent to the Land, (iv) all of the right, title and
interest, if any, of Landlord in and to land lying in the bed of any street,
road or avenue, open or proposed, in front of or adjoining the Land and in and
to any strips and gores adjoining the Land or any part thereof, and (the Land
and the Improvements thereon and other items described in this paragraph are
hereinafter collectively referred to as the "Premises").
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars, each to
the other in hand paid, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
covenant and agree as follows:
ARTICLE 1.
DEMISE; TERM.
1.1. Landlord hereby leases the Premises to Tenant, and Tenant
hereby hires the Premises from Landlord, upon, and subject to, the terms,
covenants and conditions contained in this lease. The letting of the Premises to
Tenant hereunder is made expressly subject to the
1
<PAGE> 6
encumbrances set forth on Exhibit C annexed hereto and, by this reference, made
a part hereof (hereinafter referred to as the "Permitted Encumbrances").
Landlord represents and warrants to Tenant that Landlord has a good and
marketable title to the fee estate in the Land, Improvements and Site
Improvements subject to no lien, claim, charge or encumbrance except for the
Permitted Encumbrances; that it owns the Production Equipment free and clear of
all liens, claims and encumbrances and all other fixtures, equipment, machinery
and personal property included in this lease. Landlord shall not (a) sell or
transfer title to the Premises to any party other than companies owned or
controlled by it, or under common control with it, at any time prior to the
expiration of the Purchaser Option set forth in Article 34 hereof, (b) grant any
mortgage, lien, encumbrance or other security interest in the Premises other
than with respect to Superior Mortgages referred to in Article 4 hereof and
Permitted Encumbrances, (c) commence, initiate or seek any change in any zoning
ordinance, building regulation, or other law, rule, order or regulation
respecting the Premises, its use, maintenance, operation, or occupancy or (d)
grant or agree to any easement, covenant or restriction binding upon Tenant or
the Premises which is reasonably likely to adversely affect Tenant's ability to
use and operate the Premises as it may currently be used and operated. Landlord
will deliver the Premises free of occupants and tenants, and broom clean.
1.2. The term of Tenant's leasehold estate in and to the Premises
shall be for a period of three (3) years commencing on March 22, 1999 or on such
earlier date as Tenant shall have received written evidence as to Landlord's
title to the Premises as represented in Section 1.1 above and as to the accuracy
of the Landlord's representations in Section 6A.1(a) hereof (hereinafter
referred to as the "Commencement Date") and expiring at midnight on a date
immediately preceding the third anniversary after the Commencement Date
(hereinafter referred to as the "Expiration Date") unless this lease shall
sooner terminate or expire as hereinafter provided. The period from the
Commencement Date to the Expiration Date or sooner termination or expiration
hereof, as the case may be, is hereinafter referred to as the "Initial Term".
"Lease Year" shall mean each twelve month period during the Term, beginning with
the twelve (12) month period commencing on the Commencement Date and ending on
the day immediately preceding the next anniversary of such date; provided,
however, that if the Expiration Date is any day other than the last day of a
Lease Year, the last Lease Year during the Term shall be the period from the end
of the preceding Lease Year to and including the Expiration Date. Landlord shall
provide Tenant reasonable access to the Premises prior to the Commencement Date
to prepare for its full use and operation by Tenant on the Commencement Date;
provided that Tenant, its agents and employees shall not unreasonably interfere
with the operation of the Premises. Any entry by Tenant, or its employees or
agents, prior to the Commencement Date shall be at Tenant's sole risk; and such
right of entry may be conditioned upon Tenant providing insurance certificates
to Landlord prior to obtaining access to the Premises evidencing reasonably
liability insurance coverage. Landlord shall not be liable in any way for any
injury, loss, or damage which may occur to any of Tenant's property or
installations made in the Premises or to properties placed therein prior to the
term commencement date, the same being at Tenant's sole risk, but nothing in
this sentence shall amend, waive, release, or otherwise affect any of the
obligations, representations and/or warranties of Landlord under this lease.
1.3. Notwithstanding the three (3) year Term of this lease, Tenant
shall have the right to extend the time of this lease prior to the Expiration
Date upon at least six (6) months prior irrevocable and unconditional notice to
Landlord in which event the term of this lease shall be
2
<PAGE> 7
extended upon the terms and conditions as described in this lease for an
additional two (2) year period (hereinafter referred to as the "Renewal Term")
which shall commence on the third anniversary of the Commencement Date and
expire on the date immediately preceding the fifth anniversary of the
Commencement Date; provided, however, that Tenant may not renew the lease if
there shall have occurred and be continuing any Event of Default under Sections
16.1 or 17.1 hereof. In the event that Tenant duly elects to exercise this right
to extend the term of this lease, the Expiration Date shall be deemed to refer
to the date of expiration of the Renewal Term. Whenever "Term" is used in this
lease it shall mean, collectively, the Initial Term and, if applicable, the
Renewal Term.
ARTICLE 2.
FIXED RENT; ADDITIONAL RENT.
2.1. Tenant covenants and agrees to pay annual fixed rent to
Landlord in the following amounts: (a) during the Initial Term, Five Hundred
Thousand Dollars ($500,000) per annum and (b) during the Renewal Term, if any,
Six Hundred Thousand Dollars ($600,000) per annum (such rentals are hereinafter
referred to as the "Fixed Rent") as more fully set forth in Section 2.2 below.
2.2. (a) The provisions of Section 2.1 (including, without
limitation, the stipulated amounts of Fixed Rent) shall be subject to the
provisions of this Section 2.2.
(b) (i) During the first Lease Year, Fixed Rent shall be
payable (1) $150,000 upon date hereof, (2) $175,000 on December 22, 1999 and (3)
on March 22, 2000, the entire unpaid balance (if any) of the Fixed Rent for such
Lease Year (the "First Year Balance"). Anything in this lease to the contrary
notwithstanding, if the aggregate of the M&S Payments (hereafter defined)
actually paid to and received by Tenant during the first Lease Year (the
"Aggregate First Year M&S Payments") shall not equal Six Hundred Fifty Thousand
Dollars ($650,000.00), for any reason other than Tenant's failure to perform,
then the amount by which the Aggregate First Year M&S Payments shall be less
than Six Hundred Fifty Thousand Dollars ($650,000.00) (the "First Year M&S
Deficiency"), shall be credited against the First Year Balance, if any, and if
the aggregate First Year M&S Deficiency shall exceed the First Year Balance,
such excess shall be credited against Fixed Rent and additional rent in
subsequent Lease Years, as such amounts come due under this lease; provided,
however, that in the event that this lease shall terminate, any portion of the
First Year M&S Deficiency which shall be in excess of amounts then due and to
become due to Landlord hereunder, shall be promptly paid to Tenant.
(ii) During the second Lease Year, Fixed Rent shall be
payable as follows: (1) commencing on April 22, 2000, and continuing on the same
day of each month thereafter until the earlier of payment in full of fifty (50%)
percent of the Fixed Rent for such Lease Year or September 22, 2000, an amount
equal to the Monthly Installment Amount (as defined below) and (2) on September
22, 2000, the entire unpaid balance (if any) of fifty (50%) percent of the Fixed
Rent for such Lease Year (the "Second Year Balance"). Anything in this lease to
the contrary notwithstanding, if the aggregate of the M&S Payments actually paid
to and received by Tenant during the six month period immediately prior to
September 22, 2000 (the "Aggregate
3
<PAGE> 8
Second Year M&S Payments") shall not equal Five Hundred Thousand Dollars
($500,000.00), for any reason other than Tenant's failure to perform, then the
amount by which the Aggregate Second Year M&S Payments shall be less than Five
Hundred Thousand Dollars ($500,000.00) (the "Second Year M&S Deficiency"), shall
be credited against the Second Year Balance, if any, and if the Second Year M&S
Deficiency shall exceed the Second Year Balance, such excess shall be credited
against Fixed Rent and additional rent for the balance of such Lease Year and in
subsequent Lease Years, as such amounts come due under this lease; provided,
however, that in the event that this lease shall terminate, any portion of the
Second Year M&S Deficiency which shall be in excess of amounts then due and to
become due to Landlord hereunder, shall be promptly paid to Tenant.
2.3. (a) For the balance of the second Lease Year and all Lease
Years thereafter, Fixed Rent shall be payable in equal monthly installments, in
advance, commencing on September 22, 2000 and on the same date in each month
thereafter.
(b) All payments of Fixed Rent shall be payable at Landlord's
office or at such other place and to such agent as Landlord may designate by
notice to Tenant, in lawful money of the United States of America.
(c) For purposes hereof, "Monthly Installment Amount" shall
mean, with respect to any month, (i) in the event that Tenant shall have
received payments ("M&S Payments") the immediately preceding calendar month
pursuant to that certain Manufacturing and Supply Agreement, dated the date
hereof, between Landlord and Tenant (hereinafter referred to as the "M&S
Agreement"), of $100,000 or more, an amount equal to twenty five (25%) percent
of such M&S Payments but not to exceed $50,000, (ii) in the event that Tenant
shall have received M&S Payments during the immediately preceding month of less
than $100,000 but equal to or more than $75,000, an amount equal to $10,000, and
(iii) in the event that Tenant shall have received M&S Payments during the
immediately preceding calendar month of less than $75,000, an amount equal to
zero.
(d) In the event that (i) Tenant shall purchase the Premises
pursuant to the Purchase Option during any period in which the M&S Agreement is
in effect, and (ii) at the time of the closing Landlord shall not have credited
M&S Payments as set forth herein or actually paid to Tenant M&S Payments due
thereunder, then at the closing of such purchase amounts due to Tenant
thereunder shall be credited against the purchase price under the Contract of
Sale entered into pursuant to the Purchase Option.
2.4. All such sums, charges, costs, expenses and sums of money other
than the Fixed Rent as Tenant shall assume, agree or be obligated to pay under,
or pursuant to, this lease shall be deemed to be "additional rent" hereunder,
for default in the payment of which Landlord shall have the same rights and
remedies as for a default in the payment of the Fixed Rent.
2.5. All payments or amounts due to Landlord hereunder shall be made
by wire transfer of immediately available funds to such account or accounts as
Landlord may, from time to time, designate in writing.
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2.6. Any Fixed Rent, additional rent, fees, charges or expenses
hereunder shall be paid by Tenant pursuant to the terms of this lease. However,
in the event that Tenant is in default beyond the applicable notice and remedy
period in the payment of any Fixed Rent or additional rent, Landlord shall have
the right to apply any payment thereafter received from Tenant hereunder,
regardless of any annotation or demand for specific application on the part of
Tenant, to any Fixed Rent or additional rent which is then due and payable. The
application of the payment shall be made in the sole discretion of Landlord so
long as the payment is applied to the payment of Fixed Rent or additional rent
due and owing by Tenant to Landlord hereunder.
2.7. All checks tendered to Landlord as and for the Fixed Rent shall
be deemed payments for the account of the Tenant. Acceptance by the Landlord of
rent from anyone other than the Tenant shall not be deemed to operate as an
attornment to the Landlord by the payor of such rent or as a consent by the
Landlord to an assignment or subletting by the Tenant of the Premises to such
payor, or as a modification of the provisions of this lease.
2.8. No payment by Tenant of a lesser amount than may be required to
be paid hereunder shall be deemed to be other than on account of such payment,
nor shall any endorsement or statement on any check or document accompanying the
same be deemed an accord and satisfaction and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
payment or to pursue any other remedy provided in this lease.
ARTICLE 3
REAL ESTATE TAXES AND OTHER CHARGES.
3.1. (a) For the purpose of this Article:
(i) The term "Taxes" shall mean the total of the real estate
taxes, assessments and special assessments imposed upon the Premises by any
governmental bodies or authorities. If at any time during the Term, the methods
of taxation prevailing on the date hereof shall be altered so that in lieu of,
or as a substitute for, or in addition to, the whole or any part of such Taxes
now imposed on the Premises, there shall be levied, assessed and imposed (x) a
tax, assessment, levy, imposition, license, fee or charge wholly or partially as
a capital levy or otherwise on the rents or income received therefrom, or (y)
any other substitute tax, assessment, levy, imposition, fee or charge, then all
such taxes, assessments, levies, impositions, fees or charges shall be deemed to
be included within the term "Taxes" for the purpose hereof.
(ii) The term "TAX YEAR" shall mean each of the fiscal periods
occurring during the Term duly adopted by a taxing authority as its fiscal year
for real estate tax purposes.
(b) Tenant shall pay to Landlord, as additional rent
hereunder, on April 1, 1999 an amount equal to one-eighth (1/8th), and on the
first day of each month thereafter, an amount equal to one-twelfth (1/12th) of
the Taxes (hereinafter referred to as the "Tax Payment"). Landlord shall pay to
the applicable governmental authorities all Taxes prior to the time such Taxes
become a lien on the Premises.
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3.2 Tenant shall, as additional rent, also pay and discharge in full
all other costs, expenses and obligations of every kind, nature and description
relating to the Premises, whether or not extraordinary and whether or not now
within the contemplation of the parties, which may arise or become due during
the Term, provided, however, that Tenant shall not pay or be obligated to pay
(i) any lien or encumbrance created by act of the Landlord, including without
limitation, the debt service on any mortgage on the Premises obtained by
Landlord, (ii) the costs or expense of any structural repair, structural
replacement or structural improvement to the Premises unless such structural
repair, replacement or improvement is required by reason of the act of Tenant or
any failure by Tenant to take any action required to be taken by it (and not
Landlord) hereunder, by law or otherwise, or any such act or failure by Tenant's
agents or employees ("Tenant's Acts") during the Term, (iii) any cost or expense
required to be incurred as a result of a breach of the representations and
warranties of Landlord contained in Section 6A.1 hereof, or (iv) any expense
which, by the express terms of this lease, Landlord has agreed to pay.
3.3 Nothing herein contained shall require Tenant to pay municipal,
state or federal income taxes assessed against Landlord, or municipal, state or
federal capital levy, gift, estate, succession, inheritance or transfer taxes of
Landlord, or corporation excess profits or franchise taxes imposed upon any
corporate owner of the fee of the Premises, or any income, profits, or revenue
tax, assessment or charge imposed upon the Fixed Rent or additional rent as
such, payable by Tenant under this lease unless such tax shall be imposed or
levied upon, or with respect to, the Fixed Rent or additional rent payable to
Landlord in lieu of the Taxes described in Section 3.1(a) above, in which event
Tenant covenants and agrees to pay such tax as if the Premises were the only
property owned by Landlord.
3.4 From and after the Commencement Date, only Landlord shall be
eligible to institute appropriate proceedings to reduce or contest the Taxes, or
the assessed valuation of the Premises, for any Tax Year. Landlord's
commencement of a Tax Contest shall not be deemed or construed in any way to
relieve, modify, delay or extend Tenant's obligation to make the Tax Payment
referred to in Section 3.1 Tenant shall join in any Tax Contest where such
joinder is required by law.
If Landlord shall receive a refund of the Taxes for any Tax Year
during which Tenant shall have made a Tax Payment, Landlord shall pay Tenant's
proportionate share of said refund to Tenant after deducting therefrom a
proportionate share of any reasonable cost or expense incurred by Landlord in
obtaining such refund, provided, however, that in no event shall the refund
exceed Tenant's Tax Payment actually paid for such Tax Year.
3.5 The provisions of this Article 3 shall survive the expiration or
termination of this lease, but shall apply only in respect of matters which
occurred during the Term.
ARTICLE 4
SUBORDINATION OF LEASE; MODIFICATION FOR FEE MORTGAGE.
4.1. This lease, and all rights of Tenant hereunder, are and shall
be subject and subordinate to all mortgages and building loan agreements, which
may now or hereafter affect the
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Premises (hereinafter collectively referred to as "Superior Mortgages"), and
to each and every advance made or hereafter to be made under Superior Mortgages
and to all renewals, modifications, replacements and extensions of Superior
Mortgages. This Article shall be self-operative and no further instrument of
subordination shall be required. Tenant, at its own cost and expense, shall
promptly execute and deliver in recordable form any reasonable instrument that
Landlord or the holder of any Superior Mortgage may request to evidence such
subordination; provided that, notwithstanding any such subordination, Tenant's
rights hereunder should not be otherwise modified or altered in any material
respect and provided further that the holder of any Superior Mortgage shall
enter into a customary non-disturbance agreement with Tenant.
4.2. If, in connection with the procurement, continuation or renewal
of any financing for which the Premises represents collateral in whole or in
part, any mortgagee shall request reasonable modifications of this lease as a
condition of such financing, Tenant agrees that it will not withhold, delay or
condition its consent thereto provided that such modifications do not (i)
increase the obligations of Tenant under this lease or decrease Landlord's
obligations hereunder, or (ii) affect the Tenant's right to use and occupy the
Premises for the purposes set forth in Section 5.1 hereof, or (iii) affect the
duration of the Term, or (iv) affect the amount of the Fixed Rent or additional
rent payable by Tenant. To the extent any requested modification may require
Tenant to give notice to any mortgagee of any default by Landlord, or grant such
mortgagee a reasonable opportunity to cure any default by Landlord hereunder, or
require such mortgagee's consent to any modification or termination of this
lease, such modification shall not be deemed to increase Tenant's obligations.
4.3. Notwithstanding the foregoing, Landlord shall not encumber the
Premises by any Superior Mortgages securing an amount in excess of $3,000,000 in
the aggregate amount outstanding at any time. In the event that Landlord shall
encumber the Premises by any Superior Mortgage, Landlord shall provide to Tenant
a guaranty of Landlord's obligations hereunder from Landlord's sole stockholder,
Pharmaceutical Resources, Inc., which guaranty shall be limited in amount to the
aggregate amount of Superior Mortgages from the time to time outstanding.
ARTICLE 5.
USE OF THE PREMISES.
5.1. Tenant shall use and occupy the Premises only for the
development, research, production, manufacture, storage, sale, distribution,
marketing, warehousing, testing and supply of pharmaceutical and nutraceutical
and similar products in compliance with all applicable law and/or requirements
of public authorities and for offices and other functions ancillary thereto and
for no other purpose; provided that in all events such use and occupation shall
not interfere with Tenants ability to perform its obligations under the M&S
Agreement or limit, restrict or interfere with the use and operation of the
Premises for the production of the products covered thereby.
5.2. Tenant covenants and agrees that it will not use or occupy the
Premises, or permit the Premises to be used or occupied for any purpose, or in
any manner, which is likely to cause structural injury or damage to any
Improvement, or in a manner that shall violate any certificate of occupancy in
force relating to the Premises or any governmental approval, permit or
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authorization necessary for the manufacture and supply of products under the M&S
Agreement or in any manner that shall constitute a nuisance.
5.3. Tenant shall not keep within the Premises or dispose of any
article of dangerous, inflammable, explosive or toxic character except in the
manner permitted by law, provided, however, that such articles shall not be kept
within the Premises if same will void or make voidable any insurance then in
force with respect to the Premises unless Tenant promptly replaces such void or
voidable insurance at its sole cost and expense. In the event Tenant shall keep
within the Premises any pollutant or toxic or hazardous material or substance
permitted by law, the same shall be encapsulated or otherwise contained in the
manner required by such environmental, fire safety and other laws, regulations
and guidelines as affect the Premises. Tenant shall be solely responsible for
any and all expense and damage resulting from the presence, leakage, seepage,
spillage, filtration or other discharge of pollutants, toxic or hazardous
substances or materials and any products proscribed by environmental laws
("Clean-up Expense") which are installed by Tenant upon the Premises, agreed by
Tenant to remain upon the Premises or disposed of by Tenant. Notwithstanding the
foregoing provisions of this paragraph, and/or any other provision of this
lease, Landlord (at Landlord's expense), and not Tenant, shall be solely
responsible for any and all Clean-up Expense, in connection with any and all
pollutants, toxic or hazardous substances or materials and any products
proscribed by environmental laws, and all conditions relating thereto, to the
extent (i) same exist on, at, under, or about the Premises prior to the
Commencement Date, and/or (ii) same arise out of or relate to any condition or
state of facts extant prior to the Commencement Date, and/or (iii) same result
from any act of Landlord or any failure by Landlord to take any action required
to be taken by it (and not by Tenant) hereunder, at law or otherwise or any such
act or failure by Landlord's agents or employees ("Landlord's Acts") and/or (iv)
the existence or presence of same is a breach of any representation or warranty
by Landlord under this lease. In the event that, pursuant to the foregoing
provisions of this Section 5.3, neither Tenant nor Landlord are made responsible
for any Clean-up Expense due to an environmental condition or event, Tenant
shall nonetheless promptly upon its becoming aware of such condition or event,
notify Landlord of the existence thereof and take any and all actions reasonably
necessary to remediate such condition or event, the cost, however, of which
shall be borne equally by the parties. The provisions of this Section 5.3 shall
survive the termination of this lease.
5.4. Without intending to limit the indemnity provisions set forth
in Article 19 hereof, Tenant shall defend, indemnify and hold Landlord and the
holder of any Superior Mortgage harmless, and Landlord shall defend, indemnify
and hold Tenant harmless, from and against any and all liabilities, fines,
penalties, suits, claims, demands, actions, costs and expenses of each and every
kind or nature whatsoever (including, without limitation, reasonable attorneys'
fees, disbursements and court costs) due to, or arising out of the presence of,
disposal of, or any leakage, seepage, filtration, spillage, or other discharge
of pollutants, toxic or hazardous waste, substances and materials and other
products proscribed by environmental laws the Clean-up Expense with respect to
which is required to be borne by such indemnifying party. The foregoing
indemnity shall survive the termination or expiration of this lease. Promptly
upon an indemnified party receiving notice, or becoming aware of any condition,
event or state of facts which gives rise to a claim hereunder, such indemnified
party shall notify the indemnifying party of the existence thereof, provided,
however,
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that failure to promptly provide such notice shall not affect the rights of such
indemnified party hereunder except to the extent that the indemnifying party
shall be prejudiced thereby.
5.5. Tenant shall not permit the Premises to be used in a manner by
the public or by any adjoining property owner without restriction which might
reasonably tend to impair or adversely affect Landlord's title to the Premises
or might reasonably make possible a claim of adverse possession or adverse
usage.
5.6. Tenant shall not permit the undue accumulation of waste or
refuse matter on or in the Premises.
5.7. Tenant shall not obstruct, or permit the obstruction of, any
street, road, parking area, walk, or sidewalk or yard located on or adjoining
the Premises except as may be permitted by all governmental authorities having
jurisdiction thereof, and shall keep any sidewalks adjoining, as well as all
streets, roads, walks, sidewalks and parking areas on or abutting the Premises
clean and free of snow, ice, waste material and debris.
5.8. Tenant shall maintain the Production Equipment in good repair
and operating condition and in accordance with manufacturers recommended
maintenance practices and to the extent necessary to enable Tenant to perform
its obligations hereunder and under the M&S Agreement and shall promptly replace
all such Production Equipment which for any reason shall become incapable of use
as intended with such other equipment as may be necessary for Tenant to perform
its obligations hereunder and under the M&S Agreement. Tenant shall
conspicuously display on each item of Production Equipment a plaque or sign, or
post other signage adequate to provide conspicuous notice, that all such
Production Equipment is the sole property of Landlord. Notwithstanding the
foregoing, to the extent that any such repair or replacement results from a
breach of Landlord's representations with respect to the Production Equipment
contained herein and/or in the M&S Agreement, the reasonable cost thereof shall
be borne by Landlord.
ARTICLE 6A.
REPRESENTATIONS BY LANDLORD; DISCLAIMER.
6A.1. Landlord makes the following representations and warranties to
Tenant, which shall be deemed repeated by Landlord on the Commencement Date
(and, as made on the Commencement Date, shall survive the Commencement Date, the
exercise by Tenant of the Purchase Option and the closing under the Purchase
Option for the periods indicated):
(a) Landlord has not caused, and to its knowledge there has not
been, any leakage, seepage, spillage or other discharge of any pollutants or
toxic or hazardous substances or materials which has resulted in, or could be
reasonably expected to result in, a material violation of any law, rule or
regulation and, except as set forth in environmental reports, copies of which
has been delivered to Tenant under cover letter dated January 6, 1999 from
Kenneth Sawyer and the Phase I Environmental Site Assessment Report, dated March
11, 1959, by Dan Raviv Associates, Inc., Landlord has received no written notice
from any governmental agency that the Premises contain or may contain
concentrations of any such substances or materials which exceed permitted
levels.
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The Premises contain no underground storage tanks or receptacles. The foregoing
representations shall survive for a period of five (5) years from the date
hereof.
(b) The Premises are free from any latent structural defect, the
roof of the Premises is free from leaks and the heating, ventilation, air
conditioning, plumbing and other internal systems incorporated therein are in
good operating condition. Should any event or condition arise (i) during the
first 45 days of the Initial Term as a result of which the representations
contained herein could not then be made, the presumption (which shall be
rebuttable) shall be that such representations were inaccurate on the date
hereof and (ii) after the first Lease Year, the presumption (which shall be
rebuttable) shall be that such representations were true on the date hereof. No
presumption shall apply with respect to the period in between. The foregoing
representations shall survive for a period of three (3) years from the date
hereof.
(c) Landlord is operating the Premises, and the Premises (including,
without limitation, the Production Equipment) are, in compliance, in all
material respects, with applicable law and in accordance with current Good
Manufacturing Practices, as established from time to time by the United States
Food and Drug Administration (hereinafter referred to as the "AFDA") and
implemented consistent with the specifications and processes currently used at
the Facility to produce the products contemplated by the M&S Agreement. Landlord
has received no written notice from any governmental agency, and has no actual
knowledge, that the Premises, its use or its operation fail to substantially
comply with applicable law or current Good Manufacturing Practices. The
foregoing representations shall survive for a period of two (2) years from the
date hereof.
(d) There are no material agreements which will be binding upon or
an obligation of Tenant or the Premises after the Commencement Date. The
foregoing representations, insofar as they relate to material agreements
affecting the title, use or operation of the Premises, shall survive for a
period of five (5) years from the date hereof, and, insofar as they relate to
any other material agreements, shall survive for a period of eighteen (18)
months from the date hereof.
(e) All electric, sewer, water, telephone, and other appropriate
utilities for the use and occupancy of the Premises are available to the
Premises. The foregoing representations shall survive for a period of one (1)
year from the date hereof.
(f) No party, other then Tenant, has any right to lease or purchase
the Premises (or any part thereof or interest therein), or any right of first
refusal to lease or purchase the Premises (or any part thereof or interest
therein). The foregoing representations shall survive for a period of six (6)
years from the date hereof.
(g) Landlord has all requisite corporate power and authority to
execute and deliver this lease and to perform its obligations hereunder, has
obtained all necessary corporate authorizations therefor and has duly executed
and delivered this lease. The foregoing representations shall survive for a
period of one (1) year from the date hereof.
(h) The execution and delivery by Landlord of this lease, including,
without limitation, the provisions of Article 34 hereof, and the performance by
it hereunder does not violate
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any contract, agreement or instrument binding upon Landlord or the Premises. The
foregoing representations shall survive for a period of one (1) year from the
date hereof.
(i) The Premises, and their use as a pharmaceutical manufacturing
facility, are, except as noted on Exhibit B hereto, covered by valid
certificates of occupancy and Landlord has received no written notice, and has
no actual knowledge, that the Premises or such use violate any covenants,
easements or restrictions of record and binding thereon. The foregoing
representations shall survive for a period of one(1) year from the date hereof.
(j) Landlord has not received any written notice, and has no actual
knowledge, of any proposed special assessment, condemnation order or decree or
material change in any zoning ordinances and Landlord has not commenced any
proceeding with respect to Taxes. The foregoing representations shall survive
for a period of one (1) year from the date hereof.
(k) Landlord has obtained all permits, licenses and other
governmental approvals and authorizations ("Permits") necessary for the use and
operation of the Premises for the production of Products under the M&S Agreement
including without limitation, all certificates of occupancy for the Premises as
currently constructed and all Permits required by the U.S. Food and Drug
Administration and will maintain all such Permits in effect or, to the extent
required by law to be maintained by Tenant and to the extent transferable to
Tenant, Landlord shall transfer such Permits to Tenant. The foregoing
representations shall survive for a period of two (2) years from the date
hereof.
6A.2. Tenant acknowledges that it is fully familiar with the
condition of the Premises and, subject to Section 6A.1 above and the other
agreements and obligations of Landlord specifically provided in this lease,
hereby accepts the Premises "as is" as of the date hereof without any
representation or warranty by Landlord of any kind or nature, including, without
limitation, any representation or warranty as to its condition or as to the use
or occupancy which may be made thereof or as to the expense of operating the
Premises. Unless expressly provided to the contrary in this lease, Tenant
assumes the sole responsibility for the condition, operation, maintenance and
management of the Premises, including without limitation, the Production
Equipment, and Landlord shall not be required to furnish any facilities or
services or make any repairs or alterations thereto.
6A.3. Tenant acknowledges that, except as specifically set forth in
Section 6A.1 above, neither Landlord nor anyone authorized to act on Landlord's
behalf has made any representation, statement or suggestion, express or implied,
that Tenant's intended use of the Premises is permitted under the existing
zoning laws or any other law, order or regulation affecting the Premises. If
Tenant is prevented by any law or requirement of public authorities from using
the Premises for its intended purpose, then, unless the prohibition results from
Landlord's Acts committed after the date hereof, or if Landlord shall have
breached a representation or warranty under Section 6A.1 hereof, or results from
a failure of Landlord to perform its obligations under this lease (in any of
which cases, Tenant shall, among other rights and remedies, have the right to
terminate this lease), this lease shall remain in full force and effect (subject
to Landlord's rights hereunder) and Tenant shall remain obligated to perform and
observe all of the terms, conditions and
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covenants hereof. Landlord agrees to cooperate with Tenant in the execution of
such documents (consistent with the provisions of this lease) as Tenant may
reasonably require to enable Tenant to use the Premises for its intended purpose
but Landlord shall not be obliged to incur any cost or expense in so doing.
ARTICLE 6B.
REPRESENTATIONS BY TENANT
6B.1 Tenant makes the following representations and warranties to
Landlord, which shall be deemed repeated by Tenant on the Commencement Date
(and, as made on the Commencement Date, shall survive the Commencement Date, the
exercise by Tenant of the Purchase Options and the closing under the Purchase
Option for the period indicated:
(a) Tenant has all requisite corporate power and authority to
execute and deliver this lease and to perform its obligations hereunder, has
obtained all necessary corporate authorizations therefor and has duly executed
and delivered this lease. The foregoing representations shall survive for a
period of one (1) year from the date hereof.
(b) The execution and delivery by Tenant of this lease and the
performance by it hereunder does not violate any contract, agreement or
instrument binding upon Tenant or its assets. The foregoing representations
shall survive for a period of one (1) year from the date hereof.
(c) Tenant has delivered to Landlord a copy of its financial
statements on Form 10Q for the nine-month period ended September 30, 1999
("Financial Statements"). Such Financial Statements have been prepared in
accordance with generally accepted accounting principles, consistently applied
and fairly present the financial condition of Tenant as of the dates indicated.
The foregoing representations shall survive for a period of two (2) years from
the date hereof.
ARTICLE 7.
LANDLORD NOT LIABLE FOR FAILURE OF WATER SUPPLY ETC.
7.1. Except to the extent that any of the following shall result
from a breach of any representation, warranty, covenant or agreement by Landlord
under this lease, or from any of Landlord's Acts, Landlord shall not be liable
in damages or otherwise for personal injury, death, property damage or any
economic loss caused by or resulting from:
(a) any interruption of, or failure of water supply, gas,
electric current, sewer or other services to the Premises or for any injury or
damage to person or property for any reason whatsoever, including, without
limitation, that caused by or resulting from:
(i) hurricane, tornado, flood, wind, or similar storms,
earthquakes and other disasters and disturbances; or
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(ii) the leakage, seepage or flow of gasoline, oil, gas,
electricity, steam, water, rain, or snow from the street, sewer, gas mains,
tanks, wires, lines, any subsurface area, any part of the Improvements, pipes,
appliances, plumbing works, or any other place; or
(b) any interference with light or other incorporeal
hereditaments by anybody, or caused by operations by, or of, any public or
quasi-public work, except as shall result from the act or omission of Landlord
after the Commencement Date of this lease.
7.2. It is the intention of the parties that Tenant shall be in
exclusive control of the Premises during the Term and the Renewal Term if any.
Accordingly, Landlord shall not in any event be liable for any injury or damage
to any property or to any person occurring in, on or about the Premises unless
the same are caused by Landlord's Acts or to the extent the same results from
any breach of any representation or warranty by Landlord contained in Section
6A.1 hereof. Article 36 (relating to Landlord's inspections) shall not be deemed
to give Landlord any control over the Premises and is included solely for the
purpose of enabling Landlord to ascertain whether Tenant is in compliance with
the provisions hereof.
7.3. Landlord shall not be required to furnish any electricity,
water, gas, heat, air conditioning or any other utility or other service to the
Premises of any kind whatsoever and Tenant, at its own cost and expense shall
arrange for all such services. In the event any utility company or any
governmental agency or board shall require the installation of electric, water
or other meters to measure Tenant's consumption of electricity, water, gas or
any other utility, Tenant shall be solely responsible for the installation of
such meters and for the cost and expense of maintaining the same. Any electric,
water or other meters presently installed in the Premises shall be repaired and
maintained by Tenant at its sole cost and expense. If such meters cannot be
repaired and are required to be replaced other than for reasons attributable to
Tenant's negligent or wrongful acts or omissions, such meters shall be replaced
when necessary by Landlord at its sole cost and expense.
ARTICLE 8.
OBLIGATION TO REPAIR.
8.1. Tenant shall take good care of the Premises, both inside and
outside, and including all facilities, fixtures, furnishings and equipment
therein, and keep the same and all parts thereof in good order and condition,
suffering no waste or injury. Except as provided in Section 8.2 hereof, Tenant
shall, at Tenant's sole cost and expense, promptly make all needed repairs and
replacements to the Premises including, but not limited to, the Production
Equipment, the windows, other plate glass, if any, and all fixtures, machinery
and equipment now or hereafter belonging to or used in connection with the
Premises, it being intended that Tenant hereby assumes the sole responsibility
for the condition, operation, maintenance and management of the Premises during
the Term. All such repairs and replacements shall be of good quality, sufficient
for the proper maintenance and operation of the Premises, and shall be
constructed and installed in compliance with all requirements of all
governmental authorities having jurisdiction thereof, and of the Board of Fire
Underwriters or any comparable or similar body.
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8.2. Landlord, at Landlord's expense, shall be responsible for, and
promptly shall make, all repairs, replacements, and improvements (including
without limitation capital improvements) to the Premises (including without
limitation the Improvements, the Production Equipment, and the other fixtures,
equipment and installations at the Improvements), which are required (i) to
comply with, satisfy or fulfill, or remedy a breach of, any representation,
warranty, covenant or agreement by Landlord under this lease, (ii) as a result
of Landlord's Acts or (iii) to repair any structural damage to the Improvements
to the extent not caused by fire or casualty covered by Article 14 hereof and to
the extent necessary to enable Tenant to use and operate the Premises as they
are currently capable of being used and operated. All such repairs and
replacements shall be of good quality, sufficient for the use and operation of
the Premises as currently capable of being used and operated and shall be
constructed and installed in compliance with all requirements of all
governmental authorities having jurisdiction thereof and of the Board of Fire
Underwriters or any comparable or similar body. If any repair, replacement or
improvement is required by reason of Tenant's Acts, Tenant shall be responsible
for and bear the expense thereof. Tenant shall give Landlord prompt notice of
the need for any repairs, improvements or replacements which are Landlord's
responsibility under this Section 8.2.
8.3 Anything in this lease to the contrary notwithstanding, if and
to the extent that Tenant, under this lease, shall be required to make any
structural, exterior or capital repairs, alterations or improvements, the
aggregate obligation and liability of Tenant in connection with making such
repairs, alterations and/or improvements ("Tenant's Maximum Improvement
Obligation") shall not exceed $250,000.00 (exclusive of insurance proceeds
available therefor and unless and to the extent that the requirement for such
work shall arise from Tenant's Acts). Anything in this lease to the contrary
notwithstanding, the aggregate of Tenant's Maximum Improvement Obligation and
Tenant's Maximum Requirements Obligation (hereafter defined) shall not exceed
$250,000.00 (exclusive of insurance proceeds available therefor and unless and
to the extent that the requirement for such work shall arise from Tenant's
Acts). In the event that Tenant shall become unable to perform its obligations
under the M&S Agreement without exceeding such maximum obligations, such
inability shall not affect Landlord's obligations to make payments of any
minimum amounts required thereunder.
ARTICLE 9.
TENANT TO COMPLY WITH LAWS AND PERMITS.
9.1. Except as otherwise provided in this lease, including, without
limitation, Article 8 and this Article 9, Tenant shall, at Tenant's sole cost
and expense, promptly comply with the following (hereinafter sometimes referred
to as the "Requirements"):
(a) the Requirements of every applicable statute, law, ordinance,
regulation, or order now or hereafter made by any Federal, State, County,
municipal, or other public body, department, bureau, officer or authority
including, without limitation, the FDA, with respect to:
(i) the Premises and appurtenances thereto; and
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(ii) the use or occupation of the Premises, structure upon,
connected with, or appurtenant to, the Premises including, without limitation,
the Production Equipment; and
(iii) the removal of any encroachment arising after the Commencement
Date caused by act of the Tenant, or knowingly permitted by Tenant;
(b) the Requirements of all easements, restrictions and other
agreements existing of record as of the date of this lease and/or hereafter
granted by Landlord at the prior written request of Tenant; and
(c) any applicable regulation or order of the Board of Fire
Underwriters, Fire Insurance Rating Organization, or other body having similar
functions.
9.2. Except as otherwise provided in this lease, including, without
limitation, Article 8 and this Article 9, Tenant shall comply with the
requirements of all of the Permits described on Exhibit D so as not to
invalidate any such Permits. Tenant agrees to indemnify Landlord and hold
Landlord harmless from and against any liability, damage or expense arising from
the violation or cancellation of any of the Permits as a result of Tenant's Acts
occurring during the Term or during Tenant's occupancy of the Premises.
Notwithstanding the foregoing provisions of this Article, Tenant's
obligation to make structural repairs or changes to the Premises in order to
comply with Requirements shall be subject to the limitations set forth in
Section 8.3 hereof. Subject to the foregoing limitations, Tenant shall comply
with Requirements whether or not the statute, laws, ordinances, regulations or
orders imposing same are of a kind now within the contemplation of the parties
hereto.
ARTICLE 10.
OPERATION OF PREMISES.
10.1. Tenant shall not suffer or permit the Premises or any part
thereof to be used in any manner, or anything to be done therein, or suffer or
permit anything to be brought into or kept therein, which would in any way (a)
violate any provision of any Superior Mortgage now or hereafter a lien on the
Premises to which Tenant is required to subordinate in accordance with Section
4.1 hereof, a copy of which has been delivered to Tenant, or the requirements of
public authorities, (b) make void or voidable or invalidate any fire insurance
policy then in force with respect to the Premises or any insurance required
pursuant to Article 13 hereof, (c) make unobtainable from reputable insurance
companies authorized to do business in New York State, any fire insurance with
extended coverage, or liability, or other insurance, (d) cause, or in Landlord's
reasonable opinion be likely to cause, physical damage to the Premises or any
part thereof or render the Premises unfit for the production of pharmaceutical
products as contemplated by the M&S Agreement, (e) constitute a public or
private nuisance, or (f) impair, in a manner which, in the reasonable opinion of
Landlord is material, the appearance, character or reputation of the Premises.
Nothing in this provision shall constitute a waiver, release or amendment of any
of the representations or warranties, covenants or agreements by Landlord set
forth in this lease.
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10.2. Tenant shall have the right to maintain signs on the Premises
of the size and type existing as of the date hereof, provided that such signs,
at all times, comply with all Requirements. Except for such signs, Tenant shall
not display or erect any permanent lettering, signs, or awnings on the outside
or roof of the Premises (collectively "Signs") without obtaining Landlord's
prior written approval thereof which approval Landlord shall not unreasonably
withhold or delay. Tenant shall submit to Landlord a detailed sketch of any
proposed Sign and if approved, the same shall not be altered in any manner
whatsoever without first obtaining Landlord's prior written consent for such
proposed change. All such Signs shall first be approved by the municipal
authorities having jurisdiction over the Premises, and shall be maintained by
Tenant at its sole cost and expense in good order and condition, and in
accordance with all of the terms and provisions of this lease. All Signs shall
be removed by Tenant at the end of the Term or sooner expiration of this lease
and Tenant shall repair, at Tenant's sole cost and expense, any damage to the
Premises or its exterior caused by the installation, maintenance or removal of
such Signs. Tenant shall indemnify and hold Landlord harmless against and from
any and all loss, liability, claims, expenses or damages arising from the
installation, maintenance or removal of such Signs, which obligation shall
survive termination of this lease. The foregoing notwithstanding, (i) Tenant,
from time to time, at Tenant's expense, shall have the right to install, erect,
construct, alter, maintain and remove Signs on or at the exterior or roof of the
Premises, without the consent of Landlord, provided (as to the installation,
erection, construction, and maintenance of such Signs) such Signs comply with
all Requirements, and (ii) Tenant shall be required to obtain approval by
municipal authorities to Signs only if such approval is required by applicable
law.
ARTICLE 11.
ALTERATIONS; IMPROVEMENTS.
11.1. Except as permitted by Section 12.2 hereof, Tenant covenants
and agrees that during the Term, it will not make any changes or alterations or
improvements to, or installed or incorporate any items of equipment in the
Premises of any kind whatsoever, without the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Notwithstanding the foregoing,
Tenant may, upon prior notice to Landlord but without requiring Landlord's
consent thereto, make such changes, alterations or improvements as shall be
non-structural in nature, do not materially affect the heating, ventilation,
plumbing, electrical and other building systems and benefit the use and
operation of the Premises as a pharmaceutical manufacturing facility. Any
changes, alterations or improvements made by Tenant to the Premises shall become
the property of Landlord; provided, however, that Landlord may require Tenant to
remove the same and restore the Premises by the Expiration Date.
ARTICLE 12.
NO SET-OFFS.
12.1. All Fixed Rent, additional rent and all other sums payable
hereunder to, or on behalf of, Landlord shall be paid without notice or demand
and without set off, counterclaim, abatement, suspension, deduction, or defense;
provided, however, that Monthly Installment Amounts may be deducted by Landlord
from amounts due to Tenant under the M&S Agreement.
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12.2 Anything in this lease to the contrary notwithstanding,
including, without limitation, the provisions of Section 12.1, the following
shall apply. If (i) Landlord shall fail to remedy any breach of any of its
representations or warranties under this lease, or otherwise shall fail to
perform any of its obligations under this lease and (ii) such failure shall
continue for thirty (30) days after Landlord's receipt of notice from Tenant
specifying such failure and Landlord shall not be then diligently attempting to
correct such failure:
(a) Tenant (without having any obligation to commence or continue
any such effort) may remedy or attempt to remedy such failure and/or commence,
prosecute or complete performance of Landlord's obligations, and may (without
having any obligation to do so), for the account of Landlord, make any payment
or expend any sum or take such action as is reasonably necessary to perform and
fulfill each, every, and/or any representation, warranty, covenant, agreement
and obligation of Landlord under this lease. No such payment, expenditure or
action by Tenant shall be deemed a waiver of Landlord's default, nor shall the
same affect any other remedy of Tenant by reason of such default.
(b) Landlord, within thirty (30) days of Tenant's demands therefor
from time to time (accompanied by evidence reasonably substantiating such
reasonable out-of-pocket costs and expenses actually have been incurred and
paid), shall reimburse Tenant for all reasonable out-of-pocket costs and
expenses incurred by Tenant in connection with such remedy, attempt to remedy,
commencement, prosecution and/or completion including, without limitation,
reasonable attorneys fees, disbursements and court costs).
(c) If Landlord shall fail to make such reimbursement within the
time provided in subsection (b) above, the amount thereof shall bear interest at
the Default Rate (as defined in Section 15.2(b) hereof and Tenant shall have the
right, among any of its other rights, to offset any such amount due to it
against any amount due from it to Landlord.
ARTICLE 13.
INSURANCE REQUIREMENTS; WAIVER OF SUBROGATION.
13.1. (a) Throughout the Term, Tenant shall, at its sole cost and
expense, obtain and keep in full force and effect a policy, blanket or
otherwise, of comprehensive public liability and property damage insurance, with
a broad form contractual liability endorsement, having combined coverage of not
less than Ten Million ($10,000,000) Dollars with respect to each occurrence of,
or claim for, personal injury, death and/or damage to property, naming Landlord,
Tenant and the holder of any Superior Mortgage as insureds against any and all
claims, actions, loss, damage or expense arising out of, or resulting from,
personal injury, death or property damage occurring in, upon, adjacent to, or
connected with the Premises or any part thereof (including any adjoining
sidewalk, parking area, curb or vault).
(b) Such insurance shall be written by good and solvent
insurance companies of recognized standing, licensed to do business in the State
of New York. Such policies shall be in form and content reasonably satisfactory
to Landlord and the holder of any Superior Mortgage and shall contain a
provision that no act or omission of Tenant will affect or limit the obligation
of the
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insurance company to pay the amount of any loss sustained and shall be
non-cancelable except upon reasonable advance written notice to Landlord and the
holder of any Superior Mortgage.
13.2. Each party hereby releases the other party with respect to any
claim (including a claim for negligence) which it might otherwise have against
the other party for loss, damage or destruction with respect to its property
(including rental value or business interruption) occurring during the Term to
the extent to which such party is paid under a policy containing a waiver of
subrogation or naming the other party as an additional assured. If
notwithstanding the recovery of insurance proceeds by either party for loss,
damage or destruction of its property the other party is liable to the first
party with respect thereto or is obligated under this lease to make replacement,
repair or restoration thereof, then, provided the first party's right of full
recovery under its insurance policies is not thereby prejudiced or otherwise
adversely affected, the amount of the net proceeds of the first party's
insurance against such loss, damage or destruction shall be offset against the
second party's liability to the first party therefor, or shall be made available
to the second party to pay for replacement, repair or restoration, as the case
may be.
13.3. Tenant shall procure one or more policies for the insurance
required to be carried pursuant to Section 13.1 and, on or before the
Commencement Date, shall deliver to Landlord the original or certified copies of
all such policies, if obtainable, or, if original or certified copies are not
obtainable, certificates thereof with evidence, by stamping or otherwise, of the
payment of the premiums due thereon.
13.4. All premiums and charges for Tenant's insurance policies shall
be paid by Tenant. If Tenant shall fail to make any such payment when due, or
shall fail to carry any such policy, the provisions of Article 15, among others,
shall apply.
13.5. (a) Tenant shall, at its sole cost and expense keep the
Premises, including, without limitation, the Production Equipment, insured
against loss or damage by fire, and other casualty with all standard extended
coverage, including coverage against vandalism, malicious mischief and such
other additional perils as now are or hereafter may be included in a standard
extended coverage endorsement from time to time in general use. Such coverage
shall be in an amount that will comply with the coinsurance applicable to the
location and character of the Improvements and equal to the full replacement
value thereof, and which shall:
(i) be written on a replacement cost basis, (subject to
deductibles not to exceed $25,000 per occurrence and $200,000 in the aggregate);
(ii) be issued by insurance companies authorized, qualified or
licensed to do business in the State of New York;
(iii) be in form and content reasonably satisfactory to
Landlord and satisfactory to the holder of any Superior Mortgage;
(iv) comply with any changes in co-insurance requirements
applicable to the Premises by the Fire Insurance Rating Organization, or any
similar body, or by statute;
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(v) effectively provide that the respective interests of
Landlord and the holder of any Superior Mortgage shall not be subject to
cancellation by reason of any act or omission of Tenant and, be non-cancelable
except upon reasonable advance written notice to Landlord and the holder of any
Superior Mortgage named as loss payee therein;
(vi) be carried in the name, and in favor, of Landlord, Tenant
and the holder of any Superior Mortgage under a standard mortgagee clause, as
their respective interests may appear; and
(vii) provide that, subject to the rights of the holder of any
Superior Mortgage, the loss, if any, under any such policies shall be adjusted
by Landlord (upon consultation with Tenant) and paid by the insurance company or
companies to the holder of any Superior Mortgage (and Landlord and Tenant agree
to cooperate with each other and with the holder of any Superior Mortgage to
obtain the largest possible recovery and to execute any and all reasonable
consents and other instruments and to take all other reasonable actions
reasonably necessary or desirable in order to effectuate and expedite such
adjustment and the payment of the proceeds as herein provided).
(b) Notwithstanding the provisions of Section 13.5(a), if the
holder of any Superior Mortgage shall, in its commitment for such mortgage or
otherwise, require that the insurance referred to in Section 13.5(a) be carried
and maintained by Landlord then: (i) Landlord shall obtain, pay for and maintain
such insurance and (ii) Tenant shall reimburse Landlord, as additional rent, the
amount of such insurance on a monthly basis, provided, however, that Tenant
shall not be obligated to reimburse Landlord's amounts in excess of amounts
Tenant would have incurred in providing such insurance.
(c) If Tenant shall provide the insurance required by Section
13.5(a), then Tenant shall, on or before the Commencement Date, deliver to
Landlord the original or certified copies of all policies containing such
insurance coverage or, if original or certified copies are not reasonably
obtainable, Tenant shall provide certificates thereof with evidence, by stamping
or otherwise of the payment of the premiums due thereon.
(d) Notwithstanding the foregoing, Tenant may, in its
discretion, maintain additional policies of insurance insuring it against such
risks and in such amounts as it may, in its discretion, deem appropriate and to
collect any proceeds which may become due thereunder; provided that no such
policies shall operate as a limitation or restriction on the rights of Landlord.
ARTICLE 14.
FIRE OR CASUALTY.
14.1. If the Improvements shall be damaged or destroyed by fire or
other casualty to the extent that they may not be used, physically or legally,
for the general manufacture of pharmaceutical products or for the manufacture of
pharmaceutical products (a "Substantial Casualty") and such Substantial Casualty
cannot be repaired to substantially restore such Improvements for such use
within four (4) months from the occurrence of such casualty, each party
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shall have the right to terminate this lease by notice to the other given within
thirty (30) days from such occurrence. If a party shall give such notice of
termination, this lease shall expire on the ninetieth (90th) day following such
occurrence as if such date was the Expiration Date and Tenant shall quit,
surrender and vacate the Premises on such date without prejudice to Landlord's
rights and remedies under the lease provisions in effect prior to such
termination. Any Fixed Rent or additional rent owing to the date of termination
shall be paid up to such date by Tenant and any Fixed Rent or additional rent
paid by Tenant for a period subsequent to such date shall be returned to Tenant,
together with, in the event Landlord shall terminate, any Option Payment
received by Landlord pursuant to Article 34 hereof. If this lease shall not
terminate as a result of such casualty, the Fixed Rent shall be apportioned
according to the floor area of the Improvements reasonably usable by Tenant from
the day following the fire or other casualty to the Expiration Date.
14.2. Landlord shall not have any obligation to repair or restore
the Improvements in the event the same are damaged or destroyed by fire or other
casualty (a) except to the extent it has received proceeds from insurance
maintained by Tenant hereunder (or by Landlord, in lieu of Tenant, pursuant to
Section 13.5(b) hereof and for which Landlord has been reimbursed by Tenant) or
(b) unless (i) it constitutes a Substantial Casualty which can be repaired to
substantially restore such Improvements within such four (4) months or (ii)
neither Landlord nor Tenant elects to terminate this lease pursuant to Section
14.1 above. In such event Landlord shall, as promptly and as expeditiously as
practicable, restore the Improvements to their former utility.
14.3. Landlord shall not be liable to Tenant or responsible for any
inconvenience, loss of business, loss of income, loss of property or any other
damage or loss sustained by Tenant as a result of fire or other casualty.
14.4. Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this Article shall govern and
control in lieu thereof.
14.5. Notwithstanding any termination hereof pursuant to this
Article 14, Tenant may elect to exercise the Purchase Option set forth in
Article 34 hereof, by giving Landlord the notice of exercise referred to therein
within forty-five (45) days of the occurrence of the casualty, in which event
the Premises shall be sold to Tenant on an "as-is/where-is" basis, but otherwise
pursuant to the Contract of Sale and Tenant shall be entitled to receive all
proceeds of insurance maintained by it hereunder (or by Landlord, in lieu of
Tenant, pursuant to Section 13.5(b) hereof and for which Landlord has been
reimbursed by Tenant) in respect of such casualty.
ARTICLE 15.
LANDLORD MAY CURE DEFAULTS.
15.1. If Tenant shall default in timely performing any other term,
covenant, or condition of this lease on the part of Tenant to be performed,
beyond the applicable notice and remedy period then, upon the occurrence of any
such default, Landlord may, at its option (but Landlord shall not be obligated
to do so) and for the account of Tenant, make such payment or expend such sum or
take such other action as is necessary to perform and fulfill such term,
covenant, or condition, upon ten (10) days' prior written notice to Tenant
(except that no such notice shall be
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required in the event of emergency). However, no such payment or expenditure by
Landlord shall be deemed a waiver of Tenant's default, nor shall the same affect
any other remedy of Landlord by reason of such default.
15.2. Any and all sums paid or expended by Landlord pursuant to
Section 15.1, as well as any other reasonable cost or expense (including,
without limitation, reasonable attorneys fees, disbursements and court costs)
incurred by Landlord in instituting, prosecuting, or defending any action or
proceeding instituted by reason of, or relating to, any default by Tenant under
this lease, shall:
(a) be repaid by Tenant to Landlord as additional rent under
this lease within ten (10) days after Landlord's written demand therefor; and
(b) bear interest from the date of Landlord's payment or
expenditure thereof to the date of Tenant's repayment of the same to Landlord,
both dates inclusive, at a rate which is eighteen (18%) percent per annum
(herein referred to as the "Default Rate") (but in no event in excess of any
then lawful maximum interest rate then applicable to Tenant).
ARTICLE 16.
BANKRUPTCY, INSOLVENCY, REORGANIZATION,
LIQUIDATION OR DISSOLUTION OF TENANT OR GUARANTOR.
16.1. The occurrence of any of the following (hereinafter referred
to as "Events of Default") at any time during the Term shall constitute and be
deemed a material breach of this lease and a default by Tenant, entitling
Landlord, at its option and to the extent permitted by applicable law, to cancel
and terminate this lease upon giving Tenant a sixty (60) day notice in writing
of Landlord's intention so to do, whereupon this lease shall terminate and come
to an end at the expiration of said sixty (60) days as if said expiration date
were the time originally fixed for the termination of this lease, and Tenant
shall quit and surrender the Premises to Landlord:
(a) the filing of a petition by or against Tenant for:
(i) adjudication as a bankrupt under the Bankruptcy Act, as
now or hereafter amended or supplemented; or
(ii) reorganization within the meaning of Chapter X of said
Bankruptcy Act; or
(iii) an arrangement within the meaning of Chapter XI of said
Bankruptcy Act; or
(iv) an arrangement within the meaning of Chapter XII of said
Bankruptcy Act,
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or the filing of any petition, by or against Tenant then in possession under any
future bankruptcy act for the same or similar relief; or
(b) the dissolution or liquidation of Tenant or the
commencement of any action or proceeding by or against Tenant for its
dissolution or liquidation, that shall be other than a voluntary dissolution,
liquidation, spin-off, or other similar proceeding pursuant to the United States
Internal Revenue Code whereby the stock or assets of the Tenant are distributed
to its stockholders or to a partnership or corporation or other entity
controlled by any such stockholders which assumes in writing the obligations of
the Tenant under this lease; or
(c) the appointment of a permanent receiver or a permanent
trustee of all or substantially all of the property of the Tenant or the
commencement of any action or proceeding by or against the Tenant for such
appointment; or
(d) the seizure of a material portion of property of Tenant by
any governmental officer or agency pursuant to statutory authority for the
dissolution, rehabilitation, reorganization or liquidation of the Tenant; or
(e) the assignment by the Tenant of its property for the
benefit of creditors.
However, if any event described in subsections (a), (b), (c) or (d) occurs and
is not voluntarily initiated or commenced by the Tenant, or on behalf of the
Tenant, the event in question shall not constitute or be deemed a default
hereunder and Landlord shall have no option to terminate this lease in
connection therewith provided the same is removed or remedied by appropriate
discharge or dismissal of the action or proceeding concerned, and the discharge
of any receiver, trustee, or other judicial custodian appointed for Tenant's
property, within thirty (30) days from the commencement date of such action,
proceeding, or appointment and no other Event of Default shall then be
continuing.
16.2. Notwithstanding anything to the contrary hereinabove contained
in this Article 16, this lease shall not be terminated as a result of any event
described in Section 16.1(a), (b), (c) and (d) hereof if, and for so long as no
other Event of Default shall have occurred, or shall, in the good faith estimate
of Landlord, be reasonably likely to occur, hereunder and Tenant or any other
party on behalf of Tenant, including any receiver, assignee, trustee, or other
judicial custodian, shall fully and punctually (subject to applicable grace
periods and notice and opportunity to cure):
(a) pay any and all installments of Fixed Rent, additional
rent and other charges required by this lease to be paid; and
(b) comply with all of the other terms, covenants and
conditions of this lease on the part of Tenant to be performed.
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ARTICLE 17.
DEFAULT CLAUSES.
17.1. Upon the occurrence of any of the following events (also
hereinafter referred to as "Events of Default"), Landlord shall have the right,
at Landlord's option, to terminate this lease and the Term, as well as all of
the right, title and interest of Tenant in and to the Premises hereunder, by
giving Tenant ten (10) days' notice in writing of such termination, whereupon
this lease and the Term, as well as all of the right, title and interest of
Tenant in and to the Premises, shall wholly cease and expire in the same manner,
and with the same force and effect (except as to Tenant's liability), as if the
date fixed by such notice were the Expiration Date of the Term:
(a) if Tenant shall fail to pay any installment of Fixed Rent
when the same shall become due and payable or if Tenant shall fail to pay, any
additional rent, or any other payment or any part thereof required to be paid by
Tenant pursuant to this lease as and when the same shall become due and payable
and in either case such failure shall continue for ten (10) days after notice by
Landlord to Tenant of such failure to pay such amount when due; or
(b) if Tenant shall violate, fail to comply with, or fail to
timely perform any other covenant, term, or condition of this lease and such
violation or failure shall continue for thirty (30) days after notice by
Landlord to Tenant of such violation or failure; provided that if such violation
or failure cannot reasonably be remedied within such 30-day period, Tenant shall
have such longer period as is reasonable to remedy such violation or failure
provided Tenant commences such remedy within such 30-day period and thereafter
diligently proceeds with such remedy; or
(c) if any execution or attachment shall be issued against
Tenant or any material portion of Tenant's property, whereby the Premises or any
part thereof shall be taken or occupied, or by someone other than Tenant; or
(d) if Tenant's right, title and interest in this lease, or
the estate of Tenant hereunder, shall be transferred or passed to, or devolve
upon, any other person, firm, corporation, or other entity (except as may be
otherwise permitted under this lease); or
(e) if Tenant shall abandon the Premises or leave same
unoccupied or unattended; or
(f) if Landlord shall terminate the M&S Agreement pursuant to
Section 7.2 of the M&S Agreement.
On or before the expiration of the ten (10) days' notice referred to in Section
17.1, Tenant shall immediately quit and surrender the Premises and each and
every part thereof to Landlord, and Landlord may, upon the expiration of the ten
(10) day notice period, enter into or repossess the Premises by summary or other
suitable proceedings.
17.2. No default shall be deemed waived unless in writing and signed
by Landlord.
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17.3. In the event that Tenant shall fail to remedy and cure any
monetary default set forth in subsection (a) of Section 17.1 after notice and
the expiration of the ten (10) day period set forth therein, the amount due from
Tenant to Landlord shall accrue interest from the date the payment was due to
Landlord or made by Landlord on Tenant's behalf, as the case may be, until
Tenant's payment thereof, at the Default Rate (but in no event in excess of any
then lawful maximum interest rate then applicable to Tenant).
ARTICLE 18.
LANDLORD'S REMEDIES
18.1. In the event this lease shall be terminated by reason of
Tenant's default beyond the applicable notice and remedy period, whether as
provided in Article 16, Article 17, by summary proceedings, or otherwise then:
(a) (i) Landlord or its agents or representatives may re-enter
and resume possession of the Premises either by summary proceedings or by a
suitable action or proceeding at law or otherwise, without such action or
proceeding, without being liable for any damages therefor, and no such re-entry
by Landlord shall be deemed an acceptance of a surrender of this lease; and
(ii) the Fixed Rent and additional rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
termination, together with such reasonable counsel fees and expenses as Landlord
may incur in connection therewith.
(b) Landlord may relet the whole or any part or parts of the
Premises from time to time, either in the name of Landlord or otherwise, to such
tenant or tenants, for such term or terms ending before, on or after the
Expiration Date, at such rent or rents and upon such other conditions, which may
include concessions and free rent periods, as Landlord, in its sole discretion,
may determine. Landlord shall have no obligation to relet the Premises or any
part thereof, or in the event of any such reletting, Landlord shall not be
liable for refusal or failure to collect any rent due upon such reletting, and
no such refusal or failure shall operate to relieve Tenant of any liability
under lease or to otherwise affect any such liability. Landlord may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Premises as Landlord, in its sole
reasonable discretion, considers beneficial or necessary in connection with any
such reletting or proposed reletting, without relieving Tenant of any liability
under this lease or otherwise affecting any such liability.
(c) If this lease shall expire and come to an end as provided
herein, or by or under any summary proceeding or any other action or proceeding,
or if Landlord shall re-enter the Premises as provided herein, or by or under
any summary proceeding or any other action or proceeding, then, in any of said
events: (a) Tenant shall pay to Landlord all Fixed Rent and other charges
payable under this lease by Tenant to Landlord to the date upon which this lease
shall have expired and come to an end or to the date of re-entry upon the
Premises by Landlord, as the case may be; (b) Tenant also shall be liable for
and shall pay to Landlord, as damages, any deficiency (hereinafter referred to
as a "Deficiency") between (i) the Fixed Rent and additional rent reserved in
this lease for the period which otherwise would have constituted the unexpired
portion of the
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Term and (ii) the net amount, if any, of the rents collected under any reletting
effected for any part of such period, less all of Landlord's reasonable expenses
in connection with the termination of this lease, Landlord's re-entry upon the
Premises and such reletting including, but not limited to, all reasonable
repossession costs, brokerage commissions, legal expenses, reasonable attorneys
fees and disbursements, alteration costs and other expenses of preparing the
Premises for such reletting; such Deficiency shall be paid in monthly
installments by Tenant on the days specified in this lease for payment of
installments of Fixed Rent; Landlord shall be entitled to recover from Tenant
each monthly Deficiency as the same shall arise, and no suit to collect the
Deficiency for any month shall prejudice Landlord's right to collect the
Deficiency for any subsequent month by a similar proceeding; and (c) whether or
not Landlord shall have collected any monthly Deficiencies as aforesaid,
Landlord shall be entitled to recover from Tenant, and Tenant shall pay to
Landlord, on demand, in lieu of any further Deficiencies as and for liquidated
and agreed final damages, a sum equal to the amount by which the Fixed Rent and
additional rent reserved in this lease for the period which otherwise would have
constituted the unexpired portion of the Term exceeds the then fair and
reasonable rental value of the Premises for the same period, if, before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the Premises, or any part thereof, shall have been relet by Landlord
for the period which otherwise would have constituted the unexpired portion of
the Term, or any part thereof, the amount of rent reserved upon such reletting
shall be deemed, prima facie, to be the fair and reasonable rental value for the
part of the whole of the Premises so relet during the term of the reletting.
Landlord shall use good faith efforts to relet the Premises to another
pharmaceuticals manufacturer capable of manufacturing the products covered by
the M&S Agreement at the Premises. Any amounts to be paid to Landlord pursuant
to this Section 18.1 in respect of Fixed Rent and additional rent shall be
calculated at the net present value thereof using a discount rate equal to the
prime lending rate as published in The Wall Street Journal on the business day
immediately preceding the date of such payment.
(d) If Tenant shall fail to pay any installment of Fixed Rent
or any payment of additional rent within five (5) days after the date when due,
Tenant shall pay to Landlord, in addition to such installment or payment, a late
charge of $100 and interest on such unpaid amount at the Default Rate on the
amount unpaid computed from the date such payment was due to an including the
date of payment, which late charge and interest shall be deemed additional rent.
(e) Upon an Event of Default, whether or not this lease is
terminated as a result thereof, and whether or not any action or proceeding by
reason thereof is commenced by Landlord, the Tenant shall pay to Landlord, upon
demand, the reasonable attorney's fees and disbursements and all other costs,
damages and expenses incurred by Landlord as a result of such event of default.
18.2. In the event of a breach by Tenant of any of the terms,
covenants or provisions of this lease beyond the applicable notice and remedy
period, Landlord shall have the right of injunction, as well as to invoke any
remedy allowed at law or in equity, as if re-entry, summary proceedings and
other remedies were not herein provided for.
18.3. Mention in this lease of any particular remedy shall not
preclude Landlord from any other remedy, in law or in equity. Nothing contained
in this Article 18 shall be construed
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to limit or preclude recovery by Landlord against Tenant of any sums or damages
to which, in addition to the damages particularly provided above, Landlord may
lawfully be entitled by reason of any default hereunder on the part of Tenant,
other than consequential or special damages.
ARTICLE 19.
TENANT'S AND LANDLORD'S INDEMNITIES.
19.1. Tenant shall defend, indemnify and hold Landlord harmless
against and from any and all liability, fines, suits, claims, demands, actions,
costs and expenses of each and every kind or nature whatsoever (including,
without limitation, reasonable attorneys' fees, disbursements and court costs
but subject to any limitations on liability expressly set forth in this lease)
due to or arising out of any:
(a) breach, violation, or non-performance of any term,
covenant, or condition of this lease on the part of Tenant to be fulfilled,
kept, observed, or performed; and/or
(b) injury to, or death of, any person or persons or damage
to, or destruction of, any property occurring in, on or about the Premises, at
any time during the Term, whether or not such injury or damage is occasioned by
Tenant's use and occupancy of the Premises, or any part thereof, or, by any use
or occupancy that Tenant may permit or suffer to be made thereof, or which is
occasioned by smoke, fire, explosion, other disaster, falling plaster, steam,
gas, electricity, or water or rain which may leak or seep from or into any part
of the Premises from pipes, drains, plumbing lines, plumbing fixtures or from
the street or any subsurface area or any other place or from dampness or any
other cause, but nothing herein shall be deemed to relieve Landlord from any
liability resulting from the affirmative negligence or willful or wrongful acts
of Landlord, its agents or employees. If Tenant is required to defend any action
or proceeding pursuant to this Article 19 to which Landlord is made a party,
Landlord shall be entitled to appear, defend, or otherwise take part in the
matter involved, at its election, by counsel of its own choosing, provided that
such action by Landlord does not limit or render void any liability of any
insurer of Landlord or Tenant hereunder in respect to the claim or matter in
question. Tenant's liability under this Article 19 shall be reduced by the net
proceeds actually collected of any insurance effected by Tenant on the risks in
question for Landlord's benefit.
19.2. Tenant hereby agrees to defend, indemnify and save Landlord
harmless from and against all claims, damage, liabilities, costs, loss or
expense including, without limitation, reasonable attorneys' and experts' fees
and court costs resulting from injury to any person or property, while in or on
the Premises and which arises from, is related to, or is connected with the
conduct or operation of Tenant's business in the Premises or any work or thing
done or any condition created by Tenant, or its employees or agents, or which is
otherwise caused by any act or omission of Tenant, its agents or employees.
19.3. [Intentionally Omitted]
19.4. Anything in this lease to the contrary notwithstanding,
including without limitation the provisions of Sections 19.1 and 19.2 :
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Tenant shall not be required to indemnify, defend or hold Landlord
harmless in connection with (i) any matter, state of facts, injury,
damage, claim, action, cause of action, obligation or event, the
occurrence or existence of which is or arises from a breach by Landlord of
any of Landlord's representations, warranties, obligations or agreements
under this lease, or (ii) any matter, state of facts, injury, damage,
claim, action, cause of action, obligation or event which results from
Landlord's Act, or (iii) any matter, state of facts, injury, damage,
claim, action, cause of action, obligation or event respecting which,
under the express terms of this lease, Landlord is obligated to indemnify
Tenant;
(b) Landlord shall defend, indemnify and hold Tenant harmless
against and from any and all liability, fines, losses, damages, suits, claims,
demands, actions, costs and expenses of each and every kind or nature whatsoever
(including, without limitation, reasonable attorneys' fees, disbursements and
court costs) due to or arising out of any of the following:
(i) a breach by Landlord of any of Landlord's
representations or warranties contained in Section 6A.1 of this lease;
(ii) any breach, violation, or non-performance of any
term, covenant, or condition of this lease on the part of Landlord to be
fulfilled, kept, observed, or performed (including, without limitation, the
representations and warranties by Landlord that at the Commencement Date the
Premises will satisfy and comply with current Good Manufacturing Practices);
and/or
(iii) Landlord's Acts.
19.5. The provisions of this Article 19 shall survive the
termination of this lease.
(a) ARTICLE 20.
MECHANICS' LIENS.
20.1. Tenant covenants that, whenever and as often as any mechanic's
lien shall have been filed against the Premises other than any mechanic's lien
that shall have been filed based upon any act or omission of Landlord or anyone
acting on behalf of Landlord, Tenant shall, within twenty (20) days after
Landlord shall give notice in writing to Tenant of the filing thereof, at
Tenant's sole cost and expense, take such action by bonding, deposit, or
payment, as will remove or satisfy the lien. In default thereof for thirty (30)
days after notice to Tenant, the provisions of Article 14 shall apply.
(a) ARTICLE 21
CONDEMNATION.
21.1. If at any time during the Term any person or corporation,
municipal, public, private or otherwise, shall lawfully condemn and acquire
title to all or any part of the Premises in
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or by condemnation proceedings in pursuance of any law, general or special or
otherwise (hereinafter referred to as a "Total Taking"), this lease and the Term
hereof shall terminate and expire on the date of such taking and the Fixed Rent,
additional rent and any other sum or sums of money and other charges herein
reserved and required to be paid by Tenant shall be apportioned and paid by
Tenant to the date of such taking.
21.2. In the event of a Total Taking which results in the
termination of this lease, the entire award or awards paid by the condemning
authority shall be paid to Landlord. Landlord shall pay to Tenant fifty (50%)
percent of the excess of such amount over the amount payable by Tenant as and
for the purchase price of the Premises pursuant to the Contract of Sale referred
to in Section 34.1 hereof. Tenant shall also have the right to make a separate
claim for the value of its property and moving expenses provided that Tenant's
claim shall not impair the ability of Landlord to make its claim or reduce the
amount of Landlord's award.
(a) ARTICLE 22.
OWNERSHIP OF PERSONAL PROPERTY.
22.1. Movable personal property including, without limitation,
business equipment, shelving, furniture and furnishings, other than improvements
and fixtures, put in the Premises at the expense of the Tenant shall be and
remain the property of the Tenant. Tenant may remove such property in whole or
in part at any time and from time to time during the term of this lease. The
cost of repairing any damage arising from such removal shall be paid by the
Tenant. All such property not so removed at the termination of this lease and on
the Expiration Date hereof, shall, at Landlord's option (i) be deemed abandoned
and shall become the property of the Landlord without any payment or offset and
free of any claim of Tenant or any person claiming through Tenant, or (ii) be
removed and disposed of by Landlord at Tenant's cost and expense, without
further notice to or demand upon Tenant.
22.2. Tenant's obligations under this Article shall survive the
termination and/or expiration of this lease.
(a) ARTICLE 23.
SHORING.
23.1 To the extent required by law, Tenant shall allow an adjoining
owner desiring to excavate on its premises, or a municipality desiring to
excavate a nearby street, to enter onto the Premises and shore up a perimeter
wall during such excavation. Tenant shall, at Tenant's own expense, repair, or
cause to be repaired, any damage caused to any part of the Premises because of
any excavation, construction work, or other work of a similar nature that may be
done on any property adjoining or adjacent to the Premises, and Landlord hereby
assigns to Tenant any and all rights to sue for and/or recover against such
adjoining owners, or the parties causing such damages, the amounts expended or
injuries sustained by Tenant because of the provisions of this Article requiring
Tenant to repair any damages sustained by such excavations, construction work,
or other work. No entry onto the Premises pursuant to this Article shall result
in any abatement or diminution of the Fixed Rent or in any claim by Tenant
against Landlord.
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(a) ARTICLE 24.
WAIVER OF REDEMPTION.
24.1 Tenant, for itself and for all persons claiming through or
under it, hereby expressly waives any and all rights which are or may be
conferred upon Tenant by any present or future law to redeem the Premises, or to
any new trial in any action of ejectment under any provision of law, after
re-entry thereupon, or upon any part thereof, by Landlord, or after any warrant
to dispossess or judgment in ejectment. If Landlord shall have acquired
possession of the Premises by summary proceedings, or in any other lawful manner
without judicial proceedings, it shall be deemed are-entry within the meaning of
that word as used in this lease.
(a) ARTICLE 25.
BROKER.
25.1 Landlord and Tenant covenant, warrant and represent that no
broker or finder was instrumental in consummating this lease. Tenant agrees to
indemnify and hold Landlord harmless from and against any claims for brokerage
commissions or other fees made by any broker claiming to have dealt with Tenant,
whether in connection of this lease or the Purchase Option provided in Article
34 below. Landlord agrees to indemnify and hold Tenant harmless from and against
any claims for brokerage commissions or other fees made by any broker claiming
to have dealt with Landlord with respect to this lease or the Purchase Option
provided in Article 34 below. The provisions of this Article shall survive the
termination of this lease.
(a) ARTICLE 26.
COVENANT OF QUIET ENJOYMENT.
26.1 If, and for so long as, (a) Tenant shall pay the Fixed Rent and
additional rent reserved by or payable pursuant to this lease, and shall perform
and observe all of the other terms, covenants and conditions contained herein on
the part of Tenant to be performed and observed, and (b) Landlord shall not have
terminated the M&S Agreement pursuant to Section 7.2 thereof, Tenant shall
quietly enjoy the Premises subject, however, to the terms and conditions of this
lease.
(a) ARTICLE 27.
TENANT'S COVENANTS.
27.1. Tenant covenants and agrees that during the Term of this lease
and until Tenant vacates and surrenders the Premises to Landlord as required by
this lease, Tenant:
(a) will not remove any realty fixtures or Production
Equipment from the Premises nor remove from the Premises any other property
required to be conveyed to Landlord pursuant to Article 22 hereof except for
repair thereof and, upon reasonable prior notice thereof to Landlord,
replacement of obsolete equipment with items of equivalent value and function;
(b) will not enter into any service or maintenance contracts
which will bind the Landlord or the Premises;
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(c) will not commit any act in violation of the Permits
described on Exhibit D; and
(d) will, at its sole cost and expense, obtain and maintain in
full force and effect all other licenses and permits required for the lawful
use, maintenance and occupation of the Premises, other than those required by
law to be obtained and maintained by Landlord.
27.2 Landlord and Tenant acknowledge and agree that Tenant is only
leasing (and, in the event Tenant exercises the Purchase Option, purchasing)
certain assets of Landlord, and (except as may be otherwise expressly provided
in this lease) in no event shall Tenant be deemed to have assumed or accepted
any liabilities or obligations of Landlord, nor to be a successor to the
business of Landlord. In no event shall Tenant be or be deemed a continuation of
Landlord, nor shall the business of Tenant at, with or from the Premises be or
be deemed a continuation of the business of Landlord. Landlord shall indemnify,
defend and hold Tenant harmless from and against any and all liabilities,
obligations, costs, expenses (including without limitation reasonable attorneys'
fees and expenses), losses and claims in connection with any claim that Tenant
is a successor to or continuation of the business of Landlord, and/or that
Tenant has successor liability. The provisions hereof shall survive termination
of this lease.
27.3 Anything in this lease to the contrary notwithstanding, the
relationship between Landlord and Tenant under this lease is one of lessor and
lessee (and the relationship of the parties under the M&S Agreement is one of
two contracting parties); and nothing in this lease shall be interpreted or
construed to render Landlord and Tenant partners, co-venturers, or joint
venturers.
27.4 Landlord and Tenant acknowledge and agree that, notwithstanding
any other provision hereof to the contrary, (a) Tenant shall be entitled to
enter into service and similar contracts with respect to the Premises and any of
the Improvements, provided that such contracts are terminable on not less than
thirty (30) days notice or termination of this lease, (b) Tenant may record this
lease or a memorandum hereof in form and substance mutually satisfactory to the
parties, (c) Tenant may terminate this lease upon any termination by Tenant of
the M&S Agreement pursuant to Section 7.2 thereof, (d) Tenant shall be entitled
to a refund of Fixed Rent and additional rent paid by Tenant in respect of
periods after the termination of this lease upon any termination hereof other
than as a result of an Event of Default and (e) Landlord shall cooperate with
Tenant with respect to any reviews and/or audits of the Premises or its
operations by the United States Food and Drug Administration.
(a) ARTICLE 28.
(a) [Intentionally Omitted]
ARTICLE 29.
ASSIGNMENT AND SUBLETTING.
29.1. Tenant covenants and agrees that it will not mortgage or
encumber this lease. Tenant further acknowledges and agrees that the
development, formulation and manufacture of
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human, non-contaminating pharmaceutical products, generally, and the products
covered by the M&S Agreement, in particular, is highly regulated by governmental
authorities, requires the unique expertise and experience of Tenant and requires
the disclosure of sensitive and proprietary confidential information.
Accordingly, Tenant covenants and agrees that it will not assign this lease (or
any rights hereunder, including, without limitation rights under Article 34
hereof ) nor sublet the Premises or any part thereof or otherwise permit the
Premises or any part thereof to be used or occupied by any other person, firm or
entity for any purpose whatsoever (a) during the term of the M&S Agreement,
without the consent or approval by Landlord (which consent may be withheld,
delayed or conditioned in the sole discretion of Landlord), except to any entity
controlled by Tenant, and/or to an entity under common control with Tenant on
the date hereof, and (b) after the term of the M&S Agreement, without the
consent or approval by Landlord (which consent shall not be unreasonably
withheld, delayed or conditioned) and provided that, in each instance any such
assignee or subtenant agrees in writing to be bound by all the terms and
provisions of this lease. Tenant shall give Landlord prior written notice of the
proposed assignment or subletting and provide Landlord the name and address of
the assignee or subtenant.
29.2. The term "assign" and all derivatives thereof, shall be deemed
to include any transaction as a result of which any person or entity not
currently a holder of securities of Tenant shall have the power to elect (by
contract, share ownership or otherwise) a majority of the directors on the Board
of Directors of Tenant.
29.3 Nothing in this lease shall limit Tenant from or prevent Tenant
from leasing any equipment or fixtures or other personal property from any third
party, or granting any third party a security interest, mortgage, or other lien
or claim in or to any equipment or fixtures or other personal property owned by
Tenant in connection with the financing of such any equipment or fixtures or
other personal property.
ARTICLE 30.
WAIVERS AND SURRENDERS TO BE IN WRITING.
30.1 The receipt of Fixed Rent, additional rent or any other sums
due hereunder by Landlord, with knowledge of any breach of this lease by Tenant
or of any default on the part of Tenant in the observance or performance of any
of the conditions or covenants of this lease, shall not be deemed to be a waiver
of any provision of this lease. No failure on the part of Landlord or Tenant to
enforce any covenant or provision herein contained, nor any waiver of any right
hereunder by Landlord or Tenant (unless such waiver is in a writing signed by
the party to be charged), shall discharge or invalidate such covenant or
provision, or affect the right of Landlord or Tenant to enforce the same in the
event of any subsequent breach or default. The receipt by Landlord of any Fixed
Rent, additional rent, any other sum of money, or any other consideration paid
by Tenant after the expiration or termination, in any manner, of the Term shall
not reinstate, continue or extend the Term, unless so agreed to in writing and
signed by Landlord. Neither acceptance of the keys to any Improvement on the
Premises, nor any other act or thing done by Landlord or any agent or employee
during the Term, shall be deemed to be an acceptance of a surrender of the
Premises, excepting only an agreement in writing signed by Landlord accepting or
agreeing to accept such a surrender.
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ARTICLE 31.
LANDLORD'S RIGHTS AND REMEDIES CUMULATIVE.
31.1 The rights given to Landlord herein are in addition to any
rights that may be given to Landlord by any statute or otherwise. All of the
rights and remedies of Landlord under this lease or pursuant to present or
future law shall be deemed separate, distinct and cumulative, and no one or more
of them, whether exercised or not, nor any mention of, or reference to, any one
or more of them in this lease shall be deemed to be in exclusion of, or a waiver
of, any of the others, or of any of the other rights or remedies that Landlord
may have, whether by present or future law or pursuant to this lease. Landlord
shall have, to the fullest extent permitted by law, the right to enforce any
rights or remedies separately, and to take any lawful action or proceedings to
exercise or enforce any right or remedy, without thereby waiving, or being
barred or estopped from exercising and enforcing, any other rights and remedies
by appropriate action or proceedings.
ARTICLE 32.
TIMELY SURRENDER OF PREMISES;
REMOVAL OF PERSONAL PROPERTY.
32.1. Tenant shall, on or before the Expiration Date, or on the
sooner termination of this lease, peaceably and quietly leave, surrender and
yield up unto Landlord all and singular, the Premises free of all sub tenancies
and (except in the event of a termination of this lease by reason of
condemnation or the destruction of the Improvements as provided in this lease),
vacant, broom-clean, in good order and repair and in the same condition as
existed on the Commencement Date, normal wear and tear excepted. Landlord may
require Tenant to remove alterations to the Improvements permitted pursuant to
Section 11.1 hereof, unless such removal has been waived in writing by Landlord
prior to commencement thereof.
32.2. Tenant acknowledges that possession of the Premises must be
surrendered to Landlord on the Expiration Date or sooner termination of this
lease free and clear of all tenancies and occupants. The parties recognize and
agree that the damage to Landlord resulting from any failure by Tenant to timely
surrender possession of the Premises as aforesaid will be extremely substantial,
will exceed the amount of monthly rent theretofore payable hereunder, and will
be impossible of accurate measurement. Tenant therefor agrees that if possession
of the Premises is not surrendered to Landlord on the Expiration Date or sooner
termination of this lease, then Tenant agrees to pay Landlord as liquidated
damages for each month and for each portion of any month during which Tenant
holds over in the Premises after such Expiration Date or earlier termination
date, as the case may be, (x) a sum equal to two (2) times the average Fixed
Rent and (y) an amount equal to two (2) times the additional rent which was
payable under this lease during the month immediately preceding the Expiration
Date or earlier termination date. Should Tenant hold over in possession of the
Premises after the expiration of the Term, as extended, such holding over shall
not be deemed to extend the Term or renew this lease, but this lease shall
continue as a tenancy from month to month upon the terms and conditions herein
contained and at the rents provided in this Section.
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32.3. Should Landlord incur any expense in removing any subtenant,
or any other person holding by, through, or under Tenant, who has failed to so
surrender the Premises, or any part thereof, Tenant, without notice or demand
therefor, shall reimburse Landlord for the reasonable cost and expense
(including, without limitation, reasonable attorneys' fees, disbursements and
court costs) of removing such subtenant or such person.
ARTICLE 33.
SALE OR CONVEYANCE OF PREMISES;
LIMITS OF LIABILITY OF LANDLORD.
33.1 Landlord's liability shall be limited to such amount which is
the Landlord's equity in the Premises at the time of and in the event of a
breach by Landlord of any of the terms, covenants and conditions of this lease
to be performed by Landlord and in no event shall Tenant be entitled to recover
damages from Landlord in excess of the applicable sum.
ARTICLE 34
TENANT'S PURCHASE OPTION.
34.1. For, and in consideration of the payment to Landlord on the
date hereof of the sum of One Hundred Thousand dollars ($100,000) (this amount,
together with the $150,000 referred to in Section 33.1(d) the "Option Payment")
Tenant shall have the right to purchase fee title to the Premises from Landlord
(the "Purchase Option") upon the terms and conditions set forth in that certain
written agreement annexed to this lease as Exhibit F (the "Contract of Sale" and
subject to the following:
(a) Tenant must exercise the Purchase Option by duly signing the
Contract of Sale, without modification, and delivering the same to Landlord at
least forty-five (45) days prior to the Expiration Date, together with a check
payable to Landlord's counsel, as escrow agent, representing the Deposit
required pursuant to the terms of the Contract of Sale.
(b) The closing date under the Contract of Sale shall be the earlier
of the following: (i) the date which is ninety (90) days after Tenant exercises
the Purchase Option or (ii) the Expiration Date.
(c) The Purchase Option shall terminate upon the expiration or
termination of this lease or in the event that Tenant is in default hereunder.
(d) In the event that either Tenant shall not have exercised the
Purchase Option or, if exercised, closing of the Contract of Sale shall not have
occurred prior to the Expiration Date of the Initial Term for any reason other
than Landlord's Acts, the Purchase Option and the Contract of Sale shall be void
and of no further force or effect and shall be deemed canceled without further
liability of either party thereto to the other for any matter whatsoever
thereunder, unless Tenant shall have paid to Landlord, as additional
consideration for the Purchase Option, the sum of One Hundred Fifty Thousand
Dollars ($150,000.00) (in addition to all other amounts paid by Tenant to
Landlord prior to such Expiration Date of the Initial Term).
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(e) Tenant shall pay any and all transfer tax liability arising from
the grant of the Purchase Option and Landlord shall pay any and all transfer tax
liability arising upon transfer of the Premises pursuant to the Contract of
Sale.
(f) No portion of the Fixed Rent, additional rent or consideration
for the Purchase Option paid by Tenant shall be applied against the Purchase
Price payable pursuant to the Contract of Sale; provided, however, that if the
Purchase Option shall be exercised and the closing of the Contract of Sale shall
occur in the first Lease Year or the first six (6) months of the second Lease
Year, Tenant shall be entitled to a credit against the purchase price thereunder
the an amount equal the excess, if any, of (a) the aggregate amount of Fixed
Rent paid by Tenant to the date of such closing over (b) the amount of Fixed
Rent which would have been paid had Fixed Rent been payable during such Lease
Year in equal monthly installments, in advance.
ARTICLE 35.
TENANT TO FURNISH STATEMENTS.
35.1. Tenant shall, within fifteen (15) days after the written
request of Landlord, or of any holder or potential holder of a fee mortgage on
the Premises, furnish a written statement, duly acknowledged, setting forth the
following items:
(a) the amount of Fixed Rent and additional rent due, if any,
under this lease as of the date of such statement; and
(b) whether this lease is unmodified and in full force and
effect (or, if there have been modifications, that the lease is in full force
and effect as modified and stating the modifications); and
(c) whether, to the best knowledge and belief of Tenant,
Landlord is in default and if so, specifying the nature of the default: and
(d) whether, to the best knowledge and belief of Tenant, there
are any offsets against any sum of money payable by Tenant hereunder or defenses
against the enforcement of any of the terms, covenants and conditions of this
lease on the part of the Tenant to be performed or observed and if so,
specifying the nature of the offset or defense; and
(e) whether Tenant has given Landlord any notice of default
under this lease, and if given, whether the default set forth therein remains
uncured; and
(f) such other information concerning the status of this lease
as Landlord, or the holder or potential holder of a fee mortgage on the
Premises, may reasonably request.
Any such statement shall be for the sole benefit of Landlord or its assigns or
such holder or potential holder of a fee mortgage requesting the same or its
assigns, and shall have no effect, as an estoppel or otherwise, with respect to
any third party.
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35.2. Upon the failure of Tenant to furnish such statement within
the said fifteen (15) day period, it shall be conclusively presumed that this
lease is in full force and effect and that there are no defaults on the part of
Landlord hereunder and no offsets against, or defenses to, the Tenant's
obligations hereunder.
35.3. Should Tenant demonstrate reasonable need therefor, Landlord
shall promptly provide Tenant with similar, reciprocal statements.
ARTICLE 36.
INSPECTIONS BY LANDLORD.
Tenant shall permit an inspection of the Premises and all books and
records pertaining thereto and the operation thereof to the extent, and only to
the extent, necessary to verify Tenant's compliance herewith during business
hours, on reasonable prior notice to Tenant, by Landlord, by Landlord's agents
or representatives, and by, or on behalf of, prospective purchasers and/or
mortgagees of the fee interest in the Premises. If, at any time by reason of an
emergency condition an entry shall be deemed necessary for the protection of the
Premises, whether for the benefit of Tenant or not, Landlord, or Landlord's
agents or representatives, may enter the Premises without prior notice to Tenant
and accomplish such purposes. Landlord shall make all inspections in a manner
which will not unreasonably interfere with Tenant's business operations pursuant
to the terms of Section 8 of the M&S Agreement, whether or not the M&S Agreement
shall be in effect as though the provisions thereof were fully incorporated
herein. Any such inspection shall be at Landlord's sole risk and Tenant shall
not be liable for any injuries to persons or for property damage occurring
during any inspection unless the same is caused by the act or omission of
Tenant, its agents or employees.
ARTICLE 37.
COVENANTS BINDING ON SUCCESSORS AND ASSIGNS.
The covenants, agreements, terms, provisions and conditions
contained in this lease shall apply to, inure to the benefit of and be binding
upon Landlord, Tenant and their respective executors, administrators, legal
representatives, heirs, successors and permitted assigns, except as expressly
otherwise hereinabove provided.
ARTICLE 38.
ENTIRE AGREEMENT
This lease contains the entire agreement between the parties, and
shall not be modified in any manner except by an instrument in writing executed
by the parties or their respective successors in interest. All prior
discussions, negotiations and agreements, whether oral or written between the
parties with respect to this lease and the letting of the Premises, are merged
herein.
35
<PAGE> 40
ARTICLE 39.
NOTICES
Any notice, demand, election, or other communication (hereinafter
referred to as a "Notice") that, under the terms of this lease or under any
statute, must or may be given by the parties hereto shall be in writing and
shall be given by mailing the same by registered or certified mail, return
receipt requested, in a prepaid wrapper, or by courier if a signed receipt is
obtained upon delivery, addressed:
If to Landlord:
Par Pharmaceutical, Inc.
One Ram Ridge Road
Spring Valley, New York 10977
Attn:
With a Copy To:
Kirkpatrick & Lockhart LLP
1251 Avenue of the Americas
New York, New York 10020
Attn: Stephen A. Ollendorff, Esq.
If to Tenant:
Halsey Drug Co., Inc.
695 No. Perryville Road
Rockford, Illinois 61107
Attn:
With a Copy To:
St. John & Wayne, L.L.C.
Two Penn Plaza East
Newark, New Jersey 07105
Attn: Mark B. Rosenman, Esq.
39.1. Either Landlord or Tenant may designate by Notice a new or
other address or other persons, not exceeding an aggregate of three (3) Notices
for each party, to which and to whom Notices and copies of Notices shall
thereafter be given and any addressee entitled to receive copies of Notices as
set forth in Section 38.1 may designate by Notice a new or other address to
which such copies shall thereafter be given. Any Notice given by mail hereunder
shall be deemed given three (3) days after the same is deposited in a United
States general or branch post office, or in an official United States mail
depository, located in the State of New York, enclosed in a registered or
certified mail prepaid wrapper, return receipt requested, addressed as
hereinabove
36
<PAGE> 41
provided and any notice given by courier wherein a delivery receipt is obtained
shall be deemed given one (1) day after delivery is made.
ARTICLE 40.
MISCELLANEOUS.
40.1. This lease shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York.
40.2. The captions of this lease and the index preceding this lease
are for convenience and reference only and in no way define, limit or describe
the scope or intent of this lease, nor in any way affect this lease.
40.3. All the provisions of this lease shall be deemed and construed
to be "conditions" as well as "covenants", and "covenants" as well as
"conditions" as though the words specifically expressing or importing covenants
and conditions were used in each separate provision hereof.
40.4. Words of any gender in this lease shall be held to include any
other gender and words in the singular number shall be held to include the
plural when the sense requires.
40.5. If and to the extent that a provision of this lease shall be
unlawful or country to public policy, the same shall not be deemed to invalidate
the other provisions of this lease.
ARTICLE 41.
MEANINGS OF CERTAIN LEASE TERMS.
As the same are used in this lease, the following terms shall have
the following meanings:
(a) The term "additional rent" shall mean all sums of money,
other than the Fixed Rent, as shall become due from Tenant to Landlord
hereunder, and Landlord shall have the same remedies therefor as for a default
in payment of Fixed Rent.
(b) The term "rents" shall mean Fixed Rent and additional rent
hereunder.
(c) The term "mortgage" shall include an indenture of mortgage
and deed of trust to a trustee to secure an issue of bonds, and the term
"mortgagee" shall include such a trustee.
(d) The term "obligations of this lease" and words of like
import, shall mean the covenants to pay the Fixed Rent and additional rent under
this lease and to perform and observe all of the other covenants and conditions
contained in this lease. Any provision in this lease that one party or the other
or both shall do or not do or shall cause or permit or not cause or permit
37
<PAGE> 42
a particular act, condition or circumstance shall be deemed to mean that such
party so covenants or both parties so covenant, as the case may be.
(e) The term "Tenant's obligations" hereunder, and words of
like import, and the term "Landlord's obligations" hereunder, and words of like
import shall mean the obligations of this lease which are to be performed or
observed by Tenant, or by Landlord, as the case may be. Reference to
"performance" of either party's obligations under this lease shall be construed
as "performance and observance". Tenant's obligations hereunder shall be
construed in every instance as conditions as well as covenants.
(f) Reference to Tenant being or not being "in default
hereunder", or words of like import, shall mean that Tenant is in default in the
performance of one or more of Tenant's obligations on its part to be performed
or observed hereunder or that Tenant is not in default in the performance of any
of Tenant's obligations on its part to be performed or observed hereunder or
that a condition of the character described in Articles 16 or 17 has occurred
and continues or has not occurred or does not continue, as the case may be.
(g) The term "repair" shall be deemed to include restoration,
rebuilding and replacement of parts as may be necessary to achieve and/or
maintain good working order and condition.
(h) The words "include", "including" and "such as" shall each
be construed as if followed by the phrase "without being limited to".
(i) The words "herein", "hereof", "hereby", "hereunder" and
words of similar import shall be construed to refer to this lease as a whole and
not to any particular Article or subdivision thereof unless expressly so stated.
(j) [intentionally omitted]
(k) The term "laws and/or requirements of public authorities"
and words of like import shall mean laws and ordinances of any or all of the
Federal, state, city, county and borough governments and rules, regulations,
orders and/or directives of any or all departments, subdivisions, bureaus,
agencies or offices thereof, or of any other governmental, public or
quasi-public authorities, having jurisdiction in the premises, and/or the
direction of any public officer pursuant to law.
(l) The term "requirements of insurance bodies" and words of
like import shall mean rules, regulations, orders and other requirements of the
New York Board of Fire Underwriters and/or the New York Fire Insurance Rating
Organization and/or any other similar body performing the same or similar
functions and having jurisdiction or cognizance of the building and/or the
Premises.
(m) Reference to "termination of this lease" includes
expiration or earlier termination of the term of this lease or cancellation of
this lease pursuant to any of the provisions
38
<PAGE> 43
of this lease or by law or by exercise of the Purchase Option and the purchase
of the Premises pursuant to the Contract of Sale. Upon a termination of this
lease, the term and estate granted by this lease shall end at noon of the date
of termination as if such date were the Expiration Date of this lease and
neither party shall have any further obligation or liability to the other after
such termination except (i) as shall be expressly provided for in this lease, or
(ii) for such obligation as by its nature or under the circumstances can only
be, or by the provisions of this lease, may be, performed after such
termination, and, in any event, unless expressly otherwise provided in this
lease, any liability for a payment which shall have accrued to or with respect
to any period ending at the time of termination shall survive the termination of
this lease.
(n) The term "in full force and effect" when herein used in
reference to this lease as a condition to the existence or exercise of a right
on the part of Tenant shall be construed in each instance as meaning that at the
time in question this lease has not expired or otherwise been terminated.
(o) All references in this lease to numbered Articles and
lettered exhibits are references to Articles of this lease and Exhibits annexed
to (and thereby made part of) this lease, as the case may be, unless expressly
otherwise designated in the context.
(p) Wherever in this lease the term "assignee" or "other
successor in interest" is set forth, the same shall be construed to mean only if
the assignment or instrument creating the successor in interest is permitted
under the terms of this lease and shall not be construed to grant Tenant any
rights not herein specifically set forth.
(q) Wherever in this lease the terms "agents or employees" are
used, or any combination or addition thereto, the same shall be deemed to
include "agents, employees, servants, licensees, representatives, contractors,
subcontractors, visitors and invitees".
(r) The term "FORCE MAJEURE" as used herein shall mean any
period of delay which arises through acts of God, strikes, lockouts or labor
difficulty, embargoes, explosion, sabotage, riot or civil commotion, acts of
war, fire or other casualty not caused by the party claiming force majeure and
other causes which are unavoidable and beyond the reasonable control of the
party claiming force majeure.
ARTICLE 42.
[Intentionally Omitted]
ARTICLE 43.
LEASE NOT BINDING UNLESS EXECUTED
Landlord's submission of this lease for execution by Tenant shall
confer no rights nor impose any obligations on either party unless and until
both Landlord and Tenant shall have executed this lease and duplicate originals
thereof shall have been delivered to the respective parties. Without limiting
the foregoing, it is agreed that Landlord's submission of this lease to Tenant
shall
39
<PAGE> 44
not be construed as an offer by Landlord to lease the Premises to Tenant on the
terms herein contained.
ARTICLE 44.
APPOINTMENT OF LANDLORD AS AGENT.
(a) Tenant acknowledges and agrees that it has irrevocably appointed
Landlord as its agent and attorney-in-fact solely for certain purposes specified
in the M&S Agreement. Tenant further acknowledges and agrees that any actions
taken by Landlord thereunder shall not constitute repossession or control by
Landlord of the Premises hereunder, shall not modify or affect, in any way, the
terms of this lease and shall not relieve Tenant of any responsibility or
obligation hereunder.
(b) Tenant acknowledges and agrees that Landlord's actions as agent
for Tenant will not constitute any act that is stayed under Section 362 of the
United States Bankruptcy Code. Notwithstanding this acknowledgment, if a court
of competent jurisdiction determines that such actions are stayed by Section 362
of the Bankruptcy Code, then Landlord hereby waives the protection of Section
362 of the Bankruptcy Code, but only to the extent necessary to allow Landlord
to engage in such actions and for no other purpose. Further, if it is necessary
for Landlord to obtain, from a court of competent jurisdiction, relief from such
stay in order to take such actions, then Tenant hereby consents to such relief
and will consent to Landlord's request for such relief when made to the
appropriate court.
(c) In the event that an order for relief is issued in respect of
Tenant under the Bankruptcy Code, tenant shall made a decision to assume or
reject this lease under Section 365 of the Bankruptcy Code within thirty (30)
days of the issuance of such order for relief.
ARTICLE 45.
ARBITRATION OF CERTAIN DISPUTES.
Should any dispute arise out of or in connection with this lease,
Landlord and Tenant shall attempt in good faith to resolve such dispute. If,
notwithstanding such efforts, such dispute is not resolved within thirty (30)
days from the date written notice thereof is delivered by one party to the
other, such dispute shall be settled by arbitration by, and in accordance with,
the then existing Commercial Arbitration Rules--Expedited Procedures of the
American Arbitration Association ("AAA"). Hearings with regard to such dispute
shall be held at the offices of the AAA in the City of New York and judgment
upon any award rendered pursuant to this Article 45 may be entered in any court
of competent jurisdiction. Any award rendered pursuant to the terms and
conditions set forth herein shall be final and binding. Any such arbitration
shall be had before a single arbitrator designated in accordance with the rules
of the AAA. Each party to the arbitration shall pay one-half the cost and
expense thereof, including, without limitation, arbitration fees and the
expenses of a court reporter, and each shall separately pay for its own
attorneys' fees and expenses therein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement of lease as of the day and year first-above written.
40
<PAGE> 45
PAR PHARMACEUTICAL, INC.
By: /S/ Kenneth Sawyer
---------------------------------------
Title: President
HALSEY DRUG CO., INC.
By: /S/ Peter Clemens
---------------------------------------
Title: Chief Financial Officer
41
<PAGE> 46
ACKNOWLEDGMENT
STATE OF NEW YORK )
) ss.:
COUNTY OF )
On the _____________ day of __________________, 1999, before me
personally came ____________________, to me known, who being by me duly sworn,
did depose and say that he resides at __________________________ New York, that
he is the _____________ of __________________, the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
___________________________________________
NOTARY PUBLIC
STATE OF NEW YORK )
)ss.:
COUNTY OF )
On the ________ day of ____________________, 1999, before me
personally came _______________________, to me known, who being by me duly
sworn, did depose and say that he resides at _______________________; that he is
the ___________________ of _______________________, the corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the Board of Directors of said corporation.
___________________________________________
NOTARY PUBLIC
<PAGE> 1
Exhibit 10.54
[Lease Agreement dated September 1, 1998 between
the Registrant and Crimson Ridge Partners]
LEASE
THIS LEASE, made and entered into this 1 day of September, 1998, by and
between CRIMSON RIDGE PARTNERS, (hereinafter referred to as "Lessor") and HALSEY
DRUGS COMPANY, 1827 Pacific Street, Brooklyn, New York 11233 (hereinafter
referred as "Lessee").
WITNESSETH
That in consideration of the covenants, agreements, mutual promises and
other provisions herein contained, the parties hereto agree as follows:
I.
LEASED PREMISES
Lessor hereby leases to Lessee and Lessee leases from Lessor, for the term
and upon the terms and conditions hereinafter set forth, approximately 4,620
square feet located in Suite No. 4 at Crimson Ridge Building No. 2, located at
695 North Perryville Road, Rockford, Illinois.
II.
TERM
The term of this Lease shall commence on the date which the Lessor
completes its build-out requirements as set forth in Article VI hereof, and
shall terminate two (2) years thereafter. Lessee shall be allowed immediate
access to the premises for necessary construction in preparing the premises for
occupancy.
<PAGE> 2
III.
RENT
As consideration for the lease of the above-described premises, Lessee
shall pay the Lessor the sum of Three Thousand Eight Hundred Fifty and no/100
Dollars ($3,850.00) per month commencing the lst day of the term of this Lease.
Said rental payments shall continue each and every month thereafter during the
term of this Lease. Each monthly rental payment shall be paid by Lessee to
Lessor in advance on or before the 1st day of each and every succeeding month of
the lease term hereof, without notice or demand at such place and to such agent,
if any, of the Lessor, as the Lessor may from time to time designate in writing.
The first month's rent shall be paid by the Lessee at the time of execution of
this lease; the actual amount of the first month's rent shall be subsequently
adjusted if necessary to allow for the possibility that the first month of the
Lease is actually a partial month. Any credit due from such adjustment will be
credited against the second month's rent. In addition to said rent, the Lessor's
cost of the buildouts provided in Article VI.A shall be reimbursed to Lessor by
Lessee in equal monthly payments amortized over the initial term of this Lease.
IV.
DEPOSIT
Lessee shall pay to Lessor at the execution of this Lease the sum of Three
Thousand Eight Hundred Fifty and no/100 Dollars ($3,850.00) as a security
deposit.
V.
UTILITIES
The Lessee agrees to pay all utility services rendered or furnished to the
premises being leased during the term hereof, including heat, air conditioning,
water, gas, electric, telephone, sewer, garbage removal, levies, fees or other
charges of such utilities. The utilities servicing the leased
<PAGE> 3
premises shall be metered separately from utilities provided to other tenants
occupying the same building; Lessor shall pay the cost of having the utility
meters installed on these premises.
VI.
ALTERATIONS
A. Lessor shall build two (2) mens' toilet rooms and two (2) womens'
toilet rooms in the premises, and shall construct four (4) separate office rooms
in the leased premises. The construction shall conform to the requirements of
the Americans' with Disability Act and applicable building codes.
B. Lessee may make alterations, changes, additions or improvements to the
premises provided that the same shall not lessen or materially and
disadvantageously affect the value of the building, after first obtaining
Lessor's written consent therefore, which consent Lessor agrees shall not be
unreasonably withheld or delayed. An alterations, additions or improvements of
premises by Lessee or any sublessee or other occupant of the within demised
premises during the term of this Lease, shall become the property of the Lessor
upon the expiration of the term of this Lease with the exception of the
telephone and security systems, which shall remain property of the Lessee.
C. Lessee shall indemnify and save Lessor harmless from any and all
liabilities, damages or penalties, and any costs, expenses or claims, including
reasonable attorneys' fees, of any kind or nature, arising out of said
construction, alteration or additions or improvements made by Lessee; such
indemnification shall apply to any damages or injury to person or property.
Lessee further agrees to pay and discharge any mechanic's, materialmen's or
other liens against the leased premises or Lessor's interest therein claimed in
respect to any labor, services, materials, supplies or equipment furnished or
alleged to have been furnished to or upon request of the Lessee. Provided,
however,
<PAGE> 4
the provisions of this paragraph shall not prohibit the Lessee from disputing in
good faith any such mechanic's lien, materialmen's or other lien so long as such
dispute is without cost to the Lessor.
D. Lessor shall deliver the premises to the Lessee in its present
condition. Lessee shall build-out the premises at its sole expense, except for
the improvements to be provided by Lessor as provided in subparagraph A hereof,
and, except the Lessor agrees to provide the Lessee with an allowance for a
lighting expense not to exceed One and no/100 Dollar ($1.00) per square foot and
an allowance for flooring expense not to exceed One and 351100 Dollars ($1.35)
per square foot. Lessor shall reimburse Lessee within ten (10) days after
presentation of invoices by Lessee for its actual expenses incurred up to the
amount of said allowances. At commencement of the Lease, the Lessor shall
certify that the premises complies with Americans' with Disability Act, all
applicable building codes, and that the premises is going to be occupied.
VII.
USE OF DEMISES PREMISES
Lessee shall use the premises for its operation of an office for
pharmaceuticals and drugs in the ordinary course of its business, and for such
other purpose as Lessor may from time to time consent in writing. The premises
may not be used for any extra hazardous use nor in violation of any ordinance,
statute, government regulation or law. After written notice to Lessor, Lessee
may, at its sole cost and expense, contest in good faith the validity of any
law, ordinance, regulation or rule adversely affecting its use of the demised
premises; provided, however, that in any event, the Lessee shall indemnify and
hold Lessor harmless from any expenses or consequences of such litigation.
Lessor shall not be liable to Lessee for any damage occasioned by
plumbing, electrical, gas, water, steam or other utility pipes, systems and
facilities unless caused by failure of Lessor to
<PAGE> 5
perform its obligations under this lease, the negligence or wilful misconduct of
Lessor or Lessor's agents or any damage arising from any acts or neglect of the
Lessee. Lessee shall not perform any acts or carry on any practices which may
injure the building and shall keep the leased premises under its control, clean
from rubbish and dirt at all times.
VIII.
INSURANCE
Lessee, during the entire term of this Lease agreement, shall maintain
(and the Lessor shall be so named as an insured in any such policies), general
public liability and property damage insurance against claims for bodily injury
or death and property damage occurring upon the premises or areas adjacent
thereto, to the extent of not less than $1,000,000.00 for bodily injury or death
to any person, and to the extent of not less than $1,000,000.00 for bodily
injury or death to any number of persons arising out of the same accident or
disaster, and to the extent of $500,000.00 for property damage. Lessor shall
obtain and maintain replacement insurance on the building in which the ]eased
premises are located against casualty, fire, vandalism and malicious mischief
and such other risks as may be included in extended coverage insurance from time
to time available, which policy v,d) contain a cause pursuant to which the
insurance carrier waives all rights of subrogation against lessee with respect
to the losses payable under such policy. Lessee shall maintain its own insurance
on the contents of the demised premises to the full value thereof, insuring the
parties of interest as they may appear. Lessee shall pay its pro rata share of
the cost of casualty insurance on the leased premises. Lessee's pro rata share
shall be computed on the ratio that the total area of the leased premises bears
to the total leasable square feet of the building in which the leased premises
is located.
<PAGE> 6
IX.
TOTAL OR PARTIAL DESTRUCTION
In the event the building constituting the leased premises shall be
partially or totally destroyed by fire or other casualty so as to become
partially or totally untenable, the same shall be repaired as speedily as
possible without expense to the Lessee (unless Lessor shall elect not to rebuild
as hereinafter provided), and a just and proportionate part of the rent shall be
abated until so repaired. In any event, the Lessor shall only rebuild and
replace that part of the leased premises which it was obligated to provide
Lessee; provided, however, the replacement premises shall be of a comparable
quality building to the building in which the leased premises is located. Should
the Lessor elect not to rebuild, which election may be made only if more than
forty percent (40%) of the demised premises is destroyed, the Lease shall be
terminated as of the date of the casualty. Notice of such election not to
rebuild shall be given to the Lessee not more than forty-five (45) days from the
date of the casualty. Provided, however, (a) if more than forty percent (40%) of
the demised premises is destroyed, or (b) Lessor does not complete all required
repairs within ninety (90) days of the casualty, Lessor shall not have completed
all necessary repairs. Lessee may elect to terminate this Lease by giving
written notice within thirty (30) days of the destruction of the premises to the
Lessor.
If such damage or destruction occurs and this Lease is not so terminated,
this Lease shall remain in full force and effect and the parties waive the
provisions of any law to the contrary. Lessor shall have no interest in the
proceeds of any insurance carried by Lessee on Lessee's interest in this Lease,
and Lessee shall have no interest in the proceeds of any insurance carried by
Lessor.
<PAGE> 7
X.
ASSIGNMENT AND SUBLETTING
Lessee shall not assign nor sublet the leased premises or any part or
parts thereof, nor sublet the leased premises or any part or parts thereof, nor
permit occupancy by Anyone with, through or under it, without previous written
consent of the Lessor, which consent Lessor agrees not to unreasonably withhold
or delay; provided, however, that the Lessee has the right to assign its
interest in this Lease to a successor by merger or acquisition without the
Lessor's consent. Consent by Lessor to one or more assignments of this Lease or
to one or more sublettings of the leased premises shall not operate as a waiver
of Lessor's right under this article to any subsequent assignment or subletting
nor release Lessee or any guarantor of Lessee of any of its obligations under
this Lease or be construed or taken as a waiver of Lessor's rights or remedies
hereunder. Lessee shall not mortgage or otherwise encumber this Lease, except to
provide a collateral assignment of the Lease to a commercial lender, the terms
of which assignment shall provide that the lender will assume the rent premises
and other obligations of the Lessee as set forth herein, and shall not
subsequently assign or sublet the Lease without the prior written consent of the
Lessor, which consent shall not be unreasonably withheld.
Neither this Lease nor any interest therein, nor any estate therein
created, shall pass to any trustee or receiver in bankruptcy or any assignee for
the benefit of creditors, or by operation of law.
<PAGE> 8
XI.
EMINENT DOMAIN
If all or any part of the leased premises shall be taken by any public
authority under the power of eminent domain, then the term of this Lease shall
cease on the part so taken from the date of possession of that part, and the
rent shall be paid up to that day. If such portion of the leased premises is so
taken as to destroy or materially impair the usefulness of the premises for the
purpose for which the premises were leased, then from that day, both Lessor and
Lessee shall have the right to terminate this Lease within thirty (30) days
thereafter. If this Lease is not terminated by either, the lessee shall continue
in possession of the remainder of the leased premises under the terms herein
provided, in which event, the rent shall be equitably reduced in proportion to
the area of the premises taken. Lessor reserves to itself and Lessee assigns to
Lessor all rights to damages accruing on account of any taking or condemnation,
or by reason of any act of any public or quasi public authority for which
damages are payable. All damages awarded for such taking shall belong to and be
the property of the Lessor whether such damages shall be awarded as compensation
for diminution in value to this leasehold or to Lessor underlying leasehold or
fee of the premises herein leased. Lessee agrees to execute such instruments of
assignment as may be required by Lessor to join with Lessor in any petition for
recovery of damages if requested by Lessor, and to turn over to Lessor any such
damages that may be received in any such proceedings. Not withstanding the
foregoing, Lessor does not reserve to itself nor shall it be entitled to any
damages payable for trade fixtures owned by Lessee, or alterations made by
Lessee at its own expense, or for any award as may be attributable to the moving
expenses of the Lessee.
<PAGE> 9
XII.
QUIET ENJOYMENT
Lessee, upon paying the rent and performing the covenants and agreements
of this Lease, shall quietly have, hold and enjoy the demised premises and all
rights granted Lessee in this Lease during the term hereof and extension hereto,
if any.
Lessor and Lessor's authorized representative shall have the right to
enter upon the leased premises at all reasonable hours, upon reasonable notice
to Lessee, for the purpose of inspecting the same or of making repairs,
additions or alterations thereof, or to the building in which the same are
located, or for the purpose of exhibiting the same to prospective lessees,
purchasers or others. Lessor shall not be liable to Lessee in any manner for any
such action nor shall the exercise of such right be deemed an eviction or
disturbance of Lessee's use or possession.
XIII.
SUBORDINATION
Lessee hereby agrees that its leasehold interest hereunder is, and shall
be, subordinate to any mortgages now on, or hereafter to be placed on, the
premises leased hereunder; provided that so long as the Lessee is not in default
under said Lease agreement, the Lessee's quiet possession of the demised
premises shall remain undisturbed, and this Lease shall remain in full force and
effect on the terms and conditions stated herein, whether or not the mortgage is
in default and notwithstanding any foreclosure or other action brought by the
holder of the mortgage.
This subordination agreement shall be self-operative and no further
instrument or certificate of subordination shall be required from Lessee. Lessor
shall use its good faith effort to obtain a non-disturbance agreement from each
of its mortgagees, which would allow the Lessee to continue occupancy of the
premises uninterrupted pursuant to the terms of this Lease.
<PAGE> 10
XIV
WAIVER
No waiver of any breach of any one of the conditions or covenants of the
within Lease agreement by Lessor or Lessee shall be deemed to imply or
constitute a waiver of any other condition or covenant of the within Lease
agreement. The failure of either party to insist on strict performance of any
condition or covenant herein set forth, shall not constitute or be construed as
a waiver of the rights of either or the other thereafter to enforce any other
default of such condition or covenant; neither shall such failure to insist upon
strict performance be deemed sufficient grounds to enable either party hereto to
forego or subvert or otherwise disregard any other term, provision, condition or
covenant of the within Lease agreement.
XV.
NOTICE
Any notices required or permitted hereunder shall be in writing and
delivered to the other party or the other party's authorized agent, either in
person or by United States Certified Mail, Return Receipt Requested, postage
fully prepaid, to the address set forth hereinafter, or to such other addresses
as either party may designate in writing and deliver as herein provided:
LESSOR: Jim Dixon
Crimson Ridge Partners
3926 Broadway
Rockford, Illinois 61108
LESSEE: Halsey Drugs Company
1827 Pacific Street
Brooklyn, NY 11233
Notice mailed pursuant to the terms of this paragraph shall be deemed served
seven (7) days after the date of mailing.
<PAGE> 11
XVI.
SURRENDER OF PREMISES BY LESSEE
The Lessee covenants and agrees to deliver up and surrender to the Lessor
the possession of the demised premises upon the expiration of the Lease or its
termination, as herein provided, in good condition and repair, ordinary wear and
tear excepted, and except for damages caused by casualty, loss and any other
loss for which the Lessee is not responsible.
If Lessee shall remain in possession of the demised premises after the
expiration of the term of this Lease, then the Lessee shall be deemed Lessee of
the demised premises from month to month at a rental rate equal to twice the
most recent monthly rental rate due during the term of this Lease, and subject
to all the terms and conditions hereto, except only as to the term of this
Lease.
XVII.
DEFAULT AND REMEDIES OF LESSOR
Lessee shall be deemed to be in default in the terms of this Lease if any
one or more of the following events, each of such is herein sometimes called
"Event of Default," shall happen:
A. If default shall be made in the due and punctual payment of any rent,
or other sums required to be paid by Lessee under this Lease when and as the
same shall become due and payable, and such default shall continue for a period
of five (5) business days after written notice thereof is served from Lessor to
Lessee. Provided, however, that Lessor shall not be obligated to furnish Lessee
with more than two written notices of default as required in this paragraph A in
any calendar year during the term of this lease.
B. If default shall be made by Lessee in the performance of or compliance
with any of the covenants, agreements, terms, or conditions contained in this
Lease and such default shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee, provided
<PAGE> 12
that Lessee's time to cure such default shall be extended for such additional
time as shall be reasonably required for the purpose if Lessee shall proceed
with due diligence during such thirty (30) day period to cure such default and
is unable by reason of the nature of the work involved to cure the same within
said thirty (30) days, and if such extension of time shall not subject
Lessor-Lessee to any liability, civil or criminal, and the interest of the
Lessor in this Lease shall not be jeopardized by reason thereof.
Upon the occurrence of an Event of Default, the Lessor shall have the
option, without further notice to Lessee or further demand for performance, to
proceed as follows:
(i) To institute suit against Lessee to collect each installment of rent
or other sum as it becomes due or to enforce any other obligation under this
Lease; or
(ii) To re-enter and take possession of the leased premises and all
personal property therein and to remove Lessee and Lessee's agents and employees
therefrom, upon obtaining a court order pursuant to the Illinois Forcible Entry
& Detainer Act or otherwise, and either:
(a) Terminate this Lease and sue Lessee for damages for breach of
the obligations of Lessee to Lessor under this Lease; or
(b) Without terminating this Lease, relet, assign or sublet the
premises, as the agent and for the account of Lessee in the name of Lessor or
otherwise, upon the best terms and conditions Lessor may make with the new
lessee for such term or terms (which may be greater or less than the period
which would otherwise have constituted the balance of the term of this Lease)
and on such conditions as Lessor, in its reasonable discretion, may determine
and may collect and receive the rent therefor, provided Lessor shall in no way
be responsible or liable for any failure to relet the demised premises or any
part thereof, or for any failure to collect any rent due upon any such
reletting. In this event, the rents received on such reletting shall be first
applied to the costs of
<PAGE> 13
collection, including without limitation, all repossession costs, reasonable
attorneys' fees, and any real estate commission paid, reasonable costs of
alterations and expenses of preparing said premises for reletting, and
thereafter towards the payment of the rental and of any other amounts payable by
Lessee to Lessor. If the sum realized shall not be sufficient to pay such rent
and other charges within five (5) days after written demand, Lessee will pay to
Lessor any such deficiency as it accrues. Lessor may sue therefor as each
deficiency shall arise if Lessee shall fail to pay such deficiency within the
time limited. Lessee may tender a proposed tenant to the Lessor in mitigation of
its damages for the remainder term of this Lease, which tender shall not be
unreasonably rejected by Lessor, after considering the financial condition of
the proposed tenant, nature of the proposed tenant's business, and other factors
which a reasonably prudent lessor would consider in leasing the premises.
In the event Lessor elects to re-enter or take possession of the demised
premises, Lessee shall quit and peaceably surrender the demised premises to
Lessor, and Lessor may enter upon and re-enter the demised premises and possess
and repossess itself thereof, by force, summary proceedings, ejectment or
otherwise, and may dispossess Lessee and remove Lessee and may have, hold and
enjoy the demised premises and the right to receive all rental income of and
from the same.
C. No such re-entry or taking of possession by Lessor shall be
construed as an election on Lessor's part to terminate or surrender this Lease
unless a written notice of such intention is served on Lessee.
D. The enumeration of the foregoing remedies does not exclude any
other remedy, but all remedies are cumulative and shall be in addition to every
other remedy now or hereafter existing at law or in equity.
<PAGE> 14
E. No failure of either party to insist upon the strict performance
of any covenant, agreement, term or condition of this Lease or to exercise any
right or remedy consequent upon a breach thereof, and no acceptance of fun or
partial rent during the continuance of any such breach, shall constitute a
waiver of any such breach, or of such covenant, agreement, term or condition. No
covenant, agreement, term or condition of this Lease to be performed or complied
with by either party, and no breach thereof, shall be waived, altered, modified
or terminated except by a written instrument executed by either party. No waiver
of any breach shall affect or alter this Lease, but each and every covenant,
agreement, term and condition of this Lease shall continue in fun force and
effect with respect to any other then existing or subsequent breach thereof.
F. In the event of default by the Lessee, the Lessee shall pay a
reasonable costs incurred by the Lessor by reason thereof, including but not
limited to reasonable attorneys' fees.
G. In addition to the other remedies provided herein, in the event
the Lessee fails to pay the Lessor when due any installment of rental or other
sum to be paid by the Lessee when such payment becomes due hereunder, Lessor
will incur additional expenses in an amount not readily ascertainable and which
has not been elsewhere provided for between Lessee and Lessor. If Lessee should
fail to pay Lessor within rive (5) days after the due date named any installment
of rental or other sum to be paid hereunder, Lessee shall pay Lessor upon demand
a late charge of five percent (5%) of such installment or other sum overdue in
any month and five percent (5%) each month thereafter until paid in full.
Failure to pay such late charge upon demand therefor shall be an event of
default hereunder. This provision for such late charge shall be in addition to
all other rights and remedies available to Lessor hereunder or at law or in
equity and shall not be construed as liquidated damages or limiting Lessor's
remedies in any manner.
<PAGE> 15
XVIII.
SUCCESSORS
All of the terms, conditions, covenants and provisions set forth in this
Lease agreement shall inure to the benefit of and be binding upon the heirs,
legal representatives, successors, executors and assigns of the parties.
XIX.
ENTIRE AGREEMENT
The within Lease agreement constitutes the entire agreement of the parties
hereto. No representations, promises, terms, conditions, obligations or
warranties whatsoever referring to the subject matters hereof other than those
expressly set forth herein, shall be of any binding legal force or effect
whatsoever. No modification, change or alteration of the within Lease agreement
shall be of any legal force or effect whatsoever unless in writing, signed by
all the parties hereto or their respective successors or assigns.
XX.
OPTION TO EXTEND LEASE-FIVE ONE YEAR OPTIONS
Lessee may at Lessee's option, extend this Lease for an additional twelve
(12) months by giving the Lessor ninety (90) days notice in advance written
notice prior to the termination date, exercising such option to extend. The
lessee shall have five (5) such one (1) year options. Each one (1) year option
may be exercised at one time, for a total of five (5) years. In the event Lessee
exercises such option, the monthly rent set forth in Article III above (the
"Initial Monthly Rent") shall be adjusted to reflect any increase in the
Consumer Price Index - All Urban Consumers - All Cities published by the Bureau
of Labor Statistics of the United States Department of Labor (the "Index")
during the term of this Lease. Accordingly, the Initial Monthly Rent shall be
multiplied
<PAGE> 16
by a fraction the numerator of which shall be the Index published for the first
day of the first month of such extension and the denominator of which shall be
the Index published for the commencement date of this Lease, and the monthly
rent as so adjusted shall be the base monthly rent for such extension; provided,
however, that in no event shall the base monthly rent for such extension be less
than the Initial Monthly Rent. In the event the United States Department of
Labor, or its successor, ceases to publish a monthly Consumer Price Index For
All Urban Consumers prior to the commencement of the extended lease term, Lessor
shall choose a similar Index for computation of the increased rent. All other
terms of this Lease shall apply to the extended term.
XXI.
PARKING
Lessor shall reasonably repair and maintain the parking lot and shall
obtain and maintain comprehensive public liability insurance respecting such
parking lot in such amounts and insuring such risks as commercially reasonable
for the type of property being insured. Lessee shall reimburse Lessor for its
pro rata share of such repair in the manner described in Article XXIII.C hereof.
XXII.
SIGNS, AWNINGS AND CANOPIES
Lessee shall not place or suffer to be placed or maintained on any
exterior door, wall or window of the leased premises any sign, awning or canopy,
or advertising matter or other thing of any kind, and will not place or
maintenance any decoration, lettering or advertising matter on a glass of any
window of the door of the leased premises without first obtaining the Lessor's
written approval and consent. Such consent shall not be unreasonably withheld by
the Lessor, after taking into consideration the conformity to the design of the
building and affect of such signs on other tenants in the building. Lessee
further agrees to maintain such sign, awning or canopy, decoration,
<PAGE> 17
lettering or advertising matter or other thing as may be approved in good
condition and repair at all times.
Subject to size and design approval by Lessor, Lessee shall be allowed to
have a sign on the south side of the building on which the leased premises is
located and on the pylon sign on Perryville Road.
All costs of maintaining, repairing or removing said signs shall be borne
by the Lessee.
XXIII.
MAINTENANCE, REPAIR AND REPLACEMENT
The following covenants and conditions are to apply with respect to the
maintenance, repair and replacements of the leased premises:
A. Except as otherwise set forth below, Lessee shall at all times keep the
leased premises and all partitions, doors, mixtures, equipment and appurtenances
thereof (including but not limited to lighting and plumbing equipment and
fixtures located solely within and servicing only the leased premises), and
including interior walls, and windows, and all other components of the leased
premises in a clean condition, good order, condition and maintenance (including
reasonable periodic painting with the written approval of Lessor), all at
Lessee's expense. Provided, however, in the event such repairs are reimbursed by
any insurance proceeds, Lessee shall be entitled to such insurance proceeds as
reimbursement for costs of such repairs actually made by Lessee. Lessor shall
pay the costs of all repairs to the HVAC System.
B. If Lessee refuses or neglects to repair the property as required
hereunder to the reasonable satisfaction of the Lessor as soon as it is
reasonably possible after written demand, Lessor may make such repairs without
liability to Lessee for any loss or damage that may occur to the
<PAGE> 18
Lessee's business by reason thereof, and within thirty (30) days after
completion thereof, Lessee shall pay to Lessor the Lessor's costs for such
repairs, including a reasonable charge for Lessor's overhead and administration
(which costs of overhead and administration shall not exceed ten percent (10%)
of the costs of repairs), Lessor shall have no liability for any damages or
personal injury arising out of any condition or occurrence causing a need for
such repairs, unless caused by negligence or willful misconduct of the lessor or
failure of the Lessor to perform its obligations under this Lease. In making
repairs, Lessor will not unnecessarily or unreasonably disrupt the business of
the Lessee.
C. Lessor shall initially pay the costs of maintaining the Common Area of
the premises, including the exterior of the leased premises, parking lot,
exterior of the building, roofs and Common Area utilities. The Lessee shall
reimburse Lessor for its pro rata share of such expenses, which share shall be
computed on a ratio that the total area of the leased premises total to the
total square feet of the leasable space of the building in which the leased
premises is located. Lessee shall pay for its pro rata share of such expenses
within ten (10) of being billed.
XXIV.
REAL ESTATE TAXES
Lessee shall pay monthly its pro rata share of all real estate taxes
accruing on the leased premises and real estate parcel upon which the building
of the leased premises is located during the term of this Lease. Said payment
shall be made on the same date as payment of rent. The calculation of the
Lessee's pro rata share of such real estate taxes shall be computed on the ratio
that the total area of the leased premises bears to the total square feet of the
leasable space of the building in which the leased premises is located. The
monthly payment by lessee to Lessor shall be an estimate based on the latest
available information from the Winnebago County Assessor, County Treasurer and
County Clerk. Any necessary adjustments shall be made within thirty (30) days of
<PAGE> 19
receipt of the actual tax bill. In the event of overpayment of the Lessee's pro
rata share, the Lessor shall reimburse Lessee such overpayment within thirty
(30) days of receipt of the actual tax bill. In the event of underpayment by the
Lessee, the Lessee shall pay to the Lessor such additional amount as may be
necessary to pay the Lessee's full pro rata share of such taxes within
twenty-one (21) days of the request of the Lessor.
XXV.
LIMITATION ON PAYMENT ON COMMON AREA MAINTENANCE,
TAXES AND INSURANCE
Notwithstanding any other provisions in this Lease Agreement, the parties
agree that in no event shall the cost of the Lessee during the term of this
Lease exceed annually an amount equal to Three and no/100 Dollars ($3.00) per
square foot of leased space of the premises for the Lessee's share of Common
Area Maintenance, Common Area Taxes and Common Area Insurance.
XXVI.
JURISDICTION AND OTHER APPLICABLE LAWS
The laws of the State of Illinois shall govern the interpretation,
validity, performance and enforcement of this Lease. If any provision of this
Lease shall be held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions of this Lease shall not be affected
thereby. In the event of a dispute between the parties, such dispute shall be
resolved by a court in the State of Illinois provided, however, Lessor or Lessee
may elect to have a dispute resolved by arbitration through, and in accordance
with the rules of the American Arbitration Association. Any arbitration or
judicial proceeding shall occur in Winnebago County, Illinois.
<PAGE> 20
XXVII.
FORCE MAJUER
The Lessor and the Lessee each shall be excused for the period of any
delay and shall not be deemed in default with respect to the performance of any
of the terms, covenants and conditions of this Lease when prevented from doing
so by cause or causes beyond the Lessor's control, which shall include, without
limitation, all labor disputes, governmental regulations or controls, fire or
other casualty, inability to obtain any materials and/or services, acts of God,
or any other cause, whether similar or dissimilar to the foregoing, not within
the reasonable control of the Lessor.
IN WITNESS WHEREOF, the parties have signed their names the day, month and
year set forth opposite their respective signatures.
LESSOR:
CRIMSON RIDGE PARTNERS,
By:/s/ Jim Dixon Dated: March 26, 1998
-------------------------------------------
Its:Managing Partner
-------------------------------------------
LESSEE:
HALSEY DRUGS COMPANY,
By:/s/ Carol Whitney Dated: March 26, 1998
-------------------------------------------
Its:Vice-President, Administration
-------------------------------------------
PREPARED BY:
STEPHEN G. BALSLEY
BARRICK, SWITZER, LONG,
BALSLEY & VAN EVERA
One Madison Street
P.O. Box 17109
Rockford, IL 61110-7109
(815) 962-6611
<PAGE> 21
[LETTERHEAD OF DIXON REALTORS]
March 16, 1999
Halsey Drug Company
695 North Perryville Road, Suite 4
Rockford, Illinois 61107
Attention: Carol Whitney
Reference: Build-out Charges
Dear Carol:
As we agreed verbally, your build-out charges total $85,482.69. We agreed
to divide this amount in half, with 50% coming up front, and the balance divided
over the remainder of the lease, payable monthly, plus interest adjustable at
the prime rate of interest.
These figures are likely to fluctuate, so why don't we bill the interest
quarterly? Also, why don't we round off the second portion of $42,500 by your
paying $42,982.69 for the first payment?
Our lease agreement calls for two years. Why don't we start this lease as
of September 1, 1998? You have paid September and October, which leaves
twenty-two months. This would make the monthly payment amount for rent and
build-out charges $5,781.82 over the 22 month period.
If this arrangement is acceptable, let's officially make this letter an
addendum to the lease dated 3/26/98. If this is satisfactory, let me know. We'll
continue on from there.
Carol, I want you to know that you've been very patient throughout this
project. You are a very thorough person and it has been a pleasure to work with
you.
Regards,
Crimson Ridge Partners, LLC
/S/
Jim Dixon, Managing Partner
<PAGE> 22
[LETTERHEAD OF HALSEY DRUG CO., INC.]
March 16, 1999
Jim Dixon
Crimson Ridge Partners
3926 Broadway
Rockford, IL 61108
Dear Jim
Enclosed is a check for $42,982.69 for partial payment of the build-out costs
for the office space we are leasing at 695 N. Perryville Road in Rockford along
with the rent payment for the month of November.
We accept the terms of your letter of October 26, 1998 and will consider the
letter as an addendum to the lease agreement for Halsey Drug Company, Inc. We
also agree to pay a monthly payment of $5,781.82 over the next 22 months for
rent and the remaining portion of the build-out charges. It is understood that
interest will be billed quarterly.
I greatly appreciate your efforts in working with us regarding the build out
costs. We are looking forward to a long and comfortable relationship with
Crimson Ridge Partners.
Sincerely
/S/
Carol Whitney
Vice President, Administration
Enclosures
<PAGE> 1
Exhibit 10.55
[Manufacturing and Supply Agreement dated March 17, 1999 between
the Registrant and Par Pharmaceuticals, Inc.]
MANUFACTURING AND SUPPLY AGREEMENT
THIS MANUFACTURING AND SUPPLY AGREEMENT (the "Agreement"), dated as
of March 17, 1999, is by and between Halsey Drug Co., Inc., having offices at
695 No. Perryville Road, Rockford, Illinois 61107 ("HD"), and Par
Pharmaceutical, Inc., having offices at One Ram Ridge Road, Spring Valley, New
York 10977 ("PAR").
WHEREAS, PAR directly or through its Affiliates (collectively and
individually "PAR") is currently manufacturing and/or marketing the
pharmaceutical products listed on Schedule 1 hereto ("Products") and maintains a
facility in Congers, New York (the "Facility") capable of manufacturing the
Products; and
WHEREAS, PAR and HD are parties to a certain lease agreement dated
of even date herewith (the "Lease Agreement") pursuant to which PAR has agreed
to lease the Facility and the Production Equipment (as defined in the Lease
Agreement) to HD in accordance with the terms and conditions contained in the
Lease Agreement; and
WHEREAS, the parties desire to provide for the manufacture of all
such Products by HD at such Facility subject to the terms and conditions set
forth herein.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. For purposes hereof, the following terms shall have
the meanings set forth:
"Affiliates" shall mean, with respect to any Person, any other
Person controlled by, controlling or under common control with such Person,
where control means more than 50% ownership or voting rights or the power to
direct management or policy.
"ANDA" shall mean the abbreviated new drug application for each
Product as approved by the FDA.
"Commencement Date" shall mean March 22, 1999 or such earlier date
on which the term of the Lease Agreement shall commence.
"cGMPs" shall mean current Good Manufacturing Practices, as defined
in 21 CFR Section 210 et seq., as amended and in effect from time to time.
"Confidential Information" shall mean any information which in any
way shall relate to either of the parties hereto including, without limitation,
its products, product formulations and specifications, manufacturing processes,
intellectual property (whether or not registered) business, know-how, methods,
trade secrets and technology, or to any Affiliate thereof, that shall be
furnished or otherwise made available in connection with this Agreement.
<PAGE> 2
"FDA" shall mean the United States Food and Drug Administration.
"Lease Agreement" shall have the meaning set forth in the WHEREAS
clauses hereto.
"Losses" shall mean any liabilities, damages, costs or expenses,
including reasonable attorney's fees, incurred by either party which arise from
any claim, lawsuit or other action by a third party.
"Manufacturing Costs" shall mean the cost to PAR of manufacturing
any Product permitted to be manufactured by it hereunder, calculated in
accordance with Schedule 2.5 hereto.
"Manufacturing Records" shall mean all Specifications, formulations,
processes and controls, including all supporting and historical data, product
samples, technology transfer, laboratory data, development documentation
equipment and other historical validation data and all related regulatory and
compliance documents and information and such further information and
documentation as HD shall reasonably request to enable it to manufacture and
supply Products in accordance with the terms and conditions set forth herein.
"Person" shall mean an individual, corporation, partnership or other
entity.
"Products" shall mean the pharmaceutical products listed on Schedule
1 hereto and such other pharmaceutical products as the parties may, from time to
time mutually designate in writing.
"Raw Materials" shall mean all bulk pharmaceutical ingredients,
coatings, and other related items necessary or required for the manufacture and
supply by HD of each of the Products in accordance herewith.
"Specifications" shall mean the terms and conditions applicable to
the Product and described in the ANDA for such Product, as the same may be
supplemented from time to time.
2. MANUFACTURE AND SUPPLY.
2.1 Supply and Purchase Obligations. (a) Subject to the terms and
conditions of this Section 2 and as otherwise provided herein, HD shall
manufacture and supply to PAR all PAR's requirements for each Product. HD shall
not, and shall cause its Affiliates not to, manufacture or supply any of the
Products to any Person other than PAR and its Affiliates or develop, acquire
rights to manufacture or distribute the Restricted Product identified on
Schedule 1 hereto ("Restricted Product"); provided, however, that such
restrictions on manufacture, supply, development and distribution shall
terminate on the third anniversary of the Commencement Date; and provided
further that the foregoing limitation with respect to the Restricted Product
shall not apply to an Affiliate of HD which becomes an Affiliate after the
Commencement Date by virtue of its acquisition of control of HD and which
produces a Restricted Product prior thereto, so long as such Affiliate does not
utilize the Facility for the development, manufacture or distribution of the
Restricted Product. The provisions of the immediately preceding sentence shall
survive the termination hereof unless, and only unless, this agreement shall be
terminated by HD pursuant to Section 7.2, or the second sentence of Section 7.3,
as a result of defaults by PAR hereunder or under the Lease Agreement.
(b) PAR shall purchase exclusively from HD all of its requirements
of the Products (subject to the minimum purchase requirements contained herein)
to the extent that HD is able to, and does, supply them in accordance herewith.
<PAGE> 3
2.2 Forecasts; Excess Orders; Capacity (a) Simultaneous with the
execution of this Agreement, PAR shall deliver to HD a non-binding forecast of
estimated production requirements of each of the Products for the twelve month
period commencing on the Commencement Date and ending on March 30, 2000. PAR
shall prepare and deliver to HD similar non-binding forecasts for the twelve
month periods commencing April 1, 2000 and March 30, 2001 not later than 60 days
prior thereto.
(b) Not later than 45 days prior to each calendar quarter during the
term hereof, PAR shall provide HD with a written rolling forecast of the
quantities of each Product that PAR expects to order for delivery during the
next succeeding four (4) calendar quarters. Each forecast shall indicate the
amounts of each Product expected for delivery in the relevant quarter. The first
such forecast for each Product shall be provided on or before the Commencement
Date. In the event that PAR shall, in any calendar quarter, submit purchase
orders ("Excess Orders") for a Product in excess of one hundred twenty (120%)
percent of the forecast for such Product in such quarter, HD shall use
commercially reasonable efforts to fill such Excess Orders as promptly as
practicable, but shall not be in breach hereof if, notwithstanding such efforts,
it shall be unable to fill such Excess Orders. Notwithstanding anything to the
contrary contained herein, HD shall not be required to supply quantities of
Products which exceed the quantities which the Facility currently is capable of
manufacturing in accordance with cGMP without HD incurring more than $10,000, in
the aggregate, in additional capital expenditures.
2.3 Supply of Records and Raw Materials. PAR shall make the
Manufacturing Records available to HD, promptly after execution hereof and prior
to the Commencement Date. Par shall supply to HD all raw materials necessary for
HD to manufacture and supply Product in accordance herewith. HD's manufacturing
and supply obligations for each Product shall be subject to PAR having supplied
Raw Materials in advance of the related purchase orders in sufficient quantities
to permit HD to satisfy PAR's production requirements for each of the Products
plus an amount equal to ten (10%) percent of such inventory amount for waste and
production scrap. PAR's provision of Raw Materials shall be consistent with the
types and amounts of Products specified in the quarterly rolling forecasts
provided pursuant to Section 2.2 hereof. HD shall provide PAR with free access
to the rear gate and loading docks of the Facility for purposes of PAR's
delivery of such Raw Materials. All such raw materials shall be stored by HD, in
compliance with applicable law and the Specifications, at the Facility in an
area segregated from HD's other property and clearly marked as "Property of Par
Pharmaceutical, Inc." Within ten (10) days after each calendar month, HD shall
deliver to PAR a written reconciliation, in reasonable detail, of inventory
usage and availability for such month.
2.4 Employees. Set forth on Schedule 2.4 hereto is a list of PAR's
employees at the Facility, together with a brief description of the titles and
compensation of each (the "Employees"). PAR agrees to make available each of the
Employees to HD for interview and hire as HD shall determine in its sole and
absolute discretion. Each of the parties acknowledge and agree that HD shall be
under no obligation to employ any or all of the Employees, provided, however,
that as of the Commencement Date, HD shall have employees of sufficient quantity
and experience to fulfill its obligations hereunder. Prior to the Commencement
Date, HD shall provide to PAR a list of all such employees. HD will promptly
notify PAR if it intends to employ or use the services of any person whom it
knows was a former employee of PAR whom PAR terminated (exclusive of the
Employees) and, if requested by PAR, will not allow any such person, if employed
by HD, any access to or contact with any Confidential Information of PAR or to
any Production Equipment, Raw Materials or Products. PAR shall be responsible
for, and shall indemnify HD against, any claim, cause of action, expense,
liability, damage or obligation relating to the payment or non-payment of any
compensation, severance, vacation or pension benefits or other amounts due or
otherwise payable or to become payable, to the Employees related to
<PAGE> 4
employment or services prior to such Employee's employment by HD. The provisions
of the immediately preceding sentence shall survive termination hereof for a
period of five (5) years.
2.5 Failure or Inability to Supply. (a) Subject to the limitations
of Sections 2.2 and 2.3 hereof, in the event that HD shall (i) fail to supply
PAR's requirements for any Product for a period exceeding thirty (30) days, (ii)
default under Article 16 of the Lease Agreement, (iii) become subject to any
governmental proceeding, order or decree which restricts, or which, in the good
faith opinion of PAR after five days from the occurrence of such event, after
discussion of its implications with HD, is reasonably likely to restrict, in any
material respect its ability to perform its obligations hereunder, (iv) have
entered against it a judgment, order or decree which shall remain unsatisfied
for a period of forty five (45) days without being vacated, discharged,
satisfied or stayed or bonded pending appeal, and which restricts or, in the
good faith opinion of PAR after five days from the occurrence of such event,
after discussion of its implications with HD, is likely to restrict, its ability
to perform its obligations hereunder, or (v) experience any work stoppage or
other material labor action which restricts, or which, in the good faith opinion
of PAR after five days from the occurrence of such event after discussion of its
implications with HD, is reasonably likely to restrict, its ability to perform
its obligations hereunder, except, in each case. where such failure is as a
result of (A) PAR's failure to comply with the terms and provisions of this
Agreement, including, without limitation, Section 2.3 hereof, (B) PAR's default
under the terms of the Lease Agreement, or (C) any force majeure event as
provided in Section 11.1 hereof, PAR may, in its discretion, elect to
manufacture, or cause to be manufactured for the account of HD, such Product at
the Facility using HD's property and employees until such time as HD shall again
be able to fully supply PAR's requirements therefor as provided hereunder. HD
hereby irrevocably appoints PAR as its agent and attorney-in-fact, with power of
substitution, to act in its name and stead for all such purposes. In the event
that such failure or inability shall continue for three (3) months or more, such
failure shall constitute a default hereunder and PAR shall have a right to
terminate this Agreement pursuant to Section 7.2 and Section 7.4 hereof with
respect to such Product.
(b) In the event that PAR shall elect to act on HD's behalf, as its
agent and attorney-in-fact, to manufacture and supply the Product hereunder, PAR
shall designate one or more of its experienced management employees to oversee
the manufacture of the Products by HD's employees at the Facility. In such
event, such Products shall be manufactured and supplied to PAR for the account
of HD, and paid for by PAR in accordance with the terms hereof as though such
manufacture and supply were fully performed by HD; provided, however, that if it
shall become necessary for PAR to expend any amounts to pay any Manufacturing
Costs of such performance, such amounts shall reduce the amounts otherwise
payable by PAR to HD and provided further that, in the event that such
Manufacturing Costs were paid by PAR at any time where Section 362 of the United
States Bankruptcy Code (the "Bankruptcy Code") shall apply in respect of HD,
then such Manufacturing Costs shall reduce only amounts due from PAR to HD in
respect of the Products for which Manufacturing Costs were expended.
(c) HD acknowledges and agrees that an interruption of the
manufacturing and supply of Products to PAR hereunder will cause PAR immediate
and irreparable injury, including, without limitation, immediate and irreparable
harm to PAR's reputation, in respect of which monetary damages will be
inadequate. Accordingly, PAR shall be entitled to specific enforcement of the
provisions of this Section 2.5 and all objections and defenses of HD with
respect thereto are hereby waived.
(d) HD further acknowledges and agrees that PAR's actions as agent
for HD hereunder (including, without limitation, any reduction in amounts due to
HD pursuant to Section 2.5(b) above) will not constitute any act that is stayed
under Section 362 of the Bankruptcy Code. Notwithstanding this acknowledgment,
if a court of competent jurisdiction determines that such actions are stayed by
<PAGE> 5
Section 362 of the Bankruptcy Code, then HD hereby waives the protection of
Section 362 of the Bankruptcy Code, but only to the extent necessary to allow
PAR to engage in such actions and for no other purpose. Further, if it is
necessary for PAR to obtain, from a court of competent jurisdiction, relief from
such stay in order to take such actions, then HD hereby consents to such relief
and will consent to PAR's request for such relief when made to the appropriate
court.
(e) In the event that an order for relief is issued in respect of HD
under the Bankruptcy Code, HD shall make a decision to assume or reject this
Agreement under Section 365 of the Bankruptcy Code within 30 days of the
issuance of such order.
2.6 Facility and Records Maintenance; Audit. HD shall, at all times,
maintain and operate the Facility, and implement such quality control
procedures, so as to be able to perform its obligations hereunder in compliance
with all applicable law, including without limitation cGMP, subject to the terms
and limitations of the Lease. Each party shall promptly notify the other upon
receipt by it of any adverse notice from any governmental agency relating to the
Products, employees, environmental conditions or the operation of the Facility.
HD shall maintain true and complete books and records (including, without
limitation, all Manufacturing Records) of all data relating to the manufacture,
supply and sale of Products. HD shall permit quality assurance representatives
of PAR, representatives of the FDA and PAR's accountants to inspect the Facility
and all books and records of HD relating to the production of the Products
(including, without limitation, all Manufacturing Records) at all times upon
three days' prior written notice (except in the case of emergency), during
normal business hours and on a confidential basis; provided, however, that such
inspections shall be limited to twice annually in the absence of a breach of
this Agreement by HD (except in the case of emergency).
3. PURCHASING; DELIVERY; PAYMENT TERMS.
3.1 Purchase Orders. From time to time, and subject to the other
provisions of this Agreement, PAR may place orders for Products and identify the
requested delivery dates for each such order. The delivery dates specified in
any such orders shall not be less than thirty (30) days or more than sixty (60)
days from the dates of such orders. The minimum quantity per shipment of each
Product and shipping logistics shall be as set forth on Schedule 3.1 hereto.
Each order placed pursuant to this Section 3.1 which is not modified or canceled
by PAR within ten (10) working days of the requested delivery date thereof shall
constitute a firm obligation to purchase the ordered quantities of Products.
Firm orders may be modified or canceled by PAR upon written notice to HD;
provided, however, that PAR shall pay HD, within ten (10) days after invoice
therefor, the out-of-pocket costs incurred by HD as a result of such
modification or cancellation to the extent they would not otherwise be recovered
by HD hereunder. The terms and conditions of this Agreement shall be controlling
over any conflicting terms and conditions used by PAR in ordering Products or by
HD in accepting or confirming orders and any term or condition of such purchase
order, acceptance or other document which shall conflict with or be in addition
to the terms and conditions of this Agreement is hereby expressly rejected.
3.2 Minimum Purchase Requirements. PAR agrees to satisfy the minimum
purchase requirements set forth in Schedule 3.2 hereto.
3.3 Delivery. HD shall use its best efforts to ensure that Products
ordered by PAR in accordance with this Agreement are shipped in accordance with
the delivery dates specified in PAR's purchase orders, and HD shall notify PAR
promptly of any anticipated delay. All Products shall be delivered, in bulk,
F.O.B., Facility. PAR shall arrange for shipping and transporting Products from
the Facility and shall be responsible for the payment of shipping, insurance and
related costs from delivery to PAR's carrier. Title and risk of loss shall pass
to PAR upon delivery to PAR's carrier. HD shall give
<PAGE> 6
PAR reasonable prior written notice of the date on which Products subject to
each purchase order shall first become available for delivery. Commencing on the
first anniversary hereof, HD shall include in each shipment of Products
hereunder a certificate of analysis which shall certify that the Products
contained in such shipment comply with the provisions of Section 4.1 hereof.
3.4 Acceptance and Rejection. PAR shall give written notice to HD of
any claims that Products manufactured by HD do not comply with the requirements
of Section 4.1 hereof promptly upon its becoming aware of such noncompliance. In
the event that PAR shall fail to notify HD of any such claim within thirty (30)
working days of PAR's receipt thereof at its facility, such Products shall be
deemed accepted by PAR. Any notice by PAR pursuant to this Section 3.4 that any
Products shall not comply with the terms and conditions hereof shall be
accompanied by a true and correct copy of the results of any tests conducted by
PAR thereon. The parties shall cooperate in good faith to resolve any disputes
arising therefrom and in the event that the parties shall be unable to resolve
such dispute within thirty (30) days from the date of PAR's notice pursuant to
this Section 3.4, the parties shall submit such dispute to a mutually agreed to
independent laboratory. The determination by such laboratory shall be final and
binding and the costs therefor shall be borne by the nonprevailing party. PAR
shall not dispose of any Product claimed by it not to comply with the terms and
conditions hereof until resolution of any dispute with respect thereto. HD shall
promptly replace any Product which does not comply with the terms and conditions
thereof, at its sole cost and expense, by delivery thereof to PAR's facility.
3.5 Product Recall. (a) In the event of any recall or seizure of any
Product arising out of, relating to, or occurring as a result of, any act or
omission by HD, HD shall, at the election of PAR, either:
(i) replace the amount of Product recalled or seized; or
(ii) give credit to PAR against outstanding receivables due from PAR
in an amount equal to the amount paid by PAR for the Product so recalled or
seized or otherwise owing by PAR hereunder;
plus reimburse (or, at the election of PAR, credit) PAR for all transportation
costs, if any, taxes, insurance, handling and out-of-pocket costs incurred by
PAR in respect of such recalled or seized Product.
(b) In the event of any recall or seizure of any Product arising out
of, relating to or occurring as a result of any act or omission of PAR, PAR
shall remain responsible to HD for the purchase price of such recalled Products,
shall be solely responsible for any transportation costs, import duties, if any,
taxes, insurance, handling and other costs incurred by PAR in respect of such
recalled or seized product, and shall promptly reimburse HD for all costs and
expenses incurred by HD in connection with such recall.
(c) For purposes of this Section 3.5, "recall" shall mean (i) any
action by HD, PAR or any Affiliate of either to recover title to or possession
of any Product sold or shipped and/or (ii) any decision by PAR not to sell or
ship Product to third parties which would have been subject to recall if it had
been sold or shipped, in each case taken in the good faith belief that such
action was appropriate under the circumstances. For purposes of this Section
3.5, "seizure" shall mean any action by any government agency to detain or
destroy Product.
(d) Each party shall keep the other fully informed of any
notification or other information, whether received directly or indirectly,
which might affect the marketability, safety or effectiveness of
<PAGE> 7
any Product, or which might result in liability issues or otherwise necessitate
action on the party of either party, or which might result in recall or seizure
of any Product.
(e) Prior to any reimbursement pursuant to this Section 3.5, the
party claiming reimbursement shall provide the other with reasonably acceptable
documentation of all reimbursable costs and expenses.
4. QUALITY ASSURANCE; TESTING.
4.1 Product Compliance. HD shall produce all Products in accordance
with the Specifications therefor and cGMP. All Products shall be stored and
packaged in bulk in accordance with the requirements of the Food, Drug and
Cosmetic Act ("FD&C Act") and the rules and regulations of the FDA promulgated
thereunder. Each Product shall, at the time of shipment, not be adulterated or
misbranded within the meaning of the FD&C Act. Id.
4.2 Product Testing. HD shall conduct, or cause to be conducted all
physical parameters, in processing testing with respect to each batch of
Products to be supplied pursuant hereto prior to delivery thereof to PAR. HD
shall retain a sample of each batch tested for at least the shelf life of such
batch plus one year, or such longer period as may be required by cGMPs.
4.3 Insurance. During the term of this Agreement, each party shall
obtain and maintain, at its sole expense, product liability insurance with a
minimum limit of liability of $10,000,000 per occurrence and in the aggregate
naming the other party as an additional insured Evidence of coverage, in the
form of certificates of insurance, shall be provided promptly upon execution of
this Agreement and as reasonably requested thereafter. Such certificates shall
endeavor to provide for written notice to the additional named insured to
fifteen (15) days prior to any material change, cancellation or non-renewal of
the policy. All policies should have a "Best" Rating of no less than "AX".
4.4 Indemnification
(a) PAR agrees to indemnify, defend and hold HD harmless from and
against any Losses resulting from or arising out of Raw Materials provided by or
on behalf of PAR that fail to meet the Specifications or are otherwise
defective, or arising out of or resulting from PAR's (including its servants,
agents, marketing or sales partners or other persons for whom it is in law
responsible) formulation, storage, packaging, handling, labeling, marketing,
promotion, distribution, sale and/or delivery of any of the Products, including,
without limitation, failure to maintain the Products in accordance with FDA
regulations from and after the time the Products are delivered to PAR; the
execution by PAR of this Agreement, the performance or breach by PAR of its
representations, warranties or obligations under this Agreement, or any act of
Par or failure by PAR to take any action required to be taken by it (and not by
HD) hereunder, at law or otherwise or any such act or failure by its employees
or agents (collectively, the "PAR Activities"), except to the extent such Losses
are the result of HD Activities (as defined in Section 4.4(b) hereof).
(b) HD agrees to indemnify, defend and hold PAR harmless from and
against any Losses resulting from or arising out of HD's (including its
servants, agent or other persons for whom it is in law responsible) manufacture,
testing, packaging in bulk or storage of any of the Products or any Raw
Materials, the execution of HD of this Agreement, the performance or breach by
HD of its representations, warranties or obligations under this Agreement or any
act of HD or failure by HD to take any action required to be taken by it (and
not by PAR) hereunder, at law or otherwise or any such act or
<PAGE> 8
failure by its employees or agents (collectively, the "HD Activities"), except
to the extent such Losses result from PAR Activities (as defined in Section
4.4(a) hereof).
(c) A party seeking indemnification ("Indemnified Party") shall
notify, in writing, the other party ("Indemnifying Party") within fifteen (15)
days from the assertion of any claim or discovery of any fact upon which the
Indemnified Party intends to base a claim for indemnification. An Indemnified
Party's failure to so notify the Indemnifying Party shall not, however, relieve
such Indemnifying Party from any liability under this Agreement to the
Indemnified Party with respect to such claim except to the extent that such
Indemnifying Party is actually denied, during the period of delay in notice, the
opportunity to remedy or otherwise mitigate the event or activity(ies) giving
rise to the claim for indemnification and thereby suffers or otherwise incurs
additional liquidated or other readily quantifiable damages as a result of such
failure. The Indemnifying Party, while reserving the right to contest its
obligations to indemnify hereunder, shall be responsible for the defense of any
claim, demand, lawsuit or other proceeding in connection with which the
Indemnified Party claims indemnification hereunder. The Indemnified Party shall
have the right at its own expense to participate jointly with the Indemnifying
party in the defense of any such claim, demand, lawsuit or other proceeding, but
with respect to any issue involved in such claim, demand, lawsuit or other
proceeding with respect to which the Indemnifying Party has acknowledged its
obligation to indemnify the Indemnified party hereunder, the Indemnifying Party
shall have the right to select counsel, settle, try or otherwise dispose of or
handle such claim, demand, lawsuit or other proceeding on such terms as the
Indemnifying Party shall deem appropriate, subject to any reasonable objection
of the Indemnified Party.
(d) Neither party shall be liable to the other for any
consequential, indirect or contingent damages or expenses, including damages for
loss of opportunity or use of any kind, suffered by the other party, whether in
contract, tort or otherwise, or arising out of, connected with or resulting from
the performance of their respective obligations under this Agreement or out of
the use or sale of the Products.
5. PRICE AND PAYMENT TERMS.
5.1 Price; Adjustments. The prices for each Product to be paid to HD
by PAR hereunder are set forth on Schedule 5.1 hereto. Such prices shall be
adjusted from time to time hereafter as set forth in Schedule 5.1 hereto.
5.2 Payment. The purchase price for each Product delivered by HD
pursuant hereto shall be paid within ten (10) days after the end of each month
in which such Product is delivered.
6. REPRESENTATIONS; WARRANTIES.
6.1 By HD. HD hereby represents and warrants to PAR as follows:
(a) HD is a corporation duly organized and validly existing under
the laws of the State of New York;
(b) HD has the requisite corporate authority to execute and deliver
this Agreement and to perform its obligations hereunder;
(c) Any Products delivered by HD to PAR shall, at time of shipment
have been manufactured, packaged and stored by HD in conformity with cGMPs and
the Specifications and shall not be adultered or otherwise violative of the FD&C
Act;
<PAGE> 9
(d) The execution and performance of HD's obligations hereunder are
not and will not be in violation of or in conflict with any material obligation
it may have to any third party;
(e) HD is not debarred and HD is not and will not use in any
capacity the services of any person debarred under Subsection 306(a) or (b) of
the Generic Drug Enforcement Act of 1992;
(f) HD will maintain throughout the term of this Agreement, all
permits, licenses, registrations and other forms of governmental authorizations
and approvals ("Permits") required to be obtained and maintained by HD in order
for HD to execute and deliver this Agreement and to perform its obligations
hereunder in accordance with all applicable law and shall otherwise perform its
obligations hereunder in a manner which complies in all material respects, with
Permits required to be maintained by PAR pursuant to Section 6.2(e); and
(g) To the best of HD's knowledge and belief, there are no
investigations, adverse third party allegations or actions, or claims against
HD, including any pending or threatened action against HD in any court or by or
before any governmental body or agency, with respect to its obligations set
forth herein which may materially adversely affect HD's ability to perform its
obligations under this Agreement.
6.2 By PAR. PAR represents and warrants to HD as follows:
(a) PAR is a corporation duly organized and in good standing under
the laws of the State of New Jersey;
(b) PAR has the requisite corporate authority to execute and deliver
this Agreement and to perform its obligations hereunder;
(c) The execution and performance of PAR's obligations hereunder are
not and will not be in violation of or in conflict with any material obligations
it may have to any third party;
(d) PAR is not debarred and PAR has not and will not use in any
capacity the services of any person debarred under Subsections 306(a) or (b) of
the Generic Drug Enforcement Act of 1992;
(e) PAR has and will maintain throughout the term of this Agreement,
all Permits (including, without limitation, all ANDA's covering the Products),
in order for PAR to execute and deliver this Agreement and perform its
obligations hereunder in accordance with all applicable law and shall otherwise
perform its obligations hereunder in a manner which complies, in all material
respects, with the Permits required to be maintained by HD pursuant to Section
6.1(f) hereof;
(f) Any Raw Materials delivered by PAR to HD shall comply and be in
conformity with cGMPs and the Specifications and shall not be adulterated,
misbranded or otherwise violative of the Federal Food, Drug and Cosmetic Act, as
amended or other applicable laws;
(g) To the best of PAR's knowledge and belief, there are no
investigations, adverse third party allegations or actions, or claims against
PAR, including any pending or threatened action against PAR in any court or by
or before any governmental body or agency, with respect to the Products or the
Facility or its obligations set forth herein which may adversely affect PAR's
ability to perform its obligations under this Agreement;
<PAGE> 10
(h) PAR is not a party to any labor agreement with respect to the
Employees. PAR is not experiencing any overt attempt by organized labor or its
representatives to make PAR conform to a demand for organized labor relating to
the Employees. PAR has not experienced any overt attempt by organized labor or
its representatives to make PAR conform to a demand for organized labor relating
to the Employees or to enter into a binding agreement with organized labor that
would cover the Employees. PAR is in material compliance with all applicable
laws with respect to employment practices, terms and conditions of employment
and wages and hours at the Facility. There is no unfair labor practice, charge
or complaint against PAR pending before the National Labor Relations Board or
any other governmental agency arising out of PAR's activities at the Facility;
there is no labor strike or labor disturbance pending or, to PAR's knowledge,
threatened against PAR at the Facility nor is any material grievance currently
being asserted; and PAR has not, within the last ten (10) years experienced any
work stoppage or other material labor difficulty with Employees at the Facility;
(i) HD will have the right to use the Production Equipment to
satisfy its obligations under this Agreement. The Production Equipment
constitutes all of the equipment reasonably necessary for the production of the
Products as contemplated to be manufactured and supplied by HD pursuant to this
Agreement. All the Production Equipment has been maintained in accordance with
normal industry practice, and is in good operating condition and repair; and
(j) PAR will use its best efforts to obtain, on or before the second
anniversary hereof, all requisite governmental approvals (collectively, "SUPAC")
for the production of each Product at a facility other than the Facility, and
shall promptly notify HD upon each receipt thereof.
7. TERM AND TERMINATION.
7.1 Term. This Agreement shall commence on the Commencement Date and
continue until the third anniversary thereof, unless sooner terminated pursuant
to Section 7.2, 7.3, 7.4, 7.5 or 7.6 hereof (each of which shall be an
independent right of termination).
7.2 Termination for Breach. If either party breaches or defaults in
the performance or observance of any of its material obligations under this
Agreement and, exclusive of PAR's payment obligations set forth in Section 3.2
and 5.2 hereof, such breach or default is not cured within forty-five (45) days
after receipt by such party of the written notice from the non-breaching party
specifying the breach or default, then the non-breaching or non-defaulting party
shall have the right to terminate this Agreement with immediate effect by giving
written notice to the breaching or defaulting party. In the event that any such
breach or default hereunder relates exclusively to the obligations of a party
with respect to a Product, the right of termination provided in this Section 7.2
shall be limited to termination hereof in respect of such Product only.
7.3 Termination under Lease Agreement. This Agreement may be
terminated by PAR on any termination of the Lease Agreement by PAR pursuant
thereto. HD may terminate this Agreement on any termination of the Lease
Agreement by HD pursuant thereto.
7.4 Termination for Supply Interruption. This Agreement may be
terminated by PAR with respect to a particular Product, upon delivery of written
notice, if HD shall fail or be unable to supply PAR's requirements for such
Product for a period exceeding three (3) months.
7.5 Termination on Obtaining SUPAC. This Agreement may be terminated
by HD with respect to any Product with respect to which a SUPAC has been
obtained, upon thirty (30) days prior written notice to PAR.
<PAGE> 11
7.6 Termination for Convenience. This Agreement may be terminated by
HD with respect to any Product at any time after the second anniversary of the
Commencement Date upon ninety (90) days prior written notice.
7.7 Post-Termination. (a) At termination of this Agreement for any
of the above reasons, the parties shall be permitted to continue in their
respective businesses as if the Agreement had not be entered into in the first
place, subject to the restrictions set forth in the penultimate sentence of
Section 2.1 hereof and Section 8 hereof which, in each case, shall survive any
termination hereof as set forth herein.
(b) Termination of this Agreement shall not affect any payment
obligations or other liabilities which have accrued as of the date of such
termination.
(c) At termination, HD shall hold all PAR property in its
possession, including, without limitation, all Raw Materials and equipment
(except as otherwise provided in the Lease), in trust for the benefit of PAR and
shall return such property to PAR as PAR may direct, at PAR's cost and expense.
8. CONFIDENTIALITY.
8.1 Confidential Information. During the term of this Agreement and
any renewal hereof, and for a period of five (5) years thereafter, each party
shall hold in confidence, and shall not use (except solely for purposes of its
performance hereunder) but may not disclose to any third party, any and all
Confidential Information, provided that such party shall not be prevented from
disclosing information which:
(a) is independently known to such party without obligation of
secrecy or non-use to a third party;
(b) becomes part of the public knowledge through no breach hereof by
such party;
(c) is the subject of another agreement between the parties hereto
which explicitly permits use or disclosure; or
(d) is required by law or judicial process to be disclosed.
Specific information received by such party hereunder shall not be deemed to
fall within any of the foregoing exceptions merely because it is embraced by
general information within any such exceptions. In addition, any combination of
features received as Confidential Information by such party hereunder shall not
be deemed to fall within any of the foregoing exceptions merely because
individual features are separately within any such exception, but only if the
combination itself, and its principles of operation, are within such exception.
8.2 Limitation on Disclosure. Without limiting the generality of the
foregoing, such party shall limit disclosure of the Confidential Information to
its employees who need to receive the Confidential Information in order to
further the activities contemplated in this Agreement. Each party shall take
sufficient precautions to safeguard the Confidential Information, including
obtaining appropriate commitments and enforceable confidentiality agreements.
Each party understands and agrees that the wrongful disclosure of Confidential
Information will result in serious and irreparable damage to the other party
hereto that the remedy at law or any breach of this covenant may be
<PAGE> 12
inadequate, and that such non-disclosing party shall be entitled to injunctive
relief, without prejudice to any other rights and remedies to which it may be
entitled. It is acknowledged that Confidential Information may be disclosed not
only in writing or other tangible form, but also through discussions between
each party's respective representatives, demonstrations, observations and other
intangible methods. The above notwithstanding, each party shall have the right,
with the exercise of discretion, to make disclosures of such portions of
Confidential Information to governmental agencies where, in the recipient's
judgment, such disclosure is essential to manufacture or sale of a Product
pursuant to this Agreement.
8.3 Return. Except as otherwise set forth in this Agreement, upon
termination of this Agreement and at the written request of a party hereto, the
other party shall return all the Confidential Information (including all copies,
excerpts and summaries thereof contain on any media) or destroy such
Confidential Information at the option of such requesting party.
8.4 Exclusive Property. All Confidential Information is the sole and
exclusive property of the party providing such information and the permitted use
thereof by the other party for purposes of its performance hereunder shall not
be deemed a license or other right of the other party to use any such
Confidential Information, for any other purpose.
9. BREACH AND DISPUTE RESOLUTION.
9.1 Arbitration. Should either party reasonably believe that the
other has committed a breach of this Agreement, such party shall notify the
other in writing stating its belief that a breach has been committed and setting
forth the specifics of such breach. If the party in receipt of such notice does
not respond within five (5) days of its receipt of same, or if it does respond
and the party receiving such response is not satisfied with the response or the
proposed remedy, such party may thereafter demand arbitration. Should the
parties to this Agreement fail to resolve any controversy or claim arising out
of or relating to the interpretation or application of any term or provision set
forth herein, or the alleged breach thereof, such controversy or claim shall be
resolved by arbitration in accordance with the Commercial Arbitration
Rules-Expedited Procedures of the American Arbitration Association. Judgment
upon any award rendered pursuant to this Section 9.1 may be entered into any
court having jurisdiction of the party against whom the award is rendered. Any
award rendered pursuant to the terms and conditions set forth herein shall be
final and binding. Any arbitration pursuant to this Agreement shall be held in
New York, New York. Each party shall bear its own expense and shall share
equally the administrative expenses of the hearing, including, without
limitation, arbitration fees and the expenses of a court reporter.
10. Independent Contractor. This Agreement shall not constitute or
give rise to any employer-employee, agency, partnership or joint venture
relationship among or between the parties, and each party's performance
hereunder is that of a separate, independent entity. Except as specifically
provided in Section 2.2(a) hereof, nothing herein shall limit or otherwise
restrict HD's use of the Facility to formulate, develop, test, manufacture,
package, supply or otherwise distribute and sell any pharmaceutical or
nutriceutical product or raw material for or to any third party, subject to
compliance with the terms and provisions of the Lease Agreement.
11. MISCELLANEOUS.
11.1 Force Majeure. Neither party to this Agreement shall be liable
for failure or delay in the performance of any of its obligations hereunder
(with the exception of payment obligations), if such failure or delay is due to
causes beyond its reasonable control, including, without limitation, acts
<PAGE> 13
of God, earthquakes, fires, strikes, acts of war, or intervention (other than as
a result of acts or omissions of such party) of any governmental authority,
whether affecting such party or any of its Affiliates.
11.2 Assignment. The parties acknowledge and agree that the
production of pharmaceutical products generally and or the Products, in
particular, are highly regulated by governmental authorities, are highly
technical in nature, require the unique expertise and experience of HD and
involve the disclosure of sensitive or proprietary Confidential Information.
Accordingly, this Agreement and any rights hereunder shall not be assigned by HD
without the prior written consent of PAR.
11.3 Governing Law. This contract shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts entered into and to be performed wholly within said State.
11.4 Notice. All notices required to be given hereunder shall be in
writing and shall be given by personal delivery, via facsimile transmission, by
a nationally recognized overnight carrier or by registered or certified mail,
postage prepaid with return receipt requested. Notices shall be addressed to the
parties as follows:
If to HD: Halsey Drug Co., Inc.
695 No. Perryville Road
Rockford, Illinois 61107
Attn: Mr. Michael Reicher
Facsimile No.: (815) 399-9710
If to PAR: Pharmaceutical Resources, Inc.
One Ram Ridge Road
Spring Valley, New York 10977
Attn: President
Facsimile No.: (914) 425-7922
Notices delivered personally shall be deemed communicated as of
actual receipt; notices sent via facsimile transmission shall be deemed
communicated as of receipt by the sender of written confirmation of transmission
thereof; notices sent via overnight courier shall be deemed received as of one
business day following sending; and notices mailed shall be deemed communicated
as of three business days after proper mailing. A party may change his or its
address by written notice in accordance with this Section 11.4.
11.5 Amendments. Any amendment or modification of this Agreement
shall only be valid if made in writing and signed by or on behalf of the parties
hereto.
11.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which shall constitute a
single document.
11.7 Entire Agreement. This Agreement (including the Schedules
hereto) represents the entire agreement of the parties with respect to the
subject matter hereof, superseding all prior agreements and understandings,
written or oral.
11.8 Benefit; Binding Effect. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
<PAGE> 14
11.9 Survival. Notwithstanding anything to the contrary contained in
this Agreement, the provisions of Sections 2.7, 4.1, 4.4, 6, 7.7 and 8 shall
survive any termination of this Agreement.
11.10 Further Assurances. The parties hereto agree that they shall
take all appropriate actions, including, without limitation, the execution or
filing of any documents or instruments, which may be reasonably necessary or
advisable to carry out the intent and accomplish the purposes of any of the
provisions hereof.
11.11 Severability. In the event that any provision of this
Agreement shall be held invalid or unenforceable for any reason by a court of
competent jurisdiction, such provision or part thereof shall be considered
separate from the remaining provisions of this Agreement, which shall remain in
full force and effect. Such invalid or unenforceable provision shall be deemed
revised to effect, to the fullest extent permitted by law, the intent of the
parties as set forth therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the effective date by their duly authorized representatives.
HALSEY DRUG CO., INC.
By:/S/
------------------------------
Name: Peter Clemens
Title: Chief Financial Officer
PAR PHARMACEUTICAL , INC.
By:/S/
--------------------
Name: Kenneth Sawyer
Title: President
<PAGE> 15
Schedule 1
Products
Products Manufactured and Coated
Naproxen Sodium
Ibuprofen
Products Coated
Imipramine
Flupenazine
Ranitidine
Restricted Products
Ibuprofen
<PAGE> 16
Schedule 2.4
Employees
See attached
<PAGE> 17
Schedule 2.6
Manufacturing Cost
Manufacturing and Coating Cost
<TABLE>
<S> <C>
Naproxen Sodium $5 per thousand tablets
Ibuprofen $5 per thousand tablets
</TABLE>
Coating Cost
<TABLE>
<S> <C>
Imipramine $2 per thousand tablets
Fluphenazine $2 per thousand tablets
Ranitidine $2 per thousand tablets
</TABLE>
<PAGE> 18
Schedule 3.1
Shipping
Shipping costs are F.O.B. manufacturing site.
<PAGE> 19
Schedule 3.2
Minimum Purchase Requirements
PAR shall purchase from HD such quantities of Products such that (i)
during the months of April, 1999 and May, 1999, HD shall be entitled to receive
an aggregate of $108,334 in respect of purchase price for Products delivered
hereunder, (ii) during the ten months commencing June 1, 1999 through March 31,
2000, HD shall be entitled to receive, during each such calendar month
$54,167.00 in respect of purchase price for Products delivered hereunder, and
(iii) during the six months commencing April 1, 2000 through October 31, 2000,
HD shall be entitled to receive, during each such calendar month $83,333.33 in
respect of purchase price for Products delivered hereunder; provided that to the
extent that the aggregate amount of all such payments made through any given
month shall exceed the aggregate minimum amount of such payments required to be
made through such month pursuant to the foregoing, PAR shall be entitled to a
credit in the ensuing calendar months to the extent of such excess payment and
may reduce, to such extent, the payments otherwise required to be made in such
months. In addition, PAR may make any payments required hereby by way of credit
against any amounts then due and payable from Tenant under the Lease Agreement.
<PAGE> 20
Schedule 5.1
Pricing
Manufacturing and Coating
<TABLE>
<S> <C>
Naproxen Sodium $4 per thousand tablets
Ibuprofen $3 per thousand tablets
</TABLE>
Coating Cost
<TABLE>
<S> <C>
Imipramine $1 per thousand tablets
Fluphenazine $1 per thousand tablets
Ranitidine $1 per thousand tablets
</TABLE>
<PAGE> 1
Exhibit 10.56
[Halsey Drug Co., Inc. 1998 Stock Option Plan]
HALSEY DRUG CO., INC.
1998 STOCK OPTION PLAN
1. PURPOSES. The Plan described herein, as amended and restated, shall be known
as the "Halsey Drug Co., Inc. 1998 Stock Option Plan" (the "Plan"). The purposes
of the Plan are to attract and retain the best available personnel for positions
of substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants of the Company or its Subsidiaries (as defined in
Section 2 below) to whom Option's may be granted under this Plan, and to promote
the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"Non-ISO's," at the discretion of the Board and as reflected in the terms of the
written option agreement.
The Plan is not intended as an agreement or promise of employment. Neither
the Plan, nor any Option granted pursuant to the Plan, shall confer on any
person any right to continue in the employ of the Company. The right of the
Company to terminate an Employee is not limited by the Plan, nor by any Option
granted pursuant to the Plan, unless such right is specifically described by the
terms of any such Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or the
Board of Directors of the Company, if no Committee is appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee appointed under Section 4(a)
hereof.
(d) "Common Stock" shall mean the Common Stock, $.01 par value, of the
Company.
(e) "Company" shall mean Halsey Drug Co. Inc., a New York corporation.
(f) "Continuous Service or Continuous Status as an Employee" shall mean
the absence of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted in the case
of sick leave, military leave, or any other leave of absence approved by the
Board.
(g) "Director" shall mean any person serving on the Board of Directors.
<PAGE> 2
(h) "Employee" shall mean any person, including officers, employed by the
Company or any Parent or Subsidiary of the Company. The payment of a Director's
fee by the Company shall not be sufficient to constitute "employment" by the
Company.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" shall mean (i) the closing price for a share of
the Common Stock on the exchange or quotation system which reports or quotes the
closing prices for a share of the Common Stock, as accurately reported for any
date (or, if no shares of Common Stock are traded on such date, for the
immediately preceding date on which shares of Common Stock were traded) in The
Wall Street Journal (or if The Wall Street Journal no longer reports such price,
in a newspaper or trade journal selected by the Committee) or (ii) if no such
price quotation is available, the price which the Committee acting in good faith
determines through any reasonable valuation method that a share of Common Stock
might change hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having reasonable knowledge of
the relevant facts.
(k) "Incentive Stock Option" shall mean an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(l) "Non-ISO" shall mean an Option to purchase stock which is not intended
by the Committee to satisfy the requirements of Section 422 of the Code.
(m) "Option" shall mean a stock option granted pursuant to the Plan.
(n) "Optioned Stock" shall mean the Common Stock subject to an Option.
(o) "Optionee" shall mean an Employee, Director or Consultant who receives
an Option.
(p) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(q) "Plan" shall mean this Halsey Drug Co. Inc. 1998 Stock Option Plan, as
amended from time to time.
(r) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Exchange Act.
(s) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(t) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
<PAGE> 3
(u) "Ten Percent Shareholder" shall mean a person who owns (after taking
into account the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or a Subsidiary.
3. STOCK AUTHORIZED.
Subject to the provisions of Section 11 of the Plan, the maximum aggregate
number of shares which may be Optioned and sold under the Plan is Two Million
Six Hundred Thousand (2,600,000) shares of authorized, but unissued, or
reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for further
grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a Committee to
administer the Plan which shall be constituted so as to permit the Plan to
continue to comply with Rule 16b-3, as currently in effect or as hereafter
modified or amended. The Committee appointed by the Board of Directors shall
consist of not less than two members of the Board of Directors, to administer
the Plan on behalf of the Board of Directors, subject to such terms and
conditions as the Board of Directors may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board of
Directors. From time to time, the Board of Directors may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan; provided, however, that at no time shall a Committee of
less than two members administer the Plan. Subject to the provisions of the
Plan, the Committee shall be authorized to interpret the Plan, to establish,
amend and rescind any rules and regulations relating to the Plan and to make all
other determinations necessary or advisable for the administration of the Plan.
Notwithstanding anything to the contrary contained herein, no member of the
Committee shall serve as such under this Plan unless such person is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i) of the
Exchange Act. A majority vote of the members of the Committee shall be required
for all of its actions.
A majority of the entire Committee shall constitute a quorum, and the
action of the majority of the Committee members present at any meeting at which
a quorum is present shall be the action of the Committee. All decisions,
determinations, and interpretations of the Committee shall be final and
conclusive on all persons affected thereby and shall, as to Incentive Stock
Options, be consistent with Section 422 of the Code. The Committee shall have
all of the powers and duties set forth herein, as well as such additional powers
and duties as the Board of Directors may delegate to it; provided, however, that
the Board of Directors expressly retains the right in its sole discretion (i) to
elect and to replace the members of the Committee, and (ii) to terminate or
amend this Plan in any manner consistent with applicable law.
<PAGE> 4
(b) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion: (i) to grant Incentive
Stock Options, in accordance with Section 422 of the Code, or to grant
Non-ISO's; (ii) to determine the Fair Market Value of the Common Stock; (iii) to
determine the exercise price per share of Options to be granted which exercise
price shall be determined in accordance with Section 8 of the Plan; (iv) to
determine the persons to whom (including, without limitation, members of the
Committee) and the time or times at which, Options shall be granted and the
number of Shares to be represented by each Option; (v) to interpret the Plan;
(vi) to prescribe, amend and rescind rules and regulations relating to the Plan;
(vii) to determine the terms and provisions of each Option granted (which need
not be identical) and, with the consent of the holder thereof, modify or amend
each Option; (viii) to accelerate or defer (with the consent of the Optionee)
the exercise date of any Option; (ix) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option previously granted by the Board; and (x) to make all other determinations
deemed necessary or advisable for the administration of the Plan.
(c) Subject to the provisions of this Plan and compliance with Rule 16b-3
of the Exchange Act, the Committee may grant options under this Plan to members
of the Company's Board of Directors, including members of the Committee, and in
such regard may determine:
(i) the time at which any such Option shall be granted;
(ii) the number of Shares covered by any such Option;
(iii) the time or times at which, or the period during which, any
such Option may be exercised or whether it may be exercised in
whole or in installments;
(iv) the provisions of the agreement relating to any such Option;
and
(v) the Option Price of Shares subject to an Option granted such
Board member.
(d) Effect of the Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
5. ELIGIBILITY. Incentive Stock Options may be granted only to Employees.
Non-ISO's may be granted to Employees as well as non-employee Directors and
Consultants of the Company as determined by the Board or any Committee. Any
person who has been granted an Option may, if he is otherwise eligible, be
granted an additional Option or Options.
Each grant of an Option shall be evidenced by an Option Agreement, and
each Option Agreement shall (1) specify whether the Option is an Incentive Stock
Option or a Non-ISO and (2) incorporate such other terms and conditions as the
Committee acting in its absolute discretion deems
<PAGE> 5
consistent with the terms of this Plan, including, without limitation, a
restriction on the number of shares of stock subject to the Option which first
become exercisable during any calendar year.
To the extent that the aggregate Fair Market Value of the stock of the
Company subject to Incentive Stock Options granted (determined as of the date
such an Incentive Stock Option is granted) which first become exercisable in any
calendar year exceeds $100,000, such Options shall be treated as Non-ISO's. This
$100,000 limitation shall be administered in accordance with the rules under
Section 422(d) of the Code.
6. EFFECTIVE DATE AND TERM OF PLAN. The effective date of this Plan ("Effective
Date") shall be the date it is adopted by the Board, provided the shareholders
of the Company (acting at a duly called meeting of such shareholders or by the
written consent of shareholders) approve this Plan within twelve (12) months
after such Effective Date. The effectiveness of Options granted under this Plan
prior to the date such shareholder approval is obtained shall be contingent on
such shareholder approval.
Subject to the provisions of Section 13 hereof, no Option shall be granted
under this Plan on or after the earlier of
(1) the tenth anniversary of the Effective Date of this Plan in which
event the Plan otherwise thereafter shall continue in effect until all
outstanding Options shall have been surrendered or exercised in full or no
longer are exercisable, or
(2) the date on which all of the Common Stock reserved for issuance under
Section 3 of this Plan has (as a result of the exercise or expiration of Options
granted under this Plan) been issued or no longer is available for use under
this Plan, in which event the Plan also shall terminate on such date.
7. TERM OF OPTION. An Option shall expire on the date specified in such Option,
which date shall not be later than the tenth anniversary of the date on which
the Option was granted, except that, if any Employee, at any time an Incentive
Stock Option is granted to him or her, owns stock representing more than ten
percent (10%) of the total combined voting power of all classes of Common Stock
(or, under Section 424(d) of the Code is deemed to own stock representing more
than ten percent (10%) of the total combined voting power of all such classes of
Common Stock, by reason of the ownership of such classes of stock, directly or
indirectly, by or for any brother, sister, spouse, ancestor or lineal descendant
of such Employee, or by or for any corporation, partnership, state or trust of
which such Employee is a shareholder, partner or beneficiary), the Incentive
Stock Option granted him or her shall not be exercisable after the expiration of
five years from the date of grant or such earlier expiration as provided in the
particular Option agreement.
<PAGE> 6
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, immediately before the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Non-ISO, the per Share exercise price shall be
determined by the Board on the date of grant.
(iii) In the case of an Option granted on or after the effective
date of registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the termination of
such registration, the per Share exercise price shall be no less than one
hundred percent (100%) of the fair market value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the Board
and may consist entirely of cash, check, promissory note, other Shares of Common
Stock having a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, or any
combination of such methods of payment, or such other consideration and method
of payment for the issuance of Shares to the extent permitted under New York
law.
If the optionee desires to pay for the optioned shares, in whole or in part, by
conversion of Shares, Optionee shall be entitled upon exercise of the Option to
receive that number of Shares equal to the quotient obtained by dividing
[(A-B)(X)] by (A) where:
(A) = the Fair Market Value of one Share of Common Stock on
the date of conversion.
(B) = the Option Price for one Share of Common Stock subject
to an Option.
(X) = the Number of Shares of Common Stock issuable upon
exercise of the Option if exercised for cash;
<PAGE> 7
provided, if the above calculation results in a negative number, then no Shares
shall be issued or issuable upon conversion of the Option. Any payment made in
Shares of the Company's Common Stock shall be treated as equal to the Fair
Market Value of such Common Stock on the date the properly endorsed certificate
for such Common Stock is delivered to the Committee (or its delegate).
9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Committee, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance, which in no event will be delayed more than thirty (30) days
from the date of the exercise of the Option, (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee, or Director or Consultant with
Respect to Non-ISO's. Non-ISO's granted pursuant to the Plan may be exercised
notwithstanding the termination of the Optionee's status as an employee, a
non-employee Director or a Consultant, except as provided in the Plan or as
provided by the terms of the Stock Option Agreement.
(c) Termination of Service as an Employee with Respect to Incentive Stock
Options. If the Continuous Service of any Employee terminates, he or she may,
but only within thirty (30) days (or such other period of time not exceeding
three (3) months as is determined by the Committee) after the date he or she
ceases to be an Employee of the Company, exercise his or her Option to the
extent that he or she was entitled to exercise it as of the date of such
termination. To the extent that he or she was not entitled to exercise the
Option at the date of such termination, or if he or she does not
<PAGE> 8
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(d) Disability of Optionee. Notwithstanding the provisions of Section 9(c)
above, in the event an Employee is unable to continue his or her Continued
Service with the Company as a result of his or her total and permanent
disability (within the meaning of Section 22(e)(3) of the Code), he or she may,
but only within three (3) months (or such other period of time not exceeding
twelve (12) months as is determined by the Committee) from the date of
disability, exercise his or her Option to the extent he or she was entitled to
exercise it at the date of such disability. To the extent that he or she was not
entitled to exercise the Option at the date of disability, or if he or she does
not exercise such Option (which he or she was entitled to exercise) within the
time specified herein, the Option shall terminate.
(e) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his or her
death an Employee of the Company and who shall have been in
Continuous Status as an Employee, a Director or Consultant
since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the
date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise
that would have accrued had the Optionee continued living one
(1) month after the date of death; or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Committee)
after the termination of Continuous Status as an Employee, a
Director or Consultant, the Option may be exercised, at any
time within three (3) months following the date of death, by
the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date
of termination.
10. TRANSFERABILITY OF OPTIONS.
(a) Incentive Stock Options may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the life time
of the Optionee only by the Optionee.
(b) The Committee may, in its discretion, authorize all or a portion of
the Non-ISOs to be granted to an Optionee to be on terms which permit transfer
by such Optionee to (i) the spouse, children or grandchildren of the Optionee
(the "Immediate Family Members"), (ii) a trust or trusts for the exclusive
benefit of such Immediate Family Members, or (iii) a partnership in which such
Immediate Family Members are the only partners, provided that (x) there may be
no consideration for any such transfer, (y) the Non-ISO Stock Option Agreement
pursuant to which such options are granted must be approved by the Committee,
and must expressly provide for transferability in a
<PAGE> 9
manner consistent with this section, (z) subsequent transfers of transferred
Options shall be prohibited except those made by will or by the laws of descent
or distribution, and (zz) such transfer is approved in advance by the Committee.
Following transfer, any such Options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of determining the rights of exercise under the Option, the
term "Optionee" shall be deemed to refer to the transferee. The termination of
service as an employee, non-employee director or consultant shall continue to be
applied with respect to the original Optionee, following which the options shall
be exercisable by the transferee only to the extent, and for the periods
specified in Section 9 of the Plan and in the Stock Option Agreement.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
exercise price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, or
in the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each Employee,
non-employee Director and Consultant to whom an Option is so granted within a
reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN. (a) The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that,
<PAGE> 10
the following revisions or amendments shall require approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11
of the Plan;
(ii) any change in the class of Employees which are eligible
participants for Options under the Plan; or
(iii) if shareholder approval of such amendment is required for
continued compliance with Rule 16b-3.
(b) Shareholder Approval. Any amendment requiring shareholder approval
under Section 13(a) of the Plan shall be solicited as described in Section 17 of
the Plan.
(c) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
<PAGE> 11
16. OPTION AGREEMENT. Options shall be evidenced by written Option agreements in
such form as the Committee shall approve.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to approval
by the shareholders of the Company within twelve months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it may be obtained by the affirmative vote of the holders
of a majority of the outstanding shares of the Company present or represented
and entitled to vote thereon. The approval of such shareholders of the Company
shall be (1) solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder, or (2)
solicited after the Company has furnished in writing to the holders entitled to
vote substantially the same information concerning the Plan as that which would
be required by the rules and regulations in effect under Section 14(a) of the
Exchange Act at the time such information is furnished.
18. MISCELLANEOUS PROVISIONS. An Optionee shall have no rights as a shareholder
with respect to any Shares covered by his Option until the date of the issuance
of a stock certificate to him for such shares.
19. OTHER PROVISIONS. The stock option agreement authorized under the Plan shall
contain such other provisions, including, without limitation, restrictions upon
the exercise of the Option, as the Committee shall deem advisable. Any such
stock option agreement shall contain such limitations and restrictions upon the
exercise of the Option as shall be necessary in order that such option will be
an Incentive Stock Option as defined in Section 422 of the Code if an Incentive
Stock Option is intended to be granted.
20. INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board
member is liable for negligence or misconduct in the performance of his duties;
provided that within 60 days after institution of any such action, suit or
proceeding a Board member shall in writing offer the Company the opportunity, at
its own expense, to handle and defend the same.
21. APPLICATION OF FUNDS. The proceeds received by the Company from the sale of
Common Stock pursuant to Options will be used for general corporate purposes.
22. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall impose no
obligation upon the Optionee to exercise such Option.
<PAGE> 12
23. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and Directors of the Company or any Subsidiary.
24. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular shall
include the plural, and the masculine pronoun shall include the feminine gender.
25. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections hereof
are inserted for convenience and reference; they constitute no part of the Plan.
26. GOVERNING LAW. The Plan shall be governed by and construed in accordance
with the laws of the State of New York, except to the extent preempted by
Federal law. The Plan is intended to comply with Rule 16b-3. Any provisions
inconsistent with Rule 16b-3 shall be inoperative and shall not affect the
validity of the Plan, unless the Board of Directors shall expressly resolve that
the Plan is no longer intended to comply with Rule 16b-3.
Dated: April 16, 1998
<PAGE> 1
Exhibit 23.1
[Consent of Grant Thornton LLP, Independent Certified Public Accountants]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 5, 1999, accompanying the
consolidated financial statements included in the Annual Report of Halsey Drug
Co., Inc. on Form 10-K for the year ended December 31, 1998. We hereby consent
to the incorporation by reference of said report in the Registration Statements
of Halsey Drug Co., Inc. on Form S-8 (File No. 33-98396, effective October 19,
1995).
GRANT THORNTON LLP
/s/
New York, New York
March 5, 1999
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