<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
HALSEY DRUG CO., INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
<PAGE> 2
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 3
HALSEY DRUG CO., INC.
695 NORTH PERRYVILLE ROAD
CRIMSON BUILDING NO. 2
ROCKFORD, ILLINOIS 61107
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 2000 Annual Meeting of Shareholders (the
"Meeting") of Halsey Drug Co., Inc., a New York corporation (the "Company"),
will be held at the Newark Airport Marriott Hotel, Newark International Airport,
Newark, New Jersey 07114 on Thursday, June 29, 2000 at 10:00 a.m., Eastern Time,
for the purposes listed below:
1. To elect nine directors to the Board of Directors who shall serve until
the 2001 Annual Meeting of Shareholders, or until their successors have
been elected and qualified;
2. To ratify the appointment of Grant Thornton LLP as the Company's
independent certified public accountants for the fiscal year ending
December 31, 2000; and
3. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
Only shareholders of record at the close of business on May 18, 2000 are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
For a period of 10 days prior to the Meeting, a shareholders list will be
kept at the Company's principal office and shall be available for inspection by
shareholders during normal business hours. A shareholders list shall also be
present and available for inspection at the Meeting.
Your attention is directed to the accompanying Proxy Statement for the text
of the resolutions to be proposed at the Meeting and further information
regarding each proposal to be made.
SHAREHOLDERS UNABLE TO ATTEND THE MEETING ARE URGED TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. IF YOU ATTEND
THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU WISH.
By Order of the Board of Directors
MICHAEL K. REICHER
President and Chief Executive Officer
May 19, 2000
Rockford, Illinois
<PAGE> 4
HALSEY DRUG CO., INC.
695 NORTH PERRYVILLE ROAD
CRIMSON BUILDING NO. 2
ROCKFORD, ILLINOIS 61107
PROXY STATEMENT
2000 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Halsey Drug Co., Inc. (the "Company") of proxies in
the accompanying form, to be voted at the 2000 Annual Meeting of Shareholders of
the Company (the "Meeting") to be held on Thursday, June 29, 2000, and at any
adjournment(s) thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders. This Proxy Statement and the form of proxy were
first mailed to shareholders on or about May 19, 2000.
The close of business on May 18, 2000 has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice of
and to vote at the Meeting. On the Record Date, the Company's outstanding voting
securities (exclusive of 439,603 shares held in treasury) consisted of 14,427,
619 shares of common stock, $.01 par value per share (the "Common Stock"). Under
the New York Business Corporation Law and the Company's Certificate of
Incorporation and Bylaws, each stockholder will be entitled to one vote for each
share of Common Stock held at the Record Date for all matters, including the
election of directors. The required quorum for the transaction of business at
the Meeting is a majority of the votes eligible to be cast by holders of shares
of Common Stock issued and outstanding on the Record Date. Shares that are voted
"FOR," "AGAINST," "WITHHELD" or "ABSTAIN" are treated as being present at the
Meeting for the purposes of establishing a quorum and are also treated as shares
entitled to vote at the Meeting (the "Votes Cast") with respect to such matter.
Abstentions will have the same effect as voting against a proposal. Broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business, but such non-votes will not be counted
for purposes of determining the number of Votes Cast with respect to the
particular proposal on which a broker has expressly not voted. Thus a broker
non-vote will not effect the outcome of the voting on a proposal. Holders of
Common Stock have no cumulative voting rights in the election of directors.
<PAGE> 5
17
436762-1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
------------------------------------------------------------------------------------------------ ------
<S> <C>
Voting of Proxies............................................................................... 3
The Board of Directors.......................................................................... 3
Proposal 1 -- Election of Directors............................................................ 4
-- Executive Officers............................................................... 5
Compensation of Executive Officers and Directors................................................ 6
Summary Compensation Table...................................................................... 7
-- Other Compensatory Arrangements.................................................. 7
-- Employment Agreements............................................................ 7
-- Compensation of Directors........................................................ 8
-- Stock Option Plans............................................................... 8
Option Grants in 1999........................................................................... 9
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values.......................................................................................... 10
Compensation Committee Interlocks and Insider Participation..................................... 10
Section 16(a) Beneficial Ownership Reporting Compliance......................................... 10
Report of the Compensation Committee on Executive Compensation.................................. 10
Performance Graph............................................................................... 12
Certain Relationships and Related Transactions.................................................. 13
-- Vote Required.................................................................... 14
-- Recommendation of the Board of Directors......................................... 14
Proposal 2 -- Ratification of Appointment of Independent Certified Public
Accountants.................................................................... 14
-- Recommendation of the Board of Directors......................................... 15
Security Ownership of Certain Beneficial Owners and Management.................................. 15
General......................................................................................... 17
Shareholder Proposals for 2001 Annual Meeting................................................... 17
</TABLE>
2
<PAGE> 6
VOTING OF PROXIES
Proxies may be revoked by shareholders at any time prior to the voting
thereof by giving notice of revocation in writing to the Secretary of the
Company or by voting in person at the Meeting.
If the enclosed proxy is properly signed, dated and returned, the Common
Stock represented thereby will be voted at the Meeting and will be voted in
accordance with the specifications made thereon. IF NO INSTRUCTIONS ARE
INDICATED, THE COMMON STOCK REPRESENTED THEREBY WILL BE VOTED (i) FOR the
election of Directors and (ii) FOR the ratification of the appointment of Grant
Thornton LLP as the Company's independent certified public accountants for the
fiscal year ending December 31, 2000.
THE BOARD OF DIRECTORS
During the year ended December 31, 1999, the Board of Directors held six
meetings. None of the Company's Board members attended less than 75% of the
Board meetings held during 1999.
During 1999, the Company had an Audit Committee, a Compensation Committee,
a Stock Option Committee, an Executive Committee, a Technology Committee and a
Business Development Committee of the Board of Directors. The Audit Committee,
composed of Messrs. Bruce F. Wesson, Alan J. Smith and William Sumner, is
responsible for nominating the Company's independent auditors, working with
independent auditors and internal auditing staff of the Company and other
corporate officials reviewing the financial statements of the Company and
reporting on the results of the audits to the Board, reviewing the Company's
insurance coverage, financial controls and filings with the Securities and
Exchange Commission, and submitting to the Board its recommendations relating to
the Company's financial reporting, accounting practices and policies and
financial accounting and operation controls. The Audit Committee met twice in
1999.
The Company's Compensation Committee, composed of Messrs. Bruce F. Wesson,
Srini Conjeevaram, William Skelly and Michael Reicher, is responsible for
consulting with and making recommendations to the Board of Directors about
executive compensation arrangements and the compensation of employees. See
"Compensation of Executive Officers and Directors -- Report of the Compensation
Committee on Executive Compensation." As discussed below, effective April 16,
1998, responsibility for the grant of stock options under the Company's Stock
Option Plan has been allocated to the Stock Option Committee of the Board of
Directors. The Compensation Committee met once in 1999.
In April 1998, the Board of Directors established a Stock Option Committee,
composed of William Skelly, William Sumner and Alan Smith, and an Executive
Committee, composed of Srini Conjeevaram, Joel D. Liffmann, Bruce F. Wesson,
Michael Reicher, William Skelly and Peter Clemens. In August 1999, the Company
divided the Technology and Business Development Committee, initially created in
April 1998, into two Committees. The Technology Committee is composed of Alan
Smith and Michael Reicher. The Business Development Committee is composed of
Alan Smith, William Sumner, Srini Conjeevaram, Joel Liffmann, Zubeen Shroff and
Peter Clemens. The principal functions of the Stock Option Committee are to
review management's recommendation as to employee option grants and to grant
options under the Company's Stock Option Plans to employees, directors, and
consultants. The Stock Option Committee met once in 1999. The principal
functions of the Executive Committee are to act on behalf of the Board of
Directors in lieu of a full Board meeting on such matters that are not of the
type required to be considered by the full Board of Directors and to advise the
Board as to the issues and matters under review by the Executive Committee at
the meetings of the Board of Directors. The Executive Committee met once in
1999. The principal functions of the Technology Committee are to address and
review regulatory oversight of the Company's operations, including compliance
with applicable DEA and FDA regulations, compliance with state agency and
regulatory requirements, compliance with Medicare reimbursement requirements and
to consult with the Board regarding current and future compliance with
applicable Federal and state regulations, including Current Good Manufacturing
Practice regulations. The Technology Committee met once in 1999. The principal
functions of the Business Development Committee are to identify, assess and
review possible joint venture and other strategic alliances involving the
Company and third parties. The Business Development Committee met once in 1999.
The Company does not have a standing nominating committee.
3
<PAGE> 7
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, nine individuals will be elected to serve as Directors
until the next annual meeting, and until their successors are elected and
qualified. During the fiscal year ended December 31, 1999, the Company's Board
of Directors consisted of Messrs. Skelly, Reicher, Clemens, Sumner, Wesson,
Conjeevaram, Shroff and Liffmann and Dr. Smith.
Unless a shareholder WITHHOLDS AUTHORITY, a properly signed and dated proxy
will be voted FOR the election of the persons named below, unless the proxy
contains contrary instructions. Management has no reason to believe that any of
the nominees will not be a candidate or will be unable to serve as a Director.
However, in the event any nominee is not a candidate or is unable or unwilling
to serve as a Director at the time of the election, unless the shareholder
withholds authority from voting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill such vacancy.
The Company's Certificate of Incorporation provides for a maximum of eleven
directors. Any appointees to fill the current four vacancies on the Company's
Board of Directors may be filled by a vote of a majority of directors in office.
Such appointees would continue in office until the next annual meeting of
shareholders following such appointment. The Board of Directors has not
identified any persons that it currently intends to nominate to fill any such
vacancies.
The name and age of each of the nine nominees, his principal occupation and
the period during which such person has served as a Director are set out below.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION WITH THE COMPANY DIRECTOR SINCE
------------------------------------ ------ ------------------------------------------- ----------------
<S> <C> <C> <C>
William Skelly(1)(3)(4)............ 49 Chairman of the Board of Directors 1996
Michael K. Reicher(3)(4)(5)........ 53 President, Chief Executive Officer
and Director 1998
Alan J. Smith(1)(2)(5)(6).......... 70 Director 1995
William A. Sumner(1)(2)(6)......... 62 Director 1997
Bruce F. Wesson(2)(3)(4)........... 57 Director 1998
Srini Conjeevaram(3)(4)(6)......... 41 Director 1998
Zubeen Shroff(6)................... 35 Director 1998
Peter A. Clemens(4)(6)............. 47 Vice President, Chief Financial
Officer and Director 1998
Joel D. Liffmann(4)(6)............. 39 Nominee for Director 1999
</TABLE>
- ----------
(1) Member of Stock Option Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Executive Committee
(5) Member of Technology Committee
(6) Member of Business Development Committee
WILLIAM SKELLY has been a Director of the Company since May 1996 and
Chairman of the Company since October 1996. Since 1990, Mr. Skelly has served as
Chairman, President and Chief Executive Officer of Central Biomedia, Inc. and
its subsidiary SERA, Inc., companies involved in the animal health industry
including veterinary biologicals and custom manufacturing of animal sera
products. From 1985 to 1990, Mr. Skelly served as President of Martec
Pharmaceutical, Inc., a distributor and manufacturer of human generic
prescription pharmaceuticals.
MICHAEL K. REICHER has been President, Chief Executive Officer and a
Director of the Company since February 19, 1998. In 1980, Mr. Reicher founded
UDL Laboratories, Inc., a manufacturer of human generic pharmaceuticals, and
served as its President through February 1998. In February 1996, UDL
Laboratories, Inc. was purchased by Mylan Laboratories, Inc., and Mr. Reicher
remained in the office of President until joining the Company in February 1998.
4
<PAGE> 8
ALAN J. SMITH, PH.D. has been a Director of the Company since 1995. Since
1991, Dr. Smith has been a management consultant specializing in pharmaceutical
quality management, quality control, quality assurance and auditing, the Food
and Drug Administration's Current Good Manufacturing Practice regulations and
technology training, documentary systems and stability programming. From 1985
to 1991, he was Corporate Director of Quality Affairs for Whitehall
Laboratories, a Division of American Home Products Corporation. Dr. Smith holds
B.Sc. and Ph.D. degrees from the University of London.
WILLIAM A. SUMNER has been a Director of the Company since August 1997.
From 1974 until his retirement in 1995, Mr. Sumner held various positions
within Hoechst-Roussel Pharmaceuticals, Inc., a manufacturer and distributor of
pharmaceutical products, including Vice-President and General Manager,
Dermatology Division from 1991 through 1995, Vice President, Strategic Business
Development, from 1989 to 1991 and Vice President, Marketing from 1985 to 1989.
Since his retirement from Hoechst-Roussel Pharmaceuticals, Inc. in 1995, Mr.
Sumner has acted as a consultant to various entities in the pharmaceutical
field.
BRUCE F. WESSON has been a Director of the Company since March 1998. Mr.
Wesson is President of Galen Associates, a health care venture firm, and a
General Partner of Galen Partners III, L.P. Prior to January 1991, he was Senior
Vice President and Managing Director of Smith Barney, Harris Upham & Co. Inc.,
an investment banking firm. He currently serves on the Boards of Witco
Corporation, a publicly traded company, and several privately held companies.
Mr. Wesson earned a degree from Colgate University and a Master of Business
Administration from Columbia University.
SRINI CONJEEVARAM has been a Director of the Company since March 1998. Mr.
Conjeevaram is Chief Financial Officer of Galen Associates, a health care
venture firm, and a General Partner of Galen Partners III, L.P. Prior to January
1991, he was an Associate in Corporate Finance at Smith Barney, Harris Upham &
Co. Inc. from 1989 to 1990 and a Senior Project Engineer for General Motors
Corporation from 1982 to 1987. Mr. Conjeevaram serves as a Director of Derma
Sciences, Inc., a publicly traded company. He earned a Bachelor of Science
degree in Mechanical Engineering from Madras University, a Master of Science
degree in Mechanical Engineering from Stanford University, and a Master of
Business Administration from Indiana University.
ZUBEEN SHROFF has been a Director of the Company since June 1998. Mr.
Shroff is a General Partner of Galen Partners III, L.P. He joined Galen
Associates, a health care venture firm, in January 1997 from The Wilkerson
Group, a leading provider of management consulting services to the health care
industry. Prior to The Wilkerson Group, he worked for Schering-Plough
International from 1989 to 1993 in a variety of staff and line management
positions and as head of Schering-Plough France's biotech franchise. Mr. Shroff
received a Bachelor of Science in Biological Sciences from Boston University in
1986 and a Masters of Business Administration from The Wharton School in 1988.
PETER A. CLEMENS has been the Vice President and Chief Financial Officer of
the Company since February 1998 and a Director of the Company since June 1998.
From February, 1988 until joining the Company, Mr. Clemens was employed by TC
Manufacturing Co., Inc. ("TC") which, through its various subsidiaries and
divisions, manufactures generic pharmaceuticals, industrial coatings and
flexible packaging. Mr. Clemens was TC's President from February, 1996 through
February, 1998. Prior to that time, he held the position of Vice President and
Chief Financial Officer.
JOEL D. LIFFMANN has been a Director of the Company since 1999. Mr.
Liffmann is a General Partner of Oracle Partners, L.P. Prior to joining Oracle
Partners in 1996, Mr. Liffmann was Senior Vice President of Business Development
at Merck-Medco, Inc. Prior to such time, Mr. Liffmann was Vice
President/Business Development at Medco Containment Services and Vice President
of Equity Research and later was Vice President of Corporate Finance at Drexel
Burnham Lambert. Mr. Liffmann holds a degree from Boston University.
EXECUTIVE OFFICERS
Michael K. Reicher, President and Chief Executive Officer.
Peter A. Clemens, Vice President and Chief Financial Officer.
James Emigh has been Vice President - Operations since February 2000. Mr.
Emigh joined the Company in May 1998 as Executive Director of Customer
Relations. From 1991 until joining the Company, Mr. Emigh was employed by
Organon, Inc., a pharmaceutical company, in various management positions and
most recently as its Director of Managed Care and Trade Relations. Mr. Emigh
holds a Bachelor of Pharmacy from Washington State University and a Masters of
Business Administration from George Mason University. Age: 44.
Stephanie Heitmeyer has been Vice President -- Sales since March 1998.
Prior to joining the Company, Ms. Heitmeyer served as Senior Manager, National
Accounts of Mylan Laboratories, Inc., a pharmaceutical manufacturer, and prior
to that, served as Corporate Account Manager, Managed Healthcare Specialist of
Amgen Pharmaceuticals. Age: 54.
Jeryl Driggin Rubin has been Vice President, Corporate Compliance since May
1998. From 1979 until joining the Company, Ms. Rubin was employed by Ganes
Chemicals, Inc. ("Ganes"), a pharmaceutical manufacturer located in Carlstadt,
New Jersey. Ms. Rubin served as Vice President, Quality Assurance & Regulatory
Affairs for Ganes from 1993 to April 1998. Prior to that time, Ms. Rubin held
the positions of Director of Marketing & Regulatory Affairs, Director of
Marketing and Assistant Product Manager. Ms. Rubin holds a MS degree in Basic
Medical Science and is a member of the Drug Chemical and Allied Trade
Association Board of Directors. Age: 44.
5
<PAGE> 9
Carol Whitney has been Vice President of Administration since April 1998.
From 1992 until joining the Company, Ms. Whitney served as Director of Human
Resources for UDL Laboratories, Inc., a generic pharmaceutical manufacturer
located in Rockford, Illinois. Age: 53.
Robert Seiser has been Corporate Controller and Treasurer since March 1998.
From 1992 until joining the Company, Mr. Seiser served as Treasurer and
Corporate Controller of TC Manufacturing Co., Inc., a privately held company
based in Evanston, Illinois. Mr. Seiser is a Certified Public Accountant and
earned a B.B.A. degree from Loyola University of Chicago. Age: 36.
The term of office of each person elected as a director will continue until
the next annual meeting of shareholders and until such person's successor has
been elected and qualified. Officers are appointed by the Board of Directors and
serve at the discretion of the Board, although the employment of Michael
Reicher, the Company's President and Chief Executive Officer, and Peter Clemens,
the Company's Vice President and Chief Financial Officer are subject to the
provisions of their respective Employment Agreements. See "Compensation of
Executive Officers and Directors -- Employment Agreements."
On March 10, 1998, the Company consummated a private offering of securities
for an aggregate purchase price of $20.8 million (the "Galen Offering"). The
terms of the Galen Offering provide that Galen Partners III, L.P., Galen
Partners International III, L.P. and Galen Employee Fund III, L.P.,
(collectively, "Galen") and each of the purchasers listed on the signature page
to the purchase agreement (inclusive of Galen, collectively the "Galen Investor
Group") has the right to designate for nomination three persons to be members of
the Company's Board of Directors as of the Closing Date of the Offering. The
Company's by-laws provide that the Board of Directors shall consist of not more
than 11 members. Each of Bruce F. Wesson, Srini Conjeevaram and Zubeen Shroff
are designees of the Galen Investor Group. The Company has agreed to nominate
and appoint to the Board of Directors, subject to shareholder approval, three
designees of the Galen Investor Group for so long as the Galen Debentures and
Warrants remain outstanding.
On May 26, 1999, the Company consummated a private offering of securities
for an aggregate purchase price of up to approximately $22.8 million (the
"Oracle Offering") with Oracle Strategic Partners, L.P. ("Oracle") and certain
existing shareholders of the Company (the "Oracle Investor Group"). The terms of
the Oracle Offering provide, among other things, that the holders of a majority
in the principal amount of the securities issued in the Oracle Offering will
have the right to designate for nomination one person to be a member of the
Company's Board of Directors, subject to shareholder approval, for so long as
the securities issued by the Company in the Oracle Offering remain outstanding.
Mr. Liffmann is the designee of the Oracle Investor Group.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by the
Company for services rendered in all capacities to the Company during the fiscal
years ended December 31, 1999, 1998 and 1997 to the Company's President and
Chief Executive Officer and each of the Company's executive officers (the "named
executive officers") whose total annual compensation for 1999 exceeded $100,000:
6
<PAGE> 10
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- -------------------------------- ----------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
Michael Reicher(1)
President and Chief Executive 1999 $ 175,000 0 $ --
Officer 1998 $ 146,057 0 $ --
Peter Clemens(1)
Vice President and Chief 1999 $ 140,000 0 $ --
Financial Officer 1998 116,846 0 $ --
Jeryl Driggin Rubin (3)
Vice President - Corporate 1999 $ 136,153 0 $ --
Compliance 1998 59,538 0 $ --
Stephanie Heitmeyer (2) 1999 $ 125,000 0 $ --
Vice President - Sales 1998 96,153 0 $ --
James Emigh (3) 1999 $ 120,000 0 $ --
Vice President - Operations 1998 70,398 0 $ --
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
SECURITIES
UNDERLYING
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION OPTIONS COMPENSATION
- -------------------------------- ------------------ ---------------
<S> <C> <C>
Michael Reicher(1)
President and Chief Executive 100,000 $ --
Officer 1,000,000 $ --
Peter Clemens(1)
Vice President and Chief 100,000 $ --
Financial Officer 300,000 $ --
Jeryl Driggin Rubin (3)
Vice President - Corporate 16,000 $ --
Compliance 200,000 $ --
Stephanie Heitmeyer (2) 16,000 $ --
Vice President - Sales 40,000 $ --
James Emigh (3) 16,000 $ --
Vice President - Operations 20,000 $ --
</TABLE>
- ----------
(1) Messrs. Reicher and Clemens were appointed President and Chief Executive
Officer, and Vice President and Chief Financial Officer, respectively,
effective February 19, 1998.
(2) Ms. Heitmeyer was appointed Vice President - Sales effective March 1998.
(3) Ms. Rubin and Mr. Emigh were appointed Vice President, and Executive
Director, respectively, effective May 1998.
OTHER COMPENSATORY ARRANGEMENTS
Executive Officers and key employees participate in medical and disability
insurance plans provided to all non-union employees of the Company. The Company
also provided automobiles to certain of its executive Officers. Although the
Company is unable to assign a precise value to the possible personal benefit
derived from the use of the automobiles, the Company believes that, as to each
officer, such personal benefit amount is less than the lesser of $6,000 or 10%
of such officer's compensation reported above in the Summary Compensation Table.
EMPLOYMENT AGREEMENTS
Michael K. Reicher is employed pursuant to an Employment Agreement
effective as of March 10, 1998, which provides that Mr. Reicher will serve as
the Company's President and Chief Executive Officer for a term expiring February
28, 2003. The Agreement provides for an annual base salary of $175,000 plus the
payment of an annual bonus to be determined based on the satisfaction of such
targets, conditions or parameters as may be set from time to time by the
Compensation Committee of the Board of Directors of the Company. No bonus was
paid for fiscal 1999. The Employment Agreement also provides for the grant of
stock options to purchase 1,000,000 shares of the Company's Common Stock at an
exercise price of $2.375 per share (representing the closing price for the
Company's common stock as reported by the AMEX on the day preceding the grant of
the option), which options vest in equal increments of 62,500 option shares at
the end of each quarterly period during the term of the Agreement (as such
vesting schedule may be amended by mutual agreement between Mr. Reicher and the
Board of Directors). The Employment Agreement also permits the Company to
repurchase the vested portion of Mr. Reicher's options upon his termination for
cause (as defined in the Agreement) or his resignation, at a purchase price
equal to the position difference, if any, between the average of the Closing
Price of the Company's common stock as reported by the Amex for the five trading
days prior to the date of termination or resignation, multiplied by the number
of option shares which, as of the date of termination, are vested under the
option. The Employment Agreement contains standard termination provisions
including upon death, disability, for cause (as defined in the Agreement) and
without cause. In the event the Employment Agreement is terminated without
cause, the Company is required to pay
7
<PAGE> 11
Mr. Reicher an amount equal to $350,000 or twice his then base salary, whichever
is greater, payable in 24 equal monthly installments. The Employment Agreement
permits Mr. Reicher to terminate the Agreement in the event of a change of
control (as defined in the Agreement) and restricts Mr. Reicher from disclosing,
disseminating or using for his personal benefit or for the benefit of others
confidential or proprietary information (as defined in the Employment Agreement)
and, provided the Company has not breached the terms of the Employment
Agreement, from competing with the Company at any time prior to two years after
the earlier to occur of the expiration of the term and the termination of his
employment.
Peter Clemens is employed pursuant to an Employment Agreement effective as
of March 10, 1998, which after giving effect to an amendment dated April 26,
2000, provides that Mr. Clemens will serve as the Company's Vice President and
Chief Financial Officer for a term expiring February 28, 2003. The Employment
Agreement provides an annual base salary of $140,000 plus the payment of an
annual bonus to be determined based on the satisfaction of such targets,
conditions or parameters as may be determined from time to time by the
Compensation Committee of the Board of Directors. No bonus was paid for fiscal
1999. The Employment Agreement also provides for the grant of stock options to
purchase 300,000 shares of the Company's common stock at an exercise price of
$2.375 per share, which options vest in equal increments of 25,000 option shares
at the end of each quarterly period during the term of the Employment Agreement
(as such vesting schedule may be amended by mutual agreement of Mr. Clemens and
the Board of Directors). The remaining terms of Mr. Clemens' Employment
Agreement with the Company are substantially identical to that of Mr. Reicher.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no additional or special
remuneration for their services as Directors. Directors who are not employees of
the Company receive an annual grant of options to purchase 10,000 shares of the
Company's common stock (15,000 shares in the case of the Chairman of the Board)
and $500 for each meeting attended ($250 in the case of telephonic meetings).
The Company also reimburses Directors for travel and lodging expenses, if any,
occurred in connection with attendance at Board meetings. Directors who serve on
any of the Committees established by the Board of Directors receive $250 for
each Committee meeting attended unless held on the day of a full Board meeting.
STOCK OPTION PLANS
The Company currently maintains two stock option plans adopted in 1995 and
1998, respectively. The Company in the past has used, and will continue to use,
stock options to attract and retain key employees in the belief that employee
stock ownership and stock-related compensation devices encourage a community of
interest between employees and shareholders.
The 1995 Stock Option Plan. In September 1995, the Company established the
1995 Halsey Drug Co., Inc. Stock Option and Restricted Stock Purchase Plan (the
"1995 Stock Option Plan"). Under the Plan, the Company may grant options to
purchase up to 1,000,000 shares of the Company's Common Stock. Incentive Stock
Options ("ISO's") may be granted to employees of the Company and its
subsidiaries and non-qualified options may be granted to employees, directors
and other persons employed by, or performing services for, the Company and its
subsidiaries. Subject to the Plan, the Stock Option Committee determines the
persons to whom grants are made and the vesting, timing, amounts and other terms
of such grants. An employee may not receive ISO's exercisable in any one
calendar year for shares with a fair market value on the date of grant in excess
of $100,000. No quantity limitations apply to the grant of non-qualified stock
options.
As of April 30, 2000, ISO's to purchase 237,548 shares and non-qualified
options to purchase 56,454 shares have been granted under the 1995 Stock Option
Plan, leaving 548,538 shares available for grant under the Plan. The average per
share exercise price for all outstanding options under the 1995 Stock Option
Plan is approximately $2.56. No exercise price of an ISO was set at less than
100% of the fair market value of the underlying Common Stock, except for grants
made to any person who owned stock possessing more than 10% of the total voting
power of the Company, in which case the exercise price was set at not less than
110% of the fair market value of the underlying Common Stock. No further shares
of Common Stock remain available for grant under the 1995 Stock Option Plan.
The 1998 Stock Option Plan. The 1998 Stock Option Plan was adopted by the
Board of Directors in April 1998 and approved by the Company's shareholders in
June 1998. The 1998 Stock Option Plan was amended by the Board of Directors in
April 1999 to increase the number of shares available for the grant of options
under the Plan from 2,600,000 to 3,600,000 shares. The Company's shareholders
ratified the Plan amendment on August 19, 1999. The 1998 Stock Option Plan
permits the grant of ISO and non-qualified stock options to purchase shares of
the Company's Common Stock. As of April 30, 2000, ISO's to purchase 1,766,844
shares and non-qualified options to purchase 1,096,706 shares have been granted
under the 1998 Stock Option Plan, leaving 736,450 shares available for grant
under the Plan. The average per share exercise price for all outstanding options
under the 1998 Stock Option Plan is approximately $2.07. No exercise price of an
ISO was set at less than 100% of the fair market value of the underlying common
stock,
8
<PAGE> 12
except for grants made to any person who owns stock possessing more than 10% of
the total voting power of the Company, in which case the exercise price was set
at not less than 110% of the fair market value of the underlying common stock.
Subject to the terms of the 1998 Stock Option Plan, the Stock Option Committee
determines the persons to whom grants are made and the vesting, timing, amounts
and other terms of such grants. An employee may not receive ISO's exercisable in
any one calendar year for shares with a fair market value on the date of grant
in excess of $100,000. No quantity limitations apply to the grant of
non-qualified stock options.
OPTION GRANTS IN 1999
The following table presents information regarding grants of options to
purchase shares of the Company's Common Stock for each of the named executive
officers receiving option grants in 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE PER EXPIRATION
NAME GRANTED YEAR SHARE(1) DATE
--------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Michael Reicher..... 100,000 22.8% $1.125 2009
Peter Clemens....... 100,000 22.8% $1.125 2009
Jeryl Rubin......... 16,000 3.6% $1.125 2009
Steph Heitmeyer..... 16,000 3.6% $1.125 2009
James Emigh......... 16,000 3.6% $1.125 2009
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM(2)
--------------------------------------
NAME 5% 10%
--------------------- --------------- ---------------
<S> <C> <C>
Michael Reicher..... $183,250 $291,796
Peter Clemens....... 183,250 291,796
Jeryl Rubin......... 29,320 46,687
Steph Heitmeyer..... 29,320 46,687
James Emigh......... 29,320 46,687
</TABLE>
- ----------
(1) The exercise price represents the fair market value at the date of grant.
Each of the options vest in twenty five percent (25%) annual increments
commencing on the one year anniversary of grant.
(2) The dollar amounts in these columns represent the potential realizable
value of each option assuming that the market price of the Common Stock
appreciates in value from the date of grant at the 5% and 10% annual rates
prescribed by regulation and therefore are not intended to forecast
possible future appreciation, if any, of the price of the Common Stock.
9
<PAGE> 13
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table presents information regarding option exercises in 1999
and the value of options outstanding at December 31, 1999 for each of the named
executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
----------------------------------------- --------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- ------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Michael Reicher..... 437,500 662,500 --- ---
Peter Clemens....... 175,000 225,000 --- ---
Jeryl Rubin......... 50,000 166,000 --- ---
Steph Heitmeyer..... 10,000 46,000 --- ---
James Emigh......... 5,000 31,000 --- ---
</TABLE>
- ----------
(1) Value is based upon a fair market value of $.9375 per share at
December 31, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consisted of Messrs. Wesson,
Conjeevaram, Skelly and Reicher during fiscal 1999. During 1999, except for Mr.
Reicher, there were no Compensation Committee interlocks or insider
participation in compensation decisions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors and executive officers, and persons who own beneficially
more than ten percent (10%) of the Common Stock of the Company, to file reports
of ownership and changes of ownership with the Commission and the AMEX. Copies
of all filed reports are required to be furnished to the Company pursuant to
Section 16(a). Based solely on the reports received by the Company and on
written representations from reporting persons, the Company believes the
Directors, executive officers and greater than ten percent (10%) beneficial
owners complied with all Section 16(a) filing requirements during the year ended
December 31, 1999.
The following report of the Compensation Committee and the performance
graph in the next section shall not be deemed to be "soliciting material" or to
be "filed" with the Commission or subject to regulations 14A or 14C of the
Commission or to the liabilities of Section 18 of the Exchange Act and shall not
be deemed to be incorporated by reference into any filing under the Securities
Act of 1933 or the Exchange Act, notwithstanding any general incorporation by
reference of this Proxy Statement into any other document.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report has been prepared by the Compensation Committee of the Board of
Directors of the Company (the "Committee"). The Committee was formed in February
1993. Messrs. Wesson, Conjeevaram, Skelly and Reicher served as members of the
Committee during 1999. The Committee meets at least annually or more frequently
as the Company's Board of Directors may request. The Committee's primary
responsibilities include the review of compensation, consisting of salary,
bonuses, benefits, and other annual compensation, of the Company's executive
officers.
EXECUTIVE COMPENSATION PHILOSOPHY
In 2000, the Company's executive compensation program will reflect the
following executive compensation philosophy, which was developed by the
Compensation Committee of the Board of Directors:
The Company's mission is to be a significant provider of quality generic
drugs in the markets it serves. To support this and other strategic
objectives as approved by the Board of Directors and to provide adequate
returns to shareholders, the Company must compete for, attract, develop,
motivate and retain top quality executive talent at the corporate office
and operating business units of the Company during periods of both
favorable and unfavorable world-wide business conditions.
10
<PAGE> 14
The Company's executive compensation program is a critical management tool
in achieving this goal. "Pay for performance" is the underlying philosophy for
the Company's executive compensation program. Consistent with this philosophy,
the program has been carefully conceived and will be independently administered
by the Committee of the Board of Directors which will meet regularly during the
year and a majority of whom are independent non-employee directors. The program
is designed to link executive pay to corporate performance, including share
price, recognizing that there is not always a direct and short-term correlation
between executive performance and share price.
To align shareholder interests and executive rewards, portions of each of
the Company's executive's compensation will represent "at risk" pay
opportunities related to accomplishment of specific business goals.
The program is designed and administered to:
- provide annual and longer term incentives that help focus each
executive's attention on approved corporate business goals the
attainment of which, in the judgment of the Committee, should increase
long-term shareholder value;
- link "at risk" pay with appropriate measurable quantitative and
qualitative achievements against approved performance parameters;
- reward individual and team achievements that contribute to the
attainment of the Company's business goals; and
- provide a balance of total compensation opportunities, including
salary, bonus, and longer term cash and equity incentives, that are
competitive with similarly situated companies and reflective of the
Company's performance.
In seeking to link executive pay to corporate performance, the Committee
believes that the most appropriate measure of corporate performance is the
increase in long-term shareholder value, which involves improving such
quantitative performance measures as revenue, net income, cash flow, operating
margins, earnings per share and return on shareholders' equity. The Committee
may also consider qualitative corporate and individual factors which it believes
bear on increasing the long-term value of the Company to its shareholders. These
include (i) the development of competitive advantages, (ii) the ability to deal
effectively with the complexity and globalization of the Company's businesses,
(iii) success in developing business strategies, managing costs and improving
the quality of the Company's products and services as well as customer
satisfaction, (iv) the general performance of individual job responsibilities,
and (v) the introduction of new generic drug products.
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program consists of (i) an annual
salary and bonus and (ii) issuance of a long-term incentive represented by stock
options. As explained below, the bonuses and stock options serve to link
executive pay to corporate performance, since the attainment of these awards
depends upon meeting the quantitative and, if applicable, qualitative
performance goals which serve to increase long-term shareholder value.
Salary and Bonus. The Company's two principal executive officers are
parties to employment contracts with the Company which provide the minimum
annual base salary to be payable to each of Messrs. Reicher and Clemens. In
addition, the employment contracts provide for an annual bonus, in the
discretion of the Committee, subject to the satisfaction of such targets,
conditions or parameters as may be set from time to time by the Committee. For
those executive officers not subject to an employment contract, the Committee
will set the annual salary for such executive officer in or about December of
each year and establish potential bonus compensation (including Messrs. Reicher
and Clemens) that such executives may earn based upon quantitative and, if
applicable, qualitative performance goals established by the Committee. The
goals for 2000 will consist of a mix of targets for the performance measures of
corporate earnings per share ("EPS"), net income and revenue, including
qualitative goals relating to each officer's job function. The Committee intends
to set these targets in the first half of the year. No bonus will be earned with
respect to a performance measure unless a performance "floor" for that measure
is exceeded; the bonus opportunity with respect to a measure will be earned if
the target is achieved; achievement between the floor and the target results in
a lower bonus with respect to that performance measure. An amount larger than
the bonus opportunity for each performance measure can be earned, up to a
specified limit, for exceeding the target for that measure. In setting
compensation levels, the Committee compares the Company to a self-selected group
of companies of comparable size, market capitalization, technological and
marketing capabilities, performance and market place in which the Company
competes for executives.
In ascertaining the achieved level of performance against the targets, the
effects of certain extraordinary events, as determined by the Committee, such as
(i) major acquisitions and divestitures, (ii) significant one-time charges, and
(iii) changes in accounting
11
<PAGE> 15
principles required by the Financial Accounting Standards Board, are
"compensation neutral" for the year in which they occurred; that is, they are
not taken into account in determining the degree to which the targets are met in
that year.
Stock Options. The longer-term component of the Company's executive
compensation program consists of stock option grants. The options generally
permit the option holder to buy the number of shares of Common Stock covered by
the option (an "option exercise") at a price equal to or greater than the market
price of the stock at the time of grant. Thus, the options generally gain value
only to the extent the stock price exceeds the option exercise price during the
life of option. Generally a portion of the options vest over a period of time
and expire no later than ten years, and in some cases five years after grant.
Executives will generally be subject to limitations in selling the restricted
stock immediately, and therefore will be incentivized to increase shareholder
value.
During fiscal 1999, the Company's two principal executive officers were
parties to employment contracts which provided for a certain minimum annual base
salary. There were no bonuses paid for fiscal 1999.
In conclusion, the Committee believes the compensation policies and
practices of the Company as described are fair and reasonable and are in keeping
with the best interests of the Company, its employees and its shareholders.
Submitted April 15, 2000 and signed by the members of the Compensation
Committee.
<TABLE>
<S> <C> <C> <C>
Srini Conjeevaram Bruce F. Wesson William Skelly Michael Reicher
</TABLE>
PERFORMANCE GRAPH
The following graph provides a comparison on a cumulative basis of the
yearly percentage change over the last five fiscal years in (a) the total
shareholder return on the Company's Common Stock with (b) the total return on
the American Stock Exchange ("AMEX") of all domestic issuers traded on the AMEX
and (c) the total return of domestic issuers having the same Standard Industrial
Classification ("SIC") Industry Group Number as the Company (51-Drug
Manufacturers) (the "Industry Index"). Such yearly percentage change has been
measured by dividing (i) the sum of (A) the amount of dividends for the
measurement period, assuming dividend reinvestment, and (B) the difference
between the price per share at the end and at the beginning of the measurement
period, by (ii) the price per share at the beginning of the measurement period.
The AMEX Index has been selected as the required broad equity market index. The
Industry Index consists of publicly traded companies in a business similar to
that of the Company. The price of each investment unit has been set at $100 on
December 31, 1994 for purposes of preparing this graph.
Performance Graph
<TABLE>
<CAPTION>
HALSEY DRUG CO., INC. AMEX MARKET INDEX MG GROUP INDEX
----------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
----------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
COMPANY AMEX SIC
----------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 167.65 128.90 159.53
----------------------------------------------------------------------------------
1996 288.24 136.01 194.42
----------------------------------------------------------------------------------
1997 73.53 163.66 277.83
----------------------------------------------------------------------------------
1998 64.71 161.44 393.44
----------------------------------------------------------------------------------
1999 44.12 201.27 379.64
----------------------------------------------------------------------------------
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 10, 1998, the Company completed a private offering of securities
(the "Galen Offering") to Galen Partners III, L.P., Galen Partners
International, L.P., Galen Employee Fund III, L.P., (collectively "Galen") and
each of the purchases listed on the signature page to a certain Debenture and
Warrant Purchase Agreement dated March 10, 1998 (inclusive of Galen,
collectively the "Galen Investor Group"). The securities issued in the Offering
consisted of 5% convertible senior secured debentures and common stock purchase
warrants. An aggregate of approximately 19,753,700 shares are issuable to Galen
upon conversion of the convertible debentures and exercise of the common stock
purchase warrants issued in the Galen Offering. See "Security Ownership of
Certain Beneficial Owners and Management."
Each of Messrs. Wesson, Conjeevaram and Shroff, nominees to the Board of
Directors, are designees of the Galen Investor Group pursuant to the terms of
the Galen Offering Purchase Agreement which provides, among other things, that
the Company must nominate and appoint to the Board of Directors, subject to
shareholder approval, three designees of the Galen Investor Group for so long as
the Debentures and Warrants remain outstanding. Each of Messrs. Wesson,
Conjeevaram and Shroff is a General Partner of Galen Associates, an affiliate of
each of the Galen entities included in the Galen Investor Group.
The Company obtained bridge loan financing from Galen and certain investors
comprising the Galen Investor Group in the aggregate amount of $10,104,110
funded through bridge loans transactions during the period from August, 1998
through and including May, 1999 (collectively, the "1998 Consolidated Bridge
Loan"). Approximately $9,615,000 in aggregate principal amount of the
Consolidated Bridge Loan was advanced by Galen with a balance of approximately
$489,000 advanced by certain members of the Galen Investor Group. As part of the
closing of the Oracle Offering (as described below), the investors in the 1998
Consolidated Bridge Loan surrendered to the Company convertible promissory notes
("Convertible Notes") issued in the 1998 Consolidated Bridge Loan in the
aggregate principal amount of $6,609,110 plus accrued and unpaid interest, in
exchange for a like principal amount of 5% convertible senior secured debentures
(the "1999 Debentures") issued in the Oracle Offering. The remaining balance of
the 1998 Consolidated Bridge Loan in the principal amount of $3,495,001 was
satisfied with a portion of the net proceeds received by the Company from the
second and final investment installment made by Oracle Strategic Partners, L.P.
("Oracle") pursuant to the Oracle Offering (as described below). Prior to
payment, the Convertible Notes accrued interest at 10% per annum and were
secured by a first lien on all the Company's assets (pari passu with the lien
granted to the holders of the Debentures and the 1999 Debentures). In addition,
in consideration for the extension of the 1998 Consolidated Bridge Loan, the
Company issued common stock purchase warrants to Galen and other investors in
the 1998 Consolidated Bridge Loan to purchase an aggregate of approximately
1,025,187 shares of the Company's common stock. The Bridge Loan Warrants are
similar in all material respects to those issued by the Company in the Galen
Offering completed on March 10, 1998.
On May 26, 1999, the Company completed a private offering of securities for
an aggregate purchase price of up to approximately $22.8 million (the "Oracle
Offering"). The securities issued in the Oracle Offering consist of 5%
convertible senior secured debentures (the "1999 Debentures") and common stock
purchase warrants (the "1999 Warrants"). The 1999 Debentures and 1999 Warrants
were issued by the Company pursuant to a certain Debenture and Warrant Purchase
Agreement dated May 26, 1999 (the "Oracle Purchase Agreement") by and among the
Company, Oracle Strategic Partners, L.P. ("Oracle") and such other investors in
the Company's March 10, 1998 Offering electing to participate in the Oracle
Offering (inclusive of Oracle, collectively, the "Oracle Investor Group"). On
the closing date of the Oracle Offering, the Company issued an aggregate of
approximately $12,862,000 in principal amount of 1999 Debentures. In accordance
with the Oracle Purchase Agreement, Oracle funded an additional $5 million
investment installment on July 27, 1999. Pursuant to an agreement reached
between the Company and Oracle on March 20, 2000, the final $5 million
investment to be made Oracle has been waived.
Oracle controls approximately 38.8% of the Company's voting securities
(without giving effect to the conversion of other convertible securities issued
by the Company, including those issued to Galen). The holders of the 1999
Debentures (including Oracle) are permitted to vote on all matters submitted to
a vote of shareholders of the Company, voting together with holders of common
stock as one class and having such number of votes as equals the number of votes
represented by the common stock that would be acquired upon conversion of the
1999 Debentures into common stock. Accordingly, Oracle controls a significant
percentage of the Company's common stock without the need to convert the 1999
Debentures into common stock. The Oracle Purchase Agreement also provides that
the Company must nominate and appoint to the Board of Directors, subject to
shareholder approval, one designee of the Oracle
13
<PAGE> 17
Investor Group for so long as the 1999 Debentures and 1999 Warrants remain
outstanding. Mr. Joel Liffmann, a nominee to the Company's Board of Directors,
is a designee of the Oracle Investor Group.
In addition to the 1998 Galen Bridge Loans, the Company secured bridge
financing from Galen in the aggregate amount of approximately $3,300,000, funded
through six separate bridge loan transactions during the period from December 8,
1999 through March 29, 2000 (collectively, the "2000 Galen Bridge Loans"). The
principal amount of the 2000 Galen Bridge Loans and accrued and unpaid interest
were satisfied in full on March 31, 2000 with a portion of the net proceeds
received by the Company pursuant to a $17,500,000 term loan from Watson
Pharmaceuticals, Inc. Prior to repayment, the 2000 Galen Bridge Loans accrued
interest at the rate of 18% per annum and were secured by a first lien on all
the Company's assets. In consideration for the extension of the 2000 Galen
Bridge Loans, the Company issued common stock purchase warrants to Galen to
purchase an aggregate of 150,000 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 the 2000 Galen Bridge Loans). The warrants
issued pursuant to the 2000 Galen Bridge Loans have an exercise price equal to
the fair market value of the Company's common stock on the date of issuance of
such warrants and are substantially identical to those issued in the Galen
Offering. The 2000 Galen Bridge Loans were obtained by the Company in order to
provide necessary working capital.
Galen controls approximately 65% of the Company's voting securities. The
holders of the debentures issued in the Galen Offering and the 1999 are
permitted to vote on all matters submitted to a vote of shareholders, voting
together with holders of common stock as one class and having such number of
votes as equals the number of votes represented by the common stock that would
be acquired upon conversion of such debentures into common stock. Accordingly,
Galen possesses sufficient voting rights to control the nomination and election
of the board of directors of the Company without the need to convert its
debentures into common stock.
Each of Dennis Adams and Michael and Susan Weisbrot, beneficially own in
excess of 5% of the Company's outstanding common stock. Each of such
shareholders were investors in the Galen Offering and in the Oracle Offering. As
disclosed under the caption "Security Ownership of Certain Beneficial Owners and
Management", Mr. Adams beneficially owns an aggregate of approximately 12.7% of
the Company's outstanding common stock (inclusive of the shares of common stock
underlying the Debentures, the Warrants, the 1999 Debentures and the 1999
Warrants), and Mr. and Mrs. Weisbrot beneficially own an aggregate of 7.7% of
the Company's outstanding common stock (inclusive of the shares of common stock
underlying the Debentures, the Warrants, the 1999 Debentures and the 1999
Warrants).
VOTE REQUIRED
Directors are elected by a plurality of the votes cast. The nine
candidates receiving the highest number of votes will be elected as directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the shareholders vote FOR each of
the above nominees for Director.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
There will also be submitted for consideration and voting at the Meeting
the ratification of the appointment by the Company's Board of Directors of Grant
Thornton LLP as independent certified public accountants for the purpose of
auditing and reporting upon the financial statements of the Company for the
fiscal year ending December 31, 2000. The Board of Directors of the Company
selected and approved the accounting firm of Grant Thornton LLP as independent
certified public accountants to audit and report upon the Company's financial
statements for the fiscal years ended December 31, 1984 through and including
1999. Grant Thornton, L.L.P. has no direct or indirect financial interest in the
Company.
Representatives of Grant Thornton LLP are expected to be present at the
Meeting, and they will be afforded an opportunity to make a statement at the
Meeting if they desire to do so. It is also expected that such representatives
will be available at the Meeting to respond to appropriate questions by
shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
14
<PAGE> 18
The Board of Directors recommends a vote FOR the ratification of the
appointment of Grant Thornton LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 2000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of April 30, 2000 for individuals or entities
in the following categories: (i) each of the Company's Directors and nominees
for Directors; (ii) the Chief Executive Officer and other executive officers of
the Company whose total annual compensation for 1999 exceeded $100,000 (the
"named executive officers"); (iii) all Directors and executive officers as a
group; and (iv) each person known by the Company to be a beneficial owner of
more than 5% of the Common Stock. Unless indicated otherwise, each of the
shareholders has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
AMOUNT PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------------------------------------ -------------------- --------------
<S> <C> <C>
Galen Partners III, L.P. ....................................... 24,233,768(2) 62.68%
610 Fifth Avenue, 5th Floor
New York, New York 10020
Galen Partners International III, L.P. ......................... 2,506,338(3) 14.8%
610 Fifth Avenue, 5th Floor
New York, New York 10020
Oracle Strategic Partners, L.P. ................................ 9,162,707(4) 38.84%
712 Fifth Ave, 45th Floor
New York, New York 10019
Credit Suisse Asset Management ................................. 1,615,000 11.19%
153 East 53rd Street
New York, New York 10022
Hemant K. Shah and Varsha H. Shah .............................. 1,548,874(5) 9.9%
29 Christy Drive
Warren, New Jersey 07059
Dennis Adams ................................................... 2,023,561(6) 12.74%
c/o Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
Michael and Susan Weisbrot ..................................... 1,177,950(7) 7.7%
Michael K. Reicher ............................................. 768,421(8) 5.06%
William Skelly ................................................. 185,000(9) 1.28%
Bruce F. Wesson ................................................ -- *
Srini Conjeevaram .............................................. -- *
Zubeen Shroff .................................................. -- *
Alan J. Smith .................................................. 53,691(10) *
William A. Sumner .............................................. 30,000(11) *
Peter A. Clemens ............................................... 368,159(12) 2.49%
Joel D. Liffmann ............................................... -- *
Jeryl Driggin Rubin ............................................ 104,000(13) *
Stephanie Heitmeyer ............................................ 47,592(14) *
James Emigh .................................................... 68,000(15) *
All Directors and executive officers as a group (14 persons)... 1,678,223(16) 10.42%
</TABLE>
- ----------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
15
<PAGE> 19
(1) The information with respect to Hemant K. Shah and Varsha H. Shah, Dennis
Adams, Michael and Susan Weisbrot and Credit Suisse Asset Management, is
based upon filings with the Commission and/or information provided to the
Company.
(2) Includes (i) 13,659,547 shares issuable upon conversion of Debentures,
(ii) 4,088,383 shares issuable upon exercise of Warrants, (iii) 895,559
shares issuable upon exercise of common stock purchase warrants issued in
connection with the 1998 Consolidated Bridge Loan, (iv) 137,034 shares
issuable upon exercise of common stock purchase warrants issued in
connection with the 2000 Galen Bridge Loans, (v) 4,248,279 shares issuable
upon conversion of the 5% convertible debentures due March 15, 2003 (the
"1999 Debentures"), and (vi) 1,204,966 shares issuable upon exercise of
warrants issued in the Oracle Offering (the "1999 Warrants").
(3) Includes (i) 1,476,165 shares issuable upon conversion of Debentures, (ii)
441,822 shares issuable upon exercise of Warrants, (iii) 82,314 shares
issuable upon exercise of common stock purchase warrants issued in
connection with the 1998 Consolidated Bridge Loan, (iv) 12,423 shares
issuable upon exercise of common stock purchase warrants issued in
connection with the 2000 Galen Bridge Loans, (v) 384,544 shares issuable
upon conversion of the 1999 Debentures and (vi) 109,070 shares issuable
upon exercise of the 1999 Warrants.
(4) Includes (i) 7,122,507 shares issuable upon conversion of the 1999
Debentures, (ii) 2,020,200 shares issuable upon exercise of the 1999
Warrants and (iii) 20,000 shares subject to stock options.
(5) Includes (i) 874,630 shares issuable upon conversion of Debentures, (ii)
261,782 shares issuable upon exercise of Warrants, (iii) 61,539 shares
issuable upon conversion of 10% convertible subordinated debentures issued
by the Company in August, 1996 (the "August Debentures"), and (iv) 16,500
shares issuable upon exercise of common stock purchase warrants.
(6) Includes (i) 1,033,654 shares issuable upon conversion of Debentures, (ii)
300,938 shares issuable upon exercise of Warrants, (iii) 213,675 shares
issuable upon conversion of the 1999 Debentures, and (iv) 60,606 shares
issuable upon exercise of the 1999 Warrants. The information with respect
to Mr. Adams is based upon a Schedule 13G dated March 23, 1998.
(7) Includes (i) 265,039 shares issuable upon conversion of Debentures, (ii)
79,327 shares issuable upon exercise of Warrants, 27,389 shares issuable
upon exercise of common stock purchase warrants issued in connection with
the Bridge Loan Transactions, (iv) 402,027 shares issuable upon conversion
of the 1999 Debentures and (v) 114,030 shares issuable upon exercise of
the 1999 Warrants.
(8) Includes (i) 132,520 shares issuable upon conversion of Debentures, (ii)
39,664 shares issuable upon exercise of Warrants and (iii) 587,500 shares
subject to currently exercisable common stock purchase options.
(9) Includes 145,000 shares subject to currently exercisable common stock
purchase options.
(10) Includes (i) 30,000 shares subject to currently exercisable common stock
purchase options, (ii) 18,349 shares issuable upon conversion of
Debentures, and (iii) 5,342 shares issuable upon exercise of common stock
purchase warrants.
(11) Includes 30,000 shares subject to currently exercisable common stock
purchase options.
(12) Includes (i) 88,346 shares issuable upon conversion of Debentures, (ii)
26,443 shares issuable upon exercise of Warrants and (iii) 250,000 shares
subject to currently exercisable common stock purchase options.
(13) Includes 104,000 shares subject to currently exercisable stock options.
(14) Includes (i) 17,669 shares issuable upon conversion of Debentures, (ii)
5,289 shares issuable upon exercise of Warrants and (iii) 24,000 shares
subject to currently exercisable common stock options.
(15) Includes 14,000 shares subject to currently exercisable stock options.
(16) Includes 1,566,122 shares which Directors and executive officers have the
right to acquire within the next 60 days through the conversion of
Debentures, exercise of Warrants, exercise of Warrants issued in
connection with Bridge Loans and the exercise of outstanding options.
GENERAL
16
<PAGE> 20
Management of the Company does not know of any matters other than those
stated in this Proxy Statement that are to be presented for action at the
Meeting. If any other matters should properly come before the Meeting, proxies
will be voted on those other matters in accordance with the judgment of the
persons voting the proxies. Discretionary authority to vote on such matters is
conferred by such proxies upon the persons voting them.
The Company will bear the cost of preparing, printing, assembling and
mailing all proxy materials that may be sent to shareholders in connection with
this solicitation. Arrangements will also be made with brokerage houses, other
custodians, nominees and fiduciaries, to forward soliciting material to the
beneficial owners of the Common Stock of the Company held by such persons. The
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred by them. In addition to the solicitation of proxies by use of the
mails, officers and regular employees of the Company may solicit proxies without
additional compensation, by telephone or facsimile. The Company does not expect
to pay any compensation for the solicitation of proxies.
A copy of the Company's Annual Report to Shareholders on Form 10-K for the
fiscal year ended December 31, 1999, as filed with the Commission, accompanies
this Proxy Statement. Upon written request, the Company will provide each
shareholder being solicited by this Proxy Statement with a free copy of any
exhibits and schedules thereto. All such requests should be directed to Halsey
Drug Co., Inc., 695 North Perryville Road, Crimson Building No. 2, Rockford,
Illinois 61107, Attention: Mr. Peter Clemens, Vice President and Chief Financial
Officer.
All properly executed proxies delivered pursuant to this solicitation by
the Company and not revoked, will be voted at the Meeting and will be voted in
accordance with the specifications made thereon. In voting by proxy in regard to
the election of directors, shareholders may vote in favor of each nominee or
withhold votes as to all nominees or votes as to a specific nominee. With
respect to the ratification of the Company's independent public accountants,
shareholders may vote in favor of, may vote against or may abstain from voting
on such proposal. Shareholders should specify their choices on the enclosed
Proxy. If no specific instructions are given with respect to the matters to be
acted upon, the shares represented by the Proxy will be voted FOR the election
of all directors and FOR the ratification of the appointment of Grant Thornton
LLP as the Company's independent certified public accountants for the fiscal
year ending December 31, 2000.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 2001
Annual Meeting of Shareholders must be received by the Company on or before
March 31, 2001 in order to be considered for inclusion in the Company's proxy
statement and proxy relating to such meeting.
By Order of the Board of Directors
PETER CLEMENS,
Secretary
May 19, 2000
17
<PAGE> 21
HALSEY DRUG CO., INC.
PROXY
The undersigned hereby appoints Michael K. Reicher and William Skelly, and
each of them, with full power of substitution as proxies for the undersigned, to
attend the annual meeting of shareholders of Halsey Drug Co., Inc. to be held at
the Newark Airport Marriott Hotel, Newark International Airport, Newark, New
Jersey 07114 on Thursday, June 29, 2000 at 10:00 a.m., Eastern Time, or any
adjournment thereof, and to vote the number of shares of Common Stock of the
Company that the undersigned would be entitled to vote, and with all the power
the undersigned would possess, if personally present, as follows:
<TABLE>
<S> <C>
1. [ ] FOR, or [ ] WITHHOLD AUTHORITY to vote for the following nominees for election as directors:
William Skelly; Michael K. Reicher; Peter Clemens; Alan J. Smith; William
A. Summer; Bruce F. Wesson; Srini Conjeevaram; Zubeen Shroff; and Joel D.
Liffmann
(INSTRUCTION: To withhold authority to vote for any individual nominee write that nominee's name on the line provided below.)
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2. Ratification of Grant Thornton LLP as the Company's independent accountants for the current fiscal year;
[ ] FOR, or [ ] AGAINST, or [ ] ABSTAIN
3. In their discretion, on such other business as may properly come before the meeting or any adjournment thereof.
(CONTINUED FROM OTHER SIDE)
THE PROXIES WILL VOTE AS SPECIFIED ABOVE, OR IF A CHOICE IS NOT SPECIFIED, THEY
WILL VOTE FOR THE NOMINEES LISTED IN ITEM 1 AS WELL AS FOR THE PROPOSALS LISTED
IN ITEM 2.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY.
Receipt of Notice of Annual Meeting of
Shareholders and Proxy Statement dated
May 19, 2000 is hereby acknowledged:
Dated , 2000
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Signature(s)
(PLEASE SIGN EXACTLY AS YOUR NAME
OR NAMES APPEAR HEREON, INDICATING,
WHERE PROPER, OFFICIAL POSITION OR
REPRESENTATIVE CAPACITY.)
</TABLE>
