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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 29, 2000
HALSEY DRUG CO., INC.
695 NO. PERRYVILLE ROAD, ROCKFORD, ILLINOIS
(815)-399-2060
Incorporated under the laws of Commission File Number I.R.S. Employer Identification Number
State of New York 1-10113 11-0853640
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ITEM 2. DISPOSITION OF ASSETS
On March 29, 2000, Halsey Drug Co., Inc. (the "Company" or "Halsey")
completed various strategic alliance transactions with Watson Pharmaceuticals,
Inc. ("Watson"). The transactions with Watson provided for Watson's purchase of
a certain pending ANDA from the Company, for Watson's rights to negotiate for
Halsey to manufacture and supply certain identified future products to be
developed by Halsey and for Watson's extension of a $17,500,000 term loan to
the Company. Reference is made to "Item 5. Other Events" below for a
description of Watson's negotiation rights for certain future products and the
$17,500,000 term loan to the Company.
The product acquisition portion of the transactions with Watson provided
for Halsey's sale of a pending ANDA and related regulatory approval and
intellectual property rights (collectively, the "Product") to Watson for
aggregate consideration of $13,500,000. The amount of the purchase price, the
amount included in each installment and the timing of payment of the
installments were determined in arms-length negotiations between the parties.
As part of the execution of the Product acquisition agreement, the Company and
Watson executed ten year supply agreements covering the active pharmaceutical
ingredient ("API") and finished dosage form of the Product pursuant to which
Halsey, at Watson's discretion, will manufacture and supply Watson's
requirements for the Product API and, where the Product API is sourced from the
Company, finish dosage forms of the Product. The purchase price for the Product
is payable in three approximately equal installments as certain milestones are
achieved. Prior to the Product purchase transaction and the transactions
described in "Item 5. Other Events" below, there was no relationship or
business dealings between the Company and Watson.
ITEM 5. OTHER EVENTS
In connection with the closing of the sale of the Product by the Company
to Watson as described in Item 2 above, the Company and Watson executed a right
of first negotiation agreement providing Watson with a first right to negotiate
the terms under which the Company would manufacture and supply certain
specified APIs and finished dosage products to be developed by the Company. The
right of first negotiation agreement provides that upon Watson's exercise of
its right to negotiate for the supply of a particular product, the parties will
negotiate the specific terms of the manufacturing and supply arrangement,
including price, minimum purchase requirements, if any, territory and term. In
the event Watson does not exercise its right of first negotiation upon receipt
of written notice from the Company as to its receipt of applicable governmental
approval relating to a covered product, or in the event the parties are unable
to reach agreement on the material terms of a supply arrangement relating to
such product within sixty (60) days of Watson's exercise of its right to
negotiate for such product, the Company may negotiate with third parties for
the supply, marketing and sale of the applicable product. The right of first
negotiation agreement has a term of ten years, subject to extension in the
absence of written notice from either party for two additional periods of five
years each. The right of first negotiation agreement applies only to API and
finished dosage products identified in the agreement and does not otherwise
prohibit the Company from developing APIs or finished dosage products for
itself or third parties.
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The Company and Watson also executed a manufacturing and supply agreement
providing for Watson's marketing and sale of the Company's existing core
products portfolio (the "Core Products Supply Agreement"). The Core Products
Supply Agreement obligates Watson to purchase a minimum amount of approximately
$18,363,000 (the "Minimum Purchase Amount") in core products from the Company,
in equal quarterly installments over a period of 18 months (the "Minimum
Purchase Period"). At the expiration of the Minimum Purchase Period, if Watson
does not continue to satisfy the Minimum Purchase Amount the Company may market
and sell the core products on its own or through a third party. Pending the
Company's development and receipt of regulatory approval for its APIs and
finished dosage products currently under development, and the marketing and
sale of same, of which there can be no assurance, substantially all the
Company's revenues will be derived from the Core Products Supply Agreement with
Watson.
The final component of the Company's strategic alliance with Watson
provided for Watson's extension of a $17,500,000 term loan to the Company. The
loan will be funded in installments upon the Company's request for advances and
the provision to Watson of a supporting use of proceeds relating to each such
installment. The loan is secured by a first lien on all of the Company's
assets, senior to the lien securing all other Company indebtedness, carries a
floating rate of interest equal to prime plus two percent and matures on March
31, 2003. The net proceeds from the term loan will, in large part, be used to
upgrade and equip the API manufacturing facility of Houba, Inc., the Company's
wholly-owned subsidiary, to upgrade and equip the Company's Congers, New York
leased facility, to satisfy approximately $3,300,000 in bridge financing
provided by Galen Partners and for working capital to fund continued
operations.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
Exhibit No. Description
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10.57 Loan Agreement dated March 29, 2000 between the
Registrant and Watson Pharmaceuticals, Inc.*
10.58 Amendment to Loan Agreement dated March 31, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.
10.59 Secured Promissory Note in the principal amount
of $17,500,000 issued by the Registrant, as the
maker, in favor of Watson Pharmaceuticals, Inc.
dated March 31, 2000.
10.60 Watson Security Agreement dated March 29, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.
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10.61 Stock Pledge Agreement dated March 29, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.
10.62 Watson Guarantee dated March 29, 2000 between
Houba, Inc. and Watson Pharmaceuticals, Inc., as
the guarantors, in favor of Watson
Pharmaceuticals, Inc.
10.63 Watson's Guarantors Security Agreement dated
March 29, 2000 between Halsey Pharmaceuticals,
Inc., Houba, Inc. and Watson Pharmaceuticals,
Inc.
10.64 Subordination Agreement dated March 29, 2000 by
and among the Registrant, Watson Pharmaceuticals,
Inc. and the holders of the Registrant's
outstanding 5% convertible debentures due March
10, 2003.
10.65 Real Estate Mortgage dated March 29, 2000 between
Houba, Inc. and Watson Pharmaceuticals, Inc.
10.66 Subordination Agreement by and among Houba, Inc.,
Galen Partners, III, L.P., Oracle Strategic
Partners, L.P. and Watson Pharmaceuticals, Inc.
10.67 Product Purchase Agreement dated March 29, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.*
10.68 Finished Goods Supply Agreement dated March 29,
2000 between the Registrant and Watson
Pharmaceuticals, Inc.*
10.69 Active Ingredient Supply Agreement dated March
29, 2000 between the Registrant and Watson
Pharmaceuticals, Inc.*
10.70 Right of First Negotiation Agreement dated March
29, 2000 between the Registrant and Watson
Pharmaceuticals, Inc.*
10.71 Finished Goods Supply Agreement (Core Products)
dated March 29, 2000 between the Registrant and
Watson Pharmaceuticals, Inc. *
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* A portion of this exhibit has been omitted pursuant to an application for
confidential treatment filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 of Securities Exchange Act of 1934, as amended.
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SIGNATURES
Pursuant to the requirements 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
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Michael Reicher
President and Chief Executive Officer
Date: April 12, 2000
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EXHIBIT INDEX
Exhibit No. Description
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10.57 Loan Agreement dated March 29, 2000 between the
Registrant and Watson Pharmaceuticals, Inc.*
10.58 Amendment to Loan Agreement dated March 31, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.
10.59 Secured Promissory Note in the principal amount
of $17,500,000 issued by the Registrant, as the
maker, in favor of Watson Pharmaceuticals, Inc.
dated March 31, 2000.
10.60 Watson Security Agreement dated March 29, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.
10.61 Stock Pledge Agreement dated March 29, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.
10.62 Watson Guarantee dated March 29, 2000 between
Houba, Inc. and Watson Pharmaceuticals, Inc., as
the guarantors, in favor of Watson
Pharmaceuticals, Inc.
10.63 Watson's Guarantors Security Agreement dated
March 29, 2000 between Halsey Pharmaceuticals,
Inc., Houba, Inc. and Watson Pharmaceuticals,
Inc.
10.64 Subordination Agreement dated March 29, 2000 by
and among the Registrant, Watson Pharmaceuticals,
Inc. and the holders of the Registrant's
outstanding 5% convertible debentures due March
10, 2003.*
10.65 Real Estate Mortgage dated March 29, 2000 between
Houba, Inc. and Watson Pharmaceuticals, Inc.
10.66 Subordination Agreement by and among Houba, Inc.,
Galen Partners, III, L.P., Oracle Strategic
Partners, L.P. and Watson Pharmaceuticals, Inc.
10.67 Product Purchase Agreement dated March 29, 2000
between the Registrant and Watson
Pharmaceuticals, Inc.*
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10.68 Finished Goods Supply Agreement dated March 29,
2000 between the Registrant and Watson
Pharmaceuticals, Inc.*
10.69 Active Ingredient Supply Agreement dated March
29, 2000 between the Registrant and Watson
Pharmaceuticals, Inc.*
10.70 Right of First Negotiation Agreement dated March
29, 2000 between the Registrant and Watson
Pharmaceuticals, Inc.*
10.71 Finished Goods Supply Agreement (Core Products)
dated March 29, 2000 between the Registrant and
Watson Pharmaceuticals, Inc. *
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* A portion of this exhibit has been omitted pursuant to an application for
confidential treatment filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 of Securities Exchange Act of 1934, as amended.
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