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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. )
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[ ] 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
HALSEY DRUG CO., INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
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HALSEY PHARMACEUTICALS
695 NORTH PERRYVILLE ROAD
CRIMSON BUILDING NO. 2
ROCKFORD, ILLINOIS 61107
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 2001 Annual Meeting of Shareholders (the
"Meeting") of Halsey Drug Co., Inc., a New York corporation, doing business as
Halsey Pharmaceuticals (the "Company"), will be held at the Newark Airport
Marriott Hotel, Newark International Airport, Newark, New Jersey 07114 on
Thursday, June 14, 2001 at 10:00 a.m., Eastern Time, for the purposes listed
below:
1. To elect ten directors to the Board of Directors who shall serve until
the 2002 Annual Meeting of Shareholders, or until their successors have
been elected and qualified;
2. To adopt an amendment to the Company's 1998 Stock Option Plan to
increase the number of shares available for grant under the Plan;
3. To ratify the appointment of Grant Thornton LLP as the Company's
independent certified public accountants for the fiscal year ending
December 31, 2001; and
4. 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 4, 2001 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
Chairman and Chief Executive Officer
May 7, 2001
Rockford, Illinois
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HALSEY PHARMACEUTICALS
695 NORTH PERRYVILLE ROAD
CRIMSON BUILDING NO. 2
ROCKFORD, ILLINOIS 61107
PROXY STATEMENT
2001 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Halsey Drug Co., Inc., doing business as Halsey
Pharmaceuticals (the "Company") of proxies in the accompanying form, to be voted
at the 2001 Annual Meeting of Shareholders of the Company (the "Meeting") to be
held on Thursday, June 14, 2001, 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 7, 2001.
The close of business on May 4, 2001 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 consisted of 49,493,398 shares of common stock, $.01 par value per
share (the "Common Stock"), which is comprised of 14,995,932 shares of Common
Stock issued and outstanding and 34,497,466 shares of Common Stock underlying
the Company's issued and outstanding 5% convertible senior secured debentures
(the "Debentures") for which the debentureholders are entitled to vote on
shareholder matters on an as-converted basis. 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, and each debentureholder will be entitled to one vote for each
share of Common Stock into which such debentureholder's Debentures are
convertible 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
and holders of Debentures 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.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
Voting of Proxies....................................................... 3
The Board of Directors.................................................. 3
Proposal 1 - Election of Directors..................................... 4
- Executive Officers........................................ 6
Compensation of Executive Officers and Directors........................ 8
Summary Compensation Table.............................................. 8
- Other Compensatory Arrangements........................... 8
- Employment Agreements..................................... 8
- Compensation of Directors................................. 9
- Stock Option Plans........................................ 9
Option Grants in 2000................................................... 11
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End
Option Values......................................................... 11
Compensation Committee Interlocks and Insider Participation............. 11
Section 16(a) Beneficial Ownership Reporting Compliance................. 12
Report of the Compensation Committee on Executive Compensation.......... 12
Executive Compensation Philosophy....................................... 12
Components of Executive Compensation Program............................ 13
Performance Graph....................................................... 14
Certain Relationships and Related Transactions.......................... 15
- Vote Required............................................. 16
- Recommendation of the Board of Directors.................. 17
- Approval of the Amendment to the Company's 1998 Stock
Proposal 2 Option Plan................................................. 17
- Administration............................................ 17
- Shares Subject to the 1998 Plan........................... 18
- Eligibility............................................... 18
- Exercise Price of Options................................. 18
- Terms..................................................... 18
- Exercise of Options....................................... 19
- Federal Income Tax Consequences Relating to Incentive
Stock Options............................................... 19
- Federal Income Tax Consequences Relating to Non-Qualified
Stock Options............................................... 20
- Previously Granted Options................................ 20
- Amendments and Discontinuance of the 1998 Plan............ 21
- Vote Required............................................. 21
- Recommendation of the Board of Directors.................. 21
- Ratification of Appointment of Independent Certified
Proposal 3 Public Accountants.......................................... 21
- Audit Fees................................................ 21
- Financial Information Systems Design and Implementation
Fees........................................................ 21
- All Other Fees............................................ 22
- Audit Committee Report.................................... 22
- Recommendation of the Board of Directors.................. 22
Security Ownership of Certain Beneficial Owners and Management.......... 22
General................................................................. 24
Shareholder Proposals for 2002 Annual Meeting........................... 25
Appendix A - Charter of Audit Committee................................. A-1
Appendix B - Amended 1998 Stock Option Plan............................. B-1
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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, (ii) FOR the adoption of the amendment to the Company's
1998 Stock Option Plan and (iii) 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, 2001.
THE BOARD OF DIRECTORS
During the year ended December 31, 2000, the Board of Directors held seven
meetings. None of the Company's Board members attended less than 75% of the
Board meetings held during 2000.
BOARD COMMITTEES
During 2000, 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 is composed of Messrs. Alan J. Smith, William A. Sumner
and Bruce F. Wesson. The Audit Committee is responsible for nominating the
Company's independent auditors, approving the audit fee payable to the auditors,
working with independent auditors and internal auditing staff of the Company and
other corporate officials, reviewing the scope and results of the audit by, and
the recommendations of, the Company's independent auditors, approving the
services provided by the auditors, 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, including, meeting quarterly prior to the filing of the
Company's quarterly and annual reports containing financial statements filed
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 operational controls. The
Audit Committee met four times in 2000. A report of the Audit Committee is also
contained under Proposal 3 in this Proxy Statement. In June 2000, the Board of
Directors adopted an Audit Committee Charter which is attached as Appendix A to
this Proxy Statement.
Based on the factors provided in Section 121(A) of the American Stock
Exchange Listing Standards, the Company has determined that each of Messrs.
Smith and Sumner are deemed independent members of the Audit Committee. While
Mr. Wesson does not satisfy the standards for independence set forth in the
American Stock Exchange Listing Standards in view of bridge loans made by Galen
Partners III, L.P. during fiscal 2000, of which Mr. Wesson is a general partner,
the Board believes that Mr. Wesson is able to exercise independent judgment in
the performance of his duties on the Audit Committee.
The Company's Compensation Committee, composed of Messrs. Bruce F. Wesson,
Srini Conjeevaram, William Skelly and Michael K. 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." The Compensation Committee met twice in
2000.
The Stock Option Committee, composed of Messrs. William Skelly, William A.
Sumner and Alan J. Smith, is responsible for reviewing Management's
recommendations 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 2000.
The Executive Committee, composed of Messrs. Srini Conjeevaram, Joel D.
Liffmann, Bruce F. Wesson, Michael K. Reicher, William Skelly, Gerald F. Price
and Peter A. Clemens, is responsible for acting on behalf
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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
four times in 2000.
The Technology Committee, composed of Messrs. Alan J. Smith and Michael K.
Reicher, is responsible for addressing and reviewing 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 2000.
The Business Development Committee, composed of Messrs. Alan J. Smith,
William A. Sumner, Srini Conjeevaram, Joel D. Liffmann, Zubeen Shroff, Gerald F.
Price and Peter A. Clemens, is responsible for the identification, assessment
and review of possible joint ventures and other strategic alliances involving
the Company and third parties and to report to the Board of Directors regarding
such transactions. The Business Development Committee met once in 2000.
The Company does not have a standing nominating committee.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, ten 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, 2000, the Company's Board of Directors
consisted of each of the nominees to the Board described below.
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 one vacancy on the Company's Board
of Directors may be filled by a vote of a majority of directors in office. Such
appointee would continue in office until the next annual meeting of shareholders
following such appointment. The Board of Directors has not identified any person
that it currently intends to nominate to fill such vacancy.
The name and age of each of the ten nominees, his principal occupation and
the period during which such person has served as a Director are set out below.
DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
- --------------- --- ------------------------- --------
Michael K. Reicher(3)(4)(5).......... 54 Chairman of the Board of Directors 1998
and Chief Executive Officer
Gerald F. Price(4)(6)................ 53 President and Chief Operating Officer 2000
and Director
Peter A. Clemens(4)(6)............... 48 Vice President, Chief Financial 1998
Officer and Director
Bruce F. Wesson(2)(3)(4)............. 58 Director 1998
Alan J. Smith(1)(2)(5)(6)............ 71 Director 1995
William A. Sumner(1)(2)(6)........... 63 Director 1997
William Skelly(1)(3)(4).............. 50 Director 1996
Srini Conjeevaram(3)(4)(6)........... 42 Director 1998
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DIRECTOR
NAME OF NOMINEE AGE POSITION WITH THE COMPANY SINCE
- --------------- --- ------------------------- --------
Zubeen Shroff(6)..................... 36 Director 1998
Joel D. Liffmann(4)(6)............... 40 Director 1999
- ---------------
(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
MICHAEL K. REICHER has been Chairman of the Board of Directors since June
29, 2000 and 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.
GERALD F. PRICE has been President and Chief Operating Officer since
December 14, 2000 and Vice President and Chief Operating Officer and a Director
of the Company since August 15, 2000. From 1990 until joining the Company, Mr.
Price was employed by Barr Laboratories, Inc., a generic pharmaceutical company,
as Vice President, Manufacturing and Engineering and then as Vice President of
Business Development. Prior to 1990, Mr. Price served for five years as Vice
President of Manufacturing for the Lancome Division of L'Oreal of Paris.
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.
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 Masters 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 Masters of Science
degree in Mechanical Engineering from Stanford University, and a Masters of
Business Administration from Indiana University.
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.
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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.
WILLIAM SKELLY has been a Director of the Company since May 1996 and served
as Chairman of the Company from October 1996 through June 2000. 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.
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.
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, Chief Executive Officer.
Gerald F. Price, President and Chief Operating 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: 45.
Phyllis A. Lambridis has been Vice President of Corporate Compliance since
March 19, 2001. From 1998 until joining the Company, Ms. Lambridis was employed
by Schein Pharmaceutical, Inc. (subsequently acquired by Watson Pharmaceuticals,
Inc. in 2000) as its Director, Corporate Quality Standards, Policies & Systems.
From 1987 to 1998 Ms. Lambridis was employed by Barr Laboratories, Inc. in a
number of quality and regulatory positions, most recently as Director of
Regulatory Compliance. Ms. Lambridis holds a Masters of Science in Bacteriology
from Wagner College and a Bachelor of Arts in Microbiology from Rutgers College.
Age: 39.
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: 54.
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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: 37.
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 K.
Reicher, the Company's Chairman and Chief Executive Officer, and Peter A.
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.
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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, 2000, 1999 and 1998 to the Company's Chief Executive
Officer and each of the Company's executive officers (the "named executive
officers") whose total annual compensation for 2000 exceeded $100,000:
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------------- UNDERLYING
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- ---- -------- ----- ------------ ---------- ------------
Michael K. Reicher(1)..... 2000 $175,000 0 $ -- 225,000 $ --
Chairman and Chief 1999 175,000 0 -- 100,000 --
Executive Officer 1998 146,057 0 -- 1,000,000 --
Gerald F. Price(2)........ 2000 $ 49,846 0 $ -- 850,000 $ --
President and Chief
Operating Officer
Peter A. Clemens(1)....... 2000 $140,000 0 $ -- 225,000 $ --
Vice President and Chief 1999 140,000 0 -- 100,000 --
Financial Officer 1998 116,846 0 -- 300,000 --
Jeryl Driggin Rubin(3).... 2000 $150,000 0 $ -- -- $ --
Vice
President -- Corporate 1999 136,153 0 -- 16,000 --
Compliance 1998 59,538 0 -- 200,000 --
James Emigh(4)............ 2000 $125,000 0 $ -- 90,000 $ --
Vice President -- 1999 120,000 0 -- 16,000 --
Operations 1998 70,398 0 -- 20,000 --
- ---------------
(1) Messrs. Reicher and Clemens were appointed Chief Executive Officer, and Vice
President and Chief Financial Officer, respectively, effective February 19,
1998.
(2) Mr. Price was appointed Vice President and Chief Operating Officer effective
August 15, 2000 and appointed President effective December 14, 2000.
(3) Ms. Rubin resigned as Vice President -- Corporate Compliance effective
February 23, 2001.
(4) Mr. Emigh was appointed Vice President -- Operations 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 after giving effect to an amendment dated
May 24, 2000, provides that Mr. Reicher will serve as the Company's Chief
Executive Officer for a term expiring April 30, 2005. 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
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Board of Directors. No bonus was paid for fiscal 2000. The Employment Agreement
also provides for the grant of stock options on March 10, 1998 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 American Stock Exchange ("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 (other than for "Good
Reason" as defined therein), 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 by the Company without cause or by
Mr. Reicher for Good Reason (as defined in the Agreement), the Company is
required to pay Mr. Reicher an amount equal to $350,000 or twice his then base
salary, whichever is greater, payable in 24 equal monthly installments and to
continue to provide Mr. Reicher coverage under the Company's then existing
benefit plans, including medical and life insurance, for a term of 24 months.
The Employment Agreement permits Mr. Reicher to terminate the Agreement in the
event of a change of control and for Good Reason (as defined in the Agreement).
The Agreement also 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 A. Clemens is employed pursuant to an Employment Agreement effective
as of March 10, 1998, which after giving effect to an amendment dated June 28,
2000, provides that Mr. Clemens will serve as the Company's Vice President and
Chief Financial Officer for a term expiring April 30, 2005. 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
2000. The Employment Agreement also provides for the grant of stock options on
March 10, 1998 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,
incurred 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.
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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, 2001, ISO's to purchase 725,013 shares and non-qualified
options to purchase 257,780 shares have been granted under the 1995 Stock Option
Plan, leaving 17,207 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 $1.48. No exercise price of an ISO was set at less than
100% of the fair market value of the underlying Common Stock, except for grants
made to any person who owned stock possessing more than 10% of the total voting
power of the Company, in which case the exercise price was set at not less than
110% of the fair market value of the underlying Common Stock.
The 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. In accordance with the
description contained under the caption "Proposal 2 -- Approval of the Amendment
to the Company's 1998 Stock Option Plan," the Board is seeking authorization to
amend the 1998 Stock Option Plan to increase the number of shares available for
grant of options under the Plan from 3,600,000 shares to 8,100,000 shares. 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, 2001, ISO's to
purchase 1,611,817 shares and non-qualified options to purchase 1,878,800 shares
have been granted under the 1998 Stock Option Plan, leaving 109,383 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 $1.88. For
a description of the 1998 Stock Option Plan as well as the proposed amendment
thereto, see "Proposal 2 -- Approval of the Amendment to the Company's 1998
Stock Option Plan" contained in this Proxy Statement.
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OPTION GRANTS IN 2000
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 2000:
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------------
NAME GRANTED YEAR SHARE(1) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ------------- -------------
Michael K. Reicher..... 200,000(2) 8.8% $1.1125 2010 $ 362,429 $ 577,108
125,000(2) 5.5% $ 1.875 2010 $ 381,772 $ 607,908
Gerald F. Price........ 650,000(3) 28.7% $1.1250 2010 $1,191,129 $1,896,674
200,000(2) 8.8% $ 2.50 2010 $ 814,447 $1,296,871
Peter A. Clemens....... 100,000(2) 4.4% $1.1125 2010 $ 181,215 $ 288,554
125,000(2) 5.5% $ 1.875 2010 $ 381,772 $ 607,908
Jeryl Rubin............ -- -- -- -- -- --
James Emigh............ 40,000(2) 1.8% $1.1125 2010 $ 72,486 $ 115,422
50,000(2) 2.2% $ 1.875 2010 $ 152,709 $ 243,163
- ---------------
(1) The exercise price represents the fair market value or a premium to market
value at the date of grant.
(2) Vests in twenty five percent (25%) annual increments commencing on the one
year anniversary of grant.
(3) Vests in equal increments of 40,625 shares at the end of each quarterly
period over a period of four years.
(4) 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.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
No stock options were exercised by the named executive officers during
2000. The following table presents information regarding the value of options
outstanding at December 31, 2000 for each of the named executive officers.
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
- ---- ----------- ------------- ----------- -------------
Michael K. Reicher......................... 712,000 713,000 -- --
Gerald F. Price............................ 40,625 809,375 -- --
Peter A. Clemens........................... 300,000 325,000 -- --
Jeryl Rubin................................ 104,000 112,000 -- --
James Emigh................................ 14,000 112,000 -- --
- ---------------
(1) Value is based upon the average of the closing bid and ask price of $.70 per
share at December 29, 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consisted of Messrs. Wesson,
Conjeevaram, Skelly and Reicher during fiscal 2000. During 2000, except for Mr.
Reicher, there were no Compensation Committee interlocks or insider
participation in compensation decisions.
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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, during the period
in which the Company's common stock was traded on the American Stock Exchange,
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, 2000.
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 "Compensation Committee"). The Compensation
Committee was formed in February 1993. Messrs. Wesson, Conjeevaram, Skelly and
Reicher served as members of the Compensation Committee during 2000. The
Committee meets at least annually or more frequently as the Company's Board of
Directors may request. The Compensation 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 2001, 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.
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 Compensation 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 Compensation Committee, should increase
long-term shareholder value;
- link "at risk" pay with appropriate measurable quantitative and
qualitative achievements against approved performance parameters;
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- 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 Compensation
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 Compensation
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 active pharmaceutical
ingredient and finished dosage pharmaceutical products.
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program consists of (i) an annual
salary and bonus and (ii) long-term incentives represented by the issuance of
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 Chief Executive Officer and Chief
Financial Officer are parties to employment contracts with the Company which
provide the minimum annual base salary to be payable to such officers. In
addition, the employment contracts provide for an annual bonus, in the
discretion of the Compensation Committee, subject to the satisfaction of such
targets, conditions or parameters as may be set from time to time by the
Compensation Committee. For those executive officers not subject to an
employment contract, the Compensation 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 Compensation Committee. The goals for 2001 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 Compensation 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
Compensation 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 Compensation
Committee, such as (i) major acquisitions and divestitures, (ii) significant
one-time charges, and (iii) changes in accounting 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
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option exercise price during the life of the 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 2000, the Company's Chief Executive Officer and Chief
Financial Officer were parties to employment contracts which provided for a
certain minimum annual base salary. There were no bonuses paid for fiscal 2000.
In conclusion, the Compensation 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 20, 2000 and signed by the members of the Compensation
Committee.
Srini Conjeevaram Bruce F. Wesson William Skelly Michael K. Reicher
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 (283-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, 1995 for purposes of preparing this graph.
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PERFORMANCE GRAPH
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG HALSEY DRUG COMPANY,
AMEX MARKET INDEX AND SIC CODE INDEX
[PERFORMANCE GRAPH]
ASSUMES $100 INVESTED ON JAN. 01, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2000
- -------------------------------------------------------------------------------------------------------------
Company/Index/Market 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/29/2000
- -------------------------------------------------------------------------------------------------------------
HALSEY DRUG CO. 100.00 171.93 43.86 38.60 26.32 19.65
DRUGS 100.00 121.04 171.97 243.92 234.36 306.08
AMEX MARKET INDEX 100.00 105.52 126.97 125.25 156.15 154.23
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 purchasers 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 (the "1998 Debentures")
and common stock purchase warrants. After giving effect to the Company's
issuance of additional debentures to Galen in satisfaction of interest payments
under the 1998 Debentures and the 1999 Debentures described below, an aggregate
of approximately 29,625,738 shares are issuable to Galen upon conversion of
outstanding convertible debentures and exercise of outstanding common stock
purchase warrants issued to Galen. 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 1998 Debentures and
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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 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 125,000 shares of the
Company's common stock. 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 66.4% of the Company's voting securities
(without giving effect to the conversion of other convertible securities issued
by the Company). Holders of the 1998 Debentures 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.
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 to Oracle has been waived.
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 Investor Group for so long as the 1999 Debentures and 1999
Warrants remain outstanding. Mr. Joel D. Liffmann, a nominee to the Company's
Board of Directors, is a designee of the Oracle Investor Group and is a General
Partner of Oracle Partners, L.P.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast. The ten candidates
receiving the highest number of votes will be elected as directors.
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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
APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1998 STOCK OPTION PLAN
On April 20, 2001, the Board of Directors of the Company amended the Stock
Option Plan (the "1998 Plan"), to increase the number of shares available for
grant of options under the 1998 Plan from 3,600,000 shares to 8,100,000 shares.
A copy of the 1998 Plan, as amended, is set forth in Appendix B to this Proxy
Statement. The amendment to the 1998 Plan will not become effective unless it is
approved by the holders of record of a majority of the shares of the Company's
Common Stock. The 1998 Plan provides for the granting of stock options to the
employees, officers, and consultants of the Company. Approximately 40 employees,
officers and directors were eligible to participate in the 1998 Plan as of April
30 2001. Except for the increase in the number of shares available for issuance
thereunder, the 1998 Plan remains unchanged.
The 1998 Plan is intended to assist the Company in securing and retaining
key employees and directors by allowing them to participate in the ownership and
growth of the Company through the grant of incentive stock options, as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options to which Section 422 of the Code does not apply
(collectively, the "Options"). The granting of Options will serve as partial
consideration for and give key employees, directors and consultants an
additional inducement to remain in the service of the Company and will provide
them with an increased incentive to work for the Company's success.
The Company currently maintains a 1995 Stock Option Plan. See "Compensation
of Executive Officers and Directors -- Stock Option Plans." As of April 30,
2001, Options to purchase an aggregate of 982,793 shares have been granted under
the Company's 1995 Stock Option Plan, of which Options for 110,460 shares had
been exercised. As of April 30, 2001, 17,207 shares remained available for
issuance under the 1995 Stock Option Plan.
The Board of Directors believes that it would be in the best interests of
the Company for the shareholders to ratify the amendment to the 1998 Plan to
increase the number of shares available for the grant of Options under the 1998
Plan from 3,600,000 to 8,100,000 shares. Shareholder approval of the Board's
amendment to the 1998 Plan is required within twelve months of the Board's
approval of the amendment. As of April 30, 2001, Options to purchase 3,490,617
shares of Common Stock had been reserved for exercise of Options granted under
the 1998 Plan, leaving 109,383 shares remaining available for the grant of
Options under the 1998 Plan. As of April 30, 2001, no Options granted under the
1998 Plan had been exercised.
The following discussion of the principle features and effects of the 1998
Plan, as amended, is qualified in its entirety by reference to the text of the
1998 Plan, as amended, set forth in Appendix B attached hereto.
ADMINISTRATION
The 1998 Plan is administered by the Stock Option Committee of the Board of
Directors (the "Stock Option Committee"), consisting of not less than two
members of the Board of Directors of the Company appointed by the Board. Each
member of the Stock Option Committee will be a "non-employee director" as
defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended. The
Stock Option Committee will select the employees, directors and consultants who
will be granted Options under the 1998 Plan and, subject to the provisions of
the 1998 Plan, will determine the terms and conditions and number of shares
subject to each Option. The Stock Option Committee will also make any other
determinations necessary or advisable for the administration of the 1998 Plan
and its determinations will be final and conclusive. The Stock Option Committee
is currently comprised of Messrs. Skelly, Sumner and Smith.
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SHARES SUBJECT TO THE 1998 PLAN
The 1998 Plan authorizes the granting of either incentive stock options or
non-incentive stock options to purchase in the aggregate up to 3,600,000 shares
of the Company's Common Stock. The amendment to the 1998 Plan approved by the
Board on April 20, 2001, subject to shareholder approval as provided in this
Proposal, will increase the number of shares available for grant of Options
under the 1998 Plan to 8,100,000 shares. The shares available for issuance will
be increased or decreased according to any reclassification, recapitalization,
stock split, stock dividend or other such subdivision or combination of the
Company's Common Stock. Shares of the Company's Common Stock subject to
unexercised Options that expire or are terminated prior to the end of the period
during which Options may be granted under the 1998 Plan will be restored to the
number of shares available for issuance under the 1998 Plan. Assuming the
receipt of shareholder approval for the adoption of the amendment to the 1998
Plan, 4,609,383 shares of common stock will remain available for issuance under
the 1998 Plan.
ELIGIBILITY
Any employee of the Company or any subsidiary of the Company shall be
eligible to receive incentive stock options and non-qualified stock options
under the 1998 Plan. Non-qualified stock options may be granted to employees as
well as non-employee directors and consultants of the Company under the 1998
Plan as determined by the Board or the Stock Option 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 (i) specify whether the Option is an incentive stock
option or a non-qualified stock option and (ii) incorporate such other terms and
conditions as the Board of Directors or the Stock Option Committee acting in its
absolute discretion deems consistent with the terms of the 1998 Plan, including,
without limitation, a restriction on the number of shares of Common Stock
subject to the Option which first become exercisable during any calendar year.
To the extent that the aggregate fair market value of the Common Stock of
the Company subject to grant incentive stock options (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-qualified stock options. This $100,000 limitation shall be administered in
accordance with the rules under Section 422(d) of the Code.
EXERCISE PRICE OF OPTIONS
Upon the grant of an Option to an employee, director or consultant of the
Company, the Stock Option Committee will fix the number of shares of the
Company's Common Stock that the optionee may purchase upon exercise of the
Option and the price at which the shares may be purchased. The Option price for
incentive stock options shall not be less than the fair market value of the
Common Stock at the time the Option is granted, except that the Option price
shall be at least 110% of the fair market value where the Option is granted to
an employee who owns more than 10% of the voting power of all classes of stock
of the Company or any parent or subsidiary. Under the terms of the 1998 Plan,
the aggregate fair market value of the stock (determined at the time the Option
is granted) with respect to which incentive stock options are exercisable for
the first time by such individual during any calendar year shall not exceed
$100,000. Non-qualified stock options may be granted at less than fair market
value of the Common Stock. "Fair market value" is determined by the Stock Option
Committee based on the average of the closing bid and asked price of the Common
Stock on the Over-the-Counter Bulletin Board (the "OTCBB"). On April 16, 2001,
the average of the closing bid and asked price of the Company's Common Stock, as
reported by the OTCBB, was $1.22.
TERMS
All Options available to be granted under the 1998 Plan must be granted by
April 16, 2008. The Stock Option Committee will determine the actual term of the
Options but no Option will be exercisable after the
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expiration of 10 years from the date granted. No incentive stock option granted
to an employee who owns more than 10% of the combined voting power of all the
outstanding classes of stock in the Company may be exercised after five years
from the date of grant.
The options granted pursuant to the 1998 Plan shall not be transferable
except (i) by will or the laws of descent and distribution and (ii)
non-qualified options may be transferred in limited circumstances to immediate
family members and family limited partnerships, with the consent of the Stock
Option Committee.
EXERCISE OF OPTIONS
Options granted to employees, directors or consultants under the 1998 Plan
may be exercised during the optionee's lifetime only by the optionee during his
employment or service with the Company or for a period not exceeding one year if
the optionee ceased employment or service as a director or consultant because of
permanent or total disability within the meaning of Section 22(e)(3) of the
Code. Options may be exercised by the optionee's estate, or by any person who
acquired the right to exercise such Option by bequest or inheritance from the
optionee for a period of twelve months from the date of the optionee's death. If
such Option shall by its terms expire sooner, such Option shall not be extended
as a result of the optionee's death.
The consideration to be paid to the Company upon exercise of an Option may
consist of any combination of cash, checks, promissory notes, shares of Common
Stock, and/or any other forms of consideration permitted under New York law and
approved by the Stock Option Committee and/or the Board of Directors. With the
exception of the consideration received by the Company upon the exercise of
Options granted under the 1998 Plan, no consideration is received by the Company
for the granting or extension of any Options.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO INCENTIVE STOCK OPTIONS
Certain Options granted under the 1998 Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code. Set
forth below is a general summary of certain of the principal Federal income tax
consequences to participants and the Company of incentive stock options granted
under the 1998 Plan.
An employee to whom an incentive stock option is granted pursuant to the
1998 Plan will not recognize any compensation income and the Company will not
recognize any compensation deductions, at the time an incentive stock option is
granted or at the time an incentive stock option is exercised. In the year of
exercise, however, the amount by which the fair market value of the Common Stock
exceeds the Option price will constitute a tax preference item under the
alternative minimum tax. If the employee incurs minimum tax in the year of
exercise, however, he should qualify for the credit for prior year maximum tax
liability in the first future year he has regular tax liability.
In order to obtain incentive stock option treatment for Federal income tax
purposes upon the subsequent sale (or other disposition) by the optionee of the
shares of Common Stock received upon exercise of the Option, the sale (or other
disposition) must not occur within two years from the date the Option was
granted nor within one year after the issuance of such shares upon exercise of
the Option (the "incentive stock option holding period requirements"). If the
incentive stock option holding period requirements are satisfied, on the
subsequent sale (or other disposition) by the optionee of the shares of Common
Stock received upon the exercise of an Option, the optionee generally will
recognize income from the sale of a capital asset equal to the difference, if
any, between the proceeds realized from the sale (or other disposition) and the
amount paid as the exercise price of the Option. Alternatively, if the incentive
stock option holding period requirements are not satisfied, on the subsequent
sale (or other disposition) by the optionee of the shares of Common Stock
received upon the exercise of the Option, the optionee generally will recognize
income taxable as compensation (and the Company will recognize a compensation
deduction) in an amount equal to the lesser of (a) the difference, if any,
between the fair market value of the shares on the date of exercise and the
amount paid as the exercise price of the Option and (b) the difference, if any,
between the proceeds realized from the sale or other disposition and the amount
paid as the exercise price of the Option. Any additional gain realized on such
sale or disposition (in addition to the compensation income referred to above)
would give rise to income from the sale of a capital asset and taxed
accordingly.
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FEDERAL INCOME TAX CONSEQUENCES RELATING TO NON-QUALIFIED STOCK OPTIONS
The non-qualified stock options which may be granted under the 1998 Plan
are not intended to qualify as incentive stock options within the meaning of
Section 422 of the Code. An individual to whom a non-qualified stock option is
granted pursuant to the 1998 Plan will generally not recognize any compensation
income, and the Company will not realize any compensation deduction, at the time
the non-qualified stock option is granted. In the year of exercise, however, the
optionee generally will realize income taxable as compensation (and the Company
will realize a compensation deduction) in an amount equal to the difference, if
any, between the fair market value of the shares on the date of exercise and the
amount paid as the exercise price of the Option.
The tax basis of the shares of Common Stock received by the optionee upon
exercise will be equal to the amount paid as the exercise price plus the amount,
if any, includable in his gross income as compensation income. The holding
period for the shares will commence on the date of exercise.
On the subsequent sale (or other disposition) by the optionee of the shares
of Common Stock received upon the exercise of the Option, any gain realized on
such sale or disposition would give rise to income from the sale of a capital
asset and taxed accordingly.
PREVIOUSLY GRANTED OPTIONS
As of April 30, 2001, the Company had granted options to purchase an
aggregate of 3,490,617 shares of Common Stock under the 1998 Plan at a weighted
average exercise price of $1.88 per share. Of such options, 1,721,650 shares and
1,768,967 shares were vested and unvested, respectively, and no Options granted
under the 1998 Plan had been exercised. The following table sets forth
information as of April 30, 2001 concerning option grants made during fiscal
2000 with respect to (i) each executive officer; (ii) all current executive
officers as a group; (iii) each nominee for election as a Director; (iv) all
current Directors who are not executive officers as a group; (v) each person who
has received or is to receive 5% of such options or rights; and (vi) all
employees, including all current officers who are not executive officers, as a
group;
OPTIONS GRANTED WEIGHTED AVERAGE
DURING FISCAL 2000 EXERCISE PRICE
------------------ ----------------
Michael K. Reicher, Chief Executive Officer................. 325,000 $1.41
Gerald F. Price, President.................................. 850,000 $1.45
Peter Clemens, Chief Financial Officer...................... 225,000 $1.54
James Emigh, Vice President -- Operations................... 90,000 $1.54
Jeryl Rubin, Vice President -- Corporate Compliance......... -- --
Carol Whitney, Vice President -- Administration............. 70,000 $1.44
Robert Seiser, Corporate Controller......................... 70,000 $1.44
William Skelly, Director.................................... 40,000 $1.40
William A. Sumner, Director................................. 10,000 $1.88
Alan Smith, Ph.D., Director................................. 10,000 $1.88
Bruce F. Wesson, Director(1)................................ -- --
Srini Conjeevaram, Director(1).............................. -- --
Zubeen Shroff, Director(1).................................. -- --
Joel D. Liffmann, Director(2)............................... -- --
All current executive officers as a group (7 persons)....... 1,630,000 $1.46
All current directors who are not executive officers as a
Group (7 persons)......................................... 60,000 $1.56
All employees, including current officers who are not
Executive officers as a group (39 persons)................ 2,162,000 $1.49
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As of April 16, 2001, the average of the closing bid and ask price of the
Common Stock underlying the 1998 Plan was $1.22 per share.
(1) Stock options issuable to each of Messrs. Wesson, Conjeevaram and
Shroff in 2000 to purchase 10,000 shares of the Company's Common Stock
are issued to Galen Partners III, L.P.
(2) Stock options issuable to Mr. Liffmann in 2000 to purchase 10,000
shares of the Company's Common Stock are issued to Oracle Strategic
Partners, L.P.
AMENDMENTS AND DISCONTINUANCE OF THE 1998 PLAN
The 1998 Plan can be amended, suspended or terminated at any time by action
of the Company's Board of Directors except that no amendment to the 1998 Plan
can be made without prior shareholder approval where such amendment would result
in (i) any material increase in the total number of shares of Common Stock
subject to the 1998 Plan, (ii) any change in the class of eligible participants
for Options under the 1998 Plan, (iii) any material increase in the benefits
accruing to participants under the 1998 Plan, or (iv) shareholder approval being
required for continued compliance with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock of the Company is required for the approval of the amendment to the 1998
Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the approval of the amendment
to the 1998 Plan.
PROPOSAL 3
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, 2001. 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
2000. Grant Thornton LLP 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.
AUDIT FEES
The aggregate fees billed for professional services rendered for the audit
of the Company's annual financial statements for the fiscal year ended December
31, 2000 and for the reviews of the financial statements included in the
Company's Quarterly Reports on Form 10-Q for that fiscal year, were $132,500,
all of which were attributable to Grant Thornton LLP.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Grant Thornton LLP did not render professional services relating to
financial information systems design and implementation for the fiscal year
ended December 31, 2000.
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ALL OTHER FEES
The aggregate fees billed by Grant Thornton LLP for services rendered to
the Company, other than the services described under "Audit Fees" for fiscal
year ended December 31, 2000, were $48,824. All of these fees relate to services
provided in connection with the preparation and filing of the Company's tax
returns.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of the Company (the "Audit
Committee") is composed of three directors and operates under a written charter
adopted by the Board of Directors. The written charter is attached to this Proxy
Statement as Appendix A. Management is responsible for the Company's internal
control and financial reporting process. The Company's independent public
accountants are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and to issue a report thereon. The Audit Committee's responsibility is
to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with
Management and the Company's independent public accountants. Management
represented to the Audit Committee that the Company's consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed the consolidated
financial statements with Management and the Company's independent public
accountants. The Audit Committee discussed with the independent public
accountants matters required to be discussed by Statement of Auditing Standards
Numbers 90 and 61 (communication with Audit Committees). The Company's
independent public accountants also provided to the Audit Committee the written
disclosures required by Independence Standard No. 1 (independence discussions
with Audit Committee), and the Audit Committee discussed with the independent
public accountants that firm's independence. The Audit Committee has also
considered whether the independent auditors' provision of information technology
and other non-audit services to the Company is compatible with the auditor's
independence.
Based upon the Audit Committee's discussions with Management and the
independent public accountants and the Audit Committee's review of the
representation of Management and the report of the independent public
accountants, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 filed with the Securities and
Exchange Commission.
The foregoing has been approved by all members of the Audit Committee.
William A. Sumner (Chairman)
Bruce F. Wesson
Alan J. Smith
RECOMMENDATION OF THE BOARD OF DIRECTORS
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, 2001.
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, 2001 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 2000 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
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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.
AMOUNT PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------------ ---------- --------
Galen Partners III, L.P. ................................... 26,720,475(2) 64.05%
610 Fifth Avenue, 5th Floor
New York, New York 10020
Galen Partners International III, L.P. ..................... 2,798,493(3) 15.73%
610 Fifth Avenue, 5th Floor
New York, New York 10020
Oracle Strategic Partners, L.P. ............................ 9,817,700(4) 39.57%
712 Fifth Ave, 45th Floor
New York, New York 10019
Hemant K. Shah and Varsha H. Shah........................... 1,548,874(5) 9.36%
29 Christy Drive
Warren, New Jersey 07059
Dennis Adams................................................ 2,032,004(6) 11.93%
c/o Delaware Investment Advisors
One Commerce Square
Philadelphia, Pennsylvania 19103
Michael and Susan Weisbrot.................................. 1,180,591(7) 7.30%
Michael K. Reicher.......................................... 1,122,112(8) 6.96%
Gerald F. Price............................................. 563,478(9) 3.62%
William Skelly.............................................. 182,500(10) 1.20%
Bruce F. Wesson............................................. -- *
Srini Conjeevaram........................................... -- *
Alan J. Smith............................................... 61,716(11) *
William A. Sumner........................................... 32,500(12) *
Zubeen Shroff............................................... -- *
Peter A. Clemens............................................ 534,487(13) 3.44%
Joel D. Liffmann............................................ -- *
Jeryl Driggin Rubin......................................... 158,000(14) 1.04%
James Emigh................................................. 88,000(15) *
All Directors and executive officers as a group (16
persons).................................................. 2,869,154(16) 16.06%
- ---------------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock.
(1) The information with respect to Hemant K. Shah and Varsha H. Shah, Dennis
Adams and Michael and Susan Weisbrot, is based upon filings with the
Commission and/or information provided to the Company.
(2) Includes (i) 17,874,129 shares issuable upon conversion of Debentures, (ii)
5,283,278 shares issuable upon exercise of Warrants, (iii) 1,020,559 shares
issuable upon exercise of common stock purchase warrants issued in
connection with the Bridge Loans, (iv) 2,445,009 shares issuable upon
conversion of debentures issued in lieu of quarterly cash interest
payments, and (v) 97,500 shares subject to stock options.
(3) Includes (i) 1,894,532 shares issuable upon conversion of Debentures, (ii)
561,020 shares issuable upon exercise of Warrants, (iii) 82,314 shares
issuable upon exercise of common stock purchase warrants issued in
connection with Bridge Loans, and (iv) 260,627 shares issuable upon
conversion of debentures issued in lieu of quarterly cash interest
payments.
(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 (iii) 12,500 shares subject to stock options, and
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(iv) 662,493 shares issuable upon conversion of debentures issued in lieu
of quarterly cash interest payments.
(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) 16,650
shares issuable upon exercise of common stock purchase warrants.
(6) Includes (i) 1,033,654 shares issuable upon conversion of Debentures, (ii)
309,381 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.
(7) Includes (i) 265,039 shares issuable upon conversion of Debentures, (ii)
79,327 shares issuable upon exercise of Warrants, (iii) 30,029 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) 111,150 shares issuable upon conversion of Debentures, (ii)
39,664 shares issuable upon exercise of Warrants, (iii) 18,808 issuable
upon conversion of debentures issued in lieu of quarterly cash interest
payments and (iv) 943,750 shares subject to currently exercisable common
stock purchase options.
(9) Includes 121,875 shares subject to currently exercisable common stock
purchase options.
(10) Includes 172,500 shares subject to currently exercisable common stock
purchase options.
(11) Includes (i) 32,500 shares subject to currently exercisable common stock
purchase options, (ii) 18,349 shares issuable upon conversion of
Debentures, and (iii) 6,267 shares issuable upon exercise of commons stock
purchase warrants.
(12) Includes 32,500 shares subject to currently exercisable common stock
purchase options.
(13) Includes (i) 88,346 shares issuable upon conversion of Debentures, (ii)
26,443 shares issuable upon exercise of Warrants, (iii) 10,078 issuable
upon conversion of debentures issued in lieu of quarterly cash interest
payments and (iv) 406,250 shares subject to currently exercisable common
stock purchase options.
(14) Includes 158,000 shares subject to currently exercisable stock options.
(15) Includes 43,000 shares subject to currently exercisable stock options.
(16) Includes 2,340,483 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
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.
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A copy of the Company's Annual Report to Shareholders on Form 10-K for the
fiscal year ended December 31, 2000, 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 A. 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 (i) voting on the approval of an amendment to the Company's 1998
Stock Option Plan, and (ii) the ratification of the Company's independent public
accountants, shareholders may vote in favor of, may vote against or may abstain
from voting on each of such proposals. 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, FOR the adoption of the amendment to the
Company's 1998 Stock Option Plan, 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, 2001.
SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 2002
Annual Meeting of Shareholders must be received by the Company on or before
January 22, 2002 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 A. CLEMENS,
Secretary
May 7, 2001
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APPENDIX A
HALSEY DRUG CO., INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
It is the objective of the Audit Committee of the Board of Directors of
Halsey Drug Company to provide assistance to the corporate directors in
fulfilling fiduciary responsibilities relating to internal controls, corporate
accounting, auditing and financial reporting practices.
MEMBERS
The Audit Committee of the Board of Directors shall consist of at least
three directors who shall be elected annually by the Board. The members should
be independent of senior management and the operating executives and free from
any relationship that might in the opinion of the Board of Directors be
considered a conflict of interest. One of the members shall be designated
Chairman by the Board.
RESPONSIBILITIES AND LIMITATIONS
- - Recommend to the Board of Directors annually, after consultation with the
Chief Executive Officer and appropriate financial management, the independent
accountants to be selected by Halsey Drug Company as its independent auditors
subject to ratification by the Company's shareholders. Review proposed fees
and determine whether any other professional services provided by the
independent accountants could adversely affect their independence.
- - Meet with the independent auditors and Halsey Drug Company's financial
management to review the scope of the proposed audit for the current year and
the audit procedures to be utilized, and review the completed audit including
any comments or recommendations of the independent accountants.
- - Evaluate with Halsey's financial management and the independent accountants,
together and separately, the adequacy and effectiveness of Halsey's internal
administrative, business process and accounting controls, and elicit any
recommendations to correct any material weaknesses in such controls.
- - With general counsel, appropriate financial management, and the independent
accounts review programs being maintained by management with respect to
compliance with laws and regulations relating to financial matters.
- - Review Halsey's financial management function including the proposed audit
plan for the coming year and the coordination of such plan with the external
auditors and ascertain, through discussion with the independent accountants
whether the scope and procedures of the plan are adequate to meet the
objectives set forth in the Charter herewith presented.
- - Review with independent accountants those major accounting policy changes that
could impact Halsey Drug Company.
- - The Audit Committee may investigate any matter within the scope of its duties
or brought to its attention by the Board of Directors, with the power to
retain outside counsel for this purpose, subject to prior approval of the
Board. However, in no way is it intended that the Audit Committee shall alter
the traditional roles and responsibilities of management and independent
accountants with respect to internal administrative, business process and
accounting controls and financial statement presentation.
MEETINGS
- - The Committee will hold a minimum of four regular meetings per year, and
additional meetings as the Chairman of the Audit Committee may deem necessary.
In addition to the committee members, these meetings normally will be attended
by representatives of the independent accountants, and by the Vice President
and Chief Financial Officer. The principal financial officers as well as the
Chairman, the CEO and
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the President, may attend, except for portions of the meetings where their
presence would be inappropriate, as determined by the Chairman. Minutes will
be kept of all meetings.
/s/ WILLIAM A. SUMNER
--------------------------------------
William A. Sumner
Chairman, Audit Committee of
The Board of Directors
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APPENDIX B
HALSEY DRUG CO., INC.
1998 STOCK OPTION PLAN(1)
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.
(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
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(1) Amended by the Board of Directors on April 15, 1999 to increase the
number of shares available for grant under the Plan from 2,600,000
shares to 3,600,000 shares. Ratified by the Company's shareholders on
August 19, 1999. Amended further by the Board of Directors on April 20,
2001 to increase the number of shares available for grant under the
Plan from 3,600,000 shares to 8,100,000 shares. Plan amendment subject
to ratification by the Company's shareholders.
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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.
(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 Eight Million
One Hundred Thousand (8,100,000) 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
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32
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.
(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 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
B-3
33
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.
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
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34
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;
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 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
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35
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 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
B-6
36
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, 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.
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37
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.
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
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HALSEY DRUG CO., INC.
PROXY
The undersigned hereby appoints Michael K. Reicher and Gerald F. Price, 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 14, 2001 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:
1. [ ] FOR, or
[ ] WITHHOLD AUTHORITY to vote for the following nominees for election as
directors:
Michael K. Reicher; Gerald F. Price; Peter A. Clemens; Bruce F. Wesson; Srini
Conjeevaram; Alan J. Smith; William A. Sumner; William Skelly; 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.)
- --------------------------------------------------------------------------------
2. Ratification of the amendment to the Company's 1998 Stock Option Plan;
[ ] FOR, or [ ] AGAINST, or [ ] ABSTAIN
3. Ratification of Grant Thornton LLP as the Company's independent accountants
for the current fiscal year;
[ ] FOR, or [ ] AGAINST, or [ ] ABSTAIN
4. In their discretion, on such other business as may properly come before the
meeting or any adjournment thereof.
39
(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 Items 2 and 3.
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 7,
2001 is hereby acknowledged:
Dated , 2001
-----------------------------
--------------------------------
--------------------------------
--------------------------------
SIGNATURE(S)
(PLEASE SIGN EXACTLY AS YOUR
NAME OR NAMES APPEAR HEREON,
INDICATING, WHERE PROPER,
OFFICIAL POSITION OR
REPRESENTATIVE CAPACITY.)