EXHIBIT 10.11
SECOND AMENDMENT
TO
LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT, dated as of December 20, 2002
(the "Second Amendment"), is made and entered into by and between Halsey Drug
Co., Inc., a New York corporation ("Borrower"), and Watson Pharmaceuticals,
Inc., a Nevada corporation ("Lender").
RECITALS
WHEREAS, Borrower and Lender are parties to that certain Loan
Agreement, dated as of March 29, 2000, as amended by a certain Amendment to Loan
Agreement dated as of March 31, 2000 (as so amended, the "Loan Agreement"); and
WHEREAS, pursuant to a certain Debenture Purchase Agreement dated of
even date herewith (the "2002 Purchase Agreement") executed by Borrower in favor
of the several purchasers named therein (the "Purchasers"), Borrower will issue
its 5% Convertible Senior Secured Debentures due March 31, 2006 in the aggregate
principal amount of up to approximately $35,000,000 (the "2002 Debentures"); and
WHEREAS, as a condition to their investment in the 2002 Debentures, the
Purchasers have required that Lender amend the Loan Agreement to extend the
maturity date of the Loan Agreement from March 31, 2003 to March 31, 2006; and
WHEREAS, as a condition to its agreement to so extend the Maturity
Date, the Lender has required that (i) the $3,901,331 principal amount of
Borrower's payment obligations to Watson as of the date hereof under that
certain Core Products Supply Agreement (as hereinafter defined) be added to the
Borrower's secured Obligations under the Loan Agreement (such new obligations,
the "New Obligations"), and (ii) that the interest rate on both the $17,500,000
principal amount currently outstanding pursuant to the Loan Agreement be
increased to the interest rate on the New Obligations; and
NOW, THEREFORE, the parties hereto agree as follows.
AGREEMENT
1. Article One of the Loan Agreement is hereby amended in its
entirety to read as follows:
"1. AMOUNT AND TERMS OF LOAN.
1.1 Term Loans. Subject to the terms herein, Lender has
previously loaned to Borrower the aggregate principal amount of
Seventeen Million Five Hundred Thousand Dollars ($17,500,000), and, as
described in this Second Amendment, is adding to such principal amount
the additional principal amount of Three Million Nine Hundred and One
Thousand Three Hundred Thirty One Dollars ($3,901,331), representing
excess payments made by Lender to Borrower pursuant to that certain
Finished Goods Supply Agreement (Core Products), as defined and
provided in Section 12.15 hereof (collectively, the "Loan").
Notwithstanding any prepayment of the Loan by Borrower, sums repaid
hereunder may not be re-borrowed.
1.2 Promissory Notes. Borrower's obligation to pay the
principal of, and interest on, the Loan shall be evidenced by two
secured promissory notes (the "Notes"), duly executed and delivered by
Borrower, the first such Note (the "Replacement Note") to be in the
form attached as Exhibit A to this Second Amendment and representing
the $17,500,000 principal balance originally loaned to Borrower
pursuant to the Loan Agreement, and the second such Note (the "New
Note") to be in the form attached as Exhibit B to this Second Amendment
and representing the $3,901,331 principal balance being added to the
Obligations as described in this Second Amendment. Upon execution and
delivery of the Replacement Note, the Secured Promissory Note dated
March 31, 2000 issued by Borrower to Lender in the principal amount of
$17,500,000 shall be null and void and of no further legal force or
effect."
2. The definition of "Obligations" set forth in Section 12.1 of
the Loan Agreement is hereby amended in its entirety to read as follows:
" 'Obligations' shall mean all obligations, liabilities and
indebtedness of every kind, nature and description of the Borrower and
the Guarantors from time to time owing to the Lender or any Indemnitee
under or in connection with the Loan Documents and the New
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Note, whether direct or indirect, primary or secondary, joint or
several, absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired and shall include, without
limitation, all principal and interest on the Loan and, to the extent
chargeable under any Loan Document or the New Note, all charges,
expenses, fees and reasonable attorney's fees."
3. A new Section 12.15 is hereby added to the Loan Agreement as
follows:
"12.15 Core Products Supply Agreement. Borrower and Lender are
parties to a certain Finished Goods Supply Agreement (Core Products)
dated March 29, 2000 (the "Original Core Products Supply Agreement"),
as amended by that certain Amendment and Supplement No. 1 to Finished
Goods Supply Agreement (Core Products) dated as of August 8, 2001 (the
"Amendment to Core Products Supply Agreement," and together with the
Original Core Products Supply Agreement as so amended, the "Core
Products Supply Agreement"). In accordance with the terms of the
Original Core Products Supply Agreement, Lender made certain minimum
quarterly payments to Borrower resulting in payments to Borrower
exceeding the purchase price of the quantities of products provided by
Borrower to Lender under the Core Products Supply Agreement. As a
result, Borrower and Lender executed the Amendment to Core Products
Supply Agreement providing, among other items, (i) for the parties'
agreement on the amount by which Lender's aggregate minimum quarterly
payments made through and including the quarter ended December 31, 2000
exceeded the aggregate purchase price of the products supplied by
Borrower during such period (the "Excess Payments"), and (ii) for
Borrower's repayment obligation to Lender of the Excess Payments.
Borrower and Lender acknowledge and agree that the outstanding balance
of the Excess Payments as of December 20, 2002 equals Three Million
Nine Hundred and One Thousand Three Hundred Thirty One Dollars
($3,901,331) (the "Core Products Amount"). In accordance with the terms
of Article One hereof, the Core Products Amount has been added to the
Obligations of Borrower hereunder. On the date of execution by the
parties of the Second Amendment, Borrower shall execute and deliver to
Lender the New Note, which shall evidence the New Obligations. Borrower
and Lender covenant and agree to execute the Second Amendment to
Finished Goods Supply Agreement (Core Products) in the form attached as
Exhibit C to the Second Amendment in order to give effect to the terms
of this Section 12.15."
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4. Limitation of Amendment. Except as amended above, the terms of
the Loan Agreement shall remain in full force and effect.
5. Governing Law. This Second Amendment and the rights of the
parties hereunder shall be governed in all respects by the laws of the State of
California wherein the terms of this Second Amendment were negotiated.
6. Counterparts. This Second Amendment may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, Borrower and Lender have caused this Second
Amendment to be duly executed by their duly authorized officers all as of the
day and year first above written.
"BORROWER" "LENDER"
HALSEY DRUG CO., INC. WATSON PHARMACEUTICALS, INC.
By:____________________________ By:_________________________________
Name: Michael Reicher Name: _____________________________
Title: Chief Executive Officer Title: _____________________________
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EXHIBIT A
Replacement Note
EXHIBIT B
New Note
EXHIBIT C
Second Amendment to Finished
Goods Supply Agreement (Core Products)