EXHIBIT 4.1
THIS CONVERTIBLE SENIOR SECURED DEBENTURE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED,
SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH DEBENTURE REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH DEBENTURE AND/OR COMMON STOCK MAY BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
HALSEY DRUG CO., INC.
5% CONVERTIBLE SENIOR SECURED DEBENTURE
DUE MARCH 31, 2006
$______________ No. N-__
December 20, 2002
HALSEY DRUG CO., INC., a corporation organized under the laws of the
State of New York (the "Company"), for value received, hereby promises to pay to
_______________, or registered assigns (the "Payee" or "Holder"), upon due
presentation and surrender of this Debenture, on March 31, 2006 (the "Maturity
Date"), the principal amount of _____________ ($_________) and accrued interest
thereon as hereinafter provided.
This Debenture was issued by the Company pursuant to a certain
Debenture Purchase Agreement dated as of December __, 2002 among the Company and
certain purchasers identified therein, including the Payee (together with the
Schedules and Exhibits thereto, the "Purchase Agreement") relating to the
purchase and sale of 5% Convertible Senior Secured Debentures due March 31, 2006
(together with the Interest Payment Debentures referred to below) (the
"Debentures") in the aggregate principal amount of $_____________. The holders
from time to time of the Debentures (including the Holder) are referred to
hereinafter as the "Holders". The Holder is entitled to the benefits of the
Purchase Agreement, including, without limitation, the rights upon the
occurrence and during the continuance of an Event of Default and the benefits of
security interests and guaranties referred to below. Reference is made to the
Purchase Agreement and the documents entered into pursuant thereto with respect
to certain additional rights of the Holder and obligations of the Company and
its Subsidiaries not expressly set forth herein. Capitalized terms used herein
but not otherwise defined herein shall have the meaning ascribed thereto in the
Purchase Agreement. All such rights and obligations set forth in the Purchase
Agreement are incorporated herein by reference.
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT
1.1. Payment of the principal on this Debenture shall be made in cash,
in immediately available funds, such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts. Interest (computed on the basis of a 360-day year of
twelve 30-day months) shall accrue on the unpaid portion of said principal
amount from time to time outstanding at the rate of five percent (5%) per annum
(the "Stated Interest Rate"), and shall be paid by the Company to the Payee at
three (3) month intervals, on each January 1, April 1, July 1 and October 1
during the term of this Debenture, commencing January 1, 2003, and on the
Maturity Date (each such date being an "Interest Payment Date") and on the dates
specified therefor in Article III hereof. The payment of accrued interest on
this Debenture shall be made in the form of 5% convertible senior secured
debentures (each, an "Interest Payment Debenture") identical in all respects to
this Debenture; provided, however, that (i) the principal amount of such
Interest Payment Debenture upon issuance shall be the accrued and unpaid
interest for the immediately preceding calendar quarter, (ii) the date of such
Interest Payment Debenture shall be its issue date, and (iii) the Conversion
Price (as defined in Section 3.1(a) hereof) of such debenture shall equal the
average of the closing bid and asked prices for the Company's Common Stock as
reported in the Over-the-Counter Bulletin Board ("OTC Bulletin Board")(or such
other over-the-counter market or exchange on which the Company's Common Stock
may then be traded or admitted for trading) for the twenty (20) trading days
immediately preceding the date of such interest payment. No cash interest
payments will be made on this Debenture, except on the Maturity Date pursuant to
the terms of the Interest Rate Debentures. Both principal hereof and interest
hereon are payable at the Holder's address above or such other address as the
Holder shall designate from time to time by written notice to the Company. The
Company will pay or cause to be paid all sums becoming due hereon for principal
by check or wire transfer, at the Holder's election, and interest in the form of
an Interest Payment Debenture, sent to the Holder's above address or to such
other address as the Holder may designate for such purpose from time to time by
written notice to the Company, without any requirement for the presentation of
this Debenture or making any notation thereon, except that the Holder hereof
agrees that payment of the final amount due shall be made only upon surrender of
this Debenture to the Company for cancellation. Prior to any sale or other
disposition of this instrument, the Holder hereof agrees to endorse hereon the
amount of principal paid hereon and the last date to which interest has been
paid hereon and to notify the Company of the name and address of the transferee.
1.2. In the event any payment of principal or, (except to the extent
otherwise specified herein) interest or both shall remain unpaid for a period of
two (2) business days or more, a late charge equivalent to five (5%) percent of
each installment shall be charged and may be satisfied by the Company's issuance
of an Interest Payment Debenture having a principal amount which includes such
late charge. Interest on the indebtedness evidenced by this Debenture after
default or maturity accelerated shall be due and payable at the rate of seven
(7%) percent per annum, subject to the limitations of applicable law.
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1.3.If this Debenture or any installment hereof becomes due and payable
on a Saturday, Sunday or public holiday under the laws of the State of New York,
the due date hereof shall be extended to the next succeeding full business day
and interest shall be payable at the rate of five (5%) percent per annum during
such extension. All payments received by the Holder shall be applied first to
the payment of all accrued interest payable hereunder.
ARTICLE II
SECURITY/SUBORDINATION
2.1. The obligations of the Company under this Debenture are secured
pursuant to security interests on and collateral assignments of, assets,
tangible and intangible, of the Company granted by the Company to the Holder and
the other Holders pursuant to a General Security Agreement dated as of December
__, 2002, and the collateral assignments referred to in the Purchase Agreement.
In addition, each of Houba, Inc. ("Houba") and Halsey Pharmaceuticals, Inc.,
each a wholly owned subsidiary of the Company (individually a "Guarantor" and
collectively, the "Guarantors"), has executed and delivered in favor of the
Holder and the other Holders a Continuing Unconditional Guaranty, dated an even
date herewith (each a "Guarantee"), guaranteeing the full and unconditional
payment when due of the amounts payable by the Company to the Holder and the
other Holders pursuant to the terms of their respective Debentures. The
obligations of each Guarantor under its Guaranty are secured (subject to the
Subordination Agreement) pursuant to security interests on and collateral
assignments of, assets, tangible and intangible, of such Guarantor granted by
the Guarantor to the Holder and the other Holders pursuant to a security
agreement dated as of December __, 2002, and the collateral assignments referred
to in the Purchase Agreement. The obligations of Houba under its Guaranty are
also secured (subject to the Subordination Agreement) pursuant to a mortgage on
real property located at 16235 State Road 17, Culver, Indiana. The rights of the
Holders with respect to the collateral described in the security agreements and
collateral assignments with the Company and the Guarantors as provided in the
Purchase Agreement are subject to the terms of the Subordination Agreement dated
of even date herewith by and among the Company, Watson Pharmaceuticals, Inc.,
the Holders and the other signatories thereto.
ARTICLE III
CONVERSION
3.1. Conversion at Option of Holder. At any time after the Shareholders
Meeting Date,(the "Initial Conversion Date") until the earlier of (a) the
Maturity Date or (b) the conversion of the Debenture in accordance with Section
3.2 hereof, this Debenture is convertible in whole or in part at the Holder's
option into shares of Common Stock of the Company upon surrender of this
Debenture, at the office of the Company, accompanied by a written notice of
conversion in the form of Attachment II hereto, or otherwise in form reasonably
satisfactory to
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the Company duly executed by the registered Holder or its duly authorized
attorney. This Debenture is convertible on or after the Initial Conversion Date
into shares of Common Stock at a price per share of Common Stock equal to $____
per share, as such conversion price may be adjusted as provided in Sections 3.5,
3.6 and 3.7 hereof (as so adjusted) (the "Conversion Price"). No fractional
shares or scrip representing fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, in respect of any fraction
of a share which would otherwise be issuable upon the surrender of this
Debenture for conversion. The Conversion Price is subject to adjustment as
provided in Sections 3.5, 3.6 and 3.7 hereof. Not later than three (3) days
following conversion and upon the Holder's compliance with the conversion
procedure described in Section 3.3 hereof, the Company shall deliver a
certificate for the number of full shares of Common Stock issuable upon
conversion and a check for any fractional share and, in the event the Debenture
is converted in part, a new Debenture of like tenor in the principal amount
equal to the remaining principal balance of this Debenture after giving effect
to such partial conversion.
For purposes hereof the term "Shareholders Meeting Date" shall mean
that date on which the shareholders and the debentureholders amend the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock available for issuance from 80,000,000 to such number of
shares as shall equal the sum of (i) the Company's issued and outstanding Common
Stock, plus (ii) the number of shares of Common Stock issuable upon the
conversion and exercise of the Company's outstanding convertible securities,
plus (iii) the number of shares of Common Stock issuable upon conversion of the
Debentures and exercise of the Watson Warrant , plus (iv) 50 million shares, as
shall sum shall be rounded up to the nearest whole five million shares.
3.2. Conversion at Option of the Company. So long as an Event of
Default as provided in Section 12.1(a) of the Purchase Agreement (concerning the
Company's failure to pay principal and interest under the Debentures) shall not
have occurred and be continuing, in the event that following December __, 2005,
(i) the average of the closing bid and asked prices per share of the Company's
Common Stock as reported by the OTC Bulletin Board (or such other exchange or
over-the-counter market on which the Shares may then be listed or admitted for
trading) exceeds the product of (x) the then Applicable Conversion Price (as
defined in Section 3.7 hereof), multiplied by (y) four (4), such average of bid
and ask prices to be determined for each of twenty (20) consecutive trading days
in which the average daily trading volume for such twenty (20) trading day
period exceeds one million dollars ($1,000,000) (based on the number of Shares
traded multiplied by the average of the closing bid and asked prices), or (ii)
the Company shall have obtained the written consent of the Holders of at least
75% of the principal amount of the Debentures then outstanding to convert the
Debentures into Common Stock, then at any time thereafter until the Maturity
Date the Company may upon written notice to the Holders of all Debentures (the
"Mandatory Conversion Notice") require that all, but not less than all, of the
outstanding principal amount of the Debentures be converted into shares of
Common Stock at a price per share equal to the Conversion Price then in effect.
The Mandatory Conversion Notice shall state (a) the date fixed for conversion
(the "Conversion Date") (which date shall not be prior to the date the Mandatory
Conversion Notice is given), (b) any disclosures required by law, (c) the
trading dates and closing prices of the Common Stock giving rise to the
Company's option to
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require conversion of the Debenture, (d) that the Debentures shall cease to
accrue interest after the day immediately preceding the Conversion Date, (e) the
place where the Debentures shall be delivered and (f) any other instructions
that Holders must follow in order to tender their Debentures in exchange for
certificates for Common Stock. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such conversion, except as to a Holder (i) to whom notice was not mailed or
(ii) whose notice was defective. An affidavit of the Secretary or an Assistant
Secretary of the Company or an agent employed by the Company that notice of
conversion has been mailed postage prepaid to the last address of the Holder
appearing on the Debenture registry books kept by the Company shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. On and
after the Conversion Date, except as provided in the next two sentences, Holders
of the Debentures shall have no further rights except to receive, upon surrender
of the Debentures, a certificate or certificates for the number of shares of
Common Stock as to which the Debenture shall have been converted. Interest shall
accrue to and including the day prior to the Conversion Date and shall be paid
on the last day of the month in which Conversion Date occurs. No fractional
shares or scrip representing fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, in respect of any fraction
of a share which would otherwise be issuable upon the surrender of this
Debenture for conversion.
3.3. Registration of Transfer; Conversion Procedure. The Company shall
maintain books for the transfer and registration of the Debentures. Upon the
transfer of any Debenture in accordance with the provisions of the Purchase
Agreement, the Company shall issue and register the Debenture in the names of
the new Holders. The Debentures shall be signed manually by the Chairman, Chief
Executive Officer, President or any Vice President and the Secretary or
Assistant Secretary of the Company. The Company shall convert, from time to
time, any outstanding Debentures upon the books to be maintained by the Company
for such purpose upon surrender thereof for conversion properly endorsed and, in
the case of a conversion pursuant to Section 3.1 hereof, accompanied by a
properly completed and executed Conversion Notice attached hereto as Attachment
II. Subject to the terms of this Debenture, not later than three (3) days
following the surrender of this Debenture the Company shall issue and deliver to
or upon the written order of the Holder of such Debenture and in such name or
names as such Holder may designate, a certificate or certificates for the number
of full shares of Common Stock due to such Holder upon the conversion of this
Debenture. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
the Holder of record of such Shares as of the date of the surrender of this
Debenture.
3.4. Company to Provide Common Stock. The Company has reserved the
remaining balance of its authorized but unissued and unreserved shares of Common
Stock to permit the conversion of the Debentures to the extent of its current
unissued and unreserved authorized Common Stock. In accordance with the
provisions of Section 9.12 of the Purchase Agreement, the Company covenants to
seek the approval of its shareholders and directors to amend its Certificate of
Incorporation (i) to increase its authorized shares from 80,000,000 to such
number of shares as shall equal the sum of (A) the Company's issued and
outstanding Common Stock, plus (B) the number of shares of Common Stock issuable
upon the conversion and exercise of the Company's outstanding convertible
securities, plus (C) the number of shares
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of Common Stock issuable upon conversion of the Debentures and exercise of the
Watson Warrant, plus (D) 50 million shares, as such sum shall be rounded up to
the nearest whole five million shares, and (ii) to provide voting rights to the
Holders on an as converted basis as a single class with the holders of the
Common Stock. Promptly upon receipt of shareholder approval to amend its
certificate of incorporation to increase its authorized shares, the Company
shall reserve out of its authorized but unissued shares of Common Stock a
sufficient number of shares to permit the conversion of the Debentures in full.
The shares of Common Stock which may be issued upon the conversion of the
Debentures shall be fully paid and non-assessable and free of preemptive rights.
The Company will comply with all securities laws regulating the offer and
delivery of the Shares upon conversion of the Debentures and will list such
shares on each national securities exchange, if any, upon which the Common Stock
may then be listed.
3.5. Dividends; Reclassifications, etc. In the event that the Company
shall, at any time prior to the earlier to occur of (a) exercise of conversion
rights hereunder and (b) the Maturity Date: (i) declare or pay to the holders of
the Common Stock a dividend payable in any kind of shares of capital stock of
the Company; or (ii) change or divide or otherwise reclassify its Common Stock
into the same or a different number of shares with or without par value, or in
shares of any class or classes; or (iii) transfer its property as an entirety or
substantially as an entirety to any other company or entity; or (iv) make any
distribution of its assets to holders of its Common Stock as a liquidation or
partial liquidation dividend or by way of return of capital; then, upon the
subsequent exercise of conversion rights, the Holder shall receive, in addition
to for the shares of Common Stock to which it would otherwise be entitled upon
such exercise, such additional shares of stock or scrip of the Company, or such
reclassified shares of stock of the Company, or such shares of the securities or
property of the Company resulting from transfer, or such assets of the Company,
which it would have been entitled to receive had it exercised these conversion
rights prior to the happening of any of the foregoing events.
3.6. Notice to Holder. If, at any time while this Debenture is
outstanding, the Company shall pay any dividend payable in cash or in Common
Stock, shall offer to the holders of its Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights, shall
enter into an agreement to merge or consolidate with another corporation, shall
propose any capital reorganization or reclassification of the capital stock of
the Company, including any subdivision or combination of its outstanding shares
of Common Stock or there shall be contemplated a voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall cause
notice thereof to be mailed to the registered Holder of this Debenture at its
address appearing on the registration books of the Company, at least thirty (30)
days prior to the record date as of which holders of Common Stock shall
participate in such dividend, distribution or subscription or other rights or at
least thirty (30) days prior to the effective date of the merger, consolidation,
reorganization, reclassification or dissolution. If, at any time prior to the
earlier of (a) the Maturity Date, or (b) the Conversion of the Debenture, the
number of outstanding shares of Common Stock is (i) increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split up of
shares of Common Stock, or (ii) decreased by a combination of shares of Common
Stock, then, simultaneously with the occurrence of such event, the Conversion
Price shall be adjusted automatically to a new amount equal to the product of
(A) the Conversion Price in effect on such record date and (B) the
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quotient obtained by dividing (x) the number of shares of Common Stock
outstanding on such record date (without giving effect to the events referred to
in the foregoing clauses (i) or (ii)) by (y) the number of shares of Common
Stock which would be outstanding immediately after the event referred to in the
foregoing clauses (i) or (ii).
3.7. Adjustments to Conversion Price. In order to prevent dilution of
the conversion right granted hereunder, the Conversion Price shall be subject to
adjustment from time to time in accordance with this Section 3.7.
The Conversion Price in effect at the time of the exercise of
conversion rights hereunder shall be subject to adjustment from time to time as
follows:
(a) Until such time as the Company completes a Subsequent Material
Offering (as defined in Section 3.7(d) hereof), if the Company shall grant or
issue any shares of Common Stock, or grant or issue any rights or options for
the purchase of, or stock or other securities convertible into, Common Stock
(such convertible stock or securities being herein collectively referred to as
"Convertible Securities"), including in connection with a Subsequent Material
Offering, other than:
(i) shares issued in a transaction described in subsection (c) of
this Section 3.7; or
(ii) shares issued, subdivided or combined in transactions described
in Section 3.5 if and to the extent that the number of shares of Common Stock
received upon conversion of this Debenture shall have been previously adjusted
pursuant to Section 3.5 as a result of such issuance, subdivision or combination
of such securities;
for a consideration per share which is less than the Conversion Price in effect
immediately prior to such issuance or sale (the "Applicable Conversion Price"),
then the Applicable Conversion Price in effect immediately prior to such
issuance or sale shall, and thereafter, except as otherwise provided in
Subsection 3.7 (b) hereof, upon each issuance or sale for a consideration per
share which is less than the Applicable Conversion Price, the Applicable
Conversion Price shall, simultaneously with such issuance or sale, be adjusted,
so that such Applicable Conversion Price shall equal (A) the price per share
received by the Company, in the case of the issuance of Common Stock by the
Company, or (B) the exercise or conversion price of the Convertible Securities
issued by the Company, as applicable.
(b) If at any time following the Company's completion of a Subsequent
Material Offering the Company shall grant or issue any shares of Common Stock,
or grant or issue any Convertible Securities, other than:
(i) shares issued in a transaction described in subsection (c) of
this Section 3.7; or
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(ii) shares issued, subdivided or combined in transactions described
in Section 3.5 if and to the extent that the number of shares of Common Stock
received upon conversion of this Debenture shall have been previously adjusted
pursuant to Section 3.5 as a result of such issuance, subdivision or combination
of such securities;
for a consideration per share which is less than the Fair Market Value (as
hereinafter defined) of the Common Stock, then the Applicable Conversion Price
shall, and thereafter upon each issuance or sale for a consideration per share
which is less than the Fair Market Value of the Common Stock, the Applicable
Conversion Price shall, simultaneously with such issuance or sale, be adjusted,
so that the Applicable Conversion Price shall equal a price determined by
multiplying the Applicable Conversion Price by a fraction, of which:
(A) the numerator shall be the sum of (i) the total number of
shares of Common Stock outstanding when the Applicable
Conversion Price became effective, plus (ii) the number of
shares of Common Stock which the aggregate consideration
received, as determined in accordance with Subsection 3.7(e),
for the issuance or sale of such additional Common Stock or
Convertible Securities deemed to be an issuance of Common
Stock as provided in Subsection 3.7(f), would purchase
(including any consideration received by the Company upon the
issuance of any shares of Common Stock since the date the
Applicable Conversion Price became effective not previously
included in any computation resulting in an adjustment
pursuant to this Section 3.7(b)) at the Fair Market Value of
the Common Stock; and
(B) the denominator shall be the total number of Shares of Common
Stock outstanding (or deemed to be outstanding as provided in
Subsection 3.7(f) hereof) immediately after the issuance or
sale of such additional shares.
For purposes of this Section 3.7, "Fair Market Value", in respect of
any such issuance or sale, shall mean the average of the closing price of the
Common Stock for each of the twenty (20) consecutive trading days prior to such
issuance or sale on the principal national securities exchange on which the
Common Stock is traded; or if, during such period, shares of Common Stock are
not listed on a national securities exchange but are quoted on the National
Association of Securities Dealers Automatic Quotation System ("NASDAQ") National
Market System, the closing price per share as reported by such system during
such period, or the average of the bid and asked prices of the Common Stock in
the over-the-counter market at the close of trading during such period if the
shares are not traded on an exchange or listed on the NASDAQ National Market
System; or if the Common Stock is not traded on a national securities exchange
or in the over-the-counter market, the fair market value of a share of Common
Stock during such period as determined in good faith by the Board of Directors.
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If, however, the Applicable Conversion Price thus obtained would result
in the issuance of a lesser number of shares upon conversion than would be
issued at the initial Conversion Price specified in Section 3.1, as appropriate,
the Applicable Conversion Price shall be such initial Conversion Price.
Upon each adjustment of the Conversion Price solely pursuant to this
Section 3.7(b), the Holder shall thereafter be entitled to acquire upon
conversion under Section 3.1 or Section 3.2, at the Applicable Conversion Price,
the number of shares of Common Stock obtainable by multiplying the Conversion
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock acquirable immediately prior to such adjustment and dividing the
product thereof by the Applicable Conversion Price resulting from such
adjustment.
(c) Anything in this Section 3.7 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be made in connection with:
(i) the grant, issuance or exercise of any Convertible Securities
pursuant to the Company's qualified or non-qualified Employee Stock Option Plans
or any other bona fide employee benefit plan or incentive arrangement, adopted
or approved by the Company's Board of Directors or approved by the Company's
shareholders, as each may be amended from time to time, or under any other bona
fide employee benefit plan hereafter adopted by the Company's Board of
Directors; or
(ii) the grant, issuance or exercise of any Convertible Securities
in connection with the hire or retention of any officer, director or key
employee of the Company, provided such grant is approved by the Company's Board
of Directors; or
(iii) the issuance of any shares of Common Stock or Convertible
Securities issued in satisfaction of interest payments on the Debentures and the
Existing Debenture (as defined in the Purchase Agreement), including the
issuance of Common Stock or Convertible Securities issued in satisfaction of
interest payments on debenture instruments issued by the Company in satisfaction
of the interest payments on the Debentures and Existing Debentures; or
(iv) the issuance of any shares of Common Stock pursuant to the
grant or exercise of Convertible Securities outstanding as of the date hereof,
including, without limitation, the Debentures (as defined in the Purchase
Agreement) (exclusive of any subsequent amendments thereto); or
(v) the issuance of shares of Common Stock pursuant to the
Recapitalization Agreement.
(d) For purposes hereof, "Subsequent Material Offering" shall mean the
grant or issuance of shares of Common Stock, or the grant or issuance of
Convertible Securities, during any six (6) month period for an aggregate gross
consideration (determined in accordance
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with Subsection 3.7 (e) hereof) of at least ten million dollars ($10,000,000)
for a consideration per share that is in excess of the then Applicable
Conversion Price.
(e) For the purpose of Subsections 3.7(a), 3.7(b) and 3.7(d), the
following provisions shall also be applied:
(i) In case of the issuance or sale of additional shares of Common
Stock for cash, the consideration received by the Company therefor shall be
deemed to be the amount of cash received by the Company for such shares, before
deducting therefrom any commissions, compensation or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in connection
with, the issuance or sale of such shares.
(ii) In the case of the issuance of Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the amount
of cash, if any, received by the Company for the issuance of such rights or
options, plus the minimum amounts of cash and fair value of other consideration,
if any, payable to the Company upon the exercise of such rights or options or
payable to the Company upon conversion of such Convertible Securities.
(iii) In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part, other than cash,
the consideration other than cash shall be deemed to be the fair market value
thereof as reasonably determined in good faith by the Board of Directors of the
Company (irrespective of accounting treatment thereof); provided, however, that
if such consideration consists of the cancellation of debt issued by the
Company, the consideration shall be deemed to be the amount the Company received
upon issuance of such debt (gross proceeds) plus accrued interest and, in the
case of original issue discount or zero coupon indebtedness, accrued value to
the date of such cancellation, but not including any premium or discount at
which the debt may then be trading or which might otherwise be appropriate for
such class of debt.
(iv) In case of the issuance of additional shares of Common Stock
upon the conversion or exchange of any obligations (other than Convertible
Securities), the amount of the consideration received by the Company for such
Common Stock shall be deemed to be the consideration received by the Company for
such obligations or shares so converted or exchanged, before deducting from such
consideration so received by the Company any expenses or commissions or
compensation incurred or paid by the Company for any underwriting of, or
otherwise in connection with, the issuance or sale of such obligations or
shares, plus any consideration received by the Company in connection with such
conversion or exchange other than a payment in adjustment of interest and
dividends. If obligations or shares of the same class or series of a class as
the obligations or shares so converted or exchanged have been originally issued
for different amounts of consideration, then the amount of consideration
received by the Company upon the original issuance of each of the obligations or
shares so converted or exchanged shall be deemed to be the average amount of the
consideration received by the Company upon the original issuance of all such
obligations or shares. The amount of consideration received by the Company upon
the original issuance of the obligations or shares so
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converted or exchanged and the amount of the consideration, if any, other than
such obligations or shares, received by the Company upon such conversion or
exchange shall be determined in the same manner as provided in paragraphs (i)
and (ii) above with respect to the consideration received by the Company in case
of the issuance of additional shares of Common Stock or Convertible Securities.
(v) In the case of the issuance of additional shares of Common Stock
as a dividend, the aggregate number of shares of Common Stock issued in payment
of such dividend shall be deemed to have been issued at the close of business on
the record date fixed for the determination of stockholders entitled to such
dividend and shall be deemed to have been issued without consideration;
provided, however, that if the Company, after fixing such record date, shall
legally abandon its plan to so issue Common Stock as a dividend, no adjustment
of the Applicable Conversion Price shall be required by reason of the fixing of
such record date.
(f) For purposes of the adjustment provided for in Subsections 3.7(a)
and 3.7(b) above, if at any time the Company shall issue any Convertible
Securities, the Company shall be deemed to have issued at the time of the
issuance of such Convertible Securities the maximum number of shares of Common
Stock issuable upon conversion of the total amount of such Convertible
Securities.
(g) On the expiration, cancellation or redemption of any Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith be
readjusted to such Conversion Price as would have been obtained (a) had the
adjustments made upon the issuance or sale of such expired, canceled or redeemed
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered upon the
exercise or conversion of such Convertible Securities (and the total
consideration received therefor) and (b) had all subsequent adjustments been
made on only the basis of the Conversion Price as readjusted under this
subsection 3.7(g) for all transactions (which would have affected such adjusted
Conversion Price) made after the issuance or sale of such Convertible
Securities.
(h) Anything in this Section 3.7 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least one cent per share in such
Conversion Price; provided, however, that any adjustments which by reason of
this subsection 3.7(h) are not required to be made shall be carried forward and
taken into account in making subsequent adjustments. All calculations under this
Section 3.7 shall be made to the nearest cent.
(i) Upon any adjustment of any Conversion Price, then and in each such
case the Company shall promptly deliver a notice to the registered Holder of
this Debenture, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
3.8. Reorganization of the Company. If the Company is a party to a
merger or other transaction which reclassifies or changes its outstanding Common
Stock, upon
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consummation of such transaction this Debenture shall automatically become
convertible into the kind and amount of securities, cash or other assets which
the Holder of this Debenture would have owned immediately after such transaction
if the Holder had converted this Debenture at the Conversion Price in effect
immediately before the effective date of the transaction. Concurrently with the
consummation of such transaction, the person obligated to issue securities or
deliver cash or other assets upon conversion of this Debenture shall execute and
deliver to the Holder a supplemental Debenture so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided in this Article 3. The successor Company
shall mail to the Holder a notice describing the supplemental Debenture.
If securities deliverable upon conversion of this Debenture, as
provided above, are themselves convertible into the securities of an affiliate
of a corporation formed, surviving or otherwise affected by the merger or other
transaction, that issuer shall join in the supplemental Debenture which shall so
provide. If this section applies, Section 3.5 does not apply.
ARTICLE IV
MISCELLANEOUS
4.1. Default. Upon the occurrence of any one or more of the Events of
Default specified in the Purchase Agreement all amounts then remaining unpaid on
this Debenture may be declared to be, or automatically become, immediately due
and payable as provided in the Purchase Agreement.
4.2. Collection Costs. In the event that this Debenture shall be placed
in the hands of an attorney for collection by reason of any event of default
hereunder, the undersigned agrees to pay reasonable attorney's fees and
disbursements and other reasonable expenses incurred by the Holder in connection
with the collection of this Debenture.
4.3. Rights Cumulative; Specific Performances. The rights, powers and
remedies given to the Payee under this Debenture shall be in addition to all
rights, powers and remedies given to it by virtue of the Purchase Agreement, any
document or instrument executed in connection therewith, or any statute or rule
of law. Without limiting the generality of the foregoing, the Company and Holder
acknowledge and agree that the transactions contemplated by this Debenture are
unique. Accordingly, the Company acknowledges and agrees that in addition to the
other remedies to which the Holder may be entitled, the Holder shall be entitled
to a decree of a specific performance and injunctive and other equitable relief
to require the Company's compliance with its obligations hereunder.
4.4. No Waivers. Any forbearance, failure or delay by the Payee in
exercising any right, power or remedy under this Debenture, the Purchase
Agreement, any documents or instruments executed in connection therewith or
otherwise available to the Payee shall not be deemed to be a waiver of such
right, power or remedy, nor shall any single or partial exercise of any right,
power or remedy preclude the further exercise thereof.
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4.5. Amendments in Writing. Subject to the terms of the Purchase
Agreement, no modification or waiver of any provision of this Debenture shall be
effective unless it shall be in writing and signed by the Holder, and any such
modification or waiver shall apply only in the specific instance for which
given.
4.6. Governing Law; Jurisdiction. (a) This Debenture and the rights of
the holders hereof shall be governed by, and construed in accordance with, the
laws of the State of New York wherein the terms of this Debenture were
negotiated, excluding to the greatest extent permitted by law any rule of law
that would cause the application of the laws of any jurisdiction other than the
State of New York.
(b) The undersigned hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York State
court or United States Federal court sitting in New York City, and any appellate
court from any thereof, in any action or proceeding arising out of or relating
to this Debenture or for recognition or enforcement of any judgment, and each of
the parties hereto irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the fullest extent permitted by law, in such United
States Federal court. The undersigned agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or any other manner provided by law.
Nothing in this Debenture or any other Transaction Document shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Debenture or any of the other Transaction Documents in the
courts of any jurisdiction.
(c) The Company irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection that it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or in relation to this Debenture or any other transaction document to
which it is a party in any such New York State or United States Federal Court.
The Company hereby irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
4.7. No Counterclaims. The Company waives the right to interpose
counterclaims or set-offs of any kind and description in any litigation arising
hereunder (whether or not arising out of or relating to this Debenture).
4.8. Successors. The term "Payee" and "Holder" as used herein shall be
deemed to include the Holder and its successors, endorsees and assigns.
4.9. Certain Waivers. The Company hereby waives presentment, demand for
payment, protest, notice of protest and notice of non-payment hereof.
4.10. Stamp Tax. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Common Stock issuable upon the
conversion of this Debenture; provided, however, that the Company shall not be
required to pay any tax or taxes
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which may be payable in respect of any transfer involved in the issuance or
delivery of any certificates for the Common Stock in a name other than that of
the Holder in respect of which such Common Stock is issued, and in such case the
Company shall not be required to issue or deliver any certificate for the Common
Stock until the person requesting the same has paid to the Company the amount of
such tax or has established to the Company's satisfaction that such tax has been
paid.
4.11. Mutilated, Lost, Stolen or Destroyed Debentures. In case this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall issue
and deliver in exchange and substitution for and upon cancellation of the
mutilated Debenture, or in lieu of and substitution for the Debenture,
mutilated, lost, stolen or destroyed, a new Debenture of like tenor and
representing an equivalent right or interest, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and an
indemnity, if requested, also reasonably satisfactory to it.
4.12. Maintenance of Office. The Company covenants and agrees that so
long as this Debenture shall be outstanding, it will maintain an office or
agency in New York (or such other place as the Company may designate in writing
to the holder of this Debenture) where notices, presentations and demands to or
upon the Company in respect of this Debenture may be given or made.
4.13. WAIVER OF JURY TRIAL. THE COMPANY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS DEBENTURE OR ANY
OTHER TRANSACTION DOCUMENT TO WHICH IT IS A PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
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IN WITNESS WHEREOF, Halsey Drug Co., Inc. has caused this Debenture to
be signed by its President and to be dated the day and year first above written.
ATTEST [SEAL] HALSEY DRUG CO., INC.
________________________________ By:____________________________________
Name: Michael Reicher
Title: Chief Executive Officer
ATTACHMENT I
Assignment
For value received, the undersigned hereby assigns subject to the
provisions of Section of the Purchase Agreement, to ________ $_________________
principal amount of the 5% Convertible Senior Secured Debenture due March 31,
2006 evidenced hereby and hereby irrevocably appoints _______________ attorney
to transfer the Debenture on the books of the within named corporation with full
power of substitution in the premises.
Dated:
In the presence of:
___________________________________ ________________________________________
ATTACHMENT II
CONVERSION NOTICE
TO: HALSEY DRUG CO., INC.
The undersigned holder of this Debenture hereby irrevocably exercises
the option to convert $_________ principal amount of such Debenture (which may
be less than the stated principal amount thereof) into shares of Common Stock of
Halsey Drug Co., Inc., in accordance with the terms of such Debenture, and
directs that the shares of Common Stock issuable and deliverable upon such
conversion, together with a check (if applicable) in payment for any fractional
shares as provided in such Debenture, be issued and delivered to the undersigned
unless a different name has been indicated below. If shares of Common Stock are
to be issued in the name of a person other than the undersigned holder of such
Debenture, the undersigned will pay all transfer taxes payable with respect
thereto.
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Name and address of Holder
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Signature of Holder
Principal amount of Debenture to be converted $
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If shares are to be issued otherwise then to the holder:
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Name of Transferee
Address of Transferee
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Social Security Number of Transferee
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