EXHIBIT 10.2
DEBENTURE CONVERSION AGREEMENT
THIS DEBENTURE CONVERSION AGREEMENT (this "Agreement") is made as of
February 6, 2004, by an among HALSEY DRUG CO., INC., a corporation organized
under the laws of the State of New York (the "Company"), and the holders of
certain debentures of the Company listed on Schedule I attached hereto (each, a
"Holder" and collectively, the "Holders"). Certain capitalized terms used herein
are defined in Article I hereto.
PRELIMINARY STATEMENTS
A. Each Holder owns beneficially and of record such debentures of
the Company as is set forth opposite its name on Schedule I.
B. The Company and certain Holders are entering into the 2004
Purchase Agreement contemporaneously with the execution and delivery of this
Agreement pursuant to which the Company will issue and sell to certain Holders
certain 2004 Debentures.
C. As a condition to the consummation of the transactions
contemplated by the 2004 Purchase Agreement, the Company and the Holders are
entering into this Agreement.
AGREEMENT
In consideration of the mutual covenants contained in this Agreement
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
respective meanings:
"1998 Collateral Documents" means, collectively, (a) that certain Stock
Pledge Agreement dated March 10, 1998 between the Company and Galen Partners
III, L.P. (in its capacity as agent) executed in connection with the 1998
Purchase Agreement, (b) that certain Real Estate Mortgage (With Future Advance
Clause) dated March 10, 1998 granted by Houba, Inc. to Galen Partners III, L.P.
(in its capacity as agent) executed in connection with the 1998 Purchase
Agreement, and (c) that certain Deed of Trust With Assignment of Rents dated
March 10, 1998 granted by H.R. Cendi Laboratories, Inc. and Cendi Power
Products, Inc. to Galen Partners III, L.P. (in its capacity as agent) executed
in connection with the 1998 Purchase Agreement, each as amended to date and as
they may be supplemented, amended, or otherwise modified from time to time.
"1998 Debentures" means the 5% convertible secured debentures due March
31, 2006 issued pursuant to the 1998 Purchase Agreement (including any
debentures issued in satisfaction of interest payments under the 1998
Debentures), each as amended to date and as they may be supplemented, amended,
or otherwise modified from time to time.
"1998 Guaranties" means those certain Continuing Unconditional Secured
Guaranties dated as of March 10, 1998 by each of Cenci Powder Products, Inc.,
Halsey Pharmaceuticals, Inc., Houba, Inc., H.R. Cenci Laboratories Inc. and
Indiana Fine Chemicals, Inc. executed in connection with the 1998 Purchase
Agreement, each as amended to date and as they may be supplemented, amended, or
otherwise modified from time to time.
"1998 Guarantors Security Agreement" means that certain Guarantors
General Security Agreement dated as of March 10, 1998 by and among Cenci Powder
Products, Inc., Halsey Pharmaceuticals, Inc., Houba, Inc., H.R. Cenci
Laboratories Inc., Indiana Fine Chemicals, Inc. and the Galen Partners III, L.P.
(in its capacity as agent) executed in connection with the 1998 Purchase
Agreement, as amended to date and as it may be supplemented, amended, or
otherwise modified from time to time.
"1998 Purchase Agreement" means that certain Debenture and Warrant
Purchase Agreement dated March 10, 1998 between the Company and the purchasers
listed on the signature page thereto, as amended to date and as it may be
supplemented, amended, or otherwise modified from time to time.
"1998 Security Agreement" means that certain Company General Security
Agreement dated as of May 10, 1998 between the Company and Galen Partners III,
L.P. (in its capacity as agent) executed in connection with the 1998 Purchase
Agreement, as amended to date and as it may be supplemented, amended, or
otherwise modified from time to time.
"1998 Security Documents" means the 1998 Security Agreement, the 1998
Guarantors Security Agreement, the 1998 Guaranties and the 1998 Collateral
Documents.
"1999 Collateral Documents" means, collectively, (a) that certain Stock
Pledge Agreement dated May 26, 1999 between the Company and Oracle Strategic
Partners, L.P. (in its capacity as agent) executed in connection with the 1999
Purchase Agreement, and (b) that certain Real Estate Mortgage (With Future
Advance Clause) dated May 26, 1999 granted by Houba, Inc. to Oracle Strategic
Partners, L.P. (in its capacity as agent) executed in connection with the 1999
Purchase Agreement, executed in connection with the 1999 Purchase Agreement,
each as amended to date and as they may be supplemented, amended, or otherwise
modified from time to time.
"1999 Debentures" means the 5% convertible secured debentures due March
31, 2006 issued pursuant to the 1999 Purchase Agreement (including any
debentures issued in satisfaction of interest payments under the 1999
Debentures), each as amended to date and as they may be supplemented, amended,
or otherwise modified from time to time.
2
"1999 Guaranties" means those certain Continuing Unconditional Secured
Guaranties dated as of May 26, 1999 by each of Houba, Inc. and Halsey
Pharmaceuticals, Inc. executed in connection with the 1999 Purchase Agreement,
each as amended to date and as they may be supplemented, amended, or otherwise
modified from time to time.
"1999 Guarantors Security Agreement" means that certain Guarantors
General Security Agreement dated as of May 26, 1999 by and among Houba, Inc.,
Halsey Pharmaceuticals, Inc. and Oracle Strategic Partners, L.P. (in its
capacity as agent) executed in connection with the 1999 Purchase Agreement, as
amended to date and as it may be supplemented, amended, or otherwise modified
from time to time.
"1999 Purchase Agreement" means that certain Debenture and Warrant
Purchase Agreement dated May 26, 1999 between the Company and the purchasers
listed on the signature page thereto, as amended to date and as it may be
supplemented, amended, or otherwise modified from time to time.
"1999 Security Agreement" means that certain Company General Security
Agreement dated as of May 26, 1999 between the Company and Oracle Strategic
Partners, L.P. (in its capacity as agent) executed in connection with the 1999
Purchase Agreement, as amended to date and as it may be supplemented, amended,
or otherwise modified from time to time.
"1999 Security Documents" means the 1999 Security Agreement, the 1999
Guarantors Security Agreement, the 1999 Guaranties and the 1999 Collateral
Documents.
"2002 Collateral Documents" means, collectively, (a) that certain Stock
Pledge Agreement dated December 20, 2002 between the Company and Galen Partners
III, L.P. (in its capacity as agent) executed in connection with the 2002
Purchase Agreement, (b) that certain Real Estate Mortgage (With Future Advance
Clause) dated December 20, 2002 granted by Houba, Inc. to Galen Partners III,
L.P. (in its capacity as agent) executed in connection with the 2002 Purchase
Agreement, and (c) that certain Mortgage Subordination Agreement dated December
20, 2002 among Houba, Inc., Galen Partners III, L.P. (in its capacity as agent),
Oracle Strategic Partners, L.P. (in its capacity as agent), and the other
signatories thereto, executed in connection with the 2002 Purchase Agreement,
each as amended to date and as they may be supplemented, amended, or otherwise
modified from time to time.
"2002 Debentures" means the 5% convertible secured debentures due March
31, 2006 purchased on or before December 31, 2002 pursuant to the 2002 Purchase
Agreement (including any debentures issued in satisfaction of interest payments
under the 2002 Debentures), each as amended to date and as they may be
supplemented, amended, or otherwise modified from time to time.
"2002 Guaranties" means those certain Continuing Unconditional Secured
Guaranties dated as of December 20, 2002 by each of Houba, Inc. and Halsey
Pharmaceuticals, Inc. executed in connection with the 2002 Purchase Agreement,
each as amended to date and as they may be supplemented, amended, or otherwise
modified from time to time.
3
"2002 Guarantors Security Agreement" means that certain Guarantors
General Security Agreement dated as of December 20, 2002 by and among Houba,
Inc., Halsey Pharmaceuticals, Inc. and Galen Partners III, L.P. (in its capacity
as agent) executed in connection with the 2002 Purchase Agreement, as amended to
date and as it may be supplemented, amended, or otherwise modified from time to
time.
"2002 Purchase Agreement" means that certain Debenture Purchase
Agreement dated December 20, 2002 between the Company and the purchasers listed
on the signature page thereto, as amended to date and as it may be supplemented,
amended, or otherwise modified from time to time.
"2002 Security Agreement" means that certain Company General Security
Agreement dated as of December 20, 2002 between the Company and Galen Partners
III, L.P. (in its capacity as agent) executed in connection with the 2002
Purchase Agreement, as amended to date and as it may be supplemented, amended,
or otherwise modified from time to time.
"2002 Security Documents" means the 2002 Security Agreement, the 2002
Guarantors Security Agreement, the 2002 Guaranties and the 2002 Collateral
Documents.
"2003 Debentures" means the 5% convertible secured debentures due March
31, 2006 purchased pursuant to the 2002 Purchase Agreement in accordance with
certain Joinder Agreements dated June 16, 2003, July 1, 2003, July 15, 2003,
August 5, 2003, August 19, 2003, September 5, 2003 and October 7, 2003
(including any debentures issued in satisfaction of interest payments under the
2003 Debentures), each as amended to date and as they may be supplemented,
amended, or otherwise modified from time to time.
"2004 Debentures" means the convertible secured debentures issued
pursuant to the 2004 Purchase Agreement, each as it may be supplemented,
amended, or otherwise modified from time to time.
"2004 Purchase Agreement" means that certain Debenture and Share
Purchase Agreement dated the date of this Agreement between the Company and the
purchasers listed on the signature page thereto, as it may be supplemented,
amended, or otherwise modified from time to time.
"Affiliate" has the meaning specified in Rule 501(b) under the
Securities Act.
"Common Stock" means the common stock, $0.01 par value per share, of
the Company.
"Debentureholders Agreement" means that certain Debentureholders
Agreement by and among the Company and the parties listed therein dated as of
December 20, 2002, as amended to date.
"Existing Certificate" means the Restated Certificate of Incorporation
of the Company filed with the Secretary of State of the State of New York on
February 23, 1962, as the same may have been amended from time to time, as in
effect on the date hereof.
4
"Existing Registration Rights Agreement" means that certain
Registration Rights Agreement by and among the Company and the parties listed
therein dated as of December 20, 2002, as amended to date.
"Existing Security Documents" means the 1998 Security Documents, the
1999 Security Documents and the 2002 Security Documents.
"Existing Subordination Agreement" means that certain Subordination
Agreement by and among the Company and the parties listed therein dated as of
December 20, 2002, as amended to date.
"Existing Voting Agreement" means that certain Voting Agreement by and
among the Company and the parties listed therein dated as of December 20, 2002,
as amended to date.
"Initial Closing" means the first "Closing" under the 2004 Purchase
Agreement.
"Investor Rights Agreement" means that certain Investor Rights
Agreement among the Company and the Holders and entered into pursuant to Section
3.3(g) below.
"Material Adverse Effect" means (i) a material adverse effect on, or
change in, the business, prospects, properties, operations, condition (financial
or other) or results of operations of the Company and its subsidiaries, taken as
a whole, or (ii) a material adverse effect on the ability of the Company to
perform its obligations hereunder or on the rights or remedies of any Holder
hereunder.
"New Agency Agreement" means that certain Agency Agreement of even date
herewith among the Company and the Holders and entered into pursuant to Section
2.1(a) below.
"New Registration Rights Agreement" means that certain Amended and
Restated Registration Rights Agreement of even date herewith among the Company
and the Holders and entered into pursuant to Section 2.1(b) below.
"New Subordination Agreement" means that certain Amended and Restated
Subordination Agreement of even date herewith among the Company and the Holders
and entered into pursuant to Section 2.1(c) below.
"New Voting Agreement" means that certain Amended and Restated Voting
Agreement of even date herewith among the Company and the Holders and entered
into pursuant to Section 2.1(d) below.
"Person" means any individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
5
"Preferred Stock" means collectively, the Series A Preferred, Series B
Preferred, Series C-1 Preferred, Series C-2 Preferred and Series C-3 Preferred.
"Restated Certificate" means the Restated Certificate of Incorporation
of the Company, in the form attached hereto as Exhibit A, to be filed with the
Secretary of State of New York upon approval by the stockholders of the Company.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Series A Preferred" means the Series A Convertible Preferred Stock,
$.01 par value per share, of the Company, as more fully described in the
Restated Certificate.
"Series B Preferred" means the Series B Convertible Preferred Stock,
$.01 par value per share, of the Company, as more fully described in the
Restated Certificate.
"Series C-1 Preferred" means the Series C-1 Convertible Preferred
Stock, $.01 par value per share, of the Company, as more fully described in the
Restated Certificate.
"Series C-2 Preferred" means the Series C-2 Convertible Preferred
Stock, $.01 par value per share, of the Company, as more fully described in the
Restated Certificate.
"Series C-3 Preferred" means the Series C-3 Convertible Preferred
Stock, $.01 par value per share, of the Company, as more fully described in the
Restated Certificate.
"Support Letter" means that certain letter dated May 5, 2003 delivered
to the Company by each of Care Capital Investments, LP, Essex Woodlands Health
Ventures V, L.P. and Galen Partners III, L.P., as amended to date.
ARTICLE II
RELATED AGREEMENTS
2.1 RELATED AGREEMENTS
By executing and delivering this Agreement, each Holder severally and
not jointly shall be deemed to have executed and delivered the following
agreements, to have given the following consents to the following actions, and
to have agreed to the following:
(a) The Existing Agency Letters are hereby terminated and replaced
in their entirety by the New Agency Agreement in the form attached hereto as
Exhibit B, and the Company and each Holder hereby consents to such termination
and agrees that it is hereafter a party to and bound by the New Agency
Agreement.
(b) The Existing Registration Rights Agreement is hereby amended
and restated in its entirety in the form of the New Registration Rights
Agreement attached hereto as Exhibit C,and
6
the Company and each Holder hereby consents to such amendment and agrees
that it is hereafter a party to and bound by the New Registration Rights
Agreement.
(c) The Existing Subordination Agreement is hereby amended and
restated in its entirety in the form of the New Subordination Agreement attached
hereto as Exhibit D, and the Company and each Holder hereby consents to such
amendment and agrees that it is hereafter a party to and bound by the New
Subordination Agreement.
(d) The Existing Voting Agreement is hereby amended and restated
in its entirety in the form of the New Voting Agreement attached hereto as
Exhibit E, and the Company and each Holder hereby consents to such amendment and
agrees that it is hereafter a party to and bound by the New Voting Agreement.
(e) The Debentureholders Agreement is hereby terminated, and the
Company and each Holder hereby consents to such termination and agrees that such
agreement is of no further force or effect.
(f) The Support Letter is hereby terminated, and the Company and
each Holder hereby consents to such termination and agrees that such agreement
is of no further force or effect.
(g) Each 1998 Debenture, 1999 Debenture, 2002 Debenture and 2003
Debenture is hereby amended so that all interest payable thereunder (whether
payable in cash or shares of stock, and including interest accrued but unpaid to
date) shall hereafter be payable only in cash and shall accrue and not be
payable before the applicable maturity date or earlier acceleration. The Company
and each Holder hereby consents to such amendment and agrees that it is
hereafter bound by such debentures, as applicable, as amended hereby.
Notwithstanding the foregoing, the parties agree that such accrued interest is
to be exchanged for shares of Preferred Stock pursuant to the terms of Article 3
below.
(h) Each Holder hereby agrees not to sell, exchange or otherwise
transfer any interest in any 1998 Debenture, 1999 Debenture, 2002 Debenture or
2003 Debenture to any Person that is not a party to and bound by this Agreement,
and the Company is hereby authorized to disregard any purported transfer in
violation of this Section 2.1(h). Notwithstanding the foregoing, the parties
agree that such dentures are to be exchanged for shares of Preferred Stock
pursuant to the terms of Article 3 below.
2.2 EFFECT OF TERMINATIONS AND AMENDMENTS
Each agreement or document terminated pursuant to Section 2.1 is of no
further force or effect hereafter, and each party thereto hereby releases,
remises and discharges each other party thereto, its Affiliates, their
respective successors and assigns, and each of their respective directors,
officers, employees and agents from and any all claims, demands, actions, causes
of action, suits, rights, debts, sums of money, covenants, contracts,
agreements, promises, damages, judgments, executions, obligations, liabilities
and expenses (including attorneys' fees and costs) of every kind and nature,
whether known or unknown (collectively, "Claims") under such agreements and
documents, which it ever had, now has or, to the extent arising from or in
7
connection with any act, omission or state of facts taken or existing on or
prior to the date hereof, may have after the date hereof. Without limiting the
generality of the foregoing, the Company and each Holder agrees that the
signatories to the Support Letter have no further liability or obligation to the
Company or any other Person thereunder.
2.3 POWER OF ATTORNEY
Each Holder hereby irrevocably constitutes and appoints the President
of the Company, with full power of substitution and resubstitution, the
undersigned's true and lawful attorney-in-fact and agent, to execute,
acknowledge, verify, swear to and deliver, in such Holder's place and stead, all
agreements and documents referred to in Section 2.1 above. The foregoing grant
of authority is a special power of attorney, coupled with an interest, is
irrevocable and shall survive the death, incapacity or incompetency of any
Holder that is a natural person.
ARTICLE III
EXCHANGE OF EXISTING DEBENTURES
3.1 EXCHANGE UPON EFFECTIVE TIME
Upon the conversion of the 2004 Debentures into shares of Series A
Preferred in accordance with the terms of the 2004 Debentures (the "Effective
Time"), the following exchanges (the "Exchanges") shall immediately be deemed to
have occurred without any further action on the part of the Company or any
Holder:
(a) All of the principal of and accrued interest on each
outstanding 1998 Debenture shall be exchanged for shares of Series C-1 Preferred
at a purchase price of $.57 per share of Series C-1 Preferred. Such exchange
shall occur automatically upon the Effective Time without further action on the
part of the Company or any Holder. From and after the Effective Time the 1998
Debentures shall terminate and cease to represent indebtedness of the Company,
and shall instead represent only the right to receive shares of Series C-1
Preferred pursuant to the terms of this Section 3.1(a) and Section 3.2. Without
limiting the generality of the foregoing, the Holders agree that no interest
will accrue under the 1998 Debentures after the Effective Time.
(b) All of the principal of and accrued interest on each
outstanding 1999 Debenture shall be exchanged for shares of Series C-2 Preferred
at a purchase price of $.60 per share of Series C-2 Preferred. Such exchange
shall occur automatically upon the Effective Time without further action on the
part of the Company or any Holder. From and after the Effective Time the 1999
Debentures shall terminate and cease to represent indebtedness of the Company,
and shall instead represent only the right to receive shares of Series C-2
Preferred pursuant to the terms of this Section 3.1(b) and Section 3.2. Without
limiting the generality of the foregoing, the Holders agree that no interest
will accrue under the 1999 Debentures after the Effective Time.
(c) All of the principal of and accrued interest on each
outstanding 2002 Debenture shall be exchanged for shares of Series C-3 Preferred
at a purchase price of $.35 per share of Series C-3 Preferred. Such exchange
shall occur automatically upon the Effective Time without further action on the
part of the Company or any Holder. From and after the Effective Time the
8
2002 Debentures shall terminate and cease to represent indebtedness of the
Company, and shall instead represent only the right to receive shares of Series
C-3 Preferred pursuant to the terms of this Section 3.1(c) and Section 3.2.
Without limiting the generality of the foregoing, the Holders agree that no
interest will accrue under the 2002 Debentures after the Effective Time.
(d) All of the principal of and accrued interest on each
outstanding 2003 Debenture shall be exchanged for shares of Series B Preferred
at a purchase price of $.34 per share of Series B Preferred. Such exchange shall
occur automatically upon the Effective Time without further action on the part
of the Company or any Holder. From and after the Effective Time the 2003
Debentures shall terminate and cease to represent indebtedness of the Company,
and shall instead represent only the right to receive shares of Series B
Preferred pursuant to the terms of this Section 3.1(d) and Section 3.2. Without
limiting the generality of the foregoing, the Holders agree that no interest
will accrue under the 2003 Debentures after the Effective Time.
No fractional shares of Preferred Stock to which any Holder would otherwise be
entitled resulting from the Exchanges shall be issued. In calculating the number
of shares of Preferred Stock to be issued, such calculation shall be rounded to
the nearest whole share of Preferred Stock.
3.2 EXCHANGE PROCEDURE.
(a) Each Holder shall deliver to the Company all 1998 Debentures,
1999 Debentures, 2002 Debentures and 2003 Debentures owned by such Holder
promptly after the Company delivers the Holder notice of the effectiveness of
the Exchanges. Upon receipt thereof from a Holder, the Company shall deliver to
such Holder one or more stock certificates representing the series and number of
shares of Preferred Stock to which such Holder is entitled. If any such
debenture has been lost, stolen or destroyed, the Holder may instead deliver
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and an indemnity, if requested, also reasonably satisfactory to it
(but without requirement of posting any bond).
(b) The Company will pay any documentary stamp taxes attributable
to the initial issuance of the Preferred Stock issuable upon the Exchanges;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificates for such stock in a name other than that of the
Holder in respect of which such stock is issued, and in such case the Company
shall not be required to issue or deliver any certificate for the stock until
the person requesting the same has paid to the Company the amount of such tax or
has established to the Company's reasonable satisfaction that such tax has been
paid.
3.3 CERTAIN OTHER AGREEMENTS
By executing and delivering this Agreement, each Holder shall be deemed
to have given the following consents to the following actions, and to have
agreed to the following, in each case effective immediately upon the Effective
Time:
9
(a) Each of the Existing Security Documents is hereby terminated,
and the Company and each Holder hereby consents to each such termination and
agrees that each such document is of no further force or effect from and after
the Effective Time. Each Holder hereby authorizes the Company upon the Effective
Time to file any and all termination statements or releases necessary to release
the security interests and mortgages created by the Existing Security Documents.
Each Holder agrees to execute any such statement or release upon reasonable
request of the Company.
(b) The New Subordination Agreement is hereby terminated, and the
Company and each Holder hereby consents to such termination and agrees that such
agreement is of no further force or effect from and after the Effective Time.
(c) The New Agency Agreement is hereby terminated, and the Company
and each Holder hereby consents to such termination and agrees that such
agreement is of no further force or effect from and after the Effective Time.
(d) The 1998 Purchase Agreement is hereby terminated, and the
Company and each Holder hereby consents to such termination and agrees that such
agreement is of no further force or effect from and after the Effective Time.
(e) The 1999 Purchase Agreement is hereby terminated, and the
Company and each Holder hereby consents to such termination and agrees that such
agreement is of no further force or effect from and after the Effective Time.
(f) The 2002 Purchase Agreement is hereby terminated, and the
Company and each Holder hereby consents to such termination and agrees that such
agreement is of no further force or effect from and after the Effective Time.
(g) The Investor Rights Agreement in substantially the form
attached hereto as Exhibit F is entered into by the Company and each Holder as
of the Effective Time, and the Company and each Holder hereby agrees that it is
thereafter a party to and bound by such Investor Rights Agreement.
3.4 EFFECT OF TERMINATIONS
Each agreement or document terminated pursuant to Section 3.3 is of no
further force or effect from and after the Effective Time, and effective as of
such time each party thereto hereby releases, remises and discharges each other
party thereto, its Affiliates, their respective successors and assigns, and each
of their respective directors, officers, employees and agents from and any all
Claims under such agreements and documents, which it ever had, now has or, to
the extent arising from or in connection with any act, omission or state of
facts taken or existing on or prior to the Effective Time, may have after the
date hereof.
10
3.5 POWER OF ATTORNEY
Each Holder hereby irrevocably constitutes and appoints the President
of the Company, with full power of substitution and resubstitution, the
undersigned's true and lawful attorney-in-fact and agent, to execute,
acknowledge, verify, swear to and deliver, in such Holder's place and stead, all
agreements and documents referred to in Section 3.3 above at one or more times
on or after the Effective Time. The foregoing grant of authority is a special
power of attorney, coupled with an interest, is irrevocable and shall survive
the death, incapacity or incompetency of the Holder.
ARTICLE IV
CONSENT AND WAIVER OF CERTAIN RIGHTS
Each Holder hereby unconditionally and irrevocably (i) consents to the
transactions (collectively, the "Transactions") contemplated by this Agreement,
(ii) waives any and all pre-emptive or similar rights that such Holder may have
with respect to or in connection with any of the Transactions, (iii) waives any
and all rights to receive notices that such Holder may have with respect to or
in connection with any of the Transactions and (iv) waives any and all other
rights that such Holder may have with respect to or in connection with any of
the Transactions (other than rights arising under the Transaction Documents, as
defined below).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to each Holder to enter into and perform its
obligations under this Agreement, the Company represents and warrants to each
Holder as follows:
5.1 ORGANIZATION AND EXISTENCE
The Company is a corporation duly organized, validly existing and in
good standing under the laws of New York and is qualified to do business in such
other jurisdictions as the nature or conduct of its operations or the ownership
of its properties require such qualification. The Company does not own or lease
any property or engage in any activity in any jurisdiction that might require
qualification to do business as a foreign corporation in such jurisdiction and
where the failure to so qualify could reasonably be expected to have a Material
Adverse Effect or subject the Company to a material liability.
5.2 AUTHORIZATION
(a) The Company has all requisite corporate power and authority (i) to
execute and deliver, and to perform and observe its obligations under, this
Agreement and the other documents contemplated hereby (collectively the
"Transaction Documents") to which it is a party, and (ii) to consummate the
transactions contemplated hereby and thereby.
11
(b) All corporate action on the part of the Company and the
directors and (except as to the approval of the Restated Certificate) the
stockholders of the Company necessary for the authorization, execution, delivery
and performance by the Company of the Transaction Documents and the transactions
contemplated therein, and for the authorization, issuance and delivery of the
Preferred Stock, has been taken.
5.3 BINDING OBLIGATIONS; NO MATERIAL ADVERSE CONTRACTS
The Transaction Documents constitute valid and binding obligations of
the Company enforceable in accordance with their respective terms. The
execution, delivery and performance by the Company of the Transaction Documents
and compliance therewith will not result in any violation of and will not
conflict with, or result in a breach of any of the terms of, or constitute a
default, or accelerate or permit the acceleration of any rights or obligations,
under, any provision of state, local, federal or foreign law to which the
Company is subject, the Existing Certificate or the by-laws of the Company, or
any mortgage, indenture, agreement, instrument, judgment, decree, order, rule or
regulation or other restriction to which the Company is a party or by which it
is bound, and will not result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company. No
stockholder of the Company has or will have any preemptive rights or rights of
first refusal by reason of the issuance of the Preferred Stock or the Common
Stock issuable upon conversion of the Preferred Stock.
5.4 FINANCIAL INFORMATION; SEC DOCUMENTS
(a) The Company has furnished to the Holders complete and correct
copies of the consolidated financial statements of the Company and its
subsidiaries, including consolidated balance sheets as of December 31, 2002 and
2001 and consolidated statements of operations, changes in cash flows and
stockholders' equity, covering the three years ended December 31, 2002, all of
which statements have been certified by Grant Thornton LLP, independent
accountants within the meaning of the Securities Act and the rules and
regulations thereunder, and all of which statements are included or incorporated
by reference in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 filed with the Securities and Exchange Commission under
the Exchange Act. Such financial statements have been prepared in conformity
with generally accepted accounting principles in the United States applied on a
consistent basis throughout the periods involved, except as otherwise stated
therein and fairly present the consolidated financial position of the Company
and its Subsidiaries as of the dates thereof and their consolidated results of
operations for such periods. The Company's auditors have raised no material
issues nor delivered any material correspondence with respect to any of the
Company's financial statements or financial affairs.
(b) The Company has also furnished to the Holders the unaudited
consolidated balance sheet of the Company and its subsidiaries as of September
30, 2003, and the related unaudited consolidated statements of operations,
consolidated statements of cash flow and consolidated statements of
stockholders' equity for the nine months ended September 30, 2003. Such
financial statements were prepared in conformity with generally accepted
accounting principles in the United States applied on a basis consistent with
the financial statements referred to in Section 5.4(a) and fairly present the
consolidated financial position of the Company and its
12
subsidiaries as of such date and their consolidated results of operations for
such periods (subject to normal year-end adjustments).
(c) None of the documents filed by the Company with the Securities
and Exchange Commission since December 31, 1997 contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements contained therein not false or
misleading in light of the circumstances in which they were made. There are no
facts which the Company has not disclosed to the Holders which, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(d) Except as set forth in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2003, since December 31, 2002, there
has been no Material Adverse Effect with respect to the Company and its
Subsidiaries.
5.5 OFFERING EXEMPTION
(a) None of the Company, its Affiliates or any Person acting on
its or their behalf has engaged or will engage, in connection with the offering
and issuance of the Preferred Stock, in any form in general solicitation or
general advertising within the meaning of Rule 502(c) under the Securities Act,
and none of the Company, or any of its Affiliates has, directly or indirectly,
solicited any offer to buy, sell or offer to sell or otherwise negotiate in
respect of, in the United States or to any United States citizen or resident,
any security which is or would be integrated with the sale of the Preferred
Stock in a manner that would require the Preferred Stock to be registered under
the Securities Act. Assuming the accuracy of the representations and warranties
given by the Holders in Article VI below, the offering and issuance of the
Preferred Stock have been, are, and will be exempt from registration under the
Securities Act, and such offering, sale and issuance is also exempt from
registration under applicable state securities and "blue sky" laws.
(b) The Company is not, nor upon consummation of the transactions
contemplated under the Transaction Documents, will it be, subject to
registration as an "investment company" under the 1940 Act.
5.6 DISCLOSURE
The information heretofore provided and to be provided in connection
with this Agreement, including, without limitation, the Exhibits hereto, the
Transaction Documents and each of the agreements, documents, certificates and
writings previously furnished to the Holders or their representatives, do not
and will not contain any untrue statement of a material fact and do not and will
not omit to state a material fact necessary in order to make the statements and
writings contained herein and therein not false or misleading in the light of
the circumstances under which they were made. There are no facts that
(individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect, which has not been set forth herein or in the Company's
Annual Reports on Form 10-K for the fiscal year ended December 31, 2002, and/or
the Company's Quarterly Report on Form 10-Q for the nine months ended September
30, 2003.
13
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE HOLDERS
As a material inducement to the Company to enter into and perform its
obligations under this Agreement, each Holder severally (as to itself and not
with respect to any other Holder) represents and warrants to the Company and
each other Holder as follows:
6.1 ORGANIZATION AND GOOD STANDING
The Holder, if a corporation, partnership, trust or other form of
business entity, is duly organized, validly existing and in good standing under
the laws of the state of its incorporation, formation or organization, as the
case may be, and has, in all material respects, full power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under this Agreement.
6.2 DUE QUALIFICATION
The Holder, if a corporation, partnership, trust or other form of
business entity, is duly qualified to do business and, where necessary, is in
good standing as a foreign corporation or company, as the case may be, (or is
exempt from such requirement) and has obtained all necessary licenses and
approvals in each jurisdiction in which the conduct of its business requires
such qualification except where the failure to so qualify or obtain licenses or
approvals would not have a material adverse effect on its ability to perform its
obligations hereunder.
6.3 DUE AUTHORIZATION
The execution and delivery of this Agreement and the consummation of
the transactions provided for or contemplated by this Agreement have been duly
authorized by Holder if a corporation, partnership, trust or other form of
business entity, by all necessary corporate or company (as the case may be)
action on the part of Holder. Upon the effectiveness of this Agreement, the
Holder will be party to and bound by (i) this Agreement, (ii) the New Agency
Agreement, (iii) the New Registration Rights Agreement, (iv) the New
Subordination Agreement and (v) the New Voting Agreement, and each such
agreement shall be enforceable against the Holder in accordance with its terms.
Upon the Effective Time, the Holder will be party to and bound by the Investor
Rights Agreement and such agreement shall be enforceable against the Holder in
accordance with its terms.
6.4 INVESTMENT EXPERIENCE; ACCREDITED INVESTOR
(a) The Holder must bear the economic risk of investment in the
Preferred Stock for an indefinite period of time, since the Preferred Stock has
not been registered under the Securities Act or applicable state securities
laws, and, therefore, cannot be resold or otherwise disposed of unless either
they are subsequently registered under the Securities Act and applicable state
securities laws or an exemption from registration is available.
14
(b) The Holder will only have those limited rights to register the
shares issuable upon conversion of the Preferred Stock under the Securities Act
and applicable state securities laws as are provided in the New Registration
Agreement.
(c) The Holder and his, her or its purchaser representative(s), if
any, have carefully reviewed and understand the risks of and other
considerations relating to entering into this Agreement.
(d) The Holder and his, her or its purchaser representative(s), if
any, have been afforded the opportunity to obtain any information necessary to
verify the accuracy of any representations or information set forth in this
Agreement and have had all of their inquiries to the Company answered in full,
and have been furnished all requested materials relating to the Company and this
Agreement.
(e) Neither the Holder nor his, her or its purchaser
representative(s), if any, have been furnished any offering literature by the
Company or any of its Affiliates, other than this Agreement (including the
exhibits and attachments hereto), and the Holder has not received or heard any
print or electronic media advertising with respect to the Exchanges.
(f) The Holder is acquiring the Preferred Stock as principal for
its own investment account, and not (i) with a view to the resale or
distribution of all or any part thereof, or (ii) on behalf of another Person who
has not made the foregoing representations. The Holder agrees not to resell or
otherwise dispose of the Preferred Stock except as permitted by applicable law,
including, without limitation, any and all provisions of this Agreement and any
applicable regulation under the Securities Act or any state securities laws.
(g) The Holder is an "accredited investor," as defined in Rule
501(a) of Regulation D promulgated pursuant to the Securities Act.
(h) The Holder has evaluated the risks of investing in the Company
and has substantial experience in making investment decisions of this type or is
relying on his, her or its professional advisors or purchaser representative(s),
if applicable, in making this investment decision.
(i) The Holder understands the fundamental aspects of and risks
involved in an investment in the Company, including (i) the speculative nature
of the investment, (ii) the financial hazards involved, including the risk of
losing the entire investment, (iii) the lack of liquidity and the restrictions
on transferability of the Preferred Stock, (iv) the limited registration rights
regarding the shares issuable upon conversion of the Preferred Stock, and (v)
the fact that the Company has a history of losses and limited capital resources.
(j) The address set forth in Schedule I of this Agreement is the
Holder's true and correct principal address, and the Holder has no present
intention of becoming a resident of any other state or jurisdiction.
(k) The Holder, if a corporation, partnership, trust or other form
of business entity, has not been formed for the specific purpose of acquiring
the Preferred Stock.
15
(l) All of the information that the Holder has herein furnished to
the Company with respect to itself, its financial position, and its business and
investment experience, is correct and complete as of the date hereof.
(m) The Holder agrees to be bound by all of the terms and
conditions of the offering made by this Agreement and the exhibits and
attachments hereto.
(n) The Holder consents to the placement of a legend on any
certificate or other document evidencing the Preferred Stock stating that it has
not been registered under the Securities Act and setting forth or referring to
the restrictions on transferability and sale thereof. The Holder is aware that
the Company will make a notation in its appropriate records with respect to the
restrictions on the transferability of such securities.
The Holder acknowledges that the Company will rely upon the representations made
by such Holder in this Agreement in connection with the issuance of the
Preferred Stock to be issued hereunder.
ARTICLE VII
MISCELLANEOUS
7.1 ENTIRE AGREEMENT
This Agreement and the other Transaction Documents constitute the full
and entire understanding and agreement between the parties with regard to the
subject matter hereof and thereof and supercede any prior agreements or
understandings, written or oral, regarding the subject matter hereof and
thereof.
7.2 ASSIGNMENT; BENEFIT
No party may assign its rights or obligations under this Agreement
without the written consent of the Company and the holders of a majority of the
principal amount of the 2004 Debentures. Subject to the foregoing, this
Agreement and the rights and obligations set forth herein shall inure to the
benefit of, and be binding upon the parties hereto, and each of their respective
successors, heirs and permitted assigns.
7.3 COUNTERPARTS
This Agreement may be executed in any number of counterparts, including
by facsimile copy, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
7.4 GOVERNING LAW
This Agreement and the rights of the parties hereunder shall be
governed in all respects by the laws of the State of New York wherein the terms
of this Agreement were negotiated,
16
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.
7.5 WAIVER OF JURY TRIAL
EACH OF THE PARTIES HERETO HEREBY 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 ANY TRANSACTION DOCUMENT OR THE
ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR
ENFORCEMENT THEREOF.
7.6 JURISDICTION
(a) Each of the parties hereto 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 Agreement or any of the other
Transaction Documents to which it is a party or to whose benefit it is entitled,
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. Each of the parties hereto 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 right that any party may otherwise have to bring
any action or proceeding relating to this Agreement or any of the other
Transaction Documents in the courts of any other jurisdiction.
(b) Each of the parties hereto 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 Agreement or any
other Transaction Document to which it is a party in any such New York State or
United States Federal court sitting in New York City. Each of the parties hereto
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.
7.7 RIGHTS AND OBLIGATIONS; SEVERABILITY
Unless otherwise expressly provided herein, each Holder's rights and
obligations hereunder are several rights and obligations, not rights and
obligations jointly held with any other Person. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.8 SPECIFIC PERFORMANCE
17
The rights and remedies of the parties hereto shall be cumulative. The
transactions contemplated by this Agreement are unique transactions and any
failure on the part of any party to complete the transactions contemplated by
this Agreement on the terms of hereof or thereof will not be fully compensable
in damages and the breach or threatened breach of the provisions of this
Agreement would cause the other parties hereto irreparable harm. Accordingly, in
addition to and not in limitation of any other remedies available to the parties
hereto for a breach or threatened breach of this Agreement, the parties shall be
entitled to seek specific performance of this Agreement and seek an injunction
restraining any such party from such breach or threatened breach.
7.9 NOTICES
All notices, demands or other communications given hereunder shall be
in writing and shall be sufficiently given if transmitted by facsimile or
delivered either personally or by a nationally recognized courier service marked
for next business day delivery or sent in a sealed envelope by first class mail,
postage prepaid and either registered or certified, return receipt requested,
addressed as follows:
(a) if to the Company:
Halsey Drug Co., Inc.
695 N. Perryville Road
Rockford, Illinois 61107
Attention: President
Facsimile: (815) 399-9710
(b) if to a Holder, to the address set forth on Schedule I
attached hereto, or to such other address with respect to any party hereto as
such party may from time to time notify (as provided above) the other parties
hereto. Any such notice, demand or communication shall be deemed to have been
given (i) on the date of delivery, if delivered personally, (ii) on the date of
facsimile transmission, receipt confirmed, (iii) one business day after delivery
to a nationally recognized overnight courier service, if marked for next day
delivery, or (iv) five business days after the date of mailing, if mailed.
(c) Copies of any notice, demand or communication given to the
Company shall also be delivered to St. John & Wayne, L.L.C., Two Penn Plaza
East, Newark, New Jersey, 07105-2249 Attn.: John P. Reilly, Esq., or such other
address as may be directed.
7.10 TITLES AND SUBTITLES
The titles of the articles, sections and subsections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
18
7.11 REPRESENTATION BY COUNSEL
Each party hereto acknowledges that it has been advised by legal and
any other counsel retained by such party in its sole discretion. Each party
acknowledges that such party has had a full opportunity to review the
Transaction Documents and to negotiate any and all such documents in its sole
discretion, without any undue influence by any other party hereto or any third
party.
7.12 CONSTRUCTION
The parties have participated jointly in the negotiations and drafting
of the Transaction Documents and in the event of any ambiguity or question of
intent or interpretation, no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any of the provisions of
any of the Transaction Documents.
7.13 DELAYS, OMISSIONS OR WAIVERS
No delay or omission to exercise any right, power or remedy accruing to
any party under this Agreement shall impair any such right, power or remedy of
such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence, therein, or of or in any similar breach or default
thereafter occurring. Any permit, consent or approval of any kind or character
on the part of any party under this Agreement must be made in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
7.14 THIRD PARTY BENEFICIARIES
Nothing express or implied in this Agreement is intended to confer, nor
shall anything herein confer, upon any Person other than the parties and the
respective successors or assigns of the parties, any rights, remedies,
obligations or liabilities whatsoever.
7.15 FURTHER ASSURANCES
Each party hereto agrees to execute and deliver such other documents
and instruments and to take such further action as may be reasonably required or
desirable to carry out the provisions of this Agreement and the transactions
contemplated hereby.
7.16 AMENDMENT
No amendment of any provision of this Agreement, including any
amendment of this Section 7.16, shall be valid unless the same shall be in
writing and signed by the Company and the holders of (i) a majority of the then
outstanding principal amount of the 1998 Debentures, (ii) a majority of the then
outstanding principal amount of the 1999 Debentures, (iii) a majority of the
then outstanding principal amount of the 2002 Debentures, (iv) a majority of the
then outstanding principal amount of the 2003 Debentures and (v) a majority of
the then outstanding principal amount of the 2004 Debentures.
19
NOW THEREFORE, the parties hereto have executed, or caused to be
executed, this Debenture Conversion Agreement as of the date first written
above.
COMPANY:
HALSEY DRUG CO., INC.
By:______________________________________
Name:
Title:
HOLDERS:
GALEN PARTNERS III, L.P. ORACLE STRATEGIC PARTNERS, L.P.
By: Claudius, L.L.C., General Partner By: Oracle Strategic Capital L.L.C.,
610 Fifth Avenue, 5th Fl. General Partner
New York, New York 10019 200 Greenwich Avenue
3rd Floor
Greenwich, Connecticut 06830
_______________________________________ _______________________________________
By: Srini Conjeevaram By: Joel Liffmann
Its: General Partner Its: Authorized Agent
GALEN PARTNERS INTERNATIONAL, III, L.P. CARE CAPITAL INVESTMENTS II, LP
By: Claudius, L.L.C., General Partner By: Care Capital II, LLC, as general
610 Fifth Avenue, 5th Floor partner
New York, New York 10020 47 Hulfish St., Suite 310
Princeton, NJ 08542
_______________________________________
By: Srini Conjeevaram By:____________________________________
Its: General Partner Name: David R. Ramsay
Title: Authorized Signatory
GALEN EMPLOYEE FUND III, L.P. ESSEX WOODLANDS HEALTH
By: Wesson Enterprises, Inc. VENTURES V, L.P.
610 Fifth Avenue, 5th Floor 190 South LaSalle Street, Suite 2800
New York, New York 10020 Chicago, IL 60603
_______________________________________ _______________________________________
By: Bruce F. Wesson By: Immanuel Thangaraj
Its: General Partner Its: Managing Director
ALAN SMITH PATRICK COYNE
21 Bedlow Avenue 800 Merion Square Road
Newport, Rhode Island 02840 Gladwyne, Pennsylvania 19035
_______________________________________ _______________________________________
MICHAEL WEISBROT SUSAN WEISBROT
1136 Rock Creek Road 1136 Rock Creek Road
Gladwyne, Pennsylvania 19035 Gladwyne, Pennsylvania 19035
_______________________________________ _______________________________________
GREG WOOD DENNIS ADAMS
1263 East Calavera Street 120 Kynlyn Road
Altadena, CA 91001 Radnor, Pennsylvania 19312
_______________________________________ _______________________________________
STEFANIE HEITMEYER BERNARD SELZ
17759 Road, Route 66 600 Fifth Avenue, 25th Floor
Fort Jennings, Ohio 45844 New York, New York 10020
_______________________________________ _______________________________________
PETER CLEMENS ROGER GRIGGS
c/o Halsey Drug Co., Inc. c/o Tom Jennings
695 North Perryville Rd. 7300 Turfway Road
Crimson Building #2 Suite 300
Rockford, Illinois 61107 Florence, KY 41042
_______________________________________ _______________________________________
VARSHA H. SHAH HEMANT K. SHAH
29 Chrissy Drive 29 Chrissy Drive
Warren, New Jersey 07059 Warren, New Jersey 07059
_______________________________________ _______________________________________
VARSHA H. SHAH AS CUSTODIAN VARSHA H. SHAH AS CUSTODIAN
FOR SACHIN H. SHAH FOR SUMEET H. SHAH
29 Chrissy Drive 29 Chrissy Drive
Warren, New Jersey 07059 Warren, New Jersey 07059
_______________________________________ ______________________________________
By: Varshah H. Shah By: Varshah H. Shah
Its: Custodian Its: Custodian
MICHAEL RAINISCH ILENE RAINISCH
c/o Alvin Rainisch c/o Alvin Rainisch
300 Flower Lane 300 Flower Lane
Morganville, New Jersey 07751 Morganville, New Jersey 07751
_______________________________________ ______________________________________
KENNETH GIMBEL, IRA ACCOUNT KENNETH GIMBEL
FBO KENNETH GIMBEL 2455 Montgomery Avenue
2455 Montgomery Avenue Highland Park, Illinois 60035
Highland Park, Illinois 60035
_______________________________________ ______________________________________
By: ___________________________________
Its: Trustee
JESSICA K. CLEMENS JAKE P. CLEMENS
C/o Halsey Drug Co., Inc. c/o Halsey Drug Co., Inc.
695 North Perryville Rd. 695 North Perryville Rd.
Crimson Building #2 Crimson Building #2
Rockford, Illinois 61107 Rockford, Illinois 61107
_______________________________________ ______________________________________
MICHAEL REICHER TRUST
c/o Halsey Drug Co., Inc.
695 North Perryville Rd.
Crimson Building #2
Rockford, Illinois 61107
_______________________________________
By: Michael K. Reicher
Its: Trustee
PETER STIEGLITZ GEORGE E. BOUDREAU
RJ Palmer LLC 222 Elbow Lane
156 West 56th Street, 5th Floor Haverford, PA 19041
New York, New York 10019
_______________________________________ ______________________________________
JOHN E. HEPPE, JR.
237 W. Montgomery Avenue
Haverford, Pennsylvania 19041
_______________________________________
SCHEDULES AND EXHIBITS
SCHEDULES:
Schedule I - Holders and their respective addresses and Debentures
EXHIBITS:
Exhibit A - Restated Certificate
Exhibit B - New Agency Agreement
Exhibit C - New Registration Agreement
Exhibit D - New Subordination Agreement
Exhibit E - New Voting Agreement
Exhibit F - Investor Rights Agreement
SCHEDULE I
See attached.